Putnam
Real Estate
Opportunities
Fund
SEMIANNUAL REPORT
February 29, 1996
[GRAPHIC OMITTED: PUTNAM SCALES LOGO]
BOSTON * LONDON * TOKYO
Fund highlights
* "The average property-owning REIT recently yielded 1.4 percentage
points more than a long-term Treasury bond -- a near-record spread. If
you're buying REITs today, it's hard to go wrong."
-- Kiplinger's Personal Finance Magazine, January 1996
* "During the period, commercial real estate produced a strong
performance by historical standards, helped along by growing evidence of
shrinking office vacancies, higher rents, and a burgeoning demand for
suburban office space."
-- Jeanne Mockard, Portfolio Manager
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
11 Portfolio holdings
15 Financial statements
From the Chairman
Dear Shareholder:
Putnam Real Estate Opportunities Fund began its first full fiscal year
during one of the strongest stock market advances in recent memory. The
extent of the market's rise and management's adept positioning of the
portfolio are clearly reflected in your fund's results during the six
months ended February 29, 1996.
While we are pleased with the fund's performance, the stock market's
increased volatility just after the period's close served as an abrupt
reminder that even the strongest markets may take an occasional pause.
Although more turbulence may lie ahead, Putnam Management nevertheless
believes there is still some life in the market's broad advance.
Fund Manager Jeanne Mockard, however, looks beyond the market's ups and
downs as she pursues the fund's objective of seeking capital growth and
current income through investing in stocks of companies principally
engaged in the real estate industries. In the report that follows,
Jeanne explains her strategy in more detail.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
April 17, 1996
Report from the Fund Manager
Jeanne Mockard
Over the six months ended February 29, 1996, the Dow Jones Industrial
Average defied gravity, tearing through the 4000 and 5000 milestones and
setting record after record. Investors' passion for technology stocks
was the market's driving force for much of the period. But other
factors, such as low inflation and strong overall corporate earnings,
also contributed. In contrast to the blistering pace set by technology,
stocks of real estate investment trusts (REITs) merely ambled along,
largely untouched by the rally's extraordinary strength.
Although REITs did not benefit from the buying frenzy that catapulted
technology to all-time highs, they also did not suffer from technology's
downturn in the fourth quarter of 1995. During the six months ended
February 29, 1996, commercial real estate produced a strong performance
by historical standards, helped along by growing evidence of shrinking
office vacancies, higher rents, and a burgeoning demand for suburban
office space.
* FUND PERFORMANCE PROVES COMPETITIVE
Over the six months ended February 29, 1996, your fund delivered a total
return of 11.35% at net asset value (4.94% at public offering price),
comparing favorably with results of the National Association of Real
Estate Investment Trusts (NAREIT) Index, which returned 8.93% for that
period. This performance may appear disappointing to some investors,
given the strength of the rally in the broader market and in the
technology sector. It is important to keep in mind, however, that the
ability of REITs to maintain a low correlation with the broad market can
help stabilize your overall portfolio; indeed, this is the main reason
many investors buy REITs.
* POSITIONING STRATEGY KEEPS FUND ON COURSE
The strategy we put in place in January 1995 served the fund well
throughout its abbreviated initial fiscal year, which ended on August
31, 1995. We made no significant changes in the first six months of
fiscal 1996. We maintained a heavy weighting in stocks of homebuilders.
This proved a profitable position for the fund, since this sector was
one of the strongest in the overall market. The fund's best-performing
holdings during the period were Lennar Corp., up 47%, and Oakwood Homes,
up 80%. Hotel REITs, which benefited from growing demand and rising room
rates -- as we had expected -- were also particularly strong. Our top
hotel REITs were Starwood, up almost 100%, and FelCor, up 50%, for the
period ended February 29, 1996.
We made minor adjustments to the portfolio in January 1996. Most of the
changes involved adding or selling companies within each category. The
only adjustment to overall portfolio weightings was in reducing exposure
to homebuilders by about one half. Valuations of many of these stocks
had approached our target levels, and we believed they were becoming
vulnerable to a price correction. Our decision to pare stocks of
homebuilders to 7.1% of the portfolio proved timely, as prices in that
sector came down in February.
Your fund is maintaining substantial positions in office and industrial
REITs. Boston-based Beacon Properties is the fund's largest holding.
Cali Realty, a successful office REIT in New Jersey, is another
favorite. Duke Realty, an industrial REIT with properties in several
Midwestern states, has also been a strong performer. While these stocks,
along with others discussed in this report, were viewed favorably at the
end of the period, all portfolio holdings are subject to review and
adjustment in accordance with the fund's investment strategy and may
well vary in the future.
[HORIZONTAL BAR GRAPH SHOWING: TOP INDUSTRY SECTORS]
Residential 21.5%
Office and industrial 15.3%
Health-care facilities 7.7%
Home building 7.1%
Self-storage 6.2%
[Footnote reads:]
*Based on net assets as of 2/29/96. Holdings will vary over time.
* EXTENSIVE RESEARCH REMAINS A KEY INGREDIENT OF FUND STRATEGY
Successful investing within the REIT universe requires intensive bottom-
up research. For every purchase by Putnam, this effort translates into
looking closely first at the individual company, then at the industries
and trends that may affect the company, and finally at the overall
economy and market as a whole. Individual company research is in-depth,
yet flexible. The criteria considered to analyze a company that owns and
manages office buildings, for example, are different from those applied
to an owner of warehouses. The presence of unique features within each
company, as well as from sector to sector, underscores the need for
targeted research.
Putnam has dedicated researchers devoted exclusively to REITs. They meet
directly with the managements of companies, visit company sites, and
look for several different indicators that can point to strong growth
potential. For example, one important "buy" signal for us is high levels
of inside ownership because such ownership points to the management's
confidence in the company.
Another positive factor is the presence of property and capital reserves
sufficient to carry the company for at least two years. These suggest
that the organization has the ability to grow by developing land it
already owns without having to borrow at potentially unfavorable rates.
Or, if bargains abound, it may mean that the company will have the
resources to increase its holdings profitably. We also look at the
dividend history and assess the potential for dividend growth.
Another detail that can be important in making an investment decision is
the structure of a company's lease agreements. If we believe inflation
is on the rise, expiring leases can be a plus because rent increases
would be likely to follow. But in a slow-growth environment, the
opposite is often true: earnings could well suffer if leases must be
renegotiated at lower rental rates. Retail REITs are especially
vulnerable to pressure to renew expiring leases at lower rates because
many struggling stores are desperate to keep costs down. Still, we
believe some retail REITs represent exceptional values, and we may
consider increasing holdings in that sector.
* REITs CAN PROVIDE AN ANCHOR FOR YOUR PORTFOLIO
REITs can be a good hedge for all market conditions. For example, when
interest rates are low and high-yield investments become scarce, REITs
can often supply a welcome boost to an investor's current-income stream.
In times of rising inflation and interest rates, when returns on other
securities decline, REITs can actually boost earnings by raising rents.
Since REITs are required to pass at least 95% of their income to
investors, any such increase in earnings by portfolio holdings would
benefit your fund's results.
[GRAPHIC OMITTED WHICH READS:]
TOP 10 HOLDINGS (2/29/96)
Beacon Properties Corp.
REIT managing properties in Boston
Duke Realty Investments, Inc.
REIT managing properties in Midwestern states
Cali Realty Corp.
REIT managing properties in northern and central New Jersey
Kaufman & Broad Home Corp.
California-based single-family homebuilder
Public Storage, Inc.
REIT investing in miniwarehouses
Storage USA, Inc.
REIT managing self-storage facilities
Nationwide Health Properties, Inc.
REIT specializing in long-term health-care facilities
Centex Corp.
Homebuilder and real estate developer
Deere & Co.
Mobile power machinery manufacturer
Security Capital Pacific Trust
REIT managing properties in Southwestern states
[Footnote reads:]
These holdings represent 22.6% of the fund's net assets. Portfolio
holdings will vary over time.
* POSITIVE OUTLOOK FOR THE FUTURE
REIT prices are currently at levels comparable with those during the
late 1980s, when the real estate market faltered considerably. However,
we consider the current low prices a function of the exceptional
strength of the market in general, rather than a reflection of any
fundamental weakness in real estate. In fact, we believe REIT stocks
will begin to draw increasing investor attention as technology issues
continue to come back down to earth and overall corporate earnings
weaken. With a 6%-8% average yield over the past year, REIT stocks have
a strong edge over both utility and bond yields and, in our opinion,
currently offer patient investors an excellent buying opportunity.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 2/29/96, there is no guarantee the fund will
continue to hold these securities in the future. The fund concentrates
its investments in real estate industries and involves more risk than a
fund that invests more broadly.
Performance Summary
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.
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 in the fund.
TOTAL RETURN FOR PERIODS ENDED 2/29/96
NAV POP
- ------------------------------------------------------------------------
6 months 11.35% 4.94%
- ------------------------------------------------------------------------
1 year 24.76 17.54
- ------------------------------------------------------------------------
Life of fund
(since 1/3/95) 24.32 17.15
Annual average 20.64 14.62
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 2/29/96
Standard & Poor's NAREIT
500 Index Index
- ------------------------------------------------------------------------
6 months 15.31% 8.93%
- ------------------------------------------------------------------------
1 year 34.66 18.25
- ------------------------------------------------------------------------
Life of fund
(since 1/3/95) 43.53 18.53
Annual average 36.42 15.73
- ------------------------------------------------------------------------
Fund performance data does not take into account any adjustment for
taxes payable on reinvested distributions. Performance data represent
past results. Investment returns and net asset value will fluctuate so
an investor's shares, when sold, may be worth more or less than their
original cost. POP data assumes 5.75% maximum sales charge. Expense
limitations were in effect during the period presented; without the
limitations its total return would be lower. The short-term results of a
relatively new fund are not necessarily indicative of its long-term
prospects.
The indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities
in the fund do not match those in the indexes and performance of the
fund will differ. It is not possible to invest directly in an index.
TOTAL RETURN FOR PERIODS ENDED 3/31/96
(most recent calendar quarter)
NAV POP
- ------------------------------------------------------------------------
6 months 10.80% 4.45%
- ------------------------------------------------------------------------
1 year 26.13 18.88
- ------------------------------------------------------------------------
Life of fund
(since 1/3/95) 26.57 19.28
Annual average 20.93 15.28
- ------------------------------------------------------------------------
Fund performance data does not take into account any adjustment for
taxes payable on reinvested distributions. Performance data represent
past results. Investment returns and net asset value will fluctuate so
an investor's shares, when sold, may be worth more or less than their
original cost. POP data assumes 5.75% maximum sales charge. Expense
limitations were in effect during the period presented; without the
limitations its total return would be lower. The short-term results of a
relatively new fund are not necessarily indicative of its long-term
prospects.
PRICE AND DISTRIBUTION INFORMATION
Period ended 2/29/96
- ------------------------------------------------------------------------
Distributions
- ------------------------------------------------------------------------
Number 1
- ------------------------------------------------------------------------
Income $0.52
- ------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------
Long-term --
- ------------------------------------------------------------------------
Short-term $0.07
- ------------------------------------------------------------------------
Total 0.59
- ------------------------------------------------------------------------
Share value: NAV POP
- ------------------------------------------------------------------------
8/31/95 $9.49 $10.07
- ------------------------------------------------------------------------
2/29/96 9.94 10.55
- ------------------------------------------------------------------------
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.
COMPETITIVE 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 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.
<TABLE>
<CAPTION>
Portfolio of investments owned
February 29, 1996 (Unaudited)
COMMON STOCKS (91.9%)*
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Appliances (0.6%)
- -------------------------------------------------------------------------------------------------
200 Whirlpool Corp. $11,125
Basic Industrial Products (1.7%)
- -------------------------------------------------------------------------------------------------
900 Deere & Co. 35,213
Consumer Non Durables (0.7%)
- -------------------------------------------------------------------------------------------------
200 Eastman Kodak Co. 14,300
Consumer Products (1.5%)
- -------------------------------------------------------------------------------------------------
1,000 Lowe's Cos., Inc. 31,000
Diversified REITs (2.3%)
- -------------------------------------------------------------------------------------------------
1,000 Colonial Properties Trust (R) 24,000
1,400 Washington Real Estate Investment Trust (R) 23,275
----------
47,275
Factory Outlets (2.8%)
- -------------------------------------------------------------------------------------------------
1,100 Chelsea GCA Realty, Inc. (R) 32,725
1,152 HGI Realty, Inc. (R) 24,480
----------
57,205
Finance (1.6%)
- -------------------------------------------------------------------------------------------------
400 Student Loan Marketing Assn. 33,050
Forest Products (0.8%)
- -------------------------------------------------------------------------------------------------
400 Weyerhaeuser Co. 16,950
Health Care Facilities (7.7%)
- -------------------------------------------------------------------------------------------------
800 American Health Properties, Inc. (R) 18,600
80 American Health Properties, Inc. - Dep. Shs. (R) 1,220
1,100 LTC Properties Inc. (R) 18,150
600 Meditrust Corp. (R) 19,950
900 National Health Investors, Inc. (R) 29,363
900 Nationwide Health Properties, Inc. (R) 37,800
1,100 Omega Healthcare Investors, Inc. (R) 31,900
----------
156,983
Home Building (7.1%)
- -------------------------------------------------------------------------------------------------
200 Castle & Cooke, Inc. + $2,975
1,300 Centex Corp. 37,375
3,000 Kaufman & Broad Home Corp. 46,125
800 Lennar Corp. 19,200
600 Oakwood Homes Corp. 26,775
500 Schuler Homes, Inc. + 3,875
500 Webb (Delaware East) Corp. 9,000
----------
145,325
Hotels (4.4%)
- -------------------------------------------------------------------------------------------------
800 FelCor Suite Hotels, Inc. (R) 24,500
1,100 Innkeepers USA Trust (R) 11,000
1,000 RFS Hotel Investors, Inc. (R) 17,125
800 Starwood Lodging Trust (R) 27,500
700 Winston Hotels, Inc. (R) 9,188
----------
89,313
Manufactured Homes (5.0%)
- -------------------------------------------------------------------------------------------------
1,300 Chateau Properties, Inc. (R) 31,688
1,500 Manufactured Home Communities (R) 29,438
900 ROC Communities, Inc. (R) 21,825
700 Sun Communities, Inc.(R) 18,813
----------
101,764
Office & Industrial (15.3%)
- -------------------------------------------------------------------------------------------------
2,758 Beacon Properties Corp. (R) 72,398
2,500 Cali Realty Corp. (R) 56,563
600 CenterPoint Properties Corp. (R) 13,575
1,800 Duke Realty Investments, Inc. (R) 57,150
1,400 First Industrial Realty Trust, Inc. (R) 32,725
1,000 Highwoods Properties, Inc. (R) 30,000
700 Reckson Associates Realty Corp. (R) 20,475
400 Spieker Properties, Inc. (R) 10,350
700 Weeks Corp. (R) 18,288
----------
311,524
Railroads (0.7%)
- -------------------------------------------------------------------------------------------------
200 Union Pacific Corp. 13,200
Real Estate (0.8%)
- -------------------------------------------------------------------------------------------------
800 Rouse Co. 16,100
Regional Malls (3.8%)
- -------------------------------------------------------------------------------------------------
2,500 Debartolo Realty Corp. (R) 32,500
1,000 Glimcher Realty Trust (R) 16,875
1,000 Macerich Co. (R) 19,375
400 Simon Property Group, Inc. (R) 9,350
----------
78,100
Residential (21.5%)
- -------------------------------------------------------------------------------------------------
1,400 Avalon Properties, Inc. $31,325
1,400 Bay Apartment Community, Inc. (R) 32,900
1,600 Columbus Realty Trust (R) 31,800
1,000 Equity Residential Properties Trust (R) 31,750
1,400 Evans Withycombe Residential, Inc. 31,325
400 Gables Residential Trust (R) 9,950
1,500 Home Properties of NY, Inc. (R) 28,500
1,500 Merry Land & Investment Co., Inc. (R) 34,125
1,100 Mid-America Apartment Communities, Inc. (R) 27,638
1,000 Post Properties, Inc. (R) 32,500
1,800 Prime Residential, Inc. (R) 32,175
1,600 Security Capital Pacific Trust (R) 34,400
1,200 Smith (Charles East) Residential Realty, Inc. (R) 28,200
2,400 South West Property Trust, Inc. (R) 34,200
800 Wellsford Residential Property Trust (R) 18,100
----------
438,888
Restaurants (0.8%)
- -------------------------------------------------------------------------------------------------
1,200 Commercial Net Lease Realty (R) 15,600
Retail (1.0%)
- -------------------------------------------------------------------------------------------------
3,000 Kmart Corp. 21,000
Self Storage (6.2%)
- -------------------------------------------------------------------------------------------------
2,000 Public Storage, Inc. (R) 42,750
900 Shurgard Storage Centers, Inc. Class A (R) 24,075
800 Storage Trust Realty (R) 17,800
1,300 Storage USA, Inc. (R) 41,275
----------
125,900
Shopping Centers (5.6%)
- -------------------------------------------------------------------------------------------------
1,400 Bradley Real Estate Trust, Inc. (R) 19,075
900 Excel Realty Trust, Inc. (R) 17,210
1,200 Kimco Realty Corp. R 32,700
1,700 Malan Realty Investments, Inc. (R) 22,100
600 Weingarten Realty Investors, Inc. (R) 22,500
----------
113,585
----------
Total Common Stocks (cost $1,665,382) $1,873,400
CONVERTIBLE BONDS AND NOTES (2.5%)*
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
$20,000 Liberty Property Trust cv.sub.deb., 8s, 2001 (R) $21,600
30,000 Camden Property Trust cv.sub.deb., 7,33s, 2001 (R) $29,810
-------
Total Convertible Bonds and Notes (cost $46,300) $51,410
SHORT-TERM INVESTMENTS (6.2%)* (cost $127,019)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
$127,000 Interest in $1,108,321,000 repurchase agreeement
dated February 29, 1996 with Morgan (J.P.) & Co., Inc.
duke March 1, 1996 with respect to various U.S. Treasury
obligations - maturity value of $127,019 for an
effective yield of 5.42% $127,019
- -------------------------------------------------------------------------------------------------
Total Investments (cost $1,838,701)*** $2,051,829
- -------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $2,038,618.
+ Non-income-producing security.
*** The aggregate identified cost on a tax cost basis is $1,838,702 resulting in gross unrealized
appreciation
and depreciation of $251,314 and 38,187, respectively, or net unrealized appreciation of $213,127.
(R) Real Estate Investment Trust, (REIT).
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
February 29,1996 (Unaudited)
Assets
- ----------------------------------------------------------------------------
<S> <C>
Investments in securities, at value
(identified cost $ 1,838,701) (Note 1) $2,051,829
- ----------------------------------------------------------------------------
Cash 681
- ----------------------------------------------------------------------------
Dividends and interest receivable 3,901
- ----------------------------------------------------------------------------
Receivable from Manager (Note 3) 2,646
- ----------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 6,336
- ----------------------------------------------------------------------------
Total assets 2,065,393
Liabilities
- ----------------------------------------------------------------------------
Payable for compensation of Trustees (Note 3) 53
- ----------------------------------------------------------------------------
Payable for administrative services (Note 3) 7
- ----------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 3) 2,078
- ----------------------------------------------------------------------------
Payable for organization expenses (Note 1) 6,425
- ----------------------------------------------------------------------------
Other accrued expenses 18,212
- ----------------------------------------------------------------------------
Total liabilities 26,775
- ----------------------------------------------------------------------------
Net assets $2,038,618
Represented by
- ----------------------------------------------------------------------------
Paid-in-capital (Notes 2 and 5) $1,756,097
- ----------------------------------------------------------------------------
Undistributed net investment income 8,961
- ----------------------------------------------------------------------------
Accumulated net realized gain on investments 60,432
- ----------------------------------------------------------------------------
Net unrealized appreciation of investments 213,128
- ----------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,038,618
Computation of net asset value and offering price
- ----------------------------------------------------------------------------
Net asset value and redemption price per share
($2,038,618 divided by 205,066 shares) $9.94
- ----------------------------------------------------------------------------
Offering price per share (100/94.25 of $9.94)* $10.55
- ----------------------------------------------------------------------------
* 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.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended February 29, 1996 (Unaudited)
Investment Income:
- ----------------------------------------------------------------------------
<S> <C>
Dividends $55,841
- ----------------------------------------------------------------------------
Interest 1,899
- ----------------------------------------------------------------------------
Total investment income 57,740
Expenses:
- ----------------------------------------------------------------------------
Compensation of Manager (Note 3) 6,659
- ----------------------------------------------------------------------------
Investor servicing and custodian fees (Note 3) 5,785
- ----------------------------------------------------------------------------
Compensation of Trustees (Note 3) 783
- ----------------------------------------------------------------------------
Administrative services (Note 3) 20
- ----------------------------------------------------------------------------
Auditing 7,154
- ----------------------------------------------------------------------------
Legal 731
- ----------------------------------------------------------------------------
Other 12
- ----------------------------------------------------------------------------
Fees waived by Manager (Note 3) (12,227)
- ----------------------------------------------------------------------------
Total expenses 8,917
- ----------------------------------------------------------------------------
Expense reduction (Note 3) (1,524)
- ----------------------------------------------------------------------------
Net expenses 7,393
- ----------------------------------------------------------------------------
Net investment income 50,347
- ----------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 4) 75,560
- ----------------------------------------------------------------------------
Net unrealized appreciation of investments during the perio 81,222
- ----------------------------------------------------------------------------
Net gain on investments 156,782
- ----------------------------------------------------------------------------
Net increase in net assets resulting from operations $207,129
- ----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the period
January 3, 1995
(commencement of
Six months ended operations) to
February 29, 1996 August 31 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------
Net investment income $50,347 $57,930
- ---------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 75,560 (1,677)
- ---------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 81,222 131,906
- ---------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 207,129 188,159
- ---------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------
From net investment income (99,919) --
- ---------------------------------------------------------------------------------------------
From net realized gain on investments (13,451) --
- ---------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 5) 115,663 1,621,037
- ---------------------------------------------------------------------------------------------
Total increase in net assets 209,422 1,809,196
- ---------------------------------------------------------------------------------------------
Net assets
- ---------------------------------------------------------------------------------------------
Beginning of period 1,829,196 20,000
- ---------------------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $8,961 and
$58,533, respectively) $2,038,618 $1,829,196
- ---------------------------------------------------------------------------------------------
*Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the period
Six January 3, 1995
months (commencement
ended of operations)
February 29 to August 31
1996 * 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $9.49 $8.50
- -----------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------
Net investment income .25(d) .30(d)
- -----------------------------------------------------------------------------
Net realized and unrealized
gain on investments .79 .69
- -----------------------------------------------------------------------------
Total from investment operations 1.04 .99
- -----------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------
From net investment income (.52) --
- -----------------------------------------------------------------------------
From net realized gain on investments (.07) --
- -----------------------------------------------------------------------------
Total distributions (.59) --
- -----------------------------------------------------------------------------
Net asset value, end of period 9.94 9.49
- -----------------------------------------------------------------------------
Total investment return at
net asset value (%) (a) 11.35(c) 11.65(c)
- -----------------------------------------------------------------------------
Net assets, end of period (in thousands) 2,039 1,829
- -----------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) (b) .47(d)(c) .48(d)(c)
- -----------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 2.63(d)(c) 3.52(d)(c)
- -----------------------------------------------------------------------------
Portfolio turnover (%) 14.50(c) 5.35(c)
- -----------------------------------------------------------------------------
* Unaudited
(a) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended February
29, 1996 includes amounts paid through expense offset arrangements. Prior
period ratios exclude these amounts (Note 3).
(c) Not annualized.
(d) Reflects an expense limitation in effect during the period (Note 3). As a
result of such limitation, expenses for the fund for the period ended August
31, 1995 and February 29, 1996 reflect a reduction of $0.21 and $0.06 per
share, respectively.
</TABLE>
Notes to financial statements
February 29, 1996 (Unaudited)
Note 1
Significant accounting policies
The fund is one in 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 principally
engaged in the real estate industry.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sale price, or, if 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 102% of the resale price, including accrued
interest. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to
102% of 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 taxable income within the prescribed time and otherwise comply
with the provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. 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 gain, if
any, which will expire on August 31, 2003.
F) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid annually. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
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 among 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, 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 based upon projected net asset levels over a five-year period.
The fund will reimburse Putnam Management for the payment of these
expenses.
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 January 3, 1995.
At February 29, 1996 Putnam Management owned 187,606 shares of the fund
(91.49% of shares outstanding), valued at $1,864,804.
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 May 31, 1996, the fund's manager has agreed to limit the fund's
expenses to the extent that expenses (exclusive of interest, taxes,
deferred organizational, extraordinary expenses and credits from Putnam
Fiduciary Trust Company ("PFTC") a wholly- owned subsidiary of Putnam
Investments Inc., if any) exceed an annual rate of 1.00% of the fund's
average net assets.
The fund also reimburses Putnam Management 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 Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund
and are invested in the fund or in other Putnam funds until distribution
in accordance with the Plan.
Custodial functions for the fund's assets are provided by PFTC, a
wholly-owned subsidiary of Putnam Investments, Inc. Investor servicing
agent functions are provided by Putnam Investor Services, a division of
PFTC.
For the six months ended February 29, 1996, fund expenses were reduced
by $1,524 under expense offset arrangements with PFTC. Investor
servicing and custodian fees reported in the Statement of operations
exclude these credits. The fund could have invested the assets utilized
in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.
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 six months ended February 29, 1996, 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 six months ended February 29, 1996, purchases of investment
securities other than short-term investments, and U.S. government
obligations, aggregated $269,417 and $275,469 respectively. There were
no purchases and sales of U.S. government obligations. In determining
the net gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.
Note 5
Capital shares
At February 29, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended
February 29, 1996
- ----------------------------------------------------
Shares Amount
- ----------------------------------------------------
Shares sold 930 $8,960
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 12,124 113,369
- ----------------------------------------------------
13,054 122,329
Shares
repurchased (690) (6,666)
- ----------------------------------------------------
Net increase 12,364 $115,663
- ----------------------------------------------------
For the period
January 3, 1995
(commencement of
operations) to
August 31, 1995
- ----------------------------------------------------
Shares sold 192,412 $1,639,850
- ----------------------------------------------------
Shares
repurchased (2,063) (18,813)
- ----------------------------------------------------
Net increase 190,349 $1,621,037
- ----------------------------------------------------
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
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
John D. Hughes
Senior Vice President and Treasurer
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
John R. Verani
Vice President
Paul M. O'Neil
Vice President
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.
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.
24060-403 4/96
