Putnam
New Value
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-98
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "We decide a stock's weighting in the portfolio based on the company's
size and what we consider is its upside potential. We give more weight to
larger companies while limiting the size of our holdings in somewhat
smaller companies with a positive story that is not yet well known. This
strategy is intended to protect against liquidity risks."
-- David L. King, manager
Putnam New Value Fund
* "Over long periods, stocks have been much more stable than you'd expect
from their year-to-year volatility."
-- Jeremy Siegel, professor of finance at the Wharton
School of the University of Pennsylvania,
interviewed in Individual Investor, September 1998
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:
Putnam's widely known commitment to maintain each fund's investment style
occasionally means shareholders must wait until that particular style
returns to favor to reap full benefit from the strategy. Such was the case
for Putnam New Value Fund during the fiscal year ended August 31, 1998.
The investments upon which your fund focuses -- out-of-favor value stocks
of large, established companies undergoing positive change -- were among
the most vulnerable securities in the stock market turbulence that
prevailed throughout most of the period.
Had your fund's management yielded to the temptation to abandon the fund's
stated strategy in the pursuit of greater short-term results elsewhere, it
quite likely would have had to forgo opportunities to position the fund
favorably for the time when its strategy returns to market vogue.
Shareholders with long-term investment horizons should not be unduly
concerned, then, over fiscal 1998's results.
In the following report, Fund Manager David King discusses the fund's
performance in this challenging environment. Then he discusses what he
believes are the portfolio's strengths as the fund enters its new fiscal
year.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
October 21, 1998
Report from the Fund Manager
David L. King
The 12 months ended August 31, 1998, proved a particularly challenging
period for Putnam New Value Fund. Over the fund's fiscal year, a
relatively small number of stocks, most of them large, growing
multinational companies, posted substantial gains. The performance of this
handful of stocks drove up the returns of the major equity indexes but
masked a more pervasive weakness among the broader market, especially
value stocks. Although domestic economic conditions remain favorable, the
recession in Asia has hurt the pricing power of many corporations and
consequently diminished their ability to increase profits. Value stocks,
which are often more sensitive to economic growth, have been especially
vulnerable to this trend.
For your fund, which invests in out-of-favor value stocks believed to be
experiencing or poised for positive change, the year was a disappointing
one, although there are some encouraging signs as we look forward. In its
fiscal year, which ended August 31, 1998, the fund posted a total return
of -12.83% for its class A shares (-17.83% at public offering price). For
complete performance information, including returns for other share
classes and over longer periods, please turn to page 9.
* GROWTH STOCKS OUTPERFORM VALUE
Value stocks encountered difficulty early in the fund's fiscal year. As
you may recall, the stock market experienced substantial volatility from
late summer through the end of autumn in 1997, as analysts, economists,
and corporate executives sought to forecast the effect of the Asian
financial crisis on U.S. stocks and economic growth. As it turned out, it
took nearly six months for the effects to be felt in the United States,
and the early consequences were not altogether negative. On one hand, the
fund's significant stake in oil companies suffered at the hands of
declining oil prices, but its positions in retail stocks remained sound as
U.S. consumers continued to spend money, thanks in part to lower interest
rates.
However, continuing worries about slower growth and smaller profits
focused investors' attention on high-quality growth stocks, those that
could maintain their growth even in a weaker economy. The sort of stocks
that your fund buys -- those of out-of-favor companies believed to be
experiencing or about to experience positive internal change -- can have
low or negative short-term earnings. Furthermore, the positive changes we
identify, such as restructuring, industry consolidation, and product
improvements, often require long periods to bear fruit. Recently investors
have been anything but forgiving with companies that have not met
quarterly earnings forecasts; in such a frame of mind, they had little
patience to wait for the longer-term rewards your fund seeks.
* CORPORATE TAKEOVERS FOCUS ON UNDERVALUED COMPETITORS
There were some encouraging signs during the period, however, as several
of the fund's holdings became parties to mergers or acquisitions. Although
we do not buy a stock in anticipation of a takeover, our selection
criteria focuses on features of a company that would also attract the
interest of a corporation considering an acquisition. For example, we like
companies that are cutting costs and investing in those business units
that offer the best growth prospects. Such advantages would also appeal to
a rival in the same industry. Furthermore, a competitor would also be in
an excellent position to realize that a low stock price may not reflect
the true value of a company's products or services.
[GRAPHIC OMITTED: horizontal bar chart of TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance
and finance 20.8%
Utilities 9.8%
Oil and gas 9.2%
Food and beverages 6.5%
Business equipment
and services 5.1%
Footnote reads:
*Based on net assets as of 8/31/98. Holdings will vary over time.
The luxury automaker Daimler Benz, for example, found the shares of fund
holding Chrysler Corporation to be a compelling value last spring and the
two companies agreed to merge, with Daimler becoming the majority owner.
Chrysler stock rose quickly in response to the merger agreement and we
decided to take profits.
Another combination had a similar goal of turning two already large
companies into a global giant: British Petroleum's agreement to purchase
Amoco Corporation, both fund holdings. A leading distributor in Midwestern
states, Amoco had achieved little success in its global drilling efforts
during recent years. We were attracted by the company's expertise in
marketing, its low and stable stock price, and its attractive dividend
yield. British Petroleum took an interest in Amoco as a way of gaining
distribution capabilities in the U.S. market; it already possessed huge
global reserves but lacked the U.S. presence necessary to compete with oil
giants Exxon and Royal Dutch Petroleum. By joining forces in the largest
industrial combination in history, the new BP Amoco will become the third
global giant and should be well positioned as the global oil industry
consolidates further (which many industry analysts project). Although
these holdings, as well as 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.
The fund also benefited from mergers in the financial sector, which has
experienced significant consolidation in 1998. Two fund holdings,
Washington Mutual and H.F. Ahmanson, agreed to merge in March. The stock
of Ahmanson rallied in response and we took profits by selling the fund's
position. Another holding, Wells Fargo, a San Francisco-based bank, got a
boost from its plan to join with Minneapolis-based Norwest, allowing Wells
Fargo to grow beyond its base in the Western states.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Philip Morris Cos., Inc.
Consumer nondurables
Pharmacia & Upjohn, Inc.
Pharmaceuticals
Baxter International, Inc.
Medical supplies and devices
Ford Motor Co.
Automotive
BankAmerica Corp.
Insurance and finance
Amoco Corp.
Oil and gas
Viacom, Inc. Class B
Entertainment
Ogden Corp.
Conglomerate
Wellpoint Health Networks, Inc.
Health care
AT&T Corp.
Telecommunications
These holdings represent 24.8% of the fund's net assets as of 8/31/98.
Portfolio holdings will vary over time.
* NEW HOLDINGS HAVE DOMESTIC ORIENTATION
For a fund with a value strategy, falling equity prices present numerous
opportunities to buy stocks that are bargain priced. We have been active
buyers in the past year and have even made the strategic decision to
expand the number of holdings in the portfolio. Previously the fund
generally held 40-50 stocks with roughly equal weightings, but we decided
to increase holdings to approximately 70 while giving greater weight to
larger companies that are the most attractively valued. The goal is to
reduce the fund's volatility by keeping its positions in medium-sized
companies a bit smaller.
Two of our most recent additions to the portfolio are Tenet Healthcare and
Entergy. Both are domestic companies with virtually no exposure to weak
overseas economies. Tenet is one of the largest hospital management
companies in the country. We bought it after what we considered a market
overreaction: the stock's price fell 30% because of a small earnings
disappointment but it has outperformed other health-care management
companies since we added it to the portfolio. Entergy, a medium-sized
electric company, operates in several Southern states. Its new management
has a plan we consider likely to improve the company's earnings.
* SUCCESSES VALIDATE FUND'S STRATEGY
As we look ahead to the next fiscal year, we are heartened by the
performance of several of the fund's holdings, which we believe confirm
the reliability of our process for investing in undervalued stocks that
are undertaking positive change and poised for improvement. As experienced
investors, we expect that the market's shifting favor will likely allow
value stocks to perform more competitively versus other types of stocks
than has been the case recently.
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 8/31/98, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
New Value Fund is designed for investors seeking long-term capital
appreciation through investments in undervalued common stocks.
TOTAL RETURN FOR PERIODS ENDED 8/31/98
Class A Class B Class M
(inception date) (1/3/95) (2/26/96) (2/26/96)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year -12.83% -17.83% -13.48% -17.57% -13.25% -16.30%
- ------------------------------------------------------------------------------
Life of fund 67.29 57.65 62.73 59.73 64.32 58.57
Annual average 15.10 13.24 14.23 13.65 14.53 13.42
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/98
Standard &
Poor's Consumer
500 Index Price Index
- ------------------------------------------------------------------------------
1 year 8.09% 1.62%
- ------------------------------------------------------------------------------
Life of fund 124.75 9.15
Annual average 24.72 2.42
- ------------------------------------------------------------------------------
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.
[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
1/3/95
Fund's class A S&P 500 Consumer Price
Date shares at POP Index Index
1/3/95 9,525 10,000 10,000
8/31/95 11,674 12,451 10,214
8/31/96 14,043 14,783 10,508
8/31/97 18,086 20,792 10,742
8/31/98 $15,765 $22,475 $10,915
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 $16,273 ($15,973 at CDSC); a $10,000 investment in the
fund's class M shares would have been valued at $16,432 ($15,857 at public
offering price).
PRICE AND DISTRIBUTION INFORMATION
12 months ended 8/31/98
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 1 1 1
- ------------------------------------------------------------------------
Income $0.123 $0.040 $0.066
- ------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------
Long-term 0.169 0.169 0.169
- ------------------------------------------------------------------------
Short-term 0.567 0.567 0.567
- ------------------------------------------------------------------------
Total $0.859 $0.776 $0.802
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
8/31/97 $14.63 $15.52 $14.49 $14.55 $15.08
- ------------------------------------------------------------------------
8/31/98 12.01 12.74 11.87 11.93 12.36
- ------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 9/30/98
(most recent calendar quarter)
Class A Class B Class M
(inception date) (1/3/95) (2/26/96) (2/26/96)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year -12.60% -17.62% -13.26% -17.36% -13.04% -16.07%
- ------------------------------------------------------------------------
Life of fund 78.86 68.54 73.84 70.84 75.48 69.34
Annual average 16.82 14.98 15.93 15.40 16.23 15.12
- ------------------------------------------------------------------------
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.
This performance information does not reflect any market volatility that
may have occurred since the date of the information. As a result, more
recent returns may be more or less than those shown.
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.
Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
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 August 31, 1998
To the Trustees of Putnam Investment Funds and
Shareholders of Putnam New Value Fund
(a series of Putnam Investment Funds)
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, and the related statements
of operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of Putnam
New Value Fund at August 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
August 31, 1998 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 13, 1998
<TABLE>
<CAPTION>
Portfolio of investments owned
August 31, 1998
COMMON STOCKS (99.4%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Aerospace and Defense (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
154,200 Boeing Co. $ 4,770,563
Automotive (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
445,000 Ford Motor Co. 19,580,000
190,000 Lear Corp. (NON) 7,706,875
--------------
27,286,875
Basic Industrial Products (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
540,000 New Holland N.V. (Netherlands) 5,973,750
229,200 Owens-Illinois, Inc. (NON) 7,148,175
--------------
13,121,925
Business Equipment and Services (5.1%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 IBM Corp. 14,641,250
415,000 NCR Corp. (NON) 10,971,563
140,000 Xerox Corp. 12,293,750
--------------
37,906,563
Chemicals (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
215,000 du Pont (E.I.) de Nemours & Co., Ltd. 12,402,813
Communications (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
185,000 MediaOne Group Inc. (NON) 7,585,000
Computer Equipment (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
525,000 Compaq Computer Corp. 14,667,188
425,000 Seagate Technology, Inc. (NON) 7,437,500
--------------
22,104,688
Computer Services and Software (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
176,600 Computer Associates International, Inc. 4,768,200
Conglomerates (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
675,000 Ogden Corp. 15,567,188
Consumer Non Durables (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
565,000 Philip Morris Cos., Inc. 23,482,813
Electronics and Electrical Equipment (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
225,000 Micron Technology, Inc. (NON) 5,118,750
190,000 Texas Instruments, Inc. 9,060,625
--------------
14,179,375
Entertainment (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Time Warner, Inc. 8,037,500
325,000 Viacom, Inc. Class B (NON) 16,128,125
--------------
24,165,625
Environmental Control (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
160,000 Waste Management, Inc. (NON) 7,060,000
Food and Beverages (6.5%)
- --------------------------------------------------------------------------------------------------------------------------
190,000 Heinz (H.J.) Co. 10,129,375
260,000 Nabisco Holdings Corp. Class A 8,596,250
150,000 Sara Lee Corp. 6,787,500
190,000 The Quaker Oats Co. 10,093,750
810,000 Whitman Corp. 12,555,000
--------------
48,161,875
Forest Products (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
325,000 Boise Cascade Corp. 7,942,188
Health Care (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
200,000 U.S. Surgical Corp. 7,987,500
285,000 WeLLPoint Health Networks, Inc. (NON) 15,211,875
--------------
23,199,375
Hospital Management and Medical Services (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
350,000 Tenet Healthcare Corp. (NON) 9,034,375
Insurance and Finance (20.8%)
- --------------------------------------------------------------------------------------------------------------------------
175,000 American General Corp. 11,243,750
285,000 BankAmerica Corp. 18,257,813
275,000 Charter One Financial, Inc. 6,325,000
175,000 Chase Manhattan Corp. 9,275,000
200,000 CIGNA Corp. 11,637,500
77,500 Citicorp 8,379,688
225,000 First Chicago NBD Corp. 14,259,375
275,000 Keycorp 7,012,500
150,000 Lehman Brothers Holding, Inc. 5,906,250
115,000 Morgan (J.P.) & Co., Inc. 10,695,000
185,000 Reliastar Financial Corp. 7,261,250
135,000 The Equitable Companies, Inc. 7,720,313
90,000 Transamerica Corp. 9,230,625
190,000 Travelers Group Inc. 8,431,250
250,000 Washington Mutual, Inc. 8,000,000
38,000 Wells Fargo & Co. 10,711,250
--------------
154,346,564
Medical Supplies and Devices (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
415,000 Baxter International, Inc. 22,098,750
Oil and Gas (9.2%)
- --------------------------------------------------------------------------------------------------------------------------
360,000 Amoco Corp. 16,312,500
190,000 Atlantic Richfield Co. 11,020,000
85,000 British Petroleum PLC ADR (United Kingdom) 6,215,625
8,800 Chevron, Inc. 651,750
212,000 Halliburton Co. 5,631,250
190,000 Mobil Corp. 13,133,750
160,000 Texaco, Inc. 8,890,000
300,000 YPF S.A. ADR (Argentina) 6,637,500
--------------
68,492,375
Pharmaceuticals (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
550,000 Pharmacia & Upjohn, Inc. 22,859,375
Photography (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
125,000 Eastman Kodak Co. 9,765,625
Publishing (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
185,000 Times Mirror Co. Class A 10,579,688
REITS (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
235,000 Equity Residential Properties Trust (R) 9,385,313
400,000 Starwood Lodging Trust (R) 14,600,000
--------------
23,985,313
Retail (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,150,000 K mart Corp. (NON) 14,662,500
978,800 Officemax, Inc. (NON) 10,277,400
--------------
24,939,900
Telecommunications (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
295,000 AT & T Corp. 14,786,875
Transportation (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
115,000 Burlington Northern Santa Fe Corp. 10,702,188
Utilities (9.8%)
- --------------------------------------------------------------------------------------------------------------------------
600,000 DPL, Inc. 10,800,000
325,000 Entergy Corp. 9,364,063
225,000 GTE Corp. 11,250,000
400,000 Potomac Electric Power Co. 9,800,000
150,000 Sprint Corp. 10,059,375
225,000 Texas Utilities Co. 9,562,500
225,000 U S West, Inc. 11,700,749
--------------
72,536,687
--------------
Total Common Stocks (cost $856,986,957) $ 737,832,781
SHORT-TERM INVESTMENTS (0.9%) (a) (cost $6,400,027)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$6,399,000 Interest in $750,000,000 joint repurchase agreement
dated August 31, 1998 with Lehman Brothers due
September 1,1998 with year with respect to various
U.S. Treasury obligations -- maturity value of
$6,400,027 for an effective yield of 5.78% $ 6,400,027
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $863,386,984)(b) $ 744,232,808
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $742,251,877.
(b) The aggregate identified cost on a tax basis is $864,980,760, resulting in gross unrealized appreciation and
depreciation of $23,454,419 and $144,202,371, respectively, or net unrealized depreciation of $120,747,952.
(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.
(R) Real Estate Investment Trust.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
August 31, 1998
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $863,386,984) (Note 1) $744,232,808
- -----------------------------------------------------------------------------------------------
Cash 525
- -----------------------------------------------------------------------------------------------
Dividends receivable 1,582,518
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 867,850
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 3,964,736
- -----------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 2,943
- -----------------------------------------------------------------------------------------------
Total assets 750,651,380
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 2,735,290
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 3,278,849
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,525,069
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 149,646
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 12,890
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,860
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 584,475
- -----------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 6,425
- -----------------------------------------------------------------------------------------------
Other accrued expenses 104,999
- -----------------------------------------------------------------------------------------------
Total liabilities 8,399,503
- -----------------------------------------------------------------------------------------------
Net assets $742,251,877
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $784,643,120
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 2,595,191
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign
currency transactions (Note 1) 74,167,742
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (119,154,176)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $742,251,877
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($350,430,015 divided by 29,170,313 shares) $12.01
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $12.01)* $12.74
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($355,742,869 divided by 29,973,487 shares)** $11.87
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($36,078,993 divided by 3,024,942 shares) $11.93
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $11.93)* $12.36
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales the offering price is reduced.
** 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 August 31, 1998
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax $29,768) $ 18,460,360
- -----------------------------------------------------------------------------------------------
Interest 1,067,456
- -----------------------------------------------------------------------------------------------
Total investment income 19,527,816
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 6,327,984
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,771,144
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 27,704
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 13,191
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,164,617
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 4,556,273
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 374,578
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 1,773
- -----------------------------------------------------------------------------------------------
Reports to shareholders 129,862
- -----------------------------------------------------------------------------------------------
Registration fees 8,938
- -----------------------------------------------------------------------------------------------
Auditing 48,038
- -----------------------------------------------------------------------------------------------
Legal 9,869
- -----------------------------------------------------------------------------------------------
Postage 180,315
- -----------------------------------------------------------------------------------------------
Other 355,669
- -----------------------------------------------------------------------------------------------
Total expenses 14,969,955
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (446,407)
- -----------------------------------------------------------------------------------------------
Net expenses 14,523,548
- -----------------------------------------------------------------------------------------------
Net investment income 5,004,268
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 86,974,797
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (1,421,095)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 882,892
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (200,699,821)
- -----------------------------------------------------------------------------------------------
Net loss on investments (114,263,227)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(109,258,959)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended August 31
-------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 5,004,268 $ 5,702,195
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 85,553,702 39,752,647
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and assets and liabilities in
foreign currencies (199,816,929) 78,097,229
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (109,258,959) 123,552,071
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (3,916,326) (1,337,077)
- ---------------------------------------------------------------------------------------------------------------
Class B (1,238,499) (812,454)
- ---------------------------------------------------------------------------------------------------------------
Class M (230,636) (117,030)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (23,434,277) (2,101,574)
- ---------------------------------------------------------------------------------------------------------------
Class B (22,788,386) (2,006,697)
- ---------------------------------------------------------------------------------------------------------------
Class M (2,571,946) (245,230)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 22,900,880 561,917,623
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (140,538,149) 678,849,632
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 882,790,026 203,940,394
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $2,595,191 and $4,408,621, respectively) $742,251,877 $882,790,026
- ---------------------------------------------------------------------------------------------------------------
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 January 3, 1995+
operating performance Year ended August 31 to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $14.63 $11.57 $10.53 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .13(c) .19(c)(d) .18(d) .15(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments (1.89) 3.10 1.82 1.88
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (1.76) 3.29 2.00 2.03
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.12) (.09) (.26) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.74) (.14) (.70) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.86) (.23) (.96) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.01 $14.63 $11.57 $10.53
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (a) (12.83) 28.79 20.29 23.88*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $350,430 $429,246 $97,718 $2,473
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.16 1.22(d) 1.24(d) .51*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .89 1.40(d) 2.45(d) 1.67*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 135.56 65.38 33.57 51.07*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended August 31, 1996, and thereafter
includes amounts paid through expense offset and brokerage service arrangements. Prior period
ratios exclude these amounts (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 during the period. As a result of such limitation, expenses of the
fund reflect a reduction of approximately $0.14 per share for the period ended August 31, 1995.
Expenses for the period ended August 31, 1996, reflect a reduction of $0.01 per class A shares and
$0.02 per class B and M shares respectively. Expenses for the year ended August 31, 1997 reflect a
reduction of less than a $0.01 per class A, B, and M shares, respectively.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Year ended Feb. 26, 1996+
operating performance August 31 to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $14.49 $11.52 $10.86
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) .02 .09(d) .10(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments (1.86) 3.08 .56
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (1.84) 3.17 .66
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.04) (.06) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.74) (.14) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.78) (.20) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.87 $14.49 $11.52
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (a) (13.48) 27.79 6.08*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $355,743 $406,783 $94,370
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.91 1.97 (d) 1.04*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .14 .65 (d) .88*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 135.56 65.38 33.57
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended August 31, 1996, and thereafter
includes amounts paid through expense offset and brokerage service arrangements. Prior period
ratios exclude these amounts (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 during the period. As a result of such limitation, expenses of the
fund reflect a reduction of approximately $0.14 per share for the period ended August 31, 1995.
Expenses for the period ended August 31, 1996, reflect a reduction of $0.01 per class A shares and
$0.02 per class B and M shares respectively. Expenses for the year ended August 31, 1997 reflect a
reduction of less than a $0.01 per class A, B, and M shares, respectively.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Year ended Feb. 26,1996+
operating performance August 31 to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $14.55 $11.54 $10.86
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) .06 .12 (d) .11(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments (1.87) 3.10 .57
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (1.81) 3.22 .68
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.07) (.07) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.74) (.14) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.81) (.21) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.93 $14.55 $11.54
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (13.25) 28.19 6.26*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $36,079 $46,761 $11,852
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.66 1.72(d) .91*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .39 .91(d) 1.05*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 135.56 65.38 33.57
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended August 31, 1996, and thereafter
includes amounts paid through expense offset and brokerage service arrangements. Prior period
ratios exclude these amounts (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 during the period. As a result of such limitation, expenses of the
fund reflect a reduction of approximately $0.14 per share for the period ended August 31, 1995.
Expenses for the period ended August 31, 1996, reflect a reduction of $0.01 per class A shares and
$0.02 per class B and M shares respectively. Expenses for the year ended August 31, 1997 reflect a
reduction of less than a $0.01 per class A, B, and M shares, respectively.
</TABLE>
Notes to financial statements
August 31, 1998
Note 1
Significant accounting policies
Putnam New Value Fund (the "fund") is one in 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 long term capital
appreciation by investing primarily in common stocks which are undervalued
at the time of purchase.
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%. 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 bid price. Short-term
investments having remaining maturities of 60 days or less are stated at
amortized cost, which approximates 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) 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 foreign currencies and the
difference between the amount of investment income and foreign withholding
taxes recorded on the fund's books and the U.S. dollar equivalent amounts
actually received or paid. Net unrealized appreciation and depreciation of
assets and liabilities in foreign currencies arise from changes in the
value of open forward currency contracts and assets and liabilities other
than investments at the period end, resulting from changes in the exchange
rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term investments).
The U.S. dollar value of forward currency contracts is determined using
current forward currency exchange rates supplied by a quotation service.
The market value of the contract will fluctuate with changes in currency
exchange rates. The contract is "marked to market" daily and the change in
market value is recorded as an unrealized gain or loss. When the contract
is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. The fund could be exposed to risk if
the value of the currency changes unfavorably, if the counterparties to
the contracts are unable to meet the terms of their contracts or if the
fund is unable to enter into a closing position.
G) 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
August 31, 1998 the fund had no borrowings against the line of credit.
H) 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.
I) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences include temporary and permanent differences of losses on wash
sale transactions, foreign currency gains and losses, post-October loss
deferrals, organization costs, and nontaxable dividends. Reclassifications
are made to the fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers) under
income tax regulations. For the year ended August 31, 1998, the fund
reclassified $1,432,237 to decrease undistributed net investment income
and $85,806 to decrease paid-in-capital, with an increase to accumulated
net realized gains of $1,518,043. The calculation of net investment income
per share in the financial highlights table excludes these adjustments.
J) 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.
K) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public
offering of its shares were $6,425. These expenses 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: 0.70% of the first $500
million of average net assets, 0.60% of the next $500 million, 0.55% of
the next $500 million, 0.50% of the next $5 billion, 0.475% of the next $5
billion, 0.455% of the next $5 billion, 0.44% of the next $5 billion,
0.43% thereafter.
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 August 31, 1998, fund expenses were reduced by $446,407
under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the
Statement of operations exclude these credits. The fund could have
invested a portion of the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered
into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $1,150
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 an annual rate 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. The Trustees have approved payment by the fund to 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 August 31, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $487,524 and $24,734 from the sale
of class A and class M shares, respectively and $798,753 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 August 31, 1998, Putnam Mutual Funds Corp.,
acting as underwriter received $13,603 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended August 31, 1998, purchases and sales of investment
securities other than short-term investments aggregated $1,267,262,073 and
$1,285,655,053, 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 August 31, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
August 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 11,098,806 $ 163,135,468
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,885,194 26,185,334
- -----------------------------------------------------------------------------
12,984,000 189,320,802
Shares
repurchased (13,151,572) (192,472,747)
- -----------------------------------------------------------------------------
Net decrease (167,572) $ (3,151,945)
- -----------------------------------------------------------------------------
Year ended
August 31, 1997
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 26,781,456 $353,636,956
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 254,484 3,214,135
- -----------------------------------------------------------------------------
27,035,940 356,851,091
Shares
repurchased (6,145,683) (83,030,249)
- -----------------------------------------------------------------------------
Net increase 20,890,257 $273,820,842
- -----------------------------------------------------------------------------
Year ended
August 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 8,960,345 $ 130,890,784
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,588,207 21,917,261
- -----------------------------------------------------------------------------
10,548,552 152,808,045
Shares
repurchased (8,645,016) (124,152,465)
- -----------------------------------------------------------------------------
Net increase 1,903,536 $ 28,655,580
- -----------------------------------------------------------------------------
Year ended
August 31, 1997
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 22,345,379 $292,796,597
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 197,604 2,484,902
- -----------------------------------------------------------------------------
22,542,983 295,281,499
Shares
repurchased (2,667,691) (35,691,818)
- -----------------------------------------------------------------------------
Net increase 19,875,292 $259,589,681
- -----------------------------------------------------------------------------
Year ended
August 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 935,359 $ 13,742,531
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 196,683 2,720,124
- -----------------------------------------------------------------------------
1,132,042 16,462,655
Shares
repurchased (1,321,863) (19,065,410)
- -----------------------------------------------------------------------------
Net decrease (189,821) $ (2,602,755)
- -----------------------------------------------------------------------------
Year ended
August 31, 1997
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,566,516 $33,630,185
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 28,012 352,955
- -----------------------------------------------------------------------------
2,594,528 33,983,140
Shares
repurchased (406,917) (5,476,040)
- -----------------------------------------------------------------------------
Net increase 2,187,611 $28,507,100
- -----------------------------------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $76,153,314 as capital gain, which includes $42,425,655
as 20% capital gain, for its taxable year ended August 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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Anthony I. Kreisel
Vice President
David L. King
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 New Value
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.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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AN025-45953 -- 274/2BF/2BG 10/98
