Putnam
Research
Fund
SEMIANNUAL REPORT
January 31, 1998
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
Dear Shareholder:
Professional management is a complex process made up of many parts, and Putnam
Research Fund is firmly dedicated to the proposition that stock selection is
the most important of these components. While there is much that your fund's
managers, Tom Bogan and Patrick O'Donnell, do to add value along the way, the
real key to your fund's consistent success has been the strength of its stock
picks -- which reflect the recommendations of more than 40 research analysts.
For the semiannual period ended January 31, 1998, the collective efforts of
this talented group produced results just a few basis points short of the
Standard & Poor's 500(registered trademark) Index, 3.22% for fund shares at
net asset value versus 3.56% for the index. (Although the fund is not yet
available to the public, results at public offering price would have been -
2.73%.) Looking at the most recent 12-month period, the fund returned 24.26%
at net asset value (17.10% at public offering price) for the year ended
January 31, 1998, compared with 26.91% for the index. Over the fund's
two-and-a-half year life, the fund's cumulative returns at net asset value
remain ahead of the index as the performance tables on page 6 clearly
indicate. Furthermore, in a performance comparison with all 235 capital
appreciation funds tracked by Lipper Analytical Services* for the year ended
January 31, 1998, your fund's results were well ahead of the 14.48% average
for the category. Since Lipper does not track incubated funds, no specific
ranking can be provided for the fund.
* DISCIPLINED APPROACH STAYS BALANCED THROUGH MARKET VOLATILITY
The semiannual period just ended encompassed some of the most dramatic
volatility seen in the history of the stock market.
*Lipper is an industry research firm whose rankings are based on total return
performance, vary over time, and do not reflect the effects of sales charges.
Past performance is not indicative of future results. Because of its incubated
status, the fund is not part of the Lipper capital appreciation fund universe
but its objectives are comparable with funds in this category.
In late October, turmoil throughout Asia's struggling economies and its impact
on world currency markets sparked a record selloff in the United States. The
Dow Jones Industrial Average lost nearly 900 points in 3 days before investors
put aside their anxieties and resumed buying. While the market rebounded
within weeks of the correction, it was the large-capitalization stocks that
made the quickest recovery. A flight-to-safety and big-is-beautiful mentality
prevailed until the closing weeks of the period, when smaller-cap stocks
finally joined the rally.
The fund did not alter its investment process during this period of market
volatility, however. Stocks were purchased by the fund when the research
analysts' assessment of their value was below the stock's market value -- just
as they have always been. The team's assessment of value is based on a 5-year
model of the company's earnings growth and projected balance sheet. While your
managers do occasionally engage in short-term trading, it generally occurs
when a stock price moves up to market value sooner than had been expected or
if they conclude an assessment was incorrect, rather than as a response to
market turbulence.
Furthermore, once prospective investments are targeted, the managers use a
sector-representative approach to determine allocations. Rather than making a
decision to emphasize a specific sector, such as technology or finance, at a
specific time, they use a proprietary quantitative process to weave the
recommended stocks into a portfolio whose performance is expected to reflect
that of the S&P 500 Index. As individual stocks appreciate or decline, they
may sell off part of a position or add to it, but this is simply to maintain
the fund's similarity to the index. With this approach, the fund seeks to
outperform the index while providing shareholders with a lower level of
volatility than would be expected from the index.
Given this strategy, market fluctuations are unlikely to increase your fund's
portfolio turnover or have a significant effect on the way it is managed. They
may, of course, affect performance to some extent -- for example, the fact
that your fund tends to focus its research efforts primarily on
large-capitalization stocks certainly contributed to its solid performance
over this period.
* TWO KEY HOLDINGS DEMONSTRATE HOW RESEARCH ADDS VALUE
Putnam's research-intensive stock selection process not only helps identify
the strongest candidates among better-known stocks but also uncovers potential
that may have been overlooked by others on Wall Street. For example,
BankAmerica, the largest bank in the western United States, was undervalued at
the time of purchase because its financial strength was not readily apparent
to investors. Accounting confusion resulting from an earlier merger had
created a misunderstanding about the company's true worth. A Putnam analyst
looked beyond the surface, realized how well the bank was exploiting the value
of its franchises, and concluded that its profit potential was substantial.
The resulting buy recommendation led the fund to establish a position in what
is now one of its strongest performers.
Cendant Corp., another profitable holding, was created out of the merger of
two successful companies. This past June, your fund had purchased stock of CUC
International, a direct marketing company specializing in consumer services
for membership groups. The company's price had declined following its
acquisition of two gaming software companies; however, Putnam analysts
perceived that along with the software companies, CUC was also acquiring
technology that would enable it to serve members at a lower cost. In August,
CUC announced a merger with HFS, a franchising company involved with lodging,
travel, and real estate, to form Cendant -- which has since contributed
substantially to the fund's performance. Both BankAmerica and Cendant can be
considered defensive holdings at present, since their businesses are unlikely
to be affected by events in Asia, but as these explanations illustrate, this
is not the primary reason they are part of the portfolio.
Looking at the portfolio as a whole, your managers believe that while the
impact of the Asian crisis is still unfolding, its effect on the fund's
performance is likely to be minimal. Technology stocks in the portfolio have
been under some downward pressure in response to it, but they are now showing
signs of recovery.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Merck & Co., Inc.
Pharmaceuticals and biotechnology
Intel Corp.
Semiconductors
General Electric Co.
Electronic and electrical equipment
Duke Energy Corp.
Electric utilities
Travelers Group, Inc.
Financial services
Total Corp. ADR (France)
Oil and gas
NationsBank Corp.
Banks
Southern Co.
Electric utilities
Computer Associates Intl., Inc.
Computer software
Cendant Corp.
Business services
Footnote reads:
These holdings represent 30.6% of net assets as of 1/31/98.
Portfolio holdings will vary over time.
As your fund continues to build its track record and prepare for offering to a
broader range of investors, its team of managers and analysts will work
together to identify performance potential and balance sector allocations to
minimize risk. Meanwhile, my personal thanks for your participation in our
incubated funds program, which is invaluable in enabling us to develop new and
innovative investment strategies.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
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 January 31, 1998, there is no guarantee the fund will continue
to hold these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Research Fund is designed for investors seeking capital appreciation
primarily through common stock investments.
TOTAL RETURN FOR PERIODS ENDED 1/31/98
Standard & Poor's
500 (registered Consumer
NAV POP trademark)Index Price Index
- ------------------------------------------------------------------------------
6 months 3.22% -2.73% 3.56% 0.69%
- ------------------------------------------------------------------------------
1 year 24.26 17.10 26.91 1.57
- ------------------------------------------------------------------------------
Life of fund
(since 10/2/95) 78.04 67.78 76.59 5.48
Annual average 28.09 24.87 27.61 2.31
- ------------------------------------------------------------------------------
PRICE AND DISTRIBUTION INFORMATION
6 months ended 1/31/98
- ------------------------------------------------------------------------------
Distributions (number) 1
- ------------------------------------------------------------------------------
Income $0.079
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 1.310
- ------------------------------------------------------------------------------
Short-term 0.749
- ------------------------------------------------------------------------------
Total $2.138
- ------------------------------------------------------------------------------
Share value: NAV POP
- ------------------------------------------------------------------------------
7/31/97 $13.58 $14.41
- ------------------------------------------------------------------------------
1/31/98 11.80 12.52
- ------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 12/31/97
(most current calendar quarter)
NAV POP
- ------------------------------------------------------------------------------
6 months 11.93% 5.51%
- ------------------------------------------------------------------------------
1 year 32.92 25.29
- ------------------------------------------------------------------------------
Life of fund
(since 10/2/95) 77.44 67.21
Annual average 29.03 25.67
- ------------------------------------------------------------------------------
Returns at public offering price reflect the current maximum initial sales
charge of 5.75%. All returns assume reinvestment of distributions at net
asset value. Performance data represent past results and do not reflect
future performance. 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. Performance data do not take into account any
adjustments for taxes payable on reinvested distributions and reflect an
expense limitation which is currently in effect. Without the expense
limitation, total returns would have been lower.
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.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 5.75% sales charge.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index is an unmanaged list of common stocks that is
frequently used as a general measure of stock market performance. It
assumes reinvestment of all distributions and interest payments and does
not take into account brokerage fees or taxes. Securities in the fund do
not match those in the index and performance of the fund will differ. It
is not possible to invest directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Portfolio of investments owned
January 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (99.2%) *
NUMBER OF SHARES VALUE
Apparel (1.3%)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3,400 Jones Apparel Group, Inc. + $ 147,900
Automotive (0.1%)
- ------------------------------------------------------------------------------------------------------------
633 Midas, Inc. + 10,168
Banks (4.9%)
- ------------------------------------------------------------------------------------------------------------
1,900 BankAmerica Corp. 135,019
700 Citicorp 83,300
5,400 NationsBank Corp. 324,000
--------------
542,319
Basic Industrial Products (0.2%)
- ------------------------------------------------------------------------------------------------------------
1,900 Hussmann International, Inc. + 25,888
Business Services (3.8%)
- ------------------------------------------------------------------------------------------------------------
8,600 Cendant Corp. + 291,325
9,010 Officemax, Inc. + 131,771
--------------
423,096
Computer Software (3.7%)
- ------------------------------------------------------------------------------------------------------------
5,800 Computer Associates International, Inc. 308,488
2,100 Parametric Technology Corp. + 106,575
--------------
415,063
Computers (1.9%)
- ------------------------------------------------------------------------------------------------------------
1,400 IBM Corp. 138,163
1,300 Hewlett-Packard Co. 78,000
--------------
216,163
Consumer Products (2.7%)
- ------------------------------------------------------------------------------------------------------------
2,100 Colgate-Palmolive Co. 153,825
2,900 Kimberly-Clark Corp. 151,344
--------------
305,169
Electric Utilities (5.8%)
- ------------------------------------------------------------------------------------------------------------
6,200 Duke Energy Corp. 335,963
12,800 Southern Co. 311,200
--------------
647,163
Electronics and Electrical Equipment (3.1%)
- ------------------------------------------------------------------------------------------------------------
4,400 General Electric Co. 341,000
Environmental Control (1.3%)
- ------------------------------------------------------------------------------------------------------------
2,200 Browning-Ferris Industries, Inc. 76,038
2,000 U.S.A. Waste Services, Inc. + 73,500
--------------
149,538
Farm Equipment (1.2%)
- ------------------------------------------------------------------------------------------------------------
2,500 Deere (John) & Co. 131,875
Financial Services (8.1%)
- ------------------------------------------------------------------------------------------------------------
400 American Express Co. 33,475
1,700 Associates First Capital Corp. 115,600
2,700 Franklin Resources, Inc. 120,994
4,762 MBNA Corp. 147,920
1,400 Star Banc Corp. 77,088
6,700 Travelers Group, Inc. 331,650
1,100 Washington Mutual, Inc. 70,675
--------------
897,402
Food and Beverages (8.4%)
- ------------------------------------------------------------------------------------------------------------
2,400 General Mills, Inc. 178,650
6,200 Nabisco Holdings Corp. Class A 256,525
6,500 PepsiCo, Inc. 234,406
3,700 Sara Lee Corp. 201,881
3,800 Whitman Corp. 63,175
--------------
934,637
Health Care Services (1.5%)
- ------------------------------------------------------------------------------------------------------------
7,300 HEALTHSOUTH Corp. + 163,794
Household Products (1.2%)
- ------------------------------------------------------------------------------------------------------------
1,800 Clorox Co. 137,925
Insurance (1.2%)
- ------------------------------------------------------------------------------------------------------------
2,400 American General Corp. 135,300
Medical Supplies and Devices (1.0%)
- ------------------------------------------------------------------------------------------------------------
2,000 Baxter International, Inc. 115,500
Networking (1.9%)
- ------------------------------------------------------------------------------------------------------------
3,600 Ascend Communications, Inc. + 106,425
3,000 3Com Corp. + 99,188
--------------
205,613
Office Equipment (1.8%)
- ------------------------------------------------------------------------------------------------------------
2,500 Xerox Corp. 200,938
Oil and Gas (9.7%)
- ------------------------------------------------------------------------------------------------------------
1,776 British Petroleum PLC ADR (United Kingdom) 142,635
2,800 Elf Aquitane S.A. ADR (France) 158,375
2,500 Ente Nazionale Idrocarburi S.P.A. ADR (Italy) 146,563
3,600 Halliburton Co. 161,775
6,308 Total Corp. ADR (France) 327,228
2,200 Western Atlas, Inc. + 137,088
--------------
1,073,664
Pharmaceuticals and Biotechnology (10.1%)
- ------------------------------------------------------------------------------------------------------------
2,800 Bristol-Myers Squibb Co. 279,125
3,700 Merck & Co., Inc. 433,825
5,900 Pharmacia & Upjohn, Inc. 226,781
1,200 Warner-Lambert Co. 180,600
--------------
1,120,331
Publishing (1.7%)
- ------------------------------------------------------------------------------------------------------------
1,600 Gannett Co., Inc. 96,800
1,500 Tribune Co. 91,125
--------------
187,925
Railroads (0.6%)
- ------------------------------------------------------------------------------------------------------------
800 Burlington Northern Santa Fe Corp. 69,400
Retail (3.9%)
- ------------------------------------------------------------------------------------------------------------
3,300 Costco Companies, Inc. + 143,138
3,800 Lowe's Cos., Inc. 192,138
1,500 Rite Aid Corp. 93,656
--------------
428,932
Satellite Services (1.3%)
- ------------------------------------------------------------------------------------------------------------
3,200 PanAmSat Corp. + 144,400
Semiconductors (7.1%)
- ------------------------------------------------------------------------------------------------------------
4,100 Applied Materials, Inc. + 134,531
5,000 Intel Corp. 405,000
4,000 Micron Technology, Inc. 138,500
2,100 Texas Instruments, Inc. 114,713
--------------
792,744
Specialty Consumer Products (1.2%)
- ------------------------------------------------------------------------------------------------------------
3,200 Mattel, Inc. 129,600
Telecommunications Equipment (1.7%)
- ------------------------------------------------------------------------------------------------------------
1,600 Northern Telecom Ltd. (Canada) 72,200
2,200 Tellabs, Inc. + 112,613
--------------
184,813
Telephone Utilities (3.9%)
- ------------------------------------------------------------------------------------------------------------
4,300 Ericsson (L. M.) Telephone Co. ADR Class B, (Sweden) 166,088
3,400 SBC Communications, Inc. 264,342
--------------
430,430
Tools (1.5%)
- ------------------------------------------------------------------------------------------------------------
3,500 Black & Decker Manufacturing Co. 168,656
Wireless Communications (1.4%)
- ------------------------------------------------------------------------------------------------------------
3,600 Airtouch Communications, Inc. + 157,950
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $9,220,556) *** $ 11,035,296
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $11,125,884.
*** The aggregate identified cost on a tax basis is $9,257,705 resulting in gross unrealized
appreciation and depreciation of $1,871,031 and $93,440 respectively, or net unrealized appreciation
of $1,777,591.
+ Non-income-producing security.
ADR after the name of a foreign holding stands for American Depository Receipts, representing ownership
of foreign securities on deposit with a domestic custodian bank.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
January 31, 1998 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $9,220,556) (Note 1) $11,035,296
- ---------------------------------------------------------------------------------------------------
Cash 127,318
- ---------------------------------------------------------------------------------------------------
Dividends receivable 13,679
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 5,198
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 457,998
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 6,565
- ---------------------------------------------------------------------------------------------------
Total assets 11,646,054
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 480,088
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 26
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 12,949
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 2,607
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 1,526
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 8
- ---------------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 8,843
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 14,123
- ---------------------------------------------------------------------------------------------------
Total liabilities 520,170
- ---------------------------------------------------------------------------------------------------
Net assets $11,125,884
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $ 8,847,129
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (985)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 465,000
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,814,740
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $11,125,884
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per share
($11,125,884 divided by 942,942 shares) $11.80
- ---------------------------------------------------------------------------------------------------
Offering price per share (100/94.25 of $11.80)* $12.52
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the
offering price is reduced.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended January 31, 1998 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $371) $ 71,403
- --------------------------------------------------------------------------------------------------
Interest 228
- --------------------------------------------------------------------------------------------------
Total investment income 71,631
Expenses:
Compensation of Manager (Note 2) 36,217
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 16,693
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 1,377
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 25
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 582
- --------------------------------------------------------------------------------------------------
Reports to shareholders 2,789
- --------------------------------------------------------------------------------------------------
Registration fees 292
- --------------------------------------------------------------------------------------------------
Auditing 10,418
- --------------------------------------------------------------------------------------------------
Legal 2,209
- --------------------------------------------------------------------------------------------------
Postage 276
- --------------------------------------------------------------------------------------------------
Other 17
- --------------------------------------------------------------------------------------------------
Fees waived by Manager (Note 2) (16,509)
- --------------------------------------------------------------------------------------------------
Total expenses 54,386
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (3,785)
- --------------------------------------------------------------------------------------------------
Net expenses 50,601
- --------------------------------------------------------------------------------------------------
Net investment income 21,030
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 1,199,330
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (869,643)
- --------------------------------------------------------------------------------------------------
Net gain on investments 329,687
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $350,717
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
January 31 July 31
1998* 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 21,030 $ 68,954
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 1,199,330 1,095,630
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments (869,643) 2,383,859
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 350,717 3,548,443
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (62,767) (57,507)
From net realized gain on investments (1,635,912) (434,428)
Increase from capital share transactions (Note 4) 965,110 1,833,147
- ----------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (382,852) 4,889,655
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 11,508,736 6,619,081
- ----------------------------------------------------------------------------------------------------------------------
End of period (including distribution in excess of
and undistributed net investment income of
$985 and $40,752, respectively) $11,125,884 $11,508,736
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ---------------------------------------------------------------------------------------------------------------------------
Six months
ended Year For the period
Per-share January 31 ended Oct. 2, 1995+
operating performance (Unaudited) July 31 to July 31
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $13.58 $9.75 $8.50
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .03(d) .10(d) .09(a)(d)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .33 4.52 1.21
- ---------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .36 4.62 1.30
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net
investment income (.08) (.09) (.05)
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (2.06) (.70) --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (2.14) (.79) (.05)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.80 $13.58 $9.75
- ---------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(b) 3.22* 49.62 15.28*
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $11,126 $11,509 $6,619
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .50*(d) 1.00(d) .86*(d)
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .19*(d) .82(d) .92*(d)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 56.44* 119.20 80.74*
- ---------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid $.0232 $.0233 $.0284
- ---------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period (Note 2). As a result of such limitation,
expenses of the fund for the periods ending January 31, 1998, July 31, 1997 and July 31, 1996, reflect a reduction
of $0.02, $0.02 and $0.05 per share, respectively.
</TABLE>
Notes to financial statements
January 31, 1998 (Unaudited)
Note 1
Significant accounting policies
Putnam Research 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-end management investment company.
The objective of the fund is to seek capital appreciation by investing
primarily in common stocks.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of some
securities traded over-the-counter -- the last reported bid price. Short-term
investments having remaining maturities of 60 days or less are stated at
amortized cost, which approximates market value, and other investments are
stated at fair market value, following procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other registered
investment companies 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) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations. For the period ended January 31, 1998, the fund
had no borrowings against the line of credit.
F) 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, as amended. 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.
G) 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. 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.
H) 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.
I) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public offering of
its shares were $8,843. These expenses are being amortized on projected net
asset levels over a five-year period. The fund will reimburse Putnam
Management for the payment of these expenses.
Note 2
Management fee, administrative
services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund. Such
fee is based on the following annual rates: 0.65% of the first $500 million of
average net assets, 0.55% of the next $500 million, 0.50% of the next $500
million, 0.45% of the next $5 billion, 0.425% of the next $5 billion, 0.405%
of the next $5 billion, 0.39% of the next $5 billion, and 0.38% thereafter.
Effective April 1, 1997, the base fee is subject to a performance adjustment
based on the investment performance of the fund compared to changes in the
value of the Standard & Poor's 500 composite Stock Price Index. Performance
will be calculated for these purposes at the beginning of each fiscal quarter,
for the thirty-six month period immediately preceding such quarter or the life
of the fund, if shorter. The applicable base fee will be increased or
decreased for each calendar quarter by an incentive payment or penalty at the
annual rate of 0.01% of the fund's average net assets for each 1% increment by
which the fund outperforms or underperforms the S&P 500 in excess of 3%,
subject to a maximum increase or decrease of 0.07% of average net assets.
There was no such adjustment as of January 31, 1998.
Putnam Management has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through December 31, 1998, 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 an allocated amount 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 six months ended January 31, 1998, fund expenses were reduced by
$3,785 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.
Each Trustee of the fund receives an annual Trustee fee, of which $100 has
been allocated to the fund, 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 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 payments by the fund to
Putnam Mutual Funds Corp. at an annual rate up to 0.35% of the fund's average
net assets. The fund is not currently making any payments pursuant to the
Plan.
For the six months ended January 31, 1998, Putnam Mutual Funds Corp., acting
as underwriter received no net commissions from the sales of shares of the
fund.
Note 3
Purchase and sales of securities
During the six months ended January 31, 1998, purchases and sales of
investment securities other than short-term investments aggregated $6,056,690
and $6,785,207, 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 January 31, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
January 31, 1998
- ------------------------------------------------------------
Shares Amount
- ------------------------------------------------------------
Shares sold 91,841 $1,214,386
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 149,268 1,698,679
- ------------------------------------------------------------
241,109 2,913,065
Shares
repurchased (145,595) (1,947,955)
- ------------------------------------------------------------
Net increase 95,514 $965,110
- ------------------------------------------------------------
Year ended
July 31, 1997
- ------------------------------------------------------------
Shares Amount
- ------------------------------------------------------------
Shares sold 372,818 $4,217,387
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 46,401 491,935
- ------------------------------------------------------------
419,219 4,709,322
Shares
repurchased (250,784) (2,876,175)
- ------------------------------------------------------------
Net increase 168,435 $1,833,147
- ------------------------------------------------------------
At January 31, 1998, Putnam Investments, Inc. owned 648,893 shares of the fund
(68.8% of shares outstanding), valued at $7,656,937.
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
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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 R. Bogan
Vice President and Fund Manager
Patrick O'Donnell
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Research Fund. It
may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details of sales charges, investment
objectives, and operating policies of the fund, and the most recent copy of
Putnam's Quarterly Performance Summary. For more information or to request a
prospectus, call toll free: 1-800-225-1581. You can also learn more at Putnam
Investments' website: http://www.putnaminv.com.
40528-2AQ 3/98
