Putnam
Research
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
7-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Putnam Research Fund is the epitome of what investment people call
bottom-up management. Its portfolio holdings are chosen one by one, each
selected entirely upon the merits of its issuing company and the
expectation of meeting certain performance objectives over time. There is
no specific focus on a particular industry and the stocks need not conform
to any predetermined investment style.
This is a fund managed by analysts doing what analysts do best:
understanding companies and industries, predicting shifts in the
competitive landscape, creating computer models that reflect this insight,
and anticipating changes in the valuation of stocks.
The validity of the concept and the fund managers' understanding of it are
revealed in the performance numbers both for fiscal 1999 and the life of
the fund. While past performance provides no assurance of future results,
in our view, the fund's prospects over time remain bright indeed.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
September 15, 1999
Report from the Fund Managers
Putnam Global Equity
Research Team
The cornerstone of Putnam Research Fund's investment philosophy is
individual stock selection -- examining the strengths and potential of
each company on its own merits with less emphasis on broader economic
trends. At the close of fiscal 1999, the fund's solid returns illustrate
the merits of this approach. The 12 months ended July 31, 1999, were
marked by dramatic market shifts, global economic crises, and much of the
volatility that is inherent with stock market investing. Through it all,
we maintained a firm commitment to our strategy, identifying and
recommending stocks that we believed could deliver rewarding results,
market volatility notwithstanding.
Total return for 12 months ended 7/31/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ----------------------------------------------------------------------------
23.57% 16.49% 22.53% 17.53% 22.76% 21.76% 22.90% 18.59%
- ----------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
With our style-neutral and sector representative approach, we sidestepped
questions such as whether value stocks would outperform growth stocks or
whether a particular industry should be targeted. Our priority, as always,
was rigorous, in-depth research and analysis. Although we focus on
individual companies, it is inevitable that some of the best-performing
stocks will be found in booming industries. This was certainly the case in
fiscal 1999, as several of the portfolio's outstanding stocks were from
the telecommunications, cable, and technology industries.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Pharmaceuticals and
biotechnology 10.0%
Computer services
and software 8.7%
Retail 7.0%
Financial services 6.9%
Banks 6.8%
Footnote reads:
*Based on net assets as of 7/31/99. Holdings will vary over time.
* DEMAND FOR TECHNOLOGY FUELS STOCK PERFORMANCE
Over the past few years, we have witnessed explosive growth in the demand
for advanced technology and faster access to data. It has influenced every
segment of the population, from global corporations to families using home
computers, and it has benefited companies across a wide range of
industries. Examples in the fund's portfolio included Nortel Networks,
Juniper Networks, Nokia, and Lucent Technologies. As the former equipment
arm of AT&T Corp., Lucent Technologies has a solid position in the
telephone equipment market and is becoming an increasingly powerful player
in the Internet market. Lucent is expected to benefit substantially as
telecommunications companies seek to upgrade their networks to handle
increased demands for data services.
* KEY SECTORS INCLUDE CABLE AND INTERNET
Cable companies are another beneficiary of the world's high-tech focus. To
respond to complex demands of businesses and consumers, the cable industry
has undergone a revolution. Today cable companies provide technologically
advanced networks that combine high-speed Internet access,
telecommunications, and digital services. One example in the fund's
portfolio is Comcast, a cable operator with about 5.6 million subscribers
in 21 states. The company offers digital video and high-speed Internet
service. Adding to Comcast's strength are its programming subsidiaries,
including electronic retailer QVC and E! Entertainment Television. While
these holdings, along with others discussed in this report, were viewed
favorably at the end of the fiscal period, all holdings are subject to
review and adjustment in accordance with the fund's investment strategy
and may vary in the future.
The fund's portfolio also included the most obvious beneficiaries of
technology's explosive growth -- Internet companies themselves. The
world's voracious appetite for Web access has boosted stocks such as
America Online (AOL), an Internet service pro-vider and a key contributor
to fund performance during the period. AOL is the number one provider of
online services, including news, Internet searches, and e-mail. At the
time AOL was added to the fund's portfolio, the company's subscriber
growth had improved substantially over the previous year, a strength we
believed had not been factored into its stock price. In addition, AOL
continued to benefit from robust online advertising and its ability to
anticipate e-commerce trends. We decided to take profits on the position
in April, since the company's subscriber growth was slowing and we
believed the stock would not continue to perform at the levels it had
reached earlier. In addition, AOL's entry into the broadband market --
offering high-speed Internet access over phone lines -- was not scheduled
to debut for several months, giving investors the perception that the
company was a step behind the cable companies.
Morningstar, an independent rating agency, gave Putnam Research Fund's
class A shares 4 stars for overall performance based on the fund's average
annual returns for the 3-year period ended July 31, 1999. Of the 3,092
domestic equity funds rated, only 22.5% received 4 stars.
Morningstar ratings reflect risk-adjusted performance through 7/31/99 and
are subject to change every month. Morningstar ratings are calculated from
a fund's 3-, 5-, and 10-year returns (with fee adjustments) in excess of
90-day Treasury bill returns and a risk factor that reflects performance
below 90-day Treasury bill returns. Performance of other share classes will
vary. The fund was not rated over longer periods. Past performance is not
indicative of future results.
* FROM BUBBLE WRAP TO BIOTECH, OTHER STOCKS SHINE IN FISCAL '99
Stocks in a variety of other industries, including basic materials,
capital goods, and biotechnology, also contributed to your fund's strong
returns. One standout during the period was Sealed Air Corp., a global
manufacturer of protective and specialty packaging materials. Perhaps best
known for its Bubble Wrap(R) cushioning material, the company tripled in
size with its 1998 purchase of Cryovac, the specialty packaging business
of W.R. Grace & Co. Sealed Air has reduced debt and is continuing to focus
on major growth initiatives.
What's not there counts too
Often, deciding which stocks not to include in a fund's portfolio is as
important as any other investment decision. For the analysts who manage
Putnam Research Fund, recommending against buying a particular stock -- or
choosing to sell one already held in the portfolio -- requires as much
intensive research as selecting potential winners. During the fund's 1999
fiscal year, the stock of Coca-Cola serves as an example. "Coca-Cola is a
fantastic company," says Walter Scully, an analyst in Putnam's global equity
research organization. "But Coca-Cola is also a global company, deriving much
of its revenues from countries outside the United States. I was concerned
about last year's dramatic slowdown in the global economy and its impact on
this stock." As Walter predicted, the stock did not perform well during the
fund's fiscal year and the decision not to include it in the portfolio proved
the correct choice.
Tyco International, a global industrial conglomerate, was another key
contributor to performance in fiscal 1999. Tyco's strengths are its
ability to globalize its core businesses, to excel in any market it
enters, and to acquire underperforming companies and bring them up to its
own high standards. In the past few years, the company has diversified
from primarily construction-related businesses to leadership positions in
a variety of industry sectors that range from disposable medical supplies
and electrical components to fire protection systems and security devices.
Tyco's impressive growth is a result of its ability to acquire
competitors, cut costs, and make vast operational improvements.
MedImmune, Inc., another strong performer, is a biotechnology company that
develops and markets products to prevent and treat infectious diseases and
for use in transplant medicine. The company recently launched Synagis, a
product that treats infants and children at risk for respiratory syncytial
virus (RSV), which hospitalizes more than 90,000 infants in the United
States each year. Sales have been strong, due in part to endorsements by a
number of pediatricians. MedImmune has several other promising products in
development along with strong management and tight control over its
operating costs.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
General Electric Co.
Electronics and electrical equipment
Intel Corp.
Semiconductors
Motorola, Inc.
Electronics and electrical equipment
American International Group, Inc.
Insurance
Wal-Mart Stores, Inc.
Retail
Tyco International Ltd.
Conglomerate
Lucent Technologies, Inc.
Telecommunications
Amgen, Inc.
Pharmaceuticals and biotechnology
Parametric Technology Corp.
Computer services and software
Bristol-Myers Squibb Co.
Pharmaceuticals and biotechnology
Footnote reads:
These holdings represent 24.1% of the fund's net assets as of 7/31/99.
Portfolio holdings will vary over time.
Although it has since been sold, the stock of Sara Lee Corp. was a
highlight during the period. The stock was recommended in part because of
the company's plan to restructure its worldwide operations and focus on
the most profitable segments of its business. As part of the plan, Sara
Lee closed or sold 116 of its manufacturing and distribution facilities.
This restructuring, along with Sara Lee's strong management team and brand
recognition, helped boost the company's stock price. We sold the fund's
position when we concluded that the restructuring news had been fully
factored into its stock price. In addition, we were concerned about the
carryover effect of a recall on Sara Lee hot dogs and deli meats, which
were linked to an outbreak of food-borne illness in late 1998.
* MORE VOLATILITY POSSIBLE FOR FISCAL 2000
Just after the close of the period, U.S. markets were experiencing
increased volatility and the Federal Reserve Board was the focus of
attention after raising short-term interest rates by a quarter point in
June and August. While we recognize that volatility will continue into
fiscal 2000, we will continue to rely on the collective expertise of our
team. We believe that diligent and ongoing research and analysis will
allow us to focus on selecting undervalued stocks, regardless of overall
economic conditions.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 7/31/99, 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 Research
Fund is designed for investors seeking capital appreciation primarily through
common stock investments.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 7/31/99
Class A Class B Class C Class M
(inception dates) (10/2/95) (6/15/98) (2/1/99) (6/15/98)
NAV POP NAV CDSC NAV CDSC NAV POP
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 23.57% 16.49% 22.53% 17.53% 22.76% 21.76% 22.90% 18.59%
- --------------------------------------------------------------------------------------------------
Life of fund 151.51 137.02 143.09 140.09 144.45 144.45 146.65 138.09
Annual average 27.23 25.27 26.10 25.69 26.29 26.29 26.58 25.42
- --------------------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 7/31/99
S&P 500 Consumer
Index price index
- ------------------------------------------------------------------------------
1 year 20.20% 2.14%
- ------------------------------------------------------------------------------
Life of fund 143.38 8.81
Annual average 26.12 2.23
- ------------------------------------------------------------------------------
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 10/2/95
Fund's class A S&P Consumer price
Date shares at POP 500 Index index
10/2/95 9,425 10,000 10,000
7/31/96 10,864 11,157 10,248
7/31/97 16,255 16,974 10,477
7/31/98 19,181 20,247 10,653
7/31/99 $23,702 $24,338 $10,881
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 $24,309 or $24,009 with a contingent deferred sales charge.
Class C shares would have been valued at $24,445 and no contingent
deferred sales charges would apply; a $10,000 investment in the fund's
class M shares would have been valued at $24,665 ($23,809 at public
offering price). See first page of performance section for performance
calculation method.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 7/31/99
Class A Class B Class C Class M
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 1 1 -- 1
- ------------------------------------------------------------------------------------
Income -- -- -- --
- ------------------------------------------------------------------------------------
Capital gains
Long-term $0.044 $0.044 $-- $0.044
- ------------------------------------------------------------------------------------
Short-term 0.017 0.017 -- 0.017
- ------------------------------------------------------------------------------------
Total $0.061 $0.061 $-- $0.061
- ------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- ------------------------------------------------------------------------------------
7/31/98 $13.49 $14.31 $13.49 -- $13.49 $13.98
- ------------------------------------------------------------------------------------
2/1/99* -- -- -- $15.81 -- --
- ------------------------------------------------------------------------------------
7/31/99 16.60 17.61 16.46 16.55 16.51 17.11
- ------------------------------------------------------------------------------------
* Inception of class C shares.
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 6/30/99 (most recent calendar quarter)
Class Class B Class C Class M
(inception dates) (10/2/95) (6/15/98) (2/1/99) (6/15/98)
NAV POP NAV CDSC NAV CDSC NAV POP
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 26.91% 19.62% 25.94% 20.94% 26.13% 25.13% 26.23% 21.80%
- ----------------------------------------------------------------------------------------
Life of fund 157.72 142.87 149.29 146.29 150.80 150.80 152.78 144.00
Annual average 28.81 26.78 27.66 27.25 27.87 27.87 28.14 26.93
- ----------------------------------------------------------------------------------------
</TABLE>
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.
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 an unmanaged list of common stocks that is
frequently used as a general measure of stock market performance. It
assumes reinvestment of all distributions and interest payments and does
not take into account brokerage fees or taxes. Securities in the fund do
not match those in the index and performance of the fund will differ. It
is not possible to invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Welcome to www.putnaminv.com
Now you can use your PC to get up-to-date information about your funds, learn
more about investing and retirement planning, and access market news and
economic outlooks from Putnam.
VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
* the benefits of investing with Putnam
* Putnam's money management philosophy
* complete fund information, daily pricing and long-term performance
* your current account value, portfolio value and transaction history
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You can also read Putnam economist Dr. Robert Goodman's commentary and
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The site can be accessed through any of the major online services (America
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access it via Netscape or Microsoft Internet Explorer, using an independent
Internet service provider.
New features will be added to the site regularly. So be sure to bookmark us
at http://www.putnaminv.com
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
The Board of Trustees of Putnam Investment Funds and
Shareholders of Putnam Research Fund
We have audited the accompanying statement of assets and liabilities of
Putnam Research Fund (a series of Putnam Investment Funds), including the
fund's portfolio, as of July 31, 1999, and the related statement of
operations, statement of changes in net assets and financial highlights
for the year or period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statement of changes in net
assets for the year or periods ended July 31, 1998, and the financial
highlights for each of the years or periods in the three-year period ended
July 31, 1998, were audited by other auditors whose report dated September
10, 1998 expressed an unqualified opinion on that financial statement and
those financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of July 31, 1999, by correspondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Putnam Research Fund as of July 31, 1999, the results of its
operations, changes in its net assets and financial highlights for the
year or period then ended, in conformity with generally accepted
accounting principles.
KPMG LLP
Boston, Massachusetts
September 7, 1999
<TABLE>
<CAPTION>
The fund's portfolio
July 31, 1999
COMMON STOCKS (99.1%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Advertising (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
244,500 Young & Rubicam, Inc. $ 11,078,906
Aerospace and Defense (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
319,700 Boeing Co. 14,506,388
Airlines (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
112,900 Delta Air Lines, Inc. 6,731,663
203,400 Northwest Airlines Corp. Class A (NON) 6,534,225
--------------
13,265,888
Banks (6.8%)
- --------------------------------------------------------------------------------------------------------------------------
278,100 Bank of America Corp. 18,458,888
118,200 Bank One Corp. 6,449,288
109,900 Fifth Third Bancorp 7,150,369
141,100 First Union Corp. 6,490,600
12,000 M & T Bank Corp. 6,474,000
115,100 Mercantile Bancorp., Inc. 6,272,950
194,700 Washington Mutual, Inc. 6,680,644
176,400 Wells Fargo Co. 6,879,600
111,900 Zions Bancorp 6,490,200
--------------
71,346,539
Broadcasting (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
260,500 AT&T Corp. -- Liberty Media, Class A (NON) 9,638,500
Building Products (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
116,000 Armstrong World Industries, Inc. 6,380,000
Cable Television (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
269,500 Comcast Corp. Class A (NON) 10,375,750
Cellular Communications (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
39,500 Vodafone AirTouch PLC (United Kingdom) 8,314,750
Chemicals (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
264,300 Rohm & Haas Co. 11,265,788
Computer Equipment (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
134,400 Lexmark International Group, Inc. Class A (NON) 8,467,200
Computer Services and Software (8.7%)
- --------------------------------------------------------------------------------------------------------------------------
288,600 Computer Associates International, Inc. 13,239,525
214,300 Electronic Data Systems Corp. 12,924,969
134,800 Galileo International, Inc. 6,900,075
179,100 Hewlett-Packard Co. 18,749,531
501,400 Oracle Corp. (NON) 19,084,538
1,439,100 Parametric Technology Corp. (NON) 20,327,288
--------------
91,225,926
Computers (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
137,800 Apple Computer, Inc. (NON) 7,673,738
115,900 Gateway, Inc. (NON) 8,830,131
--------------
16,503,869
Conglomerates (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
251,600 Tyco International Ltd. 24,578,175
Electric Utilities (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
393,800 DPL, Inc. 7,556,038
271,200 Entergy Corp. 8,220,750
418,500 FirstEnergy Corp. 11,953,406
--------------
27,730,194
Electronics and Electrical Equipment (5.7%)
- --------------------------------------------------------------------------------------------------------------------------
310,400 General Electric Co. 33,833,600
287,600 Motorola, Inc. 26,243,500
--------------
60,077,100
Entertainment (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
129,400 Time Warner, Inc. 9,316,800
Financial Services (6.9%)
- --------------------------------------------------------------------------------------------------------------------------
63,000 American Express Co. 8,300,250
175,200 Associates First Capital Corp. 6,712,350
365,900 Charter One Financial, Inc. 9,467,663
359,250 Citigroup, Inc. 16,009,078
153,700 Finova Group, Inc. 6,733,981
148,800 Lehman Brothers Holding, Inc. 7,998,000
198,500 Paine Webber Group Inc. 7,940,000
92,000 Providian Financial Corp. 8,372,000
--------------
71,533,322
Food and Beverages (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
332,200 Coca-Cola Enterprises, Inc. 9,696,088
384,800 Nabisco Group Holdings Corp. 7,215,000
--------------
16,911,088
Health Care Services (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
143,450 Cardinal Health, Inc. 9,790,463
863,900 HEALTHSOUTH Corp. (NON) 10,582,775
--------------
20,373,238
Household Products (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
74,200 Clorox Co. 8,310,400
Insurance (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
89,000 American General Corp. 6,886,375
276,125 American International Group, Inc. 25,652,004
--------------
32,538,379
Lodging (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
499,100 Starwood Hotels & Resorts Worldwide, Inc. 13,475,700
Medical Supplies and Devices (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
120,200 Baxter International, Inc. 8,256,238
Networking (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
53,920 Juniper Networks, Inc. (NON) 8,758,630
Oil and Gas (6.2%)
- --------------------------------------------------------------------------------------------------------------------------
220,100 Burlington Resources Inc. 9,725,669
450,300 Conoco, Inc. 11,735,944
273,700 El Paso Energy Corp. 9,801,881
128,000 Ente Nazionale Idrocarburi S.P.A. (ENI) ADR (Italy) 7,800,000
133,000 Mobil Corp. 13,599,250
276,200 Williams Cos., Inc. 11,617,663
--------------
64,280,407
Packaging and Containers (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
144,100 Sealed Air Corp. (NON) 9,258,425
514,700 Smurfit-Stone Container Corp. (NON) 11,516,413
--------------
20,774,838
Pharmaceuticals and Biotechnology (10.0%)
- --------------------------------------------------------------------------------------------------------------------------
329,500 American Home Products Corp. 16,804,500
282,600 Amgen Inc. (NON) 21,724,875
297,800 Bristol-Myers Squibb Co. 19,803,700
184,900 Medimmune, Inc. (NON) 14,768,888
256,500 Pharmacia & Upjohn, Inc. 13,802,906
263,400 Warner-Lambert Co. 17,384,400
--------------
104,289,269
Railroads (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
223,400 Burlington Northern Santa Fe Corp. 7,148,800
Recreation (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
153,000 Royal Caribbean Cruises Ltd. 7,191,000
Restaurants (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
239,800 Tricon Global Restaurants, Inc. (NON) 9,756,863
Retail (7.0%)
- --------------------------------------------------------------------------------------------------------------------------
85,800 Costco Companies, Inc. (NON) 6,413,550
150,900 CVS Corp. 7,507,275
106,200 Dayton Hudson Corp. 6,869,813
256,100 Gap, Inc. (The) (NON) 11,972,675
128,000 Lowe's Cos., Inc. 6,752,000
513,100 Office Depot, Inc. (NON) 9,620,625
582,200 Wal-Mart Stores, Inc. (NON) 24,597,950
--------------
73,733,888
Semiconductors (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
467,500 Intel Corp. (NON) 32,257,500
Telecommunications (6.5%)
- --------------------------------------------------------------------------------------------------------------------------
165,100 ADC Telecommunications Inc. (NON) 7,346,950
348,100 Lucent Technologies, Inc. 22,648,256
160,300 MediaOne Group Inc. (NON) 11,601,713
145,500 Nokia Corp. ADR (Finland) 12,376,594
159,800 Nortel Networks Corp. (Canada) 14,162,275
--------------
68,135,788
Telephone Services (5.7%)
- --------------------------------------------------------------------------------------------------------------------------
258,200 Ameritech Corp. 18,913,150
207,300 Bell Atlantic Corp. 13,215,375
256,800 SBC Communications, Inc. 14,685,750
241,100 Sprint Corp. 12,461,856
--------------
59,276,131
Tobacco (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
378,600 Philip Morris Cos., Inc. 14,102,850
--------------
Total Common Stocks (cost $965,866,257) $1,035,176,102
SHORT-TERM INVESTMENTS (0.9%) (a) (cost $9,507,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$9,507,000 Interest in $365,427,000 joint repurchase agreement
dated July 30, 1999 with Credit Suisse First Boston
due August 2, 1999 with respect to various U.S.
Treasury obligations -- maturity value of $9,510,993
for an effective yield of 5.04% $ 9,507,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $975,373,257) (b) $1,044,683,102
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,044,728,538.
(b) The aggregate identified cost on a tax basis is $980,025,679, resulting in gross unrealized appreciation and
depreciation of $101,427,123 and $36,769,700, respectively, or net unrealized appreciation of $64,657,423.
(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
July 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $975,373,257) (Note 1) $1,044,683,102
- -----------------------------------------------------------------------------------------------
Cash 878
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 498,553
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 8,124,026
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 13,677,892
- -----------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 1,239
- -----------------------------------------------------------------------------------------------
Total assets 1,066,985,690
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 19,222,917
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 675,229
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,406,876
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 92,629
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 4,306
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,658
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 574,071
- -----------------------------------------------------------------------------------------------
Other accrued expenses 277,466
- -----------------------------------------------------------------------------------------------
Total liabilities 22,257,152
- -----------------------------------------------------------------------------------------------
Net assets $1,044,728,538
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $927,388,741
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 48,029,952
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 69,309,845
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,044,728,538
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($475,954,041 divided by 28,671,369 shares) $16.60
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $16.60)* $17.61
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($494,451,809 divided by 30,035,629 shares)** $16.46
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class C share
($31,963,211 divided by 1,930,976 shares)** $16.55
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($42,359,477 divided by 2,566,348 shares) $16.51
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $16.51)* $17.11
- -----------------------------------------------------------------------------------------------
* 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 July 31, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends $ 6,389,241
- -----------------------------------------------------------------------------------------------
Interest 355,999
- -----------------------------------------------------------------------------------------------
Total investment income 6,745,240
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,669,723
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 685,669
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 14,788
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 9,438
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 691,995
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,774,495
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 81,566
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 187,858
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 5,044
- -----------------------------------------------------------------------------------------------
Reports to shareholders 61,691
- -----------------------------------------------------------------------------------------------
Registration fees 271,237
- -----------------------------------------------------------------------------------------------
Auditing 27,961
- -----------------------------------------------------------------------------------------------
Legal 6,716
- -----------------------------------------------------------------------------------------------
Postage 76,327
- -----------------------------------------------------------------------------------------------
Other 31,377
- -----------------------------------------------------------------------------------------------
Total expenses 8,595,885
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (139,495)
- -----------------------------------------------------------------------------------------------
Net expenses 8,456,390
- -----------------------------------------------------------------------------------------------
Net investment loss (1,711,150)
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 49,808,576
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 69,807,335
- -----------------------------------------------------------------------------------------------
Net gain on investments 119,615,911
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $117,904,761
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended July 31
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment loss $ (1,711,150) $ (2,532)
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments 49,808,576 2,560,691
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments 69,807,335 (3,181,873)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 117,904,761 (623,714)
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A -- (62,767)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (886,819) (1,635,912)
- ---------------------------------------------------------------------------------------------------------------
Class B (903,792) --
- ---------------------------------------------------------------------------------------------------------------
Class M (80,348) --
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 764,851,437 154,656,956
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 880,885,239 152,334,563
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 163,843,299 11,508,736
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $-- and $--, respectively) $1,044,728,538 $163,843,299
- ---------------------------------------------------------------------------------------------------------------
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 October 2, 1995+
operating performance Year ended July 31 to July 31
- -------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $13.49 $13.58 $9.75 $8.50
- -------------------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income .02(c) .02(c)(d) .10(d) .09(c)(d)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.15 2.03 4.52 1.21
- -------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.17 2.05 4.62 1.30
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------------
From net
investment income -- (.08) (.09) (.05)
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.06) (2.06) (.70) --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (.06) (2.14) (.79) (.05)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.60 $13.49 $13.58 $9.75
- -------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 23.57 18.00 49.62 15.28*
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $475,954 $90,282 $11,509 $6,619
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.08 1.04(d) 1.00(d) .86*(d)
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .10 .28(d) .82(d) .92*(d)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 126.14 129.01 119.20 80.74*
- -------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. Total return reflects an
expense limitation in effect during the period. Without the limitation total return would have been lower.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(d) Reflects an expense limitation in effect during the period (Note 2). As a result of such limitation, expenses of the
fund reflect a reduticion of $0.01 for class A, and less than $0.01 for Class B and Class M for the period ending July 31,
1998. Expenses for the periods ending July 31, 1997 and July 31, 1996, reflect a reduction of $0.02 and $0.05 per share,
respectively.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- -------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Year ended June 15, 1998+
operating performance July 31 to July 31
- -------------------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $13.49 $13.00
- -------------------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (c) (.11) (.01)(d)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.14 .50
- -------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.03 .49
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------------
From net
investment income -- --
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.06) --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (.06) --
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.46 $13.49
- -------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 22.53 3.77*
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $494,452 $66,317
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.83 .26*(d)
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.66) (.12)*(d)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 126.14 129.01
- -------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. Total return reflects an
expense limitation in effect during the period. Without the limitation total return would have been lower.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(d) Reflects an expense limitation in effect during the period (Note 2). As a result of such limitation, expenses of the
fund reflect a reduticion of $0.01 for class A, and less than $0.01 for Class B and Class M for the period ending July 31,
1998. Expenses for the periods ending July 31, 1997 and July 31, 1996, reflect a reduction of $0.02 and $0.05 per share,
respectively.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS C
- -------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share February 1, 1999+
operating performance to July 31
- -------------------------------------------------------------------------------------------------------------------------------
1999
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $15.81
- -------------------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (c) (.05)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .79
- -------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .74
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------------
From net
investment income --
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions --
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.55
- -------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 4.68*
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $31,963
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .91*
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.35)*
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 126.14
- -------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. Total return reflects an
expense limitation in effect during the period. Without the limitation total return would have been lower.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(d) Reflects an expense limitation in effect during the period (Note 2). As a result of such limitation, expenses of the
fund reflect a reduticion of $0.01 for class A, and less than $0.01 for Class B and Class M for the period ending July 31,
1998. Expenses for the periods ending July 31, 1997 and July 31, 1996, reflect a reduction of $0.02 and $0.05 per share,
respectively.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- -------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Year ended June 15, 1998+
operating performance July 31 to July 31
- -------------------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $13.49 $13.00
- -------------------------------------------------------------------------------------------------------------------------------
Investment operations
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (c) (.06) (.01)(d)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.14 .50
- -------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.08 .49
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------------
From net
investment income -- --
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.06) --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (.06) --
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.51 $13.49
- -------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 22.90 3.77*
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $42,359 $7,244
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.58 .23*(d)
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.40) (.08)*(d)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 126.14 129.01
- -------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. Total return reflects an
expense limitation in effect during the period. Without the limitation total return would have been lower.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(d) Reflects an expense limitation in effect during the period (Note 2). As a result of such limitation, expenses of the
fund reflect a reduticion of $0.01 for class A, and less than $0.01 for Class B and Class M for the period ending July 31,
1998. Expenses for the periods ending July 31, 1997 and July 31, 1996, reflect a reduction of $0.02 and $0.05 per share,
respectively.
</TABLE>
Notes to financial statements
July 31, 1999
Note 1
Significant accounting policies
Putnam Research Fund ("the fund") is one of a series of Putnam Investment
Funds (the "Trust") which is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment
company. The objective of the fund is to seek capital appreciation by
investing primarily in common stocks.
The fund offers class A, class B, class C and class M shares. Class A
shares are sold with a maximum front-end sales charge of 5.75%. Class B
shares, which convert to class A shares after approximately eight years,
do not pay a front-end sales charge, but pay a higher ongoing distribution
fee than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase.
Effective February 1, 1999, the fund began offering class C shares. 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 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. Other
investments are stated at fair market value, following procedures approved
by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be in an amount at
least equal to the resale price, including accrued interest. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). 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) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended July
31, 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.
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, organization costs, and net operating loss.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended July 31,
1999, the fund reclassified $1,711,150 to decrease accumulated net
investment loss and $836 to decrease paid-in-capital, with a decrease to
accumulated net realized gains of $1,710,314. The calculation of net
investment income per share in the financial highlights table excludes
these adjustments.
H) Expenses of the trust Expenses directly charged or attributable to any
fund will be paid from the assets of that fund. Generally, expenses of the
trust will be allocated among and charged to the assets of each fund on a
basis that the Trustees deem fair and equitable, which may be based on the
relative assets of each fund or the nature of the services performed and
relative applicability to each fund.
I) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public
offering of its shares were $8,843. These expenses are being amortized on
projected net asset levels over a five-year period. The fund will
reimburse Putnam Management for the payment of these expenses.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.65% of the first $500
million of average net assets, 0.55% of the next $500 million, 0.50% of
the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5
billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion, and
0.38% thereafter.
The base fee is subject to a performance adjustment based on the
investment performance of the fund compared to changes in the value of the
Standard & Poor's 500 ("S&P 500") composite Stock Price Index. Performance
will be calculated for these purposes at the beginning of each fiscal
quarter, for the thirty-six month period immediately preceding such
quarter or the life of the fund, if shorter. The applicable base fee will
be increased or decreased for each calendar quarter by an incentive
payment or penalty at the annual rate of 0.01% of the fund's average net
assets for each 1% increment by which the fund outperforms or
underperforms the S&P 500 in excess of 3.0%, subject to a maximum increase
or decrease of 0.07% of average net assets.
Putnam Management has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through July 31, 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 1.00% of the fund's average net assets.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended July 31, 1999, fund expenses were reduced by $139,495
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 $1,097
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 annual rates 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 to 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 July 31, 1999, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $1,506,178 and $91,318 from the
sale of class A and class M shares, respectively and $429,488 and $2,506
in contingent deferred sales charges from redemptions of class B and class
C shares, respectively. A deferred sales charge of up to 1% is assessed on
certain redemptions of class A shares. For the year ended July 31, 1999,
Putnam Mutual Funds Corp., acting as underwriter received $11,651 on class
A redemptions.
Note 3
Purchases and sales of securities
During the year ended July 31, 1999, cost of purchases and proceeds from
sales of investment securities other than short-term investments
aggregated $1,486,903,488 and $729,971,968, respectively. There were no
purchases and sales of U.S. government obligations.
Note 4
Capital shares
At July 31, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 26,408,659 $397,013,773
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 58,245 880,850
- -----------------------------------------------------------------------------
26,466,904 397,894,623
Shares
repurchased (4,485,828) (67,855,299)
- -----------------------------------------------------------------------------
Net increase 21,981,076 $330,039,324
- -----------------------------------------------------------------------------
Year ended July 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 5,991,170 $81,964,420
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 149,268 1,698,679
- -----------------------------------------------------------------------------
6,140,438 83,663,099
Shares
repurchased (297,573) (3,999,887)
- -----------------------------------------------------------------------------
Net increase 5,842,865 $79,663,212
- -----------------------------------------------------------------------------
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 27,970,416 $417,009,888
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 57,453 896,930
- -----------------------------------------------------------------------------
28,027,869 417,906,818
Shares
repurchased (2,909,682) (44,577,274)
- -----------------------------------------------------------------------------
Net increase 25,118,187 $373,329,544
- -----------------------------------------------------------------------------
For the period June 15, 1998
(commencement of operations) to
July 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 4,949,915 $ 68,095,469
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
4,949,915 68,095,469
Shares
repurchased (32,473) (449,769)
- -----------------------------------------------------------------------------
Net increase 4,917,442 $ 67,645,700
- -----------------------------------------------------------------------------
For the period February 1, 1999
(commencement of operations) to
July 31, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,987,362 $ 32,284,383
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
1,987,362 32,284,383
Shares
repurchased (56,386) (925,968)
- -----------------------------------------------------------------------------
Net increase 1,930,976 $ 31,358,415
- -----------------------------------------------------------------------------
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,469,280 $36,684,699
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,391 79,877
- -----------------------------------------------------------------------------
2,474,671 36,764,576
Shares
repurchased (445,333) (6,640,422)
- -----------------------------------------------------------------------------
Net increase 2,029,338 $30,124,154
- -----------------------------------------------------------------------------
For the period June 15, 1998
(commencement of operations) to
July 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 554,900 $7,592,143
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
554,900 7,592,143
Shares
repurchased (17,890) (244,099)
- -----------------------------------------------------------------------------
Net increase 537,010 $7,348,044
- -----------------------------------------------------------------------------
Note 5
Change in independent accountants
Based on the recommendation of the Audit Committee of the fund, the Board
of Trustees has determined not to retain PricewaterhouseCoopers LLP as
this fund's independent auditor and voted to appoint KPMG LLP for the
fund's fiscal year ended July 31, 1999. During the two most recent fiscal
years, PricewaterhouseCoopers LLP audit reports contained no adverse
opinion or disclaimer of opinion; nor were its reports qualified or
modified as to uncertainty, audit scope, or accounting principle. Further,
in connection with its audits for the two most recent fiscal years and
through July 14, 1999 there were no disagreements between the fund and
PricewaterhouseCoopers LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure,
which if not resolved to the satisfaction of PricewaterhouseCoopers LLP
would have caused it to make reference to the disagreements in its report
on the financial statements for such years.
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $1,426,723 as a 20% capital gain, for its taxable year
ended July 31, 1999.
The fund has designated 12.29% 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.
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investments has won the DALBAR Service Award 8 times in the past 9
years. In 1997 and 1998, Putnam was the only company to win all three
DALBAR awards: for service to investors, to financial advisors, and to
variable annuity contract holders.*
* HELP YOUR INVESTMENTS GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings account.+
* SWITCH FUNDS EASILY
Within the same class of shares, you can move money from one account to
another without a service charge. (This privilege is subject to change or
termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at the
then-current net asset value, which may be more or less than the original
cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a helpful
Putnam representative. To learn more about Putnam, visit our Web site.
www.putnaminv.com
To make an additional investment in this or any other Putnam fund, contact
your financial advisor or call our toll-free number.
1-800-225-1581
* DALBAR, Inc., an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
+ Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. Please
call your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus
for any Putnam fund. It contains more complete information, including charges
and expenses. Please read it carefully before you invest or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey,
New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]**
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds-three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
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
KPMG 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
Richard A. Monaghan
Vice President
John R. Verani
Vice President
This report is for the information of shareholders of Putnam Research
Fund. It may also be used as sales literature when preceded or accompanied
by the current prospectus, which gives details of sales charges,
investment objectives, and operating policies of the fund, and the most
recent copy of Putnam's Quarterly Performance Summary. For more
information or to request a prospectus, call toll free: 1-800-225-1581.
You can also learn more at Putnam Investments' 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
AN067 54565 2AQ/2JK/2JL/2JM 9/99
