Putnam
Basic Value
Fund
Annual Report
August 31, 1995
[Putnam Logo]
BOSTON * LONDON * TOKYO<PAGE>
PERFORMANCE HIGHLIGHTS
> This is not a fund you buy because you re bullish or bearish
on the market. This is a fund you buy because you believe in a
value-oriented investment discipline.
David King, Fund Manager
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) 23.88% 16.74%
SHARE VALUE: NAV POP
1/3/95 $8.50 $9.02
8/31/95 10.53 11.17
Data above represent past results and are not indicative of future
performance. Fund performance data does not take into account any
adjustments for taxes payable on reinvested distributions and
reflects an expense limitation currently in effect. Without the
expense limitation, the fund s total return would have been lower.
For comparative performance and explanation of terms, see pages 9
and 10. POP assumes 5.75% maximum sales charge for class A.
<PAGE>
FROM THE CHAIRMAN
Dear Shareholder:
Putnam Management expected continued improvement in both the stock
and bond markets this year but did not anticipate the vigor of the
advance of both markets during the year s first half. Looking
ahead, it appears unlikely that both markets can remain as
exuberant as they have been over the first three quarters of
calendar 1995, but we do not believe the advance has entirely run
its course.
As investors assess the effects of the slower economy on corporate
earnings growth, we may see some near-term market volatility.
However, as the election campaign sparks tax-change proposals,
anticipation of major reforms that favor saving and investing may
spur investor confidence. This prospect could help sustain the
current market advance, even though no meaningful legislation, if
any, is likely before 1997.
Whatever direction market events may take next year, a
disciplined, value-oriented approach to investing may enable you
to seek consistently attractive long-term returns with less
susceptibility to the peaks and valleys of market movements. This
is precisely the idea behind Putnam Basic Value Fund. Although
the fund, inevitably, will be affected by market trends to some
degree, its focus on undervalued companies operates somewhat
independently of macroeconomic and market forecasts.
In the following report, Fund Manager David King explains the
fund s unique strategy and comments on performance over its first,
abbreviated fiscal year.
Respectfully yours,
/S/ George Putnam
George Putnam
Chairman of the Trustees
October 18, 1995<PAGE>
REPORT FROM THE FUND MANAGER
DAVID KING
After several months of investment operations, it is quite
apparent that Putnam Basic Value Fund is off to a strong start.
Over the fund s first fiscal year, which covered the eight months
from inception on January 3, 1995, through August 31, 1995, total
return was 23.88% at net asset value. This is virtually neck and
neck with the Standard & Poor s 500 Index, which returned 23.97%
over the same period.
This is a fine achievement for such a fledgling fund. However,
when one realizes that this period includes the first few weeks of
operations, during which the fund was becoming fully invested and
that the market was headed consistently upward during this time,
our results become even more impressive.
While the fund s performance thus far clearly demonstrates the
effectiveness of its value-oriented strategy, the inherent ups and
downs of the market warrant a longer-term perspective. This is
especially important, considering that this fund is designed to
identify and take advantage of out-of-favor stocks whose
potential may be overlooked by the broader market.
> A PRICE-CONSCIOUS APPROACH TO EQUITY INVESTING
As noted in the semiannual report, we have focused on a relatively
small number of stocks, while seeking to maintain relatively equal
weighting among them. While this will mean that the fund may not
be widely diversified, the equal-weighting approach does provide
one of the primary benefits of diversification: preventing a large
and, consequently, vulnerable concentration of holdings in any one
company or industry.
On August 31, 1995, insurance and finance, health-care/drugs, and
utility stocks constituted the top industry sectors in the
portfolio. However, it is important to remember that the fund s
composition is driven by a selection process that prizes long-term
value rather than any overriding sector-weighting strategy. For
example,<PAGE>
technology stocks this year s market darlings were not present
at the close of the period, reflecting our belief that this sector
offers little value at this time.
A value-oriented investment philosophy rests on the premise that
investors often buy and sell stocks in reaction to current events
rather than on a rational assessment of the stocks long-term
value. Putnam Basic Value Fund attempts to capitalize on
opportunities created by this process, buying inexpensively priced
stocks of fundamentally sound companies facing temporary weakness.
Popular fads, reduced expectations for business prospects, and
other unexpected events can push stock prices below their
inherent worth.
> THREE DIFFERENT APPROACHES TO A
COMMON GOAL: VALUE
The portfolio currently comprises three distinct categories of
stocks, each able to benefit in a different way from investors
tendency to overreact to current events. Ramp stocks, the first
category, are stocks of well-established, relatively stable
companies that have experienced declining stock prices because of
various short-term events but that in our opinion have the
potential to recover all or a significant portion of the decline.
Columbia Gas, which supplies natural gas to the major markets of
the upper Midwest and Northeast, typifies the ramp stock. When gas
prices fell dramatically in the late 1980s, Columbia Gas was
LARGEST INDUSTRY SECTORS OF THE FUND*
INSURANCE AND FINANCE 14.2%
HEALTH CARE 11.5%
UTILITIES 10.9%
CONSUMER NONDURABLES 9.2%
OIL AND GAS 6.6%
* Based on net assets on 8/31/95. Sector allocations will vary
over time.<PAGE>
faced with selling its product at a market price lower than the
price it was paying suppliers. This was an industry-wide
phenomenon, that, if it had continued, would have substantially
affected the company s net worth. In 1992, the company declared
bankruptcy. However, by early 1995, an agreement with suppliers
and creditors to resume operations and begin paying dividends
again seemed attainable, and the stock was added to the fund s
portfolio. Columbia Gas appears likely to meet our key criteria
for a ramp stock that it can achieve 50% total return within two
years time. In fact, by the close of the period, the stock had
already appreciated 25%.
Anchor stocks, the second category, are characterized primarily
by current high dividend yields, which indicate their ability to
produce satisfactory returns even with only minimal price
appreciation. Bankers Trust, one example, is expected to play a
defensive, income-oriented role in the portfolio. When the fund
purchased this stock, its price was depressed from
the decline of its trading and financial derivatives businesses.
Diligent and comprehensive analysis of the company s unique
circumstances, including meetings with senior management,
determined that the stock s 7% dividend was secure. Since
the addition of Bankers Trust to the portfolio, the derivatives
crisis has subsided and the company s earnings have begun
to show recovery.
The third group, rocket stocks, holds dramatic total return
potential for patient investors who understand the companies
financial or market dynamics and, therefore, their true underlying
values. Our goal for a rocket stock is that it be
able to achieve a 100% total return over a three-year average
holding period.
In the closing months of the period, Southern Pacific Railway, a
rocket stock, was acquired by Union Pacific Railway a ramp stock
also held by the fund. Southern Pacific Railway fit the
traditional value-stock profile: an out-of-favor company
<PAGE>
TOP 10 HOLDINGS (8/31/95)
PHILIP MORRIS CO., INC.
Leading tobacco, food processing, and brewing company
LILLY (ELI) & CO.
Pharmaceuticals
BANKERS TRUST NEW YORK CORP.
Multinational banking and finance
NATIONSBANK CORP.
Commercial banking
POLAROID CORP.
Photographic equipment and supplies
UNION CARBIDE CORP.
Industrial organic chemical supplier
USF&G CORP.
Insurance
UPJOHN CO.
Pharmaceuticals
BENEFICIAL CORP.
Consumer finance
UNION PACIFIC CORP.
Railroad
These holdings represent 24.85% of the fund s assets. Portfolio
holdings will vary over time.
experiencing short-term difficulties. The fact that Union Pacific
stock has gone up on the news of the proposed merger validated our
initial assumption that Southern Pacific is an undervalued railway
property. While the merger must still be approved by the
Interstate Commerce Commission, the fund has sold its position in
Southern Pacific, realizing a sizable gain. This seemed judicious,
since the fund would have ended up holding 6% of its portfolio
assets in what was, in effect, one company. The Union Pacific
position continues to appreciate nicely as investors recognize the
stronger competitive position brought about by the potential
combination.<PAGE>
The fund also benefited from another merger event. Pharmacia, a
Swedish pharmaceutical company, announced a plan to merge with
Upjohn. Upjohn, a ramp stock, has a significant market share in
the United States. Its combination with Pharmacia, which holds a
large presence in Europe, is expected to produce greater economies
of scale and a global distribution network. Upjohn remains in the
portfolio and continues to demonstrate attractive long-term
appreciation potential.
> BUILDING LONG-TERM VALUE
Whether they are ramp, anchor, or rocket stocks, every holding in
the fund s portfolio shares a common thread. We believe that all
offer long-term value because their prices are low in relation to
the companies earnings power. Consequently, each may have the
potential to outperform the markets over time. Our challenge,
however, is to distinguish those companies whose stock prices will
recover from those that deserve their lower prices because of
permanently weaker fundamentals. Correctly identifying these
potential winners and losers is one of the key risks facing every
value investor. As the fund enters its second fiscal year,
Putnam s fundamental, bottom-up research, disciplined valuation
techniques, and strict buy and sell rules will remain critical to
making this distinction.
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.
Performance should always be considered in light of a fund s
investment strategy. Putnam Basic Value Fund is designed
for investors seeking long-term capital appreciation primarily
through undervalued common stocks and other equity securities.
TOTAL RETURN FOR PERIOD ENDED 8/31/95
STANDARD CONSUMER
& POOR S PRICE
NAV POP 500 INDEX INDEX
Life of fund
(since 1/3/95) 23.88% 16.74% 23.97% 2.14%
TOTAL RETURN FOR PERIOD ENDED 9/30/95
(most recent calendar quarter)
NAV POP
Life of fund
(since 1/3/95) 27.65% 20.29%
Fund performance data do not take into account any adjustment for
taxes payable on reinvested distributions and represent past
results. POP assumes maximum 5.75% sales charge. Investment
returns and principal value will fluctuate so an investor s
shares, when sold, may be worth more or less than their original
cost. Fund performance data does not take into account any
adjustments for taxes payable on reinvested distributions and
reflects an expense limitation currently in effect. Without the
expense limitation, the fund s total return would have been lower.
The short-term results of a relatively new fund such as this fund,
are not necessarily indicative of its long-term prospects.
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.
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 1/3/95
[Line graph showing
Fund shares at POP: $9,425-$11,674
Standard & Poor's 500 Index: $10,214-$12,397
Consumer Price Index: constant at $10,214]
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.<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 Basic Value Fund
We have audited the accompanying statement of assets and
liabilities of Putnam Basic Value 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 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 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 Basic Value 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 (95.9%)*
Number of Shares Value
Aerospace and Defense(1.0%)
400 Lockheed Martin Corp. $ 24,350
Automotive(4.6%)
1,200 General Motors Corp. 56,400
1,250 Varity Corp.+ 56,875
--------
113,275
Basic Industrial Products(4.2%)
2,000 CBI Industries, Inc. 49,000
1,500 Harnischfeger Industries, Inc. 55,125
--------
104,125
Chemicals(2.4%)
1,700 Union Carbide Corp. 60,350
Conglomerates(2.2%)
2,300 Ogden Corp. 53,475
Consumer Non Durables(9.2%)
700 Avon Products, Inc. 49,430
1,700 Ball Corp. 57,800
3,100 Dimon Inc. 54,250
900 Philip Morris Cos., Inc. 67,163
--------
228,643
Environmental Control(2.1%)
1,800 WMX Technologies, Inc. 52,875
Food and Beverages(4.5%)
3,300 Archer Daniels Midland Co. 54,863
1,700 Dole Food Co. 55,675
--------
110,538
Health Care(11.5%)
1,500 Baxter International, Inc. 58,500
700 Bristol-Myers Squibb Co. 48,038
800 Lilly (Eli) & Co. 65,500
1,400 Upjohn Co. 59,325
600 Warner-Lambert Co. 54,225
--------
285,588
Insurance and Finance(14.2%)
800 Aetna Life & Casualty Co. 54,600
900 Bankers Trust New York Corp. 61,988
1,200 Beneficial Corp. 58,950
1,500 Fleet Financial Group, Inc. 55,500
1,000 NationsBank Corp. 61,375
3,300 USF&G Corp. 59,813
--------
352,226
Common Stocks (continued)
Number of Shares Value
Metals and Mining(4.8%)
1,700 Alumax, Inc.+ $58,013
1,894 Freeport-McMoRan
Copper & Gold Co., Inc.
Class B+ 44,272
2,700 Freeport-McMoRan Inc. 15,188
--------
117,473
Oil and Gas(6.6%)
1,200 Anadarko Petroleum Corp. 57,300
1,600 Columbia Gas
System, Inc.+ 56,400
2,300 Occidental Petroleum Corp. 50,025
--------
163,725
Photography(4.6%)
900 Eastman Kodak Co. 51,863
1,400 Polaroid Corp. 61,075
--------
112,938
Real Estate(6.1%)
3,300 Debartolo Realty Corp. 46,613
1,600 Meditrust Corp. 52,600
1,300 Nationwide Health
Properties, Inc. 50,863
--------
150,076
Retail(4.6%)
4,000 K mart Corp. 54,500
1,800 Kroger Co.+ 58,725
--------
113,225
Transportation(2.4%)
900 Union Pacific Corp. 58,950
Utilities(10.9%)
2,000 Cinergy Corp. 51,250
3,300 Long Island Lighting Co. 56,100
1,200 NYNEX Corp. 54,000
2,300 Northeast Utilities Co. 52,613
2,600 Potomac Electric
Power Co. 55,575
--------
269,538
Total Common Stocks
(cost $2,063,765) $ 2,371,370
Short-Term Investments (4.5%)*
(cost $112,018)
Principal Amount Value
$112,000 Interest in $517,279,000 joint
repurchase agreement dated
August 31, 1995 with Morgan
Stanley & Co. Inc. due
September 1, 1995 with respect
to various U.S. Treasury
obligations maturity value
of $112,018 for an effective
yield of 5.77% $ 112,018
Total Investments
(cost $2,175,783)*** $ 2,483,388
Notes
* Percentages indicated are based on total net assets of
$2,472,655, which correspond to a net asset value per
share of $10.53.
+ Non-income-producing security.
*** The aggregate identified cost for federal income tax
purposes is $2,174,350, resulting in gross unrealized
appreciation and depreciation of $348,519 and $39,481,
respectively, or net unrealized appreciation of $309,038.
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 $2,175,783) (Note 1) $2,483,388
Cash 4
Dividends and interest receivable 8,435
Receivable from Manager (Note 3) 20,496
Unamortized organization expenses 5,619
TOTAL ASSETS 2,517,942
LIABILITIES
Payable for securities purchased 34,247
Payable for compensation of Trustees (Note 3) 49
Payable for organization expenses (Note 1) 6,425
Payable for investor servicing and custodian fees (Note 3) 1,071
Other accrued expenses 3,495
TOTAL LIABILITIES 45,287
NET ASSETS $2,472,655
REPRESENTED BY
Paid-in capital (Notes 1, 2 and 5) $2,014,531
Undistributed net investment income (Note 1) 34,280
Accumulated net realized gain on
investment transactions (Note 1) 116,239
Net unrealized appreciation of investments 307,605
TOTAL REPRESENTING NET ASSETS APPLICABLE
TO CAPITAL SHARES OUTSTANDING $2,472,655
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
Net asset value and redemption price per share
($2,472,655 divided by 234,860 shares) $10.53
Offering price per share (100/94.25 of $10.53)* $11.17
* 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 $43,677
Interest 1,918
TOTAL INVESTMENT INCOME 45,595
EXPENSES:
Compensation of Manager (Note 3) 9,671
Investor servicing and custodian fees (Note 3) 5,796
Compensation of Trustees (Note 3) 410
Reports to shareholders 1,000
Auditing 16,305
Legal 8,784
Postage 34
Registration Fees 683
Administrative Services (Note 3) 27
Amortization of organization expenses 806
Fees waived by Manager (Note 3) (32,910)
TOTAL EXPENSES 10,606
NET INVESTMENT INCOME 34,989
Net realized gain on investments (Notes 1 and 4) 116,239
Net unrealized appreciation of investments
during the period 307,605
NET GAIN ON INVESTMENT TRANSACTIONS 423,844
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $458,833
The accompanying notes are an integral part of these financial
statements.<PAGE>
STATEMENT OF CHANGES OF NET ASSETS
For the period
January 3, 1995
(commencement
of operations)
to August 31,
1995
INCREASE IN NET ASSETS
OPERATIONS:
Net investment income $34,989
Net realized gain on investments 116,239
Net unrealized appreciation of investments 307,605
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 458,833
Increase from capital share transactions (Note 5) 1,993,822
TOTAL INCREASE IN NET ASSETS 2,452,655
NET ASSETS
Beginning of period 20,000
END OF PERIOD (including undistributed
net investment income of $34,280) $2,472,655
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 .15(a)
Net realized and unrealized gain
on investments 1.88
TOTAL FROM INVESTMENT OPERATIONS 2.03(a)
LESS DISTRIBUTIONS
Net investment income
Net realized gain on investments
TOTAL DISTRIBUTIONS
NET ASSET VALUE, END OF PERIOD $10.53
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%) (b) 23.88(c)
NET ASSETS, END OF PERIOD (in thousands) $2,473
Ratio of expenses to
average net assets (%) .51(a)(c)
Ratio of net investment income to
average net assets (%) 1.67(a)(c)
Portfolio turnover (%) 51.07(c)
(a) Reflects an expense limitation during the period (See
Note 3). As a result of such limitation, expenses
of the fund reflect a reduction of approximately $0.14
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 long term capital
appreciation by investing primarily in common stocks which are
undervalued at the time of purchase.
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.
<PAGE>
F 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
net realized gains at least annually. The amount and character of
income and gains to be distributed will be determined in
accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences
include treatment of non-taxable dividends and organization
expenses.
Reclassifications will be 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
period ended August 31, 1995, the fund reclassified $709 to
decrease undistributed net investment income and $709 to increase
paid-in-capital. The calculation of net investment income per
share in the financial highlights table 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..
At August 31, 1995, Putnam Investment Management, Inc. owned
199,659 shares of the fund (85.01% of shares outstanding), valued
at $2,102,409.
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, and such credits amounted to $4,016.
The fund has adopted a distribution plan 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 aggregated $3,006,558 and
$1,058,964, 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
233,313 $2,001,821
Shares repurchased (806) (7,999)
NET INCREASE 232,507 $1,993,822
FEDERAL TAX INFORMATION
(unaudited)
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
David L. King
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 Basic
Value 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 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.
20431 10/95
