PUTNAM
REAL ESTATE
OPPORTUNITIES
FUND
SEMIANNUAL REPORT
February 28, 1995
(Putnam Logo)
BOSTON * LONDON * TOKYO<PAGE>
FROM THE CHAIRMAN
Dear Shareholder:
As always, it is a great pleasure for me to report on a new
Putnam fund. I welcome you as a shareholder in Putnam Real
Estate Opportunities Fund, and thank you for participating
in our incubated funds program.
Although your fund s total return at net asset value (NAV)
from inception on January 3, 1995, through February 28,
1995, was slightly negative at -0.35%, its return for the
month of February was 2.29%. Performance data for such a
short initial period is not indicative of an investment s
potential, however. Additional performance details can be
found following this letter.
Nearly 75% of your fund s portfolio is currently composed of
real estate investment trusts (REITs). REITs, which purchase
and manage a diverse array of properties, are playing an
increasingly important role in equity markets. Domestic
offerings of REITs rose $10 billion in 1993 alone, to a
total of $52 billion by the
end of 1994.
Demand for REITs has expanded, due in part to the sector s
compelling diversification possibilities. Investors can own
shares of apartment, shopping mall, self-storage, health
care, and nursing-home REITs, among others. The type of REIT
can be selected according to prevailing economic conditions
and trends; for example, low interest rates may facilitate
consumption, making retail REITs more attractive. Another
diversification possibility is REITs with properties in
various regions of the United States: because different
areas of the country experience varied economic cycles,
REITs with properties in certain places may thrive despite
slackened demand elsewhere.<PAGE>
Currently, we believe apartment REITs are particularly
attractive. As higher interest rates push mortgage rates
past 9%, many people now living in apartments have deferred
home-buying plans. This may keep apartment occupancy levels,
and thus, rents, relatively high. In a corresponding move,
we have purchased shares in self-storage REITs. The same
apartment-dwellers who put off moving plans may need extra
room to store their possessions. In addition, such storage
facilities increasingly cater to the traveling sales force.
We have lowered the fund s exposure to mall and shopping
center REITs and have added to its positions in bargain
factory outlets. Our rationale: as higher interest rates
begin to have a more perceptible affect on domestic economic
activity, they are likely to hold down sales of more
expensive retail items. In a slower economy, inexpensive
bargain factory outlets tend to prosper.
Finally, we are optimistic about the prospects for health
care REITs, particularly assisted-retirement communities,
nursing homes and other facilities that are becoming more
essential as the American population ages.
Roughly 25% of the fund s portfolio is composed of shares in
companies serving the real estate sector. The fund owns
stocks of home-building companies, focusing largely on
California. With few Californian home-owners willing to sell
their properties for less than they paid in better economic
times, new building has increased. The fund s portfolio also
includes stocks of lumber companies and of developers such
as Rouse Co. <PAGE>
It is important for investors to remember that a fund
concentrating on a single sector is exposed to fluctuations
in that industry; Putnam Real Estate Opportunities Fund s
shares may change in value more than a fund which invest in
a broader range of industries. In any case, we believe real
estate investing plays an important part in a more
aggressive portfolio, and that a mutual fund approach can be
an effective way to participate in this market. Furthermore,
we believe Putnam s commitment to investment expertise,
coupled with the experience of Fund Manager Jeanne Mockard,
should enable this new fund to take full advantage of the
real estate sector s opportunities.
Respectfully yours,
(Signature George Putnam)
George Putnam
April 19, 1995
The views expressed throughout this report are exclusively
those of Putnam Management. They are not meant as
investment advice. Although the described holdings were
viewed favorably as of February 28, 1995, 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.
For comparative purposes, we show how the fund performed
relative to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 2/28/95
STANDARD
FUND & POOR S(r)
NAV POP 500 INDEX CPI
LIFE OF FUND
(since 1/3/95) -0.35% -6.10% 6.16% 0.80%
TOTAL RETURN FOR PERIODS ENDED 3/31/95
(MOST RECENT CALENDAR QUARTER)
CLASS A
NAV POP
LIFE OF FUND
(since 1/3/95) 0.35% -5.43
Fund performance data do not take into account any
adjustment for taxes payable on reinvested 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.<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 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 on page 5 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.<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
February 28, 1995 (unaudited)
COMMON STOCKS (87.7%)*
Number of Shares Value
Basic Industrial Products(1.5%)
300 Deere (John) & Co. $22,987
Consumer Durables(2.2%)
400 Armstrong
World Industries, Inc. 18,300
1,000 Maytag Corp, 16,500
34,800
Consumer Non Durables(0.6%)
200 Eastman Kodak Co. 10,200
Finance(0.9%)
400 Student Loan Marketing Assn. 14,750
Forest Products(1.0%)
400 Weyerhaeuser Co. 16,300
Health Care Facilities(4.9%)
800 American Health
Properties, Inc.B 17,400
1,100 LTC Properties Inc.B 14,025
500 Meditrust Corp.B 16,000
400 Nationwide Health
Properties, Inc.B 14,400
600 Omega Healthcare
Investors, Inc.B 14,475
76,300
Home Building(10.5%)
1,000 Brewer (C) Homes, Inc. Class A 7,000
1,300 Centex Corp. 33,150
900 Clayton Homes, Inc. 16,087
1,400 Continental Homes
Holding Corp. 18,200
600 Oakwood Homes Corp. 15,150
1,300 Pulte Corp. 29,900
500 Schuler Homes, Inc. 5,188
3,000 Toll Brothers, Inc. 38,625
163,300
Hotels(1.9%)
400 FelCor Suite Hotels, Inc. 8,600
1,000 RFS Hotel Investors, Inc.B 14,500
700 Winston Hotels 6,562
29,662
Manufactured Homes(4.1%)
1,300 Chateau Properties, Inc.B 25,675
1,500 Manufactured Home
Communities REITB 22,312
700 Sun Communities, Inc.B 15,837
63,824
Common Stocks (continued)
Number of Shares Value
Office & Industrial(8.3%)
1,200 Beacon Properties Corp. 22,350
1,700 Cali Realty Corp.B 27,200
1,100 Duke Realty Investments, Inc.B 29,563
1,000 Highwoods Properties, Inc.B 20,750
1,400 Washington Real Estate
Investment Trust B 23,100
300 Weeks Corp.B 6,637
129,600
Railroads(0.7%)
200 Union Pacific Corp. 10,450
Real Estate(1.0%)
800 Rouse Co. 15,800
Residential(28.2%)
1,400 Avalon Properties, Inc. 26,600
1,400 Bay Apartment Cmnty., Inc.B 26,425
1,000 Colonial Properties TrustB 23,000
1,600 Columbus Realty TrustB 28,200
1,000 Equity Residential Properties
TrustB 27,000
1,400 Evans Withycombe Residential 28,000
1,500 Home Properties of NY,
Inc. REITB 28,125
1,500 Merry Land & Investment
Co., Inc.B 30,937
1,100 Mid-America Apartment
Communities, Inc.B 28,325
1,500 Oasis Residential, Inc. 33,188
1,000 Post Properties, Inc.B 28,875
1,800 Prime Residential, Inc.B 28,125
1,600 Property Trust of AmericaB 26,800
1,200 Smith (Charles East)
Residential RealtyB 27,450
2,400 South West Property Trust, Inc. 29,100
438,450
Restaurants(0.9%)
1,200 Commercial Net Lease RealtyB 14,700
Self Storage(3.9%)
700 Shurgard Storage Centers, Inc.
Class AB 15,575
1,500 Storage Equities, Inc.B 22,125
800 Storage USA, Inc. 22,400
60,100<PAGE>
Shopping Centers(17.1%)
1,400 Bradley Real Estate Trust, Inc.B 22,750
1,100 Chelsea GCA Realty, Inc.B 29,288
500 Crown American Realty TrustB 6,188
2,000 Debartolo Realty Corp.B 28,000
900 Excel Realty Trust, Inc.B 15,525
1,000 Glimcher Realty TrustB 21,250
800 Kimco Realty Corp.B 30,400
1,200 Kranzco Realty TrustB 21,150
500 Macerich Co.B 10,188
1,700 Malan Realty Investments, Inc. 23,588
1,800 McArthur/Glen Realty Corp.B 26,325
400 Simon Property Group, Inc.B 9,750
600 Weingarten Realty Investors, Inc. B
21,750
266,152
Total Common Stocks
(cost $1,369,460) $1,349,075
Convertible Bonds and Notes(3.1%)*
Principal Amount Value
Office & Industrial(1.3%)
$20,000 Liberty Property Trust
cv. sub. deb. 8s, 2001B $ 20,300
Residential(1.8%)
30,000 Camden Property Trust
cv. sub. deb. 7.33s, 2001B 27,375
Total Convertible Bonds and Notes
(cost $46,300) $ 47,675
Convertible Preferred Stocks(2.0%)*
(cost $28,959)
Number of Shares Value
Shopping Centers(2.0%)
1,400 Tanger Factory Outlet Centers,
$1.575, cv. pfd.B $ 31,850
Short-Term Investments(11.2%)*(cost $174,971)
Principal Amount Value
$175,000 Federal Home Loan Mortgage
Corp. 5.95s, March 1, 1995 $ 174,971
Total Investments
(cost $1,619,690)*** $1,603,571
Notes
* Percentages indicated are based on net assets of
$1,556,800, which correspond to a net asset value per share
of $8.47.
B Real Estate Investment Trust (REIT).
Non-income-producing security.
*** The aggregate identified cost on a tax basis is
$1,619,690 resulting in gross unrealized appreciation and
depreciation of $39,605 and $55,724, respectively, or net
unrealized depreciation of $16,119.
The accompanying notes are an integral part of these financial
statements.<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1995 (Unaudited)
ASSETS
Investments in securities, at value (identified cost
$1,619,690) (Note 1) $1,603,571
Cash 125
Dividends and interest receivable 3,434
Receivable for shares of the fund sold 25
Receivable from Manager 2,146
Unamortized organization expenses (Note 1) 6,245
TOTAL ASSETS 1,615,546
LIABILITIES
Payable for securities purchased 49,306
Payable for investor servicing
and custodian fees (Note 3) 237
Amortization of organization expenses 6,425
Auditing 1,874
Legal 468
Registrations fees 532
Other liabilities 76
TOTAL LIABILITIES 58,918
NET ASSETS $1,556,628
REPRESENTED BY
Paid-in capital (Notes 2 and 5) $1,561,954
Undistributed net investment income 10,736
Accumulated net realized gain on investment transactions
57
Net unrealized depreciation of investments (16,119)
TOTAL REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING $1,556,628
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
Net asset value and redemption price per share
($1,556,628 divided by 183,865 shares) $8.47
Offering price per share
(100/94.25 of $8.47)* $8.99
* 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 February 28, 1995 (Unaudited)
INVESTMENT INCOME
Dividends $9,871
Interest 2,086
TOTAL INVESTMENT INCOME 11,957
EXPENSES:
Compensation of Manager (Note 3) 1,620
Investor servicing and custodian fees (Note 3) 237
Auditing 1,874
Legal 468
Registration fees 532
Other expenses 76
Amortization of organization expense (Note 1) 180
Fees waived by Manager (Note 3) (3,766)
TOTAL EXPENSES 1,221
NET INVESTMENT INCOME 10,736
Net realized gain on investments (Notes 1 and 3) 57
Net unrealized depreciation
of investments during the period (16,119)
NET LOSS ON INVESTMENT TRANSACTIONS (16,062)
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(5,326)
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 February 28
1995*
INCREASE IN NET ASSETS
Operations:
Net investment income $10,736
Net realized gain on investments 57
Net unrealized depreciation of investments (16,119)
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS (5,326)
Distribution to shareholders
From net investment income
Net realized gain on investments
Increase from capital share
transactions (Note 4) 1,541,954
TOTAL INCREASE IN NET ASSETS 1,536,628
NET ASSETS:
Beginning of period $20,000
End of period (including undistributed
net investment income of $10,736) $1,556,628
* Unaudited.
The accompanying notes are an integral part of these
financial statements.<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
January 3, 1995
(commencement
of operations)
to February 28,
1995*
NET ASSET VALUE, BEGINNING OF PERIOD $8.50
INVESTMENT OPERATIONS
Net investment income .06
Net realized and unrealized
loss on investments (.09)(a)
TOTAL FROM INVESTMENT OPERATIONS (.03)(a)
LESS DISTRIBUTIONS
Net investment income
Net realized gain on investments
TOTAL DISTRIBUTIONS
NET ASSET VALUE, END OF PERIOD $8.47
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%)(b) (.35)
NET ASSETS, END OF PERIOD (in thousands) $1,557
Ratio of expenses to average net assets (%) .08(a)(c)
Ratio of net investment income
to average net assets (%) .71(a)(c)
Portfolio turnover (%) 33.64(c)
* Unaudited.
Per share net investment income has been determined on
the basis of the weighted average number of shares
outstanding during the period.
(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 $0.02 per
share.
(b) Total investment return assumes dividend reinvestment
and does not reflect the effects of
sales charges.
(c) Not annualized.<PAGE>
NOTES TO FINANCIAL STATEMENTS
(For the period January 3, 1995 (commencement of operations)
to February 28, 1995 (Unaudited)
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, except
that certain U.S. government obligations are stated at the
mean between the bid and asked prices. Market quotations are
not considered to be readily available for long term
corporate bonds and notes; such investments are stated at
fair market value on the basis of valuations furnished by a
pricing service, approved by the Trustees. 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
<PAGE>
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.
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 any net realized gains at least
annually.
The amount and character of income and gains to be
distributed determined in accordance with income tax
regulations which may differ from generally accepted
accounting principles. These differences include treatment
of post-October losses, payment in-kind and market discount.
Reclassifications made to the fund s capital accounts to
reflect income and gains available for distribution (or
available capital loss carryover) under income tax
regulations.
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 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 February 28, 1995, Putnam Investment Management, Inc.
owned 176,471 shares of the Fund (95.98% of shares
outstanding), valued at $1,494,709.
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.<PAGE>
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.
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 February 28, 1995 have been
reduced by credits allowed by PFTC.
The fund has adopted a distribution plan with pursuant to
Rule 12b-1 under the Investment Company Act of 1940,
althought 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 February 28, 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 February 28, 1995, purchases of investment
securities other than short-term investments, and U.S.
government obligations, aggregated $1,444,719 and $174,971,
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 February 28, 1995 there was an unlimited number of shares
of beneficial interest authorized. Transactions in capital
shares were as follows:
January 3, 1995
(commencement
of operations)
to February 28,
1995
Shares Amount
Shares sold 181,512 $1,541,954
Shares repurchased
Net increase 181,512 $1,541,954
<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
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
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Jeanne L. Mockard
Vice President
and Fund Manager
William N. Shiebler
Vice President
John R. Verani
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 Putnam s Quarterly
Performance Summary. For more information or to request a prospectus,
call toll free 1-800-225-1581.
