Putnam
Global
Equity
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-98
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
Dear Shareholder:
We are pleased to bring you the first annual report of Putnam Global
Equity Fund. The fund targets fast-growing small and mid-capitalization
stocks located around the world. For the period ended October 31, 1998,
the fund delivered a total return of -7.41% at net asset value (-12.75% at
public offering price) outperforming its benchmark of the Salomon Brothers
Extended Market Index which ended the period at -16.14%.
Since this is the first report of your fund, the investment style employed
by managers Jack Chang and Roland Gillis warrants some discussion. They
rely on a bottom-up, research-driven approach to evaluate individual
companies. They focus on companies located in politically stable
industrialized countries that foster a business environment of
technological and managerial innovation needed to make small, growing
companies successful. The stocks of companies chosen for the portfolio
must exhibit a minimum of 20% annual earnings-per-share growth and possess
a product or service that sets them apart from their competition. In
addition, the portfolio managers look for corporate managements that they
believe are able to promote rapid growth and have a significant ownership
stake in the company.
During the fund's brief fiscal period, the managers successfully executed
this strategy against some significant headwinds. The currency and stock
market instability that had begun in Asia in July 1997 spread through
markets in Russia, Latin America, and finally the United States and Europe
in the form of lower economic growth prospects. Aside from what were at
times extreme amounts of volatility witnessed in currency and security
markets, these developments had negative implications for earnings growth
around the world. These trends dampened the performance of smaller company
stocks, which lagged behind large-capitalization stocks until a sharp
rebound in early October.
During this time, the managers lowered the fund's exposure to
international markets in favor of U.S. companies -- bringing the fund more
in line with the U.S.-to-international allocation of its benchmark. In
general, the managers continued to favor such high-growth global
industries as technology, pharmaceuticals, business services, and media.
In the United States, the managers found many companies that represent
these growing areas. Geo Tel Communications provides sophisticated call
routing software to large telecommunications operators. The company has
taken advantage of a relatively untapped market in this type of software
and has emerged as a dominant global player. Geo Tel offers an
earnings-per-share growth rate of about 40% and its customers regard its
service as a strategic advantage to their businesses. While these
holdings, along with others discussed in this report, were viewed
favorably at the end of the period, all 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 COUNTRY ALLOCATIONS]
COUNTRY ALLOCATIONS*
United States 38.0%
Japan 13.9%
Germany 9.6%
United Kingdom 7.0%
Netherlands 5.8%
Footnote reads:
*Based on net assets as of 10/31/98. Holdings will vary over time.
Another example is Heftel Broadcasting, which is known as the dominant
Spanish language radio broadcasting company in the United States. The
company operates 36 radio stations in 11 of the top 15 Spanish markets.
Heftel currently offers more than 30% per year cash flow growth (net
income plus depreciation and other noncash charges) with the potential to
raise this growth rate when start-up radio stations in five new markets
begin to contribute to cash flow next year.
Looking outside the United States, the fund managers uncovered many
high-growth smaller companies in Japan. One example is Fuji Seal, which is
considered a world leader in shrink labeling, a specialized area of
packaging. The company has been able to tap into the rising use of
preformed plastic bottles in the beverage, cosmetics, and pharmaceutical
industries. The recyclability of these bottles has also been a positive
development. Fuji Seal has consistently delivered more than 15% revenue
growth and over 20% earnings per share growth and it sells its products to
relatively stable industries.
Other fund holdings came from countries such as Germany, the Netherlands,
Scandinavia, and Canada, where Jack and Roland identified several
high-growth companies with strong positions in emerging industries. EM TV
& Merchandising of Germany, for example, is the largest European producer
of cartoon programming for television and the largest merchandiser of
cartoon characters. The company offers significantly high growth rates, it
matches Disney in terms of cartoon programming market share in Europe, and
its founder and CEO remains the company's largest shareholder.
As we move into the fund's first full fiscal year, most economists expect
a slowing in economic and earnings growth rates around the world. Because
of this, we will continue to monitor the fund's current holdings carefully
for any changes as well as to seek opportunities in smaller stocks that
may be undiscovered by the market at large. We believe that over the
years, Putnam has developed strong capabilities in the area of
aggressive-growth stocks. Going forward, the managers will attempt to
leverage those capabilities on a global basis.
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 10/31/98, there is no guarantee the fund will
continue to hold these securities in the future. The fund invests all or a
portion of its assets in small to midsize companies. Such investments
increase the risk of greater price fluctuations. International investing
involves certain risks, such as currency fluctuations, economic
instability, and political developments, not present with domestic
investments.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Global Equity Fund is designed for investors seeking capital appreciation
through a globally diversified equity portfolio.
TOTAL RETURN FOR PERIOD ENDED 10/31/98
(inception 5/6/98)
Salomon Bros.
Extended Consumer
NAV POP Market Index Price Index
- ------------------------------------------------------------------------------
Since inception -7.41% -12.75% -16.14% 0.80%
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. All returns assume
reinvestment of distributions at NAV. Investment return and principal
value will fluctuate so that an investor's shares when redeemed may be
more or less than their original cost.
This performance information does not reflect any market volatility that
may have occurred since the date of the information. As a result, more
recent returns may be more or less than those shown.
PRICE AND DISTRIBUTION INFORMATION
For the period 5/6/98 to 10/31/98
Share value: NAV POP
- ------------------------------------------------------------------------------
5/6/98 $8.50 $9.02
- ------------------------------------------------------------------------------
10/31/98 7.87 8.35
- ------------------------------------------------------------------------------
TOTAL RETURN FOR PERIOD ENDED 9/30/98
(most recent calendar quarter)
NAV POP
- ------------------------------------------------------------------------------
Since inception -12.71% -17.75%
- ------------------------------------------------------------------------------
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 5.75% maximum sales charge for class A
shares.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of
a $10,000 investment since
5/6/98
Salomon Brothers
Fund's class A Extended Market Consumer Price
Date shares at POP Index Index
5/6/98 9,425 10,000 10,000
7/31/98 9,924 9,203 10,043
10/31/98 $8,725 $8,386 $10,080
Footnote reads:
Past performance is no assurance of future results.
COMPARATIVE BENCHMARKS
Salomon Brothers Extended Market Index is an unmanaged list of global
equity securities, with all values expressed in U.S. dollars. The index
assumes reinvestment of all distributions and interest payments and does
not take in account brokerage fees or taxes. Securities in the fund do not
match those in the 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.
Report of independent accountants
To the Trustees of Putnam Investment Funds and
Shareholders of Putnam Global Equity Fund
(a series of Putnam Investment Funds)
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, and the related statements
of operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of Putnam
Global Equity Fund (the "fund") at October 31, 1998, and the results of
its operations, the changes in its net assets and the financial highlights
for the period indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included
confirmation of investments owned at October 31, 1998 by correspondence
with the custodian, provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 8, 1998
<TABLE>
<CAPTION>
Portfolio of investments owned
October 31, 1998
COMMON STOCKS (95.8%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Australia (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,000 Aristocrat Leisure Ltd. $ 6,302
Austria (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
50 Topcall International AG 16,067
Belgium (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
30 Ion Beam Applications (NON) 5,967
300 Lernout & Hauspie Speech Products N.V. (NON) 11,888
144 Mobistar S.A. (NON) 6,309
200 Mobistar S.A. 144A (NON) 8,763
100 Real Software (NON) 5,338
40 Resilux (NON) 6,868
50 Sioen Industries N.V. 18,244
--------------
63,377
Canada (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,000 CGI Group, Inc. (NON) 27,497
1,200 Shaw Communications, Inc. Class B (NON) 24,125
--------------
51,622
Denmark (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
250 Brondbyernes IF Fodbold AS 5,445
Finland (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
65 Fiskars Corp. 8,526
670 Helsingin Puhelin Oyj (Helsinki Telephone Corp.) Class E 36,753
400 Werner Soderstrom Osakeyhtio Corp. Class B 26,235
--------------
71,514
France (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
300 CNP Assurances (NON) 10,216
100 CNP Assurances 144A (NON) 3,405
400 Genset ADR (NON) 11,750
100 Publicis S.A. 15,864
--------------
41,235
Germany (9.6%)
- --------------------------------------------------------------------------------------------------------------------------
150 Brokat Infosystems AG (NON) 9,248
150 DEAG Deutsche Entertainment AG (NON) 5,032
150 EM TV & Merchandising AG 55,126
80 Kinowelt Medien AG (NON) 11,025
70 Marschollek, Lautenschlaeger und Partner AG 36,811
120 MobileCom AG 34,889
100 Muehlbauer Holding AG & Co. (NON) 7,737
100 PSI AG (NON) 4,624
20 SER Systeme AG 6,117
150 Teles AG (NON) 17,000
--------------
187,609
Hong Kong (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
4,000 VTech Holdings, Ltd. 15,005
Israel (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
400 Galileo Technology Ltd. (NON) 6,300
Italy (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
12,000 AEM SPA (NON) 16,351
15,000 AEM SPA 144A (NON) 20,439
--------------
36,790
Japan (13.9%)
- --------------------------------------------------------------------------------------------------------------------------
2,000 Banyu Pharmaceutical Co. Ltd. 34,106
300 Benesse Corp. 13,830
1,000 Fuji Seal, Inc. 46,532
1,000 Hisamitsu Pharmaceutical Co., Inc. 11,797
1,100 Itoen, Ltd. 45,972
1,000 Makita Corp. 10,616
2,000 Olympus Optical Co. Ltd. 20,681
1,000 Rock Field Co. Ltd. 18,957
400 Shimamura Co. Ltd. 15,924
1,000 Terumo Corp. 21,112
3,000 Yoshitomi Pharmaceutical Industries, Ltd. 33,477
--------------
273,004
Netherlands (5.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,000 Equant N.V. (NON) 43,411
160 Grand Hotel Krasnapolsky N.V. 12,093
180 Prolion Holding N.V. (NON) 16,981
1,700 RING! Rosa Products N.V. (NON) 26,699
300 Sligro Beheer N.V. 13,669
--------------
112,853
Spain (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,100 Superdiplo S.A. (NON) 28,507
300 Zeltia S.A. 24,309
--------------
52,816
Sweden (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
320 Mandator AB 10,276
400 NetCom Systems AB Class B 15,055
--------------
25,331
Switzerland (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
8 Verwaltungs-und Privat-Bank AG 29,915
United Kingdom (7.0%)
- --------------------------------------------------------------------------------------------------------------------------
600 Cattles PLC 6,046
1,100 CMG PLC 25,767
400 Provident Financial PLC 6,006
8,000 RM PLC 48,546
300 Select Appointments Holdings PLC ADR 5,100
4,400 Viridian Group PLC 45,961
--------------
137,426
United States (38.0%)
- --------------------------------------------------------------------------------------------------------------------------
290 Advanced Energy Industries, Inc. (NON) 3,643
2,000 American Bank Note Holographics, Inc. (NON) 18,875
300 American Power Conversion Corp. (NON) 12,731
500 American Tower Corp. Class A (NON) 10,938
225 Apollo Group, Inc. Class A (NON) 7,228
400 Applied Graphics Technologies, Inc. (NON) 4,775
325 Applied Micro Circuits Corp. (NON) 7,800
400 Ascend Communications, Inc. (NON) 19,300
500 Aspect Development, Inc. (NON) 15,797
1,000 Aware, Inc. (NON) 12,125
300 Cerner Corp. (NON) 6,713
200 Chancellor Media Corp. (NON) 7,675
600 Citadel Communications Corp. (NON) 12,300
200 Concord Communications, Inc. (NON) 7,425
220 DuPont Photomasks, Inc. (NON) 7,975
1,350 Extended Stay America, Inc. (NON) 12,994
1,000 GeoTel Communications Corp. (NON) 26,000
100 Global Crossing Ltd. (NON) 2,875
500 Guitar Center, Inc. (NON) 8,563
100 Harmonic Lightwaves, Inc. (NON) 1,094
300 Heftel Broadcasting Corp. Class A (NON) 12,338
275 IMS Health Inc. 18,288
420 Inspire Insurance Solutions, Inc. (NON) 10,500
250 Intuit, Inc. (NON) 12,625
200 Keane, Inc. (NON) 6,650
500 Lamar Advertising Co. (NON) 15,609
200 Lason Holdings, Inc. (NON) 10,950
325 Legato Systems, Inc. (NON) 12,716
400 Linens 'N Things, Inc. (NON) 12,375
300 McLeod, Inc. Class A (NON) 10,969
364 Medicis Pharmaceutical Corp. Class A (NON) 18,246
825 Medquist, Inc. (NON) 22,224
700 Metromedia Fiber Network, Inc. Class A (NON) 26,513
500 Michaels Stores, Inc. (NON) 10,000
600 Nanometrics, Inc. (NON) 3,938
245 New Era of Networks, Inc. (NON) 12,066
501 NOVA Corp./Georgia (NON) 14,452
100 Novellus Systems, Inc. (NON) 3,881
110 NTL, Inc. (NON) 5,431
500 Omnicare, Inc. 17,281
820 Outdoor Systems, Inc. (NON) 18,091
500 Peregrine Systems, Inc. (NON) 17,438
500 Petersen Companies, Inc. Class A (NON) 13,282
1,800 Prime Hospitality Corp. (NON) 16,425
500 ProBusiness Services, Inc. (NON) 18,281
650 Qwest Communications International, Inc. (NON) 25,431
1,500 Rogue Wave Software, Inc. (NON) 11,906
400 Sepracor, Inc. (NON) 27,450
700 Sipex Corp. (NON) 19,425
438 Snyder Communications, Inc. (NON) 15,631
800 Sony Chemicals Corp. 23,300
100 Sunrise Assisted Living, Inc. (NON) 4,306
150 Tekelec (NON) 2,691
400 The Learning Company, Inc. (NON) 10,325
250 Tieto Corp. Class B 7,259
535 TSI International Software, Ltd. (NON) 16,786
500 Univision Communications Inc. Class A (NON) 14,750
600 Visual Networks, Inc. (NON) 17,100
50 Wind River Systems 2,191
--------------
745,946
--------------
Total Common Stocks (cost $1,775,693) $ 1,878,557
SHORT-TERM INVESTMENTS (0.9%) (a) (cost $18,005)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$18,000 Interest in $468,338,000 joint tri-party repurchase agreement
dated October 30, 1998 with Warburg Securities due
November 2, 1998 with respect to various U.S. Treasury
obligations -- maturity value of $18,008 for an effective
yield of 5.38% $ 18,005
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,793,698) (b) $ 1,896,562
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,961,706.
(b) The aggregate identified cost on a tax basis is $1,796,935 resulting in gross unrealized appreciation and
depreciation of $227,700 and $128,073, respectively, or net unrealized appreciation of $99,627.
(NON) Non-income-producing security.
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified
institutional buyers.
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 fund had the following industry group concentration greater than 10% at October 31, 1998 (as a percentage
of net assets):
Computer Services and Software 17.0%
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1998
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,793,698) (Note 1) $1,896,562
- -----------------------------------------------------------------------------------------------
Dividends and interest receivable 2,475
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 83
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 102,684
- -----------------------------------------------------------------------------------------------
Receivable from Manager (Note 2) 13,906
- -----------------------------------------------------------------------------------------------
Total assets 2,015,710
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 1,841
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 25,148
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 20
- -----------------------------------------------------------------------------------------------
Other accrued expenses 26,995
- -----------------------------------------------------------------------------------------------
Total liabilities 54,004
- -----------------------------------------------------------------------------------------------
Net assets $1,961,706
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $2,115,747
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (257,891)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 103,850
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,961,706
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,961,706 divided by 249,217 shares) $7.87
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $7.87)* $8.35
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales the offering price is reduced.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
For the period May 6, 1998 (commencement of operations)
to October 31, 1998
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $557) $ 4,184
- -----------------------------------------------------------------------------------------------
Interest 2,347
- -----------------------------------------------------------------------------------------------
Total investment income 6,531
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 8,129
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,165
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 746
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 23
- -----------------------------------------------------------------------------------------------
Reports to shareholders 2,347
- -----------------------------------------------------------------------------------------------
Registration fees 630
- -----------------------------------------------------------------------------------------------
Auditing 22,613
- -----------------------------------------------------------------------------------------------
Legal 2,295
- -----------------------------------------------------------------------------------------------
Other 8
- -----------------------------------------------------------------------------------------------
Fees waived and reimbursed by manager (Note 2) (24,223)
- -----------------------------------------------------------------------------------------------
Total expenses 14,733
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (2,165)
- -----------------------------------------------------------------------------------------------
Net expenses 12,568
- -----------------------------------------------------------------------------------------------
Net investment loss (6,037)
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (255,401)
- -----------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 1,770
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities
in foreign currencies during the period 986
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 102,864
- -----------------------------------------------------------------------------------------------
Net loss on investments (149,781)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(155,818)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the period May 6, 1998
(commencement of operations)
to October 31
1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Decrease in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment loss $ (6,037)
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign currency transactions (253,631)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 103,850
- ---------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations (155,818)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 117,524
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (38,294)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period (Note 5) 2,000,000
- ---------------------------------------------------------------------------------------------------------------
End of period $1,961,706
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
Per-share May 6, 1998+
operating performance to October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss (a)(d) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (.61)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.63)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.87
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(b) (7.41)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,962
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .71*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%)(d) (.29)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 150.43*
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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. As a result of such limitation,
expenses for the fund reflect a reduction of $.10 per share. (See Note 2).
</TABLE>
Notes to financial statements
October 31, 1998
Note 1
Significant accounting policies
Putnam Global Equity Fund (the "fund") is a series of Putnam Investment
Funds ("the Trust") which is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment
company. The fund seeks capital appreciation by investing primarily in
common stocks traded in securities markets located in a number of foreign
countries and in the United States.
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.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rate. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost which
approximates market, and other investments are stated at fair value
following procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies 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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. 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, and 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 gains and losses are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign
currency transactions represent net realized 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 appreciation
and depreciation of assets and liabilities in foreign currencies 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) 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.
At October 31, 1998, the fund had a capital loss carryover of
approximately $255,000 available to offset future net capital gain, if
any, which will expire on October 31, 2006.
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. These
differences include temporary and permanent differences of losses on wash
sale transactions, foreign currency gains and losses and realized and
unrealized gains and losses on passive foreign investment companies.
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 October 31,
1998, the fund reclassified $6,037 to increase accumulated net investment
loss and $1,777 to decrease paid-in-capital, with a decrease to
accumulated net realized loss on investments of $4,260. The calculation of
net investment income per share in the financial highlights table excludes
these adjustments.
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.
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: 0.80% of the first $500
million of average net assets, 0.70% of the next $500 million, 0.65% of
the next $500 million, 0.60% of the next $5 billion, 0.575% of the next $5
billion, 0.555% of the next $5 billion, 0.54% of the next $5 billion, and
0.53% thereafter.
Putnam Management has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through April 30, 1999, to the extent that
expenses of the fund (exclusive of brokerage commissions, interest, taxes,
extraordinary expense, credits from Putnam Fiduciary Trust Company (PFTC),
a subsidiary of Putnam Investments, Inc. and payments under the Trust's
distribution plan) would exceed an annual rate of 1.45% of the fund's
average net assets.
As part of the subcustodian contract between the subcustodian bank and
PFTC, the subcustodian bank has a lien on the securities of the fund to
the extent permitted by the fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At October 31, 1998, the payable to the
subcustodian bank represents the amount due for cash advance for the
settlement of a security purchased.
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 period ended October 31, 1998, fund expenses were reduced by
$2,165 under expense offset arrangements with PFTC and brokerage service
arrangements. 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 payment by
the fund to Putnam Mutual Funds Corp. at an annual rate of up to 0.35% of
the fund's average net assets. The Fund is not currently making any
payments pursuant to the Plan.
For the period ended October 31, 1998, Putnam Mutual Funds Corp., acting
as underwriter received no net commissions from the sale of shares of the
fund. A deferred sales charge of up to 1% is assessed on certain
redemptions of shares. For the period ended October 31, 1998, Putnam
Mutual Funds Corp., acting as underwriter received no monies on
redemptions.
Note 3
Purchases and sales of securities
During the period ended October 31, 1998, purchases and sales of
investment securities other than short-term investments aggregated
$4,990,575 and $2,959,481, 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 October 31, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
For the period
May 6, 1998
(commencement of operations)
to October 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 22,931 $194,692
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
22,931 194,692
Shares
repurchased (9,008) (77,168)
- -----------------------------------------------------------------------------
Net increase 13,923 $117,524
- -----------------------------------------------------------------------------
Note 5
Initial capitalization and
offering of shares
The fund was established as a Massachusetts business trust on October 31,
1994. During the period October 31, 1994 to May 6, 1998, the fund had no
operations other than those related to organizational matters, including
the initial capital contribution of $2,000,000 and the issuance of 235,294
shares to Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam
Investments, Inc. on May 5, 1998.
At October 31, 1998, Putnam Investments, Inc. owned 235,294 shares of the
fund (94.41% of class A shares outstanding), valued at $1,851,764.
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
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
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
Jack Chang
Vice President and Fund Manager
Roland Gillis
Vice President and Fund Manager
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Global Equity
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.
47847 12/98
