Putnam
American
Renaissance
Fund
ANNUAL REPORT
July 31, 1996
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
Dear Shareholder:
It is a pleasure to commemorate the close of a fund's first fiscal
year by reporting performance more than double that of its Lipper
category average. While past performance is not indicative of future
results, with returns of 20.08% and 13.16% at net asset value and
public offering price, respectively, Putnam American Renaissance
Fund's results for its first, abbreviated fiscal year* compare
favorably indeed with the 5.99% average return for the 641 growth
funds tracked by Lipper Analytical Services for the 10 months ended
July 31, 1996.
* LARGE-CAP FOCUS PROVIDES RESILIENCE AS MARKET SLUMPS
Putnam Management's combination of proprietary screening,
traditional research, and broad-based forecasting has the potential
to reward investors in different types of market environments, but
its emphasis on the stocks of well-established large-capitalization
growth companies proved especially beneficial during this summer's
market turbulence. Holdings in blue-chip giants like Nike, Boeing,
United Technologies, and Citicorp, all strong performers in the
smoother-sailing market of the fund's first semiannual period,
continued to perform well in July, even as smaller-capitalization
stocks, which had risen to speculative heights in the vanguard of
the rally, fought to keep afloat.
Putnam's Core Growth Equity Team uses a clearly defined
litmus test in its evaluation of a company's renaissance potential.
*The fund's fiscal 1996 covers the period from commencement of
operations on 10/2/95 through 7/31/96. Because of this abbreviated
period, the fund has not yet been ranked by Lipper Analytical
Services. Once ranked, however, it is Putnam Management's
expectation that the fund will be included in the Growth investment
category.
A candidate for the portfolio must stand poised to benefit from
significant long-term economic, business, and consumer trends. Each
company is also evaluated for four key characteristics.
* Cash plowback, which is a good measure of a company's
ability to finance its own growth
* Dividend yield, incorporating both the current yield
and expectations of its sustainability and growth potential
* Price-to-sales ratio, which the group considers the best
indicator of whether a company's stock price accurately reflects
its value
* The existence of a fundamental catalyst that has contributed to
positive earnings surprises
In-depth reviews of a company's management strength, product lines,
competitive position, and balance sheets also play their traditional
roles in the fund's investment decisions. However, for fund managers
Carol McMullen (lead) and Jeff Lindsey, careful consideration of all
these factors is interwoven with forecasting macroeconomic trends to
help identify those companies most likely to profit from the
changing economic landscape. It is this unique combination that has
created landmark performance in fiscal 1996.
* U.S. MANUFACTURING EXPERIENCES ITS OWN RENAISSANCE
Several portfolio holdings in the manufacturing sector can provide
valuable insights on how the different aspects of the fund's
strategy fit together. These companies, which may have had their
fair share of bumps and bruises in the past, are now moving back
into leading roles in both global and domestic markets. Investing in
companies whose businesses are experiencing positive changes and
that are developing new ways to enhance productivity, product
quality, and marketability falls right into place with the fund's
theme of rebirth and renewal. Boeing is one such blue-chip company
that has recently shown renewed strength. As the world's largest
manufacturer of commercial airplanes, Boeing went through a down
cycle in the industry not too long ago. Restructuring and additional
technological advancements in engineering and design have enhanced
its product safety and fuel efficiency. These, in turn, have been
reflected in increased profits and a higher stock price.
CSX, a railroad company created from the merger of the old Chessie
System and Seaboard Coast Line Industries, is another key holding.
The implementation of improved logistics systems, along with
expansion in U.S. coal and grain markets, has enabled CSX to
experience a similar resurgence in its profit-making capabilities.
The company's expanded efficiency is prompting more and more
manufacturers to choose CSX trains over trucks for certain long-haul
routes. Possible mergers and joint ventures with other railroads
could lie ahead.
The ability of Boeing and CSX to learn from past mistakes and to re-
engineer and expand their businesses has made them two of the fund's
top-performing companies. 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
vary in the future.
* BOOMERS BUOY RETAIL INDUSTRY INVESTMENTS
Your fund's portfolio selections are also influenced by demographic
trends and the business shifts that grow out of them. For example,
companies such as Marriott, ITT Corp. (for its Sheraton hotels),
Home Depot, and Nike -- all fund holdings -- are experiencing an
increase in revenues as the baby-boom generation spends more and
more of its disposable income on travel, leisure, and luxury items.
Through its investments in these companies, your fund may benefit
from this trend as well.
Nike's athletic shoe and apparel businesses are prospering as a
result of boomer spending habits. The company's increased overall
sales in athletic apparel for children of boomers, as well as for
their parents, now equal $14 for every man, woman, and child in the
United States. Nike's global status further strengthens its profit
potential, especially in the wake of the 1996 Summer Olympic Games
and the enhanced American image in sports around the world.
Marriott and ITT/Sheraton also benefit from boomer spending. The
forty-something generation travels extensively for both business and
pleasure, contributing to increased demand in the hotel and lodging
industry; however, there has not been a significant amount of new
construction in this industry since the mid 1980s. Given Marriott's
and ITT/Sheraton's development of prime real estate in a wide
variety of locations, both corporations have garnered a lion's share
of profits in the industry.
TOP 10 HOLDINGS
Merck & Co., Inc.
Pharmaceuticals and biotechnology
PepsiCo, Inc.
Foods and beverages
Boeing Co.
Aerospace
Johnson & Johnson
Medical supplies and devices
Gillette Co.
Consumer products
Pfizer, Inc.
Pharmaceuticals and biotechnology
Microsoft Corp.
Computer software
Anheuser-Busch Cos., Inc.
Alcoholic beverages
Sears, Roebuck & Co.
Retail
Cisco Systems, Inc.
Networking equipment
These holdings represent 35.0% of the fund's net assets as of
7/31/96. Portfolio holdings will vary over time.
* HEAVY HEALTH-CARE WEIGHTING CONTINUES TO BOOST PERFORMANCE
Certain types of health-care stocks -- particularly health
maintenance organizations -- have come under pressure in recent
months. However, as none of these stocks have met your fund's
criteria for inclusion in the portfolio, their declines have not
affected its performance. The fund's management team selects those
health-care companies whose restructured businesses and ties to home
health-care trends and/or therapeutic advances appear to present a
potential competitive advantage, and the team has had plenty of
strong candidates from which to choose.
Two key health-care holdings also exemplify another of the fund's
broad themes -- a focus on U.S. companies that are expanding their
businesses into global markets. Both Johnson & Johnson and Becton
Dickinson are increasing their market shares in production and
distribution of consumer-oriented medical products; Becton Dickinson
recently simplified its product line and has benefited from the
increased emphasis on home health care.
* FUND STRATEGY EXPECTED TO STAY STEADY INTO 1997
While there is always the potential for any stock to underperform
the market for a time, Putnam American Renaissance Fund's strategy
is designed to target large-capitalization companies whose
leadership, high-quality products, and dominant market share should
enable them to provide rewarding results under a variety of market
conditions. Should the pace of the U.S. economy begin to slow in the
future, your fund's management team believes the increasingly global
nature of these companies' businesses should continue to support
fund performance.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
September 18, 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 7/31/96, there is no guarantee
the fund will continue to hold these securities in the future.
Performance summary
Performance should always be considered in light of a fund's
investment strategy. Putnam American Renaissance Fund is designed
for investors seeking capital appreciation by investing primarily in
stocks of well-established, large-capitalization companies that
Putnam believes will benefit from major long-term economic trends,
business conditions and/or consumer behavior.
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 7/31/96
Standard Standard
& Poor's & Poor's/Barra
NAV POP 500 Index Growth Index
- ------------------------------------------------------------------
Life of fund
since 10/2/95 20.08% 13.16% 11.34% 12.48%
- ------------------------------------------------------------------
TOTAL RETURN FOR PERIOD ENDED 6/30/96
(most recent calendar quarter)
NAV POP
- -------------------------------------------------------------------
Life of fund 25.76% 18.51%
- -------------------------------------------------------------------
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. Performance data reflect an
expense limitation currently in effect. Without the expense
limitation, total returns would have been lower. 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 a 5.75% maximum sales charge. The short-term results of a
relatively new fund, such as this one, are not necessarily
indicative of its long-term prospects.
[GRAPHIC OMITTED: GROWTH OF A $10,000 INVESTMENT]
Cumulative total return of a $10,000 investment since 10/2/95
Starting value (Insert ending Total)
$ 9,425 Fund's shares at POP $11,316
$10,000 S&P 500 Index $11,134
$10,000 S&P 500/Barra Growth $11,248
(plot points for 10-year total return mountain chart)
Fund's Shares
Date/year at POP S&P 500 Index S&P 500/Barra Growth
- --------- ----------- ------------- --------------------
10/02/95 9,425 10,000 10,000
10/31/95 9,712 9,950 10,080
11/30/95 9,989 10,359 10,443
12/31/95 10,201 10,600 10,561
1/31/96 10,536 10,946 10,964
2/29/96 10,915 11,022 11,064
3/31/96 11,171 11,168 11,018
4/30/96 11,338 11,318 11,232
5/31/96 11,840 11,577 11,645
6/30/96 11,851 11,668 11,791
7/31/96 11,316 11,134 11,248
Past performance is no assurance of future results.
PRICE AND DISTRIBUTION INFORMATION
10/2/95 (commencement of
operations) through 7/31/96
- -------------------------------------------------------------------
Distributions (number) 1
- -------------------------------------------------------------------
Income $0.036
- -------------------------------------------------------------------
Capital gains
- -------------------------------------------------------------------
Short-term 0.014
- -------------------------------------------------------------------
Total $0.050
- -------------------------------------------------------------------
Share value: NAV POP
- -------------------------------------------------------------------
10/2/95 $ 8.50 $ 9.02
(inception)
- -------------------------------------------------------------------
7/31/96 10.15 10.77
- -------------------------------------------------------------------
TERMS AND DEFINITIONS
Net asset value (NAV) is the value of all your fund's assets, minus
any liabilities, divided by the number of outstanding shares, not
including any initial sales charge.
Public offering price (POP) is the price of a mutual fund share plus
the maximum sales charge levied at the time of purchase. POP
performance figures shown here assume the maximum 5.75% sales
charge.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index is an unmanaged list of common stocks
that is frequently used as a general measure of stock market
performance.*
Standard & Poor's/Barra Growth Index is a capitalization-weighted
index of all common stocks within the S&P 500 with high price-
earnings ratios.*
*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
To the Trustees and Shareholders of
Putnam American Renaissance Fund
In our opinion, the accompanying statement of assets and
liabilities, including the portfolio of investments owned, and the
related statements of operations and of changes in net assets and
the financial highlights present fairly, in all material respects,
the financial position of Putnam American Renaissance Fund (the
"fund") at July 31, 1996, and the results of its operations, the
changes in its net assets and the financial highlights for the
period October 2, 1995 (commencement of operations) to July 31,
1996, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on
these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audit, which included confirmation of investments owned at
July 31, 1996 by correspondence with the custodian and brokers and
the application of alternative auditing procedures where
confirmations from brokers were not received, provides a reasonable
basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
September 13, 1996
<TABLE>
<CAPTION>
Portfolio of investments owned
July 31, 1996
COMMON STOCKS (98.7%) *
NUMBER OF SHARES VALUE
<S> <C> <C>
Aerospace (4.0%)
- --------------------------------------------------------------------------------------------------------------------
1,200 Boeing Co. $ 106,200
Alcoholic Beverages (3.1%)
- --------------------------------------------------------------------------------------------------------------------
1,100 Anheuser-Busch Cos., Inc. 82,225
Apparel (2.0%)
- --------------------------------------------------------------------------------------------------------------------
500 Nike, Inc. 51,438
Banks (4.3%)
- --------------------------------------------------------------------------------------------------------------------
700 BankAmerica Corp. 55,825
700 Citicorp 57,313
----------
113,138
Chemicals (1.8%)
- --------------------------------------------------------------------------------------------------------------------
1,500 Monsanto Co. 46,875
Computer Services (4.4%)
- --------------------------------------------------------------------------------------------------------------------
800 Computer Sciences Corp. + 54,400
800 First Data Corp. 62,100
----------
116,500
Computer Software (7.0%)
- --------------------------------------------------------------------------------------------------------------------
700 Microsoft Corp. + 82,513
1,400 Parametric Technology Corp. + 58,275
800 Sun Microsystems Inc.+ 43,700
----------
184,488
Conglomerates (2.1%)
- --------------------------------------------------------------------------------------------------------------------
500 United Technologies Corp. 56,313
Consumer Products (3.6%)
- --------------------------------------------------------------------------------------------------------------------
1,500 Gillette Co. 95,438
Electronics and Electrical Equipment (1.9%)
- --------------------------------------------------------------------------------------------------------------------
600 General Electric Co. 49,425
Entertainment (2.1%)
- --------------------------------------------------------------------------------------------------------------------
1,000 ITT Corp. + 56,750
Food and Beverages (6.1%)
- --------------------------------------------------------------------------------------------------------------------
3,400 PepsiCo, Inc. 107,525
1,700 Sara Lee Corp. 54,400
----------
161,925
Gas Pipelines (1.9%)
- --------------------------------------------------------------------------------------------------------------------
1,300 Enron Corp. 51,188
Insurance (2.1%)
- --------------------------------------------------------------------------------------------------------------------
1,300 Travelers Group Inc. 54,925
Lodging (1.9%)
- --------------------------------------------------------------------------------------------------------------------
1,000 Marriott International, Inc. 51,375
Medical Supplies and Devices (6.0%)
- --------------------------------------------------------------------------------------------------------------------
700 Becton Dickinson & Co. 52,238
2,200 Johnson & Johnson 105,050
----------
157,288
Networking Equipment (2.9%)
- --------------------------------------------------------------------------------------------------------------------
1,500 Cisco Systems, Inc. + 77,625
Oil and Gas (2.4%)
- --------------------------------------------------------------------------------------------------------------------
800 Schlumberger Ltd. 64,000
Pharmaceuticals and Biotechnology (12.3%)
- --------------------------------------------------------------------------------------------------------------------
1,600 Abbott Laboratories 70,400
1,100 Lilly (Eli) & Co. 61,600
1,700 Merck & Co., Inc. 109,220
1,200 Pfizer, Inc. 83,850
----------
325,070
Photography (2.8%)
- --------------------------------------------------------------------------------------------------------------------
1,000 Eastman Kodak Co. 74,625
Publishing (2.0%)
- --------------------------------------------------------------------------------------------------------------------
800 Gannett Co., Inc. 52,500
Railroads (2.0%)
- --------------------------------------------------------------------------------------------------------------------
1,100 CSX Corp. 53,075
Retail (7.5%)
- --------------------------------------------------------------------------------------------------------------------
1,100 Home Depot, Inc. (The) 55,550
1,800 Safeway, Inc. + 64,800
1,900 Sears, Roebuck & Co. 77,900
----------
198,250
Semiconductors (2.3%)
- --------------------------------------------------------------------------------------------------------------------
800 Intel Corp. 60,100
Telecommunication Equipment (1.8%)
- --------------------------------------------------------------------------------------------------------------------
800 Tellabs, Inc. + 47,800
Telephone Services (4.4%)
- --------------------------------------------------------------------------------------------------------------------
2,400 MCI Communications Corp. 59,100
1,600 Sprint Corp. 58,600
----------
117,700
Telephone Utilities (2.0%)
- --------------------------------------------------------------------------------------------------------------------
1,100 SBC Communications, Inc. 53,763
Tobacco (2.0%)
- --------------------------------------------------------------------------------------------------------------------
500 Philip Morris Cos., Inc. 52,313
----------
Total Common Stocks (cost $2,449,620) $ 2,612,312
- --------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (3.1%) *(cost $83,013)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
$83,000 Interest in $329,779,000 joint repurchase agreement dated July 31, 1996 with
Morgan Stanley & Co. Inc., due August 1, 1996 with respect to various U.S.
Treasury obligations -- maturity value of $83,013 for an effective yield of 5.6% $ 83,013
- --------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,532,633)*** $ 2,695,325
- --------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $2,646,542.
*** The aggregate identified cost on a tax basis is $2,532,633, resulting in gross unrealized
appreciation and depreciation of $211,163 and $48,471, respectively, or net unrealized appreciation
of $162,692.
+ Non-income-producing security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
<S> <C>
July 31, 1996
Assets
- ----------------------------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $2,532,633) (Note 1) $2,695,325
- ----------------------------------------------------------------------------------------------------------------------
Cash 317
- ----------------------------------------------------------------------------------------------------------------------
Dividends receivable 990
- ----------------------------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 7,379
- ----------------------------------------------------------------------------------------------------------------------
Total assets 2,704,011
- ----------------------------------------------------------------------------------------------------------------------
Liabilities
- ----------------------------------------------------------------------------------------------------------------------
Payable for securities purchased 19,888
- ----------------------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 8,474
- ----------------------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 2,567
- ----------------------------------------------------------------------------------------------------------------------
Payable for organizational expenses (Note 1) 8,843
- ----------------------------------------------------------------------------------------------------------------------
Other accrued expenses 17,697
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 57,469
- ----------------------------------------------------------------------------------------------------------------------
Net assets $2,646,542
Represented by
- ----------------------------------------------------------------------------------------------------------------------
Paid-in-capital (Notes 1 and 4) $2,239,450
- ----------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions (Note 1) 244,400
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 162,692
- ----------------------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $2,646,542
Computation of net asset value and offering price
- ----------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price per share ($2,646,542 divided by 260,867 shares) $10.15
- ----------------------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25 of $10.15)* $10.77
- ----------------------------------------------------------------------------------------------------------------------
*On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales the offering price is reduced.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
For the period October 2, 1995
(commencement of operations) to July 31, 1996
Investment Income:
<S> <C>
Dividends $22,980
- ---------------------------------------------------------------------------------------------------------------------
Interest 3,185
- ---------------------------------------------------------------------------------------------------------------------
Total investment income 26,165
Expenses:
- ---------------------------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 14,050
- ---------------------------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 11,038
- ---------------------------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 1,074
- ---------------------------------------------------------------------------------------------------------------------
Administrative services (Note 2) 43
- ---------------------------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 1,464
- ---------------------------------------------------------------------------------------------------------------------
Reports to shareholders 4,676
- ---------------------------------------------------------------------------------------------------------------------
Registration fees 791
- ---------------------------------------------------------------------------------------------------------------------
Auditing 12,067
- ---------------------------------------------------------------------------------------------------------------------
Legal 5,101
- ---------------------------------------------------------------------------------------------------------------------
Postage 254
- ---------------------------------------------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2 ) (29,062)
- ---------------------------------------------------------------------------------------------------------------------
Total expenses 21,496
- ---------------------------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (2,611)
- ---------------------------------------------------------------------------------------------------------------------
Net expenses 18,885
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 7,280
- ---------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 247,617
- ---------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 162,692
- ---------------------------------------------------------------------------------------------------------------------
Net gain on investments 410,309
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $417,589
- ---------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the period
October 2, 1995
(commencement of
operations) to
July 31, 1996
- --------------------------------------------------------------------------------------------------------
<S> <C>
Increase in net assets
- --------------------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------------------
Net investment income $7,280
- --------------------------------------------------------------------------------------------------------
Net realized gain on investments 247,617
- --------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 162,692
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 417,589
- --------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------------------
From net investment income (8,637)
- --------------------------------------------------------------------------------------------------------
From net realized gain on investments (3,217)
- --------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 240,807
- --------------------------------------------------------------------------------------------------------
Total increase in net assets 646,542
- --------------------------------------------------------------------------------------------------------
Net assets
- --------------------------------------------------------------------------------------------------------
Beginning of period (Note 5) 2,000,000
- --------------------------------------------------------------------------------------------------------
End of period $2,646,542
- --------------------------------------------------------------------------------------------------------
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
October 2, 1995
(commencement
of operations)
to July 31,
1996
- ---------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $8.50
- ---------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------
Net investment income .03 (a)
- ---------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 1.67
- ---------------------------------------------------------------------------------------
Total from investment operations 1.70 (a)
- ---------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------
From net investment income (.04)
- ---------------------------------------------------------------------------------------
From net realized gain on investments (.01)
- ---------------------------------------------------------------------------------------
Total distributions (.05)
- ---------------------------------------------------------------------------------------
Net asset value, end of period $10.15
- ---------------------------------------------------------------------------------------
Total investment return at net asset value (%)(b) 20.08 (d)
- ---------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $2,647
- ----------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(c) .89 (a)(d)
- ---------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) .30 (a)(d)
- ---------------------------------------------------------------------------------------
Portfolio turnover (%) 151.15 (d)
- ---------------------------------------------------------------------------------------
Average commission rate paid .0414
- ---------------------------------------------------------------------------------------
(a) Reflects an expense limitation in effect during the period (See Note 2).
As a result of such limitation, expenses for the fund reflect a reduction
of approximately $0.11 per share.
(b) Total investment return assumes dividend reinvestment
and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (See Note 2).
(d) Not annualized.
</TABLE>
Notes to financial statements
July 31, 1996
Note 1
Significant accounting policies
The 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-end management investment company.
The fund seeks capital appreciation by investing primarily in stocks
of well-established, large-capitalization companies that Putnam
Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.
believes will benefit from major long-term economic trends, business
conditions, and/or consumer behavior.
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 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
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
Management and certain other accounts. These balances may be
invested in one or more repurchase agreements and/or short-term
money market instruments.
C) Repurchase agreements The fund, or any joint trading account,
through its custodian, receives delivery of the underlying
securities, the market value of which at the time of purchase is
required to be in an amount at least equal to the resale price,
including accrued interest. 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.
E) 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.
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. These differences include treatment of organization
expenses.
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
July 31, 1996, the fund reclassified $1,357 to decrease
distributions in excess of net investment income and $1,357 to
decrease paid-in-capital. The calculation of net investment income
per share in the financial highlights table excludes these
adjustments.
G) Expenses of the Trust Expenses directly charged or attributable
to 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.
H) Unamortized organization expenses Expenses incurred by the fund
in connection with its organization, its registration with the
Securities and Exchange Commission and with various states and the
initial public offering of its shares were $8,843. 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: 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 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.
Through December 31, 1996, Putnam Management has agreed to limit its
compensation to the extent that the expenses of the fund (exclusive
of brokerage, interest, taxes, deferred organization and
extraordinary expense, and payments under the fund's distribution
plan) 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.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the period October 2, 1995 (commencement of operations) to July
31, 1996, fund expenses were reduced by $2,611 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 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 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. 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.
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 October 2, 1995 (commencement of operations) to
July 31, 1996, Putnam Mutual Funds Corp., acting as underwriter
received no monies from net commissions from the sale of shares of
the fund.
Note 3
Purchase and sales of securities
During the period October 2, 1995 (commencement of operations) to
July 31, 1996, purchases and sales of investment securities other
than U.S. government obligations and short-term investments
aggregated $3,803,300 and $1,697,649, respectively. Purchases and
sales of U.S. government obligations aggregated $1,984,044 and
$1,887,692, respectively. 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
For the period October 2, 1995 (commencement of operations) to July
31, 1996, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
For the period
October 2, 1995
(commencement of
operations) to
July 31, 1996
- ----------------------------------------------------
Shares Amount
- ----------------------------------------------------
Shares sold 26,969 $254,618
- ----------------------------------------------------
Shares
repurchased (1,396) (13,811)
- ----------------------------------------------------
Net increase 25,573 $240,807
- ----------------------------------------------------
Note 5
Initial capitalization and offering of shares
The Trust was established as a Massachusetts business trust on
October 31, 1994. During the period October 31, 1994 to October 2,
1995 the fund had no operations other than those related to
organizational matters, including the initial capital contribution
of $2,000,000, and $8,843 of initial organization expenses, and the
issuance of 235,294 shares to Putnam Investments, Inc.
At July 31, 1996, Putnam Investments, Inc. owned 236,617 shares of
the fund (90.70% of shares outstanding), valued at $2,401,663.
Federal tax information
(Unaudited)
The fund has designated 8.84% of the distributions from net
investment income as qualifying for the dividends received deduction
for corporations.
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
Price Waterhouse LLP
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
Peter Carman
Vice President
Brett Browchuck
Vice President
John J. Morgan, Jr.
Vice President
Carol C. McMullen
Vice President and Fund Manager
Jeffrey Lindsey
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
American Renaissance 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.
27077-2AQ 9/96
