PUTNAM
GROWTH
FUND
ANNUAL REPORT
December 31, 1994
[Balance Scales]
BOSTON * LONDON * TOKYO
<PAGE>
PERFORMANCE HIGHLIGHTS
> "What happened in 1994?...The average general domestic
equity fund fell 1.7%, the typical bond fund, slightly
more -- the first time both categories lost money since
1974."
-- Barron's, January 9, 1995
> Performance should always be considered in light of a
fund's investment strategy. Putnam Growth Fund is
designed for investors seeking long-term growth
primarily through investments in common stocks.
FISCAL 1994 RESULTS AT A GLANCE
TOTAL RETURN: NAV POP
(change in value during period
plus reinvested distributions)
12 months ended 12/31/94 0.34% -5.45%
SHARE VALUE: NAV POP
12/31/93 $10.29 $10.92
12/31/94 9.75 10.34
CAPITAL GAINS
DISTRIBUTIONS: NO. INCOME LONG-TERM SHORT-TERM TOTAL
2 $0.004 $0.179 $0.386 $0.569
Performance data represent past results and reflect an expense
limitation currently in effect. Without the limitation, total
return would have been lower. Investment return and net asset
value will fluctuate so an investor's shares, when redeemed, may
be worth more or less than original cost. For comparable
performance over longer periods, see page 9. POP assumes 5.75%
maximum sales charge.<PAGE>
FROM THE CHAIRMAN
DEAR SHAREHOLDER:
THERE CAN BE NO DENYING THAT 1994 WAS A FRUSTRATING YEAR FOR
EQUITY INVESTORS. EVEN STRONG CORPORATE EARNINGS, GENERALLY A
PRESCRIPTION FOR HIGHER SHARE PRICES, FAILED TO LIFT STOCKS
APPRECIABLY. INVESTORS WORRIED INSTEAD THAT THE FEDERAL RESERVE
BOARD'S ATTEMPTS TP SLOW ECONOMIC GROWTH TO A MORE SUSTAINABLE
PACE MAY HAVE GONE TOO FAR.
THE NEW YEAR, NOW WELL BEGUN, ALREADY SHOWS TENTATIVE SIGNS OF A
MORE HOPEFUL ATTITUDE AMONG U.S. INVESTORS. IF THEY CAN BE
CONVINCED THAT THE ECONOMY WILL SLOW JUST ENOUGH TO DAMPEN
INFLATION, STOCK PRICES MAY RESPOND POSITIVELY. A RECOVERY FROM
THE WORLDWIDE RECESSION SEEMS TO BE TAKING HOLD IN EUROPE AND
JAPAN, TWO IMPORTANT MARKETS FOR AMERICAN EXPORTS.
RENEWED STRENGTH IN THE STOCK MARKET WOULD BE WELCOME NEWS FOR
FOR PUTNAM GROWTH FUND'S SHAREHOLDERS. FUND MANAGER
CHARLES H. SWANBERG IS WATCHING THE SIGNS CAREFULLY AND MAKING
THE ADJUSTMENTS HE BELIEVES WILL MOST EFFECTIVELY TAKE ADVANTAGE
OF CURRENT AND EMERGING TRENDS.
IN THE REPORT THAT FOLLOWS, CHUCK DISCUSSES THE ANNUAL PERIOD
JUST ENDED, AND THE OUTLOOK FOR YOUR FUND IN THE COMING MONTHS.
RESPECTFULLY YOURS,
GEORGE PUTNAM
[Signature George Putnam]
CHAIRMAN OF THE TRUSTEES
FEBRUARY 15, 1995<PAGE>
REPORT FROM THE FUND MANAGER
CHARLES H. SWANBERG
Putnam Growth Fund's positive performance at net asset value
(NAV) for fiscal and calendar 1994 was remarkable in a year that
saw most equity and fixed-income investments decline in value.
The fund's total return of 0.34% at NAV, though modest,
represents a dramatic turnaround from results at midyear. (As of
June 30, 1994, total return at NAV was -8.26%.) In addition, the
fund's total return at NAV since its inception on April 14, 1993,
has far surpassed results for the Standard & Poor's 500(R),
Russell 2000 Index, and the average for the 397 growth funds
tracked by Lipper Analytical Services. See page 9 for more
performance details.
> STRATEGY: A SHIFT FROM CYCLICAL TO MORE TRADITIONAL
GROWTH STOCKS
Your fund began the year with an emphasis on cyclical stocks --
those whose share prices and earnings are closely tied to robust
economic growth. However, by the middle of the year, the Federal
Reserve Board had raised interest rates three times; the stock
market response was extreme volatility. Anticipating that
additional rate increases would eventually dampen economic
growth, we sold off most of the portfolio's cyclical holdings,
generally at attractive profits.
These holdings consisted primarily of retail stocks. As retailers
benefited from stronger-than-expected growth and consumer
spending, we took profits in AutoZone; Bed Bath and Beyond;
The Gap; Hennes & Mauritz, a Swedish retailer; and Talbot's.
All of these shifts enabled us to capitalize on strength within
this sector while repositioning the portfolio to pursue greater
potential in other areas.
With the fund's cable stocks, however, we took less impressive
gains in order to reduce weightings in what we expected would be
weaker sectors. In this area, the merger race had slowed,
regulatory changes had reduced cash flow, and the large amount of
debt<PAGE>
carried by many cable operators became expensive as interest
rates rose. These developments, we believed, would limit the
potential for gains. Consequently, we believed the fund's cable
allocation would likely be more productive in another area.
> SELECTED PHARMACEUTICAL AND HEALTH CARE
STOCKS REVIVED
Early in the year, when health care reform was still an issue and
stock prices reflected concerns about price caps and
profitability, we added to the fund's positions in
pharmaceuticals and health care. As we expected, health care
reform was delayed, which led the market to reassess values
within the sector. Pfizer, with an impressive array of new drugs
in its pipeline, and one of the fund's larger holdings, enjoyed a
considerable jump in value.
We also added to the fund's holdings in Medtronic, a company
thriving in the very competitive health care environment. A
worldwide leader in cardiac pacemakers and defibrillators,
Medtronic serves the growing market for sophisticated yet easily
implanted and monitored devices.
A Swedish drug company in the portfolio, Astra, also turned in a
strong performance. Astra's proprietary drug, Prilosec, has
captured 40% of European market share and about 12% in the United
States. Prilosec is the latest in ulcer medications and is
considered to be more effective than Zantac or Tagamet. Its
growing market presence, as well as its profitability, has helped
Astra gain in value.
TOP INDUSTRY SECTORS*
RETAILING 14.80%
CONSUMER SERVICES 14.10%
BUSINESS EQUIPMENT AND SERVICES 13.50%
BROADCASTING 8.90%
HEALTH CARE 6.40%
* Based on net assets on 12/31/94. Portfolio holdings
will vary over time.<PAGE>
> INTERNATIONAL EXPOSURE BOOSTS PERFORMANCE
This past year, the fund's international holdings turned in a
strong performance, and we expect they will continue to do well.
Our emphasis on established companies generally excludes emerging
markets. However, now that this sector has lost as much as 24% in
value, we may consider additional purchases in Hong Kong, one of
the more established emerging markets.
In addition to investments outside the United States, which may
constitute up to a maximum of 20% of the portfolio, your fund has
also been emphasizing investments in companies that are building
their market shares overseas. Since midyear, we have increased
holdings in Manpower, the world's largest temporary help agency.
To date, demand for temporary help has been greatest in the
United States. However, Manpower's overseas operations, which
account for about 50% of revenues, are growing rapidly in Europe
as economic recovery takes hold there.
> PULLING BACK FROM MEXICO: TWO SUCCESSFUL
APPROACHES
Although the fund's last report showed significant holdings
in two Mexican companies, both had been removed from the
portfolio long before the current peso crisis. In one case, we
acted on detailed quantitative research data that led us to take
substantial profits; in the other, our analysis of the
information about the larger political landscape prompted us to
settle for smaller profits from a stock that would later lose
over 50% of its value.
The decision to sell Cifra, a chain of Mexican department stores,
was based on an analysis showing a decline in same-store sales,
always a warning flag. Shortly before the national elections in
August, we also sold the fund's position in Telefonos de Mexico.
Popular opinion at the time was that Mexico had seen the worst of
its political unrest and its economy was on the upswing. We found
this overly optimistic.<PAGE>
TOP 10 HOLDINGS (12/31/94)
BLOCK (H & R), INC.
Income tax services and on-line computer services
PFIZER, INC.
Pharmaceuticals
DEPARTMENT 56, INC.
Ceramic tableware and giftware
LUXOTTICA GROUP SPA ADS
Designer and manufacturer of eyeglass frames and sunglasses
WOLTERS KLUWER, NV
Book publisher
MAXIM INTEGRATED PRODUCTS, INC.
Integrated circuits for use in various electronic products
ASTRA AB
Pharmaceuticals
COCA COLA CO.
World's largest producter and distributor of soft drinks
DANKA BUSINESS SYSTEMS ADR
Office equipment services
INTERPUBLIC GROUP OF COS., INC.
Advertising agencies and management consulting
These holdings represent 21.36% of the fund's net assets.
Portfolio holdings will vary over time.
With Telefonos, the sell decision was based primarily on
knowledge of the political situation. However, it was also
influenced by years of experience, which has taught us that
successful investing comes almost as much from avoiding the
losers as picking the winners. Since Telefonos represented about
30% of Mexico's equivalent of the Dow Jones Industrial Average,
an investment in this company was essentially a stake in the
country as a whole and in the ability of ordinary Mexicans to
afford telephones. While the fund's gain from Telefonos was more
modest than Cifra's, we avoided the steep losses the stock would
later endure.<PAGE>
> LONG-TERM GROWTH STRATEGY CONCENTRATES
ON FUNDAMENTALS
Our bottom-up analysis of a company's fundamentals tends
to discount the movements of the economy. However, the
portfolio's defensively oriented stocks such as Lowen Group,
a chain of funeral homes, should provide a measure of stability
should volatile market conditions continue. At this point, it
seems more likely to us that corporate earnings will advance,
nudging stock prices up. If this occurs, it could potentially
offset the negative impact of any additional rise
in interest rates.
Though this year's performance is modest when compared with last
year's, it demonstrates that the fund's investment strategy has
the ability to work well in both bull and bear markets. The
strategy emphasizes a concentrated portfolio of quality growth
mid- to large-capitalization companies. Generally, we select
companies that are well established; in most cases, their names
are recognizable, although some, in the early stages of growth,
may be less well known. With its long-term growth focus, the fund
appears well able to take advantage of opportunities in any
market environment.
The views expressed here are exclusively those of Putnam
Management. They are not meant as investment advice. Although the
described holdings were viewed favorably as of December 31, 1994,
there is no guarantee the fund will continue to hold these
securities in the future. Investments in non-U.S. securities may
be subject to certain risks, such as currency fluctuations and
political developments.<PAGE>
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's
shares changed over time, assuming you held the shares through
the entire period and reinvested all distributions
back into the fund. We show total return in two ways: on a
cumulative long-term basis and on average how the fund might have
grown each year over varying periods. For comparative purposes,
we show how the fund performed relative to appropriate indexes
and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 12/31/94
STANDARD RUSSELL CONSUMER
& POOR'S 2000 PRICE
NAV POP 500 INDEX INDEX INDEX
1 YEAR 0.34% -5.45% 1.36% -1.82% 2.68%
LIFE OF FUND
(since 4/14/93)23.40 16.29 7.59 11.96 4.25
ANNUAL AVERAGE 13.08 9.22 4.37 6.66 2.46
Fund performance data do not take into account any adjustment for
taxes payable on reinvested distributions. Performance data
represent past results. Investment returns and net asset value
will fluctuate so an investor's shares, when sold, may be worth
more or less than their original cost. Performance data reflect
an expense limitation currently in effect. Without the
limitation, total return would have been lower.
Past performance is no assurance of future results.
<PAGE>
GROWTH OF A $10,000 INVESTMENT
Cummulative total return of a $10,000 investment since 4/14/93
[line graph]
Fund shares at POP
Standard & Poor's 500 Index
Consumer Price Index
Past performance is no assurance of future results.
TERMS AND DEFINITIONS
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.
COMPARATIVE BENCHMARKS
STANDARD & POOR'S 500 INDEX is an unmanaged list of common
stocks that is frequently used as a general measure of stock
market performance. The index assumes reinvestment of all
distributions and does not take into account brokerage
commissions or other costs. The fund's portfolio contains
securities that do not match those in the index.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of
inflation; it does not represent an investment return.
RUSSELL 2000 INDEX is an unmanaged list of common stocks that is
frequently used as a general measure of stock market performance.
The index assumes reinvestment of all distributions and does not
take into account brokerage commissions or other costs. The
fund's portfolio contains securities that do not match those in
the index.<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
For the year ended December 31, 1994
To the Trustees and Shareholders of Putnam Growth Fund
We have audited the accompanying statement of assets and
liabilities of Putnam Growth Fund, including the portfolio of
investments owned, as of December 31, 1994, and the related
statement of operations for the year then ended, the statements
of changes in net assets, and the "Financial Highlights" for the
year ended December 31, 1994 and for the period April 14, 1993
(commencement of operations) to December 31, 1993. These
financial statements and "Financial Highlights" are
the responsibility of the fund's management. Our responsibility
is to express an opinion on these financial statements and
"Financial Highlights" based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and "Financial Highlights" are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned as of December 31, 1994 by correspondence with
the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and "Financial
Highlights" referred to above present fairly, in all material
respects, the financial position of Putnam Growth Fund as of
December 31, 1994, the results of its operations for the year
then ended, the changes in its net assets, and the "Financial
Highlights" for the year ended December 31, 1994 and the period
April 14, 1993 (commencement of operations) to December 31, 1993,
in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 3, 1995<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
December 31, 1994
COMMON STOCKS (95.7%)(a)
NUMBER OF SHARES VALUE
RETAIL (14.8%)
1,234 Albertsons, Inc. $35,786
240 Castorama Dubois Investisse
(France) 30,000
1,864 Department 56, Inc. (b) 74,094
1,130 Gymboree Corp. (b) 32,485
1,340 Heilig-Meyers Co. 33,835
1,143 Home Depot, Inc. 52,578
48 Hornbach Hldg. Bearer
(Germany) 48,031
11,802 Iceland Group PLC
(United Kingdom) 27,908
10,300 Next PLC (United Kingdom) 41,453
1,298 Office Depot, Inc. (b) 31,152
1,460 Sunglass Hut International (b)33,580
143 Sysco Corp. 3,682
740 Tiffany & Co. New 28,860
-------
473,444
CONSUMER SERVICES (14.1%)
1,210 ALC Communications Corp. (b) 37,661
100 Applebee's International, Inc.1,338
2,472 Block (H & R), Inc. 91,773
2,270 Buffets, Inc. (b) 22,416
1,730 Hospitality Franchise Systems,
Inc. 45,845
1,820 Interpublic Group of
Cos., Inc. 58,468
165 LIN Television Corp. (b) 3,754
1,990 Loewen Group, Inc. 52,735
1,148 McDonald s Corp. 33,579
1,040 Outback Steakhouse, Inc. (b) 24,440
1,112 Paychex, Inc. 45,036
690 Telephone & Data Systems, Inc.31,826
-------
448,871
BUSINESS EQUIPMENT AND SERVICES (13.5%)
510 Alco Standard Corp. 32,003
800 Cisco Systems, Inc. (b) 28,100
2,730 Danka Business Systems ADR 59,036
1,174 First Data Corp. 55,618
2,040 Manpower, Inc. 57,375
2,510 Novell, Inc. (b) 42,984
986 Olsten Corp. (The) 31,306
390 Oracle Systems Corp. (b) 17,209
11,472 Rentokil Group Ord.
(United Kingom) 41,140
881 Wolters Kluwer N.V.
(Netherlands) 65,225
429,996 <PAGE>
COMMON STOCKS (continued)
NUMBER OF SHARES VALUE
BROADCASTING (8.9%)
330 Clear Channel Communications,
Inc. (b) 16,748
1,441 Comcast Corp. Special Class A 22,606
1,775 Gaylord Entertainment Co. 40,381
610 Infinity Broadcasting Corp.
Class A (b) 19,215
330 LIN Broadcasting Corp.
Class A (b) 44,055
1,052 Paging Network, Inc. (b) 35,768
820 TCA Cable TV, Inc. 17,835
1,656 Tele-Communications
Class A (b) 36,018
1,298 Viacom, Inc. Class B (b) 52,731
-------
285,357
HEALTH CARE (6.4%)
3,040 Boston Scientific Corp. (b) 52,820
640 Health Management
Assoc., Inc. (b) 16,000
985 Lincare Holdings, Inc. (b) 28,565
880 Medtronic, Inc. 48,950
548 United Healthcare Corp. 24,729
920 Value Health, Inc. (b) 34,270
-------
205,334
CONSUMER NON DURABLES (6.4%)
1,630 Bemis Co. 39,120
500 Gillette Co. (The) 37,375
836 Lowe's Cos., Inc. 29,051
1,958 Luxottica Group SPA ADS 66,817
1,520 Newell Co. 31,920
-------
204,283
ELECTRONICS AND ELECTRICAL EQUIPMENT (5.9%)
1,610 Analog Devices Inc. 56,551
730 Linear Technology Corp. 36,135
1,844 Maxim Integrated
Products, Inc. (b) 64,540
520 Xilinx 30,810
-------
188,036
INSURANCE AND FINANCE (5.4%)
777 Federal Home Loan
Mortgage. Corp. 39,239
662 Federal National
Mortgage Assn. 48,243
374 General RE Corp. 46,283
1,726 MBNA Corp. 40,345
-------
174,110<PAGE>
COMMON STOCKS (continued)
NUMBER OF SHARES VALUE
PHARMACEUTICALS (4.4%)
2,490 Astra AB (Sweeden) 64,356
980 Pfizer, Inc. 75,705
-------
140,061
COMPUTER SOFTWARE (3.4%)
580 America Online, Inc. (b) 32,480
1,279 CUC International, Inc. (b) 42,847
780 Lotus Development Corp. (b) 31,980
-------
107,307
FOOD AND BEVERAGES (1.9%)
1,190 Coca-Cola Co. 61,285
UTILITIES (1.9%)
1,007 Airtouch
Communications, Inc. (b) 29,329
1,015 Century Telephone
Enterprises, Inc. 29,943
-------
59,272
CHEMICALS (1.6%)
1,913 Schulman (A.), Inc. 52,608
AEROSPACE AND DEFENSE (1.6%)
1,219 Flight Safety
International, Inc. 49,522
OIL AND GAS (1.4%)
320 Coflexip ADR 7,440
1,950 Petro Geo-Services ADR (b) 36,319
-------
43,759
COMPUTER SERVICES AND SOFTWARE (1.2%)
67 SAP AG Systeme (Germany) 38,236
CELLULAR BROADCASTING(1.2%)
1,480 Vanguard Cellular
Systems, Inc. (b) 38,110
METALS AND MINING (1.0%)
570 Nucor Corp. 31,635
CONSUMER DURABLE GOODS (0.6%)
700 Blyth Industries, Inc. (b) 20,038
ENTERTAINMENT (0.1%)
140 National Gaming Corp. (b) 1,680
TOTAL COMMON STOCKS
(cost $2,779,701) $3,052,944
SHORT-TERM INVESTMENTS (14.6%)(a)
(cost $464,851)
PRINCIPAL AMOUNT VALUE
$ 465,000 Federal Home Loan Banks
5.75s, January 3, 1995 $ 464,851
TOTAL INVESTMENTS
(cost $3,244,552)(c) $ 3,517,795
NOTES
(a) Percentages indicated are based on total net assets of
$3,189,574, which correspond to a net asset value per share of
$9.75.
(b) Non-income-producing security.
(c) The aggregate identified cost on a tax basis
is $3,263,608, resulting in gross unrealized appreciation and
depreciation of $360,706 and $106,519, respectively, or net
unrealized appreciation of $254,186.
ADR or ADS after the name of a foreign holding stands for
American Depository Receipts or American Depository Shares,
respectively, representing ownership of foreign securities on
deposit with a domestic custodian bank.
The accompanying notes are an integral part of these financial
statements.<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
ASSETS
Investments in securities, at value (identified cost $3,244,552)
(Note 1) $3,517,795
Cash 566
Dividends and other receivable 2,233
Receivable for shares of fund sold 2,285
Receivable for securities sold 69,647
Receivable from Manager (Note 2) 30,231
Unamortized organization expenses (Note 1) 11,358
TOTAL ASSETS 3,634,115
LIABILITIES
Payable for securities purchased 411,840
Payable for compensation of Trustees (Note 2)45
Payable for administrative services (Note 2) 20
Payable for investor servicing
and custodian fees (Note 2) 8,226
Payable for organization expense (Note 1) 17,221
Other accrued expenses 7,189
TOTAL LIABILITIES 444,541
NET ASSETS $3,189,574
REPRESENTED BY
Paid-in capital (Note 1 and 4) $2,886,882
Accumulated net realized gain on investment 29,434
Net unrealized appreciation of investments 273,258
TOTAL - REPRESENTING NET ASSETS APPLICABLE TO
CAPTIAL SHARES OUTSTANDING $3,189,574
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
Net asset value and redemption price per share
($3,189,574 divided
by 327,039 shares) $9.75
Offering price per share
(100/94.25 of $9.75)* $10.34
* 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.
The accompanying notes are an integral part of these
financial statements.<PAGE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1994
INVESTMENT INCOME:
Dividends (net of foreign tax of $1,530) $22,322
Interest 302
TOTAL INVESTMENT INCOME 22,624
EXPENSES:
Compensation of Manager (Note 2) 19,793
Investor servicing
and custodian fees (Note 2) 25,879
Compensation of Trustees (Note 2) 1,473
Auditing 16,597
Legal 13,048
Administrative services (Note 2) 40
Amortization of
organization expenses (Note 1) 3,402
Other expenses 62
Fees waived and other expenses
absorbed by Manager (Note 2) (52,298)
TOTAL EXPENSES 27,996
NET INVESTMENT LOSS (5,372)
Net realized gain
on investments (Notes 1 and 3) 144,641
Net unrealized depreciation
of investments during the period (126,638)
NET GAIN ON INVESTMENTS 18,003
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $12,631
The accompanying notes are an integral part of these financial
statements.<PAGE>
STATEMENT OF CHANGES OF NET ASSETS
FOR THE PERIOD
APRIL 14, 1993
(COMMENCEMENT
YEAR ENDED OF OPERATIONS)
DECEMBER 31 TO DECEMBER 31
1994 1993
INCREASE IN NET ASSETS
OPERATIONS:
Net investment loss $(5,372) $(1,053)
Net realized gain
on investments 144,641 97,794
Net unrealized appreciation
(depreciation) of investments (126,638) 399,896
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 12,631 496,637
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,089) --
Net realized gain on investments (169,709) (40,981)
Increase from capital share
transactions (Note 4) 453,122 438,963
TOTAL INCREASE IN NET ASSETS 294,955 894,619
NET ASSETS
Beginning of period 2,894,619 2,000,000
END OF PERIOD (including distribution
in excess of net investment income
of $0 and $1,053, respectively) $3,189,574 $2,894,619
The accompanying notes are an integral part of these financial
statements.<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
FOR THE PERIOD
APRIL 14, 1993
(COMMENCEMENT
FOR THE YEAR ENDED OF OPERATIONS)
DECEMBER 31 TO DECEMBER 31
1994 1993
NET ASSET VALUE, BEGINNING OF PERIOD $10.29 $8.50
INVESTMENT OPERATIONS:
Net investment income (loss) (a) (.02) --
Net realized and unrealized gain
on investments .05 1.95
TOTAL FROM INVESTMENT OPERATIONS (a) .03 1.95
LESS DISTRIBUTIONS FROM:
Net investment income (.01) --
Net realized gain on investments (.56) (.16)
TOTAL DISTRIBUTIONS (.57) (.16)
NET ASSET VALUE, END OF PERIOD $9.75 $10.29
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%) (b) .34 22.98(c)
NET ASSETS, END OF PERIOD (IN THOUSANDS) $3,190 $2,895
Ratio of expenses to
average net assets (%) (a) .92 .72(c)
Ratio of net investment loss to
average net assets (%) (a) (.18) (.04)(c)
Portfolio turnover (%) 101.94 76.02(c)
(a) Reflects an expense limitation during the period. As a
result of such limitation, expenses of the fund for the
year ended December 31, 1994 and for the period ended
December 31, 1993 reflect a reduction of approximately
$0.16 and $0.11 per share, respectively. See Note 2.
(b) Total investment return assumes dividend reinvestment
and does not reflect the effect of sales charges.
(c) Not annualized.
The accompanying notes are an integral part of these financial
statements.<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940,
as amended, as a diversified open-end management investment
company. The fund seeks long-term growth of capital by investing
in primarily a portfolio of common stocks.
The following is a summary of significant accounting policies
followed by the fund in the preparation of its financial
statements. The policies are in conformity with generally
accepted accounting principles.
A SECURITY VALUATION Investments for which market quotations are
readily available are stated at market value, which is determined
using the last reported sale price, or, if no sales are reported
- -- as in the case of some securities traded over-the-counter --
the last reported bid price, except that certain U.S. government
obligations are stated at the mean between the bid and asked
prices. Short-term investments having remaining maturities
of 60 days or less are stated at amortized cost which
approximates market, and other investments are stated at fair
value following procedures approved by the Trustees.
B JOINT TRADING ACCOUNT Pursuant to an exemptive order issued by
the Securities and Exchange Commission, the fund may transfer
uninvested cash balances into a joint trading account, along with
the cash and certain accounts of other registered investment
companies managed by Putnam Investment Management, Inc. ("Putnam
Management"), the fund's Manager, a wholly-owned subsidiary of
Putnam Investments, Inc. These balances may be invested in one or
more repurchase agreements and/or short-term money market
instruments.
C REPURCHASE AGREEMENTS The fund, through its custodian or any
joint trading account, receives delivery of the underlying
securities, the market value of which at the time of purchase is
required to be in an amount at least equal to the resale price,
including accrued interest. The fund's Manager is responsible for
determining that the value of these underlying securities is at
all times at least equal to the resale price, including accrued
interest.
D SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security
transactions are accounted for on the trade date (date the order
to buy or sell is executed). Interest income is recorded on the
accrual basis and dividend income is recorded on the ex-dividend
date, except that certain dividends from foreign securities are
recorded as soon as the fund is informed of the ex-dividend date.
E FOREIGN CURRENCY TRANSLATION Securities quoted in foreign
currencies are translated into U.S. dollars at the current
exchange rate. The fund does not isolate that portion of the
results of operations resulting from changes in foreign exchange
rates on investments from the fluctuations arising from changes
in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from
investment.
Foreign currency-denominated receivables and payables are
"marked-to-market" using the current exchange rate. The
fluctuation between the original exchange rate and the current
exchange rate is recorded as unrealized translation gain or loss.
Upon receipt of payment, the fund realizes a gain or loss on
foreign currency amounting to the difference between the original
value and the ending value of the receivable or payable.
<PAGE>
F FEDERAL INCOME TAXES It is the policy of the fund to distribute
all of its income within the prescribed time and otherwise comply
with the provisions of the Internal Revenue Code applicable to
regulated investment companies. It is also the intention of the
fund to distribute an amount sufficient to avoid imposition of
any excise tax under Section 4982 of the Internal Revenue Code of
1986. Therefore, no provision has been made for federal taxes on
income, capital gains or unrealized appreciation of securities
held and excise tax on income and capital gains.
G DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are
recorded by the fund on the ex-dividend date. At certain times,
the fund may pay distributions at a level rate even though, as a
result of market conditions or investment decisions, the fund may
not achieve projected investment results for a given period.
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. The
differences include treatment of losses on wash sales
transactions and post-October losses. 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 December 31,
1994, the fund reclassified $7,514 to decrease distribution in
excess of net investment income, $2,311 to decrease accumulated
realized gain $5,203 to decrease paid-in capital.
H UNAMORTIZED ORGANIZATION EXPENSES Expenses incurred by the fund
in connection with its organization, its registration with the
Securities and Exchange Commission and with various state and the
initial public offering of its shares aggregated $17,221. These
expenses are being amortized by the fund on a straight-line basis
over a five-year period.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Investment Management, the fund's manager,
a wholly owned subsidiary of Putnam Invesments Inc., for
management and investment advisory services is paid quarterly
based on the average net assets of the fund for the quarter. Such
fee is based on the following annual rates: 0.65% of the first
$500 million of average net assets, 0.55% of the next $500
million, 0.50% of the next $500 million, 0.45% of any amount over
$1.5 billion, subject to reduction in any year to the extent that
expenses (exclusive of distribution fees, brokerage, interest and
taxes) of the fund exceed 2.5% of the first $30 million of
average net assets, 2.0% of the next $70 million and 1.5% of any
amount over $100 million and by the amount of certain brokerage
commissions and fees (less expenses) received by affiliates of
the Manager on the fund s portfolio transactions.
Until March 31, 1995, the Manager agreed to reduce its
compensation, to the extent that expenses of the fund exceeded
1.0% of the fund s average net assets. It is the current
intention of the Manager to propose to the trustees to extend the
expense limit until September 30, 1995. The fund's expenses
subject to this limitation are exclusive of brokerage, interest,
taxes, insurance, amortization of deferred organization expenses
and extraordinary expenses, if any, and expenses incurred under
the fund's distribution plan described below. This limitation was
accomplished by a reduction of the compensation payable under the
management contract to the Manager.
The fund also reimburses the Manager for the compensation and
related expenses of certain officers of the fund and their staff
who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by
the Trustees. <PAGE>
Trustees of the fund receive an annual Trustee's fee of $100 and
an additional fee for each Trustees' meeting attended. Trustees
who are not interested persons of the Manager and who serve on
committees of the Trustees receive additional fees for attendance
at certain committee meetings.
Custodial functions for the fund's assets are being provided by
Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam
Investments, Inc. Investor servicing agent functions were
provided by Putnam Investor Services, Inc., a division of PFTC.
Investor servicing and custodian fees reported in the Statement
of operations for the year ended December 31, 1994 have been
reduced by credits allowed by PFTC. These credits amounted to
$5,584 for the year ended December 31, 1994.
Pursuant to the fund's underwriting agreement and to a
distribution plan adopted under Rule 12b-1 of the Investment
Company Act of 1940, although the Trustees have not authorized
any payments pursuant to the Plan, the fund is permitted to pay
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam
Investments, Inc., a quarterly distribution fee at the annual
rate of .35% of the average net asset value of shares of the
fund.
During the year ended December 31, 1994, Putnam Mutual Funds
Corp., acting as an underwriter, received no net commissions from
the sale of shares of the fund.
A deferred sales charge of up to 1% is assessed on certain
redemptions of shares purchased as part of an investment of $1
million or more. For the year ended December 31, 1994, Putnam
Mutual Funds Corp., acting as an underwriter, received no net
commissions from such redemptions.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended December 31, 1994, purchases and sales of
investment securities other than short-term investments
aggregated $3,447,790 and $2,987,877, respectively. 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 December 31, 1994, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares
were as follows:
FOR THE PERIOD APRIL 14, 1993
YEAR ENDED (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1994 DECEMBER 31, 1993
Shares Amount Shares Amount
Shares sold 78,823 $798,762 47,188 $447,007
Shares issued
in connection with
reinvestment
of distributions 17,582 170,795 4,062 40,981
Shares repurchased (50,565) (516,435) (5,344) (49,025)
NET INCREASE 45,840 $453,122 45,906 $438,963<PAGE>
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
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John R. Verani
Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Brett C. Browchuk
Vice President
Matthew A. Weatherbie
Vice President
Charles H. Swanberg
Vice President
and Fund Manager
William N. Shiebler
Vice President
Paul M. O Neil
Vice President
John D. Hughes
Vice President
and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam
Growth Fund. It may also be used as sales literature when
preceded or accompanied by the current prospectus, which gives
details of sales charges, investment objectives, and operating
policies of the fund and the most recent copy of Putnam'S
Quarterly Performance Summary.
For more information or to request a prospectus, call toll free
1-800-225-1581.
