PUTNAM
DIVERSIFIED
EQUITY
TRUST
SEMIANNUAL REPORT
August 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Putnam Diversified Equity Trust is a broadly diversified growth fund
that may invest up to 45% of its assets overseas. Because of this, Lipper
Analytical Services has placed the fund in its global equity fund
category. As of September 30, 1997, the fund's class A shares ranked in
the top 10% for 3 year performance among its global fund counterparts,
ranking 10 out of 106 funds.*
* "Putnam Diversified Equity Trust's three-part structure gives us
the ability to move money into the various sleeves as opportunities arise
and market conditions dictate -- a valuable trump card when volatility
exists in one market or prices start looking speculative in another."
-- David L. King, manager
Putnam Diversified Equity Trust
CONTENTS
4 Report from Putnam Management
10 Fund performance summary
14 Portfolio holdings
23 Financial statements
*Lipper Analytical Services, an independent research organization, ranks
funds according to total return performance. These ranking vary over time
and do not reflect the effects of sales charges. Class B and class M
shares ranked 54 and 51, respectively, out of 170 funds for 1-year
performance and class B shares ranked 12 out of 106 funds for 3-year
performance. Class B and class M shares were not ranked over longer
periods. Past performance is not indicative of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Putnam Diversified Equity Trust's management team took advantage of the
growing strength in many of the world's stock markets to deliver exemplary
results for the first half of the fund's fiscal year, the six months ended
August 31, 1997. Besides exposure to the still strong but somewhat volatile
U.S. market, the fund increased its commitment to international holdings,
especially those of Western Europe and carefully selected securities in the
Japanese market. In the U.S. market, the team began adding more stocks of
small and midsize companies in anticipation of growing strength in that
sector.
With virtually all of the world's stock markets at its disposal, your fund
thus has the capability of maintaining a truly diversified portfolio. It also
has access to Putnam's extensive equity research capability. Such depth and
breadth of expertise are increasingly essential in today's global marketplace.
In the following report, your fund's managers review first-half results and
discuss prospects for the second half as fiscal 1998 continues to unfold.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
October 15, 1997
Report from the Fund Managers
David L. King, lead manager
Omid Kamshad
Charles H. Swanberg
The six months ended August 31, 1997, represented a period characterized by
exceptional strength for many stock markets around the globe. The broad U.S.
market continued to surprise investors with the major stock indexes reaching
record levels. Continental Europe followed suit, while Latin America led the
charge among emerging markets. Southeast Asia, hampered by currency
devaluations and overheated property markets, appeared to be the only region
left wanting.
Against a global backdrop of generally favorable economic conditions,
relatively stable interest rates, and low inflation, each of Putnam
Diversified Equity Trust's three sectors, or sleeves -- domestic growth,
domestic value, and international stocks -- proved their potential. Combined,
the fund's three sleeves produced a double-digit total return for class A
shares at net asset value that competes with the S&P 500(registered trademark)
and significantly outperforms the Morgan Stanley Europe, Australia, and the
Far East Index for the six months ended August 31, 1997. You will find full
performance details for all share classes on pages 10 and 11 of this report.
* ALLOCATION SHIFT, CORPORATE CONSOLIDATION TREND PROVE REWARDING
An important shift we made during the semiannual period was to increase the
weighting of fund assets in both the growth and international sleeves of the
portfolio. We had begun allocating new cash inflows to the international
sector in August 1996. Then, this past spring, we made the decision to move
money into small- and mid-capitalization growth stocks, since we judged that
their valuations had become too compelling to ignore. Our strategy proved
timely and highly effective as domestic growth and international stocks
rivaled one another for top performance by period's end.
For several years, corporate America has been downsizing, restructuring, and
consolidating. These trends and Putnam's
in-depth research capabilities continue to provide your fund's value sleeve
with profitable investments in a variety of industry sectors. One of the
sleeve's most noteworthy performers has been aerospace and defense giant
Northrop Grumman Corp., which is currently in the process of being acquired by
Lockheed Martin. While this holding and others discussed in this report were
viewed favorably at period's end, all are subject to review and adjustment in
accordance with the fund's investment strategy and may vary in the future.
Consolidation continues in financial services, the sleeve's heaviest industry
weighting. Our main focus last year had been on the very large national
banking institutions that were acquiring smaller institutions. Now we are
concentrating on large, well-run regional banking institutions that offer
attractive appreciation potential. Union Planters and Summit Bancorp are two
fine examples.
We have increased exposure to the paper industry, believing that the
industry's cycle has finally bottomed out. With capacity additions slowing and
the economy remaining healthy, paper stock prices appear poised to rise. To
take advantage of this trend, we added a number of holdings, including Boise
Cascade and International Paper, and increased our existing position in
Unisource Worldwide, Inc.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Banks 9.6%
Retail 7.8%
Computer software 6.9%
Electrontics and electrial equipment 5.2%
Finance 4.2%
Footnote reads:
*Based on net assets as of 8/31/97. Holdings will vary over time.
In technology, although not traditionally regarded as a value-driven sector,
select value opportunities occasionally arise. Computer Associates is one
example of a typical growth stock whose price declined after some negative
news. Undervalued and apparently misunderstood by analysts, the stock met our
stringent value criteria and we purchased it. At the same time, it was owned
by the fund's growth sleeve because it had exhibited growth characteristics
prior to its setback. Over the period, the stock has bounced back, performing
well for both segments.
* FINANCIAL SERVICES, TECHNOLOGY, AND RETAIL EXPOSURE INCREASED IN GROWTH
SECTOR
Your fund's growth sector experienced a bit of a setback in early spring. When
the capital markets swooned in response to worrisome inflationary data and
rising interest rates, small- to midsize company stocks were hit the hardest.
Shortly thereafter, as uncertainty began to cloud the outlook of the largest
companies, aggressive growth stocks picked up steam, rallying through the
period's end. Our main emphasis in this part of the portfolio has been on
financial services, technology, and retail stocks -- and we have boosted
exposure substantially in all three.
Financial services companies led the market for much of the period. Some of
the fund's top performers include American Express, a position we have
expanded considerably over the fiscal year, and two newly purchased stocks --
Washington Mutual and Fifth Third Bankcorp. We've also increased our focus on
government agency securities such as Federal Home Loan Mortgage Corporation
and Federal National Mortgage Association certificates.
Technology stocks, downtrodden through April, bounced back with fervor by
midsummer. Several newly added and increased positions in semiconductors and
computer software made notable contributions to performance, including Cisco
Systems, Linear Technology, Applied Materials, Compuware, and PeopleSoft.
TOP 10 HOLDINGS
Computer Associates International., Inc.
Computer software
Starbucks Corp.
Specialty retailer
Thermo Electron Corp.
Energy-related
Interpublic Group of Companies, Inc.
Advertising
Costco Companies, Inc.
Retail
Federal National Mortgage Association
Finance
Federal Home Loan Mortgage Corp.
Finance
Compuware Corp.
Computer software
Microsoft Corp.
Computer software
Maxim Integrated Products Inc.
Semiconductors
Footnote reads:
These holdings represent 13.9% of the fund's net assets as of 8/31/97.
Portfolio holdings will vary over time.
In the retail area, our expanded attention on select niche players also proved
rewarding. Dollar General, Dollar Tree Stores, Starbucks, Home Depot, and
Kohl's Corp. were among the significant performers. To finance this increased
emphasis, we eliminated pharmaceutical holdings, realizing substantial
profits, and reduced exposure to consumer nondurables and capital goods.
* WESTERN EUROPE SHOWS CONSIDERABLE STRENGTH; SELECTIVITY IN JAPAN PROVES
BENEFICIAL
On the international front, Continental European markets proved the most
vibrant, spurred by a benign monetary environment and competitive currencies.
The bulk of the sleeve's assets was invested in European stocks, particularly
those in the France and the United Kingdom markets, which performed extremely
well. Philips Electronics in the Netherlands and Novartis, a Swiss drug
company, were top performers.
Asia as a whole held little appeal for us, particularly Southeast Asia, which
is suffering from economic crises and currency devaluations. In Japan,
however, our selectivity proved most rewarding. While retail, banking, and
utility stocks came under continued pressure because of the sluggish economy,
large multinational companies such as Sony, Canon, and Tokyo Electron
performed extremely well. The yen's weakness and the global rebound of
technology stocks helped boost the stock prices of these well-managed
exporters. We have reduced the weighting in Hong Kong because of our concern
over excessively high property values.
Economic recovery from the effects of currency devaluation is well underway in
Mexico, where attractive opportunities are garnering our attention. Fomento
Economico Mexicano S.A. (FEMSA), a beverage company, and Cemex, one of the
largest global cement companies, are two stocks we recently purchased.
A sizable position in Canada has been introduced, including stocks outside the
natural resources sector. Global companies with solid prospects, such as
Northern Telecom, Magna International, and Bank of Nova Scotia, have been
purchased at quite reasonable valuations.
Active currency management continued to provide solid support to the
international sleeve. The hedges we maintained against the German deutschemark
and Japanese yen helped protect the value of the fund's assets against the
strong U.S. dollar.
* WORLD APPEARS IN GOOD ORDER
Looking ahead at the remainder of fiscal 1998, our view on world stock markets
remains reasonably optimistic. At home, the economy appears to be moderating,
while abroad improved corporate efficiencies resulting from restructuring and
privatization as well as an increased global emphasis on shareholder value
have set the stage for a positive investment environment.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 8/31/97, there is no guarantee the fund will continue to hold
these securities in the future. Investing in non-U.S. securities may be
subject to certain risks associated with currency fluctuations, economic
instability, and political developments.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Diversified Equity Trust is designed for investors seeking capital
appreciation through a diversified portfolio consisting primarily of
domestic growth, domestic value, and international stocks.
TOTAL RETURN FOR PERIODS ENDED 8/31/97
Class A Class B Class M
(inception date) (7/1/94) (7/1/94) (7/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 13.92% 7.40% 13.59% 8.59% 13.81% 9.81%
- ------------------------------------------------------------------------------
1 year 27.86 20.51 27.00 22.00 27.51 23.00
- ------------------------------------------------------------------------------
Life of fund 81.10 70.66 78.12 75.12 79.59 73.28
Annual average 20.60 18.37 19.97 19.33 20.29 18.94
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/97
Standard & Poor's MSCI
500 Index EAFE
- ------------------------------------------------------------------------------
6 months 14.78% 6.62%
- ------------------------------------------------------------------------------
1 year 40.62 9.05
- ------------------------------------------------------------------------------
Life of fund 117.29 22.18
Annual average 27.85 6.52
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 5.75% for class A shares and 3.50% for class M shares.
One-, five-, and ten-year (when available) and life-of-fund returns for
class B shares reflect the applicable contingent deferred sales charge
(CDSC), which is 5% in the first year, declines each year to 1% in the
sixth year, and is eliminated thereafter. Returns shown for class M shares
for periods prior to its inception are derived from the historical
performance of class A shares, adjusted to reflect both the initial sales
charge, if any, currently applicable to class M shares, and the higher
operating costs applicable to such shares. All returns assume reinvestment
of distributions at NAV and represent past performance; they do not
guarantee future results. Investment return and principal value will
fluctuate so that an investor's shares when redeemed may be worth more or
less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 8/31/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) -- -- --
- ------------------------------------------------------------------------------
Income -- -- --
- ------------------------------------------------------------------------------
Capital gains -- -- --
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
2/28/97 $11.85 $12.57 $11.77 $11.80 $12.23
- ------------------------------------------------------------------------------
8/31/97 13.50 14.32 13.37 13.43 13.92
- ------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 9/30/97
(most recent calendar quarter)
Class A Class B Class M
(inception date) (7/1/94) (7/1/94) (7/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 20.28% 13.37% 19.78% 14.78% 19.97% 15.76%
- ------------------------------------------------------------------------------
1 year 29.29 21.84 28.47 23.47 28.87 24.34
- ------------------------------------------------------------------------------
Life of class 93.18 82.04 89.97 86.97 91.49 84.77
Annual average 22.46 20.24 21.83 21.23 22.13 20.79
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns and
net asset value will fluctuate so that an investor's shares when sold may
be worth more of less than their original cost.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales and a higher 12b-1 fee than
class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 5.75% sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index* is an unmanaged list of common stocks whose
performance assumes reinvestment of all distributions. It is frequently
used as a general measure of stock market performance.
Europe, Australia, and Far East (EAFE)* component of Morgan Stanley
Capital International (MSCI) World Index is an unmanaged list of
approximately 1,045 equity securities originating in 18 countries listed
on the stock exchanges of Europe, Australia, and the Far East, with all
values expressed in U.S. dollars. Performance figures reflect changes in
market prices and reinvestment of distributions net of withholding taxes.
Because the fund is a managed portfolio investing in a wide variety of
foreign securities, the securities it owns will not match those in the
index.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
WELCOME TO
www.putnaminv.com
Now you can get up-to-date information about your funds, learn more
about investing and retirement planning, and access market news and an
economic outlook from Putnam experts -- with just a few clicks of the
mouse!
VISIT PUTNAM'S NEW SITE ON THE WORLD WIDE WEB TO FIND OUT:
* the benefits of investing with Putnam
* Putnam's money management philosophy
* daily fund pricing and long-term fund performance
* how to tell if your retirement savings plan is on track
* how quickly money can accumulate in a tax-deferred investment
You can also read Dr. Robert Goodman's economic commentary and Putnam's
Capital Markets Forum outlook, search for a particular Putnam fund by
name or objective . . . and much more.
The site can be accessed through any of the major online services
(America Online, CompuServe, Prodigy) that offer web access. Of course,
you can also access it via Netscape and an independent Internet service
provider.
New features will be added to the site on an ongoing basis. So, visit us
at http://www.putnaminv.com -- often!
Portfolio of Investment Owned
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (95.6%) *
NUMBER OF SHARES VALUE
<S> <C> <C> <C> <C>
Advertising (2.5%)
- ------------------------------------------------------------------------------------------------------------
159,933 Interpublic Group of Companies, Inc. $ 7,796,709
73,025 Omnicom Group, Inc. 4,947,444
25,350 Outdoor Systems, Inc. + 670,191
------------
13,414,344
Aerospace and Defense (1.5%)
- ------------------------------------------------------------------------------------------------------------
59,000 Boeing Co. 3,211,813
97,700 Cae Inc. (Canada) 749,697
15,000 Northrop Grumman Corp. 1,755,938
189,200 Rolls-Royce PLC (United Kingdom) 716,998
139,198 Smiths Industries PLC (United Kingdom) 1,850,790
------------
8,285,236
Airlines (1.0%)
- ------------------------------------------------------------------------------------------------------------
41,200 Delta Air Lines, Inc. 3,563,800
53,515 K.L.M.-Royal Dutch Airlines (Netherlands) 1,704,484
------------
5,268,284
Apparel (0.3%)
- ------------------------------------------------------------------------------------------------------------
26,200 Gucci Group (Italy) 1,594,925
Automotive (1.7%)
- ------------------------------------------------------------------------------------------------------------
590,009 Avis Europe PLC 144A ADR (United Kingdom) + 1,356,838
2,860 Bayerische Motoren Werke (BMW) AG (Germany) 2,022,541
76,100 Lear Corp. + 3,486,331
32,800 Magna International, Inc. Class A (Canada) 2,173,000
------------
9,038,710
Banks (9.6%)
- ------------------------------------------------------------------------------------------------------------
41,210 ABN AMRO Holding N.V. (Netherlands) 808,207
72,600 Ahmanson (H.F.) & Co. 3,684,450
222,959 Allied Irish Banks PLC (Ireland) 1,872,478
55,100 Banco Totta & Accores S.A. (Portugal) 987,467
30,000 Bank Handlowy 144A (Poland) + 378,238
151,696 Bank of Ireland (Ireland) 1,717,407
63,130 Bank of Nova Scotia (Canada) 2,726,880
37,200 Bankers Trust New York Corp. DELTA 3,859,500
13,500 Credit Locale de France S.A. (France) 1,161,195
164,500 Dao Heng Bank Group Ltd. (Hong Kong) 700,542
39,700 Deutsche Bank AG (Germany) 2,314,006
32,800 Fifth Third Bancorp 1,918,800
72,000 First Union Corp. 3,460,500
133,300 Guoco Group Ltd. (Hong Kong) 517,787
50,997 HSBC Holdings PLC (Hong Kong) 1,553,141
1,510 Julius Baer Holdings AG (Switzerland) 2,126,761
140,717 National Bank of Canada (Canada) 1,814,853
209,000 Overseas Union Bank Ltd. (Singapore) 945,608
23,201 Societe Generale (France) 2,871,589
66,600 Summit Bancorp 3,954,375
67,000 Union Planters Corp. 3,433,750
2,388 United Bank of Switzerland (Switzerland) 2,362,374
87,240 Washington Mutual, Inc. 5,223,495
168,200 Westpac Banking Corp. (Australia) 970,772
------------
51,364,175
Broadcasting (1.6%)
- ------------------------------------------------------------------------------------------------------------
55,700 Clear Channel Communications, Inc. + 3,784,119
12,200 Evergreen Media Corp. Class A 584,075
219,800 Tele-Communications, Inc. Class A 3,846,500
3,800 Television Francaise 1 (France) 308,766
2,300 Univision Communications Inc. Class A + 117,875
------------
8,641,335
Building Products (1.1%)
- ------------------------------------------------------------------------------------------------------------
278,500 Cemex S.A. de C.V. (Mexico) 1,334,145
214,167 CRH PLC (Ireland) + 2,310,268
32,200 Lafarge Coppee (France) 2,071,963
------------
5,716,376
Business Services (2.4%)
- ------------------------------------------------------------------------------------------------------------
86,160 Airgas, Inc. + 1,567,035
17,600 Cintas Corp. 1,227,600
15,903 Corestaff, Inc. + 473,114
128,475 Corporate Express, Inc. + 2,192,105
46,136 Robert Half International, Inc. + 2,693,189
232,100 Securicor PLC (United Kingdom) 996,098
207,850 Unisource Worldwide, Inc. + 3,767,281
------------
12,916,422
Chemicals (2.6%)
- ------------------------------------------------------------------------------------------------------------
14,700 Akzo-Nobel N.V. (Netherlands) 2,277,434
65,506 Bayer AG ADR (Germany) + 2,403,455
26,883 Ciba Specialty Chemicals AG (Switzerland) + 2,316,878
67,600 Hercules, Inc. 3,494,075
152,000 KAO Corp. (Japan) + 2,241,590
53,000 Shin-Etsu Chemical Co. (Japan) 1,352,443
------------
14,085,875
Combined Utilities (0.3%)
- ------------------------------------------------------------------------------------------------------------
33,034 Veba (Vereinigte Elektrizitaets Bergwerks) AG (Germany) + 1,788,581
Computers (2.7%)
- ------------------------------------------------------------------------------------------------------------
48,200 EMC Corp. + 2,473,263
60,100 Hewlett-Packard Co. 3,684,881
36,600 IBM Corp. 3,692,025
122,500 NCR Corp. + 4,341,094
------------
14,191,263
Computer Services (1.3%)
- ------------------------------------------------------------------------------------------------------------
26,655 America Online, Inc. + 1,719,248
47,248 Keane, Inc. 2,775,820
67,501 Sterling Commerce, Inc. + 2,231,752
------------
6,726,820
Computer Software (6.9%)
- ------------------------------------------------------------------------------------------------------------
57,919 BMC Software, Inc. + 3,627,177
174,497 Computer Associates International, Inc. 11,669,487
102,900 Compuware Corp. + 6,354,075
67,863 Electronic Arts, Inc. + 2,091,029
55,114 Electronics for Imaging, Inc. + 2,948,599
46,354 Microsoft Corp. + 6,127,419
67,675 Parametric Technology Corp. + 3,142,658
15,600 PeopleSoft, Inc. + 877,500
------------
36,837,944
Conglomerates (2.5%)
- ------------------------------------------------------------------------------------------------------------
453,822 BTR Ltd. PLC (United Kingdom) 1,602,223
1,233,000 First Pacific Co., Ltd. (Hong Kong) + 1,233,159
59,100 General Motors Corp. Class H 3,756,544
172,000 Hutchison Whampoa, Ltd. (Hong Kong) 1,431,669
163,600 Ogden Corp. 3,793,475
345,243 Tomkins PLC (United Kingdom) 1,671,772
------------
13,488,842
Consumer Products (0.3%)
- ------------------------------------------------------------------------------------------------------------
57,900 Unilever PLC (United Kingdom) 1,602,044
Consumer Services (0.6%)
- ------------------------------------------------------------------------------------------------------------
138,400 CUC International, Inc. + 3,252,400
Cosmetics (0.1%)
- ------------------------------------------------------------------------------------------------------------
13,482 ThermoLase Corp. + 217,397
12,491 ThermoLase Corp. -units + 226,399
------------
443,796
Education Services (0.3%)
- ------------------------------------------------------------------------------------------------------------
11,199 Apollo Group, Inc. Class A + 399,664
36,076 DeVRY, Inc. + 978,562
------------
1,378,226
Electric Utilities (0.6%)
- ------------------------------------------------------------------------------------------------------------
30,900 Calenergy, Inc. + 1,023,563
13,000 Electricidade de Portugal S.A. (Portugal) + 202,315
276,900 Scottish Power PLC (United Kingdom) 1,950,712
------------
3,176,590
Electronics and Electrical Equipment (5.2%)
- ------------------------------------------------------------------------------------------------------------
370 ABB AG (Switzerland) + 544,205
21,800 Applied Materials, Inc. + 2,057,375
99,100 Cookson Group PLC (United Kingdom) 406,046
312,713 General Electric Co. PLC (United Kingdom) 1,932,064
13,100 Hirose Electric Co. Ltd. (Japan) 917,108
8,800 Keyence Corp. (Japan) 1,283,181
170,000 Matsushita Electric Works (Japan) + 1,830,985
111,100 Molins PLC (United Kingdom) 1,075,061
16,000 Murata Manufacturing Co. Ltd. (Japan) 650,870
38,500 NEC Corp. (Japan) + 430,612
48,600 Philips Electronics N.V. (Netherlands) + 3,456,584
37,100 Siemens AG (Germany) + 2,269,044
32,100 Sony Corp. (Japan) 2,792,459
51,048 Thermo Instrument Systems, Inc. + 2,038,730
131,125 Vishay Intertechnology, Inc. 3,499,398
98,100 Westinghouse Electric Corp. 2,526,075
------------
27,709,797
Energy-Related (1.7%)
- ------------------------------------------------------------------------------------------------------------
193,760 Thermo Electron Corp. + 7,798,840
8,354 VA Technolgies AG (Austria) 1,527,361
------------
9,326,201
Environmental Control (0.9%)
- ------------------------------------------------------------------------------------------------------------
22,791 Compagnie Generale des Eaux (France) 2,536,490
87,947 Republic Industries, Inc. + 2,160,198
------------
4,696,688
Finance (4.2%)
- ------------------------------------------------------------------------------------------------------------
7,400 Acom Co. Ltd. 348,848
56,490 American Express Co. 4,392,098
15,400 Associates First Capital Corp. 894,163
207,134 Federal Home Loan Mortgage Corp. 6,744,801
161,267 Federal National Mortgage Association 7,095,748
41,176 MBNA Corp. 1,582,703
8,800 Promise Co. Ltd. (Japan) 443,281
25,075 TCF Financial Corp. 1,336,811
------------
22,838,453
Food and Beverages (2.5%)
- ------------------------------------------------------------------------------------------------------------
17,800 Bass PLC (United Kingdom) 238,400
79,300 Dole Food Co. 3,097,656
122,400 Fomento Economico Mexicano S.A. de C.V. Class B (Mexico) 845,490
2,385 Nestle S.A. (Switzerland) 2,767,304
72,000 The Quaker Oats Co. 3,384,000
134,400 Whitman Corp. 3,292,800
------------
13,625,650
HMOs (0.8%)
- ------------------------------------------------------------------------------------------------------------
88,413 United Healthcare Corp. 4,299,082
Household Products (1.2%)
- ------------------------------------------------------------------------------------------------------------
92,787 Blyth Industries, Inc. 3,427,320
90,700 Tupperware Corp. 3,044,119
------------
6,471,439
Insurance (2.1%)
- ------------------------------------------------------------------------------------------------------------
51,359 Internationale Nederlanden Groep (Netherlands) 2,234,098
144,500 Norwich Union PLC 144A (United Kingdom) 798,001
274,300 QBE Insurance Group Ltd. (Australia) 1,480,800
50,778 Scor (France) 2,079,631
956 Swiss Reinsurance Co. (Switzerland) 1,266,972
142,900 USF&G Corp. 3,134,869
1,473 Zurich Versicherungs-Gesellschaft (Switzerland) 533,481
------------
11,527,852
Machinery (1.0%)
- ------------------------------------------------------------------------------------------------------------
1,142 Fischer (Switzerland) 1,576,282
4,400 Mannesmann AG (Germany) 2,032,265
54,650 Sandvik AB Class B (Sweden) 1,656,564
------------
5,265,111
Medical Management Services (0.5%)
- ------------------------------------------------------------------------------------------------------------
19,043 Pediatrix Medical Group, Inc. + 792,665
57,627 Phycor, Inc. + 1,696,395
------------
2,489,060
Medical Supplies and Devices (1.5%)
- ------------------------------------------------------------------------------------------------------------
12,808 Medtronic, Inc. 1,157,523
134,730 Stryker Corp. 5,380,779
47,787 Thermo Cardiosystems, Inc. + 1,197,662
15,900 Thermotrex Corp. + 404,456
1,480 Trex Medical Corp. + 22,940
------------
8,163,360
Metals and Mining (1.1%)
- ------------------------------------------------------------------------------------------------------------
124,244 Freeport-McMoRan Copper & Gold Co., Inc. Class B 3,478,832
144,339 Rio Tinto PLC (United Kingdom) + 2,274,456
------------
5,753,288
Networking Equipment (1.1%)
- ------------------------------------------------------------------------------------------------------------
58,200 Cisco Systems, Inc. + 4,386,825
34,900 Newbridge Networks Corp. (Canada) + 1,590,478
------------
5,977,303
Office Equipment (0.6%)
- ------------------------------------------------------------------------------------------------------------
44,000 Ricoh Co., Ltd. (Japan) + 594,200
110,216 Viking Office Products, Inc. + 2,328,313
------------
2,922,513
Oil and Gas (4.4%)
- ------------------------------------------------------------------------------------------------------------
38,400 Amoco Corp. 3,631,200
179,636 British Petroleum Co. PLC (United Kingdom) 2,509,189
104,872 Burmah Castrol PLC (United Kingdom) 1,748,505
23,979 Elf Aquitaine S.A. (France) 2,656,898
594,939 Ente Nazionale Idrocarburi SPA ADR (Italy) 3,312,684
138,400 Occidental Petroleum Corp. 3,243,750
58,500 Petroleo Brasileiro S/A-Petrobras ADR (Brazil) 1,462,500
274,200 Shell Transportation & Trading (United Kingdom) 1,851,759
34,500 Total Corp. ADR Class B (France) 3,222,341
------------
23,638,826
Paper and Forest Products (1.5%)
- ------------------------------------------------------------------------------------------------------------
91,000 Boise Cascade Corp. 3,600,188
58,000 International Paper Co. 3,059,500
70,100 Svenska Cellulosa AB Class B (Sweden) 1,548,196
------------
8,207,884
Pharmaceuticals and Biotechnology (2.6%)
- ------------------------------------------------------------------------------------------------------------
26,110 Altana AG (Germany) 1,953,201
110,833 Astra B (Sweden) 1,669,277
102,934 Glaxo Wellcome PLC (United Kingdom) 2,058,765
7,800 Medicis Pharmaceutical Corp. Class A + 310,050
1,148 Novartis AG ADR (Switzerland) 1,623,061
95,000 Pharmacia & Upjohn, Inc. 3,235,938
27,500 Pharmacia & Upjohn, Inc. ADS (Sweden) 929,301
53,000 Sankyo Co., Ltd. (Japan) 1,607,124
33,000 Taisho Pharmaceutical Co. (Japan) 806,545
------------
14,193,262
Photography (1.3%)
- ------------------------------------------------------------------------------------------------------------
125,000 Canon, Inc. (Japan) + 3,448,631
61,600 Polaroid Corp. 3,253,250
------------
6,701,881
Publishing (0.6%)
- ------------------------------------------------------------------------------------------------------------
65,200 Times Mirror Co. Class A 3,304,825
Railroads (1.2%)
- ------------------------------------------------------------------------------------------------------------
37,000 Burlington Northern Santa Fe Corp. 3,392,428
32,000 Norfolk Southern Corp. 3,136,000
------------
6,528,428
REIT's (Real Estate Investnment Trusts) (1.3%)
- ------------------------------------------------------------------------------------------------------------
102,532 Beacon Properties Corp. 3,691,152
70,900 Equity Residential Properties Trust 3,451,944
------------
7,143,096
Restaurants (0.1%)
- ------------------------------------------------------------------------------------------------------------
24,150 Cracker Barrel Old Country Store, Inc. 742,613
Retail (7.8%)
- ------------------------------------------------------------------------------------------------------------
27,600 Circle K Japan Co. Ltd. (Japan) 1,381,143
208,356 Costco Companies, Inc. + 7,513,838
57,200 Dixons Group PLC (United Kingdom) 603,056
20,800 Dollar General Corp. 861,900
30,025 Dollar Tree Stores, Inc. 1,167,222
53,100 General Nutrition Companies, Inc. + 1,473,525
56,925 Home Depot, Inc. (The) 2,686,148
245,000 K mart Corp. + 3,399,375
69,922 Kohl's Corp. + 4,820,248
99,371 Lowe's Cos., Inc. 3,434,510
1,700 MSC Industrial Direct Co., Inc. Class A + 69,063
313,561 Officemax, Inc. + 4,644,622
7,900 Rexall Sundown, Inc. + 274,525
23,500 Staples, Inc. + 552,250
192,323 Starbucks Corp. + 7,885,243
21,200 Vendex International N.V. (Netherlands) 1,060,782
------------
41,827,450
Satelite Services (0.3%)
- ------------------------------------------------------------------------------------------------------------
46,750 Panamsat Corp. + 1,700,531
Semiconductors (3.2%)
- ------------------------------------------------------------------------------------------------------------
72,992 Linear Technology Corp. 4,785,538
80,850 Maxim Integrated Products Inc. + 5,588,756
17,000 Rohm Co. Ltd. (Japan) 1,760,563
34,800 SGS-Thomson Microelectronics ADR (France) + 3,232,050
29,000 Tokyo Electron Ltd. (Japan) 1,573,736
------------
16,940,643
Specialty Consumer Products (0.6%)
- ------------------------------------------------------------------------------------------------------------
37,685 Fastenal Co. 2,171,598
28,900 Mattel, Inc. 966,344
------------
3,137,942
Telecommunication (0.5%)
- ------------------------------------------------------------------------------------------------------------
114,364 NEXTEL Communications, Inc. Class A + 2,866,248
Telecommunication Equipment (1.4%)
- ------------------------------------------------------------------------------------------------------------
29,400 Northern Telecom Ltd. (Canada) 2,917,970
20,700 Oy Nokia AB Class A (Finland) 1,596,108
22,203 Qwest Communications International, Inc. + 904,772
54,500 Telefonaktiebolaget LM Ericsson Class B (Sweden) 2,262,470
------------
7,681,320
Telephone Services (1.8%)
- ------------------------------------------------------------------------------------------------------------
97,300 Deutsche Telekom AG (Germany) 1,935,249
41,700 Portugal Telecom S.A. (Portugal) 1,544,614
76,000 Sprint Corp. 3,572,000
545,179 Vodafone Group PLC (United Kingdom) 2,798,849
------------
9,850,712
Telephone Utilities (0.6%)
- ------------------------------------------------------------------------------------------------------------
92,000 US West, Inc. 3,294,750
Tire and Rubber (0.4%)
- ------------------------------------------------------------------------------------------------------------
37,754 Michelin Corp. Class B (France) 2,113,282
Tobacco (1.7%)
- ------------------------------------------------------------------------------------------------------------
251,427 B A T Industries PLC (United Kingdom) + 2,103,116
136,000 Dimon Inc. 3,264,000
109,000 RJR Nabisco Holdings Corp. + 3,794,563
------------
9,161,679
------------
Total Common Stocks (cost $428,374,878) $513,313,357
PREFERRED STOCKS (0.1%) * (cost $402,156)
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
11,100 Uniao de Bancos Brasileiros S.A. BRC 1.187 pfd. (Brazil) $ 391,418
WARRANTS (-%) * (cost $-) EXPIRATION
WARRANTS DATE VALUE
- ------------------------------------------------------------------------------------------------------------
10,059 Generale des Eaux 5/2/01 $ 5,614
SHORT-TERM INVESTMENTS (4.1%) * (cost $22,199,262)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$22,189,000 Interest in $480,487,000 joint repurchase agreement dated
August 29, 1997 with UBS Securities due September 2, 1997
with respect to various U.S. Treasury obligations - maturity
value of $22,202,683 for an effective yield of 5.55% $ 22,199,262
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $450,976,296) *** 535,909,651
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $537,063,839.
*** The aggregate identified cost on a tax basis is $452,065,088, resulting in gross unrealized appreciation
and depreciation of $93,618,757 and $9,774,194, respectively, or net unrealized appreciation of $83,844,563.
+ Non-income-producing security.
DELTA This entity provides subcustodian services to the fund.
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified
institutional buyers.
ADR or ADS after the name of a foreign holding stands for American Depository Receipts or American Depository
Shares, respectively, representing ownership of foreign securities on deposit with a domestic custodian bank.
Diversification by Country
Distribution of investments by country of issue at August 31, 1997: (as percentage of Market Value)
Canada 2.2%
France 4.2
Germany 3.1
Hong Kong 1.0
Ireland 1.1
Japan 4.3
Netherlands 2.2
Sweden 1.5
Switzerland 2.8
United Kingdom 6.0
United States 68.1
Other 3.5
-----
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at August 31, 1997
Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
French Francs $15,586,659 $15,184,168 Feb 98 $(402,491)
- ------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
August 31, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $450,976,296) (Note 1) $535,909,651
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 893,122
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,340,625
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 4,718,943
- ---------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 48,565
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 38,784
- ---------------------------------------------------------------------------------------------------
Total assets 542,949,690
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 188,877
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 2,929,264
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 628,265
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 926,882
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 151,316
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 7,672
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,892
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 423,063
- ---------------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 98,304
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 402,491
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 64,160
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 63,665
- ---------------------------------------------------------------------------------------------------
Total liabilities 5,885,851
- ---------------------------------------------------------------------------------------------------
Net assets $537,063,839
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $398,944,372
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (868,840)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 54,469,596
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 84,518,711
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $537,063,839
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($233,665,979 divided by 17,304,416 shares) $13.50
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $13.50)* $14.32
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($282,797,258 divided by 21,144,557 shares)** $13.37
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($20,600,602 divided by 1,534,446 shares) $13.43
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $13.43)* $13.92
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less thhan $50,000. On sales of $50,000 or more and on group sales, the
offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred
sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended August 31, 1997 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $157,093) $ 4,086,261
- --------------------------------------------------------------------------------------------------
Interest 599,445
- --------------------------------------------------------------------------------------------------
Total investment income 4,685,706
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,726,488
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 655,647
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 7,305
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 5,450
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 415,614
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,297,405
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 66,501
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 9,802
- --------------------------------------------------------------------------------------------------
Reports to shareholders 29,786
- --------------------------------------------------------------------------------------------------
Registration fees 8,896
- --------------------------------------------------------------------------------------------------
Auditing 14,231
- --------------------------------------------------------------------------------------------------
Legal 6,165
- --------------------------------------------------------------------------------------------------
Postage 32,583
- --------------------------------------------------------------------------------------------------
Other 17,938
- --------------------------------------------------------------------------------------------------
Total expenses 4,293,811
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (159,550)
- --------------------------------------------------------------------------------------------------
Net expenses 4,134,261
- --------------------------------------------------------------------------------------------------
Net investment income 551,445
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 40,212,804
- --------------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 5,381,747
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (Note 1) (3,962,691)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 21,358,486
- --------------------------------------------------------------------------------------------------
Net gain on investments 62,990,346
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $63,541,791
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
August 31 February 28
1997* 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 551,445 $ 592,859
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 45,594,551 31,417,671
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 17,395,795 24,707,175
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 63,541,791 56,717,705
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
- ----------------------------------------------------------------------------------------------------------------------
Class A -- (1,842,478)
- ----------------------------------------------------------------------------------------------------------------------
Class B -- (1,471,953)
- ----------------------------------------------------------------------------------------------------------------------
Class M -- (117,302)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
- ----------------------------------------------------------------------------------------------------------------------
Class A -- (12,456,981)
- ----------------------------------------------------------------------------------------------------------------------
Class B -- (14,387,126)
- ----------------------------------------------------------------------------------------------------------------------
Class M -- (811,724)
- ----------------------------------------------------------------------------------------------------------------------
In excess of net investment income
- ----------------------------------------------------------------------------------------------------------------------
Class A -- (762,542)
- ----------------------------------------------------------------------------------------------------------------------
Class B -- (609,195)
- ----------------------------------------------------------------------------------------------------------------------
Class M -- (48,548)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 27,309,790 124,909,360
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 90,851,581 149,119,216
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 446,212,258 297,093,042
- ----------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess
of net investment income of $868,840 and
$1,420,285, respectively) $537,063,839 $446,212,258
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ----------------------------------------------------------------------------------------------------------------------
Six months
ended For the Period
Per-share August 31 Year ended Year ended July 1, 1994+
operating performance (Unaudited) February 28 February 29 to February 28
- ----------------------------------------------------------------------------------------------------------------------
1997 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $11.85 $11.02 $8.83 $8.50
- ----------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------
Net investment income .04 .06(d) .06 .03(d)
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.61 1.77 2.60 .32
- ----------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.65 1.83 2.66 .35
- ----------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------
From net
investment income -- (.12) (.08) --
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.83) (.39) --
- ----------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.05) -- --
- ----------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments -- -- -- (.02)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions -- (1.00) (.47) (.02)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.50 $11.85 $11.02 $8.83
- ----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 13.92* 16.92 30.58 4.13*
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $233,666 $199,305 $142,513 $93,144
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .70* 1.43 1.56 1.12*
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .29* .48 .60 .37*
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 56.30* 82.07 72.00 46.52*
- ----------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0352 $.0439
- ----------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended February 29, 1996 and thereafter
includes amounts paid through brokerage service and expense offset arrangements. Prior period ratios
exclude these amounts (Note 2).
(c) Average commission rate paid is required for fiscal periods beginning on or after September 1, 1995.
(d) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ----------------------------------------------------------------------------------------------------------------------
Six months
ended For the Period
Per-share August 31 Year ended Year ended July 1, 1994+
operating performance (Unaudited) February 28 February 29 to February 28
- ----------------------------------------------------------------------------------------------------------------------
1997 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $11.77 $10.97 $8.80 $8.50
- ----------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------
Net investment income (loss) -- (.01)(d) .01 --(d)
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.60 1.76 2.60 .32
- ----------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.60 1.75 2.61 .32
- ----------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------
From net
investment income -- (.09) (.05) --
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.83) (.39) --
- ----------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.03) -- --
- ----------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments -- -- -- (.02)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions -- (.95) (.44) (.02)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.37 $11.77 $10.97 $8.80
- ----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 13.59* 16.19 30.05 3.77*
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $282,797 $232,117 $150,679 $75,998
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.01* 2.02 2.09 1.45*
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.03)* (.12) .05 .05*
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 56.30* 82.07 72.00 46.52*
- ----------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0352 $.0439
- ----------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended February 29, 1996 and thereafter
includes amounts paid through brokerage service and expense offset arrangements. Prior period ratios
exclude these amounts (Note 2).
(c) Average commission rate paid is required for fiscal periods beginning on or after September 1, 1995.
(d) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ----------------------------------------------------------------------------------------------------------------
Six months
ended For the Period
Per-share August 31 Year ended July 3, 1995+
operating performance (Unaudited) February 28 to February 29
- ----------------------------------------------------------------------------------------------------------------
1997 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $11.80 $11.01 $9.76
- ----------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------
Net investment income .01(d) .01(d) --(d)
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.62 1.78 1.72
- ----------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.63 1.79 1.72
- ----------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------
From net
investment income -- (.12) (.08)
- ----------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.83) (.39)
- ----------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.05) --
- ----------------------------------------------------------------------------------------------------------------
Total distributions -- (1.00) (.47)
- ----------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.43 $11.80 $11.01
- ----------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 13.81* 16.51 17.95*
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $20,601 $14,791 $3,901
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .89* 1.77 1.23*
- ----------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .09* .05 --*
- ----------------------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 56.30* 82.07 72.00
- ----------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0352 $.0439
- ----------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended February 29, 1996 and thereafter
includes amounts paid through brokerage service and expense offset arrangements. Prior period ratios
exclude these amounts (Note 2).
(c) Average commission rate paid is required for fiscal periods beginning on or after September 1, 1995.
(d) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
Notes to financial statements
August 31, 1997 (Unaudited)
Note 1
Significant accounting policies
Putnam Diversified Equity Trust (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks capital appreciation primarily
through a diversified portfolio consisting of domestic growth, domestic value
and international stocks.
The fund offers class A, class B and class M shares. Class A shares are sold
with a maximum front-end sales charge of 5.75%. Class B shares, which convert
to class A shares after approximately eight years, do not pay a front-end
sales charge, but pay a higher ongoing distribution fee than class A shares,
and are subject to a contingent deferred sales charge, if those shares are
redeemed within six years of purchase. Class M shares are sold with a maximum
front-end sales charge of 3.50% and pay an ongoing distribution fee that is
lower than class B shares and higher than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class (including
the distribution fees applicable to such class). Each class votes as a class
only with respect to its own distribution plan or other matters on which a
class vote is required by law or determined by the Trustees. Shares of each
class would receive their pro-rata share of the net assets of the fund, if 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
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sales price, or, if no sales are reported -- as in the case of some
securities traded over the counter -- the last reported bid price. 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 and certain other accounts 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, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis. Dividend income
is recorded on the ex-dividend date except that certain dividends from foreign
securities are recorded as soon as the fund is informed of the ex-dividend
date.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, other assets and liabilities are recorded in the books and records
of the fund after translation to U.S. dollars based on the exchange rates on
that day. The cost of each security is determined using historical exchange
rates. Income and withholding taxes are translated at prevailing exchange
rates when accrued or incurred. The fund does not isolate that portion of
realized or unrealized gains or losses resulting from changes in the foreign
exchange rate on investments from fluctuations arising from changes in the
market prices of the securities. Such fluctuations are included with the net
realized and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains or losses
on closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign withholding
taxes recorded on the fund's books and the U.S. dollar equivalent amounts
actually received or paid. Net unrealized appreciation and depreciation of
assets and liabilities in foreign currencies arise from changes in the value
of open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell currencies
at a set price on a future date, to protect against a decline in value
relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of a
currency in which securities a fund intends to buy are denominated, when a
fund holds cash reserves and short-term investments). The U.S. dollar value of
forward currency contracts is determined using forward currency exchange rates
supplied by a quotation service. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is "marked to
market" daily and the change in market value is recorded as an unrealized gain
or loss. When the contract is closed, the fund records a realized gain or loss
equal to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. The fund could be exposed to
risk if the value of the currency changes unfavorably, if the counterparties
to the contracts are unable to meet the terms of their contracts or if the
fund is unable to enter into a closing position.
G) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
I) 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 were $98,304. These expenses are being amortized on projected net
asset levels 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. Such
fee is based on the following annual rates: 0.70% of the first $500 million of
average net assets, 0.60% of the next $500 million, 0.55% of the next $500
million, 0.50% of the next $5 billion, 0.475% of the next $5 billion, 0.455%
of the next $5 billion, 0.44% of the next $5 billion, 0.43% thereafter.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
As part of the custodian contract between the subcustodian bank and PFTC, the
subcustodian bank has a lien on the securities of the fund to the extent
permitted by the funds investment restrictions to cover any advances made by
the subcustodian bank for the settlement of securities purchased by the fund.
At August 31, 1997, the payable to the subcustodian bank represents the amount
due for cash advance for the settlement of a security purchased.
For the six months ended August 31, 1997, fund expenses were reduced by
$159,550 under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the Statement
of operations exclude these credits. The fund could have invested a portion of
the assets utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $986 and an additional
fee for each Trustee's meeting attended. Trustees who are not interested
persons of Putnam Management and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam 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 Plans provide for payments by the fund to Putnam
Mutual Funds Corp. at an annual rate up to 0.65%, 1.00% and 1.00% of
the average net assets attributable to class A, class B and class M
shares, respectively. The Trustees have approved payment by the fund at
an annual rate of 1.00% and 0.75% of the average net assets attributable
to class B and class M shares respectively. The Trustees have approved
payment by the fund at annual rate of 0.50% of the average net assets
attributable to class A for shares outstanding as of July 1, 1995
(except for class A shares for which Putnam Mutual Funds is dealer
of record) and 0.25% of such average net asset value of shares acquired
after that date (including shares acquired through reinvestment
of distributions).
For the six months ended August 31, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $107,932 and $12,545 from the sale of
class A and class M shares, respectively and $177,827 in contingent deferred
sales charges from redemptions of class B shares. A deferred sales charge of
up to 1% is assessed on certain redemptions of class A shares. For the six
months ended August 31, 1997, Putnam Mutual Funds Corp., acting as underwriter
received $2,243 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended August 31, 1997, purchases and sales of investment
securities other than short-term investments aggregated $296,225,731 and
$263,137,187, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost basis.
Note 4
Capital shares
At August 31, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
August 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 2,745,424 $34,615,855
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ------------------------------------------------------------
2,745,424 34,615,855
Shares
repurchased (2,265,172) (28,639,858)
- ------------------------------------------------------------
Net increase 480,252 $5,975,997
- ------------------------------------------------------------
Year ended
February 28, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 5,358,027 $62,540,590
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,268,867 14,540,984
- ------------------------------------------------------------
6,626,894 77,081,574
Shares
repurchased (2,734,363) (31,757,138)
- ------------------------------------------------------------
Net increase 3,892,531 $45,324,436
- ------------------------------------------------------------
Six months ended
August 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 4,325,988 $55,123,769
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ------------------------------------------------------------
4,325,988 55,123,769
Shares
repurchased (2,900,744) (37,323,792)
- ------------------------------------------------------------
Net increase 1,425,244 $17,799,977
- ------------------------------------------------------------
Year ended
February 28, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 6,764,474 $78,344,350
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,350,363 15,407,635
- ------------------------------------------------------------
8,114,837 93,751,985
Shares
repurchased (2,131,445) (24,663,610)
- ------------------------------------------------------------
Net increase 5,983,392 $69,088,375
- ------------------------------------------------------------
Six months ended
August 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 392,951 $4,902,381
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ------------------------------------------------------------
392,951 4,902,381
Shares
repurchased (111,969) (1,368,565)
- ------------------------------------------------------------
Net increase 280,982 $3,533,816
- ------------------------------------------------------------
Year ended
February 28, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 922,460 $10,783,946
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 83,934 959,329
- ------------------------------------------------------------
1,006,394 11,743,275
Shares
repurchased (107,111) (1,246,726)
- ------------------------------------------------------------
Net increase 899,283 $10,496,549
- ------------------------------------------------------------
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund *
International New Opportunities Fund
Investors Fund
New Opportunities Fund +
OTC & Emerging Growth Fund [DBL. DAGGER]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Total Return Fund
High Yield Trust +
Income Fund
Money Market Fund **
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGESM 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:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Overseas Growth Fund
+ Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to
maintain a price of $1.00 per share, although there is no
assurance that this price will be maintained in the future.
Please call your financial advisor or Putnam at 1-800-225-1581
to obtain a prospectus for any Putnam fund. It contains more
complete information, including charges and expenses. Please
read it carefully before you invest or send money.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
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
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
David L. King
Vice President and Fund Manager
Omid Kamshad
Vice President and Fund Manager
Charles H. Swanberg
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Diversified
Equity Trust. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales charges,
investment objectives, and operating policies of the fund, and the most recent
copy of Putnam's Quarterly Performance Summary. For more information or to
request a prospectus, call toll free: 1-800-225-1581. You can also learn more
at Putnam Investments' website: http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution; are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board, or any other agency;
and involve risk, including the possible loss of the principal amount
invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetss 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
AN003 36570 522/525/2AF 10/97
