Putnam
Growth and
Income
Fund II
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-98
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Although value stocks have underperformed growth stocks during the
past four years, history has shown that value and growth styles
alternate in leading the market. While it is impossible to predict
when the performance of the two styles might converge, dividend-
paying value stocks remain attractive because they tend to be less
volatile over long holding periods."
-- Anthony I. Kreisel, fund manager
* "Top value managers tend to suffer minimal losses in downturns while
lagging growth funds (which own more highly valued stocks) only
somewhat during bull periods. Because of their steady results, value
funds make ideal core holdings."
-- Individual Investor, November 1998
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
18 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
During the challenging and volatile market environment that prevailed
throughout Putnam Growth and Income Fund II's fiscal 1998, your fund
delivered a total return consistent with the stock market's long-term
performance. While some might find this result somewhat restrained in
terms of the market's runaway performance in recent years, it speaks
well for the fund's strategy of seeking long-term growth through
attractively priced stocks of companies undergoing positive change.
Rather than pursuing investments that offer instant gratification, Fund
Manager Anthony Kreisel looks for those that should deliver solid long-
term results. For example, during the recent market decline, he was able
to acquire a number of technology stocks at significantly reduced
prices. These are holdings that he is confident shareholders will be
able to look back on with satisfaction.
In the following report, Tony discusses fiscal 1998 performance and
shares some of his expectations for the market and economic environment
in the months to come.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 20, 1999
Report from the Fund Manager
Anthony I. Kreisel
In spite of unusual volatility in the stock market, Putnam Growth and
Income Fund II posted solid gains in its fiscal year, which ended
November 30, 1998. After experiencing sharp declines in July and August,
the undervalued large-company stocks in which the fund invests
recovered, with many of them approaching new highs again in November. In
contrast with their performance earlier in the year, value stocks
generally kept pace with the broader market during the recovery. This
trend represents a welcome change from the period prior to July, which
was characterized by the dramatic gains of a small number of large-cap
growth stocks. For the year ended November 30, the fund's class A shares
gained 10.97% at NAV (4.57% at POP). For long-term performance results
and returns for other share classes, please turn to the performance
summary that begins on page 9 of this report.
* EARNINGS UNCERTAINTY PLAGUES STOCKS
Although your fund's return for its 1998 fiscal year approximates the
average annual return that the stock market has earned over long
periods, 1998 was hardly an average year. Following the global business
slowdown that began in late 1997, economists, security analysts, and
investors struggled to forecast growth rates and corporate profit
margins. Month after month, U.S. economic reports showed continuing
domestic growth even as corporate profit margins were shrinking. Large-
company stocks were hit hardest during the summer, when Russia's
decision to restructure its foreign debts prompted global investors to
reduce their overall equity holdings including U.S. stocks.
Our analysis of these conditions recommended cautious confidence. A U.S.
recession was unlikely, we believed, because of healthy corporate
balance sheets and continuing consumer spending. Meanwhile, both fiscal
and monetary policy tools were available to counter any shocks. As we
executed our investment process, which seeks established companies
priced below their long-term worth and experiencing positive internal
change, we encountered many new buying opportunities. Stocks that
combine "cheapness and change," in our view, are well positioned to
perform competitively over the long term while being subject to less
risk than the overall stock market. Our confidence allowed us to take
advantage of lower stock prices at the same time that competitive
pressures were forcing companies to adopt positive changes. The market's
recovery since September and the performance of many of the fund's
holdings, we believe, have proved the merits of our independent research
process. We guard, as ever, against volatility, but the Federal Reserve
Board has reassured the market with its decisions to cut interest rates
three times this past autumn.
* FUND SEIZES OPPORTUNITIES IN TECHNOLOGY
Because technology stocks are often quite expensive, a value fund such
as yours does not often concentrate holdings in this sector. However,
technology came under unusual pressure early in the fiscal year and
presented us with a number of opportunities. Declining capital spending
in Asia and a build-up of domestic computer inventories dealt a one-two
punch to the tech sector and many stocks suffered a steep decline. Our
research, however, affirmed our confidence in the industry's long-term
potential, and so we decided to add to existing holdings and establish
some new positions.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance
and finance 23.6%
Utilities 13.0%
Oil and gas 9.5%
Pharmaceuticals 8.5%
Electronics and
electrical equipment 6.5%
Footnote reads:
*Based on net assets as of 11/30/98. Holdings will vary over time.
IBM and Texas Instruments are long-term fund holdings with relatively
low valuations and attractive stories of internal change. IBM, for
example, has become a more formidable competitor in computer services
during recent years and has been following through on one of the largest
share repurchase programs among all U.S. companies. Texas Instruments
has shrewdly moved from the glutted market for DRAM computer chips and
defense contracting to an emerging field of technology, digital signal
processors. These innovative devices convert analog data to digital
commands and will have applications for much broader use than other
computer chips. While subject to the market's overall volatility, both
IBM and Texas Instruments rallied strongly during advances this year.
Our research also gave us upbeat expectations for Sun Microsystems and
Intel. In early 1998, Sun was under pressure because analysts feared
competition for its UNIX operating system, while Intel's industry
dominance was imperiled by the rise of cheaper memory chips for use in
PCs priced below $1,000. We liked Sun because the computer servers it
manufactures are in strong demand from Internet service providers, and
Intel, we believe, responded appropriately to the changing competitive
environment. Both stocks have performed well in the last few months of
the fiscal year and we have looked for opportunities to take profits.
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.
* LONG-TERM HOLDINGS EXECUTE INTERNAL CHANGES
As we mentioned above, we perform extensive company-by-company research
to identify corporations that are enacting positive changes that can
make them leaders in their respective industries and boost their
earnings growth in coming years. Two long-term holdings have begun to
harvest the fruits of change this year. Under new executive leadership
this year, Pharmacia & Upjohn, one of the fund's top 10 holdings, has
cleared many obstacles. It has impressive new drugs in its product
pipeline and is now beginning to earn the higher price multiples
characteristic of other global pharmaceutical companies. We are
monitoring it to make sure it still fits our value parameters.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Xerox Corp.
Business equipment and services
BankAmerica Corp.
Insurance and finance
IBM Corp.
Computer services and software
Merck & Co., Inc.
Pharmaceuticals
Pharmacia & Upjohn, Inc.
Pharmaceuticals
Citigroup, Inc.
Insurance and finance
Texas Instruments, Inc.
Electronics and electrical equipment
Philip Morris Cos., Inc.
Consumer non durables
AT&T Corp.
Utilities
Exxon Corp.
Oil and gas
Footnote reads:
These holdings represent 20.7% of the fund's net assets as of 11/30/98.
Portfolio holdings will vary over time.
AT&T Corporation, after setbacks in recent years, has made progress on
several fronts, attacking its bloated cost structure and concentrating
its business development on highly profitable areas. It has laid out a
clear strategy for expanding its Internet services by gaining access to
household subscribers through its acquisitions of Tele-Communications,
Inc. and Teleport Communications. A joint effort with British Telecom
should enable AT&T to expand its international distribution. The stock
has already responded favorably to these moves and we are confident that
AT&T will be able to flex its muscles in coming years.
* ECONOMY STABLE BUT PROFIT GROWTH UNCERTAIN
As we look ahead to 1999, we have reason for both optimism and caution.
The overall economic situation is favorable with growth, low inflation,
and low interest rates, but the unclear picture for corporate profits
and continuing recessions abroad leave U.S. stocks vulnerable to
volatility. Before the market can advance meaningfully, investors will
need greater confidence in the long-term outlook for corporate profits,
which may take a few more quarters to clarify. For your fund, though,
improved relative performance since the summer slump is cause for
optimism. Investors seem to be appraising the relative attractiveness of
undervalued, dividend-paying stocks more appropriately. As international
markets work through their imbalances in the coming year, the stage
could be set for stronger global economic growth. Since many of the
fund's holdings tend to do well during upswings in the business cycle,
this could bode well for the fund in fiscal 1999.
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 11/30/98, 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 11/30/98
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 10.97% 4.57% 10.07% 5.07% 10.37% 6.49%
- ------------------------------------------------------------------------
Life of fund 121.46 108.74 114.92 111.92 117.13 109.52
Annual average 22.61 20.77 21.67 21.24 21.99 20.88
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/98
S&P 500(registered trademark) Consumer
Index Price Index
- ------------------------------------------------------------------------
1 year 23.66% 1.55%
- ------------------------------------------------------------------------
Life of fund 174.28 9.55
Annual average 29.40 2.36
- ------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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
11/30/98. 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.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 1/5/95
Fund's class A S&P 500 Consumer Price
Date shares at POP Index Index
1/5/95 9,425 10,000 10,000
11/30/95 12,311 13,498 10,261
11/30/96 15,383 17,259 10,595
11/30/97 18,811 22,180 10,788
11/30/98 $20,874 $27,428 $10,955
Footnote reads:
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 $21,492 ($21,192 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 $21,713 ($20,952 at public offering price).
PRICE AND DISTRIBUTION INFORMATION
12 months ended 11/30/98
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 4 4 4
- ------------------------------------------------------------------------
Income $0.139 $0.034 $0.066
- ------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------
Long-term 0.733 0.733 0.733
- ------------------------------------------------------------------------
Short-term 0.646 0.646 0.646
- ------------------------------------------------------------------------
Total $1.518 $1.413 $1.445
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
11/30/97 $14.87 $15.78 $14.77 $14.81 $15.35
- ------------------------------------------------------------------------
11/30/98 14.82 15.72 14.70 14.75 15.28
- ------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 12/31/98
(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
- ------------------------------------------------------------------------
1 year 12.46% 5.96% 11.57% 6.57% 11.86% 7.99%
- ------------------------------------------------------------------------
Life of fund 127.16 114.11 120.21 117.21 122.60 114.80
Annual average 22.83 21.02 21.88 21.46 22.21 21.12
- ------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. 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 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 5.75% maximum 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.
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.
Report of independent accountants
For the fiscal year ended November 30, 1998
To the Trustees and Shareholders of
Putnam Growth and Income Fund II
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, and the related statements
of operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Putnam Growth and Income Fund II (the "fund") at November 30, 1998, and
the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements")
are the responsibility of the fund's management; our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at November
30, 1998 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 12, 1999
<TABLE>
<CAPTION>
Portfolio of investments owned
November 30, 1998
COMMON STOCKS (98.6%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Aerospace and Defense (0.7%)
- --------------------------------------------------------------------------------------------
260,305 Raytheon Co. Class A $ 14,235,430
110,000 Raytheon Co. Class B 6,091,250
--------------
20,326,680
Automotive (3.2%)
- --------------------------------------------------------------------------------------------
169,300 Dana Corp. 6,602,700
598,740 Ford Motor Co. 33,080,385
464,915 General Motors Corp. 32,544,050
379,225 Goodyear Tire & Rubber Co. (The) 21,521,019
--------------
93,748,154
Basic Industrial Products (1.8%)
- --------------------------------------------------------------------------------------------
637,720 Deere (John) & Co. 22,280,343
375,700 Minnesota Mining & Manufacturing Co. 30,173,406
--------------
52,453,749
Business Equipment and Services (2.7%)
- --------------------------------------------------------------------------------------------
178,130 Pitney Bowes, Inc. 9,975,280
622,436 Xerox Corp. 66,911,870
--------------
76,887,150
Chemicals (2.4%)
- --------------------------------------------------------------------------------------------
668,600 du Pont (E.I.) de Nemours & Co., Ltd. 39,280,250
347,014 Eastman Chemical Co. 20,105,124
587,210 Witco Chemical Corp. 11,193,691
--------------
70,579,065
Communications (0.7%)
- --------------------------------------------------------------------------------------------
534,755 MediaOne Group Inc. (NON) 21,657,578
Computer Equipment (2.2%)
- --------------------------------------------------------------------------------------------
1,210,275 Compaq Computer Corp. 39,333,938
332,770 Sun Microsystems, Inc. (NON) 24,645,778
--------------
63,979,716
Computer Services and Software (2.2%)
- --------------------------------------------------------------------------------------------
391,197 IBM Corp. 64,547,505
Consumer Durable Goods (0.9%)
- --------------------------------------------------------------------------------------------
720,400 Hasbro, Inc. 25,259,025
Consumer Non Durables (4.0%)
- --------------------------------------------------------------------------------------------
235,320 Clorox Co. 26,135,228
363,370 Colgate-Palmolive Co. 31,113,556
1,045,265 Philip Morris Cos., Inc. 58,469,511
--------------
115,718,295
Electronics and Electrical Equipment (6.5%)
- --------------------------------------------------------------------------------------------
389,985 Emerson Electric Co. 25,349,025
233,685 General Electric Co. 21,148,493
429,595 Intel Corp. 46,235,162
520,755 Motorola, Inc. 32,286,810
57,900 Rockwell International Corp. 2,833,481
797,230 Texas Instruments, Inc. 60,888,441
--------------
188,741,412
Environmental Control (0.5%)
- --------------------------------------------------------------------------------------------
337,635 Waste Management, Inc. 14,476,101
Food and Beverages (5.1%)
- --------------------------------------------------------------------------------------------
551,680 Anheuser-Busch Cos., Inc. 33,445,600
280,160 General Mills, Inc. 21,152,080
394,675 Heinz (H.J.) Co. 23,014,486
349,670 Sara Lee Corp. 20,411,986
357,615 The Quaker Oats Co. 21,948,621
1,184,445 Whitman Corp. 26,798,068
--------------
146,770,841
Forest Products (0.8%)
- --------------------------------------------------------------------------------------------
688,860 Boise Cascade Corp. 21,828,251
Insurance and Finance (23.6%)
- --------------------------------------------------------------------------------------------
252,445 Aetna Inc. 19,517,154
600,020 Allstate Corp. 24,450,815
180,205 American Express Co. 18,031,763
516,790 American General Corp. 36,401,396
361,195 AON Corp. 20,813,862
801,929 Bank One Corp. 41,148,982
1,001,105 BankAmerica Corp. 65,259,532
676,590 BankBoston Corp. 28,163,059
409,070 Chase Manhattan Corp. 25,950,378
490,193 CIGNA Corp. 38,143,143
1,224,007 Citigroup, Inc. 61,429,851
481,860 Fannie Mae 35,055,315
231,970 First Union Corp. 14,092,178
519,450 Fleet Financial Group, Inc. 21,654,572
684,505 Lehman Brothers Holding, Inc. 34,182,468
384,690 Mercantile Bancorpation, Inc. 16,950,403
369,005 Merrill Lynch & Co., Inc. 27,675,375
305,655 Morgan (J.P.) & Co., Inc. 32,666,878
333,280 National City Corp. 22,413,080
457,230 PNC Bank Corp. 23,575,922
214,885 Summit Bancorp 8,984,879
235,500 The Equitable Companies, Inc. 13,011,375
586,760 Washington Mutual, Inc. 22,736,950
880,700 Wells Fargo Co. 31,705,200
--------------
684,014,530
Medical Supplies and Devices (1.3%)
- --------------------------------------------------------------------------------------------
594,735 Baxter International, Inc. 37,802,843
Oil and Gas (9.5%)
- --------------------------------------------------------------------------------------------
571,250 Atlantic Richfield Co. 37,988,125
299,504 British Petroleum PLC ADR (United Kingdom) 27,591,806
340,465 Chevron, Inc. 28,471,386
677,528 Coastal Corp. 23,628,789
263,000 Conoco, Inc. (NON) 6,229,813
626,693 Exxon Corp. 47,041,143
555,560 Halliburton Co. 16,319,575
530,395 Kerr-McGee Corp. 20,950,603
353,840 Mobil Corp. 30,496,585
737,165 Sonat, Inc. 21,884,586
608,365 Tosco Corp. 15,893,536
--------------
276,495,947
Packaging and Containers (1.1%)
- --------------------------------------------------------------------------------------------
950,400 Owens-Illinois, Inc. (NON) 30,531,600
Pharmaceuticals (8.5%)
- --------------------------------------------------------------------------------------------
859,329 American Home Products Corp. 45,759,269
371,500 Bristol-Myers Squibb Co. 45,531,969
334,230 Johnson & Johnson 27,156,188
411,375 Merck & Co., Inc. 63,711,703
1,211,655 Pharmacia & Upjohn, Inc. 63,081,788
--------------
245,240,917
Photography (0.9%)
- --------------------------------------------------------------------------------------------
347,830 Eastman Kodak Co. 25,239,414
Publishing (1.4%)
- --------------------------------------------------------------------------------------------
166,745 McGraw-Hill, Inc. 14,923,678
446,205 Times Mirror Co. Class A 26,158,768
--------------
41,082,446
Restaurants (0.7%)
- --------------------------------------------------------------------------------------------
295,145 McDonald's Corp. 20,678,597
Retail (3.4%)
- --------------------------------------------------------------------------------------------
357,700 Federated Department Stores, Inc. (NON) 14,911,619
1,433,170 K mart Corp. (NON) 21,855,843
379,900 Penney (J.C.) Co., Inc. 20,894,500
538,590 Sears, Roebuck & Co. 25,549,363
799,335 Toys R Us (NON) 15,786,866
--------------
98,998,191
Transportation (1.5%)
- --------------------------------------------------------------------------------------------
632,067 Burlington Northern Santa Fe Corp. 21,490,278
1,054,515 Southwest Airlines Co. 22,672,073
--------------
44,162,351
Utilities (13.0%)
- --------------------------------------------------------------------------------------------
379,560 ALLTEL Corp. 20,116,680
764,915 American Telephone & Telegraph Corp. 47,663,766
360,755 Ameritech Corp. 19,525,864
525,175 Consolidated Edison, Inc. 26,685,455
491,380 Dominion Resources, Inc. 22,695,614
385,000 Duke Energy Corp. 24,086,563
725,700 Edison International 19,956,750
839,205 Entergy Corp. 24,599,197
620,305 GTE Corp. 38,458,910
868,050 SBC Communications, Inc. 41,612,147
345,195 Sprint Corp. 25,112,944
506,590 Texas Utilities Co. 22,574,917
688,507 U S West, Inc. 42,859,561
--------------
375,948,368
--------------
Total Common Stocks (cost $2,532,892,724) $2,857,168,726
CONVERTIBLE PREFERRED STOCKS (0.4%) (a) (cost $10,548,816)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------
181,485 MediaOne Group Inc. $6.25 cv. pfd. (NON) $ 10,185,838
SHORT-TERM INVESTMENTS (1.6%)(a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$25,000,000 Eureka Securitization, effective yield of 5.17%,
December 7, 1998 $ 24,978,458
2,000,000 Metlife Funding Inc., effective yield of 5.13%,
December 3, 1998 1,999,430
20,198,000 Interest in $525,650,000 joint repurchase agreement
dated November 30, 1998 with SBC Warburg due
December 1, 1998 with respect to various U.S. Treasury
obligations -- maturity value of $20,200,974 for an
effective yield of 5.30% 20,200,974
--------------
Total Short-Term Investments (cost $47,178,862) $ 47,178,862
- --------------------------------------------------------------------------------------------
Total Investments (cost $2,590,620,402) (b) $2,914,533,426
- --------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,897,647,650.
(b) The aggregate identified cost on a tax basis is $2,595,994,091, resulting in gross
unrealized appreciation and depreciation of $461,686,481 and $143,147,146, respectively,
or net unrealized appreciation of $318,539,335.
(NON) Non-income-producing security.
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, 1998
<S> <C>
Assets
- --------------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $2,590,620,402) (Note 1) $2,914,533,426
- --------------------------------------------------------------------------------------------------------
Dividends and other receivables 5,428,039
- --------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,919,456
- --------------------------------------------------------------------------------------------------------
Receivable for securities sold 8,234,039
- --------------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 42,036
- --------------------------------------------------------------------------------------------------------
Total assets 2,931,156,996
Liabilities
- --------------------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 2,685,246
- --------------------------------------------------------------------------------------------------------
Distributions payable to shareholders 520,892
- --------------------------------------------------------------------------------------------------------
Payable for securities purchased 21,013,597
- --------------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 3,336,765
- --------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,432,050
- --------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 262,025
- --------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 27,488
- --------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,293
- --------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,887,127
- --------------------------------------------------------------------------------------------------------
Other accrued expenses 338,863
- --------------------------------------------------------------------------------------------------------
Total liabilities 33,509,346
- --------------------------------------------------------------------------------------------------------
Net assets $2,897,647,650
Represented by
- --------------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,349,717,596
- --------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 224,017,030
- --------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 323,913,024
- --------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,897,647,650
Computation of net asset value and offering price
- --------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,241,384,005 divided by 83,742,280 shares) $14.82
- --------------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $14.82)* $15.72
- --------------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,480,683,080 divided by 100,709,265 shares)** $14.70
- --------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($169,631,239 divided by 11,498,965 shares) $14.75
- --------------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $14.75)* $15.28
- --------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class Y share
($5,949,326 divided by 401,047 shares) $14.83
- --------------------------------------------------------------------------------------------------------
* 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, 1998
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $95,373) $ 51,521,500
- --------------------------------------------------------------------------------------------------------
Interest 2,648,150
- --------------------------------------------------------------------------------------------------------
Total investment income 54,169,650
Expenses:
- --------------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 14,029,026
- --------------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 4,058,860
- --------------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 41,179
- --------------------------------------------------------------------------------------------------------
Administrative services (Note 2) 30,865
- --------------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,923,345
- --------------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 13,964,675
- --------------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,223,756
- --------------------------------------------------------------------------------------------------------
Amortization of organization costs (Note 1) 14,189
- --------------------------------------------------------------------------------------------------------
Reports to shareholders 163,229
- --------------------------------------------------------------------------------------------------------
Registration fees 126,153
- --------------------------------------------------------------------------------------------------------
Auditing 68,660
- --------------------------------------------------------------------------------------------------------
Legal 21,845
- --------------------------------------------------------------------------------------------------------
Postage 453,448
- --------------------------------------------------------------------------------------------------------
Other 390,419
- --------------------------------------------------------------------------------------------------------
Total expenses 37,509,649
- --------------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (487,175)
- --------------------------------------------------------------------------------------------------------
Net expenses 37,022,474
- --------------------------------------------------------------------------------------------------------
Net investment income 17,147,176
- --------------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 238,908,465
- --------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 5,190,262
- --------------------------------------------------------------------------------------------------------
Net gain on investments 244,098,727
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $261,245,903
- --------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended November 30
----------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- --------------------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------------------
Net investment income $ 17,147,176 $ 19,766,887
- --------------------------------------------------------------------------------------------------------
Net realized gain on investments 238,908,465 220,726,778
- --------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 5,190,262 144,052,724
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 261,245,903 384,546,389
- --------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------------------
From net investment income
Class A (11,930,300) (12,425,842)
- --------------------------------------------------------------------------------------------------------
Class B (4,389,527) (8,358,230)
- --------------------------------------------------------------------------------------------------------
Class M (840,741) (1,304,870)
- --------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (97,636,949) (36,557,662)
- --------------------------------------------------------------------------------------------------------
Class B (116,758,295) (44,191,902)
- --------------------------------------------------------------------------------------------------------
Class M (14,114,976) (5,533,255)
- --------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 436,621,079 673,059,214
- --------------------------------------------------------------------------------------------------------
Total increase in net assets 452,196,194 949,233,842
Net assets
- --------------------------------------------------------------------------------------------------------
Beginning of year 2,445,451,456 1,496,217,614
- --------------------------------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $-- and --, respectively) $2,897,647,650 $2,445,451,456
- --------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
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 .15(c) .19(c) .23 .15
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.32 2.52 2.41 2.45
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities 1.47 2.71 2.64 2.60
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.14) (.20) (.21) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.38) (.75) (.33) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.52) (.95) (.54) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.82 $14.87 $13.11 $11.01
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 10.97 22.29 24.95 30.62*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,241,384 $1,051,276 $637,204 $250,328
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .96 1.00 1.09 1.35*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.04 1.40 1.92 2.03*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 81.62 74.51 83.97 64.18*
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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) 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
- ------------------------------------------------------------------------------------------------------------------------------------
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 .04(c) .09(c) .15 .11
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.30 2.51 2.39 2.42
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities 1.34 2.60 2.54 2.53
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.03) (.11) (.14) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.38) (.75) (.33) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.41) (.86) (.47) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.70 $14.77 $13.03 $10.96
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 10.07 21.42 23.98 29.72*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,480,683 $1,242,817 $763,438 $259,789
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.71 1.75 1.84 2.03*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .29 .65 1.17 1.36*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 81.62 74.51 83.97 64.18*
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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) 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
- ------------------------------------------------------------------------------------------------------------------------------------
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 .08(c) .13(c) .18 .12
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.31 2.51 2.39 2.43
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities 1.39 2.64 2.57 2.55
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.07) (.14) (.16) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.38) (.75) (.33) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.45) (.89) (.49) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.75 $14.81 $13.06 $10.98
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 10.37 21.73 24.28 30.04*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $169,631 $151,359 $95,576 $33,406
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.46 1.50 1.59 1.80*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .54 .90 1.42 1.58*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 81.62 74.51 83.97 64.18*
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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) 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 Y
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Oct 1, 1998+
operating performance to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $12.69
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .03(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 2.11
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities 2.14
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.83
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 16.86*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $5,949
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .12*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.82*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 81.62
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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) 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, 1998
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, class M and class Y shares. Effective
October 1, 1998, the fund began offering Class Y shares. Class A shares
are sold with a maximum front-end sales charge of 5.75%. Class B shares,
which convert to class A shares after approximately eight years, do not
pay a front-end sales charge but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
M shares are sold with a maximum front end sales charge of 3.50% and pay
an ongoing distribution fee that is higher than class A shares but lower
than class B shares. Class Y shares, which are sold at net asset value,
are generally subject to the same expenses as class A, class B, and
class M shares, but do not bear a distribution fee. Class Y shares are
sold to defined contribution plans that invest at least $250 million in
a combination of Putnam Funds and other accounts managed by affiliates
of Putnam Management.
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 that 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.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. 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, 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. These differences include temporary and permanent
differences of losses on wash sale transactions and organization costs.
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, 1998, the fund reclassified $13,392 to increase undistributed net
investment income and $13,392 to decrease paid-in-capital. 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.
As part of the subcustodian contract between the subcustodian bank and
Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam
Investments, Inc., the subcustodian bank has a lien on the securities of
the fund to the extent permitted by the fund's investment restrictions
to cover any advances made by the subcustodian bank for the settlement
of securities purchased by the fund. At November 30, 1998, the payable
to the subcustodian bank represents the amount due for cash advance for
the settlement of a security purchased.
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 PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended November 30, 1998, fund expenses were reduced by
$487,175 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 $2,320
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 have approved payment
by the fund at an annual rate of 0.25%, 1.00%, and 0.75% of the average
net assets attributable to class A, class B, and class M shares
respectively.
For the year ended November 30, 1998, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $1,145,486 and $73,547 from
the sale of class A and class M shares, respectively and received
$2,233,445 in contingent deferred sales charges from redemptions of
class B. A deferred sales charge of up to 1% is assessed on certain
redemptions of class A shares. For the year ended November 30, 1998,
Putnam Mutual Funds Corp., acting as underwriter received $7,582 on
class A redemptions.
Note 3
Purchases and sales of securities
During the year ended November 30, 1998, purchases and sales of
investment securities other than short-term investments aggregated
$2,427,894,171 and $2,198,093,052, 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
Year ended
November 30, 1998
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 20,442,932 $292,893,989
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 7,775,781 105,381,506
- ----------------------------------------------------
28,218,713 398,275,495
Shares
repurchased (15,156,694) (215,190,365)
- ----------------------------------------------------
Net increase 13,062,019 $183,085,130
- ----------------------------------------------------
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, 1998
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 23,784,618 $338,432,197
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 8,487,949 114,094,241
- ----------------------------------------------------
32,272,567 452,526,438
Shares
repurchased (15,729,296) (221,639,841)
- ----------------------------------------------------
Net increase 16,543,271 $230,886,597
- ----------------------------------------------------
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, 1998
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 2,642,075 $37,737,716
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,052,351 14,186,957
- ----------------------------------------------------
3,694,426 51,924,673
Shares
repurchased (2,415,573) (34,283,460)
- ----------------------------------------------------
Net increase 1,278,853 $17,641,213
- ----------------------------------------------------
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
- ----------------------------------------------------
For the period
October 1, 1998
(commencement of
operations) to
November 30, 1998
- ----------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------
Shares sold 482,326 $6,175,945
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ----------------------------------------------------
482,326 6,175,945
Shares
repurchased (81,279) (1,167,806)
- ----------------------------------------------------
Net increase 401,047 $5,008,139
- ----------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the
Fund hereby designates $197,239,486 as capital gain for its taxable year
ended November 30, 1998.
The fund has designated 83.71% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 1999 will show the tax status of
all distributions paid to your account in calendar 1998.
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
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice President
Jameson Adkins Baxter
Hans H. Estin
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
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' web site:
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
www.putnaminv.com
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
AN023-48660 949/990/096 1/99
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam Growth and Income Fund II
Supplement to Annual Report dated November 30, 1998
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to defined contribution plans, including corporate IRAs,
investing $150 million or more in one or more of Putnam's funds or private
accounts. Performance of class Y shares, which incur neither a front-end
load, distribution fee, nor contingent deferred sales charge, will differ
from performance of class A, class B, and class M shares, which are
discussed more extensively in the annual report.
ANNUAL RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return
for periods ended 11/30/98: NAV
1 year 15.30%
Life of fund (since class A inception, 1/5/95) 124.08
Annual average 22.97
- ----------------------------------------------------------------------------
Share value: NAV
October 1, 1998 $12.69
November 30, 1998 $14.83
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
1 0.069 1.135 1.204
- ----------------------------------------------------------------------------
Past performance is not indicative of future results. Class Y shares are
offered without an initial sales charge or CDSC. The class Y share returns
shown for periods before their inception (10/1/98) are derived from the
historical performance of class A shares for such periods, but have not been
adjusted to reflect differences in expenses, which are lower for class Y
shares than for class A shares. All returns assume reinvestment of
distributions at NAV. Investment return will fluctuate and may involve the
loss of principal. Performance of other share classes will vary. See full
report for information on comparative benchmarks. If you have questions,
please consult your fund prospectus or call Putnam toll free at
1-800-752-9894.
