Putnam
Genesis
Fund
ANNUAL REPORT
August 31, 1996
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
Dear Shareholder:
Putnam Genesis Fund has performed quite well since its inception on
December 28, 1995, rising 11.41% at net asset value (NAV) and 4.99% at
public offering price (POP) through August 31, 1996. It will be made
available to the public on November 1, 1996, as part of Putnam's
emphasis on international investing. Indeed, Putnam believes that
international investments may have an important place in a diversified
portfolio and that now is a particularly good time to look abroad for
both growth and attractive values.
Your fund is managed with a bottom-up approach; Putnam Management
focuses on finding promising individual companies before considering
broader economic trends. The fund targets small to medium-size
international companies with capitalizations of between $500 million and
$2 billion, selecting firms from across the spectrum of economic
sectors. Initially, fund management screens thousands of companies,
searching for attractive and proven earnings growth rates and relatively
inexpensive valuations. In narrowing this universe of potential
candidates to roughly 120 stocks, the managers consider asset values,
return on equity, and management strength. Finally, a team of porfolio
managers and analysts personally visit many of the companies in which
the fund invests.
International small to midsize companies often attract less attention
from analysts than do comparably sized U.S. firms. This may allow the
fund to benefit from stocks that are not understood by the market --
those companies whose earnings potential or asset value is
underestimated. Furthermore, smaller companies may be attractive
takeover targets, particularly with recent liberalization of merger and
acquisition laws in many countries. When a company is bought by another,
often the stock price is positively affected. Another important aspect
of investing in international small and midcap companies is that,
typically, their performance is influenced by different factors from
those of other asset classes -- including domestic small-cap companies.
The fund's holdings span many different industries in various countries.
Your fund owns shares of Altana, a pharmaceutical company, and SGL
Carbon, a developer of advanced materials, both headquartered in
Germany. The fund also purchased shares of Glory, a vending machine
maker, and Futaba, the world's largest producer of vacuum-fluorescent
displays; both firms are located in Japan, where general economic
conditions remain mixed. Putnam Management believes, however, that these
companies may be able to grow earnings whatever the prevailing
conditions in Japan.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP COUNTRY ALLOCATIONS (8/31/96)*]
Japan 20.4%
Malaysia 10.3%
United Kingdom 9.9%
Germany 9.2%
Hong Kong 8.3%
Footnote reads:
*Based on net assets. Country weightings will vary over time.
Other promising holdings come from Europe; in the Netherlands, your fund
owns shares of Getronics, an electronics firm; Sweden's Autoliv is a
fast-growing automobile parts supplier; in the United Kingdom, your fund
owns shares of Securicor, a firm with interests in security services and
cellular communications.
We are generally optimistic about investing conditions abroad in the coming
months. Your fund's managers continue to find companies with steady,
strong earnings growth, many of which appear more attractively valued
than their U.S. counterparts. Finally, we thank you for participating in
Putnam's incubated funds program.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
October 16, 1996
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 8/31/96, there is no guarantee the fund will
continue to hold these securities in the future. International investing
involves certain risks, including those related to economic instability,
unfavorable political developments, and currency fluctuations, not
present with domestic investments.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Genesis Fund is designed for investors seeking capital
appreciation through common stocks of small and midcap capitalization
companies located outside the United States.
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 PERIOD ENDED 8/31/96
MSCI
EAFE
NAV POP Index
- ----------------------------------------------------------------------
Life of fund
since 12/28/95 11.41% 4.99% 1.68%
- ----------------------------------------------------------------------
TOTAL RETURN FOR PERIOD ENDED 9/30/96
(most recent calendar quarter)
NAV POP
- ----------------------------------------------------------------------
Life of fund
since 12/28/95 14.35% 7.76% 4.39%
- ----------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns and net asset
value will fluctuate so that an investor's shares, when sold, may be
worth more or less than their original cost. POP assumes 5.75% maximum
sales charge. Fund performance reflects an expense limitation. Without
the limitation, performance would have been lower. Short-term results
are not necessarily indicative of future results.
[GRAPHIC WORM CHART OMITTED: GROWTH OF A $10,000 INVESTMENT]
Cumulative total return of a $10,000 investment since 12/28/95
Starting value (Insert ending Total)
$ 9,425 Fund's class A shares at POP $10,449
$10,000 MSCI EAFE Index $10,168
(plot points for 10-year total return mountain chart)
MSCI EAFE
Date/year Fund at POP INDEX
12/28/95 9,425 10,000
1/31/96 9,677 10,041
2/29/96 9,833 10,075
3/31/96 10,290 10,289
4/30/96 10,580 10,588
5/31/96 10,613 10,393
6/30/96 10,713 10,452
7/31/96 10,357 10,146
8/31/96 10,449 10,168
Footnote reads:
Past performance is no assurance of future results.
PRICE AND DISTRIBUTION INFORMATION
12/28/95 through 8/31/96
- ----------------------------------------------------------------------
Distributions (number)* 0
- ----------------------------------------------------------------------
Income --
- ----------------------------------------------------------------------
Capital gains --
- ----------------------------------------------------------------------
Long-term --
- ----------------------------------------------------------------------
Short-term --
- ----------------------------------------------------------------------
Total --
- ----------------------------------------------------------------------
Share value: NAV POP
- ----------------------------------------------------------------------
12/28/95 (inception) $8.50 $9.02
- ----------------------------------------------------------------------
8/31/96 9.47 10.05
- ----------------------------------------------------------------------
* The fund made no distribution during the reporting period. It will
make its initial distribution before the end of calendar 1996.
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.
COMPARATIVE BENCHMARKS
MSCI Europe, Australia and Far East (EAFE) tracks approximately 1,045
equity securities in 18 countries. All values are expressed in U.S.
dollars.
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.
Report of independent accountants
August 31,1996
To the Trustees and Shareholders of
Putnam Genesis Fund
We have audited the accompanying statement of assets and liabilities of
Putnam Genesis Fund, including the portfolio of investments owned, as of
August 31, 1996, and the related statement of operations and the
statement of changes in net assets and the financial highlights for the
period December 28, 1995 (commencement of operations) to August 31,
1996. These financial statements and financial highlights are the
responsibility of the fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of August 31, 1996, by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Genesis Fund as of August 31, 1996, the
results of its operations and the changes in its net assets and the
financial highlights for the period December 28, 1995 (commencement of
operations) to August 31, 1996 in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
October 15, 1996
<TABLE>
<CAPTION>
Portfolio of investments owned
August 31, 1996
<S> <C> <C> <C> <C>
COMMON STOCKS (96.4%) *
NUMBER OF SHARES VALUE
Australia (5.2%)
- ----------------------------------------------------------------------------------------------------------------------
35,000 Goodman Fielder Ltd. ADR $36,222
15,000 QBE Insurance Group Ltd. 90,060
----------
126,282
Austria (2.6%)
- ----------------------------------------------------------------------------------------------------------------------
1,000 Mayr-Melnhof Karton AG + 46,888
200 Mayr-Melnhof Karton AG 144A ADS + 3,100
100 VA Technolgies AG 12,772
----------
62,760
Belgium (1.4%)
- ----------------------------------------------------------------------------------------------------------------------
200 Barco N.V. 34,283
France (4.2%)
- ----------------------------------------------------------------------------------------------------------------------
700 Chargeurs S.A. 25,196
1,000 Sommer Allibert 25,620
200 Zodiac 51,004
----------
101,820
Germany (9.2%)
- ----------------------------------------------------------------------------------------------------------------------
200 Adidas AG 144A 8,550
100 Altana AG 75,574
600 SGL Carbon AG 73,117
1,000 SKW Trostberg AG 26,822
2,000 Tarkett AG 40,553
----------
224,616
Hong Kong (8.3%)
- ----------------------------------------------------------------------------------------------------------------------
62,000 China Hong Kong Photo Products Holdings, Ltd. 29,268
18,000 Great Eagle Holdings Ltd. 52,147
8,000 Guoco Group Ltd. 37,972
28,000 Manhattan Card Company Ltd. 12,584
14,000 Varitronix International Ltd. 26,436
188,000 Yizheng Chemical Fibre Company Ltd. Class H 44,009
----------
202,416
Ireland (2.1%)
- ----------------------------------------------------------------------------------------------------------------------
10,142 Greencore Group PLC 50,855
Italy (4.6%)
- ----------------------------------------------------------------------------------------------------------------------
1,600 Bulgari S.P.A. + 26,942
9,000 Danieli & Co. 55,170
400 Luxottica Group S.P.A. ADR 30,550
----------
112,662
Japan (20.4%)
- ----------------------------------------------------------------------------------------------------------------------
4,000 Futaba Industries Co. Ltd. 66,122
2,000 Glory Ltd. (Glory Kogyo) 61,346
3,000 Komori Corp. 66,397
2,000 Maruichi Steel Tube 33,979
4,000 Nichicon Corp. 54,734
2,000 Onward Kashiyama Co. Ltd. 27,551
2,200 Paris Miki, Inc. 88,695
1,100 Santen Pharmaceutical 23,841
10,000 Toho Bank Ltd. 72,183
----------
494,848
Malaysia (10.3%)
- ----------------------------------------------------------------------------------------------------------------------
12,000 Carlsberg Brewery of Malaysia 81,829
7,000 Edaran Otomobil Nasional Berhad 73,004
8,000 Malaysian Assurance Alliance 43,963
10,000 Sungei Way Holdings Berhad 50,542
----------
249,338
Netherlands (5.0%)
- ----------------------------------------------------------------------------------------------------------------------
800 Baan Co., N.V. 25,500
1,600 Getronics Electric N.V. 38,916
600 Grolsch N.V. 24,997
600 IHC Caland N.V. 32,511
----------
121,924
New Zealand (1.6%)
- ----------------------------------------------------------------------------------------------------------------------
13,000 Air New Zealand Ltd. Class B 38,823
Singapore (3.2%)
- ----------------------------------------------------------------------------------------------------------------------
198,000 Informatics Holdings Ltd. 75,341
1,000 Venture Manufacturing Ltd. 1,600
----------
76,941
Spain (2.5%)
- ----------------------------------------------------------------------------------------------------------------------
1,000 Mapfre Vida Seguros 59,885
Sweden (3.6%)
- ----------------------------------------------------------------------------------------------------------------------
2,000 Autoliv AB 65,945
1,000 Sandvik AB Class B 22,787
----------
88,732
Switzerland (2.3%)
- ----------------------------------------------------------------------------------------------------------------------
50 Baer Holdings AG 55,426
United Kingdom (9.9%)
- ----------------------------------------------------------------------------------------------------------------------
3,000 Molins PLC 42,508
24,961 Securicor PLC 105,167
24,600 Weir Group PLC (The) 92,132
----------
239,807
----------
Total Common Stocks (cost $2,190,517) $ 2,341,418
WARRANTS (0.3%) * +
NUMBER OF WARRANTS EXPIRATION DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------
150 Rieter Holdings Ltd. (Switzerland) 2/28/97 $ 131
8,250 Southern Bank (Malaysia) 6/17/01 8,329
----------
Total Warrants (cost $2,544) $ 8,460
SHORT-TERM INVESTMENTS (4.6%) * (cost $112,033)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
$112,000 Interest in $ 883,204,000 joint repurchase agreement dated August
30,1996 with Goldman, Sachs and Co. due September 3,1996 with
respect to U.S. Treasury obligations-maturity value
of $112,066 for an effective yield of 5.26% $ 112,033
- ----------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,305,094) *** $2,461,911
- ----------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $2,428,728.
*** The aggregate identified cost on a tax basis is
$2,324,845, resulting in gross unrealized appreciation and
depreciation of $195,318 and $58,252, respectively,
or net unrealized appreciation of $137,066.
+ Non-income-producing security.
ADR or ADS after the name of a foreign holding
stands for American Depository Receipt or American Depository Shares,
respectively, representing ownership of foreign
securities on deposit with a domestic custodian bank.
144A after the name of a security represents those exempt
from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional
buyers.
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Forward Currency Contracts to Sell at August 31, 1996
Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen $452,705 $447,852 1/6/97 ($4,853)
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
August 31, 1996
<S> <C>
Assets
- -------------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $2,305,094)(Note 1) $2,461,911
- -------------------------------------------------------------------------------------------------------
Cash 184
- -------------------------------------------------------------------------------------------------------
Dividends and other receivables 2,401
- -------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 75
- -------------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 3,506
- -------------------------------------------------------------------------------------------------------
Total assets 2,468,077
Liabilities
- -------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 8,339
- -------------------------------------------------------------------------------------------------------
Payable for organizational expenses (Note 1) 3,662
- -------------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 4,853
- -------------------------------------------------------------------------------------------------------
Other accrued expenses 22,495
- -------------------------------------------------------------------------------------------------------
Total liabilities 39,349
- -------------------------------------------------------------------------------------------------------
Net assets $2,428,728
Represented by
- -------------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $2,174,408
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 62,896
- -------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments
and foreign currency transactions (Note 1) 42,417
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities
in foreign currencies 152,007
- -------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $2,428,728
Computation of net asset value and offering price
- -------------------------------------------------------------------------------------------------------
Net asset value and redemption price per share ($2,428,728 divided by
256,489 shares) $9.47
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25 of $9.47)* $10.05
- -------------------------------------------------------------------------------------------------------
* 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 intregal part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
For the period December 28, 1995 (commencement of operations) to August 31, 1996
<S> <C>
Investment Income
- ---------------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $4,308) $29,316
- ---------------------------------------------------------------------------------------------------------
Interest 6,020
- ---------------------------------------------------------------------------------------------------------
Total investment income 35,336
Expenses:
- ---------------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 18,596
- ---------------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,761
- ---------------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 388
- ---------------------------------------------------------------------------------------------------------
Reports to shareholders 3,687
- ---------------------------------------------------------------------------------------------------------
Auditing 16,305
- ---------------------------------------------------------------------------------------------------------
Legal 5,661
- ---------------------------------------------------------------------------------------------------------
Postage 54
- ---------------------------------------------------------------------------------------------------------
Registration fees 774
- ---------------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 156
- ---------------------------------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (19,557)
- ---------------------------------------------------------------------------------------------------------
Total expenses 28,825
- ---------------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (3,625)
- ---------------------------------------------------------------------------------------------------------
Net expenses 25,200
- ---------------------------------------------------------------------------------------------------------
Net investment income 10,136
- ---------------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 42,417
- ---------------------------------------------------------------------------------------------------------
Net realized gain on forward currency contracts and foreign currency translation (Note 1) 32,858
- ---------------------------------------------------------------------------------------------------------
Net unrealized depreciation of forward currency contracts and foreign currency translation
during the period (4,810)
- ---------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 156,817
- ---------------------------------------------------------------------------------------------------------
Net gain on investments 227,282
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $237,418
- ---------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the period
December 28, 1995
(commencement of
operations) to
August 31,
1996
<S> <C>
- --------------------------------------------------------------------------------------------------------
Increase in net assets
- --------------------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------------------
Net investment income $10,136
- --------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 75,275
- --------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities in foreign currencies 152,007
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 237,418
- --------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 191,310
- --------------------------------------------------------------------------------------------------------
Total increase in net assets 428,728
- --------------------------------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------------------------------
Beginning of period (Note 5) 2,000,000
- --------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of $62,896) $2,428,728
- --------------------------------------------------------------------------------------------------------
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
December 28, 1995
(commencement
of operations)
to August 31
--------------------------
1996*
--------------------------
<S> <C>
Net asset value, beginning of period $8.50
- ---------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------
Net investment income .04(c)
- ---------------------------------------------------------------------------------
Net realized and unrealized gain on investments .93
- ---------------------------------------------------------------------------------
Total from investment operations .97
- ---------------------------------------------------------------------------------
Net asset value, end of period $9.47
- ---------------------------------------------------------------------------------
Total investment return at net asset value (%) (a) 11.41(d)
- ---------------------------------------------------------------------------------
Net assets, end of period (in thousands) $2,429
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (b) 1.26(c)(d)
- ---------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) .44(c)(d)
- ---------------------------------------------------------------------------------
Portfolio turnover (%) 55.87(d)
- ---------------------------------------------------------------------------------
Average commission rate paid $.0181
- ---------------------------------------------------------------------------------
* Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
(a) Total investment return does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements and brokerage service
arrangements (Note 2).
(c) Reflects an expense limitation in effect during the period (Note 2). As a result of
such limitation, expenses for the fund reflect a reduction of $0.08 per share.
(d) Not annualized.
</TABLE>
Notes to financial statements
August 31, 1996
Note 1
Significant accounting policies
This fund is one of a series of Putnam Investment Funds (the "Trust")
which is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-ended management investment company. The
fund seeks capital appreciation by investing primarily in equity
securities of small-and mid-capitalization companies whose principal
place of business is located outside of the United States or whose
securities are principally traded on foreign markets.
The following is a summary of significant accounting policies 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, on its principal exchange 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 following procedures approved by the Trustees.
Foreign securities quoted in foreign currencies are translated into U.S.
dollars at the current exchange rate.
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 and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Putnam Management is responsible for determining that the value of these
underlying securities is at all times at least equal to the resale
price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed).
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S.dollars. The market value of foreign securities,
currency holdings, other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such fluctuations are included with the net realized
and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains or
losses on closed forward currency contracts, disposition of foreign
currencies and the difference between the amount of investment income
and foreign withholding taxes recorded on the fund's books and the U.S.
dollar equivalent amounts actually received or paid. Net unrealized
gains and losses on foreign currency transactions arise from changes in
the value of open forward currency contracts and assets and liabilities
other than investments at the period end, resulting from changes in the
exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term
investments). The U.S. dollar value of forward currency contracts is
determined using forward currency exchange rates supplied by a quotation
service. The market value of the contract will fluctuate with changes in
currency exchange rates. The contract is "marked to market" daily and
the change in market value is recorded as an unrealized gain or loss.
When the contract is closed, the fund records a realized gain or loss
equal to the difference between the value of the contract at the time it
was opened and the value at the time it was closed. The fund could be
exposed to risk if the value of the currency changes unfavorably, if the
counterparties to the contracts are unable to meet the terms of their
contracts or if the fund is unable to enter into a closing position.
G) Federal 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 for excise tax on income and capital
gains.
H) 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.
These differences include treatment of organization expenses, unrealized
gain on passive foreign investment companies and realized and unrealized
gains and losses on forward foreign currency contracts.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the period ended August
31, 1996, the fund reclassified $52,760 to increase undistributed net
investment income and $19,902 to decrease paid-in-capital, with a
decrease to accumulated net realized gains on investments of $32,858.
The calculation of net investment income per share in the financial
highlights table excludes these adjustments.
I) Expenses of the Trust Expenses directly charged or attributable to
any fund will be paid from the assets of that 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.
J) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities
and Exchange Commission and with various states and the initial public
offering of its shares were $3,662. These expenses are being amortized
on projected net asset levels over a five-year period. The fund will
reimburse Putnam Management for the payment of these expenses.
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. Such fee is based on the following annual rates: 1.20% of the
first $500 million of average net assets, 1.10% of the next $500
million, 1.05% of the next $500 million, 1.00% of the next $5 billion,
0.975% of the next $5 billion, 0.955% of the next $5 billion, 0.94% of
the next $5 billion, and 0.93% thereafter subject, under current law, to
reduction in any year by the amount of certain brokerage commissions and
fees (less expenses) received by affiliates of Putnam Management on the
fund's portfolio transactions.
Putnam Management has agreed to limit its compensation (and, to the
extent necessary, bear other expenses) through August 31, 1997, to the
extent that expenses of a fund (exclusive of brokerage, interest, taxes,
deferred organizational and extraordinary expense credits from Putnam
Fiduciary Trust Company ("PFTC"), a wholly-owned subsidiary of Putnam
Investments, Inc. and payments under the Trust's distribution plan)
would exceed an annual rate of 1.85% 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.
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 period December 28, 1995 (commencement of operations) to August
31, 1996, fund expenses were reduced by $3,625 under expense offset
arrangements with PFTC and brokerage service arrangements. Investor
servicing and custodian fees reported in the Statement of operations
exclude these credits. The fund could have invested a portion of the
assets utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $100 and an
additional fee for each Trustee's 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 certain Putnam funds until distribution in
accordance with the Plan.
The fund has adopted a distribution plan (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940. 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 at an annual rate of 0.35% of the average net
assets. The fund is not currently making any payments pursuant to the
Plan.
During the period December 28, 1995 (commencement of operations) to
August 31, 1996, Putnam Mutual Funds Corp., acting as underwriter,
received no monies from the sale of shares of the fund.
Note 3
Purchase and sales of securities
During the period December 28, 1995 (commencement of operations) to
August 31, 1996, purchases and sales of investment securities other than
short-term investments aggregated $3,364,508 and $1,213,796,
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 August 31, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
For the period
December 28, 1995
(commencement of
operations) to
August 31, 1996
- ----------------------------------------------------
Shares Amount
- ----------------------------------------------------
Shares sold 21,574 $194,865
- ----------------------------------------------------
Shares
repurchased (379) (3,555)
- ----------------------------------------------------
Net increase 21,195 $191,310
- ----------------------------------------------------
Note 5
Initial capitalization and offering of shares
The fund was established as a Massachusetts business trust on October
31, 1994. During the period October 31, 1994 to December 28, 1995 the
fund had no operations other than those related to organizational
matters, including the initial capital contribution of $2,000,000, less
$3,662 of initial offering expenses, and the issuance of 235,294 shares
to Putnam Mutual Funds Corp., a wholly- owned subsidiary of Putnam
Investments, Inc. on December 28, 1995.
At August 31, 1996, Putnam Management owned 235,294 shares of the fund
(91.74% of shares outstanding), valued at $2,228,234.
Federal tax information
(Unaudited)
For the period, dividends from foreign countries were $33,624 or $.131
per share. Taxes paid to foreign countries were $4,308 or $.017 per
share.
The Form 1099 you receive in January 1997 will show the tax status of
all distributions paid to your account in calendar 1996.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
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
Tim Ferguson
Vice President
Brett C. Browchuk
Vice President
Anthony W. Regan
Vice President
Justin Scott
Vice President and Fund Manager
Robert Swift
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 Genesis
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.
27665-2AZ 10/96
