PUTNAM
EQUITY
INCOME
FUND
[GRAPHIC OMITTED:
art work]
SEMIANNUAL REPORT
May 31, 1995
[LOGO:
BOSTON - LONDON - TOKYO]
<PAGE>
PERFORMANCE HIGHLIGHTS
o Lipper Analytical Services ranked the fund's class A shares in the top 13
percentile of the 107 equity income funds tracked for 1-year performance as
of May 31, 1995.*
o CDA/Wiesenberger also ranked the fund's class A shares in the top 13
percentile of the 106 equity income funds tracked for 1-year performance as
of May 31, 1995.+
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SEMIANNUAL RESULTS AT A GLANCE
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CLASS A CLASS B CLASS M
TOTAL RETURN NAV POP NAV CDSC NAV POP
-----------------------------------------------------------------------------
(change in value during period
plus reinvested distributions)
6 months ended 5/31/95 17.67% 10.88% 17.46% 12.46% -- --
Life of Class M -- -- -- -- 17.81% 13.64%
CLASS A CLASS B CLASS M
SHARE VALUE NAV POP NAV NAV POP
-----------------------------------------------------------------------------
11/30/94 $8.49 $9.01 $8.46 -- --
12/2/94 -- -- -- $8.45 $8.76
5/31/95 9.81 10.41 9.79 9.79 10.15
DISTRIBUTIONS: NO. INCOME CAPITAL GAINS TOTAL
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Class A 2 $0.1600 -- $0.1600
Class B 2 0.1310 -- 0.1310
Class M 2 0.1470 -- 0.1470
CLASS A CLASS B CLASS M
CURRENT RETURN NAV POP NAV NAV POP
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End of period
Current dividend rate(1) 3.26% 3.07% 2.66% 3.11% 3.00%
Current 30-day SEC yield(2) 2.90 2.73 2.16 2.40 2.32
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Performance data represent past results. For performance over longer
periods, see pages 8 and 9. POP assumes 5.75% maximum sales charge for
class A shares and a 3.50% sales charge for class M shares. CDSC assumes 5%
maximum contingent deferred sales charge. (1)Income portion of most recent
distribution, annualized and divided by NAV or POP at end of period.
(2)Based only on investment income, calculated using SEC guidelines. Prior
to 3/7/91, the fund operated under different investment objectives,
policies, and strategy.
*Lipper Analytical Services is an independent research organization;
rankings vary over time and do not reflect the effects of sales charges.
For periods ended 5/31/95, the fund's class A shares ranked 14 out of 107,
25 out of 54, and 16 out of 22 equity income funds for 1-, 5-, and 10-year
performance, respectively. The fund's class B shares ranked 16 out of 107
equity income funds for 1-year performance. The fund's class M shares were
first offered on 12/2/94, and were not ranked. Past performance is not
indicative of future results.
+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 14 out of 106, and 8 out of 68 equity income funds for 1-
and 3-year performance, respectively, as of 5/31/95. The fund's class B
shares ranked 19 out of 106 equity income funds for 1-year performance. The
fund's 5- and 10-year performance was not ranked because of the change in
the fund's investment category. The fund's class M shares were first
offered on 12/2/94, and were not ranked. Past performance is not indicative
of future results.
<PAGE>
FROM THE CHAIRMAN
[GRAPHIC OMITTED:
Photo of
George Putnam]
(C) Karsh, Ottawa
Dear Shareholder:
The stock market made a remarkable leap out of the doldrums during the six
months ended May 31, 1995. Putnam Equity Income Fund clearly was among the
beneficiaries of this turnabout, as you can see by the results for the first
half of fiscal 1995 on the facing page.
During most of the period, however, the market tended to favor stocks of larger,
more established companies. Your fund seeks out stocks attractively priced
relative to earnings power. Fund Managers Edward Bousa and Kenneth Taubes have
positioned the portfolio to take advantage of any future improvement in these
companies' fundamentals.
The interest rate cut after the end of the fund's fiscal period suggests that
the Federal Reserve Board is satisfied that the economy has slowed sufficiently
to keep inflation in check. Some observers are even predicting further
reductions before the year's end, a plus for stock market prospects.
In March, 1995, Rosemary Thomsen joined Edward and Ken as a fund manager.
Rosemary has been employed by Putnam since 1986. On the pages that follow,
Edward, Ken, and Rosemary review the stock and bond market environment in the
context of your fund's performance and outlook for the remainder of fiscal 1995.
Respectfully yours,
/s/ George Putnam
George Putnam
Chairman of the Trustees
July 19, 1995
<PAGE>
REPORT FROM THE FUND MANAGERS
EDWARD P. BOUSA, LEAD MANAGER
KENNETH J. TAUBES
ROSEMARY H. THOMSEN
Over the first six months of Putnam Equity Income Fund's 1995 fiscal year,
the U.S. economy's growth rate gradually slowed toward the noninflationary
pace targeted by the Federal Reserve Board and inflation remained under
control. In response, the U.S. stock and fixed income markets rebounded
convincingly. Stocks and bonds in a number of different sectors within the
fund's portfolio were frequently the direct beneficiaries of lower interest
rates. The markets' strength, combined with our careful investment selection
and positioning strategies, produced a very successful first half for your
fund.
Your fund's total returns of 17.67% and 17.46% at net asset value for class A
and class B shares, respectively, for the six months ended May 31, 1995, and
17.81% for the life of class M shares, demonstrate not only the current
strength of the markets, but the effectiveness of the fund's investment
strategy and its research-intensive management. Our stock selections, which
focused on multinational companies with both attractive valuations and
significant ongoing change, have proven to be especially effective for the
fund during this period.
Indications that your fund fared better than most funds in its class came
from recent Lipper and CDA/Wiesenberger rankings (see page 2) and from The
Wall Street Journal's "Mutual Fund Scorecard," published on June 8, 1995,
which ranked the fund among the top 10 equity income performers (10 of 104
funds) based on its 17.37% total return for the 1-year period ended June 1,
1995.* By comparison, the average total return for funds in this Lipper
category for the same 1-year period was measurably less, at 12.07%.
o RESEARCH-INTENSIVE PORTFOLIO MANAGEMENT HELPS FUND EXCEL
We believe that our research-intensive style of portfolio management
continues to set your fund apart from many competitor funds. As bottom-up
stock pickers, we use a basic value investment strategy to locate
attractively-priced stocks of companies whose managements have been quick to
adapt internally to a changing
*For the 5 and 10-year periods ended June 1, 1995, your fund was ranked 25
out of 54, and 16 out of 22 equity income funds, respectively, based on its
10.55% and 10.35% total returns, respectively, as compared to 10.12% and
11.20% averages for this Lipper category.
<PAGE>
marketplace. Experience shows us that internal corporate changes tend to be
much more influential on the overall performance results of the fund than any
outside economic factor. Subsequently, we fully integrate our activities as
portfolio managers into Putnam's extensive research organization, meeting
personally with top corporate managements to uncover securities of
exceptional value whose companies show potential for future growth.
During the period, we met with, among others, the chairmen of Weyerhaeuser
Co. and TRW, Inc. We learned that Weyerhaeuser, a leader in forest products,
is totally reengineering its business, and plans to cut costs by $600 million
in the process. Anticipating a supportive cycle for the paper industry, we
have increased your fund's investment in this stock. TRW's management told us
of their strategy to take the lead in the production of automotive air bags.
We have thus maintained a significant position in this stock, as it has
consistently performed well.
o CAREFUL STOCK SELECTIONS BOOST PERFORMANCE
At the start of the semiannual period, general uncertainty in the market
prompted managers of many other funds to increase the cash portions of their
portfolios. We, however, kept your fund fully invested, trusting our
individual stock selections to add value. Since November, our U.S.-based
multinational companies have proven especially strong contributors to fund
performance, benefiting from the weakened dollar while demonstrating their
ability to grow overseas.
Stocks of financial and insurance companies had become quite inexpensive,
in our opinion, during the period of high interest rates
[GRAPHIC OMITTED: horizontal bar chart "PORTFOLIO COMPOSITION*" showing:
Insurance and finance 15.3%; Utilities 14.6%; Oil and gas 8.0%;
Consumer nondurables 6.4%; and Health care 5.2%. Footnote reads:
*Based on net assets as of 5/31/95. Portfolio composition will vary over time.]
<PAGE>
in 1994. We have increased the fund's holdings of several financial and
insurance companies already in the portfolio and thus, taken advantage of
their dramatic recoveries. We also purchased early cyclicals including
Armstrong World Industries, Inc., John Deere & Co., Chrysler Corp., and
Boeing Corp. at bargain prices and they have performed very well. Consumer
stocks have performed favorably, as have pharmaceutical, retail, and oil
company stocks. We increased your fund's position in Bristol-Myers Squibb Co.
as it began to compete more efficiently within the health care sector. W.R.
Grace & Co. has given the biggest boost to the fund as it successfully
completed extensive internal restructuring for improved profitability in the
chemicals industry.
Anticipating difficulties for electric utilities companies due to increased
competition, we reduced their weighting in the portfolio early on in the
period. Publishing companies, railroads, and real estate investment trusts
(REITs) underperformed in the first half of fiscal 1995 due to investor
concerns about a weaker economy. Telephone companies also fared poorly due to
concerns about the effects of deregulation.
Overall, our stock selection strategy was one of remaining diligent in
discovering the most favorable opportunities while avoiding many of the
underperformers, and it proved highly effective during the period.
o LONGER DURATION POSITIONS FUND FOR POTENTIAL APPRECIATION
As investors became more confident that inflation is under control, bond
prices have risen in response to increased demand, helping to drive down
interest rates somewhat. Long-term Treasury rates dropped during the
semiannual period, thus we lengthened the duration of the portfolio's bond
holdings. Duration is a measure of the price sensitivity of a portfolio of
bonds to changes in interest rates. Like maturity, with which it is often
confused, duration is measured in years.
Extending duration in an environment of falling interest rates often entails
purchasing bonds with longer-term maturities. Typically, these bonds
appreciate in value as long-term rates decline. While such an approach can
work against the fund if interest rates begin to rise again, in this case it
proved an integral contributor to performance.
Our choice of fixed-income securities, which made up approximately 10% of the
portfolio, helps to significantly reduce volatility
<PAGE>
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TOP 10 HOLDINGS (5/31/95)
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J.P. MORGAN & CO., INC.
Banking and finance, multinational
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PHILIP MORRIS COMPANIES
Domestic food processing, alcohol, and tobacco
------------------------------------------------------------------------
EXXON CORPORATION
Drilling, production, refining, and marketing of oil and natural gas
------------------------------------------------------------------------
CINERGY CORPORATION
Utilities
------------------------------------------------------------------------
NYNEX CORPORATION
Telecommunications
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US WEST, INC.
Utilities
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UNION PACIFIC CORPORATION
Railroad
------------------------------------------------------------------------
SPRINT CORPORATION
Telecommunications
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AMERICAN HOME PRODUCTS CORPORATION
Pharmaceuticals
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FORD $4.20 CV PFD
Automobiles
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These holdings represent 17.2% of the fund's net assets. Portfolio
holdings will vary over time.
in down markets. Corporates, international bonds, Treasuries, and
mortgage-backed securities aided the fund's net investment income, supporting
superior performance over the period.
o OUTLOOK: EMPHASIS ON CONSERVATIVE STOCKS, MOVING FORWARD
Rather than managing your fund from the position of market timers, we plan to
proceed with a certain amount of caution, paying close attention to valuation
levels. For example, at the end of this reporting period, we observed that
the relative valuations of the portfolio's more aggressive stocks are now
less attractive compared to those of more conservative stocks. Consequently,
we took profits in some strongly performing consumer and cyclical stocks and
have begun to increase the fund's investments in utilities, convertible
securities, and real estate investment trusts.
Barring any dramatic changes in the pace of the economy, we anticipate that
equity and fixed-income markets may hold their own for the balance of the
fund's fiscal year, and that both stocks and bonds should continue to offer
attractive investment opportunities. Regardless of the economy's direction,
our selective search for companies that position the portfolio for strong
positive results will continue through the remainder of fiscal 1995 and
beyond.
<PAGE>
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,
assuming you held the shares through the entire period and reinvested all
distributions back into the fund. We show total return in two ways: on a
cumulative long-term basis and on average how the fund might have grown each
year over varying periods.
Performance should always be considered in light of a fund's investment
strategy. 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.
TOTAL RETURN FOR PERIODS ENDED 5/31/95
STANDARD &
CLASS A CLASS B CLASS M POOR'S 500
NAV POP NAV CDSC NAV POP INDEX CPI
- --------------------------------------------------------------------------------
6 months 17.67% 10.88% 17.46% 12.46% -- -- 19.17% 1.67%
- --------------------------------------------------------------------------------
1 year 17.91 11.09 17.32 12.32 -- -- 20.19 3.19
- --------------------------------------------------------------------------------
5 years 65.23 55.76 -- -- -- -- 71.87 17.80
Annual average 10.57 9.27 -- -- -- -- 11.44 3.33
- --------------------------------------------------------------------------------
10 years 167.71 152.30 -- -- -- -- 289.28 41.85
Annual average 10.35 9.70 -- -- -- -- 14.56 3.56
- --------------------------------------------------------------------------------
Life of class B -- -- 18.33 14.33 -- -- 20.82 5.11
Annual average -- -- 10.28 8.10 -- -- 11.62 2.94
- --------------------------------------------------------------------------------
Life of class M
(12/2/94) -- -- -- -- 17.81% 13.64% 19.17 1.67
- --------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 6/30/95
(most current calendar quarter)
CLASS A CLASS B CLASS M
NAV POP NAV CDSC NAV POP
- --------------------------------------------------------------------------------
6 months 17.60% 10.83% 17.12% 12.12% -- --
- --------------------------------------------------------------------------------
1 year 20.94 14.04 20.06 15.06 -- --
- --------------------------------------------------------------------------------
5 years 69.84 60.00 -- -- -- --
Annual average 11.18 9.86 -- -- -- --
- --------------------------------------------------------------------------------
10 years 167.07 151.67 -- -- -- --
Annual average 10.32 9.67 -- -- -- --
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Life of class B -- -- 19.47 15.47 -- --
Annual average -- -- 10.39 8.32 -- --
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Life of class M -- -- -- -- 19.04% 14.83%
- --------------------------------------------------------------------------------
Fund performance data do not take into account any adjustment for taxes payable
on reinvested distributions or, for class A shares, distribution fees prior to
the implementation of the class A plan in 1990. The fund began operations on
6/15/77 offering shares now known as class A. Class B shares were first offered
on 9/13/93 and class M shares on 12/2/94. Prior to 3/7/91, the fund operated
under different investment objectives, policies, and strategy. Performance data
represent past results and will differ for each share class. Investment returns
and net asset value will fluctuate so an investor's shares, when sold, may be
worth more or less than their original cost.
<PAGE>
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales charge.
CLASS B SHARES may be subject to a sales charge upon redemption.
CLASS M SHAREs have a lower initial sales charge and a higher 12b-1 fee than
class A shares and no sales charge upon redemption.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus the maximum
sales charge levied at the time of purchase. POP performance figures shown here
assume the maximum 5.75% sales charge for class A shares and 3.50% for class M
shares.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the time of the
redemption of class B shares and assumes redemption at the end of the period.
Your fund's CDSC declines from a 5% maximum during the first year to 1% during
the sixth year. After the sixth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
STANDARD & POOR'S 500 INDEX is an unmanaged list of common stocks that is
frequently used as a general measure of stock market performance. The index
assumes reinvestment of all distributions and does not take into account
brokerage commissions or other costs. The fund's portfolio contains securities
that do not match those in the index.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it does not
represent an investment return.
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
May 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (81.6%)<F1>
NUMBER OF SHARES VALUE
<C> <S> <C>
AEROSPACE AND DEFENSE (0.4%)
- --------------------------------------------------------------------------------------------
31,000 Boeing Co. $ 1,825,125
AUTOMOTIVE (1.2%)
- --------------------------------------------------------------------------------------------
54,000 Chrysler Corp. 2,355,750
86,800 Dana Corp. 2,452,100
------------
4,807,850
BASIC INDUSTRIAL PRODUCTS (1.4%)
- --------------------------------------------------------------------------------------------
35,000 Ball Corp. 1,163,750
12,000 Deere (John) & Co. 1,038,000
48,000 Harnischfeger Industries, Inc. 1,668,000
43,000 Varity Corp<F2> 1,854,375
------------
5,724,125
BUILDING AND CONSTRUCTION (0.3%)
- --------------------------------------------------------------------------------------------
20,000 Armstrong World Industries, Inc. 1,032,500
BUSINESS EQUIPMENT AND SERVICES (1.6%)
- --------------------------------------------------------------------------------------------
17,000 IBM Corp. 1,585,250
42,600 Xerox Corp. 4,829,775
------------
6,415,025
CHEMICALS (4.7%)
- --------------------------------------------------------------------------------------------
64,000 Dexter Corp. 1,512,000
53,600 Du Pont (E.I.) de Nemours & Co., Ltd. 3,638,100
28,600 Eastman Chemical Co. 1,716,000
34,400 Grace (W.R.) & Co. 2,210,200
40,100 Olin Corp. 2,165,400
148,000 Union Carbide Corp. 4,329,000
120,200 Witco Chemical Corp. 3,305,500
------------
18,876,200
CONGLOMERATES (2.5%)
- --------------------------------------------------------------------------------------------
102,700 Ogden Corp. 2,259,400
71,300 TRW, Inc. 5,623,788
30,000 United Technologies Corp. 2,276,250
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10,159,438
CONSUMER DURABLE GOODS (0.4%)
- --------------------------------------------------------------------------------------------
25,000 Whirlpool Corporation 1,428,125
<PAGE>
COMMON STOCKS
NUMBER OF SHARES VALUE
CONSUMER NON DURABLES (6.3%)
- --------------------------------------------------------------------------------------------
118,300 American Brands, Inc. $ 4,776,358
80,300 Avon Products, Inc. 5,410,213
74,500 Kimberly-Clark Corp. 4,470,000
113,000 Philip Morris Cos., Inc. 8,234,875
53,820 RJR Nabisco Holdings Corp<F2> 1,533,870
31,900 Universal Corp. 741,675
------------
25,166,991
CONSUMER SERVICES (2.7%)
- --------------------------------------------------------------------------------------------
72,000 Dun & Bradstreet Corp. 3,816,000
70,000 Knight-Ridder, Inc. 3,867,500
44,000 McGraw-Hill, Inc. 3,256,000
------------
10,939,500
ELECTRONICS AND ELECTRICAL EQUIPMENT (1.4%)
- --------------------------------------------------------------------------------------------
65,000 Eaton Corp. 3,973,125
49,000 Honeywell, Inc. 1,941,625
------------
5,914,750
ENERGY-RELATED (0.2%)
- --------------------------------------------------------------------------------------------
40,000 Westcoast Energy, Inc. 605,000
ENVIRONMENTAL CONTROL (0.5%)
- --------------------------------------------------------------------------------------------
68,000 WMX Technologies, Inc. 1,853,000
FOOD AND BEVERAGES (2.4%)
- --------------------------------------------------------------------------------------------
36,000 Anheuser-Busch Cos., Inc. 2,128,500
20,000 Fleming Companies, Inc. 517,500
110,000 Flowers Industries, Inc. 1,897,500
44,000 Heinz (H.J.) Co. 1,991,000
61,000 Nestle S.A. ADR (Registered) (Switzerland) 2,996,625
------------
9,531,125
FOREST PRODUCTS (1.9%)
- --------------------------------------------------------------------------------------------
54,700 Potlatch Corp. 2,345,263
124,000 Weyerhaeuser Co. 5,440,500
------------
7,785,763
HEALTH CARE (5.1%)
- --------------------------------------------------------------------------------------------
80,000 American Home Products Corp. 5,890,000
94,600 Baxter International, Inc. 3,299,175
84,100 Bristol-Myers Squibb Co. 5,582,138
17,000 Upjohn Co. 618,375
62,000 Warner-Lambert Co. 5,138,250
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20,527,938
<PAGE>
COMMON STOCKS
NUMBER OF SHARES VALUE
INSURANCE AND FINANCE (14.5%)
- --------------------------------------------------------------------------------------------
72,000 AON Corp. $ 2,628,000
65,400 Aetna Life & Casualty Co. 3,899,475
62,000 American Express Co. 2,208,750
82,000 American General Corp. 2,829,000
70,000 BankAmerica Corp. 3,657,500
41,100 Bankers Trust New York Corp. 2,579,025
70,350 Bear Stearns Companies, Inc. 1,424,588
124,400 Beneficial Corp. 5,535,800
19,800 CIGNA Corp. 1,480,050
94,000 CoreStates Financial Corp. 3,125,500
10,000 Federal National Mortgage Association 930,000
48,000 First Chicago Corp. 2,754,000
65,000 Fleet Financial Group, Inc. 2,266,875
30,000 Mellon Bank Corp. 1,282,500
119,000 Morgan (J.P.) & Co., Inc. 8,434,125
34,000 National City Corp. 1,032,750
59,200 NationsBank Corp. 3,352,200
39,100 Provident Life & Accident Insurance Co. Class B 948,175
47,000 SAFECO Corp. 2,761,250
20,000 Student Loan Marketing Assn. 950,000
42,300 Synovus Financial Corp. 888,300
37,000 Torchmark Corp. 1,475,375
60,000 Wilmington Trust Corp. 1,575,000
------------
58,018,238
METALS AND MINING (0.8%)
- --------------------------------------------------------------------------------------------
49,000 Carpenter Technology Corp. 3,148,250
OIL AND GAS (7.1%)
- --------------------------------------------------------------------------------------------
60,000 Amoco Corp. 4,102,500
41,200 Chevron, Inc. 2,023,950
40,000 Enron Corp. 1,460,000
108,000 Exxon Corp. 7,708,500
40,000 Imperial Oil Ltd. 1,555,000
35,300 Mobil Corp. 3,543,238
46,000 Phillips Petroleum Co. 1,667,500
50,300 Repsol S.A. ADR 1,641,038
13,000 Royal Dutch Petroleum Co. PLC ADR 1,647,750
103,000 Total Corp. ADS (France) 3,193,000
------------
28,542,476
PHOTOGRAPHY (1.9%)
- --------------------------------------------------------------------------------------------
92,000 Eastman Kodak Co. 5,554,500
55,000 Polaroid Corp. 2,028,125
------------
7,582,625
<PAGE>
COMMON STOCKS
NUMBER OF SHARES VALUE
REAL ESTATE (2.3%)
- --------------------------------------------------------------------------------------------
45,000 Bradley Real Estate Trust, Inc. $ 708,750
56,000 Duke Realty Investments, Inc. 1,568,000
77,000 Equity Residential Properties Trust 2,204,125
44,000 Evans Withycombe Residential 885,500
50,000 Health Care Inc. 1,112,500
62,000 LTC Properties, Inc. 798,250
50,000 Nationwide Health Properties, Inc. 1,862,500
------------
9,139,625
RETAIL (3.3%)
- --------------------------------------------------------------------------------------------
182,000 K Mart Corp. 2,320,500
81,000 Melville Corporation 3,219,750
82,000 Penney (J.C.) Co., Inc. 3,864,250
66,600 Sears, Roebuck & Co. 3,754,575
------------
13,159,075
TELECOMMUNICATIONS (0.4%)
- --------------------------------------------------------------------------------------------
45,000 Comsat Corp. 877,500
38,000 MCI Communications Corp. 769,500
------------
1,647,000
TRANSPORTATION (4.1%)
- --------------------------------------------------------------------------------------------
64,000 Conrail, Inc. 3,456,000
59,400 Consolidated Freightways, Inc. 1,410,750
23,000 Norfolk Southern Corp. 1,575,500
143,000 Ryder System, Inc. 3,628,625
113,000 Union Pacific Corp. 6,257,375
------------
16,328,250
UTILITIES (14.2%)
- --------------------------------------------------------------------------------------------
97,900 American Telephone & Telegraph Corp. 4,968,425
60,100 Bell Atlantic Corp. 3,350,575
54,000 BellSouth Corp. 3,314,250
265,463 Cinergy Corp. 7,067,952
65,000 Consolidated Natural Gas Co. 2,591,875
60,000 Entergy Corp. 1,485,000
71,000 Frontier Corp. 1,615,250
39,200 Houston Industries, Inc. 1,690,500
168,000 NYNEX Corp. 7,014,000
67,000 Pacific Enterprises 1,691,750
47,800 Potomac Electric Power Co. 973,925
66,000 Public Service Co. of Colorado 2,161,500
65,000 Shandong Huaneng Power ADR (China) 479,375
182,000 Sprint Corp. 6,097,000
138,000 Texas Utilities Co. 4,985,250
152,676 US WEST, Inc. 6,297,885
45,400 WICOR, Inc. 1,276,875
------------
57,061,387
------------
TOTAL COMMON STOCKS (cost $286,863,429) $327,219,381
<PAGE>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (5.7%)<F1>
PRINCIPAL AMOUNT VALUE
Federal National Mortgage Association
$ 1,509,894 7s, with various due dates to June 1, 2024 $ 1,485,359
410,000 TBA 7 1/2s, June 14, 2025 <F5> 411,792
Government National Mortgage Association
1,332,636 7 1/2s, with various due dates to June 15, 2023 1,340,964
642,426 7s, with various due dates to May 15, 2024 632,186
935,956 Midgets 8s, January 15, 2007 965,785
481,551 Midgets 7s, May 15, 2009 484,859
845,000 U.S. Treasury Bonds 11 1/8s, August 15, 2003 1,102,725
780,000 U.S. Treasury Bonds 8 7/8s, August 15, 2017 964,759
1,390,000 U.S. Treasury Bonds 8 1/8s, August 15, 2019 1,605,881
1,740,000 U.S. Treasury Bonds 7 1/2s, November 15, 2024 1,913,722
2,320,000 U.S. Treasury Bonds 7 1/8s, February 15, 2023 2,428,738
2,025,000 U.S. Treasury Notes 8 7/8s, November 15, 1997 2,160,108
1,560,000 U.S. Treasury Notes 7 3/4s, February 15, 2001 1,683,100
1,040,000 U.S. Treasury Notes 7 3/4s, January 31, 2000 1,109,878
1,000,000 U.S. Treasury Notes 7 3/8s, May 15, 1996 1,013,440
2,040,000 U.S. Treasury Notes 6 7/8s, March 31, 2000 2,106,932
1,470,000 U.S. Treasury Notes 5s, January 31, 1999 1,420,843
90,000 U.S. Treasury Notes 4 5/8s, February 29, 1996 89,185
------------
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (cost $21,941,806) $ 22,920,256
CONVERTIBLE PREFERRED STOCKS (3.5%)<F1>
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------
AUTOMOTIVE (1.4%)
- --------------------------------------------------------------------------------------------
61,000 Ford Motor Co. Ser. A, $4.20, cv. pfd. $ 5,825,500
BUSINESS EQUIPMENT AND SERVICES (--%)
- --------------------------------------------------------------------------------------------
3,100 Unisys Corp. Ser. A, $3.75 cv. pfd. 132,525
CONSUMER DURABLE GOODS (0.1%)
- --------------------------------------------------------------------------------------------
6,000 Fieldcrest Cannon Ser. A, $3.00 cv. pfd. 288,750
CONSUMER NON DURABLES (0.1%)
- --------------------------------------------------------------------------------------------
11,000 Fieldcrest Cannon, Inc. 144A $3.00, cv. pfd. 539,000
METALS AND MINING (1.0%)
- --------------------------------------------------------------------------------------------
137,000 Freeport-McMoRan Copper & Gold Co., Inc.
stepped-coupon $1.25, ($1.75, 8/1/96)
dep. shs. cv. pfd<F3> 2,962,625
27,000 Pittston Mineral Corp. Ser. C, $3.125, cv. pfd. 864,000
------------
3,826,625
OIL AND GAS (0.7%)
- --------------------------------------------------------------------------------------------
45,000 Ashland, Inc. $3.125 cv. pfd. 2,655,000
TRANSPORTATION (0.2%)
- --------------------------------------------------------------------------------------------
10,000 Burlington Northern, Inc. Ser. A, $3.125, cum. cv. pfd. 667,500
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (cost $13,488,581) $ 13,934,900
<PAGE>
CORPORATE BONDS AND NOTES (2.2%)<F1>
PRINCIPAL AMOUNT VALUE
AEROSPACE AND DEFENSE (--%)
- --------------------------------------------------------------------------------------------
$ 25,000 BE Aerospace sr. notes, 9 3/4s, 2003 $ 24,750
20,000 Sequa Corp. bonds 8 3/4s, 2001 19,100
------------
43,850
AGRICULTURE (--%)
- --------------------------------------------------------------------------------------------
50,000 PSF Finance (L.P.) sr. secd. exch. note 12 1/4s, 2004 51,588
AUTOMOTIVE (0.1%)
- --------------------------------------------------------------------------------------------
380,000 Chrysler Corp. deb. 10.95s, 2017 426,136
25,000 Hayes Wheels International Inc. sr. notes 9 1/4s, 2002 25,750
25,000 Lear Seating Corp. sr. sub. notes 11 1/4s, 2000 26,125
------------
478,011
BASIC INDUSTRIAL PRODUCTS (--%)
- --------------------------------------------------------------------------------------------
25,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 26,875
BUILDING AND CONSTRUCTION (--%)
- --------------------------------------------------------------------------------------------
50,000 Kaufman & Broad Home Corp. sub. notes 9 3/8s, 2003 46,625
25,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 24,375
15,000 Walter Industries Inc. sr. note Ser. B, 12.19s, 2000 15,263
------------
86,263
BUSINESS EQUIPMENT AND SERVICES (--%)
- --------------------------------------------------------------------------------------------
25,000 Outdoor Systems, Inc. sr. notes 10 3/4s, 2003 24,000
CHEMICALS (0.1%)
- --------------------------------------------------------------------------------------------
20,000 G-I Holdings, Inc. 144A sr. dis. notes zero %, 1998 13,600
125,000 Lyondell Petrochemical Co. notes 9 1/8s, 2002 137,420
10,000 OSI Specialties Corp. sr. sub. notes 9 1/4s, 2003 10,100
------------
161,120
COMMUNICATIONS (--%)
- --------------------------------------------------------------------------------------------
25,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 24,000
CONGLOMERATES (0.1%)
- --------------------------------------------------------------------------------------------
300,000 Pennsylvania Central Corp. sub. deb. 10 7/8s, 2011 347,469
CONSUMER DURABLES (--%)
- --------------------------------------------------------------------------------------------
25,000 Simmons Mattress Corp. 144A deb. 8s, 2003<F4> 24,688
CONSUMER NON DURABLES (--%)
- --------------------------------------------------------------------------------------------
10,000 Playtex Family Products Corp. sr. sub. notes 9s, 2003 9,550
25,000 Reeves Industries Inc. sr. notes 11s, 2002 26,188
------------
35,738
ELECTRONICS AND ELECTRICAL EQUIPMENT (--%)
- --------------------------------------------------------------------------------------------
30,000 Amphenol Corp. sr. sub. notes 12 3/4s, 2002 34,313
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
ENTERTAINMENT (0.4%)
- --------------------------------------------------------------------------------------------
$ 50,000 Cablevision Systems Corp. sr. sub. deb. 10 3/4s, 2004 $ 52,500
25,000 Century Communications Corp. sr. notes 9 1/2s, 2005 24,750
75,000 Insight Communications Co. sr. sub. notes stepped-
coupon 8 1/4s (11 1/4s,3/1/96), 2000 <F3> 75,375
25,000 Lady Luck Gaming Corp. 1st. mtge. 10 1/2s, 2001 17,125
290,000 News America Hldgs, Inc. sr. notes 12s, 2001 327,909
300,000 Tele-Communications, Inc. sr. deb. 9.8s, 2012 325,506
630,000 Time Warner Inc. deb. 9 1/8s, 2013 646,985
25,000 Trump Plaza Funding, Inc. 1st mtge. notes 10 7/8s, 2001 22,625
------------
1,492,775
FOREST PRODUCTS (--%)
- --------------------------------------------------------------------------------------------
75,000 Riverwood International Corp. sr. sub. notes 10 3/8s, 2004 83,250
HEALTH CARE (0.1%)
- --------------------------------------------------------------------------------------------
180,000 Columbia Healthcare Corp. deb. 8.36s, 2024 195,293
25,000 Continental Medical Systems Inc. sr. sub. notes
Ser. B, 10 3/8s, 2003 25,625
215,000 McGaw, Inc. sr. notes 10 3/8s, 1999 223,063
25,000 Multicare Cos., Inc. sr. sub. notes 12 1/2s, 2002 28,250
------------
472,231
INSURANCE AND FINANCE (0.6%)
- --------------------------------------------------------------------------------------------
50,000 American Annuity Group, Inc. sr. sub. notes 11 1/8s, 2003 52,500
250,000 BAT Capital Corp. 144A med. term notes
6.19s, 2000 243,550
25,000 Comdata Network, Inc. sr. notes 12 1/2s, 1999 27,281
300,000 Crestar Financial Corp. sub. notes 8 3/4s, 2004 331,500
300,000 Den Danske Bank sub. notes 6.55s, 2003 287,400
300,000 Finova Capital Corp. notes 9 1/8s, 2002 336,705
450,000 Great Western Financial Corp. notes 6 1/8s, 1998 446,333
25,000 Keystone Group, Inc. sr. secd. notes 9 3/4s, 2003 25,563
300,000 Midlantic Banks Corp. sub. cap. notes, 9 7/8s, 1999 333,150
200,000 Paine Webber Group Inc. notes 6 1/2s, 2005 180,444
250,000 Riggs National Corp. sub. deb. 8 1/2s, 2006 248,750
------------
2,513,176
LODGING (--%)
- --------------------------------------------------------------------------------------------
25,000 HMH Properties Inc. 144A sr. notes 9 1/2s, 2005 24,500
35,000 La Quinta Motor Inns, Inc. deb. 9 1/4s, 2003 35,788
------------
60,288
MOTION PICTURE DISTRIBUTION (--%)
- --------------------------------------------------------------------------------------------
30,000 Act III Broadcasting, Inc. sr. sub. notes 9 5/8s, 2003 30,450
25,000 AMC Entertainment, Inc. sr. sub. deb. 12 5/8s, 2002 27,563
50,000 Cinemark USA sr. notes 12s, 2002 54,188
------------
112,201
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
OIL AND GAS (0.2%)
- --------------------------------------------------------------------------------------------
$ 25,000 Chesapeake Energy Corp. sr. exch. notes 12s, 2001 $ 26,313
300,000 Occidental Petroleum Corp. (Del.) sr. deb. 11 3/4s, 2011 325,056
25,000 Oryx Energy Co. notes 9 3/4s, 1998 25,125
200,000 Parker & Parsley Petro Co. sr. notes 8 7/8s, 2005 212,892
295,000 Union Texas Petroleum sr. note 8 3/8s, 2005 314,452
------------
903,838
PUBLISHING (--%)
- --------------------------------------------------------------------------------------------
40,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes zero %, 1998 27,800
25,000 World Color Press Co. sr. sub. notes 9 1/8s, 2003 24,500
------------
52,300
RETAIL (0.1%)
- --------------------------------------------------------------------------------------------
25,000 Loehmanns' Holdings, Inc. sr. notes 10 1/2s, 1997 24,625
300,000 Sears, Roebuck & Co. med. term notes 5.91s, 1999 293,457
25,000 Service Merchandise Co., Inc. sr. sub. deb. 8 3/8s, 2001 22,375
------------
340,457
TELECOMMUNICATIONS (--%)
- --------------------------------------------------------------------------------------------
50,000 Comcast Cellular Corp. sr. participating notes Ser. A, zero%, 2000 36,500
25,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 26,813
------------
63,313
TRANSPORTATION (0.1%)
- --------------------------------------------------------------------------------------------
130,000 Blue Bird Body Co. sub. deb. Ser. B, 11 3/4s, 2002 133,250
35,000 Viking Star Shipping 1st mtge. notes 9 5/8s, 2003 33,950
------------
167,200
UTILITIES (0.4%)
- --------------------------------------------------------------------------------------------
250,000 Arkla, Inc. notes 8 7/8s, 1999 262,500
25,000 Cleveland Electric Illuminating 1st mtge. 9 1/2s, 2005 25,188
25,000 First PV Funding Corp. lease bond 10.15s, 2016 25,500
63,816 Midland Funding Corp. (L.P.) sr. sec. lease deb. 10.33s, 2002 65,571
285,000 Public Service Co. of New Hampshire notes 15.23s, 2000 331,313
400,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 397,000
300,000 Toledo Edison med. term. notes 1st mtge. Ser. A, 7.82s, 2003 284,283
------------
1,391,355
------------
TOTAL CORPORATE BONDS AND NOTES (cost $9,047,641) $ 8,990,299
CONVERTIBLE BONDS AND NOTES (1.4%)<F1>
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
CELLULAR BROADCASTING (0.4%)
- --------------------------------------------------------------------------------------------
$ 3,100,000 Comcast Corp. cv. notes 1 1/8s, 2007 $ 1,402,750
ENVIRONMENTAL CONTROL (0.1%)
- --------------------------------------------------------------------------------------------
468,000 WMX Technologies, Inc. cv. 2s, 2005 383,760
FOREST PRODUCTS (--%)
- --------------------------------------------------------------------------------------------
25,000 Riverwood International Corp. sub. notes 6 3/4s, 2003 33,875
<PAGE>
CONVERTIBLE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
INSURANCE AND FINANCE (0.2%)
- --------------------------------------------------------------------------------------------
$ 700,000 Trenwick Group, Inc. sub. cv. deb. 6s, 1999 $ 710,500
REAL ESTATE (0.3%)
- --------------------------------------------------------------------------------------------
1,400,000 Liberty Property Trust cv. sub. exch. deb. 8s, 2001 1,379,000
TRANSPORTATION (0.4%)
- --------------------------------------------------------------------------------------------
1,600,000 AMR Corp. cv. sub. deb. 6 1/8s, 2024 1,552,000
------------
TOTAL CONVERTIBLE BONDS AND NOTES (cost $5,199,481) $ 5,461,885
YANKEE BONDS AND NOTES (1.0%)<F1>
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$ 300,000 Ford Capital BV deb. 9s, 1998 $ 321,165
50,000 Fresh Del Monte Produce Corp. sr. notes, Ser. B, 10s, 2003 42,500
3,000,000 Hollinger, Inc. cv. sub. notes zero %, 2013 922,500
475,000 Quebec (Province of) deb. 8 5/8s, 2005 525,583
4,800,000 Roche Holdings, Inc. cv. unsub. zero %, 2010 1,848,000
300,000 Scotland International Finance 144A sub. notes 8.85s, 2006 335,625
50,000 Sifto Canada, Inc. gtd. secd. notes 8 1/2s, 2000 48,250
------------
TOTAL YANKEE BONDS AND NOTES (cost $3,887,168) $ 4,043,623
FOREIGN BONDS AND NOTES (0.8%)<F1>
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
FRF 1,470,000 France (Government of) OAT deb. 8 1/2s, 2002 $ 316,100
FRF 4,210,000 France (Government of) OAT deb. 8 1/2s, 2003 906,567
FRF 1,560,000 France (Government of) deb. 7s, 1999 314,861
DEM 930,000 Germany (Republic of) bonds 7 1/8s, 2003 678,337
GBP 684,000 United Kingdom Treasury notes 7s, 2001 1,041,050
------------
TOTAL FOREIGN BONDS AND NOTES (cost $3,196,060) $ 3,256,915
EUROBONDS (0.3%)<F1> (cost $1,190,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$ 1,500,000 Banco National Mexicana cv. Company
Guaranty 7s, 1999 $ 1,042,500
COLLATERALIZED MORTGAGE OBLIGATIONS (0.2%)<F1>
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
Housing Securities Inc.
$ 21,553 Ser. 93-J, Class J 4, 6.66s, 2009 $ 16,946
23,606 Ser. 93-J, Class J 5, 6.66s, 2009 15,949
24,026 Ser. 94-1, Class AB-1 6 1/2s, 2009 18,628
79,090 Prudential Home Loan Corp. Ser. 92-25, 8s, 2022 63,705
Prudential Home Mortgage Securities
99,163 144A Ser. 1994-31, Class B3, sub. bond 8s, 2009 83,173
101,906 Ser. 92-13 Class B-3, 7 1/2s, 2007 90,505
123,189 Ser. 1993-36, Class-M, 7 1/4s, 2023 118,223
301,144 144A Ser. 94-A Class 4 B, 6.8s, 2024 270,183
107,266 144A Ser. 94-D Class B4, 6.312s, 2009 88,092
229,160 144A Ser. 94-D Class 3 B, 6.31s, 2009 207,676
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (cost $910,546) $ 973,080
<PAGE>
ASSET-BACKED SECURITIES (--%)<F1> (cost $142,170)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$ 145,000 Long Island Lighting Co. Ser. P, 5 1/4s, 1996 $ 143,675
WARRANTS (--%)<F1><F2> (cost $--)
NUMBER OF SHARES EXPIRATION DATE VALUE
- --------------------------------------------------------------------------------------------
4,991 Windmere Corp. 1/19/1998 $ 3,119
SHORT-TERM INVESTMENTS (3.8%)<F1> (cost $15,423,592)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$15,421,000 Interest in $476,166,000 joint repurchase agreement
dated May 31, 1995 with Morgan (J.P.) & Co., Inc.
due June 1, 1995 with respect to various U.S.
Treasury obligations--maturity value of $15,423,592
for an effective yield of 6.05% $ 15,423,592
------------
TOTAL INVESTMENTS (cost $361,290,474)<F6> $403,413,225
<FN>
<F1> Percentages indicated are based on net assets of $401,077,454, which correspond to a
net asset value for class A, class B and class M shares of $9.81, $9.79 and $9.79,
respectively.
<F2> Non-income-producing security.
<F3> The interest and dividend rates and dates shown parenthetically represent the new
interest and dividend rates to be paid and the dates the fund will begin receiving
interest and dividends at these rates.
<F4> Income may be received in cash or additional securities at the discretion of the
issuer.
<F5> TBA's are mortgage backed securities traded under delayed delivery commitments,
settling after May 31, 1995. Although the unit price for the trades has been
established, the principal value has not been finalized. However, the amount of the
commitments will not fluctuate more than 2% from the principal amount. Income on the
securities will not be earned until settlement date. The cost of TBA purchases held
at May 31, 1995 was $402,697.
<F6> The aggregate identified cost on a tax basis is $362,316,620, resulting in gross
unrealized appreciation and depreciation of $45,811,748 and $4,715,143, respectively,
or net unrealized appreciation of $41,096,605.
ADR or ADS after the name of a holding stands for American Depository Receipt or
American Depository Shares, respectively, representing ownership of foreign
securities on deposit with a domestic custodian bank.
144A after the name of a security represents those exempt from registration under
Rule 144A of the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified institutional buyers.
</FN>
FORWARD CURRENCY CONTRACTS TO SELL at May 31, 1995
AGGREGATE UNREALIZED
MARKET FACE DELIVERY APPRECIATION/
VALUE VALUE DATE (DEPRECIATION)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
British Pounds $ 998,693 $ 987,450 6/14/95 $ (11,243)
Deutschemarks 983,500 1,000,506 6/13/95 17,006
Deutschemarks 312,120 321,859 6/14/95 9,739
French Francs 820,305 842,205 6/13/95 21,900
French Francs 638,319 647,672 6/13/95 9,353
---------- ---------- ------------
TOTAL $3,752,937 $3,799,692 $ 46,755
<PAGE>
FORWARD CURRENCY CONTRACTS TO BUY at May 31, 1995
AGGREGATE
MARKET FACE DELIVERY UNREALIZED
VALUE VALUE DATE DEPRECIATION
- --------------------------------------------------------------------------------------------
Deutschemarks $ 653,877 $ 673,235 6/13/95 $ (19,358)
TBA SALE COMMITMENTS OUTSTANDING at May 31,1995
(proceeds receivable $1,442,312)
PRINCIPAL DELIVERY COUPON MARKET
AGENCY AMOUNT MONTH RATE VALUE
- --------------------------------------------------------------------------------------------
GNMA $ 935,000 June, 95 8.00% $ 958,076
GNMA 480,000 June, 95 7.00% 472,349
------------
$ 1,430,425
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1995 (Unaudited)
<S> <C>
ASSETS
- --------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$361,290,474) (Note 1) $403,413,225
- --------------------------------------------------------------------------------------------
Dividends, interest and other receivables 2,282,130
- --------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,122,319
- --------------------------------------------------------------------------------------------
Receivable for securities sold 6,461,906
- --------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 57,998
- --------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 1,752
- --------------------------------------------------------------------------------------------
TOTAL ASSETS $413,339,330
LIABILITIES
- --------------------------------------------------------------------------------------------
Payable to subcustodian bank (Note 2) 19,352
- --------------------------------------------------------------------------------------------
Payable for securities purchased 9,157,690
- --------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 665,249
- --------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 590,049
- --------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,743
- --------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 356
- --------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 43,891
- --------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 184,559
- --------------------------------------------------------------------------------------------
Payable for open forward currency contracts 30,601
- --------------------------------------------------------------------------------------------
Other accrued expenses 137,961
- --------------------------------------------------------------------------------------------
TBA sale commitments, at value (proceeds receivable $1,442,312) 1,430,425
- --------------------------------------------------------------------------------------------
TOTAL LIABILITIES 12,261,876
- --------------------------------------------------------------------------------------------
NET ASSETS $401,077,454
REPRESENTED BY
- --------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $489,660,123
- --------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 975,990
- --------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (Note 1) (131,720,905)
- --------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, forward currency contracts,
foreign currency translation and TBA sale commitments 42,162,246
- --------------------------------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO CAPITAL SHARES OUTSTANDING $401,077,454
COMPUTATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($347,596,174 divided by 35,417,826 shares) $ 9.81
- --------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $9.81)* $10.41
- --------------------------------------------------------------------------------------------
Net asset value and offering price of class B shares
($50,032,578 divided by 5,111,337 shares) + $ 9.79
- --------------------------------------------------------------------------------------------
Net asset value and redemption price of class M shares
($3,448,702 divided by 352,318 shares) $ 9.79
- --------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $9.79)* $10.15
- --------------------------------------------------------------------------------------------
*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>
<PAGE>
STATEMENT OF OPERATIONS
For the six months ended May 31, 1995 (Unaudited)
INVESTMENT INCOME:
- -------------------------------------------------------------------------------
Dividends (net of foreign tax of $39,864) $ 6,557,369
- -------------------------------------------------------------------------------
Interest 1,772,617
- -------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 8,329,986
EXPENSES:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,135,471
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 200,777
- -------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,897
- -------------------------------------------------------------------------------
Reports to shareholders 29,950
- -------------------------------------------------------------------------------
Auditing 8,713
- -------------------------------------------------------------------------------
Legal 7,092
- -------------------------------------------------------------------------------
Postage 12,029
- -------------------------------------------------------------------------------
Registration fees 10,185
- -------------------------------------------------------------------------------
Administrative services (Note 2) 4,678
- -------------------------------------------------------------------------------
Distribution fees -- class A (Note 2) 401,655
- -------------------------------------------------------------------------------
Distribution fees -- class B (Note 2) 196,945
- -------------------------------------------------------------------------------
Distribution fees -- class M (Note 2) 6,216
- -------------------------------------------------------------------------------
Other expenses 11,361
- -------------------------------------------------------------------------------
TOTAL EXPENSES 2,031,969
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 6,298,017
- -------------------------------------------------------------------------------
Net realized gain on forward currency contracts and foreign
currency translation (Note 1) 8,343
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 6,606,858
- -------------------------------------------------------------------------------
Net unrealized appreciation on forward currency contracts and
foreign currency translation during the period 27,609
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and TBA sale
commitments during the period 47,035,516
- -------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 53,678,326
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $59,976,343
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED
MAY 31 NOVEMBER 30
1995* 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
- --------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------
Net investment income $ 6,298,017 $ 12,451,931
- --------------------------------------------------------------------------------------------
Net realized gain on investments, forward currency
contracts and foreign currency translation 6,615,201 12,857,401
- --------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments, forward currency contracts, foreign
currency translation and TBA sale commitments 47,063,125 (19,899,597)
- --------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 59,976,343 5,409,735
- --------------------------------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------
From net investment income
- --------------------------------------------------------------------------------------------
Class A (5,719,388) (11,953,233)
- --------------------------------------------------------------------------------------------
Class B (547,582) (684,178)
- --------------------------------------------------------------------------------------------
Class M (17,853) --
- --------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 11,147,615 415,154
- --------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 64,839,135 (6,812,522)
NET ASSETS
- --------------------------------------------------------------------------------------------
Beginning of period 336,238,319 343,050,841
- --------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment
income of $975,991 and $962,796, respectively) $401,077,454 $336,238,319
- --------------------------------------------------------------------------------------------
*Unaudited
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
FOR THE PERIOD
DECEMBER 2, 1994
(COMMENCEMENT OF SIX MONTHS
OPERATIONS) TO ENDED YEAR ENDED
MAY 31 MAY 31 NOVEMBER 30
- ------------------------------------------------------------------------------------------------------
1995<F1> 1995<F1> 1994
- ------------------------------------------------------------------------------------------------------
CLASS M CLASS B
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $8.45 $8.46 $8.65
- ------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------
Net investment income .19 .12 .26
- ------------------------------------------------------------------------------------------------------
Net realized/unrealized gain (loss)
on investments 1.30 1.34 (.18)
- ------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.49 1.46 .08
- ------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
- ------------------------------------------------------------------------------------------------------
From net investment income (.15) (.13) (.27)
- ------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- --
- ------------------------------------------------------------------------------------------------------
Net realized gain on investments -- -- --
- ------------------------------------------------------------------------------------------------------
Paid-in capital -- -- --
- ------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.15) (.13) (.27)
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.79 $9.79 $8.46
- ------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE (%) <F4> 17.81<F5> 17.46<F5> .86
- ------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (in thousands) $3,449 $50,033 $32,114
- ------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .76<F5> .89<F5> 1.78
- ------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 1.92<F5> 1.48<F5> 3.02
- ------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 36.70<F5> 36.70<F5> 82.49
- ------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
FINANCIAL HIGHLIGHTS [continued]
(For a share outstanding throughout the period) [continued]
FOR THE PERIOD
SEPTEMBER 13, 1993
(COMMENCEMENT OF SIX MONTHS
OPERATIONS) TO ENDED
NOVEMBER 30 MAY 31 YEAR ENDED NOVEMBER 30
- -----------------------------------------------------------------------------------------------------------------------------------
1993<F3> 1995<F1> 1994 1993 1992 1991<F2> 1990
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $8.66 $8.49 $8.67 $7.72 $7.29 $6.60 $8.62
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income .06 .16 .32 .28 .42 .30 .25
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized/unrealized gain (loss)
on investments (.07) 1.32 (.18) 1.01 .41 .93 (1.08)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (.01) 1.48 .14 1.29 .83 1.23 (.83)
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
- -----------------------------------------------------------------------------------------------------------------------------------
From net investment income -- (.16) (.32) (.31) (.40) (.30) (.25)
- -----------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- -- (.03) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments -- -- -- -- -- (.24) --
- -----------------------------------------------------------------------------------------------------------------------------------
Paid-in capital -- -- -- -- -- -- (.94)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS -- (.16) (.32) (.34) (.40) (.54) (1.19)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $8.65 $9.81 $8.49 $ 8.67 $ 7.72 $ 7.29 $6.60
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE (%) <F4> (.12)<F5> 17.67<F5> 1.59 17.06 11.66 19.13 (10.56)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (in thousands) $14,800 $347,596 $304,124 $328,251 $334,127 $397,237 $585,011
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .44<F5> .52<F5> 1.04 1.16 1.23 1.20 1.09
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) .55<F5> 1.76<F5> 3.67 3.40 5.57 4.13 3.30
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 125.85<F6> 36.70<F5> 82.49 125.85<F6> 340.99 198.18 222.84
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Unaudited.
<F2> 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 investment objective.
<F3> Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
<F4> Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
<F5> Not annualized.
<F6> Portfolio turnover excludes the impact of assets received from the acquisition by the fund, then known as Putnam
Strategic Income Trust, of the assets of Putnam Equity Income Fund.
</FN>
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
May 31, 1995 (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 class A, class B and class M shares. The fund commenced its
public offering of class M shares on December 2, 1994. 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 may be 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 an ongoing distribution fee that is
higher than class A shares and lower than class B shares. Expenses of the fund
are borne pro-rata by the holders of each class of shares, except that each
class bears expenses unique to that class (including the distribution fees
applicable to such class). Each votes as a class only with respect to its own
distribution plan or other matters on which a class vote is required by law or
determined by the Trustees. Shares of each class would receive their pro-rata
share of the net assets of the fund, if the fund were liquidated. In addition,
the Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
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 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 market 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 investments 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)
purchase 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 commitment 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
obligations in an amount
<PAGE>
sufficient to meet the purchase price, or the fund enters into offsetting
contracts for the forward sale of other securities it owns. TBA 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.
TBA SALE COMMITMENTS The fund may enter into TBA sale commitments to hedge its
portfolio positions or to sell mortgage-backed securities it owns under delayed
delivery arrangements. Proceeds of TBA sales commitments are not received until
the contractual settlement date. During the time a TBA sale commitment is
outstanding, equivalent deliverable securities, or an offsetting TBA purchase
commitment deliverable on or before the sale commitment date, are held as
"cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Security valuation" above. The contract is "marked-to market" daily and the
change in market value is recorded by the fund as an unrealized gain or loss. If
the TBA sale commitment is closed through the acquisition of an offsetting
purchase commitment, the fund realizes a gain or loss on the commitment without
regard to any unrealized gain or loss on the underlying security. If the fund
delivers securities under the commitment, the fund realizes a gain or loss from
the sale of the securities based upon the unit price established at the date the
commitment was entered into.
C FORWARD CURRENCY CONTRACTS A forward currency contract is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the contract will fluctuate with changes in currency exchange
rates. The contract is "marked-to-market" daily and the change in market value
is recorded by the fund as an unrealized gain or loss. When the contract is
closed, the fund records a realized gain or loss equal to the difference between
the value of the contract at the time it was opened and the value at the time it
was closed. The maximum potential loss from forward currency contracts is the
aggregate face value in U.S. dollars at the time the contract was opened;
however, management believes the likelihood of such loss to be remote.
D 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 managed by Putnam Investment Management, Inc., "Putnam Management" the
fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc. and
certain other accounts. These balances may be invested in one or more repurchase
agreements and/or short-term money market instruments.
E 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
<PAGE>
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
F 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 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 bond and stepped-coupon bonds is accreted according to
the effective yield method.
G 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
imposition of any excise tax under Section 4982 of the Internal Revenue Code of
1986. Therefore, no provision has been made for federal taxes on income, capital
gains or unrealized appreciation of securities held and excise tax on income and
capital gains.
At November 30, 1994, the fund had approximately $137,310,000 in capital loss
carryovers available to offset future realized capital gains, to the extent
provided 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
such distribution might be taxable as ordinary income.
H DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are re corded by
the fund on the ex-dividend date. The fund distributes any net investment
income quarterly and any net realized gains 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 the treatment of wash sales and post
October loss deferrals. 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.
I FOREIGN CURRENCY TRANSLATION The accounting records of the fund are maintained
in U.S. dollars. The market values of foreign securities, currency holdings,
other assets and liabilities are recorded in the books and records of the fund
after translation to U.S. dollars based on the exchange rates on that day. The
cost of each security is determined using historical exchange rates. Income and
withholding taxes are translated at prevailing exchange rates when accrued or
incurred. The fund does not isolate that portion of realized or unrealized gains
or losses resulting from changes in the foreign exchange rate on investments
from fluctuations arising from changes in the market price of the securities.
Such fluctuations are included with the net realized and unrealized gain or loss
on investments. Net realized gains and losses on foreign currency transactions
represent net exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies and the difference between the amount of
investment income and foreign withholding taxes recorded on the fund's books and
the U.S. dollar equivalent amounts actually received or paid.
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
<PAGE>
average net assets of the fund for the quarter. 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, brokerage, 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 expenses) 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
services to the fund. The aggregate amount of all such reimbursements is
determined annually by the Trustees.
Trustees of the fund receive an annual Trustee's fee of $950 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 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
functions are provided by Putnam Investor Services, a division of PFTC.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended May 31, 1995, have been reduced by credits allowed by
PFTC.
As part of the custodial contract between Putnam Fiduciary Trust Company and the
subcustodian bank, the subcustodian 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 for the settlement of securities purchased by the fund.
At May 31, 1995, the payable to subcustodian represents the amount due for cash
advanced for the settlement of a security purchased.
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 of 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 six months ended May 31, 1995, Putnam Mutual Funds Corp., acting as the
underwriter received net commissions of $49,521 from the sale of class A shares
and $8,428 in commissions from the sale of class M shares. There was $37,695 in
contingent deferred sales charges from redemptions of class B shares. A deferred
sales charge of up to 1% is assessed on certain redemptions of class A shares
purchased as part of an investment of $1 million or more. For the six months
ended May 31, 1995, Putnam Mutual Funds Corp., acting as the underwriter
received $2 on class A redemptions.
<PAGE>
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the six months ended May 31, 1995, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $124,149,281 and $105,753,243, respectively. Purchases and sales of
U.S. government obligations aggregated $22,549,952 and $22,369,282,
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, 1995 there was an unlimited number of shares of beneficial interest
authorized, divided into three classes, class A, class B and class M capital
shares. Transactions in capital shares were as follows:
SIX MONTHS ENDED MAY 31 YEAR ENDED NOVEMBER 30
1995 1994
- -------------------------------------------------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 2,423,944 $ 21,756,159 3,457,816 $ 30,105,552
- -------------------------------------------------------------------------------
Reinvestment of
distributions 458,947 4,016,504 918,284 7,952,180
- -------------------------------------------------------------------------------
2,882,891 25,772,663 4,376,100 38,057,732
- -------------------------------------------------------------------------------
Shares repurchased (3,306,047) (29,739,588) (6,415,431) (55,788,277)
- -------------------------------------------------------------------------------
NET DECREASE (423,156) $ (3,966,925) (2,039,331) $(17,730,545)
- -------------------------------------------------------------------------------
SIX MONTHS ENDED MAY 31 YEAR ENDED NOVEMBER 30
1995 1994
- -------------------------------------------------------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 1,719,872 $ 15,554,818 2,834,343 $ 24,651,645
- -------------------------------------------------------------------------------
Reinvestment of
distributions 51,990 455,255 64,999 562,591
- -------------------------------------------------------------------------------
1,771,862 16,010,073 2,899,342 25,214,236
- -------------------------------------------------------------------------------
Shares repurchased (454,746) (4,058,470) (815,497) (7,068,537)
- -------------------------------------------------------------------------------
NET INCREASE 1,317,116 $ 11,951,603 2,083,845 $ 18,145,699
- -------------------------------------------------------------------------------
FOR THE PERIOD
DECEMBER 2, 1994
(COMMENCEMENT OF
OPERATIONS) TO
MAY 31
1995
- -------------------------------------------------------------------------------
CLASS M SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 363,370 $ 3,267,007
- -------------------------------------------------------------------------------
Reinvestment of distributions 1,949 17,470
- -------------------------------------------------------------------------------
365,319 3,284,477
- -------------------------------------------------------------------------------
Shares repurchased (13,001) (121,540)
- -------------------------------------------------------------------------------
NET INCREASE 352,318 $ 3,162,937
- -------------------------------------------------------------------------------
<PAGE>
FUND INFORMATION
INVESTMENT MANAGER OFFICERS
Putnam Investment George Putnam
Management, Inc. President
One Post Office Square
Boston, MA 02109 Charles E. Porter
Executive Vice President
MARKETING SERVICES
Putnam Mutual Funds Corp. Patricia C. Flaherty
One Post Office Square Senior Vice President
Boston, MA 02109
Lawrence J. Lasser
CUSTODIAN Vice President
Putnam Fiduciary Trust Company
Gordon H. Silver
LEGAL COUNSEL Vice President
Ropes & Gray
Peter Carman
TRUSTEES Vice President
George Putnam, Chairman
Brett C. Browchuk
William F. Pounds, Vice Chairman Vice President
Jameson Adkins Baxter Thomas V. Reilly
Vice President
Hans H. Estin
Edward P. Bousa
John A. Hill Vice President and Fund Manager
Elizabeth T. Kennan Kenneth J. Taubes
Vice President and Fund Manager
Lawrence J. Lasser
Rosemary H. Thomsen
Robert E. Patterson Vice President and Fund Manager
Donald S. Perkins William N. Shiebler
Vice President
George Putnam, III
John R. Verani
Eli Shapiro Vice President
A.J.C. Smith Paul M. O'Neil
Vice President
W. Nicholas Thorndike
John D. Hughes
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 copy of Putnam's
Quarterly Performance Summary. For more information or to request a prospectus,
call toll-free: 1-800-225-1581.
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.
<PAGE>
[LOGO: PUTNAM INVESTMENTS] ------------
Bulk Rate
THE PUTNAM FUNDS U.S. Postage
One Post Office Square PAID
Boston, Massachusetts 02109 Putnam
Investments
------------
18997-012/192/626
