Putnam
New Value
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.
As we look to the future, we are certain that the changes will be
breathtaking in their scope. What will not change is the Trustees'
dedication to serving the best interests of our shareholders.
We welcome the challenges that lie ahead and are confident that Putnam
and your Board will continue to face those challenges successfully as
they have for more than 60 years. We look forward to helping you meet
your financial objectives for many years to come.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
October 18, 2000
REPORT FROM FUND MANAGEMENT
David L. King
Putnam New Value Fund's fiscal 2000 performance was a study in
contrasts. For the first six months of the fund's fiscal year, the
market rallied around fast-growing, high-priced technology stocks --
stocks that your fund typically avoids. As a consequence of investors'
narrow focus on technology, many high- quality stocks from other sectors
were overlooked and undervalued. We took advantage of this situation to
upgrade the quality of the portfolio, buying blue-chip names as they
landed on the bargain counter. While this buying opportunity was good
news for the fund, it was tempered by disappointing performance through
mid-year. In early March 2000, a severe market correction encouraged
many investors to reconsider the importance of traditional measures of
valuation such as price, corporate earnings, and profitability. Market
sentiment soon shifted in favor of fundamentally healthy companies and
lifted valuations for many of your fund's holdings, enhancing fund
performance through the end of the period.
Total return for 12 months ended 8/31/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
-----------------------------------------------------------------------
6.13% 0.05% 5.36% 0.67% 5.22% 4.29% 5.62% 1.95%
-----------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
It is interesting to note that your fund's strict investment
discipline, when applied in two vastly different market environments
(such as those we have experienced during the past twelve months),
produced widely different results. In the first half of the year when
investors favored growth, your fund struggled and ultimately failed to
provide positive returns. Under the favorable conditions that have
prevailed since the Nasdaq peaked and corrected in early March, your
fund has outperformed its benchmark, the Standard & Poor's [REGISTRATION
MARK] 500 Index, by 1437 basis points (14.37 percentage points).* But
this variability illustrates an important point. Because market sentiment
is so unpredictable, it is wise to maintain a broadly diversified investment
plan that includes a value-oriented fund. We believe your fund is well
positioned to thrive in an environment that favors value investing.
Furthermore, during periods when the value style is out of favor, your
fund will continue to seek deeply discounted stocks that we believe have
the potential to provide future appreciation.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Banking 15.1%
Oil and gas 10.1%
Regional Bells 5.4%
Financial 5.2%
Computers 4.9%
Footnote reads:
*Based on net assets as of 8/31/00. Holdings will vary over time.
* TAKEOVERS, MERGERS BOOST FUND PERFORMANCE
Over the course of the year as many quality companies suffered low
market valuations, merger and acquisition activity increased. Several of
your fund's holdings were affected by this broad consolidation trend.
The Tribune Company acquired long-time fund holding Times Mirror. The
price Tribune paid for Times Mirror shares was nearly twice the trading
price for those shares before the takeover bid was announced. This
example highlights the disparity between Times Mirror's market price and
what Tribune believed was the true worth of the company's assets. We
were pleased that our shareholders benefited from the stock's
appreciation. While we do not specifically target companies that are
likely takeover candidates, our stock selection criteria tend to
identify companies with qualities that are attractive to industry
competitors. When a company is acquired, its shareholder value may be
realized sooner than we had expected.
*Fund class A share performance at net asset value was 23.75% versus 9.38%
for the S&P 500 Index, March 10-August 31, 2000.
Your fund also held shares of the Seagram Company, Ltd. This company,
best known for its alcoholic beverages, is also involved in movies,
music, and theme parks. There had been speculation that the merger of
Time Warner and America Online would put Seagram at a competitive
disadvantage, and therefore that Seagram itself might be a candidate for
a merger or a sale. We believed Seagram's shares could benefit if the
company was acquired. We were gratified in June, when Seagram's market
value appreciated after French company Vivendi announced its intention
to merge with Seagram to create Vivendi Universal, a global media and
communications company. We sold our shares into the strength of that
news.
". . . fund performance was aided by our recognition of two important
themes in the marketplace. First, mid-cap stocks offered greater value
then their large-cap counterparts. Second, quality was on the bargain
counter."
-- David L. King, manager Putnam New Value Fund
Within the health-care sector, pharmaceutical stocks fell strongly out
of favor while investors went big-game hunting for technology stocks.
Unusually low valuations translated into attractive yields and P/E
ratios that satisfied your fund's investment criteria -- an uncommon
occurrence for pharmaceuticals, which are more typically associated with
growth portfolios. Fund holding Pharmacia Corp. contributed to your
fund's performance. Your fund owned shares of both Pharmacia & Upjohn
and Monsanto prior to an announced merger between the two. We took some
profits after the merger announcement, to trim our rather large position
in the combined company. Although the stocks' prices initially fell,
investors eventually began to recognize the benefits of the union, which
drove up the price for shares of the resulting Pharamacia Corp. We
continue to hold a position and the stock has performed well. While this
stock, as well as others mentioned in this report, was viewed favorably
at the end of the period, all are subject to review in accordance with
your fund's investment policy and may change in the future.
Other takeover deals contributing to fund performance included the
acquisition of Nabisco Holdings by Phillip Morris Cos., Inc. and the
purchase of Union Pacific Resources by Anadarko Petroleum Corp.
* BROADENING MARKET SPREADS THE WEALTH AMONG SECTORS
Following the mid-year implosion of the technology-dominated market,
investors' interest in many other sectors of the market was rekindled.
Your fund benefited particularly from improved performance in the health
care, utilities, energy, and financial sectors. At the time of this
report, we believe these sectors continue to offer the greatest
opportunities and a significant portion of the fund's assets are
invested in them.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Citigroup, Inc.
Financial
SBC Communications, Inc.
Regional Bells
ExxonMobil Corp.
Oil and gas
Bank of America Corp.
Banking
Royal Dutch Petroleum Co.
Oil and gas
Verizon Communications
Regional Bells
Conoco, Inc.
Oil and gas
Republic Services, Inc.
Waste management
Fannie Mae
Financial
Pepsi Bottling Group, Inc.
Beverage
Footnote reads:
These holdings represent 24.2% of the fund's net assets as of 8/31/00.
Portfolio holdings will vary over time.
Utilities stocks are commonly found in value portfolios because they
tend to behave defensively in down markets and provide high dividend
yields. These stocks are interest-rate sensitive and, as a result of the
Federal Reserve Board's incremental adjustments, they became very
attractively priced. We believe the sector offers plenty of new
potential as the benefits of deregulation become realized and we are
focused on electric and natural gas utilities in particular. We sold our
position in long-term holding Dayton Power and Light (DPL) when it
reached a fair valuation, locking in profits for shareholders. Fund
holding Entergy Corp., another utilities industry leader, is currently
rebounding from price weakness suffered earlier in the year.
Banking and financial stocks represent a significant portion of the
portfolio. We gradually increased our exposure to these areas, as the
availability of high-quality names at attractive valuations became
abundant. Citigroup, Inc., Fannie Mae, and Bank of America Corp. are
just a few of the financial and banking companies whose stock the fund
currently owns. We believe the Fed is nearing the end of its restrictive
monetary policy, and these stocks could benefit if short-term interest
rates begin to stabilize or decline.
We reduced the fund's exposure to capital goods-oriented companies, with
the expectation that a slowing economy may compromise this sector. The
constraints of an economic slowdown also may adversely affect spending
on technology. The fund is invested only sparsely in this still
overvalued sector.
In retrospect, fund performance was aided by our recognition of two
important themes in the marketplace. First, mid-cap stocks offered
greater value than their large-cap counterparts. Second, quality was on
the bargain counter. Our stock selections within the mid-cap universe
contributed positively to your fund's returns. The recently upgraded
portfolio will, we hope, continue to reward long-term shareholders for
years to come.
* SLOWING ECONOMY DRIVES STRATEGY
Economic indicators suggest that the Fed's efforts to slow the economy
and stave off inflation are working. We believe the so-called soft
landing may be accomplished in the months ahead. Therefore, your fund
has been carefully constructed to include companies whose earnings are
not overly sensitive to economic cycles. And we remain adamant about
owning the best companies within the universe of undervalued stocks. The
fund's price/earnings ratio is roughly half that of the broad market.
Currently, we are finding the best opportunities in financials, energy,
consumer staples, and utilities. We are confident that your fund's value
strategy can provide valuable diversification and positive returns over
the long term.
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 8/31/00, there is no guarantee the
fund will continue to hold these securities in the future.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
New Value Fund is designed for investors seeking long-term capital
appreciation through investments in undervalued common stocks.
TOTAL RETURN FOR PERIODS ENDED 8/31/00
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
------------------------------------------------------------------------------
1 year 6.13% 0.05% 5.36% 0.67% 5.22% 4.29% 5.62% 1.95%
------------------------------------------------------------------------------
5 years 85.22 74.61 78.13 76.13 78.23 78.23 80.51 74.24
Annual average 13.12 11.79 12.24 11.99 12.25 12.25 12.54 11.75
------------------------------------------------------------------------------
Life of fund 129.46 116.23 119.70 118.70 119.54 119.54 122.95 115.15
Annual average 15.81 14.60 14.92 14.83 14.90 14.90 15.22 14.50
------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/00
S&P 500 Consumer
Index price index
----------------------------------------------------------------------
1 year 16.32% 3.23%
----------------------------------------------------------------------
5 years 193.58 12.81
Annual average 24.02 2.44
----------------------------------------------------------------------
Life of fund 265.54 14.91
Annual average 25.70 2.48
----------------------------------------------------------------------
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, 5-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. For a portion of the reporting period,
the fund was offered on a limited basis and had limited assets. The
fund's performance reflects a voluntary expense limitation currently or
previously in effect. Had it not been in effect, the fund's total return
would have been lower.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 1/3/95
Fund's class A S&P 500 Consumer price
Date shares at POP Index index
1/3/95 10,000 10,000 10,000
8/31/95 11,674 12,451 10,186
8/31/96 14,043 14,783 10,473
8/31/97 18,086 20,792 10,706
8/31/98 15,765 22,475 10,885
8/31/99 20,373 31,426 11,132
8/31/00 $21,623 $36,554 $11,491
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 $21,970 ($21,870 with the contingent deferred
sales charge); a $10,000 investment in the fund's class C shares would
have been valued at $21,954, and no contingent deferred sales charge
would apply; a $10,000 investment in the fund's class M shares would
have been valued at $22,295 ($21,515 at the public offering price). See
first page of performance section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 8/31/00
Class A Class B Class C Class M
-------------------------------------------------------------------------
Distributions
(number) 1 1 1 1
-------------------------------------------------------------------------
Income $0.164 $0.049 $0.149 $0.084
-------------------------------------------------------------------------
Capital gains
Long-term 0.577 0.577 0.577 0.577
-------------------------------------------------------------------------
Short-term 0.815 0.815 0.815 0.815
-------------------------------------------------------------------------
Total $1.556 $1.441 $1.541 $1.476
-------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
-------------------------------------------------------------------------
8/31/99 $13.98 $14.83 $13.80 $13.97 $13.88 $14.38
-------------------------------------------------------------------------
8/31/00 13.08 13.88 12.92 12.97 13.00 13.47
-------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 9/30/00 (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
------------------------------------------------------------------------------
1 year 13.10% 6.58% 12.27% 7.28% 12.13% 11.14% 12.51% 8.55%
------------------------------------------------------------------------------
5 years 81.55 71.14 74.80 72.80 74.70 74.70 77.12 70.98
Annual average 12.67 11.34 11.82 11.56 11.80 11.80 12.11 11.32
------------------------------------------------------------------------------
Life of fund 131.74 118.38 121.91 120.91 121.74 121.74 125.17 117.30
Annual average 15.77 14.58 14.90 14.81 14.88 14.88 15.19 14.48
------------------------------------------------------------------------------
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.
Securities indexes assume reinvestment of all distributions and interest
payments and do not take into account brokerage fees or taxes.
Securities in the fund do not match those in the indexes and performance
of the fund will differ. It is not possible to invest directly in an
index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
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 are determined. All investment and noninvestment 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-end funds, a
separate table is provided for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended August 31, 2000
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, 2000, and the results
of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with accounting
principles generally accepted in the United States of America. 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 auditing standards
generally accepted in the United States of America, 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, 2000 by correspondence with the custodian, provide a
reasonable basis for our opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 11, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
August 31, 2000
COMMON STOCKS (97.6%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Aerospace/Defense (1.0%)
-------------------------------------------------------------------------------------------------------------------
130,000 Boeing Co. $ 6,971,250
Automotive (0.7%)
-------------------------------------------------------------------------------------------------------------------
212,600 Lear Corp. (NON) 4,584,188
Banking (15.1%)
-------------------------------------------------------------------------------------------------------------------
324,500 Bank of America Corp. 17,381,031
309,000 BB&T Corp. 8,362,313
449,000 Charter One Financial, Inc. 10,663,750
197,800 Comerica, Inc. 11,138,613
370,700 Firstar Corp. 8,850,463
245,100 FleetBoston Financial Corp. 10,462,706
22,300 M & T Bank Corp. 10,808,531
158,300 PNC Financial Services Group 9,329,806
247,100 U.S. Bancorp 5,374,425
291,600 Washington Mutual, Inc. 10,206,000
-------------
102,577,638
Beverage (2.5%)
-------------------------------------------------------------------------------------------------------------------
211,000 Coca-Cola Enterprises, Inc. 3,929,875
405,000 Pepsi Bottling Group, Inc. (The) 12,858,750
-------------
16,788,625
Broadcasting (0.5%)
-------------------------------------------------------------------------------------------------------------------
98,952 General Motors Corp. Class H 3,277,785
Chemicals (3.8%)
-------------------------------------------------------------------------------------------------------------------
171,300 Avery Dennison Corp. 9,260,906
160,700 Du Pont (E.I.) de Nemours & Co. 7,211,413
398,800 Engelhard Corp. 7,477,500
112,500 Hercules, Inc. 1,490,625
-------------
25,440,444
Commercial and Consumer Services (0.3%)
-------------------------------------------------------------------------------------------------------------------
821,500 Service Corp. International 1,899,719
Computers (4.9%)
-------------------------------------------------------------------------------------------------------------------
86,300 Hewlett-Packard Co. 10,420,725
55,000 IBM Corp. 7,260,000
199,400 NCR Corp. (NON) 8,050,775
535,000 Quantum Corp. (NON) 7,255,938
-------------
32,987,438
Conglomerates (0.9%)
-------------------------------------------------------------------------------------------------------------------
177,800 Cooper Industries, Inc. 6,278,563
Consumer Finance (1.5%)
-------------------------------------------------------------------------------------------------------------------
217,300 Household International, Inc. 10,430,400
Consumer Goods (1.5%)
-------------------------------------------------------------------------------------------------------------------
167,700 Kimberly-Clark Corp. 9,810,450
Electric Utilities (3.3%)
-------------------------------------------------------------------------------------------------------------------
190,000 CMS Energy Corp. 4,963,750
297,100 CP&L, Inc. 10,992,700
213,100 Entergy Corp. 6,486,231
-------------
22,442,681
Electrical Equipment (1.0%)
-------------------------------------------------------------------------------------------------------------------
98,400 Emerson Electric Co. 6,512,850
Energy (2.8%)
-------------------------------------------------------------------------------------------------------------------
86,400 Schlumberger, Ltd. 7,371,000
198,100 Transocean Sedco Forex, Inc. 11,836,475
-------------
19,207,475
Financial (5.2%)
-------------------------------------------------------------------------------------------------------------------
385,333 Citigroup, Inc. 22,493,826
243,500 Fannie Mae 13,088,125
-------------
35,581,951
Health Care Services (2.4%)
-------------------------------------------------------------------------------------------------------------------
130,600 CIGNA Corp. 12,700,850
114,500 Tenet Healthcare Corp. (NON) 3,549,500
-------------
16,250,350
Insurance (4.3%)
-------------------------------------------------------------------------------------------------------------------
164,800 American General Corp. 11,999,500
152,500 Hartford Financial Services Group 10,160,313
134,700 Lincoln National Corp. 7,273,800
-------------
29,433,613
Investment Banking/Brokerage (2.2%)
-------------------------------------------------------------------------------------------------------------------
110,000 Bear Stearns Companies, Inc. (The) 7,376,875
50,000 Lehman Brothers Holdings, Inc. 7,250,000
-------------
14,626,875
Lodging/Tourism (1.4%)
-------------------------------------------------------------------------------------------------------------------
292,500 Starwood Hotels & Resorts Worldwide, Inc. 9,360,000
Machinery (1.0%)
-------------------------------------------------------------------------------------------------------------------
185,300 Caterpillar, Inc. 6,809,775
Medical Products and Supplies (1.0%)
-------------------------------------------------------------------------------------------------------------------
79,900 Baxter International, Inc. 6,651,675
Medical Technology (0.9%)
-------------------------------------------------------------------------------------------------------------------
63,000 Bausch & Lomb, Inc. 2,252,250
89,000 St. Jude Medical, Inc. 3,526,625
-------------
5,778,875
Natural Gas Utilities (2.2%)
-------------------------------------------------------------------------------------------------------------------
463,737 Sempra Energy 9,042,872
125,000 Williams Cos., Inc. (The) 5,757,813
-------------
14,800,685
Oil & Gas (10.1%)
-------------------------------------------------------------------------------------------------------------------
187,414 Anadarko Petroleum Corp. 12,326,219
140,100 BP Amoco PLC ADR (United Kingdom) 7,740,525
545,000 Conoco, Inc. Class A 13,727,188
245,300 ExxonMobil Corp. 20,022,613
247,100 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 15,119,431
-------------
68,935,976
Paper & Forest Products (2.7%)
-------------------------------------------------------------------------------------------------------------------
267,000 Boise Cascade Corp. 7,976,625
247,200 Owens-Illinois, Inc. (NON) 3,229,050
555,000 Smurfit-Stone Container Corp. (NON) 7,284,375
-------------
18,490,050
Pharmaceuticals (3.3%)
-------------------------------------------------------------------------------------------------------------------
163,400 Abbott Laboratories 7,148,750
135,000 Bristol-Myers Squibb Co. 7,155,000
142,551 Pharmacia Corp. 8,348,143
-------------
22,651,893
Photography/Imaging (1.0%)
-------------------------------------------------------------------------------------------------------------------
110,400 Eastman Kodak Co. 6,872,400
Railroads (1.8%)
-------------------------------------------------------------------------------------------------------------------
307,500 Union Pacific Corp. 12,223,125
Real Estate (1.1%)
-------------------------------------------------------------------------------------------------------------------
160,700 Equity Residential Properties Trust (R) 7,713,600
Regional Bells (5.4%)
-------------------------------------------------------------------------------------------------------------------
522,800 SBC Communications, Inc. 21,826,900
336,722 Verizon Communications 14,689,497
-------------
36,516,397
Retail (2.5%)
-------------------------------------------------------------------------------------------------------------------
196,700 Federated Department Stores, Inc. (NON) 5,433,838
115,000 Lowe's Cos., Inc. 5,153,438
215,000 Sears, Roebuck & Co. 6,705,313
-------------
17,292,589
Software (0.6%)
-------------------------------------------------------------------------------------------------------------------
127,700 Computer Associates International, Inc. 4,054,475
Technology Services (1.1%)
-------------------------------------------------------------------------------------------------------------------
145,300 Electronic Data Systems Corp. 7,237,756
Telecommunications (2.5%)
-------------------------------------------------------------------------------------------------------------------
212,200 ALLTEL Corp. 10,729,363
203,800 AT&T Corp. 6,419,700
-------------
17,149,063
Tire & Rubber (0.5%)
-------------------------------------------------------------------------------------------------------------------
145,000 Goodyear Tire & Rubber Co. (The) 3,389,375
Tobacco (1.7%)
-------------------------------------------------------------------------------------------------------------------
398,300 Philip Morris Cos., Inc. 11,799,638
Waste Management (2.9%)
-------------------------------------------------------------------------------------------------------------------
906,100 Republic Services, Inc. (NON) 13,251,713
357,500 Waste Management, Inc. 6,770,156
--------------
20,021,869
--------------
Total Common Stocks (cost $620,316,650) $ 662,851,511
<CAPTION>
CONVERTIBLE BONDS AND NOTES (1.5%) (a) (cost 17,346,003)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 23,100,000 Rite Aid Corp. cv. sub. notes 5 1/4s, 2002 $ 10,337,250
<CAPTION>
SHORT-TERM INVESTMENTS (1.5%) (a) (cost $10,488,000)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 10,488,000 Interest in $850,000,000 joint repurchase agreement
dated August 31, 2000 with Morgan Stanley & Co., Inc.
due September 1, 2000 with respect to various
U.S. Treasury obligations -- maturity value of $10,489,929
for an effective yield of 6.62% $ 10,488,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $648,150,653) (b) $ 683,676,761
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $679,184,026.
(b) The aggregate identified cost on a tax basis is $659,016,178,
resulting in gross unrealized appreciation and depreciation of
$93,310,569 and $68,649,986, respectively, or net unrealized
appreciation of $24,660,583.
(NON) Non-income-producing security.
(R) Real Estate Investment Trust.
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, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $648,150,653) (Note 1) $683,676,761
-------------------------------------------------------------------------------------------
Cash 532
-------------------------------------------------------------------------------------------
Dividends and other receivables 1,760,321
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 984,374
-------------------------------------------------------------------------------------------
Receivable for securities sold 2,411,102
-------------------------------------------------------------------------------------------
Total assets 688,833,090
Liabilities
-------------------------------------------------------------------------------------------
Payable for securities purchased 6,681,313
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,145,829
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,123,023
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 158,408
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 36,110
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,575
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 421,915
-------------------------------------------------------------------------------------------
Other accrued expenses 80,891
-------------------------------------------------------------------------------------------
Total liabilities 9,649,064
-------------------------------------------------------------------------------------------
Net assets $679,184,026
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $667,256,482
-------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 4,550,345
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (28,148,909)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 35,526,108
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $679,184,026
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($331,658,045 divided by 25,364,501 shares) $13.08
-------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $13.08)* $13.88
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($314,363,537 divided by 24,334,483 shares)** $12.92
-------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($6,470,077 divided by 498,692 shares)** $12.97
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($26,692,367 divided by 2,053,628 shares) $13.00
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $13.00)* $13.47
-------------------------------------------------------------------------------------------
* 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, 2000
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $69,482) $ 14,682,240
-------------------------------------------------------------------------------------------
Interest 2,363,743
-------------------------------------------------------------------------------------------
Total investment income 17,045,983
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,690,436
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,141,019
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 22,985
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 9,871
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 833,353
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 3,324,245
-------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 28,582
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 227,123
-------------------------------------------------------------------------------------------
Amortization of organization expense (Note 1) 735
-------------------------------------------------------------------------------------------
Other 439,990
-------------------------------------------------------------------------------------------
Total expenses 10,718,339
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (200,573)
-------------------------------------------------------------------------------------------
Net expenses 10,517,766
-------------------------------------------------------------------------------------------
Net investment income 6,528,217
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (24,703,888)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 40,880,779
-------------------------------------------------------------------------------------------
Net gain on investments 16,176,891
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $22,705,108
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended August 31
---------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 6,528,217 $ 5,638,237
--------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (24,703,888) 77,023,049
--------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 40,880,779 113,799,505
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 22,705,108 196,460,791
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income
Class A (4,409,539) (3,503,936)
--------------------------------------------------------------------------------------------------
Class B (1,333,412) (478,437)
--------------------------------------------------------------------------------------------------
Class C (15,352) --
--------------------------------------------------------------------------------------------------
Class M (207,356) (129,575)
--------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (37,427,305) (35,199,845)
--------------------------------------------------------------------------------------------------
Class B (37,879,799) (37,036,615)
--------------------------------------------------------------------------------------------------
Class C (143,421) --
--------------------------------------------------------------------------------------------------
Class M (3,436,189) (3,628,113)
--------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (121,099,315) 3,694,459
--------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (183,246,580) 120,178,729
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 862,430,606 742,251,877
--------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $4,550,345 and $4,095,252, respectively) $679,184,026 $862,430,606
--------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended August 31
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.98 $12.01 $14.63 $11.57 $10.53
------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------
Net investment income .16(c) .15(c) .13(c) .19(c)(d) .18(d)
------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments .49 3.27 (1.89) 3.10 1.82
------------------------------------------------------------------------------------------------
Total from
investment operations 0.65 3.42 (1.76) 3.29 2.00
------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------
From net
investment income (.16) (.13) (.12) (.09) (.26)
------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.39) (1.32) (.74) (.14) (.70)
------------------------------------------------------------------------------------------------
Total distributions (1.55) (1.45) (.86) (.23) (.96)
------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.08 $13.98 $12.01 $14.63 $11.57
------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 6.13 29.23 (12.83) 28.79 20.29
------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $331,658 $400,555 $350,430 $429,246 $97,718
------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.15 1.09 1.16 1.22(d) 1.24(d)
------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.32 1.04 .89 1.40(d) 2.45(d)
------------------------------------------------------------------------------------------------
Portfolio turnover (%) 82.68 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) Includes amounts paid through expense offset and brokerage service
arrangements.
(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 for the period ended August 31,
1996, reflect a reduction of $0.01 per class A share and $0.02 per class
B and M shares, respectively. Expenses for the year ended August 31,
1997 reflect a reduction of less than $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
------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.80 $11.87 $14.49 $11.52 $10.86
------------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------------
Net investment income (c) .07 .04 .02 .09(d) .10(d)
------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments .49 3.23 (1.86) 3.08 .56
------------------------------------------------------------------------------------------------------
Total from
investment operations .56 3.27 (1.84) 3.17 .66
------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------
From net
investment income (.05) (.02) (.04) (.06) --
------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.39) (1.32) (.74) (.14) --
------------------------------------------------------------------------------------------------------
Total distributions (1.44) (1.34) (.78) (.20) --
------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.92 $13.80 $11.87 $14.49 $11.52
------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 5.36 28.14 (13.48) 27.79 6.08*
------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $314,364 $423,948 $355,743 $406,783 $94,370
------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.90 1.84 1.91 1.97(d) 1.04*(d)
------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .57 .29 .14 .65(d) .88*(d)
------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 82.68 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) Includes amounts paid through expense offset and brokerage service
arrangements.
(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 for the period ended August 31,
1996, reflect a reduction of $0.01 per class A share and $0.02 per class
B and M shares, respectively. Expenses for the year ended August 31,
1997 reflect a reduction of less than $0.01 per class A, B, and M
shares, respectively.
</TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS C
-------------------------------------------------------------------
For the period
Per-share Year ended July 26,1999+
operating performance August 31 to August 31
-------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------
Net asset value,
beginning of period $13.97 $15.04
-------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------
Net investment income (c) .08 (.02)
-------------------------------------------------------------------
Net realized gain (loss)
on investments .46 (1.05)
-------------------------------------------------------------------
Total from
investment operations .54 (1.07)
-------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------
From net
investment income (.15) --
-------------------------------------------------------------------
From net realized gain
on investments (1.39) --
-------------------------------------------------------------------
Total distributions (1.54) --
-------------------------------------------------------------------
Net asset value,
end of period $12.97 $13.97
-------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------
Total return at
net asset value (%)(a) 5.22 (7.12)*
-------------------------------------------------------------------
Net assets, end of period
(in thousands) $6,470 $561
-------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.90 .19*
-------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .62 (.18)*
-------------------------------------------------------------------
Portfolio turnover (%) 82.68 87.23
-------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service
arrangements.
(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 for the period ended August 31,
1996, reflect a reduction of $0.01 per class A share and $0.02 per class
B and M shares, respectively. Expenses for the year ended August 31,
1997 reflect a reduction of less than $0.01 per class A, B, and M
shares, respectively.
<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
-----------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.88 $11.93 $14.55 $11.54 $10.86
-----------------------------------------------------------------------------------------------------
Investment operations
-----------------------------------------------------------------------------------------------------
Net investment income (c) .10 .08 .06 .12(d) .11(d)
-----------------------------------------------------------------------------------------------------
Net realized gain (loss)
on investments .49 3.24 (1.87) 3.10 .57
-----------------------------------------------------------------------------------------------------
Total from
investment operations .59 3.32 (1.81) 3.22 .68
-----------------------------------------------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------------------------------------------
From net
investment income (.08) (.05) (.07) (.07) --
-----------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.39) (1.32) (.74) (.14) --
-----------------------------------------------------------------------------------------------------
Total distributions (1.47) (1.37) (.81) (.21) --
-----------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.00 $13.88 $11.93 $14.55 $11.54
-----------------------------------------------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 5.62 28.46 (13.25) 28.19 6.26*
-----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $26,692 $37,367 $36,079 $46,761 $11,852
-----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.65 1.59 1.66 1.72(d) .91*(d)
-----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .81 .54 .39 .91(d) 1.05*(d)
-----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 82.68 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) Includes amounts paid through expense offset and brokerage service
arrangements.
(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 for the period ended August 31,
1996, reflect a reduction of $0.01 per class A share and $0.02 per class
B and M shares, respectively. Expenses for the year ended August 31,
1997 reflect a reduction of less than $0.01 per class A, B, and M
shares, respectively.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
August 31, 2000
Note 1
Significant accounting policies
Putnam New Value Fund (the "fund") is 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. 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 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 of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. 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 principal exchange, or if no sales
are reported -- as in the case of some securities traded
over-the-counter -- the last bid price. Short-term investments having
remaining maturities of 60 days or less are stated at amortized cost,
which approximates market value. Other investments, including restricted
securities, are stated at fair 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. Non-cash dividends, if any, are recorded at the fair
market value of the securities received.
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 maintains an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended
August 31, 2000, the fund had no borrowings against the line of credit.
F) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
At August 31, 2000, the fund had a capital loss carryover of
approximately $17,382,000 available to offset future net capital gain,
if any, which will expire on August 31, 2008.
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 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, 2000, the fund reclassified $107,465 to decrease
undistributed net investment income and $107,465 to decrease accumulated
net realized losses. 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 $6,425. These expenses have been fully
amortized as of August 31, 2000.
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, 2000, fund expenses were reduced by
$200,573 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 $935
has been allocated to the fund, and an additional fee for each Trustee's
meeting attended. 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 proceeding 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 Retail Management, Inc., 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 Retail Management, Inc. 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, 2000, Putnam Retail Management, Inc.,
acting as underwriter received net commissions of $183,761 and $5,365
from the sale of class A and class M shares, respectively, and received
$807,794 and $1,730 in contingent deferred sales charges from
redemption's 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, 2000, Putnam Retail
Management, Inc., acting as underwriter, received $13,639 on class A
redemptions.
Note 3
Purchases and sales of securities
During the year ended August 31, 2000, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $576,215,697 and $780,528,248, respectively. There were no
purchases or sales of U.S. government obligations.
Note 4
Capital shares
At August 31, 2000, there were an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as follows:
Year ended August 31, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 8,856,472 $108,544,009
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,456,664 40,028,202
---------------------------------------------------------------------------
12,313,136 148,572,211
Shares
repurchased (15,609,195) (188,514,473)
---------------------------------------------------------------------------
Net decrease (3,296,059) $(39,942,262)
---------------------------------------------------------------------------
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, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 8,218,563 $ 99,011,661
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,142,470 36,138,441
---------------------------------------------------------------------------
11,361,033 135,150,102
Shares
repurchased (17,744,549) (214,004,275)
---------------------------------------------------------------------------
Net decrease (6,383,516) $(78,854,173)
---------------------------------------------------------------------------
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 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 650,127 $7,825,037
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 13,434 155,300
---------------------------------------------------------------------------
663,561 7,980,337
Shares
repurchased (205,021) (2,438,361)
---------------------------------------------------------------------------
Net increase 458,540 $5,541,976
---------------------------------------------------------------------------
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, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 851,523 $10,263,438
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 306,668 3,545,432
---------------------------------------------------------------------------
1,158,191 13,808,870
Shares
repurchased (1,795,992) (21,653,726)
---------------------------------------------------------------------------
Net decrease (637,801) $(7,844,856)
---------------------------------------------------------------------------
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)
---------------------------------------------------------------------------
FEDERAL TAX INFORMATION
(Unaudited)
The fund has designated 100% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
John A. Hill, 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, III
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
Deborah F. Kuenstner
Vice President
David L. King
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
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 and
Putnam's Quarterly Ranking 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.putnaminvestments.com.
Not FDIC Insured, May Lose Value, No Bank Guarantee
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
PRST STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
AN025 64660 274/2BF/2BG 10/00
Putnam
International
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
Dear Shareholder:
It is a pleasure to comment on the performance of Putnam International
Fund and its management for the first time in our new roles as Chairman
of the Trustees and President of the Funds. As you know, both of us have
been members of the Board of Trustees for a number of years and have
followed closely your fund's progress since its inception.
For the fifth consecutive fiscal year which ended August 31, 2000,
Putnam International Fund outperformed the MSCI/EAFE Index by a
substantial margin. This success is the result of a very disciplined
investment process where risk and return are constantly measured and
weighed against each other.
Total return for 12 months ended 8/31/00
Net asset value Public offering price
----------------------------------------------------------
16.37% 9.68%
----------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods begins on page 6.
* NO EXCUSES PHILOSOPHY DRIVES STRATEGY
We are pleased to announce that the Trustees approved the appointment of
Geirulv Lode as lead portfolio manager of your fund and the addition of
Omid Kamshad to the fund's management team. Geirulv has been a member of
the fund's management team since 1997 and has nine years of investment
experience. Before joining Putnam in 1996, Omid was with Lombard Odier
International Investment Managers. He is managing director and chief
investment officer of the Core International Equity Group and has 13
years of investment experience.
Putnam International Fund is a member of our Enhanced Core family of
funds with a "no excuses" valuation philosophy. This means that fund
management believes that all companies, no matter what they make or do,
have an underlying long-term worth. As such, stock prices will fluctuate
significantly around this long-term worth. In addition, we believe that
the underlying worth of a stock is based on a company's long-term return
on capital. This core valuation approach has no predetermined growth or
value bias. Our competitive edge lies in our ability to attach a hard
valuation number to each company that the fund owns.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Vodafone Group, PLC
United Kingdom
Nokia OYJ AB
Finland
BP Amoco PLC
United Kingdom
Nippon Telegraph and Telephone Corp.
Japan
Internationale Nederlanden Groep
(ING) N.V.
Netherlands
Telefonaktiebolaget LM Ericsson,
Class B
Sweden
Aventis, S.A.
France
Novartis AG
Switzerland
Sony Corp.
Japan
Alcatel
France
Footnote reads:
These holdings represent 18.0% of the fund's net assets as of 8/31/00.
Portfolio holdings will vary over time.
Using this philosophy, your portfolio management team constructs a
portfolio from a combination of two distinct methodologies --
quantitative and fundamental analysis. Quantitative analysis involves
using sophisticated models that rank all the stocks in the investment
universe based on the stock's price momentum, its earnings momentum, and
the correlation between the two. Fundamental analysis relies on
valuation models that are driven by the portfolio managers' and
analysts' insights about a stock's growth rate, return of capital,
margins, and cost of capital. While we can't predict future performance,
these methodologies have resulted in your fund's strong performance
since inception. Using the quantitative and fundamental models, fund
management creates an alpha (the expected excess return) that is used to
maximize returns for a certain level of risk.
As a way of controlling tracking error (a measure of risk), fund
management relies to a lesser extent on country or industry preferences
to enhance performance. With the strict use of quantitative and
fundamental models supporting a relatively low tracking error, the
fund's goal is to perform well in different market environments.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Financial 20.3%
Technology 13.8%
Communications
services 11.6%
Health care 11.4%
Consumer staples 9.8%
Footnote reads:
*Based on net assets as of 8/31/00. Holdings will vary over time.
* STRONG PERFORMANCE FROM WIDE VARIETY OF INDUSTRIES
As always, there are a few holdings that perform exceptionally well and
are worth noting. Elan Corporation, a specialty pharmaceutical company
located in Ireland, continues to be attractively valued. Positive news
about this company's products keeps emerging, enhancing its stock price.
GN Store Nord of Denmark, a technology company, develops and
manufactures electronic measuring instruments such as light weight
telephone headsets and audio logical measuring instruments. Over the
last year, GN Store Nord acquired technology in high return areas and
spun off some of the lower return businesses like the cellular phone
operator unit. While these holdings and others discussed in this report
were viewed favorably as of August 31, 2000, all holdings are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
While we are extremely pleased with the strong performance of your fund,
we feel it is important to remind shareholders that future returns may
not always be so attractive. Meanwhile, Geirulv and Omid will continue
to implement the highly disciplined management approach that has worked
so well for Putnam International Fund.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
October 18, 2000
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 8/31/00, there is no guarantee the fund will
continue to hold these securities in the future. International investing
involves certain risks, including economic instability, political
developments, and currency fluctuations.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
International Fund is designed for investors seeking long-term capital
appreciation primarily through common stocks of companies located
outside the United States.
TOTAL RETURN FOR PERIODS ENDED 8/31/00
Since 12/28/95 MSCI/EAFE Consumer
NAV POP Index price index
-----------------------------------------------------------------
1 year 16.37% 9.68% 9.55% 3.23%
-----------------------------------------------------------------
Life of fund 85.05 74.38 52.46 12.01
Annual average 14.05 12.62 9.45 2.46
-----------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns reflect the current
maximum initial sales charge of 5.75%. 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. Currently, the fund is offered on a
limited basis and has limited assets. Performance data reflects an
expense limitation currently in effect, without which returns would have
been lower.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 8/31/00
-----------------------------------------------------------------
Distributions
(number) 1
-----------------------------------------------------------------
Income $0.240
-----------------------------------------------------------------
Capital gains
Long-term 0.934
-----------------------------------------------------------------
Short-term 0.331
-----------------------------------------------------------------
Total $1.505
-----------------------------------------------------------------
Share value: NAV POP
-----------------------------------------------------------------
8/31/99 $12.45 $13.21
-----------------------------------------------------------------
8/31/00 12.98 13.77
-----------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 9/30/00(most recent calendar quarter)
Since 12/28/95
NAV POP
------------------------------------------------------------------
1 year 8.61% 2.36%
------------------------------------------------------------------
Life of fund 74.93 64.84
Annual average 12.47 11.07
------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns reflect the current
maximum initial sales charge of 5.75%. 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 12/28/95
Fund's shares MSCI/EAFE Consumer price
Date at POP Index index
12/28/95 9,425 10,000 10,000
8/31/96 9,512 10,168 10,280
8/31/97 10,885 11,089 10,435
8/31/98 11,460 11,073 10,610
8/31/99 14,985 13,916 10,850
8/31/00 $17,438 $15,246 $11,201
Footnote reads:
Past performance is no assurance of future results. 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.
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.
COMPARATIVE BENCHMARKS
Europe, Australasia, and the Far East (EAFE) component of the Morgan
Stanley Capital International World Index is an unmanaged list of equity
securities listed on the stock exchanges of Europe, Australasia, and the
Far East, with all values expressed in U.S. dollars. 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 are determined. All investment and noninvestment 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-end funds, a
separate table is provided for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees
of Putnam Investment Funds
We have audited the accompanying statement of assets and liabilities of
Putnam International Fund (a series of Putnam Investment Funds),
including the fund's portfolio, as of August 31, 2000, and the related
statement of operations, statement of changes in net assets and
financial highlights for the year 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 ended August 31, 1999
and the financial highlights for each of the years or periods in the
four-year period ended August 31, 1999 were audited by other auditors
whose report dated October 8, 1999 expressed an unqualified opinion on
that financial statement and those financial highlights.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 August 31, 2000 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 International Fund as of August 31, 2000,
the results of its operations, changes in its net assets and financial
highlights for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
Boston, Massachusetts
October 5, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
August 31, 2000
COMMON STOCKS (100.0%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Australia (2.1%)
-------------------------------------------------------------------------------------------------------------------
2,000 AMP Ltd. $ 20,575
1,319 Broken Hill Proprietary Co., Ltd. 14,443
1,079 Coles Myer, Ltd. 4,497
1,000 Commonwealth Bank of Australia 15,981
1,500 National Australia Bank, Ltd. 21,995
600 News Corp., Ltd. ADR 31,575
1,200 Rio Tinto, Ltd. 18,520
5,085 Westpac Banking Corp., Ltd. 37,132
-------------
164,718
Austria (0.1%)
-------------------------------------------------------------------------------------------------------------------
200 VA Technolgie AG 9,729
Belgium (0.1%)
-------------------------------------------------------------------------------------------------------------------
50 Electrabel S.A. 10,688
Canada (--%)
-------------------------------------------------------------------------------------------------------------------
386 Laurus NV 3,705
Denmark (1.3%)
-------------------------------------------------------------------------------------------------------------------
500 Danisco A/S 16,340
200 GN Store Nord 26,835
100 Group 4 Falck A/S 144A 15,684
100 Group 4 Falck A/S 15,684
400 Tele Danmark A/S 24,092
-------------
98,635
Finland (3.1%)
-------------------------------------------------------------------------------------------------------------------
200 KCI Konecranes International PLC 6,222
1,000 Metso OYJ 12,088
4,000 Nokia OYJ AB 175,520
800 Sampo Insurance Co., Ltd. Class A 32,530
500 Sonera OYJ 16,709
-------------
243,069
France (13.7%)
-------------------------------------------------------------------------------------------------------------------
1,200 Alcatel 98,177
1,475 Aventis S.A. 110,778
650 Axa S.A. 92,609
619 BNP Paribas 56,942
500 Bouygues S.A. 31,441
500 Carrefour Supermarche S.A. 36,485
400 Coflexip S.A. 48,706
600 France Telecom S.A. 68,526
320 Groupe Danone 43,743
600 Havas Advertising S.A. 14,191
850 L'OREAL S.A. 61,496
350 Lafarge Coppee 25,944
114 Michelin (C.G.D.E) 3,344
10 Promodes 7,830
70 Publicis S.A. 27,437
900 Sanofi-Sythelabo S.A. 43,916
400 Schneider Electric S.A. 29,508
852 Societe Generale 50,509
600 STMicroelectronics N.V. 36,796
537 Total Fina Elf S.A. 79,754
500 Total Fina Elf S.A. ADR 37,250
400 TFI (Television Francaise) 29,188
350 Vivendi S.A. 28,619
-------------
1,063,189
Germany (7.4%)
-------------------------------------------------------------------------------------------------------------------
180 Allianz AG 60,794
300 BASF AG 11,252
1,100 Bayer AG 46,586
1,300 Bayerische Motoren Werke (BMW) AG 42,058
100 Bayerische Hypo-und Vereinsbank AG 5,844
100 Beiersdorf AG 9,199
500 DaimlerChrysler AG 25,820
805 Deutsche Bank AG 70,332
500 Deutsche Lufthansa AG 11,088
1,400 Deutsche Telekom AG 54,128
600 Dresdner Bank AG 27,091
800 E.On AG 38,396
200 RWE AG 7,439
300 SAP AG Systeme Preference Bearer 58,661
500 Siemens AG 80,659
500 Volkswagen AG 21,776
-------------
571,123
Hong Kong (2.5%)
-------------------------------------------------------------------------------------------------------------------
11,000 Bank of East Asia, Ltd. 25,670
3,000 Cathay Pacific Airways 5,828
2,000 Cheung Kong Infrastructure Holdings 26,029
3,000 China Mobile, Ltd. (NON) 23,080
3,000 Henderson Land Development Co., Ltd. (R) 16,656
11,000 Hong Kong and China Gas Co., Ltd. 13,681
4,154 Hong Kong Electric Holdings, Ltd. 13,156
3,300 Hutchison Whampoa, Ltd. 46,544
2,048 Sun Hung Kai Properties, Ltd. 19,498
14 Sunevision Holdings, Ltd. (NON) 11
-------------
190,153
Ireland (1.6%)
-------------------------------------------------------------------------------------------------------------------
1,211 Allied Irish Banks PLC 10,021
178 Bank of Ireland 1,052
1,928 CRH PLC 32,250
1,000 Elan Corp. PLC ADR (NON) 58,313
10,000 Jefferson Smurfit Group PLC 19,783
-------------
121,419
Italy (2.7%)
-------------------------------------------------------------------------------------------------------------------
1,400 Alleanza Assicurazioni SpA 17,396
4,000 Banca Intesa SpA 17,136
1,200 Banca Popolare di Milano 8,426
700 Bulgari SpA 7,870
8,000 Ente Nazionale Idrocarburi (ENI) SpA 46,715
200 La Rinascente SpA 1,193
2,000 Mediaset SpA 35,801
6,000 Telecom Italia Mobile SpA 52,048
2,000 Telecom Italia SpA 24,602
-------------
211,187
Japan (23.7%)
-------------------------------------------------------------------------------------------------------------------
200 Acom Co., Ltd. 17,053
300 Advantest Corp. 61,204
100 ASATSU-DK, Inc. 3,743
3,000 Bank of Tokyo - Mitsubishi, Ltd. 36,751
1,000 Canon, Inc. 44,743
3,000 Chubu Electric Power, Inc. 50,933
2,000 Dai Nippon Printing Co., Ltd. 31,498
150 Disco Corp. 25,720
1,000 Eisai Co., Ltd. 30,204
4,000 Fuji Bank (The), Ltd. 30,429
1,000 Fujisawa Pharmaceutical Co. 34,049
2,000 Fujitsu Ltd. 57,968
2,000 Furukawa Electric Co., Ltd. 64,347
3,000 Hitachi, Ltd. 35,541
1,000 Honda Motor Co., Ltd. 36,582
1,000 KAO Corp. 27,483
100 Keyence Corp 33,205
400 Kojima Co., Ltd. 11,294
1,000 Kurita Water Industries, Ltd. 20,824
500 Kyocera Corp. 89,297
3,000 Matsushita Electric Industrial Co. 82,169
3,000 Mitsubishi Trust and Banking Corporation (The) 23,075
3,000 Mitsui & Co., Ltd. 20,176
2,000 NEC Corp. 57,218
7,000 Nikko Securities Co., Ltd. 67,564
200 Nintendo Co., Ltd. 34,593
12 Nippon Telegraph and Telephone Corp. 142,951
40 Nippon Television Network Corp. 22,887
1,000 Nomura Securities Co., Ltd. 23,403
300 Promise Co., Ltd. 20,908
100 Rohm Co., Ltd. 28,468
2,000 Sankyo Co., Ltd. 46,337
2,000 Sharp Corp. 31,873
1,000 Shin-Etsu Chemical Co. 49,151
3,000 Shiseido Co., Ltd. 35,456
900 Sony Corp. 100,460
1,000 Sumitomo Corp. 8,723
1,000 Sumitomo Bank, Ltd. 12,382
1,000 Takeda Chemical Industries 59,188
1,000 Teijin, Ltd. 3,714
2,500 Tokyo Electric Power Co. 55,928
3,000 Toshiba Corp. 29,519
2,000 Toyota Motor Corp. 87,046
1,000 Yamanouchi Pharmaceutical Co., Ltd. 49,526
-------------
1,835,583
Netherlands (5.8%)
-------------------------------------------------------------------------------------------------------------------
1,716 ABN AMRO Holding N.V. 42,705
1,400 Akzo-Nobel N.V. 61,980
600 ASM Lithography Holding N.V. 22,680
400 Heineken N.V. 20,336
1,934 Internationale Nederlanden Groep (ING) N.V. 129,608
612 Koninklijke Ahold N.V. 17,308
1,753 Koninklijke (Royal) Philips Electronics N.V. 85,382
800 Royal Dutch Petroleum Co. PLC 48,706
404 Royal Vendex KBB N.V. 5,243
302 TNT Post Group N.V. 7,062
394 Vedior N.V. 5,165
300 Wolters Kluwer N.V. 6,079
-------------
452,254
New Zealand (0.1%)
-------------------------------------------------------------------------------------------------------------------
3,800 Telecom Corp. of New Zealand, Ltd. 10,585
Norway (0.7%)
-------------------------------------------------------------------------------------------------------------------
700 Norsk Hydro ASA 30,093
250 Norske Skogindustrier ASA 7,220
200 Sparebanken NOR 4,960
530 TGS Nopec Geophysical Company ASA (NON) 7,945
200 Tomra Systems ASA 5,952
-------------
56,170
Portugal (0.3%)
-------------------------------------------------------------------------------------------------------------------
490 Banco Commercial Portuguese, S.A. 2,552
2,500 Electricidade de Portugal S.A. 8,110
900 Portugal Telecom S.A. 9,375
-------------
20,037
Singapore (1.3%)
-------------------------------------------------------------------------------------------------------------------
2,000 Chartered Semiconductor Manufacturing (NON) 16,736
3,326 DBS Group Holdings, Ltd. 40,203
2,000 Keppel Land, Ltd. 3,103
2,100 Overseas-Chinese Banking Corp. 14,522
3,168 United Overseas Bank, Ltd. 24,854
-------------
99,418
Spain (1.8%)
-------------------------------------------------------------------------------------------------------------------
1,208 Banco Santander Central Hispano S.A. 12,996
3,050 Iberdrola S.A. 35,105
700 Repsol S.A. 13,874
200 Superdiplo S.A. (NON) 3,395
3,706 Telefonica S.A. (NON) 71,148
-------------
136,518
Sweden (3.7%)
-------------------------------------------------------------------------------------------------------------------
600 Electrolux AB 7,443
2,500 Enea Data AB 16,169
500 Hennes & Mauritz AB, Class B 8,774
3,800 Investor AB, Class B 53,989
200 LGP Telecom Holding AB 5,068
100 NetCom Systems, Class B, AB (NON) 5,280
500 Sandvik AB 10,921
700 Skandia Forsakrings AB 14,176
200 SKF AB, Class B 2,905
500 Svenska Cellulosa AB (SCA), Class B 9,489
1,400 Svenska Handelsbanken, Class A 23,156
6,100 Telefonaktiebolaget LM Ericsson, Class B 123,209
200 Volvo AB Class B 3,319
-------------
283,898
Switzerland (8.4%)
-------------------------------------------------------------------------------------------------------------------
287 ABB, Ltd. 32,123
30 Clariant AG 10,246
28 Compagnie Financiere Richemont AG 79,281
250 Credit Suisse Group 52,233
3 Givaudan (NON) 802
10 Julius Baer Holdings AG 49,363
45 Nestle S.A. 96,964
70 Novartis AG 105,832
3 Roche Holdings AG 26,863
20 Serono SA 23,465
260 Swatch Group AG (The) 74,917
60 Swisscom AG ADR 17,013
540 UBS AG 78,573
-------------
647,675
United Kingdom (18.9%)
-------------------------------------------------------------------------------------------------------------------
3,000 Aegis Group PLC 8,204
2,197 Allied Zurich PLC 26,956
1,000 Anglian Water PLC 8,131
956 AstraZeneca Group PLC 42,978
700 AstraZeneca Group PLC (Sweden) 31,973
1,300 Barclays PLC 32,525
1,800 Bass PLC 17,595
444 BG Group PLC 2,771
700 BOC Group PLC 10,192
19,014 BP Amoco PLC 174,382
300 British Airways PLC 1,419
1,097 British American Tobacco PLC 7,069
4,000 British Telecommunications PLC ADR 50,911
916 Burmah Castrol PLC 22,251
1,387 Cable & Wireless PLC 25,683
1,600 Carlton Communications PLC 17,455
3,010 Diageo PLC 25,745
3,123 Dixons Group PLC 10,846
200 EMAP PLC 3,433
3,000 EMI Group PLC 27,885
2,600 Glaxo Wellcome PLC 74,921
4,924 Granada Compass PLC (NON) 60,773
600 Hanson PLC 3,561
3,702 HSBC Holdings PLC (Hong Kong) 52,688
3,329 HSBC Holdings PLC 47,988
5,000 Invensys PLC 19,564
700 Kingfisher Leisure PLC 5,091
706 Koninklijke (Royal) KPN NV 18,831
3,900 Lloyds TSB Group PLC 36,761
1,000 Marks & Spencer PLC 3,018
900 Misys PLC 10,453
700 Molins PLC 1,120
500 Next PLC 4,524
98 NTL, Inc. (NON) 4,294
3,000 Orchestream Holdings PLC 144A (NON) 27,579
1,200 Peninsular and Oriental Steam Navigation Co. 10,770
909 Royal & Sun Alliance Insurance Group PLC 6,347
800 Royal Bank of Scotland Group PLC 14,476
7,012 Scottish Power PLC 53,548
7,000 Securicor Group PLC 14,408
7,200 Shell Transport & Trading Co. PLC 61,582
3,005 SmithKline Beecham PLC 39,230
4,000 Smiths Industries PLC 52,366
8,000 Tesco PLC 25,223
4,500 Tomkins PLC 14,204
58,839 Vodafone Group PLC 238,146
1,000 WPP Group PLC 14,226
-------------
1,464,096
United States (0.7%)
-------------------------------------------------------------------------------------------------------------------
100 deCODE Genetics, Inc. (NON) 2,763
833 Pharmacia Corp. SDR 48,930
300 Transgenomic, Inc. (NON) 6,300
-------------
57,993
-------------
Total Common Stocks (cost $6,306,426) $ 7,751,842
<CAPTION>
WARRANTS (0.1%) (a) (NON) (cost 9,733) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------
20 Nippon Television 144A 8/2/01 $ 11,462
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $6,316,159) (b) $ 7,763,304
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $7,755,032.
(b) The aggregate identified cost on a tax basis is $6,359,451,
resulting in gross unrealized appreciation and depreciation of
$1,931,870 and $528,017, respectively, or net unrealized depreciation of
$1,403,853.
(NON) Non-income-producing security.
(R) Real Estate Investment Trust.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
ADR after the name of a foreign holding stands for American
Depositary Receipts representing ownership of a foreign securities on
deposit with a domestic custodian bank.
The fund had the following industry group concentrations greater
than 10% at August 31, 2000 (as a percentage of net assets):
Financial 20.3%
Technology 13.8
Communication services 11.6
Health care 11.4
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $6,316,159) (Note 1) $7,763,304
-------------------------------------------------------------------------------------------
Cash 40,932
-------------------------------------------------------------------------------------------
Foreign currency (cost $48) 38
-------------------------------------------------------------------------------------------
Dividends and interest receivable 16,628
-------------------------------------------------------------------------------------------
Receivable for securities sold 9,835
-------------------------------------------------------------------------------------------
Total assets 7,830,737
Liabilities
-------------------------------------------------------------------------------------------
Payable for securities purchased 19,518
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 22,497
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,261
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 2,078
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 7
-------------------------------------------------------------------------------------------
Other accrued expenses 30,344
-------------------------------------------------------------------------------------------
Total liabilities 75,705
-------------------------------------------------------------------------------------------
Net assets $7,755,032
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $5,954,804
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (30,562)
-------------------------------------------------------------------------------------------
Accumulated net realized gain on investments
and foreign currency transactions (Note 1) 384,868
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets
and liabilities in foreign currencies 1,445,922
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $7,755,032
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per share
($7,755,032 divided by 597,603 shares) $12.98
-------------------------------------------------------------------------------------------
Offering price per share (100/94.25 of $12.98)* $13.77
-------------------------------------------------------------------------------------------
* 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.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended August 31, 2000
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $12,960) $100,058
-------------------------------------------------------------------------------------------
Interest 3,878
-------------------------------------------------------------------------------------------
Total investment income 103,936
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 54,469
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 10,190
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 2,403
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 40
-------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 972
-------------------------------------------------------------------------------------------
Reports to shareholders 5,324
-------------------------------------------------------------------------------------------
Auditing 25,603
-------------------------------------------------------------------------------------------
Other 3,510
-------------------------------------------------------------------------------------------
Fees waived by Manager (Note 2) (2,810)
-------------------------------------------------------------------------------------------
Total expenses 99,701
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (2,934)
-------------------------------------------------------------------------------------------
Net expenses 96,767
-------------------------------------------------------------------------------------------
Net investment income 7,169
-------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 559,946
-------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (253)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (1,236)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 283,977
-------------------------------------------------------------------------------------------
Net gain on investments 842,434
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $849,603
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended August 31
---------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 7,169 $ 10,418
--------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 559,693 424,534
--------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 282,741 791,087
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 849,603 1,226,039
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income (102,732) (21,375)
--------------------------------------------------------------------------------------------------
From net realized gain on investments (541,937) (150,404)
--------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 2,160,141 477,478
--------------------------------------------------------------------------------------------------
Total increase in net assets 2,365,075 1,531,738
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 5,389,957 3,858,219
--------------------------------------------------------------------------------------------------
End of year (including distributions in excess of and
undistributed net investment income of $30,562, and
$35,445, respectively) $7,755,032 $5,389,957
--------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
-------------------------------------------------------------------------------------------------------
For the period
Per-share Dec. 28, 1995+
operating performance Year ended August 31 to August 31
-------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.45 $9.92 $9.58 $8.58 $8.50
-------------------------------------------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------------------------------------------
Net investment income (loss)(d) .01(a) .03(a) .04 .07 .08
-------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 2.02 2.95 .45 1.15 --
-------------------------------------------------------------------------------------------------------
Total from
investment operations 2.03 2.98 .49 1.22 .08
-------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------
From net
investment income (.24) (.06) (.06) (.09) --
-------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.26) (.39) (.09) (.13) --
-------------------------------------------------------------------------------------------------------
Total distributions (1.50) (.45) (.15) (.22) --
-------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.98 $12.45 $9.92 $9.58 $8.58
-------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 16.37 30.76 5.29 14.43 .94*
-------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $7,755 $5,390 $3,858 $3,664 $3,144
-------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) 1.46 1.49 1.47 1.45 .98*
-------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(d) .11 .23 .40 .74 .96*
-------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 31.95 55.80 38.61 76.09 48.18*
-------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis
of weighted average number of shares outstanding during the period.
(b) Total return does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period (Note
2). As a result of such limitation, expenses for the fund for the period
ended August 31, 2000, August 31, 1999, August 31, 1998, August 31,
1997, and August 31, 1996, reflect a reduction of $0.01, $0.05, $0.04,
$0.03, and $0.05 per share, respectively.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
August 31, 2000
Note 1
Significant accounting policies
Putnam International 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-ended management
investment company. The objective of the fund is to seek long-term
capital appreciation by investing primarily in equity securities of
issues which have a principle place of business located outside of the
United States or whose securities are principally traded on foreign
markets.
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 of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. 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.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rate. Other investments, including restricted
securities, 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. Non-cash dividends, if any, are recorded at the fair
market value of the securities received.
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. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic
investments.
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, 2000, 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, foreign currency gains
and losses, post-October loss deferrals, organization costs, foreign
taxes, and both realized and unrealized gains and losses on passive
foreign investment companies. 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, 2000, the fund reclassified $29,556 to
decrease distributions in excess of net investment income and $966 to
decrease paid-in-capital, with a decrease to accumulated net realized
gains of $28,590.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 $3,662. The expenses have been fully
amortized on a projected net asset basis over a five-year period as of
August 31, 2000.
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: 0.80% of the
first $500 million of average net assets, 0.70% of the next $500
million, 0.65% of the next $500 million, 0.60% of the next $5 billion,
0.575% of the next $5 billion, 0.555% of the next $5 billion, 0.54% of
the next $5 billion, and 0.53% thereafter.
Putnam Management has agreed to limit its compensation (and, to the
extent necessary, bear other expenses) through August 31, 2001, to the
extent that expenses of the fund (exclusive of brokerage commissions,
interest, taxes, deferred organizational and extraordinary expense,
credits from PFTC and payments under the Trust's distribution plan)
would exceed an annual rate of 1.45% of the fund's average net assets.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned 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, 2000, fund expenses were reduced by $2,934
under expense offset arrangements with PFTC. Investor servicing and
custodian fees reported in the Statement of operations exclude these
credits. The fund could have invested a portion of the assets utilized
in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $100
has been allocated to the fund, and an additional fee for each Trustee's
meeting attended. 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 a distribution plan (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940. The purpose of the Plan
is to compensate Putnam Retail Management, Inc., a wholly-owned
subsidiary of Putnam Investments, Inc., for services provided and
expenses incurred by it in distributing shares of the fund. The Plan
provides for payment by the fund to Putnam Retail Management, Inc at an
annual rate of up to 0.35% of the fund's average net assets. The fund is
currently not making any payments pursuant to the Plan.
During the year ended August 31, 2000 Putnam Retail Management, Inc.,
acting as underwriter, received no monies from net commissions from the
sale of shares of the fund.
Note 3
Purchases and sales of securities
During the year ended August 31, 2000, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $3,692,005 and $2,145,035, respectively. There were no
purchases and sales of U.S. government obligations.
Note 4
Capital shares
At August 31, 2000, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended August 31, 2000
---------------------------------------------------------------------------
Shares Amount
---------------------------------------------------------------------------
Shares sold 150,913 $1,987,158
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 49,781 644,670
---------------------------------------------------------------------------
200,694 2,631,828
Shares
repurchased (36,020) (471,687)
---------------------------------------------------------------------------
Net increase 164,674 $2,160,141
---------------------------------------------------------------------------
Year ended August 31, 1999
---------------------------------------------------------------------------
Shares Amount
---------------------------------------------------------------------------
Shares sold 30,481 $336,359
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 16,267 171,779
---------------------------------------------------------------------------
46,748 508,138
Shares
repurchased (2,688) (30,660)
---------------------------------------------------------------------------
Net increase 44,060 $477,478
---------------------------------------------------------------------------
At August 31, 2000, Putnam Investments Inc., owned 565,716 shares of the
fund (94.7% of shares outstanding), valued at $7,342,994.
Note 5
Change in independent
accountants (unaudited)
Based on the recommendation of the Audit Committee of the fund, the
Board of Trustees has determined not to retain PricewaterhouseCoopers
LLP as this funds' independent accountant and voted to appoint KPMG LLP
for the fund's fiscal year ended August 31, 2000. During the two
previous 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
previous fiscal years and through July 24, 2000, 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 $266,904 as capital gain, for its taxable year
ended August 31, 2000.
For the period, interest and dividends from foreign countries were
$96,425. Taxes paid to foreign countries were $12,960.
The Form 1099 you receive in January 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
KPMG LLP
TRUSTEES
John A. Hill, 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, III
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
Stephen Oristaglio
Vice President
Omid Kamshad
Vice President and Fund Manager
Justin M. Scott
Vice President and Fund Manager
Geirulv Lode
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
This report is for the information of shareholders of Putnam
International 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.putnaminvestments.com.
Not FDIC Insured, May Lose Value, No Bank Guarantee
2AX 64658 10/00
Putnam
Emerging
Markets
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.
As we look to the future, we are certain that the changes that lie ahead
will be even more breathtaking in their scope. What will not change is
the Trustees' dedication to serving the best interests of our
shareholders.
We are pleased to announce the addition of Claudio Brocado to Putnam
Emerging Markets Fund's management team. Claudio was with Dresdner RCM
Global Investors and Valores Finamex International before joining Putnam
in 1999. He has 12 years of investment experience.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
October 18, 2000
REPORT FROM FUND MANAGEMENT
Thomas R. Haslett
J. Peter Grant
Paul C. Warren
Stephen S. Oler
Carmel Peters
Claudio Brocado
As we look back on the 2000 fiscal year of Putnam Emerging Markets Fund,
we can be generally pleased with the investment conditions of most
emerging markets if not completely happy with stock performance.
Emerging markets enjoyed positive economic growth with rising consumer
and business demand, as well as stable currencies. Near the middle of
the fiscal year, however, rising interest rates in the United States
undercut leading growth sectors such as technology and
telecommunications. The ensuing volatility became global and has had a
lingering impact in certain Asian markets, especially among technology
companies. Fortunately, the fund's diversification across many regions
and sectors offset some of this volatility.
Total return for 12 months ended 8/31/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
-----------------------------------------------------------------------
14.93% 8.33% 13.96% 8.96% 13.89% 12.89% 14.24% 10.21%
-----------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
* UNCERTAINTY, INTEREST RATES DEAL SETBACK TO STOCKS
Your fund fared well in the first half of the fiscal year. Emerging
markets participated in the global rally of growth stocks in the
technology, telecommunications, and media sectors. This trend started to
unravel in March and April, as growth stock prices around the world
began to correct after a long period of increases. Because a U.S.
economic slowdown can reduce the earnings of exporters in Asia and Latin
America, rising U.S. interest rates cut into growth forecasts for
emerging markets. Your fund was not aggressively positioned during the
correction but nevertheless gave up some of the gains it had made
earlier in the year. The fund had substantial positions in the
technology and telecommunications sectors but also had significant
weightings in financial, industrial, and basic material companies; these
sectors experienced fewer shocks in the correction.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Technology 22.6%
Communication
services 16.6%
Financial 14.5%
Consumer staples 10.7%
Basic materials 10.0%
Footnote reads:
*Based on net assets as of 8/31/00. Holdings will vary over time.
The fund's strategy typically produces a well-diversified portfolio of
stocks that are neither too aggressive nor too cautious. Our investment
process is based on analyzing companies in all emerging markets to
identify fundamentally strong businesses experiencing earnings growth
with stock prices that are relatively attractive. We tend to avoid
extreme weightings in particular sectors, countries, or regions.
With the portfolio already well diversified, we made few changes in the
second half of the year. Holdings outside the technology and
telecommunications sectors performed relatively well. Certain markets
also did well, such as Hong Kong, which benefited from improving
property prices and a relatively stable Chinese economy. Latin American
and European emerging markets also performed relatively better than east
asian markets like South Korea and Taiwan.
* LATIN AMERICA STRONGER THAN ANTICIPATED
We had more confidence in Mexico and Brazil than some other
international investors did. To many, Mexico appeared risky because of
the recent presidential election. Historically Mexican elections have
been accompanied by fiscal and currency instability. In Brazil, many
investors doubted the government's ability to maintain fiscal discipline
and avoid inflation as the country recovered from its devaluation and
1999 recession.
Mexico rewarded our confidence. The peso actually strengthened in the
wake of the July election of opposition candidate Vicente Fox as
president, the first time that the Institutional Revolutionary Party
(PRI) has been voted out of office since it took power in the late
1920s. The election demonstrated Mexico's increasing stability as a
democracy. Fox, a former business executive, also brings to his
administration the goal of instituting reforms intended to increase the
sustainable growth rate of the Mexican economy.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Samsung Electronics Co.
Korea
Technology
China Telecom, Ltd.
Hong Kong
Communication services
Telefonos de Mexico S.A. ADR Class L
Mexico
Communication services
Taiwan Semiconductor Manufacturing Co.
Taiwan
Technology
Grupo Financiero Banamex-Accival
S.A. de C.V.
Mexico
Financial
Korea Electric Power Corp.
South Korea
Utilities
United Microelectronics Corp.
Taiwan
Technology
Petroleo Brasileiro S.A. ADR
Brazil
Energy
Surgutneftegaz ADR
Russia
Energy
Infosys Technologies, Ltd.
India
Technology
Footnote reads:
These holdings represent 22.9% of the fund's net assets as of 8/31/00.
Portfolio holdings will vary over time.
These developments formed a positive background for your fund's Mexican
holdings, several of which achieved strong results. One of your fund's
largest holdings remains Telefonos de Mexico (Telmex). Although its
second-quarter performance was a slight disappointment, we still believe
this is a world-class telecommunications company managed in the
interests of shareholders. Telmex already has 8.5 million wireless
customers, more than U.S. telecommunications firms such as Sprint PCS.
In early September 2000, Telmex announced plans to spin off its wireless
subsidiary as a separate stock available to current shareholders. The
move will reward shareholders by allowing the wireless subsidiary to
appreciate in a way that reflects its growth, rather than being saddled
with the slower-growing business units that Telmex, like all large
telecommunication incumbents, operates.
Fund holding Grupo Financiero Banamex-Accival, another large Mexican
position, illustrated the restored health of the Mexican banking sector
by engaging in a takeover struggle for its largest domestic rival, Grupo
Financiero Bancomer (which the fund did not own). Although the Banamex
offer was trumped by Spain's BBVA, the bidding helped to raise
valuations for Mexican bank stocks across the board. The contest also
illustrated how attractive the Mexican financial market has become to
international banks. We believe Banamex remains undervalued relative to
its growth prospects.
Like Mexico, Brazil surprised many with its improving economic growth.
The fact that the 1999 devaluation did not result in strong inflationary
pressures allowed Brazilian interest rates to drop, even as rates rose
in developed markets. Symbolizing Brazil's recovery was Petroleo
Brasileiro's (Petrobras) successful $4.2 billion stock offering,
including the listing of American Depositary Receipts on the New York
Stock Exchange. Your fund purchased part of this large offering of
Brazil's major oil company, which subsequently gained more than 30%.
"East Asia, with the notable exception of Japan, is actually the world's
fastest growing region. It expanded by about 5% in 1999 and is expected
to grow some 6% this year."
-- Business Week, June 26, 2000
Another Brazilian holding in the fund is Empresa Brasileira de
Aeronautica (Embraer), a jet manufacturer specializing in making planes
with 40 to 100 passenger seat capacity. Embraer sells to regional
airlines that offer relatively short flights, which have been growing in
popularity around the world. This company also had a successful offering
of shares on the New York Stock Exchange during the fiscal period.
* TECHNOLOGY AND TELECOMMUNICATIONS STILL GROWING
The volatility that afflicted technology and telecommunications stocks
around the world in the second half of the fiscal year has not
distracted us as investment managers from the long-term growth rates
expected from these sectors. The leading technology stocks in emerging
markets are world-class companies, with partners in developed markets
that depend on the products and services they provide. Examples include
computer chip makers Taiwan Semiconductor Manufacturing Co., United
Microelectronics Corp. of Taiwan, and South Korea's Samsung Electronics,
the world's leading producer of DRAM chips. A growing number of U.S.
companies are also relying on Indian software companies such as Infosys
Technologies and Satyam Computer Services for sophisticated software
services. Fund holding DSP Group, a company whose stock trades in the
United States but with operations based in Israel, is a global leader
in digital signal processing technology, a rapidly growing market.
In Taiwan and South Korea, two markets with large technology sectors,
some of the factors influencing recent performance are clearly
short-term and not business-related. Taiwan's market has been beset by
political uncertainty following the election of a new president from an
opposition party. China greeted the leadership change with the kind of
harsh rhetoric that can make investors nervous, but historically has had
no real long-term consequences for the stock market. In South Korea,
previously high-flying holdings such as Korea Telecom and SK Telecom
have been depressed because the government has prohibited subsidies for
wireless telephone handsets. This move, we believe, slows the rate of
growth for wireless subscriptions without permanently derailing it.
* VALUATIONS, LOW INFLATION FAVOR EMERGING MARKETS
As your fund enters its 2001 fiscal year, we have great confidence in
the conditions in emerging markets. Recent weakness in these markets
has, we believe, left many stocks undervalued, especially when compared
with their counterparts in developed markets. The low levels of
inflation, particularly in Latin America, represent a significant and
positive departure from past recovery cycles. Lower inflation is, we
believe, the result of deep reforms and the willingness to embrace
global trade, which pushes prices down by giving businesses and
consumers access to low-cost producers around the world. With inflation
low and economies expanding, we believe stocks in many sectors of
emerging markets are poised to perform well in fiscal 2001.
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 8/31/00, there is no guarantee the
fund will continue to hold these securities in the future. International
investing includes certain risks, such as currency fluctuations,
economic instability, and political developments. Additional risks,
including liquidity and volatility, may be associated with
emerging-markets securities.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Emerging Markets Fund is designed for investors seeking capital
appreciation through common stocks of companies operating primarily in
developing economies.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 8/31/00
Class A Class B Class C Class M
(inception dates) (12/28/95) (10/30/96) (7/26/99) (10/30/96)
NAV POP NAV CDSC NAV CDSC NAV POP
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 14.93% 8.33% 13.96% 8.96% 13.89% 12.89% 14.24% 10.21%
---------------------------------------------------------------------------------
Life of fund 32.22 24.60 27.92 25.92 27.61 27.61 29.00 24.48
Annual average 6.15 4.81 5.40 5.05 5.35 5.35 5.59 4.79
---------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/00
MSCI Emerging
Markets Free Consumer
Index price index
-----------------------------------------------------------------------
1 year 6.30% 3.23%
-----------------------------------------------------------------------
Life of fund 2.16 12.01
Annual average 0.46 2.46
-----------------------------------------------------------------------
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, 5- and
10-year, if available, 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. For a portion of the reporting period,
the fund was offered on a limited basis and had limited assets. The
fund's performance reflects a voluntary expense limitation currently or
previously in effect. Had it not been in effect, the fund's total return
would have been lower.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 12/28/95
MSCI Emerging
Fund's class A Markets Free Consumer price
Date shares at POP Index index
12/28/95 9,425 10,000 10,000
8/31/96 11,397 10,574 10,208
8/31/97 12,288 11,059 10,435
8/31/98 6,673 5,578 10,610
8/31/99 10,841 9,610 10,850
8/31/00 $12,460 $10,216 $11,201
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 $12,792 ($12,592 with the contingent deferred
sales charge); a $10,000 investment in the fund's class C shares would
have been valued at $12,761 and no contingent deferred sales charges
would apply; a $10,000 investment in the fund's class M shares would
have been valued at $12,900 ($12,448 at public offering price). See
first page of performance section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 8/31/00
Class A Class B Class C Class M
-----------------------------------------------------------------------
Distributions
(number) 1 1 1 1
----------------------------------------------------------------------
Income $0.0850 $0.0260 $0.0770 $0.0370
----------------------------------------------------------------------
Capital gains -- -- -- --
----------------------------------------------------------------------
Total $0.0850 $0.0260 $0.0770 $0.0370
----------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
----------------------------------------------------------------------
8/31/99 $9.35 $9.92 $9.26 $9.35 $9.29 $9.63
----------------------------------------------------------------------
8/31/00 10.67 11.32 10.53 10.58 10.58 10.96
----------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 9/30/00 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (12/28/95) (10/30/96) (7/26/99) (10/30/96)
NAV POP NAV CDSC NAV CDSC NAV POP
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 5.63% -0.45% 4.83% -0.17% 4.79% 3.79% 5.14% 1.51%
---------------------------------------------------------------------------------
Life of fund 17.10 10.35 13.22 11.22 13.01 13.01 14.13 10.13
Annual average 3.37 2.09 2.64 2.26 2.60 2.60 2.81 2.05
---------------------------------------------------------------------------------
</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
Morgan Stanley Capital International (MSCI) Emerging Markets Free Index
is an unmanaged list of equity securities from emerging markets
available to non-domestic investors with all values expressed in U.S.
dollars. Securities indexes assume reinvestment of all distributions and
interest payments and do not take in account brokerage fees or taxes.
Securities in the fund do not match those in the indexes and performance
of the fund will differ. It is not possible to invest directly in an
index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
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 are determined. All investment and noninvestment 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-end funds, a
separate table is provided for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Putnam Investment Funds
We have audited the accompanying statement of assets and liabilities of
Putnam Emerging Markets Fund (a series of Putnam Investment Funds),
including the fund's portfolio, as of August 31, 2000, and the related
statement of operations, statement of changes in net assets and
financial highlights for the year 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 ended August 31, 1999
and the financial highlights for each of the years or periods in the
four-year period ended August 31, 1999 were audited by other auditors
whose report dated October 11, 1999 expressed an unqualified opinion on
that financial statement and those financial highlights.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 August 31, 2000 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 Emerging Markets Fund as of August 31,
2000, the results of its operations, changes in its net assets and
financial highlights for the year then ended, in conformity with
accounting principles generally accepted in the United States of
America.
KPMG LLP
Boston, Massachusetts
October 6, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
August 31, 2000
COMMON STOCKS (95.7%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Brazil (12.9%)
-------------------------------------------------------------------------------------------------------------------
19,916 Aracruz Celulose S.A. ADR $ 385,873
62,392 Banco Bradesco S.A. 524,791
10,136 Banco Itau S.A. 969,579
9,900 Brasil Telecom Participacoes S.A. ADR 697,331
85,400 Centrais Geradoras do Sul do Brasil S.A. 135,213
1,872 Centrais Geradoras do Sul do Brasil S.A. (NON) 21
63,779 Cia Cervejaria Brahma ADR 1,323,414
16,219 Companhia Brasileira de Distribuicao Grupo
Pao de Acucar ADR 605,171
59,815 Companhia Vale do Rio Doce ADR 1,600,051
12,369 Eletropaulo Metropolitana 761,588
24,000 Embratel Participacoes S.A. ADR 525,000
16,500 Embratel Participacoes S.A. 312,947
171,201 Empresa Brasileira de Aeronautica S.A. 1,214,125
2,700 Empresa Brasileira de Aeronautica S.A. ADR (NON) 73,744
51,442 Gerdau S.A. 738,118
74,600 Petroleo Brasileiro S.A. ADR (NON) 2,373,213
44,661 Petroleo Brasileiro S.A. ADR 1,353,787
16,000 Petroleo Brasileiro S.A. 507,092
27,746 Tele Celular Sul Participacoes S.A. ADR 1,102,904
139,700 Tele Celular Sul Participacoes S.A. 445,443
42,300 Tele Norte Leste Participacoes S.A. ADR 1,078,650
20,635 Telesp Celular Participacoes S.A. ADR 758,336
11,000 Uniao de Bancos Brasileiros S.A. GDR 374,000
79,131 Usinas Siderurgicas de Minas Gerais S.A. 461,126
23,200 Votorantim Celulose e Papel S.A. ADR 466,900
-------------
18,788,417
Canada (0.1%)
-------------------------------------------------------------------------------------------------------------------
16,400 Global Light Telecom, Inc. (NON) 163,180
Chile (0.3%)
-------------------------------------------------------------------------------------------------------------------
38,600 Entel S.A. 372,366
China (0.9%)
-------------------------------------------------------------------------------------------------------------------
765,000 Beijing Capital international Airport 175,578
1,746,000 Beijing Datang Power Gen. Co., Ltd. 409,686
3,306,000 Beijing Yanhua Petrochemical 495,957
1,718,000 China Eastern Airlines (NON) 286,366
-------------
1,367,587
Egypt (0.6%)
-------------------------------------------------------------------------------------------------------------------
13,500 Al Ahram Beverage Co. 230,934
38,200 Al Ahram Beverages Co. GDR 144A (NON) 649,400
-------------
880,334
Greece (1.3%)
-------------------------------------------------------------------------------------------------------------------
37,202 Hellenic Telecommunications Organization S.A. 694,824
66,700 Panafon Hellenic Telecom S.A. GDR (NON) 647,657
7,900 Panafon Hellenic Telecom S.A. 418,700
3,200 Panafon Hellenic Telecom S.A. GDR 169,600
-------------
1,930,781
Hong Kong (6.9%)
-------------------------------------------------------------------------------------------------------------------
322,000 China Everbright, Ltd. 301,394
359,000 China Merchants Holdings International Co., Ltd. 283,090
1,894,000 China Resources Beijing Land 403,129
607,000 China Telecom, Ltd. (NON) 4,669,770
246,000 China Unicom, Ltd. (NON) 570,912
141,000 Citic Pacific, Ltd. 672,539
738,000 Cosco Pacific, Ltd. 667,115
132,000 Hong Kong Exchanges and Clearing, Ltd. (NON) 273,339
314,000 Johnson Electric Holdings, Ltd. (NON) 658,268
640,000 Legend Holdings, Ltd. 681,104
3,814,000 PetroChina Co., Ltd. 909,597
-------------
10,090,257
India (5.9%)
-------------------------------------------------------------------------------------------------------------------
64,800 BSES, Ltd. GDR 308,389
200 Cipla, Ltd. 3,568
205,300 Hindustan Lever, Ltd. (NON) 1,070,126
57,000 Housing Development Finance Corporation, Ltd. (NON) 656,313
51,500 ICICI Bank, Ltd. ADR (NON) 592,250
26,200 ICICI, Ltd. ADR 370,075
26,100 ITC, Ltd. 443,612
11,870 Infosys Technologies, Ltd. (NON) 2,171,731
60,726 Larsen & Toubro, Ltd. GDR 270,358
36,300 Mahanager Telephone GDR 144A 232,320
60,977 Mahindra & Mahindra, Ltd. 613,581
96,500 Reliance Industries, Ltd. (NON) 710,703
38,000 Satyam Computer Services, Ltd. (NON) 474,865
19,720 Silverline Technologies, Ltd. ADR (NON) 412,888
33,400 Videsh Sanchar Nigam, Ltd. GDR 359,050
-------------
8,689,829
Israel (5.6%)
-------------------------------------------------------------------------------------------------------------------
25,300 Advanced Vision Technology, Ltd. 144A (NON) 324,932
7,300 AudioCodes, Ltd. (NON) 820,338
14,300 BreezeCom, Ltd. (NON) 619,369
43,600 ESC Medical Systems, Ltd. (NON) 844,750
3,200 Giganet, Ltd. (NON) 93,350
9,246 Gilat Satellite Networks, Ltd. (NON) 741,992
14,700 M-Systems Flash Disk Pioneers, Ltd. (NON) 1,150,275
32,600 Magic Software Enterprises, Ltd. (NON) 293,400
16,211 NICE Systems, Ltd. ADR (NON) 1,296,880
20,844 Orbotech, Ltd. (NON) 2,017,960
-------------
8,203,246
Korea (11.4%)
-------------------------------------------------------------------------------------------------------------------
4,990 Cheil Communications, Inc. 526,590
5,680 Hankuk Electric Glass 438,027
28,100 Housing & Commercial Bank 600,676
43,100 Hyundai Electronics Industries Co., Ltd. (NON) 789,149
49,000 Hyundai Motor Co., Ltd. 742,491
34,560 Kookmin Bank 144A GDR 420,817
14,400 Kookmin Credit Card Company, Ltd. (NON) 446,794
96,600 Korea Electric Power Corp. 2,840,408
25,300 Korea Telecom Corp. 958,238
2,800 LG Home Shopping Inc. 282,854
9,960 Pohang Iron & Steel Company, Ltd. 747,696
10,450 Samsung Electro Mechanics Co., Ltd. 443,939
18,952 Samsung Electronics Co. 4,675,180
12,100 Samsung SDI Co., Ltd. 540,227
45,600 Shinhan Bank 497,664
7,400 SK Telecom Co., Ltd. 1,628,574
-------------
16,579,324
Malaysia (3.3%)
-------------------------------------------------------------------------------------------------------------------
162,000 Commerce Asset-Holding Berhad 426,316
218,000 Digi. Com Berhad (NON) 401,579
567,000 IJM Copr. Berhad 510,300
391,000 IOI Corporation Berhad 333,379
143,000 Malayan Banking Berhad 549,421
38,000 Malaysian Pacific Industries Berhad 330,000
444,000 Public Bank Berhad 380,905
175,000 Resorts World Berhad 361,513
215,000 Tanjong Public, Ltd. 466,776
171,000 Telekom Malaysia Berhad 486,000
185,000 Tenaga Nasional Berhad 618,289
-------------
4,864,478
Mexico (14.6%)
-------------------------------------------------------------------------------------------------------------------
128,742 Alfa S.A. de C.V. Class A 354,625
637,348 Carso Global Telecom 1,641,329
46,008 Cemex S.A. de C.V. ADR 1,078,313
58,775 Coca-Cola Femsa S.A. ADR 1,204,888
265,900 Consorcio ARA S.A. (NON) 424,723
221,394 Controladora Comercial Mexicana 283,869
398,865 Corporacion Moctezuma, S.A. de C.V. 693,452
190,368 Fomento Economico Mexicano, S.A. de C.V. 860,514
197,349 Grupo Carso S.A. de C.V. 701,218
609,941 Grupo Financiero Banamex-Accival S.A. de C.V. (NON) 3,114,987
172,515 Grupo Mexico S.A. 770,441
406,604 Grupo Modelo S.A. de C.V. 1,013,970
371,076 Grupo Sanborns S.A. de C.V. (NON) 616,914
24,649 Grupo Televisa S.A. GDR (NON) 1,596,023
103,534 Organizacion Soriana S.A. 446,626
84,100 Telefonos de Mexico S.A. ADR Class L 4,578,194
69,390 TV Azteca S.A. de C.V. 932,428
126,500 Wal-Mart de Mexico S.A. de C.V. Ser. C 296,903
300,000 Wal-Mart de Mexico S.A. de C.V. Ser. V 749,756
-------------
21,359,173
Peru (0.2%)
-------------------------------------------------------------------------------------------------------------------
15,953 Compania de Minas Buenaventura S.A. ADR 263,225
Philippines (0.2%)
-------------------------------------------------------------------------------------------------------------------
189,880 Manila Electric Co. Class B 276,074
Poland (1.8%)
-------------------------------------------------------------------------------------------------------------------
22,200 Agora S.A. (NON) 571,650
20,939 Agora S.A. GDR (NON) 539,179
90,400 Bank Polska Kasa Opieki Grupa Pekao S.A. (NON) 1,149,214
55,500 Orbis S.A. 348,340
-------------
2,608,383
Russia (2.8%)
-------------------------------------------------------------------------------------------------------------------
119,597 Surgutneftegaz ADR 2,332,142
77,962 Tatneft ADR 1,028,124
23,700 Vimpel Communications ADR (NON) 672,488
-------------
4,032,754
South Africa (7.1%)
-------------------------------------------------------------------------------------------------------------------
11,400 Anglogold, Ltd. 445,038
43,800 De Beers-Centenary 1,219,548
38,058 Impala Platinum Holdings, Ltd. 1,802,562
114,400 Johnnies Industrial Corp. 1,584,442
73,200 Rembrandt Group, Ltd. 724,909
189,400 Sappi, Ltd. 1,658,184
183,900 Sasol, Ltd. 1,504,456
273,930 Standard Bank Investment 1,159,804
195,508 Theta Group, Ltd. (NON) 209,047
-------------
10,307,990
Taiwan (11.8%)
-------------------------------------------------------------------------------------------------------------------
808 Acer Peripherals Inc. 1,875
31,994 ASE Test Limited (NON) 777,854
57,618 Asustek Computer, Inc. GDR 354,715
809,347 Bank Sinopac 461,739
418,880 Cathay Life Insurance Co., Ltd. 965,348
697,416 Chinatrust Commercial Bank 550,739
350 D-Link Corp. 761
150,750 Delta Electronic industrial 578,219
294,672 Far Eastern Textile, Ltd. 328,627
207,324 Hon Hai Precision Industry 1,583,748
412,000 Nan Ya Plastic Corp. 683,900
199,200 President Chain Store Corp. 590,698
63,000 Siliconware Precision Industries ADR (NON) 456,750
756,056 Taishin Intl. Bank 458,142
958,230 Taiwan Semiconductor Manufacturing Co. (NON) 4,154,132
957,660 United Microelectronics Corp. 2,546,558
596,960 United World Chinese Commercial Bank Corp. 513,742
54,500 Via Technologies, Inc. (NON) 727,252
110,000 Winbond Electronics Corp. (NON) 273,006
48,555 Winbond Electronics Corp. 144A (NON) 1,192,025
-------------
17,199,830
Thailand (2.5%)
-------------------------------------------------------------------------------------------------------------------
47,800 Advanced Info Service (NON) 578,047
73,900 Bec World Public Co., Ltd. 445,028
64,000 PTT Exploration & Production Public Co., Ltd. 382,277
18,400 Siam Cement Public Co., Ltd. (The) 236,024
121,600 Siam Commercial Bank Public Co., Ltd. 1,133,920
684,700 TelecomAsia Corporation Public Co., Ltd. (NON) 553,124
629,400 Thai Farmers Bank Public Co. (NON) 385,190
-------------
3,713,610
Turkey (3.5%)
-------------------------------------------------------------------------------------------------------------------
4,042,625 Anadolu Efes Biracilik Ve Malt Sanayii AS (NON) 216,213
33,593,800 Dogan Sirketler Grubu Holding A.S. 782,851
614,500 Enka Holding Yatirim A.S. 117,377
200,462 Haci Omer Sabanci Holdings ADR 471,086
83,768,860 Hurriyet Gazetecilik Ve Matbaacilik A.S. 921,648
65,322,100 Turkiye Garanti Bankasi 144A (NON) 668,783
3,446,900 Vestel Elektronik Sanayi ve Ticaret A.S. (NON) 658,398
1,009,000 Yanzhou Coal Mining Co., Ltd. 291,091
83,182 Yapi ve Kredi Bankasi A.S. GDR (NON) 686,252
5,488,100 Yazicilar Otomotiv Gida Yatirim Ve Pazarlama AS (NON) 335,453
-------------
5,149,152
United Kingdom (1.3%)
-------------------------------------------------------------------------------------------------------------------
15,260 MIH, Ltd. (NON) 570,343
22,913 Old Mutual PLC 57,993
510,300 Old Mutual PLC 144A (NON) 1,291,571
-------------
1,919,907
United States (0.7%)
-------------------------------------------------------------------------------------------------------------------
21,182 DSP Group, Inc. (NON) $ 979,668
-------------
Total Common Stocks (cost $112,203,310) $ 139,739,565
<CAPTION>
UNITS (1.0%) (a)
NUMBER OF UNITS VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
10,000 HCL Technologies Structured Notes 6.34%, 2000
(issued by The Goldman Sachs Group, Inc.) (India) $ 293,200
16,700 WIPRO Limited Structured Notes zero %, 2001
(issued by The Goldman Sachs Group, Inc.) (India) 1,200,062
-------------
Total Units (cost $3,883,073) $ 1,493,262
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $116,086,383) (b) $ 141,232,827
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $146,062,515.
(b) The aggregate identified cost on a tax basis is $117,927,142,
resulting in gross unrealized appreciation and depreciation of
$34,443,624 and $11,137,939, respectively, or net unrealized
appreciation of $23,305,685.
(NON) Non-income-producing security.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
ADR or GDR after the name of a foreign holding stands for American
Depositary Receipts or Global Depositary Receipts respectively,
representing ownership of foreign securities on deposit with a
domestic custodian bank.
The fund had the following industry group concentrations greater
than 10% at August 31, 2000 (as a percentage of net assets):
Technology 22.6%
Communication services 16.6
Financial 14.5
Consumer staples 10.7
------------------------------------------------------------------------------
Forward Currency Contracts to Buy at August 31, 2000
Aggregate Face Delivery Unrealized
Market Value Value Date Depreciation
------------------------------------------------------------------------------
Mexican Pesos $2,626,979 $2,759,637 2/28/01 $(132,658)
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $116,086,383) (Note 1) $141,232,827
-------------------------------------------------------------------------------------------
Foreign currency (cost $2,818,042) 2,704,029
-------------------------------------------------------------------------------------------
Dividends, interest and other receivables 60,253
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 806,858
-------------------------------------------------------------------------------------------
Receivable for securities sold 3,090,902
-------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 549
-------------------------------------------------------------------------------------------
Total assets 147,895,418
Liabilities
-------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 187,448
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 321
-------------------------------------------------------------------------------------------
Payable for securities purchased 387,680
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 398,236
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 381,479
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 129,131
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 10,792
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,092
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 88,389
-------------------------------------------------------------------------------------------
Payable for open forward currency contracts 132,658
-------------------------------------------------------------------------------------------
Other accrued expenses 115,677
-------------------------------------------------------------------------------------------
Total liabilities 1,832,903
-------------------------------------------------------------------------------------------
Net assets $146,062,515
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $149,124,414
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (144,171)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (27,605,687)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 24,687,959
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $146,062,515
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($83,532,913 divided by 7,828,698 shares) $10.67
-------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $10.67)* $11.32
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($52,533,713 divided by 4,988,836 shares)** $10.53
-------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($6,160,460 divided by 582,119 shares)** $10.58
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($3,835,429 divided by 362,661 shares) $10.58
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $10.58)* $10.96
-------------------------------------------------------------------------------------------
* 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, 2000
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $108,093) $ 1,396,291
-------------------------------------------------------------------------------------------
Interest 77,360
-------------------------------------------------------------------------------------------
Total investment income 1,473,651
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,464,805
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 776,272
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 12,705
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,728
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 207,432
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 555,872
-------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 29,968
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 33,700
-------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 2,157
-------------------------------------------------------------------------------------------
Other 150,359
-------------------------------------------------------------------------------------------
Total expenses 3,239,998
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (26,733)
-------------------------------------------------------------------------------------------
Net expenses 3,213,265
-------------------------------------------------------------------------------------------
Net investment loss (1,739,614)
-------------------------------------------------------------------------------------------
Net realized gain on investments (net of foreign tax of $706,855) (Note 1) 8,073,272
-------------------------------------------------------------------------------------------
Net realized loss on swap contracts (Note 1) (157,097)
-------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (170,073)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities
in foreign currencies during the year (231,539)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and swap contracts
during the year (net of foreign tax of $206,190) 5,880,771
-------------------------------------------------------------------------------------------
Net gain on investments 13,395,334
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $11,655,720
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended August 31
---------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment loss $ (1,739,614) $ (205,753)
--------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions 7,746,102 (12,594,769)
--------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 5,649,232 45,788,400
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 11,655,720 32,987,878
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income
Class A (163,236) (360,213)
--------------------------------------------------------------------------------------------------
Class B (37,113) (7,594)
--------------------------------------------------------------------------------------------------
Class C (1,217) --
--------------------------------------------------------------------------------------------------
Class M (4,364) (4,040)
--------------------------------------------------------------------------------------------------
In excess of net investment income
Class A (397,673) --
--------------------------------------------------------------------------------------------------
Class B (90,414) --
--------------------------------------------------------------------------------------------------
Class C (2,966) --
--------------------------------------------------------------------------------------------------
Class M (10,631) --
--------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 25,708,986 23,835,099
--------------------------------------------------------------------------------------------------
Total increase in net assets 36,657,092 56,451,130
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 109,405,423 52,954,293
--------------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $144,171 and undistributed
net investment income of $704,491, respectively) $146,062,515 $109,405,423
--------------------------------------------------------------------------------------------------
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 Dec. 28, 1995+
operating performance Year ended August 31 to August 31
----------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.35 $5.81 $10.94 $10.28 $8.50
----------------------------------------------------------------------------------------------------
Investment operations
----------------------------------------------------------------------------------------------------
Net investment income (loss)(d) (.10) --(c)(e) .01(c) (.02)(c) .01(c)
----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.51 3.61 (4.94) .81 1.77
----------------------------------------------------------------------------------------------------
Total from
investment operations 1.41 3.61 (4.93) .79 1.78
----------------------------------------------------------------------------------------------------
Less distributions:
----------------------------------------------------------------------------------------------------
From net
investment income (.03) (.07) -- (.01) --
----------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.20) (.12) --
----------------------------------------------------------------------------------------------------
In excess of
net investment income (.06) -- -- -- --
----------------------------------------------------------------------------------------------------
Total distributions (.09) (.07) (.20) (.13) --
----------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.67 $9.35 $5.81 $10.94 $10.28
----------------------------------------------------------------------------------------------------
Ratios and supplemental data
----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 14.93 62.45 (45.69) 7.82 20.94*
----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $83,533 $60,669 $29,239 $49,581 $2,925
----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.90 2.10(c) 2.10(c) 2.10(c) 1.25*(c)
----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.87) .06(c) .06(c) (.23)(c) .11*(c)
----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 139.96 163.86 112.35 141.81 45.90*
----------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects an expense limitation in effect during the period (Note
2). As a result of such limitation, expenses for the fund reflect a
reduction of $.09 per share for class A for the period ended August 31,
1996. Expenses for the period ended August 31, 1997 reflect a reduction
of $.04, $.03 and $.03 per share for class A, class B and class M,
respectively. Expenses for the period ended August 31, 1998 reflect a
reduction of $.02, $.02 and $.02 per share for class A, Class B and
Class M, respectively. Expenses for the period ended August 31, 1999
reflect a reduction of $.01, $.02, $.00 and $.02 per share for class A,
class B, class C and class M, respectively.
(d) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(e) Net investment income and/or distributions from net investment
income were less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS B
----------------------------------------------------------------------------------------
For the period
Per-share Oct. 30, 1996+
operating performance Year ended August 31 to August 31
----------------------------------------------------------------------------------------
2000 1999 1998 1997
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $9.26 $5.74 $10.87 $9.95
----------------------------------------------------------------------------------------
Investment operations
----------------------------------------------------------------------------------------
Net investment income (loss)(d) (.18) (.05)(c) (.07)(c) (.09)(c)
----------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.48 3.57 (4.86) 1.14
----------------------------------------------------------------------------------------
Total from
investment operations 1.30 3.52 (4.93) 1.05
----------------------------------------------------------------------------------------
Less distributions:
----------------------------------------------------------------------------------------
From net
investment income (.01) --(e) -- (.01)
----------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.20) (.12)
----------------------------------------------------------------------------------------
In excess of
net investment income (.02) -- -- --
----------------------------------------------------------------------------------------
Total distributions (.03) -- (.20) (.13)
----------------------------------------------------------------------------------------
Net asset value,
end of period $10.53 $9.26 $5.74 $10.87
----------------------------------------------------------------------------------------
Ratios and supplemental data
----------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 13.96 61.37 (45.99) 10.67*
----------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $52,534 $44,838 $21,722 $38,044
----------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 2.65 2.85(c) 2.85(c) 2.39*(c)
----------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (1.63) (.69)(c) (.72)(c) (.76)*(c)
----------------------------------------------------------------------------------------
Portfolio turnover (%) 139.96 163.86 112.35 141.81
----------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects an expense limitation in effect during the period (Note
2). As a result of such limitation, expenses for the fund reflect a
reduction of $.09 per share for class A for the period ended August 31,
1996. Expenses for the period ended August 31, 1997 reflect a reduction
of $.04, $.03 and $.03 per share for class A, class B and class M,
respectively. Expenses for the period ended August 31, 1998 reflect a
reduction of $.02, $.02 and $.02 per share for class A, Class B and
Class M, respectively. Expenses for the period ended August 31, 1999
reflect a reduction of $.01, $.02, $.00 and $.02 per share for class A,
class B, class C and class M, respectively.
(d) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(e) Net investment income and/or distributions from net investment
income were less than $0.01 per share.
</TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS C
---------------------------------------------------------------
For the period
Per-share Year ended July 26, 1999+
operating performance August 31 to August 31
---------------------------------------------------------------
2000 1999
---------------------------------------------------------------
Net asset value,
beginning of period $9.35 $9.56
---------------------------------------------------------------
Investment operations
---------------------------------------------------------------
Net investment income (loss)(d) (.18) (.02)(c)
---------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.49 (.19)
---------------------------------------------------------------
Total from
investment operations 1.31 (.21)
---------------------------------------------------------------
Less distributions:
---------------------------------------------------------------
From net
investment income (.02) --
---------------------------------------------------------------
In excess of
net investment income (.06) --
---------------------------------------------------------------
Total distributions (.08) --
---------------------------------------------------------------
Net asset value,
end of period $10.58 $9.35
---------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------
Total return at
net asset value (%)(a) 13.89 (2.20)*
---------------------------------------------------------------
Net assets, end of period
(in thousands) $6,160 $81
---------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 2.65 .29*(c)
---------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) (1.64) (.25)*(c)
---------------------------------------------------------------
Portfolio turnover (%) 139.96 163.86
---------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects an expense limitation in effect during the period (Note
2). As a result of such limitation, expenses for the fund reflect a
reduction of $.09 per share for class A for the period ended August 31,
1996. Expenses for the period ended August 31, 1997 reflect a reduction
of $.04, $.03 and $.03 per share for class A, class B and class M,
respectively. Expenses for the period ended August 31, 1998 reflect a
reduction of $.02, $.02 and $.02 per share for class A, Class B and
Class M, respectively. Expenses for the period ended August 31, 1999
reflect a reduction of $.01, $.02, $.00 and $.02 per share for class A,
class B, class C and class M, respectively.
(d) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(e) Net investment income and/or distributions from net investment
income were less than $0.01 per share.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS M
----------------------------------------------------------------------------------------
For the period
Per-share Oct. 30, 1996+
operating performance Year ended August 31 to August 31
----------------------------------------------------------------------------------------
2000 1999 1998 1997
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $9.29 $5.76 $10.89 $9.95
----------------------------------------------------------------------------------------
Investment operations
----------------------------------------------------------------------------------------
Net investment income (loss)(d) (.15) (.03)(c) (.05)(c) (.07)(c)
----------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.48 3.57 (4.88) 1.14
----------------------------------------------------------------------------------------
Total from
investment operations 1.33 3.54 (4.93) 1.07
----------------------------------------------------------------------------------------
Less distributions:
----------------------------------------------------------------------------------------
From net
investment income (.01) (.01) -- (.01)
----------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.20) (.12)
----------------------------------------------------------------------------------------
In excess of
net investment income (.03) -- -- --
----------------------------------------------------------------------------------------
Total distributions (.04) (.01) (.20) (.13)
----------------------------------------------------------------------------------------
Net asset value,
end of period $10.58 $9.29 $5.76 $10.89
----------------------------------------------------------------------------------------
Ratios and supplemental data
----------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 14.24 61.59 (45.91) 10.88*
----------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,835 $3,817 $1,993 $4,043
----------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 2.40 2.60(c) 2.60(c) 2.18*(c)
----------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (1.37) (.41)(c) (.43)(c) (.53)*(c)
----------------------------------------------------------------------------------------
Portfolio turnover (%) 139.96 163.86 112.35 141.81
----------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects an expense limitation in effect during the period (Note
2). As a result of such limitation, expenses for the fund reflect a
reduction of $.09 per share for class A for the period ended August 31,
1996. Expenses for the period ended August 31, 1997 reflect a reduction
of $.04, $.03 and $.03 per share for class A, class B and class M,
respectively. Expenses for the period ended August 31, 1998 reflect a
reduction of $.02, $.02 and $.02 per share for class A, Class B and
Class M, respectively. Expenses for the period ended August 31, 1999
reflect a reduction of $.01, $.02, $.00 and $.02 per share for class A,
class B, class C and class M, respectively.
(d) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(e) Net investment income and/or distributions from net investment
income were less than $0.01 per share.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
August 31, 2000
Note 1
Significant accounting policies
Putnam Emerging Markets 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-ended management
investment company. The objective of the fund is to seek long-term
capital appreciation by investing in common stocks and other equity
securities of emerging market companies.
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. 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 of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. 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 sales price on its principal exchange, or if no sales
are reported -- as in the case of some securities traded
over-the-counter -- the last reported bid price. Investments for which
market quotations are not readily available (and in certain
circumstances debt securities which trade on an exchange) are stated at
fair value on the basis of valuations furnished by pricing services
approved by the Trustees, which determines valuations for institutional
size trading units of such securities using methods based on market
transactions for comparable securities and various relationships between
securities that are generally recognized by institutional traders.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rate. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost, which
approximates market value. Other investments, including restricted
securities, are stated at fair 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. Non-cash dividends, if any, are recorded at the fair
market value of the securities received.
The fund may be subject to taxes imposed by countries in which it
invests. Such taxes are generally based on either income or gains earned
or repatriated. The fund accrues and applies such taxes to net
investment income, net realized gains and net unrealized gains as income
and/or capital gains earned.
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. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic
investments.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term
investments). The U.S. dollar value of forward currency contracts is
determined using current forward currency exchange rates supplied by a
quotation service. The market value of the contract will fluctuate with
changes in currency exchange rates. The contract is "marked to market"
daily and the change in market value is recorded as an unrealized gain
or loss. When the contract is closed, the fund records a realized gain
or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed. The fund
could be exposed to risk if the value of the currency changes
unfavorably, if the counterparties to the contracts are unable to meet
the terms of their contracts or if the fund is unable to enter into a
closing position.
G) Equity swap contracts The fund may engage in swap agreements, which
are agreements to exchange the return generated by one instrument for
the return generated by another instrument. To manage its exposure to
equity markets the fund may enter into equity swap agreements, which
involve a commitment by one party to pay interest in exchange for a
market-linked return based on a notional amount. To the extent that the
total return of the security or index underlying the transaction exceeds
or falls short of the offsetting interest rate obligation, the fund will
receive a payment from or make a payment to the counterparty,
respectively. Equity swaps are marked to market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized gain or loss. Payments received or made at the end of the
measurement period are recorded as realized gains or losses. The fund
could be exposed to credit or market risk due to unfavorable changes in
the fluctuation of interest rates or in the price of the underlying
security or index, the possibility that there is no liquid market for
these agreements or that the counterparty may default on its obligation
to perform.
H) 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, 2000, the fund had no borrowings against the line of credit.
I) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
At August 31, 2000, the fund had a capital loss carryover of
approximately $25,690,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
-------------- ------------------
$ 494,000 August 31, 2006
25,196,000 August 31, 2007
J) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences include temporary and permanent
differences of losses on wash sale transactions, foreign currency gains
and losses, post-October loss deferrals, organization costs, foreign
taxes, realized and unrealized gains and losses on passive foreign
investment companies and swap adjustments. 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, 2000, the fund reclassified
$1,598,566 to decrease distributions in excess of net investment income
and $3,192,687 to decrease paid-in-capital, with a decrease to accumulated
net realized losses of $1,594,121. The calculation of net investment income
per share in the financial highlights table excludes these adjustments.
K) 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.
L) 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 $3,662. These expenses are being amortized
on projected net asset levels over a five-year period.
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: 1.00% of the
first $500 million of average net assets, 0.90% of the next $500
million, 0.85% of the next $500 million, 0.80% of the next $5 billion,
0.775% of the next $5 billion, 0.755% of the next $5 billion, 0.74% of
the next $5 billion and 0.73% thereafter.
Putnam Management has agreed to limit its compensation (and, to the
extent necessary, bear other expenses) through August 31, 2000, 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 1.85% 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.
Under the subcustodian contract between the subcustodian bank
and PFTC, the subcustodian bank has a lien on the securities of
the fund to the extent permitted by the fund's investment restrictions
to cover any advances made by the subcustodian bank for the settlement
of securities purchased by the fund. At August 31, 2000, the payable to
the subcustodian bank represents the amount due for cash advance for the
settlement of a security purchased.
For the year ended August 31, 2000, fund expenses were reduced by
$26,733 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 $1,040
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. 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 a 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 Retail Management, Inc., 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 Retail Management, Inc. 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, 2000, Putnam Retail Management, Inc.,
acting as underwriter received net commissions of $79,179 and $2,198
from the sale of class A and class M shares, respectively, and received
$133,522 and $3,862 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 August 31, 2000, Putnam Retail Management,
Inc., acting as underwriter received $9,086 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended August 31, 2000, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $213,746,397 and $195,803,598, respectively. There were no
purchases and sales of U.S. government obligations.
Note 4
Capital shares
At August 31, 2000 there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended August 31, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 7,472,667 $85,869,545
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 43,532 519,340
---------------------------------------------------------------------------
7,516,199 86,388,885
Shares
repurchased (6,173,146) (69,526,277)
---------------------------------------------------------------------------
Net increase 1,343,053 $16,862,608
---------------------------------------------------------------------------
Year ended August 31, 1999
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 11,334,932 $86,575,553
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 45,700 319,903
---------------------------------------------------------------------------
11,380,632 86,895,456
Shares
repurchased (9,923,299) (74,002,428)
---------------------------------------------------------------------------
Net increase 1,457,333 $12,893,028
---------------------------------------------------------------------------
Year ended August 31, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 2,866,878 $32,402,636
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 9,665 114,428
---------------------------------------------------------------------------
2,876,543 32,517,064
Shares
repurchased (2,730,664) (30,262,074)
---------------------------------------------------------------------------
Net increase 145,879 $ 2,254,990
---------------------------------------------------------------------------
Year ended August 31, 1999
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 3,807,669 $32,248,790
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,002 6,983
---------------------------------------------------------------------------
3,808,671 32,255,773
Shares
repurchased (2,750,247) (22,052,112)
---------------------------------------------------------------------------
Net increase 1,058,424 $10,203,661
---------------------------------------------------------------------------
Year ended August 31, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 658,603 $8,147,107
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 307 3,661
---------------------------------------------------------------------------
658,910 8,150,768
Shares
repurchased (85,500) (1,016,106)
---------------------------------------------------------------------------
Net increase 573,410 $7,134,662
---------------------------------------------------------------------------
For the period July 26, 1999
(commencement of operations) to
August 31, 1999
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 8,855 $83,255
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
8,855 83,255
Shares
repurchased (146) (1,365)
---------------------------------------------------------------------------
Net increase 8,709 $81,890
---------------------------------------------------------------------------
Year ended August 31, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 219,007 $2,516,666
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,242 14,737
---------------------------------------------------------------------------
220,249 2,531,403
Shares
repurchased (268,700) (3,074,677)
---------------------------------------------------------------------------
Net decrease (48,451) $ (543,274)
---------------------------------------------------------------------------
Year ended August 31, 1999
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 409,484 $3,517,717
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 561 3,915
---------------------------------------------------------------------------
410,045 3,521,632
Shares
repurchased (344,672) (2,865,112)
---------------------------------------------------------------------------
Net increase 65,373 $ 656,520
---------------------------------------------------------------------------
Note 5
Change in independent
accountants (unaudited)
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 accountants and voted to appoint KPMG LLP
for the fund's fiscal year ended August 31, 2000. During the two
previous 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
previous fiscal years and through July 24, 2000, 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)
The Form 1099 you receive in January 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
KPMG LLP
TRUSTEES
John A. Hill, 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, III
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
John J. Morgan, Jr.
Vice President
Justin M. Scott
Vice President
Thomas J. Haslett
Vice President and Fund Manager
J. Peter Grant
Vice President and Fund Manager
Paul C. Warren
Vice President and Fund Manager
Stephen S. Oler
Vice President and Fund Manager
Carmel Peters
Vice President and Fund Manager
Claudio Brocado
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
This report is for the information of shareholders of Putnam Emerging
Markets 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 and
Putnam's Quarterly Ranking 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.putnaminvestments.com.
Not FDIC Insured, May Lose Value, No Bank Guarantee
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
PRST STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
AN004-64655 2AY/2CK/2CL 10/00
Putnam
International
Voyager
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.
As we look to the future, we are certain that the changes will be
breathtaking in their scope. What will not change is the Trustees'
dedication to serving the best interests of our shareholders.
We welcome the challenges that lie ahead and are confident that Putnam
and your Board will continue to face those challenges successfully as
they have for more than 60 years. We look forward to helping you meet
your financial objectives for many years to come.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
October 18, 2000
REPORT FROM FUND MANAGEMENT
Joseph P. Joseph
Andrew Graham
Omid Kamshad
Joshua L. Byrne
As experienced investors know, market trends can change and reverse
direction without much warning. One such reversal occurred in the final
six months of Putnam International Voyager Fund's 2000 fiscal year,
which ended August 31, 2000. In the first half of the year, as we
described in the semiannual report last February, stocks in the
technology and telecommunications sectors led most others by wide
margins. Their leadership, however, came to an end in February and
March. Stock prices corrected, then stabilized at lower levels. While
this about-face in the markets affected your fund's performance, the
impact was moderated by the portfolio's diversification. As we have
described in previous reports, the fund invests in value-oriented stocks
as well as growth stocks. This diversification helped to preserve a gain
for the fund over the fiscal year as a whole.
Total return for 12 months ended 8/31/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
-----------------------------------------------------------------------
59.46% 50.32% 58.24% 53.24% 58.41% 57.41% 58.79% 53.25%
-----------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
* GROWTH STOCKS AND CURRENCIES WEAKEN, VALUE STOCKS REVIVE
The correction in the technology and telecommunications sectors was
global, engulfing even the Nasdaq market in the United States. Japan,
where the greatest run-up in prices had occurred, suffered some of the
most severe price declines. As often happens in volatile markets, the
small and midsize companies your fund owns suffered somewhat more than
their large-company counterparts. It's important to remember, of course,
that the same conditions may give an advantage to smaller-company stocks
when markets rally.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Technology 23.6%
Financial 14.4%
Consumer staples 14.1%
Consumer cyclicals 13.8%
Capital goods 10.6%
Footnote reads:
*Based on net assets as of 8/31/00. Holdings will vary over time.
While your fund experienced losses, the portfolio's diversification
helped to cushion performance. We invest in both growth and value
stocks, as well as stocks that have a combination of growth and value
characteristics. The silver lining in the correction of technology and
telecommunications stocks was that in response, other sectors that had
been out of favor sprang back to life. As growth sectors corrected in
the second half of the year, the more value-oriented holdings
contributed gains. For example, European energy, manufacturing, and
financial companies performed relatively better thanks to Europe's
healthy economy. Hanson PLC of the United Kingdom and CSR Ltd. of
Australia, two fund holdings that focus on building and construction
materials, had been flat for several quarters but have perked up in
recent months as the global economy has accelerated.
In addition to the stock slump, the decline of the euro and of British
sterling against the dollar also hurt your fund's returns. A majority of
the fund's holdings were in euro-bloc countries and the United Kingdom.
Our view is that Europe's improving economy should provide support to
the euro, but it is impossible to know when the currency will recover.
In any case, we refrain from hedging currencies and instead focus on
fundamental stock selection. When a currency declines, we prefer to buy
stocks that will benefit from that trend. In this case, we added
European manufacturing stocks that, because of the weak euro, have a
price advantage versus U.S. and Japanese competitors. An example is
Hilti AG, a Swiss toolmaker. Although this holding, as well as others
mentioned in this report, was viewed favorably at the end of the
reporting period, all are subject to review and adjustment in accordance
with the fund's investment strategy and may vary in the future.
* "AMERICANIZATION" TREND STILL IN PLACE
The introduction of American-style management techniques intended to
improve profitability is a long-term positive trend among international
companies. In our research we look for companies that embrace these
techniques. During the fiscal year we established a position in
ProSieben Media AG, a media company that operates one of Germany's
largest television networks, as it began a restructuring after years of
poor management and stock performance. In recent months, the company has
replaced many executives in a move that restored investor confidence. An
improvement in German advertising revenues also has boosted ProSieben
Media AG.
International Voyager Fund's class A shares were ranked in the top 1% of
the international funds tracked by Lipper Analytical Services (4 out of
461 funds) for the 3-year period ending September 30, 2000.*
*Past performance is no guarantee of future results. Lipper is an industry
research firm whose rankings are based on total return performance, vary
over time, and do not reflect the effects of sales charges. For the 1 year
period, the fund ranked 10 out of 653 (top 2%) international funds. The fund
was not ranked over longer periods. Performance of other share classes will
vary.
Several of the fund's European financial stocks are also benefiting as
Europeans, following the American precedent, are becoming more willing
to invest in equities and mutual funds. We recently have emphasized
asset gatherers that we believe have strong potential for steady growth.
Examples include Tecis Holdings and Consors Discount Broker AG of
Germany and BiPop-Carire SpA in Italy. The German companies stand to
benefit from the government's apparent willingness to begin privatizing
a portion of retirement savings. BiPop-Carire SpA has achieved internal
growth and has made strategic acquisitions to enhance its
competitiveness.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
ARM Holdings PLC
United Kingdom
Technology
Enea Data AB
Sweden
Technology
Venture Manufacturing Ltd.
Singapore
Technology
Ares-Serono Group Class B
Switzerland
Health care
Four Seasons Hotels, Inc.
Canada
Consumer cyclicals
Societe Television Francaise 1
France
Consumer staples
Tecis Holdings AG
Germany
Financial
Perlos Oyj
Finland
Technology
ProSieben Media AG
Germany
Consumer staples
Winbond Electronics Corp.
Taiwan
Technology
Footnote reads:
These holdings represent 15.1% of the fund's net assets as of 8/31/00.
Portfolio holdings will vary over time.
* GROWTH STOCKS STILL ATTRACTIVE FOR THE LONG TERM
Despite recent poor performance in the technology and telecommunication
sectors, we remain very positive about the long-term growth prospects in
these industries. After all, 300 million wireless telephones were sold
in 1999, yet in many major markets less than half of the population has
made the jump to wireless. Business investment in technology also
continues to boom, particularly in Asia, which is in the midst of
recovery and striving to gain competitiveness. A host of small and
midsize companies can thrive on this demand for years to come.
Technology-related stocks are still the largest allocation in the
portfolio, but our approach to these stocks reflects our overall
philosophy -- we look for a combination of growth and value and seek to
avoid the most aggressive, overpriced stocks. One of the fund's tech
holdings is Bookham Technology PLC of the United Kingdom, which
manufacturers optical components based on semiconductor chips that
control light signals in fiber-optics telecommunications networks. We
selected Bookham because it has gained a competitive advantage by
successfully automating a complicated process that most other
optical-component companies perform manually. Another fund holding, ASE
Test Limited, tests integrated circuits in semiconductor chips. Although
the stock has benefited from robust demand in the semiconductor
industry, it is less volatile than most chipmakers.
* FUND REMAINS DIVERSIFIED IN FUNDAMENTALLY STRONG COMPANIES
The volatility in international stocks that we have witnessed this year
has not precipitated large changes in the portfolio. While the largest
sector weighting is in technology stocks, many other sectors are well
represented in the portfolio, including media, financials, industrial,
and retail stocks. In terms of geographical exposure, the United Kingdom
remains our largest position thanks to an eclectic combination of growth
and value stocks based there. We have taken profits on many Japanese
stocks and now have a significantly reduced exposure to Japan. Most
small and midsize companies in Japan that have solid earnings growth we
consider to be overvalued.
Despite recent volatility, we have confidence in our stock selections
because the fundamental business situation remains positive. It is
normal for stocks to react to short-term factors such as rising interest
rates, and investors need to be aware of these risks, but we should not
lose sight of positive long-term conditions. Small and midsize companies
in international markets offer great opportunities, in our view. A
growing number are focused on profit growth and rewarding shareholders.
Structural shifts, such as the introduction of new technologies, will go
on for many years. Economic growth is accelerating in Europe and Japan
has not yet fully recovered from its long recession. All of these
factors point to a brighter future for fiscal 2001 and beyond.
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 8/31/00, there is no guarantee the fund will
continue to hold these securities in the future. International investing
includes certain risks, such as currency fluctuations, economic
instability, and political developments. This fund invests all or a
portion of its assets in small to midsize companies. Such investments
increase the risk of greater price fluctuations.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
International Voyager Fund is designed for investors seeking capital
appreciation through common stocks of smaller-capitalization companies
located outside the United States.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 8/31/00
Class A Class B Class C Class M
(inception dates) (12/28/95) (10/30/96) (7/26/99) (10/30/96)
NAV POP NAV CDSC NAV CDSC NAV POP
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 59.46% 50.32% 58.24% 53.24% 58.41% 57.41% 58.79% 53.25%
---------------------------------------------------------------------------------
Life of fund 255.79 235.27 243.73 241.73 243.89 243.89 247.53 235.35
Annual average 31.15 29.50 30.19 30.03 30.20 30.20 30.50 29.50
---------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/00
MSCI EAFE Consumer
Index price index
-------------------------------------------------------------
1 year 9.55% 3.23%
-------------------------------------------------------------
Life of fund 52.46 12.01
Annual average 9.45 2.46
-------------------------------------------------------------
Past performance is no assurance of future results. Recent returns were
achieved during favorable market conditions and may not be sustained.
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. For a portion of the reporting period,
the fund was offered on a limited basis and had limited assets. The
fund's performance reflects a voluntary expense limitation currently or
previously in effect. Had it not been in effect, the fund's total return
would have been lower.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 12/28/95
Fund's class A MSCI EAFE Consumer price
Date shares at POP Index index
12/28/95 9,425 10,000 10,000
8/31/96 10,499 10,168 10,208
8/31/97 13,065 11,089 10,435
8/31/98 14,603 11,073 10,610
8/31/99 21,025 13,916 10,850
8/31/00 $33,527 $15,246 $11,201
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 or class C
shares would have been valued at $34,373 ($34,173 at CDSC) and $34,389,
respectively, and no contingent sales shares would apply for class C
shares; a $10,000 investment in the fund's class M shares would have
been valued at $34,753 ($33,535 at public offering price). See first
page of performance section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 8/31/00
Class A Class B Class C Class M
---------------------------------------------------------------------------
Distributions
(number) 1 1 1 1
---------------------------------------------------------------------------
Income $0.172 $0.093 $0.150 $0.119
---------------------------------------------------------------------------
Capital gains
Long-term 0.085 0.085 0.085 0.085
---------------------------------------------------------------------------
Short-term 0.447 0.447 0.447 0.447
---------------------------------------------------------------------------
Total $0.704 $0.625 $0.682 $0.651
---------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
---------------------------------------------------------------------------
8/31/99 $17.28 $18.33 $17.07 $17.27 $17.15 $17.77
---------------------------------------------------------------------------
8/31/00 26.76 28.39 26.31 26.59 26.50 27.46
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 9/30/00 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (12/28/95) (10/30/96) (7/26/99) (10/30/96)
NAV POP NAV CDSC NAV CDSC NAV POP
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 44.84% 36.54% 43.78% 38.78% 43.88% 42.88% 44.15% 39.14%
----------------------------------------------------------------------------------
Life of fund 229.33 210.34 217.99 215.99 218.16 218.16 221.57 210.29
Annual average 28.45 26.86 27.51 27.34 27.53 27.53 27.81 26.86
----------------------------------------------------------------------------------
</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
Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
list of equity securities from Europe, Australasia and the Far East,
with all values expressed in U.S. dollar. Securities indexes assume
reinvestment of all distributions and interest payments and do not take
in account brokerage fees or taxes. Securities in the fund do not match
those in the indexes and performance of the fund will differ. It is not
possible to invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
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 are determined. All investment and noninvestment 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-end funds, a
separate table is provided for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended August 31, 2000
To the Trustees and Shareholders of
Putnam International Voyager 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
International Voyager Fund (the "fund"), a series of Putnam Investment
Funds, at August 31, 2000, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with accounting principles generally accepted
in the United States of America. 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
auditing standards generally accepted in the United States of America,
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, 2000 by correspondence with the
custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 10, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
August 31, 2000
COMMON STOCKS (96.4%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Australia (0.8%)
-------------------------------------------------------------------------------------------------------------------
8,078,829 CSR, Ltd. $ 20,521,195
Belgium (0.9%)
-------------------------------------------------------------------------------------------------------------------
83,695 Groupe Bruxelles Lambert SA 21,758,524
Canada (5.1%)
-------------------------------------------------------------------------------------------------------------------
690,959 Clearnet Communications, Inc. Class A (NON) 30,674,399
262,929 Corus Entertainment Inc. Class B (NON) 7,757,859
487,875 Four Seasons Hotels, Inc. 36,748,639
1,005,883 GSI Lumonics, Inc. (NON) 26,341,561
656,319 Manitoba Telecom Services, Inc. 12,130,973
547,951 Open Text Corp. (NON) 13,733,154
-------------
127,386,585
Denmark (4.1%)
-------------------------------------------------------------------------------------------------------------------
569,194 Carlsberg A/S Class B 20,569,597
146,734 GN Store Nord A/S 19,688,204
135,463 Group 4 Falck A/S 21,245,613
52,690 NKT Holding A/S 13,196,851
635,830 Vestas Wind Systems A/S 28,286,074
-------------
102,986,339
Finland (6.0%)
-------------------------------------------------------------------------------------------------------------------
875,748 Comptel Oyj 14,757,797
376,450 Elisa Communications Oyj Class A 14,320,403
826,819 KCI Konecranes International PLC 25,720,685
1,131,157 Perlos Oyj 34,132,391
440,276 Pohjola Group Insurance Corp. 16,650,551
612,419 Sampo Insurance Co., Ltd. Class A 24,902,549
430,365 Tampere Telephone PLC 2,777,011
662,318 Teleste Oyj 18,660,783
-------------
151,922,170
France (6.8%)
-------------------------------------------------------------------------------------------------------------------
1,913,100 Elior (NON) 20,744,432
107,000 Elior 144A (NON) 1,160,240
15,008 Expand 1,267,215
1,206,994 Havas Advertising S.A. 28,546,576
49,346 Ipsos 6,605,124
396,891 NRJ Group (NON) 19,419,257
354,718 Riber SA 144A (NON) 9,710,419
498,379 Societe Generale d'Enterprises S.A. (NON) 25,248,678
227,382 Societe Generale d'Enterprises 144A S.A. (NON) 11,317,439
479,557 Societe Television Francaise I 34,993,504
85,702 Wavecom SA ADR (NON) 11,462,643
-------------
170,475,527
Germany (8.5%)
-------------------------------------------------------------------------------------------------------------------
190,879 ADVA AG Optical Networking 22,903,189
158,305 Consors Discount Broker AG 18,614,806
367,079 Direkt Anlage Bank AG (NON) 19,020,947
118,937 Marschollek, Lautenschlaeger und Partner AG 16,120,959
50,142 Pandatel AG 5,882,740
226,892 ProSieben Media AG 33,677,489
286,917 SGL Carbon AG 19,890,923
676,680 Stinnes AG 19,546,578
172,721 Stinnes AG 144A 4,989,219
548,621 Tecis Holdings AG 34,864,426
355,654 Zapf Creaton AG 18,966,317
-------------
214,477,593
Hong Kong (1.5%)
-------------------------------------------------------------------------------------------------------------------
7,662,852 Esprit Holdings, Ltd. 5,993,435
9,922,000 Johnson Electric Holdings, Ltd. (NON) 20,800,439
2,513,000 Li & Fung, Ltd. 10,955,367
-------------
37,749,241
Ireland (0.4%)
-------------------------------------------------------------------------------------------------------------------
1,209,286 Irish Life & Permanent PLC 10,425,690
Israel (0.2%)
-------------------------------------------------------------------------------------------------------------------
346,006 Advanced Vision Technology, Ltd. (NON) 4,443,810
40,962 Advanced Vision Technology, Ltd. 144A (NON) 526,082
-------------
4,969,892
Italy (3.9%)
-------------------------------------------------------------------------------------------------------------------
1,435,773 ACEA SpA 22,140,596
2,593,876 Banca Popolare di Milano 18,212,952
1,342,268 BiPop-Carire SpA (REL) 12,001,658
2,837,865 Bulgari SpA 31,907,024
2,958,761 Buzzi Unicem SpA 14,673,987
-------------
98,936,217
Japan (9.4%)
-------------------------------------------------------------------------------------------------------------------
282,530 Aiful Corp. 24,381,165
341,120 Aoi Advertising Promotion, Inc. 5,087,523
72,300 C TWO-NETWORK Co., Ltd. 10,308,226
121,350 Disco Corp. 20,807,410
170,000 FDK Corporation 1,736,516
1,332,317 Fujitec Co., Ltd. 12,247,169
103,000 MACNICA, Inc. 16,636,901
59,800 MEITEC Corp. 2,765,350
711 Net One Systems Co., Ltd. 22,875,246
2,305,000 Nikko Securities Co., Ltd. 22,247,866
138,000 Nippon Broadcasting Systems 8,077,291
4,189,000 Nippon Sanso Corp. 15,834,978
287,600 Nissin Co., Ltd. 13,164,694
536,800 Nissin Food Products Co. Ltd. 13,997,786
290,300 Sundrug Co., Ltd. 21,185,011
217,840 Taiyo Ink Manufacturing 12,750,414
197,600 Tsuruha Co., Ltd. 7,135,916
588,500 Yoshimoto Kogyo Co., Ltd. 6,729,026
-------------
237,968,488
Korea (0.7%)
-------------------------------------------------------------------------------------------------------------------
155,580 Cheil Communications, Inc. 16,418,201
Luxembourg (1.1%)
-------------------------------------------------------------------------------------------------------------------
83,362 RTL Group 11,773,242
274,200 SBS Broadcasting SA (NON) 11,927,700
952,800 Societe Europeenne de Communication S.A. (NON) 4,343,996
-------------
28,044,938
Mexico (1.9%)
-------------------------------------------------------------------------------------------------------------------
995,000 Coca-Cola Femsa S.A. de C.V. ADR 20,397,500
5,354,881 Consorcio ARA S.A. de C.V. (NON) 8,553,379
3,831,127 Grupo Financiero Bancomer, S.A. de C.V. (NON) 19,565,682
-------------
48,516,561
Netherlands (3.3%)
-------------------------------------------------------------------------------------------------------------------
251,540 Draka Holding N.V. 19,539,909
738,454 Hagemeyer N.V. 21,153,771
435,746 Internatio-Muller NV 7,745,821
136,615 Van Der Moolen Holding N.V. 9,046,044
613,257 Versatel Telecom Intl. NV (NON) 17,496,517
593,430 World Online International NV (NON) 8,333,561
-------------
83,315,623
Norway (1.9%)
-------------------------------------------------------------------------------------------------------------------
708,711 ProSafe ASA (NON) 11,483,870
667,049 Sparebanken NOR 16,544,056
682,963 TGS Nopec Geophysical Company ASA (NON) 10,238,535
322,777 Tomra Systems ASA 9,606,564
-------------
47,873,025
Poland (--%)
-------------------------------------------------------------------------------------------------------------------
61,605 Pentamedia Graphics, Ltd. 569,846
Portugal (0.5%)
-------------------------------------------------------------------------------------------------------------------
889,767 Impresa SGPS S.A. (NON) 8,683,258
356,300 Impresa SGPS 144A S.A. (NON) 3,477,140
-------------
12,160,398
Singapore (2.5%)
-------------------------------------------------------------------------------------------------------------------
4,307,073 Overseas Union Bank, Ltd. 21,775,648
3,150,089 Venture Manufacturing, Ltd. 40,273,104
-------------
62,048,752
South Korea (0.4%)
-------------------------------------------------------------------------------------------------------------------
252,500 Samsung SDI Co., Ltd. 11,273,338
Spain (2.6%)
-------------------------------------------------------------------------------------------------------------------
462,810 Abengoa S.A. 11,435,406
3,293,032 CIR-Compagnie Industriali Riunite SpA 12,439,099
1,080,062 Grupo Dragados S.A. 9,023,616
2,134,570 NH Hoteles S.A. 26,560,881
298,615 Superdiplo S.A. (NON) 5,069,312
-------------
64,528,314
Sweden (6.0%)
-------------------------------------------------------------------------------------------------------------------
1,225,004 Arkivator AB 31,042,353
416,570 Artimplant AB Class B (NON) 5,786,001
6,991,675 Enea Data AB 45,219,973
1,120,207 Framtidsfabriken AB (NON) 12,530,545
1,336,292 HiQ International AB 15,160,181
176,908 NetCom AB Class B (NON) 9,341,058
712,324 Sapa AB 10,384,833
839,407 Semcon AB 12,549,052
294,295 SKF AB Class A 3,994,037
378,338 SKF AB Class B 5,495,659
-------------
151,503,692
Switzerland (5.2%)
-------------------------------------------------------------------------------------------------------------------
31,802 Ares-Serono Group Class B 37,311,037
20,114 Forbo Holding AG 8,797,422
81,014 Geberit International AG 24,320,010
16,046 Hilti AG 14,156,068
34,180 Logitech International 11,555,516
30,235 Tecan Group AG 31,255,444
1,783 Vontobel Holding AG 4,758,897
-------------
132,154,394
Taiwan (2.1%)
-------------------------------------------------------------------------------------------------------------------
849,276 ASE Test Limited (NON) 20,648,023
12,907,070 Winbond Electronics Corp. (NON) 32,033,663
-------------
52,681,686
United Kingdom (19.8%)
-------------------------------------------------------------------------------------------------------------------
7,823,201 Aegis Group PLC (NON) 21,393,701
238,100 Aegis Group PLC 144A (NON) 651,120
3,792,022 ARM Holdings PLC (NON) 50,746,052
6,228,835 Avis Europe PLC 144A ADR 21,609,205
205,483 Bookham Technology PLC (NON) 12,688,575
273,147 Capital Radio PLC 6,233,945
3,575,682 Carphone Warehouse Group PLC (NON) 11,182,552
1,062,100 Carphone Warehouse Group PLC 144A (NON) 3,321,601
5,897,810 Chloride Group PLC 17,157,909
3,416,315 Cordiant Communications Group PLC 16,920,711
174,800 DIAGONAL PLC 1,080,622
353,738 Dialog Semiconductor PLC (NON) 17,480,770
8,579,591 Electronics Boutique PLC 7,612,723
2,276,131 Eyretel PLC (NON) 9,187,637
2,382,600 Eyretel PLC 144A (NON) 9,617,401
5,697,110 Firstgroup PLC 20,903,998
1,474,039 GWR Group PLC 20,369,303
2,020,926 Hanson PLC 11,993,727
3,031,083 HIT Entertainment PLC 17,415,603
6,595,712 Iceland Group PLC 28,530,523
1,436,859 Informa Group PLC 15,884,419
2,389,434 Kingston Communication (Hull) PLC 17,517,380
1,803,557 Manchester United PLC 7,916,272
2,045,553 Matalan PLC 18,313,965
838,700 Orchestream Holdings PLC (NON) 7,710,229
1,605,862 Orchestream Holdings PLC 144A (NON) 14,762,805
439,308 Oxford Glycosciences PLC (NON) 10,943,173
1,887,325 Pace Micro Technology PLC 20,617,225
252,262 Pharmagene PLC (NON) 1,199,895
793,100 Pharmagene PLC 144A (NON) 3,772,413
2,225,989 Premier Farnell PLC 17,452,408
785,267 Psion PLC 10,051,795
1,061,400 SMG Pc 5,202,985
1,376,464 Taylor Nelson Sofres PLC 6,091,707
974,498 Ted Baker PLC 6,945,773
1,431,983 Trinity PLC 10,852,234
1,739,304 Viridian Group PLC 17,391,301
-------------
498,723,657
United States (0.8%)
-------------------------------------------------------------------------------------------------------------------
111,700 Maxim Pharmaceuticals, Inc. (NON) 6,834,647
548,400 Orient-Express Hotels, Ltd. (NON) 14,121,300
--------------
20,955,947
--------------
Total Common Stocks (cost $2,097,212,990) $2,430,345,833
<CAPTION>
UNITS (0.5%) (a)
NUMBER OF UNITS VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
24,704 Software Solutions Integrated structured note
(issued by Goldman Sachs Group, Inc.) 6.809%, 2001
(India) $ 1,527,942
115,100 Software Solutions Integrated structured note (issued by
Goldman Sachs Group, Inc.) 6.835%, 2001 (India) 7,118,935
45,000 Software Solutions Integrated structured note
(issued by Goldman Sachs
Group, Inc.), 7.247%, 2001, (India) 2,783,250
--------------
Total Units (cost $19,017,211) $ 11,430,127
<CAPTION>
SHORT-TERM INVESTMENTS (2.1%) (a) (cost $52,440,000)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 52,440,000 Interest in $400,000,000 joint repurchase agreement
dated August 31, 2000 with Merrill Lynch due
September 1, 2000 with respect to various U.S. Treasury
obligations -- maturity value of $52,449,672 for an
effective yield of 6.64% $ 52,440,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,168,670,201) (b) $2,494,215,960
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,520,178,919.
(b) The aggregate identified cost on a tax basis is $2,200,450,692,
resulting in gross unrealized appreciation and depreciation of
$413,636,800 and $119,871,532, respectively, or net unrealized
appreciation of $293,765,268.
(NON) Non-income-producing security.
(REL) BiPop-Carire SpA is involved in a joint venture with Putnam Investments.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
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 fund had the following industry group concentrations greater
than 10% at August 31, 2000 (as a percentage of net assets):
Technology 23.6%
Financial 14.4
Consumer staples 14.1
Consumer cyclicals 13.8
Capital goods 10.6
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $2,168,670,201) (Note 1) $2,494,215,960
-------------------------------------------------------------------------------------------
Cash 853,446
-------------------------------------------------------------------------------------------
Foreign currency (cost $3,286,126) 3,324,240
-------------------------------------------------------------------------------------------
Dividends, interest and other receivables 1,401,850
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 36,868,586
-------------------------------------------------------------------------------------------
Receivable for securities sold 51,703,440
-------------------------------------------------------------------------------------------
Unamortized organizational expenses (Note 1) 295
-------------------------------------------------------------------------------------------
Total assets 2,588,367,817
Liabilities
-------------------------------------------------------------------------------------------
Payable for securities purchased 55,430,260
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 4,780,698
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 5,093,763
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 834,368
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 13,223
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,100
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,445,927
-------------------------------------------------------------------------------------------
Other accrued expenses 587,559
-------------------------------------------------------------------------------------------
Total liabilities 68,188,898
-------------------------------------------------------------------------------------------
Net assets $2,520,178,919
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,221,845,041
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (8,299,705)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (18,830,954)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 325,464,537
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,520,178,919
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,311,822,024 divided by 49,014,782 shares) $26.76
-------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $26.76)* $28.39
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($936,798,221 divided by 35,607,300 shares)** $26.31
-------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($170,579,136 divided by 6,414,676 shares)** $26.59
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($64,164,208 divided by 2,421,148 shares) $26.50
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $26.50)* $27.46
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class Y share
($36,815,330 divided by 1,373,100 shares) $26.81
-------------------------------------------------------------------------------------------
* 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, 2000
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $2,856,393) $ 19,261,750
-------------------------------------------------------------------------------------------
Interest 4,228,584
-------------------------------------------------------------------------------------------
Total investment income 23,490,334
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 13,709,869
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,863,204
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 27,524
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 15,732
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,987,617
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 5,883,921
-------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 787,518
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 376,236
-------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 732
-------------------------------------------------------------------------------------------
Other 1,148,505
-------------------------------------------------------------------------------------------
Total expenses 27,800,858
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,893,875)
-------------------------------------------------------------------------------------------
Net expenses 25,906,983
-------------------------------------------------------------------------------------------
Net investment loss (2,416,649)
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (11,937,230)
-------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (231,806)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (404,010)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
during the year 238,069,254
-------------------------------------------------------------------------------------------
Net gain on investments 225,496,208
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $223,079,559
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended August 31
--------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment loss $ (2,416,649) $ (1,047,373)
--------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions (12,169,036) 13,685,837
--------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
asset and liabilities in foreign currencies 237,665,244 85,664,534
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 223,079,559 98,302,998
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income
Class A (2,747,218) (436,394)
--------------------------------------------------------------------------------------------------
Class B (1,015,488) (152,883)
--------------------------------------------------------------------------------------------------
Class C (107,274) --
--------------------------------------------------------------------------------------------------
Class M (154,610) (24,395)
--------------------------------------------------------------------------------------------------
In excess of net investment income
Class A -- (634,481)
--------------------------------------------------------------------------------------------------
Class B -- (222,278)
--------------------------------------------------------------------------------------------------
Class C -- --
--------------------------------------------------------------------------------------------------
Class M -- (35,469)
--------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (7,251,297) (2,149,683)
--------------------------------------------------------------------------------------------------
Class B (5,648,516) (1,752,907)
--------------------------------------------------------------------------------------------------
Class C (330,810) --
--------------------------------------------------------------------------------------------------
Class M (630,742) (197,843)
--------------------------------------------------------------------------------------------------
In excess of net realized gain on investments
Class A (2,895,247) --
--------------------------------------------------------------------------------------------------
Class B (2,255,300) --
--------------------------------------------------------------------------------------------------
Class C (132,083) --
--------------------------------------------------------------------------------------------------
Class M (251,838) --
--------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 1,910,849,104 139,594,386
--------------------------------------------------------------------------------------------------
Total increase in net assets 2,110,508,240 232,291,051
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 409,670,679 177,379,628
--------------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $8,299,705 and
$1,862,835 respectively) $2,520,178,919 $409,670,679
--------------------------------------------------------------------------------------------------
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 Dec. 28, 1995+
operating performance Year ended August 31 to August 31
------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $17.28 $12.37 $11.66 $9.47 $8.50
------------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------------
Net investment income (loss)(a) .05 (.01) .05 .02(d) .04(d)
------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 10.13 5.33 1.25 2.28 .93
------------------------------------------------------------------------------------------------------
Total from
investment operations 10.18 5.32 1.30 2.30 .97
------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------
From net
investment income (.15) (.06) (.04) (.07) --
------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.08) -- -- --
------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.39) (.27) (.55) (.04) --
------------------------------------------------------------------------------------------------------
In excess of net
realized gain on investments (.16) -- -- -- --
------------------------------------------------------------------------------------------------------
Total distributions (.70) (.41) (.59) (.11) --
------------------------------------------------------------------------------------------------------
Net asset value,
end of period $26.76 $17.28 $12.37 $11.66 $9.47
------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 59.46 43.98 11.77 24.44 11.41*
------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,311,822 $216,735 $95,404 $40,687 $2,429
------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.48 1.78 1.92 2.10(d) 1.26*(d)
------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) .17 (.07) .35 .15(d) .44*(d)
------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 144.34 106.76 89.50 126.65 55.87*
------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses for class A reflect a reduction of
approximately $0.08 per share for the year ended August 31, 1996.
Expenses for the period ended August 31, 1997 reflect a reduction of
$0.02, $0.01, and $0.02 for class A, class B, and class M, respectively.
(e) Distributions from net investment income amounted to less than
$0.01 per share for class M.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS B
----------------------------------------------------------------------------------------
For the period
Per-share Oct. 30, 1996+
operating performance Year ended August 31 to August 31
----------------------------------------------------------------------------------------
2000 1999 1998 1997
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $17.07 $12.25 $11.60 $9.82
----------------------------------------------------------------------------------------
Investment operations
----------------------------------------------------------------------------------------
Net investment income (loss)(a) (.15) (.12) (.05) (.06)(d)
----------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 10.01 5.27 1.25 1.94
----------------------------------------------------------------------------------------
Total from
investment operations 9.86 5.15 1.20 1.88
----------------------------------------------------------------------------------------
Less distributions:
----------------------------------------------------------------------------------------
From net
investment income (.07) (.02) -- (.06)
----------------------------------------------------------------------------------------
In excess of net
investment income -- (.04) -- --
----------------------------------------------------------------------------------------
From net realized gain
on investments (.39) (.27) (.55) (.04)
----------------------------------------------------------------------------------------
In excess of net
realized gain on investments (.16) -- -- --
----------------------------------------------------------------------------------------
Total distributions (.62) (.33) (.55) (.10)
----------------------------------------------------------------------------------------
Net asset value,
end of period $26.31 $17.07 $12.25 $11.60
----------------------------------------------------------------------------------------
Ratios and supplemental data
----------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 58.24 42.84 10.94 19.35*
----------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $936,798 $171,524 $73,176 $34,463
----------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 2.23 2.53 2.67 2.39*(d)
----------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.57) (.83) (.43) (.50)*(d)
----------------------------------------------------------------------------------------
Portfolio turnover (%) 144.34 106.76 89.50 126.65
----------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses for class A reflect a reduction of
approximately $0.08 per share for the year ended August 31, 1996.
Expenses for the period ended August 31, 1997 reflect a reduction of
$0.02, $0.01, and $0.02 for class A, class B, and class M, respectively.
(e) Distributions from net investment income amounted to less than
$0.01 per share for class M.
</TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS C
------------------------------------------------------------------------
For the period
Per-share Year ended July 26, 1999+
operating performance August 31 to August 31
------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------
Net asset value,
beginning of period $17.27 $16.21
------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------
Net investment income (loss)(a) (.11) (.01)
------------------------------------------------------------------------
Net realized and unrealized
gain on investments 10.11 1.07
------------------------------------------------------------------------
Total from
investment operations 10.00 1.06
------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------
From net
investment income (.13) --
------------------------------------------------------------------------
In excess of net
investment income -- --
------------------------------------------------------------------------
From net realized gain
on investments (.39) --
------------------------------------------------------------------------
In excess of net
realized gain on investments (.16) --
------------------------------------------------------------------------
Total distributions (.68) --
------------------------------------------------------------------------
Net asset value,
end of period $26.59 $17.27
------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------
Total return at
net asset value (%)(b) 58.41 6.54*
------------------------------------------------------------------------
Net assets, end of period
(in thousands) $170,579 $2,711
------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 2.23 .26*
------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.44) (.14)*
------------------------------------------------------------------------
Portfolio turnover (%) 144.34 106.76
------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses for class A reflect a reduction of
approximately $0.08 per share for the year ended August 31, 1996.
Expenses for the period ended August 31, 1997 reflect a reduction of
$0.02, $0.01, and $0.02 for class A, class B, and class M, respectively.
(e) Distributions from net investment income amounted to less than
$0.01 per share for class M.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS M
---------------------------------------------------------------------------------------
For the period
Per-share Oct. 30, 1996+
operating performance Year ended August 31 to August 31
---------------------------------------------------------------------------------------
2000 1999 1998 1997
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $17.15 $12.30 $11.62 $9.82
---------------------------------------------------------------------------------------
Investment operations
---------------------------------------------------------------------------------------
Net investment income (loss)(a) (.10) (.08) (.02) (.03)(d)
---------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 10.10 5.28 1.25 1.93
---------------------------------------------------------------------------------------
Total from
investment operations 10.00 5.20 1.23 1.90
---------------------------------------------------------------------------------------
Less distributions:
---------------------------------------------------------------------------------------
From net
investment income (.10) (.03) --(e) (.06)
---------------------------------------------------------------------------------------
In excess of net
investment income -- (.05) -- --
---------------------------------------------------------------------------------------
From net realized gain
on investments (.39) (.27) (.55) (.04)
---------------------------------------------------------------------------------------
In excess of net
realized gain on investments (.16) -- -- --
---------------------------------------------------------------------------------------
Total distributions (.65) (.35) (.55) (.10)
---------------------------------------------------------------------------------------
Net asset value,
end of period $26.50 $17.15 $12.30 $11.62
---------------------------------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 58.79 43.17 11.20 19.56*
---------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $64,164 $18,701 $8,799 $4,086
---------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.98 2.28 2.42 2.18*(d)
---------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.40) (.58) (.18) (.26)*(d)
---------------------------------------------------------------------------------------
Portfolio turnover (%) 144.34 106.76 89.50 126.65
---------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses for class A reflect a reduction of
approximately $0.08 per share for the year ended August 31, 1996.
Expenses for the period ended August 31, 1997 reflect a reduction of
$0.02, $0.01, and $0.02 for class A, class B, and class M, respectively.
(e) Distributions from net investment income amounted to less than
$0.01 per share for class M.
</TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS Y
-------------------------------------------------
For the period
Per-share Feb. 1, 2000+
operating performance to August 31
-------------------------------------------------
2000
-------------------------------------------------
Net asset value,
beginning of period $26.48
-------------------------------------------------
Investment operations
-------------------------------------------------
Net investment income (loss)(a) .15
-------------------------------------------------
Net realized and unrealized
gain on investments .18
-------------------------------------------------
Total from
investment operations .33
-------------------------------------------------
Less distributions:
-------------------------------------------------
From net
investment income --
-------------------------------------------------
In excess of net
investment income --
-------------------------------------------------
From net realized gain
on investments --
-------------------------------------------------
Total distributions --
-------------------------------------------------
Net asset value,
end of period $26.81
-------------------------------------------------
Ratios and supplemental data
-------------------------------------------------
Total return at
net asset value (%)(b) 1.25*
-------------------------------------------------
Net assets, end of period
(in thousands) $36,815
-------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .72*
-------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) .51*
-------------------------------------------------
Portfolio turnover (%) 144.34
-------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses for class A reflect a reduction of
approximately $0.08 per share for the year ended August 31, 1996.
Expenses for the period ended August 31, 1997 reflect a reduction of
$0.02, $0.01, and $0.02 for class A, class B, and class M, respectively.
(e) Distributions from net investment income amounted to less than
$0.01 per share for class M.
NOTES TO FINANCIAL STATEMENTS
August 31, 2000
Note 1
Significant accounting policies
Putnam International Voyager 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-ended
management investment company. The fund seeks long-term capital
appreciation by investing primarily in equity securities of small-and
mid-capitalization companies whose principle place of business is
located outside of the United States or whose securities are principally
traded on foreign markets.
The fund offers class A, class B, class C, class M and class Y shares.
The fund began offering class Y shares on February 1, 2000. 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. Class Y shares, which are
sold at net asset value, are generally subject to the same expenses as
class A, class B, class C and class M shares, but do not bear a
distribution fee. Class Y shares are sold to defined contribution plans
that invest at least $150 million in a combination of Putnam funds and
other accounts managed by affiliates of Putnam Investment Management,
Inc. ("Putnam Management"), the fund's Manager, a wholly owned
subsidiary of Putnam Investments.
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 of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. 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 sales price on its principal exchange, or if no sales
are reported -- as in the case of some securities traded
over-the-counter -- the last reported bid price. Securities quoted in
foreign currencies are translated into U.S. dollars at the current
exchange rate. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates market
value. Other investments, including restricted securities, are stated at
fair value following procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Management. These balances may be invested in one or more
repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). 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. Non-cash dividends, if any,
are recorded at the fair market value of the securities received.
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. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic
investments.
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, 2000, 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, foreign currency gains
and losses, post-October loss deferrals, organization costs, foreign
taxes, realized gains and losses on passive foreign investment
companies, and unrealized gains and losses on passive foreign investment
companies. 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, 2000, the fund reclassified $4,369 to decrease
distributions in excess of net investment income, with an increase to
accumulated net realized losses of $4,369. 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
Exchange Commission and with various states and the initial public
offering of its shares were $3,622. 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: 1.00% of the
first $500 million of average net assets, 0.90% of the next $500
million, 0.85% of the next $500 million, 0.80% of the next $5 billion,
0.775% of the next $5 billion, 0.755% of the next $5 billion, 0.74% of
the next $5 billion, and 0.73% 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, 2000, fund expenses were reduced by
$1,893,875 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 $1,948
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. 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 a 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 Retail Management, Inc., 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 Retail Management, Inc. 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, 2000, Putnam Retail Management, Inc.,
acting as underwriter received net commissions of $1,887,468 and $91,045
from the sale of class A and class M shares, respectively, and received
$568,381 and $37,470 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 August 31, 2000, Putnam Retail Management,
Inc., acting as underwriter received $38,319 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended August 31, 2000, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $3,908,576,375 and $2,089,181,926, respectively. There were
no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At August 31, 2000, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended August 31, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 68,740,703 $1,835,627,121
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 493,885 11,255,065
---------------------------------------------------------------------------
69,234,588 1,846,882,186
Shares
repurchased (32,762,522) (866,780,112)
---------------------------------------------------------------------------
Net increase 36,472,066 $ 980,102,074
---------------------------------------------------------------------------
Year ended August 31, 1999
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 12,064,985 $177,319,379
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 231,682 3,062,832
---------------------------------------------------------------------------
12,296,667 180,382,211
Shares
repurchased (7,464,939) (109,402,485)
---------------------------------------------------------------------------
Net increase 4,831,728 $ 70,979,726
---------------------------------------------------------------------------
Year ended August 31, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 32,274,430 $860,255,531
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 331,379 7,760,622
---------------------------------------------------------------------------
32,605,809 868,016,153
Shares
repurchased (7,046,922) (182,244,609)
---------------------------------------------------------------------------
Net increase 25,558,887 $685,771,544
---------------------------------------------------------------------------
Year ended August 31, 1999
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 6,320,324 $92,834,075
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 148,012 1,943,391
---------------------------------------------------------------------------
6,468,336 94,777,466
Shares
repurchased (2,393,661) (34,320,799)
---------------------------------------------------------------------------
Net increase 4,074,675 $60,456,667
---------------------------------------------------------------------------
Year ended August 31, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 7,564,229 $206,941,929
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 18,746 443,344
---------------------------------------------------------------------------
7,582,975 207,385,273
Shares
repurchased (1,325,282) (35,550,896)
---------------------------------------------------------------------------
Net increase 6,257,693 $171,834,377
---------------------------------------------------------------------------
For the period July 26, 1999
(commencement of operations) to
August 31, 1999
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 156,983 $2,627,586
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
156,983 2,627,586
Shares
repurchased -- --
---------------------------------------------------------------------------
Net increase 156,983 $2,627,586
---------------------------------------------------------------------------
Year ended August 31, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 2,817,319 $73,544,449
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 42,329 996,440
---------------------------------------------------------------------------
2,859,648 74,540,889
Shares
repurchased (1,528,729) (41,456,345)
---------------------------------------------------------------------------
Net increase 1,330,919 $33,084,544
---------------------------------------------------------------------------
Year ended August 31, 1999
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 973,859 $14,189,696
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 18,823 248,090
---------------------------------------------------------------------------
992,682 14,437,786
Shares
repurchased (617,690) (8,907,379)
---------------------------------------------------------------------------
Net increase 374,992 $ 5,530,407
---------------------------------------------------------------------------
For the period February 1, 2000
(commencement of operations) to
August 31, 2000
---------------------------------------------------------------------------
Class Y Shares Amount
---------------------------------------------------------------------------
Shares sold 2,489,051 $69,623,878
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
2,489,051 69,623,878
Shares
repurchased (1,115,951) (29,567,313)
---------------------------------------------------------------------------
Net increase 1,373,100 $40,056,565
---------------------------------------------------------------------------
FEDERAL TAX INFORMATION
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the
Fund hereby designates $6,245,310 as capital gain, for its taxable year
ended August 31, 2000.
For the period, interest and dividends from foreign countries were
$19,239,844. Taxes paid to foreign countries were $2,856,393.
The Form 1099 you receive in January 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
John A. Hill, 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, III
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
John J. Morgan, Jr.
Vice President
Justin M. Scott
Vice President
Joseph P. Joseph
Vice President and Fund Manager
Omid Kamshad
Vice President and Fund Manager
Andrew Graham
Vice President and Fund Manager
Joshua L. Byrne
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
This report is for the information of shareholders of Putnam
International Voyager 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
and Putnam's Quarterly Ranking 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.putnaminvestments.com.
Not FDIC Insured, May Lose Value, No Bank Guarantee
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
PRST STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
AN011-64656 2AZ/2CI/2CJ 10/00
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
----------------------------------------------------------------------------
Putnam International Voyager Fund
Supplement to Annual Report dated 8/31/00
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to defined contribution plans investing $150 million or
more in one or more of Putnam's funds or private accounts. Performance of
class Y shares, which incur neither a front-end load, distribution fee, nor
contingent deferred sales charge, will differ from performance of class A,
B, and M shares, which are discussed more extensively in the annual report.
ANNUAL RESULTS AT A GLANCE
----------------------------------------------------------------------------
Total return for periods ended 8/31/00 NAV
1 year 59.95%
Life of fund (since class A inception, 12/28/95) 260.28
(annual average) 31.50
Share value: NAV
2/1/00 $26.48
8/31/00 $26.81
----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
-- $-- $-- $--
----------------------------------------------------------------------------
Please note that past performance does not indicate future results. Returns
shown for class Y shares for periods prior to their inception are derived
from the historical performance of class A shares, adjusted to reflect the
initial sales charge currently applicable to class A shares. These returns
have not been adjusted to reflect differences in operating expenses which,
for class Y shares, are lower than the operating expenses applicable to
class A shares. All returns assume reinvestment of distributions at net
asset value. Investment return and principal value will fluctuate so your
shares, when redeemed, may be worth more or less than their original cost.
See full report for information on comparative benchmarks. If you have
questions, please consult your fund prospectus or call Putnam toll free at
1-800-752-9894.
Putnam
Small Cap
Value Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.
As we look to the future, we are certain that the changes that lie ahead
will be even more breathtaking in their scope. What will not change is
the Trustees' dedication to serving the best interests of our
shareholders.
We are pleased to announce the addition of Sheldon Simon to your fund's
management team, shortly after the close of the fiscal year. Sheldon
joined Putnam in 1984 and has 17 years of investment experience.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
October 18, 2000
REPORT FROM FUND MANAGEMENT
Edward T. Shadek, Jr.
The semiannual period, ended August 31, 2000, was marked by tremendous
volatility in the marketplace and an uncertain investment environment
for the Putnam Small Cap Value Fund, which nevertheless stayed true to
its strategy. Shortly after the beginning of the fund's fiscal year, a
market correction shifted dominance away from large-cap growth stocks
and offered new hope to beleaguered value stocks. Investors seeking more
practical alternatives to high-priced, unprofitable companies redirected
much of their investment capital to attractively priced companies with
histories of earnings growth. Your fund, which invests in high-quality
smaller companies with compelling valuations, benefited from this
significant change in market sentiment. Returns for the period reflect
an improving environment for value stocks in general and for small-cap
value stocks in particular.
Total return for 6 months ended 8/31/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
-----------------------------------------------------------------------
9.89% 3.58% 9.55% 4.55% 9.53% 8.53% 9.79% 5.88%
-----------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
* MARKET DEVELOPMENTS SPUR FUND PERFORMANCE
Three factors were influential in boosting the fund's returns during the
period. The first was the broadening of the market that occurred after
this spring's correction in technology stocks. As these stocks fell from
favor, investors once again embraced traditional metrics such as
price/earnings ratios, earnings growth rates, and profit margins. The
small companies your fund invests in held up well under close scrutiny:
these undervalued companies offer potentially less downside risk than
the overall universe of small companies, which includes more aggressive
stocks with higher price multiples. Also, they offer greater potential
growth than the overall market.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Banking 10.0%
Health care
services 9.7%
Electronics 7.3%
Retail 5.9%
Insurance 4.9%
Footnote reads:
*Based on net assets as of 8/31/00. Holdings will vary over time.
The second influential factor was the direction of interest rates. It is
now generally accepted that the Federal Reserve Board will not continue
to raise short-term interest rates. Economic indicators point to a
slowing economy with only modest inflation. Therefore, we expect
interest rates to stabilize, or decrease. As the threat of rising
interest rates has subsided, the economically sensitive stocks in which
your fund invests have become increasingly attractive.
Finally, your fund benefited from a large number of mergers and
takeovers during the period. Consolidations positively affected our
positions in Shared Medical Systems, Telxon Corp., Bank United Corp.,
and Cordant Technologies, to name a few. We sold our positions in Shared
Medical Systems and Cordant Technologies shortly after the mergers were
announced. While we do not specifically target stocks of companies that
are ripe for acquisition, a company that possesses the blend of
attributes we seek often makes an attractive takeover candidate. For
example, we invest in companies that operate within a desirable
industry, have effective management and a strong balance sheet, and are
undervalued relative to their projected earnings.
In summary, three factors -- investors' renewed interest in companies
with positive fundamentals; a friendlier interest rate scenario; and
robust merger activity -- have helped tip the scales in favor of
small-cap value investing. We feel confident that the beneficial effects
of these trends can be sustained in the months ahead, creating a
favorable environment for your fund.
* STRONG PERFORMANCE DERIVED FROM A VARIETY OF SECTORS
Last year, many fundamentally strong companies within the health-care
sector suffered low valuations, partly owing to the federal government's
constraints upon the pharmaceutical industry. After the market
correction in early March 2000, investors cashed out of high-flying
Internet stocks and reinvested a fair amount in health-care stocks,
which historically have delivered solid earnings growth. Recently, the
market has rewarded them with higher multiples. AmeriSource Health,
Inc., Bindley Western Industries, Inc., and Owens & Minor Industries,
Inc. have been strong performers for your fund. Both AmeriSource and
Bindley Western are wholesalers and distributors of pharmaceutical and
health-care products throughout the United States. Their customers
include hospitals, clinics, managed-care facilities, community
pharmacies, retail drugstore chains, nursing homes, and supermarkets.
Owens & Minor is a wholesale distributor of medical and surgical
supplies, offering more than 140,000 products to the entire range of
health-care providers. While stocks of these companies, as well as
others mentioned in this report, were viewed favorably at the end of the
period, all are subject to review in accordance with your fund's
investment mandate and may change in the future.
"It's not just growth issues that are giving the mid- and small-cap
indexes a boost. Value stocks are looking up too. The Russell 2000 Value
Index is up 16% for the year vs. the Russell 2000 Growth Index, which is
in slight negative territory . . ."
-- BusinessWeek, September 25, 2000
Rising oil prices have fueled strong performance within the energy
sector. We are especially pleased with results from Mitchell Energy and
Development Corp. -- a company that owns and operates oil and natural
gas wells in Texas and New Mexico -- and Tidewater, Inc. Tidewater
services the offshore petroleum industry by towing drilling rigs,
transporting supplies, and building and repairing vessels used by
petroleum companies. We haven't changed the fund's exposure in this
area. If energy stocks continue to do well, as we expect they will, we
may sell some holdings to lock in profits.
The technology sector, which includes electronic products, has produced
several winners, and so we have taken profits where appropriate. Among
the fund's current technology positions, Pioneer Standard Electronics,
Inc., General Cable Corp., and Autodesk Corp. offer compelling growth
potential, in our opinion. Pioneer Standard sells and distributes a
variety of semiconductors, electromechanical components, and computer
products to a host of manufacturers, laboratories, and government
agencies. General Cable produces cables for use in communications
markets, including copper wire, high-bandwidth data cable, coaxial
cable, and fiber-optic cable. It makes numerous electrical cables and
cords for industrial, automotive, and construction use. Autodesk
develops computer-aided design software targeted at engineers,
architects, and construction experts. Sales of its most popular product,
AutoCAD (a desktop design and drafting tool), are responsible for about
70% of the company's revenues.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Bank United Corp. Class A
Banking
Omnicare, Inc.
Health care services
General Cable Corp.
Electronics
AmeriSource Health Corp. Class A
Health care services
Pier 1 Imports, Inc.
Retail
Owens & Minor, Inc.
Medical technology
Banknorth Group, Inc.
Banking
AAR Corp.
Aerospace/defense
Bindley Western Industries, Inc.
Health care services
International Multifoods Corp.
Food
Footnote reads:
These holdings represent 10.9% of the fund's net assets as of 8/31/00.
Portfolio holdings will vary over time.
Stocks of basic industrial companies did not perform as well as we had
hoped. Rising interest rates and the resultant squeeze on corporate
profits compromised the sector as a whole. The fund owns shares of
several specialty chemical companies that remain undervalued, and these
positions have tempered fund returns. We continue to hold these shares
and believe their value will be recognized in the future.
We have opportunistically increased the fund's weighting in financial
stocks. A hostile interest-rate environment harnessed valuations for
many fundamentally healthy companies and put them within the reach of
value investors. In the wake of industry deregulation, banking,
investment, and insurance companies are consolidating, streamlining, and
taking advantage of more efficient cost structures. We expect that our
stable of high-quality financial stocks may enjoy a good run, as
interest rates stabilize or decline. Two financial holdings worthy of
note are Bank United Corp. and the W.R. Berkeley Corp. In over 100
offices throughout Texas, Bank United provides basic banking services,
including checking, savings, and money-market accounts, real estate and
consumer loans, and mortgage- and investment-banking. The company agreed
to be acquired by Washington Mutual in 2000. W.R. Berkeley offers a
comprehensive line of insurance coverage including property, casualty,
fire, liability, automobile, and commercial insurance.
* OPTIMISM IS APPROPRIATE
We are encouraged by the current market environment, which provides a
positive backdrop for your fund's investing strategy. For the first time
in many years, we are confident that the current economic conditions,
which support small-cap value investing, are sustainable. It appears
that the Fed has successfully maneuvered a soft landing and may take a
neutral stance with regard to monetary policy in the near term. This
scenario alone could enhance corporate profitability for all sectors and
asset classes in the months to come. We believe recent strong fund
performance confirms that the market is beginning to recognize some of
the value in our companies. As a result, we expect that consolidations
and takeovers will continue. Value plays remain plentiful in the
marketplace. Our strategy will be to hold and add to our positions in
attractive sectors. We seek to take advantage of the long-term potential
of small companies (average market capitalization: $850 million), and to
limit volatility by favoring companies most likely to undergo positive
change. Your fund's unique focus makes it an appropriate investment
vehicle for investors who seek to diversify portfolios of large-cap and
growth stocks.
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 8/31/00, there is no guarantee the fund will
continue to hold these securities in the future. The fund invests all or
a portion of its assets in small to midsize companies. Such investments
increase the risk of greater price fluctuations.
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing regulations
for semiannual and annual reports and prospectuses. Putnam is now able to
send a single copy of these materials to customers who share the same
address. This change will automatically apply to all shareholders except
those who notify us. If you prefer to receive your own copy, please call
Putnam at 1-800-225-1581.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Small Cap Value Fund seeks capital appreciation through investments in
common stocks of small companies.
TOTAL RETURN FOR PERIODS ENDED 8/31/00
Class A Class B Class C Class M
(inception dates) (4/13/99) (5/3/99) (7/26/99) (3/29/00)
NAV POP NAV CDSC NAV CDSC NAV POP
------------------------------------------------------------------------------
6 months 9.89% 3.58% 9.55% 4.55% 9.53% 8.53% 9.79% 5.88%
------------------------------------------------------------------------------
1 year 13.97 7.43 13.05 8.05 13.14 12.14 13.07 9.14
------------------------------------------------------------------------------
Life of fund 29.92 22.43 28.74 24.74 28.68 28.68 28.69 24.18
Annual average 20.72 15.67 19.93 17.24 19.89 19.89 19.90 16.86
------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/00
Russell 2000 Russell 2000 Consumer
Value Index Index price index
-----------------------------------------------------------------------------
6 months 10.57% -6.38% 1.53%
-----------------------------------------------------------------------------
1 year 13.70 27.15 3.23
-----------------------------------------------------------------------------
Life of fund 14.22 26.29 3.85
Annual average 10.44 19.05 2.86
-----------------------------------------------------------------------------
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.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 8/31/00*
Class A Class B Class C Class M
------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
------------------------------------------------------------------------
2/29/00 $10.01 $10.62 $9.95 $9.97 -- --
------------------------------------------------------------------------
3/29/00** -- -- -- -- $10.23 $10.60
------------------------------------------------------------------------
8/31/00 11.00 11.67 10.90 10.92 10.99 11.39
------------------------------------------------------------------------
*No distributions were made during the period.
**Inception date of class M shares.
TOTAL RETURN FOR PERIODS ENDED 9/30/00 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (4/13/99) (5/3/99) (7/26/99) (3/29/00)
NAV POP NAV CDSC NAV CDSC NAV POP
------------------------------------------------------------------------------
6 months 7.03% 0.91% 6.59% 1.59% 6.58% 5.58% 6.84% 3.07%
------------------------------------------------------------------------------
1 year 20.06 13.12 19.13 14.13 19.22 18.22 19.12 14.92
------------------------------------------------------------------------------
Life of fund 31.22 23.66 29.92 25.92 29.85 29.85 29.86 25.31
Annual average 20.30 15.54 19.49 16.98 19.45 19.45 19.45 16.59
------------------------------------------------------------------------------
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
Russell 2000 [REGISTRATION MARK] Index measures the performance of the
2,000 smallest companies in the Russell 3000 Index, which represents
approximately 11% of the total market capitalization of the Russell
3000 Index. As of the latest reconstitution, the average market
capitalization was approximately $592.0 million; the median market
capitalization was approximately $500.0 million.
Russell 2000 [REGISTRATION MARK] Value Index* measures the performance of
those Russell 2000 companies with lower price-to-book ratios and lower
forecasted growth values.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*The fund's performance benchmark has been changed from the Russell 2000
Index to the Russell 2000 Value Index to more accurately reflect the fund's
emphasis on small-cap value stocks.
Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund will
differ. It is not possible to invest directly in an index.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report 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 are determined. All investment and noninvestment 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-end funds, a
separate table is provided for each share class.
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
August 31, 2000 (Unaudited)
COMMON STOCKS (96.8%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Advertising and Marketing Services (0.7%)
-------------------------------------------------------------------------------------------------------------------
39,300 Harte-Hanks, Inc. $ 987,413
16,167 True North Communications, Inc. 749,745
-------------
1,737,158
Aerospace/Defense (2.8%)
-------------------------------------------------------------------------------------------------------------------
204,018 AAR Corp. 2,295,203
20,800 Alliant Techsystems, Inc. (NON) 1,602,900
23,200 Newport News Shipbuilding, Inc. 986,000
62,900 Primex Technologies, Inc. 1,525,325
35,105 Triumph Group, Inc. (NON) 1,077,285
-------------
7,486,713
Agriculture (0.3%)
-------------------------------------------------------------------------------------------------------------------
39,600 LESCO, Inc. 695,475
Airlines (0.4%)
-------------------------------------------------------------------------------------------------------------------
51,631 Midwest Express Holdings, Inc. (NON) 1,168,151
Automotive (1.8%)
-------------------------------------------------------------------------------------------------------------------
30,464 Borg-Warner Automotive, Inc. 1,047,200
23,800 Carlisle Companies, Inc. 1,090,338
55,260 CLARCOR, Inc. 1,139,738
55,850 Midas, Inc. 949,450
52,794 Tower Automotive, Inc. (NON) 600,532
-------------
4,827,258
Banking (10.0%)
-------------------------------------------------------------------------------------------------------------------
67,739 AMCORE Financial, Inc. 1,223,536
145,826 Banknorth Group, Inc. 2,387,901
98,556 Bank United Corp. Class A 4,435,002
123,981 Centennial Bancorp (NON) 798,128
31,300 City National Corp. 1,222,656
68,990 Commercial Federal Corp. 1,246,132
85,800 Community First Bankshares 1,544,400
63,672 First Midwest Bancorp, Inc. 1,643,534
50,150 Hudson United Bancorp 1,263,153
38,421 Imperial Bancorp (NON) 835,657
69,000 North Fork Bancorporation, Inc. 1,233,375
95,177 Provident Bankshares Corp. 1,356,272
85,200 Republic Bancorp, Inc. 756,150
64,957 SouthWest Bancorporation of Texas, Inc. (NON) 1,887,813
148,445 Sovereign Bancorp, Inc. 1,261,783
117,699 Sterling Bancshares, Inc. 1,668,016
13,600 Washington Federal, Inc. 282,200
50,141 Webster Financial Corp. 1,236,289
-------------
26,281,997
Beverage (0.4%)
-------------------------------------------------------------------------------------------------------------------
25,578 Robert Mondavi Corp. (The) (NON) 1,048,698
Biotechnology (0.3%)
-------------------------------------------------------------------------------------------------------------------
111,300 Serologicals Corp. (NON) 883,444
Building Materials (0.6%)
-------------------------------------------------------------------------------------------------------------------
366,530 Apogee Enterprises, Inc. 1,626,477
Chemicals (3.6%)
-------------------------------------------------------------------------------------------------------------------
135,187 Airgas, Inc. (NON) 895,614
182,728 Crompton Corp. 1,644,552
54,000 Delta & Pine Land Co. 1,319,625
47,449 Ferro Corp. 978,636
26,000 H.B. Fuller Co. 892,125
253,241 Hanna (M.A.) Co. (NON) 2,105,066
103,112 Mississippi Chemical Corp. 425,337
191,301 Omnova Solutions, Inc. 1,147,806
-------------
9,408,761
Commercial and Consumer Services (3.2%)
-------------------------------------------------------------------------------------------------------------------
46,838 ABM Industries, Inc. 1,264,626
35,400 ADVO, Inc. (NON) 1,449,188
72,800 Banta Corp. 1,606,150
45,936 Bowne & Co. 476,586
58,600 G & K Services, Inc. Class A 1,699,400
54,200 RemedyTemp, Inc. (NON) 653,788
58,800 Varco International, Inc. (NON) 1,187,025
-------------
8,336,763
Communications Equipment (1.8%)
-------------------------------------------------------------------------------------------------------------------
96,937 Communications Systems, Inc. 1,660,046
142,207 IFR Systems, Inc. (NON) 675,483
118,700 Performance Technologies, Inc. (NON) 1,646,963
101,293 Superior TeleCom, Inc. 854,660
-------------
4,837,152
Computers (0.8%)
-------------------------------------------------------------------------------------------------------------------
91,000 Gerber Scientific, Inc. 887,250
71,309 Mentor Graphics Corp. 1,345,957
-------------
2,233,207
Conglomerates (0.7%)
-------------------------------------------------------------------------------------------------------------------
238,201 GenCorp., Inc. 1,741,845
Consumer Goods (1.1%)
-------------------------------------------------------------------------------------------------------------------
36,605 AptarGroup, Inc. 853,354
37,500 Dial Corp. (The) 384,375
49,372 Lancaster Colony Corp. 1,138,642
37,467 Oneida, Ltd. 515,171
-------------
2,891,542
Distribution (0.6%)
-------------------------------------------------------------------------------------------------------------------
41,900 Performance Food Group Co. (NON) 1,555,538
Electric Utilities (0.5%)
-------------------------------------------------------------------------------------------------------------------
80,000 Sierra Pacific Resources 1,415,000
Electrical Equipment (2.4%)
-------------------------------------------------------------------------------------------------------------------
139,683 BE Aerospace, Inc. (NON) 2,261,119
32,600 BEI Technologies, Inc. 1,864,313
32,555 Lincoln Electric Holdings, Inc. 476,117
22,100 SLI, Inc. 212,713
82,600 Thomas & Betts Corp. 1,548,750
-------------
6,363,012
Electronics (7.3%)
-------------------------------------------------------------------------------------------------------------------
36,933 APW Limited (NON) 1,625,052
24,901 Avnet, Inc. 1,490,947
45,223 Belden, Inc. 1,181,451
396,264 General Cable Corp. 3,318,711
15,556 Kent Electronics Corp. (NON) 455,013
37,265 Littlelfuse, Inc. (NON) 1,353,185
30,600 Methode Electronics, Inc. 1,839,825
41,800 Park Electrochemical Corp. 1,679,838
128,136 Pioneer-Standard Electronics, Inc. 1,753,862
110,000 Recoton Corp. (NON) 1,560,625
13,000 S3, Inc. (NON) 153,563
22,400 Varian Medical Systems, Inc. (NON) 1,029,000
199,994 X-Rite, Inc. 1,924,942
-------------
19,366,014
Energy (3.1%)
-------------------------------------------------------------------------------------------------------------------
34,100 GulfMark Offshore, Inc. (NON) 818,400
25,275 Helmerich & Payne, Inc. 933,595
40,735 National-Oilwell, Inc. (NON) 1,412,995
104,757 Newpark Resources, Inc. (NON) 1,073,759
41,262 Pride International, Inc. (NON) 1,016,077
32,900 Spinnaker Exploration Co. (NON) 1,196,738
40,101 Tidewater, Inc. 1,619,078
-------------
8,070,642
Engineering & Construction (1.0%)
-------------------------------------------------------------------------------------------------------------------
45,200 Ameron International Corp. 1,525,500
30,105 Texas Industries, Inc. 1,027,333
-------------
2,552,833
Food (2.9%)
-------------------------------------------------------------------------------------------------------------------
43,600 American Italian Pasta Co. Class A (NON) 738,475
80,000 Earthgrains Co. (The) 1,410,000
138,755 International Multifoods Corp. 2,263,441
34,700 Michael Foods, Inc. 824,125
45,155 Smithfield Foods, Inc. (NON) 1,199,430
57,767 Universal Foods Corp. 1,184,224
-------------
7,619,695
Gaming & Lottery (0.3%)
-------------------------------------------------------------------------------------------------------------------
86,157 Dover Downs Entertainment, Inc. 866,955
Health Care Services (9.7%)
-------------------------------------------------------------------------------------------------------------------
84,341 AmeriSource Health Corp. Class A (NON) 2,930,850
79,300 Bindley Western Industries, Inc. 2,284,831
122,766 Conventry Health Care, Inc. (NON) 1,964,256
73,201 Invacare Corp. 1,971,852
47,200 Lincare Holdings, Inc. (NON) 1,203,600
156,421 Matria Healthcare, Inc. (NON) 586,579
247,110 Omnicare, Inc. 3,382,318
64,000 Orthodontic Centers of America, Inc. (NON) 2,096,000
120,733 Per-Se Technologies, Inc. (NON) 1,441,250
80,100 PSS World Medical, Inc. (NON) 500,625
104,903 Quorum Health Group, Inc. (NON) 1,350,626
33,478 Trigon Healthcare, Inc. (NON) 1,728,302
20,715 Universal Health Services, Inc. 1,465,586
219,147 US Oncology, Inc. (NON) 1,225,854
75,539 Vital Signs, Inc. 1,392,750
-------------
25,525,279
Homebuilding (0.5%)
-------------------------------------------------------------------------------------------------------------------
47,678 Lennar Corp. 1,317,105
Household Furniture and Appliances (0.3%)
-------------------------------------------------------------------------------------------------------------------
55,114 Applica, Inc. 571,808
16,100 Furniture Brands International, Inc. (NON) 259,613
-------------
831,421
Insurance (4.9%)
-------------------------------------------------------------------------------------------------------------------
62,933 Amerus Life Holdings, Inc. Class A 1,553,658
70,405 Berkley (W.R.) Corp. 1,865,733
36,100 Commerce Group, Inc. 938,600
99,126 Ehhance Financial Services Group, Inc. 1,561,235
68,805 FBL Financial Group, Inc. Class A 1,014,874
76,000 Fidelity National Financial, Inc. 1,515,250
197,526 Fremont General Corp. 629,614
64,800 Horace Mann Educators Corp. 988,200
102,650 Presidential Life Corp. 1,552,581
35,900 Stancorp Financial Group 1,436,000
-------------
13,055,745
Machinery (2.4%)
-------------------------------------------------------------------------------------------------------------------
175,135 DT Industries, Inc. 875,675
67,533 Gardner Denver, Inc. (NON) 983,449
29,796 JLK Direct Distribution, Inc. (NON) 208,572
85,900 Milacron, Inc. 1,326,081
73,200 MSC Industrial Direct Co., Inc. Class A (NON) 1,189,500
61,300 Regal-Beloit Corp. 1,057,425
56,105 Wabtex Corp. 582,089
-------------
6,222,791
Manufacturing (2.4%)
-------------------------------------------------------------------------------------------------------------------
27,500 Kaman Corp. 360,938
60,209 Klockner Windsor India, Ltd. (India) (NON) 391,359
46,000 Pentair, Inc. 1,495,000
43,705 Roper Industries, Inc. 1,414,949
23,600 Teleflex, Inc. 840,750
24,100 Tennant Co. 1,057,388
49,700 UCAR International, Inc. (NON) 677,163
-------------
6,237,547
Medical Services (0.2%)
-------------------------------------------------------------------------------------------------------------------
126,055 United Wisconsin Services 661,789
Medical Technology (4.1%)
-------------------------------------------------------------------------------------------------------------------
19,831 Arrow International, Inc. 706,479
13,143 Beckman Coulter, Inc. 1,000,511
29,600 Diagnostic Products Corp. 1,254,300
54,357 Haemonetics Corp. (NON) 1,369,117
95,868 Mentor Corp. 2,031,203
196,173 Meridian Diagnostics, Inc. 1,520,341
178,707 Owens & Minor, Inc. 2,736,451
7,400 Respironics, Inc. (NON) 140,138
-------------
10,758,540
Metals (1.6%)
-------------------------------------------------------------------------------------------------------------------
45,349 Carpenter Technology Corp. 1,473,843
59,000 Material Sciences Corp. (NON) 619,500
76,350 Quanex Corp. 1,426,791
39,657 Reliance Steel & Aluminum Co. 817,926
-------------
4,338,060
Office Equipment & Supplies (2.2%)
-------------------------------------------------------------------------------------------------------------------
52,400 Falcon Products, Inc. 510,900
36,368 HON INDUSTRIES, Inc. 979,663
110,849 Standard Register Co. (The) 1,420,253
151,233 Wallace Computer Services, Inc. 1,758,084
32,700 United Stationers, Inc. 1,060,706
-------------
5,729,606
Oil & Gas (2.1%)
-------------------------------------------------------------------------------------------------------------------
84,383 Basin Exploratin, Inc. (NON) 1,687,660
15,930 Devon Energy Corp. 932,901
20,400 Mitchell Energy & Development Corp. Class A 816,000
26,500 Newfield Exploration Co. (NON) 1,146,125
24,270 St. Mary Land & Exploration Co. 1,004,171
-------------
5,586,857
Paper & Forest Products (0.7%)
-------------------------------------------------------------------------------------------------------------------
51,402 Albany International Corp. 716,415
44,200 BWAY Corp. (NON) 262,438
50,505 Caraustar Industries, Inc. 779,671
-------------
1,758,524
Pharmaceuticals (0.3%)
-------------------------------------------------------------------------------------------------------------------
17,546 Cambrex Corp. 823,565
Photography/Imaging (0.9%)
-------------------------------------------------------------------------------------------------------------------
260,445 BMC Industries, Inc. 1,465,003
45,300 Imation Corp. (NON) 1,007,925
-------------
2,472,928
Publishing (0.8%)
-------------------------------------------------------------------------------------------------------------------
33,143 McClatchy Co. (The) 1,186,934
16,600 Media General, Inc. Class A 854,900
-------------
2,041,834
Real Estate (0.4%)
-------------------------------------------------------------------------------------------------------------------
45,252 LNR Property Corp. 961,605
Restaurants (0.8%)
-------------------------------------------------------------------------------------------------------------------
119,728 CBRL Group, Inc. 1,444,219
31,400 Papa Johns International, Inc. (NON) 710,425
-------------
2,154,644
Retail (5.9%)
-------------------------------------------------------------------------------------------------------------------
24,419 Aaron Rents, Inc. 335,761
245,137 Baker (J.), Inc. 1,225,685
39,200 Barnes & Noble, Inc. (NON) 678,650
111,600 Claire's Stores, Inc. 2,197,125
58,483 Coldwater Creek, Inc. (NON) 1,871,456
109,300 J. Jill Group, Inc. (NON) 1,011,025
29,400 Lands' End, Inc. (NON) 718,463
21,089 Petco Animal Supplies, Inc. (NON) 442,869
242,830 Pier 1 Imports, Inc. 2,853,253
84,470 Regis Corp. 1,335,682
83,600 Ruddick Corp. 1,024,100
121,368 United Natural Foods, Inc. (NON) 1,835,691
-------------
15,529,760
Semiconductor (0.5%)
-------------------------------------------------------------------------------------------------------------------
18,915 DuPont Photomasks, Inc. (NON) 1,435,176
Shipping (2.3%)
-------------------------------------------------------------------------------------------------------------------
55,900 Circle International Group, Inc. 2,001,919
83,200 Fritz Companies, Inc. (NON) 1,232,400
59,905 USFreightways Corp. 1,868,287
77,173 Wabash National Corp. 858,550
-------------
5,961,156
Software (1.4%)
-------------------------------------------------------------------------------------------------------------------
38,600 Autodesk, Inc. 1,085,625
50,800 Hyperion Solutions Corp. (NON) 1,606,550
68,300 JDA Software Group, Inc. (NON) 883,631
-------------
3,575,806
Technology Services (4.1%)
-------------------------------------------------------------------------------------------------------------------
95,766 Analysts International Corp. 796,055
62,500 CACI International, Inc. (NON) 1,406,250
90,900 Ciber, Inc. (NON) 937,406
212,910 Computer Task Group, Inc. 745,185
123,800 Davox Corp. (NON) 1,562,975
85,800 FileNET Corp. (NON) 1,651,650
48,600 Keane, Inc. (NON) 841,388
171,543 MTS Systems Corp. 1,082,865
85,661 Telxon Corp. 1,691,805
-------------
10,715,579
Telephone (0.3%)
-------------------------------------------------------------------------------------------------------------------
38,500 CT Communications, Inc. 933,625
Textiles (0.8%)
-------------------------------------------------------------------------------------------------------------------
65,200 Culp, Inc. 277,100
42,600 Interface Inc. 295,538
142,800 Wolverine World Wide, Inc. 1,561,875
-------------
2,134,513
Transaction Processing (0.6%)
-------------------------------------------------------------------------------------------------------------------
53,500 National Data Corp. 1,571,563
-------------
Total Common Stocks (cost $232,391,628) $ 255,349,348
<CAPTION>
SHORT-TERM INVESTMENTS (3.1%) (a) (cost $8,168,000)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 8,168,000 Interest in $850,000,000 joint repurchase agreement dated
August 31, 2000 with Morgan Stanley Dean Witter due
September 1, 2000 with respect to various U.S. Treasury
obligations -- maturity value of $8,169,502 for an
effective yield of 6.62% $ 8,168,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $240,559,628) (b) $ 263,517,348
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $263,835,066.
(b) The aggregate identified cost on a tax basis is $241,667,505,
resulting in gross unrealized appreciation and depreciation of
$45,064,289 and $23,214,446, respectively, or net unrealized
appreciation of $21,849,843.
(NON) Non-income-producing security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2000 (Unaudited)
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $240,559,628) (Note 1) $263,517,348
-------------------------------------------------------------------------------------------
Cash 136,007
-------------------------------------------------------------------------------------------
Dividends receivable 238,681
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,461,603
-------------------------------------------------------------------------------------------
Receivable for securities sold 1,778,853
-------------------------------------------------------------------------------------------
Total assets 267,132,492
Liabilities
-------------------------------------------------------------------------------------------
Payable for securities purchased 2,377,878
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 176,622
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 470,207
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 61,260
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 2,327
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 996
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 149,820
-------------------------------------------------------------------------------------------
Other accrued expenses 58,316
-------------------------------------------------------------------------------------------
Total liabilities 3,297,426
-------------------------------------------------------------------------------------------
Net assets $263,835,066
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $238,967,955
-------------------------------------------------------------------------------------------
Accumulated net investment loss (Note 1) (181,440)
-------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 2,090,831
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 22,957,720
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $263,835,066
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($148,751,211 divided by 13,517,642 shares) $11.00
-------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $11.00)* $11.67
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($96,577,135 divided by 8,856,286 shares)** $10.90
-------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($16,805,992 divided by 1,538,452 shares)** $10.92
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($1,700,728 divided by 154,781 shares) $10.99
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $10.99)* $11.39
-------------------------------------------------------------------------------------------
* 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
Six months ended August 31, 2000 (Unaudited)
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Dividends $ 1,366,663
-------------------------------------------------------------------------------------------
Interest 160,185
-------------------------------------------------------------------------------------------
Total investment income 1,526,848
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 838,650
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 193,035
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,959
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,005
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 148,784
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 391,391
-------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 60,996
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 2,224
-------------------------------------------------------------------------------------------
Other 89,792
-------------------------------------------------------------------------------------------
Total expenses 1,734,836
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (26,548)
-------------------------------------------------------------------------------------------
Net expenses 1,708,288
-------------------------------------------------------------------------------------------
Net investment loss (181,440)
-------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 2,163,411
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 18,441,696
-------------------------------------------------------------------------------------------
Net gain on investments 20,605,107
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $20,423,667
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the period
April 13, 1999
Six months (commencement
ended of operations)
August 31 to February 29,
2000* 2000
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment loss (181,440) (360,515)
--------------------------------------------------------------------------------------------------
Net realized gain on investments 2,163,411 702,286
--------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 18,441,696 4,516,024
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 20,423,667 4,857,795
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A -- (236,240)
--------------------------------------------------------------------------------------------------
Class B -- (160,533)
--------------------------------------------------------------------------------------------------
Class C -- (17,578)
--------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 92,382,914 144,586,041
--------------------------------------------------------------------------------------------------
Total increase in net assets 112,806,581 149,029,485
Net assets
--------------------------------------------------------------------------------------------------
Beginning of period (Note 5) 151,028,485 1,999,000
--------------------------------------------------------------------------------------------------
End of period (including accumulated net investment
loss of $181,440 and $--, respectively) $263,835,066 $151,028,485
--------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS A
-----------------------------------------------------------------
Six months
ended For the period
Per-share August 31 April 13, 1999+
operating performance (Unaudited) to February 29
-----------------------------------------------------------------
2000 2000
-----------------------------------------------------------------
Net asset value,
beginning of period $10.01 $8.50
-----------------------------------------------------------------
Investment operations
-----------------------------------------------------------------
Net investment income (loss)(c) .01 (.01)
-----------------------------------------------------------------
Net realized and unrealized
gain on investments .98 1.56
-----------------------------------------------------------------
Total from
investment operations .99 1.55
-----------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------
From net realized
gain on investments -- (.04)
-----------------------------------------------------------------
Total distributions -- (.04)
-----------------------------------------------------------------
Net asset value,
end of period $11.00 $10.01
-----------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------
Total return at
net asset value (%)(a) 9.89* 18.23*
-----------------------------------------------------------------
Net assets, end of period
(in thousands) $148,751 $83,845
-----------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .67* 1.38*
-----------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) .08* (.20)*
-----------------------------------------------------------------
Portfolio turnover (%) 17.16* 41.58*
-----------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(c) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS B
----------------------------------------------------------------
Six months
ended For the period
Per-share August 31 May 3, 1999+
operating performance (Unaudited) to February 29
----------------------------------------------------------------
2000 2000
----------------------------------------------------------------
Net asset value,
beginning of period $9.95 $9.35
----------------------------------------------------------------
Investment operations
----------------------------------------------------------------
Net investment loss (c) (.03) (.07)
----------------------------------------------------------------
Net realized and unrealized
gain on investments .98 .71
----------------------------------------------------------------
Total from
investment operations .95 .64
----------------------------------------------------------------
Less distributions:
----------------------------------------------------------------
From net realized
gain on investments -- (.04)
----------------------------------------------------------------
Total distributions -- (.04)
----------------------------------------------------------------
Net asset value,
end of period $10.90 $9.95
----------------------------------------------------------------
Ratios and supplemental data
----------------------------------------------------------------
Total return at
net asset value (%)(a) 9.55* 6.84*
----------------------------------------------------------------
Net assets, end of period
(in thousands) $96,577 $59,224
----------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.04* 1.91*
----------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.30)* (.81)*
----------------------------------------------------------------
Portfolio turnover (%) 17.16* 41.58*
----------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(c) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS C
-----------------------------------------------------------------
Six months
ended For the period
Per-share August 31 July 26, 1999+
operating performance (Unaudited) to February 29
-----------------------------------------------------------------
2000 2000
-----------------------------------------------------------------
Net asset value,
beginning of period $9.97 $10.23
-----------------------------------------------------------------
Investment operations
-----------------------------------------------------------------
Net investment loss (c) (.03) (.05)
-----------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments .98 (.17)
-----------------------------------------------------------------
Total from
investment operations .95 (.22)
-----------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------
From net realized
gain on investments -- (.04)
-----------------------------------------------------------------
Total distributions -- (.04)
-----------------------------------------------------------------
Net asset value,
end of period $10.92 $9.97
-----------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------
Total return at
net asset value (%)(a) 9.53* (2.16)*
-----------------------------------------------------------------
Net assets, end of period
(in thousands) $16,806 $7,960
-----------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.04* 1.38*
-----------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.29)* (.57)*
-----------------------------------------------------------------
Portfolio turnover (%) 17.16* 41.58*
-----------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(c) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS M
---------------------------------------------------
For the period
March 29, 2000+
Per-share to August 31
operating performance (Unaudited)
---------------------------------------------------
2000
---------------------------------------------------
Net asset value,
beginning of period $10.23
---------------------------------------------------
Investment operations
---------------------------------------------------
Net investment loss (c) (.01)
---------------------------------------------------
Net realized and unrealized
gain on investments .77
---------------------------------------------------
Total from
investment operations .76
---------------------------------------------------
Less distributions:
---------------------------------------------------
From net realized
gain on investments --
---------------------------------------------------
Total distributions --
---------------------------------------------------
Net asset value,
end of period $10.99
---------------------------------------------------
Ratios and supplemental data
---------------------------------------------------
Total return at
net asset value (%)(a) 7.43*
---------------------------------------------------
Net assets, end of period
(in thousands) $1,701
---------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 0.78*
---------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.11)*
---------------------------------------------------
Portfolio turnover (%) 17.16*
---------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(c) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
NOTES TO FINANCIAL STATEMENTS
August 31, 2000 (Unaudited)
Note 1
Significant accounting policies
Putnam Small Cap Value Fund (the "fund") is one of a series of Putnam
Investment Funds (the "trust") which is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The fund seeks capital appreciation by investing
primarily in common stocks of small companies which Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a
wholly-owned subsidiary of Putnam Investments, Inc. believes are
currently undervalued.
The fund offers class A, class B, class C and class M shares. The fund
began offering class M shares on March 29, 2000. 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 of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. 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 sales price on its principal 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. Other investments, including
restricted securities, are stated at fair value following procedures
approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Management. These balances may be invested in one or more
repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). 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. Non-cash dividends, if any, are
recorded at the fair market value of the securities received.
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 six months
ended August 31, 2000, 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. 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.
H) Expenses of the trust Expenses directly charged or attributable to
any fund will be paid from the assets of that fund. Generally, expenses
of the trust will be allocated among and charged to the assets of each
fund on a basis that the Trustees deem fair and equitable, which may be
based on the relative assets of each fund or the nature of the services
performed and relative applicability to each fund.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.80% of the
first $500 million of average net assets, 0.70% of the next $500
million, 0.65% of the next $500 million, 0.60% of the next $5 billion,
0.575% of the next $5 billion, 0.555% of the next $5 billion, 0.54% of
the next $5 billion and 0.53% 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 six months ended August 31, 2000, fund expenses were reduced by
$26,548 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 $601
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. 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 a 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 Retail Management, Inc., 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 Retail Management, Inc. 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 six months ended August 31, 2000, Putnam Retail Management,
Inc., acting as underwriter received net commissions of $111,015 and
$1,260 from the sale of class A and class M shares, respectively, and
received $65,672 and $3,030 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 six months ended August 31, 2000, Putnam Retail
Management, Inc., acting as underwriter received $126 on class A
redemptions.
Note 3
Purchases and sales of securities
During the six months ended August 31, 2000, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $118,492,739 and $33,208,482, respectively. There
were no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At August 31, 2000, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended August 31, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 6,633,904 $68,717,189
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
6,633,904 68,717,189
Shares
repurchased (1,495,350) (15,464,269)
---------------------------------------------------------------------------
Net increase 5,138,554 $53,252,920
---------------------------------------------------------------------------
For the period April 13, 1999
(commencement of operations) to
February 29, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 10,669,194 $103,159,610
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 25,137 229,502
---------------------------------------------------------------------------
10,694,331 103,389,112
Shares
repurchased (2,550,419) (24,422,329)
---------------------------------------------------------------------------
Net increase 8,143,912 $ 78,966,783
---------------------------------------------------------------------------
Six months ended August 31, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 3,888,810 $39,992,176
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
3,888,810 39,992,176
Shares
repurchased (981,849) (10,128,225)
---------------------------------------------------------------------------
Net increase 2,906,961 $29,863,951
---------------------------------------------------------------------------
For the period May 3, 1999
(commencement of operations) to
February 29, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 6,998,249 $67,914,848
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 16,219 147,594
---------------------------------------------------------------------------
7,014,468 68,062,442
Shares
repurchased (1,065,143) (10,063,380)
---------------------------------------------------------------------------
Net increase 5,949,325 $57,999,062
---------------------------------------------------------------------------
Six months ended August 31, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 813,788 $8,395,804
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
813,788 8,395,804
Shares
repurchased (73,490) (753,520)
---------------------------------------------------------------------------
Net increase 740,298 $7,642,284
---------------------------------------------------------------------------
For the period July 26, 1999
(commencement of operations) to
February 29, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 848,441 $8,095,191
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,634 14,881
---------------------------------------------------------------------------
850,075 8,110,072
Shares
repurchased (51,921) (489,876)
---------------------------------------------------------------------------
Net increase 798,154 $7,620,196
---------------------------------------------------------------------------
For the period March 29, 2000
(commencement of operations) to
August 31, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 197,239 $2,069,879
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
197,239 2,069,879
Shares
repurchased (42,458) (446,120)
---------------------------------------------------------------------------
Net increase 154,781 $1,623,759
---------------------------------------------------------------------------
Note 5
Initial capitalization and offering of shares
The trust was established as a Massachusetts business trust on October
31, 1994. During the period October 31, 1994 to April 13, 1999 the fund
had no operations other than those related to organizational matters,
including the initial capital contribution of $1,999,000 and the
issuance of 235,176 class A shares to Putnam Retail Management, Inc., a
wholly-owned subsidiary of Putnam Investments, Inc. on April 12, 1999.
Note 6
Change in independent accountants
(unaudited)
Based on the recommendation of the Audit Committee of the fund, the
Board of Trustees has determined not to retain PricewaterhouseCoopers
LLP as this funds' independent accountant and voted to appoint KPMG LLP
for the fund's fiscal year ended February 28, 2001. During the previous
fiscal year, 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 previous fiscal year and
through July 24, 2000, 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 year.
WELCOME TO WWW.PUTNAMINVESTMENTS.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
* the latest on new funds and other Putnam news
You can also read Putnam economist Dr. Robert Goodman's commentary and
Putnam's Capital Markets outlook, search for a particular fund by name
or objective, use our glossary to decode investment terms . . . and much
more.
The site can be accessed through any of the major online services
(America Online, CompuServe, Prodigy) that offer web access. Of course,
you can also 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.putnaminvestments.com
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
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Century Growth Fund
New Opportunities Fund
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Technology Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Fund
Balanced Retirement Fund
Classic Equity 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
International Growth and Income Fund
New Value Fund
Small Cap 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 Growth and Income Fund 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.putnaminvestments.com.
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
John A. Hill, 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, III
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
Stephen Oristaglio
Vice President
Deborah F. Kuenstner
Vice President
Edward T. Shadek, Jr.
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
This report is for the information of shareholders of Putnam Small Cap
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 and
Putnam's Quarterly Ranking 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.putnaminvestments.com.
Not FDIC Insured, May Lose Value, No Bank Guarantee
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
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U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
SA069-64661 2MF 10/00
