Putnam
Growth and
Income
Fund II
ANNUAL REPORT
November 30, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "To pursue capital appreciation and income without taking on a high
level of risk, we research cheaply priced stocks and select those of
companies we believe are implementing positive change that will improve
financial performance."
-- Anthony I. Kreisel, manager
Putnam Growth and Income Fund II
* "As anyone who's been through a market selloff can attest, dividends
really are important. . . . [The] idea that a company is -- or will
become -- successful enough that shareholders can regularly take home
a portion of its profits is the ultimate reason for investing."
-- SmartMoney, November 1997
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
12 Portfolio holdings
16 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Putnam Growth and Income Fund II closed the books on its third fiscal year on
November 30, 1997. It is satisfying to report another period of solid
performance using Putnam's time-tested strategy of providing capital growth
and current income potential from a portfolio of carefully selected common
stocks.
Some shareholders, in reviewing the fund's fiscal 1997 performance, might note
that the results, while commendable in absolute terms, fell somewhat below
those of many other equity funds. This circumstance did not come as a surprise
to the fund's manager, Anthony Kreisel. He considered his investment decisions
appropriate in positioning the portfolio for the economic and market
environment he sees emerging in the months ahead.
In the following report, Tony provides an in-depth discussion of the fund's
strategy during the fiscal year just ended and then takes a look at prospects
as the fund begins fiscal 1998.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 21, 1998
Report from the Fund Manager
Anthony I. Kreisel
The stock market packed more peaks and troughs into the 12 months ended
November 30, 1997, than the young Putnam Growth and Income Fund II had
experienced in its two previous years of operation. As in those two earlier
years, the market ascended to numerous new highs. Unlike 1995 and 1996,
though, the records set in 1997 were punctuated by steep drops -- one, the
most dramatic on record, by some measures.
Thanks in part to our research team's long experience but especially to the
fund's strategy of focusing on cheaply priced stocks of companies with the
potential for positive change, your fund sidestepped much of the year's
turmoil while generating solid returns. Class A shares returned 22.29% at net
asset value for the 12 months ended November 30, 1997 (15.25% with maximum
sales charges taken into account). For complete performance information,
including results for other share classes and comparative indexes, please see
the performance summary that begins on page 8.
* FUND RELIES ON ITS DISCIPLINE IN UNEVEN MARKET
Your fund's focus on bargain stocks gives it a certain measure of resilience
during periods of market volatility. There are two reasons for this. First,
stocks generally become cheap when investors learn unfavorable news about a
company. But the bad news and depressed price make the stock less vulnerable
than more highly priced stocks to volatility thereafter. Second, many of these
stocks have generous dividend yields, often higher than the market average.
This is because even if a company's dividend remains the same, the dividend
yield rises if the stock price falls. Not only do dividends add to total
return but they also tend to attract investors during market turbulence; thus
dividend-paying stocks tend to have a greater degree of price stability than
stocks of companies that do not pay dividends.
While designed to provide competitive long-term returns, the fund's strategy
occasionally has some drawbacks over shorter periods as we wait for our stock
selections to live up to what we see as their potential. For example, in
1997's choppy market, we were able to take advantage of downturns in several
sectors, such as basic industries, energy, and technology. As usual, we relied
on our research to choose companies that we believed had positioned themselves
well for the future but were still facing some short-term difficulties and
were available for correspondingly cheaper prices. Examples are the
telecommunications utility SBC Communications, Inc., which has grown through
mergers and global alliances, and Xerox Corp., a position which we rebuilt
this year following a decline in the stock's price that belied the prospects
for the company's new color copying technology.
The risk involved with this sort of opportunistic buying is that the stocks
can continue to languish for a while. In 1997, of course, the attractively
priced stocks we favored could not keep pace with the relatively small group
of growth-oriented large companies that were leading the market's gains. As we
have discussed in previous reports, though, we continue to favor cheaply
priced stocks because of their lower risk profiles. While these holdings,
along with others discussed in this report, were viewed favorably at the end
of the fiscal period, all are subject to review and adjustment in accordance
with the fund's investment strategy and may vary in the future.
[GRAPHIC OMITTED: HORIZONTAL BAR CHART TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance and finance 15.8%
Oil and gas 10.1%
Pharmaceuticals 7.7%
Utilities 7.6%
Food and beverages 6.5%
Footnote reads:
* Based on net assets as of 11/30/97. Holdings will vary over time.
* CORPORATE CHANGE: SUCCESSES AND STRUGGLES
The pursuit of "cheapness and change" often leads us to companies in the midst
of an internal or industry-wide reorganization. As a result, it is typical for
several holdings to be involved in merger efforts or spinoffs at any given
time. While these are the sorts of positive changes we seek, it is important
to note that corporate restructurings are difficult managerial challenges. We
can point to several companies that have performed admirably, but there are
also some cases of companies that have yet to realize the benefits of
reorganization or restructuring.
Among the recent examples of positive corporate change are Northrop Grumman
Corp. and Bankers Trust New York Corp. Following Northrop's agreement to merge
with Lockheed Martin last summer, the new combination now stands as the only
large manufacturer of military aircraft in the United States. While the
defense aerospace industry suffered overall decline in the wake of Pentagon
cutbacks in the early 1990s, the industry has learned over the past few years
to cut costs and generate profits in a leaner environment. The combination of
Northrop and Lockheed Martin is in a unique position to take advantage of
these new efficiencies.
In another classic example of cheapness and change, Bankers Trust has
practically reinvented itself in the past few years and has enjoyed excellent
stock price appreciation as a result. The company and the stock became
tarnished in late 1994, when a number of clients were disappointed over
performance of its financial derivative products following the steep climb of
interest rates that year. The derivatives, however, were not the company's
core revenue source and new management was able to take advantage of the
company's other strengths. Management did not cut the company's dividend as
many investors had anticipated and instead boldly acquired several smaller
banks to expand the range of services it could offer. Now the company's stock
attracts more than just bargain hunters.
In a couple of cases, reorganizations have not yet produced the benefits we
anticipated. Perhaps most prominent is one of the fund's largest holdings,
Pharmacia & Upjohn, Inc. Among the world's leading pharmaceutical companies,
it has had disappointing stock performance in 1997. The company holds key
advantages we seek -- global distribution capabilities and a promising
pipeline of new pharmaceutical products -- but is still struggling to trim its
high operating costs. We are encouraged, though, that new management, another
indicator of change, can succeed in improving the company.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
PNC Bank Corp.
Insurance and finance
Xerox Corp.
Business equipment and services
Sprint Corp.
Utilities
Pharmacia & Upjohn, Inc.
Pharmaceuticals
IBM Corp.
Computer services and software
Intel Corp.
Electronics and electrical equipment
Hewlett-Packard Co.
Business equipment and services
Kimberly-Clark Corp.
Consumer nondurables
Baxter International, Inc.
Medical supplies and devices
SBC Communications, Inc.
Utilities
Footnote reads:
These holdings represent 18.2% of the fund's net asets as of 11/30/97.
Portfolio holdings will vary over time.
* AS ALWAYS, FOCUS REMAINS ON LONG TERM
While 1997 brought a significant change in market conditions, there is no way
of knowing whether this is the beginning of a new direction for the market or
a short-term phenomenon. That's why, although the fund is young, it relies on
a strategy of value investing that has been successful over long periods in
the history of equity investing. Buying cheaply priced stocks with the
patience to hold on while companies implement positive change is an approach
that works in almost any market environment.
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 11/30/97, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Growth and Income Fund II is designed for investors primarily seeking
capital growth with current income as a secondary objective potential
through common stocks.
TOTAL RETURN FOR PERIODS ENDED 11/30/97
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 22.29% 15.25% 21.42% 16.42% 21.73% 17.50%
- ------------------------------------------------------------------------------
Life of fund 99.57 88.11 95.27 92.27 96.74 89.84
Annual average 26.91 24.34 25.96 25.29 26.28 24.74
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/97
S&P 500(registered trademark) Consumer
Index Price Index
- ------------------------------------------------------------------------------
1 year 28.50% 1.83%
- ------------------------------------------------------------------------------
Life of fund 121.68 7.88
Annual average 31.39 2.64
- ------------------------------------------------------------------------------
Class A and class M share performance is shown at public offering price
and reflects the current maximum sales charge of 5.75% for class A shares
and 3.50% for class M shares. Class B share performance reflects the
applicable contingent deferred sales charge, the maximum being 5%, if
shares were redeemed on 11/30/97. All returns assume reinvestment of
distributions at NAV and represent past performance; they do not guarantee
future results. Investment return and principal value will fluctuate so
that an investor's shares when redeemed may be worth more or less than
their original cost.
[GRAPHIC OMITTED: HORIZONTAL WORM CHART GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Plot Points
Date Fund's Class A S&P Consumer
Share at POP 500 Index Price Index
1/5/95 9,425 10,000 10,000
3/31/95 10,155 10,973 10,114
6/30/95 10,984 12,019 10,188
9/30/95 11,886 12,973 10,235
12/31/95 12,581 13,754 10,255
3/31/96 13,415 14,493 10,402
6/30/96 13,798 15,142 10,468
9/30/96 14,186 15,610 10,542
12/31/96 15,247 16,910 10,595
3/31/97 15,718 17,365 10,689
6/30/97 17,739 20,393 10,709
9/30/97 19,064 21,921 10,769
11/30/97 18,811 22,168 10,788
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have been
valued at $19,527 ($19,227 with a redemption at the end of the period); a
$10,000 investment in the fund's class M shares would have been valued at
$19,674 ($18,984 at public offering price). See first page of performance
section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 11/30/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 4 4 4
- ------------------------------------------------------------------------------
Income $0.205 $0.112 $0.143
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 0.493 0.493 0.493
- ------------------------------------------------------------------------------
Short-term 0.253 0.253 0.253
- ------------------------------------------------------------------------------
Total $0.951 $0.858 $0.889
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
11/30/96 $13.11 $13.91 $13.03 $13.06 $13.53
- ------------------------------------------------------------------------------
11/30/97 14.87 15.78 14.77 14.81 15.35
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 1.61% 1.52% 0.92% 1.16% 1.12%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 1.34 1.27 0.62 0.85 0.82
- ------------------------------------------------------------------------------
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 12/31/97
(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 24.86% 17.73% 23.96% 18.96% 24.28% 19.94%
- ------------------------------------------------------------------------------
Life of fund 101.99 90.39 97.38 94.38 98.99 92.01
Annual average 26.51 24.03 25.53 24.89 25.88 24.38
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns and
principal value will fluctuate so that an investor's shares, when sold,
may be worth more or less than their original cost.
TERMS AND DEFINITIONS
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.
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 upon 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 Stock Index is an index of common stocks frequently
used as a general measure of stock market performance. Security indexes
assume reinvestment of all distributions and interest payments and do not
take into account brokerage fees or taxes. Securities in the fund do not
match those in the indexes 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.
Report of independent accountants
For the fiscal year ended November 30, 1997
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, 1997, and the related statement of operations for the year then
ended and the statement of changes in net assets for each of the two years in
the period then ended, 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, 1997, 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, 1997, the results of its
operations for the year then ended and the changes in its net assets for each
of the two years in the period then ended 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 12, 1998
Portfolio of investments owned
November 30, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (97.1%)*
NUMBER OF SHARES VALUE
Aerospace and Defense (2.0%)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
570,755 Boeing Co. $ 30,321,359
172,460 Northrop Grumman Corp. 19,444,865
--------------
49,766,224
Automotive (2.7%)
- ------------------------------------------------------------------------------------------------------------
341,675 Chrysler Corp. 11,723,723
482,705 Dana Corp. 22,566,459
507,915 Goodyear Tire & Rubber Co. (The) 30,824,092
7,600 Meritor Automotive, Inc. 170,050
--------------
65,284,324
Basic Industrial Products (2.6%)
- ------------------------------------------------------------------------------------------------------------
431,100 Cooper Industries, Inc. 22,255,538
285,725 Deere (John) & Co. 15,661,302
265,190 Minnesota Mining & Manufacturing Co. 25,839,451
--------------
63,756,291
Building and Construction (0.9%)
- ------------------------------------------------------------------------------------------------------------
475,575 Masco Corp. 22,411,472
Business Equipment and Services (5.1%)
- ------------------------------------------------------------------------------------------------------------
658,505 Hewlett-Packard Co. 40,209,961
349,705 Pitney Bowes, Inc. 29,397,076
706,811 Xerox Corp. 54,910,380
--------------
124,517,417
Chemicals (2.6%)
- ------------------------------------------------------------------------------------------------------------
364,660 du Pont (E.I.) de Nemours & Co., Ltd. 22,084,721
353,389 Eastman Chemical Co. 21,335,861
452,690 Witco Chemical Corp. 19,522,256
--------------
62,942,838
Computer Equipment (0.5%)
- ------------------------------------------------------------------------------------------------------------
542,490 Seagate Technology, Inc.+ 12,307,742
Computer Services and Software (3.8%)
- ------------------------------------------------------------------------------------------------------------
675,975 Computer Associates Intl., Inc. 35,192,948
397,155 IBM Corp. 43,513,294
514,015 NCR Corp.+ 15,163,443
--------------
93,869,685
Conglomerates (3.1%)
- ------------------------------------------------------------------------------------------------------------
340,455 General Motors Corp. Class H 22,810,485
679,185 Tenneco, Inc. 29,417,200
393,320 TRW, Inc. 22,320,910
30,442 United Technologies Corp. 2,281,247
--------------
76,829,842
Consumer Non-Durables (4.6%)
- ------------------------------------------------------------------------------------------------------------
298,420 Clorox Co. 23,164,853
752,285 Kimberly-Clark Corp. 39,165,838
724,400 Philip Morris Cos., Inc. 31,511,400
500,085 RJR Nabisco Holdings Corp. 18,221,847
--------------
112,063,938
Electronics and Electrical Equipment (4.3%)
- ------------------------------------------------------------------------------------------------------------
197,940 Eaton Corp. 18,692,959
421,895 Emerson Electric Co. 23,204,225
519,385 Intel Corp. 40,317,261
357,185 Motorola, Inc. 22,458,007
11,172 Rockwell International Corp. 544,635
--------------
105,217,087
Environmental Control (0.9%)
- ------------------------------------------------------------------------------------------------------------
621,410 Browning-Ferris Industries, Inc. 22,176,569
Food and Beverages (6.5%)
- ------------------------------------------------------------------------------------------------------------
462,055 General Mills, Inc. 34,192,070
380,985 Heinz (H.J.) Co. 19,073,062
658,905 PepsiCo, Inc. 24,297,122
509,385 Quaker Oats Co. (The) 26,997,405
167,690 Ralston-Ralston Purina Group 15,595,170
398,770 Sara Lee Corp. 21,084,964
713,895 Whitman Corp. 18,784,363
--------------
160,024,156
Forest Products (2.6%)
- ------------------------------------------------------------------------------------------------------------
615,760 Boise Cascade Corp. 20,743,415
142,705 Temple Inland, Inc. 8,152,023
370,765 Weyerhaeuser Co. 19,581,026
414,900 Willamette Industries, Inc. 14,573,363
--------------
63,049,827
Insurance and Finance (15.8%)
- ------------------------------------------------------------------------------------------------------------
416,925 Ahmanson (H.F.) & Co. 24,807,038
497,920 American General Corp. 26,825,440
437,965 AON Corp. 23,184,772
457,560 Banc One Corp. 23,507,145
139,600 BankBoston Corp. 12,441,850
243,235 Bankers Trust New York Corp. 28,838,550
169,340 Beneficial Corp. 13,145,018
126,601 CIGNA Corp. 21,174,017
249,290 First Chicago NBD Corp. 19,506,943
116,380 First Tennessee National Corp. 6,917,336
227,665 Mercantile Bancorpation, Inc. 11,838,580
216,810 Morgan (J.P.) & Co., Inc. 24,756,992
1,124,670 PNC Bank Corp. 60,521,304
252,600 Regions Financial Corp. 9,756,676
329,785 Summit Bancorp 15,376,226
143,730 SunTrust Banks, Inc. 10,204,830
224,630 Union Planters Corp. 13,870,903
1,007,310 USF&G Corp. 20,335,071
176,475 Washington Mutual, Inc. 12,198,835
22,500 Wells Fargo & Co. 6,913,125
--------------
386,120,651
Medical Supplies and Devices (1.6%)
- ------------------------------------------------------------------------------------------------------------
764,070 Baxter International, Inc. 38,681,044
Oil and Gas (10.1%)
- ------------------------------------------------------------------------------------------------------------
315,795 Amoco Corp. 28,421,550
314,200 Atlantic Richfield Co. 25,607,300
275,031 British Petroleum PLC ADR (United Kingdom) 22,827,573
314,764 Coastal Corp. 18,433,367
600,620 Elf Aquitane ADR (France) 34,385,495
177,400 Enron Corp. 6,874,250
376,028 Exxon Corp. 22,937,708
203,000 Kerr-McGee Corp. 13,461,438
329,240 Mobil Corp. 23,684,703
687,740 Occidental Petroleum Corp. 20,417,281
532,955 Tosco Corp. 17,354,347
340,415 YPF S.A. ADR (Argentina) 11,425,178
--------------
245,830,190
Packaging and Containers (1.3%)
- ------------------------------------------------------------------------------------------------------------
939,830 Owens-Illinois, Inc.+ 31,836,741
Pharmaceuticals (7.7%)
- ------------------------------------------------------------------------------------------------------------
443,707 American Home Products Corp. 31,004,027
389,760 Bristol-Myers Squibb Co. 36,491,280
263,713 Glaxo Wellcome PLC ADR (United Kingdom) 12,048,388
440,725 Johnson & Johnson 27,738,130
366,700 Merck & Co., Inc. 34,676,069
1,347,595 Pharmacia & Upjohn, Inc. 45,481,331
--------------
187,439,225
Photography (2.1%)
- ------------------------------------------------------------------------------------------------------------
421,695 Eastman Kodak Co. 25,565,259
611,655 Polaroid Corp. 25,995,338
--------------
51,560,597
Publishing (1.2%)
- ------------------------------------------------------------------------------------------------------------
263,200 McGraw-Hill, Inc. 18,012,750
186,300 Times Mirror Co. Class A 11,061,563
--------------
29,074,313
Retail (3.6%)
- ------------------------------------------------------------------------------------------------------------
1,834,510 K mart Corp.+ 23,046,032
640,800 Lowe's Cos., Inc. 29,436,750
221,205 May Department Stores Co. 11,889,769
704,130 Toys R Us, Inc. 24,028,436
--------------
88,400,987
Transportation (3.9%)
- ------------------------------------------------------------------------------------------------------------
264,410 Canadian National Railway Co. (Canada) 13,666,692
184,975 Delta Air Lines, Inc. 20,613,152
602,460 Norfolk Southern Corp. 19,165,759
467,180 Ryder System, Inc. 16,964,474
433,610 Union Pacific Corp. 26,016,600
--------------
96,426,677
Utilities (7.6%)
- ------------------------------------------------------------------------------------------------------------
384,135 American Telephone & Telegraph Co. 21,463,543
301,415 Bell Atlantic Corp. 26,901,289
523,145 BellSouth Corp. 28,642,189
513,110 SBC Communications, Inc. 37,360,822
781,240 Sprint Corp. 45,751,368
558,440 US West Communications, Inc. 25,234,498
--------------
185,353,709
--------------
Total Common Stocks (cost $2,059,020,524) $2,374,941,546
CONVERTIBLE PREFERRED STOCKS (0.8%)* (cost $15,719,861)
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
125,730 Case Corp. Ser. A, $4.50 cum. cv. pfd. $ 18,521,601
SHORT-TERM INVESTMENTS (2.3%) * (cost $57,174,145)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$57,147,000 Interest in $607,352,000 joint repurchase agreement
dated November 28, 1997, with UBS Securities, due
December 1, 1997, with respect to various U.S. Treasury
obligations--maturity value of $57,174,145 for an
effective yield of 5.70% $ 57,174,145
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,131,914,530)*** $2,450,637,292
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $2,445,451,456.
+ Non-income-producing security.
*** The aggregate identified cost on a tax basis is $2,134,567,783,
resulting in gross unrealized appreciation and depreciation of
$361,093,550 and $45,024,041, respectively, or net unrealized
appreciation of $316,069,509.
ADR after the name of a foreign holding stands for American
Depository Receipts, representing ownership of foreign securities on
deposit with a domestic custodian bank.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $2,131,914,530) (Note 1) $2,450,637,292
- ---------------------------------------------------------------------------------------------------
Cash 134,755
- ---------------------------------------------------------------------------------------------------
Dividends and other receivables 4,614,109
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 4,918,073
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 18,741,095
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 56,225
- ---------------------------------------------------------------------------------------------------
Total assets 2,479,101,549
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 26,098,172
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,115,905
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,110,207
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 342,877
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 21,884
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,655
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,614,415
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 342,978
- ---------------------------------------------------------------------------------------------------
Total liabilities 33,650,093
- ---------------------------------------------------------------------------------------------------
Net assets $2,445,451,456
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,913,109,909
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 213,618,785
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets
and liabilities in foreign currencies 318,722,762
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,445,451,456
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,051,276,067 divided by 70,680,261 shares) $14.87
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $14.87)* $15.78
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,242,816,744 divided by 84,165,994 shares)** $14.77
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($151,358,645 divided by 10,220,112 shares) $14.81
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $14.81)* $15.35
- ---------------------------------------------------------------------------------------------------
* 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, 1997
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $247,306) $ 44,910,375
- --------------------------------------------------------------------------------------------------
Interest 2,546,812
- --------------------------------------------------------------------------------------------------
Total investment income 47,457,187
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 10,743,729
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,520,821
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 51,685
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 22,180
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,129,989
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 10,196,070
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 942,676
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 10,049
- --------------------------------------------------------------------------------------------------
Reports to shareholders 41,003
- --------------------------------------------------------------------------------------------------
Registration fees 207,936
- --------------------------------------------------------------------------------------------------
Auditing 53,060
- --------------------------------------------------------------------------------------------------
Postage 262,611
- --------------------------------------------------------------------------------------------------
Other 92,446
- --------------------------------------------------------------------------------------------------
Total expenses 28,274,255
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (583,955)
- --------------------------------------------------------------------------------------------------
Net expenses 27,690,300
- --------------------------------------------------------------------------------------------------
Net investment income 19,766,887
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 220,726,778
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 144,052,724
- --------------------------------------------------------------------------------------------------
Net gain on investments 364,779,502
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $384,546,389
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
- ----------------------------------------------------------------------------------------------------------------------
Year ended November 30
--------------------------------
<S> <C> <C>
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 19,766,887 $ 14,743,055
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 220,726,778 80,045,414
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 144,052,724 135,233,459
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 384,546,389 230,021,928
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (12,425,842) (7,210,359)
- ----------------------------------------------------------------------------------------------------------------------
Class B (8,358,230) (5,423,325)
- ----------------------------------------------------------------------------------------------------------------------
Class M (1,304,870) (800,684)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (36,557,662) (7,801,899)
- ----------------------------------------------------------------------------------------------------------------------
Class B (44,191,902) (8,303,604)
- ----------------------------------------------------------------------------------------------------------------------
Class M (5,533,255) (1,049,659)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 673,059,214 753,262,427
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 949,233,842 952,694,825
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 1,496,217,614 543,522,789
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $-- and $2,320,728, respectively) $2,445,451,456 $1,496,217,614
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Jan. 5, 1995+
operating performance Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $ 13.11 $ 11.01 $ 8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .19(d) .23 .15
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 2.52 2.41 2.45
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities 2.71 2.64 2.60
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.20) (.21) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.75) (.33) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.95) (.54) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 14.87 $ 13.11 $ 11.01
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 22.29 24.95 30.62*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,051,276 $637,204 $250,328
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.00 1.09 1.35*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.40 1.92 2.03*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 74.51 83.97 64.18*
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $ .0464 $ .0493
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* 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 and brokerage service arrangements. (Note 2).
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or after
September 1, 1995.
(d) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Jan. 5, 1995+
operating performance Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $ 13.03 $ 10.96 $ 8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .09(d) .15 .11
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 2.51 2.39 2.42
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities 2.60 2.54 2.53
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.11) (.14) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.75) (.33) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.86) (.47) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 14.77 $ 13.03 $ 10.96
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 21.42 23.98 29.72*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,242,817 $763,438 $259,789
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.75 1.84 2.03*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .65 1.17 1.36*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 74.51 83.97 64.18*
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $ .0464 $ .0493
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* 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 and brokerage service arrangements. (Note 2).
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or after
September 1, 1995.
(d) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Jan. 5, 1995+
operating performance Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $ 13.06 $ 10.98 $ 8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .13(d) .18 .12
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 2.51 2.39 2.43
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities 2.64 2.57 2.55
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.14) (.16) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.75) (.33) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.89) (.49) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 14.81 $ 13.06 $ 10.98
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 21.73 24.28 30.04*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $151,359 $95,576 $33,406
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.50 1.59 1.80*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .90 1.42 1.58*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 74.51 83.97 64.18*
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $ .0464 $ .0493
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* 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 and brokerage service arrangements. (Note 2).
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or after
September 1, 1995.
(d) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
</TABLE>
Notes to financial statements
November 30, 1997
Note 1
Significant accounting policies
Putnam Growth and Income Fund II, 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
lower than class B shares and higher than class A 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) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations. For the year ended November 30, 1997, the fund
had no borrowings against the line credit.
F) 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, as amended. 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.
G) 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 at
least 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 temporary
and permanent differences of losses on wash sales transactions and non-taxable
dividends. 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, 1997, the fund reclassified $1,327 to increase undistributed net
investment income and $42,284 to decrease paid-in-capital, with an increase to
accumulated net realized gain on investments of $40,957. The calculation of
net investment income per share in the financial highlights table excludes
these adjustments.
H) 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.
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% thereafter.
The fund reimburses Putnam Management an allocated amount 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 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, 1997, fund expenses were reduced by $583,955
under expense offset arrangements with PFTC and brokerage service
arrangements. 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.
Each Trustee of the fund receives an annual Trustees fee, of which $2,040 has
been allocated to the fund, 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 has adopted a Trustee Fee Deferral Plan (the "Deferral 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
Deferral 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 currently limit payment by the fund to 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, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $1,390,662 and $103,238 from the sale
of class A and class M shares, respectively and $1,466,211 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, 1997, Putnam Mutual Funds Corp., acting as
underwriter received $6,406 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended November 30, 1997, purchases and sales of investment
securities other than short-term investments aggregated $1,996,464,801 and
$1,444,371,997, 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, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
November 30 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 31,912,148 $434,634,472
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,784,210 46,863,432
- ------------------------------------------------------------
35,696,358 481,497,904
Shares
repurchased (13,613,217) (185,945,372)
- ------------------------------------------------------------
Net increase 22,083,141 $295,552,532
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Year ended
November 30 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 30,995,406 $418,909,565
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,093,460 49,913,988
- ------------------------------------------------------------
35,088,866 468,823,553
Shares
repurchased (9,505,745) (129,716,865)
- ------------------------------------------------------------
Net increase 25,583,121 $339,106,688
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Year ended
November 30 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 3,870,639 $ 52,464,122
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 525,237 6,444,001
- ------------------------------------------------------------
4,395,876 58,908,123
Shares
repurchased (1,492,876) (20,508,129)
- ------------------------------------------------------------
Net increase 2,903,000 $ 38,399,994
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, the Fund hereby
designates $146,307,845 as capital gain for its taxable year ended November
30, 1997.
The fund has designated 37.74% of the distributions from net investment income
as qualifying for the dividends received deduction for corporations.
The Form 1099 you receive in January 1998 will show the tax status of all
distributions paid to your account in calendar 1997.
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
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
Gary N. Coburn
Vice President
William J. Curtin
Vice President
Ian C. Ferguson
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 the principal amount
invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
AN023-36872 1/98
