Putnam
Research
Fund
ANNUAL REPORT
July 31, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "The fund's research-based stock selection process targets strong
candidates among the better-known stocks and seeks potential that
may have been overlooked by others on Wall Street."
-- Thomas R. Bogan, manager,
Putnam Research Fund
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
14 Portfolio holdings
18 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
What can happen when the collective expertise of 45 industry
analysts is applied to the management of an investment portfolio in
a team-oriented environment is amply demonstrated by the positive
results Putnam Research Fund has achieved since its inception in
the fall of 1995. I am pleased to note that after more than two
years of strong performance as a fund offered solely to employees
of Putnam Investments, the fund was made available to all investors
on June 15, 1998.
We are especially enthusiastic about this fund because it showcases
the talents of Putnam's global equity research organization, which
we believe is among the finest in the mutual fund industry. The
team conducts meticulous research and analysis in building the
fund's portfolio and employs a proprietary investment process to
manage volatility, an important component of risk.
In the following report, Fund Manager Thomas Bogan discusses the
strategy he and his team used to achieve fiscal 1998's positive
results and their outlook for the fiscal year just begun.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
September 16, 1998
Report from the Fund Manager
Thomas R. Bogan
The 12 months ended July 31, 1998 saw stock market volatility,
struggling world economies, and the public debut of Putnam Research
Fund, which continued its record of solid returns throughout this
challenging period. Since the fund's inception on October 2, 1995,
its class A shares have provided an annualized total return of
28.55% at net asset value (NAV) and 25.88% at public offering price
(POP). For the fiscal year ended July 31, 1998, the fund's class A
shares provided a total return of 18.00% (NAV) and 11.20% (POP).
For complete performance information, please refer to the summary
that begins on page 9.
After more than two years of strong performance as a fund offered
to employees of Putnam Investments, it was made available to all
investors on June 15, 1998. Since the fund began operations, we
have discovered how the collective expertise of 45 industry
analysts can contribute greatly to a growth portfolio.
Putnam Research Fund's portfolio consists solely of recommendations
by our analysts. This approach has enabled the fund to profit from
the success of many of our recommended stocks. At the same time,
the fund was able to sidestep some problems when stocks were
removed from the portfolio before their prices suffered setbacks.
* SIDESTEPPING TROUBLE IN TECHNOLOGY SECTOR
Technology was a volatile and challenging area during much of the
fiscal year, but careful monitoring by our analysts helped us make
the most of this sector. One notable example is the fund's strategy
with regard to Computer Associates, a developer and marketer of
software. For much of the fiscal year, this company was represented
in your fund's portfolio and was benefiting from a skyrocketing
demand for its products, which are used by businesses to maintain
elaborate computer environments.
Toward the end of the period, however, the analyst who follows
Computer Associates changed his recommendation on this stock after
discovering that capital spending -- the amount corporations were
spending on technology -- had been slowing considerably throughout
the industry. He anticipated that many companies, such as Computer
Associates, would be negatively affected and as a result, this
stock was removed from the portfolio.
Shortly thereafter, Computer Associates' stock price declined
substantially when the company announced that its future earnings
may be damaged. The decline in the stock price during the period
was considered by our analyst to be a short-term overreaction, and
he still believes Computer Associates is a fundamentally strong
company with positive long-term growth potential. It is important
to note that in the future this stock may again be considered for
the portfolio.
On the flip side, the fund benefited from our decision to maintain
positions in a number of semiconductor stocks that had suffered
during much of the period. Companies throughout the semiconductor
industry have felt the negative effects of the Asian crisis,
pricing pressures, and excess inventories.
However, our decision to keep stocks such as Micron Technology
proved profitable. Although it has suffered from price pressures
along with other chip makers, Micron was recommended as a best idea
for the fund's portfolio. A fundamentally sound company and one of
the better low-cost producers of memory chips, Micron was expected
to do exceptionally well once the industry recovered. In fact, we
took advantage of recent stock price declines by purchasing more
shares at attractively low prices. During the latter weeks of the
period, Micron, along with other semiconductor stocks in the
portfolio, began to rebound substantially, boosting the fund's
returns.
[GRAPHIC OMITTED: horizontal bar chart of TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Pharmaceuticals
and biotechnology 10.1%
Retail 7.8%
Financial services 7.7%
Banks 6.8%
Oil and gas 6.5%
Footnote reads:
* Based on net assets as of 7/31/98. 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.
* POPULARITY OF WIRELESS BOOSTS MANY STOCKS
The world's love affair with wireless communications has translated
into healthy gains for the stock of AirTouch Communications, which
was in the fund's portfolio throughout the period. AirTouch
provides wireless services, such as cellular and PCS telephones and
pagers, in the United States, Europe, and Asia. Our analyst
recommended AirTouch based on his belief that it is a premier
global wireless company whose entrepreneurial management team is
among the best in the business. In addition, AirTouch is one of the
most efficient companies in this increasingly competitive industry,
and its strong international operations are expected to drive the
company's growth significantly over the next five years.
MediaOne Group, Inc. a domestic cable company with significant
European wireless operations, was among the fund's top performers
for the period. MediaOne's strong presence in cable television and
multimedia services has contributed to its rapid growth. Formerly
an operating unit of US West, MediaOne recently split into a
separate company, focusing on innovative services like MediaOne
Express, which utilizes its cable plant for high speed Internet
access that is 50 times faster than traditional connections through
telephone lines. The company has also begun to offer telephone
service in certain markets.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
General Electric Co.
Conglomerate
AirTouch Communications, Inc.
Wireless communications
Baxter International, Inc.
Medical supplies and devices
Merck & Co., Inc.
Pharmaceuticals
Intel Corp.
Semiconductors
Bristol-Myers Squibb Co.
Pharmaceuticals
Charles Schwab Corp.
Investment services
Philip Morris Companies, Inc.
Consumer products
Wal-Mart Stores, Inc.
Retail
Duke Energy Corp.
Electric utilities
These holdings represent 26.2% of the fund's net assets as of
7/31/98. Portfolio holdings will vary over time.
* CONSOLIDATION AND STRONG ECONOMY FUEL GROWTH
One of the portfolio's best performers in fiscal '98 was the stock
of The Travelers Group. In the rapidly consolidating financial
services industry, Travelers is expected to be one of the surviving
giants. Indeed, the company's plan to merge with Citicorp will
create the largest financial services organization in the world,
called Citigroup, Inc. Travelers was recommended for the portfolio
because of its broad product line, its ability to reach virtually
every demographic segment of the U.S. population, and its
increasing global reach. Travelers also has a tight expense
culture, one in which management is constantly searching for ways
to lower expenses and improve profitability.
Throughout the period, the U.S. economy provided fuel for retail
stocks in the forms of low unemployment, low inflation, and a high
level of consumer confidence. One of the beneficiaries of this
positive environment was Lowe's Companies, Inc., a Fortune 500
retailer serving the do-it-yourself home improvement market. This
market in particular has been booming, since low interest rates
have prompted new home construction, remodeling, and home repairs.
Lowe's began as a supplier that mainly served professional
contractors but has transitioned into a more consumer-oriented
retail operation, transforming small stores into large warehouses.
It is the second-largest retailer of home improvement products in
the world.
* OUTLOOK: CONTINUED FOCUS ON BEST IDEAS
At the close of the fiscal period, the U.S. economy was beginning
to experience increased volatility, with major indexes slipping
considerably from their highs earlier in the calendar year. While
your fund has the advantage of limited exposure to troubled foreign
economies, we are prepared for turbulence in all sectors. We will
continue to rely on the fundamental strength of the fund's
strategy: tapping the collective expertise of industry specialists
and investing in their very best stock ideas.
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 7/31/98, there is no
guarantee the fund will continue to hold these securities in the
future. Investments in a highly focused portfolio with a relatively
small number of holdings may be subject to greater risk than a more
broadly diversified portfolio.
Performance summary
This section provides information about your fund's performance,
which should always be considered in light of its investment
strategy. Putnam Research Fund is designed for investors seeking
capital appreciation primarily through common stock investments.
TOTAL RETURN FOR PERIODS ENDED 7/31/98
Class A Class B Class M
(inception date) (10/2/95) (6/15/98) (6/15/98)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 18.00% 11.20% 16.97% 12.04% 17.22% 13.08%
- ------------------------------------------------------------------------------
Life of fund 103.54 91.81 98.16 95.16 99.52 92.42
Annual average 28.55 25.88 27.34 26.65 27.64 26.02
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 7/31/98
S&P 500 Consumer
Index Price Index
- ------------------------------------------------------------------------------
1 year 19.29% 1.68%
- ------------------------------------------------------------------------------
Life of fund 102.47 6.53
Annual average 28.27 2.26
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. Returns for
class A and class M shares reflect the current maximum initial
sales charges of 5.75% and 3.50%, respectively. Class B share
returns for the 1-year and life-of-fund periods reflect the
applicable contingent deferred sales charge (CDSC), which is 5% in
the first year, declines to 1% in the sixth year, and is eliminated
thereafter. Returns shown for class B and class M shares for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the initial
sales charge or CDSC, if any, currently applicable to each class
and in the case of class B and class M shares, the higher operating
expenses applicable to such shares. 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 worth
more or less than their original cost. The fund's performance
reflects a voluntary expense limitation currently or previously in
effect. Without the limitation, total return would have been lower.
[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
10/2/95
Fund's class A S&P 500 Consumer Price
Date shares at POP Index Index
10/2/95 9,425 10,000 10,000
7/31/96 10,864 11,157 10,248
7/31/97 16,255 16,974 10,477
7/31/98 $19,181 $20,247 $10,653
Past performance is no assurance of future results. At the end of
the same time period, a $10,000 investment in the fund's class B
shares would have been valued at $19,816 ($19,516 with a redemption
at the end of the period). A $10,000 investment in the fund's class
M shares would have been valued at $19,952 ($19,242 at public
offering price).
PRICE AND DISTRIBUTION INFORMATION
12 months ended 7/31/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 1 -- --
- ------------------------------------------------------------------------------
Income $0.079 -- --
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 1.310 -- --
- ------------------------------------------------------------------------------
Short-term 0.749 -- --
- ------------------------------------------------------------------------------
Total $2.138 -- --
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
7/31/97 $13.58 $14.41 -- -- --
- ------------------------------------------------------------------------------
6/15/98* -- -- 13.00 13.00 13.47
- ------------------------------------------------------------------------------
7/31/98 13.49 14.31 13.49 13.49 13.98
- ------------------------------------------------------------------------------
* Inception date for class B and class M shares.
TOTAL RETURN FOR PERIODS ENDED 6/30/98
(most recent calendar quarter)
Class A Class B Class M
(inception date) (10/2/95) (6/15/98) (6/15/98)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 28.12% 20.76% 26.89% 21.89% 27.19% 22.70%
- ------------------------------------------------------------------------------
Life of fund 103.08 91.38 97.72 94.72 99.08 92.00
Annual average 29.51 26.73 28.25 27.53 28.57 26.88
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment
returns and principal value will fluctuate so that an investor's
shares, when sold, may be worth more or less than their original
cost. See first page of performance section for performance
calculation method.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over
time, assuming you held the shares through the entire period and
reinvested all distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1
fee than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus
any liabilities, divided by the number of outstanding shares, not
including any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share
plus the maximum sales charge levied at the time of purchase. POP
performance figures shown here assume the 5.75% maximum sales
charge for class A shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the
time of the redemption of class B shares and assumes redemption at
the end of the period. Your fund's CDSC declines from a 5% maximum
during the first year to 1% during the sixth year. After the sixth
year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index is an unmanaged list of common stocks
that is frequently used as a general measure of stock market
performance. 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.
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Report of independent accountants
For the fiscal year ended July 31, 1998
To the Trustees and Shareholders of
Putnam Research Fund
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 Research Fund (the "fund") at July
31, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for the periods 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 audits. We conducted our audits
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 audits, which included confirmation of investments owned
at July 31, 1998 by correspondence with the custodian, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 10, 1998
<TABLE>
<CAPTION>
Portfolio of investments owned
July 31, 1998
COMMON STOCKS (96.8%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Automotive (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
34,000 General Motors Corp. $ 2,458,625
Banks (6.8%)
- --------------------------------------------------------------------------------------------------------------------------
53,900 Banc One Corp. 2,785,856
21,300 BankAmerica Corp. 1,911,675
31,700 First Union Corp. 1,909,925
24,800 NationsBank Corp. 1,977,800
17,000 Northern Trust Corp. 1,251,625
30,750 Washington Mutual, Inc. 1,228,078
--------------
11,064,959
Basic Industrial Products (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
42,100 Danaher Corp. 1,718,206
Broadcasting (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
36,800 Clear Channel Communications, Inc. (NON) 2,067,700
Computers (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
92,100 Compaq Computer Corp. 3,027,788
38,700 Gateway 2000, Inc. (NON) 2,089,800
--------------
5,117,588
Conglomerates (5.4%)
- --------------------------------------------------------------------------------------------------------------------------
70,400 General Electric Co. 6,287,600
41,000 Tyco International Ltd. (NON) 2,539,438
--------------
8,827,038
Consumer Products (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
26,000 Colgate-Palmolive Co. 2,403,375
Electric Utilities (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
62,300 Duke Energy Corp. 3,558,888
92,500 Entergy Corp. 2,532,188
--------------
6,091,076
Entertainment (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
14,600 Time Warner, Inc. 1,314,913
Environmental Control (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
23,300 Waste Management, Inc. (NON) 1,284,413
Farm Equipment (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
43,000 Deere (John) & Co. 1,728,063
Financial Services (7.7%)
- --------------------------------------------------------------------------------------------------------------------------
23,100 Associates First Capital Corp. 1,794,581
21,600 Lehman Brothers Holding, Inc. 1,555,200
59,900 Norwest Corp. 2,152,656
102,200 Schwab (Charles) Corp. 3,832,500
49,600 Travelers Group, Inc. 3,323,200
--------------
12,658,137
Food and Beverages (5.4%)
- --------------------------------------------------------------------------------------------------------------------------
67,800 Coca-Cola Enterprises, Inc. 2,233,163
18,900 Danone (France) 1,126,913
68,800 Nabisco Holdings Corp. Class A 2,451,000
61,600 Sara Lee Corp. 3,087,700
--------------
8,898,776
Health Care Services (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
88,300 HEALTHSOUTH Corp. (NON) 2,218,538
Household Products (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
22,000 Clorox Co. 2,255,000
Insurance (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
31,200 The Equitable Companies, Inc. 2,341,950
38,900 MGIC Investment Corp. 2,086,013
--------------
4,427,963
Medical Supplies and Devices (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
75,400 Baxter International, Inc. 4,505,150
Networking (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
25,800 Ascend Communications, Inc. (NON) 1,147,294
Oil and Gas (6.5%)
- --------------------------------------------------------------------------------------------------------------------------
32,999 British Petroleum PLC ADR (United Kingdom) 2,648,170
71,500 Burlington Resources Inc. 2,591,875
48,400 Ente Nazionale Idrocarburi S.P.A. (ENI) ADR (Italy) 3,127,850
40,508 Total Corp. ADR (France) 2,316,551
--------------
10,684,446
Pharmaceuticals and Biotechnology (10.1%)
- --------------------------------------------------------------------------------------------------------------------------
34,000 Bristol-Myers Squibb Co. 3,873,875
57,200 Centocor, Inc. (NON) 2,016,300
34,600 Merck & Co., Inc. 4,266,613
65,100 Pharmacia & Upjohn, Inc. 3,084,113
44,400 Warner-Lambert Co. 3,354,975
--------------
16,595,876
Publishing (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
18,100 Tribune Co. 1,217,225
REIT's (Real Estate Investment Trust) (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
51,600 Starwood Lodging Trust 2,118,825
Restaurants (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
34,600 McDonald's Corp. 2,311,713
58,300 Tricon Global Restaurants, Inc. (NON) 2,062,363
--------------
4,374,076
Retail (7.8%)
- --------------------------------------------------------------------------------------------------------------------------
21,100 Costco Companies, Inc. (NON) 1,197,425
33,400 Dayton Hudson Corp. 1,596,938
80,700 Fred Meyer, Inc. (NON) 3,555,844
46,200 Office Depot, Inc. (NON) 1,501,500
31,100 Rite Aid Corp. 1,228,450
57,700 Wal-Mart Stores, Inc. 3,642,313
--------------
12,722,470
Satellite Services (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
38,500 PanAmSat Corp. (NON) 1,898,531
Semiconductors (4.7%)
- --------------------------------------------------------------------------------------------------------------------------
46,800 Intel Corp. 3,951,675
59,600 Micron Technology, Inc. 1,989,150
30,600 Texas Instruments, Inc. 1,814,963
--------------
7,755,788
Telecommunication Equipment (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
35,600 Lucent Technologies, Inc. 3,290,866
22,800 Nokia Corp. ADS (Finland) 1,986,450
18,900 Tellabs, Inc. (NON) 1,422,816
--------------
6,700,132
Telecommunications (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
48,200 MediaOne Group Inc. (NON) 2,328,663
55,378 U S West, Inc. 2,955,775
--------------
5,284,438
Tobacco (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
87,200 Philip Morris Cos., Inc. 3,820,450
Wireless Communications (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
89,600 Airtouch Communications, Inc. (NON) 5,269,600
--------------
Total Common Stocks (cost $159,126,161) $ 158,628,671
SHORT-TERM INVESTMENTS (3.5%) (a) (cost $5,665,891)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$5,665,000 Interest in $750,000,000 tri-party repurchase
agreement dated July 31, 1998 with Goldman Sachs
due August 3, 1998 with respect to various
U.S. Treasury obligations - maturity value
of $5,667,672 for an effective yield of 5.66% $ 5,665,891
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $164,792,052) (b) $ 164,294,562
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $163,843,299.
(b) The aggregate identified cost on a tax basis is $164,785,056, resulting in gross unrealized appreciation and
depreciation of $5,672,590 and $6,163,084, respectively, or net unrealized depreciation of $490,494.
(NON) Non-income-producing security.
ADR or ADS after the name of a foreign holding stands for American Depository Receipts or American Depository
Shares, respectively, 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
July 31, 1998
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $164,792,052) (Note 1) $164,294,562
- -----------------------------------------------------------------------------------------------
Cash 334
- -----------------------------------------------------------------------------------------------
Dividends and interest receivable 57,969
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 12,880,385
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 6,543,198
- -----------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 6,283
- -----------------------------------------------------------------------------------------------
Total assets 183,782,731
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 19,654,953
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 97,473
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 80,760
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 4,941
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 1,920
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 345
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 51,151
- -----------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 8,843
- -----------------------------------------------------------------------------------------------
Other accrued expenses 39,046
- -----------------------------------------------------------------------------------------------
Total liabilities 19,939,432
- -----------------------------------------------------------------------------------------------
Net assets $163,843,299
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $162,538,140
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 1,802,649
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (497,490)
- -----------------------------------------------------------------------------------------------
Total - Representing net assets applicable to
capital shares outstanding $163,843,299
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($90,282,360 divided by 6,690,293 shares) $13.49
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $13.49)* $14.31
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($66,316,763 divided by 4,917,442 shares)** $13.49
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($7,244,176 divided by 537,010 shares) $13.49
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $13.49)* $13.98
- -----------------------------------------------------------------------------------------------
* On single sales of less than $50,000. On sales of $50,000 or more and on group sales
the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended July 31, 1998
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $942) $ 218,882
- -----------------------------------------------------------------------------------------------
Interest 38,742
- -----------------------------------------------------------------------------------------------
Total investment income 257,624
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 138,776
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 48,770
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 2,820
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 1,447
- -----------------------------------------------------------------------------------------------
Distribution fees - Class A (Note 2) 16,386
- -----------------------------------------------------------------------------------------------
Distribution fees - Class B (Note 2) 36,897
- -----------------------------------------------------------------------------------------------
Distribution fees - Class M (Note 2) 3,205
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 864
- -----------------------------------------------------------------------------------------------
Reports to shareholders 20,831
- -----------------------------------------------------------------------------------------------
Registration fees 724
- -----------------------------------------------------------------------------------------------
Auditing 19,128
- -----------------------------------------------------------------------------------------------
Legal 4,248
- -----------------------------------------------------------------------------------------------
Postage 1,199
- -----------------------------------------------------------------------------------------------
Other 425
- -----------------------------------------------------------------------------------------------
Fees waived by Manager (Note 2) (24,098)
- -----------------------------------------------------------------------------------------------
Total expenses 271,622
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (11,466)
- -----------------------------------------------------------------------------------------------
Net expenses 260,156
- -----------------------------------------------------------------------------------------------
Net investment loss (2,532)
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 2,560,691
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (3,181,873)
- -----------------------------------------------------------------------------------------------
Net loss on investments (621,182)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (623,714)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended July 31
---------------------
1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (2,532) $ 68,954
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments 2,560,691 1,095,630
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments (3,181,873) 2,383,859
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (623,714) 3,548,443
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (62,767) (57,507)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (1,635,912) (434,428)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 154,656,956 1,833,147
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 152,334,563 4,889,655
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 11,508,736 6,619,081
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $- and $40,752, respectively) $163,843,299 $11,508,736
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Oct. 2, 1995+
operating performance Year ended July 31 to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $13.58 $9.75 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .02(c)(d) .10(d) .09(c)(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 2.03 4.52 1.21
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.05 4.62 1.30
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.08) (.09) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (2.06) (.70) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.14) (.79) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.49 $13.58 $9.75
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 18.00 49.62 15.28*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $90,282 $11,509 $6,619
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.04(d) 1.00(d) .86*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .28(d) .82(d) .92*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 129.01 119.20 80.74*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
Total return reflects an expense limitation in effect during the period. Without the limitation total
return would have been lower.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
(d) Reflects an expense limitation in effect during the period (Note 2). As a result of such limitation,
expenses of the fund reflect a reduticion of $0.01 for class A, and less than $0.01 for Class B and Class M
for the period ending July 31, 1998. Expenses for the periods ending July 31, 1997 and July 31, 1996,
reflect a reduction of $0.02 and $0.05 per share, respectively.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share June 15+
operating performance to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $13.00
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss (.01)(c)(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .50
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .49
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.49
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 3.77*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $66,317
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .26*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.12)*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 129.01
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
Total return reflects an expense limitation in effect during the period. Without the limitation total
return would have been lower.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
(d) Reflects an expense limitation in effect during the period (Note 2). As a result of such limitation,
expenses of the fund reflect a reduticion of $0.01 for class A, and less than $0.01 for Class B and Class M
for the period ending July 31, 1998. Expenses for the periods ending July 31, 1997 and July 31, 1996,
reflect a reduction of $0.02 and $0.05 per share, respectively.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share June 15+
operating performance to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $13.00
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss (.01)(c)(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .50
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .49
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.49
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 3.77*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $7,244
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .23*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.08)*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 129.01
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
Total return reflects an expense limitation in effect during the period. Without the limitation total
return would have been lower.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
(d) Reflects an expense limitation in effect during the period (Note 2). As a result of such limitation,
expenses of the fund reflect a reduticion of $0.01 for class A, and less than $0.01 for Class B and Class M
for the period ending July 31, 1998. Expenses for the periods ending July 31, 1997 and July 31, 1996,
reflect a reduction of $0.02 and $0.05 per share, respectively.
</TABLE>
Notes to financial statements
July 31, 1998
Note 1
Significant accounting policies
Putnam Research Fund ("the fund") is one of a series of Putnam
Investment Funds (the "Trust") which is registered under the
Investment Company Act of 1940, as amended, as a diversified,
open-end management investment company. The objective of the fund
is to seek capital appreciation by investing primarily in common
stocks.
The fund offers class A, class B and class M shares. Class A shares
are sold with a maximum front-end sales charge of 5.75%. Effective
June 15, 1998, the fund began offering class B and Class M shares.
Class B shares, which convert to class A shares after approximately
eight years, do not pay a front-end sales charge, but pay a higher
ongoing distribution fee than class A shares, and are subject to a
contingent deferred sales charge, if those shares are redeemed
within six years of purchase. Class M shares are sold with a
maximum front-end sales charge of 3.50% and pay an ongoing
distribution fee that is lower than class B shares and higher than
class A shares.
Expenses of the fund are borne pro-rata by the holders of each
class of shares, except that each class bears expenses unique to
that class (including the distribution fees applicable to such
class). Each class votes as a class only with respect to its own
distribution plan or other matters on which a class vote is
required by law or determined by the Trustees. Shares of each class
would receive their pro-rata share of the net assets of the fund,
if the fund were liquidated. In addition, the Trustees declare
separate dividends on each class of shares. The following is a
summary of significant accounting policies consistently followed by
the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined
using the last reported sale price, or, if no sales are reported --
as in the case of some securities traded over-the-counter -- the last
reported bid price. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost, which
approximates market value, and other investments are stated at fair
market value, following procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by
the Securities and Exchange Commission, the fund may transfer
uninvested cash balances into a joint trading account along with
the cash of other registered investment companies and certain other
accounts managed by Putnam Investment Management, Inc. ("Putnam
Management"), the fund's Manager, a wholly-owned subsidiary of
Putnam Investments, Inc.. These balances may be invested in one or
more repurchase agreements and/or short-term money market
instruments.
C) Repurchase agreements The fund, or any joint trading account,
through its custodian, receives delivery of the underlying
securities, the market value of which at the time of purchase is
required to be in an amount at least equal to the resale price,
including accrued interest. 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) Line of credit The fund has entered into a committed line of
credit with certain banks. This line of credit agreement includes
restrictions that the fund maintain an asset coverage ratio of at
least 300% and borrowings must not exceed prospectus limitations.
For the year ended July 31, 1998, the fund had no borrowings
against the line of credit.
F) Federal taxes It is the policy of the fund to distribute all of
its taxable income within the prescribed time and otherwise comply
with the provisions of the Internal Revenue Code applicable to
regulated investment companies. It is also the intention of the
fund to distribute an amount sufficient to avoid imposition of any
excise tax under Section 4982 of the Internal Revenue Code of 1986,
as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities
held nor for excise tax on income and capital gains.
G) Distributions to shareholders Distributions to shareholders from
net investment income are recorded by the fund on the ex-dividend
date. Capital gain distributions, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and
character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences include
temporary and permanent differences of organization costs.
Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations. For the year
ended July 31, 1998, the fund reclassified $24,547 to increase
undistributed net investment income and $835 to decrease
paid-in-capital, with a decrease to accumulated net realized gains
and losses of $23,712. 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.
I) Unamortized organization expenses Expenses incurred by the fund
in connection with its organization, its registration with the
Securities and Exchange Commission and with various states and the
initial public offering of its shares were $8,843. These expenses
are being amortized on projected net asset levels over a five-year
period. The fund will reimburse Putnam Management for the payment
of these expenses.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets
of the fund. Such fee is based on the following annual rates: 0.65%
of the first $500 million of average net assets, 0.55% of the next
$500 million, 0.50% of the next $500 million, 0.45% of the next $5
billion, 0.425% of the next $5 billion, 0.405% of the next $5
billion, 0.39% of the next $5 billion, and 0.38% thereafter.
The base fee is subject to a performance adjustment based on the
investment performance of the fund compared to changes in the value
of the Standard & Poor's 500 ("S&P 500") composite Stock Price
Index. Performance will be calculated for these purposes at the
beginning of each fiscal quarter, for the thirty-six month period
immediately preceding such quarter or the life of the fund, if
shorter. The applicable base fee will be increased or decreased for
each calendar quarter by an incentive payment or penalty at the
annual rate of 0.01% of the fund's average net assets for each 1%
increment by which the fund outperforms or underperforms the S & P
500 in excess of 3.0%, subject to a maximum increase or decrease of
0.07% of average net assets. For the year ended July 31, 1998, the
management fee was increased by $1,254 as a result of this
performance adjustment.
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, deferred organizational and
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 1.00%
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 Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments,
Inc. Investor servicing agent functions are provided by Putnam
Investor Services, a division of PFTC.
For the year ended July 31, 1998, fund expenses were reduced by
$11,466 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
$410 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 distribution plans (the "Plans") with respect
to its class A, class B and class M shares pursuant to Rule 12b-1
under the Investment Company Act of 1940. The purpose of the Plans
is to compensate Putnam Mutual Funds Corp., a wholly-owned
subsidiary of Putnam Investments Inc., for services provided and
expenses incurred by it in distributing shares of the fund. The
Plans provide for payments by the fund to Putnam Mutual Funds Corp.
at annual rates up to 0.35%, 1.00% and 1.00% of the average net
assets attributable to class A, class B and class M shares,
respectively. Effective June 15, 1998, the fund began making
payments at an annual rate of 0.25%, 1.00% and 0.75% of the average
net assets attributable to class A, class B, and class M shares,
respectively.
For the year ended July 31, 1998, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $329,290 and $21,273
from the sale of class A and class M shares, respectively and
$2,030 in contingent deferred sales charges from redemptions of
class B shares. A deferred sales charge of up to 1% is assessed on
certain redemptions of class A shares. For the year ended July 31,
1998, Putnam Mutual Funds Corp., acting as underwriter received no
monies on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended July 31, 1998, purchases and sales of
investment securities other than short-term investments aggregated
$180,939,138 and $33,123,412, 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 July 31, 1998, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were
as follows:
Year ended
July 31, 1998
- ------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------
Shares sold 5,991,170 $81,964,420
- ------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 149,268 1,698,679
- ------------------------------------------------------
6,140,438 83,663,099
Shares
repurchased (297,573) (3,999,887)
- ------------------------------------------------------
Net increase 5,842,865 $79,663,212
- ------------------------------------------------------
Year ended
July 31, 1997
- ------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------
Shares sold 372,818 $4,217,387
- ------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 46,401 491,935
- ------------------------------------------------------
419,219 4,709,322
Shares
repurchased (250,784) (2,876,175)
- ------------------------------------------------------
Net increase 168,435 $1,833,147
- ------------------------------------------------------
For the period
June 15, 1998
(commencement of
operations) to
July 31, 1998
- ------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------
Shares sold 4,949,915 $68,095,469
- ------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ------------------------------------------------------
4,949,915 68,095,469
Shares
repurchased (32,473) (449,769)
- ------------------------------------------------------
Net increase 4,917,442 $67,645,700
- ------------------------------------------------------
For the period
June 15, 1998
(commencement of
operations) to
July 31, 1998
- ------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------
Shares sold 554,900 $7,592,143
- ------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ------------------------------------------------------
554,900 7,592,143
Shares
repurchased (17,890) (244,099)
- ------------------------------------------------------
Net increase 537,010 $7,348,044
- ------------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended,
the Fund hereby designates $2,350,946 as capital gain, which
includes $713,932 as 20% capital gain, for its taxable year ended
July 31, 1998.
The Form 1099 you receive in January 1999 will show the tax status
of all distributions paid to your account in calendar 1998.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL DAGGER]
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Strategic Income Fund *
High Quality Bond Fund +
Global Governmental Income Trust
High Yield Advantage Fund [DBL DAGGER]
High Yield Total Return Fund
High Yield Trust [DBL DAGGER]
High Yield Trust II
Income Fund
Money Market Fund **
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGE SM FUNDS
Putnam Asset Allocation Funds-three investment portfolios that
spread your money across a variety of stocks, bonds, and money
market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
*Formerly Putnam Diversified Income Trust II
+Formerly Putnam Federal Income Trust
[DBL DAGGER]Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK]Not available in all states.
**An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to
maintain a price of $1.00 per share, although there is no assurance
that this price will be maintained in the future.
Please call your financial advisor or Putnam at 1-800-225-1581 to
obtain a prospectus for any Putnam fund. It contains more complete
information, including charges and expenses. Please read it
carefully before you invest or send money.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT
ACCOUNTANTS
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
Thomas R. Bogan
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam
Research Fund. It may also be used as sales literature when
preceded or accompanied by the current prospectus, which gives
details of sales charges, investment objectives, and operating
policies of the fund, and the most recent copy of Putnam's
Quarterly Performance Summary. For more information or to request a
prospectus, call toll free: 1-800-225-1581. You can also learn more
at Putnam Investments' website: http://www.putnaminv.com.
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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- ---------------------
AN067-45524 2AQ/2JK/2JL/2JM 9/98
