Putnam
Growth and
Income
Fund II
SEMIANNUAL REPORT
May 31, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Putnam Growth and Income Fund II is designed to perform well in both
robust and weak market conditions. The primary features of our value
strategy -- the emphasis on stocks with above-average dividends and
below-average prices -- keep the fund in stocks that are less vulnerable
to a selloff in the event of disappointing news. We believe our value
strategy is the best way to achieve strong returns with limited risks,
especially in periods when the overall stock market is down."
-- Anthony Kreisel, manager
Putnam Growth and Income Fund II
* "Buying stocks with solid, especially growing, dividends has proved
to be a market-beating strategy in both good times and bad. And you can't
say that about too many other approaches."
-- Individual Investor, May 1998
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
11 Portfolio holdings
16 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Events in Asia have sparked several waves of market volatility over the past
six months. However, Putnam Growth and Income Fund II has been able to benefit
from its strategy of investing in companies undergoing constructive change not
yet recognized by the market.
Your fund's manager, Anthony Kreisel, believes many of the investments
acquired during this somewhat turbulent period will make their own positive
contribution to performance over time. Others may not, of course, for past
performance can never assure future results. However, your fund's
well-diversified portfolio of carefully selected holdings should continue to
ameliorate the effects of investments that fail to fulfill their promise.
In the following report on the first half of your fund's fiscal year, the six
months ended May 31, 1998, Tony discusses performance to date and offers his
insights on prospects for the second half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 15, 1998
Report from the Fund Manager
Anthony I. Kreisel
Defying much of the pessimism that dominated world financial markets in late
1997, stocks in the United States continued to advance during the six months
ended May 31, 1998 -- the first half of Putnam Growth and Income Fund II's
1998 fiscal year. In the middle of the period, in fact, major equity indexes
such as the S&P 500(registered trademark) Index reached record highs. Asia's
financial crisis has persisted, but its effects have turned out to be positive
for some U.S. stocks, since many of the negative reverberations were limited
to specific industrial sectors.
Your fund had exposure to both the beneficiaries and the casualties of the
Asian crisis as well as a number of holdings that remained rather insulated
from the turmoil. For the first six months of its 1998 fiscal year, the fund's
class A shares gained 9.49% at NAV (3.18% with maximum sales charges taken
into account). Complete performance information, including the returns for
other share classes, begins on page 8.
* U.S. COMPANIES POST PROFITS IN SPITE OF ASIAN EFFECT
As the semiannual period opened on December 1, 1997, the U.S. stock market was
calming down after months of unusual volatility. U.S. companies with
significant business in Asia, especially in the technology, financial, and oil
sectors, had begun to revise their earnings forecasts downward to reflect the
lack of sales growth potential in Asia. At the same time, however,
international investors moved capital out of Asia into the relative safety of
U.S. Treasury bonds, pushing down interest rates in the United States. Lower
rates encouraged businesses and consumers to continue spending, keeping the
U.S. economy humming and jump-starting the bull market.
The value stocks in which your fund invests participated in the market's rise
but did not lead the way. The fund had significant holdings in the oil and
industrial manufacturing sectors, two traditional value groups that suffered
directly from slowing business activity in Asia. Fortunately, financial
services companies, another traditional value sector, performed satisfactorily
in the period. Several money center banks announced mergers, stoking investor
interest in the overall industry.
Sector diversity was not the fund's only strength. Our "cheapness and change"
strategy, which seeks companies with low stock prices undertaking internal
change to improve financial performance, helped to keep the portfolio's risk
muted. Stocks with prices lower than the overall market average tend to be the
least volatile over time. Moreover, companies undertaking internal changes can
deliver attractive stock performance even when external conditions
deteriorate.
* LOWER COSTS HELP TO LIFT CONSUMER-RELATED BUSINESSES
One of the most immediate results of the Asian crisis was to give U.S.
consumers more money to spend. The falling price of oil cut transportation
expenses, while falling interest rates allowed many homeowners to refinance
their mortgages at lower rates and spend some of the difference. Key business
costs fell for apparel retailers because they were able to import cheaper
clothing and other goods from Asia.
Retailing is not considered a traditional value sector, but that industry's
struggle to regain competitiveness had attracted our interest in recent years.
Department stores, in particular, have faced tough competition from
specialized retailers. Several of these corporations responded by undertaking
new strategies to restore their profitability and thereby satisfied our
cheapness and change criteria. We took profits on retail holdings such as
Lowe's Companies and May Department Stores during the semiannual period when
they experienced an unexpected price lift because of a boom in consumer
spending and cheaper import prices from Asia.
[GRAPHIC OMITTED: HORIZONTAL BAR CHART OF TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance and
finance 21.1%
Oil and gas 10.3%
Pharmaceuticals 8.2%
Utilities 6.2%
Food and
beverages 6.1%
Footnote reads:
* Based on net assets as of 5/31/98. Holdings will vary over time.
Another company that we consider consumer related is Goodyear Tire & Rubber.
Its earnings are growing and are not dependent on new car sales because
replacement tires are 80% of its business. Since drivers have little choice
but to replace tires when old ones wear out, Goodyear's earnings are not
likely to be affected by the economic cycle. The company has the industry's
lowest production costs and is still increasing its efficiency. We added to
the fund's position during the period because the drop in Asian demand for
cars prompted nervous investors to sell the stock. Although this holding,
along with others discussed in this report, was 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.
* POWERFUL NEW TECHNOLOGY AT TEXAS INSTRUMENTS
As value investors, we believe we are able to identify companies that the
market prices below their true long-term worth when other investors take a
company for granted or estimate its value based on only one facet of its
business. Currently we are especially keen on the prospects of Texas
Instruments, which we added to the portfolio during the six-month period. Its
stock price declined in late 1997 because it was a major producer of DRAM
chips, an industry that fell victim to the Asian crisis. The stock's price
measured relative to its sales became 60% cheaper than the market average.
What really convinced us of Texas Instruments' value, though, was its
dominance in production of digital signal processors (DSPs). DSPs translate
analog information into digital commands and can be used in a host of devices,
from telephones to computers to automobiles to nearly every household
appliance imaginable. In a clothes dryer, for example, DSPs can measure when
clothing has dried and immediately turn off the machine. DSPs are likely to
become more widely used than computer chips and TI is the industry leader.
TI's new, energetic CEO has even sold the company's semiconductor division in
order to concentrate on DSPs.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Xerox Corp.
Business equipment and services
Pharmacia & Upjohn, Inc.
Pharmaceuticals
Texas Instruments, Inc.
Electronics and electrical equipment
IBM Corp.
Computer services and software
Citicorp
Insurance and finance
Merck & Co., Inc.
Pharmaceuticals
The Goodyear Tire & Rubber Co.
Automotive
Owens-Illinois, Inc.
Packaging and containers
Bristol-Myers Squibb Co.
Pharmaceuticals
American Home Products Corp.
Pharmaceuticals
These holdings represent 18.1% of the fund's net assets as of 5/31/98.
Portfolio holdings will vary over time.
* VALUE ORIENTATION CAN PERFORM WELL IN UP OR DOWN MARKETS
Many U.S. companies still face consequences from Asia's ongoing economic
weakness. As we have described, however, this diversified portfolio has
pockets of strength. The companies we buy for the portfolio are changing
internally, a feature that can help them to perform well in spite of difficult
external business conditions. Also our insistence on relatively low-priced
stocks with above-average dividend yields positions the portfolio to perform
with less volatility than the overall market over the long term.
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 5/31/98, 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 seeking primarily
capital growth but also current income potential through common stocks.
TOTAL RETURN FOR PERIODS ENDED 5/31/98
Class A Class B Class M
(inception date) (1/5/95) (1/5/95) (1/5/95)
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------------------------
6 months 9.49% 3.18% 9.09% 4.13% 9.26% 5.42%
- -----------------------------------------------------------------------------
1 year 20.20 13.32 19.33 14.33 19.71 15.55
- -----------------------------------------------------------------------------
Life of Fund 118.52 105.97 113.01 110.01 114.96 107.42
Annual average 25.85 23.68 24.91 24.39 25.24 23.93
- -----------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/98
S&P 500
(registered trademark) Consumer
Index Price Index
- -----------------------------------------------------------------------------
6 months 15.06% 0.80%
- -----------------------------------------------------------------------------
1 year 30.68 1.69
- -----------------------------------------------------------------------------
Life of fund 85.49 8.75
Annual average 29.16 2.49
- -----------------------------------------------------------------------------
Past performance is not indicative of future results. 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 5/31/98. All returns assume reinvestment of distributions at
NAV. 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.
TOTAL RETURN FOR PERIODS ENDED 6/30/98
(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
- ------------------------------------------------------------------------------
6 months 8.25% 2.00% 7.87% 2.87% 7.95% 4.21%
- ------------------------------------------------------------------------------
1 year 16.18 9.49 15.30 10.30 15.52 11.47
- ------------------------------------------------------------------------------
Life of fund 118.66 106.10 112.90 109.90 114.82 107.29
Annual average 25.21 23.10 24.25 23.75 24.57 23.30
- ------------------------------------------------------------------------------
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.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 5/31/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 2 2 2
- ------------------------------------------------------------------------------
Income $0.120 $0.068 $0.084
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 0.733 0.733 0.733
- ------------------------------------------------------------------------------
Short-term 0.545 0.545 0.545
- ------------------------------------------------------------------------------
Total $1.398 $1.346 $1.362
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
11/30/97 $14.87 $15.78 $14.77 $14.81 $15.35
- ------------------------------------------------------------------------------
5/31/98 14.75 15.65 14.64 14.69 15.22
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 1.63% 1.53% 1.01% 1.20% 1.16%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 0.98 0.93 0.23 0.48 0.46
- ------------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2Based on investment income, calculated using SEC guidelines.
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 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 sales charge for class A shares and
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. Securities indexes
assume reinvestment of all distributions and interest payments and do not
take in 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.
<TABLE>
<CAPTION>
Portfolio of investments owned
May 31, 1998 (Unaudited)
COMMON STOCKS (97.8%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C> <C>
Aerospace and Defense (1.0%)
- -------------------------------------------------------------------------------------------------------------------------------
606,155 Boeing Co. $ 28,868,132
Automotive (4.1%)
- -------------------------------------------------------------------------------------------------------------------------------
630,445 Dana Corp. 32,861,946
319,000 Ford Motor Co. 16,548,125
631,730 Goodyear Tire & Rubber Co. (The) 45,405,594
435,925 Lear Corp. (NON) 23,267,497
--------------
118,083,162
Basic Industrial Products (5.0%)
- -------------------------------------------------------------------------------------------------------------------------------
474,695 Caterpillar, Inc. 26,078,557
459,100 Cooper Industries, Inc. 29,554,563
583,155 Deere (John) & Co. 30,251,166
622,650 Ingersoll-Rand Co. 28,058,166
302,370 Minnesota Mining & Manufacturing Co. 28,007,021
--------------
141,949,473
Business Equipment and Services (4.8%)
- -------------------------------------------------------------------------------------------------------------------------------
491,945 Hewlett-Packard Co. 30,562,083
594,800 Pitney Bowes, Inc. 27,955,600
772,281 Xerox Corp. 79,351,873
--------------
137,869,556
Cellular Communications (0.9%)
- -------------------------------------------------------------------------------------------------------------------------------
689,930 US West Media Group (NON) 25,570,531
Chemicals (2.9%)
- -------------------------------------------------------------------------------------------------------------------------------
503,730 du Pont (E.I.) de Nemours & Co., Ltd. 38,787,210
343,514 Eastman Chemical Co. 23,015,438
581,310 Witco Chemical Corp. 22,053,448
--------------
83,856,096
Computer Equipment (0.9%)
- -------------------------------------------------------------------------------------------------------------------------------
1,076,285 Seagate Technology, Inc. (NON) 24,889,091
Computer Services and Software (3.1%)
- -------------------------------------------------------------------------------------------------------------------------------
380,600 Computer Associates Intl., Inc. 19,981,500
424,155 IBM Corp. 49,785,193
548,715 NCR Corp. (NON) 18,622,015
--------------
88,388,708
Consumer Durable Goods (0.8%)
- -------------------------------------------------------------------------------------------------------------------------------
627,045 Hasbro, Inc. 23,984,471
Consumer Non Durables (3.8%)
- -------------------------------------------------------------------------------------------------------------------------------
233,020 Clorox Co. 19,457,170
309,515 Colgate-Palmolive Co. 26,927,805
728,525 Kimberly-Clark Corp. 36,107,520
732,010 Philip Morris Cos., Inc. 27,358,874
--------------
109,851,369
Consumer Services (1.1%)
- -------------------------------------------------------------------------------------------------------------------------------
486,685 McDonald's Corp. 31,938,703
Electronics and Electrical Equipment (3.7%)
- -------------------------------------------------------------------------------------------------------------------------------
265,440 Eaton Corp. 23,839,830
386,085 Emerson Electric Co. 23,454,664
1,153,900 Texas Instruments, Inc. 59,281,613
--------------
106,576,107
Entertainment (0.8%)
- -------------------------------------------------------------------------------------------------------------------------------
398,545 Viacom, Inc. Class B (NON) 21,919,975
Food and Beverages (6.1%)
- -------------------------------------------------------------------------------------------------------------------------------
374,950 General Mills, Inc. 25,590,338
623,800 Heinz (H.J.) Co. 33,100,388
687,945 PepsiCo, Inc. 28,076,755
544,185 Quaker Oats Co. (The) 31,392,672
427,070 Sara Lee Corp. 25,143,746
1,400,195 Whitman Corp. 30,366,729
--------------
173,670,628
Health Care (0.7%)
- -------------------------------------------------------------------------------------------------------------------------------
308,900 WellPoint Health Networks, Inc. (NON) 20,078,500
Insurance and Finance (21.1%)
- -------------------------------------------------------------------------------------------------------------------------------
180,465 Ahmanson (H.F.) & Co. 13,760,456
178,405 American Express Co. 18,308,813
462,890 American General Corp. 31,071,491
467,665 AON Corp. 29,959,789
269,680 BankBoston Corp. 28,417,530
231,715 Bankers Trust New York Corp. (CUS) 28,616,803
446,068 CIGNA Corp. 30,555,658
330,905 Citicorp 49,346,200
277,845 Crestar Financial Corp. 15,958,722
352,345 Federal National Mortgage Association 21,096,657
369,760 First Chicago NBD Corp. 32,330,890
275,600 Firstar Corp. 10,111,075
166,815 Fleet Financial Group, Inc. 13,678,830
481,755 Hibernia Corp. Class A 10,116,855
591,240 KeyCorp 22,430,168
217,665 Mercantile Bancorporation, Inc. 11,128,123
239,220 Merrill Lynch & Co., Inc. 21,410,190
240,075 Morgan (J.P.) & Co., Inc. 29,814,314
316,680 National City Corp. 21,455,070
593,990 PNC Bank Corp. 34,302,923
212,685 Summit Bancorp 10,660,836
154,330 SunTrust Banks, Inc. 12,192,070
254,000 The Equitable Companies, Inc. 17,494,250
381,445 Travelers Group, Inc. 23,268,145
240,330 Union Planters Corp. 14,059,305
289,030 Washington Mutual, Inc. 20,412,744
87,270 Wells Fargo & Co. 31,548,105
--------------
603,506,012
Medical Supplies and Devices (1.4%)
- -------------------------------------------------------------------------------------------------------------------------------
700,610 Baxter International, Inc. 40,066,134
Metals and Mining (0.9%)
- -------------------------------------------------------------------------------------------------------------------------------
358,525 Aluminum Co. of America 24,872,672
Oil and Gas (10.3%)
- -------------------------------------------------------------------------------------------------------------------------------
703,490 Amoco Corp. 29,414,676
334,400 Atlantic Richfield Co. 26,375,800
420,637 British Petroleum PLC ADR (United Kingdom) 37,278,954
335,364 Coastal Corp. 23,643,162
188,600 Cooper Cameron Corp. (NON) 11,221,700
415,275 Elf Aquitane ADR (France) 28,472,292
497,048 Exxon Corp. 35,041,884
525,095 Kerr-McGee Corp. 33,212,259
350,340 Mobil Corp. 27,326,520
492,155 Sonat, Inc. 19,286,324
705,345 Tosco Corp. 22,394,704
--------------
293,668,275
Packaging and Containers (1.5%)
- -------------------------------------------------------------------------------------------------------------------------------
986,170 Owens-Illinois, Inc. (NON) 44,316,014
Paper and Forest Products (1.2%)
- -------------------------------------------------------------------------------------------------------------------------------
657,260 Boise Cascade Corp. 21,936,053
353,055 International Paper Co. 16,240,530
--------------
38,176,583
Pharmaceuticals (8.2%)
- -------------------------------------------------------------------------------------------------------------------------------
845,734 American Home Products Corp. 40,859,524
402,075 Bristol-Myers Squibb Co. 43,223,063
280,913 Glaxo Wellcome PLC ADR (United Kingdom) 15,151,745
405,065 Johnson & Johnson 27,974,802
407,275 Merck & Co., Inc. 47,676,630
1,364,900 Pharmacia & Upjohn, Inc. 60,311,519
--------------
235,197,283
Photography (1.0%)
- -------------------------------------------------------------------------------------------------------------------------------
407,230 Eastman Kodak Co. 29,066,041
Publishing (1.8%)
- -------------------------------------------------------------------------------------------------------------------------------
280,000 McGraw-Hill, Inc. 21,892,500
441,705 Times Mirror Co. Class A 28,269,120
--------------
50,161,620
Real Estate (0.7%)
- -------------------------------------------------------------------------------------------------------------------------------
433,097 Starwood Lodging Trust 20,436,765
Retail (3.2%)
- -------------------------------------------------------------------------------------------------------------------------------
1,641,680 K mart Corp. (NON) 31,807,550
376,100 Penney (J.C.) Co., Inc. 27,008,681
178,620 Sears, Roebuck & Co. 11,040,949
791,235 Toys R Us (NON) 20,967,728
--------------
90,824,908
Transportation (0.6%)
- -------------------------------------------------------------------------------------------------------------------------------
216,300 UAL Corp. (NON) 17,182,331
Utilities (6.2%)
- -------------------------------------------------------------------------------------------------------------------------------
555,005 American Telephone & Telegraph Co. 33,785,929
615,055 Ameritech Corp. 26,101,397
413,795 GTE Corp. 24,129,421
859,350 SBC Communications, Inc. 33,407,231
411,490 Sprint Corp. 29,524,408
595,140 US West Communications Group 30,203,355
--------------
177,151,741
--------------
Total Common Stocks (cost $2,449,319,411) $2,802,120,881
SHORT-TERM INVESTMENTS (2.1%) (a) (cost $60,027,500)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
$60,000,000 Interest in $453,400,000 joint repurchase agreement
dated May 29, 1998 with First Boston due June 1, 1998
with respect to various U.S. Treasury obligations --
maturity value of $60,027,500 for an effective yield
of 5.5% $ 60,027,500
- -------------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,509,346,911) (b) $2,862,148,381
- -------------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,863,651,920.
(b) The aggregate identified cost on a tax basis is $2,511,083,061, resulting in gross unrealized appreciation and
depreciation of $421,844,973 and $70,779,653, respectively, or net unrealized appreciation of $351,065,320.
(NON) Non-income-producing security.
(CUS) This entity provides subcustodian services to the fund.
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
May 31, 1998 (Unaudited)
<S> <C>
Assets
- -------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $2,509,346,911) (Note 1) $2,862,148,381
- -------------------------------------------------------------------------------------------------
Cash 4,925,377
- -------------------------------------------------------------------------------------------------
Dividends and other receivables 4,196,611
- -------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 6,119,181
- -------------------------------------------------------------------------------------------------
Receivable for securities sold 9,504,690
- -------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 42,036
- -------------------------------------------------------------------------------------------------
Total assets 2,886,936,276
Liabilities
- -------------------------------------------------------------------------------------------------
Payable for securities purchased 14,360,488
- -------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,368,228
- -------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,706,629
- -------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 545,210
- -------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 24,664
- -------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,328
- -------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,004,917
- -------------------------------------------------------------------------------------------------
Other accrued expenses 268,892
- -------------------------------------------------------------------------------------------------
Total liabilities 23,284,356
- -------------------------------------------------------------------------------------------------
Net assets $2,863,651,920
Represented by
- -------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,327,386,921
- -------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (8,298,720)
- -------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 191,762,249
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 352,801,470
- -------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,863,651,920
Computation of net asset value and offering price
- -------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,223,887,731 divided by 82,951,790 shares) $14.75
- -------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $14.75)* $15.65
- -------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,468,673,846 divided by 100,340,534 shares)** $14.64
- -------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($171,090,343 divided by 11,650,273 shares) $14.69
- -------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $14.69)* $15.22
- -------------------------------------------------------------------------------------------------
* 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
Six months ended May 31, 1998 (Unaudited)
<S> <C>
Investment income:
- -------------------------------------------------------------------------------------------------
Dividends $ 24,803,181
- -------------------------------------------------------------------------------------------------
Interest 1,705,998
- -------------------------------------------------------------------------------------------------
Total investment income 26,509,179
Expenses:
- -------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 6,945,478
- -------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,368,689
- -------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 19,041
- -------------------------------------------------------------------------------------------------
Administrative services (Note 2) 14,996
- -------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,446,896
- -------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 6,898,563
- -------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 614,215
- -------------------------------------------------------------------------------------------------
Amortization of organization costs (Note 1) 14,189
- -------------------------------------------------------------------------------------------------
Reports to shareholders 88,040
- -------------------------------------------------------------------------------------------------
Registration fees 122,889
- -------------------------------------------------------------------------------------------------
Auditing 28,875
- -------------------------------------------------------------------------------------------------
Legal 11,813
- -------------------------------------------------------------------------------------------------
Postage 86,494
- -------------------------------------------------------------------------------------------------
Other 154,503
- -------------------------------------------------------------------------------------------------
Total expenses 18,814,681
- -------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (194,619)
- -------------------------------------------------------------------------------------------------
Net expenses 18,620,062
- -------------------------------------------------------------------------------------------------
Net investment income 7,889,117
- -------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 189,890,189
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 34,078,708
- -------------------------------------------------------------------------------------------------
Net gain on investments 223,968,897
- -------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $231,858,014
- -------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
May 31 November 30
1998* 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- -------------------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------------------
Net investment income $ 7,889,117 $ 19,766,887
- -------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 189,890,189 220,726,778
- -------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 34,078,708 144,052,724
- -------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 231,858,014 384,546,389
- -------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (9,071,845) (12,425,842)
- -------------------------------------------------------------------------------------------------------------------
Class B (6,204,486) (8,358,230)
- -------------------------------------------------------------------------------------------------------------------
Class M (911,506) (1,304,870)
- -------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (90,474,399) (36,557,662)
- -------------------------------------------------------------------------------------------------------------------
Class B (108,192,810) (44,191,902)
- -------------------------------------------------------------------------------------------------------------------
Class M (13,079,516) (5,533,255)
- -------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 414,277,012 673,059,214
- -------------------------------------------------------------------------------------------------------------------
Total increase in net assets 418,200,464 949,233,842
Net assets
- -------------------------------------------------------------------------------------------------------------------
Beginning of period 2,445,451,456 1,496,217,614
- -------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess
of net investment income of $8,298,720 and $--, respectively) $2,863,651,920 $2,445,451,456
- -------------------------------------------------------------------------------------------------------------------
* Unaudited
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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 Jan. 5, 1995+
operating performance (Unaudited) Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $14.87 $13.11 $11.01 $8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .08 .19(d) .23 .15
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.20 2.52 2.41 2.45
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities 1.28 2.71 2.64 2.60
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.12) (.20) (.21) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.28) (.75) (.33) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.40) (.95) (.54) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.75 $14.87 $13.11 $11.01
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 9.49* 22.29 24.95 30.62*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,223,888 $1,051,276 $637,204 $250,328
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .49* 1.00 1.09 1.35*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .50* 1.40 1.92 2.03*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 43.91* 74.51 83.97 64.18*
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0487 $.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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 Jan. 5, 1995+
operating performance (Unaudited) Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $14.77 $13.03 $10.96 $8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .02(d) .09(d) .15 .11
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.20 2.51 2.39 2.42
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities 1.22 2.60 2.54 2.53
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.07) (.11) (.14) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.28) (.75) (.33) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.35) (.86) (.47) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.64 $14.77 $13.03 $10.96
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 9.09* 21.42 23.98 29.72*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,468,674 $1,242,817 $763,438 $259,789
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .86* 1.75 1.84 2.03*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .12* .65 1.17 1.36*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 43.91* 74.51 83.97 64.18*
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0487 $.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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 Jan. 5, 1995+
operating performance (Unaudited) Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $14.81 $13.06 $10.98 $8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .04 .13(d) .18 .12
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.20 2.51 2.39 2.43
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities 1.24 2.64 2.57 2.55
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.08) (.14) (.16) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.28) (.75) (.33) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.36) (.89) (.49) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.69 $14.81 $13.06 $10.98
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 9.26* 21.73 24.28 30.04*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $171,090 $151,359 $95,576 $33,406
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .74* 1.50 1.59 1.80*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .25* .90 1.42 1.58*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 43.91* 74.51 83.97 64.18*
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0487 $.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
May 31, 1998 (Unaudited)
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 within approximately six to 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 six months ended May 31, 1998, the fund
had no borrowings against the line of 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. 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.
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 six months ended May 31, 1998, fund expenses were reduced by $194,619
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 Trustee fee, of which $2,120 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 six months ended May 31, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $680,307 and $44,396 from the sale of
class A and class M shares, respectively and $957,391 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 six
months ended May 31, 1998, Putnam Mutual Funds Corp., acting as underwriter
received $3,278 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended May 31, 1998, purchases and sales of investment
securities other than short-term investments aggregated $1,338,150,644 and
$1,153,456,977, 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 May 31, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
May 31, 1998
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 11,668,531 $169,263,306
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 7,092,618 95,894,488
- ------------------------------------------------------------
18,761,149 265,157,794
Shares
repurchased (6,489,620) (94,793,651)
- ------------------------------------------------------------
Net increase 12,271,529 $170,364,143
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
May 31, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 14,445,918 $207,806,333
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 8,033,001 107,821,328
- ------------------------------------------------------------
22,478,919 315,627,661
Shares
repurchased (6,304,379) (91,339,259)
- ------------------------------------------------------------
Net increase 16,174,540 $224,288,402
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
May 31, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 1,543,045 $22,365,187
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 986,568 13,276,790
- ------------------------------------------------------------
2,529,613 35,641,977
Shares
repurchased (1,099,452) (16,017,510)
- ------------------------------------------------------------
Net increase 1,430,161 $19,624,467
- ------------------------------------------------------------
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
- ------------------------------------------------------------
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
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
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
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
- --------------------
SA023-43750 949/990/096 7/98
