Putnam
Equity
Income
Fund
[Artwork]
SEMIANNUAL REPORT
May 31, 1994
[Putnam Logo]
Boston * London * Tokyo
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PERFORMANCE HIGHLIGHTS
From December 1992 through May 31, 1994, under the management of Edward Bousa,
the fund's class A shares returned a total of 18.68% at net asset value and
11.87% at public offering price. With that performance, Lipper Analytical Ser-
vices placed the fund in the top 17% of its category.
Lipper also ranked the fund's class A shares in the top quartile of the 85 funds
tracked for 1-year performance as of 5/31/94.*
CDA/Wiesenberger ranked the fund's class A shares in the top quartile of the 82
funds tracked for 1-year performance as of 5/31/94. +
Performance should always be considered in light of a fund's investment strate-
gy. Putnam Equity Income Fund seeks current income by investing primarily in a
diversified portfolio of income-producing equity securities. Capital growth is
a secondary objective when consistent with seeking current income.
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SEMIANNUAL RESULTS AT A GLANCE
Six months ended 5/31/94 Class A Class B
Total return: NAV POP NAV CDSC
(change in value plus
reinvested earnings) 1.38% -4.46% 0.98% -3.99
Current return as of 5/31/94
Current dividend rate (1) 3.71% 3.49% 3.12%
Current 30-day SEC yield (2) 3.47% 3.27% 2.63%
Share value: NAV POP NAV
11/30/93 $8.67 $9.20 $8.65
5/31/94 $8.63 $9.16 $8.60
Distributions:
Income Total
Class A $0.160 $0.160
Class B $0.135 $0.135
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Performance data represent past results. For performance over longer periods,
see page 8. POP assumes 5.75% maximum sales charge. CDSC assumes 5% maximum
contingent deferred sales charge. (1) Income portion of most recent distribu-
tion annualized and divided by NAV or POP at end of period. (2) Based only
on investment income, calculated per SEC guidelines.
* Lipper Analytical Services is an independent research organization; rankings
vary over time and do not reflect the effects of sales charges. The fund's
class A shares ranked 37th out of 51 equity-income funds for 5 years and 18th
out of 22 for 10 years.
+ CDA/Wiesenberger rankings are updated monthly, based entirely on total return
and do not take into account sales charges or fees. The fund's class A shares
ranked 37 of 44 equity income funds for 5 years and 13 of 15 for 10 years as
of 5/31/94.
The fund's current lead investment manager assumed responsibility for the
fund on 12/7/92. Prior to 3/7/91, the fund operated under different invest-
ment objectives and policies.
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FROM THE CHAIRMAN [Photograph of George Putnam]
*(C) Karsh, Ottawa
Dear Shareholder:
As we move into the second half of 1994, preliminary evidence suggests that the
Federal Reserve Board's less accommodative monetary policy, coupled with the
growth-retarding effects of last year's tax increase, are being felt. Durable
goods orders, consumer spending, and disposable income have slowed substantially
and other leading indicators of economic activity are beginning to flatten out.
We expect this trend to continue.
If by year's end economic growth is slowing substantially more than many obser-
vers now expect, the stock market's attention would shift toward the longevity
of the business cycle and prospects for corporate earnings. At that point, the
market may be susceptible to another adjustment as investors reassess prospects
for corporate earnings in general.
In such an environment, therefore, the careful stock selection, sector analysis,
and conservative risk management for which Putnam Management is so well known,
will play an even more commanding role in the success of individual portfolio
performance. With Putnam+s emphasis on "bottom-up" research, Fund Manager Edward
Bousa is well-equipped to guide your fund through the unfolding events of coming
months.
Respectfully yours,
George Putnam
July 20, 1994
* (C) Copyright
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REPORT FROM THE FUND MANAGER
EDWARD P. BOUSA
After reaching historic highs, the stock market declined sharply in February,
March, and April. The drops came primarily in response to the Federal Reserve
Board's increases in short-term interest rates and investor uncertainty about
the effects the cuts might have on the growing economy. Inevitably, the market's
reaction affected Putnam Equity Income Fund's performance.
For the semiannual period, the fund produced a total return of 1.38% for class A
shares and 1.09% for class B shares at net asset value. These returns outpaced
the market's average 0.21% total return, as represented by the Standard & Poor's
500 (R)* Index.
VALUE STYLE FARED WELL
Your fund's basic value investment style - looking for stocks that are attrac-
tively priced relative to earnings - held its own during the market's volatility
in March and April. In fact, the fund's value declined less than many other
equity income funds during those months.
One of the most important factors in our stock selection is each company's po-
tential for successful change that could lead to an improved stock price. We
look for companies that are out of general market favor, but have good cash
flows and solid plans to work through problems. These often include a management
change or cost-cutting measures within a company. We believe this approach,
coupled with Putnam's extensive research capabilities, has enabled your fund to
perform well relative to its competitors in both up and down markets.
HIDDEN VALUE IN BANKS, REAL ESTATE
Your fund's positive performance at net asset value was as much a result of what
we invested in as what we decided against. Electric utility stocks, which are
sensitive to interest rate changes, were a key part of many equity income fund
portfolios over the period. And when interest rates began their trek upward,
these bond-like stock investments were hit hard.
* (R) Registered Mark
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In your fund, however, electric utilities made up less than 7% of fund assets,
so the negative effects were relatively minimal.
As the market skittishly anticipated further interest rate hikes, bank stocks
experienced general price declines. This situation offered some very good buys,
in our opinion. Through in-depth research, we uncovered some financial institu-
tions that demonstrated strong prospects for growth. These also have been yield-
ing significantly more than the average yield of the S&P 500. We particularly
liked the outlook for two large and respected firms, Bankers Trust New York
Corp. and J.P. Morgan & Co., Inc., and added to the fund's existing positions
during the period.
J.P. Morgan currently has the only triple-A credit rating of any stock in the
Dow Jones Industrial Average, one of the highest dividend rates, and an extreme-
ly strong growth rate compared to other companies in the Dow. The firm has busi-
ness relationships across the globe and offers a full range of services. Bankers
Trust is a worldwide leader in sophisticated financing and client-related risk
management products, which are playing increasingly important roles in the fi-
nancial services industry.
Real estate investments also helped your fund hold its value over the period.
Real estate, the traditional inflation hedge, has benefited from a stronger mar-
ket fueled by general inflation fears, growing housing starts, lower vacancies,
and rent increases. While real estate investments can be sensitive to economic
adversity, in-depth research has helped us select those issues we believe will
benefit the fund over time.
(Pie Chart)
INDUSTRY GROUPS AS OF 5/31/94
Insurance & finance ................ 18.1%
Utilities .......................... 16.3%
Oil & gas .......................... 9.4%
Consumer non-durables .............. 6.4%
Chemicals .......................... 6.0%
Based on a percentage of net assets. Holdings will vary.
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PARTICIPATING IN A WORLD ECONOMY
We believe we+ve identified a trend suggesting that U.S. companies with global
expansion capabilities have the ability to grow their businesses faster than
those who have not extended their reach to markets outside this country. Our re-
search has uncovered several such companies, including the firms mentioned pre-
viously, that we believe can offer unique or value-oriented products unmatched
by foreign competitors.
Emerson Electric, a manufacturer of electronic products, has a record of con-
sistent earnings and growth. The company is looking to continue building global
business positions through acquisitions. Kimberly-Clark is a leading producer of
personal care products including Huggies diapers and Kleenex tissues. The compa-
ny has recently introduced several new products and established roots in Europe.
This year marks the 22nd in a row that the company raised its quarterly divi-
dend. Eastman Kodak, the world's largest producer of photographic products and
imaging equipment, is undergoing crucial changes. With a new CEO and its digital
transferring of images technology, we believe the company should remain a market
leader and take the industry to new heights.
OUTLOOK
The currently strong U.S. economy, combined with rising interest rates, have
caused what is known as a significant rotation among industry groups in the
stock market. What was in favor before is no longer performing well, and vice
versa. Some of the industry groups in which we expect to find value over the
next six months include those that are currently very depressed, such as elec-
tric utilities, insurance groups, and banks.
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TOP 10 HOLDINGS (as of 5/31/94)
J.P. MORGAN & CO. INC.
Banking and finance, multinational
XEROX CORPORATION
Document processing, copiers, fax machines, digital publishing
NYNEX
Telecommunications
EXXON CORPORATION
Drilling, production, refining and marketing of oil and natural gas
AMERICAN HOME PRODUCTS CORP.
Pharmaceuticals
ROYAL DUTCH PETROLEUM
Crude oil, natural gas, and chemical industries
TEXACO INC.
Crude oil, natural gas, and chemical industries
PHILIP MORRIS COMPANIES
Domestic food processing, alcohol, and tobacco
MOBIL CORPORATION
Crude oil, natural gas, and chemical industries
FORD MOTOR COMPANY
Automotive
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These holdings represent 17.7% of the fund's net assets. Holdings will vary.
We anticipate that the improvement of foreign economies will augment the growth
of the U.S. economy in the months ahead, although higher interest rates do sug-
gest the possibility of an economic slowdown at some point in the future. In the
meantime, we believe the current growth of the economy can create the earnings
growth necessary to lead to higher stock valuations. Our search for companies
that are well-positioned to participate in this constantly changing market will
continue.
The views expressed throughout the report are exclusively those of Putnam Mana-
gement. They are not meant as investment advice. Although the described holdings
are viewed favorably as of 5/31/94, there is no guarantee the fund will continue
to hold these securities in the future.
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PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's performance.
Total return shows how the value of the fund's shares changed over time, assum-
ing you held the shares through the entire period and reinvested all distribu-
tions back into the fund.
We show total return in two ways: On a cumulative long-term basis and on how
the fund might have grown each year, on average, over varying periods (see the
tables below). We provide total returns for varying lengths of time ending on
May 31, 1994, the close of the fiscal period covered in this report. To make
comparisons with other investments easier, we also provide data for periods end-
ing on June 30, 1994, the most recent calendar quarter.
TOTAL RETURN FOR PERIODS ENDED 5/31/94
Class A Class B S&P 500
NAV POP NAV CDSC Index CPI
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1 year 7.53% 1.32% - - 4.26% 2.29%
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5 years 43.91 35.69 - - 66.60 19.14
Annual average 7.55 6.29 - - 10.75 3.57
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10 years 181.08 165.02 - - 326.90 42.65
Annual average 10.89 10.24 - - 15.62 3.62
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Life of class B
(Since 9/13/93) - - 0.86% -4.11% 0.52% 1.87
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TOTAL RETURN FOR PERIODS ENDED 6/30/94
(most recent calendar quarter)
Class A Class B
NAV POP NAV CDSC
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1 year 4.75% -1.28% - -
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5 years 41.92 33.82 - -
Annual average 7.25 6.00 - -
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10 years 172.99 157.38 - -
Annual average 10.56 9.91 - -
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Life of class B
Since 9/13/93) - - -0.49% -5.35%
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Performance data represent past results and will differ for each class of sha-
res. Investment returns and net asset value will fluctuate so an investor's sha-
res, when sold, may be worth more or less than their original cost. Fund perfor-
mance data do not take into account any adjustment for taxes payable on reinves-
ted distributions or, for class A shares, distribution fees prior to implementa-
tion of the class A distribution plan in 1990.
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TERMS AND DEFINITIONS
CLASS A fund shares are generally subject to an initial sales charge.
CLASS B fund shares may be subject to a sales charge on redemption.
NET ASSET VALUE (NAV) is the value of all fund assets, minus liabilities, divi-
ded by the number of outstanding shares. It does not include any initial or con-
tingent deferred sales charges.
PUBLIC OFFERING PRICE (POP) is the price of a fund share plus the maximum sales
charge levied at the time of purchase. POP performance figures shown here assume
the maximum 5.75% sales charge.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is applied on redemption of fund shares.
Your fund's CDSC declines from a 5% maximum during the first year to 1% during
the sixth year. After the sixth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
STANDARD & POOR'S 500 INDEX is an unmanaged list of large-capitalization common
stocks and assumes reinvestment of all distributions. The index is a widely used
measure of stock market performance and does not take into account brokerage co-
mmissions or other costs. The fund's portfolio contains securities that do not
match those in the index.
CONSUMER PRICE INDEX is a commonly used measure of the rate of inflation. The
index shows the average change in the cost of selected consumer goods and ser-
vices and does not represent a return on an investment vehicle.
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THE PUTNAM FUND SELECTOR (TM)*
The Putnam Fund Selector shows the many opportunities for investors within every
investment strategy. All investors should first accumulate a base of conservati-
ve, cash-equivalent investments. Then, with the help of your investment advisor,
diversify your portfolio by investing in the Putnam Family of Funds.
(Pyramid Graphic)
Risk/Reward
PUTNAM GROWTH FUNDS
PUTNAM GROWTH AND INCOME FUNDS
PUTNAM INCOME OR TAX-FREE INCOME FUNDS
MOST CONSERVATIVE INVESTMENTS
* (TM) Trademark
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PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund Diversified Equity Trust
Natural Resources Fund Europe Growth Fund
Global Growth Fund Health Sciences Trust
Investors Fund New Opportunities Fund
OTC Emerging Growth Fund Overseas Growth Fund
Vista Fund Voyager Fund
PUTNAM GROWTH AND INCOME FUNDS
Convertible Income-Growth Trust Dividend Growth Fund
Equity Income Fund The George Putnam Fund of Boston
The Putnam Fund for Growth and Income Managed Income Trust
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund American Government Income Fund
Balanced Government Fund Corporate Asset Trust
Diversified Income Trust Federal Income Trust
Global Governmental Income Trust High Yield Advantage Fund
High Yield Trust Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE INCOME FUNDS
Intermediate Tax Exempt Fund Municipal Income Fund
Tax Exempt Income Fund Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds*
Arizona, California, Florida, Massachusetts, Michigan,
Minnesota, New Jersey, New York, Ohio, and Pennsylvania
LIFESTAGE (SM) FUNDS
Putnam Asset Allocation Funds-three investment portfolios that spread your money
across a variety of stocks, bonds, and money market investments to help maximize
your return and reduce your risk.
The three portfolios:
Putnam Asset Allocation: Growth Portfolio
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
MOST CONSERVATIVE INVESTMENTS +
Putnam money market funds:
Daily Dividend Trust
Putnam Tax-Exempt Money Market Fund
CDs and savings accounts ++
* Not available in all states.
+ Relative to above.
++ Not offered by Putnam Investments. Certificates of deposit offer a fixed rate
of return and may be insured, up to certain limits, by federal/state agen-
cies. Savings accounts may also be insured up to certain limits.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain a
prospectus for any Putnam fund. It contains more complete information, inclu-
ding charges and expenses. Please read it carefully before you invest or send
money.
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PORTFOLIO OF INVESTMENTS OWNED
May 31, 1994 (Unaudited)
COMMON STOCKS (80.5%)(a)
NUMBER OF SHARES VALUE
UTILITIES (16.0%)
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31,400 Allegheny Power Systems, Inc. $ 667,250
83,900 American Telephone & Telegraph Co. 4,572,550
44,100 Bell Atlantic Corp. 2,353,838
28,300 BellSouth Corp. 1,683,850
143,100 Cincinnati Gas & Electric Co. 3,237,638
77,000 Comsat Corp. 1,751,750
31,000 Consolidated Natural Gas Co. 1,170,250
60,000 Energy Corp. 1,732,500
25,000 FPL Group, Inc. 793,750
100,000 GTE Corp. 3,087,500
50,000 General Public Utilities Corp. 1,431,250
10,000 Hawaiian Electric Industries, Inc. 322,500
38,400 Houston Industries Inc. 1,238,400
32,900 Montana Power Co. 773,150
164,000 NYNEX Corp. 6,190,986
42,300 Northeast Utilities 962,325
124,500 PSI Resources, Inc. 2,739,000
65,000 Public Service Co. of Colorado 1,690,000
40,000 Sierra Pacific Resources 750,000
46,000 South western Bell Corp. 1,891,750
42,500 Sprint Corp. 1,615,000
45,700 Telefonica de Espana ADR (b) 1,862,275
117,000 Texas Utilities Co. 3,861,000
97,653 US WEST, Inc. 3,918,327
71,500 United Illuminating Co. 2,475,688
45,400 Wicor Inc. 1,305,250
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54,077,777
INSURANCE AND FINANCE (14.9%)
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45,400 Aetna Life & Casualty Co. 2,457,275
91,000 American Express Co. 2,513,875
109,000 American General Corp. 2,970,250
20,000 BankAmerica Corp. 970,000
60,400 Bankers Trust New York Corp. 4,250,650
124,400 Beneficial Corp. 4,587,250
34,800 CIGNA Corp. 2,396,850
138,000 Comerica Inc. 4,140,000
89,600 Household International, Inc. 3,046,400
90,000 Lincoln National Corp. 3,723,750
30,000 Mellon Bank Corp. 1,755,000
115,000 Morgan (J.P.) & Co., Inc. 7,590,000
79,000 National City Corp. 2,212,000
32,200 NationsBank Corp. 1,783,075
56,000 PNC Bank Corp. 1,715,000
42,300 Synovus Financial Corp. 719,100
49,000 Unitrin, Inc. 1,999,813
70,000 Wilmington Trust Co. 1,789,375
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50,619,663
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COMMON STOCK
NUMBER OF SHARES VALUE
OIL AND GAS (9.1%)
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50,000 Amoco Corp. $ 2,943,750
29,600 Chevron Corp. 2,575,200
100,000 Exxon Corp. 6,100,000
55,000 Imperial Oil Ltd. 1,691,250
60,900 McDermott International, Inc. 1,233,225
60,300 Mobil Corp. 4,884,300
54,000 Royal Dutch Petroleum Co. ADR (b) 5,771,250
86,100 Texaco Inc. 5,467,350
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30,666,325
CHEMICALS (6.0%)
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50,900 Dow Chemical Co. 3,473,925
50,600 du Pont (E.I.) de Nemours & Co., Ltd. 3,137,200
53,000 Eastman Chemical Co. 2,550,625
85,400 Grace (W.R.) & Co. 3,565,450
61,100 Olin Corp. 2,993,900
60,000 Union Carbide Corp. 1,620,000
93,200 Witco Chemical Corp. 2,830,950
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20,172,050
CONSUMER NON DURABLES (5.8%)
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146,300 American Brands, Inc. 4,754,750
80,300 Avon Products, Inc. 4,727,663
77,500 Kimberly-Clark Corp. 4,378,750
108,000 Philip Morris Cos., Inc. 5,319,000
30,000 Sara Lee Corporation 641,250
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19,821,413
HEALTH CARE (5.6%)
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70,000 American Cyanamid Co. 3,648,750
105,000 American Home Products Corp. 6,090,000
40,000 Baxter International, Inc. 1,030,000
20,100 Bristol-Myers Squibb Co. 1,097,963
50,000 Lilly (Eli) & Co. 2,868,750
22,200 Merck & Co., Inc. 677,100
52,000 Warner-Lambert Co. 3,659,500
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19,072,063
BUSINESS EQUIPMENT AND SERVICES (3.4%)
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30,000 Equity Residential Properties Trust 1,012,500
41,300 IBM Corp. 2,612,225
60,000 Moore Corp. Ltd. 1,117,500
67,600 Xerox Corp. 6,793,800
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11,536,025
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COMMON STOCKS
NUMBER OF SHARES VALUE
CONGLOMERATES (2.5%)
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18,200 Lehman Brothers Holdings Inc. $ 327,600
20,000 Minnesota Mining & Manufacturing Co. 1,020,000
42,600 National Service Industries, Inc. 1,091,625
47,700 Norske Skog ADS (b) 1,091,138
47,500 Ogden Corp. 1,045,000
47,000 TRW, Inc. 3,137,250
11,900 United Technologies Corp. 789,863
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8,502,476
REAL ESTATE (2.2%)
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90,000 Bradley Real Estate Trust 866,250
75,300 Crown American Realty Trust 1,035,375
81,200 Debartolo Realy Corp. 1,218,000
50,000 Health Care REIT Inc. 1,218,750
52,000 LTC Properties Inc. 728,000
21,300 Macerich Co. 402,038
50,000 Nationwide Health Properties, Inc. 1,981,250
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7,449,663
CONSUMER SERVICES (2.0%)
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15,000 Block (H & R), Inc. 639,375
52,000 Dun & Bradstreet Corp. 3,029,000
91,900 Times Mirror Co. Class A 2,975,263
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6,643,638
FOOD AND BEVERAGES (1.9%)
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110,000 Flowers Industries, Inc. 1,966,250
40,000 Heinz (H.J.) Co. 1,365,000
35,000 Quaker Oats Co. (The) 2,340,625
29,000 Seagram Co. Ltd. 859,125
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6,531,000
RETAIL (1.8%)
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50,000 Fleming Cos., Inc. 1,243,750
135,000 K mart Corp. 2,025,000
36,600 Sears, Roebuck & Co. 1,852,875
70,100 Woolworth Corp. 1,104,075
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6,225,700
AEROSPACE AND DEFENSE (1.3%)
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110,200 GenCorp Inc. 1,363,725
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COMMON STOCKS
NUMBER OF SHARES VALUE
AEROSPACE AND DEFENSE (continued)
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44,500 Northrop Corp. $ 1,574,188
43,100 Rockwell International Corp. 1,535,438
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4,473,351
METALS AND MINING (1.3%)
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64,400 Freeport-McMoRan, Inc. 1,175,300
70,000 Reynolds Metal Co. 3,211,250
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4,386,550
PHOTOGRAPHY (1.1%)
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82,000 Eastman KodakCo. 3,843,750
TRANSPORTATION (1.1%)
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30,000 Consolidated Freightways, Inc. 772,500
48,000 Norfolk Southern Corp. 3,054,000
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3,826,500
FOREST PRODUCTS (1.1%)
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58,000 Potlatch Corp. 2,378,000
42,000 Westvaco Corp. 1,354,500
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3,732,500
ELECTRONICS AND ELECTRICAL EQUIPMENT (1.0%)
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25,300 Emerson Electric Co. 1,543,300
50,000 Honeywell, Inc. 1,568,750
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3,112,050
AUTOMOTIVE (0.9%)
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35,000 Daimler Benz AKT-ADR (b) 1,719,375
25,000 General Motors Corp. 1,343,750
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3,063,125
BASIC INDUSTRIAL PRODUCTS (0.6%)
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53,800 Ball Corp. 1,546,750
10,500 Timken Co. 343,875
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1,890,625
ENVIRONMENTAL CONTROL (0.4%)
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44,000 WMX Technologies, Inc. 1,204,500
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COMMON STOCKS
NUMBER OF SHARES VALUE
BUILDING AND CONSTRUCTION (0.3%)
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36,300 Champion International Corp. $ 1,184,288
ENERGY-RELATED (0.2%)
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32,000 Westcoast Energy, Inc. 556,000
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Total Common Stocks (cost $ 264,552,555) $272,591,032
CONVERTIBLE PREFERRED STOCKS (4.6%) (a)
NUMBER OF SHARES VALUE
AUTOMOTIVE (1.4%)
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50,000 Ford Motor Co. Ser. A, $4.20, cv. pfd. 4,762,500
INSURANCE AND FINANCE (1.0%)
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60,000 Republic New York Corp. $3.375, cv. pfd. 3,240,000
TRANSPORTATION (0.9%)
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30,000 AMR Corp. Ser. A, $3.00, cv. pfd. 1,275,000
40,000 Delta Air Lines, Inc. Ser. C, $3.50, cv. pfd. 1,865,000
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3,140,000
METALS AND MINING (0.8%)
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70,000 Freeport-McMoRan Copper Co., Inc.
stepped-coupon, $1.25 cv. pfd.(c) 1,627,500
27,000 Pittston Corp. $6.25, cv. pfd. 1,080,000
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2,707,500
ELECTRONICS AND ELECTRICAL EQUIPMENT (0.3%)
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85,050 Westinghouse Electric Ser. C, $1.30 cv. pfd. 1,137,544
CONSUMER NON DURABLES (0.2%)
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11,000 Fieldcrest Cannon, Inc. Ser. A, $3.00, cv. pfd. 572,000
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Total Convertible Preferred Stocks (cost $15,737,430) $ 15,559,544
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U.S. GOVERNMENT AND AGENCY OBLIGATIONS (3.8%) (a)
PRINCIPAL AMOUNT VALUE
Government National Mortgage Assn.
$ 881,669 Midgets, 7s, with various due dates to October 15, 2008 $ 858,002
1,884,840 6 1/2s, with various due dates to February 1, 2024 1,698,716
586,008 Midgets, 6s, with various due dates to January 15, 2009 541,876
505,000 U.S. Treasury Bonds 11 1/8s, August 15, 2003 637,878
1,770,000 U.S. Treasury Bonds 7 1/8s, February 15, 2023 1,687,031
3,290,000 U.S. Treasury Notes 8 7/8s, November 15, 1997 3,528,525
340,000 U.S. Treasury Notes 7 3/4s, February 15, 2001 354,238
220,000 U.S. Treasury Notes 5 7/8s, February 15, 2004 200,338
650,000 U.S. Treasury Notes 5 1/8s April 30, 1998 617,094
650,000 U.S. Treasury Notes 5 1/8s, March 31, 1998 618,313
651,000 U.S. Treasury Notes 5s, January 31, 1999 606,651
365,000 U.S. Treasury Notes 4 1/4s, November 30, 1995 357,358
720,000 U.S. Treasury Notes 3 7/8s, October 31, 1995 702,675
580,000 U.S. Treasury Notes 3 7/8s, August 31, 1995 568,400
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Total U.S. Government and Agency Obligations
(cost $13,803,999) $ 12,977,095
CORPORATE BONDS AND NOTES (3.6%)(a)
PRINCIPAL AMOUNT VALUE
INSURANCE AND FINANCE (1.1%)
- --------------------------------------------------------------------------------
$ 250,000 BAT Capital Corp. Medium Term Notes 6.19s, 2000 $ 234,063
300,000 Chemical Banking Corp. sub. deb. 8 5/8s, 2002 312,938
300,000 Ford Capital BV deb. 9s, 1998 317,250
330,000 General Motors Acceptance Corp.
med. term notes 6 3/4s, 1996 330,206
450,000 Great Western Financial Corp. notes 6 1/8s, 1998 430,594
400,000 Hartford National Corp. sub. cap. notes 9.85s, 1999 436,250
400,000 Keystone Group, Inc. sr. secd. notes 9 3/4s, 2003 378,000
300,000 Midlantic Banks deb. 9 7/8s, 1999 326,625
400,000 Paine Webber Group Inc. notes 6 1/2s, 2005 343,500
300,000 Star Bank N.A. sub. notes 6 3/8s, 2004 271,688
265,000 Suntrust Banks sub. notes 6 1/8s, 2004 235,519
---------------
3,616,633
CONSUMER SERVICES (0.6%)
- --------------------------------------------------------------------------------
300,000 AMC Entertainment, Inc. sr. sub. notes 12 5/8s, 2002 330,000
400,000 Argyle Television Operations sr. sub. notes 9 7/8s, 2003 404,000
300,000 Cablevision Systems Corp. sr. sub. reset deb. 10 3/4s, 2004 303,000
250,000 Century Communications Corp. sr. disc. notes zero %, 2003 100,000
15,000 La Quinta Motor Inns Inc. deb. 9 1/4s, 2003 14,700
<PAGE>
<PAGE>
CONSUMER SERVICES (continued)
- --------------------------------------------------------------------------------
$ 200,000 Marvel Holdings, Inc. sr. secd. disc. notes zero %, 1998 $ 122,000
300,000 News American Hldgs. Inc. sr. notes 8 1/2s, 2005 295,313
300,000 Tele-Communications, Inc. sr. deb. 9.8s, 2012 308,063
---------------
1,877,076
UTILITIES (0.3%)
- --------------------------------------------------------------------------------
449,000 System Energy Resources Inc. 1st mtge. 14s, 1994 465,276
400,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 364,000
300,000 Toledo Edison Co. med. term notes 7.82s, 2003 266,625
---------------
1,095,901
OIL AND GAS (0.3%)
- --------------------------------------------------------------------------------
300,000 Occidental Petroleum Corp. sr. notes 11 3/4s, 2011 335,250
300,000 Tosco Corp. 1st mtge. Ser. B, 9 5/8s, 2002 314,813
50,000 TransTexas Gas Corp. sr. secd. notes 10 1/2s, 2000 50,000
300,000 Transcontinental Gas Pipe Line Corp. sr. deb. 9 1/8s, 2017 285,000
---------------
985,063
CONGLOMERATES (0.2%)
- --------------------------------------------------------------------------------
300,000 Pennsylvania Central Corp. sub. notes 10 7/8s, 2011 339,000
250,000 Tenneco Inc. deb. 10s, 2008 281,719
---------------
620,719
TELECOMMUNICATIONS (0.2%)
- --------------------------------------------------------------------------------
500,000 McGaw, Inc. sr. notes 10 3/8s, 1999 517,500
AUTOMOTIVE (0.1%)
- --------------------------------------------------------------------------------
380,000 Chrysler Corp. deb.10.95s, 2017 434,625
HEALTH CARE (0.1%)
- --------------------------------------------------------------------------------
260,000 Kendall Co. (The) deb. 8 1/4s, 2003 245,050
100,000 Mediplex Group, Inc. sr. sub. notes 113/4s, 2002 107,000
---------------
352,050
RETAIL (0.1%)
- --------------------------------------------------------------------------------
300,000 Sears Roebuck med. term notes 5.91s,1999 281,813
50,000 Service Merchandise Co., Inc. sr. sub. deb. 8 3/8s, 2001 46,250
---------------
328,063
METALS AND MINING (0.1%)
- --------------------------------------------------------------------------------
300,000 ASARCO Inc. notes 7 3/8s, 2003 283,500
<PAGE>
<PAGE>
BUILDING AND CONSTRUCTION (0.1%)
- --------------------------------------------------------------------------------
$ 450,000 American Standard, Inc. sr. sub. deb.
stepped-coupon zero % (10 1/2s, 6/1/98), 2005 (c) $ 275,625
CHEMICALS (0.1%)
- --------------------------------------------------------------------------------
270,000 G-I Holdings Inc. sr. notes zero %, 1998 164,700
100,000 UCC Investors Holding, Inc. sr. notes 10 1/2s, 2002 103,000
---------------
267,700
FOREST PRODUCTS (0.1%)
- --------------------------------------------------------------------------------
50,000 Container Corp. America sr. notes, Ser. A, 11 1/4s, 2004 51,750
250,000 Gaylord Container Corp. sr. sub. deb.
stepped-coupon zero % (12 3/4s, 5/15/96), 2005 (c) 207,500
---------------
259,250
TRANSPORTATION (0.1%)
- --------------------------------------------------------------------------------
130,000 Blue Bird Acquisition Corp. sub. deb. 11 3/4s, 2002 135,200
100,000 Viking Star Shipping sr. secd. notes 9 5/8s, 2003 98,500
---------------
233,700
BASIC INDUSTRIAL PRODUCTS (0.1%)
- --------------------------------------------------------------------------------
120,000 Anchor Glass Container Corp. sr. sub. deb. 9 7/8s, 2008 110,700
100,000 Owens-Illinois Inc. deb. 9.95s, 2004 99,000
---------------
209,700
ELECTRONICS AND ELECTRICAL EQUIPMENT (-%)
- --------------------------------------------------------------------------------
180,000 Amphenol Corp. sr. sub. notes 12 3/4s, 2002 199,800
FOOD AND BEVERAGES (-%)
- --------------------------------------------------------------------------------
200,000 Fresh Del Monte Produce N.V. Corp. deb. 10s, 2003 (d) 183,000
COMMUNICATIONS (-%)
- --------------------------------------------------------------------------------
100,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 91,500
100,000 Paging Network, Inc. sr. sub. notes 8 7/8s, 2006 90,000
---------------
181,500
CONSUMER NON DURABLES (-%)
- --------------------------------------------------------------------------------
175,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 166,250
10,000 Playtex Family Products Corp. sr. sub. notes 9s, 2003 8,925
---------------
175,175
<PAGE>
<PAGE>
REAL ESTATE (-%)
- --------------------------------------------------------------------------------
$ 150,000 Scotsman Group Inc. sr. secd. notes 9 1/2s, 2000 $ 141,750
FOOD (-%)
- --------------------------------------------------------------------------------
75,000 Stater Brothers sr. notes 11s, 2001 (d) 75,188
---------------
Total Corporate Bonds and Notes (cost $13,109,682) $12,313,518
CONVERTIBLE BONDS (3.1%)(a)
PRINCIPAL AMOUNT VALUE
INSURANCE AND FINANCE (0.8%)
- --------------------------------------------------------------------------------
$2,000,000 Old Republic International Corp.
cv. sub. deb. 5 3/4s, 2002 $ 2,060,000
500,000 Trenwick Group, Inc. cv. deb. 6s, 1999 504,375
---------------
2,564,375
FOOD AND BEVERAGES (0.5%)
- --------------------------------------------------------------------------------
3,100,000 Seagram Co. Ltd. liquid yield option cv.
notes zero %, 2006 1,755,375
CELLULAR BROADCASTING (0.4%)
- --------------------------------------------------------------------------------
3,100,000 Comcast Corp. cv. deb. 1 1/8s, 2007 1,333,000
BUSINESS EQUIPMENT AND SERVICES (0.3%)
- --------------------------------------------------------------------------------
1,000,000 EMC Corp. cv. deb. 4 1/4s, 2001 1,030,000
CONSUMER NON DURABLES (0.3%)
- --------------------------------------------------------------------------------
1,000,000 Interface Inc. sinking fund cv. deb. 8s, 2013 992,500
AUTOMOTIVE (0.2%)
- --------------------------------------------------------------------------------
750,000 Titan Wheel International Inc. cv. sub. deb. 4 3/4s, 2000 763,125
CONSUMER SERVICES (0.2%)
- --------------------------------------------------------------------------------
2,200,000 Hollinger, Inc. liquid yield option cv. notes zero %, 2013 737,000
TRANSPORTATION (0.2%)
- --------------------------------------------------------------------------------
1,000,000 Delta Air Lines, Inc. cv. sub. notes 3.23s, 2003 687,500
<PAGE>
<PAGE>
HEALTH CARE (0.2%)
- --------------------------------------------------------------------------------
$ 500,000 Hillhaven Corp. (The) cv. sub. deb. 7 3/4s, 2002 $ 631,875
---------------
TOTAL CONVERTIBLE BONDS (cost $10,642,392) $10,494,750
YANKEE BONDS AND NOTES (0.5%)(a)
PRINCIPAL AMOUNT VALUE
INSURANCE AND FINANCE (0.3%)
- --------------------------------------------------------------------------------
$ 350,000 Australia New Zealand Bank 6 1/4s, 2004 $ 313,688
300,000 Bank of Scotland sub. notes 8.8s, 2004 314,813
300,000 Den Danske Bank sub. notes 6.55s, 2003 268,500
300,000 Greyhound Financial Corp. global notes 9 1/8s, 2002 318,563
---------------
1,215,564
CONSUMER SERVICES (0.2%)
- --------------------------------------------------------------------------------
630,000 Time Warner Inc. global notes 9 1/8s, 2013 570,938
OIL AND GAS (-%)
- --------------------------------------------------------------------------------
50,000 Maxus Energy Corp. global notes 9 1/2s, 2003 46,250
---------------
TOTAL YANKEE BONDS AND NOTES (cost $2,043,984) $ 1,832,752
PREFERRED STOCKS (0.3%) (a) (cost$ 945,575)
NUMBER OF SHARES VALUE
35,600 Boise Cascade Corp. Ser. F, $2.35, dep. shs. pfd. $ 894,450
ASSET-BACKED SECURITIES (0.1%) (a)
PRINCIPAL AMOUNT VALUE
$ 128,000 Delta Air Lines Equipment Trust 10s, 2013 $ 124,320
145,000 Long Island Lighting 5 1/4s, 1996 140,831
79,252 Prudential Home Loan Corp. Ser.92-25-B3, 8s, 2022 66,497
---------------
TOTAL ASSET-BACKED SECURITIES (cost $330,939) $ 331,648
WARRANTS (-%) (a)(e)
NUMBER OF WARRANTS EXPIRATION DATE VALUE
805 Freeport McMoran Copper & Gold Inc. 6/1/94 19,824
4,991 Windmere Corp. 3,119
---------------
TOTAL WARRANTS (cost $0) 1/19/98 $ 22,943
<PAGE>
<PAGE>
SHORT-TERM INVESTMENTS (2.4%) (a) (cost $8,035,946)
PRINCIPAL AMOUNT VALUE
$8,035,000 Interest in $489,000,000 joint repurchase agreement
dated May 31, 1994, with Kidder Peabody & Co., Inc.,
due June 1, 1994, with respect to various U.S. Treasury
obligations-maturity value of $8,035,946 for an effec-
tive yield of 4.24% $ 8,035,946
---------------
Total Investments (cost $329,202,502) $335,053,678
(a) Percentages indicated are based on total net assets of $338,838,267, which
correspond to a net asset value per class A share and class B share of $8.63
and $8.60, respectively.
(b) Securities whose values are determined or significantly influenced by tra-
ding on exchanges not in the United States or Canada. ADR or ADS after the
name of a foreign holding stands for American Depository Receipt or American
Depository Shares, respectively, representing ownership of foreign securi-
ties on deposit with a domestic custodian bank.
(c) The interest rate and date shown parenthetically represent the new interest
rate to be paid and the date the fund will begin receiving interest at this
rate.
(d) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from registra-
tion, normally to qualified institutional buyers. At May 31, 1994, these se-
curities amounted to $258,188 or 0.1% of net assets.
(e) Non-income-producing security.
(f) The aggregate identified cost on a tax basis is $329,882,957, resulting
in gross unrealized appreciation and depreciation of $20,190,939 and
$15,020,218 respectively, or net unrealized appreciation of $5,170,721.
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
May 31 1994 (Unaudited)
ASSETS
- -------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $329,202,502) (Note 1) $335,053,678
Cash 885
Dividends, interests, and other receivables 2,417,125
Receivable for shares of the fund sold 631,306
Receivable for securities sold 6,490,424
Total assets $344,593,418
LIABILITIES
- -------------------------------------------------------------------------------
Payable for securities purchased $4,098,988
Payable for shares of the fund repurchased 702,892
Payable for compensation of Manager (Note 2) 551,365
Payable for administrative services (Note 2) 1,693
Payable for compensation of Trustees (Note 2) 325
Payable for investor servicing and custodian fees (Note 2) 98,911
Payable for distribution fees (Note 2) 149,142
Other accrued expenses 151,835
Total liabilities 5,755,151
Net assets $338,838,267
REPRESENTED BY
- -------------------------------------------------------------------------------
Paid-in capital (Notes 4 and 6) $475,581,507
Undistributed net investment income 947,045
Accumulated net realized loss on investment transactions (143,541,461)
Net unrealized appreciation of investments and options 5,851,176
Total - Representing net assets applicable
to capital shares outstanding $338,838,267
COMPUTATION OF NET ASSET VALUE
- -------------------------------------------------------------------------------
Net asset value and redemption price of class A
shares ($315,711,108 divided by 36,604,186 shares) $8.63
Offering price per share (100/94.25 of $8.63)* $9.16
Net asset value and offering price of class B shares ($23,127,159
divided by 2,688,058 shares) + $8.60
- -------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and
ongroup 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.
<PAGE>
<PAGE>
STATEMENT OF OPERATIONS
For the six months ended May 31, 1994 (Unaudited)
- -------------------------------------------------------------------------------
INVESTMENT INCOME:
- -------------------------------------------------------------------------------
Dividends (net of foreign tax of $70,991) $ 6,297,279
- -------------------------------------------------------------------------------
Interest 1,539,231
- -------------------------------------------------------------------------------
Total investment income 7,836,510
- -------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) $ 1,096,602
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 187,979
- -------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 8,485
- -------------------------------------------------------------------------------
Reports to shareholders 18,604
- -------------------------------------------------------------------------------
Auditing 9,833
- -------------------------------------------------------------------------------
Legal 9,117
- -------------------------------------------------------------------------------
Postage 42,534
- -------------------------------------------------------------------------------
Administrative services (Note 2) 5,139
- -------------------------------------------------------------------------------
Distribution fees - class A (Note 2) 400,808
- -------------------------------------------------------------------------------
Distribution fees - class B (Note 2) 94,030
- -------------------------------------------------------------------------------
Registration fees 9,785
- -------------------------------------------------------------------------------
Other expenses 22,671
- -------------------------------------------------------------------------------
TOTAL EXPENSES 1,905,587
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 5,930,923
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 7,831,253
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (9,147,542)
- -------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS (1,316,289)
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 4,614,634
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the six
months ended Year ended
May 31, November 30,
1994* 1993
INCREASE (DECREASE) IN NET ASSETS
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $ 5,930,923 $ 11,082,122
- -------------------------------------------------------------------------------
Net realized gain on investments 7,831,253 41,388,907
- -------------------------------------------------------------------------------
Net unrealized depreciation
of investments (9,147,542) (1,645,359)
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 4,614,634 50,825,670
- -------------------------------------------------------------------------------
Undistributed net investment
income included in price of shares
sold and repurchased, net - 102,220
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
- -------------------------------------------------------------------------------
Class A (5,965,646) (12,177,419)
- -------------------------------------------------------------------------------
Class B (280,206) -
- -------------------------------------------------------------------------------
In excess of net investment income - Class A - (1,239,552)
- -------------------------------------------------------------------------------
DECREASE FROM CAPITAL
SHARE TRANSACTIONS (NOTE 4) (2,581,356) (28,586,774)
- -------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (4,212,574) 8,924,145
- -------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------
Beginning of period 343,050,841 334,126,696
- -------------------------------------------------------------------------------
END OF PERIOD (including undistributed
and distributions in excess of net
investment income of $947,045 and
$(1,170,449), respectively) $338,838,267 $343,050,841
- -------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS*
(For a share outstanding throughout the period)
September 13,
Six 1993 Six
months (commencement months Year
ended of operations) ended ended
May 31 to November 30 May 31 Nov. 30
- ---------------------------------------------------------------------- --------
1994** 1993+ 1994** 1993
- ---------------------------------------------------------------------- --------
Class B Class A
- ---------------------------------------------------------------------- --------
Net Asset Value,
Beginning of Period $8.65 $8.66 $8.67 $7.72
- ---------------------------------------------------------------------- --------
INVESTMENT OPERATIONS
- ---------------------------------------------------------------------- --------
Net Investment Income .12 .06 .15 .28
- ---------------------------------------------------------------------- --------
Net Realized/Unrealized Gain
(Loss) on Investments (.03) (.07) (.03) 1.01
- ---------------------------------------------------------------------- --------
TOTAL FROM INVESTMENT OPERATIONS (.09) (.01) .12 1.29
- ---------------------------------------------------------------------- --------
LESS DISTRIBUTIONS:
- ---------------------------------------------------------------------- --------
From Net Investment Income (.14) - (.16) (.31)
- ---------------------------------------------------------------------- --------
In excess of Net Investment Income - - - (.03)
- ---------------------------------------------------------------------- --------
Net Realized Gain on Investments - - - -
- ---------------------------------------------------------------------- --------
Paid in capital - - - -
- ---------------------------------------------------------------------- --------
Total Distributions (.14) - (.16) (.34)
- ---------------------------------------------------------------------- --------
Net Asset Value, End of Period $8.60 $8.65 $8.63 $8.67
- ---------------------------------------------------------------------- --------
Total Investment Return at
Net Asset Value (%) (a) 1.96(b) (.55)(b) 2.76(b) 17.06
- ---------------------------------------------------------------------- --------
Net Assets, End of Period
(In Thousands) $23,127 $14,800 $315,711 $328,251
- ---------------------------------------------------------------------- --------
Ratio of Expenses to
Average Net Assets (%) 1.88(b) 2.03(b) 1.10(b) 1.16
- ---------------------------------------------------------------------- --------
Ratio of Net Investment Income
to Average Net Assets (%) 2.83(b) 2.54(b) 3.51(b) 3.40
- ---------------------------------------------------------------------- --------
Portfolio Turnover (%) (c) 41.43(d) 125.85(d) 41.43(d) 125.85
- ---------------------------------------------------------------------- --------
* Financial highlights for periods ended through November 30, 1992, have been
restated to conform with requirements issued by the SEC in April, 1993.
** Unaudited.
+ Per-share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
++ Effective March 7, 1991, the fund's investment objective was changed from
seeking high current return to seeking current income. Information in the
table previous to March 7, 1991, does not reflect the fund's current invest-
ment objective.
(a) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Annualized.
(c) Portfolio turnover calculations for fiscal 1985 and thereafter include tran-
sactions in U.S. government securities with maturities greater than one
year. Prior period portfolio turnover calculations excluded all U.S. govern-
ment securities.
(d) Not annualized.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS* (Continue)
(For a share outstanding throughout the period)
Year ended November 30
- -----------------------------------------------------------------------------------------------------------------------------------
1992 1991++ 1990 1989 1988 1987 1986 1985
- -----------------------------------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $7.29 $6.60 $8.62 $8.47 $7.87 $10.81 $10.76 $10.65
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income .42 .30 .25 .29 .24 .21 .29 .39
- -----------------------------------------------------------------------------------------------------------------------------------
Net Realized/Unrealized Gain
(Loss) on Investments .41 .93 (1.08) 1.14 1.87 (1.44) 1.47 1.53
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .83 1.23 (.83) 1.43 2.11 (1.23) 1.76 1.92
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
- -----------------------------------------------------------------------------------------------------------------------------------
From Net Investment Income (.40) (.30) (.25) (.32) (.32) (.21) (.20) (.39)
- -----------------------------------------------------------------------------------------------------------------------------------
In excess of Net Investment Income - - - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain on Investments - (.24) - (.06) (1.19) (1.50) (1.51) (1.42)
- -----------------------------------------------------------------------------------------------------------------------------------
Paid in capital - - (.94) (.90) - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (.40) (.54) (1.19) (1.28) (1.51) (1.71) (1.71) (1.81)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $7.72 $7.29 $6.60 $8.62 $8.47 $7.87 $10.81 $10.76
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investment Return at
Net Asset Value (%) (a) 11.66 19.13 (10.56) 17.75 28.23 (15.33) 17.73 19.80
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period
(In Thousands) $334,127 $397,237 $585,011 $934,823 $1,005,981 $902,370 $1,158,887 $1,162,753
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets (%) 1.23 1.20 1.09 .84 .87 .83 .73 .77
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income
to Average Net Assets (%) 5.57 4.13 3.30 3.28 2.75 1.92 2.72 3.44
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover (%) (c) 340.99 198.18 222.84 153.35 38.32 225.30 205.30 183.25
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
May 31, 1994 (Unaudited)
Note 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company. The objective of the fund
is to seek current income by investing primarily in a diversified portfolio of
income-producing equity securities. Capital growth is a secondary objective when
consistent with seeking current income.
The fund offers both class A and class B shares. The fund commenced its public
offering of class B shares on September 13, 1993. Class A shares are sold with
a maximum front-end sales charge of 5.75%. Class B shares 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. Expenses of the fund are borne pro-rata by the
holders of both classes of shares, except that each class bears expenses unique
to that class (including the distribution fees applicable to such class), and
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 divi-
dends on each class of shares.
The following is a summary of significant accounting policies consistently fo-
llowed by the fund in the preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles.
A) SECURITY VALUATION Investments for which market quotations are readily avail-
able are stated at market value, which is determined using the last reported sa-
le price, or, if no sales are reported - as in the case of some securities tra-
ded over-the-counter - the last reported bid price, except that certain U.S. go-
vernment obligations are stated at the mean between the last reported bid and
asked prices. Market quotations are not considered to be readily available for
long-term corporate bonds and notes; such investments are stated at fair value
on the basis of valuations furnished by a pricing service, approved by the
Trustees. Short-term investments having remaining maturities of 60 days or less
are stated at amortized cost, which approximates market value, and other invest-
ments are stated at fair market value following procedures approved by the
Trustees.
B) TBA PURCHASE COMMITMENTS The fund may enter into "TBA" (to be announced) pur-
chase commitments to purchase securities for a fixed unit price at a future date
beyond customary settlement time. Although the unit price has been established,
the principal value has not been finalized. However, the amount of the commit-
ment will not fluctuate more than 2.0% from the principal amount. The fund
holds, and maintains until the settlement date, cash or high-grade debt obliga-
tions in an amount sufficient to meet the purchase price, or the fund enters
into offsetting contracts for the forward sale of other securities it owns. TBA
<PAGE>
<PAGE>
purchase commitments may be considered securities in themselves, and involve a
risk of loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in the value
of the fund's other assets.
Unsettled TBA purchase commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Security valuation" above.
Although the fund will generally enter into TBA purchase commitments with the
intention of acquiring securities for its portfolio or for delivery pursuant to
options contracts it has entered into, the fund may dispose of a commitment
prior to settlement if the fund manager deems it appropriate to do so.
C) 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 compa-
nies managed by Putnam Investment Management, Inc. ("Putnam Management"), the
fund's Manager, a wholly owned subsidiary of Putnam Investments, Inc., and cer-
tain other accounts. These balances may be invested in one or more repurchase
agreements and/or short-term money market instruments.
D) 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. The fund's Manager 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.
E) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security transactions are
accounted for on the trade date (date the order to buy or sell is executed). In-
terest income is recorded on the accrual basis and 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.
Discount on zero coupon and stepped- coupon bonds is accreted according to the
effective yield method.
F) FEDERAL INCOME TAXES It is the policy of the fund to distribute all of its
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 im-
position of any excise tax under Section 4982 of the Internal Revenue Code of
1986. Therefore, no provision has been made for federal taxes on income, capital
gains or unrealized appreciation of securities held, and excise tax on income
and capital gains.
At November 30, 1993, the fund had approximately $150,570,659 in capital loss
carryovers available to offset future realized capital gains, to the extent pro-
vided by regulations. This amount will expire November 30, 1998. To the extent
that the capital loss carryover is used to offset realized gains, it is unlikely
that the gains so offset will be distributed to shareholders, since any
<PAGE>
<PAGE>
such distribution might be taxable as ordinary income. At November 30, 1993, the
fund has designated 100% of the net investment income per share of $0.34 as qua-
lifying for the dividends-received deduction for corporations.
G) Distributions to shareholders Distributions to shareholders are recorded by
the fund on the ex-dividend date. The fund distributes any net investment inco-
me quarterly and any net realized gains at least annually.
H) Equalization Prior to December 1, 1993, the fund used the accounting practice
known as equalization to keep a continuing shareholder's per-share interest in
undistributed net investment income unaffected by sales or repurchases of fund
shares. This was accomplished by allocating a per-share portion of the proceeds
from sales and the costs of repurchases of shares to undistributed net invest-
ment income.
As of December 1, 1993, the fund discontinued using equalization. This change
has no effect on the fund's total net assets, net asset value per share, or its
net increase (decrease) in net assets from operations and did not have a mate-
rial effect on the per share amounts shown in the financial highlights. In Mana-
gement's opinion, discontinuing the use of equalization will result in less dis-
tortion of undistributed net investment income as compared to income available
for distribution for federal income tax purposes. The cumulative effect of this
change was to decrease undistributed net investment income and increase paid-in-
capital previously reported through November 30, 1993, by $7,054,922.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management, for management and investment advisory servi-
ces, is paid quarterly based on the average net assets of the fund for the quar-
ter. Such fee is based on the following annual rates: 0.75% of the first $100
million of average net assets, 0.65% of the next $100 million, 0.55% of the next
$300 million, 0.50% of the next $1.0 billion, 0.45% of the next $1 billion, and
0.40% of any amount over $2.5 billion, subject, under current law, to reduction
in any year to the extent that expenses (exclusive of distribution fees, bro-
kerage interest and taxes) of the fund exceed 2.5% of the first $30 million of
average net assets, 2% of the next $70 million and 1.5% of any amount over $100
million and by the amount of certain brokerage commissions and fees (less expen-
ses) received by affiliates of the Manager on the fund's portfolio transactions.
The fund also reimburses the Manager for the compensation and related expenses
of certain officers of the fund and their staff who provide administrative ser-
vices to the fund. The aggregate amount of all such reimbursements is determined
annually by the Trustees. For the six months ended May 31, 1994, the fund paid
$5,139 for these services.
Trustees of the fund receive an annual Trustee's fee of $1,000 and an additional
fee for each Trustees' meeting attended. Trustees who are not interested persons
of the Manager and who serve on committees of the Trustees receive additional
fees for
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attendance at certain committee meetings.
Custodial functions for the fund are provided by Putnam Fiduciary Trust Company
(PFTC), a subsidiary of Putnam Investments, Inc. Investor servicing agent func-
tions are provided by Putnam Investor Services, a division of PFTC. Fees paid
for these investor servicing and custodial functions for the six months ended
May 31, 1994, amounted to $187,979.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended May 31, 1994, 1994 have been reduced by credits allowed
by PFTC.
The fund has adopted a distribution plan with respect to class A shares (the
"Class A Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The purpose of the Class A Plan 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 class A shares. The Trustees have appro-
ved payment by the fund to Putnam Mutual Funds Corp. at an annual rate of 0.25%
of the fund's average net assets attributable to class A shares. For the six
months ended May 31, 1994, the fund paid $400,808 in distribution fees for class
A shares.
For the six months ended May 31, 1994, Putnam Mutual Funds Corp., acting as an
underwriter, received net commissions of $28,861 from the sales of class A sha-
res of the fund.
A deferred sales charge of up to 1.00% is assessed on certain redemptions of
class A shares purchased as part of an investment of $1 million or more. For
the six months ended May 31, 1994, Putnam Mutual Funds Corp., acting as an un-
derwriter, received no fees on such redemptions.
The fund has adopted a separate distribution plan with respect to its class B
shares (the "Class B Plan") pursuant to Rule 12b-1 under the Investment Company
Act of 1940. The purpose of the Class B Plan is to compensate Putnam Mutual
Funds Corp. for services provided and expenses incurred by it in distributing
class B shares. The class B Plan provides for payments by the fund to Putnam Mu-
tual Funds Corp. at an annual rate of 1.00% of the funds average net assets
attributable to class B shares. For the six months ended May 31, 1994, the fund
paid distribution fees of $94,030 for class B shares.
Putnam Mutual Funds Corp. also receives the proceeds of contingent deferred sa-
les charges levied on class B share redemptions within six years of purchase.
The charge is based on declining rates, which begin at 5.0% of the net asset va-
lue of the redeemed shares. Putnam Mutual Funds Corp. received contingent de-
ferred sales charges of $16,552 from such redemptions during the six months
ended May 31, 1994.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the six months ended May 31, 1994, purchases and sales of investment se-
curities other than U.S. government obligations and short-term investments ag-
gregated $125,633,853 and $127,706,067, respectively. Purchases and sales of
U.S. government obligations aggregated $10,538,647 and $9,807,240,
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respectively. 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, 1994, there was an unlimited number of shares of beneficial interest
authorized, divided into two classes, class A and class B capital shares. Tran-
sactions in capital shares were as follows:
Six months ended May 31, 1994
Class A Shares Amount
- -----------------------------------------------------------------------
Shares sold 1,502,071 $13,027,259
- -----------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 458,134 3,974,297
1,960,205 17,001,556
Shares repurchased (3,236,332) (28,074,440)
- -----------------------------------------------------------------------
NET DECREASE (1,276,127) $(11,072,884)
- -----------------------------------------------------------------------
Six months ended May 31, 1994
Class B Shares Amount
- -----------------------------------------------------------------------
Shares sold 1,208,382 $10,472,973
- -----------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 26,180 227,162
1,234,562 10,700,135
Shares repurchased (256,880) (2,208,607)
- -----------------------------------------------------------------------
NET INCREASE 977,682 $8,491,528
- -----------------------------------------------------------------------
Year ended November 30, 1993
Class A Shares Amount
- -----------------------------------------------------------------------
Shares sold 1,464,405 $12,377,552
- -----------------------------------------------------------------------
Shares issued in connection with
acquisition of Equity Income Fund
(Note 5) 2,003,694 17,331,950
Reinvestment of distributions 1,045,060 8,495,437
- -----------------------------------------------------------------------
4,513,159 38,204,939
Shares repurchased (9,907,021) (81,504,149)
Portion represented by undistributed
net investment income - (95,148)
- -----------------------------------------------------------------------
NET DECREASE (5,393,862) $(43,394,358)
- -----------------------------------------------------------------------
For the period September 13, 1993
(commencement of operations) to
November 30, 1993
Class B Shares Amount
- -----------------------------------------------------------------------
Shares sold 694,296 $6,025,990
- -----------------------------------------------------------------------
Shares issued in connection with
acquisition of Equity Income Fund
(Note 5) 1,050,652 9,088,137
Reinvestment of distributions - -
- -----------------------------------------------------------------------
1,744,948 15,114,127
Shares repurchased (34,572) (299,471)
Portion represented by undistributed
net investment income - (7,072)
- -----------------------------------------------------------------------
NET INCREASE 1,710,376 $14,807,584
- -----------------------------------------------------------------------
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NOTE 5
ACQUISITION OF PUTNAM EQUITY INCOME FUND
On September 13, 1993, the exchange date, the fund acquired the net assets of
Putnam Equity Income Fund by a tax-free exchange approved by the shareholders.
In addition, on September 13, 1993, Putnam Strategic Income Trust was renamed
Putnam Equity Income Fund.
The net assets of the fund immediately following the acquisition on September
13, 1993, were $315,263,483.
Class A Class B
- -------------------------------------------------------------------------
Net assets of Putnam Equity Income Fund
on September 10, 1993, valuation date
(including unrealized appreciation of
$1,124,916) $17,331,950 $9,088,137
- -------------------------------------------------------------------------
Shares of the fund issued in the
acquisition 2,003,694 1,050,652
NOTE 6
RECLASSIFICATION OF CAPITAL ACCOUNTS
Effective December 1, 1993, Putnam Equity Income Fund has adopted the provisions
of the AICPA Statement of Position (SOP) 93-2 "Determination, Disclosure and Fi-
nancial Statement Presentation of Income, Capital Gain and Return of Capital Di-
stributions, by Investment Companies." The purpose of this SOP is to report the
accumulated net realized gain (loss) accounts in such a manner as to approximate
amounts available for future distributions (or to offset future realized capital
gains) and to achieve uniformity in the presentation of distributions by invest-
ment companies.
As a result of the SOP, the fund has reclassified $9,487,345 to increase undis-
tributed net investment income, $32,991,378 to decrease accumulated net realized
loss and $42,478,723 to decrease paid in capital.
These adjustments represent the cumulative amounts necessary to report these ba-
lances through November 30, 1993, the close of the fund's most recent fiscal
year end for financial reporting tax purposes.
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OUR COMMITMENT TO QUALITY SERVICE
CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR service seal for the past four
years, through 1993. DALBAR is an independent research firm. In each of 38 ser-
vice categories, Putnam outperformed the industry standard.
HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a month from a
Putnam fund or from your checking or savings account.*
SWITCH FUNDS EASILY.
You can move money from one account to another with the same class of shares
without a service charge. (This privilege is subject to change or termination.)
ACCESS YOUR MONEY QUICKLY.
You can get checks sent regularly or redeem shares any business day at the then-
current net asset value, which may be more or less than their original cost. For
details about any of these or other services, contact your financial advisor or
call the toll-free number shown below and speak with a helpful Putnam represen-
tative.
To make an additional investment in this or any other Putnam fund, contact your
financial advisor or call our toll-free number:
1-800-225-1581.
* Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market. Investors should consider their ability to con-
tinue purchasing shares during periods of low price levels.
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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 Pounds, Vice Chairman
Jameson Adkins Baxter Hans H. Estin
John A. Hill Elizabeth T. Kennan
Lawrence J. Lasser Donald S. Perkins
Robert E. Patterson George Putnam, III
A.J.C. Smith W. Nicholas Thorndike
OFFICERS
George Putnam Charles E. Porter
President Executive Vice President
Patricia C. Flaherty Lawrence J. Lasser
Senior Vice President Vice President
Gordon H. Silver Peter Carman
Vice President Vice President
Gary N. Coburn Edward P. Bousa
Vice President Vice President and Fund Manager
William N. Shiebler John R. Verani
Vice President Vice President
Paul M. O'Neil John D. Hughes
Vice President Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Equity Income
Fund. 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 Putnam
Quarterly Performance Summary.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Boston, MA
Permit No. 53749
012/192-12989
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APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED AND
EDGAR-FILED TEXTS:
(1) Boldface typeface is displayed with capital letters, italic typeface is
displayed in normal type.
(2) Because the printed page breaks are not reflected, certain tabular and
columnar headings and symbols are displayed differently in this filing.
(3) Bullet points and similar graphic signals are omitted.
(4) Page numbering has been omitted.
(5) The trademark symbol has been replaced by (TM).
(6) The copyright symbol has been replaced by (C).
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(8) The registered mark symbol has been replaced by (R).
