<PAGE>
Putnam
Dividend
Growth
Fund
SEMIANNUAL REPORT
August 31, 1994
[LOGO OF PUTNAM DIVIDEND GROWTH FUND APPEARS HERE]
BOSTON * LONDON * TOKYO
<PAGE>
PERFORMANCE HIGHLIGHTS
"A change in market sentiment in favor of attractively priced, consistent
performers with sound managements and financials could benefit the fund's
performance going forward."
- -- Michael R. Mach, Fund Manager
Performance should always be considered in light of a fund's investment
strategy. Putnam Dividend Growth Fund is designed for investors seeking
current income and capital growth through common stocks with potential for
above-average dividend increases.
SEMIANNUAL RESULTS AT A GLANCE
<TABLE>
<CAPTION>
CLASS A CLASS B
<S> <C> <C> <C> <C> <C>
TOTAL RETURN: NAV POP NAV CDSC
- ----------------------------------------------------------------------------
6 months ended 8/31/94
(change in value during
period plus reinvested
distributions) 3.09% -2.81% 2.46% 2.54%
- ----------------------------------------------------------------------------
SHARE VALUE: NAV POP NAV
2/28/94 $9.88 $10.48 $9.85
8/31/94 10.04 10.65 9.98
- ----------------------------------------------------------------------------
DISTRIBUTIONS: NO. INCOME TOTAL
Class A 2 $0.140 $0.140
Class B 2 0.109 0.109
- ----------------------------------------------------------------------------
CURRENT RETURN: NAV POP NAV
(end of period)
Current dividend rate/1/ 2.79% 2.63% 2.12%
Current 30-day SEC yield/2/ 2.18 2.05 1.46
- ----------------------------------------------------------------------------
</TABLE>
Performance data represent past results. For performance over longer periods,
see pages 8 and 9. POP assumes 5.75% maximum sales charge. CDSC assumes 5%
maximum contingent deferred sales charge. /1/Income portion of most recent
distribution, annualized and divided by NAV or POP at end of period. /2/Based
only on investment income, calculated using SEC guidelines.
2
<PAGE>
FROM THE CHAIRMAN
[PHOTO APPEARS HERE]
(C) KARSH, OTTAWA
DEAR SHAREHOLDER:
BY THE TIME YOU RECEIVE THIS REPORT, 1994 WILL BE WELL INTO THE FINAL QUARTER OF
WHAT IS PROVING TO BE ANYTHING BUT A QUIET YEAR ON THE INVESTMENT FRONT. THE
STOCK MARKET, WHERE YOUR FUND CONCENTRATES VIRTUALLY ALL OF ITS ATTENTION, HAS
BEEN ESPECIALLY ERRATIC, WITH UNMISTAKABLE EFFECTS ON FUND PERFORMANCE FOR THE
SIX MONTHS ENDED AUGUST 31, 1994.
THE MARKETS' RESPONSE TO A SERIES OF INCREASES IN SHORT-TERM INTEREST RATES BY
THE FEDERAL RESERVE BOARD HAS DOMINATED THE HEADLINES IN THE FINANCIAL PRESS
SINCE FEBRUARY. STOCKS DRIFTED STEADILY LOWER DURING THE PERIOD, FINALLY SHOWING
SOME SIGNS OF LIFE AS SEPTEMBER APPROACHED.
CONTINUED VOLATILITY, RATHER THAN A NEW SUSTAINED RISE, IS THE PROBABLE COURSE
FOR STOCKS OVER THE MONTHS IMMEDIATELY AHEAD. THE FED WILL LIKELY CONTINUE ITS
TIGHT REIN ON CREDIT UNTIL IT IS CONVINCED THAT THE ECONOMY'S GROWTH HAS
ACHIEVED A SUSTAINABLE RATE AND INFLATION FEARS HAVE BEEN PUT TO REST.
IN THE REPORT THAT FOLLOWS, FUND MANAGER MICHAEL MACH EXPLAINS HOW YOUR FUND'S
MANAGEMENT TEAM RESPONDED TO THE CHALLENGES OF 1994 AND WHAT IT SEES IN STORE
FOR THE PERIOD AHEAD.
RESPECTFULLY YOURS,
/s/ George Putnam
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
OCTOBER 19, 1994
3
<PAGE>
REPORT FROM THE FUND MANAGER
MICHAEL R. MACH
Putnam Dividend Growth Fund's portfolio blend of large, midsized, and small
company stocks that sell at reasonable valuations and offer above-average,
consistent growth benefited by a change in market sentiment during the first
half of its fiscal year. The market's shift from a speculative to a more
conservative outlook helped the fund produce a respectable 3.09% total return at
net asset value for class A shares for the six months ended August 31, 1994.
The return was only slightly lower than the 3.29% of the Standard & Poor's /(R)/
500 Index and well ahead of the -2.34% of the Russell 2000 Small Stock Index. We
have chosen to include the Russell 2000 as one of the fund's benchmark indexes
because about 25% of the fund's assets are now invested in the stocks of small
companies. Performance of smaller-capitalization stocks is best represented by
this Russell index. For more detail on fund results, see the tables on pages 2
and 8.
STRATEGY: MORE FINANCIAL STOCKS, FEWER UTILITIES
The fund's above-average weighting in financial stocks relative to the S&P 500
paid dividends, both literally and figuratively. The securities of banks,
insurance companies, and other financially oriented organizations made up about
25% of the portfolio at period's end.
In the bank sector we prefer small regional banks to large national and
international banking organizations. We are particularly attracted to
institutions with strong financial characteristics and leading market shares in
the geographic areas where they compete. We also seek out banks where
managements are also significant shareholders. Such banks are often attractive
and willing takeover candidates in the consolidating banking industry.
Our view is that these smaller, more tightly managed institutions represent the
best potential for dividend growth and overall total return. Small regional
banks like CCB Financial and larger and
4
<PAGE>
growing "super" regionals like Comerica made a major contribution to the fund's
results during the period.
CCB Financial's stock was up more than 27% during the fund's fiscal period. In
June the Durham, North Carolina-based company raised its dividend by 6%; the
stock now provides a current yield of more than 3%. Stock of Comerica was up
nearly 15% during the period. This large regional bank, based in Michigan, with
branches in California, Florida, Ohio, and Texas, raised its dividend by 14% in
June. Its stock has provided a current yield above 4%.
We continue to maintain a low weighting in utility stocks, a move that made its
own contribution to the fund's positive results. Utility stocks tend to be slow-
growing, high-yielding investments which, like bonds, are typically held by
investors seeking current income. As a result, their prices are closely tied to
the bond market. So when rates rise, the dividends paid on utility stocks, like
the interest paid on bonds, generally become less attractive -- and prices fall.
This is exactly what happened to utility stock prices during the period. By
having limited exposure to this sector, we were able to lessen the impact of its
negative returns on the fund's results.
PORTFOLIO ALLOCATION*
as of August 31, 1994
[PIE CHART APPEARS HERE]
Piechart Allocation Breakdown
-------- ---------- ---------
<TABLE>
<C> <S>
7.4% Capital goods
24.7% Financial+
32.5% Consumer nondurables
4.8% Consumer durables
1.0% Technology
2.3% Transportation
5.3% Basic industrial
7.6% Miscellaneous
7.2% Utilities
</TABLE>
* Reflects common stock portfolio, based on percentages of net assets as of
8/31/94.
+ Includes real estate investment trusts.
5
<PAGE>
In recent weeks, we have started to take some profits by trimming positions of
bank stocks held in the portfolio. Proceeds from these sales are being used to
take advantage of select opportunities in the depressed utility sector and to
expand on the fund's existing investment theme of owning U.S.-based companies
with substantial global opportunities.
GLOBAL POSITIONING THROUGH U.S.-BASED COMPANIES
Recoveries in non-U.S. economies are beginning to follow the recovery we have
been enjoying in this country for the past several years. To take advantage of
these worldwide economic trends while minimizing the currency risk and financial
reporting risk normally associated with foreign investing, we have been
increasing the portfolio's exposure to U.S.-based companies that derive
substantial portions of their income from foreign operations.
In last year's annual report, we highlighted Minnesota Mining & Manufacturing
Co., Dun & Bradstreet, and AMP Inc. as globally oriented U.S. companies. Since
then we sold the fund's AMP holdings at a healthy profit but have built on our
global economic recovery theme with the addition of companies like Lawter
International, Dexter Corp., NALCO Chemical, and Witco Chemical. Each of these
U.S.-based specialty chemical companies has substantial exposure to growing
international markets.
VALUE, CONSISTENT GROWTH, FINANCIAL STRENGTH
We believe the companies that the fund emphasizes in its portfolio possess
increased potential for raising their dividends at above-average rates. Fund
holdings can be large companies like General Electric, midsize companies like
Genuine Parts (NAPA auto stores), or small companies like Luby's Cafeterias, a
Texas-based restaurant chain.
The willingness of corporate managements to repurchase shares of outstanding
stock of their companies is an indication of reasonable valuation as well as
financial strength. Repurchase programs also help support companies' stock
prices in unsettled markets. All of the companies included in the table and many
others in the portfolio are actively repurchasing shares.
6
<PAGE>
SELECTED DIVIDEND AND EARNINGS PERFORMANCE
<TABLE>
<CAPTION>
NET ACTIVE INCREASE IN INCREASE IN
DEBT AS SHARE EARNS./SHARE, DIVIDENDS,
A PERCENT REPURCHASE PAST 10 PAST 10
OF ASSETS PROGRAMS YEARS YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LARGE COMPANIES
- ----------------------------------------------------------------------------------------------
GENERAL ELECTRIC 51.8% YES 10 OF 10 10 OF 10
- ----------------------------------------------------------------------------------------------
MINNESOTA MINING & MFG. 11.3 YES 8 OF 10 10 OF 10
- ----------------------------------------------------------------------------------------------
MIDSIZED COMPANIES
- ----------------------------------------------------------------------------------------------
GENUINE PARTS COMPANY 0 YES 10 OF 10 10 OF 10
- ----------------------------------------------------------------------------------------------
H & R BLOCK 0 YES 10 OF 10 10 OF 10
- ----------------------------------------------------------------------------------------------
SMALL COMPANIES
- ----------------------------------------------------------------------------------------------
LUBY'S CAFETERIAS 0 YES 10 OF 10 10 OF 10
- ----------------------------------------------------------------------------------------------
STANHOME INC. 0 YES 8 OF 10 10 OF 10
- ----------------------------------------------------------------------------------------------
</TABLE>
Companies shown here represented 8.2% of the funds net assets as of 8/31/94.
When seeking holdings for your fund, we look for companies that have well-
established patterns of steady growth in earnings per share and dividends.
Companies that are carrying little or no debt and companies that are actively
buying back their own shares often possess strong financial attributes, as well.
Here is a sampling of large, midsized, and small companies in the fund's
portfolio.
Historically, investing in smaller companies has provided better overall returns
than investing exclusively in larger companies. Despite the possibility of
higher potential returns from small-company investing, many investors shy away
from them because of the greater risk that generally accompanies such investing.
We believe the fund's focus on value, consistent growth, and sound financials
provides an opportunity to participate in this attractive market sector while
helping to reduce the risks normally associated with this strategy.
OUTLOOK: EMERGING MARKET TREND FAVORS FUND
As the U.S. business cycle starts to mature and interest rates start to trend
higher, investors are beginning to seek alternatives to cyclical stocks and
interest-rate-sensitive investments. Given the recent underperformance of the
Russell 2000 versus the S&P 500, we also believe many of the smaller companies
held in the portfolio could be about to enter a period of superior relative
performance. In this environment, we believe the outlook for your fund is
extremely favorable.
The opinions expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of August 31, 1994, there is no guarantee the fund will continue to
hold these securities in the future.
7
<PAGE>
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's performance.
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions back into the fund. We show total return in two ways: on a
cumulative long-term basis and on average how the fund might have grown each
year over varying periods. For comparative purposes, we show how the fund
performed relative to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 8/31/94
<TABLE>
<CAPTION>
Russell
Class A Class B S&P 2000
NAV POP NAV CDSC 500 Index Index
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 months 3.09% -2.81% 2.46% -2.54% 3.29% -2.34%
- ------------------------------------------------------------------------------------
1 year 4.99 -1.00 4.13 -0.60 5.51 5.87
- ------------------------------------------------------------------------------------
3 years 23.67 16.60 -- -- 31.19 50.55
Annual average 7.34 5.25 -- -- 9.47 14.61
- ------------------------------------------------------------------------------------
Life of Class A 50.26 41.60 -- -- 64.69 76.56
Annual average 9.49 8.05 -- -- 11.75 13.50
- ------------------------------------------------------------------------------------
Life of class B -- -- 6.66 2.78 8.56 11.97
Annual average -- -- 5.87 2.46 7.54 10.52
- ------------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 9/30/94
(most recent calendar quarter)
<TABLE>
<CAPTION>
Class A Class B
NAV POP NAV CDSC
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year 4.32% -1.65% 3.41% -1.35%
- ------------------------------------------------------------------------------------
3 years 22.29 15.23 -- --
Annual average 6.94 4.84 -- --
- ------------------------------------------------------------------------------------
Life of class A 48.14 39.60 -- --
Annual average 8.98 7.57 -- --
- ------------------------------------------------------------------------------------
Life of class B -- -- 5.07 1.35
Annual average -- -- 4.17 1.12
- ------------------------------------------------------------------------------------
</TABLE>
Fund performance data do not take into account any adjustment for taxes payable
on reinvested distributions or, for class A shares, distribution fees prior to
implementation of the class A distribution plan in 1990. On 3/5/90 the fund
began investment operations, offering what are now class A shares. Effective
7/15/93, the fund began offering class B shares. Performance of share classes
will differ. Performance data represent past results. Investment returns and
principal value will fluctuate so an investor's shares, when sold, may be worth
more or less than their original cost.
8
<PAGE>
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales charge.
CLASS B SHARES may be subject to a sales charge upon redemption.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance figures
shown here assume the maximum 5.75% sales charge.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the time of
the redemption of shares and assumes redemption at the end of the period.
Your fund's CDSC declines from a 5% maximum during the first year to 1%
during the sixth year. After the sixth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
STANDARD & POOR'S 500 INDEX is an unmanaged list of common stocks that is
frequently used as a general measure of stock market performance. The index
assumes reinvestment of all distributions and does not take into account
brokerage commissions or other costs. The fund's portfolio contains
securities that do not match those in the index.
RUSSELL 2000 INDEX is an unmanaged list of common stocks that is frequently
used as a general measure of stock market performance. The index assumes
reinvestment of all distributions and does not take into account brokerage
commissions or other costs. The fund's portfolio contains securities that do
not match those in the index.
9
<PAGE>
THE PUTNAM FUND SELECTOR/(TM)/
The Putnam Fund Selector/TM/ shows the many opportunities for investors
within every investment strategy. All investors should first accumulate a
base of conservative, cash-equivalent investments. Then, with the help of
your investment advisor, diversify your portfolio by investing in the Putnam
Family of Funds.
[ARTWORK APPEARS HERE]
10
<PAGE>
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
Investors Fund
Natural Resources Fund*
New Opportunities Fund
OTC Emerging Growth Fund
Overseas Growth Fund
Vista Fund
Voyager Fund
PUTNAM GROWTH AND INCOME FUNDS
Convertible Income-Growth Trust
Dividend Growth Fund
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Managed Income Trust
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund
American Government Income Fund
Balanced Government Fund
Corporate Asset Trust
Diversified Income Trust
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Intermediate Tax Exempt Fund
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds+
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey,
New York, Ohio, and Pennsylvania
LIFESTAGE/SM/ FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments to help
maximize your return and reduce your risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE INVESTMENTS/++/
Putnam money market funds:
Money Market Fund(S)
California Tax Exempt Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts**
* Formerly Energy-Resources Trust.
+ Not available in all states.
++ Relative to above.
(S) Formerly Daily Dividend Trust.
** Not offered by Putnam Investments. Certificates of deposit offer a fixed
rate of return and may be insured, up to certain limits, by federal/state
agencies. Savings accounts may also be insured up to certain limits.
Please call your financial advisor or Putnam to obtain a prospectus for any
Putnam fund. It contains more complete information, including charges and
expenses. Read it carefully before you invest or send money.
11
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
August 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (97.9%)(a)
NUMBER OF SHARES VALUE
<S> <C>
BANKS (13.0%)
- --------------------------------------------------------------------------------
13,400 Amsouth Bancorp $ 443,875
14,870 Banc One Corp. 516,733
9,900 Bankers Trust New York Corp. 728,888
5,800 CCB Financial Corp. 258,100
7,000 Central Fidelity Banks, Inc. 232,750
13,500 Comerica Inc. 410,063
10,500 Compass Bancshares Inc. 262,500
19,000 CoreStates Financial Corp. 536,750
17,300 First Bancorporation of Ohio 441,150
4,800 First Tennessee National Corp. 228,000
8,000 Firstar Corp. 260,000
4,100 Integra Financial Corp. 200,388
17,500 Keystone Financial, Inc. 525,000
12,600 Morgan (J.P.) & Co., Inc. 830,025
17,300 National City Corp. 464,938
6,300 Old Kent Financial Corp. 222,075
11,100 Union Planters Corp. 285,825
25,300 Wilmington Trust Co. 689,425
----------
7,536,485
PHARMACEUTICALS (8.0%)
- --------------------------------------------------------------------------------
2,900 American Cyanamid Co. 279,850
17,000 American Home Products Corp. 1,009,375
14,200 Bristol-Myers Squibb Co. 816,500
10,300 Lilly (Eli) & Co. 585,813
23,000 Merck & Co., Inc. 784,875
6,000 Schering-Plough Corp. 419,250
8,900 Warner-Lambert Co. 744,263
----------
4,639,926
INSURANCE (6.3%)
- --------------------------------------------------------------------------------
23,700 American General Corp. 708,038
40,900 American Heritage Life Investment Corp. 746,425
10,500 Gallagher (Arthur J.) & Co. 343,875
32,700 Harleysville Group, Inc. 711,225
15,700 Lincoln National Corp. 604,450
8,000 Selective Insurance Group, Inc. 225,000
6,600 St. Paul Cos., Inc. 285,450
----------
3,624,463
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCKS
NUMBER OF SHARES VALUE
<S> <C>
OILS (6.1%)
- --------------------------------------------------------------------------------
27,000 Chevron Corp. $ 1,144,125
23,900 Exxon Corp. 1,422,050
11,700 Mobil Corp. 985,725
------------
3,551,900
ELECTRICAL EQUIPMENT (4.7%)
- --------------------------------------------------------------------------------
33,900 General Electric Co. 1,686,517
18,200 Hubbell Inc. Class B 1,019,200
------------
2,705,717
RETAIL (4.1%)
- --------------------------------------------------------------------------------
11,000 Blair Corp. 506,000
31,000 K mart Corp. 530,875
16,500 Penney (J.C.) Co., Inc. 868,313
27,700 Woolworth Corp. 450,125
------------
2,355,313
FOOD (3.9%)
- --------------------------------------------------------------------------------
8,700 Campbell Soup Co. 337,125
33,100 Flowers Industries, Inc. 562,700
6,200 General Mills, Inc. 334,800
10,600 Heinz (H.J.) Co. 388,225
2,400 Quaker Oats Co. (The) 192,900
18,500 Sara Lee Corp. 427,813
------------
2,243,563
TOBACCO (3.6%)
- --------------------------------------------------------------------------------
8,000 American Brands, Inc. 288,000
24,900 Philip Morris Cos., Inc 1,518,900
9,300 UST Inc. 290,625
------------
2,097,525
CHEMICALS (3.6%)
- --------------------------------------------------------------------------------
20,400 Dexter Corp. 525,300
37,100 Lawter International, Inc. 454,475
8,100 Nalco Chemical Co 274,388
16,600 RPM Inc. 292,575
16,700 Witco Chemical Corp. 513,525
------------
2,060,263
CONGLOMERATES (3.6%)
- --------------------------------------------------------------------------------
11,800 Johnson Controls Inc. 626,875
26,000 Minnesota Mining & Manufacturing Co. 1,433,250
------------
2,060,125
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCKS
NUMBER OF SHARES VALUE
<S> <C>
REITS (3.2%)
- --------------------------------------------------------------------------------
9,500 Health Care Property Investors, Inc. $ 285,000
15,800 Nationwide Health Properties, Inc. 570,775
14,200 ROC Communities, Inc. 294,650
28,300 South West Property Trust, Inc. 346,675
9,400 Weingarten Realty Investors, Inc. 348,975
----------
1,846,075
ELECTRIC UTILITIES (3.2%)
- --------------------------------------------------------------------------------
26,300 Central & South West Corp. 591,750
27,600 Entergy Corp. 686,550
16,600 United Illuminating Co. 545,725
----------
1,824,025
TELEPHONE UTILITIES (3.1%)
- --------------------------------------------------------------------------------
10,300 Bell Atlantic Corp. 563,925
20,400 GTE Corp. 647,700
4,500 Lincoln Telecommunications 70,875
13,800 NYNEX Corp. 533,025
----------
1,815,525
PUBLISHING (3.1%)
- --------------------------------------------------------------------------------
16,600 Block (H & R), Inc. 726,250
18,200 Dun & Bradstreet Corp. 1,048,775
----------
1,775,025
SPECIALTY CONSUMER PRODUCTS (2.8%)
- --------------------------------------------------------------------------------
12,600 Deluxe Corp. 381,150
18,800 Sturm, Ruger & Co. Inc. 493,500
18,200 WD-40 Co. 759,850
----------
1,634,500
MEDICAL SUPPLIES(2.3%)
- --------------------------------------------------------------------------------
16,600 Baxter International Inc. 471,025
61,600 Landauer Inc. 862,400
----------
1,333,425
RAILROADS (2.3%)
- --------------------------------------------------------------------------------
7,100 GATX Corp. 276,013
16,000 Norfolk Southern Corp. 1,028,000
----------
1,304,013
FINANCE (2.2%)
- --------------------------------------------------------------------------------
16,300 Bear Stearns Companies, Inc. 297,475
22,000 Beneficial Corp. 946,000
----------
1,243,475
HOUSEHOLD PRODUCTS (2.1%)
- --------------------------------------------------------------------------------
11,100 Clorox Co. 578,588
6,000 Colgate-Palmolive Co. 343,500
8,000 Stanhome, Inc. 281,000
----------
1,203,088
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCKS
NUMBER OF SHARES VALUE
<S> <C>
GAS UTILITIES (2.0%)
- --------------------------------------------------------------------------------
24,700 New Jersey Resources Corp. $ 552,663
30,800 UGI Corp. 596,750
----------
1,149,413
HOME FURNISHINGS(1.9%)
- --------------------------------------------------------------------------------
24,900 Kimball International, Inc. Class B 627,169
24,745 Knap & Vogt Manufacturing Co 467,062
----------
1,094,231
AUTOMOTIVE PARTS(1.8%)
- --------------------------------------------------------------------------------
7,700 CLARCOR, Inc. 154,000
8,600 Genuine Parts Co. 316,050
7,800 TRW, Inc. 585,000
----------
1,055,050
PAPER (1.7%)
- --------------------------------------------------------------------------------
16,900 Kimberly-Clark Corp. 1,003,438
AEROSPACE (1.3%)
- --------------------------------------------------------------------------------
20,600 Rockwell International Corp. 744,175
BUILDING PRODUCTS (1.1%)
- --------------------------------------------------------------------------------
15,000 Stanley Works (The) 650,625
BUSINESS SERVICES (1.0%)
- --------------------------------------------------------------------------------
14,200 American Business Products, Inc. 305,300
13,100 Standard Register Co. 291,475
----------
596,775
OFFICE EQUIPMENT(1.0%)
- --------------------------------------------------------------------------------
7,900 Pitney Bowes, Inc. 304,150
2,400 Xerox Corp. 257,100
----------
561,250
WATER UTILITIES (0.9%)
- --------------------------------------------------------------------------------
17,800 American Water Works, Inc. 493,950
ALCOHOLIC BEVERAGES (0.8%)
- --------------------------------------------------------------------------------
15,000 Brown Forman Corp. Class B 451,875
HEALTH CARE (0.7%)
- --------------------------------------------------------------------------------
53,700 ADAC Laboratories 429,600
COMPUTERS (0.5%)
- --------------------------------------------------------------------------------
24,200 Zero Corp. 314,600
RESTAURANTS (0.5%)
- --------------------------------------------------------------------------------
12,700 Lubys Cafeterias, Inc. 298,450
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCKS
NUMBER OF SHARES VALUE
<S> <C>
FOOD CHAINS (0.5%)
- --------------------------------------------------------------------------------
9,800 Supervalu Inc. $ 290,325
COMPUTER SOFTWARE (0.5%)
- --------------------------------------------------------------------------------
21,900 MacNeal-Schwendler Corp. 290,175
MACHINERY (0.5%)
- --------------------------------------------------------------------------------
6,500 Tennant Co. 289,250
-------------
Total Common Stocks (cost $54,727,468) $ 56,567,613
<CAPTION>
SHORT-TERM INVESTMENTS (3.0%)(a) (cost $1,723,229)
PRINCIPAL AMOUNT VALUE
<S> <C>
$1,723,000 Interest in $300,000,000 joint repurchase
agreement dated August 31, 1994 with Bankers
Trust Co., Inc. due September 1, 1994 with
respect to various U.S. Treasury obligations-
maturity value of $1,723,229 for an effective
yield of 4.79% $ 1,723,229
-------------
TOTAL INVESTMENTS (cost $56,450,467) (b) $ 58,290,842
=============
</TABLE>
(a) Percentages indicated are based on net assets of $57,760,199, which
corresponds to a net asset value per class A share and class B share of
$10.04 and $9.98, respectively.
(b) The aggregate identified cost on a tax basis is $56,953,872 resulting in
gross unrealized appreciation and depreciation of $3,563,463 and
$2,226,493, respectively, or net unrealized appreciation of $1,336,970.
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
ASSETS
- -----------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (identified cost
$56,450,467) (Note 1) $58,290,842
- -----------------------------------------------------------------------------
Cash 375
- -----------------------------------------------------------------------------
Dividends and other receivables 278,465
- -----------------------------------------------------------------------------
Receivable for shares of the fund sold 135,681
- -----------------------------------------------------------------------------
Receivable for securities sold 284,533
- -----------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 5,756
- -----------------------------------------------------------------------------
Total assets $58,995,652
<CAPTION>
LIABILITIES
- -----------------------------------------------------------------------------
<S> <C>
Payable for securities purchased $1,004,547
- -----------------------------------------------------------------------------
Payable for shares of the Fund repurchased 35,741
- -----------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 90,407
- -----------------------------------------------------------------------------
Payable for compensation of Trustees(Note 2) 190
- -----------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 14,012
- -----------------------------------------------------------------------------
Payable for administrative services (Note 2) 945
- -----------------------------------------------------------------------------
Payable for distribution fees (Note 2) 27,199
- -----------------------------------------------------------------------------
Other accrued expenses 62,412
- -----------------------------------------------------------------------------
Total liabilities 1,235,453
- -----------------------------------------------------------------------------
Net assets $57,760,199
- -----------------------------------------------------------------------------
Represented by
Paid-in capital (Notes 1, 4 and 5) $55,503,982
Distributions in excess net investment income (Note 5) (24,624)
Accumulated net realized gain on investment
transactions (Note 5) 440,466
Net unrealized appreciation of investments 1,840,375
- -----------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $57,760,199
- -----------------------------------------------------------------------------
Computation of net asset value and offering price
Net asset value and redemption price of class A
shares ($48,749,793 divided by 4,856,243 shares) $10.04
-----------
Offering price per share (100/94.25 of $10.04)* $10.65
- -----------------------------------------------------------------------------
Net asset value and offering price of class B shares
($9,010,406 divided by 902,549 shares)+ $9.98
- -----------------------------------------------------------------------------
</TABLE>
* 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.
17
<PAGE>
STATEMENT OF OPERATIONS
For the six months ended August 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------
<S> <C>
Dividends $ 1,177,263
- -----------------------------------------------------------------------------
Interest 552
- -----------------------------------------------------------------------------
Total investment income 1,177,815
<CAPTION>
EXPENSES:
- -----------------------------------------------------------------------------
<S> <C>
Compensation of Manager (Note 2) 180,366
- -----------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 54,490
- -----------------------------------------------------------------------------
Compensation of Trustees (Note 2) 3,576
- -----------------------------------------------------------------------------
Reports to shareholders 27,657
- -----------------------------------------------------------------------------
Auditing 7,631
- -----------------------------------------------------------------------------
Legal 7,927
- -----------------------------------------------------------------------------
Postage 47,746
- -----------------------------------------------------------------------------
Distribution fees -- class A (Note 2) 59,815
- -----------------------------------------------------------------------------
Distribution fees -- class B (Note 2) 38,079
- -----------------------------------------------------------------------------
Administrative services (Note 2) 2,736
- -----------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 4,328
- -----------------------------------------------------------------------------
Registration fees 4,510
- -----------------------------------------------------------------------------
Other expenses 1,877
- -----------------------------------------------------------------------------
Total expenses 440,738
- -----------------------------------------------------------------------------
Net investment income 737,077
- -----------------------------------------------------------------------------
Net realized loss on investments (Note 1 and 3) (290,645)
- -----------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 1,167,657
- -----------------------------------------------------------------------------
Net gain on investment transactions 877,012
- -----------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 1,614,089
- -----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------
Six months ended Year ended
August 31 February 28
1994* 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
- --------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------
Net investment income $ 737,077 $ 1,285,882
- --------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (290,645) 2,919,678
- --------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 1,167,657 (475,809)
- --------------------------------------------------------------------------------------------
Net incr. net assets resulting
from operations 1,614,089 3,729,751
- --------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM :
- --------------------------------------------------------------------------------------------
Net investment income -- Class A (695,709) (1,255,216)
- --------------------------------------------------------------------------------------------
Net investment income -- Class B (74,753) (30,666)
- --------------------------------------------------------------------------------------------
Net realized gain on investments -- Class A -- (3,484,582)
- --------------------------------------------------------------------------------------------
Net realized gain on investments -- Class B -- (186,688)
- --------------------------------------------------------------------------------------------
Increase from capital share
transactions (Note 4) 448,155 16,226,522
- --------------------------------------------------------------------------------------------
Total increase in net assets 1,291,782 14,999,121
NET ASSETS
- --------------------------------------------------------------------------------------------
Beginning of period 56,468,417 41,469,296
- --------------------------------------------------------------------------------------------
End of period (including distributions
in excess of net investment
income of $24,624 and $0, respectively) $ 57,760,199 $ 56,468,417
- --------------------------------------------------------------------------------------------
</TABLE>
* Unaudited
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
July 15, 1993
(commencement of Six
Six months ended B share offering) to months ended Year ended
August 31 February 28 August 31 February 28
- -------------------------------------------------------------------------------------------------------------------------------
1994* 1994 1994* 1994
- -------------------------------------------------------------------------------------------------------------------------------
Class B Class A
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.85 $10.30 $9.88 $10.10
- -------------------------------------------------------------------------------------------------------------------------------
Investment operations
Net Investment Income .10 .13 .13 .26
- -------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments .14 .28 .17 .53
- -------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations .24 .41 .30 .79
- -------------------------------------------------------------------------------------------------------------------------------
Less Distributions from:
Net Investment Income (.11) (.13) (.14) (.28)
- -------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain on Investments -- (.73) -- (.73)
- -------------------------------------------------------------------------------------------------------------------------------
Total Distributions (.11) (.86) (.14) (1.01)
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $9.98 $9.85 $10.04 $9.88
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Return at
Net Asset Value (%) (b) 2.46(c) 4.10(c) 3.09(c) 8.05
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period (in thousands) $9,010 $6,387 $48,750 $50,081
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets (%) 1.17(c) .34(c) .74(c) 1.30
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to
Average Net Assets (%) 0.98(c) .33(c) 1.39(c) 2.53
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 71.00(c) 129.79 71.00(c) 129.79
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
For the period
March 5, 1990
(commencement of
Year ended Year ended operations to
February 28 February 29 February 28
1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $10.21 $9.19 $8.50
- -------------------------------------------------------------------------------------------------------------------
Investment operations
Net Investment Income .19 .26(a) .35(a)
- -------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments .37 1.08 .56
- -------------------------------------------------------------------------------------------------------------------
Total from Investment Operations .56 1.34 .91
- -------------------------------------------------------------------------------------------------------------------
Less Distributions from:
Net Investment Income (.28) (.28) (.22)
- -------------------------------------------------------------------------------------------------------------------
Net Realized Gain on Investments (.39) (.04) --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions (.67) (.32) (.22)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.10 $10.21 $9.19
- -------------------------------------------------------------------------------------------------------------------
Total Investment Return at
Net Asset Value (%) (b) 5.64 14.95 11.10(c)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period (in thousands) $41,469 $24,474 $13,320
- -------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets (%) 1.55 1.42(a) 1.12(a)(c)
- -------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to
Average Net Assets (%) 1.91 2.58(a) 3.89(a)(c)
- -------------------------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 106.71 68.55 67.76(c)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Unaudited
(a) Reflects an absorption of expenses incurred by the Fund during the period
ended February 28, 1991 and an expense limitation applicable during the
period ended February 28, 1991 and the year ended February 29, 1992. As a
result, net investment income for the period ended February 28, 1991 and the
year ended February 29, 1992, reflects expense reductions of $0.17 and $0.05
per share, respectively.
(b) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Not annualized.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
August 31, 1994 (Unaudited)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940, as amended,
as a diversified, open-end management investment company. The Fund seeks
current income and capital growth by investing primarily in common stocks
that offer the potential for above-average growth in the amount of their
dividends.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A SECURITY VALUATION Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported - as in the case of some
securities traded over-the-counter - the last reported bid price, except that
certain U.S. government obligations are stated at the mean between the bid
and asked prices. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost which approximates market, and
other investments are stated at fair value following procedures approved by
the Trustees.
B JOINT TRADING ACCOUNT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund may transfer uninvested cash
balances into a joint trading account, along with the cash and certain other
accounts of other registered investment companies managed by Putnam
Investment Management, Inc., (Putnam Management) the Fund's Manager, a wholly-
owned subsidiary of Putnam Investments, Inc. These balances may be invested in
one or more repurchase agreements and/or short-term money market instruments.
C REPURCHASE AGREEMENTS The Fund, through its custodian, receives delivery of
the underlying securities, the market value of which at the time of purchase
is required to be in an amount at least equal to the resale price, including
accrued interest. The Fund's Manager is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis and dividend
income is recorded on the ex-dividend date, except that certain dividends
from foreign securities are recorded as soon as the Fund is informed of the
ex-dividend date.
E FEDERAL TAXES It is the policy of the Fund to distribute all of its
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the Fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation of securities held and excise tax on
income and capital gains.
F DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded by
the Fund on the ex-dividend date.
22
<PAGE>
G UNAMORTIZED ORGANIZATION EXPENSES Expenses incurred by the Fund in
connection with its organization, its registration with the Securities &
Exchange Commission and with various states, and the initial public offering
of its shares aggregated $41,340. These expenses are being amortized on a
straight-line basis over a five-year period.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the Fund for
the quarter. 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,
0.5% of the next $500 million, 0.45% of any amount over $1.5 billion, subject
to reduction in any year to the extent that expenses (exclusive of brokerage,
interest and taxes) of the Fund exceed 2.5% of the first $30 million of
average net assets, 2.0% of the next $70 million and 1.5% of any amount over
$100 million and by the amount of certain brokerage commissions and fees
(less expenses) received by affiliates of the Manager on the Fund's portfolio
transactions.
The Fund also reimburses the Manager for the compensation and related
expenses of certain officers of the Fund and their staff who provide
administrative services to the Fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees. For the six months
ended August 31, 1994, the Fund paid $2,736 for such services.
Trustees of the Fund receive an annual Trustee's fee of $530 and an
additional fee for each Trustees' meeting attended. Trustees who are not
interested persons of the Manager and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
Custodial functions for the Fund's domestic assets are provided by The 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.
Fees paid for these investor servicing and custodial functions for the six
months ended August 31, 1994 amounted to $54,490.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended August 31, 1994 have been reduced by credits allowed
by PFTC.
The Fund has adopted a distribution plan with respect to its class A shares
(the "Class A Plan") pursuant to Rule 12b-1 under the Investment Company Act
of 1940. The purpose of the Class A Plan is to compensate Putnam Mutual Funds
Corp., a wholly-owned subsidiary of Putnam Investments Inc., for services
provided and expenses incurred by it in distributing class A shares. The
Trustees have approved payment by The Fund to Putnam Mutual Funds Corp. at an
annual rate of 0.25% of average net assets attributable to class A shares. For
the six months ended August 31, 1994, the Fund paid Putnam Mutual Funds Corp.
distribution fees of $59,815 for class A shares.
The Fund has adopted a separate distribution plan with respect to its class B
shares (the "Class B Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The purpose of the Class B Plan is to compensate Putnam
Mutual Funds Corp. for services provided and expenses incurred by it in
distributing class B shares. The Class B Plan provides for payments by the
Fund to Putnam Mutual Funds Corp. at an annual rate of 1.00% of the Fund's
average net assets attributable to class B shares. For the six months ended
August 31, 1994, the Fund paid Putnam Mutual Funds Corp. distribution fees of
23
<PAGE>
$38,079 for class B shares.
During the six months ended August 31, 1994, Putnam Mutual Funds Corp.,
acting as an underwriter, received net commissions of $16,294 from the sale
of class A shares of the fund.
A deferred sales charge of up to 1.00% is assessed on certain redemptions of
class A shares purchased as part of an investment of $1 million or more. For
the six months ended August 31, 1994, Putnam Mutual Funds Corp., acting as
underwriter, received $405 on class A redemptions.
Putnam Mutual Funds Corp. also receives the proceeds on the contingent
deferred sales charges on its class B share redemptions within six years of
purchase. The charge is based on declining rates, which begin at 5.00% of the
net asset value of the redeemed shares. Putnam Mutual Funds Corp. received
contingent deferred sales charges of $7,070 from class B redemptions during
the six months ended August 31, 1994.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the six months ended August 31, 1994, purchases and sales of
investment securities other than U.S. government obligations and short-term
investments aggregated $32,850,409 and $32,757,748, respectively. There were
no purchases and sales of U.S. government obligations during the period. In
determining the net gain or loss on securities sold, the cost of securities
has been determined on the identified cost basis.
NOTE 4
CAPITAL SHARES
At August 31, 1994, there was an unlimited number of shares of beneficial
interest authorized divided into two classes, class A and class B capital
shares. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Six months ended Year ended
August 31, 1994 February 28, 1994
- ------------------------------------------------------------------------------------------------
Class A Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 490,524 $ 4,741,251 1,904,094 $ 19,384,649
Shares issued in connection
with reinvestment of
distributions -- -- 429,829 4,268,491
- ------------------------------------------------------------------------------------------------
490,524 4,741,251 2,333,923 23,653,140
Shares repurchased (700,925) (6,727,980) (1,374,400) (13,969,478)
- ------------------------------------------------------------------------------------------------
Net increase (decrease) (210,401) $(1,986,729) 959,523 $ 9,683,662
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
July 15, 1993
(commencement
Six months ended of operations)
August 31, 1994 February 28, 1994
- ------------------------------------------------------------------------------------------------
Class B Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 367,596 $ 3,538,574 665,183 $ 6,714,353
Shares issued in
connection with reinvestment
of distributions 7,135 69,137 20,160 196,795
- ------------------------------------------------------------------------------------------------
374,731 3,607,711 685,343 6,911,148
Shares repurchased (120,899) (1,172,827) (36,626) (368,288)
- ------------------------------------------------------------------------------------------------
Net increase 253,832 $ 2,434,884 648,717 $ 6,542,860
- ------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
NOTE 5
RECLASSIFICATION OF CAPITAL ACCOUNTS
Effective March 1, 1993 the fund has adopted the provisions of Statement of
Position 93-2 "Determination, Disclosure and Financial Statement Presentation
of Income, Capital Gain and Return of Capital Distributions by Investment
Companies" ("SOP"). The SOP requires the fund to report the undistributed
net investment income (accumulated loss) and accumulated net realized gain
(loss) accounts in such a manner as to approximate amounts available for
future tax distributions (or to offset future taxable realized capital
gains).
In implementing the SOP the fund has reclassified $249,093 to increase
undistributed net investment income and $238,449 to decrease accumulated net
realized gain with a decrease of $10,644 to paid-in capital. These adjustments
represent the cumulative amounts necessary to report these balances on a tax
basis as of March 1, 1993. These reclassifications, which have no impact on the
total net asset value of the fund, are primarily attributable to tax
equalization which is treated differently in the computation of distributable
income and capital gains under federal income tax rules and regulation versus
generally accepted accounting principles.
Permanent book and tax basis difference relating to shareholder distributions
will result in reclassification to paid-in capital.
25
<PAGE>
OUR COMMITMENT TO QUALITY SERVICE
. CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested Service Seal
every year since the award's 1990 inception. DALBAR, an independent research
firm, ran more than 10,000 tests of 38 shareholder service components. In
every category, Putnam outperformed the industry standard.
. HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a month from
a Putnam fund or from your checking or savings account.*
. SWITCH FUNDS EASILY.
You can move money from one account to another with the same class of shares
without a service charge. (This privilege is subject to change or
termination.)
. ACCESS YOUR MONEY EASILY.
You can get checks sent regularly or redeem shares any business day at the
then-current net asset value, which may be more or less than their original
cost.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a helpful
Putnam representative.
. To make an additional investment in this or any other Putnam fund, contact
your financial advisor or call our toll-free number: 1-800-225-1581.
* Regular investing, of course, does not guarantee a profit or protect
against a loss in a declining market. Investors should consider their
ability to continue purchasing shares during periods of low price levels.
26
<PAGE>
FUND INFORMATION
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Donald S. Perkins
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John R. Verani
Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Brett Browchuk
Vice President
Thomas V. Reilly
Vice President
Michael R. Mach
Vice President and Fund Manager
William N. Shiebler
Vice President
Paul O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Dividend Growth
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. For more information, or to
request a prospectus, call toll free:
1-800-225-1581.
27
<PAGE>
PUTNAM INVESTMENTS
THE PUTNAM FUNDS
One Post Office Square
Boston, Massachusetts 02109
- ------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- ------------------
015/14152
<PAGE>
GRAPHICS APPENDIX LIST
----------------------
Page Where Description of Graphic or Cross -
Graphic Appears Reference
- --------------- ---------------------------------
pg 5 1 pie chart with slices corresponding to
listed percentage.
pg 10 Pyramid image listing categories of Funds
Risk vs Reward with most conservative at
Base.
