Putnam
Equity
Income
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-00
[SCALE LOGO OMITTED]
From the Trustees
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years in which
Putnam has experienced tremendous growth and transformed itself from a
respected U.S. investment management firm to a financial institution
with a global presence.
As the organization makes its way into the new century, we are certain
that the changes that lie ahead will be even more breathtaking in their
scope. What will not change is the Trustees' dedication to serving the
best interests of our shareholders.
We are pleased to announce the addition of David King and Jeanne Mockard
to your fund's management team. David has been with Putnam since 1983
and has 18 years of investment experience. Jeanne joined Putnam in 1990
and has 15 years of investment experience.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
July 19, 2000
REPORT FROM THE FUND MANAGERS
David L. King
Jeanne L. Mockard
James M. Prusko and
the Core Fixed
Income Team
From December 1999 through early March of this year, popular growth
stocks soared, out-of-favor value stocks struggled, and the divergence
between returns for growth and value investing widened to an
unprecedented degree. In the first half of the period, economic
expansion seemed dependent upon the stability of a very few growth
stocks in the technology sector. However, in early March, having
ultimately decided that the situation was too precarious, investors took
profits and headed for the safety of value stocks. Putnam Equity Income
Fund's performance paralleled the changes in the market environment:
the fund lost ground when growth stocks were in favor and turned around
significantly when investor sentiment shifted in March. The fund's
relatively flat returns for the semiannual period mask the double-digit
recovery it has experienced since the period's close.
Total return for 6 months ended 5/31/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
----------------------------------------------------------------------
0.08% -5.66% -0.27% -4.73% -0.25% -1.14% -0.13% -3.64%
----------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
* VOLATILITY HIGHLIGHTS BENEFITS OF DIVERSIFICATION
The prospect of achieving tremendous gains within a short period of time
often lures investors away from a well-rounded investment strategy that
includes value stocks. Buying and holding value stocks while the market
favors growth can be an exercise in frustration and yet the benefits of
a diversified portfolio are never more obvious than when the market
delivers a sudden shift. Many investors were caught off guard when the
market corrected this March. Those who sustained severe losses were no
doubt given a lesson in the importance of diversification, while others
whose losses were buffered because they had a balanced investment
strategy in place realized anew the value of their approach.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Banking 12.5%
Oil and gas 9.7%
Regional Bells 7.0%
Electric utilities 5.8%
Financial 5.1%
Footnote reads:
*Based on net assets as of 5/31/00. Holdings will vary over time.
We believe it is appropriate to remind shareholders that Putnam's
commitment to style consistency is a crucial element in providing the
diversification you need. Your fund's broadly diversified portfolio of
large-capitalization stocks with low price/earnings ratios and high
yields is among the most conservative and traditional of Putnam's value
fund offerings. You can expect your fund to be significantly less
volatile than the overall stock market, an attribute we believe cautious
investors can fully appreciate in light of recent and unprecedented
market volatility.
* VALUE OPPORTUNITIES ABOUND IN MOST SECTORS
Valuations for many traditional blue-chip stocks became uncommonly
attractive when investors, transfixed by the lure of rapid-growth
stocks, discarded everything else. We bought high-quality companies with
strong fundamentals and significantly upgraded the portfolio with
familiar blue-chip names. There were rallies in a number of our
important sectors, including financials, utilities, and health care.
Stocks that performed particularly well during the period included
Hewlett-Packard, Union Pacific Resources Group, Dayton Power and Light,
(DPL) and Hartford Financial Services.
Hewlett-Packard (HP) is well known for its popular brand of PC printers,
personal computers, and measurement devices. Lately the company has been
profiting from rapid sales of its color printer cartridges that are used
by the growing number of consumers taking up digital photography. HP
became an attractive value play when its Agilent Technologies division
was spun off as a separate company.
This successful restructuring process unlocked a good deal of
shareholder value and put the company back on the growth curve. A
dynamic new CEO has improved investor confidence in HP's future. While
this stock, as well as others mentioned in this report, was viewed
favorably at the end of the period, all are subject to review in
accordance with your fund's investment strategy and may change in the
future.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
ExxonMobil Corp.
Oil and gas
SBC Communications, Inc.
Regional Bells
Citigroup, Inc.
Financial
Fannie Mae
Financial
Bank of America Corp.
Banking
Bell Atlantic Corp.
Regional Bells
BellSouth Corp.
Regional Bells
AT&T Co,
Telecommunications
Royal Dutch Petroleum Co.
Oil and gas
Hewlett-Packard Co.
Computers
Footnote reads:
These holdings represent 18.6% of the fund's net assets as of 5/31/00.
Portfolio holdings will vary over time.
We are bullish on the U.S. natural gas market. Fundamentals for the
industry are strong, demand is increasing, and the United States is
currently experiencing a temporary supply shortage. These factors bode
well for natural gas companies, since they can now command higher prices
for their product. Fund holding Union Pacific Resources Group (UPR) is
an oil and gas exploration company that produces natural gas and crude
oil and owns interests in coal and soda ash mines in the United States.
Its shares appreciated on news that it has agreed to be acquired during
2000 by Anadarko Petroleum, another company specializing in oil and gas
exploration. Anadarko is one of the best-managed companies in the
industry, and we believe it will handle UPR's assets well.
During the semiannual period, your fund emphasized electric utilities
because they were cheap and because we expect industry-wide
consolidation to continue, bringing with it more efficient cost
structures and improved shareholder value. Electric utilities companies,
benefiting from deregulation, are currently generating steady cash flows
as they sell off or borrow against assets they no longer need. Dayton
Power and Light (DPL) is one of several electric utilities companies now
held in your fund's portfolio. DPL provides electric and natural gas
service to residential and commercial clients throughout Ohio. Kohlberg
Kravis Roberts & Co., a firm that specializes in buyouts and takes an
active role in increasing the value of companies, recently made an
investment in DPL, which could drive improved stock performance.
Leveraged buyout opportunities are yet another catalyst contributing to
the potential growth of the industry.
Utilities sector undergoing positive changes
In 1999, the utilities sector had its worst performance, relative to the
market, in 36 years. However as of May 2000, utilities make up the
best-performing major sector in the S&P 500 Index for this year. This
historically steady, low-growth sector is likely to see an increase in
profits coupled with slightly higher volatility as a result of deregulation,
which has brought new efficiencies and competitiveness to the marketplace.
Large, multifunctional companies are breaking into discrete businesses that
handle separate processes such as power generation and distribution.
Older companies are selling or borrowing against physical assets they no
longer need and are using their increased cash flow to pay down debt,
buy back shares, and make strategic acquisitions. A wave of
consolidations is under way, and many utility providers are branching
into alternative power such as fuel cell technology, or are investing in
media or telecommunications. Your fund has taken positions in many gas
and electric companies that we believe offer strong growth potential
over the long term.
Your fund owns a fair number of financial stocks, including Hartford
Financial Services Group Inc., which provides a wide variety of
insurance products to businesses and individuals. Among its offerings
are life, property, and liability insurance, workers' compensation, and
marine and agricultural insurance. Hartford Financial Services has
agreed to buy back Hartford Life, which it spun off in 1997. Hartford
Life offers individual and group life insurance, annuities, employee
benefits administration, asset management, and mutual funds. The
acquisition should be complete during 2000. Global consolidation in the
insurance industry is underway. Because the U.S. insurance industry
remains somewhat fragmented, foreign companies are targeting U.S.
insurers for takeover, and we believe Hartford Financial Services may
itself become a takeover candidate in the years ahead.
"For the past three months of this fiscal period there was a noticeable
shift in the market back toward value stocks, which led to very good
performance for this fund during that interval."
-- David L. King, manager Putnam Equity Income Fund
* SLOWING ECONOMY INSPIRES OPTIMISM
Recent data on wage gains, housing starts, and auto sales suggest that
economic growth is slowing as a result of the Federal Reserve Board's
interest-rate adjustments over the past 11 months. These signs are
strongly positive for value sectors such as financials and utilities. We
believe a slowing economy will be incrementally more beneficial for
value than for growth. Since the correction, the market has broadened
and market leadership is no longer tottering on a narrow base of just a
few growth stocks. We believe your fund is well positioned to
participate in market rallies and newly fortified to provide enhanced
downside protection. High-quality value stocks remain plentiful in
nearly all sectors and we are cautiously optimistic about the months
ahead.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 5/31/00, there is no guarantee the fund will
continue to hold these securities in the future.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Equity Income Fund is designed for investors seeking high current income
by investing primarily in a diversified portfolio of income-producing
equity securities. Capital growth is a secondary objective when
consistent with seeking current income.
TOTAL RETURN FOR PERIODS ENDED 5/31/00
Class A Class B Class C Class M
(inception dates) (6/15/77) (9/13/93) (2/1/99) (12/2/94)
NAV POP NAV CDSC NAV CDSC NAV POP
------------------------------------------------------------------------------
6 months 0.08% -5.66% -0.27% -4.73% -0.25% -1.14% -0.13% -3.64%
------------------------------------------------------------------------------
1 year -5.99 -11.38 -6.72 -10.87 -6.67 -7.50 -6.46 -9.74
------------------------------------------------------------------------------
5 years 105.00 93.19 97.22 95.22 97.58 97.58 99.87 92.78
Annual average 15.44 14.08 14.55 14.32 14.59 14.59 14.85 14.03
------------------------------------------------------------------------------
10 years 238.73 219.31 213.84 213.84 214.49 214.49 221.38 210.14
Annual average 12.98 12.31 12.12 12.12 12.14 12.14 12.38 11.98
------------------------------------------------------------------------------
Life of fund 1240.40 1163.09 990.87 990.87 1027.34 1027.34 1054.66 1013.97
Annual average 11.97 11.68 10.97 10.97 11.13 11.13 11.24 11.07
------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/00
S&P 500
Composite Stock Consumer
Price Index price index
------------------------------------------------------------------------------
6 months 2.90% 1.72%
------------------------------------------------------------------------------
1 year 10.48 3.07
------------------------------------------------------------------------------
5 years 190.44 12.55
Annual average 23.76 2.39
------------------------------------------------------------------------------
10 years 398.83 32.59
Annual average 17.43 2.86
------------------------------------------------------------------------------
Life of fund 3259.90 184.08
Annual average 16.51 4.64
------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 5.75% and
3.50%, respectively. Class B share returns for the 1-, 5-, and 10-year
(where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their
inception are derived from the historical performance of class A shares,
adjusted to reflect both the initial sales charge or CDSC, if any,
currently applicable to each class and in the case of class B and class
M shares the higher operating expenses applicable to such shares. For
class C shares, returns for periods prior to their inception are derived
from the historical performance of class A shares, adjusted to reflect
both the CDSC currently applicable to class C shares, which is 1% for
the first year and is eliminated thereafter, and the higher operating
expenses applicable to class C shares. All returns assume reinvestment
of distributions at NAV. Investment return and principal value will
fluctuate so that an investor's shares when redeemed may be worth more
or less than their original cost.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 5/31/00
Class A Class B Class C Class M
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 2 2 2 2
--------------------------------------------------------------------------------------------
Income $0.140 $0.083 $0.087 $0.102
--------------------------------------------------------------------------------------------
Capital gains
Long-term 1.123 1.123 1.123 1.123
--------------------------------------------------------------------------------------------
Short-term 0.395 0.395 0.395 0.395
--------------------------------------------------------------------------------------------
Total $1.658 $1.601 $1.605 $1.620
--------------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
--------------------------------------------------------------------------------------------
11/30/99 $15.76 $16.72 $15.64 $15.71 $15.66 $16.23
--------------------------------------------------------------------------------------------
5/31/00 14.05 14.91 13.94 14.01 13.96 14.47
--------------------------------------------------------------------------------------------
Current return (end of period)
--------------------------------------------------------------------------------------------
Current dividend rate1 1.99% 1.88% 1.23% 1.26% 1.49% 1.44%
--------------------------------------------------------------------------------------------
Current 30-day SEC yield2 1.81 1.71 1.08 1.08 1.33 1.25
--------------------------------------------------------------------------------------------
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.
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 6/30/00 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (6/15/77) (9/13/93) (2/1/99) (12/2/94)
NAV POP NAV CDSC NAV CDSC NAV POP
-------------------------------------------------------------------------------
6 months -3.29% -8.84% -3.63% -8.42% -3.66% -4.62% -3.56% -6.92%
-------------------------------------------------------------------------------
1 year -12.13 -17.19 -12.86 -16.73 -12.85 -13.62 -12.61 -15.66
-------------------------------------------------------------------------------
5 years 93.50 82.38 86.29 84.29 86.29 86.29 88.65 81.98
Annual average 14.11 12.77 13.25 13.01 13.25 13.25 13.54 12.72
-------------------------------------------------------------------------------
10 years 228.65 209.61 204.42 204.42 204.86 204.86 211.83 201.10
Annual average 12.64 11.96 11.78 11.78 11.79 11.79 12.04 11.65
-------------------------------------------------------------------------------
Life of fund 1179.43 1105.63 940.32 940.32 974.72 974.72 1001.22 962.41
Annual average 11.70 11.41 10.70 10.70 10.86 10.86 10.97 10.80
-------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost. See first
page of performance section for performance calculation method.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 5.75% maximum sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B or C shares and assumes redemption at the
end of the period. Your fund's class B 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. The CDSC for class C shares is 1% for one
year after purchase.
COMPARATIVE BENCHMARKS
Standard and Poor's 500 Composite Stock Price Index is an index of
common stocks frequently used as a general measure of stock market
performance. It assumes reinvestment of all distributions and interest
payments and does not take in account brokerage fees or taxes. Securities
in the fund do not match those in the index and performance of the fund
will differ. It is not possible to invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities
in the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss
for the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that
remain in the portfolio -- any change in unrealized gains or losses over
the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
May 31, 2000 (Unaudited)
COMMON STOCKS (92.1%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Aerospace/Defense (1.3%)
-------------------------------------------------------------------------------------------------------------------
349,800 Boeing Co. $ 13,664,063
304,500 Lockheed Martin Corp. 7,460,250
----------------
21,124,313
Airlines (0.4%)
-------------------------------------------------------------------------------------------------------------------
137,700 Delta Air Lines, Inc. 7,082,944
Automotive (0.8%)
-------------------------------------------------------------------------------------------------------------------
271,500 Ford Motor Co. 13,184,719
Banking (12.0%)
-------------------------------------------------------------------------------------------------------------------
477,752 Bank of America Corp. 26,545,096
454,400 BB&T Corp. 13,319,600
431,800 Charter One Financial, Inc. 9,823,450
169,700 Chase Manhattan Corp. 12,674,469
319,600 Comerica, Inc. 16,179,750
452,600 Firstar Corp. 11,569,588
429,910 FleetBoston Financial Corp. 16,255,972
323,400 Mellon Financial Corp. 12,471,113
48,600 Morgan (J.P.) & Co., Inc. 6,257,250
295,100 National City Corp. 5,902,000
282,900 PNC Bank Corp. 14,251,088
356,887 Synovus Financial Corp. 7,137,740
380,000 U.S. Bancorp 9,880,000
93,400 Wachovia Corp. 6,456,275
238,550 Washington Mutual, Inc. 6,858,313
408,200 Wells Fargo Co. 18,471,050
----------------
194,052,754
Beverage (1.6%)
-------------------------------------------------------------------------------------------------------------------
119,800 Anheuser-Busch Cos., Inc. 9,284,500
77,400 Brown-Forman Corp. Class B 4,494,038
312,100 Fortune Brands, Inc. 8,309,663
168,800 Pepsi Bottling Group, Inc. (The) 4,409,900
----------------
26,498,101
Capital Goods (0.6%)
-------------------------------------------------------------------------------------------------------------------
134,900 Eaton Corp. 9,788,681
Chemicals (3.6%)
-------------------------------------------------------------------------------------------------------------------
70,700 Dow Chemical Co. 7,569,319
299,028 du Pont (E.I.) de Nemours & Co., Ltd. 14,652,372
367,700 Engelhard Corp. 6,411,769
154,200 Minnesota Mining & Manufacturing Co. 13,222,650
195,200 PPG Industries, Inc. 9,674,600
155,600 Praxair, Inc. 6,535,200
----------------
58,065,910
Combined Utilities (0.5%)
-------------------------------------------------------------------------------------------------------------------
227,100 Constellation Energy Group 7,792,369
Computers (2.1%)
-------------------------------------------------------------------------------------------------------------------
8,500 Gateway, Inc. (NON) 420,750
166,900 Hewlett-Packard Co. 20,048,863
118,800 IBM Corp. 12,748,725
----------------
33,218,338
Conglomerates (0.7%)
-------------------------------------------------------------------------------------------------------------------
145,200 Honeywell International Inc. 7,940,625
75,500 Tyco International Ltd. 3,553,219
----------------
11,493,844
Consumer Finance (1.6%)
-------------------------------------------------------------------------------------------------------------------
200,800 Capital One Financial Corp. 9,487,800
267,800 Household International, Inc. 12,586,600
146,200 MBNA Corp. 4,075,325
----------------
26,149,725
Consumer Goods (0.7%)
-------------------------------------------------------------------------------------------------------------------
198,000 Kimberly-Clark Corp. 11,979,000
Distribution (0.8%)
-------------------------------------------------------------------------------------------------------------------
292,300 SYSCO Corp. 12,258,331
Electric Utilities (5.6%)
-------------------------------------------------------------------------------------------------------------------
314,000 Carolina Power & Light Co. 10,793,750
267,800 CiNergy Corp. 7,130,175
185,800 Dominion Resources, Inc. 8,500,350
457,338 DPL, Inc. 10,718,859
264,334 Duke Energy Corp. 15,397,456
427,100 Entergy Corp. 12,385,900
287,600 Pacific Gas & Electric Co. 7,459,625
210,300 Reliant Energy, Inc. 5,993,550
314,950 TXU Corp. 11,259,463
----------------
89,639,128
Electrical Equipment (1.2%)
-------------------------------------------------------------------------------------------------------------------
326,200 Emerson Electric Co. 19,245,800
Electronics (0.8%)
-------------------------------------------------------------------------------------------------------------------
84,900 Motorola, Inc. 7,959,375
128,300 W W Grainger 5,123,981
----------------
13,083,356
Energy (1.2%)
-------------------------------------------------------------------------------------------------------------------
106,600 Schlumberger Ltd. 7,841,763
172,600 Transocean Sedco Forex Inc. 8,489,763
67,000 Weatherford International, Inc. 2,885,188
----------------
19,216,714
Financial (4.5%)
-------------------------------------------------------------------------------------------------------------------
509,575 Citigroup, Inc. 31,689,195
484,600 Fannie Mae 29,136,575
67,800 Franklin Resources, Inc. 2,034,000
101,900 Hartford Life, Inc. 5,114,106
96,200 MGIC Investment Corp. 4,767,913
1,101 PSF Holdings LLC Class A 11,010
----------------
72,752,799
Food (1.8%)
-------------------------------------------------------------------------------------------------------------------
409,100 Archer Daniels Midland Co. 4,883,631
234,800 General Mills, Inc. 9,318,625
213,900 Heinz (H.J.) Co. 8,382,206
391,250 Sara Lee Corp. 7,042,500
----------------
29,626,962
Health Care Services (1.8%)
-------------------------------------------------------------------------------------------------------------------
149,900 Baxter International, Inc. 9,968,399
132,080 CIGNA Corp. 11,730,355
555,300 HEALTHSOUTH Corp. (NON) 3,574,744
122,600 Mallinckrodt Inc. 3,547,738
----------------
28,821,236
Household Furniture and Appliances (0.2%)
-------------------------------------------------------------------------------------------------------------------
69,000 Whirlpool Corp. 3,911,438
Insurance (4.4%)
-------------------------------------------------------------------------------------------------------------------
141,500 AFLAC Inc. 7,313,781
226,300 Allstate Corp. 5,996,950
178,200 American General Corp. 11,415,938
65,000 American International Group, Inc. 7,316,563
162,200 AON Corp. 5,697,275
332,800 Hartford Financial Services Group 19,676,800
162,200 Lincoln National Corp. 6,285,250
282,900 Torchmark Corp. 7,691,344
----------------
71,393,901
Investment Banking/Brokerage (1.3%)
-------------------------------------------------------------------------------------------------------------------
240,170 Bear Stearns Companies, Inc. (The) 9,456,694
257,400 Paine Webber Group Inc. 11,566,913
----------------
21,023,607
Lodging/Tourism (1.1%)
-------------------------------------------------------------------------------------------------------------------
219,700 Marriott International, Inc. Class A 7,964,125
310,200 Starwood Hotels & Resorts Worldwide, Inc. 9,170,288
----------------
17,134,413
Machinery (0.4%)
-------------------------------------------------------------------------------------------------------------------
176,500 Caterpillar, Inc. 6,751,125
Manufacturing (0.7%)
-------------------------------------------------------------------------------------------------------------------
198,000 Illinois Tool Works, Inc. 11,496,375
Media (0.7%)
-------------------------------------------------------------------------------------------------------------------
273,400 Disney (Walt) Productions, Inc. 11,534,063
Metals (0.4%)
-------------------------------------------------------------------------------------------------------------------
102,800 Alcoa Inc. 6,007,375
Natural Gas Utilities (1.2%)
-------------------------------------------------------------------------------------------------------------------
447,026 Sempra Energy 8,409,677
253,800 Williams Cos., Inc. 10,548,563
----------------
18,958,240
Oil & Gas (9.5%)
-------------------------------------------------------------------------------------------------------------------
271,600 BP Amoco PLC ADR (United Kingdom) 14,768,250
192,400 Chevron, Inc. 17,784,975
302,700 Conoco, Inc. 8,097,225
292,887 Conoco, Inc. Class B 8,347,280
608,010 ExxonMobil Corp. 50,654,833
396,900 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 24,781,444
174,500 Tosco Corp. 5,344,063
135,907 Total S.A. ADR (France) 10,728,159
509,100 Union Pacific Resources Group Inc. 12,059,306
----------------
152,565,535
Paper & Forest Products (1.7%)
-------------------------------------------------------------------------------------------------------------------
295,100 Mead Corp. 9,092,769
330,000 Owens-Illinois, Inc. (NON) 3,712,500
288,500 Weyerhaeuser Co. 14,316,813
----------------
27,122,082
Pharmaceuticals (4.6%)
-------------------------------------------------------------------------------------------------------------------
361,100 Abbott Laboratories 14,692,256
265,000 Bristol-Myers Squibb Co. 14,591,563
168,400 Johnson & Johnson 15,071,800
362,436 Pharmacia Corp. 18,824,020
213,100 Schering-Plough Corp. 10,308,713
----------------
73,488,352
Photography/Imaging (1.1%)
-------------------------------------------------------------------------------------------------------------------
166,000 Eastman Kodak Co. 9,918,500
270,300 Xerox Corp. 7,331,888
----------------
17,250,388
Publishing (0.9%)
-------------------------------------------------------------------------------------------------------------------
180,100 McGraw-Hill, Inc. 9,263,894
147,100 Tribune Co. 5,663,350
----------------
14,927,244
Railroads (0.9%)
-------------------------------------------------------------------------------------------------------------------
358,300 Union Pacific Corp. 15,160,569
Real Estate (1.9%)
-------------------------------------------------------------------------------------------------------------------
422,400 Equity Office Properties Trust (R) 11,220,000
435,600 Equity Residential Properties Trust (R) 19,438,650
----------------
30,658,650
Regional Bells (6.9%)
-------------------------------------------------------------------------------------------------------------------
498,500 Bell Atlantic Corp. 26,358,188
548,800 BellSouth Corp. 25,622,100
310,200 GTE Corp. 19,620,150
907,200 SBC Communications, Inc. 39,633,300
----------------
111,233,738
Retail (2.9%)
-------------------------------------------------------------------------------------------------------------------
272,400 Albertsons, Inc. 9,976,650
183,900 CVS Corp. 7,999,650
344,100 Federated Department Stores, Inc. (NON) 13,247,850
518,500 K mart Corp. (NON) 4,407,250
197,100 Sears, Roebuck & Co. 7,280,381
284,800 Staples, Inc. (NON) 4,200,830
----------------
47,112,611
Software (0.5%)
-------------------------------------------------------------------------------------------------------------------
149,800 Computer Associates International, Inc. 7,714,700
Technology Services (0.8%)
-------------------------------------------------------------------------------------------------------------------
195,200 Electronic Data Systems Corp. 12,553,800
Telecommunications (3.7%)
-------------------------------------------------------------------------------------------------------------------
240,400 ALLTEL Corp. 15,731,175
730,650 American Telephone & Telegraph Co. 25,344,422
306,400 Sprint Corp. 18,537,200
----------------
59,612,797
Textiles (0.4%)
-------------------------------------------------------------------------------------------------------------------
512,041 Shaw Industries, Inc. 7,136,571
Tobacco (0.9%)
-------------------------------------------------------------------------------------------------------------------
563,700 Philip Morris Cos., Inc. 14,726,663
Toys (0.5%)
-------------------------------------------------------------------------------------------------------------------
469,007 Hasbro, Inc. 7,679,990
Trucks & Parts (0.2%)
-------------------------------------------------------------------------------------------------------------------
49,900 Johnson Controls, Inc. 2,841,181
Waste Management (0.7%)
-------------------------------------------------------------------------------------------------------------------
530,800 Waste Management, Inc. 10,815,050
----------------
Total Common Stocks (cost $1,416,833,617) $ 1,485,885,482
CORPORATE BONDS AND NOTES (3.8%) (a)
PRINCIPAL AMOUNT VALUE
Advertising and Marketing Services (--%)
-------------------------------------------------------------------------------------------------------------------
$ 10,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 $ 9,500
Aerospace and Defense (0.2%)
-------------------------------------------------------------------------------------------------------------------
820,000 Boeing Co. deb. 6 5/8s, 2038 665,274
630,000 Litton Industries Inc. sr. notes 8s, 2009 588,937
1,015,000 Lockheed Martin Corp. bonds 8 1/2s, 2029 987,483
690,000 Norsk Hydro ASA notes 6.36s, 2009 (Norway) 610,754
360,000 Raytheon Co notes 6.45s, 2002 347,771
435,000 Raytheon Co. deb. 6.4s, 2018 343,389
140,000 Sequa Corp. sr. notes 9s, 2009 129,500
----------------
3,673,108
Agriculture (--%)
-------------------------------------------------------------------------------------------------------------------
14,230 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 12,878
Airlines (0.2%)
-------------------------------------------------------------------------------------------------------------------
642,621 Atlas Air, Inc. pass-through certificates Ser. 991A, 7.2s, 2019 580,383
10,000 Calair LLC 144A company guaranty 8 1/8s, 2008 8,150
463,128 Continental Airlines, Inc. pass-through certificates
Ser. 981C, 6.541s, 2009 429,640
615,000 Continental Airlines, Inc. pass-through certificates
Ser. 98-2, 6.32s, 2008 535,757
620,000 Delta Air Lines, Inc. notes 8.3s, 2029 515,028
180,000 Northwest Airlines, Inc. company guaranty 8.7s, 2007 164,144
50,000 Northwest Airlines, Inc. company guaranty 7 7/8s, 2008 41,854
462,953 Northwest Airlines, Inc. pass-through certificate
Ser. 1999-1A, 6.81s, 2020 399,519
810,000 United Air Lines Corp. deb. 9 3/4s, 2021 732,758
----------------
3,407,233
Automotive (0.2%)
-------------------------------------------------------------------------------------------------------------------
405,000 Chrysler Corp. deb. Ser. B, 7.45s, 2097 360,863
280,000 Delphi Automotive Systems Corp. deb. 7 1/8s, 2029 230,104
500,000 Federal Mogul Corp. notes 7 1/2s, 2009 356,895
295,000 Ford Motor Co. deb. 7.4s, 2046 255,308
730,000 Ford Motor Co. bonds 6 5/8s, 2028 597,819
90,000 Lear Corp. sub. notes 9 1/2s, 2006 86,689
60,000 Navistar International Corp. sr. notes Ser. B, 7s, 2003 55,800
375,000 TRW, Inc. deb. 7 3/4s, 2029 324,926
----------------
2,268,404
Banking (0.5%)
-------------------------------------------------------------------------------------------------------------------
440,000 Abbey National Capital Trust I company guaranty 8.963s, 2049 456,500
102,000 Bank United Corp. sr. notes, 8 7/8s, 2007 94,954
750,000 Bank United Corp. medium term notes, Ser. A, 8s, 2009 642,210
560,000 Bayer Hypo Vereinsbank 144A bonds 8.741s, 2031 (Germany) 499,565
820,000 Citicorp sub. notes 6 3/8s, 2008 740,485
435,000 Colonial Bank sub. notes 8s, 2009 401,575
425,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 383,707
365,000 First Citizens Bank Capital Trust I company guaranty 8.05s, 2028 284,700
120,000 First Financial Caribbean Corp. sr. notes 7.84s, 2006 113,887
730,000 First Union Capital II company guaranty Ser. A, 7.95s, 2029 640,400
270,000 First Union Institute Capital I bonds 8.04s, 2026 231,822
145,000 Firstar Bank Milwaukee sr. bank notes 6 1/4s, 2002 139,551
460,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 410,150
500,000 Imperial Bank sub. notes 8 1/2s, 2009 446,950
585,000 NB Capital Trust IV company guaranty 8 1/4s, 2027 532,017
210,000 Norwest Corp. med. term sr. notes Ser. J, 6 3/4s, 2027 173,794
530,000 Peoples Bank-Bridgeport sub. notes 7.2s, 2006 470,672
300,000 Scotland International Finance 144A sub. notes 8.85s, 2006
(Netherlands) 313,224
370,000 Sovereign Bancorp Inc. sr. notes 10 1/2s, 2006 364,450
230,000 St. Paul Bancorp sr. notes 7 1/8s, 2004 221,587
155,000 State Street Institution 144A company guaranty 7.94s, 2026 136,943
230,000 Webster Capital Trust I 144A bonds 9.36s, 2027 220,586
----------------
7,919,729
Broadcasting (0.1%)
-------------------------------------------------------------------------------------------------------------------
30,000 Allbritton Communications Co. sr. sub. notes
Ser. B, 8 7/8s, 2008 26,400
21,200 AMFM Operating, Inc. deb. 12 5/8s, 2006 (PIK) 24,221
80,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 79,800
855,000 News America Holdings, Inc. deb. 7.7s, 2025 732,863
----------------
863,284
Building Materials (--%)
-------------------------------------------------------------------------------------------------------------------
80,000 American Standard Companies, Inc. sr. notes 7 3/8s, 2008 72,400
Cable Television (--%)
-------------------------------------------------------------------------------------------------------------------
40,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008 34,400
150,000 Century Communications Corp. sr. notes 9 1/2s, 2005 143,250
25,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 26,000
210,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 207,900
10,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 8,611
55,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 40,975
40,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008
(United Kingdom) 40,200
50,000 NTL Inc. sr. notes, stepped-coupon Ser. B, zero %
(9 3/4s, 4/1/03), 2008 (United Kingdom) (STP) 31,000
30,000 TeleWest Communications Plc sr. disc. notes zero %, 2009
(United Kingdom) (STP) 17,700
----------------
550,036
Chemicals (--%)
-------------------------------------------------------------------------------------------------------------------
400,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 386,000
120,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 115,800
----------------
501,800
Coal (--%)
-------------------------------------------------------------------------------------------------------------------
40,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 6,800
Commercial and Consumer Services (--%)
-------------------------------------------------------------------------------------------------------------------
50,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 47,500
Computers (0.1%)
-------------------------------------------------------------------------------------------------------------------
765,000 IBM Corp. deb. 7 1/8s, 2096 689,510
Conglomerates (0.1%)
-------------------------------------------------------------------------------------------------------------------
825,000 Tyco International Ltd. company guaranty 6 1/4s, 2003 779,897
Consumer Finance (0.2%)
-------------------------------------------------------------------------------------------------------------------
210,000 Associates Corp. deb. 6.95s, 2018 182,045
45,000 Capital One Financial Corp. notes 7 1/4s, 2006 40,896
80,000 Capital One Financial Corp. notes 7 1/4s, 2003 77,540
120,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 (In default) (NON) 11,700
300,000 Finova Capital Corp. notes 9 1/8s, 2002 283,200
515,000 Finova Capital Corp. notes 7.4s, 2007 414,951
160,000 Finova Capital Corp. notes 6 1/4s, 2002 138,893
655,000 Ford Motor Credit Corp. notes 7 3/8s, 2009 622,283
60,000 Ford Motor Credit Corp. notes 6.55s, 2002 58,367
570,000 Ford Motor Credit Corp. sr. notes 5.8s, 2009 490,035
610,000 Household Finance Corp. notes 6 1/2s, 2008 539,508
955,000 Household Finance Corp. sr. unsub. 5 7/8s, 2009 806,660
----------------
3,666,078
Consumer Services (--%)
-------------------------------------------------------------------------------------------------------------------
40,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 41,200
Distribution (--%)
-------------------------------------------------------------------------------------------------------------------
535,000 Pepsi Bottling Group Inc. sr. notes Ser. B, 7s, 2029 456,141
Electric Utilities (0.2%)
-------------------------------------------------------------------------------------------------------------------
240,000 Arizona Public Service Co. sr. notes 6 3/4s, 2006 218,465
425,000 CILCORP, Inc. sr. notes 8.7s, 2009 419,817
140,000 CMS Energy Corp. sr. notes 8 1/8s, 2002 137,483
320,000 CMS Energy Corp. pass-through certificates 7s, 2005 290,304
600,000 DPL, Inc. 144A sr. notes 8 1/4s, 2007 587,820
62,546 Northeast Utilities System notes Ser. A, 8.58s, 2006 62,292
126,323 Northeast Utilities System notes Ser. B, 8.38s, 2005 125,051
286,000 Public Service Co. of New Mexico deb. 10 1/4s, 2012 305,743
250,000 Texas New-Mexico Power Utilities 1st mtge. 9 1/4s, 2000 251,668
400,000 Texas Utilities Co. secd. lease fac. bonds 7.46s, 2015 375,048
735,000 TXU Electrical Capital company guaranty 8.175s, 2037 651,857
----------------
3,425,548
Energy (0.1%)
-------------------------------------------------------------------------------------------------------------------
705,000 Petro Geo-Services sr. notes 7 1/8s, 2028 (Norway) 549,815
130,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 127,075
30,000 RBF Finance Co. company guaranty 11 3/8s, 2009 32,250
80,000 RBF Finance Co. company guaranty 11s, 2006 85,000
----------------
794,140
Entertainment (--%)
-------------------------------------------------------------------------------------------------------------------
30,000 SFX Entertainment Inc. company guaranty 9 1/8s, 2008 30,000
30,000 SFX Entertainment, Inc. 144A company guaranty
Ser. B, 9 1/8s, 2008 30,150
10,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 (In default) (NON) 1,000
60,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008 (In default) (NON) 1,200
380,000 Walt Disney Co. med. term notes 5.62s, 2008 325,793
----------------
388,143
Financial (0.6%)
-------------------------------------------------------------------------------------------------------------------
50,000 Advanta Corp. notes Ser. C, 7.47s, 2001 48,449
20,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 18,970
130,000 Advanta Corp. notes Ser. C, 6.94s, 2001 125,597
100,000 Advanta Corp. notes Ser. D, 6.925s, 2002 93,820
50,000 Advanta Corp. med-term notes Ser. D, 6.92s, 2002 46,907
685,000 American General Institute 144A company guaranty
8 1/8s, 2046 622,165
390,000 AT&T Capital Corp. med. term notes 6.6s, 2005 364,135
945,000 Citigroup, Inc. deb. 6 5/8s, 2028 795,633
100,000 Conseco Financial Corp. sr. sub. notes 10 1/4s, 2002 65,000
680,000 Conseco Financing Trust II company guaranty 8.7s, 2026 258,400
350,000 Conseco Inc. med-term notes 6 1/2s, 2002 227,500
490,000 Executive Risk Capital Trust company guaranty
Ser. B, 8.675s, 2027 450,482
60,000 Fremont General Corp. sr. notes Ser. B, 7.7s, 2004 24,000
600,000 General Motors Acceptance Corp. notes 5 3/4s, 2003 565,446
630,000 Goldman Sachs Group, Inc. (The) notes Ser. B, 7.35s, 2009 587,173
165,000 Hartford Life, Inc. deb. 7.65s, 2027 151,691
810,000 Heller Financial, Inc. notes 7 3/8s, 2009 749,234
455,000 Liberty Mutual Insurance 144A notes 7.697s, 2097 336,336
260,000 Markel Capital Trust I company guaranty Ser. B, 8.71s, 2046 194,553
250,000 Money Store, Inc. notes 8.05s, 2002 250,510
385,000 Newcourt Credit Group Inc. company guaranty
Ser. A, 7 1/8s, 2003 374,601
430,000 Presidential Life Corp. sr. notes 7 7/8s, 2009 373,025
635,000 Principal Financial Group Au 144A notes 7.95s, 2004
(Australia) 622,491
830,000 Provident Companies, Inc. bonds 7.405s, 2038 595,401
195,000 Safeco Capital Trust I company guaranty 8.072s, 2037 158,219
925,000 Sun Life Canada Capital Trust 144A 8.526s, 2049 777,259
530,000 Tig Capital Trust I 144A bonds 8.597s, 2027 368,350
315,000 Trenwick Capital Trust I company guaranty 8.82s, 2037 239,394
----------------
9,484,741
Food (--%)
-------------------------------------------------------------------------------------------------------------------
60,000 Doane Pet Care Co. sr. sub. notes 9 3/4s, 2007
sr. sub. notes 9 3/4s, 2007 55,500
Gaming & Lottery (0.1%)
-------------------------------------------------------------------------------------------------------------------
70,000 International Game Technology sr. notes 7 7/8s, 2004 65,450
125,000 International Game Technology 144A sr. notes 8 3/8s, 2009 114,375
145,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 135,213
60,000 Park Place Entertainment sr. notes 8 1/2s, 2006 57,664
220,000 Park Place Entertainment 144A sr. sub. notes 9 3/8s, 2007 212,850
15,000 Sun International Hotels Ltd. company guaranty 9s, 2007 13,275
10,000 Sun International Hotels Ltd. sr. sub. notes 8 5/8s, 2007 8,600
----------------
607,427
Health Care (0.1%)
-------------------------------------------------------------------------------------------------------------------
150,000 Columbia/HCA Healthcare Corp. med. term notes 8.85s, 2007 141,750
50,000 Columbia/HCA Healthcare Corp. med. term notes 6.63s, 2045 47,222
10,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 7,788
5,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 3,675
420,000 Omega Healthcare Investors, Inc. notes 6.95s, 2002 336,000
180,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 169,200
290,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 260,275
255,000 Tenet Healthcare Corp. sr. notes 8s, 2005 239,700
90,000 Tenet Healthcare Corp. sr. notes Ser. B, 7 5/8s, 2008 80,550
----------------
1,286,160
Homebuilding (--%)
-------------------------------------------------------------------------------------------------------------------
40,000 D.R. Horton, Inc. company guaranty 8s, 2009 33,600
70,000 Lennar Corp. 144A sr. notes 9.95s, 2010 66,500
----------------
100,100
Industrial (--%)
-------------------------------------------------------------------------------------------------------------------
555,000 Union Oil Company of California company guaranty
7 1/2s, 2029 495,054
Insurance (--%)
-------------------------------------------------------------------------------------------------------------------
585,000 AFLAC Inc. sr. notes 6 1/2s, 2009 516,625
Investment Banking/Brokerage (0.1%)
-------------------------------------------------------------------------------------------------------------------
490,000 Countrywide Home Loan Corp. company guaranty
6.935s, 2007 456,136
505,000 Paine Webber Group, Inc. sr. med. term notes 6.52s, 2005 462,075
----------------
918,211
Lodging/Tourism (--%)
-------------------------------------------------------------------------------------------------------------------
20,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 10,000
420,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 359,100
----------------
369,100
Manufacturing (--%)
-------------------------------------------------------------------------------------------------------------------
35,000 Continental Global Group sr. notes Ser. B, 11s, 2007 10,500
30,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 28,200
----------------
38,700
Media (0.1%)
-------------------------------------------------------------------------------------------------------------------
355,000 TCI Communications Inc deb. 8 3/4s, 2015 371,383
680,000 Time Warner Entertainment sr. notes 8 3/8s, 2033 648,251
----------------
1,019,634
Medical Services (--%)
-------------------------------------------------------------------------------------------------------------------
30,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/2s, 2007 (In default) (NON) 600
20,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/4s, 2008 (In default) (NON) 400
70,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 525
20,000 Mariner Post-Acute Network, Inc. sr. sub. notes
stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02),
2007 (In default) (STP) (NON) 150
80,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 4,100
50,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 1,000
10,000 Sun Healthcare Group, Inc. 144A sr. sub. notes
9 3/8s, 2008 (In default) (NON) 200
----------------
6,975
Metals (--%)
-------------------------------------------------------------------------------------------------------------------
70,000 AK Steel Corp. sr. notes 9 1/8s, 2006 65,975
350,000 AK Steel Corp. company guaranty 7 7/8s, 2009 308,000
8,570 Anker Coal Group, Inc. company guaranty Ser. B,
14 1/4s, 2007 (PIK) 3,857
120,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 112,800
----------------
490,632
Oil & Gas (0.2%)
-------------------------------------------------------------------------------------------------------------------
620,000 Amerada Hess Corp. bonds 7 7/8s, 2029 573,277
845,000 KN Capital Trust III company guaranty 7.63s, 2028 631,976
635,000 Louis Dreyfus Natural Gas notes 6 7/8s, 2007 556,463
380,000 Maritime & NE Pipeline 144A sec. notes 7.7s, 2019 (Canada) 346,940
30,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 28,950
30,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 28,200
390,000 Osprey Trust 144A sec. notes 8.31s, 2003 386,116
395,000 Phillips Petroleum Co. notes 8 3/4s, 2010 401,225
30,000 Pioneer Natural Resources Co. company guaranty 9 5/8s, 2010 30,713
240,000 Port Arthur Finance Corp. company guaranty 12 1/2s, 2009 232,800
405,000 Sonat, Inc. notes 7 5/8s, 2011 381,332
150,000 Union Pacific Resources Group, Inc. notes 7.3s, 2009 140,750
----------------
3,738,742
Paper & Forest Products (0.1%)
-------------------------------------------------------------------------------------------------------------------
745,000 Abitibi-Consolidated Inc. deb. 8 1/2s, 2029 664,361
415,000 Georgia Pacific Corp. bonds 7 3/4s, 2029 351,995
160,000 Norampac, Inc. sr. notes 9 1/2s, 2008 (Canada) 155,200
65,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 61,238
30,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 29,700
20,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 18,400
50,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 48,000
----------------
1,328,894
Pharmaceuticals (--%)
-------------------------------------------------------------------------------------------------------------------
60,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 58,350
200,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 184,000
----------------
242,350
Power Producers (--%)
-------------------------------------------------------------------------------------------------------------------
20,000 Calpine Corp. sr. notes 7 7/8s, 2008 18,552
50,000 Calpine Corp. sr. notes 7 3/4s, 2009 45,250
10,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 10,726
50,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 49,000
----------------
123,528
Railroads (--%)
-------------------------------------------------------------------------------------------------------------------
135,000 CSX Corp. deb. 7.95s, 2027 122,475
490,000 Norfolk Southern Corp. sr. notes 6.2s, 2009 426,437
----------------
548,912
Real Estate (--%)
-------------------------------------------------------------------------------------------------------------------
320,000 Avalon Properties, Inc. notes 6 7/8s, 2007 (R) 292,435
345,000 EOP Operating L.P. notes 6.8s, 2009 (R) 305,342
5,000 Tanger Properties Ltd. partnership gtd. notes
8 3/4s, 2001 (R) 4,938
----------------
602,715
Regional Bells (0.1%)
-------------------------------------------------------------------------------------------------------------------
815,000 GTE Corp. deb. 6.94s, 2028 694,429
335,000 GTE Corp. deb. 6.46s, 2008 302,673
----------------
997,102
Restaurants (--%)
-------------------------------------------------------------------------------------------------------------------
480,000 Tricon Global Restaurants, Inc. sr. notes 7.65s, 2008 421,594
Retail (0.1%)
-------------------------------------------------------------------------------------------------------------------
275,000 Federated Department Stores, Inc. notes 6.3s, 2009 238,024
480,000 K mart Corp. notes 8 3/8s, 2004 459,965
20,000 K mart Corp. med. term notes 7.55s, 2004 18,725
390,000 Saks, Inc. company guaranty 8 1/4s, 2008 321,773
255,000 Sears Roebuck Acceptance Corp. notes 6 7/8s, 2017 213,534
420,000 Sears Roebuck Acceptance Corp. notes 6 1/2s, 2028 318,692
50,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 41,375
120,000 Southland Corp. sr. sub. deb. 5s, 2003 105,184
----------------
1,717,272
Semiconductor (--%)
-------------------------------------------------------------------------------------------------------------------
140,000 Amkor Technology, Inc. sr. notes 9 1/4s, 2006 133,700
Shipping (--%)
-------------------------------------------------------------------------------------------------------------------
80,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 68,000
Technology Services (--%)
-------------------------------------------------------------------------------------------------------------------
10,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 10,100
Telecommunications (0.2%)
-------------------------------------------------------------------------------------------------------------------
110,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008
(Bermuda) 104,500
220,000 Global Crossing Holdings Ltd. company guaranty 9 1/2s, 2009
(Bermuda) 207,075
70,000 Nextel Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 1/8s, 4/15/03), 2008 (STP) 43,400
328,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 309,960
345,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 348,450
240,000 Sprint Capital Corp. company guaranty 6.9s, 2019 206,364
155,000 Sprint Capital Corp. company guaranty 6 7/8s, 2028 128,416
580,000 Sprint Capital Corp. company guaranty 6 1/8s, 2008 506,247
390,000 Sprint Capital Corp. company guaranty 5.7s, 2003 363,851
620,000 U S West, Inc. notes 5 5/8s, 2008 522,567
34,000 Viatel, Inc. sr. notes 11 1/2s, 2009 26,860
355,000 Williams Communications Group Inc. sr. notes 10 7/8s, 2009 355,000
----------------
3,122,690
Telephone (--%)
-------------------------------------------------------------------------------------------------------------------
60,000 Hyperion Telecommunications Corp., Inc. sr. notes Ser. B,
12 1/4s, 2004 60,150
150,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 72,000
30,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 12,000
----------------
144,150
Textiles (--%)
-------------------------------------------------------------------------------------------------------------------
50,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 50,000
15,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 7,800
----------------
57,800
Tobacco (0.1%)
-------------------------------------------------------------------------------------------------------------------
750,000 Imperial Tobacco BV company guaranty 7 1/8s, 2009
(Netherlands) 653,363
185,000 Philip Morris Cos., Inc. notes 7 1/8s, 2004 173,143
----------------
826,506
Transportation (0.1%)
-------------------------------------------------------------------------------------------------------------------
794,148 Federal Express Corp. pass-thru certificates Ser. 1998-1A,
6.72s, 2022 706,172
Waste Management (--%)
-------------------------------------------------------------------------------------------------------------------
210,000 Allied Waste Industries, Inc. company guaranty
Ser. B, 7 7/8s, 2009 176,400
550,000 Browning-Ferris Industries, Inc. deb. 7.4s, 2035 324,500
40,000 Waste Management, Inc. company guaranty 6 7/8s, 2009 33,669
----------------
534,569
Water Utilities (--%)
-------------------------------------------------------------------------------------------------------------------
370,000 Azurix Corp. 144A notes 10 3/8s, 2007 329,300
----------------
Total Corporate Bonds and Notes (cost $68,691,645) $ 60,616,284
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (2.9%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (2.5%)
-------------------------------------------------------------------------------------------------------------------
$ 1,716,539 Federal Home Loan Mortgage Corporation.
6s, February 1, 2029 $ 1,543,803
Federal National Mortgage Association
Pass-Through Certificates
4,284,210 7 1/2s, with due dates from December 1, 2029 to
May 1, 2030 4,161,039
12,415,320 7s, with due dates from January 1, 2011 to June 25, 2029 11,792,077
798,000 6 5/8s, September 15, 2009 750,495
258,911 6 1/2s, November 1, 2010 245,802
9,479,768 6s, with due dates from January 1, 2029 to
September 1, 2029 8,513,970
2,500,000 Government National Mortgage Association
8s, TBA, June 1, 2030 2,504,300
Government National Mortgage Association
Pass-Through Certificates
613,630 8 1/2s, with due dates from October 15, 2017 to
November 15, 2017 626,245
5,778,936 8s, with due dates from December 15, 2022 to
December 15, 2027 5,787,953
4,182,500 7s, with due dates from August 15, 2023 to
December 15, 2028 4,020,618
96,085 6 1/2s, September 15, 2024 89,870
----------------
40,036,172
U.S. Treasury Obligations (0.4%)
-------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
395,000 6 1/2s, November 15, 2026 405,120
1,025,000 6 1/4s, May 15, 2030 1,057,513
3,760,000 6 1/8s, November 15, 2027 (SEG) 3,683,033
U.S. Treasury Notes
1,610,000 6 1/2s, February 15, 2010 1,633,651
129,000 5 7/8s, November 15, 2004 125,413
773,000 U. S. Treasury Interest Strip zero %, May 15, 2026 159,655
----------------
7,064,385
----------------
Total U.S. Government and Agency Obligations
(cost $47,676,667) $ 47,100,557
COLLATERALIZED MORTGAGE OBLIGATIONS (0.7%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 6,067,858 Commercial Mortgage Asset Trust Ser. 99-C1,
Class X, Interest Only (IO), 0.91s, 2020 $ 374,264
110,000 CS First Boston Mortgage Securities Corp.
Ser. 99-C1, Class F, 8.18s, 2009 102,403
616,759 DLJ Commercial Mortgage Corp. Ser. 98-CG1,
Class A1A, 6.11s, 2007 580,717
Fannie Mae Strip
661,253 Ser. 241, Class 2, IO, 8 1/2s, 2023 196,309
816,371 Ser. 251, Class 2, IO, 8s, 2023 264,555
398,405 Ser. 237, Class 2, IO, 8s, 2023 127,739
361,361 Ser. 217, Class 2, IO, 8s, 2023 111,118
721,580 Ser. 203, Class 2, IO, 8s, 2023 233,837
129,608 Ser. 176, Class 2, IO, 8s, 2022 39,855
730,532 Ser. 218, Class 2, IO, 7.5s, 2023 235,026
633,819 Ser. 276, Class 2, IO, 6.5s, 2024 199,059
278,861 Ser. 304, Class 2, IO, 6s, 2028 81,567
774,003 Ser. 97-91, Class SL, IO, 4.15s, 2023 58,050
1,100,722 Ser. 97-92, Class SM, IO, 3.256s, 2022 81,350
2,854,912 Ser. 252, Class 2, IO, 3.195s, 2023 932,307
1,122,368 Ser. 97-91, Class FB, IO,3.155s, 2023 267,965
1,070,725 Ser. 98-66, Class SB, IO, 2.02s, 2028 42,829
Freddie Mac
1,477,004 Ser. 1786, Class C, IO, 7s, 2022 65,311
673,000 Ser. 2028, Class SG, IO, 6.78s, 2023 307,898
1,447,539 Ser. 2090, Class SA, IO, 2.2775s, 2028 64,008
1,334,995 Ser. 2090, Class SD, IO,2.2775s, 2028 59,032
1,455,448 Ser. 2090, Class SB, IO, 2.2775s, 2022 64,358
270,000 GE Capital Mortgage Services, Inc. Ser. 98-11, Class 2A4,
6 3/4s, 2028 247,271
General Growth Properties-Homart
85,000 Ser. 99-C1, Class G, 8.089s, 2003 85,418
100,000 Ser. 99-C1, Class F, 7.839s, 2003 100,496
436,000 General Growth Properties-Ivanhoe Ser. 99-C1, Class F,
8.962s, 2004 437,073
Government National Mortgage Association
235,490 Ser. 99-30, Class SG, 10.05s, 2025 200,020
1,065,341 Ser. 00-17, Class SB, 9.55s, 2026 977,631
1,468,351 Ser. 99-46, Class SQ, IO,1.91s, 2027 67,911
935,193 Ser. 98-2, Principal Only (PO), Class EA, zero %, 2028 608,168
Housing Securities Inc.
25,938 Ser. 91-B, Class B6, 9s, 2006 25,792
263,106 Ser. 93-F, Class F9M2, 7s, 2023 246,086
16,664 Ser. 94-1, Class AB1, 6 1/2s, 2009 12,784
225,000 LB Commercial Conduit Mortgage Trust Ser. 99-C2, Class B,
7.425s, 2009 215,227
Merrill Lynch Mortgage Investors, Inc.
225,000 Ser. 96-C2, Class E, 6.96s, 2028 188,051
579,887 Ser. 98-C2, Class A1, 6.22s, 2030 553,339
3,733,010 Ser. 98-C2, Class IO, 1.4429s, 2030 254,311
220,493 Morgan Stanley Capital I Ser. 98-HF1, Class A1, 6.19s, 2007 209,434
Morgan Stanley Dean Witter Capital 1
100,000 Ser. 00, Class B, 7.638s, 2010 97,297
990,000 Ser. 00, Class A2, 7.57s, 2009 967,106
308,230 Mortgage Capital Funding, Inc. Ser. 98-MC1, Class A1,
6.417s, 2007 293,444
53,150 Prudential Home Mortgage Securities Ser. 92-25,
Class B3, 8s, 2022 50,243
Prudential Home Mortgage Securities 144A
71,795 Ser. 94-31, Class B3, 8s, 2009 68,676
433,373 Ser. 95-D, Class 5B, 7.54s, 2024 392,068
42,467 Ser. 93-31, Class B2, 6s, 2000 42,149
360,000 Residential Asset Securitization Trust Ser. 98-A12, Class A14,
8s, 2028 356,850
179,494 Ryland Mortgage Securities Corp. Ser. 94-7C, Class B2,
7.359s, 2025 167,659
730,461 TIAA Retail Commercial Mortgage Trust Ser. 99-1, Class A,
7.17s, 2032 707,180
----------------
Total Collateralized Mortgage Obligations
(cost $11,973,582) $ 12,061,241
ASSET-BACKED SECURITIES (0.1%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 193,000 Advanta Mortgage Loan Trust Ser. 00-1, Class A4, 8.61s, 2028 $ 194,772
495,000 Discover Card Master Trust I Ser. 00-5, Class A, 6.791s, 2007 495,000
2,410,000 Lehman Manufactured Housing Ser. 98-1, Class 1 IO,
0.82s, 2028 60,344
395,000 Mach One CDO, Ltd. Ser. 00-1, Class A, 6.7s, 2030 357,784
816,784 Structured Asset Security Corp. Ser. 99-RF1, Class A,
7.876s, 2028 806,064
----------------
Total Asset-Backed Securities (cost $1,968,316) $ 1,913,964
PREFERRED STOCKS (0.1%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
545 Centaur Funding Corp 144A 9.08% cum. pfd.
(Cayman Islands) $ 551,785
100 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 4,700
2,080 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 216,286
15 Fresenius Medical Capital Trust I Ser. D, company
guaranty, 9.00% pfd. (Germany) 13,838
80 Fresenius Medical Capital Trust II company guaranty,
7.875% pfd. (Germany) 70,800
5 Paxson Communications Corp.13.25% cum. pfd. (PIK) 48,250
440 Webster Financial 7.375% pfd. 436,479
20 WinStar Communications, Inc. 144A 14.25% cum. pfd. (PIK) 28,200
----------------
Total Preferred Stocks (cost $1,388,222) $ 1,370,338
FOREIGN GOVERNMENT BONDS AND NOTES (--%) (a) (cost $797,844)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
USD 805,000 Quebec (Province of) sr.unsub. 5 3/4s, 2009 $ 702,556
MUNICIPAL BONDS AND NOTES (--%) (a) (cost $708,773)
PRINCIPAL AMOUNT RATING (RAT) VALUE
-------------------------------------------------------------------------------------------------------------------
$ 705,000 CT Mashantucket Pequot Tribe 144A Rev. bonds
Ser. A, FSA, 6.57s, 2013 Aaa $ 602,987
CONVERTIBLE BONDS AND NOTES (--%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 30,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 $ 24,000
80,000 Western Digital Corp. cv. sub. deb. zero %, 2018 13,100
----------------
Total Convertible Bonds and Notes (cost $57,494) $ 37,100
WARRANTS (--%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
-------------------------------------------------------------------------------------------------------------------
1 Anker Coal Group, Inc. 144A 9/9/99 $ 1
10 Club Regina, Inc. 144A 12/1/04 1
10 McCaw International Ltd. 4/15/07 40
10 Sterling Chemicals Holdings 8/15/08 120
40 UIH Australia/Pacific, Inc. 144A 5/15/06 1,200
----------------
Total Warrants (cost $3,091) $ 1,362
SHORT-TERM INVESTMENTS (1.3%) (a) (cost $21,781,000)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 21,781,000 Interest in $455,458,000 joint repurchase agreement dated
May 31, 2000 with Salomon, Smith Barney Inc. due
June 1, 2000 with respect to various U.S. Treasury
obligations -- maturity value of $21,784,854 for an
effective yield of 6.37% $ 21,781,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,571,880,251) (b) $ 1,632,072,871
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,613,865,475.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at May 31, 2000 for the securities
listed. Ratings are generally ascribed to securities at the time of
issuance. While the agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings do not
necessarily represent what the agencies would ascribe to these
securities at May 31, 2000. Securities rated by Putnam are indicated by
"/P" and are not publicly rated.
(b) The aggregate identified cost on a tax basis is $1,579,613,157
resulting in gross unrealized appreciation and depreciation of
$167,461,471 and $115,001,757, respectively, or net unrealized
appreciation of $52,459,714.
(NON) Non-income-producing security.
(STP) The interest or dividend rate and date shown parenthetically
represent the new interest or dividend rate to be paid and the date the
fund will begin receiving interest or dividend income at this rate.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at May 31,
2000.
(R) Real Estate Investment Trust.
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.
ADR after the name of a foreign holding stands for American
Depositary Receipts representing ownership of foreign securities on
deposit with a domestic custodian bank.
TBA after the name of a security represents to be announced
securities (Note 1).
FSA represents Financial Security Corporation.
----------------------------------------------------------------------------
Futures Contracts Outstanding at May 31, 2000
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
----------------------------------------------------------------------------
U. S. Treasury Bond
10 year (Short) $2,516,313 $2,480,681 Sep-00 $(35,632)
U. S. Treasury Bond
5 year (Short) 7,417,125 7,364,415 Sep-00 (52,710)
U. S. Treasury Bond
(Short) 4,876,875 4,778,640 Sep-00 (98,235)
----------------------------------------------------------------------------
$(186,577)
----------------------------------------------------------------------------
TBA Sale Commitments at May 31, 2000
(Procceds receivable $9,888,050)
Principal Settlement Market
Amount Date Value
----------------------------------------------------------------------------
FHLMC 6s, June 2030 $1,690,000 6/14/00 $1,519,953
FNMA, 6s, June 2030 9,410,000 6/14/00 8,451,403
----------------------------------------------------------------------------
$9,971,356
----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2000 (Unaudited)
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,571,880,251) (Note 1) $1,632,072,871
-------------------------------------------------------------------------------------------
Cash 81,910
-------------------------------------------------------------------------------------------
Dividends and interest receivable 5,189,711
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,621,858
-------------------------------------------------------------------------------------------
Receivable for securities sold 38,817,928
-------------------------------------------------------------------------------------------
Total assets 1,677,784,278
Liabilities
-------------------------------------------------------------------------------------------
Payable for securities purchased 43,247,019
-------------------------------------------------------------------------------------------
Payable for variation margin 89,750
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 7,171,638
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,234,004
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 180,110
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 31,973
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,915
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 880,915
-------------------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable $9,888,050) 9,971,356
-------------------------------------------------------------------------------------------
Other accrued expenses 109,123
-------------------------------------------------------------------------------------------
Total liabilities 63,918,803
-------------------------------------------------------------------------------------------
Net assets $1,613,865,475
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,577,169,215
-------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 2,228,847
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (25,496,352)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign currencies 59,963,765
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,613,865,475
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,021,369,364 divided by 72,677,760 shares) $14.05
-------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $14.05)* $14.91
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($491,586,253 divided by 35,253,972 shares)** $13.94
-------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($12,962,173 divided by 925,233 shares)** $14.01
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($51,575,598 divided by 3,694,244 shares) $13.96
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $13.96)* $14.47
-------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($36,372,087 divided by 2,588,159 shares) $14.05
-------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Six months ended May 31, 2000 (Unaudited)
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $66,989) $ 18,152,223
-------------------------------------------------------------------------------------------
Interest 5,442,548
-------------------------------------------------------------------------------------------
Total investment income 23,594,771
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,626,522
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,165,951
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 26,587
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 8,437
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,288,943
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,642,026
-------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 62,180
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 198,591
-------------------------------------------------------------------------------------------
Reports to shareholders 26,078
-------------------------------------------------------------------------------------------
Auditing 12,702
-------------------------------------------------------------------------------------------
Legal 6,297
-------------------------------------------------------------------------------------------
Postage 73,305
-------------------------------------------------------------------------------------------
Other 166,761
-------------------------------------------------------------------------------------------
Total expenses 10,304,380
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (219,763)
-------------------------------------------------------------------------------------------
Net expenses 10,084,617
-------------------------------------------------------------------------------------------
Net investment income 13,510,154
-------------------------------------------------------------------------------------------
Net realized loss on investments (Note 1) (18,736,084)
-------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 104,339
-------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities
in foreign currencies during the period 41,025
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures,
and TBA sales during the period (12,229,278)
-------------------------------------------------------------------------------------------
Net loss on investments (30,819,998)
-------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(17,309,844)
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
May 31 November 30
2000* 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 13,510,154 $ 26,768,677
--------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments
and foreign currency transactions (18,631,745) 181,896,290
--------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments
and assets and liabilities in foreign currencies (12,188,253) (143,113,838)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (17,309,844) 65,551,129
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income
Class A (10,224,920) (17,719,087)
--------------------------------------------------------------------------------------------------
Class B (3,202,917) (4,968,406)
--------------------------------------------------------------------------------------------------
Class C (75,504) (69,861)
--------------------------------------------------------------------------------------------------
Class M (386,186) (624,961)
--------------------------------------------------------------------------------------------------
Class Y (465,709) (761,783)
--------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (109,248,324) (103,679,729)
--------------------------------------------------------------------------------------------------
Class B (60,599,603) (60,328,299)
--------------------------------------------------------------------------------------------------
Class C (1,285,037) --
--------------------------------------------------------------------------------------------------
Class M (5,774,239) (5,589,694)
--------------------------------------------------------------------------------------------------
Class Y (4,616,630) (901,628)
--------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (78,195,159) 212,044,427
--------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (291,384,072) 82,952,108
Net assets
--------------------------------------------------------------------------------------------------
Beginning of period 1,905,249,547 1,822,297,439
--------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $2,228,847 and $3,073,929, respectively) $1,613,865,475 $1,905,249,547
--------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS A
-------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share May 31
operating performance (Unaudited) Year ended November 30
-------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $15.76 $16.94 $16.04 $13.29 $10.93 $8.49
-------------------------------------------------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------------------------------------------------
Net investment income .13(c) .26(c) .27(c) .30 .31 .32
-------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.18) .37 1.68 2.74 2.37 2.44
-------------------------------------------------------------------------------------------------------------
Total from
investment operations (.05) .63 1.95 3.04 2.68 2.76
-------------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------------
From net
investment income (.14) (.24) (.28) (.29) (.32) (.32)
-------------------------------------------------------------------------------------------------------------
From net
realized gains (1.52) (1.57) (.77) -- -- --
-------------------------------------------------------------------------------------------------------------
Total distributions (1.66) (1.81) (1.05) (.29) (.32) (.32)
-------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.05 $15.76 $16.94 $16.04 $13.29 $10.93
-------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) .08* 4.16 12.91 23.15 24.96 33.17
-------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,021,369 $1,150,143 $1,114,690 $878,766 $566,133 $391,551
-------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .49* .94 .99 1.06 1.09 1.13
-------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .94* 1.62 1.68 2.02 2.61 3.32
-------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 44.58* 112.36 94.77 82.48 67.56 70.39
-------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS B
-------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share May 31
operating performance (Unaudited) Year ended November 30
-------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $15.64 $16.83 $15.95 $13.23 $10.89 $8.46
-------------------------------------------------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------------------------------------------------
Net investment income .08(c) .14(c) .15(c) .19 .21 .23
-------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.18) .36 1.66 2.73 2.37 2.46
-------------------------------------------------------------------------------------------------------------
Total from
investment operations (.10) .50 1.81 2.92 2.58 2.69
-------------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------------
From net
investment income (.08) (.12) (.16) (.20) (.24) (.26)
-------------------------------------------------------------------------------------------------------------
From net
realized gains (1.52) (1.57) (.77) -- -- --
-------------------------------------------------------------------------------------------------------------
Total distributions (1.60) (1.69) (.93) (.20) (.24) (.26)
-------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.94 $15.64 $16.83 $15.95 $13.23 $10.89
-------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (.27)* 3.34 12.04 22.24 24.06 32.30
-------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $491,586 $631,736 $638,660 $463,506 $221,259 $83,646
-------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .87* 1.69 1.74 1.81 1.84 1.87
-------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .56* .87 .95 1.25 1.86 2.63
-------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 44.58* 112.36 94.77 82.48 67.56 70.39
-------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
</TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS C
----------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 Feb. 1, 1999+
operating performance (Unaudited) to Nov. 30
----------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------
Net asset value,
beginning of period $15.71 $15.76
----------------------------------------------------------------------
Investment operations
----------------------------------------------------------------------
Net investment income (c) .08 .13
----------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.17) (.02)
----------------------------------------------------------------------
Total from
investment operations (.09) .11
----------------------------------------------------------------------
Less distributions:
----------------------------------------------------------------------
From net
investment income (.09) (.16)
----------------------------------------------------------------------
From net
realized gains (1.52) --
----------------------------------------------------------------------
Total distributions (1.61) (.16)
----------------------------------------------------------------------
Net asset value,
end of period $14.01 $15.71
----------------------------------------------------------------------
Ratios and supplemental data
----------------------------------------------------------------------
Total return at
net asset value (%)(a) (0.25)* .68*
----------------------------------------------------------------------
Net assets, end of period
(in thousands) $12,962 $13,092
----------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .87* 1.40*
----------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .57* .74*
----------------------------------------------------------------------
Portfolio turnover (%) 44.58* 112.36
----------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS M
---------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 Dec. 2, 1994+
operating performance (Unaudited) Year ended November 30 to Nov. 30
---------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $15.66 $16.85 $15.96 $13.23 $10.89 $8.45
---------------------------------------------------------------------------------------------------------------
Investment operations
---------------------------------------------------------------------------------------------------------------
Net investment income .09(c) .18(c) .19(c) .23 .25 .28(c)
---------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.17) .36 1.67 2.73 2.36 2.45
---------------------------------------------------------------------------------------------------------------
Total from
investment operations (.08) .54 1.86 2.96 2.61 2.73
---------------------------------------------------------------------------------------------------------------
Less distributions:
---------------------------------------------------------------------------------------------------------------
From net
investment income (.10) (.16) (.20) (.23) (.27) (.29)
---------------------------------------------------------------------------------------------------------------
From net
realized gains (1.52) (1.57) (.77) -- -- --
---------------------------------------------------------------------------------------------------------------
Total distributions (1.62) (1.73) (.97) (.23) (.27) (.29)
---------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.96 $15.66 $16.85 $15.96 $13.23 $10.89
---------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------------------------------------------------------
Total return
at net asset value (%)(a) (.13)* 3.60 12.35 22.58 24.35 32.89*
---------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $51,576 $60,128 $58,891 $48,884 $22,254 $7,051
---------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .74* 1.44 1.49 1.56 1.59 1.60*
---------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .69* 1.12 1.17 1.50 2.11 2.99*
---------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 44.58* 112.36 94.77 82.48 67.56 70.39
---------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
</TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS Y
----------------------------------------------------------------------------
Six months For the
ended Year period
Per-share May 31 ended Oct. 1, 1998+
operating performance (Unaudited) Nov. 30 to Nov. 30
----------------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------
Net asset value,
beginning of period $15.76 $16.94 $14.88
----------------------------------------------------------------------------
Investment operations
----------------------------------------------------------------------------
Net investment income (c) .15 .31 .05
----------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.18) .36 2.01
----------------------------------------------------------------------------
Total from
investment operations (.03) .67 2.06
----------------------------------------------------------------------------
Less distributions:
----------------------------------------------------------------------------
From net
investment income (.16) (.28) --
----------------------------------------------------------------------------
From net
realized gains (1.52) (1.57) --
----------------------------------------------------------------------------
Total distributions (1.68) (1.85) --
----------------------------------------------------------------------------
Net asset value,
end of period $14.05 $15.76 $16.94
----------------------------------------------------------------------------
Ratios and supplemental data
----------------------------------------------------------------------------
Total return at
net asset value (%)(a) .21* 4.42 13.84*
----------------------------------------------------------------------------
Net assets, end of period
(in thousands) $36,372 $50,150 $10,057
----------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .37* .69 .12*
----------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.06* 1.87 .33*
----------------------------------------------------------------------------
Portfolio turnover (%) 44.58* 112.36 94.77
----------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
NOTES TO FINANCIAL STATEMENTS
May 31, 2000 (Unaudited)
Note 1
Significant accounting policies
Putnam Equity Income Fund (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, class C, class M and class Y shares.
Class A shares are sold with a maximum front-end sales charge of 5.75%.
Class B shares, which convert to class A shares after approximately
eight years, do not pay a front-end sales charge but pay a higher
ongoing distribution fee than class A shares, and are subject to a
contingent deferred sales charge, if those shares are redeemed within
six years of purchase. Class C shares are subject to the same fees and
expenses as class B shares, except that class C shares have a one-year,
1.00% contingent deferred sales charge and do not convert to class A
shares. Class M shares are sold with a maximum front end sales charge of
3.50% and pay an ongoing distribution fee that is higher than class A
shares but lower than class B and class C shares. Class Y shares, which
are sold at net asset value, are generally subject to the same expenses
as class A, class B, class C and class M shares, but do not bear a
distribution fee. Class Y shares are sold to defined contribution plans
that invest at least $150 million in a combination of Putnam funds and
other accounts managed by affiliates of Putnam Investment Management,
Inc. ("Putnam Management"), the fund's manager, a wholly-owned
subsidiary of Putnam Investments, Inc.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if that fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sales price on its principal exchange, or if no sales
are reported -- as in the case of some securities traded
over-the-counter -- the last reported bid price. Securities quoted in
foreign currencies are translated into U.S. dollars at the current
exchange rate. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates market
value. Other investments, including restricted securities, are stated at
fair value following procedures approved by the Trustees. Market
quotations are not considered to be readily available for certain debt
obligations; such investments are stated at fair value on the basis of
valuations furnished by a pricing service or dealers, approved by the
Trustees, which determine valuations for normal institutional-size
trading units of such securities, using methods based on market
transactions for comparable securities and variable relationships
between securities that are generally recognized by institutional
traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Management. These balances may be invested in one or more
repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is, at all
times, at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Gains or losses on securities sold are determined
on the identified cost basis.
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
discount bonds, stepped-coupon bonds and payment-in-kind bonds are
accreted according to the yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and 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 gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
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 appreciation and depreciation of assets and
liabilities in foreign currencies 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. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments and currency fluctuations, not present with domestic
investments.
F) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. 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. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
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 .01% 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.
Income on the securities will not be earned until settlement date. 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, 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 their 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) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale
commitments are not received until the contractual settlement date.
During the time a TBA sale commitment is outstanding, equivalent
deliverable securities, or an offsetting TBA purchase commitment
deliverable on or before the sale commitment date, are held as "cover"
for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures
described under "Security valuation" above. The contract is
"marked-to-market" daily and the change in market value is recorded by
the fund as an unrealized gain or loss. If the TBA sale commitment is
closed through the acquisition of an offsetting purchase commitment, the
fund realizes a gain or loss. If the fund delivers securities under the
commitment, the fund realizes a gain or a loss from the sale of the
securities based upon the unit price established at the date the
commitment was entered into.
I) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the six months
ended May 31, 2000, the fund had no borrowings against the line of
credit.
J) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
K) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution(or available capital
loss carryovers) under income tax regulations.
Note 2
Management fees, administrative
services, and other transactions
Compensation of Putnam Management, for management and investment
advisory services, is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.65% of the
first $500 million of average net assets, 0.55% of the next $500
million, 0.50% of the next $500 million, 0.45% of the next $5 billion,
0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of
the next $5 billion, and 0.38% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
For the six months ended May 31, 2000, fund expenses were reduced by
$219,763 under expense-offset arrangements with PFTC and brokerage
service arrangements. Investor servicing and custodian fees reported in
the Statement of operations exclude these credits. The fund could have
invested a portion of the assets utilized in connection with the
expense-offset arrangements in an income-producing asset if it had not
entered into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $1,813
has been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B, class C 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 Retail Management, Inc., 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 Retail Management, Inc. at an annual rate up to
0.35%, 1.00%, 1.00% and 1.00% of the average net assets attributable to
class A, class B, class C and class M shares, respectively. The Trustees
have approved payment by the fund at an annual rate of 0.25%, 1.00%,
1.00% and 0.75% of the average net assets attributable to class A, class
B, class C and class M shares, respectively.
For the six months ended May 31, 2000, Putnam Retail Management, Inc.,
acting as underwriter received net commissions of $156,314 and $4,413
from the sale of class A and class M shares, respectively and received
$809,378 and $5,071 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. A deferred
sales charge of up to 1% is assessed on certain redemptions of class A
shares. For the six months ended May 31, 2000, Putnam Retail Management,
Inc., acting as underwriter received $12,843 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended May 31, 2000, cost of purchases and proceeds
from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $704,954,666 and
$941,775,763, respectively. Purchases and sales of U.S. government
obligations aggregated $34,039,465 and $45,445,993, respectively.
Note 4
Capital shares
At May 31, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended May 31, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 13,316,462 $181,701,264
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 7,826,025 106,362,776
---------------------------------------------------------------------------
21,142,487 288,064,040
Shares
repurchased (21,439,660) (290,082,097)
---------------------------------------------------------------------------
Net decrease (297,173) $ (2,018,057)
---------------------------------------------------------------------------
Year ended November 30, 1999
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 20,484,164 $334,716,616
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,956,676 106,810,307
---------------------------------------------------------------------------
27,440,840 441,526,923
Shares
repurchased (20,271,579) (327,129,219)
---------------------------------------------------------------------------
Net increase 7,169,261 $114,397,704
---------------------------------------------------------------------------
Six months ended May 31, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 6,198,099 $ 84,144,928
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,227,134 57,104,297
---------------------------------------------------------------------------
10,425,233 141,249,225
Shares
repurchased (15,552,246) (208,782,525)
---------------------------------------------------------------------------
Net increase
(decrease) (5,127,013) $(67,533,300)
---------------------------------------------------------------------------
Year ended November 30, 1999
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 13,026,617 $212,072,816
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,804,438 57,860,671
---------------------------------------------------------------------------
16,831,055 269,933,487
Shares
repurchased (14,403,076) (232,778,684)
---------------------------------------------------------------------------
Net increase 2,427,979 $ 37,154,803
---------------------------------------------------------------------------
Six months ended May 31, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 296,740 $4,067,182
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 89,212 1,211,225
---------------------------------------------------------------------------
385,952 5,278,407
Shares
repurchased (293,841) (3,951,358)
---------------------------------------------------------------------------
Net increase 92,111 $1,327,049
---------------------------------------------------------------------------
For the period February 1, 1999
(commencement of operations)
to November 30, 1999
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 905,363 $14,899,584
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,748 61,338
---------------------------------------------------------------------------
909,111 14,960,922
Shares
repurchased (75,989) (1,215,419)
---------------------------------------------------------------------------
Net increase 833,122 $13,745,503
---------------------------------------------------------------------------
Six months ended May 31, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 436,910 $ 5,912,324
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 432,083 5,840,040
---------------------------------------------------------------------------
868,993 11,752,364
Shares
repurchased (1,013,523) (13,517,267)
---------------------------------------------------------------------------
Net decrease (144,530) $(1,764,903)
---------------------------------------------------------------------------
Year ended November 30, 1999
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 927,838 $15,031,937
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 383,333 5,841,338
---------------------------------------------------------------------------
1,311,171 20,873,275
Shares
repurchased (968,007) (15,612,398)
---------------------------------------------------------------------------
Net increase 343,164 $ 5,260,877
---------------------------------------------------------------------------
Six months ended May 31, 2000
---------------------------------------------------------------------------
Class Y Shares Amount
---------------------------------------------------------------------------
Shares sold 974,449 $13,082,229
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 372,921 5,082,339
---------------------------------------------------------------------------
1,347,370 18,164,568
Shares
repurchased (1,940,475) (26,370,516)
---------------------------------------------------------------------------
Net decrease (593,105) $(8,205,948)
---------------------------------------------------------------------------
Year ended November 30, 1999
---------------------------------------------------------------------------
Class Y Shares Amount
---------------------------------------------------------------------------
Shares sold 3,670,704 $59,127,489
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 105,874 1,663,411
---------------------------------------------------------------------------
3,776,578 60,790,900
Shares
repurchased (1,188,904) (19,305,360)
---------------------------------------------------------------------------
Net increase 2,587,674 $41,485,540
---------------------------------------------------------------------------
FUND INFORMATION
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Deborah F. Kuenstner
Vice President
David L. King
Vice President and Fund Manager
Jeanne L. Mockard
Vice President and Fund Manager
James M. Prusko
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
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.
You can also learn more at Putnam Investments' Web site: www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board,
or any other agency; and involve risk, including the possible loss of
the principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
SA020-62263 012/192/626 7/00
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
---------------------------------------------------------------------------
Putnam Equity Income Fund
Supplement to Semiannual Report dated 5/31/00
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to defined contribution plans investing $150 million or
more in one or more of Putnam's funds or private accounts. Performance of
class Y shares, which incur neither a front-end load, distribution fee, nor
contingent deferred sales charge, will differ from performance of class A,
B, C, and M shares, which are discussed more extensively in the semiannual
report.
ANNUAL RESULTS AT A GLANCE
---------------------------------------------------------------------------
Total return: NAV
Six months ended 5/31/00 0.21%
1 year -5.75
5 years 105.77
Annual average 15.52
10 years 240.00
Annual average 13.02
Life of class (since 6/15/77) 1245.45
Annual average 11.99
---------------------------------------------------------------------------
Share value: NAV
11/30/99 $15.76
5/31/00 $14.05
---------------------------------------------------------------------------
Capital gains
Distributions: No. Income Short-term Long-term Total
11/30/99-5/31/00 2 $0.159 $0.395 $1.123 $1.677
---------------------------------------------------------------------------
Please note that past performance does not indicate future results. Returns
shown for class Y shares for periods prior to their inception are derived
from the historical performance of class A shares, adjusted to reflect the
initial sales charge currently applicable to class A shares. These returns
have not been adjusted to reflect differences in operating expenses which,
for class Y shares, are lower than the operating expenses applicable to
class A shares. All returns assume reinvestment of distributions at net
asset value. Performance data reflects an expense limitation previously in
effect. Without the expense limitation, total returns would have been
lower. Investment return and principal value will fluctuate so your shares,
when redeemed, may be worth more or less than their original cost. See full
report for information on comparative benchmarks. If you have questions,
please consult your fund prospectus or call Putnam toll free at
1-800-752-9894.
