Putnam
Capital
Opportunities
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Putnam Capital Opportunities Fund's abbreviated initial fiscal year
coincided with one of the most difficult periods ever recorded for the
small-company growth stocks in which it invests. The period, which ran
from the fund's inception on June 1, 1998, to April 30, 1999, was further
marked by investors' intense focus on Internet-related stocks, creating
concerns that the market was overheating. Your fund's management team
chose to act on the side of caution in investing in these stocks. Thus,
while the fund did not participate fully in the sharp runup, it was
somewhat cushioned as many of these stocks declined after the end of the
period. The team has since added some carefully chosen issues from these
sectors and, needless to say, continues to watch developments with utmost
attentiveness.
I am pleased to announce that Joseph P. Joseph, head of Global Core Small
Cap Equities, has been named to the fund's management team. Before joining
Putnam in 1994, Joe was with Vert Independent Capital Research, Price
Waterhouse LLP, and Bramayya & Co. He has 10 years of investment
experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 16, 1999
Report from the Fund Managers
Edward R. Finch III
Joseph P. Joseph
William H. Miller
Gerald S. Zukowski
Several years from now, we may look back at Putnam Capital Opportunities
Fund's first fiscal year as one of its most challenging. From the fund's
inception on June 1, 1998, through early April, small-company stocks
endured one of their toughest periods in history as they struggled their
way out of the shadow of large-company stocks and back into investors'
favor. In this environment, our intensive research and active management
of your fund's portfolio proved especially consequential. We made some
strategic shifts in the focus of the fund's investments and continued to
search for hidden opportunities within the universe of small-company
stocks. This approach, combined with a long-awaited recovery of
small-company stocks in the final month of the period, has resulted in
improved performance since our last report.
During the latter half of the fund's abbreviated initial fiscal period, we
shifted the portfolio's emphasis from defensive sectors, such as utilities
and real estate investment trusts, to a broader range of stocks that we
believe offer stronger growth potential, in areas such as technology,
retail, and telecommunications. At the same time, we remained committed to
the fund's key strength -- strategic stock selection that targets
fundamentally strong companies with attractive prices.
Total return for 12 months ended 4/30/99*
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------
-4.73% -10.22% -5.39% -10.12% -5.11% -8.45%
- ----------------------------------------------------------------
Past performance is no indication of future results. More detailed
performance information begins on page 6.
* Reflects performance since 6/1/98 inception.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance and
finance 15.5%
Business
equipment
and services 12.4%
Computer
services
and software 8.6%
Telecommunications 7.9%
Health care 5.3%
Footnote reads:
*Based on net assets as of 4/30/99. Holdings will vary over time.
* THE SEARCH FOR QUALITY INTERNET STOCKS
In the financial markets, the past year will be remembered in part for the
frenzy surrounding any stock with ".com" in its name. Investors' love
affair with the Internet is not unfounded; the potential of this medium is
almost unfathomable. Market watchers have been astounded by the
performance of stocks like bookseller Amazon.com, which in 1998 saw its
shares rise more than 966%, and America Online, whose shares rose 586%.
Early in 1999, the power of the Internet began to penetrate the
small-company sector of the market as the Russell 2000 Index rallied
briefly on the strength of Internet stocks. While this was good news, your
fund's relatively small position in the technology sector prevented it
from taking full advantage of the rally. Since that time, we have
selectively added to the fund's technology holdings, including Internet
companies that we believe have healthy business models, strong management
teams, and a solid foothold in profitable markets.
* THE CHANGING FACE OF CABLE TELEVISION
Among the fund's success stories were companies outside the technology
sector that are taking advantage of the rapidly growing demand for complex
computer data. One example is cable television, an industry that has
changed dramatically since its beginnings as a service to improve TV
reception. Today, cable companies are providing technologically advanced
networks that combine high-speed Internet access, telecommunications, and
digital services. To respond to complex demands of businesses and
consumers, the cable industry has undergone a revolution, which has
included intense competition and rapid consolidation as companies try to
grab a larger share of this lucrative market.
Adelphia Communications, a key fund holding in this sector, has been
thriving in this new cable era. Its businesses include cable
entertainment, local and long-distance telephone services, high-speed
Internet access, paging, and security. The company has significantly
improved its balance sheet and growth potential by acquiring several other
cable companies, including Century Communications, FrontierVision
Partners, and the cable TV units of Harron Communications. These additions
have significantly boosted Adelphia's stock price and positioned it among
the top cable companies in the United States.
"Analysts seem to agree that the broad-based nature of this most recent
small-cap rally bodes well for the long term, as valuations finally catch
up with fundamentals. Many small-cap portfolio managers believe small stocks
have long been underpriced, with one analyst putting valuations at 40-year
lows."
-- CNNfn, April 26, 1999
McLeodUSA, Inc., another of your fund's telecommunications holdings,
provides local and long-distance services, Internet access, and other
telecom services to business and residential customers. The company has
recently increased its market area by acquiring several companies, and is
aggressively introducing more technologically advanced services. McLeodUSA
now offers digital and high-speed data connections to provide
transmissions that are clearer and 10 -- 20 times faster than traditional
dial-up services. 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.
The bottom-up approach to stock selection
A key component of Putnam Capital Opportunities Fund's investment strategy
is a bottom-up stock selection process. The term "bottom-up" refers to
focusing on the merits and potential of individual companies before
considering broad economic trends. This approach assumes that individual
stocks can deliver strong performance, even if they are in industries that
aren't performing well.
The success of this process depends on rigorous, in-depth research -- which
is a cornerstone of Putnam's investment philosophy. Your fund's management
team works closely with Putnam's Global Equity Research organization to
examine and monitor thousands of companies and industries. In addition, many
Putnam analysts have decades of experience in the businesses they follow,
bringing a sharper perspective to their analysis. At Putnam, we believe the
teamwork between this vast network of analysts and portfolio managers leads
to stronger investment decisions.
* RETAIL STOCKS REAP REWARDS OF STRONG ECONOMY
Continued strength in the U.S. economy and rising consumer confidence
provided a significant boost for retail stocks throughout the period. In
1998, consumer spending rose at its fastest pace in 14 years and a surge
in early income tax refunds and home mortgage refinancing has put more
disposable income into consumer pockets. This environment helped stocks
such as Claire's Stores, a holding in the fund's portfolio that has
profited from the boom in discount retailing. Geared toward teenagers with
limited budgets, the company sells inexpensive jewelry and accessories
through boutiques and shops located primarily in malls in the United
States, Canada, and Europe. Mr. Rags shops, catering to the male teenage
urban market, are also part of the company's more than 2,000 stores.
Claire's Stores recently announced its sixth consecutive record year in
sales and profits.
A rebound in the semiconductor equipment industry provided a boost for the
fund as stocks such as LSI Logic rose significantly. LSI designs and
produces integrated circuits for manufacturers in several industries, with
operations in Canada, Hong Kong, Japan, the United Kingdom, and the United
States. It is involved in the rapidly growing consumer electronics market,
producing chips for Sony Playstation products. While LSI has contributed
significantly to the fund's performance, we took profits on this holding
prior to the close of the period by selling the fund's position.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
ICN Pharmaceuticals, Inc.
Pharmaceuticals
Finova Group, Inc.
Financial services
Northwest Airlines Corp. Class A
Airlines
Adelphia Communications Corp.
Cable TV and telecommunications
Hibbett Sporting Goods, Inc.
Retail
Safety-Kleen Corp.
Waste management services
Shorewood Packaging Corp.
Packaging and containers
True North Communications, Inc.
Advertising
Financial Federal Corp.
Financial services
INSpire Insurance Solutions, Inc.
Business services
Footnote reads:
These holdings represent 26.2% of the fund's net assets as of 4/30/99.
Portfolio holdings will vary over time.
* CAUTIOUS OPTIMISM FOR COMING YEAR
Your fund concluded its first fiscal year on a much brighter note than it
began. As the period comes to a close, we are seeing signs of a recovery
in small-company stocks. In April, these stocks, as measured by the
Russell 2000 Index, rose 8.96% -- a breath of fresh air after a -5.42%
return for the first quarter of 1999. Of course, it is too soon to
determine whether this change represents a long-term shift in investor
sentiment. However, we believe the fundamentals of the companies in which
the fund invests remain strong and valuations appear attractive relative
to large companies -- a view that makes us cautiously optimistic as we
begin the fund's second fiscal year.
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 4/30/99, there is no guarantee the fund will
continue to hold these securities in the future. The fund invests in small
and midsize companies. Such investments increase the risk of greater price
fluctuations.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its investment strategy. Putnam Capital
Opportunities Fund is designed for investors seeking long-term growth of
capital by investing primarily in stocks of U.S. companies that Putnam
believes offer above-average growth prospects.
TOTAL RETURN FOR THE PERIOD ENDED 4/30/99
Class A Class B Class M
(inception dates) (6/1/98) (6/29/98) (6/29/98)
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------------------
Life of fund -4.73% -10.22% -5.39% -10.12% -5.11% -8.45%
- ----------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR THE PERIOD ENDED 4/30/99
Russell Consumer
2000 Index price index
- ----------------------------------------------------------------------------
Life of fund -4.09% 2.09%
- ----------------------------------------------------------------------------
TOTAL RETURN FOR THE PERIOD ENDED 3/31/99 (most recent calendar quarter)
Class A Class B Class M
(inception dates) (6/1/98) (6/29/98) (6/29/98)
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------------------
Life of fund -10.87% -16.01% -11.40% -15.83% -11.24% -14.36%
- ----------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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 life-of-fund period
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. Performance data
reflect an expense limitation currently or previously in effect. Without
the limitation, total returns would have been lower.
Securities in the fund do not match those in the Russell 2000 Index and
performance of the fund will differ.
[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 6/1/98
Fund's Class A Russell 2000 Consumer price
Date shares at POP Index Index
6/1/98 9,425 10,000 10,000
6/30/98 9,523 10,021 10,012
7/31/98 8,936 9,210 10,025
8/31/98 7,339 7,421 10,037
9/30/98 7,783 8,002 10,037
10/31/98 7,905 8,329 10,061
11/30/98 8,370 8,765 10,074
12/31/98 9,011 9,307 10,086
1/31/99 8,922 9,431 10,111
2/28/99 8,099 8,667 10,117
3/31/99 8,399 8,802 10,135
4/30/99 $8,978 $9,591 $10,209
Footnote reads:
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 $9,461 ($8,988 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 $9,489 ($9,155 at public offering price). See first page of performance
section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION FOR PERIOD 6/1/98 to 4/30/99
Class A Class B Class M
- ----------------------------------------------------------------------------
Distributions (number) 1 1 1
- ----------------------------------------------------------------------------
Income -- -- --
- ----------------------------------------------------------------------------
Capital gains -- -- --
- ----------------------------------------------------------------------------
Return of capital1 $0.026 $0.011 $0.015
- ----------------------------------------------------------------------------
Total $0.026 $0.011 $0.015
- ----------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ----------------------------------------------------------------------------
6/1/98 $8.50 $9.02 $ -- $ -- $ --
- ----------------------------------------------------------------------------
6/29/98 -- -- 8.40 8.40 8.70
- ----------------------------------------------------------------------------
4/30/99 8.07 8.56 8.03 8.05 8.34
- ----------------------------------------------------------------------------
1See page 24.
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 funds' class B 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
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Russell 2000 Index is an unmanaged list of common stocks that is
frequently used as a performance measure for small and midsize company
stocks. The index assumes reinvestment of all distributions and interest
payments and does not take in account brokerage fees or taxes. Securities
in the fund do not match those in the index and performance of the fund
will differ. It is not possible to invest directly in an index.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as of
the last day of the reporting period. Holdings are organized by asset type
and industry sector, country, or state to show areas of concentration and
diversification.
Statement of assets and liabilities shows how the fund's net assets and share
price is determined. All investment and non-investment assets are added
together. Any unpaid expenses and other liabilities are subtracted from this
total. The result is divided by the number of shares to determine the net
asset value per share, which is calculated separately for each class of shares.
(For funds with preferred shares, the amount subtracted from total assets
includes the net assets allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for the
reporting period. This is determined by adding up all the fund's earnings --
from dividends and interest income -- and subtracting its operating expenses.
This statement also lists any net gain or loss the fund realized on the sales
of its holdings and -- for holdings that remain in the portfolio -- any change
in unrealized gains or losses over the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of the
fund's shares. It lists distributions and their sources (net investment income
or realized capital gains) over the current reporting period and the most
recent fiscal year-end. The distributions listed here may not match the
amounts listed in the Statement of Operations because the distributions are
determined on a tax basis and may be paid in a different period from the one
in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also includes
the current reporting period. For open-ended funds, a separate table is
provided for each share class.
Report of independent accountants
For the period June 1, 1998 (commencement of operations) to April 30, 1999
To the Trustees of Putnam Investment Funds and
Shareholders of Putnam Capital Opportunities Fund
(a series of Putnam Investment Funds)
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, 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 Capital
Opportunities Fund (the "fund") at April 30, 1999, and the results of its
operations, the changes in its net assets and the financial highlights for
the period from June 1, 1998 (commencement of operations) to April 30,
1999, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the fund's management;
our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit of these financial statements
in accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audit, which included confirmation of investments owned at April 30,
1999 by correspondence with the custodian, provides a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 10, 1999
<TABLE>
<CAPTION>
The fund's portfolio
April 30, 1999
COMMON STOCKS (95.5%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Advertising (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
135,200 True North Communications Inc. $ 3,650,400
Basic Industrial Products (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
27,800 SPX Corp. 1,815,682
Biotechnology (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
117,700 Invitrogen Corp. (NON) 2,111,244
Building and Construction (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
149,000 Dayton Superior Corp. (NON) 2,952,063
Business Equipment and Services (12.4%)
- --------------------------------------------------------------------------------------------------------------------------
78,700 AHL Services, Inc. 2,380,675
162,800 INspire Insurance Solutions, Inc. (NON) 3,540,900
250,000 Korn/Ferry Intl. (NON) 2,937,500
180,000 Mail-Well, Inc. (NON) 2,351,250
80,000 Mettler -- Toledo International Inc. (NON) 2,090,000
84,000 Metzler Group, Inc. (NON) 2,341,500
125,900 NOVA Corp./Georgia (NON) 3,273,400
--------------
18,915,225
Computer Services and Software (8.6%)
- --------------------------------------------------------------------------------------------------------------------------
38,400 Beyond.com Corp. (NON) 1,130,400
11,100 CMG Information Services, Inc. (NON) 2,825,644
57,000 FactSet Research Systems, Inc. 2,657,625
3,395 Legato Systems, Inc. (NON) 137,285
12,500 Lycos, Inc. (NON) 1,246,094
62,800 Rational Software Corp. (NON) 1,860,450
14,600 Safeguard Scientifics, Inc. (NON) 1,182,600
16,600 Security First Technologies Corp. (NON) 1,976,438
--------------
13,016,536
Consumer Services (4.6%)
- --------------------------------------------------------------------------------------------------------------------------
73,000 Four Seasons Hotels, Inc. (Canada) (NON) 3,047,750
16,800 MarketWatch.com, Inc. (NON) 1,205,400
57,100 SportsLine USA, Inc. (NON) 2,284,000
15,700 Steiner Leisure Ltd. (NON) 498,475
--------------
7,035,625
Electronics and Electrical Equipment (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
23,600 Dallas Semiconductor Corp. 1,003,000
189,000 Vishay Intertechnology, Inc. (NON) 3,295,688
80,000 Zoran Corp. (NON) 865,000
--------------
5,163,688
Environmental Control (4.5%)
- --------------------------------------------------------------------------------------------------------------------------
138,400 Republic Services, Inc. (NON) 2,845,850
247,000 Safety-Kleen Corp. (NON) 3,921,125
--------------
6,766,975
Funeral/Cemetery Services (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
75,000 Carriage Services, Inc. (NON) 1,439,063
Health Care (5.3%)
- --------------------------------------------------------------------------------------------------------------------------
66,700 Brookdale Living Communities, Inc. (NON) 1,008,838
112,400 Foundation Health Systems, Inc. Class A (NON) 1,552,525
135,000 ICN Pharmaceuticals, Inc. 4,463,438
42,300 IMPATH, Inc. (NON) 1,057,500
--------------
8,082,301
Hospital Management and Medical Services (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
159,800 Total Renal Care Holdings, Inc. (NON) 2,217,225
76,500 Trigon Healthcare, Inc. (NON) 2,428,875
--------------
4,646,100
Insurance and Finance (15.5%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Concord EFS, Inc. (NON) 3,337,500
171,000 Financial Federal Corp. (NON) 3,569,625
91,600 Finova Group, Inc. 4,425,425
44,000 Hambrecht & Quist Group (NON) 1,551,000
36,000 Legg Mason, Inc. 1,255,500
113,300 North Fork Bancorporation, Inc. 2,549,250
152,100 Peoples Heritage Financial Group, Inc. 2,946,938
255,500 UniCapital Corp. (NON) 1,596,875
70,000 UnionBanCal Corp. 2,388,750
--------------
23,620,863
Medical Supplies and Devices (4.0%)
- --------------------------------------------------------------------------------------------------------------------------
167,000 Bergen Brunswig Corp. Class A (NON) 3,173,000
146,000 Cytyc Corp. (NON) 2,856,125
--------------
6,029,125
Oil and Gas (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
205,100 Precision Drilling Corp. (Canada) (NON) 3,537,975
Packaging and Containers (4.6%)
- --------------------------------------------------------------------------------------------------------------------------
197,800 Shorewood Packaging Corp. (NON) 3,906,550
133,100 Smurfit-Stone Container Corp. (NON) 3,111,213
--------------
7,017,763
Retail (4.4%)
- --------------------------------------------------------------------------------------------------------------------------
80,100 Claire's Stores, Inc. 2,653,313
148,000 Hibbett Sporting Goods, Inc. (NON) 4,042,250
--------------
6,695,563
Telecommunications (7.9%)
- --------------------------------------------------------------------------------------------------------------------------
60,100 Adelphia Communications Corp. (NON) 4,101,825
43,100 McLeodUSA, Inc. Class A (NON) 2,416,294
104,300 Telesp Celular Participacoes S.A. ADR (Brazil) (NON) 2,607,500
116,300 Telesp Participacoes S.A. ADR (Brazil) (NON) 2,907,500
--------------
12,033,119
Transportation (4.6%)
- --------------------------------------------------------------------------------------------------------------------------
64,000 Continental Airlines, Inc. (NON) 2,764,000
122,400 Northwest Airlines Corp. Class A (NON) 4,169,250
--------------
6,933,250
Utilities (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
30,212 AT&T Corp. -- Liberty Media Group, Class A (NON) 1,929,792
29,600 CILCORP, Inc. 1,790,800
--------------
3,720,592
--------------
Total Common Stocks (cost $136,072,391) $ 145,183,152
CONVERTIBLE BONDS AND NOTES (1.0%) (a) (cost $1,348,657)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 1,700,000 Concentra Managed Care, Inc. cv. sub. notes 4 1/2s, 2003 $ 1,530,000
SHORT-TERM INVESTMENTS (0.9%) (a) (cost $1,329,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 1,329,000 Interest in $292,698,000 joint repurchase agreement
dated April 30, 1999 with Warburg Securities due
May 3, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $1,329,539 for an
effective yield of 4.87% $ 1,329,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $138,750,048) (b) $ 148,042,152
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $152,084,629.
(b) The aggregate identified cost on a tax basis is $139,678,190, resulting in gross unrealized appreciation and
depreciation of $14,872,860 and $6,508,898, respectively, or net unrealized appreciation of $8,363,962.
(NON) Non-income-producing security.
ADR after the name of a foreign holding stands for American Depository Receipts representing ownership of
foreign securities on deposit with a domestic custodian bank.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $138,750,048) (Note 1) $148,042,152
- -----------------------------------------------------------------------------------------------
Cash 588
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 40,195
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 4,979,519
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 5,752,016
- -----------------------------------------------------------------------------------------------
Total assets 158,814,470
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 6,133,974
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 230,453
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 178,340
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 31,543
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 922
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,050
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 80,361
- -----------------------------------------------------------------------------------------------
Other accrued expenses 72,198
- -----------------------------------------------------------------------------------------------
Total liabilities 6,729,841
- -----------------------------------------------------------------------------------------------
Net assets $152,084,629
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $145,445,472
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (2,652,947)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 9,292,104
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $152,084,629
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($62,899,898 divided by 7,798,460 shares) $8.07
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $8.07)* $8.56
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($84,777,078 divided by 10,551,473 shares)** $8.03
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($4,407,653 divided by 547,689 shares) $8.05
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $8.05)* $8.34
- -----------------------------------------------------------------------------------------------
* 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
For the period June 1, 1998 (commencement of operations) to April 30, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends $828,200
- -----------------------------------------------------------------------------------------------
Interest 328,969
- -----------------------------------------------------------------------------------------------
Total investment income 1,157,169
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 510,233
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 183,008
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 5,059
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 4,647
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 80,568
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 435,530
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 20,709
- -----------------------------------------------------------------------------------------------
Reports to shareholders 28,776
- -----------------------------------------------------------------------------------------------
Registration fees 43,027
- -----------------------------------------------------------------------------------------------
Auditing 16,505
- -----------------------------------------------------------------------------------------------
Legal 4,738
- -----------------------------------------------------------------------------------------------
Postage 14,901
- -----------------------------------------------------------------------------------------------
Other 13,638
- -----------------------------------------------------------------------------------------------
Fees waived by Manager (Note 2) (39,723)
- -----------------------------------------------------------------------------------------------
Total expenses 1,321,616
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (70,090)
- -----------------------------------------------------------------------------------------------
Net expenses 1,251,526
- -----------------------------------------------------------------------------------------------
Net investment loss (94,357)
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (2,712,512)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 9,292,104
- -----------------------------------------------------------------------------------------------
Net gain on investments 6,579,592
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $6,485,235
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the period
June 1, 1998
(commencement
of operations)
to April 30, 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment loss $ (94,357)
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments (2,712,512)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 9,292,104
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 6,485,235
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From return of capital
Class A (158,202)
- ---------------------------------------------------------------------------------------------------------------
Class B (87,810)
- ---------------------------------------------------------------------------------------------------------------
Class M (7,773)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 143,853,179
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 150,084,629
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period (Note 5) 2,000,000
- ---------------------------------------------------------------------------------------------------------------
End of period $152,084,629
- ---------------------------------------------------------------------------------------------------------------
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 June 1, 1998+
operating performance to April 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a)(d) .03
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (e) (.43)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.40)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period 8.07
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) (4.73)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $62,900
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) 1.15*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%)(d) .30*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 272.40*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements.
(d) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the fund
reflect a reduction of less than $0.01 per share for class A, class B, and class M for the period ended April 30, 1999.
(Note 2).
(e) The amount shown for net realized and unrealized loss on investments may not agree with the amounts shown on the
Statement of changes in net assets because of the timing of sales and repurchases of the fund's shares in relation
to the fluctuating market values for the portfolio.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share June 29, 1998+
operating performance to April 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.40
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a)(d) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (e) (.34)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.36)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.03
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) (4.27)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $84,777
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) 1.69*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%)(d) (.34)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 272.40*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements.
(d) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the fund
reflect a reduction of less than $0.01 per share for class A, class B, and class M for the period ended April 30, 1999.
(Note 2).
(e) The amount shown for net realized and unrealized loss on investments may not agree with the amounts shown on the
Statement of changes in net assets because of the timing of sales and repurchases of the fund's shares in relation
to the fluctuating market values for the portfolio.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share June 29, 1998+
operating performance to April 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.40
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (a)(d) (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (e) (.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.33)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.05
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) (3.98)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $4,408
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) 1.48*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%)(d) (.13)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 272.40*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements.
(d) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the fund
reflect a reduction of less than $0.01 per share for class A, class B, and class M for the period ended April 30, 1999.
(Note 2).
(e) The amount shown for net realized and unrealized loss on investments may not agree with the amounts shown on the
Statement of changes in net assets because of the timing of sales and repurchases of the fund's shares in relation
to the fluctuating market values for the portfolio.
</TABLE>
Notes to financial statements
April 30, 1999
Note 1
Significant accounting policies
Putnam Capital Opportunities 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 fund invests primarily in equity
securities of U.S. companies that Putnam Investment Management, Inc.,
("Putnam Management"), the fund's manager, a wholly-owned subsidiary of
Putnam Investments, Inc., believes offer above-average growth prospects or
are undervalued in relation to underlying asset values or earnings
potential and have the potential for long-term appreciation.
The fund offers class A, class B and class M shares. The fund commenced
operations of class A shares on June 1, 1998. Class A shares are sold with
a maximum front-end sales charge of 5.75%. Effective June 29, 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 Management. These balances may be invested in one or more
repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be in an amount at
least equal to the resale price, including accrued interest. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Interest income is recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date.
E) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the period ended
April 30, 1999, 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.
At April 30, 1999, the fund had a capital loss carryover of approximately
$1,725,000 available to offset future net capital gain, if any, which will
expire on April 30, 2007.
G) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences include temporary and permanent differences of losses on wash
sale transactions, net investment loss 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 period ended April 30,
1999, the fund reclassified $94,357 to decrease distributions in excess of
net investment income and $153,922 to decrease paid-in-capital, with a
decrease to accumulated net realized losses of $59,565. The calculation of
net investment income per share in the financial highlights table excludes
these adjustments.
H) Expenses of the trust Expenses directly charged or attributable to any
fund will be paid from the assets of that fund. Generally, expenses of the
trust will be allocated among and charged to the assets of each fund on a
basis that the Trustees deem fair and equitable, which may be based on the
relative assets of each fund or the nature of the services performed and
relative applicability to each fund.
Note 2
Management fee, administrative
services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.65% 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.
Putnam Management agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through April 30, 1999, to the extent that
expenses of the fund (exclusive of brokerage commissions, interest, taxes,
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 1.0% of the fund's average net assets.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the period ended April 30, 1999, fund expenses were reduced by $70,090
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 $460 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 period ended April 30, 1999, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $207,176 and $12,502 from the sale
of class A and class M shares, respectively and $92,270 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 period ended April 30, 1999, Putnam Mutual Funds Corp.,
acting as underwriter received no monies on class A redemptions.
Note 3
Purchase and sales of securities
During the period ended April 30, 1999, purchases and sales of investment
securities other than short-term investments aggregated $377,738,448 and
$237,604,888, 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 April 30, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
For the period June 1, 1998
(commencement of operations)
to April 30, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 9,759,414 $74,972,006
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 20,372 153,603
- -----------------------------------------------------------------------------
9,779,786 75,125,609
Shares
repurchased (2,216,620) (16,686,789)
- -----------------------------------------------------------------------------
Net increase 7,563,166 $58,438,820
- -----------------------------------------------------------------------------
For the period June 29, 1998
(commencement of operations)
to April 30, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 13,199,941 $100,903,304
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 11,355 85,613
- -----------------------------------------------------------------------------
13,211,296 100,988,917
Shares
repurchased (2,659,823) (19,916,740)
- -----------------------------------------------------------------------------
Net increase 10,551,473 $ 81,072,177
- -----------------------------------------------------------------------------
For the period June 29, 1998
(commencement of operations)
to April 30, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,167,036 $9,038,230
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,006 7,586
- -----------------------------------------------------------------------------
1,168,042 9,045,816
Shares
repurchased (620,353) (4,703,634)
- -----------------------------------------------------------------------------
Net increase 547,689 $4,342,182
- -----------------------------------------------------------------------------
Note 5
Initial capitalization and
offering of shares
The Trust was established as a Massachusetts business trust on October 31,
1994. During the period October 31, 1994 to June 1, 1998, the fund had no
operations other than those related to organizational matters, including
the initial capital contribution of $2,000,000 and the issuance if 235,294
shares of class A to Putnam Mutual Funds Corp., a wholly-owned subsidiary
of Putnam Investments, Inc. on May 29, 1998.
Federal tax information
(Unaudited)
The fund has designated 0% of the distributions from net investment income
as qualifying for the dividends received deduction for corporations.
For the year ended April 30, 1999, the fund's distribution represents a
return of capital and is therefore not taxable to shareholders. Although
it is calculated for the fiscal year, this return of capital results from
the requirement of the Internal Revenue Service that the fund distribute
net investment income on a calendar year basis and the fact that net
investment income on a fiscal year basis was lower than net investment
income for calendar 1998.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Fund information
WEB SITE
www.putnaminv.com
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
John J. Morgan, Jr.
Vice President
Joseph P. Joseph
Vice President and Fund Manager
Gerald S. Zukowski
Vice President and Fund Manager
Edward R. Finch III
Vice President and Fund Manager
William H. Miller
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Capital
Opportunities 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' Web site: 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
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN068-52519 211 6/99
