PUTNAM DIVIDEND GROWTH FUND
ANNUAL REPORT
FEBRUARY 28, 1995
[LOGO]
BOSTON * LONDON * TOKYO
PERFORMANCE HIGHLIGHTS
"We believe that, over time, the securities of strong, consistent
growth companies acquired at below-average valuations will provide
returns typically associated with equity investing, but at risk
levels that make conservative investors comfortable."
- --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.
FISCAL 1995 RESULTS AT A GLANCE
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
CLASS A CLASS B
TOTAL RETURN: NAV POP NAV CDSC
- -----------------------------------------------------------------
12 months ended 2/28/95
(change in value during
period plus reinvested
distributions) 6.87% 0.76% 5.76% 0.76%
- -----------------------------------------------------------------
<S> <C> <C> <C>
SHARE VALUE: NAV POP NAV
- -----------------------------------------------------------------
2/28/94 $9.88 $10.48 $9.85
2/28/95 10.03 10.64 9.96
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CAPITAL GAINS
LONG- SHORT-
DISTRIBUTIONS: NO. INCOME TERM TERM TOTAL
- -----------------------------------------------------------------
Class A 4 $0.280 $0.058 $0.159 $0.497
Class B 4 0.215 0.058 0.159 0.432
- -----------------------------------------------------------------
<S> <C> <C> <C>
CURRENT RETURN: NAV POP NAV
- -----------------------------------------------------------------
End of period
Current dividend rate(1) 2.79% 2.63% 2.13%
Current 30-day
SEC yield(2) 3.69 3.48 2.83
- -----------------------------------------------------------------
<FN>
Performance data represent past results and will differ for each
share class. 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. Past performance is no indication of future
results.
</TABLE>
<PAGE>
FROM THE CHAIRMAN
[PHOTO]
(c) Karsh, Ottawa
DEAR SHAREHOLDER:
PUTNAM DIVIDEND GROWTH FUND CONCLUDED ITS FISCAL YEAR ON FEBRUARY
28, 1995, WHILE THE STOCK MARKET WAS STILL EUPHORIC OVER THE DOW
JONES INDUSTRIAL AVERAGE'S ASCENT ABOVE 4000. HOWEVER, EQUITY
INVESTORS WILL PROBABLY CONTINUE TO KEEP ONE EYE ON INTEREST RATES
AND THE OTHER ON THE COURSE OF THE ECONOMY. THIS IS LIKELY TO
PRODUCE SOME LINGERING NEAR-TERM MARKET VOLATILITY.
BY NOW, YOU SHOULD HAVE RECEIVED INFORMATION ABOUT THE PROPOSED
MERGER OF YOUR FUND INTO PUTNAM GROWTH AND INCOME FUND II, MANAGED
BY ANTHONY J. KREISEL. THE FUNDS HAVE SIMILAR OVERALL INVESTMENT
STRATEGIES, AND THE TRUSTEES BELIEVE THE CREATION OF A SINGLE,
LARGER FUND WOULD BEST SERVE THE SHAREHOLDERS OF BOTH FUNDS. IN
ANTICIPATION OF THE PROPOSED CHANGE, THE TRUSTEES ELECTED TONY TO
REPLACE MICHAEL R. MACH AS MANAGER OF YOUR FUND AT THEIR APRIL
MEETING. MEANWHILE, MIKE HAS TAKEN ON OTHER PORTFOLIO MANAGEMENT
RESPONSIBILITIES AT PUTNAM. TONY JOINED PUTNAM IN 1986 AND HAS 24
YEARS OF INVESTMENT EXPERIENCE.
WE HOPE YOU WILL READ THE PROXY STATEMENT CLOSELY AND DECIDE FOR
YOURSELF THE MERITS OF THE PROPOSED MERGER, THEN MARK THE PROXY
CARD AND RETURN IT TO US SO YOUR VOTE CAN BE COUNTED.
RESPECTFULLY YOURS,
[SIGNATURE]
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
APRIL 19, 1995
<PAGE>
REPORT FROM THE FUND MANAGER
MICHAEL R. MACH
In an uncertain market environment, investors often favor
reasonably valued stocks of financially strong, consistent growth
companies -- the stocks typically held by Putnam Dividend Growth
Fund. Investors' growing attraction to these stocks in today's
erratic market contributed to your fund's positive total return
during the fiscal year ended February 28, 1995. Investors who held
the fund's class A shares throughout the period and reinvested all
distributions saw the total return of those shares rise by 6.87%
at net asset value (NAV) by period's end. Total return for class B
shares at NAV was 5.76%.
This performance was somewhat behind the 7.41% return of the
Standard & Poor's 500(R) Index, which measures the broader market,
and well ahead of the -1.74% return of the Russell 2000 Index,
which is often used to gauge the performance of smaller-
capitalization stocks. Performance details for longer periods can
be found on pages 8 and 9.
DIVERSIFICATION: BROAD INDUSTRY, COMPANY, AND GEOGRAPHICAL MIX
SPREADS RISK
Broad diversification across three major market sectors and nearly
two dozen industries, as well as across large, medium- sized, and
small companies, is one of the ways we seek to insulate the
portfolio from risk. At period's end, 42% of the fund's assets
were invested in the securities of large companies, those with
market capitalizations greater than $5 billion. Medium-sized
companies, with capitalizations between $750 million and $5
billion, made up 31% of the portfolio, while small companies
composed 27%.
The fund is also well-diversified geographically. In our
semiannual report last August, we explained our strategy of
confining the fund's participation in the economic growth taking
place outside the United States to investments in well-known U.S.-
based companies that have significant business interests abroad.
This strategy allows the fund to participate in growing areas of
the world while seeking to minimize the risks associated with
currency exchange and foreign stock- market fluctuations.
Over the past six months, while many other funds have been rocked
by currency devaluations and market declines, your fund's low-risk
approach to global growth opportunities shielded it from such
losses. In fact, over the past six months, the globally oriented
U.S.-based companies in the portfolio -- including Minnesota
Mining & Manufacturing, Colgate- Palmolive, Lawter International,
and Keystone International -- made significant contributions to
the fund's performance.
SELECTION CRITERIA: VALUE, FINANCIAL STRENGTH, CONSISTENT GROWTH
Careful stock selection is another way we seek to limit the fund's
risk exposure. We direct our most intensive effort toward the
selection of individual stocks. The companies we choose for your
fund must possess strong balance sheets and demonstrate consistent
historical growth. Their securities must be priced below our
assessment of their actual worth. We believe that, over time, the
securities of strong, consistent growth companies
PIE CHART
PORTFOLIO PROFILE*
- -----------------------------------------------------------------
DIVERSIFICATION BY MARKET CAPITALIZATION
Large 42%
Midsized 31%
Small 27%
DIVERSIFICATION BY MAJOR INDUSTRY SECTOR
Industrial 31%
Consumer 34%
Interest-rate-sensitive 31%
Short-term investments 4%
[FN]
* Based on net assets on 2/28/95. Allocations will vary in the
future.
[/FN]
acquired at below-average valuations will provide returns
typically associated with equity investing, but at risk levels
that make conservative investors comfortable.
In fiscal 1995, the companies that best met our selection criteria
tended to fall within three distinct areas of the market: consumer
products, industrial goods, and insurance/finance. Following are
brief profiles of companies in each of these categories.
CONSUMER-PRODUCTS STOCKS
Merck & Co., a leading manufacturer of pharmaceuticals and other
health-care products, is known for its strength in research and
development. New drugs we expect to be available soon should allow
Merck to extend its consistent growth record.
Clorox Co. has been taking a low-risk approach to above-average
earnings growth by extending its product lines and promoting its
household products in the markets it already dominates. Cost-
cutting initiatives should finance increased marketing investment
and further growth in market share.
INDUSTRIAL-GOODS STOCKS
Minnesota Mining & Manufacturing (3M) has been in the portfolio
throughout the fund's life. Although demand for 3M's wide array of
products had been restrained by economic recessions in Europe and
Japan, we believe sales should increase as these economies
rebound. Annual sales growth in smaller Asian markets and Latin
America has exceeded 30%, and conversion of foreign earnings into
dollars has turned positive.
Hubbell, Inc., one of the fund's largest holdings, makes
electrical equipment for commercial, industrial, and utility
customers. The company's productivity levels and after-tax margins
are among the highest in its field. In our view, strong cash flows
and a proven ability to make good acquisitions suggest Hubbell
will extend its record of consistent growth.
INTEREST-RATE-SENSITIVE STOCKS
American Heritage Life Investment Corp. is a holding company whose
American Heritage Life Insurance Co. markets life, accident, and
health insurance, as well as annuities, primarily through payroll
deduction plans. The company's long record
TOP 10 HOLDINGS (2/28/95)
- -----------------------------------------------------------------
GENERAL ELECTRIC CO.
Major services, technology, and manufacturing company
- -----------------------------------------------------------------
EXXON CORP.
Major producer and marketer of oil and gas
- -----------------------------------------------------------------
E. I. DUPONT DE NEMOURS & CO.
Worldwide producer of chemicals
- -----------------------------------------------------------------
CHEVRON CORP.
Major producer of petroleum, chemicals, and minerals
- -----------------------------------------------------------------
PHILIP MORRIS COS., INC.
Domestic food processing, alcohol, and tobacco company
- -----------------------------------------------------------------
MERCK & CO., INC.
World's largest producer of ethical pharmaceuticals
- -----------------------------------------------------------------
HUBBELL, INC. (CLASS B)
Manufacturer of electrical equipment for industry and utilities
- -----------------------------------------------------------------
KIMBERLY-CLARK CORP.
Major producer of consumer and personal care products
- -----------------------------------------------------------------
J. C. PENNEY CO., INC.
Among largest U.S. retailers of general merchandise
- -----------------------------------------------------------------
MINNESOTA MINING & MANUFACTURING CO.
Manufacturer of widely diversified range of products
- -----------------------------------------------------------------
[FN]
These holdings represent 20.2% of the fund's net assets. Portfolio
holdings are subject to change.
[/FN]
of annual increases in earnings and dividends and its solid
financial condition have made it popular with conservative equity
investors.
Wilmington Trust Corp. is a bank holding company whose banking
subsidiary operates mainly in Delaware. The company's healthy
financial condition and strong market share have been enhanced by
growth in its trust business as a result of acquisitions. Its
conservative management style and relatively low dependence on
interest income (38% of revenues) have produced a 10-year record
of annual earnings increases.
OUTLOOK: AGING U.S. RECOVERY SHOULD HELP FUND'S PROSPECTS
As investors continue to feel the impact of currency volatility,
swings in interest rates, and the aging U.S. economic recovery, we
believe they should continue to be attracted to the consistent
dividend records of the growth companies in which your fund
invests.
[FN]
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 2/28/95, there is
no guarantee the fund will continue to hold these securities in
the future.
[/FN]
<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.
<TABLE><CAPTION>
TOTAL RETURN FOR PERIODS ENDED 2/28/95
<C> <C> <C> <C> <C> <C>
STANDARD &
POOR'S(R) RUSSELL
CLASS A CLASS B 500 2000
NAV POP NAV CDSC INDEX INDEX
- -----------------------------------------------------------------
1 year 6.87% 0.76% 5.76% 0.76% 7.41% -1.74%
- -----------------------------------------------------------------
3 years 21.98 14.99 -- -- 28.72 27.75
Annual average 6.85 4.77 -- -- 8.78 8.51
- -----------------------------------------------------------------
Life of class A 55.78 46.79 -- -- 71.25 77.63
Annual average 9.29 8.00 -- -- 11.38 12.20
- -----------------------------------------------------------------
Life of class B -- -- 10.08 6.22 12.88 12.64
Annual average -- -- 6.07 3.77 7.72 7.58
- -----------------------------------------------------------------
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 3/31/95
(Most recent calendar quarter)
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
CLASS A CLASS B
NAV POP NAV CDSC
- -----------------------------------------------------------------
1 year 12.83% 6.31% 11.77% 6.77%
- -----------------------------------------------------------------
3 years 26.15 18.88 -- --
Annual average 8.05 5.93 -- --
- -----------------------------------------------------------------
Life of class A 58.43 49.29 -- --
Annual average 9.50 8.22 -- --
- -----------------------------------------------------------------
Life of class B -- -- 11.90 7.99
Annual average -- -- 6.80 4.60
- -----------------------------------------------------------------
<FN>
Fund performance data do not take into account any adjustment for
taxes payable on reinvested distributions. The fund began
operations on 3/5/90, offering shares now known as class A.
Effective 7/15/93, the fund began offering class B shares.
Performance data represent past results and will differ for each
share class. Investment returns and net asset value will fluctuate
so an investor's shares, when sold, may be worth more or less than
their original cost.
</TABLE>
<PAGE>
MOUNTAIN CHART
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
PLOT POINTS
- -----------------------------------------------------------------
Date POP S&P 500 Russell 2000
3/5/90 $9,425 $10,000 $10,000
2/28/91 $10,469 $11,468 $10,372
2/28/92 $12,035 $13,304 $13,904
2/28/93 $12,713 $14,724 $14,946
2/28/94 $13,736 $15,944 $18,078
2/28/95 $14,695 $17,125 $17,763
[FN]
Past performance is no assurance of future results. A $10,000
investment in the fund's class B shares at inception on 7/15/93
would have been valued at $11,008 on 2/28/95 ($10,622 with a
redemption at the end of the period).
[/FN]
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 for class A shares.
Contingent deferred sales charge (CDSC) is a charge applied at the
time of the redemption of class B shares and assumes redemption at
the end of the period. Your fund's CDSC declines from a 5% maximum
during the first year to 1% during the sixth year. After the sixth
year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
Standard & Poor's 500(R) 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.
<PAGE>
RELATIVE RISK/REWARD POTENTIAL OF PUTNAM FUNDS
These illustrations provide a simplified guide to the risk/reward
potential for funds within each category of the Putnam Family of
Funds and are not intended as investment advice. Your investment
advisor can help you evaluate your risk tolerance.
These rankings are relative only to Putnam funds and should not be
compared to other investments. There is no guarantee that one
Putnam fund will be less volatile than another, since each fund
has its own investment risks. That's why it is essential to read
the fund's prospectus before investing.
PUTNAM GROWTH FUNDS
[GRAPHIC]
HIGHER RISK
HIGHER REWARD POTENTIAL
ASIA PACIFIC GROWTH(1)
OTC EMERGING GROWTH(2)
NEW OPPORTUNITIES(2)
EUROPE GROWTH(1)
OVERSEAS GROWTH(1)
VOYAGER
HEALTH SCIENCES
NATURAL RESOURCES
VISTA
GLOBAL GROWTH(1)
DIVERSIFIED EQUITY(1)
INVESTORS
LOWER RISK
LOWER REWARD POTENTIAL
PUTNAM GROWTH AND INCOME FUNDS
[GRAPHIC]
HIGHER RISK
HIGHER REWARD POTENTIAL
DIVIDEND GROWTH
PUTNAM GROWTH AND INCOME FUND II
FUND FOR GROWTH AND INCOME
EQUITY INCOME
CONVERTIBLE INCOME-GROWTH
GEORGE PUTNAM
UTILITIES GROWTH AND INCOME
MANAGED INCOME
LOWER RISK
LOWER REWARD POTENTIAL
[FN]
(1) Foreign investments are subject to certain risks, such as
currency fluctuations and political developments, that are
not present with domestic investments.
(2) This fund invests all or a portion of its assets in small to
medium-sized companies, which increases the risk of price
fluctuations.
(3) While U.S. government backing of individual securities does
not insure your principal, which will fluctuate, it does
guarantee that the fund's government-backed holdings will
make timely payments of interest and principal.
[/FN]
<PAGE>
PUTNAM INCOME FUNDS
[GRAPHIC]
HIGHER RISK
HIGHER REWARD POTENTIAL
HIGH YIELD ADVANTAGE(5)
HIGH YIELD(5)
GLOBAL GOV'T.(1)(5)
PREFERRED INCOME
INCOME
DIVERSIFIED INCOME(1)(3)(5)
FEDERAL INCOME(3)
AMERICAN GOV'T. INCOME(3)
U.S. GOV'T. INCOME(3)
BALANCED GOV'T.(3)
ADJUSTABLE RATE U.S. GOV'T.(3)
MONEY MARKET(4)
LOWER RISK
LOWER REWARD POTENTIAL
PUTNAM TAX-FREE FUNDS(6)
[GRAPHIC]
HIGHER RISK
HIGHER REWARD POTENTIAL
TAX-FREE HIGH YIELD(5)
MUNICIPAL INCOME
SINGLE-STATE TAX-FREE FUNDS*
TAX EXEMPT INCOME
TAX-FREE INSURED(7)
INTERMEDIATE TAX EXEMPT
TAX EXEMPT MONEY MARKET(4)
LOWER RISK
LOWER REWARD POTENTIAL
[FN]
* State tax-free funds available for Arizona, California,
Florida, Massachusetts, Michigan, Minnesota, New Jersey, New
York, Ohio, and Pennsylvania. Not available in all states.
[/FN]
LIFESTAGE(SM) FUNDS
Putnam Asset Allocation Funds-- three investment portfolios that
spread your money across a variety of stocks, bonds, and money
market investments. The three portfolios are:
PUTNAM ASSET ALLOCATION: BALANCED PORTFOLIO
PUTNAM ASSET ALLOCATION: CONSERVATIVE PORTFOLIO
PUTNAM ASSET ALLOCATION: GROWTH PORTFOLIO
Please call your financial advisor -- or Putnam at 1-800-225-1581 --
to obtain a prospectus for any Putnam fund. The prospectus
contains more complete information, including risk considerations,
charges, and expenses. Read it carefully before you invest or send
money.
[FN]
(4) The fund is managed to maintain a steady price of $1.00 per
share, although there is no assurance this price can be
maintained in the future.
(5) The lower credit ratings of high-yield corporate and
municipal bonds reflect a greater possibility that adverse
changes in the economy or their issuers may affect their
ability to pay principal and interest on the bonds.
(6) Income may be subject to state and local taxes. Capital
gains, if any, are taxable for federal and, in most cases,
state purposes.
(7) Bond insurance does not guarantee principal or protect
against changes in market price.
[/FN]
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
for the year ended February 28, 1995
To the Trustees and Shareholders 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, 1995, 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 periods indicated therein. These financial statements and
"Financial Highlights" are the responsibility of the fund's
management. Our responsibility is to express an opinion on these
financial statements and "Financial Highlights" based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the 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, 1995 by correspondence with
the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and "Financial
Highlights" referred to above present fairly, in all material
respects, the financial position of Putnam Dividend Growth Fund as
of February 28, 1995, the results of its operations for the year
then ended, the changes in its net assets for each of the two
years in the period then ended, and the "Financial Highlights" for
each of the periods indicated therein, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 5, 1995
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
February 28, 1995
COMMON STOCKS (97.7%)*
NUMBER OF SHARES VALUE
<TABLE><CAPTION>
<C> <S>
<C>
ALCOHOLIC BEVERAGES (0.7%)
- -----------------------------------------------------------------
13,500 Brown-Forman Corp. Class B$
437,063
APPAREL (0.9%)
- -----------------------------------------------------------------
10,000 VF Corp.
515,000
AUTOMOBILES (0.5%)
- -----------------------------------------------------------------
14,000 Fleetwood Enterprises, Inc.
306,250
AUTOMOTIVE PARTS (2.2%)
- -----------------------------------------------------------------
15,000 CLARCOR, Inc.
296,250
11,500 Genuine Parts Co.
447,063
8,500 TRW, Inc.
558,875
---
-------
1,302,188
BANKS (12.0%)
- -----------------------------------------------------------------
14,070 Banc One Corp.
413,306
18,000 BankAmerica Corp.
866,240
9,000 Bankers Trust New York Corp.
568,125
13,500 Boatmen's Bancshares, Inc.
418,500
8,000 CCB Financial Corp.
302,000
16,000 Comerica, Inc.
450,000
14,500 CoreStates Financial Corp.
436,813
15,100 Firstar Corp.
453,000
10,000 Integra Financial Corp.
427,500
14,500 Keystone Financial, Inc.
406,000
12,500 Morgan (J.P.) & Co., Inc.
806,250
16,000 National City Corp.
444,000
8,000 NationsBank Corp.
399,000
27,500 Wilmington Trust Corp.
680,625
---
-------
7,071,359
BUSINESS SERVICES (0.5%)
- -----------------------------------------------------------------
9,500 Wallace Computer Services, Inc.
295,688
CHEMICALS (4.3%)
- -----------------------------------------------------------------
44,700 Lawter International, Inc.
575,513
22,600 Witco Chemical Corp.
646,925
23,000 du Pont (E.I.) de Nemours & Co., Ltd.
1,290,875
---
-------
2,513,313
CONGLOMERATES (4.3%)
- -----------------------------------------------------------------
14,050 Johnson Controls, Inc.
698,988
17,500 Minnesota Mining & Manufacturing Co.
958,125
21,500 National Service Industries, Inc.
577,813
7,000 Rockwell International Corp.
269,500
---
-------
2,504,426
COSMETICS (1.5%)
- -----------------------------------------------------------------
16,000 Avon Products, Inc.
900,000
ELECTRIC UTILITIES (1.8%)
- -----------------------------------------------------------------
17,600 DQE, Inc.
591,800
14,100 United Illuminating Co.
468,825
---
-------
1,060,625
ELECTRICAL EQUIPMENT (4.2%)
- -----------------------------------------------------------------
26,000 General Electric Co.
1,426,750
19,015 Hubbell Inc. Class B
1,026,810
---
-------
2,453,560
ELECTRONICS (0.9%)
- -----------------------------------------------------------------
11,000 Eaton Corp.
551,375
FINANCE (2.2%)
- -----------------------------------------------------------------
14,500 Beneficial Corp.
538,313
10,000 Federal National Mortgage Association
771,250
---
-------
1,309,563
FOOD (3.2%)
- -----------------------------------------------------------------
51,500 Flowers Industries, Inc.
946,313
29,000 Universal Foods Corp.
909,875
---
-------
1,856,188
FOOD CHAINS (0.7%)
- -----------------------------------------------------------------
16,500 Supervalu, Inc.
424,875
GAS UTILITIES (3.3%)
- -----------------------------------------------------------------
25,000 New Jersey Resources Corp.
578,125
33,000 UGI Corp.
668,250
24,600 WICOR, Inc.
713,400
---
-------
1,959,775
HOME FURNISHINGS (1.8%)
- -----------------------------------------------------------------
20,000 Kimball International, Inc. Class B
540,000
30,650 Knape & Vogt Manufacturing Co.
513,388
---
-------
1,053,388
HOUSEHOLD PRODUCTS (2.8%)
- -----------------------------------------------------------------
13,500 BIC Corp.
433,688
6,000 Clorox Co.
362,250
7,000 Colgate-Palmolive Co.
451,500
14,000 Stanhome, Inc.
392,000
---
-------
1,639,438
INSURANCE (6.0%)
- -----------------------------------------------------------------
18,500 American General Corp.
585,063
30,500 American Heritage Life Investment Corp.
594,750
8,500 Gallagher (Arthur J.) & Co.
297,500
30,000 Harleysville Group, Inc.
750,000
13,500 Lincoln National Corp.
545,063
7,500 SAFECO Corp.
412,500
6,500 St. Paul Cos., Inc.
316,063
---
-------
3,500,939
MACHINERY (1.9%)
- -----------------------------------------------------------------
27,500 Keystone International, Inc.
512,188
21,000 Regal Beloit Corp.
328,125
5,800 Tennant Co.
281,300
---
-------
1,121,613
MEDICAL EQUIPMENT AND SUPPLIES (2.7%)
- -----------------------------------------------------------------
40,000 ADAC Laboratories
320,000
18,500 Baxter International, Inc.
575,813
30,500 Landauer, Inc.
533,750
17,000 Paco Pharmaceutical Services, Inc.
131,750
---
-------
1,561,313
OFFICE EQUIPMENT (0.8%)
- -----------------------------------------------------------------
12,500 Pitney Bowes, Inc.
443,750
OIL AND GAS (5.7%)
- -----------------------------------------------------------------
27,000 Chevron Corp.
1,282,500
22,000 Exxon Corp.
1,408,000
7,500 Mobil Corp.
652,500
---
-------
3,343,000
PAPER (2.4%)
- -----------------------------------------------------------------
23,000 Glatfelter (P.H.) Co.
419,750
19,000 Kimberly-Clark Corp.
988,000
---
-------
1,407,750
PHARMACEUTICALS (6.5%)
- -----------------------------------------------------------------
12,000 American Home Products Corp.
858,000
14,000 Bristol-Myers Squibb Co.
868,000
28,000 Merck & Co., Inc.
1,186,500
11,500 Warner-Lambert Co.
878,313
---
-------
3,790,813
PUBLISHING (2.3%)
- -----------------------------------------------------------------
16,000 Dun & Bradstreet Corp.
826,000
15,000 Lee Enterprises, Inc.
541,875
---
-------
1,367,875
RAILROADS (3.5%)
- -----------------------------------------------------------------
10,500 GATX Corp.
468,563
9,500 Illinois Central Corp.
321,813
9,000 Norfolk Southern Corp.
595,125
14,000 Union Pacific Corp.
731,500
---
-------
2,117,001
REITS (2.9%)
- -----------------------------------------------------------------
15,500 Nationwide Health Properties, Inc.
558,000
14,000 ROC Communities, Inc.
292,250
22,500 South West Property Trust, Inc.
272,813
15,900 Weingarten Realty Investors, Inc.
576,375
---
-------
1,699,438
RESTAURANTS (0.9%)
- -----------------------------------------------------------------
23,000 Luby's Cafeterias, Inc.
523,250
RETAIL (3.7%)
- -----------------------------------------------------------------
9,000 Blair Corp.
304,875
24,000 May Department Stores Co.
876,000
23,000 Penney (J.C.) Co., Inc.
986,125
---
-------
2,167,000
SPECIALTY CONSUMER PRODUCTS (2.0%)
- -----------------------------------------------------------------
13,000 Deluxe Corp.
364,000
10,000 Sturm, Ruger & Co., Inc.
305,000
12,600 WD-40 Co.
513,450
---
-------
1,182,450
STEEL (0.6%)
- -----------------------------------------------------------------
6,500 Carpenter Technology Corp.
352,625
TELEPHONE UTILITIES (2.4%)
- -----------------------------------------------------------------
16,000 Bell Atlantic Corp.
858,000
32,000 Lincoln Telecommunications Co.
520,000
---
-------
1,378,000
TOBACCO (4.2%)
- -----------------------------------------------------------------
20,000 Philip Morris Cos., Inc.
1,215,000
18,000 UST, Inc.
535,500
35,000 Universal Corp.
695,625
---
-------
2,446,125
WATER UTILITIES (0.8%)
- -----------------------------------------------------------------
15,000 American Water Works, Inc.
442,500
- -----------------------------------------------------------------
TOTAL COMMON STOCKS (cost $55,129,915)
$56,999,516
- -----------------------------------------------------------------
SHORT-TERM INVESTMENTS (3.2%)* (cost $1,849,000)
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------
$1,849,000 Federal Home Loan Mortgage Corp.
5.95s, March 1, 1995 $1,849,000
- -----------------------------------------------------------------
TOTAL INVESTMENTS (cost $56,978,915)***
$58,848,516
- -----------------------------------------------------------------
<FN>
* Percentages indicated are based on net assets of $58,331,659,
which corresponds to a net asset value per class A share and
class B share of $10.03 and $9.96 respectively.
*** The aggregate identified cost for federal income tax purposes
is $57,362,367, resulting in gross unrealized appreciation
and depreciation of $2,775,635 and $1,289,451, respectively,
or net unrealized appreciation of $1,486,150.
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1995
<TABLE>
<S> <C>
ASSETS
- -----------------------------------------------------------------
Investments in securities, at value
(identified cost $56,978,915) (Note 1) $58,848,516
- -----------------------------------------------------------------
Cash 433
- -----------------------------------------------------------------
Dividends receivable 229,010
- -----------------------------------------------------------------
Receivable for shares of the fund sold 77,425
- -----------------------------------------------------------------
Receivable for securities sold 7,953,434
- -----------------------------------------------------------------
Unamortized organization expenses (Note 1) 1,836
- -----------------------------------------------------------------
TOTAL ASSETS $67,110,654
- -----------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------
Payable for securities purchased 8,553,302
- -----------------------------------------------------------------
Payable for shares of the fund repurchased 55,824
- -----------------------------------------------------------------
Payable for compensation of Manager (Note 2) 89,542
- -----------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 468
- -----------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2)28,103
- -----------------------------------------------------------------
Payable for administrative services (Note 2) 1,159
- -----------------------------------------------------------------
Payable for distribution fees (Note 2) 26,674
- -----------------------------------------------------------------
Other accrued expenses 23,923
- -----------------------------------------------------------------
TOTAL LIABILITIES 8,778,995
- -----------------------------------------------------------------
NET ASSETS $58,331,659
- -----------------------------------------------------------------
REPRESENTED BY
- -----------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $56,109,750
- -----------------------------------------------------------------
Undistributed net investment income (Note 1) 2,259
- -----------------------------------------------------------------
Accumulated net realized gain on
investment transactions (Note 1) 350,049
- -----------------------------------------------------------------
Net unrealized appreciation of investments 1,869,601
- -----------------------------------------------------------------
Total--Representing net assets applicable to
capital shares outstanding $58,331,659
- -----------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- -----------------------------------------------------------------
Net asset value and redemption price of class A shares
($47,806,674 divided by 4,765,150 shares) $10.03
- -----------------------------------------------------------------
Offering price per share (100/94.25 of $10.03)* $10.64
- -----------------------------------------------------------------
Net asset value and offering price of class B shares
($10,524,985 divided by 1,056,408 shares)+ $9.96
- -----------------------------------------------------------------
<FN>
* On single retail sales of less than $50,000. On sales of
$50,000 or more and on group sales the offering price is
reduced.
+ Redemption price per share is equal to net asset value less
any applicable contingent deferred sales charge.
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
For the year ended February 28, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------
Dividends $2,389,450
- -----------------------------------------------------------------
Interest 1,317
- -----------------------------------------------------------------
Total investment income 2,390,767
- -----------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------
Compensation of Manager (Note 2) 360,822
- -----------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 112,475
- -----------------------------------------------------------------
Compensation of Trustees (Note 2) 7,719
- -----------------------------------------------------------------
Reports to shareholders 62,397
- -----------------------------------------------------------------
Auditing 15,823
- -----------------------------------------------------------------
Legal 12,035
- -----------------------------------------------------------------
Postage 21,379
- -----------------------------------------------------------------
Distribution fees--class A (Note 2) 117,417
- -----------------------------------------------------------------
Distribution fees--class B (Note 2) 84,873
- -----------------------------------------------------------------
Administrative services (Note 2) 5,268
- -----------------------------------------------------------------
Amortization of organization expenses (Note 1) 8,386
- -----------------------------------------------------------------
Other expenses 9,891
- -----------------------------------------------------------------
TOTAL EXPENSES 818,485
- -----------------------------------------------------------------
NET INVESTMENT INCOME 1,572,282
- -----------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 857,264
- -----------------------------------------------------------------
Net unrealized appreciation of investments
during the year 1,196,883
- -----------------------------------------------------------------
NET GAIN ON INVESTMENT TRANSACTIONS 2,054,147
- -----------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,626,429
- -----------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<S> <C> <C>
YEAR ENDED FEBRUARY 28
--------------------------
1995 1994
- -----------------------------------------------------------------
INCREASE IN NET ASSETS
- -----------------------------------------------------------------
Operations:
- -----------------------------------------------------------------
Net investment income $1,572,282 $1,285,882
- -----------------------------------------------------------------
Net realized gain on investments 857,264 2,919,678
- -----------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 1,196,883 (475,809)
- -----------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 3,626,429 3,729,751
- -----------------------------------------------------------------
Distributions to shareholders from:
- -----------------------------------------------------------------
Net investment income
- -----------------------------------------------------------------
Class A (1,371,794) (1,255,216)
- -----------------------------------------------------------------
Class B (181,786) (30,666)
- -----------------------------------------------------------------
Net realized gain on investments
- -----------------------------------------------------------------
Class A (1,047,171) (3,484,582)
- -----------------------------------------------------------------
Class B (201,426) (186,688)
- -----------------------------------------------------------------
Increase from capital share
transactions (Note 4) 1,038,990 16,226,522
- -----------------------------------------------------------------
Total increase in net assets 1,863,242 14,999,121
- -----------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------
Beginning of year 56,468,417 41,469,296
- -----------------------------------------------------------------
END OF YEAR (including undistributed
net investment income of $2,259 and $0,
respectively) $58,331,659 $56,468,417
- -----------------------------------------------------------------
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> <C>
JULY 15, 1993
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
FEBRUARY 28 FEBRUARY 28
--------------------------------
1995 1994
--------------------------------
CLASS B
NET ASSET VALUE, BEGINNING OF PERIOD $9.85 $10.30
- -----------------------------------------------------------------
INVESTMENT OPERATIONS
- -----------------------------------------------------------------
Net investment income .21 .13
- -----------------------------------------------------------------
Net realized and unrealized gain
on investments .33 .28
- -----------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .54 .41
- -----------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
- -----------------------------------------------------------------
Net investment income (.21) (.13)
- -----------------------------------------------------------------
Net realized gain on investments (.22) (.73)
- -----------------------------------------------------------------
TOTAL DISTRIBUTIONS (.43) (.86)
- -----------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.96 $9.85
- -----------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%)(B) 5.76 4.10(C)
- -----------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD
(in thousands) $10,525 $6,387
- -----------------------------------------------------------------
Ratio of expenses to average
net assets (%) 2.12 .34(c)
- -----------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 2.12 .33(c)
- -----------------------------------------------------------------
Portfolio turnover (%) 125.94 129.79
- -----------------------------------------------------------------
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE><CAPTION>
<C> <C> <C> <C> <C>
FOR THE PERIOD
MARCH 5, 1990
(COMMENCEMENT OF
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS TO
FEBRUARY 28 FEBRUARY 28FEBRUARY 28 FEBRUARY 29 FEBRUARY 28
- -----------------------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------
Class A
- -----------------------------------------------------------------
$9.88 $10.10 $10.21 $9.19 $8.50
- -----------------------------------------------------------------
- -----------------------------------------------------------------
.28 .26 .19 .26(a) .35(a)
- -----------------------------------------------------------------
.37 .53 .37 1.08 .56
- -----------------------------------------------------------------
.65 .79 .56 1.34 .91
- -----------------------------------------------------------------
- -----------------------------------------------------------------
(.28) (.28) (.28) (.28) (.22)
- -----------------------------------------------------------------
(.22) (.73) (.39) (.04) --
- -----------------------------------------------------------------
(.50) (1.01) (.67) (.32) (.22)
- -----------------------------------------------------------------
$10.03 $9.88 $10.10 $10.21 $9.19
- -----------------------------------------------------------------
6.87 8.05 5.64 14.95 11.10(c)
- -----------------------------------------------------------------
$47,807 $50,081 $41,469 $24,474 $13,320
- -----------------------------------------------------------------
1.36 1.30 1.55 1.42(a) 1.12(a)(c)
- -----------------------------------------------------------------
2.96 2.53 1.91 2.58(a) 3.89(a)(c)
- -----------------------------------------------------------------
125.94 129.79 106.71 68.55 67.76(c)
- -----------------------------------------------------------------
<FN>
(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.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
February 28, 1995
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940,
as amended, as a diversified, open-end management investment
company. The 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 shareholders of both classes of shares. 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. (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.
The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These
differences include non-taxable dividends and wash sales
transactions. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution
(or available capital gains carryovers) under income tax
regulations. For the year ended February 28, 1995, the fund
reclassified $16,443 to decrease undistributed net investment
income, $10,271 to increase accumulated net realized gain on
investments and $6,172 to increase paid-in capital.
G Unamortized organization expenses Expenses incurred by the
fund in connection with its organization, its registration with
the Securities and 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.
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.
Investor servicing and custodian fees reported in the Statement of
operations for the year ended February 28, 1995 have been reduced
by credits allowed by PFTC. These credits amounted to $57,939.
The fund has adopted distribution plans (the "Plans") with respect
to its class A shares and class B shares pursuant to Rule 12B-1
under the Investment Company Act of 1940. The purpose of the Plans
is to compensate Putnam Mutual Funds Corp., a wholly- owned
subsidiary of Putnam Investments, Inc., for services provided and
expenses incurred by it in distributing shares of the fund. The
Trustees have approved payment by the fund at an annual rate of
.25% and 1.00% of the average net assets attributable to class A
and class B shares, respectively.
During the year ended February 28, 1995, Putnam Mutual Funds
Corp., acting as an underwriter, received net commissions of
$26,602 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, 1995, 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 $16,517 from class B redemptions during
the year ended February 28, 1995.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended February 28, 1995, purchases and sales of
investment securities other than U.S. government obligations and
short-term investments aggregated $84,136,401 and $84,778,972,
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, 1995, 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>
<S> <C> <C>
- -----------------------------------------------------------------
YEAR ENDED FEBRUARY 28
1995
- -----------------------------------------------------------------
CLASS A SHARES AMOUNT
- -----------------------------------------------------------------
Shares sold 756,720 $7,287,294
- -----------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 221,827 2,124,292
- -----------------------------------------------------------------
978,547 9,411,586
- -----------------------------------------------------------------
Shares repurchased (1,280,041) (12,283,381)
- -----------------------------------------------------------------
NET DECREASE (301,494) $(2,871,796)
- -----------------------------------------------------------------
YEAR ENDED FEBRUARY 28
- -----------------------------------------------------------------
1994
- -----------------------------------------------------------------
CLASS A SHARES AMOUNT
- -----------------------------------------------------------------
Shares sold 1,904,094 $19,384,649
- -----------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 429,829 4,268,491
- -----------------------------------------------------------------
2,333,923 23,653,140
- -----------------------------------------------------------------
Shares repurchased (1,374,400) (13,969,478)
- -----------------------------------------------------------------
NET INCREASE 959,523 $9,683,662
- -----------------------------------------------------------------
YEAR ENDED FEBRUARY 28
- -----------------------------------------------------------------
1995
- -----------------------------------------------------------------
CLASS B SHARES AMOUNT
- -----------------------------------------------------------------
Shares sold 588,544 $5,649,705
- -----------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 35,204 335,276
- -----------------------------------------------------------------
623,748 5,984,981
- -----------------------------------------------------------------
Shares repurchased (216,057) (2,074,195)
- -----------------------------------------------------------------
NET INCREASE 407,691 $3,910,786
- -----------------------------------------------------------------
JULY 15, 1993
(COMMENCEMENT
OF OPERATIONS) TO
FEBRUARY 28
- -----------------------------------------------------------------
1994
- -----------------------------------------------------------------
CLASS B SHARES AMOUNT
- -----------------------------------------------------------------
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>
FEDERAL TAX INFORMATION
February 28, 1995
For federal income tax purposes, the fund declared the following
per share distributions for the year ended February 28, 1995.
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
NET INVESTMENT SHORT-TERM LONG-TERM
INCOME CAPITAL GAINS CAPITAL GAINS TOTAL
- -----------------------------------------------------------------
Class A $0.28 $0.159 $0.058 $0.497
- -----------------------------------------------------------------
Class B $0.215 $0.159 $0.058 $0.432
- -----------------------------------------------------------------
</TABLE>
The fund has designated 100% of the net investment income as
qualifying for the dividends-received deductions for corporations.
The Form 1099 you will receive in January 1996 will show you the
tax status of all distributions paid to your account in calendar
year 1995.
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. Fund information
<PAGE>
FUND INFORMATION
February 28, 1995
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
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
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
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Michael R. Mach
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. 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, and the most recent copy of Putnam's
quarterly Performance Summary. For more information or to request
a prospectus, call toll free 1-800-225-1581.
SHARES OF MUTUAL FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
015/229-17505
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN
PRINTED AND EDGAR-FILED TEXTS.
(1) Rule lines for tables are omitted.
(2) Italic typefaces is displayed in normal type.
(3) Boldface type is displayed in capital letters.
(4) Headers (e.g. the names of the fund) and footers (e.g. page
numbers and -- The accompanying notes are an integral part of
these financial statements") are omitted.
(5) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(6) Bullet points and similar graphic symbols are omitted.
(7) Page numbering is different.
