Putnam
Growth and
Income
Fund II
ANNUAL REPORT
November 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "As we look forward to fiscal 1997 and beyond, our emphasis on
investing for the long term and seeking out undervalued companies should
continue to be your fund's greatest strength. With the probability that
U.S. growth will slow after several strong years, a global perspective
is also vital."
-- Anthony I. Kreisel, manager
Putnam Growth and Income Fund II
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
15 Portfolio holdings
19 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
As Putnam Growth and Income Fund II passes its second anniversary, it
has compiled a solid performance record. Part of the reason, of course,
is the strong equity market into which the fund was introduced. Another
major factor, in our estimation, is an investment strategy developed
over nearly four decades by The Putnam Fund for Growth and Income.
That the strategy has been so successful, in investors' eyes, is the
primary reason behind our decision to launch the newer fund. The fund's
rapid growth in assets attests to investors' continuing interest.
As Fund Manager Anthony Kreisel guided your fund through the fiscal year
ended November 30, 1996, he focused on equities in such diverse
industries as financial services, technology, and pharmaceuticals. In
the following report, Tony provides more detail about the fund's
performance during the year just ended and what he sees in store for the
year ahead.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
January 15, 1997
Report from the Fund Manager
Anthony I. Kreisel
The 12 months ended November 30, 1996, are likely to stand out in the
memories of equity investors for the combination of market volatility
and record-breaking stock market surges. Although Putnam Growth and
Income Fund II's fiscal 1996 performance owes much to its holdings in
the financial, pharmaceutical, and technology sectors, the fund's solid,
value-oriented approach to stock selection proved rewarding as different
market sectors shifted in and out of favor during the year.
For the fiscal year, the fund's class A shares provided a total return
of 24.95%; class B shares, 23.98%; and class M shares, 24.28%, all at
net asset value. The returns taking maximum sales charges into account
were 17.78%, 18.98%, and 19.92%, respectively. For longer-term and
competitive performance, see pages 9 through 11.
* BANK HOLDINGS STAY STRONG DESPITE UNCERTAIN ENVIRONMENT
Your fund's overweighted position in bank stocks proved beneficial as
this sector outperformed many others -- a somewhat surprising outcome
for this interest-rate-sensitive industry. It was, after all, in the
first half of the fiscal year that the U.S. bond market experienced the
sharpest one-day price decline in its history. The resulting rise in
interest rates and continuing investor anxiety about an overheating
economy created an environment that was potentially harmful for
financial stocks.
Nevertheless, bank stocks delivered strong performance for the year, due
in large part to industry consolidation that has enhanced revenues and
reduced costs. Fleet Financial Group, one of the portfolio's largest
bank holdings, was a stellar performer throughout fiscal 1996. Fleet is
the dominant bank in New England with more than 1,200 branches in 6
states.
In addition to its leadership position in banking, the company has a
number of other successful businesses, such as mortgage and investment
management services. Much of Fleet's recent success is a result of cost-
reduction initiatives that have significantly lowered expenses following
the acquisition of Shawmut National and National Westminster banks.
Another portfolio standout was BankAmerica, the third-largest bank
holding company in the United States. Like many other successful
companies in this industry, BankAmerica has increased its efforts to
improve efficiency, reduce costs, and boost earnings. Of course, while
these stocks, along with others discussed in this report, were viewed
favorably at the end of the fiscal period, all portfolio holdings are
subject to review and adjustment in accordance with the fund's
investment strategy and may well vary in the future.
* FUND'S FORAY INTO TECHNOLOGY SECTOR PROVES PROFITABLE
Because the technology sector typically consists of growth-oriented
investments -- those that emphasize earnings momentum and continued
expectations of above-average growth -- it is unusual for a value-
oriented portfolio to have a meaningful position in this area. In
fiscal 1996, however, we discovered a number of value-investing
opportunities in technology -- stocks whose prices we believed did not
reflect their true worth. Early in the calendar year, semiconductor
stocks took a beating as investor confidence waned, and in July a sharp
market decline battered many technology companies. These two occasions
allowed us to take advantage of what we considered to be bargain prices
for several stocks, including IBM, Motorola, Texas Instruments, and
Hewlett-Packard.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance and finance 17.9%
Oil and gas 8.3%
Automotive 7.1%
Utilities 7.0%
Pharmaceuticals 5.6%
Footnote reads:
* Based on net assets as of 11/30/96. Industry sectors will vary over
time.
The value of IBM stock rose substantially during the period and, in
fact, it was the top performer in the fund's portfolio. Its price --
which just a few years ago was severely distressed in reflection of the
company's competitive problems -- reached a nine-year peak just before
the close of the fund's fiscal year. IBM's earnings have improved
dramatically as a result of new products and cost-reduction efforts.
* AUTOMOTIVE AND RETAIL SECTORS SLIP IN SECOND HALF
In your fund's semiannual report, we cited strong performance in the
retail and automotive industries. However, in a clear demonstration of
the shifting nature of the 1996 equity market, these two sectors proved
disappointing during the fiscal year's second half. Although automotive
stocks underperformed, we are maintaining a significant position in this
sector based on our long-term value perspective. A number of automotive
companies -- including Ford, General Motors, and Chrysler -- are
undergoing changes that we believe will improve their earnings
potential.
In the retail sector, a few holdings contributed favorably to
performance over the second half of the year, including Dayton-Hudson
and Kmart. Dayton-Hudson, which operates general merchandise and
discount stores such as Target and Mervyn's, improved its profitability
during calendar 1996. Kmart, together with its Builders Square retail
outlets, operates more than 2,000 stores in the United States and 129
internationally. After years of problems, the company has made vast
improvements recently, including aggressive moves by a new management
team to streamline operations and enhance merchandise selection.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
PNC Bank Corp.
Commercial banking
Pharmacia & Upjohn, Inc.
Pharmaceuticals
J.P. Morgan & Co., Inc.
Multinational banking and finance
IBM Corp.
Computers
Kimberly-Clark Corp.
Consumer nondurables
Texas Instruments, Inc.
Electronics and electrical equipment
General Motors Corp.
Automotive
Eastman Kodak Co.
Photographic equipment
Minnesota Mining & Manufacturing
Industrial products
Warner-Lambert Co.
Pharmaceuticals
Footnote reads:
These holdings represent 19.3% of the fund's assets as of 11/30/96.
Portfolio holdings will vary over time.
* PHARMACEUTICALS IS ANOTHER PORTFOLIO BRIGHT SPOT
The pharmaceuticals sector of your fund's portfolio also includes some
shining examples of companies undergoing what we believe to be positive
changes. Bristol-Myers Squibb Co., one of the fund's largest
pharmaceutical holdings, is particularly worth noting. Prescription
volume has grown recently for the company's leading product, Pravachol,
a drug used for the prevention of heart attacks. In addition, Bristol-
Myers appears to be benefiting from its cost-cutting program, which
includes cuts in manufacturing and rationalization of administrative and
research spending. Another key holding, Warner-Lambert, recently
received Federal Drug Administration approval to launch its new diabetes
drug, Rezulin. Warner-Lambert's product line includes such familiar
names as Schick razors, Trident gum, Listerine mouthwash, and Benadryl
decongestants.
Among the disappointments in fiscal 1996 were Eastman Chemical Co. and
Polaroid Corp. A relatively large position in the latter simply did not
perform as well as we expected. In the second half of the fiscal year,
the Bell operating companies were hurt by rising interest rates as well
as the uncertain competitive environment in the telecommunications
industry. Of course, most of the fund's holdings typically remain in the
portfolio for 2 to 3 years, and we believe the underlying long-term
fundamentals of the Bells are stronger than consensus expectations.
* OUTLOOK: A SOLID STRATEGY WITH A GLOBAL PERSPECTIVE
As we look forward to fiscal 1997 and beyond, we will continue to focus
on the growing significance of worldwide economies. With the probability
that U.S. growth will slow after several strong years, a global
perspective is vital when considering the companies in which the fund
invests. Those that can manufacture, sell, and service their products
around the world and thus have the potential to compete in global
markets should serve the fund well in the years ahead. And, of course,
our emphasis on investing for the long term and seeking out undervalued
companies should continue to be your fund's greatest strength.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described
holdings were viewed favorably as of 11/30/96, there is no guarantee the
fund will continue to hold these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Growth and Income Fund II is designed for investors
seeking primarily capital growth, but also current income potential
through common stocks.
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's shares
changed over time, assuming you held the shares through the entire
period and reinvested all distributions in the fund.
TOTAL RETURN FOR PERIODS ENDED 11/30/96
Class A Class B Class M
(inception date) (1/5/95) (1/5/95) (1/5/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 24.95% 17.78% 23.98% 18.98% 24.28% 19.92%
- ------------------------------------------------------------------------
Life of class 63.20 53.83 60.82 56.82 61.62 55.96
Annual average 29.23 25.29 28.24 26.56 28.58 26.20
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/96
S&P 500 Consumer
Index Price Index
- ------------------------------------------------------------------------
1 year 27.85% 3.26%
- ------------------------------------------------------------------------
Life of fund 72.11 5.94
Annual average 33.02 3.07
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take into
account any adjustment for taxes payable on reinvested distributions.
Investment returns and net asset value will fluctuate so that an
investor's shares, when sold, may be worth more or less than their
original cost. POP assumes 5.75% maximum sales charge for class A shares
and 3.50% for class M shares. CDSC for class B shares assumes the
applicable sales charge, with the maximum being 5%.
[GRAPHIC OMITTED: GROWTH OF A $10,0000 INVESTMENT]
GROWTH OF A $10,0000 INVESTMENT
(plot points for 10-year total return mountain chart)
Date/year Fund at POP S&P 500 Index CPI
- --------- ----------- ------------- ------
01/05/95 9,425 10,000 10,000
01/31/95 9,547 10,236 10,040
02/28/95 9,901 10,634 10,080
03/31/95 10,155 10,947 10,114
04/30/95 10,409 11,269 10,147
05/31/95 10,829 11,719 10,167
06/30/95 10,984 11,991 10,187
07/31/95 11,284 12,388 10,187
08/31/95 11,496 12,419 10,214
09/30/95 11,886 12,943 10,234
10/31/95 11,685 12,897 10,267
11/30/95 12,311 13,462 10,261
12/31/95 12,581 13,721 10,254
01/31/96 12,893 14,188 10,314
02/29/96 13,032 14,320 10,347
03/31/96 13,415 14,458 10,401
04/30/96 13,613 14,671 10,441
05/31/96 13,822 15,048 10,461
06/30/96 13,798 15,106 10,468
07/31/96 13,273 14,439 10,488
08/31/96 13,588 14,744 10,508
09/30/96 14,186 15,573 10,541
10/31/96 14,362 16,002 10,574
11/30/96 15,383 17,211 10,594
Footnote reads:
Past performance is no assurance of future results. A $10,000 investment
in the fund's class B shares at inception on 1/5/95 would have been
valued at $16,082 on 11/30/96 ($15,682 with a redemption at the end of
the period). A $10,000 investment in the fund's class M shares at
inception on 1/5/95 would have been valued at $16,162 at net asset value
on 11/30/96 ($15,596 at public offering price).
PRICE AND DISTRIBUTION INFORMATION
12 months ended 11/30/96
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 4 4 4
- ------------------------------------------------------------------------
Income $0.207 $0.135 $0.157
- ------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------
Long-term 0.023 0.023 0.023
- ------------------------------------------------------------------------
Short-term 0.311 0.311 0.311
- ------------------------------------------------------------------------
Total $0.541 $0.469 $0.491
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
11/30/95 $11.01 $11.68 $10.96 $10.98 $11.38
- ------------------------------------------------------------------------
11/30/96 13.11 13.91 13.03 13.06 13.53
- ------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------
Current dividend rate1 1.83% 1.73% 1.23% 1.44% 1.39%
- ------------------------------------------------------------------------
Current 30-day SEC yield2 1.70 1.60 0.98 1.22 1.18
- ------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 12/31/96
(most recent calendar quarter)
Class A Class B Class M
(inception date) (1/5/95) (1/5/95) (1/5/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 21.19% 14.26% 20.18% 15.18% 20.51% 16.34%
- ------------------------------------------------------------------------
Life of class 61.76 52.47 59.22 55.22 60.12 54.51
Annual average 27.34 23.61 26.33 24.72 26.69 24.44
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns
and net asset value will fluctuate so that an investor's shares, when
sold, may be worth more or less than their original cost.
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 5.75% sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B shares and assumes redemption at the end of
the period. Your fund's CDSC declines from a 5% maximum during the first
year to 1% during the sixth year. After the sixth year, the CDSC no
longer applies.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index is an unmanaged list of common stocks that
is frequently used as a general measure of stock market performance. The
index assumes reinvestment of all distributions and interest payments
and does not take in account brokerage fees or taxes. Securities in the
fund do not match those in the index and performance of the fund will
differ. It is not possible to invest directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
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Report of independent accountants
For the fiscal year ended November 30, 1996
To the Trustees and Shareholders of
Putnam Growth and Income Fund II
We have audited the accompanying statement of assets and liabilities
of Putnam Growth and Income Fund II, including the portfolio of
investments owned, as of November 30, 1996, and the related statement
of operations for the year then ended, the statement of changes in net
assets for the year then ended and for the period January 5, 1995
(commencement of operations) to November 30, 1995, and the financial
highlights for each of the periods indicated therein. These financial
statements and financial highlights are the responsibility of the fund's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of November 30, 1996, by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Growth and Income Fund II as of November
30, 1996, the results of its operations for the year then ended, the
changes in its net assets for the year then ended and for the period
January 5, 1995 (commencement of operations) to November 30, 1995, and
the financial highlights for each of the periods indicated therein, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 8, 1997
<TABLE>
<CAPTION>
Portfolio of investments owned
November 30, 1996
<S> <C> <C> <C>
COMMON STOCKS (98.0%) *
NUMBER OF SHARES VALUE
Aerospace and Defense (1.1%)
- -----------------------------------------------------------------------------------------------------------------
194,410 Northrop Grumman Corp. $ 16,160,331
Automotive (7.1%)
- -----------------------------------------------------------------------------------------------------------------
291,812 Chrysler Corp. 10,359,326
336,300 Dana Corp. 10,467,338
523,830 Echlin, Inc. 17,613,784
547,650 Ford Motor Co. 17,935,538
473,470 General Motors Corp. 27,283,709
296,715 General Motors Corp. Class H 16,170,968
144,180 Goodyear Tire & Rubber Co. (The) 6,992,730
--------------
106,823,393
Basic Industrial Products (4.3%)
- -----------------------------------------------------------------------------------------------------------------
371,300 Cooper Industries, Inc. 15,408,950
251,980 General Signal Corp. 10,866,638
297,800 Minnesota Mining & Manufacturing Co. 24,940,750
680,300 New Holland N.V. 13,691,038
--------------
64,907,376
Building and Construction (0.9%)
- -----------------------------------------------------------------------------------------------------------------
175,450 Armstrong World Industries, Inc. 13,202,613
Business Equipment and Services (3.9%)
- -----------------------------------------------------------------------------------------------------------------
177,360 Hewlett-Packard Co. 9,555,270
189,040 IBM Corp. 30,128,250
390,970 Xerox Corp. 19,206,401
--------------
58,889,921
Chemicals (3.4%)
- -----------------------------------------------------------------------------------------------------------------
180,360 du Pont (E.I.) de Nemours & Co., Ltd. 16,998,930
266,989 Eastman Chemical Co. 15,251,747
619,060 Witco Chemical Corp. 18,803,948
--------------
51,054,625
Conglomerates (4.8%)
- -----------------------------------------------------------------------------------------------------------------
352,180 Corning, Inc. 14,263,290
498,835 ITT Industries, Inc. 11,660,268
139,650 Temple Inland, Inc. 7,506,188
242,070 TRW, Inc. 23,571,566
111,621 United Technologies Corp. 15,654,845
--------------
72,656,157
Consumer Durable Goods (0.9%)
- -----------------------------------------------------------------------------------------------------------------
277,690 Whirlpool Corporation 13,884,500
Consumer Non Durables (4.9%)
- -----------------------------------------------------------------------------------------------------------------
327,730 American Brands, Inc. 15,649,108
236,620 Avon Products, Inc. 13,191,565
307,740 Kimberly-Clark Corp. 30,081,585
145,750 Philip Morris Cos., Inc. 15,030,469
--------------
73,952,727
Electronics and Electrical Equipment (5.1%)
- -----------------------------------------------------------------------------------------------------------------
265,380 Eaton Corp. 18,377,565
214,135 Honeywell, Inc. 14,695,014
263,190 Motorola, Inc. 14,574,146
458,365 Texas Instruments, Inc. 29,220,769
--------------
76,867,494
Environmental Control (1.0%)
- -----------------------------------------------------------------------------------------------------------------
403,720 WMX Technologies, Inc. 14,533,920
Food and Beverages (2.2%)
- -----------------------------------------------------------------------------------------------------------------
116,900 Anheuser-Busch Cos., Inc. 4,953,638
245,370 General Mills, Inc. 15,580,995
540,240 Whitman Corporation 12,425,520
--------------
32,960,153
Forest Products (1.9%)
- -----------------------------------------------------------------------------------------------------------------
239,690 Rayonier, Inc. 9,287,988
421,290 Weyerhaeuser Co. 19,379,340
--------------
28,667,328
Insurance and Finance (17.9%)
- -----------------------------------------------------------------------------------------------------------------
457,290 Ahmanson (H.F.) & Co. 15,090,570
453,750 American General Corp. 18,660,469
254,240 AON Corp. 15,476,860
276,520 Banc One Corp. 13,169,265
156,870 BankAmerica Corp. 16,157,610
183,735 Bankers Trust New York Corp. 15,984,945
200,670 Beneficial Corp. 12,466,624
68,671 CIGNA Corp. 9,708,363
243,310 CoreStates Financial Corp. 13,108,326
405,230 Fleet Financial Group, Inc. 22,439,611
334,000 Keycorp 17,493,250
324,460 Morgan (J.P.) & Co., Inc. 30,620,913
146,850 NationsBank Corp. 15,217,331
883,480 PNC Bank Corp. 34,897,460
869,010 USF&G Corp. 17,380,200
--------------
267,871,797
Medical Supplies and Devices (1.1%)
- -----------------------------------------------------------------------------------------------------------------
381,700 Baxter International, Inc. 16,222,250
Metals and Mining (1.0%)
- -----------------------------------------------------------------------------------------------------------------
477,000 Freeport-McMoRan Copper & Gold Co., Inc. Class A 14,250,375
Oil and Gas (8.3%)
- -----------------------------------------------------------------------------------------------------------------
234,865 Amoco Corp. 18,231,396
108,970 British Petroleum PLC ADR (United Kingdom) 15,119,588
309,364 Coastal Corp. 14,888,143
120,040 Mobil Corp. 14,524,840
735,070 Occidental Petroleum Corp. 17,641,680
279,370 PanEnergy Corp. 12,292,280
342,030 Phillips Petroleum Co. 15,434,104
400,010 Total Corp. ADR (France) 16,150,404
--------------
124,282,435
Pharmaceuticals (5.6%)
- -----------------------------------------------------------------------------------------------------------------
224,002 American Home Products Corp. 14,392,129
113,710 Bristol-Myers Squibb Co. 12,934,513
813,325 Pharmacia & Upjohn, Inc. 31,414,678
343,059 Warner-Lambert Co. 24,528,719
--------------
83,270,039
Photography (3.0%)
- -----------------------------------------------------------------------------------------------------------------
309,720 Eastman Kodak Co. 25,087,320
449,255 Polaroid Corp. 19,149,494
--------------
44,236,814
Publishing (1.1%)
- -----------------------------------------------------------------------------------------------------------------
311,490 Times Mirror Co. Class A 16,314,289
Retail (5.9%)
- -----------------------------------------------------------------------------------------------------------------
446,540 Dayton Hudson Corporation 17,359,243
1,405,800 K mart Corp. 15,639,525
275,500 May Department Stores Co. 13,430,625
307,540 Penney (J.C.) Co., Inc. 16,530,275
448,400 Rite Aid Corp. 17,767,850
167,022 Sears, Roebuck & Co. 8,309,345
--------------
89,036,863
Telecommunications (1.6%)
- -----------------------------------------------------------------------------------------------------------------
394,000 Deutsche Telekom AG ADR (Germany) + 8,421,750
504,520 MCI Communications Corp. 15,387,860
--------------
23,809,610
Transportation (3.9%)
- -----------------------------------------------------------------------------------------------------------------
199,810 Canadian National Railway Co. (Canada) 8,217,186
133,770 Delta Air Lines, Inc. 10,066,193
163,920 Norfolk Southern Corp. 14,752,800
467,180 Ryder System, Inc. 14,190,593
187,755 Union Pacific Corp. 10,936,729
--------------
58,163,501
Utilities (7.0%)
- -----------------------------------------------------------------------------------------------------------------
459,770 BellSouth Corp. 18,563,214
463,340 GTE Corp. 20,792,383
327,810 Northeast Utilities Co. 3,892,744
125,180 NYNEX Corp. 5,805,223
456,200 Pacific Telesis Group 16,879,400
570,010 Sprint Corp. 23,869,169
366,310 Union Electric Co. 14,560,803
--------------
104,362,936
--------------
Total Common Stocks (cost $1,292,598,641) $ 1,466,381,447
CONVERTIBLE PREFERRED STOCKS (0.7%) *(cost $9,322,796)
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
78,690 Case Corp. $4.50 cv. pfd. $ 10,210,028
SHORT-TERM INVESTMENTS (1.6%) *(cost $24,374,580)
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
$24,367,000 Interest in $732,975,000 joint repurchase agreement dated November 29, 1996
with Morgan (J.P.) & Co., Inc. due December 2, 1996 with respect to various
U.S. Treasury obligations -- maturity value of $24,378,371 for an effective
yield of 5.6% $ 24,374,580
- -----------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,326,296,017)*** $ 1,500,966,055
- -----------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,496,217,614
+ Non-income-producing security.
*** The aggregate identified cost for federal income tax purpose is
$1,327,173,756, resulting in gross unrealized appreciation and
depreciation of $189,061,616 and $15,269,317, respectively,
or net unrealized appreciation of $173,792,299.
ADR after the name of a holding stands for American Depository Receipt representing
ownership of foreign securities on deposit with a domestic custodian bank.
The accompanying note are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1996
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,326,296,017) (Note 1) $1,500,966,055
- ----------------------------------------------------------------------------------------------------------
Cash 109,356
- ----------------------------------------------------------------------------------------------------------
Dividends and other receivables 4,337,100
- ----------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 8,264,772
- ----------------------------------------------------------------------------------------------------------
Receivable for securities sold 6,639,682
- ----------------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 66,274
- ----------------------------------------------------------------------------------------------------------
Total assets 1,520,383,239
Liabilities
- ----------------------------------------------------------------------------------------------------------
Payable for securities purchased 19,675,577
- ----------------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,021,044
- ----------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,887,872
- ----------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 243,693
- ----------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 2,595
- ----------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,734
- ----------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 947,287
- ----------------------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 74,298
- ----------------------------------------------------------------------------------------------------------
Other accrued expenses 309,525
- ----------------------------------------------------------------------------------------------------------
Total liabilities 24,165,625
- ----------------------------------------------------------------------------------------------------------
Net assets $1,496,217,614
Represented by
- ----------------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $1,240,092,979
- ----------------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 2,320,728
- ----------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 79,133,869
- ----------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 174,670,038
- ----------------------------------------------------------------------------------------------------------
Total - Representing net assets applicable to capital shares outstanding $1,496,217,614
Computation of net asset value and offering price
- ----------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($637,204,354 divided by 48,597,120 shares) $13.11
- ----------------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $13.11)* $13.91
- ----------------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($763,437,688 divided by 58,582,873 shares)** $13.03
- ----------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($95,575,572 divided by 7,317,112 shares) $13.06
- ----------------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $13.06)* $13.53
- ----------------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering
price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred sales
charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended November 30, 1996
<S> <C>
Investment income:
- ----------------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $111,414) $27,080,912
- ----------------------------------------------------------------------------------------------------------
Interest 1,904,898
- ----------------------------------------------------------------------------------------------------------
Total investment income 28,985,810
- ----------------------------------------------------------------------------------------------------------
Expenses:
- ----------------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 5,808,582
- ----------------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,818,917
- ----------------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 23,898
- ----------------------------------------------------------------------------------------------------------
Administrative services (Note 2) 20,418
- ----------------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,059,366
- ----------------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 4,874,242
- ----------------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 457,625
- ----------------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 6,048
- ----------------------------------------------------------------------------------------------------------
Reports to shareholders 68,194
- ----------------------------------------------------------------------------------------------------------
Registration fees 249,632
- ----------------------------------------------------------------------------------------------------------
Auditing 30,897
- ----------------------------------------------------------------------------------------------------------
Legal 79,755
- ----------------------------------------------------------------------------------------------------------
Other 123,680
- ----------------------------------------------------------------------------------------------------------
Total expenses 14,621,254
- ----------------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (378,499)
- ----------------------------------------------------------------------------------------------------------
Net expenses 14,242,755
- ----------------------------------------------------------------------------------------------------------
Net investment income 14,743,055
- ----------------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 80,045,414
- ----------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 135,233,459
- ----------------------------------------------------------------------------------------------------------
Net gain on investments 215,278,873
- ----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $230,021,928
- ----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the period
January 5, 1995
(commencement
Year ended of operations)
November 30 to November 30
1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- --------------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------------
Net investment income $14,743,055 $3,516,987
- --------------------------------------------------------------------------------------------------
Net realized gain on investments 80,045,414 16,232,259
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 135,233,459 31,872,124
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 230,021,928 51,621,370
- --------------------------------------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------------
From net investment income
Class A (7,210,359) (1,223,270)
- --------------------------------------------------------------------------------------------------
Class B (5,423,325) (1,065,275)
- --------------------------------------------------------------------------------------------------
Class M (800,684) (174,105)
- --------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (7,801,899) --
- --------------------------------------------------------------------------------------------------
Class B (8,303,604) --
- --------------------------------------------------------------------------------------------------
Class M (1,049,659) --
- --------------------------------------------------------------------------------------------------
Increase from capital share transactions (Notes 4 and 5) 753,262,427 492,264,069
- --------------------------------------------------------------------------------------------------
Total increase in net assets 952,694,825 541,422,789
- --------------------------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------------------------
Beginning of year 543,522,789 2,100,000
- --------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $2,320,728 and $1,047,745, respectively) $1,496,217,614 $543,522,789
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the period
January 5, 1995
Year (commencement Year
ended of operations) ended
November 30 to November 30 November 30
- ----------------------------------------------------------------------------------------------------------------------
1996 1995 1996
- ----------------------------------------------------------------------------------------------------------------------
Class M Class B
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.98 $8.53 $10.96
- ----------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------
Net investment income .18 .12 .15
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 2.39 2.43 2.39
- ----------------------------------------------------------------------------------------------------------------------
Total from investment activities 2.57 2.55 2.54
- ----------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (.16) (.10) (.14)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (.33) -- (.33)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (.49) (.10) (.47)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.06 $10.98 $13.03
- ----------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 24.28 30.04* 23.98
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $95,576 $33,406 $763,438
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.59 1.80* 1.84
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.42 1.58* 1.17
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 83.97 64.18* 83.97
- ----------------------------------------------------------------------------------------------------------------------
Average commission rate paid (c) $0.0493 $0.0493
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
For the period For the period
January 5, 1995 January 5, 1995
(commencement Year (commencement
of operations) ended of operations)
to November 30 November 30 to November 30
- ----------------------------------------------------------------------------------------------------------------------
1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
Class B Class A
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $8.53 $11.01 $8.53
- ----------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------
Net investment income .11 .23 .15
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 2.42 2.41 2.45
- ----------------------------------------------------------------------------------------------------------------------
Total from investment activities 2.53 2.64 2.60
- ----------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (.10) (.21) (.12)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- (.33) --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (.10) (.54) (.12)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.96 $13.11 $11.01
- ----------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 29.72* 24.95 30.62*
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $259,789 $637,204 $250,328
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 2.03* 1.09 1.35*
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.36* 1.92 2.03*
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 64.18* 83.97 64.18*
- ----------------------------------------------------------------------------------------------------------------------
Average commission rate paid (c) $0.0493
- ----------------------------------------------------------------------------------------------------------------------
* Not annualized
(a) Total investment return assumes dividend reinvestment
and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets includes amounts paid through
expense offset arrangements. (Note 2).
(c) Average commission rate paid on security trades is required for fiscal periods
beginning on or after September 1, 1995.
</TABLE>
Notes to financial statements
November 30, 1996
Note 1
Significant accounting policies
The fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The
fund seeks capital growth as a primary objective and current income as a
secondary objective by investing primarily in a portfolio of common
stocks that offer the potential for capital growth, current income or
both.
The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 5.75%. Class B shares,
which convert to class A shares after approximately eight years, do not
pay a front-end sales charge, but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
M shares are sold with a maximum front-end sales charge of 3.50% and pay
an ongoing distribution fee that is higher than class A shares and lower
than class B shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sale price, or, if no sales are reported -- as in the
case of some securities traded over-the-counter -- the last reported bid
price, except that certain U.S. government obligations are stated at the
mean between the bid and asked prices. Short-term investments having
remaining maturities of 60 days or less are stated at amortized cost
which approximates market, and other investments are stated at fair
value following procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Putnam Management is responsible for determining that the value of these
underlying securities is at all times at least equal to the resale
price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed).
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date.
E) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
F) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid annually. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
These differences include treatment of losses on wash sales
transactions, organization expenses and amortization of bond premium.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended November
30, 1996, the fund reclassified $35,704 to decrease undistributed net
investment income and $24,346 to increase paid-in-capital, with an
increase to accumulated net realized gain on investment of $11,358. The
calculation of net investment income per share in the financial
highlights table excludes these adjustments.
G) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities
and Exchange Commission and with various states and the initial public
offering of its shares were $74,298. These expenses are being amortized
on projected net asset levels over a five-year period. The fund will
reimburse Putnam Management for the payment of these expenses.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.65% of the
first $500 million of average net assets, 0.55% of the next $500
million, 0.50% of the next $500 million, 0.45% of the next $5 billion,
0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of
the next $5 billion and 0.38% of any excess thereafter.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the year ended November 30, 1996, fund expenses were reduced by
$378,499 under expense offset arrangements with PFTC. Investor servicing
and custodian fees reported in the Statement of operations exclude these
credits. The fund could have invested a portion of the assets utilized
in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $1,570 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund
and are invested in certain Putnam funds until distribution in
accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (The "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00% and 1.00% of the average net assets attributable to class A, class
B and class M shares, respectively. The Trustees have approved payment
by the fund at an annual rate of 0.25%, 1.00% and 0.75% of the average
net assets attributable to class A, class B and class M shares
respectively.
For the year ended November 30, 1996, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $1,683,969 and $136,805 from
the sale of class A and class M shares, respectively and $722,019 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the year ended November 30, 1996, Putnam Mutual
Funds Corp., acting as underwriter received $5,972 on class A
redemptions.
Note 3
Purchase and sales of securities
During the year ended November 30, 1996, purchases and sales of
investment securities other than U.S. government obligations and short-
term investments aggregated $1,530,450,401 and $793,212,216,
respectively. There were no purchases and sales of U.S. government
obligations. In determining the net gain or loss on securities sold, the
cost of securities has been determined on the identified cost basis.
Note 4
Capital shares
At November 30, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were
as follows:
Year ended
November 30, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 30,647,039 $357,129,920
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,271,731 14,216,349
- ----------------------------------------------------
31,918,770 371,346,269
Shares
repurchased (6,063,890) (71,076,075)
- ----------------------------------------------------
Net increase 25,854,880 $300,270,194
- ----------------------------------------------------
For the period
January 5, 1995
(commencement of
operations) to
November 30, 1995
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 19,356,148 $191,344,508
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 114,421 1,163,096
- ----------------------------------------------------
Shares issued in
connection with
the merger of
Putnam Dividend
Growth Fund 4,765,630 50,372,714
- ----------------------------------------------------
24,236,199 242,880,318
Shares
repurchased (1,576,312) (16,055,983)
- ----------------------------------------------------
Net increase 22,659,887 $226,824,335
- ----------------------------------------------------
Year ended
November 30, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 39,226,124 $454,975,416
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,170,898 12,989,000
- ----------------------------------------------------
40,397,022 467,964,416
Shares
repurchased (5,524,455) (64,550,693)
- ----------------------------------------------------
Net increase 34,872,567 $403,413,723
- ----------------------------------------------------
For the period
January 5, 1995
(commencement of
operations) to
November 30, 1995
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 23,950,321 $238,931,212
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 99,507 1,010,371
- ----------------------------------------------------
Shares issued in
connection with
the merger of
Putnam Dividend
Growth Fund 1,116,576 11,768,715
- ----------------------------------------------------
25,166,404 251,710,298
Shares
repurchased (1,538,451) (15,606,751)
- ----------------------------------------------------
Net increase 23,627,953 $236,103,547
- ----------------------------------------------------
Year ended
November 30, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 4,835,305 $56,263,450
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 157,977 1,757,844
- ----------------------------------------------------
4,993,282 58,021,294
Shares
repurchased (719,633) (8,442,784)
- ----------------------------------------------------
Net increase 4,273,649 $49,578,510
- ----------------------------------------------------
For the period
January 5, 1995
(commencement of
operations) to
November 30, 1995
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 3,172,893 $31,479,095
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,569 64,181
- ----------------------------------------------------
3,179,462 31,543,276
Shares
repurchased (218,352) (2,207,089)
- ----------------------------------------------------
Net increase 2,961,110 $29,336,187
- ----------------------------------------------------
Note 5
Acquisition of Putnam Dividend Growth Fund
On September 22, 1995, the fund issued 4,765,630 and 1,116,576 of class
A and class B shares, respectively, to the shareholders of Putnam
Dividend Growth Fund to acquire that fund's net assets in a tax-free
exchange approved by the shareholders. The net assets of the fund and
Putnam Dividend Growth Fund on September 22, 1995, valuation date, were
$343,915,341 and $62,141,429, respectively. On September 22, 1995,
Putnam Dividend Growth Fund had unrealized appreciation of $7,564,455.
The aggregate net assets of the fund immediately following the
acquisition were $406,056,770.
Federal tax information
(Unaudited)
The fund has designated 37.22% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investor Services has won the DALBAR Quality Tested Service Seal
for the past six years. In 1995, over 146,000 tests of 56 shareholder
service components demonstrated that Putnam outperformed the industry
standard in every category.
* HELP YOUR INVESTMENT GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings
account.*
* SWITCH FUNDS EASILY
You can move money from one account to another with the same class of
shares without a service charge. (This privilege is subject to change or
termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at
the then-current net asset value, which may be more or less than the
original cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a
helpful Putnam representative.
To make an additional investment in this or any other Putnam fund,
contact your financial advisor or call our toll-free number: 1-800-225-
1581.
*Regular investing of course, does not guarantee a profit or protect
against a loss in a declining market.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Anthony I. Kreisel
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Growth and
Income Fund II. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For
more information, or to request a prospectus, call toll free: 1-800-225-
1581. You can also learn more at Putnam Investments' website:
http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution, are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board
or any other agency, and involve risk, including the possible loss of
principal amount invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- ---------------------
29947-949/990/096 1/97
