(logo)
Putnam
Dividend
Income
Fund
Semiannual
Report
December 31, 1993
(artwork)
For investors seeking
high current income
tax-advantaged for
eligible corporations
consistent with
preservation of capital
through a diversified
portfolio of preferred
and common stocks
A member
of the Putnam
Family of Funds
Contents
2 How your fund performed
3 From the Chairman
4 Report from Putnam Management
Semiannual Report
7 Report of Independent Accountants
8 Portfolio of investments owned
12 Financial statements
21 Dividend Policy
22 Fund performance supplement
23 Your Trustees
<PAGE>
How your
fund performed
For periods ended December 31, 1993
Total return* Fund S&P 500
NAV Market price Index
6 months 5.58% 2.39% 4.95%
1 year 18.38 1.35 10.04
3 years 71.86 61.84 54.40
annualized 19.78 17.41 15.58
Life-of-fund
(since 9/28/89) 73.77 39.57 53.79
annualized 13.88 8.16 10.66
Share data (Common shares) NAV Market price
June 30, 1993 $12.39 $11.875
December 31, 1993 $11.99 $10.625
Distributions Capital gains
6 months ended Investment Long- Short-
December 31, 1993 Number income term termTotal
Common shares 6 $0.624 $0.325 $0.058 $1.007
Number Series Total
Preferred shares 740 A $1,128.28
Current returns
at the end of the period NAV Market price
Current dividend rate 7.51% 8.47%
Taxable equivalent rate
(for corporate investors) 10.34 11.66
*Performance data represent past results. Investment return, net
assets and market price will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their
original cost.
<PAGE>
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. It may be shown at net asset value or at
market price.
Net asset value (NAV) is the value of all your fund's assets,
minus any liabilities, the liquidation preference and cumulative
undeclared dividends paid on the auction preferred shares,
divided by the number of outstanding common shares.
Market price is the current trading price of one share of the
fund. Market prices are set by transactions between buyers and
sellers on the New York Stock Exchange.
Current dividend rate is calculated by annualizing the income
portion of the fund's most recent distribution and dividing by
the NAV or market price on the last day of the period.
Taxable equivalent dividend rate is the rate at which a taxable
investment would have to distribute income to equal the rate at
which your fund distributes income. The taxable equivalent
examples in this report assume a corporation taxed at the 35%
federal tax rate and that 100% of the fund's distributions
qualify for the 70% corporate dividends-received deduction.
Please see the fund performance supplement on page 22 for
additional information about performance comparisons.
<PAGE>
From the
Chairman
(photograph of George Putnam)
(c) Karsh, Ottawa
George Putnam
Chairman
of the Trustees
Dear Shareholder:
I am pleased to report the Putnam Dividend Income Fund had
another successful semiannual period. Not only were all
distributions eligible for the 70% dividends-received deduction
for corporations but, as you can see from the returns on page two
of this report, the fund outperformed the Standard & Poors 500
Index based on changes in the fund's net asset value.
By design, the fund must invest at least 25% of its assets in the
preferred stocks of utilities companies. In general, these stocks
have enjoyed a very successful last couple of years, as interest
rates have declined. But, as you will see in the Report from
Putnam Management, we anticipate that many of these firms will
increasingly come under pressure to compete with smaller, more
agile firms to provide the same service. As a result, Fund
Manager Jeanne Mockard has made some changes to the portfolio to
help reduce the impact of any unexpected price volatility.
With interest rates appearing to have reached bottom, Jeanne has
also taken steps to protect the fund against their inevitable
rise. The fund's somewhat conservative posture has worked well in
the past, and we believe that this continued defensive
positioning will serve shareholders well in the coming months.
Respectfully yours,
George Putnam
February 9, 1994
<PAGE>
Report from
Putnam Management
Putnam Dividend Income Fund has completed another successful
semiannual period. For the period ended December 31, 1993, the
fund returned 5.58% at net asset value, compared to 4.95% from
the S&P 500 Index. See page two for details.
Your fund has again earned four out of a possible five stars from
Morningstar, an independent research firm, based on risk-adjusted
performance for the period ended December 31, 1993. Morningstar
rates funds every two weeks, relative to similar funds and based
on risk-adjusted 3-, 5- and 10-year total return, as applicable,
adjusted for sales charges.
Income with an added advantage In addition to its competitive
return results, the fund paid an attractive level of income
during the period. Its 7.51% yield at net asset value compares
favorably to most fully taxable investments, especially in light
of the more conservative positions we have taken recently. But
that's not the full story. Since 100% of the fund's distributions
have again qualified for the 70% corporate dividends-received
deduction, our corporate shareholders enjoy an added advantage. A
qualifying corporation taxed at the maximum 35% federal tax
bracket would have needed a fully taxable investment yielding
10.34% to equal the after-tax income of Putnam Dividend Income
Fund.
An uncertain future for utilities The common and preferred stocks
of utilities companies typically make up the largest component of
the fund's portfolio; by design, the fund will normally allocate
at least 25% of total assets to this sector. This substantial
investment weighting has raised some concern in recent months,
however, as the utilities industry has undergone a degree of
turmoil. In 1992, the FCC ruled that smaller, independent
utilities companies may now compete directly with the larger,
state-regulated firms, using previously established distribution
networks, be it telephone or natural gas lines.
Adding to the challenge, Standard & Poors, in light of the FCC
ruling, announced its intention to reassess several utilities
that now face brisk competition with an eye toward downgrading
their credit ratings. This caused some alarm on Wall Street and
was the source of this sector's particularly poor performance in
the fourth quarter of 1993. Fortunately, we anticipated the move
and had reduced our utilities position by 5% from roughly 50% to
45% of portfolio holdings, avoiding some of the hardest-hit
companies. In many cases, we invested the proceeds in select
industrial preferred and common stocks.
Highlighting industrial preferreds During the period, we took the
opportunity to build up our holdings in industrial companies,
adding stocks that we felt represented significant value in terms
of income and potential price appreciation. Outside the regulated
realm of utilities, insurance companies and banks, the firms
issuing preferred stocks are primarily well-established
blue-chips that have fallen on hard times. Although in need of
cash, these firms may not have a market for a common stock
offering, or they may feel that the going price for their stock
is too low. Bond issuance may be equally unattractive, as it
would add more debt to their balance sheets and potentially
provoke a credit-rating downgrade. For companies in this dilemma,
preferred stocks are the ideal vehicle for raising funds.
A combination of these very factors led IBM to come forward with
a massive ($1.1 billion) preferred stock offering in June of last
year. The deal was so large, in fact, that the market was unable
to absorb it quickly. The resulting glut led to a decline in the
price of these securities, and we purchased a substantial portion
at what we believed was a sizable discount.
(bar chart)
Top industry sectors (as a percentage of total net assets on
December 31, 1993).
Utilities ....................................39.7%
Financial ...........................29.8%
Industrial ...........12.1%
Reinforcing an already defensive posture Interest rates have
fallen for the better part of the last two years and now appear
at or close to their bottom. Several months ago, in expectation
of a reversal, we began to position the portfolio to anticipate
an environment of stable or rising interest rates. We started by
adding to our holding of adjustable rate and sinking fund
preferreds. As explained in the most recent annual report, these
securities tend to be more stable than their fixed income
counterparts during periods of rising rates.
In addition to these measures, we have chosen to reduce the
amount of leverage in the portfolio. By borrowing money at
short-term rates and investing the proceeds at higher, long-term
rates, we were able to make the most of the downward spiral of
short-term rates. Leverage, however, tends to extend a
portfolio's effective duration, thus increasing the potential for
volatility during periods of rising rates. In December, we
announced our intention to bring the amount of leverage down by
$24 million, from 36% to 28% of the portfolio, effective January
12, 1994. Unfortunately, any reduction in leverage leads to a
reduction in income, and we were forced to cut the fund's monthly
dividend by $0.01, effective February 1, 1994.
As with all portfolio changes, we will monitor the effects of
this defensive posture on portfolio holdings. And, as always, we
will continue to seek opportunities that we believe may be
mispriced or otherwise represent good value. Meanwhile, we look
forward to providing our investors -- both corporate and
individual -- with a consistent combination of above-average
income potential and relatively low share-price volatility.<PAGE>
Putnam
Dividend
Income
Fund
Semiannual
Report
For the Six Months Ended December 31, 1993
Report of Independent Accountants
To the Trustees and Shareholders of
Putnam Dividend Income Fund
We have audited the accompanying statement of assets and
liabilities of Putnam Dividend Income Fund, including the
portfolio of investments owned, as of December 31, 1993, and the
related statement of operations for the six months then ended,
the statement of changes in net assets for the six months then
ended and for the year ended June 30, 1993, and the "Financial
highlights" for the six months then ended, for each of the three
years in the period ended, June 30, 1993, and for the period
September 28, 1989 (commencement of operations) to June 30, 1990.
These financial statements and "Financial highlights" are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and "Financial
highlights" based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and "Financial highlights" are free 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 December 31, 1993 by correspondence with
the custodian. 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 Income Fund
as of December 31, 1993, the results of its operations for the
six months then ended, the changes in its net assets for the six
months then ended and for the year ended June 30, 1993, the
"Financial highlights" for the six months then ended, for each of
the three years in the period ended June 30, 1993, and for the
period September 28, 1989 (commencement of operations) to June
30, 1990, in conformity with generally accepted accounting
principles.
Coopers & Lybrand
Boston, Massachusetts
February 16, 1994
<PAGE>
Portfolio of
investments owned
December 31, 1993
Preferred Stocks (74.3%)(a)
Number of Shares Value
Electric Utilities (25.8%)
77,000 Alabama Power Co. Ser. 93-A,
$1.25, Adjustable Rate
Preferred (ARP) $ 1,915,375
9,516 Arkansas Power & Light Co.
Sinking Fund, $8.52, Preferred
(pfd.) 996,801
9,950 Cleveland Electric Illuminating
Co. Sinking Fund, Ser. M,
$7.00,ARP 995,000
10,000 Commonwealth Edison Co.
Sinking Fund $9.00, pfd. 1,073,750
50,000 Connecticut Light & Power Co.
Sinking Fund, Ser. 92,
$3.615, pfd. 2,650,000
11,500 Dayton Power & Light Co. Ser. F,
$7.375, pfd. 1,144,250
140,000 Detroit Edison Co. $1.9375, dep.
shs. pfd. 3,535,000
6,600 Duke Power Co. Ser. A,
$5.50, ARP 667,425
40,000 Duke Power Co. Ser. A,
$1.594, pfd. 940,000
21,000 Duke Power Co. Sinking Fund
Ser. R, $7.50, pfd. 2,289,000
50,000 Georgia Power Co. $1.9875, pfd. 1,318,750
145,000 Georgia Power Co. Ser. 93-2,
$1.245, ARP 3,606,875
90,000 Georgia Power Co. Ser. 93-A,
$1.355, ARP 2,295,000
8,916 Gulf States Utilities Co. $7.56, pfd. 871,539
10,000 Indiana Michigan Power Co.
Sinking Fund, $5.90, pfd. 980,000
9,000 Louisiana Power & Light Co.
Sinking Fund, $7.00, pfd. 932,625
43,000 Mississippi Power Co. $1.6116,
dep. shs. pfd. 1,032,000
15,200 Niagara Mohawk Power Corp.
Ser. A, $1.625, ARP 374,300
6,600 Northern States Power Co.
Ser. A, $5.50, ARP 662,475
6,600 Northern States Power Co.
Ser. B, $5.50, ARP 662,475
20,000 Ohio Power Co. Sinking Fund,
$6.35, pfd. 2,005,000<PAGE>
9,000 PacifiCorp Sinking Fund,
$7.70, pfd. 999,000
10,000 Pacific Enterprises Inc.
$7.64, pfd. 992,500
25,350 PacifiCorp Sinking Fund,
$7.48, pfd. 2,763,150
5,581 Peco Energy Co., Ser. 21,
Sinking Fund, $9.875, pfd. 560,189
20,000 Peco Energy Co., Sinking
Fund, $6.12, pfd. 2,010,000
15,000 Pennsylvania Power & Light Co.
Sinking Fund, $6.33, pfd. 1,515,000
15,000 Southern California Edison Co.
Sinking Fund, $6.45, pfd. 1,571,250
6,700 Texas Utilities Electric Co.
Sinking Fund $10.375, pfd. 737,000
66,000 Texas Utilities Electric Co. Ser. A,
$7.00, ARP 1,658,250
21,400 Texas Utilities Electric Co. Ser. B,
$0.46875, dep. shs. pfd. 2,102,550
121,000 Texas Utilities Electric Co., Ser.B,
$0.45125, dep. shs. pfd. 2,964,500
14,072 Virginia Electric & Power Co.
Sinking Fund, $7.30, pfd. 1,454,693
15,000 Virginia Electric & Power Co.
Sinking Fund, $6.35, pfd. 1,558,125
10,000 Virginia Electric & Power Co.
Sinking Fund, $5.58, pfd. 1,018,750
52,852,597
Banks (18.1%)
40,000 Amerco Ser. A, $2.125, pfd. 965,000
60,000 Bank of Boston Corp. Ser. F,
$1.96875, dep. shs. pfd. 1,545,000
23,700 BankAmerica Corp. Ser. K,
$2.0938, dep. shs. pfd. 625,091
18,600 BankAmerica Corp. Ser. L,
$2.04, dep. shs. pfd. 488,250
10,100 Chase Manhattan Corp.
$2.71, pfd. 311,838
19,000 Chase Manhattan Corp. Ser. H,
$2.44, pfd. 546,250
74,800 Chase Manhattan Corp. Ser. M,
$2.10 pfd. 1,982,200
30,000 Chemical Banking Corp. Ser. H,
$2.09375, pfd. 795,000
28,000 Chemical Banking Corp. $1.98,
dep. shs. pfd. 724,500
50,000 Chemical Banking Corp. $1.895
dep. shs. pfd. 1,268,750
278,000 Chemical Banking Corp. Ser. C,
$0.66, ARP 3,336,000
10,000 Citicorp Ser. 8-B, $8.75, pfd. 1,017,500
13,000 Citicorp 3rd Ser., $7.00, ARP 1,280,500
20,000 Citicorp 2nd Ser., $6.00, ARP 1,760,000
18,500 Citicorp Ser. 9, $2.28, pfd. 483,313
99,484 First Chicago Corp. $3.50, ARP 5,011,507
58,300 First Interstate Bancorp Ser. F,
$2.46875, dep. shs. pfd. 1,595,963
136,500 First Interstate Bancorp Ser. G,
$2.25, dep. shs. pfd. 3,753,750
26,100 Great Western Financial Corp.
$2.075, dep. shs. pfd. 678,600
47,200 KeyCorp Ser. B, $2.50, dep.
shs. pfd. 1,333,400
30,000 Mellon Bank Corp. Ser. I,
$2.40, pfd. 832,500
44,000 Republic New York Corp. Ser. B.,
$3.25, ARP 2,222,000
40,000 Sumitomo Bank Corp. Ser. A,
$2.03125, dep. shs. pfd. 985,000
129,643 Union Bank Corp. Ser. A,
$2.09375, dep. shs. pfd. 3,338,307
36,880,219
Combined Utilities (9.5%)
10,000 Baltimore Gas & Electric Co.
Sinking Fund, Ser. 87,
$6.75, pfd. 996,250
10,000 Baltimore Gas & Electric
$6.70, pfd. 952,500
20,000 Cincinnati Gas & Electric Co.
$9.28, pfd. 2,035,000
20,000 Cincinnati Gas & Electric Co.
Sinking Fund, $7.875, pfd. 2,240,000
113,000 Long Island Lighting Co. Ser. QQ,
Sinking Fund, $1.7625, pfd. 2,853,250
50,000 Long Island Lighting Co. Ser. NN,
Sinking Fund, $0.4875, pfd. 1,237,500
27,000 New York State Electric & Gas
Corp. Ser. B, $1.28, ARP 678,375
24,000 Public Service Electric & Gas,
Sinking Fund, $7.44, pfd. 2,496,000
40,000 San Diego Gas & Electric Co.
Sinking Fund, $1.7625, pfd. 1,110,000
20,550 West Penn Power Co. Ser. J,
$8.20, pfd. 2,116,650
6,500 West Penn Power Co. Ser. I,
$7.64, pfd. 667,875
18,800 Western Resources, Inc. Sinking
Fund, $7.58, pfd. 1,983,400
19,366,800
Insurance (6.5%)
270,500 Aon Corp. $2.00, pfd. 7,168,250
18,000 Progressive Corp. $2.34375, pfd. 483,750
36,000 Provident Life & Accident
Insurance Co. $2.025, dep.
shs. pfd. 949,500<PAGE>
18,000 SunAmerica Corp. Ser. C,
$7.00, ARP 1,764,000
50,000 SunAmerica Inc. Ser. B,
$2.3125, pfd. 1,362,500
55,000 Travelers Corp. Ser. D, $2.3125,
dep. shs. pfd. 1,498,750
13,226,750
Oil Services (4.2%)
111,000 LASMO PLC ADS Ser. A, $2.50,
pfd.(b) 2,469,750
197,700 McDermott Inc. Sinking Fund,
Ser. B, $0.8125, pfd. 6,178,125
8,647,875
Finance (4.0%)
40,000 Bear Stearns & Co. Ser. A,
$2.75, ARP 1,945,000
17,800 Bear Stearns & Co. Ser. B, $1.97,
dep. shs. pfd. 445,000
89,590 Heller Financial Inc. Ser. A,
$2.03125, sr. pfd. 2,340,539
20,000 Household International Inc.
Ser. 93-A, $1.8375 dep.
shs. pfd. 500,000
70,000 Morgan Stanley Inc. Ser. B,
$2.22, dep. shs. pfd. 1,881,250
10,000 Primerica Corp. Ser. A,
$2.03125, pfd. 261,250
26,000 Transamerica Corp. Ser. D,
$2.125, dep. shs. pfd. 705,250
8,078,289
Automobiles (1.8%)
46,500 Ford Motor Corp. Ser. B, $2.0625,
dep. shs. pfd. 1,272,938
65,500 General Motors Corp. Ser. B,
$2.28125 dep. shs. pfd. 1,793,063
20,000 General Motors Corp. Ser. D,
$1.98, dep. shs. pfd. 512,500
3,578,501
Forest Products (1.6%)
120,000 Boise Cascade Corp. Ser. F,
$2.35, dep. shs. pfd. 3,210,000
Gas Pipelines (0.7%)
26,833 ENSERCH Corp. Ser. D,
$3.75, ARP 1,361,775
Business Services (0.6%)
50,000 IBM Corp. $1.875, dep. shs. pfd. 1,287,500
Broadcasting (0.6%)
49,000 Newscorp Overseas Corp.
Ser. A, $2.15625, pfd. 1,212,750
Health Care (0.5%)
10 Rhone Poulenc Rorer Corp.
Ser. 3, $5.84, dep. shs. pfd. $ 997,500<PAGE>
Paper (0.2%)
20,000 James River Corp. Ser. O,
$2.0625, dep. shs. pfd. 505,000
Gas Utilities (0.2%)
15,000 Phillips Gas Co. Ser. A, $2.33, pfd. 416,250
Total Preferred Stocks
(cost $149,316,696) $151,621,806
Common Stocks (10.8%)(a)
Number of Shares Value
Electric Utilities (2.2%)
50,000 FPL Group, Inc. $ 1,956,250
20,000 Houston Industries Inc. 952,500
35,000 Texas Utilities Co. 1,513,750
4,422,500
Combined Utilities (1.8%)
45,000 Baltimore Gas & Electric Co. 1,141,875
70,000 Western Resources, Inc. 2,441,250
3,583,125
Retail (1.7%)
50,000 K mart Corp. 1,062,500
25,000 Sears, Roebuck & Co. 1,318,750
40,000 Woolworth Corp. 1,015,000
3,396,250
Insurance (1.2%)
56,000 Lincoln National Corp. 2,436,000
Tobacco (1.1%)
40,000 Philip Morris Cos., Inc. 2,230,000
Chemicals (0.8%)
20,000 Olin Corp. $ 987,500
30,000 Union Carbide Corp. 671,250
1,658,750
Photography (0.5%)
18,000 Eastman Kodak Co. 1,008,000
Cosmetics (0.5%)
20,000 Avon Products, Inc. 972,500
Business Services (0.4%)
40,000 Ogden Corp. 910,000
Pharmaceuticals (0.4%)
30,000 Upjohn Co. 873,750
Gas Utilities (0.2%)
21,000 UGI Corp. 472,500
Total Common Stocks
(cost $20,252,104) $ 21,963,375
Convertible Preferred Stocks (1.1%)(a) (cost $2,080,000)
Number of Shares Value
40,000 Unocal Corp. $3.50, cv. pfd.(c) $ 2,260,000
<PAGE>
Short-Term Investments (16.7%)(a)
Principal Amount Value
$ 2,000,000 American Telephone & Telegraph
Co. 3.37s, January 7, 1994 $ 1,998,877
5,000,000 General Electric Capital Corp.,
3.20s, January 21, 1994 4,995,812
11,004,000 Interest in $402,391,000 joint
repurchase agreement dated
December 31, 1993 with Kidder
Peabody & Co. Inc., due
January 3, 1994 with respect to
various U.S. Treasury obligations--
maturity value of $11,006,889
for an effective yield of 3.15% 11,004,963
$ 5,000,000 Merrill Lynch & Co. Inc. 3.38s,
January 12, 1994 $ 4,995,912
5,000,000 Metropolitan Life Funding, 3.18s,
January 10, 1994 4,996,024
1,000,000 Preferred Receivables Funding
Corp. 3.25s, January 10, 1994 999,187
5,000,000 USAA Capital Corp. 3.22s,
January 7, 1994 4,997,316
Total Short-Term Investments
(cost $33,987,128) $ 33,988,091
Total Investments
(cost $205,635,928)(d) $209,833,272
(a) Percentages indicated are based on total net assets of
$203,931,922. Net assets available to common shareholders are
$129,714,179, which correspond to a net asset value per common
share of $11.99.
(b) Security whose value is determined or significantly
influenced by trading on exchanges not in the United States or
Canada. ADS after the name of a foreign holding stands for
American Depository Shares, representing ownership of foreign
securities on deposit with a domestic bank.
(c) Security exempt from registration under Rule 144A of the
Securities Act of 1933. This security may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At December 31, 1993, this security
amounted to $2,260,000 or 1.1 % of total net assets.
(d) The aggregate identified cost on a tax basis is $205,661,525,
resulting in gross unrealized appreciation and depreciation of
$5,593,951 and $1,422,204 respectively, or net unrealized
appreciation of $4,171,747.
<PAGE>
<TABLE>
<CAPTION>
Statement of
assets and liabilities
December 31, 1993
<S> <C> <C>
Assets
Investments in securities, at value (identified cost $205,635,928) (Note 1)$209,833,272
Cash 231
Dividends receivable 1,380,154
Unamortized organization expenses (Note 1) 10,851
Total assets 211,224,508
Liabilities
Distributions payable to shareholders $6,825,279
Payable for compensation of Manager (Note 3) 397,829
Payable for administrative services (Note 3) 2,437
Payable for compensation of Trustees (Note 3) 281
Other accrued expenses 66,760
Total liabilities 7,292,586
Net assets $203,931,922
Represented by
Series A auction preferred shares, without par value, 740
shares authorized (740 shares issued at $100,000 per share
liquidation preference) (Note 2) $ 74,000,000
Common shares, without par value; unlimited shares
authorized; 10,821,255 shares outstanding 122,964,125
Distribution in excess of net investment income (267,727)
Accumulated net realized gain on investment transactions 3,038,180
Net unrealized appreciation of investments 4,197,344
Net assets $203,931,922
<PAGE>
Computation of net asset value
Auction preferred shares at liquidation preference $ 74,000,000
Cumulative undeclared dividends on auction preferred shares 217,743
Net assets allocated to auction preferred shares at liquidation preference74,217,743
Net assets available to common shares:
net asset value per common share $11.99 ($129,714,179
divided by 10,821,255 shares) 129,714,179
Net assets $203,931,922
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Statement of
operations
Six months ended December 31, 1993
<S> <C> <C>
Investment income
Dividends (net of foreign tax of $13,874) $7,616,532
Interest 37,316
Total investment income 7,653,848
Expenses:
Compensation of Manager (Note 3) $802,072
Investor servicing and custodian fees (Note 3) 6,389
Compensation of Trustees (Note 3) 7,351
Registration fees 11,287
Auditing 27,943
Legal 3,519
Postage 39,343
Administrative services (Note 3) 2,278
Reports to shareholders 28,009
Amortization of organization expenses (Note 1) 8,144
Preferred stock auction fees 100,993
Total expenses 1,037,328
Net investment income 6,616,520
Net realized gain on investments (Notes 1 and 4) 3,894,673
Net realized loss on options (Notes 1 and 4) (145,254)
Net unrealized depreciation of investments and options
during the period (2,778,317)
Net gain on investments 971,102
Net increase in net assets resulting from operations $7,587,622
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Statement of
changes in net assets
<S> <C> <C>
Six months ended Year ended
December 31 June 30
1993 1993
Increase (decrease) in net assets
Operations:
Net investment income $ 6,616,520 $ 14,549,146
Net realized gain on investments 3,894,673 8,385,175
Net realized gain (loss) on options (145,254) 206,743
Net unrealized appreciation (depreciation) of
investments and options (2,778,317) 1,329,016
Net increase in net assets resulting from operations 7,587,62224,470,080
Distributions to auction preferred shareholders
from net investment income (834,927) (2,239,359)
Net increase in net assets resulting from operations
applicable to common shareholders (excluding cumulative
undeclared dividends on auction preferred shares of
$217,743 and $5,652, respectively) 6,752,695 22,230,721
Distributions to common shareholders from:
Net investment income (6,752,463) (11,603,834)
Net realized gain on investments (4,144,541) --
Increase from capital share transactions -- 1,724,322
Total increase (decrease) in net assets (4,144,309) 12,351,209
<PAGE>
Net assets
Beginning of period 208,076,231 195,725,022
End of period (Distributions in excess of net investment
income and undistributed net investment income of,
$(267,727) and $1,077,189, respectively) $203,931,922 $208,076,231
Number of Fund shares
Common shares outstanding at beginning of period 10,821,255 10,675,998
Common shares issued in connection with reinvestment
of distributions -- 145,257
Common shares outstanding at end of period 10,821,255 10,821,255
Auction preferred shares outstanding at beginning of period 740 740
Auction perferred shares outstanding at end of period 740 740
/TABLE
<PAGE>
<TABLE>
<CAPTIONS>
Financial highlights*
(For a share outstanding throughout the period)
For the period
September 28, 1989
Six months (commencement of
ended operations) to
December 31 Year ended June 30 June 30
1993 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $12.39 $11.38 $10.21 $10.26 $11.51**
Investment Operations:
Net Investment Income .61 1.35 1.49 1.65 1.36
Net Realized and Unrealized
Gain (Loss) on Investments.10 .97 1.15 .05 (1.31)
Total from Investment
Operations .71 2.32 2.64 1.70 .05
Less Distributions from:
Net Investment Income
to Preferred Shareholders (.08) (.21) (.27) (.49) (.35)
to Common Shareholders (.62) (1.08) (1.19) (1.25) (.92)
Net realized gain on investments
to Common Shareholders (.39) -- -- -- --
Paid-in Capital:
(a) to Common Shareholders -- -- -- (.04) --
Total Distributions (1.09) (1.29) (1.46) (1.78) (1.27)
Change in Cumulative Undeclared
Dividends on Auction
Preferred Shares (.02) (.02) (.01) .03 (.03)
<PAGE>
Net Asset Value, End of Period
(common shares) $11.99 $12.39 $11.38 $10.21 $10.26
Market Value, End of Period
(common shares) $10.625 $11.875 $12.000 $10.375 $10.875
Total Investment Return at Market
Value (common shares) (%) (b) (4.78)(c) 8.27 28.71 8.41 (7.16)(c)
Net Assets, End of Period
(Total Fund)
(in thousands) $203,932 $208,076 $196,725 $182,003 $180,338
Ratio of Expenses to
Average Net Assets (%)(d) 1.51(c) 1.70 1.64 2.02 1.96(c)
Ratio of Net Investment Income to
Average Net Assets (%)(d) 8.43(c) 9.65 11.14 11.67 12.72(c)
Portfolio Turnover
Rate (%) 46.97(e) 166.44 160.44 197.67 201.55(e)
*Financial Highlights for periods ended through June 30, 1993 have been restated to
conform with requirements issued by the SEC in April, 1993.
**Represents initial net asset value of $11.63 less offering expenses of approximately
$0.12.
(a)See Note 1 to Financial statements.
(b)Total Investment return assumes dividend reinvestment and does not reflect the effect
of sales charges.
(c)Annualized.
(d)Ratios reflect net assets available to common shares only; net investment income ratio
also reflects reduction for dividend payments to preferred shareholders.
(e)Not annualized.
/TABLE
<PAGE>
Notes to
Financial statements
December 31, 1993
Note 1 Significant accounting policies
The Fund is registered under the Investment Company Act of 1940,
as amended, as a diversified, closed-end management investment
company. The Fund's objective is to seek high current income
eligible for dividends received deduction allowed to corporations
under Section 243 (C1) of the Internal Revenue Code, consistent
with preservation of capital by investing in a portfolio of
preferred and common equity securities. The Fund will invest at
least 65% of its total assets in dividend-paying securities.
Preferred stocks will be rated "investment grade" at the time of
investment or, if not rated, will be of comparable quality as
determined by Putnam Management. The Fund also uses leverage by
issuing preferred shares in an effort to increase the income to
the common 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. Securities whose market quotations are not readily
available are stated at fair value on the basis of valuations
furnished by pricing services approved by the Trustees, which
determine valuations for normal, institutional-size trading units
of such securities using methods based on market transactions for
comparable securities and various relationships between
securities that are generally recognized by institutional
traders. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates
market value, and other investments are stated at fair value
following procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by
the Securities and Exchange Commission, the Fund may transfer
uninvested cash balances into a joint trading account, along with
the cash of other registered investment companies managed by
Putnam Investment Management, Inc. (Putnam Management), the
Fund's Manager, a wholly-owned subsidiary of Putnam Investments,
Inc., and certain other accounts. These balances may be invested
in one or more repurchase agreements and/or short-term money
market instruments.
C) Repurchase agreements The Fund, or any joint trading account,
through the Fund's 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) Determination of net asset value Net asset value of the common
shares is determined by dividing the value of all assets of the
Fund (including accrued interest and dividends), less all
liabilities (including accrued expenses), undeclared dividends on
auction preferred shares and the liquidation value of any
oustanding auction preferred shares, by the total number of
common shares outstanding.
E) 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.
F) Option accounting principles When the Fund writes a call or
put option, an amount equal to the premium received by the Fund
is included in the Fund's "Statement of assets and liabilities"
as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the
current market value of the option written. The current market
value of an option is the last sale price or, in the absence or a
sale, the last offering price. If an option expires on its
stipulated expiration date, or if the Fund enters into a closing
purchase transaction, the Fund realizes a gain (or loss if the
cost of a closing purchase transaction exceeds the premium
received when the option was written) without regard to any
unrealized gain or loss on the underlying security, and the
liability related to such option is extinguished. If a written
call option is exercised, the Fund realizes a gain or loss from
the sale of the underlying security and the proceeds of the sale
are increased by the premium originally received. If a written
put option is exercised, the amount of the premium originally
received reduces the cost of the security which the Fund
purchases upon exercise of the option.
The Fund writes covered call options; that is, options for which
it holds the underlying security or its equivalent. Accordingly,
the risk in writing a call option is that the Fund relinquishes
the opportunity to profit if the market price of the underlying
security increases and the option is exercised. In writing a put
option, the Fund assumes the risk of incurring a loss if the
market price of the underlying security decreases and the option
is exercised.
<PAGE>
G) 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.
At June 30, 1993, the Fund had a capital loss carryover of
approximately $4,596,000, which may be available to offset
realized capital gains. This amount will expire on June 30, 1999.
To the extent that the capital loss carryover is used to offset
realized gains, it is unlikely that the gains so offset will be
distributed to shareholders, since any such distribution might be
taxable as ordinary income.
H) Distributions to shareholders Distributions to common and
preferred shareholders are recorded by the Fund on the
ex-dividend date. Dividends on each share of remarketed preferred
shares will accumulate from its Date of Original Issue and will
be payable, when, as and if declared by the Board of Trustees, on
the applicable Dividend Payment Dates. The dividend period for
Series A is a 49-day period. The applicable dividend rate for the
remarketed preferred shares at December 31, 1993 was: Series A--
3.21%. At certain times, the Fund may pay distributions at a
level rate even though, as a result of market conditions or
investment decisions, the Fund may not achieve projected
investment results for a given period. At fiscal year end June
30, 1991, based on investment results for the year, $0.04 of per
share distributions were declared from paid-in capital for
financial presentation purposes.
I) Unamortized organization expenses Expenses incurred by the
Fund in connection with its organization aggregated $79,675.
These expenses are being amortized on a straight-line basis over
a period not to exceed 60 months from the date the Fund commenced
operations.
Note 2 Auction Preferred Shares
On September 28, 1989, the Fund issued 740 Auction Preferred
Shares, Series A. Proceeds to the Fund before underwriting
expenses of $1,295,000 and $308,080 of offering expenses,
amounted to $74,000,000. At December 31, 1993, 740 shares,
without par value, of Auction Preferred Shares were authorized.
Undeclared dividends on the Preferred Shares amounted to $217,743
at December 31, 1993. The Shares are redeemable at the option of
the Fund on any dividend payment date at a redemption price of
$100,000 per share, plus an amount equal to any dividends
accumulated on a daily basis but unpaid through the redemption
date (whether or not such dividends have been declared).
Under the Investment Company Act of 1940, the Fund is required to
maintain asset coverage of at least 200% with respect to the
auction preferred shares as of the last business day of each
month in which any such shares are outstanding. Additionally, the
Fund is required to meet more stringent asset coverage
requirements under the terms of the auction preferred shares and
the shares' rating agencies. Should these requirements not be
met, or should dividends accrued on the auction preferred shares
not be paid, the Fund may be restricted in its ability to declare
dividends to common shareholders or may be required to redeem
certain of the auction preferred shares. At December 31, 1993, no
such restrictions have been placed on the Fund.
Note 3 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, including proceeds from the auction preferred
offering. Such fee is based on the following annual rates: 0.75%
of the first $500 million of average net assets, 0.65% of the
next $500 million, 0.60% of the next $500 million and 0.55% of
any amount over $1.5 billion.
If dividends payable on auction preferred shares during any
dividend payment period plus any expenses attributable to auction
preferred shares for that period exceed the Fund's net income
attributable to the proceeds of the auction preferred shares
during that period, then the fee payable to Putnam for that
period will be reduced by the amount of the excess (but not more
than 0.85% of the liquidation preference of the auctioned
preferred shares outstanding during the period).
The Fund also reimburses the Manager for the compensation and
related expenses of certain officers of the Fund and their staff
who provide administrative services to the Fund. The aggregate
amount of all such reimbursements is determined annually by the
Trustees. For the six months ended December 31, 1993, the Fund
paid $2,278 for these services.
Trustees of the Fund receive an annual Trustee's fee of $1,180
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 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 six months
ended December 31, 1993 amounted to $6,389.
Investor servicing and custodian fees reported in the Statement
of operations for the six months ended December 31, 1993 have
been reduced by credits allowed by PFTC.
<PAGE>
<TABLE>
<CAPTION>
Note 4 Purchases and sales of securities
During the six months ended December 31, 1993, purchases and sales of investment
securities other than short-term investments aggregated $94,124,845 and $117,697,908,
respectively.
Written call option transactions during the period are summarized as follows:
<S> <C> <C>
Shares Subject Premiums
to Call Received
Written call options outstanding at beginning of period 25,000 $105,496
Options closed (25,000) (105,496)
Written call options outstanding at end of period -- --
/TABLE
<PAGE>
Note 5 Reclassification of Capital Accounts
Effective July 1, 1993, Putnam Dividend Income Fund has adopted
the provisions of the AICPA Statement of Position (SOP) 93-2
"Determination, Disclosure and Financial Statement Presentation
of Income, Capital Gain and Return of Capital Distributions, by
Investment Companies." The purpose of this SOP is to report the
accumulated net investment income (loss) and accumulated net
realized gain (loss) accounts in such a manner as to approximate
amounts available for future distributions (or to offset future
realized capital gains) and to achieve uniformity in the
presentation of distributions by investment companies.
As a result of the SOP, the Fund has reclassified $374,046 to
decrease undistributed net investment income and increase
additional paid in common shares, without par value by the same
amount.
These adjustments represent the cumulated amounts necessary to
report these balances through June 30, 1993, the close of the
Fund's most recent fiscal year end for financial reporting and
tax purposes.
<PAGE>
<TABLE>
<CAPTION>
Selected quarterly data
(Unaudited)
Three months ended
December 31 September 30 June 30 March 31 December 31 September 30
1993 1993 1993 1993 1992 1992
<S> <C> <C> <C> <C> <C> <C>
Total investment income
Total $ 3,742,849 $ 3,910,999 $ 4,736,892$ 4,207,385 $ 3,946,509 $ 3,821,668
Per Share* $ .34 $ .36 $ .43$ .25 $ .42 $ .45
Net investment income available
to common shareholders
Total $ 2,650,334 $ 3,131,259 $ 3,726,527$ 3,025,708 $ 2,866,538 $ 2,691,014
Per Share* $ .24 $ .29 $ .34$ .18 $ .30 $ .32
Net realized and unrealized gain
(loss) on investments
Total $ (3,456,693) $ 4,427,795 $ 505,766$ 7,502,324 $ (1,978,886) $ 3,891,731
Per Share* $ (.31) $ .41 $ .10$ .77 $ (.20) $ .30
Net increase (decrease) in assets
resulting from operations
Total $ (806,359) $ 7,559,054 $ 4,232,292 $ 10,528,032 $ 887,652 $ 6,582,745
Per Share* $ (.07) $ .70 $ .44 $ .95 $ .10 $ .62
Net assets available to common
shareholders at the end of the period
Total $129,714,179 $138,962,635 $134,070,579 $132,162,069 $123,925,485 $125,606,247
Per Share* $ 11.99 $ 12.84 $ 12.39 $ 12.24 $ 11.52 $ 11.72
*Per common share.
<PAGE>
Selected quarterly data (continued)
(Unaudited)
Three months ended
June 30 March 31 December 31 September 30
1992 1992 1991 1991
Total investment income
Total $ 6,076,243 $ 4,005,422 $ 3,928,270$ 3,714,278
Per Share* $ .51 $ .44 $ .37$ .35
Net investment income available
to common shareholders
Total $ 4,911,987 $ 2,755,871 $ 2,531,064$ 2,755,366
Per Share* $ .42 $ .30 $ .24$ .26
Net realized and unrealized gain
(loss) on investments
Total $ 2,002,271 $ (3,563,018) $ 5,110,291$ 8,382,597
Per Share* $ .25 $ (.31) $ .42$ .79
Net increase (decrease) in assets
resulting from operations
Total $ 6,914,258 $ (807,147) $ 7,641,355 $ 11,137,963
Per Share* $ .67 $ (.01) $ .66 $ 1.05
Net assets available to common
shareholders at the end of the period
Total $121,539,692 $116,864,584 $120,416,949 $115,876,596
Per Share* $ 11.38 $ 10.99 $ 11.35 $ 10.92
*Per common share.
/TABLE
<PAGE>
Dividend Policy
It is the Fund's dividend policy to pay monthly distributions
from net investment income and any net realized short-term gains
(including gains from options and futures transactions).
Long-term capital gains are distributed at least annually. In an
effort to maintain a more stable level of distributions, the
Fund's monthly distribution rate will be based on Putnam
Management's projections of the net investment income and net
realized short-term capital gains that the Fund is likely to earn
over the long term.
At the time of each distribution, shareholders are furnished
Putnam Management's current estimate of the sources of such
distribution. These estimates are subject to adjustment depending
on investment results for the Fund's entire fiscal year. Final
information regarding such matters is furnished to shareholders
in the Fund's annual reports and in tax information provided
following the end of each calendar year.
Fund
performance
supplement
Putnam Dividend Income Fund is a portfolio managed for high
current income eligible for the dividends-received deduction for
certain corporations consistent with preservation of capital. The
fund invests primarily in a diversified portfolio of preferred
and common stocks.
Standard & Poor's 500 Index is an unmanaged list of
large-capitalization common stocks. 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.
Fund performance data do not take into account any adjustment for
taxes that may have been payable.
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
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
Income
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
1-800-634-1587
Custodian
Putnam Fiduciary
Trust Company
Legal counsel
Ropes & Gray
Independent accountants
Coopers & Lybrand
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.
MDI-D10474<PAGE>
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
John R. Verani
Vice President
Peter Carman
Vice President
Thomas Reilly
Vice President
Paul O'Neil
Vice President
Jeanne Mockard
Vice President and
Fund Manager
William N. Shiebler
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
Income Fund. It may also be used as
sales literature when preceded or
accompanied by the current prospectus,
which gives details of sales charges,
investment objectives and operating
policies of the fund.
<PAGE>
- ---------------------
Bulk Rate
U.S. Postage
Paid
Boston, MA
Permit No. 53749
- ---------------------
PUTNAMINVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
<PAGE>
APPENDIX TO FORM N30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN
PRINTED AND EDGAR-FILED TEXTS:
(1) Rule lines for tables are omitted.
(2) Boldface and italic typefaces are displayed in normal type.
(3) 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.
(4) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(5) Bullet points and similar graphic signals are omitted.
(6) Page numbering is different.
