Putnam
Investment
Fund 98
ANNUAL REPORT
June 30, 1998
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Concern over Asia held back stock performance in most markets during the
second quarter. Your fund, which began operations on February 17, 1998,
invests in companies of all sizes, but was positioned primarily in undervalued
small- and mid-cap stocks during this period. The stock-selection skills of
fund managers Charles Swanberg and Roland Gillis prevailed over the broad
markets' lackluster performance, generating a 16.12% return at net asset value
for the abbreviated initial fiscal year ended June 30, 1998.
Over this period, the key to positive performance among selected small and
midsize companies was the ability to derive their profits from operations in
the United States. Many of those chosen for the portfolio have been relatively
unaffected by the current problems associated with Asia and Latin America.
Earnings have been especially strong in the U.S. retail sector because of the
healthy economy and falling interest rates. Since homeowners recently have
been refinancing their mortgages at lower rates, they have had more money to
spend on consumer goods and services. Year 2000 computer issues and abundant
interest in the Internet contributed to the lucrative earnings in the
technology sector.
A few examples of stocks that contributed strongly to the fund's performance
are Exodus Communications, Starbucks Corporation, and Costco Companies, Inc.
Exodus Communications, based in California, is a provider of Internet system
and network management solutions that is benefiting from an increase in
customers and sales. If you enjoy a cup of coffee, you'll know that Starbucks,
based in Seattle, sells high-quality whole-bean coffees, ice cream, and
Italian beverages and is immensely popular. Costco, also headquartered in the
state of Washington, operates a chain of wholesale cash-and-carry membership
warehouses in which you can buy just about anything from big screen
televisions to economy-size bottles of shampoo.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Ascend Communications, Inc.
Networking equipment
Dollar Tree Stores, Inc.
Retail
Fifth Third Bancorp
Banks
Capita Group PLC (United Kingdom)
Computer services
PizzaExpress PLC (United Kingdom)
Restaurants
Keane, Inc.
Computer services
Exodus Communications, Inc.
Networking
Medtronic, Inc.
Medical supplies and devices
Geotel Communications
Telecommunication equipment
Medquist, Inc.
Health-care information systems
These holdings represent 20.8% of the fund's net assets as of June 30, 1998.
Portfolio holdings will vary over time.
While these holdings, along with others discussed in this report were viewed
favorably at the end of the fiscal period, all are subject to review and
adjustment in accordance with the fund's investment strategy and may vary in
the future.
As we move into the second half of 1998, we expect a slowdown in the economy
as the effects of the Asian situation penetrate more deeply into the United
States. Of particular importance are the effects of slowing exports to Asia
and the possibility of further erosion of Asian currencies, particularly that
of China. Japan is in the midst of its deepest recession since World War II,
and with the stunning defeat of the ruling Liberal Democratic Party, there
could be more delays in the plans for reviving Japan's economy. Analysts will
likely trim their earnings estimates for many U.S. corporations to reflect
these concerns. Keep in mind that we believe any slowdown would occur in the
context of current economic growth and that we are not forecasting a
recession.
We will be watching for signs of inflation at home but believe that the
companies with less exposure to overseas markets will have better performance
over the near term. Our confidence in your fund managers' ability to find such
high-quality, rapidly growing stocks remains strong.
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 June 30, 1998, there is no guarantee the fund will continue to
hold these securities in the future. This fund invests a portion of its assets
in small to midsize companies. Such investments increase the risk of greater
price fluctuations.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Investment Fund 98 seeks capital appreciation by investing primarily in
the equity securities of companies of all sizes.
TOTAL RETURN FOR PERIOD ENDED 6/30/98
(inception 2/17/98)
S&P 500 Consumer
NAV POP Index Price Index
- ---------------------------------------------------------------------------
Since inception 16.12% 9.42% 8.59% 0.68%
- ---------------------------------------------------------------------------
[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
2/17/98
Fund's class A S&P 500 Consumer Price
Date shares at POP Index Index
2/17/98 9,425 10,000 10,000
3/31/98 10,290 10,512 10,019
6/30/98 10,942 10,859 10,068
Past performance is no assurance of future results.
PRICING INFORMATION for the period 2/17/98 to 6/30/98
- -------------------------------------------------------------------
Share value: NAV POP
- -------------------------------------------------------------------
2/17/98 $8.50 $9.02
- -------------------------------------------------------------------
6/30/98 9.87 10.47
- -------------------------------------------------------------------
Performance data represent past results and do not reflect future performance.
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. 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 5.75% maximum sales charge.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index is an unmanaged list of common stocks that is
frequently used as a 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.
Report of independent accountants
To the Trustees and Shareholders of
Putnam Investment Fund 98
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 Investment
Fund 98 (the "fund") at June 30, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for the period from
February 17, 1998 (commencement of operations) through June 30, 1998, 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 June 30, 1998 by correspondence with the custodian,
provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 14, 1998
Portfolio of investments owned
June 30, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (98.7%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Advertising (2.2%)
- -------------------------------------------------------------------------------------------------------------
848 Lamar Advertising Co. (NON) $ 30,422
1,200 Outdoor Systems, Inc. (NON) 33,600
--------------
64,022
Aerospace and Defense (0.6%)
- -------------------------------------------------------------------------------------------------------------
485 Orbital Sciences Corp. (NON) 18,127
Airlines (0.8%)
- -------------------------------------------------------------------------------------------------------------
680 Ryanair Holdings, PLC ADR (Ireland) (NON) 24,225
Apparel (0.5%)
- -------------------------------------------------------------------------------------------------------------
300 Gucci Group N.V. (Italy) 15,900
Banks (2.7%)
- -------------------------------------------------------------------------------------------------------------
1,072 Fifth Third Bancorp 67,536
150 Northern Trust Corp. 11,438
--------------
78,974
Broadcasting (2.2%)
- -------------------------------------------------------------------------------------------------------------
200 Chancellor Media Corp. 9,931
100 Citadel Communications, Corp. (NON) 1,994
890 Sinclair Broadcast Group, Inc. Class A (NON) 25,588
775 Univision Communications Inc. Class A (NON) 28,869
--------------
66,382
Business Equipment and Services (1.3%)
- -------------------------------------------------------------------------------------------------------------
730 Cintas Corp. 37,230
Business Services (1.6%)
- -------------------------------------------------------------------------------------------------------------
2,100 Rentokil Group PLC (United Kingdom) 15,087
1,000 Syntel, Inc. (NON) 31,250
--------------
46,337
Cable Television (0.9%)
- -------------------------------------------------------------------------------------------------------------
730 Tele-Communications, Inc. Class A (NON) 28,059
Cellular Communications (0.8%)
- -------------------------------------------------------------------------------------------------------------
1,750 Brightpoint, Inc. (NON) 25,375
Computer Services (9.6%)
- -------------------------------------------------------------------------------------------------------------
7,341 Capita Group PLC (United Kingdom) 63,285
472 CMG Information Services, Inc. (NON) 33,394
796 Daou Systems, Inc. (NON) 18,209
300 Getronics Electric N.V. (Netherlands) 15,530
985 IDT Corp. (NON) 29,612
1,040 Keane, Inc. (NON) 58,240
600 Misys PLC (United Kingdom) 34,055
649 Sterling Commerce, Inc. (NON) 31,477
--------------
283,802
Computer Software (14.7%)
- -------------------------------------------------------------------------------------------------------------
500 Aspect Development, Inc. (NON) 37,813
460 BMC Software, Inc. (NON) 23,891
1,545 Broadvision, Inc (NON) 36,887
600 Cerner Corp. (NON) 16,988
425 Compuware Corp. (NON) 21,728
540 Electronic Arts, Inc. (NON) 29,160
2,210 Fundtech Ltd. (NON) 41,714
519 Intuit, Inc. (NON) 31,789
129 Lycos, Inc. (NON) 9,723
400 Parametric Technology Corp. (NON) 10,850
1,310 Peregrine Systems, Inc. (NON) 37,335
3,240 SEMA Group PLC (United Kingdom) 38,075
1,070 Smallworldwide PLC ADR (United Kingdom) (NON) 31,164
1,020 Visual Networks, Inc. (NON) 37,341
2,000 Walker Interactive Systems, Inc. (NON) 29,500
--------------
433,958
Consumer Services (2.6%)
- -------------------------------------------------------------------------------------------------------------
434 Applied Graphics Technologies, Inc. (NON) 19,856
485 Hillenbrand Industries, Inc. 29,100
900 Travel Services International Inc. (NON) 29,588
--------------
78,544
Cosmetics (0.4%)
- -------------------------------------------------------------------------------------------------------------
1,800 Thermolase Corp. (NON) 13,050
Education (1.1%)
- -------------------------------------------------------------------------------------------------------------
950 Apollo Group, Inc. Class A (NON) 31,409
Electronic Components (1.7%)
- -------------------------------------------------------------------------------------------------------------
715 Metromedia Fiber Network, Inc. Class A (NON) 33,337
756 Sipex Corp. (NON) 16,254
--------------
49,591
Electronics (1.1%)
- -------------------------------------------------------------------------------------------------------------
510 Uniphase Corp. (NON) 32,018
Electronics and Electrical Equipment (1.3%)
- -------------------------------------------------------------------------------------------------------------
550 Lernout & Hauspie Speech Products N.V. (Belgium) (NON) 32,828
350 ThermoQuest Corp. (NON) 5,228
--------------
38,056
Energy-Related (0.6%)
- -------------------------------------------------------------------------------------------------------------
550 Thermo Electron Corp. (NON) 18,803
Entertainment (0.7%)
- -------------------------------------------------------------------------------------------------------------
450 Coach USA, Inc. (NON) 20,531
Environmental Control (0.5%)
- -------------------------------------------------------------------------------------------------------------
300 Eastern Environmental Services, Inc. (NON) 10,200
200 Republic Services, Inc. Class A (NON) 5,100
--------------
15,300
Finance (1.1%)
- -------------------------------------------------------------------------------------------------------------
525 Fannie Mae 31,894
Financial Services (4.1%)
- -------------------------------------------------------------------------------------------------------------
200 Associates First Capital Corp. 15,375
200 Finova Group, Inc. 11,325
193 FIRSTPLUS Financial Group, Inc. (NON) 6,948
471 HealthCare Financial Partners, Inc. (NON) 28,878
83 Marschollek, Lautenschlaeger und Partner AG (Germany) 39,646
300 Star Banc Corp. 19,163
--------------
121,335
Health Care Information Systems (1.5%)
- -------------------------------------------------------------------------------------------------------------
1,500 Medquist, Inc. (NON) 43,313
Hospital Management and Medical Services (0.1%)
- -------------------------------------------------------------------------------------------------------------
200 Medrisk, Inc. (NON) 4,050
Insurance (0.5%)
- -------------------------------------------------------------------------------------------------------------
700 Century Business Services, Inc. (NON) 14,000
Machinery (0.4%)
- -------------------------------------------------------------------------------------------------------------
150 Sidel S.A. (France) 10,892
Medical Management Services (1.0%)
- -------------------------------------------------------------------------------------------------------------
800 Pediatrix Medical Group, Inc. (NON) 29,750
Medical Supplies and Devices (6.1%)
- -------------------------------------------------------------------------------------------------------------
1,463 Cyberonics, Inc. (NON) 15,544
510 Henry Schein, Inc. (NON) 23,524
529 IMS Health, Inc. 31,476
770 Medtronic, Inc. 49,088
700 Omnicare, Inc. 26,688
100 Sofamor Danek Group, Inc. (NON) 8,656
480 Stryker Corp. 18,420
300 Sybron International Corp. (NON) 7,575
--------------
180,971
Networking (2.0%)
- -------------------------------------------------------------------------------------------------------------
1,300 Exodus Communications, Inc. (NON) 58,175
Networking Equipment (3.7%)
- -------------------------------------------------------------------------------------------------------------
1,875 Ascend Communications, Inc. (NON) 92,930
634 FORE Systems, Inc. (NON) 16,801
--------------
109,731
Office Equipment (1.3%)
- -------------------------------------------------------------------------------------------------------------
700 Avery Dennison Corp. 37,625
Oil and Gas (0.5%)
- -------------------------------------------------------------------------------------------------------------
185 Camco International, Inc. 14,407
Pharmaceuticals (1.0%)
- -------------------------------------------------------------------------------------------------------------
700 Sepracor, Inc. (NON) 29,050
Pharmaceuticals and Biotechnology (0.7%)
- -------------------------------------------------------------------------------------------------------------
12 Novartis AG ADR (Switzerland) 19,939
Publishing (0.7%)
- -------------------------------------------------------------------------------------------------------------
146 Wolters Kluwer N.V. (Netherlands) 20,002
Restaurants (3.7%)
- -------------------------------------------------------------------------------------------------------------
3,848 J.D. Wetherspoon PLC (United Kingdom) 18,473
4,375 PizzaExpress PLC (United Kingdom) 62,863
500 Starbucks Corp. (NON) 26,719
--------------
108,055
Retail (11.9%)
- -------------------------------------------------------------------------------------------------------------
900 Borders Group, Inc. (NON) 33,300
60 CompUSA, Inc. (NON) 1,084
310 Costco Companies, Inc. (NON) 19,549
1,823 Dollar Tree Stores, Inc. (NON) 74,039
1,300 Eagle Hardware & Garden, Inc. (NON) 30,063
910 Fred Meyer, Inc. (NON) 38,675
400 General Nutrition Companies, Inc. (NON) 12,450
350 Hornbach Holding 31,950
600 Kohls Corp. (NON) 31,125
800 Michaels Stores, Inc. 28,225
900 Office Depot, Inc. (NON) 28,406
900 Payment Services., Inc. (NON) 22,894
--------------
351,760
Semiconductors (1.0%)
- -------------------------------------------------------------------------------------------------------------
500 Linear Technology Corp. 30,156
Specialty Consumer Products (2.2%)
- -------------------------------------------------------------------------------------------------------------
500 Central Garden and Pet Co. (NON) 15,563
1,117 Guitar Center, Inc. (NON) 33,650
360 Mattel, Inc. 15,233
--------------
64,446
Supermarkets (1.0%)
- -------------------------------------------------------------------------------------------------------------
650 Dominick's Supermarkets, Inc. (NON) 28,966
Telecommunication Equipment (3.6%)
- -------------------------------------------------------------------------------------------------------------
734 Advanced Fibre Communications (NON) 29,406
1,096 Geotel Communications (NON) 44,662
911 Qwest Communications International, Inc. (NON) 31,771
--------------
105,839
Telecommunications (1.9%)
- -------------------------------------------------------------------------------------------------------------
600 Global Telesystems Group, Inc. (NON) 29,250
440 Panamsat Corp. (NON) 25,025
100 STET Hellas Telecommunications S.A. ADR (Greece)(NON) 4,150
--------------
58,425
Wireless Communications (0.8%)
- -------------------------------------------------------------------------------------------------------------
400 Airtouch Communications, Inc. (NON) 23,375
--------------
Total Common Stocks (cost $2,510,898) $ 2,915,849
SHORT-TERM INVESTMENTS (3.6%) (a) (cost $107,017)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
$107,000 Interest in $750,000,000 joint repurchase agreement
dated June 30, 1998 with Goldman Sachs & Co. due
July 1, 1998 with respect to various U.S. Treasury
obligations -- maturity value of $107,017 for an
effective yield of 5.8% $ 107,017
- -------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,617,915) (b) $ 3,022,866
- -------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,955,295.
(b) The aggregate identified cost on a tax basis is $2,617,915, resulting in gross unrealized appreciation
and depreciation of $475,684 and $70,733, respectively, or net unrealized appreciation of $404,951.
(NON) 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
June 30, 1998
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $2,617,915) (Note 1) $3,022,866
- ---------------------------------------------------------------------------------------------------
Cash 885
- ---------------------------------------------------------------------------------------------------
Foreign currency (identified cost $11,644) 11,599
- ---------------------------------------------------------------------------------------------------
Dividends and interest receivable 523
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 6,852
- ---------------------------------------------------------------------------------------------------
Receivable from Manager (Note 2) 11,445
- ---------------------------------------------------------------------------------------------------
Total assets 3,054,170
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 79,783
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 629
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 120
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 10
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 18,333
- ---------------------------------------------------------------------------------------------------
Total liabilities 98,875
- ---------------------------------------------------------------------------------------------------
Net assets $2,955,295
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,557,621
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (7,232)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign currencies 404,906
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,955,295
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per share
($2,955,295 divided by 299,527 shares) $9.87
- ---------------------------------------------------------------------------------------------------
Offering price per share (100/94.25 of $9.87)* $10.47
- ---------------------------------------------------------------------------------------------------
* On single retail sales 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 February 17, 1998 (commencement of operations) to June 30, 1998
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest $ 1,374
- --------------------------------------------------------------------------------------------------
Dividends 1,756
- --------------------------------------------------------------------------------------------------
Total investment income 3,130
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 6,742
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,926
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 241
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 20
- --------------------------------------------------------------------------------------------------
Reports to shareholders 1,479
- --------------------------------------------------------------------------------------------------
Registration fees 61
- --------------------------------------------------------------------------------------------------
Auditing 15,000
- --------------------------------------------------------------------------------------------------
Legal 2,354
- --------------------------------------------------------------------------------------------------
Other 11
- --------------------------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (18,187)
- --------------------------------------------------------------------------------------------------
Total expenses 9,647
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (15)
- --------------------------------------------------------------------------------------------------
Net expenses 9,632
- --------------------------------------------------------------------------------------------------
Net investment loss (6,502)
- --------------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (7,232)
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and
liabilities in foreign currencies during the period (45)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 404,951
- --------------------------------------------------------------------------------------------------
Net gain on investments 397,674
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $391,172
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the period
February 17, 1998
(commencement
of operations) to
June 30
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment loss $ (6,502)
- ----------------------------------------------------------------------------------------------------------------------
Net realized loss on investments (7,232)
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets
and liabilities in foreign currencies 404,906
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 391,172
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 564,123
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 955,295
- ----------------------------------------------------------------------------------------------------------------------
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period (Note 5) 2,000,000
- ----------------------------------------------------------------------------------------------------------------------
End of period $2,955,295
- ----------------------------------------------------------------------------------------------------------------------
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 February 17, 1998+
operating performance to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss (.02)(b)(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.39
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.37
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.87
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%)(a) 16.12*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,955
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .37*(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.25)*(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 72.22*
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid $.0264
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Reflects an expense limitation in effect during the period. As a result of such limitation,
expenses for the fund reflect a reduction of $0.06 per share. (See Note 2).
(c) Includes amounts paid through expense offset arrangements. (Note 2)
(d) Per share net investment loss has been determined on the basis of the weighted average number
of shares during the period.
</TABLE>
Notes to financial statements
June 30, 1998
Note 1
Significant accounting policies
Putnam Investment Fund 98 (the "fund") is a series of Putnam Funds Trust (the
"Trust") which is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The
objective of the fund is to seek long-term growth of capital by investing
primarily in equity securities of companies that Putnam Investment Management,
Inc. ("Putnam Management"), the fund's Manager, a wholly-owned subsidiary of
Putnam Investments, Inc., believes have potential for capital appreciation
which is significantly greater than that of the market averages.
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 on the principal market in which the securities are
traded, 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
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 Management.
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
exchange gains or losses on closed forward currency contracts, disposition of
foriegn 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 June 30, 1998, the fund had a capital loss carryover of approximately
$7,232 available to offset future net capital gain, if any, which will expire
on June 30, 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 permanent
differences of net operating losses. 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 June 30, 1998, the fund reclassified $6,502 to decrease
accumulated net investment loss and $6,502 to decrease paid-in-capital. 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: 0.70% of the first $500 million of
average net assets, 0.60% of the next $500 million, 0.55% of the next $500
million, 0.50% of the next $5 billion, 0.475% of the next $5 billion, 0.455%
of the next $5 billion, 0.44% of the next $5 billion, and 0.43% thereafter.
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 commissions, interest, taxes, and
extraordinary expenses and credits from Putnam Fiduciary Trust Company (PFTC),
a subsidiary of Putnam Investments 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 period ended June 30, 1998, fund expenses were reduced by $15 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 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 June 30, 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 June 30, 1998, Putnam Mutual Funds
Corp., acting underwriter received no monies on redemptions.
Note 3
Purchases and sales of securities
During the period ended June 30, 1998, purchases and sales of investment
securities other than short-term investments aggregated $4,380,731 and
$1,862,557, 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 June 30, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
For the period
February 17, 1998
(commencement of
operations) to
June 30, 1998
- ------------------------------------------------------------
Shares Amount
- ------------------------------------------------------------
Shares sold 77,395 $687,677
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ------------------------------------------------------------
77,395 687,677
Shares
repurchased (13,162) (123,554)
- ------------------------------------------------------------
Net increase 64,233 $564,123
- ------------------------------------------------------------
Note 5
Initial capitalization and
offering of shares
The fund was established as a Massachusetts business trust on January
22, 1996. During the period January 22, 1996 to February 17, 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 February 13, 1998.
At June 30, 1998, Putnam Investments, Inc. owned 246,069 shares of the fund
(82.2% of shares outstanding), valued at $2,428,701.
Federal tax information
(Unaudited)
The Form 1099 you receive in January 1999 will show the tax status of all
distributions paid to your account in calendar 1998.
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
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
Charles Swanberg
Vice President and Fund Manager
Roland Gillis
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 Investment Fund
98. 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.
44639 8/98
