Putnam
Research
Fund
ANNUAL REPORT
July 31, 1996
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
Dear Shareholder:
As Putnam Research Fund concludes its first 10 months of operation, we
are pleased to report a solid performance record and a total return that
outpaces the fund's primary benchmark, the Standard & Poor's 500
Index(registered trademark). Since your fund's inception on October 2,
1995, its shares rose 15.28% at net asset value as of July 31, 1996,
compared with the S&P index's gain of 11.34% for the same period. We're
also pleased to note that in the six months since its semiannual report,
your fund continued to deliver satisfactory performance despite
increasing volatility in the U.S. equity market. For the six months
ended July 31, 1996, your fund's total return was 3.94% compared with
the index's 1.72%.
* SENSIBLE, RESEARCH-ORIENTED STRATEGY PROVES EFFECTIVE
The fund's stock selection is based on detailed company analysis and
systematic valuation techniques of analysts in Putnam Management's
equity research group. In addition, the strategy of keeping the
portfolio "sector-representative" proved particularly advantageous
during the latter part of the fiscal year, when financial markets became
increasingly unsettled. The sector-representative approach is designed
to minimize risk by constructing a broadly diversified portfolio
characterized by investments in most sectors of the S&P 500 while
avoiding overweighting of any particular industry sector.
The fund's fiscal year concluded in a considerably different market
environment than that prevailing 10 months earlier. Your fund came out
of the gate last October with a strong first fiscal quarter while the
U.S. stock market was enjoying an incredible, sustained rally. Just
after the midpoint of the fiscal year, as the equity market continued to
surge, performance was hampered a bit by relative weakness in many
large-cap stocks -- those in which your fund primarily invests. Finally,
during the latter half of the fiscal year, the U.S. stock market reached
record highs, peaking in early June and then declining sharply in July.
Your fund held up well in this volatile environment as the management
team continued to seek undervalued stocks they believed had favorable
long-term prospects.
* TECHNOLOGY STOCKS AMONG THE STRONGER HOLDINGS
While calendar 1996 -- especially July -- was a difficult time for many
small technology companies, several of your fund's technology holdings
provided a boost to performance. One example is Intel Corp., which
manufactures and sells computer components worldwide. The company
controls a significant portion of the microprocessor market for personal
computers and has benefited recently from falling personal computer
prices. Computer Associates, another portfolio standout, produces
systems management software as well as home software products such as
"CA-Simply Tax" and "Kiplinger's Simple Money." The company has
experienced strong growth as a result of increased demand in the
software segment of the technology market. While these stocks, along
with others discussed in this report, were viewed favorably by Putnam
Management 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.
* BANKING AND ENERGY INVESTMENTS ALSO PROVE SUCCESSFUL
Your fund's largest holding at the end of the period was BankAmerica
Corp., which was highlighted in the semiannual report as one of the more
profitable investments in the portfolio. BankAmerica has a dominant U.S.
retail banking franchise in the western states, and its management has
taken steps to improve profitability. The stellar performance of
BankAmerica stock continued through the end of the fiscal year. Also
strong in the banking sector was NationsBank, which has expanded
aggressively, especially through bargain-priced acquisitions.
NationsBank has more than 2,000 locations in 34 states, primarily in the
South.
[GRAPHIC OMITTED: TOP TEN HOLDINGS]
BankAmerica Corp.
Commercial banking
J.C. Penney Co., Inc.
Department stores
Philip Morris Cos., Inc.
Tobacco, food products
Total Corp. ADR (France)
Oil and gas
Intel Corp.
Semiconductors
Mobil Corp.
Oil and gas
PepsiCo, Inc.
Soft drinks, snack foods
Computer Associates International, Inc.
Systems software
SBC Communications, Inc.
Telephone services
Burlington Northern Santa Fe Corp.
Railroads
These holdings represent 39.1% of the fund's net assets as of 7/31/96.
Portfolio holdings will vary over time.
Philip Morris, the fund's third-largest holding, contributed greatly to
performance as the company experienced strong growth from its
international tobacco operations and rising income from its North
American food business. Philip Morris's operations include Kraft Foods,
Inc., Miller Brewing Company, and Philip Morris Capital Corporation.
In keeping with the fund's investment strategy, the management team
seeks to invest in stocks they believe are undervalued. Thus, despite
recent events that have impacted Philip Morris Companies, including
tobacco legislation and the possibility of FDA regulation, your fund's
management team has maintained a position in its stock. In their
opinion, the company's long-term fundamentals remain strong and the
stock still offers both value and potential for appreciation.
The fund also profited from oil and gas stocks, specifically Enron
Corp., Mobil Corp., and Royal Dutch Petroleum. Enron is the largest
buyer and seller of natural gas in North America and also has power
plants and pipeline projects in emerging markets such as Guatemala and
the Philippines. Mobil, which was also highlighted in the semiannual
report, has taken aggressive steps to restructure and improve earnings
potential.
* AN OPTIMISTIC OUTLOOK FOR THE NEXT FISCAL YEAR
As this new fund enters its second fiscal year, its management team will
continue to focus on the sector representative strategy. Its managers
expect this approach -- along with the collective expertise of Putnam
Management's equity research analysts -- to continue to deliver solid
performance in the months ahead.
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 Research Fund is designed for investors seeking capital
appreciation primarily through common stock investments.
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
& Poor's Consumer
NAV POP 500(registered trademark) Price
Index Index
- -----------------------------------------------------------------------
Life of fund
since 10/2/95 15.28% 8.64% 11.34% 2.48%
- -----------------------------------------------------------------------
TOTAL RETURN FOR PERIOD ENDED 6/30/96
(most recent calendar quarter)
NAV POP
- -----------------------------------------------------------------------
Life of fund 18.36% 11.53%
- -----------------------------------------------------------------------
Performance data represent past results, and do not reflect future
performance. Performance data reflect an expense limitation currently in
effect. They do not take into account any adjustment for taxes payable
on reinvested distributions. 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 5.75% maximum sales
charge for class A shares. The short-term results of this relatively new
fund are not necessarily indicative of its long-term prospects.
[GRAPHIC WORM CHART OMITTED: GROWTH OF A $10,000 INVESTMENT]
Cumulative total return of a $10,000 investment since 10/2/95
Starting value (ending Total)
$ 9,425 Fund's class A shares at POP $10,864
$10,000 S&P 500 Index $11,134
$10,000 CPI $10,248
(plot points for mountain chart)
Date/year Fund at POP S&P 500 Index CPI
- --------- ----------- ------------- ------
10/02/95 10,000 10,000 10,000
10/31/95 9,568 9,950 10,033
11/30/95 9,945 10,359 10,026
12/31/95 10,206 10,600 10,020
1/31/96 10,451 10,946 10,078
2/29/96 10,607 11,022 10,111
3/31/96 10,641 11,168 10,163
4/30/96 10,830 11,318 10,202
5/31/96 11,053 11,577 10,222
6/30/96 11,153 11,668 10,228
7/31/96 10,864 11,134 10,248
Footnote reads:
Past performance is no assurance of future results.
PRICE AND DISTRIBUTION INFORMATION
Period ended 7/31/96
- -----------------------------------------------------------------------
Distributions (number) 1
- -----------------------------------------------------------------------
Income $0.045
- -----------------------------------------------------------------------
Total $0.045
- -----------------------------------------------------------------------
Share value: NAV POP
- -----------------------------------------------------------------------
10/2/95 $8.50 $ 9.02
(inception)
- -----------------------------------------------------------------------
7/31/96 9.75 10.34
- -----------------------------------------------------------------------
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
Standard & Poor's 500 Index is an unmanaged list of common stocks that
is frequently used as a general measure of stock market performance. It
assumes reinvestment of all distributions and interest payments and does
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.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Report of independent accountants
To the Trustees and Shareholders of
Putnam Research 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 Research 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, 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
<S> <C> <C> <C>
COMMON STOCKS (99.0%) *
NUMBER OF SHARES VALUE
Aerospace (2.5%)
- ---------------------------------------------------------------------------------------------------------------
1,000 Boeing Co. $ 88,500
1,000 Textron, Inc. 80,000
----------
168,500
Alcoholic Beverages (2.2%)
- ---------------------------------------------------------------------------------------------------------------
1,900 Anheuser-Busch Cos., Inc. 142,025
Apparel (0.6%)
- ---------------------------------------------------------------------------------------------------------------
400 Nike, Inc. 41,150
Appliances (0.5%)
- ---------------------------------------------------------------------------------------------------------------
600 Whirlpool Corp. 29,550
Automotive (3.3%)
- ---------------------------------------------------------------------------------------------------------------
1,000 Echlin, Inc. 33,375
1,900 General Motors Corp. 92,625
700 Magna International, Inc. Class A (Canada) 31,150
700 TRW, Inc. 63,263
----------
220,413
Banks (8.3%)
- ---------------------------------------------------------------------------------------------------------------
3,900 BankAmerica Corp. 311,000
1,100 Citicorp 90,063
1,700 NationsBank Corp. 145,988
----------
547,051
Business Services (0.5%)
- ---------------------------------------------------------------------------------------------------------------
2,550 Officemax, Inc. + 33,788
Chemicals (3.9%)
- ---------------------------------------------------------------------------------------------------------------
1,500 Air Products & Chemicals, Inc. 80,063
700 Eastman Chemical Co. 36,575
3,300 Union Carbide Corp. 138,600
----------
255,238
Computer Services (0.5%)
- ---------------------------------------------------------------------------------------------------------------
600 Electronic Data Systems Corp. 31,725
Computer Software (4.7%)
- ---------------------------------------------------------------------------------------------------------------
4,800 Computer Associates Intl., Inc. 244,200
1,500 Informix Corp. + 32,719
800 Parametric Technology Corp. + 33,300
----------
310,219
Computers (1.6%)
- ---------------------------------------------------------------------------------------------------------------
1,000 IBM Corp. 107,875
Conglomerates (0.9%)
- ---------------------------------------------------------------------------------------------------------------
500 General Motors Corp. Class H 28,530
300 United Technologies Corp. 33,788
----------
62,318
Consumer Products (3.3%)
- ---------------------------------------------------------------------------------------------------------------
1,400 Kimberly-Clark Corp. 106,400
3,500 Lowe's Cos., Inc. 114,188
----------
220,588
Electric Utilities (3.1%)
- ---------------------------------------------------------------------------------------------------------------
2,900 Carolina Power & Light Co. 104,400
2,900 Public Service Co. of Colorado 102,588
----------
206,988
Electrical Equipment (2.1%)
- ---------------------------------------------------------------------------------------------------------------
3,200 Hewlett-Packard Co. 140,800
Electronics and Electrical Equipment (0.5%)
- ---------------------------------------------------------------------------------------------------------------
600 Honeywell, Inc. 31,800
Farm Equipment (0.5%)
- ---------------------------------------------------------------------------------------------------------------
900 Deere (John) & Co. 32,175
Finance (0.6%)
- ---------------------------------------------------------------------------------------------------------------
900 American Express Co. 39,375
Financial Services (3.1%)
- ---------------------------------------------------------------------------------------------------------------
3,000 Franklin Resources, Inc. 168,000
1,250 MBNA Corp. 34,844
----------
202,844
Food and Beverages (4.2%)
- ---------------------------------------------------------------------------------------------------------------
7,800 PepsiCo, Inc. 246,675
1,500 Whitman Corp. 33,563
----------
280,238
Gas Pipelines (2.0%)
- ---------------------------------------------------------------------------------------------------------------
3,300 Enron Corp. 129,938
Gas Utilities (0.6%)
- ---------------------------------------------------------------------------------------------------------------
700 Columbia Gas System, Inc. 37,538
Household Products (0.6%)
- ---------------------------------------------------------------------------------------------------------------
1,000 Corning, Inc. 36,875
Insurance (1.6%)
- ---------------------------------------------------------------------------------------------------------------
1,000 American General Corp. 34,750
1,400 AON Corp. 68,075
----------
102,825
Medical Equipment and Supplies (0.5%)
- ---------------------------------------------------------------------------------------------------------------
700 Medtronic, Inc. 33,163
Metals and Mining (1.3%)
- ---------------------------------------------------------------------------------------------------------------
3,100 Freeport-McMoRan Copper & Gold Co., Inc. Class A 86,025
Networking Equipment (0.7%)
- ---------------------------------------------------------------------------------------------------------------
800 Cabletron Systems, Inc. + 45,800
Oil and Gas (9.7%)
- ---------------------------------------------------------------------------------------------------------------
709 British Petroleum PLC ADR (United Kingdom) 77,901
1,000 Halliburton Co. 52,125
2,300 Mobil Corp. 253,863
7,208 Total Corp. ADR (France) 257,686
----------
641,575
Pharmaceuticals and Biotechnology (6.2%)
- ---------------------------------------------------------------------------------------------------------------
800 Astra AB ADR (Sweden) 33,800
1,400 Lilly (Eli) & Co. 78,400
3,200 Pharmacia & Upjohn, Inc. 132,000
3,100 Smithkline Beecham PLC ADR (United Kingdom) 166,625
----------
410,825
Photography (1.1%)
- ---------------------------------------------------------------------------------------------------------------
1,000 Eastman Kodak Co. 74,625
Publishing (2.2%)
- ---------------------------------------------------------------------------------------------------------------
1,300 Gannett Co., Inc. 85,313
900 Tribune Co. 63,000
----------
148,313
Railroads (3.5%)
- ---------------------------------------------------------------------------------------------------------------
2,900 Burlington Northern Santa Fe Corp. 228,738
Restaurants (1.3%)
- ---------------------------------------------------------------------------------------------------------------
1,900 McDonald's Corp. 88,113
Retail (4.9%)
- ---------------------------------------------------------------------------------------------------------------
700 Nine West Group, Inc. + 33,863
5,900 Penney (J.C.) Co., Inc. 293,525
----------
327,388
Semiconductors (4.3%)
- ---------------------------------------------------------------------------------------------------------------
3,400 Intel Corp. 255,425
700 Texas Instruments, Inc. 30,275
----------
285,700
Telecommunication Equipment (0.6%)
- ---------------------------------------------------------------------------------------------------------------
1,300 DSC Communications Corp. + 39,000
Telephone Services (2.4%)
- ---------------------------------------------------------------------------------------------------------------
2,600 GTE Corp. 107,250
2,100 MCI Communications Corp. 51,713
----------
158,963
Telephone Utilities (3.6%)
- ---------------------------------------------------------------------------------------------------------------
4,900 SBC Communications, Inc. 239,488
Tobacco (4.0%)
- ---------------------------------------------------------------------------------------------------------------
2,500 Philip Morris Cos., Inc. 261,563
Wireless Communications (1.0%)
- ---------------------------------------------------------------------------------------------------------------
2,500 Airtouch Communications, Inc. + 68,750
----------
Total Common Stocks (cost $6,249,341) $ 6,549,865
- ---------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (1.3%) *(cost $88,014)
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
$88,000 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 $88,014 for an effective
yield of 5.6%. $88,014
- ---------------------------------------------------------------------------------------------------------------
Total Investments (cost $6,337,355)*** $6,637,879
- ---------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $6,619,081.
+ Non-income-producing security.
*** The aggregate identified cost on a tax basis is
$6,355,237, resulting in gross unrealized appreciation and
depreciation of $451,608 and $168,966, respectively,
or net unrealized appreciation of $282,642.
ADR after the name of a foreign security stands for American Depository
Receipts, representing ownership of 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
July 31, 1996
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $6,337,355) (Note 1) $6,637,879
- -----------------------------------------------------------------------------------------------------------
Cash 309
- -----------------------------------------------------------------------------------------------------------
Dividends and interest receivable 11,911
- -----------------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 7,379
- -----------------------------------------------------------------------------------------------------------
Total assets 6,657,478
Liabilities
- -----------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,046
- -----------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 7,213
- -----------------------------------------------------------------------------------------------------------
Payable for organization expense (Note 1) 8,843
- -----------------------------------------------------------------------------------------------------------
Other accrued expenses 19,295
- -----------------------------------------------------------------------------------------------------------
Total liabilities 38,397
- -----------------------------------------------------------------------------------------------------------
Net assets $6,619,081
Represented by
- -----------------------------------------------------------------------------------------------------------
Paid-in-capital (Notes 1 and 4) $6,049,074
- -----------------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 29,103
- -----------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 240,380
- -----------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 300,524
- -----------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $6,619,081
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------------------
Net asset value and redemption price per share ($6,619,081 divided by 678,993 shares) $9.75
- -----------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25 of $9.75)* $10.34
- -----------------------------------------------------------------------------------------------------------
* 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
<S> <C>
Investment income:
- ------------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $1,064) $80,555
- ------------------------------------------------------------------------------------------------------
Interest 3,812
- ------------------------------------------------------------------------------------------------------
Total investment income $84,367
Expenses:
- ------------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 26,676
- ------------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 19,647
- ------------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 1,075
- ------------------------------------------------------------------------------------------------------
Administrative services (Note 2) 56
- ------------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 1,464
- ------------------------------------------------------------------------------------------------------
Reports to shareholders 4,757
- ------------------------------------------------------------------------------------------------------
Registration fees 2,105
- ------------------------------------------------------------------------------------------------------
Auditing 12,071
- ------------------------------------------------------------------------------------------------------
Legal 5,145
- ------------------------------------------------------------------------------------------------------
Postage 471
- ------------------------------------------------------------------------------------------------------
Fees waived and expenses reimbursed by Manager (Note 2) (30,948)
- ------------------------------------------------------------------------------------------------------
Total expenses 42,519
- ------------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (3,619)
- ------------------------------------------------------------------------------------------------------
Net expenses 38,900
- ------------------------------------------------------------------------------------------------------
Net investment income 45,467
- ------------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 240,380
- ------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments during the period 300,524
- ------------------------------------------------------------------------------------------------------
Net gain on investments 540,904
- ------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $586,371
- ------------------------------------------------------------------------------------------------------
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 $45,467
- --------------------------------------------------------------------------------------------------------
Net realized gain on investments 240,380
- --------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 300,524
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 586,371
- --------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------------------
From net investment income (17,804)
- --------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 4,050,514
- --------------------------------------------------------------------------------------------------------
Total increase in net assets 4,619,081
- --------------------------------------------------------------------------------------------------------
Net assets
- --------------------------------------------------------------------------------------------------------
Beginning of period 2,000,000
- --------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of
$29,103) $6,619,081
- --------------------------------------------------------------------------------------------------------
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 .09(a)(d)
- ---------------------------------------------------------------------------------
Net realized and unrealized gain on investments 1.21
- ---------------------------------------------------------------------------------
Total from investment operations 1.30
- ---------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------
From net investment income (.05)
- ---------------------------------------------------------------------------------
Total distributions (.05)
- ---------------------------------------------------------------------------------
Net asset value, end of period $9.75
- ---------------------------------------------------------------------------------
Total investment return at net asset value (%)(b) 15.28(e)
- ---------------------------------------------------------------------------------
Net assets, end of period (in thousands) $6,619
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(c) .86(d)(e)
- ---------------------------------------------------------------------------------
Ratio of net investment income to average net assets(%) .92(d)(e)
- ---------------------------------------------------------------------------------
Portfolio turnover (%) 80.74(e)
- ---------------------------------------------------------------------------------
Average commission rate paid $ .0284
- ---------------------------------------------------------------------------------
(a) Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
(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) 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 $0.05 per share.
(e) 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
objective of the fund is to seek capital appreciation by investing
primarily in common stocks.
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 at the date of the financial statements. 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 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 losses on wash sale transactions and
organization expenses. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution under
income tax regulations. For the period October 2, 1995 (commencement of
operations) to July 31, 1996, the fund reclassified $1,440 to increase
undistributed net investment income and $1,440 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
based 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: 0.65% of the
first $500 million of average net assets, 0.55% of the next $500
million, 0.50% of the next $500 million, 0.45% of the next $5 billion,
0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of
the next $5 billion, and 0.38% 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 expenses (exclusive of brokerage,
interest, taxes, deferred organizational and extraordinary expenses,
payments under the funds 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.
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 October 2, 1995 (commencement of operations) to July 31,
1996, fund expenses were reduced by $3,619 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 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.
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 to Putnam Mutual Funds Corp. at an annual rate of up
to 0.35% of the fund's 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 the underwriter, received
no net commissions from the sale of shares of the fund.
Note 3
Purchases 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 short-
term investments aggregated $10,137,971 and $4,129,010, 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 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 548,532 $5,054,069
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,989 17,804
- ----------------------------------------------------
550,521 5,071,873
Shares
repurchased (106,822) (1,021,359)
- ----------------------------------------------------
Net increase 443,699 $4,050,514
- ----------------------------------------------------
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 534,919 shares of the
fund (78.8% of shares outstanding), valued at $5,215,460.
Federal tax information
(Unaudited)
The fund has designated 25.65% 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. Jacksom
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 R. Bogan
Vice President and Fund Manager
Patrick O'Donnell
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 Research
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
