Putnam
Real Estate
Opportunities
Fund
ANNUAL REPORT
August 31, 1995
[Putnam Logo]
BOSTON * LONDON * TOKYO<PAGE>
PERFORMANCE HIGHLIGHTS
> With a healthy real-estate market REIT stocks total return
should reach 12 percent or so for the next few years, and their
high yields offer some protection from broad market declines.
That doesn t sound exciting after this year s stock-and-bond-fest
but buying low, remember, is the first half of the famous
formula.
U.S. News and World Report, June 26, 1995
> Real estate funds can add diversity to your portfolio and
current income with potential for growth. And they will never wake
you up at 3 a.m. to complain that the pipes have burst.
Business Week, April 24, 1995
FISCAL 1995 RESULTS AT A GLANCE
TOTAL RETURN: NAV POP
(change in value during period
plus reinvested distributions)
Life of fund
(since 1/3/95) 11.65% 5.21%
SHARE VALUE: NAV POP
1/3/95 $8.50 $9.02
8/31/95 9.49 10.07
Fund performance data do not take into account any adjustment for
taxes payable on reinvestment distributions. POP assumes maximum
5.75% sales charge. Performance data represent past results and an
expense limitation currently in effect. Without the expense
limitation, the fund s total return would have been lower.
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. Total return figures represent cumulative, not
annualized, performance.
The short-term results of a relatively new fund are not
necessarily indicative of its long-term prospects.
For comparative performance and explanation of terms,
see page 8.<PAGE>
FROM THE CHAIRMAN
Dear Shareholder:
Putnam Management s forecast for this year called for continued
improvement in the stock market, but it certainly did not
anticipate the vigor of the advance we have actually experienced.
Now, as investors take profits and the slower economy begins to
rein in corporate earnings growth, the exuberance of 1995 s first
half has become somewhat diminished.
Several developments could bring with them near-term turbulence. A
weakening dollar, a resurgence of inflation fears, or a dramatic
fall in earnings could cause waves in the financial markets,
spelling difficulty for stocks. For the most part, however,
fundamental economic and financial conditions appear healthy.
Furthermore, as the election campaign sparks tax-change proposals,
anticipation of major reforms that favor saving and investing may
spur investor confidence. Such a prospect could help sustain the
current market advance, even though no meaningful legislation is
likely before 1997.
In the following report, Fund Manager Jeanne Mockard
reviews your fund s performance during the fiscal year ended
August 31, 1995, and presents her outlook for the remainder
of the fiscal year.
Respectfully yours,
/s/ George Putnam
George Putnam
Chairman of the Trustees
October 18, 1995<PAGE>
REPORT FROM THE FUND MANAGER
JEANNE MOCKARD
The broad stock market thus far in 1995 has given adventure-loving
investors the time of their lives. The Dow Jones Industrial
Average soared to new highs even after the precipitous single-day
drop in May and a major tumble in July, generating an impressive
22% total return, year to date, while the technology-packed NASDAQ
Composite index turned in an extraordinary 36%. Such momentum may
well continue over the near term but eventually may begin to slow
if corporate earnings weaken.
Performance in the real estate sector of the market, while
attractive, appears positively sedate in comparison. Year to date,
real estate investment trusts (REIT) stocks generated returns in
the 7% to 10% range, much closer to the stock market s historical
averages. For the eight months ended August 31, 1995, the fund s
total return was 11.65% for class A shares at net asset value. At
the same time, the National Association of Real Estate Investment
Trusts (NAREIT) Index returned 8.81%, while the average return for
a real estate mutual fund was 6.73%, as reported by Lipper
Analytical Services.
REIT stocks typically have low correlation with the rest of the
equity market, which is why adding them to a portfolio of stocks
brings a valuable element of diversification. It is important to
keep in mind, however, that over the long term, equity REITs have
had a higher rate of return than stocks as a whole: annual rates
of 13.6% versus 12.41% for the Standard & Poor s 500 Index for
the past 22 years, according to the NAREIT.
> STRONG POSITIONING IN A WEAK MARKET
Putnam Real Estate Opportunities Fund began operations on January
3, 1995, when the commercial real estate market was reeling from
oversupply and investor apathy. In retrospect, this timing has
proved fortunate, since it allowed us to do some bottom-fishing
and to position the fund for the future without
the pressure of falling prices.
<PAGE>
Several of our initial allocations have proved quite profitable.
We overweighted self-storage, office, and industrial REIT stocks,
as well as home-builder stocks. In fact, at period s end 12% of
the portfolio was invested in self-storage and home builder
stocks, which have been the strongest sectors in the entire REIT
market this year. We underweighted all holdings related to the
retail sector, such as shopping centers, malls, and factory
outlets. That proved a wise move, since the retail environment has
been somewhat rocky recently.
Some long-term investment decisions we made have not yet produced
results. We overweighted manufactured-home REITs,
a strategy that has not yet benefited the fund because of this
sector s recent weakness. Still, we are sticking with these stocks
because they are now attractively priced and because we believe
there will be growing demand from an aging population. For the
same reasons, we are sticking with apartment REITs, which have
been flat so far this year.
> CAREFUL RESEARCH IS A HIGH PRIORITY
Real estate stocks encompass a wide range of industry sectors, and
there is considerable divergence in the performance of those
sectors. For example, self-storage REITs were up 17% through the
end of July, while manufactured-home REITs were down 5%. To
diversify your investment dollars across many property types and
geographical regions, we conduct intensive, ongoing research. We
meet with the managements of many potential companies and visit
their sites. We examine their balance sheets, looking for
reasonable payout ratios and swelling cash flows that can generate
dividend growth.
TOP INDUSTRY SECTORS*
Residential 25.6%
Shopping centers 13.7%
Office and industrial 13.6%
Home building 11.4%
Health-care facilities 6.4%
* Based on net assets on 8/31/95. Holdings will vary over
time.<PAGE>
A high level of inside ownership represents an important buying
criterion, since it points to the management s confidence in the
company and suggests harmony between the management s goals and
those of other investors. Another big plus is the presence of
property and capital reserves for at least two years. Such
reserves indicate that the company has the ability to grow by
developing land it already owns without having to borrow at
potentially unfavorable rates or, if bargains abound, that the
company will have the resources to increase its holdings
profitably.
Some REITs require specialized research because their supply and
demand are not necessarily tied to their regions economies. For
example, your fund owns shares of Beacon Properties, an office
REIT in Boston, because we know that the builders in Boston are
busy with the massive Central Artery construction project now
under way, and little office building will be going on in the city
over the next few years.
> SPECIAL ADVANTAGES
Although REIT returns pale in comparison with this year s stock
market rally, we believe this is more a function of the unusual
strength of the rally than a drastic underperformance by REITs.
Typically, REIT investors seek relatively steady returns with a
high income component and these goals have been largely
accomplished thus far in 1995.
Although REITs generate high current income, they are less
interest-rate sensitive than bonds and utilities and therefore
provide an effective inflation hedge. Higher interest rates can
drive up rents, boosting REIT cash flows. REITs are also free to
raise investor payouts whenever earnings justify the move, while
bond and utility rates are fixed by long-term contracts. In fact,
REITs are required to pass through at least 95% of their income as
dividends.
Although the economy is now coasting on its soft-landing path of
slow growth and low inflation, we believe it may become more
anemic as the year wears on. Consequently, we regard the fund as
an excellent defensive vehicle. Moreover, REIT stocks are now
attractively priced. The average REIT currently offers about an 8%
yield, almost one and a half percentage points<PAGE>
TOP 10 HOLDINGS (8/31/95)
BEACON PROPERTIES CORP.
Office and commercial real-estate, largely in Boston
TOLL BROTHERS, INC.
Luxury single-family homes
DUKE REALTY INVESTMENTS, INC.
Midwest commercial property
CALI REALTY CORP.
Office properties primarily in New Jersey
STORAGE USA, INC.
Self-storage properties
CENTEX CORP.
Home building, construction
HIGHWOODS PROPERTIES, INC.
Office property largely in North Carolina
STORAGE EQUITIES, INC.
Self-storage properties
DEBARTOLO REALTY CORP.
Malls and community centers in 16 states
NATIONWIDE HEALTH PROPERTIES, INC.
Long-term care facilities
These holdings represent 23.3% of the fund s net assets. Portfolio
holdings will vary over time.
above the 10-year Treasury rate. This spread is typically narrower
and is not likely to last.
> BULLISH OUTLOOK FOR THE FUTURE
Despite the current lull, we are positive about the future. The
REIT market s fundamentals are favorable, and we believe the
sector is firmly positioned for future growth. Office vacancy
rates have dropped and rents have climbed over the past few years.
There are also far fewer new REIT offerings coming into the
market, a situation that may tighten the supply of REITs and
support higher future prices.
The views expressed about the companies mentioned in this report
are exclusively those of Putnam Management and are not meant as
investment advice. Although the described holdings were viewed
favorably as of 8/31/95, there is no guarantee the fund will
continue to hold these securities in the future.<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.
Performance should always be considered in light of a fund s
investment strategy. Putnam Real Estate Opportunities Fund is
designed for investors seeking capital growth and current income
by investing primarily in equity securities issued by companies
principally engaged in the real estate industries.
TOTAL RETURN FOR PERIOD ENDED 8/31/95
STANDARD
& POOR S NAREIT
NAV POP 500 INDEX INDEX
Life of fund 11.65% 5.21% 23.92% 8.81%
(1/3/95)
TOTAL RETURN FOR PERIOD ENDED 9/30/95
(most recent calendar quarter)
NAV POP
Life of fund (1/3/95) 14.24% 7.65%
Fund performance data do not take into account any adjustment for
taxes payable on reinvested distributions and represent past
results. Investment returns and principal value will fluctuate so
an investor s shares, when sold, may be worth more or less than
their original cost.<PAGE>
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 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.
THE NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUSTS (NAREIT)
INDEX is based upon the last closing price of the month for all
tax-qualified REITs listed on the major U.S. stock exchanges. The
data are market weighted and the total return calculation is based
upon the weightings at the beginning of period. Dividends are
included in the month based upon their payment date.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
For the period January 3, 1995 (commencement of operations) to
August 31, 1995
To the Trustees and Shareholders of
Putnam Real Estate Opportunities Fund
We have audited the accompanying statement of assets and
liabilities of Putnam Real Estate Opportunities Fund, including
the portfolio of investments owned, as of August 31, 1995, and
the related statement of operations, the statement of changes in
net assets, and the Financial Highlights for the period January
3, 1995 (commencement of operations) to August 31, 1995. 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 audit.
We conducted our audit 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 August 31, 1995 by correspondence with the
custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Real Estate
Opportunities Fund as of August 31, 1995, the results of its
operations, the changes in its net assets, and the Financial
Highlights for the period January 3, 1995 (commencement of
operations) to August 31, 1995, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
October 16, 1995<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
August 31, 1995
Common Stocks(94.3%)*
Number of Shares
Value
Basic Industrial Products(1.4%)
300 Deere & Co. $ 25,650
Consumer Durable Goods(1.3%)
400 Armstrong World Industries, Inc. 22,950
Consumer Non Durables(0.6%)
200 Eastman Kodak Co. 11,520
Factory Outlet(1.6%)
1,152 HGI Realty, Inc. (R) 28,944
Finance(1.2%)
400 Student Loan Marketing Assn. 21,650
Food(1.1%)
600 Dole Food Co. 19,650
Forest Products(1.0%)
400 Weyerhaeuser Co. 18,400
Health Care Facilities(6.4%)
800 American Health
Properties, Inc. R 17,400
80 American Health Properties,
Inc. Dep. Shs. (R) 1,300
1,100 LTC Properties Inc. 15,675
1,000 Meditrust Corp. 32,875
900 Nationwide Health
Properties, Inc. 35,210
600 Omega Healthcare
Investors, Inc. 15,450
--------
117,910
Home Building(11.4%)
1,300 Centex Corp. 38,025
900 Clayton Homes, Inc. 21,263
1,400 Continental Homes
Holding Corp. 29,400
800 Lennar Corp. 15,500
600 Oakwood Homes Corp. 19,200
600 Pulte Corp. 16,200
500 Schuler Homes, Inc. 5,938
3,000 Toll Brothers, Inc. 53,625
500 Webb (Delaware East) Corp. 9,313
--------
208,464
Hotels(3.0%)
400 FelCor Suite Hotels, Inc. 11,000
1,000 RFS Hotel Investors, Inc. 14,250
800 Starwood Lodging
Trust (R) 21,300
700 Winston Hotels, Inc. (R) 7,613
--------
54,163
Common Stocks
Number of Shares Value
Manufactured Homes(4.9%)
1,300 Chateau Properties, Inc. 27,950
1,500 Manufactured Home
Communities (R) 24,375
900 ROC Communities, Inc. (R) 19,913
700 Sun Communities, Inc. (R) 17,588
--------
89,826
Office & Industrial(13.6%)
2,700 Beacon Properties Corp. (R) 58,050
2,100 Cali Realty Corp. (R) 40,425
600 CenterPoint Properties
Corp. (R) 12,375
1,800 Duke Realty Investments,
Inc. (R) 53,100
500 First Industrial Realty
Trust, Inc. (R) 9,938
1,500 Highwoods Properties,
Inc. (R) 37,500
400 Spieker Properties, Inc. (R) 8,600
1,400 Washington Real Estate
Investment Trust (R) 20,825
300 Weeks Corp. (R) 7,650
--------
248,463
Railroads(0.7%)
200 Union Pacific Corp. 13,100
Real Estate(0.9%)
800 Rouse Co. 16,900
Residential(25.6%)
1,400 Avalon Properties, Inc. 28,350
1,400 Bay Apartment Community,
Inc. (R) 29,225
1,000 Colonial Properties Trust (R) 24,000
1,600 Columbus Realty Trust (R) 30,400
1,000 Equity Residential
Properties Trust 29,500
1,400 Evans Withycombe Residential 27,300
1,500 Home Properties
of NY, Inc. (R) 26,438
1,500 Merry Land & Investment Co.,
Inc. (R) 32,250
1,100 Mid-America Apartment
Communities, Inc. (R) 28,188
1,500 Oasis Residential, Inc. (R) 33,938
1,000 Post Properties, Inc. (R) 31,500
1,800 Prime Residential, Inc. (R) 28,125
1,600 Security Capital Pacific Trust (R)29,600
1,200 Smith (Charles East)
Residential Realty (R) 27,450<PAGE>
Common Stocks(continued)
Number of Shares Value
Residential (continued)
2,400 South West Property
Trust, Inc. (R) 28,800
1,200 Town & Country Trust (R) 16,500
800 Wellsford Residential Property
Trust (R) 17,300
--------
468,864
Restaurants(0.9%)
1,200 Commercial Net Lease Realty (R) 15,300
Self Storage(5.0%)
700 Shurgard Storage Centers,
Inc. Class A (R) 16,975
2,000 Storage Equities, Inc. (R) 36,750
1,300 Storage USA, Inc. (R) 38,188
--------
91,913
Shopping Centers(13.7%)
1,400 Bradley Real Estate Trust, Inc. (R)22,925
1,100 Chelsea GCA Realty, Inc. (R) 33,000
2,500 Debartolo Realty Corp. (R) 35,313
900 Excel Realty Trust, Inc. (R) 18,113
1,000 Glimcher Realty Trust (R) 21,000
800 Kimco Realty Corp. (R) 32,500
1,200 Kranzco Realty Trust (R) 21,000
500 Macerich Co. (R) 10,438
1,700 Malan Realty Investments, Inc. (R)24,863
400 Simon Property Group, Inc. (R) 9,850
600 Weingarten Realty
Investors, Inc. (R) 21,525
--------
250,527
Total Common Stocks
(cost $1,595,876) $1,724,194
Convertible Bonds and Notes(2.7%)*
Principal Amount Value
$20,000 Liberty Property Trust cv. sub.
deb. 8s, 2001 (R) $20,375
30,000 Camden Property Trust cv.
sub. deb. 7.33s, 2001 29,513
Total Convertible Bonds and Notes
(cost $46,300) $49,888
-----------
Total Investments
(cost $1,642,176)*** $1,774,082
Notes
* Percentages indicated are based on net assets of $1,829,196,
which correspond to a net asset value per share of $9.49.
+ Non-income-producing security.
*** The aggregate identified cost on a tax basis is $1,642,176
resulting in gross unrealized appreciation and depreciation of
$167,082 and $35,176 respectively, or net unrealized appreciation
of $131,906.
(R) Real Estate Investment Trust (REIT).
The accompanying notes are an integral part of these financial
statements.<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995
ASSETS
Investments in securities, at value
(identified cost $1,642,176) (Note 1) $1,774,082
Cash 3,597
Dividends and interest receivable 4,188
Receivable for securities sold 32,640
Receivable from Manager 28,374
Unamortized organization expense (Note 1) 5,740
TOTAL ASSETS 1,848,621
LIABILITIES
Payable for organization expense (Note 1) 6,425
Payable for investor servicing and custodian fees (Note 3) 1,444
Payable for administrative services (Note 3) 7
Payable for compensation of Trustees (Note 3) 49
Reports to shareholders 198
Auditing 8,654
Legal 2,049
Postage 33
Registration fees 566
Total liabilities 19,425
NET ASSETS $1,829,196
REPRESENTED BY
Paid-in capital (Notes 1, 2, and 5) $1,640,434
Undistributed net investment income (Note 1) 58,533
Accumulated net realized loss on investment transactions (1,677)
Net unrealized appreciation of investments 131,906
TOTAL REPRESENTING NET ASSETS APPLICABLE
TO CAPITAL SHARES OUTSTANDING $1,829,196
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
Net asset value and redemption price per share
($1,829,196 divided by 192,702 shares) $9.49
Offering price per share (100/94.25 of $9.49)* $10.07
* 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 period January 3, 1995 (commencement of operations) to
August 31, 1995
INVESTMENT INCOME:
Dividends $61,553
Interest 4,282
TOTAL INVESTMENT INCOME 65,835
EXPENSES:
Compensation of Manager (Note 3) 7,598
Investor servicing and custodian fees (Note 3) 5,183
Compensation of Trustees (Note 3) 410
Reports to shareholders 301
Auditing 24,959
Legal 8,784
Postage 37
Registration fees 581
Administrative services (Note 3) 27
Other expenses 4
Amortization of organization expense 685
Fees waived by Manager (Note 3) (40,664)
TOTAL EXPENSES 7,905
NET INVESTMENT INCOME 57,930
Net realized loss on investments (Note 4) (1,677)
Net unrealized appreciation of investments
during the period 131,906
NET GAIN ON INVESTMENT TRANSACTIONS 130,229
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $188,159
The accompanying notes are an integral part of these financial
statements.<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period
January 3, 1995
(commencement
of operations)
to August 31,
1995
INCREASE IN NET ASSETS
OPERATIONS:
Net investment income $57,930
Net realized loss on investments (1,677)
Net unrealized appreciation of investments 131,906
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 188,159
Increase from capital share transactions (Note 5) 1,621,037
TOTAL INCREASE IN NET ASSETS 1,809,196
NET ASSETS
Beginning of period 20,000
End of period (including undistributed
net investment income of $58,533) $1,829,196
The accompanying notes are an integral part of these
financial statements.<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
For the period
January 3, 1995
(commencement
of operations)
to August 31,
1995
NET ASSET VALUE, BEGINNING OF PERIOD $8.50
INVESTMENT OPERATIONS :
Net investment income .30(a)
Net realized and unrealized gain on investments .69
TOTAL FROM INVESTMENT OPERATIONS .99
NET ASSET VALUE, END OF PERIOD $9.49
TOTAL INVESTMENT RETURN AT NET ASSET VALUE (%) (b) 11.65(c)
NET ASSETS, END OF PERIOD (in thousands) $1,829
Ratio of expenses to average net assets (%) .48(a)(c)
Ratio of net investment income to average net assets (%)3.52(a)(c)
Portfolio turnover (%) 5.35(c)
(a) Reflects an expense limitation in effect during the period
(See Note 3). As a result of such limitation, expenses for the
fund reflect a reduction of $0.21 per share.
(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
For the period January 3, 1995 (commencement of operations) to
August 31, 1995
Note 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is a series of Putnam Investment Funds (the Trust ) which
is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company.
The objective of the fund is to seek capital growth and current
income by investing primarily in equity securities issued by
companies in the real estate industries.
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. Short-term
investments having remaining maturities of 60 days or less are
stated at amortized cost, which approximates market value, and
other investments are stated at fair market value following
procedures approved by the Trustees.
B JOINT TRADING ACCOUNT Pursuant to an exemptive order issued by
the Securities and Exchange Commission, the fund may transfer
uninvested cash balances into a joint trading account, along with
the cash of other registered investment companies managed by
Putnam Investment Management, Inc. ( Putnam Management ), the
fund s Manager, a wholly-owned subsidiary of Putnam Investments,
Inc., and certain other accounts. These balances may be invested
in one or more repurchase agreements and/or short-term money
market instruments.
C REPURCHASE AGREEMENTS The fund, or any joint trading account,
through 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. 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.
E 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
on securities held and excise tax on income and capital gains. At
August 31, 1995, the Fund had a capital loss carryover of
approximately $1,700 available to offset future net capital gains,
if any, which will expire on August 31, 2003.
<PAGE>
DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders
will be recorded by the fund on the ex-dividend date. The fund
will distribute any net investment income at least quarterly and
any net realized gains at least annually. The amount and
character of income and gains to be distributed is determined in
accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences
include treatment of organization expenses. Reclassifications are
made to the fund s capital accounts to reflect income and gains
available for distribution (or available capital loss carryover)
under income tax regulations.
For the period ended August 31, 1995, the fund reclassified $603
to increase undistributed net investment income, and $603 to
decrease paid-in capital. The calculation of net investment income
per share in the financial highlights excludes these adjustments.
G EXPENSES OF THE TRUST Expenses directly charged or
attributable to the fund will be paid from the assets of the fund.
Generally, expenses of the Trust will be allocated and charged to
the assets of each fund on a basis that the Trustees deem fair and
equitable, which may be based on the relative assets of each fund
or the nature of the services performed and relative applicability
to each fund.
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 states,
and the initial public offering of its shares aggregated $6,425.
These expenses are being amortized on a straight line basis over a
five-year period.
Note 2
INITIAL CAPITALIZATION AND OFFERING PRICE OF SHARES
The Trust was established as a Massachusetts business trust under
the laws of Massachusetts on October 31, 1994.
During the period October 31, 1994 to January 3, 1995, the fund
had no operations other than those related to organizational
matters, including the initial capital contribution of $20,000 and
the issuance of 2,353 shares to Putnam Mutual Funds Corp., a
wholly-owned subsidiary of Putnam Investments, Inc. on December
13, 1994.
At August 31, 1995, Putnam Investment Management, Inc. owned
176,471 shares of the Fund (91.58% of shares outstanding), valued
at $1,674,710.
Note 3
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management for management and investment
advisory services is paid quarterly based on the average net
assets of the fund for the quarter. Such fee is based on the
following annual rates: 0.70% of the first $500 million of average
net assets, 0.60% of the next $500 million, 0.55% of the next $500
million, 0.50% of the next $5 billion, 0.475% of the next $5
billion, 0.455% of the next $5 billion, 0.44% of the next $5
billion, and 0.43%, thereafter.
Through December 31, 1995, the fund s manager has agreed to limit
the fund s expenses to the extent that expenses (exclusive of
brokerage, interest, taxes, deferred organizational and
extraordinary expenses and distribution fees) exceed an annual
rate of 1.00% of the fund s average net assets.
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 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.
Investor servicing and custodian fees reported in the Statement of
operations for the period January 3, 1995 (commencement of
operations) to August 31, 1995 have been reduced by credits
allowed by PFTC. These credits amounted to $3,639 for the year
ended August 31, 1995.
The fund has adopted a distribution plan with pursuant to Rule
12b-1 under the Investment Company Act of 1940, although the fund
is not currently making any payments pursuant to this plan. The
purpose of the plan 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 Trustees have approved payment by the fund to Putnam
Mutual Funds Corp. at an annual rate of up to 0.35% of the fund s
average net assets.
During the period January 3, 1995 (commencement of operations) to
August 31, 1995, Putnam Mutual Funds Corp., acting as the
underwriter, received no commissions from the sale of shares of
the fund.
Note 4
PURCHASES AND SALES OF SECURITIES
During the period January 3, 1995 (commencement of operations) to
August 31, 1995, purchases and sales of investment securities
other than short-term investments, and U.S. government
obligations, aggregated $1,718,054 and $74,144, respectively. In
determining the net gain or loss on securities sold, the cost of
securities has been determined on the identified cost basis.
Note 5
CAPITAL SHARES
For the period January 3, 1995 (commencement of operations) to
August 31, 1995 there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares
were as follows:
For the period
January 3, 1995
(commencement of
operations) to
August 31, 1995
Shares Amount
Shares sold 192,412 $1,639,850
Shares repurchased (2,063) (18,813)
Net increase 190,349 $1,621,037
Federal Tax Information
(unaudtied)
The Form 1099 you receive in January 1996 will show the tax status
of all distributions paid to your account in calendar 1995.<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
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Jeanne L. Mockard
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 Real
Estate Opportunities 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
the Putnam Quarterly Performance Summary.
Shares of mutual funds are not deposits of, 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 principal amount invested.
20425-403 10/95
