Putnam
Real Estate
Opportunities
Fund
PERIOD ENDED
February 5, 1997
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
As you know from our communication to you at the end of January, Putnam Real
Estate Opportunities Fund was liquidated as of February 5, 1997. This report
represents the fund's final accounting to shareholders.
During its two-year life, the fund delivered competitive returns, an
accomplishment of which its management team should be justly proud. The fund's
shareholders -- drawn from Putnam trustees, officers, employees, and relatives
residing in Massachusetts -- should be similarly pleased, given the positive
return on their investment.
Putnam's decision to liquidate the fund rather than offer it to a national
base of investors was not made lightly, especially considering its splendid
record. In the end, however, it was determined that interest in this type of
fund is currently too limited to justify a national launch. Making such
marketing determinations is as much a part of Putnam's incubated fund program
as are testing an investment strategy's validity and developing an investment
concept's track record.
We appreciate your participation in the incubated fund program and hope you
will consider taking part in similar opportunities in the future.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
April 16, 1997
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Real Estate Opportunities Fund is designed for investors
seeking capital growth and current income by investing primarily in equity
securities issued by companies principally engaged in the real estate
industries.
This section provides, at a glance, information about your fund's performance.
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
TOTAL RETURN FOR PERIODS ENDED 2/5/97*
S&P 500 NAREIT
NAV POP Index Index
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6 months 20.32% 18.05% 22.52% 22.03%
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1 year 29.16 26.67 26.15 32.73
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Life of fund
(since 1/3/95) 60.57 56.96 31.65 36.50
Annual average 25.41 24.03 26.66 30.66
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*Performance of fund is as of 2/5/97, the liquidation date.
TOTAL RETURN FOR PERIODS ENDED 12/31/96
(most recent calendar quarter)
NAV POP
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6 months 23.00% 15.88%
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1 year 32.42 24.80
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Life of fund
(since 1/3/95) 60.15 50.92
Annual average 26.55 22.85
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Performance data represent past results and do not reflect future performance.
They do not take into account any adjustment for taxes payable on reinvested
distributions. Investment returns and principal 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.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 2/5/97
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Distributions (number) 2
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Income $0.428
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Capital gains
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Long-term 2.836
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Short-term 0.769
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Total $4.033
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Share value: NAV POP
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08/31/96 $10.67 $11.32
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02/05/97 8.77 9.31
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TERMS AND DEFINITIONS
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance figures
shown here assume the maximum 5.75% sales charge for class A shares.
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.
The National Association of Real Estate Investment Trusts (NAREIT) Index* is
based upon the last closing price of the month for all tax-qualified REITs
listed on the major U.S. stock exchanges. The data are market weighted and the
total return calculation is based upon the weightings at the beginning of
period. Dividends are included in the month based upon their payment date.
*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.
<TABLE>
<CAPTION>
Statement of assets and liabilities
February 5, 1997 (Unaudited)
<S> <C>
Assets
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Cash $ 9,492
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Total assets 9,492
Liabilities
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Payable for compensation of Manager (Note 2) 9,492
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Total liabilities 9,492
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Net assets $ --
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The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Period ended February 5, 1997 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends $ 54,731
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Interest 4,389
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Total investment income 59,120
Expenses:
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Compensation of Manager (Note 2) 6,624
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Investor servicing and custodian fees (Note 2) 1,830
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Compensation of Trustees (Note 2) 823
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Administrative services (Note 2) 13
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Registration fees 5
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Legal 1,324
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Other 78
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Total expenses 10,697
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Expense reduction (Note 2) (2,298)
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Net expenses 8,399
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Net investment income 50,721
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Net realized gain on investments (Notes 1 and 3) 660,661
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Net unrealized depreciation of investments during the period (261,776)
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Net gain on investments 398,885
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Net increase in net assets resulting from operations $449,606
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Period ended Year ended
February 5 August 31
1997* 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 50,721 $ 108,420
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Net realized gain on investments 660,661 119,044
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Net unrealized appreciation (depreciation) of investments (261,776) 129,870
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 449,606 357,334
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (88,793) (99,920)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (792,703) (13,451)
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Increase (decrease) from capital share transactions (Note 4) (1,780,663) 139,394
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Total increase (decrease) in net assets (2,212,553) 383,357
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 2,212,553 1,829,196
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End of period (including undistributed net investment
income of $0 and $52,791, respectively) $ -- $2,212,553
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
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 Year For the period
Per-share ended Feb. 5 ended Jan. 3, 1995+
operating performance (Unaudited) Aug. 31 to Aug. 31
- ----------------------------------------------------------------------------------------------------------------
1997++ 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $10.67 $9.49 $8.50
- ----------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------
Net investment income .22 .54 (d) .30(d)
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.91 1.23 .69
- ----------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.13 1.77 .99
- ----------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------
From net
investment income (.43) (.52) --
- ----------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (3.60) (.07) --
- ----------------------------------------------------------------------------------------------------------------
Total distributions (4.03) (.59) --
- ----------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.77 $10.67 $9.49
- ----------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 20.32* 19.53 11.65*
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,517 $2,213 $1,829
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .44* .98(d) .48(d)*
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Ratio of net investment income
to average net assets (%) 2.08* 5.40(d) 3.52(d)*
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Portfolio turnover (%) 5.75* 28.19 5.35*
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Average commission
rate paid (c) $.0211 $.0360
- ----------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended August 31, 1996 and thereafter, includes
amounts paid through expense offset arrangements. Prior period ratios exclude these amounts (Note 2)
(c) Average commission rate paid on security trades is required for fiscal periods beginning on
or after September 1, 1995.
(d) Reflects an expense limitation in effect during the period. (Note 2) As a result of such
limitation, expenses for the fund for the period ended August 31, 1996
and August 31, 1995 reflect a reduction of $0.10 and $0.21 per share, respectively.
++ Information presented excludes the impact of shareholder liquidation (Note 5).
</TABLE>
Notes to financial statements
February 5, 1997 (Unaudited)
Note 1
Significant accounting policies
Putnam Real Estate Opportunities Fund (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-ended management
investment company. The objective of the fund is to seek capital growth and
current income by investing primarily in equity securities issued by companies
in real estate industries. On December 27, 1996 the Trustees voted to
liquidate the fund effective February 5, 1997.
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) 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.
B) 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 not-taxable dividends. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations. For the period ended
February 5, 1997, the fund reclassified $14,719 to decrease undistributed net
investment income and $10,590 to decrease paid-in-capital, with a decrease to
distribution in excess of gains on investments of $25,309. The calculation of
net investment income per share in the financial highlights table excludes
these adjustments.
C) 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.
D) 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 were being amortized on projected net
asset levels over a five-year period. Putnam Management reimbursed the fund
for the remaining unamortized organization expenses at liquidation date.
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% of any excess
thereafter.
Putnam Management has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through February 5, 1997, 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.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the period ended February 5, 1997, fund expenses were reduced by $2,298
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 payable on
or after July 1, 1995. The deferred fees remain in the fund and are invested
in certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted 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 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 Plan provides for 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 to the Plan.
Note 3
Purchase and sales of securities
During the period ended February 5, 1997, purchases and sales of investment
securities other than short-term investments aggregated $109,186 and
$2,611,764, respectively. There were no purchases and sales of U.S. government
obligations. In determining the net gain or loss on securities sold, the cost
of securities has been determined on the identified cost basis.
Note 4
Capital shares
At February 5, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Period ended
February 5, 1997
- ------------------------------------------------------------
Shares Amount
- ------------------------------------------------------------
Shares sold 18,548 $ 211,691
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 77,064 675,851
- ------------------------------------------------------------
95,612 887,542
Shares
repurchased (302,937) (2,668,205)
- ------------------------------------------------------------
Net decrease (207,325) $ (1,780,663)
- ------------------------------------------------------------
Year ended
August 31, 1996
- ------------------------------------------------------------
Shares Amount
- ------------------------------------------------------------
Shares sold 3,279 $ 33,628
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 12,125 113,370
- ------------------------------------------------------------
15,404 146,998
Shares
repurchased (781) (7,604)
- ------------------------------------------------------------
Net increase 14,623 $139,394
- ------------------------------------------------------------
Note 5
Liquidation of operations
The fund liquidated operations on February 5, 1997. On February 5, 1997, prior
to liquidation the net assets were $2,517,232, the number of shares
outstanding was 287,027 and the net asset value per share was $8.77. Putnam
Management owned 274,634 shares of the fund (95.68% of shares outstanding),
valued at $2,408,540.
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
Peter Carman
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Jeanne L. Mockard
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 Real Estate
Opportunities 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 the 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 principal amount invested.
32135-403 2/97
