Putnam
Diversified
Equity
Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-98
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "It is understandable that the recent volatility in world markets is
worrisome to many investors. However, for those investors who take a
long-term view, we advise patience. Because Putnam Diversified Equity
Trust invests in both U.S. and foreign stocks, it has the potential to
provide some downside protection. The fund's returns are not dependent on
any single market, industry, or company. And with such global
diversification, we believe the fund can successfully pursue long-term
capital appreciation in any market environment."
-- Paul Warren, manager
Putnam Diversified Equity Trust
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
19 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
As you may recall in our last report to shareholders, we discussed the
rationale behind Putnam Diversified Equity Trust's broadened global
strategy. Your fund's multispecialist management team put the new approach
to good use in the often tumultuous first half of fiscal 1999, the six
months ended August 31, 1998.
The increased flexibility allowed the fund to focus on seeking out
companies anywhere in the world whose stocks the managers believed offered
not only attractive valuations but potential for growth. The change could
not have come at a more timely moment, given the unsettled markets that
left many equity portfolios even with or behind their positions at the
start of 1998.
In the following report, your fund's managers provide an in-depth
discussion of how they employed the new strategy during the semiannual
period. They also offer their insights on prospects for the fiscal year's
second half. I believe you will find their comments interesting and
informative.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
October 21, 1998
Report from the Fund Managers
Paul C. Warren
Robert R. Beck
Omid Kamshad
Justin M. Scott
Michael P. Stack
The six months ended August 31, 1998 -- the first half of Putnam
Diversified Equity Trust's fiscal year -- were marked by sharp contrasts
and surprising extremes for equity markets worldwide. While fundamental
factors such as mild interest rates, minimal inflation, and sound economic
health in the United States and many European nations remain quite
positive, financial and political turmoil in many developing and emerging
nations caused resurgent waves of volatility throughout world markets.
Since our last report in February, the broad U.S. stock market continued
sprinting ahead to record heights before pulling back in what many
considered to be a correction. At the end of the fund's semiannual
reporting period on August 31, 1998, many stocks that had posted gains
earlier in the year were back to even or down for the year to date. For
the most part, foreign stock markets did not fare much better, as most of
Asia was in recession and emerging markets everywhere remained vulnerable
to instability. Consequently, while your fund continued to post positive
results through mid July as it did in previous years, its returns were
dampened by the global downturn we experienced in late July and August. At
net asset value, the fund's class A shares experienced their first
negative results in a fiscal period, returning a total of -9.71% (-14.88%
at public offering price). More in-depth performance information,
including performance of other share classes, is provided on pages 9 and
10 of this report.
* SEAMLESS GLOBAL APPROACH FOCUSES ON VALUATION TECHNIQUES
During early summer, or approximately four months into fiscal 1998, we
modified the fund's trisector strategy to take a seamless global approach
to pursuing capital appreciation. We did this by erasing the fine lines
between the portfolio's domestic growth, domestic value, and foreign stock
holdings and instead targeted stocks from markets around the globe that
offer a combination of growth potential and attractive valuations. In
selecting stocks for your fund's portfolio, we now give greater
consideration to the relationship between the price we have to pay for
corporate assets and the return we expect to earn. We are interested only
in companies whose current stock prices are substantially below their
potential relative paybacks.
We apply the same valuation techniques to growth companies, cyclical
companies, and companies that are downsizing. This approach is not to be
confused with a basic value style of investing, which focuses solely on
low price-to-earnings and low price-to-book ratios. The higher a company's
payback potential, the higher the price we expect to pay for its stock. We
conduct extensive global research and analysis to find companies whose
stocks are priced attractively and whose size, scale, and power can give
them a competitive advantage in markets worldwide. Your fund's performance
improved considerably relative to the competition and industry benchmarks
once we began employing the price-to-payback method of stock selection on
a global basis.
* STRATEGIC MODIFICATION PROMPTS INCREASE IN INTERNATIONAL HOLDINGS
The modification to your fund's strategy afforded us the opportunity to
move some assets from the U.S. market to other arenas in which stock
valuations and growth opportunities were more attractive. Approximately
68% of the fund's assets had been in U.S. stocks. By the close of the
period, that figure dropped to roughly 50% as we built up the fund's
holdings in Europe.
[GRAPHIC OMITTED: horizontal bar chart of TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 13.7%
Pharmaceuticals
and biotechnology 13.5%
Banks 12.2%
Insurance 8.3%
Retail 4.6%
Footnote reads:
*Based on net assets as of 8/31/98. Holdings will vary over time.
In general, we added to positions that stand to benefit from Europe's
Economic and Monetary Union (EMU), which will come into existence in
January 1999, emphasizing stocks of companies based in France, Germany,
and Italy. EMU bodes well for Europe's capital markets because it will
create one independent monetary authority, the European Central Bank,
which should keep interest-rate movements in member countries in close
step with one another. Currency risk is also lessened because
intra-European trade and investments will no longer be affected by
fluctuating exchange rates.
Our avoidance of emerging markets as well as of the troubled Asian nations
proved quite beneficial to the fund. The portfolio still includes a few
Japanese stocks we consider attractive, such as Sony and Honda. While
these holdings and others discussed in this report were viewed favorably
at period's end, all are subject to review and adjustment in accordance
with the fund's investment strategy and may vary in the future.
* INDUSTRY EMPHASIS AND STOCK PICKS REFLECT DEFENSIVE ORIENTATION
Throughout the period, we emphasized countries, industries, and individual
stocks that gave the portfolio a defensive orientation. For example, the
fund's large stake in the United States, although somewhat decreased,
proved defensive given the magnitude of the recent global volatility.
Another worthwhile defensive tactic was our decision to focus on markets
that we expect to be positively affected by EMU.
We tried to pinpoint industries and companies that offer strong pricing
power and feature solid, long-term growth prospects regardless of
short-term bouts of volatility. Telecommunications, pharmaceuticals, and
European financial holdings, which we believe meet these criteria,
dominated the portfolio. Our notable telecommunications holdings include
Deutsche Telecom (Germany) and WorldCom (U.S.), and we hold in the cable
and broadcasting sectors, Telecommunications Inc. (U.S.), MediaOne (U.S.),
and CBS (U.S.). Financial and insurance holdings include American Express
(U.S.), AXA (France), and ING (Netherlands), to name a few. The fund also
holds a significant position in technology with stocks such as Compaq
(U.S.) and Cisco Systems (U.S.); in retailing with companies such as
Costco (U.S.), CVS (U.S.), TJX (U.S.), and Dayton Hudson (U.S.); and in
pharmaceuticals with noteworthy holdings Pfizer (U.S.), Schering Plough
(U.S.), and Eli Lilly (U.S.).
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Schering-Plough Corp.
Pharmaceuticals and biotechnology
Merck & Co., Inc.
Pharmaceuticals and biotechnology
Telecom Italia SPA (Italy)
Telecommunications
Microsoft Corp.
Computer software
Airtouch Communications, Inc.
Telecommunications
Pharmacia & Upjohn, Inc.
Pharmaceuticals and biotechnology
Warner-Lambert Co.
Pharmaceuticals and biotechnology
MediaOne Group Inc.
Cable television
UBS AG (Switzerland)
Financial services
Oy Nokia AB (Finland)
Telecommunication equipment
These holdings represent 18.1% of the fund's net assets as of 8/31/98.
Portfolio holdings will vary over time.
Our avoidance of commodity, oil, and basic technology stocks throughout
the period helped buoy the fund's performance. As global deflation
increasingly has become a very real prospect, these types of companies
have suffered most.
* OUTLOOK: CONTINUED VOLATILITY WOULD NOT COME AS SURPRISE
The recent volatility in world markets is likely to continue into the
balance of the fund's fiscal year, given the rocky road that many Asian
nations must travel to fiscal health. However, because we take a long-term
view and select companies that we believe have sound fundamentals and
solid long-term growth prospects, we are optimistic about your fund's
ability to deliver rewarding performance over time. While short-term
results will certainly be affected if markets and stock prices around the
globe continue to come under pressure, the companies we have chosen for
the portfolio are, in our opinion, the best the world has to offer in
terms of established earnings growth rates and attractive valuations. Over
the long haul, we believe our valuation approach should hold the fund in
good stead.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 8/31/98, there is no guarantee the fund will
continue to hold these securities in the future. International investing
involves certain risks, such as currency fluctuations, economic
instability, and political developments, not present with domestic
investments.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Diversified Equity Trust is designed for investors seeking capital
appreciation through a diversified portfolio consisting primarily of
domestic growth, domestic value, and international stocks.
TOTAL RETURN FOR PERIODS ENDED 8/31/98
Class A Class B Class M
(inception date) (7/1/94) (7/1/94) (7/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months -9.71% -14.88% -9.95% -14.45% -9.92% -13.10%
- ------------------------------------------------------------------------------
1 year 1.24 -4.56 0.66 -3.74 0.80 -2.75
- ------------------------------------------------------------------------------
Life of fund 83.34 72.77 79.30 77.30 81.03 74.68
Annual average 15.65 14.01 15.03 14.72 15.30 14.31
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/98
Standard & Poor's MSCI
500 Index EAFE Index
- ------------------------------------------------------------------------------
6 months -8.10% -7.81%
- ------------------------------------------------------------------------------
1 year 8.09 -0.14
- ------------------------------------------------------------------------------
Life of fund 135.70 22.01
Annual average 22.83 4.89
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. 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-year 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 both the initial sales charge and in
the case of class M shares, the higher operating expenses applicable to
such shares. All returns assume reinvestment of distributions at NAV.
Investment return and principal value will fluctuate so that an investor's
shares when redeemed may be worth more or less than their original cost.
PRICE INFORMATION
6 months ended 8/31/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
2/28/98 $13.18 $13.98 $13.07 $13.11 $13.59
- ------------------------------------------------------------------------------
8/31/98 11.90 12.63 11.77 11.81 12.24
- ------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 9/30/98
(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
- ------------------------------------------------------------------------------
6 months -13.88% -18.83% -14.14% -18.43% -14.10% -17.10%
- ------------------------------------------------------------------------------
1 year -4.45 -9.96 -5.06 -9.21 -4.90 -8.23
- ------------------------------------------------------------------------------
Life of fund 84.58 73.94 80.36 78.36 82.11 75.71
Annual average 15.51 13.91 14.89 14.59 15.15 14.18
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. 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.
This performance information does not reflect any market volatility that
may have occurred since the date of the information. As a result, more
recent returns may be more or less than those shown.
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 5.75% maximum sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index* is an unmanaged list of common stocks whose
performance assumes reinvestment of all distributions. It is frequently
used as a general measure of stock market performance.
Europe, Australia, and Far East (EAFE)* component of Morgan Stanley
Capital International (MSCI) World Index is an unmanaged list of
approximately 1,045 equity securities originating in 18 countries listed
on the stock exchanges of Europe, Australia, and the Far East, with all
values expressed in U.S. dollars. Performance figures reflect changes in
market prices and reinvestment of distributions net of withholding taxes.
Because the fund is a managed portfolio investing in a wide variety of
foreign securities, the securities it owns will not match those in the
index.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
WELCOME TO
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VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
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<TABLE>
<CAPTION>
Portfolio of investments owned
August 31, 1998 (Unaudited)
COMMON STOCKS (96.2%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Automotive (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
393,209 Avis Europe PLC 144A ADR (United Kingdom) (NON) $ 1,583,248
835 Bayerishe Motoren Werke (BMW) (Germany) 613,237
100,000 Honda Motor Co., Ltd. (Japan) 3,448,031
61,000 Volkswagen AG (Germany) 4,403,530
174,086 Volvo AB (Sweden) 4,818,915
--------------
14,866,961
Banks (12.2%)
- --------------------------------------------------------------------------------------------------------------------------
212,852 Allied Irish Banks PLC (Ireland) 2,929,651
35,700 Banc One Corp. 1,356,600
136,400 Banca Popolare di Bergamo (Italy) 2,908,818
142,800 Banca Popolare di Brescia (Italy) 3,279,873
74,708 Bank of Ireland (Ireland) 1,150,799
711 Bank of Nova Scotia (Canada) 11,673
67,800 BankAmerica Corp. 4,343,438
126,237 Banque Nationale de Paris (France) 8,351,639
76,000 Bayerische Vereinsbank AG (Germany) 5,819,527
63,410 Credit Commercial de France (France) 4,436,820
50,530 Deutsche Bank AG (Germany) 3,155,788
108,200 First Chicago NBD Corp. 6,857,175
163,400 First Union Corp. 7,924,900
2,060 Julius Baer Holdings AG (Switzerland) 5,710,326
1,380 Liechtenstein Global Trust AG (Switzerland) 1,395,301
360,660 National Westminster Bancorp Inc. (United Kingdom) 6,371,485
474,781 Nordbanken Holding AG (Sweden) 2,840,671
28,043 Unidanmark AS (Denmark) 2,305,134
--------------
71,149,618
Brewing (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
156,518 Bass PLC (United Kingdom) 2,105,976
Broadcasting (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
154,400 CBS Corp. 4,014,400
7,000 Nippon Television Network Corp. (Japan) 2,031,217
21,500 Societe Television Francaise 1 (France) 3,183,566
--------------
9,229,183
Building and Construction (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
19,471 Bouygues SA (France) 3,727,612
303,828 CRH PLC (Ireland) 3,315,127
88,933 Cimpor-Cimentos de Portugal, SGPS, S.A. (Portugal) 2,690,302
--------------
9,733,041
Business Equipment (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
228,000 Ricoh Co., Ltd. (Japan) 2,186,988
Business Services (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
48,659 Vedior NV (Netherlands) 1,472,213
Cable Television (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
233,100 MediaOne Group Inc. (NON) 9,557,100
95,700 Tele-Comm Liberty Media Group, Inc. Class A (NON) 3,128,194
90,904 Tele-Communications, Inc. Class A (NON) 2,999,832
--------------
15,685,126
Chemicals (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 Akzo-Nobel N.V. (Netherlands) 2,883,869
Computer Software (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
252,645 Computer Associates International, Inc. 6,821,415
115,108 Microsoft Corp. (NON) 11,043,174
--------------
17,864,589
Computers (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
219,800 Compaq Computer Corp. 6,140,663
325,000 Fujitsu Ltd. (Japan) 3,297,269
50,400 IBM Corp. 5,676,300
--------------
15,114,232
Conglomerates (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
75,200 General Electric Co. 6,016,000
387,566 Granada Group PLC (United Kingdom) 5,006,690
92,300 Tyco International Ltd. 5,122,650
--------------
16,145,340
Electric Utilities (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
141,000 Electricidade de Portugal S.A. (Portugal) (NON) 3,294,905
207,172 Iberdola S.A. (Spain) 3,060,117
--------------
6,355,022
Electronics and Electrical Equipment (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
100,350 Philips Electronics N.V. (Netherlands) 6,568,216
90,000 Sony Corp. (Japan) 6,583,186
--------------
13,151,402
Entertainment (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
42,000 Time Warner, Inc. 3,375,750
Environmental Control (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
27,015 Vivendi (France) 5,391,558
Financial Services (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
107,190 American Express Co. 8,360,820
28,050 UBS AG (Switzerland) 9,077,859
1,403,000 Nikko Securities Co. Ltd. (Japan) 4,419,522
--------------
21,858,201
Food and Beverages (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
22,450 Huhtamaki I Free (Finland) 1,028,892
2,384 Nestle S.A. (Switzerland) 4,430,969
168,471 Sara Lee Corp. 7,623,313
--------------
13,083,174
Insurance (8.3%)
- --------------------------------------------------------------------------------------------------------------------------
111,675 AGF (Assurances Generales de France) (France) 6,130,064
111,300 Aflac Inc. 2,796,413
512,000 Alleanza Assicurazioni (Italy) 6,418,456
73,600 American General Corp. 4,728,800
72,421 Axa S.A. (France) (NON) 8,343,292
151,757 Internationale Nederlanden Groep (ING)(Netherlands) 8,968,746
2,659,327 Istituto Nazionale delle Assicurazioni (Italy) 7,127,303
6,675 Zurich Allied AG (Switzerland) 4,005,925
--------------
48,518,999
Machinery (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
20,470 Mannesmann AG (Germany) 1,852,963
Medical Supplies and Devices (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
33,400 Baxter International, Inc. 1,778,550
115,000 U.S. Surgical Corp. 4,592,813
--------------
6,371,363
Networking Equipment (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Ascend Communications, Inc. (NON) 3,518,750
81,000 Cisco Systems, Inc. (NON) 6,631,875
58,100 Newbridge Networks Corp. (Canada) 1,088,797
--------------
11,239,422
Oil and Gas (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
60,336 Total S.A. Class B (France) 5,867,491
Pharmaceuticals and Biotechnology (13.5%)
- --------------------------------------------------------------------------------------------------------------------------
149,500 American Home Products Corp. 7,493,688
89,000 Bristol-Myers Squibb Co. 8,710,875
90,800 Lilly (Eli) & Co. 5,947,400
100,700 Merck & Co., Inc. 11,674,906
3,140 Novartis AG ADR (Switzerland) 4,893,874
76,600 Pfizer, Inc. 7,123,800
247,400 Pharmacia & Upjohn, Inc. 10,282,563
145,600 Schering-Plough Corp. 12,521,600
155,200 Warner-Lambert Co. 10,126,800
--------------
78,775,506
Photography (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
230,000 Canon, Inc. (Japan) 4,675,062
Publishing (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
61,400 Harcourt General, Inc. 2,981,738
48,800 Tribune Co. 3,144,550
--------------
6,126,288
Restaurants (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
73,100 McDonald's Corp. 4,098,169
Retail (4.6%)
- --------------------------------------------------------------------------------------------------------------------------
30 Circle K Japan Co. Ltd. (Japan) 941
115,240 Costco Companies, Inc. (NON) 5,423,483
43,200 CVS Corp. 1,571,400
132,000 Dayton Hudson Corp. 4,752,000
37,388 Fred Meyer, Inc. (NON) 1,469,816
164,000 Lowe's Cos., Inc. 5,750,250
93,050 Rite Aid Corp. 3,367,247
199,800 TJX Cos., Inc. (The) 4,458,038
--------------
26,793,175
Semiconductors (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
78,000 Intel Corp. 5,552,625
152,250 STMicroelectronics (France) 8,460,483
--------------
14,013,108
Telecommunication Equipment (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
33,685 Alcatel Alsthom CGE S.A. (France) 5,450,093
74,600 DSC Communications Corp. (NON) 1,799,725
63,620 Northern Telecom Ltd. (Canada) 3,046,376
126,731 Oy Nokia AB Class A (Finland) 9,008,526
--------------
19,304,720
Telecommunications (13.7%)
- --------------------------------------------------------------------------------------------------------------------------
193,000 Airtouch Communications Inc 10,856,250
280,000 Cable & Wireless PLC (United Kingdom) 2,724,585
226,660 Deutsche Telekom AG (Germany) (NON) 6,026,201
140,493 Hellenic Telecommunication Organization S.A. (Greece) 3,253,698
151,695 Portugal Telecom S.A. (Portugal) 6,946,514
197,303 Royal PTT (United Kingdom) 8,944,360
91,300 Sprint Corp. 6,122,806
1,429,500 Telecom Italia SPA (Italy) 11,089,982
260,662 Tele-Communications TCI ventures Group Class A (NON) 6,007,028
209,556 Telfonica de Espana (Spain) 8,043,650
361,325 Vodafone Group PLC (United Kingdom) 3,642,814
148,800 WorldCom, Inc. (NON) 6,091,500
--------------
79,749,388
Tobacco (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
622,389 B A T Industries PLC (United Kingdom) (NON) 6,129,348
Transportation (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
199,973 TNT Post Group N.V. (Netherlands) (NON) 4,215,053
--------------
Total Common Stocks (cost $597,489,399) $ 559,382,298
SHORT-TERM INVESTMENTS (0.9%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$5,300,000 Windmill Funding effective yield 5.55%, October 28, 1998 $ 5,307,943
5,192,000 Interest in $750,000,000 joint tri-party repurchase
agreement dated August 31, 1998 with Goldman Sachs & Co.
due September 1, 1998 with respect to various U.S.
Treasury obligations -- maturity value of $5,192,834
for an effective yield of 5.78% 5,192,834
--------------
Total Short-Term Investments (cost $10,500,777) $ 10,500,777
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $607,990,176) (b) $ 569,883,075
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $581,534,882.
(b) The aggregate identified cost on a tax basis is $608,952,335, resulting in gross unrealized appreciation and
depreciation of $30,519,654 and $69,588,914, respectively, or net unrealized depreciation of $39,069,260.
(NON) Non-income-producing security.
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 August 31, 1998 (as a percentage of Market Value)
Canada 0.7%
Denmark 0.4
Finland 1.8
France 10.4
Germany 3.8
Greece 0.6
Ireland 1.3
Italy 5.4
Japan 4.7
Netherlands 4.2
Portugal 2.3
Spain 2.0
Sweden 1.3
Switzerland 5.2
United Kingdom 6.4
United States 49.5
----
Total 100.0%
- -------------------------------------------------------------------------------
Forward Currency Contracts to Sell at August 31, 1998 (Unaudited)
Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
- -------------------------------------------------------------------------------
Japanese Yen $11,444,676 $11,345,574 9/14/98 $(99,102)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Swap Contracts outstanding at August 31, 1998 (Unaudited)
Notional Termination Unrealized
Amount Date Depreciation
- -------------------------------------------------------------------------------
Agreement with Lehman Brothers
Finance S.A. Dated July 27,1998 to
receive (pay) quarterly the notional
amount multiplied by the return of
Parametric Technology Corp. (PMCT)
and to pay the notional amount
multiplied by three months LIBOR
adjusted by a specified spread. $1,274,006 10/27/98 $ (301,210)
Agreement with Lehman Brothers
Finance S.A. Dated July 27,1998 to
receive (pay) quarterly the notional
amount multiplied by the return of
Cendant Corp. and to pay the notional
amount multiplied by three months
LIBOR adjusted by a specified
spread. 4,006,419 10/27/98 (1,276,640)
- -------------------------------------------------------------------------------
$(1,577,850)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
August 31, 1998 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $607,990,176) (Note 1) $569,883,075
- -----------------------------------------------------------------------------------------------
Dividends and other receivables 1,059,941
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,004,086
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 41,462,182
- -----------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 116,362
- -----------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 19,286
- -----------------------------------------------------------------------------------------------
Total assets 613,544,932
Liabilities
- -----------------------------------------------------------------------------------------------
Distribution payable to shareholders 2,078
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 1,067,235
- -----------------------------------------------------------------------------------------------
Foreign currency payable (Note 1) 12,758,060
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 12,940,863
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,261,656
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,155,040
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 222,413
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 15,761
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,786
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 514,914
- -----------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 59,711
- -----------------------------------------------------------------------------------------------
Payable for swap contracts (Note 1) 1,577,850
- -----------------------------------------------------------------------------------------------
Payable for open forward currency contracts 99,102
- -----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 201,002
- -----------------------------------------------------------------------------------------------
Other accrued expenses 132,579
- -----------------------------------------------------------------------------------------------
Total liabilities 32,010,050
- -----------------------------------------------------------------------------------------------
Net assets $581,534,882
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $513,038,286
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (182,051)
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 108,794,930
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (40,116,283)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $581,534,882
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($245,677,440 divided by 20,641,766 shares) $11.90
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $11.90)* $12.63
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($311,448,088 divided by 26,471,544 shares)** $11.77
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($24,409,354 divided by 2,066,803 shares) $11.81
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $11.81)* $12.24
- -----------------------------------------------------------------------------------------------
* 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
Six months ended August 31, 1998 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $403,327) $ 5,361,702
- -----------------------------------------------------------------------------------------------
Interest 647,643
- -----------------------------------------------------------------------------------------------
Total investment income 6,009,345
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,292,876
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 820,501
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 11,552
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 5,364
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 518,140
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,815,233
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 103,344
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 9,749
- -----------------------------------------------------------------------------------------------
Reports to shareholders 52,083
- -----------------------------------------------------------------------------------------------
Registration fees 4,758
- -----------------------------------------------------------------------------------------------
Auditing 16,689
- -----------------------------------------------------------------------------------------------
Legal 3,308
- -----------------------------------------------------------------------------------------------
Postage 90,684
- -----------------------------------------------------------------------------------------------
Other 32,449
- -----------------------------------------------------------------------------------------------
Total expenses 5,776,730
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (107,558)
- -----------------------------------------------------------------------------------------------
Net expenses 5,669,172
- -----------------------------------------------------------------------------------------------
Net investment income 340,173
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 89,112,159
- -----------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 633,506
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (Note 1) (339,182)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
swap contracts during the period (154,765,277)
- -----------------------------------------------------------------------------------------------
Net loss on investments (65,358,794)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(65,018,621)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
August 31 February 28
1998* 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ 340,173 $ (833,163)
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 89,745,665 82,343,328
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities in foreign currencies (155,104,459) 47,865,260
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (65,018,621) 129,375,425
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A -- (822,276)
- ---------------------------------------------------------------------------------------------------------------
Class B -- (334,603)
- ---------------------------------------------------------------------------------------------------------------
Class M -- (52,099)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A -- (29,056,997)
- ---------------------------------------------------------------------------------------------------------------
Class B -- (35,955,231)
- ---------------------------------------------------------------------------------------------------------------
Class M -- (2,675,739)
- ---------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A -- (1,034,844)
- ---------------------------------------------------------------------------------------------------------------
Class B -- (421,101)
- ---------------------------------------------------------------------------------------------------------------
Class M -- (65,568)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 17,231,419 124,152,859
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (47,787,202) 183,109,826
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 629,322,084 446,212,258
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $182,051
and $522,224, respectively) $581,534,882 $629,322,084
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share August 31 Year ended July 1, 1994+
operating performance (Unaudited) Year ended Feb. 28 Feb. 29 to Feb. 28
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.18 $11.85 $11.02 $8.83 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .03(c) .03(c) .06(c) .06 .03(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments (1.31) 3.06 1.77 2.60 .32
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (1.28) 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 $11.90 $13.18 $11.85 $11.02 $8.83
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (9.71)* 27.74 16.92 30.58 4.13*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $245,677 $270,536 $199,305 $142,513 $93,144
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .66* 1.37 1.43 1.56 1.12*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) .21* .20 .48 .60 .37*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 123.67* 97.77 82.07 72.00 46.52*
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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) 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share August 31 Year ended July 1, 1994+
operating performance (Unaudited) Year ended Feb. 28 Feb. 29 to Feb. 28
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.07 $11.77 $10.97 $8.80 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.01)(c) (.06)(c) (.01)(c) .01 --(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments (1.29) 3.05 1.76 2.60 .32
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (1.30) 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 $11.77 $13.07 $11.77 $10.97 $8.80
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (9.95)* 26.98 16.19 30.05 3.77*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $311,448 $333,642 $232,117 $150,679 $75,998
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .99* 2.00 2.02 2.09 1.45*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.09)* (.44) (.12) .05 .05*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 123.67* 97.77 82.07 72.00 46.52*
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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) 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share August 31 July 3, 1995+
operating performance (Unaudited) Year ended Feb. 28 to Feb. 29
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $13.11 $11.80 $11.01 $9.76
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .01 (c) (.03)(c) .01(c) --(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments (1.31) 3.07 1.78 1.72
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (1.30) 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 $11.81 $13.11 $11.80 $11.01
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (9.92)* 27.36 16.51 17.95*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $24,409 $25,145 $14,791 $3,901
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .87* 1.75 1.77 1.23*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) .03* (.22) .05 --*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 123.67* 97.77 82.07 72.00
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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) 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
August 31, 1998 (Unaudited)
Note 1
Significant accounting policies
Putnam Diversified Equity Trust ("the fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-ended
management investment company. The fund seeks capital appreciation by
investing 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 not 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, 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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Interest income is recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date except that certain
dividends from foreign securities are recorded as soon as the fund is
informed of the ex-dividend date.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, other assets and liabilities are recorded in the books
and records of the fund after translation to U.S. dollars based on the
exchange rates on that day. The cost of each security is determined using
historical exchange rates. Income and withholding taxes are translated at
prevailing exchange rates when accrued or incurred. The fund does not
isolate that portion of realized or unrealized gains or losses resulting
from changes in the foreign exchange rate on investments from fluctuations
arising from changes in the market prices of the securities. Such 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 realized 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) Swap contracts The fund may engage in swap agreements, which are
agreements to exchange the return generated by one instrument for the
return generated by another instrument. The fund may enter into equity
swap agreements, to manage its exposure to equity markets, which involve a
commitment by one party to pay interest in exchange for a market linked
return based on a notional amount. To the extent that the total return of
the security or index underlying the transaction exceeds or falls short of
the offsetting interest rate obligation, the fund will receive a payment
from or make a payment to the counterparty, respectively. Equity swaps are
marked to market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gain or loss. Payments received
or made at the end of the measurement period are recorded as realized
gains or losses. The fund could be exposed to credit or market risk due to
unfavorable changes in the fluctuation of interest rates or in the price
of the underlying security or index, the possibility that there is no
liquid market for these agreements or that the counterparty may default on
its obligation to perform.
H) 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 six months
ended August 31, 1998, the fund had no borrowings against the line of
credit.
I) 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.
J) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations.
K) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public
offering of its shares were $98,304. These expenses are being amortized on
projected net asset levels over a five-year period. 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,
0.43% thereafter.
The fund reimburses Putnam Management an allocated amount 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.
As part of the subcustodian contract between the subcustodian bank and
PFTC, the subcustodian bank has a lien on the securities of the fund to
the extent permitted by the fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At August 31, 1998, the payable to the subcustodian
bank represents the amount due for cash advance for the settlement of a
security purchased.
For the six months ended August 31, 1998, fund expenses were reduced by
$107,558 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 $970 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 shares
outstanding as of July 1, 1995 (except for class A shares for which Putnam
Mutual Funds is the dealer of record) and 0.25% of such average net asset
value of shares acquired after that date (including shares acquired
through reinvestment of distributions).
For the six months ended August 31, 1998, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $124,014 and $14,274
from the sale of class A and class M shares, respectively and $208,366 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the six months ended August 31, 1998, Putnam Mutual
Funds Corp., acting as underwriter received $1,015 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended August 31, 1998, purchases and sales of
investment securities other than short-term investments aggregated
$812,769,597 and $790,981,890, respectively. There were no purchases and
sales of U.S. government obligations. In determining the net gain or loss
on securities sold, the cost of securities has been determined on the
identified cost basis.
Note 4
Capital shares
At August 31, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
August 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,814,409 $39,215,955
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
2,814,409 39,215,955
Shares
repurchased (2,694,367) (37,223,815)
- -----------------------------------------------------------------------------
Net increase 120,042 $ 1,992,140
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended
August 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 4,265,131 $58,627,291
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
4,265,131 58,627,291
Shares
repurchased (3,313,737) (45,438,172)
- -----------------------------------------------------------------------------
Net increase 951,394 $13,189,119
- -----------------------------------------------------------------------------
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 (5,357,887) (69,585,473)
- -----------------------------------------------------------------------------
Net increase 5,800,837 $ 70,882,608
- -----------------------------------------------------------------------------
Six months ended
August 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 296,235 $4,118,348
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
296,235 4,118,348
Shares
repurchased (147,823) (2,068,188)
- -----------------------------------------------------------------------------
Net increase 148,412 $2,050,160
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
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
John J. Morgan, Jr.
Vice President
Paul C. Warren
Vice President and Fund Manager
Robert R. Beck
Vice President and Fund Manager
Michael P. Stack
Vice President and Fund Manager
Omid Kamshad
Vice President and Fund Manager
Justin M. Scott
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
- ---------------------
SA003-45952-522/525/2AF 10/98
