PUTNAM
EQUITY
INCOME
FUND
[GRAPHIC OMITTED:
art work]
ANNUAL REPORT
November 30, 1995
[LOGO:
BOSTON - LONDON - TOKYO]
<PAGE>
FUND HIGHLIGHTS
o "PUTNAM EQUITY INCOME FUND IS GETTING BETTER ALL THE TIME. ...THE FUND
TURNED IN TOP-QUARTILE RETURNS IN 1993 AND 1994 AND SEEMS WELL ON ITS WAY
TO MAKING IT A THREE-YEAR WINNING STREAK. ...THIS YEAR, TO DATE, BOUSA HAS
GOTTEN IMPRESSIVE OUTPERFORMANCE FROM HIS TELECOM, TOBACCO, AND BANKING
PICKS."
-- MORNINGSTAR, INC.,
SEPTEMBER 15, 1995
o "EDWARD BOUSA, A VALUE-ORIENTED PORTFOLIO MANAGER FOR BOSTON-BASED PUTNAM
INVESTMENTS AND ONE OF THE HOTTEST HANDS IN THE BUSINESS THIS YEAR,
...LOOKS FOR COMPANIES THAT IN AN INCREASINGLY COMPETITIVE WORLD HAVE
LEARNED NOT ONLY TO SURVIVE BUT TO THRIVE."
-- U.S. NEWS & WORLD REPORT,
MAY 1, 1995
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
12 Portfolio holdings
23 Financial statements
<PAGE>
FROM THE CHAIRMAN
[GRAPHIC OMITTED:
Photo of
George Putnam]
(C) Karsh, Ottawa
Dear Shareholder:
Putnam Equity Income Fund began fiscal 1995 with the stock market about to go
into a full gallop. The rally was still under way at the close of the fiscal
year on November 30, 1995.
Edward Bousa, your fund's lead manager, took full advantage of the market's rise
to a succession of highs by focusing on the sectors showing the greatest
potential for leading the charge. Among these have been insurance and finance,
both amply represented in the fund's portfolio during the period.
Edward also focused heavily on individual stock selection, seeking companies
with exceptional long-term earnings growth potential. Finally, he sought out
companies whose real worth has gone unnoticed by the market at large. These
stocks frequently offer significant growth potential when investors finally
discover their hidden value.
In the report that follows, Edward and his team discuss the fund's performance
during the fiscal year just ended and describe their selection process in the
existing market environment. Finally, they look ahead to fiscal 1996.
Respectfully yours,
/s/ George Putnam
George Putnam
Chairman of the Trustees
January 17, 1996
<PAGE>
REPORT FROM THE FUND MANAGERS
EDWARD P. BOUSA, LEAD MANAGER
KENNETH J. TAUBES
ROSEMARY H. THOMSEN
Putnam Equity Income Fund's 1995 fiscal year was a period of superlative
performance for both the fund and the stock market. The Standard and Poor's
500(R) Index posted an increase of 36.95% for the year ended November 30,
1995. While the market climbed to record highs, the fund posted equally
impressive total returns at net asset value: 33.17% for class A shares, and
32.30% for class B shares, for the same period, and 32.89% for class M
shares, from December 2, 1994 through November 30, 1995.
Since stocks accounted for about 84% of your fund's portfolio, the same
events that favored the market's dramatic rise -- low inflation, declining
interest rates, and a slower pace of economic growth -- fueled fund
performance as well. The small bond position was employed mainly for
additional income and to cushion any potential downside in stocks. However,
we believe our investment strategy is just as responsible as the robust
market for this year's outstanding successes.
o A WINNING STRATEGY COMPOUNDS A WINNING YEAR
The heart of our investment strategy lies in buying stocks other people don't
want and which we believe have the potential for positive change and eventual
outperformance. We don't pick a stock just because it's cheap. We also look
for indications that it will do well over the long term. The following
details of some of this year's most successful purchases demonstrate the
effectiveness of our strategy.
In order to take advantage of the merger and acquisition activity in the
banking industry, we sought out banks whose stock prices had declined
following the announcement of their intention to acquire another bank. When
we researched some of these out-of-favor banks, we found that in many cases
the positives of consolidation outweighed the negatives, so we purchased the
stock. Later, as our analysis proved correct, the stock prices rebounded, and
as a
<PAGE>
result, the fund's holdings increased substantially in value. Our positions
in BankAmerica and NationsBank followed this pattern.
Union Pacific joined the portfolio as an out-of-favor stock penalized by Wall
Street for its unsuccessful attempts to acquire another railroad. Our
research, however, showed that Union Pacific was successful in controlling
costs and building business while reporting solid earnings. Though the
company wasn't successful in its acquisition attempt, investors came to
appreciate its real worth and bid up the stock nearly 50% over what we had
paid for it. In this case, we realized our profits and made another hefty
contribution to performance.
The fund also benefited from shifts in the overall economic climate. Large
financial and bank stocks, purchased at the beginning of the year, showed
significant appreciation as falling interest rates encouraged borrowing and a
surge in loan revenues. In the case of J.P. Morgan, strong growth in
securities underwriting and trading also helped drive the stock price up.
We believe the period was a time of recognition for U.S. companies with a
strong presence in global markets. These large companies are in the vanguard
of cost control, the use of high technology, and sophisticated
logistical/distribution systems. They boast attractive
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS* showing
Utilities 15.4%
Insurance and finance 14.7%
Oil and gas 7.7%
Consumer nondurables 5.6%
Pharmaceuticals 4.7%
Footnote reads:
*Based on net assets as of 11/30/95. Holdings will vary over time.]
<PAGE>
products and a scale of operation that enable them to build market share
worldwide. Our holdings in Philip Morris, Eastman Kodak, and TRW were among
the outstanding beneficiaries of an increased awareness of global markets.
o RECENT SHIFTS ADAPT STRATEGY TO THE ECONOMIC CYCLE
Recently, we added to the fund's investment in paper stocks, most notably
Weyerhaeuser Company. As Weyerhaeuser continues to cut costs and focus on
paper operations, an area where we expect consolidation and little new
capacity in the face of growing demand, we think the company is well prepared
to carry its strength into the next economic cycle.
These recent acquisitions, as well as additions to existing positions such as
Weyerhaeuser, reflect our belief that Wall Street has already discounted some
stocks in anticipation of a downturn. These stocks also look ahead to the
goods -- such as paper -- and services traditionally in demand during the
early stages of recovery from what we anticipate will be a mild recession.
Each stock also maintains our commitment to evolving companies that
demonstrate the potential to perform well regardless of economic conditions.
Until recently, electric utilities seemed reluctant to face up to their newly
competitive marketplaces and their stock prices generally reflected Wall
Street's lack of faith in the ability of these companies to retool. Our
research, however, pointed to several electric companies in the process of
change and as their stock prices became more attractive, we began to purchase
them. We feel these stocks are now on the upswing; we believe the trend will
continue. In addition to the potential for sizable capital gains, the
utilities position may cushion the negative effects of a mild recession,
should it occur.
We've also begun to add retail stocks, long out of favor as consumers turned
thrifty. In spite of the tough retail environment, we believe we've
identified change-minded companies with aggressive managements, and excellent
potential to perform over the long term.
o OUTLOOK: POSITIVE PERFORMANCE AT A MORE MODERATE PACE
We anticipate the markets will continue to enjoy an environment of low
inflation and stable-to-declining interest rates. Early in 1996,
<PAGE>
-----------------------------------------------------------------------------
TOP 10 HOLDINGS (11/30/95)
-----------------------------------------------------------------------------
EXXON CORPORATION
Drilling, production, refining, marketing of oil and natural gas
-----------------------------------------------------------------------------
WEYERHAEUSER COMPANY
Forest products
-----------------------------------------------------------------------------
BRISTOL-MYERS SQUIBB COMPANY
Medical devices, drugs, toiletries, health products
-----------------------------------------------------------------------------
J.P. MORGAN & COMPANY, INC.
Banking and finance, multinational
-----------------------------------------------------------------------------
PHILIP MORRIS COMPANIES, INC.
Domestic food processing, alcohol, tobacco
-----------------------------------------------------------------------------
TRW, INC.
Space, defense, automotive goods
-----------------------------------------------------------------------------
BELL ATLANTIC CORPORATION
Telecommunications
-----------------------------------------------------------------------------
CINERGY CORPORATION
Utilities
-----------------------------------------------------------------------------
E.I. DUPONT DE NEMOURS & COMPANY
Chemicals
-----------------------------------------------------------------------------
NYNEX CORPORATION
Telecommunications
-----------------------------------------------------------------------------
These holdings represent 16.9% of the fund's net assets. Portfolio holdings
will vary over time.
we expect slower economic growth, possibly a mild recession, followed by a
rebound. The fund's success, however, does not necessarily depend on the
accuracy of these predictions. We feel the fundamentals of each company in
the portfolio and the capacity of those companies to make positive changes in
order to meet future challenges are far more important in the long run than
shifts in the markets or in the economy at large.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 11/30/95, there is no guarantee the fund will continue to
hold these securities in the future.
<PAGE>
PERFORMANCE SUMMARY
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.
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.
TOTAL RETURN FOR PERIODS ENDED 11/30/95
CLASS A CLASS B CLASS M
(6/15/77) (9/13/93) (12/2/94)
NAV POP NAV CDSC NAV POP
- --------------------------------------------------------------------------------
1 year 33.17% 25.49% 32.30% 27.30% -- --
- --------------------------------------------------------------------------------
5 years 110.67 98.63 -- -- -- --
Annual average 16.07 14.71 -- -- --
- --------------------------------------------------------------------------------
10 years 183.57 167.18 -- -- -- --
Annual average 10.99 10.33 -- -- -- --
- --------------------------------------------------------------------------------
Life of class -- -- 33.28 30.28 32.89% 28.19%
Annual average -- -- 13.88 12.71 -- --
- --------------------------------------------------------------------------------
COMPARATIVE RETURNS FOR PERIODS ENDED 11/30/95
STANDARD & POOR'S CONSUMER
500 INDEX PRICE INDEX
- --------------------------------------------------------------------------------
1 year 36.95% 2.67%
- --------------------------------------------------------------------------------
5 years 117.34 14.87
Annual average 16.80 2.81
- --------------------------------------------------------------------------------
10 years 310.72 41.01
Annual average 15.17 3.50
- --------------------------------------------------------------------------------
Life of class B 38.85 6.15
Annual average 16.01 2.74
- --------------------------------------------------------------------------------
Life of class M 36.95 2.67
- --------------------------------------------------------------------------------
Performance data represent past results, do not reflect future performance, and
will differ for each share class. They do not take into account any adjustment
for taxes payable on reinvested distributions or for the fund's class A
distribution plan prior to its implementation on 1/1/90. Investment returns and
net asset value will fluctuate so that an investor's shares when sold may be
worth more or less than their original cost. POP assumes 5.75% maximum sales
charge for class A shares and 3.50% for class M shares. CDSC for class B shares
declines from a 5.0% maximum during the first year to 1.0 % during the sixth
year. Prior to 3/7/91, the fund operated under different investment objectives,
policies and strategies.
<PAGE>
[GRAPHIC OMITTED: line chart: GROWTH OF A $10,000 INVESTMENT
Legend reads:
Cumulative total return of a $10,000 investment since 11/30/85
Y-axis reads (top to bottom) 40000 to 8000 in 4000 decrements
X-axis reads (left to right) 11/30/85 through 11/30/95 in one-year increments
A solid black line represents Fund's class A shares at POP, ranging from
$9,425 to $26,718 (see plot points below: "Shares")
A solid white line represents S&P 500 Index, ranging from $10,000 to $41,072
(see plot points below: "S&P")
A solid gray line represents Consumer Price Index, ranging from $10,000 to
$14,101 (see plot points below: "CPI")
Shares S&P CPI
------- ------- -------
$ 9,425 $10,000 $10,000
11,092 12,770 10,128
9,392 12,160 10,587
12,042 14,978 11,037
14,180 19,596 11,550
12,683 18,897 12,275
15,109 22,756 12,642
16,871 26,956 13,028
19,748 29,671 13,376
20,063 29,989 13,734
26,718 41,072 14,101
Caption reads:
Past performance is no assurance of future results. A $10,000 investment in the
fund's class B shares at inception on 9/13/93 would have been valued at $13,328
on 11/30/95 ($13,028 with a redemption at the end of the period). A $10,000
investment in the fund's class M shares at inception on 12/2/94 would have been
valued at $13,289 at net asset value on 11/30/95, at public offering price of
$12,819.]
PRICE AND DISTRIBUTION INFORMATION
12 months ended 11/30/95
CLASS A CLASS B CLASS M
- --------------------------------------------------------------------------------
DISTRIBUTIONS (NUMBER) 4 4 4
- --------------------------------------------------------------------------------
Income $0.32 $0.258 $0.289
- --------------------------------------------------------------------------------
Total $0.32 $0.258 $0.289
- --------------------------------------------------------------------------------
SHARE VALUE: NAV POP NAV NAV POP
- --------------------------------------------------------------------------------
11/30/94 $8.49 $9.01 $8.46 -- --
- --------------------------------------------------------------------------------
12/2/94 -- -- -- $8.45 $8.76
- --------------------------------------------------------------------------------
11/30/95 10.93 11.60 10.89 10.89 11.28
- --------------------------------------------------------------------------------
CURRENT RETURN NAV POP NAV NAV POP
- --------------------------------------------------------------------------------
End of period
- --------------------------------------------------------------------------------
Current dividend
rate(1) 2.93% 2.76% 2.31% 2.57% 2.48%
- --------------------------------------------------------------------------------
Current 30-day
SEC yield(2) 2.66 2.51 1.94 2.18 2.10
- --------------------------------------------------------------------------------
(1) Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period. (2)Based on investment income, calculated using SEC
guidelines.
<PAGE>
TOTAL RETURN FOR PERIODS ENDED 12/31/95
(most recent calendar quarter)
CLASS A CLASS B CLASS M
(6/15/77) (9/13/93) (12/2/94)
NAV POP NAV CDSC NAV POP
- --------------------------------------------------------------------------------
1 year 34.64% 26.89% 33.71% 28.71% 33.86% 29.16%
- --------------------------------------------------------------------------------
5 years 107.61 95.76 -- -- -- --
Annual average 15.73 14.38 -- -- -- --
- --------------------------------------------------------------------------------
10 years 181.70 165.42 -- -- -- --
Annual average 10.91 10.25 -- -- -- --
- --------------------------------------------------------------------------------
Life of class -- -- 36.38 33.38 35.94 31.13
Annual average -- -- 14.44 13.34 32.88 28.52
- --------------------------------------------------------------------------------
Performance data represent past results, do not reflect future performance, and
will differ for each share class. They do not take into account any adjustment
for taxes payable on reinvested distributions or, for class A shares
distribution fees prior to implementation in fiscal 1990 of the class A
distribution plan. Investment returns and net asset value will fluctuate so that
an investor's shares when sold may be worth more or less than their original
cost.
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 on redemption.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus the maximum
sales charge levied at the time of purchase. POP performance figures shown here
assume the maximum 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.
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>
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended November 30, 1995
To the Trustees and Shareholders of
Putnam Equity Income Fund
We have audited the accompanying statement of assets and liabilities of Putnam
Equity Income Fund, including the portfolio of investments owned, as of November
30, 1995, and the related statement of operations for the year then ended, and
the statements of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Putnam
Equity Income Fund as of November 30, 1995, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 12, 1996
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS OWNED
November 30, 1995
COMMON STOCKS (80.9%)<F1>
NUMBER OF SHARES MARKET VALUE
AEROSPACE AND DEFENSE (0.6%)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
42,000 Lockheed Martin Corp. $ 3,081,750
AUTOMOTIVE (2.7%)
- -------------------------------------------------------------------------------------------
32,000 Chrysler Corp. 1,660,000
108,000 General Motors Corp. 5,238,000
62,000 General Motors Corp. Class H 2,945,000
81,000 Varity Corp.<F2> 3,138,750
------------
12,981,750
BASIC INDUSTRIAL PRODUCTS (2.4%)
- -------------------------------------------------------------------------------------------
46,000 Ball Corp. 1,316,750
66,000 Deere (John) & Co. 2,169,750
68,000 General Signal Corp. 2,193,000
60,000 Harnischfeger Industries, Inc. 2,032,500
61,500 Minnesota Mining & Manufacturing Co. 4,028,250
------------
11,740,250
BUSINESS EQUIPMENT AND SERVICES (2.4%)
- -------------------------------------------------------------------------------------------
80,000 Dun & Bradstreet Corp. 4,990,000
17,000 IBM Corp. 1,642,625
36,600 Xerox Corp. 5,018,775
------------
11,651,400
CHEMICALS (3.8%)
- -------------------------------------------------------------------------------------------
111,600 E.I. duPont de Nemours & Co. 7,421,400
12,000 Hoechst AG (Germany) 3,088,510
106,000 Union Carbide Corp. 4,200,250
110,200 Witco Chemical Corp. 3,388,650
------------
18,098,810
CONGLOMERATES (3.0%)
- -------------------------------------------------------------------------------------------
67,000 Corning, Inc. 2,018,375
111,600 Ogden Corp. 2,371,500
108,300 TRW, Inc. 8,108,963
22,000 United Technologies Corp. 2,062,500
------------
14,561,338
CONSUMER NON DURABLES (5.3%)
- -------------------------------------------------------------------------------------------
132,300 American Brands, Inc. 5,523,525
59,300 Avon Products, Inc. 4,306,663
57,500 Kimberly-Clark Corp. 4,420,313
94,000 Philip Morris Cos., Inc. 8,248,500
54,820 RJR Nabisco Holdings Corp.<F2> 1,596,633
35,700 Springs Industries, Inc. Class A 1,499,400
------------
25,595,034
<PAGE>
COMMON STOCKS
NUMBER OF SHARES MARKET VALUE
CONSUMER SERVICES (0.9%)
- -------------------------------------------------------------------------------------------
65,600 Knight-Ridder, Inc. $ 4,231,200
ELECTRONICS AND ELECTRICAL EQUIPMENT (2.0%)
- -------------------------------------------------------------------------------------------
93,100 Eaton Corp. 5,073,950
24,000 Emerson Electric Co. 1,872,000
59,000 Honeywell, Inc. 2,809,875
------------
9,755,825
ENERGY-RELATED (0.2%)
- -------------------------------------------------------------------------------------------
60,000 Westcoast Energy, Inc. 885,000
ENVIRONMENTAL CONTROL (0.7%)
- -------------------------------------------------------------------------------------------
111,000 WMX Technologies, Inc. 3,274,500
FOOD AND BEVERAGES (1.8%)
- -------------------------------------------------------------------------------------------
33,000 Anheuser-Busch Cos., Inc. 2,186,250
68,000 Archer Daniels Midland Co. 1,173,000
35,500 Dean Foods Co. 994,000
135,000 Flowers Industries, Inc. 1,738,125
51,000 Nestle S.A. ADR (Registered) (Switzerland) 2,703,000
------------
8,794,375
FOREST PRODUCTS (3.0%)
- -------------------------------------------------------------------------------------------
3,290 Crown Vantage, Inc.<F2> 56,753
83,700 Potlatch Corp. 3,379,382
57,600 Rayonier, Inc. 2,203,200
191,000 Weyerhaeuser Co. 8,642,750
------------
14,282,085
HEALTH CARE (0.8%)
- -------------------------------------------------------------------------------------------
94,600 Baxter International, Inc. 3,973,200
INSURANCE AND FINANCE (12.9%)
- -------------------------------------------------------------------------------------------
70,000 AON Corp. 3,298,750
40,400 Aetna Life & Casualty Co. 2,964,350
101,000 American General Corp. 3,421,375
64,000 BankAmerica Corp. 4,072,000
31,100 Bankers Trust New York Corp. 2,017,613
103,400 Beneficial Corp. 5,247,550
19,800 CIGNA Corp. 2,178,000
94,000 CoreStates Financial Corp. 3,642,500
47,000 First Union Corp. 2,567,375
129,000 Fleet Financial Group, Inc. 5,385,750
122,000 Keycorp 4,498,750
106,000 Morgan (J.P.) & Co., Inc. 8,321,000
63,200 NationsBank Corp. 4,510,900
34,000 Norwest Corp. 1,122,000
150,000 PNC Bank Corp. 4,387,500
44,700 SAFECO Corp. 3,173,700
52,300 Synovus Financial Corp. 1,516,700
------------
62,325,813
<PAGE>
COMMON STOCKS
NUMBER OF SHARES MARKET VALUE
METALS AND MINING (1.1%)
- -------------------------------------------------------------------------------------------
62,300 Carpenter Technology Corp. $ 2,694,475
11,000 Phelps Dodge Corp. 746,625
34,000 Reynolds Metal Co. 1,963,500
------------
5,404,600
OIL AND GAS (7.1%)
- -------------------------------------------------------------------------------------------
49,000 Amoco Corp. 3,319,750
41,000 Enron Corp. 1,537,500
130,000 Exxon Corp. 10,058,750
40,300 Mobil Corp. 4,206,313
139,000 Occidental Petroleum Corp. 3,075,375
99,000 Phillips Petroleum Co. 3,291,750
67,300 Repsol S.A. ADS (Spain) 2,128,363
25,000 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 3,209,375
115,000 Total Corp. ADR (France) 3,550,625
------------
34,377,801
PHARMACEUTICALS (4.3%)
- -------------------------------------------------------------------------------------------
43,000 American Home Products Corp. 3,923,750
104,100 Bristol-Myers Squibb Co. 8,354,025
90,370 Pharmacia & Upjohn, Inc. 3,242,024
58,000 Warner-Lambert Co. 5,176,500
------------
20,696,299
PHOTOGRAPHY (2.0%)
- -------------------------------------------------------------------------------------------
93,000 Eastman Kodak Co. 6,324,000
69,000 Polaroid Corp. 3,182,625
------------
9,506,625
PUBLISHING (0.7%)
- -------------------------------------------------------------------------------------------
40,000 McGraw-Hill, Inc. 3,350,000
REAL ESTATE (2.2%)
- -------------------------------------------------------------------------------------------
70,000 Bradley Real Estate Trust, Inc. 971,250
56,000 Duke Realty Investments, Inc. 1,554,000
82,000 Equity Residential Properties Trust 2,542,000
44,000 Evans Withycombe Residential 836,000
67,000 LTC Properties, Inc. 996,625
26,600 Macerich Co. 525,350
50,000 Nationwide Health Properties, Inc. 1,987,500
35,000 Storage USA, Inc. 1,063,125
------------
10,475,850
RETAIL (3.0%)
- -------------------------------------------------------------------------------------------
34,000 Dayton Hudson Corporation 2,469,250
208,000 K mart Corp. 1,612,000
109,000 Melville Corporation 3,392,625
94,000 Penney (J.C.) Co., Inc. 4,406,250
66,600 Sears, Roebuck & Co. 2,622,375
------------
14,502,500
<PAGE>
COMMON STOCKS
NUMBER OF SHARES MARKET VALUE
TRANSPORTATION (3.0%)
- -------------------------------------------------------------------------------------------
11,000 CSX Corp. $ 963,875
71,700 Canadian National Railway Co. (Canada)<F2> 1,075,500
21,000 Conrail, Inc. 1,467,375
79,400 Consolidated Freightways, Inc. 2,084,250
202,900 Ryder System, Inc. 4,844,238
57,000 Union Pacific Corp. 3,861,750
------------
14,296,988
UTILITIES (15.0%)
- -------------------------------------------------------------------------------------------
43,900 American Telephone & Telegraph Co. 2,897,400
11,500 Ameritech Corp. New 632,500
127,100 Bell Atlantic Corp. 8,007,300
58,000 Central Maine Power Co. 783,000
255,463 Cinergy Corp. 7,536,159
60,000 Consolidated Natural Gas Co. 2,662,500
76,000 Dominion Resources, Inc. 3,011,500
60,000 Entergy Corp. 1,672,500
46,000 GTE Corp. 1,960,750
74,000 MCI Communications Corp. 1,979,500
138,000 NYNEX Corp. 6,848,250
66,000 Oklahoma Gas & Electric Co. 2,673,000
90,000 Pacific Enterprises 2,407,500
15,500 Peoples Energy Corp. 472,750
129,000 Potomac Electric Power Co. 3,160,500
66,000 Public Service Co. of Colorado 2,277,000
52,000 Public Service Enterprise Group, Inc. 1,540,500
113,000 Scana Corp. 3,051,000
160,000 Sprint Corp. 6,400,000
48,700 Telefonica de Espana SA ADR 2,021,050
141,000 Texas Utilities Electric Co. 5,428,500
98,076 US West, Inc. 3,064,875
63,700 WICOR, Inc. 1,958,775
------------
72,446,809
------------
TOTAL COMMON STOCKS (cost $327,088,319) $390,289,802
U.S. GOVERNMENT AND AGENCY OBLIGATIONS(5.3%)<F1>
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------
Federal National Mortgage Association Pass
Through Certificates
$ 1,442,593 7s, with various due dates from July 1, 2023
to June 1, 2024 $ 1,441,684
925,589 Dwarf 6s, with various due dates from
April 1, 2009 to October 1, 2009 908,808
1,948,000 Government National Mortgage Association TBA
7 1/2s, December 15, 2025<F5> 1,988,168
Government National Mortgage Association Pass
Through Certificates
2,443,038 7s, with various due dates from May 15, 2023
to September 15, 2024 2,448,363
1,711,010 6 1/2s, with various due dates from
August 15, 2025 to October 15, 2025 1,679,991
444,057 Midget 6 1/2s, March 15, 2009 444,612
<PAGE>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------
$ 459,301 Midget 6s, September 15, 2008 $ 452,265
385,000 U.S. Treasury Bonds 11 7/8, November 15, 2003 533,225
3,400,000 U.S. Treasury Bonds 11 5/8s, November 15, 2004 4,767,956
845,000 U.S. Treasury Bonds 11 1/8s, August 15, 2003 1,124,247
780,000 U.S. Treasury Bonds 8 7/8s, August 15, 2017 1,021,925
627,000 U.S. Treasury Bonds 8 1/8s, August 15, 2019 769,743
1,320,000 U.S. Treasury Bonds 7 1/2s, November 15, 2024 1,543,370
2,320,000 U.S. Treasury Bonds 7 1/8s, February 15, 2023 2,582,438
355,000 U.S. Treasury Interest Strips zero %, May 15, 2003 232,798
350,000 U.S. Treasury Interest Strips zero %, February 15, 2003 233,272
590,000 U.S. Treasury Notes 7 3/4s, February 15, 2001 647,431
120,000 U.S. Treasury Notes 7 3/4s, January 31, 2000 129,713
1,250,000 U.S. Treasury Notes 7 1/4s, August 15, 2004 1,373,825
1,210,000 U.S. Treasury Notes 5 1/8s, December 31, 1998 1,198,650
------------
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (cost $23,761,783) $ 25,522,484
CONVERTIBLE PREFERRED STOCKS(2.7%)<F1>
NUMBER OF SHARES VALUE
AUTOMOTIVE (0.9%)
- -------------------------------------------------------------------------------------------
46,000 Ford Motor Co. Ser. A, $4.20, dep. shs. cv. pfd. $ 4,260,750
BROADCASTING (--%)
- -------------------------------------------------------------------------------------------
900 Granite Broadcasting $1.938 cv. pfd. 52,425
CONSUMER NON DURABLES (0.3%)
- -------------------------------------------------------------------------------------------
27,000 Fieldcrest Cannon Ser. A, $3.00, cv. pfd. 1,215,000
METALS AND MINING (1.1%)
- -------------------------------------------------------------------------------------------
164,000 Freeport-McMoRan Copper Co., Inc.
stepped-coupon $1.25 ($1.75, 8/1/96)<F3> 4,346,000
27,000 Pittston Mineral Corp. 144A $3.125, dep. shs. cv. pfd. 945,000
------------
5,291,000
OIL AND GAS (0.4%)
- -------------------------------------------------------------------------------------------
35,000 Ashland, Inc. $3.125, cv. pfd. 2,051,875
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (cost $12,205,009) $ 12,871,050
CONVERTIBLE BONDS AND NOTES (2.6%)<F1>
PRINCIPAL AMOUNT VALUE
AUTOMOTIVE (0.2%)
- -------------------------------------------------------------------------------------------
$ 1,100,000 Magna International cv. sub. deb. 5s, 2002 $ 1,116,500
ELECTRONICS AND ELECTRICAL EQUIPMENT (0.2%)
- -------------------------------------------------------------------------------------------
1,900,000 ADT Operations Inc. cv. sub. notes zero %, 2010 893,000
ENVIRONMENTAL CONTROL (0.1%)
- -------------------------------------------------------------------------------------------
468,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 405,990
FOREST PRODUCTS (--%)
- -------------------------------------------------------------------------------------------
30,000 Riverwood International Corp. sub. notes
6 3/4s, 2003 32,250
<PAGE>
CONVERTIBLE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
INSURANCE AND FINANCE (1.1%)
- -------------------------------------------------------------------------------------------
$ 4,000,000 Mitsubishi Bank Ltd. International
Finance (Bermuda) cv. trust guaranteed notes 3s,
2002 (Japan) $ 4,400,000
700,000 Trenwick Group, Inc. cv. deb. 6s, 1999 758,625
------------
5,158,625
PHARMACEUTICALS (0.4%)
- -------------------------------------------------------------------------------------------
4,800,000 Roche Holdings, 144A Inc. cv. unsub. LYON
(Liquid Yield Option Notes) zero %, 2010 (Switzerland) 2,094,000
REAL ESTATE (0.2%)
- -------------------------------------------------------------------------------------------
1,000,000 Liberty Property Trust cv. sub. deb. 8s, 2001 995,000
TRANSPORTATION (0.4%)
- -------------------------------------------------------------------------------------------
1,800,000 AMR Corp. cv. sub. deb. 6 1/8s, 2024 1,917,000
------------
TOTAL CONVERTIBLE BONDS AND NOTES (cost $11,343,981) $ 12,612,365
CORPORATE BONDS AND NOTES (2.3%)<F1>
PRINCIPAL AMOUNT VALUE
ADVERTISING (--%)
- -------------------------------------------------------------------------------------------
$ 25,000 Outdoor Systems, Inc. sr. notes 10 3/4s, 2003 $ 24,000
AEROSPACE AND DEFENSE (--%)
- -------------------------------------------------------------------------------------------
25,000 BE Aerospace sr. notes, 9 3/4s, 2003 25,000
20,000 Sequa Corp. bonds 8 3/4s, 2001 18,500
------------
43,500
AGRICULTURE (--%)
- -------------------------------------------------------------------------------------------
50,000 PSF Finance (L.P.) sr. exch. notes 12 1/4s, 2004 51,588
AUTOMOTIVE (0.1%)
- -------------------------------------------------------------------------------------------
25,000 Exide Corp. deb. stepped-coupon zero %,
(12 1/4s, 12/15/97), 2004<F3> 20,750
300,000 Ford Capital BV deb. 9s, 1998 322,884
------------
343,634
BASIC INDUSTRIAL PRODUCTS (--%)
- -------------------------------------------------------------------------------------------
75,000 Inter-City Products sr. notes 9 3/4s, 2000 49,125
BROADCASTING (0.1%)
- -------------------------------------------------------------------------------------------
10,000 Cablevision Systems Corp. sr. sub. deb. 9 7/8s, 2023 10,350
50,000 Cablevision Systems Corp. sr. sub. reset deb. 10 3/4s, 2004 52,750
25,000 Century Communications Corp. sr. notes 9 1/2s, 2005 25,500
50,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon
zero % (13 1/2s, 8/1/99), 2004<F3> 36,500
25,000 Paxson Communications Corp. 144A sr. sub. notes 11 5/8s, 2002 24,688
25,000 Rogers Cablesystem Ltd. deb. 10 1/8s, 2012 (Canada) 25,875
300,000 Tele-Communications, Inc. sr. deb. 9.8s, 2012 351,666
------------
527,329
BUILDING AND CONSTRUCTION (--%)
- -------------------------------------------------------------------------------------------
25,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 25,125
<PAGE>
CONVERTIBLE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
CHEMICALS (0.1%)
- -------------------------------------------------------------------------------------------
$ 25,000 Acetex Corp. 144A sr. notes 9 3/4s, 2003 $ 25,563
20,000 G-I Holdings, Inc. Ser. B, sr. disc. notes zero %, 1998 15,200
20,000 Huntsman Corp. 1st mtge. 10 5/8s, 2000 21,700
125,000 Lyondell Petrochemical Co. notes 9 1/8s, 2002 141,904
85,000 OSI Specialties Inc. sr. sub. notes 9 1/4s, 2003 95,306
50,000 Sifto Canada, Inc. sr. notes 8 1/2s, 2000 47,250
------------
346,923
COMMUNICATIONS (--%)
- -------------------------------------------------------------------------------------------
40,000 Telewest Communications PLC deb. stepped-coupon
zero %, (11s, 10/1/00), 2007 (United Kingdom)<F3> 23,600
CONSUMER DURABLE GOODS (--%)
- -------------------------------------------------------------------------------------------
25,000 Selmer Co., Inc. sr. sub. notes 11s, 2005 24,625
26,534 Simmons Mattress Corp. 144A deb. 8s, 2003<F4> 26,534
------------
51,159
CONSUMER NON DURABLES (--%)
- -------------------------------------------------------------------------------------------
10,000 Playtex Family Products Corp. sr. sub. notes 9s, 2003 8,775
CONSUMER PRODUCTS & SERVICES (--%)
- -------------------------------------------------------------------------------------------
40,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero % (11 1/2s, 8/15/00), 2003 (Canada)<F3> 20,600
ELECTRONICS AND ELECTRICAL EQUIPMENT (--%)
- -------------------------------------------------------------------------------------------
30,000 Amphenol Corp. sr. sub. notes 12 3/4s, 2002 34,350
25,000 Howmet Corp. 144A sr. sub. notes 10s, 2003 25,750
------------
60,100
ENTERTAINMENT (0.3%)
- -------------------------------------------------------------------------------------------
25,000 Alliance Entertainment Corp. Ser. B, sr. sub. notes
11 1/4s, 2005 24,875
25,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 25,625
50,000 Lady Luck Gaming Corp. Ser. B, 1st mtge. 10 1/2s, 2001 38,500
25,000 Mohegan Tribal Gaming 144A sr. notes 13 1/2s, 2002 26,875
390,000 News America Holdings, Inc. sr. notes 12s, 2001 435,049
25,000 Premier Parks, Inc. 144A sr. notes 12s, 2003 25,500
630,000 Time Warner Inc. deb. 9 1/8s, 2013 697,038
25,000 Trump Plaza Funding, Inc. 1st mtge. notes 10 7/8s, 2001 25,000
------------
1,298,462
FOOD AND BEVERAGES (--%)
- -------------------------------------------------------------------------------------------
50,000 Fresh Del Monte Produce Corp. NV Ser. B, 144A sr. notes,
10s, 2003 (Netherlands) 43,750
FOREST PRODUCTS (0.1%)
- -------------------------------------------------------------------------------------------
25,000 APP International Finance Co. company guaranty
11 3/4s, 2005 (Singapore) 24,375
25,000 Domtar, Inc. notes 12s, 2001 (Canada) 29,250
75,000 Riverwood International Corp. sr. sub. notes 10 3/8s, 2004 81,000
------------
134,625
<PAGE>
CONVERTIBLE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
HEALTH CARE (0.1%)
- -------------------------------------------------------------------------------------------
$ 180,000 Columbia Healthcare Corp. deb. 8.36s, 2024 $ 207,133
25,000 Ivac Corp. sr. notes 9 1/4s, 2002 25,375
215,000 McGaw, Inc. sr. notes 10 3/8s, 1999 223,063
25,000 Merit Behavioral Care 144A sr. sub. notes 11 1/2s, 2005 25,500
25,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 25,813
------------
506,884
INSURANCE AND FINANCE (0.7%)
- -------------------------------------------------------------------------------------------
50,000 American Annuity Group, Inc. sr. sub. notes 11 1/8s, 2003 54,000
300,000 American Financial Group sub. notes 10 7/8s, 2011 314,763
250,000 BAT Capital Corp. 144A med. term notes 6.19s, 2000 249,735
25,000 Centerbank sub. notes 8 3/8s, 2002 25,625
25,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 25,375
300,000 Citicorp sub. notes 7 1/8s, 2005 314,196
25,000 Comdata Network, Inc. sr. notes 12 1/2s, 1999 28,406
300,000 Den Danske Bank sub. notes 6.55s, 2003 299,400
300,000 Finova Capital Corp. notes 9 1/8s, 2002 343,941
450,000 Great Western Financial Corp. notes 6 1/8s, 1998 450,918
25,000 Keystone Group, Inc. sr. secd. notes 9 3/4s, 2003 24,000
300,000 Midlantic Banks deb., 9 7/8s, 1999 339,300
200,000 Paine Webber Group Inc. notes 6 1/2s, 2005 192,098
250,000 Riggs National Corp. sub. deb. 8 1/2s, 2006 262,500
300,000 Scotland International Finance 144A sub.
notes 8.85s, 2006 (United Kingdom) 349,125
50,000 Terra Nova Insurance Holdings sr. notes
10 3/4s, 2005 (United Kingdom) 54,000
------------
3,327,382
LODGING (--%)
- -------------------------------------------------------------------------------------------
35,000 La Quinta Motor Inns, Inc. deb. 9 1/4s, 2003 37,100
METALS AND MINING (0.1%)
- -------------------------------------------------------------------------------------------
190,000 Noranda Inc. notes 7s, 2005 (Canada) 194,245
MOTION PICTURE DISTRIBUTION (--%)
- -------------------------------------------------------------------------------------------
25,000 AMC Entertainment, Inc. sr. sub. deb. 12 5/8s, 2002 28,625
50,000 Cinemark USA sr. notes 12s, 2002 54,500
------------
83,125
OIL AND GAS (0.2%)
- -------------------------------------------------------------------------------------------
25,000 Chesapeake Energy Corp. sr. notes 12s, 2001 26,500
25,000 Gulf Canada Resources Ltd. sr. sub. notes 9 5/8s,
2005 (Canada) 25,750
300,000 Occidental Petroleum Corp. sr. notes 11 3/4s, 2011 318,534
330,000 Parker & Parsley Petro Co. sr. notes 8 7/8s, 2005 368,079
370,000 Union Texas Petroleum Ser. A, sr. notes
6.51s, 2002 370,000
------------
1,108,863
PACKAGING & CONTAINER (--%)
- -------------------------------------------------------------------------------------------
25,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 26,500
<PAGE>
CONVERTIBLE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
PUBLISHING (--%)
- -------------------------------------------------------------------------------------------
$ 40,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes
zero %, 1998 $ 28,000
25,000 World Color Press sr. sub. notes 9 1/8s, 2003 25,625
------------
53,625
RAILROADS (--%)
- -------------------------------------------------------------------------------------------
25,000 Westinghouse Air Brake sr. notes 9 3/8s, 2005 25,750
REAL ESTATE (--%)
- -------------------------------------------------------------------------------------------
25,000 HMH Properties, Inc. sr. notes 9 1/2s, 2005 25,188
RETAIL (0.1%)
- -------------------------------------------------------------------------------------------
25,000 Brylane (L.P.) sr. sub. notes 10s, 2003 21,875
135,000 K mart Corp. pass-thru certificate Ser. 95-K3, 8.54s, 2015 98,550
25,000 Loehmanns' Holdings, Inc. sr. notes 10 1/2s, 1997 25,000
300,000 Sears, Roebuck & Co. med. term notes 5.91s, 1999 299,748
10,000 Southland Corp. Ser. C, deb. 12s, 2009 10,138
------------
455,311
SPECIALTY CONSUMER PRODUCTS (--%)
- -------------------------------------------------------------------------------------------
35,000 Herff Jones, Inc. 144A sr. sub. notes 11s, 2005 36,925
TELECOMMUNICATIONS (--%)
- -------------------------------------------------------------------------------------------
25,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 24,438
25,000 Intermedia Communications of Florida sr. notes 13 1/2s, 2005 27,375
25,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 28,438
35,000 Pricellular Wireless Ser. B, sr. disc. notes stepped-
coupon zero % (14s, 11/15/97), 2001<F3> 30,275
------------
110,526
TEXTILES (--%)
- -------------------------------------------------------------------------------------------
25,000 Reeves Industries Inc. bonds 11s, 2002 21,250
TRANSPORTATION (--%)
- -------------------------------------------------------------------------------------------
80,000 Blue Bird Body Co. Ser. B sub. deb., 11 3/4s, 2002 82,000
35,000 Viking Star Shipping sr. secd. notes 9 5/8s, 2003 35,963
------------
117,963
UTILITIES (0.4%)
- -------------------------------------------------------------------------------------------
250,000 Arkla, Inc. notes 8 7/8s, 1999 266,873
185,000 Citizens Utilities Co. bonds 7.68s, 2034 217,562
25,000 Cleveland Electric Illuminating Co. Ser. B,
1st mtge. 9 1/2s, 2005 25,688
25,000 First PV Funding deb. 10.15s, 2016 25,563
61,081 Midland Cogeneration Ventures (L.P.) deb. 10.33s, 2002 63,830
129,874 Midland Cogeneration Ventures deb. 10.33s, 2002 135,718
250,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 266,025
400,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 418,860
300,000 Toledo Edison med. term. notes 1st mtge.
Ser. A, 7.82s, 2003 291,735
------------
1,711,854
------------
TOTAL CORPORATE BONDS AND NOTES
(cost $10,360,856) $ 10,894,786
<PAGE>
FOREIGN GOVERNMENT BONDS AND NOTES (0.7%)<F1>
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------
<C> <C> <S> <C>
DEM 735,000 Germany (Republic of) bonds 6 7/8s, 2005 $ 532,473
ITL 640,000,000 Italy (Government of) bonds 10 1/2, 2000 395,246
NLG 1,200,000 Netherlands (Government of) deb. 6 3/4s, 2005 772,392
USD 135,000 Quebec (Government of) deb. 8 5/8s, 2005 152,902
DEM 930,000 Treuhandanstalt (Republic of Germany Guarantee)
7 1/8s, 2003 688,520
GBP 611,000 United Kingdom Treasury bonds 9 3/4s, 2002 1,055,244
------------
TOTAL FOREIGN GOVERNMENT BONDS AND NOTES
(cost $3,571,103) $ 3,596,777
COLLATERALIZED MORTGAGE OBLIGATIONS (0.4%)<F1>
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C>
$ 140,602 Chase Mortgage Finance Corp. Ser. 93-3, Class B13,
7.461s, 2024 $ 93,676
Housing Securities Inc.
152,033 Ser. 91-B, Class B6, 9s, 2006 152,413
21,038 Ser. 93-J, Class J4, 6.66s, 2009 17,672
23,043 Ser. 93-J, Class J5, 6.66s, 2009 16,591
23,462 Ser. 94-1, Class AB1, 6 1/2s, 2009 19,239
79,090 Prudential Home Loan Corp. Ser. 92-25, Class B3, 8s, 2022 63,643
Prudential Home Mortgage Securities
97,237 Ser. 94-31, Class B3, 8s, 2009 87,073
412,840 144A Ser. 95-C, Class B1, 7.84s, 2001 418,775
464,635 Ser. 1995-D, Class 5B, 7.54s, 2025 302,594
99,124 Ser. 92-13 Class B3, 7 1/2s, 2007 84,612
122,546 Ser. 93-36, Class M, 7 1/4s, 2023 122,412
299,856 144A Ser. 94-A Class 4B, 6.8s, 2024 282,568
104,807 144A Ser. 94-D Class B4, 6.312s, 2009 87,776
224,797 144A Ser. 94-D Class 3B, 6.31s, 2009 208,500
52,751 Ser. 93-31, Class B2, 6s, 2000 40,618
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(cost $1,898,534) $ 1,998,162
UNITS (--%)<F1>
NUMBER OF UNITS VALUE
- -------------------------------------------------------------------------------------------
40 SDW Holdings Corp. 144A units $15.00 pfd. $ 11,200
15 Terex Corp. 144A units 13 3/4s, 2002 12,900
------------
TOTAL UNITS (cost $23,117) $ 24,100
PREFERRED STOCKS (--%) (cost $20,799)<F1>
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------
330 SD Warren Co. Ser. B, $3.50 pfd. $ 10,560
WARRANTS (--%)<F1><F2>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C>
25 Intermedia Communications 144A 6/1/00 $ 250
4,991 Windmere Corp. 1/19/98 3,119
------------
TOTAL WARRANTS (cost $250) $ 3,369
<PAGE>
SHORT-TERM INVESTMENTS (5.4%)<F1> (cost $26,212,266)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------
$ 26,208,000 Interest in $798,484,000 joint repurchase agreement
dated November 30, 1995 with Morgan (J.P.) & Co.,
Inc. due December 1, 1995 with respect to
various U.S. Treasury obligations -- maturity value of
$26,212,266 for an effective yield of 5.86% $ 26,212,266
------------
TOTAL INVESTMENTS (cost $416,486,017)<F6> $484,035,721
<FN>
<F1> Percentages indicated are based on net assets of $482,248,275.
<F2> Non-income-producing security.
<F3> 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.
<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 November 30, 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 2.0% from the principal amount. Income on the
securities will not be earned until settlement date. The cost of TBA purchases held at
November 30, 1995 was $1,979,959.
<F6> The aggregate identified cost for federal income tax purposes is $417,716,790,
resulting in gross unrealized appreciation and depreciation of $69,976,057 and
$3,657,126, respectively, or net unrealized appreciation of $66,318,931.
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>
<CAPTION>
FORWARD CURRENCY CONTRACTS TO SELL at November 30,1995
(aggregate face value $3,292,580)
AGGREGATE UNREALIZED
MARKET FACE DELIVERY APPRECIATION/
VALUE VALUE DATE (DEPRECIATION)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
British Pounds $ 962,418 $ 974,242 12/13/95 $ 11,824
Deutschemarks 1,179,754 1,184,579 12/13/95 4,825
Italian Lira 374,796 375,705 12/13/95 909
Netherlands Guilder 741,258 758,054 12/13/95 16,796
------------
$ 34,354
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995
<S> <C>
ASSETS
- ------------------------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $416,486,017) (Note 1) $484,035,721
- ------------------------------------------------------------------------------------------------------------------
Cash 544
- ------------------------------------------------------------------------------------------------------------------
Dividends, interests and other receivables 2,285,089
- ------------------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 3,217,469
- ------------------------------------------------------------------------------------------------------------------
Receivable for securities sold 5,012,847
- ------------------------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 43,486
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 494,595,156
LIABILITIES
- ------------------------------------------------------------------------------------------------------------------
Payable for securities purchased 10,663,414
- ------------------------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 397,071
- ------------------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 694,227
- ------------------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,613
- ------------------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 244
- ------------------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 132,827
- ------------------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 228,573
- ------------------------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 9,132
- ------------------------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 56,492
- ------------------------------------------------------------------------------------------------------------------
Other accrued expenses 163,288
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 12,346,881
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS $482,248,275
REPRESENTED BY
- ------------------------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $523,824,559
- ------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 1,204,782
- ------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (Note 1) (110,363,354)
- ------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities in foreign currencies 67,582,288
- ------------------------------------------------------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO CAPITAL SHARES OUTSTANDING $482,248,275
COMPUTATION OF NET ASSET VALUE
- ------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price of class A shares ($391,551,400 divided by 35,830,457 shares) $10.93
- ------------------------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $10.93)* $11.60
- ------------------------------------------------------------------------------------------------------------------
Net asset value and offering price of class B shares ($83,645,820 divided by 7,679,669 shares)+ $10.89
- ------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price of class M shares ($7,051,055 divided by 647,344 shares) $10.89
- ------------------------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.5 of $10.89)* $11.28
- ------------------------------------------------------------------------------------------------------------------
<FN>
* 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>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the year ended November 30, 1995
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------
<S> <C>
Dividends (net of foreign tax of $56,493) $ 13,508,841
- -------------------------------------------------------------------------------------------
Interest 3,973,173
- -------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 17,482,014
EXPENSES:
- -------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,488,268
- -------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 735,690
- -------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 14,879
- -------------------------------------------------------------------------------------------
Reports to shareholders 51,844
- -------------------------------------------------------------------------------------------
Auditing 44,998
- -------------------------------------------------------------------------------------------
Legal 16,567
- -------------------------------------------------------------------------------------------
Postage 83,655
- -------------------------------------------------------------------------------------------
Registration fees 25,937
- -------------------------------------------------------------------------------------------
Administrative services (Note 2) 9,508
- -------------------------------------------------------------------------------------------
Distribution fees-- class A (Note 2) 858,831
- -------------------------------------------------------------------------------------------
Distribution fees-- class B (Note 2) 511,456
- -------------------------------------------------------------------------------------------
Distribution fees-- class M (Note 2) 25,091
- -------------------------------------------------------------------------------------------
Other expenses 24,455
- -------------------------------------------------------------------------------------------
TOTAL EXPENSES 4,891,179
- -------------------------------------------------------------------------------------------
Expense reduction (Note 2) (262,613)
- -------------------------------------------------------------------------------------------
NET EXPENSES 4,628,566
- -------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 12,853,448
- -------------------------------------------------------------------------------------------
Net realized gain on forward currency contracts and foreign
currency translation (Note 1) 57,240
- -------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 28,051,780
- -------------------------------------------------------------------------------------------
Net unrealized appreciation on forward currency contracts and
foreign currency translation during the year 32,584
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 72,450,583
- -------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENT TRANSACTIONS 100,592,187
- -------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $113,445,635
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED NOVEMBER 30
1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
- -------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------
Net investment income $ 12,853,448 $ 12,451,931
- -------------------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 28,109,020 12,857,401
- -------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and assets and liabilities in
foreign currencies 72,483,167 (19,899,597)
- -------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 113,445,635 5,409,735
- -------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------
From net investment income:
- -------------------------------------------------------------------------------------------
Class A (11,368,798) (11,953,233)
- -------------------------------------------------------------------------------------------
Class B (1,283,160) (684,178)
- -------------------------------------------------------------------------------------------
Class M (81,818) --
- -------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 45,298,097 415,154
- -------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 146,009,956 (6,812,522)
NET ASSETS
- -------------------------------------------------------------------------------------------
Beginning of year 336,238,319 343,050,841
- -------------------------------------------------------------------------------------------
END OF YEAR (including undistributed net
investment income of $1,204,782 and $962,796,
respectively) $482,248,275 $336,238,319
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
FOR THE PERIOD
DECEMBER 2, 1994
(COMMENCEMENT OF
OPERATIONS) TO
NOVEMBER 30 YEAR ENDED NOVEMBER 30
- -----------------------------------------------------------------------------------------------------------------------------------
1995++ 1995 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 .28 .23 .26
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.45 2.46 (.18)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.73 2.69 .08
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
- -----------------------------------------------------------------------------------------------------------------------------------
From net investment income (.29) (.26) (.27)
- -----------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Paid in capital -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.29) (.26) (.27)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.89 $10.89 $8.46
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE (%)(a) 32.89(b) 32.30 .86
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (in thousands) $7,051 $83,646 $32,114
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(d) 1.60 1.87 1.78
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 2.99 2.63 3.02
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 70.39 70.39 82.49
- -----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
FINANCIAL HIGHLIGHTS [continued]
(For a share outstanding throughout the period) [continued]
FOR THE PERIOD
SEPTEMBER 13, 1993
(COMMENCEMENT OF
OPERATIONS) TO
NOVEMBER 30 YEAR ENDED NOVEMBER 30
- -----------------------------------------------------------------------------------------------------------------------------------
1993++ 1995 1994 1993 1992 1991+
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $8.66 $8.49 $8.67 $7.72 $7.29 $6.60
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income .06 .32 .32 .28 .42 .30
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.07) 2.44 (.18) 1.01 .41 .93
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (.01) 2.76 .14 1.29 .83 1.23
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
- -----------------------------------------------------------------------------------------------------------------------------------
From net investment income -- (.32) (.32) (.31) (.40) (.30)
- -----------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- -- (.03) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments -- -- -- -- -- (.24)
- -----------------------------------------------------------------------------------------------------------------------------------
Paid in capital -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS -- (.32) (.32) (.34) (.40) (.54)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $8.65 $10.93 $8.49 $8.67 $7.72 $7.29
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE (%)(a) (.12)(b) 33.17 1.59 17.06 11.66 19.13
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (in thousands) $14,800 $391,551 $304,124 $328,251 $334,127 $397,237
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(d) .44(b) 1.13 1.04 1.16 1.23 1.20
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) .55(b) 3.32 3.67 3.40 5.57 4.13
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 125.85(c) 70.39 82.49 125.85(c) 340.99 198.18
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
+ 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.
++ Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the
period.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Not annualized.
(c) Portfolio turnover excludes the impact of assets received from the acquisition of Putnam Equity Income Fund.
(d) The ratio of expenses to average net assets for the year ended November 30, 1995 includes amounts paid through brokerage service
and expense offset arrangements. Prior period ratios exclude these amounts. (See Note 2.)
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
November 30, 1995
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. Class A shares are sold
with a maximum front-end sales charge of 5.75%. Class B shares, which convert to
class A shares after eight years, do not pay a front-end sales charge, but pay a
higher ongoing distribution fee than class A shares and are subject to a
contingent deferred sales charge, if those shares are redeemed within six years
of purchase. Class M shares are sold with a maximum front-end sales charge of
3.50% and pay an ongoing distribution fee that is lower than class B shares and
higher than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of shares,
except that each class bears expenses unique to that class (including the
distribution fees applicable to such class). Each class votes as a class only
with respect to its own distribution plan or other matters on which a class vote
is required by law or determined by the Trustees. Shares of each class would
receive their pro-rata share of the net assets of the fund, if the fund were
liquidated. In addition, the Trustees declare separate dividends on each class
of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
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 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
<PAGE>
agreements and/or short-term money market instruments.
C REPURCHASE AGREEMENTS The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
102% of the resale price, including accrued interest. Putnam Management is
responsible for determining that the value of these underlying securities is at
all times at least equal to the resale price, including accrued interest.
D SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security transactions are
accounted for on the trade date (date the order to buy or sell is executed).
Interest income is recorded on the accrual basis. Dividend income is recorded on
the ex-dividend date except that certain dividends from foreign securities are
recorded as soon as the fund is informed of the ex-dividend date. Discounts on
zero coupon bonds, original issue, stepped-coupon bonds and payment in kind
bonds are accreted according to the effective yield method.
E FOREIGN CURRENCY TRANSLATION The accounting records of the fund are maintained
in U.S. dollars. The market value 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 prices 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. Net unrealized
gains and losses on foreign currency transactions arise from changes in the
value of open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange rate.
F FORWARD CURRENCY CONTRACTS The fund may engage in forward currency contracts,
which are agreements between two parties to buy and sell currencies at a set
price on a future date, to protect against a decline in value relative to the
U.S. dollar of the currencies in which its portfolio securities are denominated
or quoted (or an increase in the value of a currency in which securities a fund
intends to buy are denominated, when a fund holds cash reserves and short-term
investments). The U.S. dollar value of forward currency contracts is determined
using forward currency exchange rates supplied by a quotation service. 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 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. The fund could be
exposed to risk if the value of the currency changes unfavorably, if the
counterparties to the contracts are unable to meet the terms of their contracts
or if the fund is unable to enter into a closing position.
<PAGE>
G 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 commitments will not fluctuate more than 2.0% from the principal amount. The
fund holds, and maintains until settlement date, cash or high-grade debt
obligations in an amount sufficient to meet the purchase price, or the fund may
enter 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 Putnam Management deems it appropriate to do so.
H FEDERAL TAXES It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code of
1986. Therefore, no provision has been made for federal taxes on income, capital
gains or unrealized appreciation on securities held and for excise tax on income
and capital gains.
At November 30, 1995, the fund had a capital loss carryover of approximately
$109,030,000 available to offset future capital gains, if any, which will expire
on November 30, 1998.
I DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital gain
distributions, if any, are recorded on the ex-dividend date and paid 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 treatment of the utilization of capital loss
carryover, losses on wash sale transactions and market discount.
Reclassifications are made to the fund's capital accounts to reflect income and
gains available for distribution (or available capital loss carryovers) under
income tax regulations.
For the year ended November 30, 1995, the fund reclassified $122,314 to increase
undistributed net investment income and $13,954 to increase paid-in-capital,
with an increase to accumulated net realized loss of $136,268. The calculation
of net investment income per share in the financial highlights table excludes
these adjustments.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management, for management and investment advisory
services, is paid quarterly based on the average net assets of the fund 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
<PAGE>
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 to reduction in any year to the extent that expenses (exclusive
of distribution fees, brokerage, interest, taxes and credits allowed by PFTC) 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
Putnam Management on the fund's portfolio transactions.
On January 5, 1996, the Trustees approved a proposal to increase the fees
payable to Putnam Investment Management, Inc. ("Putnam Management") under the
fund's Management Contract. The proposed increase is subject to shareholder
approval and will be submitted to shareholders at a meeting scheduled to be held
on July 11, 1996. If approved at that meeting, management fees would thereafter
be paid at the annual rate of 0.65% of the first $500 million of average net
assets, 0.55% of the next $500 million, 0.50% of the next $500 million, 0.45% of
the next $5 billion, 0.425% of the next $5 billion, 0.405% of the next $5
billion, 0.39% of the next $5 billion, and 0.38% of any amount thereafter.
The fund reimburses Putnam Management for the compensation and related expenses
of certain officers of the fund and their staff who provide administrative
services to the fund. The aggregate amount of all such reimbursements is
determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust
Company (PFTC), a wholly owned subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the year ended November 30, 1995, fund expenses were reduced by $262,613
under expense offset arrangements with PFTC and brokerage service arrangements.
Investor servicing and custodian fees reported in the Statement of operations
exclude these credits. The fund could have invested the assets utilized in
connection with the expense offset arrangements in an income producing asset if
it had not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $980 and an additional
fee for each Trustee's meeting attended. Trustees who are not interested persons
of Putnam Management and who serve on committees of the Trustees receive
additional fees for attendance at certain committee meetings.
During the year November 30, 1995, the fund adopted a Trustee Fee Deferral Plan
(the "Plan") which allows the Trustees to defer the receipt of all or a portion
of Trustees Fees payable on or after July 1, 1995. The deferred fees remain in
the fund and are invested in the fund or in other Putnam funds until
distribution in accordance with the Plan.
The fund has adopted distribution plans (the "Plans") with respect to its class
A, class B and class M shares pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The purpose of the Plans is to compensate Putnam Mutual
Funds Corp., a wholly-owned subsidiary of Putnam Investments Inc., for services
provided and expenses incurred by it in distributing shares of the fund. The
Plans provide for payments by the fund to Putnam Mutual Funds Corp. at an annual
rate up to 0.35%, 1.00% and 1.00% of the average net assets attributable to
class A, class B and class M shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 1.00% and 0.75% of the average
net assets attributable to class A, class B and class M shares, respectively.
<PAGE>
For the year ended November 30, 1995, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $145,866 and $14,424 from the sale of
class A and class M shares, respectively and received $91,028 in contingent
deferred sales charges from redemptions of class B shares. A deferred sales
charge of up to 1% is assessed on certain redemptions of class A shares. For the
year ended November 30, 1995, Putnam Mutual Funds Corp., acting as underwriter
received $638 on class A redemptions.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended November 30 1995, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $269,695,575 and $229,395,489, respectively. Purchases and sales of
U.S. government obligations aggregated $44,723,962 and $41,643,630,
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 November 30, 1995 there was an unlimited number of shares of beneficial
interest authorized.
YEAR ENDED NOVEMBER 30 YEAR ENDED NOVEMBER 30
1995 1994
- --------------------------------------------------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------
Shares sold 4,980,350 $48,265,674 3,457,816 $30,105,552
- --------------------------------------------------------------------------------
Reinvestment of
distributions 857,411 8,075,743 918,284 7,952,180
- --------------------------------------------------------------------------------
5,837,761 56,341,417 4,376,100 38,057,732
- --------------------------------------------------------------------------------
Shares repurchased (5,848,286) (55,855,242) (6,415,431) (55,788,277)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) (10,525) $ 486,175 (2,039,331) $(17,730,545)
- --------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30 YEAR ENDED NOVEMBER 30
1995 1994
- --------------------------------------------------------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------
Shares sold 4,955,494 $49,153,948 2,834,343 $24,651,645
- --------------------------------------------------------------------------------
Reinvestment of
distributions 111,600 1,063,257 64,999 562,591
- --------------------------------------------------------------------------------
5,067,094 50,217,205 2,899,342 25,214,236
- --------------------------------------------------------------------------------
Shares repurchased (1,181,646) (11,615,462) (815,497) (7,068,537)
- --------------------------------------------------------------------------------
NET INCREASE 3,885,448 $38,601,743 2,083,845 $18,145,699
- --------------------------------------------------------------------------------
FOR THE PERIOD
DECEMBER 2, 1994
(COMMENCEMENT OF
OPERATIONS) TO
NOVEMBER 30
1995
- --------------------------------------------------------------------------------
CLASS M SHARES AMOUNT
- --------------------------------------------------------------------------------
Shares sold 684,912 $6,588,604
- --------------------------------------------------------------------------------
Reinvestment of distributions 7,885 78,058
- --------------------------------------------------------------------------------
692,797 6,666,662
- --------------------------------------------------------------------------------
Shares repurchased (45,453) (456,483)
- --------------------------------------------------------------------------------
NET INCREASE 647,344 $6,210,179
- --------------------------------------------------------------------------------
<PAGE>
FEDERAL TAX INFORMATION
(Unaudited)
The fund has designated 100% of the distributions from net investment income as
qualifying for the dividends received deduction for corporations.
<PAGE>
OUR COMMITMENT TO QUALITY SERVICE
o CHOOSE AWARD-WINNING SERVICE
Putnam Investor Services has won the DALBAR Quality Tested Service Seal for
the past six years. In 1995, over 146,000 tests of 56 shareholder service
components demonstrated that Putnam outperformed the industry standard in
every category.
o HELP YOUR INVESTMENT GROW
Set up a systematic program for investing with as little as $25 a month from
a Putnam money market fund or from your checking or savings account.*
o SWITCH FUNDS EASILY
You can move money from one account to another within the same class of
shares without a service charge. (This privilege is subject to change or
termination.)
o 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 the original
cost of the shares.
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 representative.
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.
<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
INDEPENDENT ACCOUNTANTS Vice President
Coopers & Lybrand L.L.P.
Brett C. Browchuk
TRUSTEES Vice President
George Putnam, Chairman
Thomas V. Reilly
William F. Pounds, Vice Chairman Vice President
Jameson Adkins Baxter Edward P. Bousa
Vice President and Fund Manager
Hans H. Estin
Kenneth J. Taubes
John A. Hill Vice President and Fund Manager
Elizabeth T. Kennan Rosemary H. Thomsen
Vice President and Fund Manager
Lawrence J. Lasser
William N. Shiebler
Robert E. Patterson Vice President
Donald S. Perkins John R. Verani
Vice President
George Putnam, III
Paul M. O'Neil
Eli Shapiro Vice President
A.J.C. Smith John D. Hughes
Senior Vice President and Treasurer
W. Nicholas Thorndike
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
------------
22182-012/192/626 1/96
