Putnam
New Value
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Buying carefully and holding for the long term is high on the list of
strategies that financial advisors generally suggest for the individual
investors on their client lists. Not surprisingly, it is a strategy
employed by the professional money managers here at Putnam as well. Among
these professionals is David L. King, who has managed Putnam New Value
Fund since its inception in early 1995.
In his management report for fiscal 1999, Dave provides an excellent
example of the strategy's validity. IBM was among the first stocks he
purchased for the fund's portfolio. You may recall that Big Blue was
virtually on the rocks at the time and many were writing its epitaph. In
reporting the sale of the stock, Dave notes, "While it is gratifying to
take profits on this holding, it is important to note that the investment
required a four-year commitment and the foresight to recognize the
potential in a company that most investors had dismissed."
Dave's report follows, and I think you will find the rest of his message
equally compelling.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
October 20, 1999
Report from the Fund Manager
David L. King
Putnam New Value Fund's 1999 fiscal year was a study in contrasts. During
the first nine months of the period, many of the fund's holdings
experienced strong gains after the summer's sharp market downturn. In
addition, value stocks edged ahead of growth stocks in what appeared to be
the first turnaround since 1993. The final three months of the period
offered a different story as the momentum in value stocks slowed and
declines in a number of holdings dampened fund performance. In the end,
your fund delivered impressive results for the 12 months ended August 31,
1999, thanks mainly to its unwavering focus on undervalued stocks of
established companies.
If nothing else, the contrasts of fiscal '99 illustrate the importance of
a long-term view, especially for the types of stocks in which your fund
invests. Indeed, focusing on six-month or one-year time periods often
forces investors to lose sight of long-term opportunities. Even as we took
profits on several holdings early in the period, we continued to add
undervalued stocks to the fund's portfolio. Later in the fiscal period, as
many of these stocks declined even further, we took advantage of their
compelling prices and added more. As the period concluded, we were
optimistic about many out-of-favor leadership companies that we believe
offered exceptional value.
Total return for 12 months ended 8/31/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ----------------------------------------------------------------------------
29.23% 21.83% 28.14% 23.14% 28.28% 27.28% 28.46% 23.99%
- ----------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance and
finance 21.9%
Oil and gas 12.8%
Telecommunications 6.3%
Food and
beverages 5.3%
Utilities 5.1%
Footnote reads:
*Based on net assets as of 8/31/99. Holdings will vary over time.
* ONE OF FUND'S FIRST HOLDINGS DELIVERS IN FISCAL '99
Toward the end of the period, we decided to sell the fund's position in
IBM -- a stock that exemplifies the patience and discipline required for
value investing. IBM was a holding in the portfolio when the fund began
operations at the start of 1995. In our first report to shareholders on
February 29, 1996, we discussed our decision to include it, stating, "IBM
is one of the world's best-known companies -- whose stock we were able to
purchase at a significant discount." At that point, IBM was still trying
to recover from severe financial difficulties -- it had lost $8.1 billion
in 1993 and was restructuring under the newly appointed CEO, Lou Gerstner.
Skepticism about Gerstner's ability to turn the company around had driven
down IBM's price significantly.
Since then, IBM has transformed itself back into an industry leader,
achieving significant growth in its software and service businesses, while
becoming less reliant on mainframes and PCs -- its original lines of
business. At of the close of 1998, IBM stock had delivered a 676% increase
since Gerstner had taken over as CEO. The past year, in particular, was
exceptional, as the company's first-quarter profits far exceeded Wall
Street estimates. While it was gratifying to take profits on this holding,
it's important to note that the investment required a four-year commitment
and the foresight to recognize the potential in a company that many
investors had dismissed.
* LOOKING BEYOND SHORT-TERM SETBACKS
One fund holding that faced difficulties in fiscal '99 was the stock of
American Home Products (AHP). We believe this pharmaceutical company
offers exceptional value. It has a strong balance sheet and impressive
product line, including the world's most prescribed drug -- Premarin, an
estrogen replacement. AHP also has a number of promising drugs in
development, including an insomnia drug and an organ-transplant treatment,
both of which were recently approved by the FDA. During the fiscal period,
AHP's stock price dropped sharply amid a court ruling in favor of a woman
who sued the company over the diet drug combination known as "fen-phen."
The company withdrew the product in 1997 amid links to possible heart
valve damage. In addition to this suit, the company was facing more than
4,000 individual lawsuits from former users of the drugs.
"As many stocks suffered declines toward the end of the period, we believed
their prices were exceptional and added more to the fund's portfolio. These
opportunities are the foundation of the fund's value strategy. It requires
patience, a focus on the long term, and the ability to recognize the potential
in companies that are experiencing setbacks."
- -- David L. King, portfolio manager
Recognizing that this was a short-term setback -- indeed, shortly after
the close of the period, the suit was settled for a fraction of the $23.3
million the jury awarded -- we took the opportunity to add more AHP stock
to the fund's portfolio. In addition to AHP's fundamental strengths, the
company's attractive price may make it a target for acquisition by another
company. While we do not buy stocks in anticipation of mergers, such an
event would likely boost the stock's value. While this holding, along with
others discussed in this report, was viewed favorably at the end of the
period, all are subject to review and adjustment in accordance with the
fund's investment strategy and may vary in the future.
* LEADING COMPANIES AT BARGAIN PRICES
It may not be a household name, but Waste Management, Inc., has long been
a leader in the waste collection and disposal industry. More recently, the
company has faced difficulties, many resulting from its acquisition by USA
Waste Services in July 1998. The combined company, which retained the
Waste Management name, recently announced that it would fall short of
consensus estimates for the second half of the 1999 fiscal year -- its
third earnings warning in two months. The company is taking steps to
correct its problems, including the replacement of the company's top
executive with the former CEO of Waste Management, a known turnaround
specialist. Waste Management plans to sell underperforming assets,
including some or all of its international businesses, and to focus on its
most profitable North American waste business. We took advantage of the
company's low stock price because we believe it has the potential to
return to a leadership position in its industry.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Citigroup, Inc.
Insurance and finance
Halliburton Co.
Oil and gas
GTE Corp.
Telecommunications
SBC Communications, Inc.
Telecommunications
Mobil Corp.
Oil and gas
Royal Dutch Petroleum Co.
Oil and gas
U.S. Treasury bonds
U.S. Treasury obligations, 8 1/2s, 2/15/20
General Motors Corp.
Automotive
CIGNA Corp.
Insurance and finance
PNC Bank Corp.
Insurance and finance
Footnote reads:
These holdings represent 21.8% of the fund's net assets as of 8/31/99.
Portfolio holdings will vary over time.
Another leader in a low-profile business is Service Corp. International,
the world's largest funeral-home franchise. Service Corp. currently
operates 4,000 funeral homes, 500 cemeteries, and 200 crematoriums in 20
countries, and since this is a steady, predictable business, there is
still room for growth. The company's recent problems stem from rising
costs and disappointing performance from some of its acquisitions, and its
stock price has declined 60 percent from its high last November. The
company has stopped acquiring new business and is now focused on improving
existing operations. It is a high quality company whose beaten-down price
offered what we believed was a compelling opportunity.
* A FOCUS ON THE BASICS FOR FISCAL 2000
As fiscal '99 drew to a close, we could reflect on a satisfying year, one
that delivered strong returns from many holdings and a shift in the
overall equity market, which no longer favored just a small selection of
large-cap growth stocks. Regardless of whether this indicates a long-term
shift in investor sentiment, we remain committed to the fund's strategy
and will continue to take advantage of out-of-favor stocks whose potential
may be overlooked by the broader market.
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 8/31/99, 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.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 8/31/99
Class A Class B Class C Class M
(inception dates) (1/3/95) (2/26/96) (7/26/99) (2/26/96)
NAV POP NAV CDSC NAV CDSC NAV POP
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 29.23% 21.83% 28.14% 23.14% 28.28% 27.28% 28.46% 23.99%
- -------------------------------------------------------------------------------------------
Life of fund 116.20 103.73 108.53 106.53 108.66 108.66 111.09 103.70
Annual average 17.99 16.50 17.08 16.84 17.10 17.10 17.39 16.50
- -------------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/99
S&P Consumer
500 Index price index
- ------------------------------------------------------------------------
1 year 39.82% 2.33%
- ------------------------------------------------------------------------
Life of fund 214.26 11.69
Annual average 27.82 2.40
- ------------------------------------------------------------------------
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 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. For class C shares, returns for periods prior to their
inception are derived from the historical performance of class A shares,
adjusted to reflect both the CDSC currently applicable to class C shares,
which is 1% for the first year and is eliminated thereafter, and the
higher operating expenses applicable to class C 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 9,425 10,000 10,000
8/31/95 12,388 12,455 10,214
8/31/96 14,902 14,788 10,508
8/31/97 19,192 20,799 10,741
8/31/98 16,729 22,482 10,915
8/31/99 $21,620 $31,436 $11,169
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 $20,853 ($20,653 with the contingent deferred sales
charge); a $10,000 investment in the fund's class C shares would have been
valued at $20,866, and no contingent deferred sales charges would apply; a
$10,000 investment in the fund's class M shares would have been valued at
$21,109 ($20,370 at public offering price).
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 8/31/99
Class A Class B Class C Class M
- -------------------------------------------------------------------------------
Distributions (number) 1 1 -- 1
- -------------------------------------------------------------------------------
Income $0.131 $0.017 -- $0.047
- -------------------------------------------------------------------------------
Capital gains
Long-term 1.246 1.246 -- 1.246
- -------------------------------------------------------------------------------
Short-term 0.070 0.070 -- 0.070
- -------------------------------------------------------------------------------
Total $1.447 $1.333 -- $1.363
- -------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- -------------------------------------------------------------------------------
8/31/98 $12.01 $12.74 $11.87 -- $11.93 $12.36
- -------------------------------------------------------------------------------
7/26/99* -- -- -- $15.04 -- --
- -------------------------------------------------------------------------------
8/31/99 13.98 14.83 13.80 13.97 13.88 14.38
- -------------------------------------------------------------------------------
*Inception of class C shares.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 9/30/99 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (1/3/95) (2/26/96) (7/26/99) (2/26/96)
NAV POP NAV CDSC NAV CDSC NAV POP
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 14.57% 8.00% 13.70% 8.70% 13.77% 12.77% 14.05% 10.08%
- --------------------------------------------------------------------------------------------
Life of fund 104.91 93.09 97.65 95.65 97.75 97.75 100.14 93.14
Annual average 16.34 14.89 15.46 15.21 15.47 15.47 15.76 14.90
- --------------------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. 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.
</TABLE>
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 C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
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 or C shares and assumes redemption at the end of
the period. Your fund's 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. The CDSC for class C shares is 1% for one year after
purchase.
Comparative benchmarks
Standard & Poor's 500 Index is a an unmanaged list of common stocks that
is frequently used as a general measure of stock market performance. The
index assumes reinvestment of all distributions and interest payments and
does not take into account brokerage fees or taxes. Securities in the fund
do not match those in the index and performance of the fund will differ.
It is not possible to invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
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 sources 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 fiscal year ended August 31, 1999
To the Board of 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 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 New Value Fund
(the "fund") at August 31, 1999, 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, 1999 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 13, 1999
<TABLE>
<CAPTION>
The fund's portfolio
August 31, 1999
COMMON STOCKS (97.6%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Aerospace and Defense (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
325,000 Boeing Co. $ 14,726,563
135,000 Raytheon Co. Class A 9,061,875
--------------
23,788,438
Automotive (4.6%)
- --------------------------------------------------------------------------------------------------------------------------
225,000 Ford Motor Co. 11,728,125
275,000 General Motors Corp. 18,184,375
250,000 Lear Corp. (NON) 10,046,875
--------------
39,959,375
Basic Industrial Products (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
225,000 Cooper Industries, Inc. 11,671,875
100,000 Minnesota Mining & Manufacturing Co. 9,450,000
300,000 Owens-Illinois, Inc. (NON) 7,425,000
--------------
28,546,875
Business Equipment and Services (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
175,000 Xerox Corp. 8,356,250
Chemicals (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Dow Chemical Co. 11,362,500
450,000 Engelhard Corp. 8,971,875
--------------
20,334,375
Computer Services and Software (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
190,000 Computer Associates International, Inc. 10,735,000
165,000 Electronic Data Systems Corp. 9,260,625
--------------
19,995,625
Computer Equipment (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
300,000 NCR Corp. 13,125,000
400,000 Quantum Corp.-DLT & Storage (NON) 7,325,000
200,000 Quantum Corp.- Hard Disk Drive (NON) 1,425,000
--------------
21,875,000
Conglomerates (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
375,000 Ogden Corp. 8,531,250
Consumer Non Durables (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
165,000 Kimberly-Clark Corp. 9,394,688
Consumer Services (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Service Corp. International 6,906,250
Electronics and Electrical Equipment (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
200,000 Rockwell International Corp. 11,825,000
Entertainment (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
200,000 Viacom, Inc. Class B (NON) 8,412,500
Environmental Control (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
600,000 Republic Services, Inc. (NON) 6,525,000
325,000 Waste Management, Inc. 7,089,063
--------------
13,614,063
Food and Beverages (5.3%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 Nabisco Holdings Corp. Class A 9,828,125
425,000 Pepsi Bottling Group, Inc. (The) 8,048,438
110,800 Quaker Oats Co. (The) 7,402,825
450,000 Sara Lee Corp. 9,984,375
200,000 Seagram Co., Ltd. 10,612,500
--------------
45,876,263
Forest Products (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
315,000 Boise Cascade Corp. 11,458,125
Hospital Management and Medical Services (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
460,000 Tenet Healthcare Corp. (NON) 8,021,250
Insurance and Finance (21.9%)
- --------------------------------------------------------------------------------------------------------------------------
375,000 Ace Ltd. 8,039,063
175,000 American General Corp. 12,425,000
275,000 Bank of America Corp. 16,637,500
325,000 Bank One Corp. 13,040,625
425,000 Charter One Financial, Inc. 9,947,656
175,000 Chubb Corp. (The) 10,007,813
200,000 CIGNA Corp. 17,962,500
450,000 Citigroup, Inc. 19,996,875
200,000 First Union Corp. 8,300,000
325,000 Lehman Brothers Holding, Inc. 17,468,750
70,000 Morgan (J.P.) & Co., Inc. 9,043,125
335,000 PNC Bank Corp. 17,524,688
450,000 Travelers Property Casualty Corp. 15,975,000
400,000 Washington Mutual, Inc. 12,700,000
--------------
189,068,595
Lodging (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
350,000 Starwood Hotels & Resorts Worldwide, Inc. 8,334,375
Metals and Mining (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
125,000 Alcoa Inc. 8,070,313
60,000 Phelps Dodge Corp. 3,356,250
--------------
11,426,563
Oil and Gas (12.8%)
- --------------------------------------------------------------------------------------------------------------------------
70,100 Atlantic Richfield Co. 6,164,419
75,000 BP Amoco PLC ADR (United Kingdom) 8,409,375
325,000 Conoco, Inc. 8,693,750
425,000 Halliburton Co. 19,709,375
185,000 Mobil Corp. 18,939,375
400,000 Occidental Petroleum Corp. 8,675,000
300,000 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 18,562,500
275,000 Sonat, Inc. 9,934,375
275,000 Williams Cos., Inc. 11,343,750
--------------
110,431,919
Packaging and Containers (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
450,000 Smurfit-Stone Container Corp. (NON) 9,534,375
Pharmaceuticals and Biotechnology (3.5%)
- --------------------------------------------------------------------------------------------------------------------------
235,000 American Home Products Corp. 9,752,500
225,000 Monsanto Co. 9,239,063
210,000 Pharmacia & Upjohn, Inc. 10,972,500
--------------
29,964,063
Photography (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
125,000 Eastman Kodak Co. 9,179,688
Publishing (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
175,000 Times Mirror Co. Class A 10,106,250
REIT (Real Estate Investment Trust) (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
235,000 Equity Residential Properties Trust 10,340,000
Retail (3.9%)
- --------------------------------------------------------------------------------------------------------------------------
200,000 Federated Department Stores, Inc. (NON) 9,200,000
800,000 K mart Corp. (NON) 10,050,000
400,000 Rite Aid Corp. 7,400,000
425,000 Saks, Inc. (NON) 7,145,313
--------------
33,795,313
Telecommunications (6.3%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 ALLTEL Corp. 10,143,750
280,000 GTE Corp. 19,215,000
400,000 SBC Communications, Inc. 19,200,000
117,400 U S West, Inc. 6,134,150
--------------
54,692,900
Transportation (4.0%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 Burlington Northern Santa Fe Corp. 7,250,000
150,000 Delta Air Lines, Inc. 7,621,875
150,000 UAL Corp. (NON) 9,721,875
200,000 Union Pacific Corp. 9,737,500
--------------
34,331,250
Utilities (5.1%)
- --------------------------------------------------------------------------------------------------------------------------
650,000 DPL, Inc. 12,309,375
350,000 Entergy Corp. 10,434,375
350,000 Potomac Electric Power Co. 9,275,000
525,000 Sempra Energy 11,714,057
--------------
43,732,807
--------------
Total Common Stocks (cost $846,815,421) $ 841,833,425
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (2.1%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Treasury Obligations (2.1%) (cost $18,759,375)
- --------------------------------------------------------------------------------------------------------------------------
$15,000,000 U.S. Treasury Bonds 8 1/2s, February 15, 2020 $ 18,386,700
SHORT-TERM INVESTMENTS (0.4%) (a) (cost $3,387,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$3,387,000 Interest in $452,313,000 joint repurchase agreement
dated August 31, 1999 with Morgan (J.P.) & Co., Inc.
due September 1, 1999 with respect to various
U.S. Treasury obligations -- maturity value of $3,387,508
for an effective yield of 5.40% $ 3,387,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $868,961,796) (b) $ 863,607,125
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $862,430,606.
(b) The aggregate identified cost on a tax basis is $872,383,854, resulting in gross unrealized appreciation and
depreciation of $74,433,059 and $83,209,788, respectively, or net unrealized depreciation of $8,776,729.
(NON) Non-income-producing security.
ADR after the name of a foreign holding stands for American Depositary 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
August 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $868,961,796) (Note 1) $863,607,125
- -----------------------------------------------------------------------------------------------
Cash 61
- -----------------------------------------------------------------------------------------------
Dividends and other receivables 1,696,572
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,379,900
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 1,173,247
- -----------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 735
- -----------------------------------------------------------------------------------------------
Total assets 867,857,640
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 1,186,250
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,813,495
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,527,761
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 190,915
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 27,324
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,819
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 606,826
- -----------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 6,425
- -----------------------------------------------------------------------------------------------
Other accrued expenses 66,219
- -----------------------------------------------------------------------------------------------
Total liabilities 5,427,034
- -----------------------------------------------------------------------------------------------
Net assets $862,430,606
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $788,355,797
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 4,095,252
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 75,334,228
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (5,354,671)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $862,430,606
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($400,554,639 divided by 28,660,560 shares) $13.98
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $13.98)* $14.83
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($423,947,863 divided by 30,717,999 shares)** $13.80
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($560,809 divided by 40,152 shares)** $13.97
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($37,367,295 divided by 2,691,429 shares) $13.88
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $13.88)* $14.38
- -----------------------------------------------------------------------------------------------
* 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, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $10,005) $ 17,254,593
- -----------------------------------------------------------------------------------------------
Interest 891,546
- -----------------------------------------------------------------------------------------------
Total investment income 18,146,139
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 5,644,832
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,086,398
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 30,544
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 10,829
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,006,346
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 4,158,457
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 223
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 298,595
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 2,208
- -----------------------------------------------------------------------------------------------
Reports to shareholders 43,650
- -----------------------------------------------------------------------------------------------
Registration fees 1,647
- -----------------------------------------------------------------------------------------------
Auditing 35,013
- -----------------------------------------------------------------------------------------------
Legal 7,766
- -----------------------------------------------------------------------------------------------
Postage 186,815
- -----------------------------------------------------------------------------------------------
Other 169,888
- -----------------------------------------------------------------------------------------------
Total expenses 12,683,211
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (175,309)
- -----------------------------------------------------------------------------------------------
Net expenses 12,507,902
- -----------------------------------------------------------------------------------------------
Net investment income 5,638,237
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 77,023,049
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 113,799,505
- -----------------------------------------------------------------------------------------------
Net gain on investments 190,822,554
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $196,460,791
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended August 31
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 5,638,237 $ 5,004,268
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments 77,023,049 85,553,702
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 113,799,505 (199,816,929)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 196,460,791 (109,258,959)
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (3,503,936) (3,916,326)
- ---------------------------------------------------------------------------------------------------------------
Class B (478,437) (1,238,499)
- ---------------------------------------------------------------------------------------------------------------
Class M (129,575) (230,636)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (35,199,845) (23,434,277)
- ---------------------------------------------------------------------------------------------------------------
Class B (37,036,615) (22,788,386)
- ---------------------------------------------------------------------------------------------------------------
Class M (3,628,113) (2,571,946)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 3,694,459 22,900,880
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 120,178,729 (140,538,149)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 742,251,877 882,790,026
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $4,095,252 and $2,595,191, respectively) $862,430,606 $742,251,877
- ---------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.01 $14.63 $11.57 $10.53 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .15(c) .13(c) .19(c)(d) .18(d) .15(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments 3.27 (1.89) 3.10 1.82 1.88
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.42 (1.76) 3.29 2.00 2.03
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.13) (.12) (.09) (.26) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.32) (.74) (.14) (.70) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.45) (.86) (.23) (.96) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.98 $12.01 $14.63 $11.57 $10.53
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 29.23 (12.83) 28.79 20.29 23.88*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $400,555 $350,430 $429,246 $97,718 $2,473
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.09 1.16 1.22(d) 1.24(d) .51*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.04 .89 1.40(d) 2.45(d) 1.67*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 87.23 135.56 65.38 33.57 51.07*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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 Feb. 26, 1996+
operating performance Year ended August 31 to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $11.87 $14.49 $11.52 $10.86
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) .04 .02 .09(d) .10(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments 3.23 (1.86) 3.08 .56
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.27 (1.84) 3.17 .66
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.02) (.04) (.06) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.32) (.74) (.14) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.34) (.78) (.20) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.80 $11.87 $14.49 $11.52
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 28..14 (13.48) 27.79 6.08*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $423,948 $355,743 $406,783 $94,370
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.84 1.91 1.97(d) 1.04*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .29 .14 .65(d) .88*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 87.23 135.56 65.38 33.57
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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 C
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 26,1999+
operating performance to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $15.04
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments (1.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (1.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.97
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (7.12)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $561
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .19*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.18)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 87.23
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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 Feb. 26,1996+
operating performance Year ended August 31 to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $11.93 $14.55 $11.54 $10.86
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) .08 .06 .12(d) .11(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments 3.24 (1.87) 3.10 .57
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.32 (1.81) 3.22 .68
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.05) (.07) (.07) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.32) (.74) (.14) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.37) (.81) (.21) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.88 $11.93 $14.55 $11.54
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 28.46 (13.25) 28.19 6.26*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $37,367 $36,079 $46,761 $11,852
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.59 1.66 1.72(d) .91*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .54 .39 .91(d) 1.05*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 87.23 135.56 65.38 33.57
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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, 1999
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, class C and class M shares. The fund
began offering class C shares on July 26, 1999. 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 C shares are
subject to the same fees and expenses as class B shares, except that class
C shares have a one-year 1.00% contingent deferred sales charge and do not
convert to class A shares. Class M shares are sold with a maximum front
end sales charge of 3.50% and pay an ongoing distribution fee that is
higher than class A shares but lower than class B and class C 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 that 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 on its principle exchange, 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 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). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The fund
does not isolate that portion of realized or unrealized gains or losses
resulting from changes in the foreign exchange rate on investments from
fluctuations arising from changes in the market prices of the securities.
Such gains and losses are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign
currency transactions represent net realized exchange gains or losses on
closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized appreciation
and depreciation of assets and liabilities in foreign currencies arise
from changes in the value of open forward currency contracts and assets
and liabilities other than investments at the period end, resulting from
changes in the exchange rate.
F) 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, 1999, the fund had no borrowings against the line of credit.
G) 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.
H) 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, 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,
1999, the fund reclassified $26,228 to decrease undistributed net
investment income and $18,218 to increase paid-in-capital, with an
increase to accumulated net realized gains of $8,010. The calculation of
net investment income per share in the financial highlights table excludes
these adjustments.
I) 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.
J) 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, 1999, fund expenses were reduced by $175,309
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 $1,082
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
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, class C 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%,
1.00% and 1.00% of the average net assets attributable to class A, class
B, class C and class M shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 1.00%, 1.00% and 0.75% of
the average net assets attributable to class A, class B, class C and class
M shares, respectively.
For the year ended August 31, 1999, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $195,871 and $9,567 from the sale
of class A and class M shares, respectively and received $874,476 and no
monies in contingent deferred sales charges from redemptions of class B
and C shares, respectively.
A deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the year ended August 31, 1999, Putnam Mutual Funds
Corp., acting as underwriter received $11,586 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended August 31, 1999, cost of purchases and proceeds from
sales of investment securities other than short-term investments
aggregated $729,096,216 and $797,531,453, respectively. There were no
purchases and sales of U.S. government obligations.
Note 4
Capital shares
At August 31, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended August 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 7,419,351 $107,854,586
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,816,997 36,987,205
- -----------------------------------------------------------------------------
10,236,348 144,841,791
Shares
repurchased (10,746,101) (151,031,295)
- -----------------------------------------------------------------------------
Net decrease (509,753) $ (6,189,504)
- -----------------------------------------------------------------------------
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, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 9,858,611 $143,410,626
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,653,084 34,596,187
- -----------------------------------------------------------------------------
12,511,695 178,006,813
Shares
repurchased (11,767,183) (164,047,031)
- -----------------------------------------------------------------------------
Net increase 744,512 $ 13,959,782
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
For the period July 26, 1999
(commencement of operations)
to August 31, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 40,219 $ 579,630
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
40,219 579,630
Shares
repurchased (67) (973)
- -----------------------------------------------------------------------------
Net increase 40,152 $ 578,657
- -----------------------------------------------------------------------------
Year ended August 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 529,850 $ 7,657,083
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 278,381 3,644,006
- -----------------------------------------------------------------------------
808,231 11,301,089
Shares
repurchased (1,141,744) (15,955,565)
- -----------------------------------------------------------------------------
Net decrease (333,513) $(4,654,476)
- -----------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $32,683,574 as capital gain, for its taxable year ended
August 31, 1999.
The fund has designated 33.38% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
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
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
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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' 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
AN025 55015 274/2BF/2BG 10/99
