Putnam
New Value
Fund
ANNUAL REPORT
August 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "In a market where large-caps have dominated, this fund has held
its own."
-- Morningstar Mutual Funds, May 23, 1997
* "My guess is that those investors will be well rewarded in the long
run who have the guts to stick with value investing at a time when
pros and amateurs alike are following the herd into so-called
growth stocks."
-- Mark Hulbert, editor of Hulbert Financial
Digest, writing in Forbes, July 7, 1997
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
15 Portfolio holdings
18 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
David King, manager of Putnam New Value Fund since its inception in January
1995, talks a lot about ladders, ramps, and anchors when discussing your
fund's portfolio. Ladder stocks, in Dave's lexicon, are those that are
currently out of favor but offer what are, in his view, above-average
prospects for growth over the long term. Ramp stocks, on the other hand, are
those of established companies that for one reason or another have experienced
what he sees as a temporary decline in price. Anchor stocks, the third leg of
your fund's strategy, are those of companies with records of high sustainable
dividends that can provide a dependable stream of current income for the fund.
All three categories suggest a bottom-up approach to selecting stocks -- on
their individual merits -- which is exactly what Dave wants you to remember
even when his search leads to several companies in the same industry.
Cheapness and change remain the two critical tests he applies to every
prospective fund holding. In the following report, Dave discusses how this
quest worked in fiscal 1997 and what he sees in store for fiscal 1998.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
October 15, 1997
Report from the Fund Manager
David L. King
In an exuberant market environment, maintaining discipline can be a
frustrating task. That was the situation for Putnam New Value Fund in the past
six months as we remained committed to finding overlooked values while a
relatively small group of steadily growing multinational companies set
numerous stock market records.
For the fiscal year that ended August 31, 1997, the fund's class A shares
delivered a 28.79% return at net asset value and a 21.34% return at public
offering price -- strong absolute returns but less impressive when viewed in
comparison with broader market results. For complete performance information,
please see pages 9 and 10 of this report.
Your fund's quest for cheapness and change, however, has its own important
short-term benefits. In March, leading blue chips slumped as a result of the
Federal Reserve Board's preemptive strike against inflation. The jolt showed
there was a fair amount of investor skepticism regarding the price stability
of these large, market-leading companies. A similar drop occurred in August as
currency turmoil in Southeast Asia raised questions about the steadiness of
earnings growth for multinational firms. In both of these episodes, your fund
weathered the storms with milder losses than the market averages.
*GAINS SPREAD TO DIFFERENT MARKET SECTORS
Although the large-company stocks that have done so well in the recent past
are still near their record high prices, the market's results in the latter
half of the summer suggest that they may be slowing down while other sectors
are moving ahead. Stocks of smaller companies are showing signs of renewed
strength and the performance of value stocks has lately eclipsed that of
growth stocks. That could mean good news for your fund not only because of its
value strategy but because our research process leads to stocks in a variety
of sectors and industries that seem, on the surface, to have little in common.
For example, one of your fund's holdings, Northrop Grumman, grabbed headlines
when it agreed to be purchased by Lockheed Martin -- another chapter in the
ongoing consolidations of defense and aerospace corporations. Although we do
not target companies because of takeover rumors, our assessment of the
underlying business value of a firm occasionally leads us to companies that
become takeover candidates. When the initial report of Northrop's purchase
sent the stock price soaring, we sold half of the shares, but we continue to
hold the other half because, pending completion of the deal, the stock still
trades at a discount to Lockheed's equity value. The shares could appreciate
further when the deal closes.
Your fund also enjoyed an unexpectedly strong performance from Banker's Trust.
We purchased this stock at the fund's inception in January 1995. At that time,
its price had declined in the wake of concerns regarding its involvement in
the market for derivative securities. Because of its generous dividend yield,
it appeared tailor-made for our new anchor holdings criteria. Since then, new
management has taken over but did not cut the company's dividend as many had
expected. Instead, the firm has revitalized itself by acquiring smaller,
highly regarded financial companies and broadening its banking business. It
has, in fact, performed more like a ladder stock, nearly doubling in value in
three years. While these holdings, 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.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance and Finance 14.7%
Oil and Gas 10.3%
Retail 6.8%
Consumer nondurables 6.5%
Paper and forest products 6.5%
Footnote reads:
*Based on net assets as of 8/31/97. Holdings will vary over time.
*PAPER, OIL, AND RAILROAD STOCKS OFFER VALUE AND GROWTH POTENTIAL
Although we use bottom-up analysis in selecting stocks, considering each for
its particular qualities, certain industry trends can be factors in our
decision-making. For that reason, we added new holdings in the oil and paper
industries during the past six months. We bought International Paper and Boise
Cascade because both companies have new managerial strategies in place. No
longer do these firms simply try to expand their productive capacity to meet
market demand. Now managers' compensation is tied to improving the companies'
economic value, meaning that they must control costs and try to improve their
pricing power. Should paper prices rise, these ramp stocks could see earnings
strengthen in the next few years. The same thinking has encouraged us to hold
on to the fund's position in OfficeMax. As a large retailer of office paper,
the company would also benefit from higher paper prices.
Three foreign oil companies offer a similar opportunity in terms of new
efficiency, if not higher commodity prices. ENI SPA of Italy, Elf Aquitaine of
France, and YPF of Argentina are going through restructurings similar to those
initiated by Exxon in the 1980s. We anticipate that these efforts should both
drive down costs and enhance revenue. Each of the companies whose shares we
purchased currently dominates its domestic market. ENI, for example, pumps
half of the fuel burned on Italian highways. Elf Aquitaine recently completed
its privatization and, free from the bureaucracy of French state management,
has boosted its targeted returns on capital. It can also boast of successful
drilling expeditions off the coast of Africa at a time when many oil producers
have been struggling to find new reserves. We rate these holdings as a
combination of ladder and ramp stocks. We believe they are cheap because the
market has underestimated their business value and because they have new
catalysts for growth.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
K mart Corp.
Retail
Computer Associates Intl., Inc.
Computer services and software
NCR Corp.
Computer services and software
IBM Corp.
Business equipment and services
General Motors Corp., Class H
Aerospace and defense
RJR Nabisco Holdings Corp.
Consumer nondurables
Boise Cascade Corp.
Paper and forest products
Union Planters Corp.
Insurance and finance
Bankers Trust New York Corp.
Insurance and finance
Beacon Properties Corp. (R)
Real estate
Footnote reads:
These holdings represent 23.3% of the fund's net assets as
of 8/31/97. Portfolio holdings will vary over time.
The last new theme of the period underscores our research into overlooked
stocks. We added two railroads, Burlington Northern and Norfolk Southern.
Railroads have been unattractive to investors for years. In 1980, about one
third of the nation's railroads were in bankruptcy. As the industry has
consolidated, the number of carriers has also shrunk to a mere handful, and
these companies appear to be in better control of their operations.
Furthermore, we were able to acquire our two new holdings while their ongoing
merger efforts had temporarily depressed their stock prices. These companies
now have the opportunity to cut their costs and possibly grow their revenues.
Because railroads today carry only 15% of freight traffic in the United
States, even a relatively small increase in that share could significantly
boost railroad revenues.
*RETURN TO MORE NORMAL ENVIRONMENT
The diversity of these portfolio holdings should make the fund's returns
competitive in more routine market conditions when a variety of different
stocks and sectors can do well at the same time. Conversely, when a relatively
small group of similar stocks performs in incredible fashion, as has been the
case in the recent past, your fund won't steal headlines. The most encouraging
feature of the fund in such extreme circumstances is its ability to cope well
with market volatility.
Your fund's strategy, after all, is not intended to take advantage of
short-term factors in the market but instead to find a variety of stocks with
value that others have not noticed. The portfolio's concentration in 40 to 50
stocks poised for change can generate short-term risk. We believe that over
the long term, this path can lead to competitive capital appreciation.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 8/31/97, there is no guarantee the fund will continue to hold
these securities in the future. This fund invests all or a portion of its
assets in small to midsize companies. Such investments increase the risk of
greater price fluctuations.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
New Value Fund is designed for investors seeking long-term capital
appreciation through investments in undervalued common stocks.
TOTAL RETURN FOR PERIODS ENDED 8/31/97
Class A Class B Class M
(inception date) (1/3/95) (2/26/96) (2/26/96)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 28.79% 21.34% 27.79% 22.79% 28.19% 23.69%
- ------------------------------------------------------------------------
Life of fund 91.92 80.86 88.08 85.08 89.42 82.80
Annual average 27.77 24.95 26.80 26.04 27.14 25.45
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/97
Standard & Standard &
Poor's Poor's Barra Consumer
500 Index Value Index Price Index
- ------------------------------------------------------------------------
1 year 40.62% 37.13% 2.23%
- ------------------------------------------------------------------------
Life of fund 107.82 100.76 7.41
Annual average 31.56 29.87 2.72
- ------------------------------------------------------------------------
Returns for class A and class M shares indicated in the POP column above
reflect the current maximum initial sales charges of 5.75% for class A
shares and 3.50% for class M shares. One-year and life-of-fund returns for
class B shares reflect the applicable contingent deferred sales charge
(CDSC), which is 5% in the first year, declines each year to 1% in the
sixth year, and is eliminated thereafter. Fund performance data do not
take into account any adjustment for taxes payable or reinvested
distributions. Returns shown for class B and class M shares for periods
prior to their inception are derived from the historical performance of
class A shares, adjusted to reflect both the initial sales charge or CDSC,
if any, currently applicable to each class and, in the case of class B and
class M shares, the higher operating costs applicable to such shares. All
returns assume reinvestment of distributions at NAV and represent past
performance; they do not guarantee future results. Investment return and
principal value will fluctuate so that an investor's shares when redeemed
may be worth more or less than their original cost.
[GRAPHIC OMITTED: GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 1/3/95
S&P 500
Date/year Fund at POP Index CPI
01/03/95 9425 10000 10000
2/28/95 9800 10659 10080
5/31/95 10698 11746 10167
08/31/95 11674 12448 10214
11/30/95 12361 13493 10261
2/28/96 13023 14353 10347
5/31/96 14067 15083 10467
08/31/96 14043 14778 10508
11/30/96 15681 17251 10595
2/28/97 16602 18106 10661
5/31/97 17158 19518 10695
08/31/97 18086 20782 10741
Footnote reads:
Past performance is no assurance of future results. For the same time period,
a $10,000 investment in the fund's class B shares would have been valued at
$18,808 ($18,508 at CDSC); a $10,000 investment in the fund's class M shares
would have been valued at $18,942 ($18,280 at public offering price). See
first page of performance section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 8/31/97
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 1 1 1
- ------------------------------------------------------------------------
Income $0.091 $0.058 $0.068
- ------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------
Long term 0.006 0.006 0.006
- ------------------------------------------------------------------------
Short term 0.137 0.137 0.137
- ------------------------------------------------------------------------
Total $0.234 $0.201 $0.211
- ------------------------------------------------------------------------
Share value NAV POP NAV NAV POP
- ------------------------------------------------------------------------
8/31/96 $11.57 $12.28 $11.52 $11.54 $11.96
- ------------------------------------------------------------------------
8/31/97 14.63 15.52 14.49 14.55 15.08
- ------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 9/30/97
(most recent calendar quarter)
Class A Class B Class M
(inception date) (1/3/95) (2/26/96) (2/26/96)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 30.99% 23.46% 29.97% 24.97% 30.25% 25.67%
- ------------------------------------------------------------------------
Life of fund 104.64 92.85 100.41 97.41 101.79 94.73
Annual average 29.87 27.09 28.88 28.17 29.20 27.54
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns and
principal value will fluctuate so that an investor's shares when sold may
be worth more or less than their original cost. See first page of
performance section for performance calculation method.
TERMS AND DEFINITIONS
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.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales and a higher 12b-1 fee than
class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 5.75% sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
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 Value Index* is a capitalization-weighted index of
all the stocks in the S&P 500 that have low price-to-book ratios.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities
in the fund do not match those in the indexes and performance of the
fund will differ. It is not possible to invest directly in an index.
WELCOME TO
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Now you can get up-to-date information about your funds, learn more
about investing and retirement planning, and access market news and an
economic outlook from Putnam experts -- with just a few clicks of the
mouse!
VISIT PUTNAM'S NEW SITE ON THE WORLD WIDE WEB TO FIND OUT:
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* Putnam's money management philosophy
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* how to tell if your retirement savings plan is on track
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You can also read Dr. Robert Goodman's economic commentary and Putnam's
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The site can be accessed through any of the major online services
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you can also access it via Netscape and an independent Internet service
provider.
New features will be added to the site on an ongoing basis. So, visit us
at http://www.putnaminv.com -- often!
Report of independent accountants
For the fiscal year ended August 31, 1997
To the Trustees and Shareholders of
Putnam New Value Fund
We have audited the accompanying statement of assets and liabilities of Putnam
New Value Fund, including the portfolio of investments owned, as of August 31,
1997, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of August 31, 1997, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Putnam New Value Fund as of August 31, 1997, the results of its operations for
the year then ended and the changes in its net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods indicated therein, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P
Boston, Massachusetts
October 10, 1997
Portfolio of investments owned
August 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (98.5%) *
NUMBER OF SHARES VALUE
Aerospace and Defense (5.3%)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
310,000 Boeing Co. $ 16,875,625
324,300 General Motors Corp. Class H 20,613,319
76,100 Northrop Grumman Corp. 8,908,456
--------------
46,397,400
Automotive (2.2%)
- ------------------------------------------------------------------------------------------------------------
415,000 Lear Corp. + 19,012,188
Basic Industrial Products (2.0%)
- ------------------------------------------------------------------------------------------------------------
667,600 New Holland N.V. (Netherlands) 17,941,750
Business Equipment and Services (4.4%)
- ------------------------------------------------------------------------------------------------------------
289,100 Hewlett-Packard Co. 17,725,444
207,700 IBM Corp. 20,951,738
--------------
38,677,182
Chemicals (2.1%)
- ------------------------------------------------------------------------------------------------------------
353,700 Hercules, Inc. 18,281,869
Computer Services and Software (4.7%)
- ------------------------------------------------------------------------------------------------------------
318,000 Computer Associates Intl., Inc. 21,266,250
592,700 NCR Corp. + 21,003,806
--------------
42,270,056
Conglomerates (2.2%)
- ------------------------------------------------------------------------------------------------------------
831,800 Ogden Corp. 19,287,363
Consumer Non Durables (6.5%)
- ------------------------------------------------------------------------------------------------------------
773,100 Dimon Inc. 18,554,400
590,000 RJR Nabisco Holdings Corp. 20,539,375
550,000 Tupperware Corp. 18,459,375
--------------
57,553,150
Electronics and Electrical Equipment (2.1%)
- ------------------------------------------------------------------------------------------------------------
697,840 Vishay Intertechnology, Inc. 18,623,605
Food and Beverages (5.8%)
- ------------------------------------------------------------------------------------------------------------
426,275 Dole Food Co. 16,651,367
375,000 The Quaker Oats Co. 17,625,000
707,000 Whitman Corp. 17,321,500
--------------
51,597,867
Insurance and Finance (14.7%)
- ------------------------------------------------------------------------------------------------------------
372,800 Ahmanson (H.F.) & Co. 18,919,600
187,300 Bankers Trust New York Corp. [UPSIDE DOWN DELTA] 19,432,375
380,000 First Union Corp. 18,263,750
317,800 Summit Bancorp 18,869,375
385,000 Union Planters Corp. 19,731,250
723,900 USF&G Corp. 15,880,556
314,500 Washington Mutual, Inc. 18,830,688
--------------
129,927,594
Metals and Mining (2.3%)
- ------------------------------------------------------------------------------------------------------------
659,744 Freeport-McMoRan Copper & Gold Co., Inc. Class B 18,472,832
80,700 Ispat International NV (Canada) + 2,163,769
--------------
20,636,601
Oil and Gas (10.3%)
- ------------------------------------------------------------------------------------------------------------
199,400 Amoco Corp. 18,855,763
327,500 Elf Aquitane ADR S.A. (France) 18,258,122
321,000 ENI SPA ADR (Italy) 17,815,500
715,700 Occidental Petroleum Corp. 16,774,219
580,000 YPF S.A. ADR (Argentina) 18,886,250
--------------
90,589,854
Paper and Forest Products (6.5%)
- ------------------------------------------------------------------------------------------------------------
512,300 Boise Cascade Corp. 20,267,869
350,000 International Paper Co. 18,462,500
1,018,800 Unisource Worldwide, Inc. 18,465,750
--------------
57,196,119
Pharmaceuticals (2.1%)
- ------------------------------------------------------------------------------------------------------------
552,150 Pharmacia & Upjohn, Inc. 18,807,609
Photography (1.9%)
- ------------------------------------------------------------------------------------------------------------
318,100 Polaroid Corp. 16,799,656
Publishing (2.0%)
- ------------------------------------------------------------------------------------------------------------
343,200 Times Mirror Co. Class A 17,395,950
Real Estate (4.3%)
- ------------------------------------------------------------------------------------------------------------
536,911 Beacon Properties Corp. (R) 19,328,796
379,050 Equity Residential Properties Trust (R) 18,454,997
--------------
37,783,793
Retail (6.8%)
- ------------------------------------------------------------------------------------------------------------
1,654,500 K mart Corp. + 22,956,188
521,544 Lowe's Cos., Inc. 18,025,865
1,278,900 OfficeMax, Inc. + 18,943,706
--------------
59,925,759
Transportation (6.1%)
- ------------------------------------------------------------------------------------------------------------
200,000 Burlington Northern Santa Fe Corp. 18,337,500
196,600 Delta Air Lines, Inc. 17,005,900
190,000 Norfolk Southern Corp. 18,620,000
--------------
53,963,400
Utilities (4.2%)
- ------------------------------------------------------------------------------------------------------------
405,000 Sprint Corp. 19,035,000
509,300 US West, Inc. 18,239,306
--------------
37,274,306
--------------
Total Common Stocks (cost $788,397,426) $ 869,943,071
SHORT-TERM INVESTMENTS (2.6%) * (cost $22,930,601)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$22,920,000 Interest in $453,719,000 joint repurchase agreement
dated August 29, 1997 with SBC Warburg due
September 2, 1997 with respect to various
U.S. Treasury obligations -- maturity value of
$22,934,134 for an effective yield of 5.55% $ 22,930,601
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $811,328,027) *** $ 892,873,672
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $882,790,026.
*** The aggregate identified cost on a tax basis is $811,358,723,
resulting in gross unrealized appreciation and depreciation
of $97,311,095 and $15,796,146, respectively, or net
unrealized appreciation of $81,514,949.
+ Non-income-producing security.
[UPSIDE DOWN DELTA] This entity provides subcustodian services to the fund.
(R) Real Estate Investment Trust.
ADR stands for American Depository Receipts representing
ownership of foreign securities on deposit with a domestic
custodian bank.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at August 31, 1997
(aggregate face value $26,045,172)
Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
French Franc $13,560,070 $13,128,120 Feb 98 $(431,950)
Italian Lira 13,367,994 12,917,052 Feb 98 (450,942)
- ----------------------------------------------------------------------------------------
$(882,892)
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
August 31, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $811,328,027) (Note 1) $892,873,672
- ---------------------------------------------------------------------------------------------------
Cash 415
- ---------------------------------------------------------------------------------------------------
Dividends, interest, and other receivables 1,295,647
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,935,778
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 4,716
- ---------------------------------------------------------------------------------------------------
Total assets 897,110,228
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 10,555,721
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 471,569
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,386,063
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 189,150
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 4,602
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,953
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 579,925
- ---------------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 6,425
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 882,892
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 241,902
- ---------------------------------------------------------------------------------------------------
Total liabilities 14,320,202
- ---------------------------------------------------------------------------------------------------
Net assets $882,790,026
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $761,828,046
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 4,408,621
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investment and foreign
currency transactions (Note 1) 35,890,606
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 80,662,753
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $882,790,026
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($429,245,691 divided by 29,337,885 shares) $14.63
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $14.63)* $15.52
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($406,783,178 divided by 28,069,951 shares)** $14.49
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($46,761,157 divided by 3,214,763 shares) $14.55
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $14.55)* $15.08
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the
offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred
sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended August 31, 1997
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $83,656) $ 13,200,500
- --------------------------------------------------------------------------------------------------
Interest 931,354
- --------------------------------------------------------------------------------------------------
Total investment income 14,131,854
Expenses:
Compensation of Manager (Note 2) 3,753,922
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,205,261
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 16,963
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 10,538
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 673,587
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,528,847
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 224,784
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 903
- --------------------------------------------------------------------------------------------------
Reports to shareholders 39,628
- --------------------------------------------------------------------------------------------------
Registration fees 182,122
- --------------------------------------------------------------------------------------------------
Auditing 15,852
- --------------------------------------------------------------------------------------------------
Legal 12,475
- --------------------------------------------------------------------------------------------------
Postage 91,189
- --------------------------------------------------------------------------------------------------
Other 58,330
- --------------------------------------------------------------------------------------------------
Fees waived by Manager (Note 2) (20,780)
- --------------------------------------------------------------------------------------------------
Total expenses 8,793,621
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (363,962)
- --------------------------------------------------------------------------------------------------
Net expenses 8,429,659
- --------------------------------------------------------------------------------------------------
Net investment income 5,702,195
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 39,750,466
- --------------------------------------------------------------------------------------------------
Net realized gain on forward currency transactions (Note 1) 2,181
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (882,892)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 78,980,121
- --------------------------------------------------------------------------------------------------
Net gain on investments 117,849,876
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $123,552,071
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended August 31
---------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 5,702,195 $ 1,055,624
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 39,752,647 566,617
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign currencies 78,097,229 2,257,919
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 123,552,071 3,880,160
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (1,337,077) (66,271)
- ----------------------------------------------------------------------------------------------------------------------
Class B (812,454) --
- ----------------------------------------------------------------------------------------------------------------------
Class M (117,030) --
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (2,101,574) (178,420)
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,006,697) --
- ----------------------------------------------------------------------------------------------------------------------
Class M (245,230) --
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 561,917,623 197,832,270
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 678,849,632 201,467,739
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 203,940,394 2,472,655
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $4,408,621 and $1,036,338, respectively) $882,790,026 $203,940,394
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Year ended January 3, 1995+
operating performance August 31 to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $11.57 $10.53 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .19 (c) .18 .15
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain
on investments 3.10 1.82 1.88
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.29 2.00 2.03
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.09) (.26) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.14) (.70) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.96) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.63 $11.57 $10.53
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(b) 28.79 20.29 23.88 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $429,246 $97,718 $2,473
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(a)(d) 1.22 1.24 .51 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(a) 1.40 2.45 1.67 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 65.38 33.57 51.07 *
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (e) $.0471 $.0322
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation during the period (Note 2). As a result of such limitation, expenses
of the fund reflect a reduction of approximately $0.14 per share for the period ended August 31, 1995.
Expenses for the period ended August 31, 1996, reflect a reduction of $0.01 per class A shares and
$0.02 per class B and M shares respectively. Expenses for the year ended 8/31/97 reflect a reduction
of less than a $0.01 per class A, B, and M shares, respectively.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
(d) The ratio of expenses to average net assets for the period ended August 31, 1996, and thereafter
includes amounts paid through expense offset and brokerage service arrangements. Prior period
ratios exclude these amounts (Note 2).
(e) Average commission rate paid on security trades is required for fiscal periods beginning
on or after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Year ended Feb. 26, 1996+
operating performance August 31 to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $11.52 $10.86
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .09 (c) .10 (c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain
on investments 3.08 .56
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.17 .66
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.06) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.14) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.20) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.49 $11.52
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(b) 27.79 6.08 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $406,783 $94,370
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(a)(d) 1.97 1.04 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(a) .65 .88 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 65.38 33.57
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (e) $.0471 $.0322
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation during the period (Note 2). As a result of such limitation, expenses
of the fund reflect a reduction of approximately $0.14 per share for the period ended August 31, 1995.
Expenses for the period ended August 31, 1996, reflect a reduction of $0.01 per class A shares and
$0.02 per class B and M shares respectively. Expenses for the year ended 8/31/97 reflect a reduction
of less than a $0.01 per class A, B, and M shares, respectively.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
(d) The ratio of expenses to average net assets for the period ended August 31, 1996, and thereafter
includes amounts paid through expense offset and brokerage service arrangements. Prior period
ratios exclude these amounts (Note 2).
(e) Average commission rate paid on security trades is required for fiscal periods beginning
on or after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Year ended Feb. 26,1996+
operating performance August 31 to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $11.54 $10.86
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .12 (c) .11 (c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain
on investments 3.10 .57
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.22 .68
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.07) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.14) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.21) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.55 $11.54
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(b) 28.19 6.26 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $46,761 $11,852
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(a)(d) 1.72 .91 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(a) .91 1.05 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 65.38 33.57
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (e) $.0471 $.0322
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation during the period (Note 2). As a result of such limitation, expenses
of the fund reflect a reduction of approximately $0.14 per share for the period ended August 31, 1995.
Expenses for the period ended August 31, 1996, reflect a reduction of $0.01 per class A shares and
$0.02 per class B and M shares respectively. Expenses for the year ended 8/31/97 reflect a reduction
of less than a $0.01 per class A, B, and M shares, respectively.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
(d) The ratio of expenses to average net assets for the period ended August 31, 1996, and thereafter
includes amounts paid through expense offset and brokerage service arrangements. Prior period
ratios exclude these amounts (Note 2).
(e) Average commission rate paid on security trades is required for fiscal periods beginning
on or after September 1, 1995.
</TABLE>
Notes to financial statements
August 31, 1997
Note 1
Significant accounting policies
Putnam New Value Fund (the "fund") is one in a series of Putnam Investment
Funds (the "Trust") which is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment company.
The objective of the fund is to seek long term capital appreciation by
investing primarily in common stocks which are undervalued at the time of
purchase.
The fund offers class A, class B and class M shares. Class A shares are sold
with a maximum front-end sales charge of 5.75%. Class B shares, which convert
to class A shares after approximately eight years, do not pay a front-end
sales charge, but pay a higher ongoing distribution fee than class A shares,
and are subject to a contingent deferred sales charge, if those shares are
redeemed within six years of purchase. Class M shares are sold with a maximum
front-end sales charge of 3.50% and pay an ongoing distribution fee that is
lower than class B shares and higher than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class (including
the distribution fees applicable to such class). Each class votes as a class
only with respect to its own distribution plan or other matters on which a
class vote is required by law or determined by the Trustees. Shares of each
class would receive their pro-rata share of the net assets of the fund, if the
fund were liquidated. In addition, the Trustees declare separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value which is determined using the last
reported sale price, or if no sales are reported -- as in the case of some
securities traded over-the-counter -- the last bid price. Short-term
investments having remaining maturities of 60 days or less are stated at
amortized cost, which approximates market value following procedures approved
by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc.. These balances may be invested in one
or more repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis. Dividend income
is recorded on the ex-dividend date except that certain dividends from foreign
securities are recorded as soon as the fund is informed of the ex-dividend
date.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, other assets and liabilities are recorded in the books and records
of the fund after translation to U.S. dollars based on the exchange rates on
that day. The cost of each security is determined using historical exchange
rates. Income and withholding taxes are translated at prevailing exchange
rates when accrued or incurred. The fund does not isolate that portion of
realized or unrealized gains or losses resulting from changes in the foreign
exchange rate on investments from fluctuations arising from changes in the
market prices of the securities. Such fluctuations are included with the net
realized and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains or losses
on closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign withholding
taxes recorded on the fund's books and the U.S. dollar equivalent amounts
actually received or paid. Net unrealized gains and losses on foreign currency
transactions arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the period end,
resulting from changes in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell currencies
at a set price on a future date, to protect against a decline in value
relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of a
currency in which securities a fund intends to buy are denominated, when a
fund holds cash reserves and short-term investments). The U.S. dollar value of
forward currency contracts is determined using forward currency exchange rates
supplied by a quotation service. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is "marked to
market" daily and the change in market value is recorded as an unrealized gain
or loss. When the contract is closed, the fund records a realized gain or loss
equal to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. The fund could be exposed to
risk if the value of the currency changes unfavorably, if the counterparties
to the contracts are unable to meet the terms of their contracts or if the
fund is unable to enter into a closing position.
G) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation on securities held nor for excise tax
on income and capital gains.
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid at
least 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 realized and unrealized gains and losses on forward foreign currency
contracts and organizational 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
year ended August 31, 1997, the fund reclassified $63,351 to decrease
undistributed net investment income and $62,656 to increase paid-in-capital,
with an increase to accumulated net realized gains and losses of $695. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
I) Expenses of the trust Expenses directly charged or attributable to any fund
will be paid from the assets of that fund. Generally, expenses of the trust
will be allocated among and charged to the assets of each fund on a basis that
the Trustees deem fair and equitable, which may be based on the relative
assets of each fund or the nature of the services performed and relative
applicability to each fund.
J) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public offering of
its shares were $6,425. 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, 0.43% thereafter.
Putnam Management agreed to limit its compensation (and bear other expenses,
as necessary) to the extent that expenses of the fund (exclusive of brokerage,
interest, taxes, deferred organizational and extraordinary expense, credits
from Putnam Fiduciary Trust Company ("PFTC"), a wholly-owned subsidiary of
Putnam Investments, Inc. and payments under the Trust's distribution plan)
would exceed an annual rate of 1.00% of the fund's average net assets. This
agreement expired on October 31, 1996.
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 year ended August 31, 1997, fund expenses were reduced by $363,962
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 $1,170 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 has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services provided it in distributing shares of the fund. The Plans
provide for payments by the fund to Putnam Mutual Funds Corp. at an annual
rate up to 0.35%, 1.00% and 1.00% of the average net assets attributable to
class A, class B and class M shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 1.00% and 0.75% of the average
net assets attributable to class A, class B and class M shares respectively.
For the year ended August 31, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $1,078,785 and $59,028 from the sale
of class A and class M shares, respectively and $387,382 in contingent
deferred sales charges from redemptions of class B shares. A deferred sales
charge of up to 1% is assessed on certain redemptions of class A shares. For
the year ended August 31, 1997, Putnam Mutual Funds Corp., acting as
underwriter received $6,362 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended August 31, 1997, purchases and sales of investment
securities other than short-term investments aggregated $907,029,789 and
$349,180,260, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost basis.
Note 4
Capital shares
At August 31, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
August 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 26,781,456 $353,636,956
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 254,484 3,214,135
- ------------------------------------------------------------
27,035,940 356,851,091
Shares
repurchased (6,145,683) (83,030,249)
- ------------------------------------------------------------
Net increase 20,890,257 $273,820,842
- ------------------------------------------------------------
Year ended
August 31, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 8,571,175 $97,356,430
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 24,155 244,691
- ------------------------------------------------------------
8,595,330 97,601,121
Shares
repurchased (382,562) (4,366,497)
- ------------------------------------------------------------
Net increase 8,212,768 $93,234,624
- ------------------------------------------------------------
Year ended
August 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 22,345,379 $292,796,597
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 197,604 2,484,902
- ------------------------------------------------------------
22,542,983 295,281,499
Shares
repurchased (2,667,691) (35,691,818)
- ------------------------------------------------------------
Net increase 19,875,292 $259,589,681
- ------------------------------------------------------------
For the period
February 26, 1996
(commencement of
operations) to
August 31, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 8,521,256 $96,626,977
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ------------------------------------------------------------
8,521,256 96,626,977
Shares
repurchased (326,597) (3,707,666)
- ------------------------------------------------------------
Net increase 8,194,659 $92,919,311
- ------------------------------------------------------------
Year ended
August 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 2,566,516 $33,630,185
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 28,012 352,955
- ------------------------------------------------------------
2,594,528 33,983,140
Shares
repurchased (406,917) (5,476,040)
- ------------------------------------------------------------
Net increase 2,187,611 $28,507,100
- ------------------------------------------------------------
For the period
February 26, 1996
(commencement of
operations) to
August 31, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 1,094,106 $12,434,719
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ------------------------------------------------------------
1,094,106 12,434,719
Shares
repurchased (66,954) (756,384)
- ------------------------------------------------------------
Net increase 1,027,152 $11,678,335
- ------------------------------------------------------------
Federal tax information
(Unaudited)
The fund has designated 34.35% of the distributions from net investment
income as qualifying for the dividends received deductions for corporations.
Pursuant to section 852 of the Internal Revenue Code, the fund hereby
designates $7,081,551 (or if different, the amount necessary to offset
net capital gain earned by the fund) as capital gain dividends for its
taxable year ended August 31, 1997.
The Form 1099 you receive in January 1998 will show the tax status of
all distributions paid to your account in calendar 1997.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund *
International New Opportunities Fund
Investors Fund
New Opportunities Fund +
OTC & Emerging Growth Fund [DBL. DAGGER]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Total Return Fund
High Yield Trust +
Income Fund
Money Market Fund **
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Overseas Growth Fund
+ Closed to new investors. Some exceptions may apply. Contact Putnam
for details.
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to
maintain a price of $1.00 per share, although there is no
assurance that this price will be maintained in the future.
Please call your financial advisor or Putnam at 1-800-225-1581
to obtain a prospectus for any Putnam fund. It contains more
complete information, including charges and expenses. Please
read it carefully before you invest or send money.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
David L. King
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam New Value Fund.
It may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details of sales charges, investment
objectives, and operating policies of the fund, and the most recent copy of
Putnam's Quarterly Performance Summary. For more information or to request a
prospectus, call toll free: 1-800-225-1581. You can also learn more at Putnam
Investments' website: http://www.putnaminv.com.
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 the principal amount
invested.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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AN025-36569 10/97
