Putnam
Mid Cap
Value
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-00
[SCALE LOGO OMITTED]
FROM THE CHAIRMAN
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
It is my pleasure to present shareholders with the first annual report
for Putnam Mid Cap Value Fund, which began its abbreviated fiscal year
on November 1, 1999. This new investment vehicle provides exposure to
mid-capitalization stocks in the value sector of the equity market.
Operating in a classic value style, your fund seeks to take advantage of
bargains in the marketplace that result from short-term weaknesses of
high-quality companies.
Total return for period ended 4/30/00*
Net asset value Public offering price
-------------------------------------------------------------
9.38% 3.07%
-------------------------------------------------------------
* Since inception on 11/1/99.
Past performance is not indicative of future results. Performance
information for other periods begins on page 7.
* FUND TARGETS STOCKS IN MID-CAP RANGE
For much of the period since the fund's inception, investors favored the
growth style of investing over the value style. Traditional measures of
stock valuation were widely disregarded as investors set their sights on
future, not current earnings. A severe market correction in early March
shook investors awake as prized technology holdings lost much of their
value in a few short weeks. Perhaps as a result of that painful lesson,
investors began to exhibit a renewed -- and Fund Manager Thomas J. Hoey
thinks overly zealous -- interest in quarterly earnings reports, which,
at best, are a short-term gauge of a company's progress. This short-term
orientation contributed to volatility and inefficiency in the markets
and created more opportunities for your fund to purchase quality stocks
at discounted prices. Not surprisingly, the value investing strategy has
performed better since the market correction in early March, and your
fund's performance reflects that improvement.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Electric
utilities 8.7%
Banking 8.2%
Insurance 4.8%
Technology
services 4.7%
Chemicals 4.4%
Footnote reads:
*Based on net assets as of 4/30/00. Holdings will vary over time.
Currently, the market caps of your fund's holdings range between
approximately $1 billion and $12 billion. Investing in these mid-cap
stocks affords a subtle advantage over large-cap investing. Wall Street
analysts prefer to monitor the stocks of large companies, and
consequently they pay relatively less attention to the mid-cap universe.
This contributes to market inefficiencies that can lead to mispriced
stocks, enhancing the possibility of finding bargains.
The fund targets stocks of strong companies that either have temporary
problems or are in industries that are temporarily out of favor.
Additionally, Tom requires portfolio candidates to possess strong
management, good fundamentals, and an intriguing story that suggests
some sort of positive change that will lift valuations over time.
Catalysts for change can include restructuring, introduction of
successful new products, streamlining operations to cut costs, new
management, and acquisitions. He will sell a stock when he believes its
price has appreciated to a fair valuation.
* PATIENCE IS KEY ELEMENT IN FUND'S INVESTMENT STRATEGY
Generally, Tom will buy a stock on weakness, when its share price is
falling perhaps because of some bit of bad news from the company, such
as a failure to meet a quarterly earnings estimate or a delay in
bringing a product to market. Often waiting just a little longer to buy
a stock will reward the fund with a lower purchase price. Once the stock
is in the portfolio, patience is again called for while waiting for the
positive change that can lift the stock's share price to what Tom
considers its fair value. Typically stocks are held from 6 to 18 months,
with a majority being held over 12 months before reaching their price
targets. Accordingly, investors should understand that this fund is most
appropriate for those with long-term investment horizons.
* FINANCIALS, CAPITAL GOODS, UTILITIES FIGURE PROMINENTLY IN PORTFOLIO
Your fund is invested in a broad array of sectors. Since the fund's
inception, its manager has emphasized financial services, capital goods,
and utilities. All three sectors are interest-rate sensitive and have
experienced price weakness as a result of rate increases during the
period. Nevertheless, many companies within those industries have
healthy operating leverage, sound internal economics, and plenty of free
cash flow.
Many of your fund's holdings have dominant positions within their
markets. One key holding in the financial sector is Wachovia Corp. It is
considered a large-cap stock but came into the fund's target universe
because banks were out of favor. It has a strong credit culture, has
good financial ratios, and has performed well. PNC Financial Services
Group is another good example of a high-quality company available only
occasionally to value investors. It is a diversified financial services
organization offering retail banking, asset management and other
wholesale banking operations. The company is shifting its focus from
lending to fee-based services.
Two noteworthy holdings in the capital goods sector are Johnson
Controls, Inc., and Parker-Hannifin Corporation. Johnson Controls is one
of the foremost suppliers to the auto industry, providing automobile
batteries and interior seating systems. A projected slowdown in
automobile sales has affected the stock price for Johnson Controls,
bringing it into value territory. Parker-Hannifin makes motion control
products such as fluid power systems and electromechanical controls used
in a variety of industries, including manufacturing, transportation, and
processing. Both Johnson Controls and Parker-Hannifin have exceptionally
strong market shares and excellent returns on equity and yet are
burdened by rising interest rates and concerns over a possible
recession.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Northrup Grumman Corp.
Aerospace/defense
Comerica, Inc.
Banking
Keane, Inc.
Technology services
Unocal Corp.
Oil and gas
Marriott International, Inc.
Lodging/tourism
McGraw-Hill, Inc.
Publishing
Avnet, Inc.
Electronics
Tosco Corp.
Oil and gas
MGIC Investment Corp.
Financial
Biomet, Inc.
Medical technology
Footnote reads:
These holdings represent 13.1% of the fund's net assets as of 4/30/00.
Portfolio holdings will vary over time.
With few exceptions, the utilities sector as a whole has been bitten by
rising interest rates. Valuations for utility stocks are currently near
10-year lows, and yet consolidation and deregulation within the industry
are transforming this traditionally staid sector to one with more
interesting possibilities. Consolidated Edison, Inc. and Carolina Power
and Light Company are two examples of blue-chip holdings that your
fund's manager expects will contribute positively to fund performance
when the market finds favor with utilities.
Tom has taken advantage of opportunities to participate in the
technology boom without paying inflated prices for technology stocks.
Arrow Electronics, Inc., and Avnet, Inc., are the world's largest and
second largest distributors of electronic components and computer
products. In a sense, they are like toll booths through which all such
components must pass on their way to world markets. Both are solid
companies that have simply been overlooked by investors seeking more
exciting technology stocks. While these stocks as well as others
mentioned in this report were viewed favorably at the end of the period,
all are subject to review and adjustment in accordance with your fund's
investment strategy and may vary in the future.
* POSITIVE LONG-TERM OUTLOOK FOR VALUE STRATEGY
As your fund enters its first full fiscal year, Tom believes there is
good reason to be optimistic about value investing. In light of recent
indications of inflationary pressure, he expects that the Federal
Reserve Board will adjust interest rates higher in the near term. This
will begin to affect capital spending for technology, which has been
slow to react to rising rates. He also believes the market trend that
supports excessively high valuations for growth stocks is unsustainable
and ultimately will result in a reversion to the mean. Should the market
experience a shift in investor sentiment toward value, as he expects it
will, he believes your fund is well positioned to provide positive
returns for the benefit of investors with long-term investment horizons.
* UPCOMING TRANSITION
This is my sole letter to you and other Putnam Mid Cap Value Fund
shareholders. After more than 30 years as Chairman of the Trustees and
President of the Putnam Funds, the time has come for me to step aside.
As of July 1, 2000, John Hill will become Chairman. John is currently an
independent Trustee and has served on the Board for the past 14 years.
In addition, my son, George Putnam, III, will take on the role of
President. I am confident that the leadership of the funds will be in
exceptionally strong hands. I will become Chairman Emeritus, remain a
shareholder, and stay in close touch with the funds.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 21, 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 4/30/00, there is no guarantee the fund will
continue to hold these securities in the future. This fund invests all
or a portion of its assets in 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
Mid Cap Value Fund seeks capital appreciation by investing in
mid-capitalization stocks similar to those in the Russell Midcap Index.
TOTAL RETURN FOR PERIODS ENDED 4/30/00
Russell Russell
Midcap Midcap Consumer
NAV POP Index Value Index price index
---------------------------------------------------------------------
Life of fund
(since 11/1/99) 9.38% 3.07% 17.38% 2.22% 1.84%
---------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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 PERIOD ENDED 4/30/00
-------------------------------------------------------------
Distributions (number) 2
-------------------------------------------------------------
Income $0.0530
-------------------------------------------------------------
Capital gains --
-------------------------------------------------------------
Total $0.0530
-------------------------------------------------------------
Share value: NAV POP
-------------------------------------------------------------
11/1/99 $8.50 $9.02
-------------------------------------------------------------
4/30/00 9.24 9.80
-------------------------------------------------------------
TOTAL RETURN FOR PERIOD ENDED 3/31/00 (most recent calendar quarter)
NAV POP
-------------------------------------------------------------
Life of fund
(since 11/1/99) 5.82% -0.28%
-------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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 11/1/99
Russell
Russell Midcap
Fund's class A Midcap Value Consumer price
shares at POP Index Index index
11/1/99 9,423 10,000 10,000 10,000
11/30/99 9,390 10,288 9,817 10,018
12/31/99 9,988 11,193 10,080 10,042
1/31/2000 9,320 10,822 9,477 10,059
2/29/2000 8,753 11,654 90,80 10,113
3/31/2000 9,972 12,322 10,181 10,184
4/30/2000 $10,307 $11,738 $10,222 $10,184
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 for class A
shares.
COMPARATIVE BENCHMARKS
Russell Midcap [REGISTRATION MARK] Index* measures the performance of the
800 smallest companies in the Russell 1000 Index, which represent approximately
26% of the total market capitalization of the Russell 1000 Index.
Russell Midcap [REGISTRATION MARK] Value Index* measures the performance of
those Russell Midcap companies with lower price-to-book ratios and lower
forecasted growth rates. The stocks are also members of the Russell 1000
Value Index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*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, 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
The Board of Trustees of Putnam Investment Funds and
Shareholders of Putnam Mid Cap Value Fund
We have audited the accompanying statement of assets and liabilities of
Putnam Mid Cap Value Fund, including the fund's portfolio, as of April
30, 2000, and the related statement of operations, statement of changes
in net assets and financial highlights for the period from November 1,
1999 (commencement of operations) to April 30, 2000. 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.
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 April 30, 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 Mid Cap Value Fund as of April 30, 2000,
the results of its operations, changes in its net assets and financial
highlights for the period from November 1, 1999 (commencement of
operations) to April 30, 2000, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Boston, Massachusetts
June 1, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
April 30, 2000
COMMON STOCKS (98.2%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C> <C>
Aerospace/Defense (3.7%)
----------------------------------------------------------------------------------------------------------------------------
700 General Dynamics Corp. $ 40,950
1,500 Lockheed Martin Corp. 37,313
900 Northrop Grumman Corp. 63,807
----------------
142,070
Airlines (1.6%)
----------------------------------------------------------------------------------------------------------------------------
600 Delta Air Lines, Inc. 31,650
500 UAL Corp. (NON) 28,938
----------------
60,588
Automotive (1.8%)
----------------------------------------------------------------------------------------------------------------------------
1,300 Dana Corp. 39,488
1,200 Genuine Parts Co. 31,500
----------------
70,988
Banking (8.2%)
----------------------------------------------------------------------------------------------------------------------------
2,000 Charter One Financial, Inc. 40,625
1,000 City National Corp. 36,813
1,400 Comerica, Inc. 59,325
1,200 Cullen/Frost Bankers, Inc. 29,625
1,000 Golden West Financial Corp. 34,125
50 M & T Bank Corp. 21,963
800 PNC Financial Services Group 34,900
500 Wachovia Corp. 31,344
600 Wilmington Trust Corp. 27,675
----------------
316,395
Beverage (0.7%)
----------------------------------------------------------------------------------------------------------------------------
1,100 Fortune Brands, Inc. 27,500
Building Materials (0.9%)
----------------------------------------------------------------------------------------------------------------------------
600 Southdown, Inc. 34,875
Chemicals (4.4%)
----------------------------------------------------------------------------------------------------------------------------
800 Eastman Chemical Co. 41,850
500 FMC Corp. (NON) 29,094
1,000 Great Lakes Chemical Corp. 26,938
600 PPG Industries, Inc. 32,625
900 Praxair, Inc. 39,994
----------------
170,501
Commercial and Consumer Services (2.6%)
----------------------------------------------------------------------------------------------------------------------------
1,300 Dun & Bradstreet Corp. 39,163
900 Manpower, Inc. 31,781
1,400 R. R. Donnelley & Sons Co. 29,750
----------------
100,694
Computers (2.5%)
----------------------------------------------------------------------------------------------------------------------------
1,900 Ceridian Corp. (NON) 41,206
600 NCR Corp. (NON) 23,175
800 Synopsys, Inc. (NON) 33,600
----------------
97,981
Consumer Finance (0.9%)
----------------------------------------------------------------------------------------------------------------------------
1,200 Countrywide Credit Industries, Inc. 33,150
Consumer Goods (1.1%)
----------------------------------------------------------------------------------------------------------------------------
1,100 Clorox Co. 40,425
Containers and Packaging (0.7%)
----------------------------------------------------------------------------------------------------------------------------
2,000 Owens-Illinois, Inc. (NON) 27,000
Electric Utilities (8.7%)
----------------------------------------------------------------------------------------------------------------------------
700 Ameren Corp. 25,681
1,000 Carolina Power & Light Co. 36,563
1,200 CiNergy Corp. 32,100
1,000 Consolidated Edison, Inc. 35,188
1,000 Constellation Energy Group 33,063
1,600 Entergy Corp. 40,700
700 FPL Group, Inc. 31,631
800 GPU, Inc. 22,450
1,200 Pinnacle West Capital Corp. 42,150
1,000 Texas Utilities Co. 33,688
----------------
333,214
Electrical Equipment (1.6%)
----------------------------------------------------------------------------------------------------------------------------
1,200 Hubbell, Inc. Class B 31,275
800 Rockwell International Corp. 31,500
----------------
62,775
Electronics (3.1%)
----------------------------------------------------------------------------------------------------------------------------
800 Arrow Electronics, Inc. (NON) 35,050
600 Avnet, Inc. 47,175
900 Dallas Semiconductor Corp. 38,644
----------------
120,869
Energy (2.7%)
----------------------------------------------------------------------------------------------------------------------------
900 Diamond Offshore Drilling, Inc. 36,281
1,200 Tidewater, Inc. 35,700
700 Transocean Sedco Forex, Inc. 32,900
----------------
104,881
Engineering & Construction (0.9%)
----------------------------------------------------------------------------------------------------------------------------
1,000 Fluor Corp. 33,563
Financial (1.8%)
----------------------------------------------------------------------------------------------------------------------------
900 MGIC Investment Corp. 43,031
900 SLM Holding Corp. 28,181
----------------
71,212
Food (2.2%)
----------------------------------------------------------------------------------------------------------------------------
800 Hershey Foods Corp. 36,300
700 International Flavors & Fragrances, Inc. 24,106
400 The Quaker Oats Co. 26,075
----------------
86,481
Gaming & Lottery (0.6%)
----------------------------------------------------------------------------------------------------------------------------
1,000 International Game Technology (NON) 24,375
Health Care Services (2.7%)
----------------------------------------------------------------------------------------------------------------------------
700 Cardinal Health, Inc. 38,544
1,200 Lincare Holdings, Inc. (NON) 36,600
400 Wellpoint Health Networks, Inc. (NON) 29,500
----------------
104,644
Homebuilding (0.8%)
----------------------------------------------------------------------------------------------------------------------------
1,200 Centex Corp. 28,950
Insurance (4.8%)
----------------------------------------------------------------------------------------------------------------------------
1,500 AON Corp. 40,594
1,200 Lincoln National Corp. 41,775
700 MBIA, Inc. 34,606
600 The Chubb Corp. 38,175
1,200 Torchmark Corp. 30,075
----------------
185,225
Investment Banking/Brokerage (1.6%)
----------------------------------------------------------------------------------------------------------------------------
700 Bear Stearns Companies, Inc. 30,013
700 Paine Webber Group, Inc. 30,713
----------------
60,726
Lodging/Tourism (1.2%)
----------------------------------------------------------------------------------------------------------------------------
1,500 Marriott International, Inc. Class A 48,000
Machinery (1.6%)
----------------------------------------------------------------------------------------------------------------------------
700 Ingersoll-Rand Co. 32,856
600 Parker-Hannifin Corp. 27,900
----------------
60,756
Manufacturing (1.0%)
----------------------------------------------------------------------------------------------------------------------------
1,000 Pentair, Inc. 38,250
Medical Technology (2.8%)
----------------------------------------------------------------------------------------------------------------------------
500 Bausch & Lomb, Inc. 30,188
1,300 Becton, Dickinson and Co. 33,313
1,200 Biomet, Inc. 42,825
----------------
106,326
Metals (1.7%)
----------------------------------------------------------------------------------------------------------------------------
1,400 Newmont Mining Corp. 32,813
700 Phelps Dodge Corp. 32,375
----------------
65,188
Natural Gas Utilities (0.9%)
----------------------------------------------------------------------------------------------------------------------------
1,000 NICOR, Inc. 33,875
Office Equipment & Supplies (1.8%)
----------------------------------------------------------------------------------------------------------------------------
1,400 Herman Miller, Inc. 38,325
1,200 Hon Industries, Inc. 29,925
----------------
68,250
Oil & Gas (4.1%)
----------------------------------------------------------------------------------------------------------------------------
900 Burlington Resources, Inc. 35,381
1,400 Tosco Corp. 44,888
1,500 Unocal Corp. 48,469
1,300 USX-Marathon Group, Inc. 30,306
----------------
159,044
Paper & Forest Products (2.4%)
----------------------------------------------------------------------------------------------------------------------------
600 Bowater, Inc. 33,000
900 Mead Corp. 31,331
700 Willamette Industries, Inc. 26,731
----------------
91,062
Pharmaceuticals (1.5%)
----------------------------------------------------------------------------------------------------------------------------
700 Alza Corp. (NON) 30,844
900 Mylan Laboratories, Inc. 25,538
----------------
56,382
Publishing (2.9%)
----------------------------------------------------------------------------------------------------------------------------
700 Knight-Ridder, Inc. 34,344
900 McGraw-Hill, Inc. 47,250
600 Media General, Inc. Class A 29,513
----------------
111,107
Railroads (0.7%)
----------------------------------------------------------------------------------------------------------------------------
800 GATX Corp. 28,600
Real Estate (2.3%)
----------------------------------------------------------------------------------------------------------------------------
800 Boston Properties, Inc. (R) 27,900
600 Equity Residential Properties Trust (R) 27,300
800 Kimco Realty Corp. (R) 31,850
----------------
87,050
Retail (3.3%)
----------------------------------------------------------------------------------------------------------------------------
800 Federated Department Stores, Inc. (NON) 27,200
700 Payless Shoesource, Inc. (NON) 38,588
1,200 Supervalu, Inc. 24,825
1,800 TJX Cos., Inc. 34,538
----------------
125,151
Shipping (0.7%)
----------------------------------------------------------------------------------------------------------------------------
1,000 CNF Transportation, Inc. 27,938
Technology Services (4.7%)
----------------------------------------------------------------------------------------------------------------------------
1,200 Affiliated Computer Services, Inc. Class A (NON) 39,750
500 Computer Sciences Corp. (NON) 40,781
2,000 Keane, Inc. (NON) 57,750
800 National Computer Systems, Inc. 41,150
----------------
179,431
Textiles (0.7%)
----------------------------------------------------------------------------------------------------------------------------
600 Liz Claiborne, Inc. 27,788
Tobacco (0.6%)
----------------------------------------------------------------------------------------------------------------------------
1,500 UST, Inc. 22,500
Toys (1.7%)
----------------------------------------------------------------------------------------------------------------------------
2,100 Hasbro, Inc. 33,469
2,000 Toys R Us (NON) 30,500
----------------
63,969
Trucks & Parts (1.0%)
----------------------------------------------------------------------------------------------------------------------------
600 Johnson Controls, Inc. 37,988
----------------
Total Common Stocks (cost $3,675,585) $ 3,777,737
SHORT-TERM INVESTMENTS (3.5%) (a) (cost $134,000)
PRINCIPAL AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------
$134,000 Interest in $662,705,000 joint repurchase agreement
dated April 28, 2000 with S.B.C. Warburg, Inc.
due May 1, 2000 with respect to various U.S. Treasury
obligations -- maturity value of$ 134,064 for an
effective yield of 5.71% $ 134,000
----------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,809,585) (b) $ 3,911,737
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Percentages indicated are based on net assets of $3,845,772.
(b) The aggregate identified cost on a tax basis is $3,809,524,
resulting in gross unrealized appreciation and depreciation of $338,609
and $236,396, respectively, or net unrealized appreciation of $102,213.
(NON) Non-income-producing security.
(R) Real Estate Investment Trust.
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2000
<S> <C>
Assets
----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,809,585) (Note 1) $3,911,737
----------------------------------------------------------------------------------------------
Cash 199
----------------------------------------------------------------------------------------------
Dividends and interest receivable 3,843
----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 25
----------------------------------------------------------------------------------------------
Receivable for securities sold 48,745
----------------------------------------------------------------------------------------------
Receivable from Manager (Note 2) 6,610
----------------------------------------------------------------------------------------------
Total assets 3,971,159
Liabilities
----------------------------------------------------------------------------------------------
Payable for securities purchased 113,301
----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 587
----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 203
----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4
----------------------------------------------------------------------------------------------
Other accrued expenses 11,292
----------------------------------------------------------------------------------------------
Total liabilities 125,387
----------------------------------------------------------------------------------------------
Net assets $3,845,772
Represented by
----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1,4 and 5) $3,549,905
----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 243
----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 193,472
----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 102,152
----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,845,772
Computation of net asset value and offering price
----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($3,845,772 divided by 416,276 shares) $9.24
----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $9.24)* $9.80
----------------------------------------------------------------------------------------------
* 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
For the period November 1, 1999 (commencement of operations) to April 30, 2000
<S> <C>
Investment income:
----------------------------------------------------------------------------------------------
Dividends $ 32,892
----------------------------------------------------------------------------------------------
Interest 924
----------------------------------------------------------------------------------------------
Total investment income 33,816
Expenses:
----------------------------------------------------------------------------------------------
Compensation of manager (Note 2) 11,003
----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,338
----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 879
----------------------------------------------------------------------------------------------
Administrative services (Note 2) 23
----------------------------------------------------------------------------------------------
Reports to shareholders 3,529
----------------------------------------------------------------------------------------------
Registration fees 145
----------------------------------------------------------------------------------------------
Auditing 6,251
----------------------------------------------------------------------------------------------
Legal 2,400
----------------------------------------------------------------------------------------------
Other 95
----------------------------------------------------------------------------------------------
Fees waived and reimbursed by manager (Note 2) (11,003)
----------------------------------------------------------------------------------------------
Total expenses 15,660
----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,422)
----------------------------------------------------------------------------------------------
Net expenses 14,238
----------------------------------------------------------------------------------------------
Net investment income 19,578
----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 193,472
----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 102,152
----------------------------------------------------------------------------------------------
Net gain on investments 295,624
----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $315,202
----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the period November 1, 1999
(commencement of operations)
to April 30, 2000
-------------------------------------------------------------------------------------------------------
<S> <C>
Increase in net assets
-------------------------------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------------------------------
Net investment income $ 19,578
-------------------------------------------------------------------------------------------------------
Net realized gain on investments 193,472
-------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 102,152
-------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 315,202
-------------------------------------------------------------------------------------------------------
Distributions to shareholders:
-------------------------------------------------------------------------------------------------------
From net investment income (19,335)
-------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 549,905
-------------------------------------------------------------------------------------------------------
Total increase in net assets 845,772
Net assets
-------------------------------------------------------------------------------------------------------
Beginning of period (Note 5) 3,000,000
-------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of $243) $3,845,772
-------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
-----------------------------------------------
For the period
Per-share November 1, 1999+
operating performance to April 30
-----------------------------------------------
2000
-----------------------------------------------
Net asset value,
beginning of period $8.50
-----------------------------------------------
Investment operations
-----------------------------------------------
Net investment income (a)(d) .05
-----------------------------------------------
Net realized and unrealized
gain on investments .74
-----------------------------------------------
Total from
investment operations .79
-----------------------------------------------
Less distributions:
-----------------------------------------------
From net
investment income (.05)
-----------------------------------------------
Net asset value,
end of period $9.24
-----------------------------------------------
Ratios and supplemental data
-----------------------------------------------
Total return at
net asset value (%)(b) 9.38*
-----------------------------------------------
Net assets, end of period
(in thousands) $3,846
-----------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .50*
-----------------------------------------------
Ratio of net investment income
to average net assets (%)(d) .62*
-----------------------------------------------
Portfolio turnover (%) 48.32*
-----------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (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 April 30, 2000 reflect a reduction of $.03 per share.
NOTES TO FINANCIAL STATEMENTS
April 30, 2000
Note 1
Significant accounting policies
Putnam Mid 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 midsize 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 seeks current income as a secondary
objective.
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 and 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.
E) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the period ended
April 30, 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. These differences include temporary differences of
nontaxable dividends and organization expenses. Reclassifications are
made to the fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers) under
income tax regulations. For the period ended April 30, 2000, the fund
required no such reclassifications.
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: 0.70% 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, and 0.43% 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 and extraordinary expense, credits from Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. and
payments under the Trust's distribution plan) would exceed an annual
rate of 1.00% of the fund's average net assets.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by 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 period ended April 30, 2000, fund expenses were reduced by
$1,422 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 $100
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 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 Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments, Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plan provides for payment by
the fund to Putnam Mutual Funds Corp. at an annual rate of up to 0.35%
of the fund's average net assets. Currently, no payments are being made
on the plan.
For the period ended April 30, 2000, Putnam Mutual Funds Corp., acting
as underwriter received no net commissions from the sale of shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
shares. For the period ended April 30, 2000, Putnam Mutual Funds Corp.,
acting as underwriter received no monies on redemptions.
Note 3
Purchases and sales of securities
During the period ended April 30, 2000, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $5,008,610 and $1,526,497, respectively. There were no
purchases and sales of U.S. government obligations.
Note 4
Capital shares
At April 30, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
For the period November 1, 1999
(commencement of operations)
to April 30, 2000
--------------------------------------------------------------------------
Class A Shares Amount
--------------------------------------------------------------------------
Shares sold 63,199 $548,188
--------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,269 19,335
--------------------------------------------------------------------------
65,468 567,523
Shares
repurchased (2,133) (17,618)
--------------------------------------------------------------------------
Net increase 63,335 $549,905
--------------------------------------------------------------------------
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 November 1, 1999, the
fund had no operations other than those related to organizational
matters, including the initial capital contribution of $3,000,000 and
the issuance of 352,941 shares to Putnam Mutual Funds Corp., a
wholly-owned subsidiary of Putnam Investments, Inc. on October 29, 1999.
At April 30, 2000, Putnam Investments, Inc. owned 375,383 shares of the
fund (90.2% of shares outstanding), valued at $3,468,539.
FEDERAL TAX INFORMATION
(Unaudited)
The fund has designated 15.22% 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.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
KPMG LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Thomas J. Hoey
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 Mid 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. For more
information or to request a prospectus, call toll free: 1-800-225-1581.
You can also learn more at Putnam Investments' Web site: www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board,
or any other agency; and involve risk, including the possible loss of
the principal amount invested.
61440 20V 6/00
Putnam
Worldwide
Equity Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-00
[SCALE LOGO OMITTED]
FROM THE CHAIRMAN
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[COPYRIGHT] Karsh, Ottawa
Dear Shareholder:
Aggressive growth investing is designed to capitalize on cutting-edge
companies, those that are achieving the highest rates of growth and
causing seismic shifts in their industries. By nature, these stocks are
not docile creatures. Because it invests in such stocks, Putnam
Worldwide Equity Fund can experience significant ups and downs. In
addition to targeting aggressive stocks, it carries a global mandate and
invests in many international stocks which are younger, smaller, and
less liquid than their U.S. counterparts.
In the first half of the fund's semiannual period, which concluded April
30, 2000, performance reflected all of the above-mentioned conditions.
After flourishing early in the period, your fund was subject to a sharp
downturn for growth stocks in the closing months of the period.
Nevertheless, for the period as a whole it achieved an excellent
absolute return.
Total return for 6 months ended 4/30/00
Net asset value Public offering price
--------------------------------------
60.54% 51.28%
--------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods begins on page 7.
* GROWTH STOCKS RALLY, THEN RETREAT
I am pleased to announce the appointment of Robert J. Swift to your
fund's management team. Robert is chief investment officer of the
International team within the Global Growth Equities Group. Before
joining Putnam in 1995, he was with IAI International/Hill Samuel in
London and Pring Dean in Sydney, Australia. He has 18 years of
investment experience.
[GRAPHIC OMITTED: horizontal bar chart TOP COUNTRY ALLOCATIONS]
TOP COUNTRY ALLOCATIONS*
United States 56.4%
Germany 6.9%
United Kingdom 6.6%
France 4.7%
Australia 4.5%
Footnote reads:
*Based on net assets as of 4/30/00. Holdings will vary over time.
Robert joins Stephen Dexter and Roland Gillis on your fund's management
team. Roland selects the U.S. holdings, Stephen specializes in
international small companies, and Robert focuses on larger growth
companies in international markets. The team selects stocks using a
rigorous fundamental research process, analyzing each company's business
model, balance sheets, and management quality. The fund managers compare
companies across national boundaries, but forego top-down methods that
seek to optimize country or sector weightings.
The majority of stocks that met the team's investment criteria during
the past six months were clustered in the technology,
telecommunications, and media sectors, resulting in large sector
concentrations for the portfolio. These industries are unleashing
tremendous changes for businesses and consumers. Companies in these
industries are spending large amounts to establish brand recognition,
which is providing a windfall to advertising, media, broadcasting, and
cable companies.
Examples of fund holdings in these sectors include VERITAS Software and
Redback Networks, both of the United States. VERITAS is the market
leader in storage software used in backing up corporate networks.
Redback supplies highly sophisticated telecommunication network
equipment to businesses for carrying voice and data transmissions. The
fund also owns AAPT, the third largest telephone company in Australia.
AAPT has a strong balance sheet and is rapidly stealing market share
from its largest competitor, Telstra. A technology holding outside the
computer industry is Vestas Wind Systems of Denmark, which makes
advanced wind-powered electrical generating equipment. European nations
want to develop clean, efficient energy sources, and are giving their
utilities companies tax incentives to buy the type of systems that
Vestas makes.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Brocade Communications Systems
United States
Communications equipment
VERITAS Software Corp.
United States
Software
Juniper Networks, Inc.
United States
Communications equipment
Vestas Wind Systems AS
Denmark
Electrical equipment
C-MAC Industries, Inc.
Canada
Electronics
VeriSign, Inc.
United States
Computers
Finisar Corp.
United States
Communications equipment
Autonomy Corp. Plc
United Kingdom
Technology
Radio One, Inc.
United States
Broadcasting
Metromedia Fiber Network, Inc. Class A
United States
Telecommunications
Footnote reads:
These holdings represent 13.8% of the fund's net assets as of 4/30/00.
Portfolio holdings will vary over time.
These were among the many stocks that drove the fund's performance in
1999 and early 2000, as enthusiasm for small- and mid-cap growth stocks
gathered pace worldwide. This represented a historic change for
international markets; for years, small caps had been undervalued
relative to large companies. The strongest returns occurred in the final
months of the year, the early stage of the fund's semiannual period, as
investors who had stayed on the sidelines joined the buying. The leading
markets were Japan and the United States.
Enthusiasm gave way to pessimism in March and April as markets finally
reacted to the determination of the U.S. Federal Reserve Board to slow
the economy by raising interest rates. The markets had dismissed Fed
actions for months, but small upticks in certain inflation indicators,
such as the Consumer Price Index and employment cost index, during March
and April shook the psychology of the markets. As happens periodically
in aggressive growth investing, the darlings of the markets quickly
became despised as investors shifted money into more defensive stocks --
larger companies with more predictable earnings, resulting in a sharp
decline for your portfolio.
* FUND REMAINS POSITIONED IN BUSINESSES PERFORMING WELL
Your fund managers have an experienced perspective on these market
movements and recognize that short-term, month-to-month results reflect
emotions and psychology more than fundamental conditions. Holdings in
the fund continue to achieve excellent operational results and the
global economy is in its best condition in years. For most of the
companies the fund owns, the current levels of U.S. economic growth and
interest rates are immaterial. These companies are facing long-term
demand for their products and services and have little debt, because
most of their capital is supplied through equity markets.
It is also important to remember that despite the fund's sector
concentrations it remains a diversified stock-pickers' fund, one that is
focused on identifying strong businesses and avoiding companies with
little chance of achieving profitability. For example, two fund holdings
are thriving by bringing professional management and economies of scale
to formerly fragmented industries. Radio One Inc. in the United States
has grown by acquiring radio stations specializing in African American
programming in the top 25 urban markets and is generating greater cash
flow from them. In a similar fashion, a German company called Kamps is
introducing professional management and economies of scale to the German
bakery industry as it acquires mom-and-pop operations that have
traditionally dominated that market. Kamps' market share is growing
rapidly as it succeeds in driving competitors out of business.
As we look ahead to the balance of the fund's fiscal year, we anticipate
that volatility will continue until market psychology has adjusted to
new expectations for economic growth, interest rates, and stock
valuations. In short, we expect the U.S. economy to grow more slowly,
the inflation rate to increase slightly, and higher interest rates to
dampen stock valuations but we also believe that, once in place, these
expectations can clear the way for stocks to appreciate for fundamental
reasons. Our confidence stems from the fact that companies the fund owns
are meeting or exceeding their earnings targets, and are participating
in markets that have strong likelihood of growth for years to come.
* UPCOMING TRANSITION
This is my last letter to you and other Putnam Worldwide Equity Fund
shareholders. After more than 30 years as Chairman of the Trustees and
President of the Putnam Funds, the time has come for me to step aside.
As of July 1, 2000, John Hill will become Chairman. John is currently an
independent Trustee and has served on the Board for the past 14 years.
In addition, my son, George Putnam, III, will take on the role of
President. I am confident that the leadership of the funds will be in
exceptionally strong hands. I will become Chairman Emeritus, remain a
shareholder, and stay in close touch with the funds.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 21, 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 4/30/00, 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. 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
Worldwide Equity Fund is designed for investors seeking long-term
capital appreciation through a globally diversified equity portfolio.
TOTAL RETURN FOR PERIODS ENDED 4/30/00
Salomon Bros.
Extended Market Consumer
NAV POP Index price index
----------------------------------------------------------------
6 months 60.54% 51.28% 15.08% 1.84%
----------------------------------------------------------------
1 year 166.62 151.37 18.84 3.01
----------------------------------------------------------------
Life of fund
(since 5/6/98) 329.11 304.37 15.17 5.35
Annual average 108.68 102.51 7.31 2.64
----------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns were achieved during
favorable market conditions that may not be sustainable. All returns
assume reinvestment of distributions at NAV. Investment return and
principal value will fluctuate so that an investor's shares when
redeemed may be worth more or less than their original cost. Performance
data reflects an expense limitation currently in effect. Without it,
total returns would have been lower.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/00
-------------------------------------------------------------
Distributions (number) 1
-------------------------------------------------------------
Income --
------------------------------------------------------------
Capital gains
Long-term $0.365
------------------------------------------------------------
Short-term 4.043
------------------------------------------------------------
Total $4.408
------------------------------------------------------------
Share value: NAV POP
------------------------------------------------------------
10/31/99 $22.72 $24.11
------------------------------------------------------------
4/30/00 31.65 33.58
------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 3/31/00 (most recent calendar quarter)
NAV POP
------------------------------------------------------------
6 months 139.69% 125.95%
------------------------------------------------------------
1 year 257.32 236.88
------------------------------------------------------------
Life of fund (since 5/6/98) 447.33 415.78
Annual average 144.65 137.13
------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns were achieved during
favorable market conditions that may not be sustainable. All returns
assume reinvestment of distributions at NAV. Investment return and
principal value will fluctuate so that an investor's shares when
redeemed may be worth more or less than their original cost. Performance
data reflects an expense limitation currently in effect. Without it,
total returns would have been lower.
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
Salomon Brothers Extended Market Index is an unmanaged list of global
equity securities, with all values expressed in U.S. dollars. The index
assumes reinvestment of all distributions and interest payments and does
not take in account brokerage fees or taxes. Securities in the fund do
not match those in the index and performance of the fund will differ. It
is not possible to invest directly in an index.
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 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
April 30, 2000 (Unaudited)
COMMON STOCKS (97.4%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Australia (4.5%)
-------------------------------------------------------------------------------------------------------------------
46,000 AAPT, Ltd. (NON) $ 183,766
30,700 Computershare, Ltd. 125,097
100,300 Davnet, Ltd. 143,313
24,300 Ecorp, Ltd. (NON) 42,515
12,800 Energy Developments, Ltd. 60,914
30,000 ERG, Ltd. 142,592
200,000 FiberTel, Ltd. (NON) 164,462
79,800 Health Communications Network, Ltd. (NON) 84,702
16,600 Melbourne IT, Ltd. (NON) 79,540
170,000 PowerLan, Ltd. 161,109
76,500 Sausage Software, Ltd. (NON) 131,881
46,000 Securenet, Ltd. (NON) 136,819
----------------
1,456,710
Belgium (0.6%)
-------------------------------------------------------------------------------------------------------------------
2,000 Lernout & Hauspie Speech Products N.V. (NON) 193,500
Canada (4.5%)
-------------------------------------------------------------------------------------------------------------------
2,600 724 Solutions, Inc. (NON) 131,300
4,200 BCE Emergis, Inc. (NON) 203,377
8,400 C-MAC Industries, Inc. (NON) 425,474
5,800 Cognos, Inc. (NON) 217,500
4,200 GT Group Telecom, Inc.-Class B (NON) 54,461
2,700 MDSI Mobile Data Solutions, Inc. (NON) 94,500
5,000 Optimal Robotics Corp. (NON) 212,500
2,000 Sierra Wireless, Inc. (NON) 107,989
----------------
1,447,101
Denmark (1.8%)
-------------------------------------------------------------------------------------------------------------------
1,300 Navision Software AS (NON) 95,218
1,500 Vestas Wind Systems AS 501,727
----------------
596,945
Finland (3.1%)
-------------------------------------------------------------------------------------------------------------------
20,000 Aldata Solutions Oyj (NON) 146,365
6,500 Comptel Plc 146,901
4,000 Elcoteq Network Corp.-Class A 127,638
11,000 F-Secure Oyj (NON) 140,001
4,800 Perlos Oyj 177,820
10,200 Teleste Oyj 268,448
----------------
1,007,173
France (4.7%)
-------------------------------------------------------------------------------------------------------------------
1,500 Apem S.A. 105,001
400 Avenir Telecom (NON) 101,346
2,200 Business Objects S.A. (NON) 215,325
1,800 Consodata S.A. (NON) 102,928
400 Egide S.A. (NON) 65,455
1,200 GFI Informatique (NON) 175,638
280 Havas Advertising S.A. 139,747
2,400 Infogrames Entertainment S.A. (NON) 67,855
5,200 Integra S.A. (NON) 112,983
700 Staci Corp. 101,692
1,500 Transiciel S.A. 200,184
1,300 Unilog S.A. (NON) 140,047
----------------
1,528,201
Germany (6.9%)
-------------------------------------------------------------------------------------------------------------------
350 ACG AG fuer Chipkarten und Informationsyteme (NON) 83,364
450 ADVA AG Optical Networking (NON) 247,093
900 AIXTRON AG 229,911
2,100 Brokat Infosystems AG (NON) 255,821
2,300 Cancom IT Systeme AG (NON) 149,711
400 D. Logistics AG (NON) 139,638
200 Intershop Communications AG (NON) 88,819
3,600 Kamps AG 117,656
400 LPKF Laser & Electronics (NON) 109,092
800 MorphoSys AG (NON) 198,547
700 Pixelpark AG (NON) 74,137
1,300 Singulus Technologies AG (NON) 147,611
2,000 Software AG (NON) 230,911
2,300 Systematics AG (NON) 161,002
----------------
2,233,313
Hong Kong (0.3%)
-------------------------------------------------------------------------------------------------------------------
78,000 Global Tech Holdings, Ltd. 89,126
Ireland (0.1%)
-------------------------------------------------------------------------------------------------------------------
500 SmartForce Public Limited Co. ADR (NON) 23,875
Israel (0.4%)
-------------------------------------------------------------------------------------------------------------------
2,000 BATM Advanced Communication, Ltd. 142,473
Italy (1.0%)
-------------------------------------------------------------------------------------------------------------------
1,800 Finmatica SpA (NON) 148,911
7,700 Snai SpA 184,102
----------------
333,013
Japan (0.6%)
-------------------------------------------------------------------------------------------------------------------
1,000 MORITEX Corp. 74,861
100 NICHII GAKKAN Co. 9,150
8,000 Yoshimoto Kogyo Co., Ltd. 104,991
----------------
189,002
Netherlands (1.1%)
-------------------------------------------------------------------------------------------------------------------
3,000 Draka Holding N.V. 191,866
3,200 Unit 4 (NON) 161,456
----------------
353,322
New Zealand (0.2%)
-------------------------------------------------------------------------------------------------------------------
43,700 Advantage Group, Ltd. (NON) 77,408
South Korea (0.4%)
-------------------------------------------------------------------------------------------------------------------
19,200 First Technology Co., Ltd. 131,709
Sweden (1.8%)
-------------------------------------------------------------------------------------------------------------------
2,800 Connecta AB (NON) 89,386
1,800 Effnet Group AB (NON) 80,649
500 Enea Data AB 88,434
1,600 HiQ Intl. AB 158,609
4,000 Information Highway AB (NON) 41,240
2,700 Softronic AB 62,755
7,650 Telelogic AB (NON) 58,269
----------------
579,342
Switzerland (2.0%)
-------------------------------------------------------------------------------------------------------------------
50 Ascom Holding AG 169,762
600 Micronas Semiconductor Holding AG (NON) 318,630
1,400 New Venturetec Ltd. (NON) 156,007
----------------
644,399
Taiwan (0.4%)
-------------------------------------------------------------------------------------------------------------------
16,800 Systex Corp. 73,486
8,000 Team Young Advanced Ceramics Co., Ltd. 42,202
----------------
115,688
United Kingdom (6.6%)
-------------------------------------------------------------------------------------------------------------------
3,000 Autonomy Corp. Plc (NON) 399,000
4,000 Axon Group Plc 66,922
2,700 Baltimore Technologies Plc (NON) 270,825
3,300 Cambridge Antibody Technology Group Plc (NON) 125,479
10,000 Cedar Group Plc 111,589
8,900 Celltech Group Plc (NON) 145,311
10,000 DIAGONAL Plc 83,342
1,500 Dialog Semiconductor Plc (NON) 165,002
10 Easynet Group Plc (NON) 142
5,000 Fibernet Group Plc (NON) 126,488
10,000 Future Integrated Telephony Plc (NON) 76,048
9,200 Kingston Communication (Hull) Plc (NON) 114,656
4,500 Oxford Glycosciences Plc (NON) 113,211
4,800 Royalblue Group Plc 96,845
3,900 Staffware Plc 139,214
24,400 Xaar Plc (NON) 113,038
----------------
2,147,112
United States (56.4%)
-------------------------------------------------------------------------------------------------------------------
3,633 99 Cents Only Stores (NON) 136,692
2,000 Acme Communications, Inc. (NON) 46,000
3,900 Act Manufacturing, Inc. (NON) 141,863
4,010 Agile Software Corp. (NON) 148,621
1,700 Alkermes, Inc. (NON) 90,525
2,400 Allegiance Telecom, Inc. (NON) 169,800
2,100 Allscripts, Inc. (NON) 65,100
4,700 Alpha Industries, Inc. (NON) 244,400
1,000 Anaren Microwave, Inc. (NON) 104,000
1,540 Applied Micro Circuits Corp. (NON) 198,468
4,540 Ariba, Inc. (NON) 336,811
850 Avanex Corp. (NON) 103,594
2,200 Aware, Inc. (NON) 85,800
2,200 Breakaway Solutions, Inc. (NON) 58,025
7,165 BroadVision, Inc. (NON) 314,812
4,480 Brocade Communications Systems (NON) 555,520
200 Career Education Corp. (NON) 7,562
5,800 Certicom Corp. (NON) 295,739
2,450 CheckFree Holdings Corp. (NON) 124,491
5,300 Citadel Communications Corp. (NON) 207,031
4,550 CNET Networks, Inc. (NON) 157,259
5,710 Covad Communications Group 144A (NON) 158,453
800 Cree Research, Inc. (NON) 116,400
2,550 Crossroads Systems, Inc. (NON) 180,094
4,500 Cyberonics, Inc. (NON) 91,688
1,250 Digex, Inc. (NON) 97,500
2,225 DoubleClick, Inc. (NON) 168,822
3,370 E.piphany, Inc. (NON) 222,631
1,800 Efficient Networks, Inc. (NON) 118,350
1,245 Entercom Communications Corp. (NON) 52,913
3,300 Exar Corp. (NON) 264,567
2,400 Factory 2-U Stores, Inc. (NON) 80,250
10,900 Finisar Corp. (NON) 406,706
5,754 Global Crossing, Ltd. (NON) 181,251
1,600 GlobeSpan, Inc. (NON) 152,000
4,300 Harmonic Lightwaves, Inc. (NON) 317,394
2,320 I2 Technologies, Inc. (NON) 299,860
5,800 ICG Communications, Inc. (NON) 172,550
4,000 Informatica Corp. (NON) 167,750
6,600 Information Holdings, Inc. (NON) 169,125
3,300 InfoSpace.com, Inc. (NON) 236,981
1,250 Interwoven, Inc. (NON) 86,563
8,560 Jabil Circuit, Inc. (NON) 350,425
2,393 Juniper Networks, Inc. (NON) 508,961
1,311 Kana Communications, Inc. (NON) 55,816
5,000 LAM Research Corp. (NON) 229,375
3,700 Lamar Advertising Co. (NON) 163,031
1,100 Leap Wireless International, Inc. (NON) 56,513
900 Learning Tree International, Inc. (NON) 43,144
6,900 Liberty Digital, Inc.-Class A (NON) 220,800
7,800 LTX Corp. (NON) 356,850
2,130 Macromedia, Inc. (NON) 185,310
2,900 McAfee.com Corp. (NON) 50,388
2,300 Mediaplex, Inc. (NON) 117,875
350 Medimmune, Inc. (NON) 55,978
600 Mercator Software, Inc. (NON) 22,088
11,700 Metromedia Fiber Network, Inc.-Class A (NON) 361,238
3,400 Micrel, Inc. (NON) 294,100
2,020 Micromuse, Inc. (NON) 198,213
2,400 Nanometrics, Inc. (NON) 92,100
3,730 Netegrity, Inc. (NON) 165,519
300 Netework Plus Corp. (NON) 5,700
1,100 Netro Corp. (NON) 47,438
200 Network Solutions, Inc. (NON) 29,600
2,300 Next Level Communications, Inc. (NON) 183,138
1,700 NEXTLINK Communications, Inc.-Class A (NON) 143,331
2,000 Novellus Systems, Inc. (NON) 133,375
6,500 Oak Technology, Inc. (NON) 91,406
2,000 Pegasus Communications Corp. (NON) 218,250
5,404 Peregrine Systems, Inc. (NON) 130,034
1,690 Phone.com, Inc. (NON) 141,960
1,500 Photon Dynamics, Inc. (NON) 111,000
3,900 Pinnacle Holdings, Inc. (NON) 219,131
700 Poet Holdings, Inc. (NON) 43,401
3,120 Portal Software, Inc. (NON) 143,130
2,500 Predictive Systems, Inc. (NON) 117,813
300 Priceline.com, Inc. (NON) 18,975
8,900 Province Healthcare Co. (NON) 256,988
1,220 Proxicom, Inc. (NON) 41,709
2,630 Proxim, Inc. (NON) 202,346
3,540 QLogic Corp. (NON) 355,106
1,400 Quantum Effect Devices, Inc. (NON) 81,550
1,420 Quest Software, Inc. (NON) 53,516
6,400 Radio One, Inc. (NON) 371,200
1,300 Rare Medium Group, Inc. 144A (NON) 26,731
4,510 RealNetworks, Inc. (NON) 214,779
2,460 Redback Networks, Inc. (NON) 195,263
10,400 Regent Communications, Inc. (NON) 89,050
1,500 RF Micro Devices, Inc. (NON) 156,094
2,000 Salem Communications Corp.-Class A (NON) 15,250
7,200 SBA Communications Corp. (NON) 292,500
3,200 Scient Corp. (NON) 172,800
600 Semtech Corp. (NON) 40,913
2,700 Sepracor, Inc. (NON) 248,400
1,300 Silicon Image, Inc. (NON) 52,163
290 SilverStream Software, Inc. (NON) 11,455
2,450 Software.com, Inc. (NON) 198,144
1,200 SonoSite, Inc. (NON) 39,525
300 TeleCorp PCS, Inc. (NON) 13,388
3,100 TMP Worldwide, Inc. (NON) 202,663
1,200 TranSwitch Corp. (NON) 105,675
2,950 VeriSign, Inc. (NON) 411,156
4,907 VERITAS Software Corp. (NON) 526,352
7,280 Vignette Corp. (NON) 350,805
1,900 Virata Corp. (NON) 237,975
1,600 Vitria Technology, Inc. (NON) 59,100
1,150 webMethods, Inc. (NON) 103,500
8,200 WestWood One, Inc. (NON) 290,075
400 Wireless Facilities, Inc. (NON) 23,151
2,400 Zoran Corp. (NON) 119,850
2,200 Zygo Corp. (NON) 56,100
----------------
18,254,639
----------------
Total Common Stocks (cost $32,696,956) $ 31,544,051
SHORT-TERM INVESTMENTS (0.8%) (a) (cost$ 268,000)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$268,000 Interest in $662,705,000 joint repurchase agreement
dated April 28, 2000 with S.B.C. Warburg, Inc. due
May 1, 2000 with respect to various U.S. Treasury
obligations -- maturity value of $268,128 for an
effective yield of 5.71% $ 268,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $32,964,956) (b) $ 31,812,051
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $32,381,036.
(b) The aggregate identified cost on a tax basis is $32,993,308,
resulting in gross unrealized appreciation and depreciation of
$5,949,792 and $7,131,049, respectively, or net unrealized depreciation
of $1,181,257.
(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 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 April 30, 2000 (as a percentage of net assets):
Software 14.6%
Electronics 12.6
Technology 11.1
Telecommunications 10.3
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2000 (Unaudited)
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $32,964,956) (Note 1) $31,812,051
-------------------------------------------------------------------------------------------
Cash 73,451
-------------------------------------------------------------------------------------------
Foreign currency (cost $39,254) 42,057
-------------------------------------------------------------------------------------------
Dividends and interest receivable 3,068
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 91,140
-------------------------------------------------------------------------------------------
Receivable for securities sold 1,566,742
-------------------------------------------------------------------------------------------
Total assets 33,588,509
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 898
-------------------------------------------------------------------------------------------
Payable for securities purchased 1,135,256
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,109
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 4,542
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 60,458
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 820
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 250
-------------------------------------------------------------------------------------------
Other accrued expenses 4,140
-------------------------------------------------------------------------------------------
Total liabilities 1,207,473
-------------------------------------------------------------------------------------------
Net assets $32,381,036
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $31,389,228
-------------------------------------------------------------------------------------------
Accumulated net investment loss (Note 1) (99,281)
-------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 2,241,966
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (1,150,877)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $32,381,036
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per share
($32,381,036 divided by 1,023,128 shares) $31.65
-------------------------------------------------------------------------------------------
Offering price per share (100/94.25 of $31.65)* $33.58
-------------------------------------------------------------------------------------------
* 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
Six months ended April 30, 2000 (Unaudited)
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $904) $ 7,093
-------------------------------------------------------------------------------------------
Interest 41,003
-------------------------------------------------------------------------------------------
Total investment income 48,096
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 95,515
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 141,440
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 1,279
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 1,021
-------------------------------------------------------------------------------------------
Reports to shareholders 4,958
-------------------------------------------------------------------------------------------
Registration fees 7,312
-------------------------------------------------------------------------------------------
Auditing 18,906
-------------------------------------------------------------------------------------------
Legal 2,283
-------------------------------------------------------------------------------------------
Postage 490
-------------------------------------------------------------------------------------------
Other 4,253
-------------------------------------------------------------------------------------------
Fees waived and reimbursed by manager (Note 2) (104,336)
-------------------------------------------------------------------------------------------
Total expenses 173,121
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (9,567)
-------------------------------------------------------------------------------------------
Net expenses 163,554
-------------------------------------------------------------------------------------------
Net investment loss (115,458)
-------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 2,319,516
-------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (19,516)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 16,935
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (3,578,091)
-------------------------------------------------------------------------------------------
Net loss on investments (1,261,156)
-------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(1,376,614)
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
April 30 October 31
2000* 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment loss $ (115,458) $ (33,316)
--------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 2,300,000 2,068,146
--------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and assets and liabilities in foreign currencies (3,561,156) 2,306,429
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (1,376,614) 4,341,259
--------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized
gain on investments (1,818,796) --
--------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 27,802,432 1,471,049
--------------------------------------------------------------------------------------------------
Total increase in net assets 24,607,022 5,812,308
Net assets
--------------------------------------------------------------------------------------------------
Beginning of period 7,774,014 1,961,706
--------------------------------------------------------------------------------------------------
End of period (including accumulated net investment
loss of $99, 281 and undistributed net investment income
of $16,177, respectively) $32,381,036 $7,774,014
--------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
--------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 Year ended May 6, 1998+
operating performance (Unaudited) October 31 to October 31
--------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------
Net asset value,
beginning of period $22.72 $7.87 $8.50
--------------------------------------------------------------------------
Investment operations
--------------------------------------------------------------------------
Net investment loss (a)(d) (.17) (.12) (.02)
--------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 13.51 14.97 (.61)
--------------------------------------------------------------------------
Total from
investment operations 13.34 14.85 (.63)
--------------------------------------------------------------------------
Less distributions:
--------------------------------------------------------------------------
From net realized gain
on investments (4.41) -- --
--------------------------------------------------------------------------
Total distributions (4.41) -- --
--------------------------------------------------------------------------
Net asset value,
end of period $31.65 $22.72 $7.87
--------------------------------------------------------------------------
Ratios and supplemental data
--------------------------------------------------------------------------
Total return at
net asset value (%)(b) 60.54* 188.69 (7.41)*
--------------------------------------------------------------------------
Net assets, end of period
(in thousands) $32,381 $7,774 $1,962
--------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .72* 1.45 .71*
--------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%)(d) (.48)* (.80) (.29)*
--------------------------------------------------------------------------
Portfolio turnover (%) 150.54* 312.75 150.43*
--------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses for the fund reflect a reduction of
$.16, $.13 and $.10 per share for the periods ended April 30, 2000,
October 31, 1999 and October 31, 1998, respectively. (Note 2)
NOTES TO FINANCIAL STATEMENTS
April 30, 2000 (Unaudited)
Note 1
Significant accounting policies
Putnam Worldwide Equity 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 fund seeks long-term capital appreciation by
investing primarily in common stocks of companies located in a number of
foreign countries and in the United States.
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 principle 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 Investment Management, Inc. ("Putnam Management"), the fund's
manager, a wholly-owned subsidiary of Putnam Investments, Inc. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is, at all
times, at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Gains or losses on securities sold are determined
on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies and the difference between the amount
of investment income and foreign withholding taxes recorded on the
fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net unrealized appreciation and depreciation of assets and
liabilities in foreign currencies arise from changes in the value of
open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange
rate. 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) 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 April 30, 2000, the fund had no borrowings against the line of
credit.
H) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
I) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax
regulations, which may differ from generally accepted accounting
principles. 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.
J) Expenses of the trust Expenses directly charged or attributable to
any fund will be paid from the assets of that fund. Generally, expenses
of the trust will be allocated among and charged to the assets of each
fund on a basis that the Trustees deem fair and equitable, which may be
based on the relative assets of each fund or the nature of the services
performed and relative applicability to each fund.
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 October 31, 2000, to the
extent that expenses of the fund (exclusive of brokerage commissions,
interest, taxes, deferred organizational and extraordinary expenses, or
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 1.45% 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 PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended April 30, 2000, fund expenses were reduced by
$9,567 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 $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 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 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 Mutual Funds Corp., a wholly owned subsidiary of
Putnam Investments, Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plan provides for payment by
the fund to Putnam Mutual Funds Corp. 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.
For the six months ended April 30, 2000, Putnam Mutual Funds Corp.,
acting as underwriter received no net commissions from the sale of
shares. A deferred sales charge of up to 1% is assessed on certain
redemptions of shares. For the six months ended April 30, 2000, Putnam
Mutual Funds Corp., acting as underwriter received no monies on
redemptions.
Note 3
Purchases and sales of securities
During the six months ended April 30, 2000, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $59,343,079 and $33,997,341, respectively. There
were no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At April 30, 2000, there were an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended April 30, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 842,607 $33,666,514
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 62,891 1,818,796
---------------------------------------------------------------------------
905,498 35,485,310
Shares
repurchased (224,571) (7,682,878)
---------------------------------------------------------------------------
Net increase 680,927 $27,802,432
---------------------------------------------------------------------------
Year ended October 31, 1999
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 121,826 $1,939,193
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
121,826 1,939,193
Shares
repurchased (28,842) (468,144)
---------------------------------------------------------------------------
Net increase 92,984 $1,471,049
---------------------------------------------------------------------------
FUND INFORMATION
WEB SITE
www.putnaminv.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
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Roland W. Gillis
Vice President and Fund Manager
Robert J. Swift
Vice President and Fund Manager
Stephen P. Dexter
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 Worldwide
Equity Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For more
information or to request a prospectus, call toll free: 1-800-225-1581.
You can also learn more at Putnam Investments' Web site: www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board,
or any other agency; and involve risk, including the possible loss of
the principal amount invested.
61429 21H 6/00
Putnam
Capital
Opportunities
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-00
[SCALE LOGO OMITTED]
FROM THE CHAIRMAN
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[COPYRIGHT] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on fiscal year 2000. In the
following report, the fund's managers discuss performance for the period
and prospects for the months ahead.
This is the last letter to you and the other shareholders of Putnam
Capital Opportunities Fund that I will be signing. After more than 30
years as Chairman of the Trustees and President of the Putnam Funds, the
time has come for me to step aside. As of July 1, 2000, John Hill will
become Chairman. John is currently an independent Trustee and has served
on the board for the past 14 years. In addition, my son, George Putnam,
III, will take on the role of President. I am confident that the
leadership of the funds will be in exceptionally strong hands.
I will become Chairman Emeritus, remain a Putnam shareholder, and stay
in close touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 21, 2000
REPORT FROM THE FUND MANAGERS
Joseph P. Joseph
Sandeep Mehta
Despite a volatile final month, the year ended April 30, 2000, was a
solid one for Putnam Capital Opportunities Fund. Our continued focus on
strong small and midsize companies in growing sectors such as technology
and business services helped generate the strongest annual return in
your fund's brief history. For most of the period, U.S. financial
markets were delivering robust -- and in many cases record-breaking --
returns. At the close of 1999, the Nasdaq Composite Index, a common
measure of technology stocks, had risen 85.6%, the biggest annual gain
for a major market index in U.S. history. In addition, the Dow Jones
Industrial Average and the S&P 500 Index, which measure the performance
of large-company stocks, posted double-digit gains for a record fifth
straight year. This momentum continued into the new year but reversed
sharply in the final weeks of the fiscal period.
Total return for 12 months ended 4/30/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
----------------------------------------------------------------------
16.23% 9.58% 15.57% 10.57% 15.59% 14.59% 15.78% 11.75%
----------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* TECH STOCKS PLAY MAJOR ROLE IN FISCAL 2000
Beginning in mid March, a number of factors were combining to create
weakness in the stock market. This eventually led to sharp volatility,
with the major indexes experiencing some of their largest point drops on
record during April. Perhaps most alarming to investors was an April 14
report on the consumer price index that indicated inflation may be on
the rise. This report was a catalyst for investors who had been sorting
through other potentially negative news, including the Microsoft
antitrust verdict, some disappointing earnings announcements, and press
reports that many stocks, especially in the technology sector, were
overvalued. By the end of April, the Dow had lost more than 12% since
its peak in January, the S&P had dropped more than 11% since its March
24 peak, and the Nasdaq had declined more than 32% since its high on
March 10.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Electronics 19.4%
Software 12.8%
Banking 12.2%
Communications
equipment 11.4%
Commercial and
consumer services 5.0%
Footnote reads:
*Based on net assets as of 4/30/00. Holdings will vary over time.
During the fiscal year, the pervasive influence of technology, and
especially the Internet, touched almost every growth sector. The
inclusion of Microsoft and Intel in the Dow Jones Industrial Average and
the addition of Internet stocks Yahoo! and America Online to the S&P 500
Index illustrated the growing influence of technology in today's
economy. In the last year, approximately 150,000 new users worldwide
went online each day and more than 61 million U.S. homes are now
connected to the Internet. We're pleased to report that your fund took
full advantage of the growth opportunities in the technology sector.
Among the notable technology holdings during the period were Oak
Technologies, which has since been sold, and E-Tek Dynamics. Oak
manufactures semiconductors and software for the optical storage,
consumer electronics, and digital imaging equipment markets. E-Tek has
benefited from an explosive demand for its fiber-optics components.
Fiber-optic technology allows for high-speed transmission of data,
video, Internet, and multimedia applications.
In addition, the fund benefited considerably when E-Tek was acquired by
competitor JDS Uniphase in January. Another technology holding, Redback
Networks, was added to the portfolio because of its attractive price and
strong growth potential. Redback provides advanced networking systems
that enable cable operators and Internet service providers to deliver
high-speed access to the Internet and corporate computer networks. While
these holdings and others discussed in this report were viewed favorably
at the end of the fiscal period, all are subject to review and
adjustment in accordance with the fund's investment strategy and may
vary in the future.
"We believe that a lot of the risk has come out of the market with the
recent correction, and the fund's holdings remain fundamentally strong.
As a result, we are not planning any major
sector shifts."
-- Joseph P. Joseph, portfolio manager
Of course, the gains that technology stocks enjoyed during most of the
period were dampened in April by the sector's sharp downturn. It is
important to note that such volatility is a natural part of stock market
investing and we believe the economy and the fund's holdings remain
fundamentally strong. In fact, the recent turbulence has given us an
unusual opportunity to purchase shares of solid companies at
attractively low prices. This was especially beneficial for your fund,
since part of its strategy is to target stocks that may be underpriced
by the market.
* ADVERTISERS, BUSINESS SERVICES THRIVE IN BOOMING ECONOMY
Technology stocks are not the only holdings that have benefited from
explosive Internet demand. The advertising industry has also thrived as
Internet companies seek to build brand recognition. One of the most
effective methods for doing this is to advertise through traditional
outlets such as TV, radio, and billboards. This surge in advertising,
which also reflects the strength of the economy, benefited fund holdings
such as True North Communications, a global advertising and
communications holding company.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Plexus Corp.
Electronics
Methode Electronics Class A
Electronics
True North Communications, Inc.
Advertising and marketing services
Corning, Inc.
Communications equipment
Flextronics International, Ltd.
Electronics
Cypress Semiconductor Corp.
Semiconductors
Korn/Ferry International
Commercial and consumer services
Aeroflex, Inc.
Aerospace/defense
Rational Software Corp.
Software
M&T Bank Corp.
Banking
Footnote reads:
These holdings represent 29.0% of the fund's net assets as of 4/30/00.
Portfolio holdings will vary over time.
When we added True North to the portfolio, the company had a lower
growth rate than most of its competitors and its stock was attractively
priced. We believed the company's new management team and several new
initiatives would lead to accelerated growth rates. Indeed, True North
recently announced stronger than expected first quarter profits thanks
to its focus on expanding key client relationships, collaborating
between its agencies, and building new business through acquisitions in
Europe.
The strong economy has also boosted business services such as fund
holding Korn/Ferry International. In addition to profiting from the
tight job market, this company, the world's largest executive search
firm, is also developing innovative recruitment tools. One of its
subsidiaries is Futurestep.com, which uses the global reach of the
Internet to help businesses fill management positions.
In the retail sector of the fund's portfolio, the stock of Duane Reade
has been a standout. It is the largest drugstore chain in New York City,
with 75 of its 128 stores located in Manhattan's high-traffic business
and residential districts. This stock performed well during the period,
most notably during April, when many other stocks were underperforming.
* FOCUS ON STRATEGY CONTINUES INTO NEXT FISCAL YEAR
As the period came to a close, our commitment to a disciplined
investment process became more significant as U.S. financial markets
continued to experience sharp volatility. We remain focused on targeting
stocks of small and midsize companies and will not shift from that
strategy in response to short-term market fluctuations. In particular,
we continue to seek stocks that may be underpriced by the market and
that remain relatively unnoticed by investors. This focus, combined
with our intensive research and stock selection process, should enable
the fund to deliver solid long-term returns over time.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 4/30/00, there is no guarantee the fund will
continue to hold these securities in the future. The fund invests in
small and midsize companies. Such investments increase the risk of
greater price fluctuations.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Capital Opportunities Fund is designed for investors seeking long-term
growth of capital by investing primarily in stocks of U.S. companies
that Putnam believes offer above-average growth potential.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 4/30/00
Class A Class B Class C Class M
(inception dates) (6/1/98) (6/29/98) (7/26/99) (6/29/98)
NAV POP NAV CDSC NAV CDSC NAV POP
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 16.23% 9.58% 15.57% 10.57% 15.59% 14.59% 15.78% 11.75%
----------------------------------------------------------------------------------
Life of fund 10.73 4.35 9.34 5.34 9.36 9.36 9.86 6.00
Annual average 5.45 2.24 4.76 2.74 4.77 4.77 5.02 3.08
----------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/00
Russell Consumer
2000 Index price index
-----------------------------------------------------
1 year 18.42% 3.01%
-----------------------------------------------------
Life of fund 13.58 5.16
Annual average 6.87 2.66
-----------------------------------------------------
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-, 5-, and 10-year
(where 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. Performance data reflect an expense
limitation currently or previously in effect. Without the limitation,
total returns 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 6/1/98
Fund's class A Russell 2000 Consumer price
Date shares at POP Index index
6/1/98 9,424 10,000 10,000
6/30/98 9,523 10,021 10,012
9/30/98 7,783 8,002 10,049
12/31/98 9,011 9,307 10,098
3/31/99 8,399 8,802 10,141
6/30/99 9,367 10,171 10,209
9/30/99 8,777 9,528 10,307
12/31/99 11,447 11,286 10,369
3/31/00 11,714 12,085 10,516
4/30/00 $10,435 $11,358 $10,516
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 $10,934 ($10,534 with the contingent deferred sales charge);
a $10,000 investment in the fund's class C shares would have been valued at
$10,936 and no contingent deferred sales charge would apply; a $10,000
investment in the fund's class M shares would have been valued at $10,986
($10,600 at public offering price). See first page of performance section for
performance calculation method.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 4/30/00
Class A Class B Class C Class M
-------------------------------------------------------------------------------
Distributions (number)* -- -- -- --
-------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
-------------------------------------------------------------------------------
4/30/99 $8.07 $8.56 $8.03 -- $8.05 $8.34
-------------------------------------------------------------------------------
7/26/99+ -- -- -- $8.22 -- --
-------------------------------------------------------------------------------
4/30/00 9.38 9.95 9.28 9.34 9.32 9.66
-------------------------------------------------------------------------------
*The fund did not make any distributions during the period.
+Inception of class C shares.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 3/31/00 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (6/1/98) (6/29/98) (7/26/99) (6/29/98)
NAV POP NAV CDSC NAV CDSC NAV POP
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 39.47% 31.46% 38.43% 33.43% 38.44% 37.44% 38.78% 33.97%
--------------------------------------------------------------------------------------
Life of fund 24.31 17.14 22.65 18.65 22.71 22.71 23.19 18.85
Annual average 12.55 8.98 11.73 9.74 11.76 11.76 12.00 9.84
--------------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost. See first
page of performance section for performance calculation method.
</TABLE>
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 5.75% maximum sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B or C shares and assumes redemption at the
end of the period. Your fund's class B CDSC declines from a 5% maximum
during the first year to 1% during the sixth year. After the sixth year,
the CDSC no longer applies. The CDSC for class C shares is 1% for one
year after purchase.
COMPARATIVE BENCHMARKS
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Russell 2000 Index is an unmanaged list of common stocks that is
frequently used as a performance measure for small and midsize company
stocks. The index assumes reinvestment of all distributions and interest
payments and does not take in account brokerage fees or taxes.
Securities in the fund do not match those in the index and performance
of the fund will differ. It is not possible to invest directly in an
index.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price 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 April 30, 2000
To the Trustees and Shareholders of
Putnam Capital Opportunities Fund
(a series of Putnam Investment Funds)
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Putnam
Capital Opportunities Fund (the "fund") at April 30, 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. 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, 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 April
30, 2000 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 6, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
April 30, 2000
COMMON STOCKS (98.2%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Advertising and Marketing Services (4.8%)
-------------------------------------------------------------------------------------------------------------------
143,200 True North Communications, Inc. $ 5,898,050
103,500 Valassis Communications, Inc. (NON) 3,525,469
----------------
9,423,519
Aerospace/Defense (2.6%)
-------------------------------------------------------------------------------------------------------------------
136,400 Aeroflex, Inc. 5,080,900
Banking (12.2%)
-------------------------------------------------------------------------------------------------------------------
33,900 Bank United Corp. Class A 1,125,056
68,100 City National Corp. 2,506,931
87,900 Commerce Bancorp, Inc. 3,488,531
53,800 Investors Financial Services Corp. 4,391,425
10,100 M & T Bank Corp. 4,436,425
223,200 North Fork Bancorporation, Inc. 3,613,050
99,900 Zions Bancorp 4,145,850
----------------
23,707,268
Biotechnology (4.0%)
-------------------------------------------------------------------------------------------------------------------
77,100 Cell Genesys, Inc. (NON) 1,440,806
163,500 Connetics Corp. (NON) 1,553,250
15,400 Gilead Sciences, Inc. (NON) 834,488
70,900 Guilford Pharmaceuticals, Inc. (NON) 1,231,888
25,200 Maxim Pharmaceuticals, Inc. (NON) 976,500
56,000 Titan Pharmaceuticals, Inc. (NON) 1,792,000
----------------
7,828,932
Broadcasting (2.6%)
-------------------------------------------------------------------------------------------------------------------
50,700 Emmis Communications Class A (NON) 2,154,750
66,000 Entercom Communications Corp. (NON) 2,805,000
----------------
4,959,750
Building Materials (0.3%)
-------------------------------------------------------------------------------------------------------------------
67,600 Hexcel Corp. 574,600
Commercial and Consumer Services (5.0%)
-------------------------------------------------------------------------------------------------------------------
72,800 Heidrick & Struggles International, Inc. (NON) 2,620,800
205,800 Korn/Ferry International (NON) 5,453,700
51,800 TeleTech Holdings, Inc. (NON) 1,689,975
----------------
9,764,475
Communications Equipment (11.4%)
-------------------------------------------------------------------------------------------------------------------
40,000 Advanced Fibre Communications, Inc. (NON) 1,827,500
29,298 Corning, Inc. 5,786,355
86,500 Digital Microwave Corp. (NON) 3,195,094
20,800 Efficient Networks, Inc. (NON) 1,367,600
11,500 Netro Corp. (NON) 495,938
46,100 Paradyne Networks, Inc. (NON) 1,299,444
15,100 Powerwave Technologies, Inc. (NON) 3,141,744
20,600 Proxim, Inc. (NON) 1,584,913
24,836 Redback Networks, Inc. (NON) 1,971,358
106,600 SpectraLink Corp. (NON) 1,539,038
----------------
22,208,984
Computers (1.5%)
-------------------------------------------------------------------------------------------------------------------
52,000 Cognex Corp. (NON) 2,957,500
Electrical Equipment (0.8%)
-------------------------------------------------------------------------------------------------------------------
48,000 Excel Technology, Inc. (NON) 1,506,000
Electronics (19.4%)
-------------------------------------------------------------------------------------------------------------------
28,800 Act Manufacturing, Inc. (NON) 1,047,600
32,800 Alpha Industries, Inc. 1,705,600
32,500 ASM International N.V. (Netherlands) (NON) 1,121,250
10,600 E-Tek Dynamics, Inc. (NON) 2,170,350
81,869 Flextronics International, Ltd. (NON) 5,751,297
62,500 Keithley Instruments, Inc. 3,484,375
142,400 Methode Electronics Class A 5,934,075
57,200 Nanometrics, Inc. (NON) 2,195,050
107,700 Plexus Corp. (NON) 8,252,513
82,600 Spectra-Physics Lasers, Inc. (NON) 4,212,600
22,400 TranSwitch Corp. (NON) 1,972,600
----------------
37,847,310
Energy (1.9%)
-------------------------------------------------------------------------------------------------------------------
74,500 Marine Drilling Co., Inc. (NON) 1,937,000
47,100 Nabors Industries, Inc. (NON) 1,857,506
----------------
3,794,506
Manufacturing (0.8%)
-------------------------------------------------------------------------------------------------------------------
83,000 GSI Lumonics, Inc. (NON) 1,561,438
Medical Technology (3.1%)
-------------------------------------------------------------------------------------------------------------------
33,200 Avigen, Inc. (NON) 1,087,300
26,400 Coherent, Inc. (NON) 1,526,250
106,900 Sybron International Corp. (NON) 3,327,263
----------------
5,940,813
Oil & Gas (0.8%)
-------------------------------------------------------------------------------------------------------------------
31,600 Devon Energy Corp. 1,522,725
Pharmaceuticals (1.5%)
-------------------------------------------------------------------------------------------------------------------
138,600 NPS Pharmaceuticals, Inc. (NON) 1,801,800
19,300 United Therapeutics Corp. (NON) 1,090,450
----------------
2,892,250
Restaurants (0.5%)
-------------------------------------------------------------------------------------------------------------------
69,800 Buca, Inc. (NON) 1,051,363
Retail (5.0%)
-------------------------------------------------------------------------------------------------------------------
53,600 Ames Department Stores, Inc. (NON) 961,450
110,900 Duane Reade, Inc. (NON) 3,327,000
24,000 Michaels Stores, Inc. (NON) 946,500
60,000 Too, Inc. (NON) 1,796,250
62,600 Whole Foods Market, Inc. (NON) 2,664,413
----------------
9,695,613
Semiconductors (4.6%)
-------------------------------------------------------------------------------------------------------------------
27,500 CyberOptics Corp. (NON) 1,051,875
105,400 Cypress Semiconductor Corp. (NON) 5,474,213
37,950 Microchip Technology, Inc. (NON) 2,355,272
----------------
8,881,360
Shipping (1.4%)
-------------------------------------------------------------------------------------------------------------------
101,200 Circle International Group, Inc. 2,688,125
Software (12.8%)
-------------------------------------------------------------------------------------------------------------------
36,800 Business Objects S.A. ADR (France) (NON) (SEG) 3,601,800
35,000 Documentum, Inc. (NON) 2,065,000
58,000 Entrust Technologies, Inc. (NON) 2,849,250
21,100 Informatica Corp. (NON) 884,881
29,200 ISS Group, Inc.(NON) 2,640,775
45,000 Macromedia, Inc. (NON) 3,915,000
28,200 Micromuse, Inc. (NON) 2,767,125
45,900 ONYX Software Corp. (NON) 978,244
21,600 Pivotal Corp. (NON) 689,850
52,800 Rational Software Corp. (NON) 4,494,600
----------------
24,886,525
Technology Services (0.5%)
-------------------------------------------------------------------------------------------------------------------
35,100 FactSet Research Systems, Inc. 1,009,125
Telecommunications (0.7%)
-------------------------------------------------------------------------------------------------------------------
27,300 Leap Wireless International, Inc. (NON) 1,402,532
----------------
Total Common Stocks (cost $176,567,196) $ 191,185,613
SHORT-TERM INVESTMENTS (0.6%) (a) (cost $1,232,000)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 1,232,000 Interest in $662,705,000 joint repurchase agreement
dated April 28, 2000 with S.B.C. Warburg, Inc. due
May 1, 2000 with respect to various U.S. Treasury
obligations -- maturity value of $1,232,586 for an
effective yield of 5.71% $ 1,232,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $177,799,196) (b) $ 192,417,613
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $194,718,114.
(b) The aggregate identified cost on a tax basis is $178,547,788,
resulting in gross unrealized appreciation and depreciation of
$35,584,118and $21,714,293, respectively, or net unrealized appreciation
of $13,869,825.
(NON) Non-income-producing security.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at April
30, 2000.
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.
-------------------------------------------------------------------------
Futures Contracts Outstanding at April 30, 2000
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
-------------------------------------------------------------------------
S&P Index 500
(Long) $365,000 $365,538 Jun-00 $(538)
-------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $177,799,196) (Note 1) $192,417,613
-------------------------------------------------------------------------------------------
Cash 299,882
-------------------------------------------------------------------------------------------
Dividends and interest receivable 42,181
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,996,924
-------------------------------------------------------------------------------------------
Receivable for securities sold 3,539,029
-------------------------------------------------------------------------------------------
Total assets 198,295,629
Liabilities
-------------------------------------------------------------------------------------------
Payable for variation margin 538
-------------------------------------------------------------------------------------------
Payable for securities purchased 2,788,535
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 246,009
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 323,138
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 51,145
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 5,645
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 512
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 95,902
-------------------------------------------------------------------------------------------
Other accrued expenses 66,091
-------------------------------------------------------------------------------------------
Total liabilities 3,577,515
-------------------------------------------------------------------------------------------
Net assets $194,718,114
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $170,419,936
-------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 9,680,299
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 14,617,879
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $194,718,114
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($90,219,191 divided by 9,613,269 shares) $9.38
-------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $9.38)* $9.95
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($94,738,324 divided by 10,204,870 shares)** $9.28
-------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($1,970,579 divided by 210,897 shares)** $9.34
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($7,790,020 divided by 836,281 shares) $9.32
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $9.32)* $9.66
-------------------------------------------------------------------------------------------
* 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 April 30, 2000
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Dividends $ 589,195
-------------------------------------------------------------------------------------------
Interest 207,669
-------------------------------------------------------------------------------------------
Total investment income 796,864
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,093,389
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 323,380
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 13,069
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,477
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 187,220
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 872,388
-------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 4,595
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 43,955
-------------------------------------------------------------------------------------------
Reports to shareholders 35,542
-------------------------------------------------------------------------------------------
Registration fees 4,967
-------------------------------------------------------------------------------------------
Auditing 63,714
-------------------------------------------------------------------------------------------
Legal 4,647
-------------------------------------------------------------------------------------------
Postage 30,468
-------------------------------------------------------------------------------------------
Other 25,388
-------------------------------------------------------------------------------------------
Total expenses 2,709,199
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (96,850)
-------------------------------------------------------------------------------------------
Net expenses 2,612,349
-------------------------------------------------------------------------------------------
Net investment loss (1,815,485)
-------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 13,898,765
-------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 250,269
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
futures contracts during the year 5,325,775
-------------------------------------------------------------------------------------------
Net gain on investments 19,474,809
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $17,659,324
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the period
June 1, 1998
Year ended (commencement
April 30 of operations)
2000 to April 30, 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
---------------------------------------------------------------------------------------------------------
Operations:
---------------------------------------------------------------------------------------------------------
Net investment loss $ (1,815,485) $ (94,357)
---------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 14,149,034 (2,712,512)
---------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 5,325,775 9,292,104
---------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 17,659,324 6,485,235
---------------------------------------------------------------------------------------------------------
Distributions to shareholders:
---------------------------------------------------------------------------------------------------------
From return of capital
Class A -- (158,202)
---------------------------------------------------------------------------------------------------------
Class B -- (87,810)
---------------------------------------------------------------------------------------------------------
Class C -- --
---------------------------------------------------------------------------------------------------------
Class M -- (7,773)
---------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 24,974,161 143,853,179
---------------------------------------------------------------------------------------------------------
Total increase in net assets 42,633,485 150,084,629
Net assets
---------------------------------------------------------------------------------------------------------
Beginning of year (Note 5) 152,084,629 2,000,000
---------------------------------------------------------------------------------------------------------
End of year $194,718,114 $152,084,629
---------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS A
---------------------------------------------------------------------
For the period
Per-share Year ended June 1, 1998+
operating performance April 30 to April 30
---------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------
Net asset value,
beginning of period $8.07 $8.50
------------------------------------------------------------------
Investment operations
------------------------------------------------------------------
Net investment income (loss)(a) (.06) .03(d)
------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 1.37 (.43)(e)
------------------------------------------------------------------
Total from
investment operations 1.31 (.40)
------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------
From return of capital -- (.03)
------------------------------------------------------------------
Net asset value,
end of period $9.38 $8.07
------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------
Total return at
net asset value (%)(b) 16.23 (4.73)*
------------------------------------------------------------------
Net assets, end of period
(in thousands) $90,219 $62,900
------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.20 1.15*(d)
------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.67) .30*(d)
---------------------------------------------------------------------
Portfolio turnover (%) 272.09 272.40*
---------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements.
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses for the fund reflect a reduction of
less than $0.01 per share for class A, class B, and class M for the
period ended April 30, 1999.
(e) The amount shown for net realized and unrealized gain (loss) on
investments may not agree with the amounts shown on the Statement of
changes in net assets because of the timing of sales and repurchases of
the fund's shares in relation to the fluctuating market values for the
portfolio.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS B
-------------------------------------------------------------------
For the period
Per-share Year ended June 29, 1998+
operating performance April 30 to April 30
-------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------
Net asset value,
beginning of period $8.03 $8.40
-------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------
Net investment loss (a) (.13) (.02)(d)
-------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 1.38 (.34)(e)
-------------------------------------------------------------------
Total from
investment operations 1.25 (.36)
-------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------
From return of capital -- (.01)
-------------------------------------------------------------------
Net asset value,
end of period $9.28 $8.03
-------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------
Total return at
net asset value (%)(b) 15.57 (4.27)*
-------------------------------------------------------------------
Net assets, end of period
(in thousands) $94,738 $84,777
-------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.95 1.69*(d)
-------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (1.42) (.34)*(d)
-------------------------------------------------------------------
Portfolio turnover (%) 272.09 272.40*
-------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements.
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses for the fund reflect a reduction of
less than $0.01 per share for class A, class B, and class M for the
period ended April 30, 1999.
(e) The amount shown for net realized and unrealized gain (loss) on
investments may not agree with the amounts shown on the Statement of
changes in net assets because of the timing of sales and repurchases of
the fund's shares in relation to the fluctuating market values for the
portfolio.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS C
--------------------------------------------
For the period
Per-share July 26, 1999+
operating performance to April 30
--------------------------------------------
2000
--------------------------------------------
Net asset value,
beginning of period $8.22
--------------------------------------------
Investment operations
--------------------------------------------
Net investment loss (a) (.11)
--------------------------------------------
Net realized and unrealized
gain on investments 1.23
--------------------------------------------
Total from
investment operations 1.12
--------------------------------------------
Less distributions:
--------------------------------------------
From return of capital --
--------------------------------------------
Net asset value,
end of period $9.34
--------------------------------------------
Ratios and supplemental data
--------------------------------------------
Total return at
net asset value (%)(b) 13.63*
--------------------------------------------
Net assets, end of period
(in thousands) $1,971
--------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.50*
--------------------------------------------
Ratio of net investment loss
to average net assets (%) (1.16)*
--------------------------------------------
Portfolio turnover (%) 272.09
--------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements.
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses for the fund reflect a reduction of
less than $0.01 per share for class A, class B, and class M for the
period ended April 30, 1999.
(e) The amount shown for net realized and unrealized gain (loss) on
investments may not agree with the amounts shown on the Statement of
changes in net assets because of the timing of sales and repurchases of
the fund's shares in relation to the fluctuating market values for the
portfolio.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS M
-----------------------------------------------------------------------
For the period
Per-share Year ended June 29, 1998+
operating performance April 30 to April 30
-----------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------
Net asset value,
beginning of period $8.05 $8.40
-----------------------------------------------------------------------
Investment operations
-----------------------------------------------------------------------
Net investment loss (a) (.11) (.01)(d)
-----------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 1.38 (.32)(e)
-----------------------------------------------------------------------
Total from
investment operations 1.27 (.33)
-----------------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------------
From return of capital -- (.02)
-----------------------------------------------------------------------
Net asset value,
end of period $9.32 $8.05
-----------------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------------
Total return at
net asset value (%)(b) 15.78 (3.98)*
-----------------------------------------------------------------------
Net assets, end of period
(in thousands) $7,790 $4,408
-----------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.70 1.48*(d)
-----------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (1.18) (.13)*(d)
-----------------------------------------------------------------------
Portfolio turnover (%) 272.09 272.40*
-----------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements.
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses for the fund reflect a reduction of
less than $0.01 per share for class A, class B, and class M for the
period ended April 30, 1999.
(e) The amount shown for net realized and unrealized gain (loss) on
investments may not agree with the amounts shown on the Statement of
changes in net assets because of the timing of sales and repurchases of
the fund's shares in relation to the fluctuating market values for the
portfolio.
NOTES TO FINANCIAL STATEMENTS
April 30, 2000
Note 1
Significant accounting policies
Putnam Capital Opportunities Fund ("the fund") is one of a series of
Putnam Investment Funds ("the trust") which is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund invests primarily in equity
securities of U.S. companies that Putnam Investment Management, Inc.,
("Putnam Management"), the fund's manager, a wholly-owned subsidiary of
Putnam Investments, Inc., believes offer above-average growth prospects
or are undervalued in relation to underlying asset values or earnings
potential and have the potential for long-term appreciation.
The fund offers class A, class B, class C and class M shares. The fund
began offering class C shares on July 26, 1999. Class A shares are sold
with a maximum front-end sales charge of 5.75%. Class B shares, which
convert to class A shares after approximately eight years, do not pay a
front-end sales charge but pay a higher ongoing distribution fee than
class A shares, and are subject to a contingent deferred sales charge,
if those shares are redeemed within six years of purchase. Class C
shares are subject to the same fees and expenses as class B shares,
except that class C shares have a one-year 1.00% contingent deferred
sales charge and do not convert to class A shares. Class M shares are
sold with a maximum front end sales charge of 3.50% and pay an ongoing
distribution fee that is higher than class A shares but lower than class
B and class C shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if that fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities 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.
E) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. 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. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
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
April 30, 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. 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 April 30, 2000, the fund
reclassified $1,815,485 to decrease accumulated net investment loss and
$303 to increase paid-in-capital, with a decrease to accumulated net
realized gains of $1,815,788. 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.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.65% of the
first $500 million of average net assets, 0.55% of the next $500
million, 0.50% of the next $500 million, 0.45% of the next $5 billion,
0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of
the next $5 billion, and 0.38% thereafter.
The 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 April 30, 2000, fund expenses were reduced by $96,850
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 $622
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 Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments, Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00%, 1.00% and 1.00% of the average net assets attributable to class
A, class B, class C and class M shares, respectively. The Trustees have
approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%
and 0.75% of the average net assets attributable to class A, class B,
class C and class M shares, respectively.
For the year ended April 30, 2000, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $101,944 and $7,198 from the
sale of class A and class M shares, respectively, and received $184,627
and $507 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
April 30, 2000, Putnam Mutual Funds Corp., acting as underwriter
received $190 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended April 30, 2000, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $475,719,012 and $450,471,629, respectively. There were no
purchases and sales of U.S. government obligations.
Note 4
Capital shares
At April 30, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
For the year ended April 30, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 5,445,269 $51,932,918
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
5,445,269 51,932,918
Shares
repurchased (3,630,460) (32,355,355)
---------------------------------------------------------------------------
Net increase 1,814,809 $19,577,563
---------------------------------------------------------------------------
For the period June 1, 1998
(commencement of operations) to
April 30, 1999
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 9,759,414 $74,972,006
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 20,372 153,603
---------------------------------------------------------------------------
9,779,786 75,125,609
Shares
repurchased (2,216,620) (16,686,789)
---------------------------------------------------------------------------
Net increase 7,563,166 $58,438,820
---------------------------------------------------------------------------
For the year ended April 30, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 4,325,059 $40,568,489
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
4,325,059 40,568,489
Shares
repurchased (4,671,662) (39,821,976)
---------------------------------------------------------------------------
Net increase
(decrease) (346,603) $ 746,513
---------------------------------------------------------------------------
For the period June 29, 1998
(commencement of operations) to
April 30, 1999
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 13,199,941 $100,903,304
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 11,355 85,613
---------------------------------------------------------------------------
13,211,296 100,988,917
Shares
repurchased (2,659,823) (19,916,740)
---------------------------------------------------------------------------
Net increase 10,551,473 $ 81,072,177
---------------------------------------------------------------------------
For the period July 26, 1999
(commencement of operations) to
April 30, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 223,465 $2,178,970
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
223,465 2,178,970
Shares
repurchased (12,568) (129,098)
---------------------------------------------------------------------------
Net increase 210,897 $2,049,872
---------------------------------------------------------------------------
For the year ended April 30,2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 2,120,405 $18,616,945
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
2,120,405 18,616,945
Shares
repurchased (1,831,813) (16,016,732)
---------------------------------------------------------------------------
Net increase 288,592 $ 2,600,213
---------------------------------------------------------------------------
For the period June 29, 1998
(commencement of operations) to
April 30, 1999
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 1,167,036 $9,038,230
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,006 7,586
---------------------------------------------------------------------------
1,168,042 9,045,816
Shares
repurchased (620,353) (4,703,634)
---------------------------------------------------------------------------
Net increase 547,689 $4,342,182
---------------------------------------------------------------------------
Note 5
Initial capitalization and offering of shares
The fund was established as a Massachusetts business trust on October
31, 1994. During the period October 31, 1994 to June 1, 1998, the fund
had no operations other than those related to organizational matters,
including the initial capital contribution of $2,000,000 and the
issuance of 235,294 class A shares to Putnam Mutual Funds Corp., on May
29, 1998.
FEDERAL TAX INFORMATION
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the
Fund hereby designates $925,503 as capital gain, for its taxable year
ended April 30, 2000.
The fund has designated 0% 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.putnaminv.com
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
John J. Morgan, Jr.
Vice President
Justin Scott
Vice President
Joseph P. Joseph
Vice President and Fund Manager
Sandeep Mehta
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 Capital
Opportunities Fund. It may also be used as sales literature when
preceded or accompanied by the current prospectus, which gives details
of sales charges, investment objectives, and operating policies of the
fund, and the most recent copy of Putnam's Quarterly Performance
Summary. For more information or to request a prospectus, call toll
free: 1-800-225-1581.
You can also learn more at Putnam Investments' Web site: www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board,
or any other agency; and involve risk, including the possible loss of
the principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN068-61446 211 6/00
