Putnam
New
Value
Fund
SEMIANNUAL REPORT
February 29, 1996
[GRAPHIC OMITTED: PUTNAM SCALES LOGO]
BOSTON * LONDON * TOKYO
Fund highlights
* "Most equity funds seeking high returns have a growth company
orientation. I believe it is possible to achieve high returns in the
stock market with a different approach: a relentless search for
undervalued and misunderstood companies. This is the philosophy behind
Putnam New Value Fund."
-- David L. King, Manager, Putnam New Value Fund
* "While value funds lose money in a bear market, along with other
funds, the blossoming of cyclic companies cushions the blow, an aspect
that proponents contend makes them better, safer investments than growth
funds."
-- The International Herald Tribune, March 2, 1996
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
11 Portfolio holdings
14 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
Putnam New Value Fund (formerly Putnam Basic Value Fund) began its
second year of operation 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 debut, the stock market's sharp
drop just after the period's close served as an abrupt reminder that
even the strongest markets will take an occasional pause. Indeed, more
turbulence may lie ahead; nevertheless, Putnam Management believes there
is still some life in the market's broad advance.
Fund Manager David King, however, looks beyond the market's ups and
downs as he pursues the fund's objective of seeking long-term capital
appreciation through stocks whose value has been overlooked by the
market at large. He is currently focusing much of his attention on
stocks whose fortunes rise and fall along with the business cycle. In
the report that follows, Dave explains his strategy in more detail.
Respectfully yours,
/s/George Putnam
George Putnam
Chairman of the Trustees
April 17, 1996
Report from the Fund Manager
David L. King
Evaluating the performance record of a new fund is frequently
problematic, especially when market conditions over the fund's first
year of operations do not show off its strategy to the best advantage.
However, in light of the fact that market conditions over the six months
ended February 29, 1996, have been particularly favorable to growth-
oriented investments, it is all the more rewarding to report that Putnam
New Value Fund -- which uses a pure value strategy -- continues to
deliver returns rivaling those of most other funds in its Lipper
category. Please see the performance section following this report for
full details.
*FUND'S FOCUS KEEPS IT RELATIVELY INDEPENDENT OF MARKET AND
ECONOMIC TRENDS
Because the fund is designed to identify -- and take advantage of --
out-of-favor stocks whose potential may be overlooked by the broader
market, its strong showing is not easily attributable to the market's
overall climb. Prices of stocks in the fund's portfolio are already low
relative to market averages and, thus, are usually influenced more by
company- or industry-specific events than they are by market movements.
Nevertheless, the fund's double-digit returns and strong competitive
showing -- are clear indications that its strategy is proving effective.
Because the fund's stock-selection process prizes the potential for
long-term value over any sector- or industry-weighting strategy, the
portfolio is not widely diversified. Instead, it is focused on a
relatively small number of stocks. However, another key element of the
portfolio's composition does, in fact, provide one of the primary
benefits available from a larger, more diversified fund. Generally, the
number of stocks held will range between 40 and 50, in relatively equal
weightings, preventing a large and potentially vulnerable concentration
in any one company or industry.
*SECTOR STRATEGY OVERVIEW: EMPHASIS SHIFTS TOWARD CYCLICALS
The essence of value investing lies simply in acknowledging that stock
prices often respond to passing events rather than rational assessments
of long-term value. Investment fads, exaggerated concern for current
business prospects, and general market uncertainty all have the ability
to push prices of stocks below their inherent worth. Putnam New Value
Fund attempts to capitalize on such mispricing, buying stocks of
fundamentally sound companies experiencing what we consider to be
temporary weakness.
For example, throughout the winter, uncertainty about the direction --
and the pace -- of the U.S. economy has had a negative effect on the
prices of cyclical consumer stocks. As a result, we have been able to
take advantage of some very attractive opportunities. Consumer cyclicals
tend to outperform before an economic recovery becomes evident; however,
we purchased these stocks not because of the current economic outlook
but for their long-term prospects. Whatever the prevailing economic
environment, we believe that a company's fundamental worth is the best
predictor of its stock's long-term success.
Among the cyclical industries we are currently emphasizing are retail
and automotive, which together account for approximately 17% of the
fund's portfolio. Retail stocks languished in 1995, even as the broader
market achieved record levels. Poor consumer spending, coupled with lack
of investor interest, contributed to retail's relatively poor showing.
Because of this relative underperformance, we believe we have identified
substantial value in a number of retailers, including J.C. Penney,
Dayton-Hudson, and Kmart. (While these stocks, along with others
discussed in this report, were viewed favorably at the end of the fiscal
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.)
[GRAPHIC OMITTED: Horizontal bar chart TOP INDUSTRY SECTORS*]
Retail 10.8%
Insurance and finance 10.2%
Utilities 8.5%
Real estate 8.0%
Basic industrial products 7.1%
Footnote reads
*Based on net assets as of 2/29/96. Holdings will vary over time.]
Automobile stocks, while they have not declined to such an extent as
retails, nevertheless trailed the broader market in 1995. Accordingly,
we uncovered a number of values in this area as resurgent domestic
automakers began to compete more effectively in the global marketplace.
Current automotive fund holdings include Magna International, a Canadian
auto-parts manufacturer, and General Motors.
*THREE-PART CONTRARIAN STRATEGY APPEARS WELL SUITED TO VOLATILE MARKETS
As if to validate some investors' fears after 1995's dramatic rally, the
stock market has apparently entered a period of volatility. We believe
that your fund's value strategy should help protect its returns and
enable it to weather market uncertainties. Shares of already discounted
stocks often have less room to decline and may benefit as investors
gravitate toward less lofty prices.
Your fund's portfolio encompasses three different categories of value
stocks in varying proportions. Over the past six months we have seen the
most substantial growth from holdings in the ramp stock category. These
are well-established companies whose stock prices have declined in
response to what we see as short-term reasons. For example, despite the
domestic problems tobacco giant Philip Morris is currently facing in the
United States, there are still many positive factors supporting its
stock. Not only is global demand for tobacco remaining strong, this
company, like many other tobacco companies, has now diversified to such
an extent that a substantial portion of earnings is generated outside
the tobacco industry. Only about one-third of the company's business
currently involves domestic tobacco; another third is international
tobacco, and the final third in food products, both domestic and
international.
Intel, another ramp holding, has experienced sharp stock price declines
since mid-July, despite its formidable long-term earnings power. IBM,
too, has been purchased as a ramp holding. With nearly $40 billion in
annual sales, IBM is one of the world's best-known companies -- whose
stock we were able to purchase at a significant discount. Investors who
once dismissed IBM as outdated have recently bid up its shares after
several quarters of consistently strong earnings reports.
TOP 10 HOLDINGS (2/29/96)
Security Portfolio category
IBM Corp. Ramp
Computer systems
Harnischfeger Industries, Inc. Ladder
Heavy capital goods equipment manufacturer
General Signal Corp. Ramp
Leading electrical and telecommunications
process control goods producer
NationsBank Corp. Ramp
Third largest U.S. bank holding company
Potomac Electric Power Co. Anchor
Electric utility services
Lockheed Martin Corp. Ramp
Leading diversified technology company
Columbia Gas System, Inc. Ramp
Natural gas production, transmission and
distribution services
Freeport-McMoRan Copper
& Gold Co., Inc. Class B Ladder
Metal mining and exploration
Alumax, Inc. Ladder
The third largest U.S. aluminum company
Dole Food Co. Ladder
World's largest producer and marketer of
fresh fruits and vegetables
These holdings represent 23.9% of the fund's net assets. Portfolio
holdings will vary over time. Categories are defined on p.6 and just
below this table.
The portfolio also includes anchor stocks, chosen for their high
sustainable current dividends that provide the fund with a solid cushion
of income. Ladder stocks, the portfolio's third category, are out-of-
favor or little-known stocks offering -- in our opinion -- the greatest
potential rewards, along with correspondingly greater risk.
*OUTLOOK: AN UNCERTAIN MARKET
In the coming months, we believe value investing may well demonstrate
its strategic worth, possibly to a dramatic extent. It is essential to
keep in mind however, that no investing style, however cautious, can
avoid volatility altogether over the long term. As stock markets gyrate,
economies shift, and political changes continue to unfold, a disciplined
value strategy remains one of the most sensible ways for investors to
attempt to ride out uncertainties while seeking to benefit from the
earnings, and appreciation potential of carefully chosen, fundamentally
sound companies.
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. Investments in a highly
focused portfolio with a relatively small number of holdings may be
subject to greater risk than a more broadly diversified portfolio.
Performance Summary
Performance should always be considered in light of a fund's investment
strategy. Putnam New Value Fund is designed for investors seeking long-
term capital appreciation through investments in undervalued common
stocks.
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
Class A
(inception date) 1/3/95
NAV POP
- -------------------------------------------------------
6 months 11.56% 5.17%
- -------------------------------------------------------
1 year 32.88 25.23
- -------------------------------------------------------
Life of class
(since 1/3/95) 38.20 30.23
Annual average 32.17 25.57
- -------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 2/29/96
Standard Russell 1000
& Poor's Value
500 Index Index
- --------------------------------------------------------------------
6 months 15.32% 14.94%
- --------------------------------------------------------------------
1 year 34.66 34.94
- --------------------------------------------------------------------
Life of class A
(since 1/3/95) 42.91 44.07
Annual average 36.04 36.86
- --------------------------------------------------------------------
Fund performance data do not take into account any adjustment for taxes
payable on reinvested distributions. Performance data represent past
results and will differ for each share class. The fund began investment
operations on 1/3/95 under the name Putnam Basic Value Fund, offering
what are now known as class A shares. Class B and class M shares became
available 2/26/96; performance for these shares is not shown due to the
brevity of the reporting period. 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 assume 5.75% maximum sales
charge for class A shares and reflects an expense limitation currently
in effect; without the limitation, total return would be lower.
TOTAL RETURN FOR PERIODS ENDED 3/31/96
(most recent calendar quarter)
Class A
NAV POP
- --------------------------------------------------------
6 months 12.10% 5.67%
- --------------------------------------------------------
1 year 35.29 27.49
- --------------------------------------------------------
Life of fund 43.09 34.84
(since 1/3/95)
Annual average 33.50 27.26
- --------------------------------------------------------
PRICE AND DISTRIBUTION INFORMATION
6 months ended 2/29/96
Class A
Distributions (number) 1
- ------------------------------------------------------------------------
Income $0.26
- ------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------
Long-term -
- ------------------------------------------------------------------------
Short-term 0.70
- ------------------------------------------------------------------------
Total 0.96
- ------------------------------------------------------------------------
Class A Class B Class M
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
8/31/95 $10.53 $11.17 -- -- --
- ------------------------------------------------------------------------
2/26/96 -- -- $10.86 $10.86 $11.25
(inception of class B
and class M shares)
- ------------------------------------------------------------------------
2/29/96 10.73 11.38 10.73 10.73 11.12
- ------------------------------------------------------------------------
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 for class A
shares and 3.50% for class M shares.
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.*
Russell 1000 Value Index is composed of the largest companies in the
Russell 3000 Index. The Russell 1000 Index represents the universe of
stocks from which most active money managers typically select. This
large capitalization index is highly correlated with the S&P 500 Index.*
A note about Lipper rankings: While Putnam New Value Fund is considered
a growth and income fund at Putnam, Lipper Analytical Services has
placed the fund in its capital appreciation category because its stock
selection criteria place more emphasis on long-term appreciation
potential than income. The fund's class A share total return of 35.29%
at net asset value for the 12 months ended March 31, 1996, compares
favorably with the category average of the 161 capital appreciation
funds tracked by Lipper (28.65%) over the same period.+
*Securities 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.
+Lipper rankings are based on total return performance, vary over time,
and do not reflect the effects of sales charges. Performance of other
share classes will vary. Past performance is not indicative of future
results.
<TABLE>
<CAPTION>
Portfolio of investments owned
February 29, 1996 (Unaudited)
COMMON STOCKS (86.2%)*
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Aerospace and Defense (2.3%)
- ------------------------------------------------------------------------------------------------------------
1,500 Lockheed Martin Corp. $114,375
Automotive (5.8%)
- ------------------------------------------------------------------------------------------------------------
1,900 General Motors Corp. 97,375
2,200 Magna International, Inc. Class A ADR (Canada) 87,175
2,600 Varity Corp. + 98,150
----------
282,700
Basic Industrial Products (7.1%)
- ------------------------------------------------------------------------------------------------------------
3,500 Ball Corp. 105,000
3,300 General Signal Corp. 120,038
3,300 Harnischfeger Industries, Inc. 124,988
----------
350,026
Computer Systems (2.6%)
- ------------------------------------------------------------------------------------------------------------
1,050 IBM Corp. 128,756
Conglomerates (3.7%)
- ------------------------------------------------------------------------------------------------------------
1,700 General Motors Corp. Class H 97,325
3,800 Ogden Corp. 81,225
----------
178,550
Consumer Non Durables (4.2%)
- ------------------------------------------------------------------------------------------------------------
5,200 Dimon Inc. 103,350
1,050 Philip Morris Cos., Inc. 103,950
----------
207,300
Electronics and Electrical Equipment (2.0 %)
- ------------------------------------------------------------------------------------------------------------
1,700 Intel Corp. 99,981
Environmental Control (1.8%)
- ------------------------------------------------------------------------------------------------------------
3,000 WMX Technologies, Inc. 85,500
Food and Beverages (4.4%)
- ------------------------------------------------------------------------------------------------------------
5,500 Archer Daniels Midland Co. 105,875
2,775 Dole Food Co. 111,694
----------
217,569
Insurance and Finance (10.2%)
- ------------------------------------------------------------------------------------------------------------
1,600 Bankers Trust New York Corp. [SHADED TRIANGLE] $103,400
1,900 Beneficial Corp. 98,800
2,400 Fleet Financial Group, Inc. 98,700
1,600 NationsBank Corp. 118,000
5,500 USF&G Corp. 82,500
----------
501,400
Metals and Mining (4.6%)
- ------------------------------------------------------------------------------------------------------------
3,100 Alumax, Inc. + 111,988
3,444 Freeport-McMoRan Copper &
Gold Co., Inc. Class B + 112,361
----------
224,349
Oil and Gas (1.8%)
- ------------------------------------------------------------------------------------------------------------
3,800 Occidental Petroleum Corp. 87,400
Pharmaceuticals (4.2%)
- ------------------------------------------------------------------------------------------------------------
2,550 Pharmacia & Upjohn, Inc. 106,781
1,000 Warner-Lambert Co. 98,875
----------
205,656
Photography (2.1%)
- ------------------------------------------------------------------------------------------------------------
2,300 Polaroid Corp. 101,200
Publishing (2.1%)
- ------------------------------------------------------------------------------------------------------------
3,000 Times Mirror Co. Class A 102,000
Real Estate (8.0 %)
- ------------------------------------------------------------------------------------------------------------
866 Castle & Cooke, Inc. + 12,882
7,100 Debartolo Realty Corp. 92,300
3,300 Equity Residential Properties Trust 104,775
2,700 Meditrust Corp. 89,775
2,200 Nationwide Health Properties, Inc. 92,400
----------
392,132
Retail (10.8%)
- ------------------------------------------------------------------------------------------------------------
1,350 Dayton-Hudson Corp. 100,406
14,700 Kmart Corp. 102,900
2,900 Kroger Co. + 107,663
3,500 Melville Corp. 111,561
2,200 Penney (J.C.) Co., Inc. 104,500
----------
527,030
Utilities (8.5%)
- ------------------------------------------------------------------------------------------------------------
2,600 Columbia Gas System, Inc. + $113,750
5,500 Long Island Lighting Co. 96,250
4,000 Northeast Utilities Co. 89,000
4,400 Potomac Electric Power Co. 116,050
----------
415,050
----------
Total Common Stocks (cost $3,835,630) $4,220,974
- ------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS AND NOTES (1.5%)*(cost $75,431)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$60,000 Lowes Companies Inc. cv. deb., 3s, 2003 $72,450
----------
CONVERTIBLE PREFERRED STOCKS (1.3%)*(cost $65,974)
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
2,000 Unisys Corp. Ser. A, $3.75, cv. pfd. $65,750
----------
SHORT-TERM INVESTMENTS (8.5%)*(cost $415,062)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$415,000 Interest in $1,108,321,000 joint repurchase agreement
dated February 29, 1996 with Morgan (J.P.) & Co., Inc.
due March 1, 1996 with respect to various U.S. Treasury
obligations- maturity value of $415,062 for an
effective yield of 5.42%
Total Short-term Investments $415,062
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $4,392,097)*** $4,774,236
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $4,898,523.
+ Non-income-producing security.
*** The aggregate identified cost for federal income tax purposes is $4,392,097, resulting in gross unrealized
appreciation and depreciation of $474,206 and $92,067, respectively, or net unrealized appreciation of
$382,139.
[SHADED TRINAGLE] Bankers Trust New York Corp. provides sub-custodian services to the fund.
ADR after the name of a foreign holding stands for American Depository Receipt, representing ownership to
foreign securities on deposit with a domestic custodian bank.
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 $4,392,097) (Note 1) $4,774,236
- -----------------------------------------------------------------------------------
Cash 39,076
- -----------------------------------------------------------------------------------
Dividends and interest receivable 10,628
- -----------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,206,831
- -----------------------------------------------------------------------------------
Receivable for securities sold 39,593
- -----------------------------------------------------------------------------------
Receivable from Manager (Note 2) 2,644
- -----------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 4,964
- -----------------------------------------------------------------------------------
Total assets 6,077,972
Liabilities
- -----------------------------------------------------------------------------------
Payable for securities purchased 1,154,976
- -----------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 53
- -----------------------------------------------------------------------------------
Payable for administrative services (Note 2) 7
- -----------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 86
- -----------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,768
- -----------------------------------------------------------------------------------
Payable for organizational expenses (Note 1) 6,425
- -----------------------------------------------------------------------------------
Other accrued expenses 16,134
- -----------------------------------------------------------------------------------
Total liabilities 1,179,449
- -----------------------------------------------------------------------------------
Net assets $4,898,523
Represented by
- -----------------------------------------------------------------------------------
Paid-in-capital (Note 4) $4,386,011
- -----------------------------------------------------------------------------------
Undistributed net investment income 2,005
- -----------------------------------------------------------------------------------
Accumulated net realized gain on investments 128,368
- -----------------------------------------------------------------------------------
Net unrealized appreciation of investments 382,139
- -----------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $4,898,523
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($4,233,584 divided by 394,413 shares) $10.73
- -----------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $10.73) * $11.38
- -----------------------------------------------------------------------------------
Net asset value and offering price of class B shares
($448,180 divided by 41,775 shares) ** $10.73
- -----------------------------------------------------------------------------------
Net asset value and redemption price of class M shares
($216,759 divided by 20,209 shares) $10.73
- -----------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $10.73) * $11.12
- -----------------------------------------------------------------------------------
* 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.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
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 $44,646
- -----------------------------------------------------------------------------------
Interest 550
- -----------------------------------------------------------------------------------
Total investment income 45,196
Expenses:
- -----------------------------------------------------------------------------------
Compensation of Manager (Note 2) 9,767
- -----------------------------------------------------------------------------------
Investor Servicing and custodian fees (Note 2) 7,809
- -----------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 784
- -----------------------------------------------------------------------------------
Reports to shareholders 625
- -----------------------------------------------------------------------------------
Auditing 12,388
- -----------------------------------------------------------------------------------
Legal 731
- -----------------------------------------------------------------------------------
Postage 102
- -----------------------------------------------------------------------------------
Registration Fees 849
- -----------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 77
- -----------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 5
- -----------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 5
- -----------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 655
- -----------------------------------------------------------------------------------
Administrative services (Note 2) 20
- -----------------------------------------------------------------------------------
Fees waived by Manager (Note 2) (19,122)
- -----------------------------------------------------------------------------------
Total expenses 14,695
- -----------------------------------------------------------------------------------
Expense reduction (Note 2) (3,494)
- -----------------------------------------------------------------------------------
Net expenses 11,201
- -----------------------------------------------------------------------------------
Net investment income 33,995
- -----------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 4) 190,549
- -----------------------------------------------------------------------------------
Net unrealized appreciation on investments during the period 74,534
- -----------------------------------------------------------------------------------
Net gain on investments 265,083
- -----------------------------------------------------------------------------------
Net increase in net assets resulting from operations $299,078
- -----------------------------------------------------------------------------------
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 August 31
1996* 1995
- ------------------------------------------------------------------------------------------------------
Increase in net assets
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
- ------------------------------------------------------------------------------------------------------
Net investment income $33,995 $34,989
- ------------------------------------------------------------------------------------------------------
Net realized gain on investments 190,549 116,239
- ------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 74,534 307,605
- ------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 299,078 458,833
- ------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ------------------------------------------------------------------------------------------------------
From net investment income
Class A (66,270) --
- ------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (178,420) --
- ------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 2,371,480 1,993,822
- ------------------------------------------------------------------------------------------------------
Total increase in net assets 2,425,868 2,452,655
- ------------------------------------------------------------------------------------------------------
Net assets
- ------------------------------------------------------------------------------------------------------
Beginning of period 2,472,655 20,000
- ------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $2,005 and $34,280, respectively) $4,898,523 $2,472,655
- ------------------------------------------------------------------------------------------------------
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 For the Period For the Period
February 26, 1996 February 26, 1996 January 3, 1995
(commencement (commencement Six months (commencement
of operations) of operations) ended of operations)
to February 29 to February 29 February 29 to August 31
1996* 1996* 1996* 1995
Class M Class B Class A
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $10.86 $10.86 $10.53 $8.50
- -------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------
Net investment income (a) .01 -- .12 .15
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.14) (.13) 1.04 1.88
- -------------------------------------------------------------------------------------------------------
Total from investment
operations (a) (0.13) (0.13) 1.16 2.03
- -------------------------------------------------------------------------------------------------------
Less distributions from:
- -------------------------------------------------------------------------------------------------------
Net investment income -- -- (.26) --
- -------------------------------------------------------------------------------------------------------
Net realized gain on investments -- -- (.70) --
- -------------------------------------------------------------------------------------------------------
Total distributions -- -- (.96) --
- -------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.73 $10.73 $10.73 $10.53
- -------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(b) (1.20)(c) (1.20)(c) 11.56(c) 23.88(c)
- -------------------------------------------------------------------------------------------------------
Net assets,
end of period (in thousands) $217 $448 $4,234 $2,473
- -------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(a)(d) .06(c) .06(c) .52(c) .51(c)
- -------------------------------------------------------------------------------------------------------
Ratio of net investment
income to average net assets (%)(a) .11(c) .13(c) 1.20(c) 1.67(c)
- -------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 11.01(c) 11.01(c) 11.01(c) 51.07(c)
- -------------------------------------------------------------------------------------------------------
* Unaudited
(a) Reflects an expense limitation during the period (Note 2). As a result of such limitation, expenses of
the fund reflect a reduction of approximately $0.14 per share for the period ended August 31, 1995.
Expenses for the period ended February 29, 1996 reflect a reduction of $0.07 for class A shares and
less than $0.01 for class B and M shares.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Not annualized.
(d) The ratio of expenses to average net assets for the period ended February 29, 1996 includes amounts
paid through expense offset arrangements. Prior period exclude these amounts (Note 2)
</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 long term capital appreciation by
investing primarily in common stocks which are undervalued at the time
of purchase.
The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 5.75%. Class B and class M
shares commenced operations on February 26, 1996. Class B shares, which
convert to class A shares after approximately eight years, do not pay a
front-end sales charge, but pay a higher ongoing distribution fee than
class A shares, and are subject to a contingent deferred sales charge,
if those shares are redeemed within six years of purchase. Class M
shares are sold with a maximum front-end sales charge of 3.50% and pay
an ongoing distribution fee that is lower than class B shares and higher
than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
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 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.
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 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 on projected net asset levels over a five-year period.
Note 2
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 and extraordinary expense, payments under the
fund's distribution plan 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 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. 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 $3,494 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 distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans 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 Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00% and 1.00% of the average net assets attributable to class A, class
B and class M shares, respectively. The Trustees have approved payment
by the fund at an annual rate of 0.25%, 1.00% and 0.75% of the average
net assets attributable to class A, class B and class M shares
respectively.
For the six months ended February 29, 1996, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $2,129 and no monies
from the sale of class A and class M shares, respectively and received
no monies in contingent deferred sales charges from redemptions of class
B shares. A deferred sales charge of up to 1% is assessed on certain
redemptions of class A shares. For the six months ended February 29,
1996, Putnam Mutual Funds Corp., acting as underwriter received no
monies on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended February 29, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$2,815,478 and $1,092,757, 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 4
Capital shares
At February 29, 1996, there was an unlimited number of shares of
beneficial interest authorized. At February 29, 1996, Putnam Investment
Management, Inc. owned 236,029 shares of the fund (51.72% of shares
outstanding), valued at $2,532,591. Transactions in capital shares were
as follows:
Six months ended
February 29, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 140,010 $1,508,568
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 24,155 244,690
- ----------------------------------------------------
164,165 1,753,258
Shares
repurchased (4,612) (50,378)
- ----------------------------------------------------
Net increase 159,553 $1,702,880
- ----------------------------------------------------
For the period
January 3, 1995
(commencement of
operations)
to August 31, 1995
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 233,313 $2,001,821
- ----------------------------------------------------
Shares
repurchased (806) (7,999)
- ----------------------------------------------------
Net increase 232,507 $1,993,822
- ----------------------------------------------------
For the period
February 26, 1996
(commencement of
operations)
to February 29, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 41,775 $450,250
- ----------------------------------------------------
Shares
repurchased -- --
- ----------------------------------------------------
Net increase 41,775 $450,250
- ----------------------------------------------------
For the period
February 26, 1996
(commencement of
operations)
to February 29, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 20,209 $218,350
- ----------------------------------------------------
Shares
repurchased -- --
- ----------------------------------------------------
Net increase 20,209 $218,350
- ----------------------------------------------------
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investor Services has won the DALBAR Quality Tested Service Seal
for the past six years. In 1995, over 146,000 tests of 56 shareholder
service components demonstrated that Putnam outperformed the industry
standard in every category.
* HELP YOUR INVESTMENT GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings
account.*
* SWITCH FUNDS EASILY
You can move money from one account to another with the same class of
shares without a service charge. (This privilege is subject to change or
termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at
the then-current net asset value, which may be more or less than the
original cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a
helpful Putnam representative.
To make an additional investment in this or any other Putnam fund,
contact your financial advisor or call our toll-free number:
1-800-225-1581.
* Regular investing of course, does not guarantee a profit or
protect against a loss in a declining market.
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
David L. King
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 New 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 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.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- -------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- -------------------
24061-274 4/96
