(Putnam Logo, Balance Scales)
Putnam
Dividend
Growth
Fund
Annual
Report
February 28, 1994
(Artwork)
For investors seeking
current income and
capital growth through
common stocks with
potential for
above-average
dividend increases
A member
of the Putnam
Family of Funds
Contents
2 How your fund performed
3 From the Chairman
4 Report from Putnam Management
Annual Report
7 Report of Independent Accountants
8 Portfolio of investments owned
11 Financial statements
21 Federal tax information
22 Fund performance supplement
23 Your Trustees
<PAGE>
How your
fund performed
For periods ended February 28, 1994
<TABLE>
<CAPTION>
Total return* Fund S&P(R) Consumer
Class A Class B 500 Price
NAV POP NAV CDSC Index Index
<S> <C> <C> <C> <C> <C> <C>
1 year 8.05% 1.80% -- -- 8.28% 2.51%
3 years 31.20 23.66 -- -- 38.93 8.82
annualized 9.47 7.34 -- -- 11.58 2.86
Life of class
(class A shares)+ 45.76 37.36 -- -- 59.34 14.62
annualized 9.90 8.28 12.39 3.48
(class B shares)++ -- -- 4.10 -0.69 5.11 1.59
</TABLE>
<TABLE>
<CAPTION>
Class A Class B
Share data NAV POP NAV
<S> <C> <C> <C>
February 28, 1993 $10.10 $10.72 --
July 15, 1993++ -- -- $10.30
February 28, 1994 $9.88 $10.48 $9.85
</TABLE>
<TABLE>
<CAPTION>
Distributions(a) Capital gains
12 months ended Investment Short Long
February 28, 1994 Number income Term Term Total
<S> <C> <C> <C> <C> <C>
Class A 4 $0.280 $0.389 $0.338 $1.007
Class B++ 2 $0.128 $0.389 $0.338 $0.855
Current returns Class A Class B
at the end of the period NAV POP NAV
<S> <C> <C> <C>
Current dividend rate 2.83% 2.67% 2.48%
Current 30-day yield 2.73 2.57 1.97
</TABLE>
Total return at end of most recent calendar quarter
<TABLE>
<CAPTION>
Fund
Periods ended Class A Class B
March 31, 1994 NAV POP NAV CDSC
<S> <C> <C> <C> <C>
1 year 0.59% -5.17% -- --
3 years 25.56 18.34 -- --
annualized 7.88 5.77 -- --
Life of class
(class A
shares)+ 40.41 32.31 -- --
annualized 8.70 7.12 -- --
(class B
shares)++ -- -- 0.12% -4.45%
</TABLE>
*Performance data represent past results. 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.
+The fund began operations on March 5, 1990, offering shares now known as
class A shares.
++On July 15, 1993, the fund began offering class B shares. Performance for
each share class will differ.
Terms you need to know
Total return is the change in value of an investment from the beginning to
the end of a period, assuming the reinvestment of all distributions.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not reflecting any
sales charge.
Public offering price (POP) is the price of a mutual fund share plus maximum
sales charge levied at time of purchase.
Current dividend rate is calculated by annualizing the net investment income
paid to shareholders in the fund's most recent distribution, then dividing by
the NAV or POP on last day of period.
Current 30-day yield, based only on fund's net investment income, is
calculated in accordance with SEC guidelines.
Contingent deferred sales charge (CDSC) is a charge applied at time of
redemption of shares rather than time of purchase.
Class A shares are the shares of your fund offered subject to an initial
sales charge. Your fund's POP includes the maximum 5.75% sales charge.
Class B shares are the shares of your fund offered with no initial sales
charge. Within the first six years of purchase, they are subject to a CDSC
declining from 5% to 1%. After the sixth year, the CDSC no longer applies.
Please see the fund performance supplement on page 22 for additional infor-
mation about performance comparisons.
<PAGE>
From the
Chairman
(George Putnam Photo)
George Putnam
chairman of the Trustees
(C) Karsh, Ottawa
Dear Shareholder:
As you read through this report, run your finger down the list of companies
represented in the portfolio of investments that starts on page 8. You
shouldn't be surprised at the number of names that are familiar to you. Many
of them are companies that over the years have earned reputations for
consistently delivering quality goods and services and have prospered,
sharing the fruits of their efforts with their investors in the way of
above-average or rising dividends.
Others are in industries that tend to do well in periods of improving
business. They're not just any companies; Putnam Dividend Growth Fund's
manager, Michael R. Mach, selects only those that have demonstrated
consistent growth over time and are characterized by attributes such as solid
management, financial strength, and market leadership.
Because no one can foretell the future well enough to select only winners,
Mike has built a broadly diversified portfolio so the effects of a reversal
in one company's fortunes will be minimized. And he keeps close watch on the
portfolio, making changes as events in the marketplace or in a company's
circumstances dictate.
In the report that follows, Mike explains how he pursued the fund's
objectives during the fiscal year that ended on February 28, 1994, and what
he sees in store for the months ahead. We remain confident that conservative
investors seeking current income and capital growth through common stocks
will continue to be well served by this fund.
Respectfully yours,
(Signature of George Putnam)
George Putnam
March 30, 1994
<PAGE>
Report from
Putnam Management
Top 10 holdings
Philip Morris Cos., Inc.
Exxon Corp.
General Electric Co.
E.I. duPont de Nemours & Co.
Minnesota Mining & Manufacturing Co.
GTE Corp.
American Home
Products Corp.
Chevron Corp.
Mobil Corp.
American General Corp.
These holdings represent 23.18% of the portfolio based on assets as of
February 28, 1994.
Portfolio holdings are subject to change.
Putnam Dividend Growth Fund provided shareholders with a total return of
8.05% for class A shares at net asset value for the fiscal year ended
February 28, 1994. This performance, which nearly matched the results for
stocks in the Standard & Poor's(R) 500 Index over the period, owes much to a
change in investment focus introduced early in the fund's fiscal year.
To provide more flexibility in the fund's management, we started looking
beyond the larger, more mature companies that had been the sole occupants of
the portfolio. We added some smaller companies with similar attributes:
consistent, above-average earnings growth and dividend increases, outstanding
management, and strong balance sheets.
Timely shift We also broadened the range of portfolio selections to include
what we call a diversification sleeve. The stocks held in this portion of the
portfolio are characterized by historical dividend growth patterns somewhat
lower than the fund's general requirements, yet still providing above-average
dividend yields. Securities held in this sleeve during the fiscal year
included those of utilities, energy companies, and real estate investment
trusts.
This expanded focus came at a time when the market had turned its interest
away from the stocks of the high-quality, steady growth companies in which
your fund traditionally invests. Instead, it was concentrating on the stocks
of companies that thrive in the prevailing environment of declining interest
rates and economic recovery.
Early recognition of these developments allowed us to make what proved to be
a timely shift in emphasis. Nevertheless, your fund's portfolio remains
firmly committed to concentrating mainly on stocks of high-quality, steady
growth companies that give investors above-average returns with below-average
market risk.
Bargain prices The market's current disinterest in dividend-growth stocks has
its brighter side: many are now available at extremely attractive valuations.
We are taking advantage of this opportunity to acquire promising companies or
add to existing holdings at bargain-basement prices.
Managements of these financially strong companies are well aware that the
prices of their stocks have been lagging. Many are taking aggressive action
to bolster share prices and thereby enhance the value of shareholders'
investments. These include:
Buying back company stock to lower the number (and raise the value) of
outstanding shares.
<PAGE>
Announcing double-digit dividend increases.
Using their large cash holdings to acquire complementary businesses. These
investments can provide far greater returns than those provided by cash or
short-term investments.
General Electric, H&R Block, and Banc One are fund holdings that have taken
action on all three of these fronts to boost their stock prices. GE, which
has raised its dividend each year since 1976, increased it by 14% in last
year's fourth quarter. After implementing an active stock repurchase program
and $1.6 billion in capital spending in its various subsidiaries, GE still
had $2.3 billion in excess cash flow last year.
H&R Block, which raised its dividend 12% last year, acquired Mesa Software
last November. Ownership of this company, which provides tax-preparation
programs for home computer use, allows Block to cater to tax-time
do-it-yourselfers as well as the company's traditional face-to-face
clientele.
Banc One has made more than 100 acquisitions over the past decade, increasing
the earnings of the acquired banks by nearly 50%. It has raised its dividend
twice in the past six months, 12% last September and 10% in March, just after
your fund closed its fiscal year.
Top Industry Sectors (Based on net assets on 2/28/94)
(Bar Chart)
Banks 11.8%
Pharmaceuticals 8.9%
Oil & Gas 6.6%
Insurance 6.0%
Retail 5.8%
Global positioning There's a saying that loose money goes abroad, scared
money comes home. If the world's major stock markets, including our own,
encounter choppy waters in the months ahead, much of the money that U.S.
investors have recently sent abroad is likely to return.
When it does, we believe it will very likely flow into more conservative
investments--including the stocks of the companies your fund holds. The
positive implications for your fund's net asset value are obvious,
particularly in light of the investments recently acquired at attractive
prices.
On the other hand, we have not overlooked the possibility that international
stock markets may remain strong as economic recovery abroad follows our own.
If such a scenario occurs, your fund should be well served by its holdings of
U.S.-based companies that derive substantial portions of their income from
foreign operations.
<PAGE>
These companies, like AMP, Inc., Dun & Bradstreet, and Minnesota Mining &
Manufacturing, stand to benefit from any pickup in business in the foreign
countries where they operate. AMP, the leading producer of electronic
connection devices, dominates every market in which it participates and
derives nearly 60% of its revenues from foreign sales.
Dun & Bradstreet is a global information services company that has shown
earnings growth over the past two years despite weak worldwide economies. It
is well positioned to post even stronger growth as these economies recover.
The same is true for 3M, whose wide range of products continues to enjoy
worldwide popularity. As the increased profits from these companies' foreign
operations flow to their bottom lines, stock prices should react positively.
Outlook It now appears that we have seen the bottom of the decline in
interest rates, at least for now. However, we don't believe any near-term
rise in rates will be severe enough to choke off the economic recovery. We
expect business growth to continue along its slow but steady pace. We believe
your fund enters its new fiscal year armed with considerable flexibility, and
be able to respond to virtually any conceivable stock market environment.
Cumulative total return on a $10,000 investment since 3/5/90
Class A Consumer Class A
S&P shares Price shares
500 at NAV Index at POP
10000 10000 9423 10094
10973 10376 9778 10281
9886 9527 8978 10453
9972 9519 8971 10531
11467 11110 10469 10594
12269 11925 11238 10672
12554 12151 11450 10766
12008 11669 10997 10828
13304 12771 12035 10914
13486 12734 12000 11008
13550 12775 12038 11094
14225 13402 12629 11180
14723 13491 12713 11266
15049 13838 13040 11281
15608 14312 13487 11391
15657 14300 13476 11461
15943 14576 13736 11461
Past performance is no assurance of future results. Performance of class B
shares will vary from performance of class A shares due to differences in sales
charges and 12b-1 fees. For example, $10,000 invested in class B shares on July
15, 1993, subject to the maximum contingent deferred sales charge would have
been worth $9,931 if redeemed February 28, 1994; if not redeemed, it would have
been worth $10,410 on February 28, 1994..
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 February 28, 1994, there is no guarantee the fund will continue
to hold these securities in the future.
<PAGE>
Annual
Report
For the Fiscal Year Ended February 28, 1994
Report of Independent Accountants
To the Shareholders and Trustees of
Putnam Dividend Growth Fund
We have audited the accompanying statement of assets and liabilities of
Putnam Dividend Growth Fund, including the portfolio of investments owned, as
of February 28, 1994, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years
in the period then ended, and the "Financial Highlights" for each of the
three years in the period then ended and for the period March 5, 1990
(commencement of operations) to February 28, 1991, for Class A shares and for
the period July 15, 1993 (commencement of operations) to February 28, 1994
for Class B shares. These financial statements and "Financial Highlights" are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and "Financial Highlights" based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
"Financial Highlights" are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of February 28, 1994 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and "Financial Highlights" referred
to above present fairly, in all material respects, the financial position of
Putnam Dividend Growth Fund as of February 28, 1994, and the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the "Financial Highlights" for
each of the three years in the period then ended and for the period March 5,
1990 (commencement of operations) to February 28, 1991, for Class A shares
and for the period July 15, 1993 (commencement of operations) to February 28,
1994 for Class B shares, in conformity with generally accepted accounting
principles.
Coopers & Lybrand
Boston, Massachusetts
April 1, 1994
<PAGE>
Portfolio of
investments owned
February 28, 1994
Common Stocks (98.4%)(a)
<TABLE>
<CAPTION>
Number of Shares Value
<S> <C> <C>
Banks (11.8%)
18,670 Banc One Corp. $ 634,780
7,000 Bankers Trust New York Corp. 574,875
12,600 CCB Financial Corp. 447,300
10,200 Central Fidelity Banks, Inc. 300,900
16,000 Comerica Inc. 434,000
13,400 CoreStates Financial Corp. 346,725
13,400 Compass Bancshares, Inc. 314,900
5,500 First Alabama Bancshares, Inc. 166,375
9,400 First Tennessee National Corp. 359,550
9,400 Firstar Corp. 293,750
7,840 Huntington Bancshares Inc. 177,380
12,500 Keystone Financial, Inc. 371,875
12,600 Mark Twain Bancshares Inc. 365,400
8,700 Morgan (J.P.) & Co., Inc. 592,688
8,700 National City Corp. 221,850
9,400 Old Kent Financial Corp. 289,050
14,900 Southern National Corp. 298,000
19,800 Wilmington Trust Co. 485,100
6,674,498
Pharmaceuticals (8.9%)
8,800 American Cyanamid Co. 390,500
18,800 American Home Products Corp. 1,125,650
12,500 Bristol-Myers Squibb Co. 690,625
13,400 Lilly (Eli) & Co. 738,675
22,000 Merck & Co., Inc. 712,250
5,700 Schering-Plough Corp. 340,575
16,600 Upjohn Co. 481,400
9,000 Warner-Lambert Co. 572,625
5,052,300
Oil and Gas (6.6%)
12,600 Chevron Corp. 1,093,050
25,000 Exxon Corp. 1,621,875
13,300 Mobil Corp. 1,045,713
3,760,638
Insurance (6.0%)
8,700 AON Corp. 433,913
38,600 American General Corp. 1,037,375
15,750 American Heritage Life Investment Corp. 292,413
11,100 Gallagher (Arthur J.) & Co. 335,775
Insurance (continued)
9,400 Jefferson Pilot Corp. $ 442,975
7,200 Lincoln National Corp. 293,400
4,500 Ohio Casualty Corp. 286,875
3,500 St. Paul Cos., Inc. 290,938
3,413,664
Retail (5.8%)
14,200 Blair Corp. 612,375
33,700 K Mart Corp. 640,300
13,300 Melville Corp. 515,375
11,200 Penney (J.C.) Co. Inc. 613,200
41,000 Woolworth Corp. 902,000
3,283,250
Chemicals (4.8%)
10,900 Dow Chemical Co. 693,513
3,900 PPG Industries Inc. 299,325
16,400 RPM Inc. 313,650
26,000 du Pont (E.I.) de Nemours & Co. 1,387,750
2,694,238
Telephone Utilities (4.6%)
12,500 Ameritech Corp. 501,563
9,500 Bell Atlantic Corp. 520,125
37,600 GTE Corp. 1,226,700
9,400 NYNEX Corp. 350,150
2,598,538
Household Products (4.3%)
8,749 Block Drug Inc. Class A 299,653
9,500 Clorox Co. 507,063
14,100 Kimberly-Clark Corp. 779,025
10,300 National Presto Industries, Inc. 468,650
8,600 Tambrands Inc. 367,650
2,422,041
Electric Utilities (4.2%)
20,400 Detroit Edison Co. 573,750
23,500 Entergy Corp. 781,375
12,500 IES Industries, Inc. 357,813
18,000 United Illuminating Co. 650,250
2,363,188
<PAGE>
Food (3.8%)
3,500 Campbell Soup Co. $ 147,000
11,700 Fleming Cos., Inc. 301,275
23,500 Flowers Industries, Inc. 425,938
7,000 General Mills, Inc. 390,250
12,900 Heinz (H.J.) Co. 420,863
7,200 Quaker Oats Co. (The) 457,200
2,142,526
Tobacco (3.3%)
7,900 American Brands, Inc. 261,688
29,000 Philip Morris Cos., Inc. 1,624,000
1,885,688
Specialty Consumer Products (3.3%)
11,800 Deluxe Corp. 401,200
7,300 Eastman Kodak Co. 313,900
29,200 Jenny Craig Inc. 211,700
15,200 Sturm, Ruger & Co. Inc. 406,600
11,800 W D-40 Co. 513,300
1,846,700
REIT's (3.0%)
20,400 Crown American Realty Trust 285,600
10,700 Federal Realty Investment Trust 298,263
9,100 Health Care Property Investors, Inc. 276,413
7,000 Nationwide Health Properties, Inc. 284,375
23,400 Southwestern Properties Trust, Inc. 310,050
6,000 Weingarten Realty Investors, Inc. 234,000
1,688,701
Electronics and Electrical Equipment (2.8%)
14,900 General Electric Co. 1,570,088
Electrical Equipment (2.5%)
5,300 AMP Inc. 336,550
5,700 Cooper Industries Inc. 220,875
9,000 Hubbell Inc. Class B 517,500
19,500 Kuhlman Corp. 358,313
1,433,238
Conglomerates (2.4%)
12,900 Minnesota Mining & Manufacturing Co. 1,359,338
Medical Supplies (2.0%)
24,900 Baxter International Inc. $ 566,475
37,900 Laudauer Inc. 554,288
1,120,763
Business Services (1.9%)
31,700 American Business Products, Inc. 729,100
21,100 Ennis Business Forms Inc. 327,050
1,056,150
Finance (1.8%)
14,800 Beneficial Corp. 558,700
21,550 MBNA Corp. 447,163
1,005,863
Gas Utilities (1.7%)
19,000 New Jersey Resources Corp. 494,000
18,900 UGI Corp. 434,700
928,700
Publishing (1.6%)
9,400 Dun & Bradstreet Corp. 572,225
8,600 Times Mirror Co. Class A 295,625
867,850
Railroads (1.5%)
7,100 GATX Corp. 293,763
8,200 Norfolk Southern Corp. 565,800
859,563
Home Furnishings (1.2%)
12,500 Kimball International, Inc. Class B 381,250
14,900 Knap & Vogt Manufacturing Co. 298,000
679,250
Consumer Services (1.1%)
13,300 Block (H & R), Inc. 613,463
Basic Industrial Products (1.0%)
10,200 Crane Co. 290,700
10,300 Duriron Co., Inc. 267,800
558,500
Aerospace (1.0%)
20,400 GenCorp. Inc. $ 295,800
3,900 Lockheed Corp. 255,938
551,738
Health Care (.9%)
39,900 ADAC Laboratories 498,750
Building Products (.8%)
11,000 Stanley Works (The) 473,000
Automotive (.8%)
6,300 TRW, Inc. 460,677
Computer Software (.8%)
11,600 Analysts Int'l Corp. 168,200
19,600 MacNeal-Schwendler Corp. 271,950
440,150
Forest Products (.7%)
8,800 Potlatch Corp. 409,200
Office Equipment (.5%)
3,200 Xerox Corp. 310,400
Machinery (.5%)
10,200 Manitowoc, Inc. 304,725
Aerospace and Defense (.5%)
6,500 Rockwell International Corp. 270,563
Total Common Stocks
(cost $54,925,221) $55,597,939
</TABLE>
Short-Term Investments (2.7%)(a) (cost $1,511,144)
<TABLE>
<CAPTION>
Principal Amount Value
<S> <C> <C>
$1,511,000 Interest in $547,577,000
repurchase agreement dated
February 28, 1994 with Kidder
Peabody & Co., Inc. due March
1, 1994 with respect to various
U.S. Treasury obligations
--maturity value of $1,511,144
for an effective yield of 3.43% $ 1,511,144
Total investments
(cost $56,436,365) (b) $57,109,083
</TABLE>
Notes
(a) Percentages indicated are based on net assets of $56,468,417, which
corresponds to a net asset value per Class A share and Class B share of
$9.88 and $9.85 respectively.
(b) The aggregate identified cost for federal income tax purposes is
$56,945,460 resulting in gross unrealized appreciation and depreciation
of $2,903,641 and $2,740,018, respectively, or net unrealized
appreciation of $163,623.
The accompanying notes are an integral part of these financial
statements.
<PAGE>
Statement of
assets and liabilities
February 28, 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Assets Investments in securities, at value (identified cost
$56,436,365) (Note 1) $57,109,083
Cash 924
Dividends and other receivables 303,343
Receivable for shares of the Fund sold 364,680
Receivable for securities sold 878,132
Unamortized organization expenses (Note 1) 10,084
Total assets 58,666,246
Liabilities Payable for securities purchased $1,781,958
Payable for shares of the Fund repurchased 238,872
Payable for compensation of Manager (Note 2) 89,673
Payable for compensation of Trustees (Note 2) 462
Payable for investor servicing and custodian fees (Note 2) 38,677
Payable for administrative services (Note 2) 1,082
Payable for distribution fees (Note 2) 25,135
Other accrued expenses 21,970
Total liabilities 2,197,829
Net assets $56,468,417
Represented by Paid-in capital (Note 1 and 4) $55,064,588
Accumulated net realized gain on investment transactions 731,111
Net unrealized appreciation of investments 672,718
Total--Representing net assets applicable to capital shares
outstanding $56,468,417
Computation of Net asset value and redemption price of class A shares
net asset value ($50,081,097 divided by 5,066,644 shares) $9.88
and offering price
Offering price per share (100/94.25 of $(9.88)* $10.48
Net asset value and offering price of class B shares**
($6,387,320 divided by 648,717 shares) $9.85
</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 assets value less any applicable
contingent sales charge.
<PAGE>
Statement of
operations
For the Year Ended February 28, 1994
<TABLE>
<CAPTION>
<S> <C> <C>
Investment income:
Dividends (net of foreign tax of $3,176) $1,959,646
Interest 4,021
Total investment income 1,963,667
Expenses:
Compensation of Manager (Note 2) $320,008
Investor servicing and custodian fees (Note 2) 132,891
Compensation of Trustees (Note 2) 7,271
Reports to shareholders 15,328
Auditing 16,162
Legal 11,515
Postage 3,954
Distribution fees (Note 2)--class A 118,666
Distribution fees (Note 2)--class B 17,680
Administrative services (Note 2) 5,707
Amortization of organization expenses (Note 1) 8,608
Registration fees 15,430
Other expenses 4,565
Total expenses 677,785
Net investment income 1,285,882
Net realized gain on investments (Notes 1 and 3) 2,919,678
Net unrealized depreciation of investments
during the year (475,809)
Net gain on investment transactions 2,443,869
Net increase in net assets resulting from
operations $3,729,751
</TABLE>
<PAGE>
Statement of
changes in net assets
<TABLE>
<CAPTION>
Year ended February 28
1994 1993
<S> <C> <C> <C>
Increase Operations:
in net assets Net investment income $1,285,882 $ 645,382
Net realized gain on investments 2,919,678 3,102,596
Net unrealized appreciation (depreciation) of investments (475,809) (1,643,138)
Net increase in net assets resulting from operations 3,729,751 2,104,840
Undistributed net investment income included in price of
shares sold and repurchased, net -- 69,159
Distributions to shareholders from:
Net investment income
Class A (1,255,216) (897,522)
Class B (30,666) --
Net realized gain on investments
Class A (3,484,582) (1,470,076)
Class B (186,688) --
Increase from capital share transactions (Note 4) 16,226,522 17,188,911
Total increase in net assets 14,999,121 16,995,312
Net assets Beginning of period 41,469,296 24,473,984
End of period (including undistributed net investment income
of $0 and $75,436, respectively) $56,468,417 $41,469,296
</TABLE>
<PAGE>
Financial Highlights*
(For a share outstanding
throughout the period)
<TABLE>
<CAPTION>
For the period
July 15, 1993 March 5, 1990
(commencement (commencement
of operations) to Year ended Year ended Year ended of operations) to
February 28 February 28 February 28 February 29 February 28
1994 1994 1993 1992 1991
Class B Class A
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.30 $10.10 $10.21 $9.19 $8.50
Investment operations
Net Investment Income .13 .26 .19 .26(a) .35(a)
Net Realized and Unrealized
Gain on Investments .28 .53 .37 1.08 .56
Total from Investment
Operations .41 .79 .56 1.34 .91
Less Distributions from:
Net Investment Income (.13) (.28) (.28) (.28) (.22)
Net Realized Gain on
Investments (.73) (.73) (.39) (.04) --
Total Distributions (.86) (1.01) (.67) (.32) (.22)
Net Asset Value, End of Period $9.85 $9.88 $10.10 $10.21 $9.19
Total Investment Return at Net
Asset Value (%) (b) 6.51(c) 8.05 5.64 14.95 11.21(c)
Net Asset Value, End of Period
(in thousands) $6,387 $50,081 $41,469 $24,474 $13,320
Ratio of Expenses to Average
Net Assets (%) 2.14(c) 1.30 1.55 1.42(a) 1.14(a)(c)
Ratio of Net Investment Income
to Average Net Assets (%) 2.12(c) 2.53 1.91 2.58(a) 3.94(a)(c)
Portfolio Turnover (%) 129.79(d) 129.79 106.71 68.55 67.76(d)
</TABLE>
*Financial highlights for periods ended through February 28, 1993 have been
restated to conform with requirements issued by the SEC in April 1993. As of
March 1, 1993 the fund discontinued the use of equalization accounting (see
Note 1 of Notes to Financial Statements).
(a) Reflects a voluntary 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) Annualized.
(d) Not annualized.
<PAGE>
Notes to
financial statements
February 28, 1994
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 Fund offers both Class A and Class B shares. The Fund commenced its
public offering of Class B shares on July 15, 1993. Class A shares are sold
with a maximum front-end sales charge of 5.75%. Class B shares do not pay a
front-end sales charge but pay a higher ongoing distribution fee than Class A
shares, and may be subject to a contingent deferred sales charge, if those
shares are redeemed within six years of purchase. Expenses of the Fund are
borne pro-rata by the holders of both classes of shares, except that each
class bears expenses unique to that class (including the distribution fees
applicable to such class) and votes as a class only with respect to its own
distribution plan or other matters on which a class vote is required by Law
or determined by the Trustees. Shares of each class would receive their
pro-rata share of the net assets of the Fund, if the fund were liquidated. In
addition, the Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported--as in the case of some
securities traded over-the-counter--the last reported bid price, except that
certain U.S. government obligations are stated at the mean between the 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., the Fund's Manager, a wholly-owned subsidiary of
Putnam Invest-
<PAGE>
ments, 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.
G) Equalization Prior to March 1, 1993, the fund used the accounting practice
known as equalization to keep a continuing shareholder's per share interest
in undistributed net investment income unaffected by sales or repurchases of
Fund shares. This was accomplished by allocating a per share portion of the
proceeds from sales and the costs of repurchases of shares to undistributed
net investment income. As of March 1, 1993, The Fund discontinued using
equalization. This change has no effect on the Fund's total net assets, net
asset value per share, or its net increase (decrease) in net assets resulting
from operations. Discontinuing the use of equalization will result in simpler
financial statements. The cumulative effect of the change was to decrease
undistributed net investment income and increase paid-in capital previously
reported through February 28, 1993 by $324,529.
<PAGE>
H) 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 Investment Management, Inc., 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, 0.50% 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 year ended
February 28, 1994, the Fund paid $5,707 for such services.
Trustees of the Fund receive an annual Trustee's fee of $580 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 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 year
ended February 28, 1994 amounted to $132,891.
Investor servicing and custodian fees reported in the Statement of operations
for the year ended February 28, 1994 have been reduced by credits allowed by
PFTC.
<PAGE>
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 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 year ended February 28, 1994, the Fund paid Putnam Mutual Funds Corp.
distribution fees of $118,666.
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 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. Payments under the plan
cannot exceed 1.00% without shareholder approval. For the period July 15,
1993, (commencement of operations) to February 28, 1994, the Fund paid Putnam
Mutual Funds Corp. distribution fees of $17,680 for Class B shares.
During the year ended February 28, 1994, Putnam Mutual Funds Corp. acting as
an underwriter, received net commissions of $75,960 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 year ended February 28, 1994, Putnam Mutual Funds Corp., acting as
underwriter, received $52 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 $2,183 from redemptions during the year
ended February 28, 1994.
<PAGE>
Note 3
Purchases
and sales
of securities
During the year ended February 28, 1994, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $75,464,830 and $62,860,014, respectively. There were no purchases
and sales of U.S. government obligations during the year. 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 February 28, 1994, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Year ended February 28
1994 1993
Class A Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 1,904,094 $ 19,384,649 2,609,536 $ 26,381,995
Shares issued in connection
with reinvestment of
distributions 429,829 4,268,491 215,000 2,178,996
2,333,923 23,653,140 2,824,536 28,560,991
Shares repurchased (1,374,400) (13,969,478) (1,114,313) (11,302,921)
Portion represented by
undistributed net investment
income (Note 1-G) -- -- -- (69,159)
Net increase 959,523 $ 9,683,662 1,710,223 $ 17,188,911
</TABLE>
<TABLE>
<CAPTION>
July 15, 1993
(Commencement of
Operations) to
February 28
1994
Class B Shares Amount
<S> <C> <C>
Shares sold 665,183 $6,714,353
Shares issued in connection with reinvestment of distributions 20,160 196,795
685,343 6,911,148
Shares repurchased (36,626) (368,288)
Net increase 648,717 $6,542,860
</TABLE>
<PAGE>
Note 5
Reclassification of
Capital Accounts
Effective March 1, 1993 the fund has adopted the provisions of Statement of
Position 92-2 "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 regulations versus generally accepted accounting principles.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassification to paid-in capital.
<PAGE>
Federal
tax information
For federal income tax purposes, the Fund declared the following per share
distributions for the year ended February 28, 1994.
<TABLE>
<CAPTION>
Net Investment Short Term Long Term
Imcome Capital Gains Capital Gains Total
<S> <C> <C> <C> <C>
Class A $0.280 $0.389 $0.338 $1.007
Class B $0.128 $0.389 $0.338 $0.855
</TABLE>
The Fund has designated 52.52% of the net investment income as qualifying for
the dividends-received deductions for corporations.
The Form 1099 you will receive in January 1995 will show you the tax status
of all distributions paid to your account in calendar year 1994.
If you're a shareholder in an IRA or other tax-sheltered retirement plan,
this statement is for information only. Money invested in these plans is not
generally subject to federal income tax until you withdraw it.
As required by law, your Fund reports to the Internal Revenue Service on a
calendar year basis the amount of distribution paid to each shareholder.
<PAGE>
Fund
performance
supplement
Putnam Dividend Growth Fund is a portfolio managed for growth and income
primarily through investments in common stocks. Standard & Poor's 500 Index
is an unmanaged list of large-capitalization common stocks; it assumes
reinvestment of all distributions. The index does not take into account
brokerage commissions or other costs. The fund's portfolio contains
securities that do not match those in the index. The Consumer Price Index is
a commonly used measure of inflation; it does not represent an investment
return.
Fund performance data do not take into account any adjustment made for taxes
payable on reinvested distributions.
The fund performance supplement has been prepared by Putnam Management to
provide additional information about the fund and the indexes used for
performance comparisons. The information is not part of the portfolio of
investments owned or the financial statements.
<PAGE>
Your
Trustees
George Putnam
Chairman
Chairman and President,
The Putnam Funds
William F. Pounds
Vice Chairman
Professor of Management,
Alfred P. Sloan
School of Management,
Massachusetts Institute of
Technology
Jameson Adkins Baxter
President,
Baxter Associates, Inc.
Hans H. Estin
Vice Chairman,
North American
Management Corporation
John A. Hill
Principal and
Managing Director,
First Reserve Corp.
Elizabeth T. Kennan
President,
Mount Holyoke College
Lawrence J. Lasser
President and
Chief Executive Officer,
Putnam Investments, Inc.
Robert E. Patterson
Executive Vice President,
Cabot Partners
Limited Partnership
Donald S. Perkins
Director of various
corporations
George Putnam, III
President, New Generation
Research, Inc.
A.J.C. Smith
Chairman of the Board
and Chief Executive Officer,
Marsh & McLennan
Companies, Inc.
W. Nicholas Thorndike
Director of various
corporations
<PAGE>
Putnam
Dividend
Growth
Fund
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
Investor servicing agent
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
1-800-225-1581
Custodian
Putnam Fiduciary
Trust Company
Legal counsel
Ropes & Gray
Independent accountants
Coopers & Lybrand
(Dalbar Logo)
Putnam Investor Services has
received the DALBAR award
each year since the award's
1990 inception.
In more than 10,000 tests
of 38 shareholder
service components,
Putnam outperformed
the industry standard
in every category.
Officers
George Putnam
President Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Thomas V. Reilly
Vice President
Michael R. Mach
Vice President
and Fund Manager
William N. Shiebler
Vice President
Francis J. Mullin
Vice President
John R. Verani
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.
43/03-11525
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
Paid
Boston, MA
Permit No 53749
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS:
(1) Bold and italic typefaces are displayed in normal type.
(2) Headers (e.g., the name of the fund) and footers (e.g., page
numbers and "The accompanying notes are an integral part of these
financial statements") are omitted.
(3) Certain tabular and columnar headings and symbols are displayed
differently in this filing.
(4) Bullet points and similar graphic signals are omitted.
(5) Page numbering is omitted.
(6) Dagger footnote symbol replaced with plus sign (+).
