Putnam
Diversified
Equity
Trust
ANNUAL REPORT
February 28, 1998
[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 March 31, 1998, the fund's class A shares ranked in the
top 8% for 3-year performance among its global fund counterparts, ranking
9 out of 119 funds.*
* "Putnam Diversified Equity Trust more than lives up to its name.
The fund's tripartite structure -- including foreign, growth, and value
segments -- sets it apart from the large-blend crowd. . . . The idea is
to offer a single fund that can perform decently in a variety of market
conditions. So far, the fund has done just that."
-- Morningstar Mutual Funds, February 6, 1998
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
23 Financial statements
* Lipper Analytical Services, an independent research organization, ranks
funds according to total return performance. These rankings vary over time
and do not reflect the effects of sales charges. For the 1-year period
ended 3/31/98, the fund's class A shares ranked 14 out of 191 funds. Class
B and class M shares ranked 19 and 17, respectively, out of 191 funds for
1-year performance and class B shares ranked 10 out of 119 funds for
3-year performance. Class M shares were not rated 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:
Building on the excellent performance we reported to you at the fiscal year's
midpoint, Putnam Diversified Equity Trust closed fiscal 1998 at the end of
February with a total return solidly in the double digits. While the fund's
results fell a bit short of those of the U.S. market as measured by the S&P
500(registered trademark) Index, they certainly represented a respectable
showing by the fund's triple-sector investment strategy.
With its ability to invest in domestic growth, domestic value, and
international stocks, your fund is positioned to seek out solid investments in
all three sectors while maintaining diversification across a broad band of the
global equities markets. Such diversification can prove to be a safety net if
one of the sectors should encounter disruptions.
I am pleased to announce that shortly after the close of the fiscal year, Paul
C. Warren was appointed to your fund's management team. Paul joined Putnam's
Core International Equity Group in 1997. His 15 years of prior investment
industry experience included positions with IDS Fund Management, Pilgrim
Baxter Asia, Prudential Asia Fund Management, and Rothschild Asset Management.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
April 15, 1998
Report from the Fund Managers
David L. King
Omid Kamshad
Charles H. Swanberg
During a fiscal year that provided many high as well as low notes, the
three-part harmony of Putnam Diversified Equity Trust's multisector strategy
- -- investing in domestic growth, domestic value, and international stocks --
proved music to the investor's ear. By using a flexible investment approach
that seeks the best opportunities across these three sectors, the fund
provided global growth-oriented investors with outstanding performance.
Combined, the fund's three sectors produced a double-digit total return for
class A shares at net asset value that significantly outperformed the Morgan
Stanley Europe, Australia, and Far East Index for the 12 months ended February
28, 1998. You will find full performance details for all share classes on
pages 9 and 10 of this report.
During this same period, domestic equity investors with no exposure to the
international markets would have fared slightly better, as represented by the
performance of the S&P 500 Index.
* DE-EMPHASIS OF DOMESTIC VALUE IN TUNE WITH MARKET ENVIRONMENT
An important shift we made early in the fiscal year was to reduce exposure to
the domestic value sector of the portfolio while increasing the weighting of
fund assets in the domestic growth area. In April 1997, we made the decision
to expand the fund's holdings of 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 stocks were
the top performers during the fiscal year.
A rosy scenario of rising and predictable earnings propelled U.S. stocks
throughout most of your fund's fiscal year. However, toward the end of the
year, concerns regarding Asia's economic slowdown -- and its potential effect
on U.S. corporations' earnings -- disrupted this favorable environment. After
a sharp one-day selloff in late October, the positive economic environment
enabled U.S. stocks to recover from the Asian-led selloff and resulted in
significant outperformance by those companies with primarily domestic
exposure.
Our quest in the value segment of your fund is to find stocks whose current
prices do not seem to reflect the inherent value of a company's assets and
future earnings potential. During the period, we purchased attractively priced
stocks of capital goods and technology companies that were being affected by
the Asian crisis -- either through perception or in reality. The situation
also gave us the opportunity to add to positions of stocks of companies that
we believe were undervalued and offered outstanding long-term potential.
Examples include Caterpillar, Intel, and Texas Instruments. All three holdings
corrected significantly during the period, based on concerns related to Asia.
While these stocks and others discussed in this report were viewed favorably
at the end of the fiscal period, all holdings are subject to review and
adjustment in accordance with the fund's investment strategy and may well vary
in the future.
Caterpillar, designer and manufacturer of earth-moving, construction, and
materials-handling machinery, exported $6.12 billion in heavy equipment in
1997, up 11% from the previous year. Despite the current turmoil and
uncertainty, we believe the developing areas of the world will regain their
footing and grow at an accelerated rate. We also believe that Caterpillar will
play an increasingly major role in those areas.
[GRAPHIC OMITTED: HORIZONTAL BAR CHART OF TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Banks 12.2%
Retail 9.9%
Finance 5.1%
Computer
software 4.6%
Business
services 4.1%
Footnote reads:
* Based on net assets as of 2/28/98. Holdings will vary over time.
Intel and Texas Instruments were among several of the fund's technology
holdings that announced new products and enhancements during the period. Intel
unveiled a range of networking products and strategies in an aggressive
expansion of its fast-growing computer networking business, including plans
for products to link up home PCs.
Another theme reflected in the domestic value portion of your fund's portfolio
was an overweighting in stocks of health services industries, particularly
health maintenance organizations and related companies, which we believe were
undeservedly beaten down in the fall of 1997. MedPartners was one health
services holding added to the portfolio during the period.
* FINANCIAL AND RETAIL STOCKS SOUND KEYNOTE FOR DOMESTIC GROWTH AREA
In the fund's domestic growth sector, our disciplined security selection
process has led us to position the portfolio in high-quality growth companies
within the most attractive economic sectors, including an overweighting in
financial services and retail stocks.
Financial services companies led the market for much of the period. Some of
the fund's top performers in this sector include American Express and Fifth
Third Bancorp. Another shift that contributed to fund performance was our
increased focus on investments in government agencies such as Federal Home
Loan Mortgage Corporation and Federal National Mortgage Association.
In the retail sector, our in-depth research and individual stock selection
also proved rewarding. Discount retailers have done particularly well in
recent years and Costco Companies, a fund holding, was especially attractive.
Costco operates 269 wholesale cash-and-carry membership warehouses in the
United States, Canada, the United Kingdom, and Taiwan. Net sales increased 12%
in fiscal 1997, due in part to first-year sales at 17 new stores opened during
the year. Kohl's, a chain of family-oriented specialty department stores in
the Midwest, also contributed to fund performance.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Federal National Mortgage Association
Finance
Costco Companies, Inc.
Retail
Federal Home Loan Mortgage Corp.
Finance
Starbucks Corp.
Specialty retailer
Thermo Electron Corp.
Energy related
Computer Associates International, Inc.
Computer software
Compuware Corp.
Computer software
Cendant Corp.
Business services
Interpublic Group of Companies, Inc.
Advertising
Kohl's Corp.
Retail
These holdings represent 13.0% of the fund's net assets as of 2/28/98.
Portfolio holdings will vary over time.
* INTERNATIONAL SECTOR FINDS ITS FORTE IN EUROPE
During the period, the fund's international sector was focused heavily on
Europe, where economies are in the early stages of recovery. We expect the
move toward a broad European Economic and Monetary Union (EMU) to result in
the convergence of interest rates, which may be a positive development for
European equities. We also believe select industries, including financials,
will particularly benefit from the establishment of EMU. Consequently your
fund has large holdings in French banks and European insurance companies,
which are also expected to benefit from the merger trend taking place in the
financial services industry.
The fund's Asian exposure was relatively low during the period with only a
minimal position in Japan. This strategy helped protect the fund from the
recent turbulence. Toward the end of the period, we began to use the region's
financial collapse as an opportunity to add cautiously to the fund's Asian
position. We have gradually increased the fund's holdings in Singapore,
particularly in Singapore banks, which we believe offer outstanding value, and
have also built up holdings in Hong Kong and South Korea.
* FISCAL '99 BEGINS ON POSITIVE NOTE
The portfolio's three-part harmony of domestic growth, domestic value, and
international stocks should continue to serve investors well in the months to
come. As always, individual stock selection will be the key in the quest for
superior performance in all three of the fund's stock segments. Our domestic
growth investment team remains committed to identifying those corporations
whose earnings growth can sustain the uncertainties of the economic situation
overseas as well as benefit from the solid growth still evident in the United
States.
Although the domestic value segment of your fund provided limited
opportunities during the period, we continue to believe that a consistently
applied and disciplined approach to investing in undervalued, overlooked, but
fundamentally strong companies will provide investors with above-average
returns and below-average volatility over the long term.
Reflecting on the U.S. stock market's significant outperformance in 1997, we
have begun to take a slightly more positive position on the outlook for
international markets. For the future, our optimism may lead us to shift fund
assets in favor of international equities.
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 2/28/98, 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 2/28/98
Class A Class B Class M
(inception date) (7/1/94) (7/1/94) (7/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 27.74% 20.42% 26.98% 21.98% 27.36% 22.88%
- ------------------------------------------------------------------------------
Life of fund 103.06 91.36 99.10 96.10 100.96 93.91
Annual average 21.35 19.40 20.70 20.20 21.01 19.83
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 2/28/98
Standard & Poor's MSCI
500 Index EAFE
- ------------------------------------------------------------------------------
1 year 35.01% 15.48%
- ------------------------------------------------------------------------------
Life of fund 156.47 32.34
Annual average 29.29 7.94
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 5.75% and 3.50%, respectively. Class B share returns for
the 1-, 5-, and 10-year (where available) and life-of-fund periods reflect
the applicable contingent deferred sales charge (CDSC), which is 5% in the
first year, declines 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 the
initial sales charge currently applicable to the class and the higher operating
expenses 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.
[GRAPHIC OMITTED: WORM CHART OF GROWTH OF A $10,000 INVESTMENT]
Cumulative total return of
a $10,000 investment since
7/1/94
(PLOT POINTS)
Fund's class A Shares Morgan Stanley S & P 500
DATE at POP EAFE Index Index
------ --------------------- -------------- ----------
7/1/94 9,525 10,000 10,000
12/31/94 9,646 9,908 10,441
6/30/95 10,846 10,166 12,545
12/31/95 12,429 11,019 14,351
6/30/96 13,743 11,516 15,798
12/31/96 14,487 11,684 17,638
6/30/97 16,535 12,993 21,269
12/31/97 17,873 11,892 25,426
2/28/98 19,136 13,234 25,647
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have been
valued at $19,910 at net asset value ($19,610 with a redemption at the end of
the period). A $10,000 investment in the fund's class M shares would have been
valued at $20,096 at net asset value ($19,391 at public offering price). See
first page of performance section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 2/28/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 1 1 1
- ------------------------------------------------------------------------------
Income $0.106 $0.035 $0.073
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 1.153 1.153 1.153
- ------------------------------------------------------------------------------
Short-term 0.502 0.502 0.502
- ------------------------------------------------------------------------------
Total $1.76 $1.69 $1.73
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
2/28/97 $11.85 $12.57 $11.77 $11.80 $12.23
- ------------------------------------------------------------------------------
2/28/98 13.18 13.98 13.07 13.11 13.59
- ------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 3/31/98
(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
- ------------------------------------------------------------------------------
1 year 38.92% 30.95% 38.08% 33.08% 38.46% 33.56%
- ------------------------------------------------------------------------------
Life of fund 114.31 101.96 110.07 107.07 112.00 104.55
Annual
average 22.54 20.62 21.89 21.42 22.19 21.03
- ------------------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. Investment returns and principal value will fluctuate so that
an investor's shares, when sold, may be worth more or less than their
original cost. See first page of performance section for performance
calculation method.
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 charge 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. It is not possible
to invest directly in an index.
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.
Report of independent accountants
To the Trustees and Shareholders of
Putnam Diversified Equity Trust
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Putnam Diversified
Equity Trust (the "fund") at February 28, 1998, and the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments owned at February 28, 1998 by correspondence with
the custodian and the application of alternative auditing procedures where
investments purchased were not yet received by the custodian, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 15, 1998
Portfolio of investments owned
February 28, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (95.6%) *
NUMBER OF SHARES VALUE
Advertising (0.8%)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
1,500 Edipresse S.A. (Switzerland) $ 440,574
75,554 Omnicom Group, Inc. 3,456,596
39,225 Outdoor Systems, Inc. + 1,169,395
--------------
5,066,565
Aerospace and Defense (1.4%)
- ------------------------------------------------------------------------------------------------------------
70,000 Boeing Co. 3,797,500
85,787 Cae, Inc. (Canada) 663,053
610,590 Rolls-Royce PLC (United Kingdom) 2,334,994
136,415 Smiths Industries PLC (United Kingdom) 2,039,572
--------------
8,835,119
Airlines (0.7%)
- ------------------------------------------------------------------------------------------------------------
148,400 British Airways PLC (United Kingdom) 1,391,303
69,300 Deutsche Lufthansa AG (Germany) 1,334,455
38,700 Ryanair Holdings, PLC ADR (Ireland) + 1,431,900
--------------
4,157,658
Aluminum (0.5%)
- ------------------------------------------------------------------------------------------------------------
45,000 Aluminum Co. of America 3,301,875
Apparel (0.1%)
- ------------------------------------------------------------------------------------------------------------
19,300 Stage Stores, Inc. + 810,600
Automotive (1.6%)
- ------------------------------------------------------------------------------------------------------------
590,009 Avis Europe PLC 144A ADR (United Kingdom) + 2,028,234
3,812 Bayerische Motoren Werke (BMW) AG (Germany) 3,843,504
76,100 Lear Corp. + 4,023,800
--------------
9,895,538
Banks (12.2%)
- ------------------------------------------------------------------------------------------------------------
62,200 Ahmanson (H.F.) & Co. 3,883,613
247,925 Allied Irish Banks PLC (Ireland) 3,227,389
234,670 Australia & New Zealand Banking Group Ltd.
(Australia) 1,610,054
1,510 Baer Holdings AG (Switzerland) 3,491,359
10,400 Banco Commercial Portugues, S.A. (Portugal) 344,913
30,000 Bank Handlowy 144A (Poland) + 474,411
157,614 Bank of Ireland (Ireland) 3,018,548
130,256 Bank of Nova Scotia (Canada) 3,212,469
33,700 Bankers Trust New York Corp. [UPSIDE DOWN DELTA] 3,985,025
47,400 Banque Nationale de Paris (France) 2,865,648
297,500 Dao Heng Bank Group Ltd. (Hong Kong) 853,074
300 Den Danske Bank (Denmark) 38,595
73,650 Den Norske Bank ASA (Norway) 405,381
37,200 Deutsche Bank AG (Germany) 2,554,810
150,000 Development Bank of Singapore Ltd. (Singapore) 1,176,652
48,700 Fifth Third Bancorp 3,847,300
19,600 ForeningsSparbanken AB (Sweden) 602,662
366,300 Guoco Group Ltd. (Hong Kong) 932,073
97,400 HSBC Holdings PLC (Hong Kong) 2,818,083
917 Liechtenstein Global Trust AG (Switzerland) 792,353
147,417 National Bank (Canada) 2,454,878
164,045 Nordbanken Holding AG (Sweden) 1,035,469
417,000 Overseas Chinese Banking Corp. (China) 2,485,516
460,000 Overseas Union Bank Ltd. (Singapore) 1,733,169
27,700 Royal Bank of Canada (Canada) 1,621,283
70,383 Skandinaviska Enskilda Bank Class A (Sweden) 1,007,294
23,201 Societe Generale (France) 3,499,017
66,700 Summit Bancorp 3,314,156
14,048 Svenska Handelsbanken (Sweden) 601,392
5,700 Unidanmark AS (Denmark) 413,617
56,800 Union Planters Corp. 3,510,950
2,906 United Bank of Switzerland (Switzerland) 4,537,648
248,000 United Overseas Bank Ltd. (Singapore) 1,347,993
80,840 Washington Mutual, Inc. 5,426,385
11,500 Wells Fargo & Co. 3,703,000
--------------
76,826,179
Broadcasting (2.6%)
- ------------------------------------------------------------------------------------------------------------
151,700 CBS Corp. 4,693,219
25,200 Chancellor Media Corp. 1,127,700
41,013 Clear Channel Communications, Inc. + 3,716,803
14,700 Societe Television Francaise 1 (France) 1,593,889
172,857 Tele-Communications, Inc. Class A + 5,023,657
4,800 Univision Communications, Inc. Class A + 184,200
--------------
16,339,468
Building and Construction (0.3%)
- ------------------------------------------------------------------------------------------------------------
7,094 Bouygues SA (France) 995,281
20,400 Cimpor-Cimentos de Portugal, SGPS, S.A. (Portugal) 590,700
--------------
1,585,981
Building Products (0.8%)
- ------------------------------------------------------------------------------------------------------------
237,818 CRH PLC (Ireland) 2,917,527
27,925 Lafarge Coppee (France) 2,061,229
--------------
4,978,756
Business Services (4.1%)
- ------------------------------------------------------------------------------------------------------------
175,700 Cendant Corp. + 6,588,750
58,900 Cintas Corp. 2,503,250
132,375 Corporate Express, Inc. + 1,340,297
119,032 Interpublic Group of Companies, Inc. (The) 6,487,244
69,204 Robert Half International, Inc. + 3,131,481
385,700 Securicor PLC (United Kingdom) 2,302,870
248,000 Unisource Worldwide, Inc. + 3,379,000
--------------
25,732,892
Cable Television (0.2%)
- ------------------------------------------------------------------------------------------------------------
28,400 USA Networks, Inc. + 1,462,600
Cellular Communications (--%)
- ------------------------------------------------------------------------------------------------------------
19,000 Smartone Telecommunications (Hong Kong) 49,206
Chemicals (0.9%)
- ------------------------------------------------------------------------------------------------------------
16,100 Akzo-Nobel N.V. (Netherlands) 3,268,480
44,699 Bayer AG ADR (Germany) 1,884,007
37,000 KAO Corp. (Japan) 501,944
--------------
5,654,431
Combined Utilities (0.3%)
- ------------------------------------------------------------------------------------------------------------
28,734 Veba (Vereinigte Elektrizitaets Bergwerks) AG
(Germany) 1,927,474
Computer Services (1.5%)
- ------------------------------------------------------------------------------------------------------------
13,600 America Online, Inc. + 1,647,300
94,496 Keane, Inc. + 4,394,064
69,501 Sterling Commerce, Inc. + 3,170,983
--------------
9,212,347
Computer Software (4.6%)
- ------------------------------------------------------------------------------------------------------------
47,719 BMC Software, Inc. + 3,650,504
159,945 Computer Associates Intl., Inc. 7,537,408
164,600 Compuware Corp. + 6,933,775
69,863 Electronic Arts, Inc. + 3,082,705
5,200 Lernout & Hauspie Speech Products N.V. (Belgium) + 396,500
35,208 Microsoft Corp. + 2,983,878
69,675 Parametric Technology Corp. + 4,219,692
--------------
28,804,462
Computers (1.1%)
- ------------------------------------------------------------------------------------------------------------
35,600 IBM Corp. 3,717,975
102,000 NCR Corp. + 3,200,250
--------------
6,918,225
Conglomerates (1.4%)
- ------------------------------------------------------------------------------------------------------------
660,260 BTR PLC (United Kingdom) 1,751,168
418,000 First Pacific Co., Ltd. (Hong Kong) 213,265
299,000 Hutchison Whampoa, Ltd. (Hong Kong) 2,114,473
288,000 Keppel Land Ltd. (Singapore) 305,967
131,000 Ogden Corp. 3,602,500
177,439 Tomkins PLC (United Kingdom) 1,024,399
--------------
9,011,772
Consumer Products (0.9%)
- ------------------------------------------------------------------------------------------------------------
3,200 Huhtamaki I Free (Finland) 155,148
75,000 Kimberly-Clark Corp. 4,176,563
161,954 Unilever Group (United Kingdom) 1,465,101
--------------
5,796,812
Consumer Services (0.5%)
- ------------------------------------------------------------------------------------------------------------
53,600 Hillenbrand Industries, Inc. 3,011,650
Cosmetics (--%)
- ------------------------------------------------------------------------------------------------------------
13,882 Thermolase Corp. + 112,791
Education Services (0.1%)
- ------------------------------------------------------------------------------------------------------------
10,199 Apollo Group, Inc. Class A + 432,183
Electric Utilities (1.4%)
- ------------------------------------------------------------------------------------------------------------
15,300 Calenergy, Inc. + 410,231
99,702 Electricidade de Portugal S.A. (Portugal) + 2,114,240
24,220 Iberdola S.A. (Spain) 350,569
175,000 Korea Electric Power Corp. (South Korea) + 2,339,053
149,000 Potomac Electric Power Co. 3,743,625
--------------
8,957,718
Electronics and Electrical Equipment (2.9%)
- ------------------------------------------------------------------------------------------------------------
224,851 General Electric Co. PLC (United Kingdom) 1,468,245
95,700 Micron Technology, Inc. + 3,176,044
111,100 Molins PLC (United Kingdom) 588,414
49,750 Philips Electronics N.V. (Netherlands) 3,866,769
32,500 Premier Farnell PLC (United Kingdom) 212,220
40,100 Sony Corp. (Japan) 3,626,656
65,685 Thermo Instrument Systems, Inc. + 2,307,186
148,825 Vishay Intertechnology, Inc. + 3,032,309
--------------
18,277,843
Energy-Related (1.4%)
- ------------------------------------------------------------------------------------------------------------
199,560 Thermo Electron Corp. + 8,181,960
6,150 VA Technologies AG (Austria) 849,389
--------------
9,031,349
Environmental Control (0.8%)
- ------------------------------------------------------------------------------------------------------------
24,535 Compagnie Generale des Eaux (France) 3,861,431
41,847 Republic Industries, Inc. + 988,635
--------------
4,850,066
Finance (5.1%)
- ------------------------------------------------------------------------------------------------------------
135,108 ABN AMRO Holding N.V. (Netherlands) 2,998,437
28,390 American Express Co. 2,556,874
15,900 Associates First Capital Corp. 1,272,000
212,484 Federal Home Loan Mortgage Corp. 10,039,869
182,667 Federal National Mortgage Association 11,656,438
32,300 Promise Co. Ltd. (Japan) 1,809,108
51,750 TCF Financial Corp. 1,710,984
--------------
32,043,710
Financial Services (0.6%)
- ------------------------------------------------------------------------------------------------------------
474,000 Nikko Securities Co. Ltd. (Japan) 1,876,446
148,000 Nomura Securities Co. Ltd. (Japan) 2,042,999
--------------
3,919,445
Food and Beverages (3.5%)
- ------------------------------------------------------------------------------------------------------------
149,525 Bass PLC (United Kingdom) 2,503,656
56,000 Coca-Cola Enterprises, Inc. 1,851,500
82,900 Dole Food Co. 4,502,506
2,284 Nestle S.A. (Switzerland) 4,009,481
19,671 Sara Lee Corp. 1,111,412
75,000 The Quaker Oats Co. 4,040,625
210,000 Whitman Corp. 3,740,625
--------------
21,759,805
Gas Pipelines (0.2%)
- ------------------------------------------------------------------------------------------------------------
36,700 Williams Cos., Inc. 1,199,631
Health Care Services (0.6%)
- ------------------------------------------------------------------------------------------------------------
2,361 Coram Healthcare Corp. + 7,231
2,400 Lincare Holdings, Inc. + 155,775
306,000 MedPartners, Inc. + 3,672,000
--------------
3,835,006
Insurance (3.4%)
- ------------------------------------------------------------------------------------------------------------
51,700 Aetna, Inc. 4,517,288
26,500 Century Business Services, Inc. + 400,813
1,958 Hannover Rueckversicherungs AG (Germany) 194,721
99,723 Internationale Nederlanden Groep (Netherlands) 5,279,367
202,100 Prudential Corp. PLC (United Kingdom) 3,016,658
411,655 QBE Insurance Group Ltd. (Australia) 1,700,194
68,778 Scor (France) 3,553,586
12,900 Transamerica Corp. 1,502,044
2,323 Zurich Versicherungs-Gesellschaft (Switzerland) 1,269,399
--------------
21,434,070
Leisure (0.1%)
- ------------------------------------------------------------------------------------------------------------
2,460 Adidas AG 144A ADR (Germany) 384,926
Machinery (1.8%)
- ------------------------------------------------------------------------------------------------------------
75,000 Caterpillar, Inc. 4,096,875
1,085 Fischer (Switzerland) 1,830,567
5,184 Mannesmann AG (Germany) 3,113,256
26,340 Sandvik AB Class B (Sweden) 737,474
70,700 Siebe PLC (United Kingdom) 1,461,732
--------------
11,239,904
Medical Management Services (0.9%)
- ------------------------------------------------------------------------------------------------------------
19,043 Pediatrix Medical Group, Inc. + 785,524
78,700 Wellpoint Health Networks, Inc. + 4,599,031
--------------
5,384,555
Medical Supplies and Devices (2.1%)
- ------------------------------------------------------------------------------------------------------------
37,703 Johnson & Johnson 2,846,577
21,790 Medtronic, Inc. 1,157,594
7,900 Sofamor Danek Group, Inc. + 594,475
138,730 Stryker Corp. 5,679,259
49,187 Thermo Cardiosystems, Inc. + 1,229,675
16,400 Thermotrex Corp. + 291,100
1,480 Trex Medical Corp. + 23,033
18,800 Tyco International Ltd. 954,100
6,600 U.S. Surgical Corp. 202,125
--------------
12,977,938
Metals and Mining (0.3%)
- ------------------------------------------------------------------------------------------------------------
142,491 Rio Tinto PLC (United Kingdom) 1,921,827
Networking Equipment (1.4%)
- ------------------------------------------------------------------------------------------------------------
103,000 3Com Corp. + 3,682,250
55,600 Ascend Communications, Inc. + 2,081,525
24,152 Cisco Systems, Inc. + 1,590,980
65,100 Newbridge Networks Corp. (Canada) + 1,525,495
--------------
8,880,250
Office Equipment (0.5%)
- ------------------------------------------------------------------------------------------------------------
66,000 Ricoh Co., Ltd. (Japan) + 706,862
100,916 Viking Office Products, Inc. + 2,220,152
--------------
2,927,014
Oil Services (0.2%)
- ------------------------------------------------------------------------------------------------------------
65,250 Nabors Industries, Inc. + 1,492,594
Oil and Gas (3.0%)
- ------------------------------------------------------------------------------------------------------------
44,400 Amoco Corp. 3,774,000
74,236 British Petroleum Co. PLC (United Kingdom) 1,023,226
55,112 Burmah Castrol PLC (United Kingdom) 948,180
60,055 Camco International, Inc. 3,513,218
5,679 Elf Aquitaine S.A. (France) 646,550
83,500 Halliburton Co. 3,882,750
72,750 National-Oilwell, Inc. + 2,037,000
17,871 Schlumberger Ltd. 1,347,027
5,936 Total Corp. S.A. ADR Class B (France) 651,429
54,900 Varco International, Inc. + 1,365,638
--------------
19,189,018
Paper and Forest Products (1.1%)
- ------------------------------------------------------------------------------------------------------------
115,000 Boise Cascade Corp. 3,830,938
68,200 Weyerhaeuser Co. 3,405,738
--------------
7,236,676
Pharmaceuticals and Biotechnology (2.7%)
- ------------------------------------------------------------------------------------------------------------
21,900 Altana AG (Germany) 1,749,587
136,624 Astra B (Sweden) 2,672,540
64,292 Glaxo Wellcome PLC (United Kingdom) 1,797,707
8,000 Medicis Pharmaceutical Corp. Class A + 343,500
1,628 Novartis AG ADR (Switzerland) 2,976,883
100,000 Pharmacia & Upjohn, Inc. 3,956,250
76,000 Sankyo Co., Ltd. (Japan) 2,043,951
105,000 Smithkline Beecham PLC ADR (United Kingdom) 1,312,550
--------------
16,852,968
Photography (0.3%)
- ------------------------------------------------------------------------------------------------------------
87,000 Canon, Inc. (Japan) 1,994,685
Publishing (0.7%)
- ------------------------------------------------------------------------------------------------------------
65,200 Times Mirror Co. Class A 4,013,875
Railroads (0.9%)
- ------------------------------------------------------------------------------------------------------------
39,000 Burlington Northern Santa Fe Corp. 3,885,375
32,100 Union Pacific Corp. 1,637,100
--------------
5,522,475
REITs (Real Estate Investment Trust) (1.3%)
- ------------------------------------------------------------------------------------------------------------
563,000 DBS Land Ltd. (Singapore) 872,841
74,000 Equity Residential Properties Trust 3,547,375
67,000 Starwood Lodging Trust 3,789,688
--------------
8,209,904
Restaurants (0.2%)
- ------------------------------------------------------------------------------------------------------------
35,150 Cracker Barrel Old Country Store, Inc. 1,421,378
Retail (9.9%)
- ------------------------------------------------------------------------------------------------------------
22,300 Circle K Japan Co. Ltd. (Japan) 1,100,405
27,100 CompUSA, Inc. + 948,500
214,656 Costco Companies, Inc. + 10,491,312
128,500 Dixons Group PLC (United Kingdom) 1,150,838
64,950 Dollar General Corp. 2,995,819
44,025 Dollar Tree Stores, Inc. 1,909,584
75,072 Fred Meyer, Inc. + 3,336,012
84,000 General Nutrition Companies, Inc. + 3,339,000
64,525 Home Depot, Inc. (The) 4,117,502
309,000 K mart Corp. + 4,132,875
72,022 Kohl's Corp. + 5,775,264
65,371 Lowe's Cos., Inc. 3,820,118
1,800 MSC Industrial Direct Co., Inc. Class A + 86,063
67,750 Office Depot, Inc. + 1,867,359
235,800 Officemax, Inc. + 3,934,913
16,200 Rexall Sundown, Inc. + 599,400
21,950 Rite Aid Corp. 710,631
209,623 Starbucks Corp. + 8,293,210
112,400 Toys "R" Us, Inc. + 2,950,500
16,700 Vendex International N.V. (Netherlands) 1,052,271
--------------
62,611,576
Satellite Services (0.4%)
- ------------------------------------------------------------------------------------------------------------
48,150 PanAmSat Corp. + 2,557,969
Semiconductors (3.9%)
- ------------------------------------------------------------------------------------------------------------
19,700 Altera Corp. + 849,563
44,900 Intel Corp. 4,026,969
53,061 Linear Technology Corp. 4,019,371
113,342 Maxim Integrated Products, Inc. + 4,576,183
19,000 Rohm Co. Ltd. (Japan) 1,884,173
44,200 SGS-Thomson Microelectronics ADR (France) + 3,364,725
73,500 Texas Instruments, Inc. 4,253,813
47,000 Tokyo Electron Ltd. (Japan) 1,692,820
--------------
24,667,617
Specialty Consumer Products (0.9%)
- ------------------------------------------------------------------------------------------------------------
58,685 Fastenal Co. 2,574,804
79,600 Mattel, Inc. 3,368,075
--------------
5,942,879
Steel (0.2%)
- ------------------------------------------------------------------------------------------------------------
35,000 Lone Star Technologies, Inc. + 1,085,000
Telecommunication Equipment (1.3%)
- ------------------------------------------------------------------------------------------------------------
49,370 Northern Telecom Ltd. (Canada) 2,629,459
19,500 Nokia Oyj AB Class A (Finland) 1,952,833
22,806 Qwest Communications International, Inc. + 801,061
64,183 Telefonaktiebolaget LM Ericsson Class B (Sweden) 2,920,144
--------------
8,303,497
Telecommunications (0.5%)
- ------------------------------------------------------------------------------------------------------------
17,800 Global Telesystems Group, Inc. + 651,925
45,600 Orange PLC ADR (United Kingdom) + 258,572
3,000 Philippine Long Distance ADR (Philippines) 81,439
61,100 Telfonica de Espana (Spain) 2,102,646
--------------
3,094,582
Telephone Services (1.5%)
- ------------------------------------------------------------------------------------------------------------
30,200 Portugal Telecom S.A. (Portugal) 1,584,760
324,737 Tele-Communications TCI ventures Group Class A + 5,013,127
348,842 Vodafone Group PLC (United Kingdom) 3,098,387
--------------
9,696,274
Telephone Utilities (0.7%)
- ------------------------------------------------------------------------------------------------------------
80,500 US West Communications Group 4,191,031
Tire and Rubber (0.5%)
- ------------------------------------------------------------------------------------------------------------
53,766 Michelin Corp. Class B (France) 3,330,012
Tobacco (1.4%)
- ------------------------------------------------------------------------------------------------------------
217,631 B A T Industries PLC (United Kingdom) 2,169,234
149,000 Dimon, Inc. 2,607,500
112,000 RJR Nabisco Holdings Corp. 3,871,000
--------------
8,647,734
Transportation (0.3%)
- ------------------------------------------------------------------------------------------------------------
88,000 Bombardier, Inc. (Canada) 1,892,074
Wireless Communications (0.1%)
- ------------------------------------------------------------------------------------------------------------
23,100 BCE Mobile Communications, Inc. (Canada) + 616,481
2,200 BCE Mobile Communications, Inc. 144A (Canada) + 58,741
--------------
675,222
--------------
Total Common Stocks (cost $486,347,004) $ 601,578,681
UNITS (--%) * (cost $369,298) +
NUMBER OF UNITS VALUE
- ------------------------------------------------------------------------------------------------------------
12,891 ThermoLase Corp. $ 207,867
WARRANTS (--%) * (cost $--) + EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- ------------------------------------------------------------------------------------------------------------
10,059 Compagnie Generale des Eaux (France) 5/2/01 $ 10,080
SHORT-TERM INVESTMENTS (5.0%) * (cost $31,685,908)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$31,676,000 Interest in $535,634,000 joint repurchase agreement
dated February 27, 1998 with UBS Securities due
March 2, 1998 with respect to various U.S. Treasury
obligations -- maturity value of $31,690,861 for an
effective yield of 5.63% $ 31,685,908
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $518,402,210) *** $ 633,482,536
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $629,322,084.
*** The aggregate identified cost on a tax basis is $519,364,369, resulting in gross unrealized appreciation
and depreciation of $131,351,651 and $17,233,484, respectively, or net unrealized appreciation of
$114,118,167.
+ Non-income-producing security.
[UPSIDE DOWN 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 after the name of a foreign holding stands for American Depository Receipts
representing ownership of foreign securities on deposit with a domestic custodian bank.
Diversification by Country
Distribution of investments by country of issue at February 28, 1998: (as percentage of Market
Value)
Australia 0.5% Netherlands 2.6%
Austria 0.1 Norway 0.1
Belgium 0.1 Poland 0.1
Canada 2.3 Portugal 0.7
China 0.4 Singapore 0.9
Denmark 0.1 South Korea 0.4
Finland 0.3 Spain 0.4
France 4.2 Sweden 1.5
Germany 2.7 Switzerland 3.1
Hong Kong 1.1 United Kingdom 5.9
Ireland 1.7 United States 67.8
Japan 3.0 Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at February 28, 1998
Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen $4,886,660 $4,798,363 6/98 $(88,297)
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
February 28, 1998
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $518,402,210) (Note 1) $ 633,482,536
- ---------------------------------------------------------------------------------------------------
Cash 379,586
- ---------------------------------------------------------------------------------------------------
Foreign currency (cost $358,274) 356,216
- ---------------------------------------------------------------------------------------------------
Dividends and other receivables 356,493
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 809,909
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 10,591,875
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 29,035
- ---------------------------------------------------------------------------------------------------
Total assets 646,005,650
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 14,218,344
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 451,271
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 983,085
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 179,304
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 13,349
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,801
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 418,875
- ---------------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 59,711
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 88,297
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 139,416
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 130,113
- ---------------------------------------------------------------------------------------------------
Total liabilities 16,683,566
- ---------------------------------------------------------------------------------------------------
Net assets $ 629,322,084
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $ 495,806,867
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (522,224)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 19,049,265
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 114,988,176
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $ 629,322,084
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($270,535,807 divided by 20,521,724 shares) $13.18
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $13.18)* $13.98
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($333,641,505 divided by 25,520,150 shares)** $13.07
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($25,144,772 divided by 1,918,391 shares) $13.11
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $13.11)* $13.59
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the
offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred
sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended February 28, 1998
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $242,077) $ 6,813,362
- --------------------------------------------------------------------------------------------------
Interest 1,197,086
- --------------------------------------------------------------------------------------------------
Total investment income 8,010,448
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,683,382
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,344,073
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 21,267
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 10,857
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 854,875
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,804,278
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 151,724
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 19,551
- --------------------------------------------------------------------------------------------------
Reports to shareholders 63,015
- --------------------------------------------------------------------------------------------------
Registration fees 38,240
- --------------------------------------------------------------------------------------------------
Auditing 34,084
- --------------------------------------------------------------------------------------------------
Legal 10,286
- --------------------------------------------------------------------------------------------------
Postage 62,100
- --------------------------------------------------------------------------------------------------
Other 41,680
- --------------------------------------------------------------------------------------------------
Total expenses 9,139,412
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (295,801)
- --------------------------------------------------------------------------------------------------
Net expenses 8,843,611
- --------------------------------------------------------------------------------------------------
Net investment loss (833,163)
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 77,964,107
- --------------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 4,379,221
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (Note 1) (3,640,197)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 51,505,457
- --------------------------------------------------------------------------------------------------
Net gain on investments 130,208,588
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $129,375,425
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended February 28
--------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ------------------------------------------------------------------------------------------------------------------
Operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (833,163) $ 592,859
- ------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 82,343,328 31,417,671
- ------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 47,865,260 24,707,175
- ------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 129,375,425 56,717,705
- ------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (822,276) (1,842,478)
- ------------------------------------------------------------------------------------------------------------------
Class B (334,603) (1,471,953)
- ------------------------------------------------------------------------------------------------------------------
Class M (52,099) (117,302)
- ------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (29,056,997) (12,456,981)
- ------------------------------------------------------------------------------------------------------------------
Class B (35,955,231) (14,387,126)
- ------------------------------------------------------------------------------------------------------------------
Class M (2,675,739) (811,724)
- ------------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A (1,034,844) (762,542)
- ------------------------------------------------------------------------------------------------------------------
Class B (421,101) (609,195)
- ------------------------------------------------------------------------------------------------------------------
Class M (65,568) (48,548)
- ------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 124,152,859 124,909,360
- ------------------------------------------------------------------------------------------------------------------
Total increase in net assets 183,109,826 149,119,216
Net assets
- ------------------------------------------------------------------------------------------------------------------
Beginning of year 446,212,258 297,093,042
- ------------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $522,224 and
$1,420,285, respectively) $ 629,322,084 $446,212,258
- ------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period
Per-share Year ended July 1, 1994+
operating performance Year ended Feb. 28 February 29 to February 28
- ------------------------------------------------------------------------------------------------------------------------------------
1998 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 (loss) .03(d) .06(d) .06 .03(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.06 1.77 2.60 .32
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.09 1.83 2.66 .35
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.05) (.12) (.08) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.66) (.83) (.39) --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.05) (.05) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments -- -- -- (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.76) (1.00) (.47) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.18 $11.85 $11.02 $8.83
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 27.74 16.92 30.58 4.13*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $270,536 $199,305 $142,513 $93,144
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.37 1.43 1.56 1.12 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) .20 .48 .60 .37 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 97.77 82.07 72.00 46.52 *
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0331 $.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 (loss) 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
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period
Per-share Year ended July 1, 1994+
operating performance Year ended Feb. 28 February 29 to February 28
- ------------------------------------------------------------------------------------------------------------------------------------
1998 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) (.06)(d) (.01)(d) .01 --(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.05 1.76 2.60 .32
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.99 1.75 2.61 .32
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.01) (.09) (.05) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.66) (.83) (.39) --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.02) (.03) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments -- -- -- (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.69) (.95) (.44) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.07 $11.77 $10.97 $8.80
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 26.98 16.19 30.05 3.77*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $333,642 $232,117 $150,679 $75,998
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 2.00 2.02 2.09 1.45*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.44) (.12) .05 .05*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 97.77 82.07 72.00 46.52*
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0331 $.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 (loss) 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
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period
Per-share July 3, 1995+
operating performance Year ended Feb.28 to February 29
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $11.80 $11.01 $9.76
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.03)(d) .01 (d) --(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.07 1.78 1.72
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.04 1.79 1.72
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.03) (.12) (.08)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.66) (.83) (.39)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.04) (.05) --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.73) (1.00) (.47)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.11 $11.80 $11.01
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 27.36 16.51 17.95*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $25,145 $14,791 $3,901
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.75 1.77 1.23*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.22) .05 --*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 97.77 82.07 72.00
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0331 $.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 (loss) has been determined on the basis of the weighted average number of shares outstanding
during the period.
</TABLE>
Notes to financial statements
February 28, 1998
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 sale 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 and 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 gains and losses 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 current 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) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations. For the year ended February 28, 1998, the fund
had no borrowings against the line of credit.
H) 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.
I) 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. These differences include treatment
of losses on wash sale transactions, foreign currency gains and losses,
organization expenses, unrealized gains on passive foreign investment
companies and post October currency loss deferral. 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. For the year ended February 28, 1998, the fund reclassified
$4,461,715 to decrease distributions in excess of net investment income and
$19,426 to increase paid-in-capital, with a decrease to accumulated net
realized gain on investments of $4,481,141. The calculation of net investment
income per share in the financial highlights table excludes these adjustments.
J) 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 a straight-line
basis over a five-year period. The fund will reimburse Putnam Management for
the payment of these expenses.
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, and 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 subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the year ended February 28, 1998, fund expenses were reduced by $295,801
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.
Each Trustee of the fund receives an annual Trustee fee, of which $910 has
been allocated to the fund, 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 currently limit payment by the fund to an annual rate of 0.75% of the
average net assets attributable to class M shares. The Trustees currently
limit payment by the fund to an 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 year ended February 28, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $211,953 and $21,220 from the sale of
class A and class M shares, respectively and $324,862 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 year
ended February 28, 1998, Putnam Mutual Funds Corp., acting as underwriter
received $2,897 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended February 28, 1998, purchases and sales of investment
securities other than short-term investments aggregated $535,658,274 and
$482,357,645, 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 February 28, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
February 28, 1998
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 5,175,007 $ 66,125,111
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,524,545 29,941,026
- ------------------------------------------------------------
7,699,552 96,066,137
Shares
repurchased (4,001,992) (51,079,869)
- ------------------------------------------------------------
Net increase 3,697,560 $ 44,986,268
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Year ended
February 28, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 8,216,514 $105,808,985
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,942,200 34,659,096
- ------------------------------------------------------------
11,158,714 140,468,081
Shares
repurchased (5,357,877) (69,585,473)
- ------------------------------------------------------------
Net increase 5,800,837 $ 70,882,608
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Year ended
February 28, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 645,008 $ 8,214,553
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 233,331 2,755,638
- ------------------------------------------------------------
878,339 10,970,191
Shares
repurchased (213,412) (2,686,208)
- ------------------------------------------------------------
Net increase 664,927 $ 8,283,983
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as
amended, the Fund hereby designates $63,512,364 as capital
gain, including $31,374,734 as 20% rate capital gain for its
taxable year ended February 28, 1998.
The fund has designated 16.92% of the distributions from net
investment income as qualifying for the dividends received
deduction for corporations.
The Form 1099 you receive in January 1999 will show the tax
status of all distributions paid to your account in calendar 1998.
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
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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 Swanberg
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
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, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
AN003 41228-522/525/2AF 4/98
