Putnam
Research
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
7-31-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.
As we look to the future, we are certain that the changes will be
breathtaking in their scope. What will not change is the Trustees'
dedication to serving the best interests of our shareholders.
We welcome the challenges that lie ahead and are confident that Putnam
and your Board will continue to face those challenges successfully as
they have for more than 60 years. We look forward to helping you meet
your financial objectives for many years to come.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
September 20, 2000
REPORT FROM FUND MANAGEMENT
Putnam Global Equity Research Team
The 12-month period ended July 31, 2000, delivered two distinctly
different -- and at times volatile -- stock market climates. For Putnam
Research Fund, the contrasts and turbulence of the fiscal period helped
illustrate the strength of our disciplined investment strategy. By
focusing on intense research and individual stock selection, your fund
delivered solid returns despite abrupt changes in overall market
conditions.
Total return for 12 months ended 7/31/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
----------------------------------------------------------------------
19.32% 12.47% 18.41% 13.41% 18.43% 17.43% 18.67% 14.51%
----------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
* FUND MAINTAINS FOCUS DESPITE MARKET DECLINES
We last reported to you six months ago, just after the close of a
record-breaking year for the U.S. stock market. The Nasdaq Composite
Index, a common measure of technology stocks, had just delivered the
largest 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, both posted
double-digit gains for a record fifth straight year. This robust
environment continued until March, when a swift and dramatic selloff in
the equity markets sharply reversed investor sentiment. The Nasdaq was
hardest hit, declining more than 35% in the span of just 11 weeks. While
the volatility continued through the end of the fiscal period, the
indexes gradually regained some ground as investors took advantage of
buying opportunities, inflation fears diminished, and the economy showed
signs of slowing.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Banking 11.7%
Pharmaceuticals 11.0%
Electronics 8.0%
Conglomerates 7.3%
Software 6.9%
*Based on net assets as of 7/31/00. Holdings will vary over time.
Despite the market's changing moods, your fund's management team, which
consists of more than 40 global equity analysts, continued to scrutinize
companies and recommend the stocks that they believed offered the best
long-term growth prospects. This commitment to the fund's strategy
proved beneficial: For the 12 months ended July 31, 2000, your fund's
returns at net asset value were more than double the 8.97% return of its
benchmark, the S&P 500 Index. For complete performance information,
refer to page 6.
* STOCK SELECTION VITAL IN RETAIL AND HEALTH CARE
In every sector of the fund's portfolio, our focus on individual stocks
was essential as many industries came under pressure. For example, our
decisions regarding the stock of Lowe's Companies proved worthwhile
despite a tough environment for retail stocks in general. Throughout the
period, the Federal Reserve Board raised interest rates six times in an
effort to keep inflation in check. A rising rate environment typically
makes consumers more cautious in their shopping habits, thus putting
pressure on retail stocks.
While Lowe's, the second largest retailer of home improvement products
in the world, felt the impact of the market declines, we believed it
remained a fundamentally strong company with solid long-term growth
prospects. Lowe's targets the do-it-yourself home improvement, home
decor, and home construction markets and operates 604 stores in 39
states. The company's continued expansion, as well as its strength as
the nation's second largest appliance retailer, contributes to its
growth potential. Toward the midpoint of the fiscal year, after Lowe's
stock had accelerated significantly, we decided to take profits by
selling the fund's position. In the latter half of the period, after the
stock declined, we took advantage of its bargain price and added it to
the portfolio again. Shortly after the close of the period, Lowe's
posted a 21% rise in net income for its fiscal second quarter, providing
a boost for the stock's performance.
"The fact that Putnam Research Fund performed well in fiscal 2000,
despite two distinctly different market environments, is a testament
to the fund's disciplined focus on research and stock selection."
-- James C. Wiess, Putnam Global Equity Research Team
In the health-care portion of the portfolio, the stock of Baxter
International contributed positively to performance. Baxter is the
leading maker of intravenous (IV) supplies and kidney dialysis systems.
The company also makes equipment to collect and separate blood com
ponents and develops therapies for blood-related disorders. Baxter is
aggressively expanding its research-and-development efforts, which
should contribute to the company's future growth potential. 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.
* UTILITIES SECTOR SURPRISES
In the first half of the fiscal year, it would have been difficult to
believe that utilities would be one of the strongest sectors in fiscal
2000. Our focus on the stocks of Entergy Corporation and El Paso Energy
Corporation -- at a time when investors were shunning such old economy
businesses -- proved profitable. Although the entire energy sector
performed well in the latter half of the year, these stocks in
particular made a strong contribution to your fund's returns.
Entergy is a public utility holding company that provides retail
electric and natural gas service to a number of southern states. Entergy
has benefited from industry deregulation -- under which half the
country's states have opened their retail electricity markets to
competition. This has caused energy prices to increase and has rewarded
Entergy with higher profits. In addition, Entergy appears to be
transforming itself from a traditional utility company by seeking new
growth opportunities within the rapidly changing energy sector. El Paso
Energy operates the largest natural gas pipeline system in the United
States and has benefited from strong growth in its non-regulated
businesses.
Microsoft's woes create opportunity for shareholders
The stock of Microsoft provided a positive contribution to your fund's
returns during the 2000 fiscal year. When the stock tumbled in the
wake of the Justice Department antitrust trial and as part of the
technology market correction, we were able to accumulate more shares
at attractive prices. Although there can be no guarantee, we believe
that the company's prospects -- whether it remains whole or is
broken up -- are fundamentally sound and that the stock is worth
holding on to. Microsoft's products still command a strong position
in the marketplace and its management team remains topnotch. Of course,
we will continue to closely monitor developments that occur and reduce
or accumulate the fund's holdings where appropriate.
* DESPITE SHARP DECLINES, TECHNOLOGY OFFERS SOME WINNERS
The technology holdings in your fund's portfolio felt the pressure of
the sector's sharp correction and stocks such as Parametric Technology
and Motorola detracted from performance. However, there were some
standouts in the portfolio, such as ADC Telecommunications, Inc. This
company provides networking equipment, software, and services for cable,
Internet, and telephone companies looking to deliver high-speed
Internet, voice, and video communications. ADC is aggressively seeking
to enter new international markets through acquisitions.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
General Electric Co.
Conglomerates
Microsoft Corp.
Software
Intel Corp.
Electronics
SBC Communications, Inc.
Regional Bells
Bank of America Corp.
Banking
Pfizer, Inc.
Pharmaceuticals
Johnson & Johnson
Pharmaceuticals
Nortel Networks Corp.
Communications equipment
Comerica, Inc.
Banking
Electronic Data Systems Corp.
Technology services
Footnote reads:
These holdings represent 32.3% of the fund's net assets as of 7/31/00.
Portfolio holdings will vary over time.
As we enter a new fiscal year, our outlook is positive for the broader
markets as well as for the individual holdings in your fund's portfolio.
At the close of the period, the Fed's series of interest-rate increases
appeared to have lowered the risk of inflationary pressures in the
market. Businesses were continuing to invest heavily in technology
equipment in a drive to enhance productivity, and the earnings outlook
for most U.S. corporations remained extremely positive. Of course, our
emphasis on disciplined, intensive research will continue unabated.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 7/31/00, there is no guarantee the fund will
continue to hold these securities in the future.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Research Fund is designed for investors seeking capital appreciation
primarily through common stock investments.
TOTAL RETURN FOR PERIODS ENDED 7/31/00
Class A Class B Class C Class M
(inception dates) (10/2/95) (6/15/98) (2/1/99) (6/15/98)
NAV POP NAV CDSC NAV CDSC NAV POP
------------------------------------------------------------------------------
1 year 19.32% 12.47% 18.41% 13.41% 18.43% 17.43% 18.67% 14.51%
------------------------------------------------------------------------------
Life of fund 200.09 182.79 187.85 185.85 189.51 189.51 192.70 182.54
Annual average 25.55 24.01 24.47 24.29 24.62 24.62 24.90 23.99
------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 7/31/00
S&P 500 Consumer
Index price index
-----------------------------------------------------------
1 year 8.97% 3.60%
-----------------------------------------------------------
Life of fund 165.22 12.73
Annual average 22.35 2.51
-----------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 5.75% and
3.50%, respectively. Class B share returns for the 1-year and
life-of-fund periods reflect the applicable contingent deferred sales
charge (CDSC), which is 5% in the first year, declines to 1% in the
sixth year, and is eliminated thereafter. Returns shown for class B and
class M shares for periods prior to their inception are derived from the
historical performance of class A shares, adjusted to reflect both the
initial sales charge or CDSC, if any, currently applicable to each class
and in the case of class B and class M shares the higher operating
expenses applicable to such shares. For class C shares, returns for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the CDSC
currently applicable to class C shares, which is 1% for the first year
and is eliminated thereafter, and the higher operating expenses
applicable to class C shares. All returns assume reinvestment of
distributions at NAV. Investment return and principal value will
fluctuate so that an investor's shares when redeemed may be worth more
or less than their original cost. For a portion of these periods, the
fund was offered on a limited basis and had limited assets.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 10/2/95
Fund's class A S&P 500 Consumer price
Date shares at POP Index index
10/2/95 9,425 10,000 10,000
7/31/96 10,864 11,157 10,261
7/31/97 16,255 16,974 10,483
7/31/98 19,180 20,247 10,659
7/31/99 23,701 24,338 10,881
7/31/00 $28,279 $26,522 $11,273
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 $28,785, or $28,585 with the contingent
deferred sales charge. An investment in the fund's class C shares would
have been valued at $28,951 and no contingent deferred sales charges
would apply; a $10,000 investment in the fund's class M shares would
have been valued at $29,270 ($28,254 at public offering price).
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 7/31/00
Class A Class B Class C Class M
------------------------------------------------------------------------------
Distributions (number) 1 1 1 1
------------------------------------------------------------------------------
Income -- -- -- --
------------------------------------------------------------------------------
Capital gains
Long-term $0.141 $0.141 $0.141 $0.141
------------------------------------------------------------------------------
Short-term 0.882 0.882 0.882 0.882
------------------------------------------------------------------------------
Total $1.023 $1.023 $1.023 $1.023
------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
------------------------------------------------------------------------------
7/31/99 $16.60 $17.61 $16.46 $16.55 $16.51 $17.11
------------------------------------------------------------------------------
7/31/00 18.69 19.83 18.38 18.49 18.48 19.15
------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 6/30/00 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (10/2/95) (6/15/98) (2/1/99) (6/15/98)
NAV POP NAV CDSC NAV CDSC NAV POP
------------------------------------------------------------------------------
1 year 18.81% 11.96% 17.92% 12.91% 17.87% 16.87% 18.24% 14.13%
------------------------------------------------------------------------------
Life of fund 206.19 188.54 193.95 191.95 195.61 195.61 198.88 188.51
Annual average 26.63 25.05 25.54 25.36 25.69 25.69 25.98 25.05
------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost. See first
page of performance section for performance calculation method.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 5.75% maximum sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B or C shares and assumes redemption at the
end of the period. Your fund's class B CDSC declines from a 5% maximum
during the first year to 1% during the sixth year. After the sixth year,
the CDSC no longer applies. The CDSC for class C shares is 1% for one
year after purchase.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index is an unmanaged list of common stocks that
is frequently used as a general measure of stock market performance. It
assumes reinvestment of all distributions and interest payments and does
not take into account brokerage fees or taxes. Securities in the fund do
not match those in the index and performance of the fund will differ. It
is not possible to invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
WELCOME TO WWW.PUTNAMINVESTMENTS.COM
Now you can use your PC to get up-to-date information about your funds,
learn more about investing and retirement planning, and access market
news and economic outlooks from Putnam.
VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
* the benefits of investing with Putnam
* Putnam's money management philosophy
* complete fund information, daily pricing and long-term performance
* your current account value, portfolio value and transaction history
* the latest on new funds and other Putnam news
You can also read Putnam economist Dr. Robert Goodman's commentary and
Putnam's Capital Markets outlook, search for a particular fund by name
or objective, use our glossary to decode investment terms . . . and much
more.
The site can be accessed through any of the major online services
(America Online, CompuServe, Prodigy) that offer web access. Of course,
you can also access it via Netscape or Microsoft Internet Explorer,
using an independent Internet service provider.
New features will be added to the site regularly. So be sure to bookmark us at
http://www.putnaminvestments.com
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 Research Fund
We have audited the accompanying statement of assets and liabilities of
Putnam Research Fund (a series of Putnam Investment Funds),
including the fund's portfolio, as of July 31, 2000, the related
statement of operations for the year then ended, and the statements of
changes in net assets and financial highlights for each of the years or
periods in the two-year period then ended.These financial statements and
financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for each of the years in the three-year period ended July 31,
1998 were audited by other auditors whose report dated September 10,
1998 expressed an unqualified opinion on those financial highlights.
We conducted our audits 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 July 31, 2000, by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Research Fund as of July 31, 2000, the
results of its operations for the year then ended, changes in its net
assets and financial highlights for each of the years or periods in the
two-year period then ended, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Boston, Massachusetts
August 31, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
July 31, 2000
COMMON STOCKS (99.2%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Banking (11.7%)
-------------------------------------------------------------------------------------------------------------------
1,400,000 Bank of America Corp. $ 66,325,000
977,700 Comerica, Inc. 49,862,700
346,300 Fifth Third Bancorp 14,306,519
1,437,500 Firstar Corp. 28,390,625
49,600 M & T Bank Corp. 23,432,900
755,200 Wells Fargo Co. 31,199,200
558,700 Zions Bancorp 24,443,125
----------------
237,960,069
Beverage (1.0%)
-------------------------------------------------------------------------------------------------------------------
1,045,800 Coca-Cola Enterprises, Inc. 20,066,288
Broadcasting (2.6%)
-------------------------------------------------------------------------------------------------------------------
221,000 AMFM, Inc. (NON) 15,787,688
491,900 Clear Channel Communications, Inc. (NON) 37,476,631
----------------
53,264,319
Chemicals (0.7%)
-------------------------------------------------------------------------------------------------------------------
265,700 Avery Dennison Corp. 14,414,225
Communications Equipment (6.9%)
-------------------------------------------------------------------------------------------------------------------
535,600 ADC Telecommunications, Inc. (NON) 22,461,725
111,000 Corning, Inc. 25,967,063
327,300 Nokia Oyj ADR (Finland) 14,503,481
702,400 Nortel Networks Corp. (Canada) 52,241,000
379,000 Tellabs, Inc. (NON) 24,635,000
----------------
139,808,269
Computers (6.6%)
-------------------------------------------------------------------------------------------------------------------
370,200 Apple Computer, Inc. (NON) 18,810,788
789,400 Dell Computer Corp. (NON) 34,684,263
563,900 Gateway, Inc. (NON) 31,120,231
318,600 Hewlett-Packard Co. 34,787,138
332,500 Lexmark International Group, Inc. Class A (NON) 14,983,281
----------------
134,385,701
Conglomerates (7.3%)
-------------------------------------------------------------------------------------------------------------------
1,980,200 General Electric Co. (SEG) 101,856,538
856,100 Tyco International, Ltd. 45,801,350
----------------
147,657,888
Consumer Finance (1.6%)
-------------------------------------------------------------------------------------------------------------------
316,700 Providian Financial Corp. 32,283,606
Electric Utilities (3.5%)
-------------------------------------------------------------------------------------------------------------------
1,103,600 CP&L, Inc. 36,901,625
1,284,800 Entergy Corp. 34,850,200
----------------
71,751,825
Electronics (8.0%)
-------------------------------------------------------------------------------------------------------------------
322,700 Agilent Technologies, Inc. (NON) 13,150,025
108,000 Applied Micro Circuits Corp. (NON) 16,119,000
1,063,200 Intel Corp. 70,968,600
178,100 JDS Uniphase Corp. (NON) 21,038,063
276,500 LSI Logic Corp. (NON) 9,366,438
220,100 Micron Technology, Inc. (NON) 17,938,150
71,200 PMC-Sierra, Inc. (NON) 13,799,450
----------------
162,379,726
Energy (1.0%)
-------------------------------------------------------------------------------------------------------------------
583,700 Baker Hughes, Inc. 20,210,613
Entertainment (1.9%)
-------------------------------------------------------------------------------------------------------------------
571,100 Viacom, Inc. Class B (NON) 37,871,069
Health Care Services (1.7%)
-------------------------------------------------------------------------------------------------------------------
456,300 Baxter International, Inc. 35,477,325
Insurance (1.9%)
-------------------------------------------------------------------------------------------------------------------
563,100 American General Corp. 37,551,731
Media (2.6%)
-------------------------------------------------------------------------------------------------------------------
1,115,400 AT&T Corp. - Liberty Media Group Class A (NON) 24,817,650
357,300 Time Warner, Inc. 27,400,444
----------------
52,218,094
Natural Gas Utilities (1.4%)
-------------------------------------------------------------------------------------------------------------------
567,400 El Paso Energy Corp. 27,447,975
Oil & Gas (1.6%)
-------------------------------------------------------------------------------------------------------------------
1,430,100 Conoco, Inc. 31,998,488
Paper & Forest Products (1.3%)
-------------------------------------------------------------------------------------------------------------------
2,084,500 Smurfit-Stone Container Corp. (NON) 25,925,969
Pharmaceuticals (11.0%)
-------------------------------------------------------------------------------------------------------------------
422,400 Elan Corp. PLC ADR (Ireland) (NON) 22,572,000
634,000 Johnson & Johnson 59,001,625
1,488,700 Pfizer, Inc. 64,200,188
719,400 Pharmacia Corp. 39,387,150
877,100 Schering-Plough Corp. 37,879,756
----------------
223,040,719
Railroads (1.3%)
-------------------------------------------------------------------------------------------------------------------
1,099,900 Burlington Northern Santa Fe Corp. 26,878,806
Regional Bells (5.0%)
-------------------------------------------------------------------------------------------------------------------
1,631,300 SBC Communications, Inc. 69,432,206
679,200 Verizon Communications 31,922,400
----------------
101,354,606
Retail (3.5%)
-------------------------------------------------------------------------------------------------------------------
747,300 Lowe's Companies, Inc. 31,526,719
726,300 Wal-Mart Stores, Inc. 39,901,106
----------------
71,427,825
Satellite Broadcasting (1.3%)
-------------------------------------------------------------------------------------------------------------------
1,029,700 General Motors Corp. Class H (NON) 26,643,488
Software (6.9%)
-------------------------------------------------------------------------------------------------------------------
117,600 I2 Technologies, Inc. (NON) 15,258,600
131,100 Inktomi Corp. (NON) 14,027,700
1,072,600 Microsoft Corp. (NON) 74,880,888
569,700 Parametric Technology Corp. (NON) 5,697,000
78,500 VeriSign, Inc. (NON) 12,456,969
172,500 VERITAS Software Corp. (NON) 17,584,219
----------------
139,905,376
Technology Services (4.6%)
-------------------------------------------------------------------------------------------------------------------
587,100 America Online, Inc. (NON) 31,299,769
264,600 CheckFree Holdings Corp. (NON) 16,074,450
1,074,000 Electronic Data Systems Corp. 46,182,000
----------------
93,556,219
Telecommunications (2.3%)
-------------------------------------------------------------------------------------------------------------------
259,900 ALLTEL Corp. 16,016,338
331,300 Sprint Corp. (PCS Group) (NON) 18,304,318
296,400 Vodafone Group PLC ADR (United Kingdom) 12,782,250
----------------
47,102,906
----------------
Total Common Stocks (cost $1,893,362,727) $ 2,012,583,125
SHORT-TERM INVESTMENTS (1.4%) (a) (cost $29,362,000)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$29,362,000 Interest in $500,000,000 joint tri-party repurchase agreement
dated July 31, 2000 with Lehman Brothers, Inc. due
August 1, 2000 with respect to various U.S. Treasury
obligations--maturity value of $29,367,367 for an
effective yield of 6.58% $ 29,362,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,922,724,727) (b) $ 2,041,945,125
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,028,064,660.
(b) The aggregate identified cost on a tax basis is $1,942,944,771
resulting in gross unrealized appreciation and depreciation of
$227,258,504 and $128,258,150, respectively, or net unrealized
appreciation of $99,000,354.
(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 at July
31, 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 July 31, 2000
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
-----------------------------------------------------------------------
S&P 500 Index
(Long) $5,395,875 $5,460,011 Sep-00 $(64,136)
-----------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,922,724,727) (Note 1) $2,041,945,125
-------------------------------------------------------------------------------------------
Cash 673
-------------------------------------------------------------------------------------------
Dividends, interest, and other receivables 1,010,558
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 9,412,701
-------------------------------------------------------------------------------------------
Receivable for securities sold 22,115,068
-------------------------------------------------------------------------------------------
Receivable for variation margin 5,484
-------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 295
-------------------------------------------------------------------------------------------
Total assets 2,074,489,904
Liabilities
-------------------------------------------------------------------------------------------
Payable for securities purchased 40,184,348
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,156,648
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,280,426
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 328,500
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 11,392
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,476
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,123,206
-------------------------------------------------------------------------------------------
Other accrued expenses 339,248
-------------------------------------------------------------------------------------------
Total liabilities 46,425,244
-------------------------------------------------------------------------------------------
Net assets $2,028,064,660
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,746,859,481
-------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 162,048,917
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 119,156,262
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,028,064,660
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($913,311,665 divided by 48,869,854 shares) $18.69
-------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $18.69)* $19.83
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($906,430,486 divided by 49,317,868 shares)** $18.38
-------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($106,086,728 divided by 5,737,884 shares)** $18.49
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($62,833,593 divided by 3,399,919 shares) $18.48
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $18.48)* $19.15
-------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($39,402,188 divided by 2,106,137 shares) $18.71
-------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended July 31, 2000
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $38,573) $ 15,442,676
-------------------------------------------------------------------------------------------
Interest 997,143
-------------------------------------------------------------------------------------------
Total investment income 16,439,819
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 9,330,111
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,145,496
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 36,355
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 20,665
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,720,126
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 7,212,842
-------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 675,081
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 398,878
-------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 944
-------------------------------------------------------------------------------------------
Other 1,052,560
-------------------------------------------------------------------------------------------
Total expenses 22,593,058
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (344,399)
-------------------------------------------------------------------------------------------
Net expenses 22,248,659
-------------------------------------------------------------------------------------------
Net investment loss (5,808,840)
-------------------------------------------------------------------------------------------
Net realized gain on investments (Note 1) 197,946,593
-------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (40,781)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
futures contracts during the year 49,846,417
-------------------------------------------------------------------------------------------
Net gain on investments 247,752,229
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $241,943,389
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended July 31
---------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment loss $ (5,808,840) $ (1,711,150)
--------------------------------------------------------------------------------------------------
Net realized gain on investments 197,905,812 49,808,576
--------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 49,846,417 69,807,335
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 241,943,389 117,904,761
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (34,762,869) (886,819)
--------------------------------------------------------------------------------------------------
Class B (37,359,407) (903,792)
--------------------------------------------------------------------------------------------------
Class C (3,121,131) --
--------------------------------------------------------------------------------------------------
Class M (2,839,707) (80,348)
--------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 819,475,847 764,851,437
--------------------------------------------------------------------------------------------------
Total increase in net assets 983,336,122 880,885,239
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 1,044,728,538 163,843,299
--------------------------------------------------------------------------------------------------
End of year $2,028,064,660 $1,044,728,538
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS A
--------------------------------------------------------------------------------------------------------
For the period
Per-share Oct. 2, 1995+
operating performance Year ended July 31 to July 31
--------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $16.60 $13.49 $13.58 $9.75 $8.50
--------------------------------------------------------------------------------------------------------
Investment operations
--------------------------------------------------------------------------------------------------------
Net investment income .01(c) .02(c) .02(c)(d) .10(d) .09(c)(d)
--------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.10 3.15 2.03 4.52 1.21
--------------------------------------------------------------------------------------------------------
Total from
investment operations 3.11 3.17 2.05 4.62 1.30
--------------------------------------------------------------------------------------------------------
Less distributions:
--------------------------------------------------------------------------------------------------------
From net
investment income -- -- (.08) (.09) (.05)
--------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.02) (.06) (2.06) (.70) --
--------------------------------------------------------------------------------------------------------
Total distributions (1.02) (.06) (2.14) (.79) (.05)
--------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.69 $16.60 $13.49 $13.58 $9.75
--------------------------------------------------------------------------------------------------------
Ratios and supplemental data
--------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 19.32 23.57 18.00 49.62 15.28*
--------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $913,312 $475,954 $90,282 $11,509 $6,619
--------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.07 1.08 1.04(d) 1.00(d) .86*(d)
--------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .02 .10 .28(d) .82(d) .92*(d)
--------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 159.24 126.14 129.01 119.20 80.74*
--------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges. Total returns for periods prior to 1999
reflect an expense limitation. Without the limitation total returns
would have been lower.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund reflect a reduction of
$0.01 for class A, and less than $0.01 for Class B and Class M for the
period ending July 31, 1998. Expenses for the periods ending July 31,
1997 and July 31, 1996, reflect a reduction of $0.02 and $0.05 per
share, respectively.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS B
----------------------------------------------------------------------
For the period
Per-share June 15, 1998+
operating performance Year ended July 31 to July 31
----------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $16.46 $13.49 $13.00
----------------------------------------------------------------------
Investment operations
----------------------------------------------------------------------
Net investment loss (c) (.13) (.11) (.01)(d)
----------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.07 3.14 .50
----------------------------------------------------------------------
Total from
investment operations 2.94 3.03 .49
----------------------------------------------------------------------
Less distributions:
----------------------------------------------------------------------
From net
investment income -- -- --
----------------------------------------------------------------------
From net realized gain
on investments (1.02) (.06) --
----------------------------------------------------------------------
Total distributions (1.02) (.06) --
----------------------------------------------------------------------
Net asset value,
end of period $18.38 $16.46 $13.49
----------------------------------------------------------------------
Ratios and supplemental data
----------------------------------------------------------------------
Total return at
net asset value (%)(a) 18.41 22.53 3.77*
----------------------------------------------------------------------
Net assets, end of period
(in thousands) $906,430 $494,452 $66,317
----------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.82 1.83 .26*(d)
----------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.73) (.66) (.12)*(d)
----------------------------------------------------------------------
Portfolio turnover (%) 159.24 126.14 129.01
---------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges. Total returns for periods prior to 1999
reflect an expense limitation. Without the limitation total returns
would have been lower.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund reflect a reduction of
$0.01 for class A, and less than $0.01 for Class B and Class M for the
period ending July 31, 1998. Expenses for the periods ending July 31,
1997 and July 31, 1996, reflect a reduction of $0.02 and $0.05 per
share, respectively.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS C
-------------------------------------------------------------------------
For the period
Per-share Year ended Feb. 1, 1999+
operating performance July 31 to July 31
-------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $16.55 $15.81
-------------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------------
Net investment loss (c) (.13) (.05)
-------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.09 .79
-------------------------------------------------------------------------
Total from
investment operations 2.96 .74
-------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------
From net
investment income -- --
-------------------------------------------------------------------------
From net realized gain
on investments (1.02) --
-------------------------------------------------------------------------
Total distributions (1.02) --
-------------------------------------------------------------------------
Net asset value,
end of period $18.49 $16.55
-------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------
Total return at
net asset value (%)(a) 18.43 4.68*
-------------------------------------------------------------------------
Net assets, end of period
(in thousands) $106,087 $31,963
-------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.82 .91*
-------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.73) (.35)*
-------------------------------------------------------------------------
Portfolio turnover (%) 159.24 126.14
-------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges. Total returns for periods prior to 1999
reflect an expense limitation. Without the limitation total returns
would have been lower.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund reflect a reduction of
$0.01 for class A, and less than $0.01 for Class B and Class M for the
period ending July 31, 1998. Expenses for the periods ending July 31,
1997 and July 31, 1996, reflect a reduction of $0.02 and $0.05 per
share, respectively.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS M
----------------------------------------------------------------------
For the period
Per-share June 15, 1998+
operating performance Year ended July 31 to July 31
----------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $16.51 $13.49 $13.00
----------------------------------------------------------------------
Investment operations
----------------------------------------------------------------------
Net investment loss (c) (.08) (.06) (.01)(d)
----------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.07 3.14 .50
----------------------------------------------------------------------
Total from
investment operations 2.99 3.08 .49
----------------------------------------------------------------------
Less distributions:
----------------------------------------------------------------------
From net
investment income -- -- --
----------------------------------------------------------------------
From net realized gain
on investments (1.02) (.06) --
----------------------------------------------------------------------
Total distributions (1.02) (.06) --
----------------------------------------------------------------------
Net asset value,
end of period $18.48 $16.51 $13.49
----------------------------------------------------------------------
Ratios and supplemental data
----------------------------------------------------------------------
Total return at
net asset value (%)(a) 18.67 22.90 3.77*
----------------------------------------------------------------------
Net assets, end of period
(in thousands) $62,834 $42,359 $7,244
----------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.57 1.58 .23*(d)
----------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.47) (.40) (.08)*(d)
----------------------------------------------------------------------
Portfolio turnover (%) 159.24 126.14 129.01
----------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges. Total returns for periods prior to 1999
reflect an expense limitation. Without the limitation total returns
would have been lower.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund reflect a reduction of
$0.01 for class A, and less than $0.01 for Class B and Class M for the
period ending July 31, 1998. Expenses for the periods ending July 31,
1997 and July 31, 1996, reflect a reduction of $0.02 and $0.05 per
share, respectively.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS Y
-----------------------------------------------------
For the period
Per-share April 4, 2000+
operating performance to July 31
-----------------------------------------------------
2000
-----------------------------------------------------
<S> <C>
Net asset value,
beginning of period $18.94
-----------------------------------------------------
Investment operations
-----------------------------------------------------
Net investment income (c) .01
-----------------------------------------------------
Net realized and unrealized
loss on investments (.24)
-----------------------------------------------------
Total from
investment operations (.23)
-----------------------------------------------------
Less distributions:
-----------------------------------------------------
From net
investment income --
-----------------------------------------------------
From net realized gain
on investments --
-----------------------------------------------------
Total distributions --
-----------------------------------------------------
Net asset value,
end of period $18.71
-----------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------
Total return at
net asset value (%)(a) (1.21)*
-----------------------------------------------------
Net assets, end of period
(in thousands) $39,402
-----------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .27*
-----------------------------------------------------
Ratio of net investment income
to average net assets (%) .08*
-----------------------------------------------------
Portfolio turnover (%) 159.24
-----------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges. Total returns for periods prior to 1999
reflect an expense limitation. Without the limitation total returns
would have been lower.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund reflect a reduction of
$0.01 for class A, and less than $0.01 for Class B and Class M for the
period ending July 31, 1998. Expenses for the periods ending July 31,
1997 and July 31, 1996, reflect a reduction of $0.02 and $0.05 per
share, respectively.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
July 31, 2000
Note 1
Significant accounting policies
Putnam Research Fund ("the fund") is one of a series of Putnam
Investment Funds (the "trust") which is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The objective of the fund is to seek capital
appreciation by investing primarily in common stocks.
The fund offers class A, class B, class C, class M and class Y shares.
The fund began offering class Y shares on April 4, 2000. Class A shares
are sold with a maximum front-end sales charge of 5.75%. Class B shares,
which convert to class A shares after approximately eight years, do not
pay a front-end sales charge but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
C shares are subject to the same fees and expenses as class B shares,
except that class C shares have a one-year 1.00% contingent deferred
sales charge and do not convert to class A shares. Class M shares are
sold with a maximum front end sales charge of 3.50% and pay an ongoing
distribution fee that is higher than class A shares but lower than class
B and class C shares. Class Y shares, which are sold at net asset value,
are generally subject to the same expenses as class A, class B, class C
and class M shares, but do not bear a distribution fee. Class Y shares
are sold to defined contribution plans that invest at least $150 million
in a combination of Putnam funds and other accounts managed by
affiliates of Putnam Management.
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. Non-cash dividends, if any, are recorded at
the fair market value of the securities received.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
manager, a wholly-owned subsidiary of Putnam Investments, Inc. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Gains or losses on securities sold are determined
on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date.
E) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended
July 31, 2000, the fund had no borrowings against the line of credit.
F) 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.
G) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences include temporary and permanent
differences of losses on wash sale transactions, organization costs,
unrealized gains and losses on certain futures contracts, and net
operating loss. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations. For the
year ended July 31, 2000, the fund reclassified $5,808,840 to decrease
accumulated net investment loss and $5,107 to decrease paid-in-capital,
with a decrease to accumulated net realized gains and losses of
$5,803,733. The calculation of net investment income per share in the
financial highlights table excludes these adjustments.
I) Expenses of the trust Expenses directly charged or attributable to
any fund will be paid from the assets of that fund. Generally, expenses
of the trust will be allocated among and charged to the assets of each
fund on a basis that the Trustees deem fair and equitable, which may be
based on the relative assets of each fund or the nature of the services
performed and relative applicability to each fund.
J) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities
and Exchange Commission and with various states and the initial public
offering of its shares were $8,843. These expenses are being amortized
on projected net asset levels over a five-year period. The fund will
reimburse Putnam Management for the payment of these expenses.
Note 2
Management fee, administrative
services, and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fees are based on the following annual rates: 0.65% of
the first $500 million of average net assets, 0.55% of the next $500
million, 0.50% of the next $500 million, 0.45% of the next $5 billion,
0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of
the next $5 billion, and 0.38% thereafter.
The base fee is subject to a performance adjustment based on the
investment performance of the fund compared to changes in the value of
the Standard & Poor's 500 ("S&P 500") composite Stock Price Index.
Performance will be calculated for these purposes at the beginning of
each fiscal quarter, for the thirty-six month period immediately
preceding such quarter or the life of the fund, if shorter. The
applicable base fee will be increased or decreased for each calendar
quarter by an incentive payment or penalty at the annual rate of 0.01%
of the fund's average net assets for each 1% increment by which the fund
outperforms or underperforms the S&P in excess of 3.0%, subject to a
maximum increase or decrease of 0.07% of average net assets. As of July
31, 2000, the management fee has been increased the maximum of 0.07% at
each tier.
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 July 31, 2000, fund expenses were reduced by $344,399
under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the
Statement of operations exclude these credits. The fund could have
invested a portion of the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered
into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $1,753
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B, class C and class M shares pursuant to Rule 12b-1
under the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Retail Management, Inc., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Retail Management, Inc. at an annual rate up to
0.35%, 1.00%, 1.00% and 1.00% of the average net assets attributable to
class A, class B, class C and class M shares, respectively. The Trustees
have approved payment by the fund at an annual rate of 0.25%, 1.00%,
1.00% and 0.75% of the average net assets attributable to class A, class
B, class C and class M shares respectively.
For the year ended July 31, 2000, Putnam Retail Management, Inc., acting
as underwriter received net commissions of $1,198,542 and $45,323 from
the sale of class A and class M shares, respectively, and received
$994,993 and $28,104 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. A deferred
sales charge of up to 1% is assessed on certain redemptions of class A
shares. For the year ended July 31, 2000, Putnam Retail Management,
Inc., acting as underwriter received $8,828 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended July 31, 2000, cost of purchases and proceeds from
sales of investment securities other than short-term investments
aggregated $3,142,861,813 and $2,413,311,935, respectively. There were
no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At July 31, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended July 31, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 28,760,900 $517,080,652
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,952,993 33,454,758
---------------------------------------------------------------------------
30,713,893 550,535,410
Shares
repurchased (10,515,408) (189,072,332)
---------------------------------------------------------------------------
Net increase 20,198,485 $361,463,078
---------------------------------------------------------------------------
Year ended July 31, 1999
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 26,408,659 $397,013,773
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 58,245 880,850
---------------------------------------------------------------------------
26,466,904 397,894,623
Shares
repurchased (4,485,828) (67,855,299)
---------------------------------------------------------------------------
Net increase 21,981,076 $330,039,324
---------------------------------------------------------------------------
Year ended July 31, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 24,450,846 $427,647,966
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,035,489 34,460,827
---------------------------------------------------------------------------
26,486,335 462,108,793
Shares
repurchased (7,204,096) (126,681,589)
---------------------------------------------------------------------------
Net increase 19,282,239 $335,427,204
---------------------------------------------------------------------------
Year ended July 31, 1999
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 27,970,416 $417,009,888
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 57,453 896,930
---------------------------------------------------------------------------
28,027,869 417,906,818
Shares
repurchased (2,909,682) (44,577,274)
---------------------------------------------------------------------------
Net increase 25,118,187 $373,329,544
---------------------------------------------------------------------------
Year ended July 31, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 4,193,578 $74,403,348
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 152,231 2,592,489
---------------------------------------------------------------------------
4,345,809 76,995,837
Shares
repurchased (538,901) (9,558,182)
---------------------------------------------------------------------------
Net increase 3,806,908 $67,437,655
---------------------------------------------------------------------------
For the period February 1, 1999
(commencement of operations)
to July 31, 1999
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 1,987,362 $32,284,383
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
1,987,362 32,284,383
Shares
repurchased (56,386) (925,968)
---------------------------------------------------------------------------
Net increase 1,930,976 $31,358,415
---------------------------------------------------------------------------
Year ended July 31, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 1,669,348 $29,572,768
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 162,871 2,767,194
---------------------------------------------------------------------------
1,832,219 32,339,962
Shares
repurchased (998,648) (17,578,495)
---------------------------------------------------------------------------
Net increase 833,571 $14,761,467
---------------------------------------------------------------------------
Year ended July 31, 1999
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 2,469,280 $36,684,699
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,391 79,877
---------------------------------------------------------------------------
2,474,671 36,764,576
Shares
repurchased (445,333) (6,640,422)
---------------------------------------------------------------------------
Net increase 2,029,338 $30,124,154
---------------------------------------------------------------------------
For the period April 4, 2000
(commencement of operations)
to July 31, 2000
---------------------------------------------------------------------------
Class Y Shares Amount
---------------------------------------------------------------------------
Shares sold 2,145,373 $41,118,336
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
2,145,373 41,118,336
Shares
repurchased (39,236) (731,893)
---------------------------------------------------------------------------
Net increase 2,106,137 $40,386,443
---------------------------------------------------------------------------
FEDERAL TAX INFORMATION
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the
Fund hereby designates $45,191,732 as capital gain, for its taxable year
ended July 31, 2000.
The fund has designated 9.28% 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.
THE PUTNAM FAMILY OF FUNDS
The following is a complete list of Putnam's open-end mutual funds.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain
a prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you
invest or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Century Growth Fund
New Opportunities Fund
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Technology Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Fund
Balanced Retirement Fund
Classic Equity Fund *
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
International Growth and Income Fund
New Value Fund
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund **
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK] **
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Growth and Income Fund II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at
www.putnaminvestments.com.
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
KPMG LLP
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
John J. Morgan Jr.
Vice President
Justin Scott
Vice President
Thomas Haslett
Vice President
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 Research
Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary and
Putnam Quarterly Ranking Summary. For more information or to request a
prospectus, call toll free: 1-800-225-1581.
You can also learn more at Putnam Investments' Web site:
www.putnaminvestments.com.
Not FDIC Insured, May Lose Value, No Bank Guarantee
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
PRST STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
AN067 63671 2AQ/2JK/2JL/2JM 9/00
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
---------------------------------------------------------------------------
Putnam Research Fund
Supplement to Annual Report dated 7/31/00
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to defined contribution plans investing $150 million or
more in one or more of Putnam's funds or private accounts. Performance of
class Y shares, which incur neither a front-end load, distribution fee, nor
contingent deferred sales charge, will differ from performance of class A,
B, C, and M shares, which are discussed more extensively in the annual
report.
ANNUAL RESULTS AT A GLANCE
---------------------------------------------------------------------------
Total return for periods ended 7/31/00
NAV
1 year 20.45%
Life of fund (since class A inception, 10/2/95) 218.16
Annual average 27.08
Share value: NAV
7/31/99 $16.41
7/31/00 $18.71
---------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
0 -- -- --
---------------------------------------------------------------------------
Please note that past performance is not indicative of future results. More
recent returns may be more or less than those shown. Returns shown for
class Y shares for periods prior to their inception are derived from the
historical performance of class A shares, adjusted to reflect the initial
sales charge currently applicable to class A shares. These returns have not
been adjusted to reflect differences in operating expenses which, for class
Y shares, typically are lower than the operating expenses applicable to
class A shares. All returns assume reinvestment of distributions at net
asset value. Investment return and principal value will fluctuate so your
shares, when redeemed, may be worth more or less than their original cost.
See full report for information on comparative benchmarks. If you have
questions, please consult your fund prospectus or call Putnam toll free at
1-800-752-9894.
Putnam
Growth
Opportunities
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
7-31-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.
As we look to the future, we are certain that the changes will be
breathtaking in their scope. What will not change is the Trustees'
dedication to serving the best interests of our shareholders.
We welcome the challenges that lie ahead and are confident that Putnam
and your Board will continue to face those challenges successfully as
they have for more than 60 years. We look forward to helping you meet
your financial objectives for many years to come.
Respectfully yours,
/S/ JOHN A. HILL /S/GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
September 20, 2000
REPORT FROM FUND MANAGEMENT
Jeffrey R. Lindsey
C. Beth Cotner
David J. Santos
The market giveth and the market taketh away. This was certainly the
case for many common stock mutual funds over the 12 months ended July
31, 2000. Fortunately for Putnam Growth Opportunities Fund, the hefty
gains that were realized by portfolio holdings in the first half of the
fiscal year enabled the fund to endure the market's challenges this
spring and still produce a double-digit return by period's end.
Individual security selection played the most vital role in performance.
By utilizing Putnam's extensive research capabilities, we were able to
identify companies whose growth potential represents a long-term trend
despite possible bouts of stock price volatility.
Total return for 12 months ended 7/31/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
----------------------------------------------------------------------
37.33% 29.45% 36.32% 31.32% 36.37% 35.37% 36.60% 31.84%
----------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
* INFLATION CONCERNS DRAG STOCKS DOWN
In the first six months of the period, the pace of the economic
expansion fueled the performance of many stocks in which your fund
invests, particularly those in the technology, wireless, and media
sectors. Many fund holdings soared in price. In the latter half of the
period, the economy once again played a starring role in market
performance, although not a desirable one. As productivity and corporate
profitability continued to accelerate and unemployment numbers declined,
inflation became a real threat. To keep inflation at bay, the Federal
Reserve Board continued its series of interest-rate increases through
May.
Initially, when the rate increases began last August, investors and the
markets viewed them favorably. Technology stocks and their closely
related new-age brethren were everyone's darlings. As the period
progressed, however, worries surfaced about the possibility that the
economy and, in turn, corporate profitability might slow too much in
response to the Fed's actions. This fear combined with the federal
government's antitrust ruling against Microsoft to create a meaningful
correction in the stock market. Small- and mid-cap technology stocks,
many of which had reached lofty price levels that many pundits thought
unsustainable, led the decline. In just a few weeks this past spring,
the technology-laden Nasdaq Composite lost 37% of its value. Your fund
did not escape the downturn unscathed and many fund holdings came under
pressure late in the period.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Communications
equipment 15.4%
Electronics 12.6%
Software 11.0%
Conglomerates 9.1%
Computers 7.9%
Footnote reads:
*Based on net assets as of 7/31/00. Holdings will vary over time.
* INDUSTRY LEADERS DOMINATE PORTFOLIO
Even given the recent volatility, the fund's purposeful positioning in
technology, wireless, and media stocks at the fiscal year's outset set
the stage for its outperformance. High consumer and corporate demand
along with ongoing consolidation has created a solid foundation for the
dynamic long-term growth potential of many stocks. Your fund held quite
a few top performers.
Cisco Systems is one example. It is a computer networking giant that
develops high-speed routers to send large amounts of information
efficiently across computer networks. QUALCOMM, Inc., was another
standout and the fund's largest position until we recently eliminated it
to realize profits. This company was the developer of the unique CDMA
(code-division multiple access). CDMA has not only set the standard for
how voice and data are transmitted over the airwaves but also provided
the technology utilized by one of the biggest and most profitable
cellular phone service providers in the United States, Sprint PCS,
another fund holding.
Sprint PCS and Nextel Communications, another cellular phone service
provider, have benefited substantially from the boom in cellular phone
subscriber growth. So has Nokia OYJ, the largest cellular hand-set
producer in the world. While these holdings, along with others discussed
in this report, were viewed favorably at the end of the period, all are
subject to review in accordance with the fund's investment strategy and
may vary in the future.
Sun Microsystems, Inc., the biggest contributor to your fund's
performance during the period, is the premier provider of hardware and
software to companies that want to establish an Internet presence and
build their e-commerce abilities. Other notable holdings include EMC
Corp., a leading data storage provider, and Oracle Corp., which develops
database software enabling companies to conduct business-to-business
(B2B) exchanges over the Internet.
Morningstar gave Putnam Growth Opportunities Fund's class A shares its
highest rating of 5 stars for overall performance as of July 31, 2000.
Of the 3,776 domestic equity funds rated, the top 10% received 5 stars.
Past performance is not indicative of future results. Morningstar
ratings reflect risk-adjusted performance through 7/31/00 and are
subject to change every month. Morningstar ratings are calculated from a
fund's 3-, 5-, and 10-year returns (with fee adjustments) in excess of
90-day Treasury bill returns. For 3-year performance, the fund's class A
shares received 5 stars and 3,776 domestic equity funds were rated. The
top 10% of funds in an investment category receive 5 stars. The fund was
not rated over longer periods. Ratings for other share classes will
vary.
Media holdings such as Viacom, which purchased CBS, and Time Warner,
which is in the process of being acquired by America Online, were also
strong performance contributors. Two other media enterprises worthy of
mention are AT&T Corp.-Liberty Media Group, which owns properties around
the world, and Clear Channel Communications, Inc., which purchased
Chancellor Broadcasting earlier in the period and more recently acquired
SFX Entertainment. We believe Liberty and Clear Channel both show
promise for the years ahead despite suffering a bit in the recent
downturn.
THE INTERNET'S FAR REACH
The Internet is fast coming of age, if it isn't there already. A decade
ago, the Internet was hardly a household word let alone the buzz of
corporate board rooms. Within 10 years, the Internet's vast potential
has spawned new industries as well as companies and added expansion
potential to others. No longer is it simply a way to buy holiday
presents online. Clearly technology-related companies that can develop
the equipment to support the Internet's infrastructure, store data,
enable humans to access it via the airwaves, and allow companies
worldwide to conduct business with each other will be in great demand.
That said, however, Putnam Growth Opportunities is definitely not an
Internet fund. But it is our opinion that the companies wishing to
dominate their industries will have the Internet as some integral
component of their corporate strategy, product development, or service
offering. Consequently, companies' Internet connections are one of the
key areas we study in assessing their growth potential and targeting
those we believe are best positioned to excel.
* HEALTH-CARE FOCUS ON BIOTECH
In comparison to portfolio positioning in years past, the fund's
exposure to the health-care sector is underweight relative to that of
its benchmark primarily because of limited positions in pharmaceuticals.
This strategy helped the fund during the first half and detracted
somewhat from performance in the second half, when investors poured out
of the tech stocks and sought shelter in historically stable investments
such as drug companies. The fund did hold positions, however, in
Warner-Lambert and Pfizer, which merged, and Eli Lilly. Late in the
period, we began slowly adding back to positions such as Eli Lilly and
we purchased Pharmacia.
A significant portion of the portfolio's health-care exposure currently
lies in biotechnology. This is where we believe the sector's next leg of
growth will be. Two holdings worthy of note include Amgen and Genentech.
Both companies have what appear to be blockbuster drugs on the market or
in the pipeline that are designed to fight off cancer, chronic kidney
failure, and heart disease.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Cisco Systems, Inc.
Communications equipment
General Electric Co.
Conglomerates
Intel Corp.
Electronics
Sun Microsystems, Inc.
Computers
Nokia OYJ ADR
Communications equipment
Pfizer, Inc.
Pharmaceuticals
Microsoft Corp.
Software
EMC Corp.
Computers
Tyco International, Ltd.
Conglomerates
Viacom, Inc. class B
Entertainment
Footnote reads:
These holdings represent 42.4% of the fund's net assets as of 7/31/00.
Portfolio holdings will vary over time.
* CHOPPY MARKET LIKELY IN SHORT TERM
In early June, a slowdown in retail sales along with other early
economic indicators suggested that the Fed's determination to control
inflation seemed to have been achieved. It appeared that a soft landing
for the economy would be the likely outcome. Unfortunately second
quarter economic reports showed otherwise, and as the fiscal year ended,
uncertainty once again dominated the markets. While we enter fiscal 2001
with full confidence in the fundamentals and in the long-term growth
potential of the companies we have chosen, we are mindful that investor
perception could wreak further havoc on stock prices. Although market
volatility may continue in the near term, we believe the strong demand
for these companies' products as well as their considerable pricing
power should help them withstand the challenges that might lie ahead.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 7/31/00, there is no guarantee the fund will
continue to hold these securities in the future. A concentrated
portfolio may add a measure of volatility to performance as major
fluctuations in any one holding will likely affect the fund more than a
fund with greater diversification.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Growth Opportunities Fund is designed for investors seeking capital
appreciation by investing primarily in stocks of well-established,
large-capitalization companies that Putnam believes will benefit from
promising growth themes worldwide.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 7/31/00
Class A Class B Class C Class M
(inception dates) (10/2/95) (8/1/97) (2/1/99) (8/1/97)
NAV POP NAV CDSC NAV CDSC NAV POP
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 37.33% 29.45% 36.32% 31.32% 36.37% 35.37% 36.60% 31.84%
---------------------------------------------------------------------------------------
Life of fund 291.90 269.31 276.38 274.38 278.66 278.66 280.79 267.57
Annual average 32.68 31.06 31.58 31.43 31.74 31.74 31.89 30.93
---------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 7/31/00
Standard & Russell 1000 Consumer
Poor's 500 Index Growth Index price index
-------------------------------------------------------------------------
1 year 8.97% 24.38% 3.60%
-------------------------------------------------------------------------
Life of fund 165.22 209.91 12.73
Annual average 22.35 26.36 2.51
-------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 5.75% and
3.50%, respectively. Class B share returns for the 1-year and
life-of-fund periods reflect the applicable contingent deferred sales
charge (CDSC), which is 5% in the first year, declines to 1% in the
sixth year, and is eliminated thereafter. Returns shown for class B and
class M shares for periods prior to their inception are derived from the
historical performance of class A shares, adjusted to reflect both the
initial sales charge or CDSC, if any, currently applicable to each class
and in the case of class B and class M shares the higher operating
expenses applicable to such shares. For class C shares, returns for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the CDSC
currently applicable to class C shares, which is 1% for the first year
and is eliminated thereafter, and the higher operating expenses
applicable to class C shares. For a portion of these periods, the fund
was offered on a limited basis and had limited assets. Performance data
reflect an expense limitation previously in effect, without which
returns would have been lower. All returns assume reinvestment of
distributions at NAV. Investment return and principal value will
fluctuate so that an investor's shares when redeemed may be worth more
or less than their original cost.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 10/2/95
Fund's class A Russell 1000 Standard & Poors
Date shares at POP Growth Index 500 Index
10/2/95 9,425 10,000 10,000
7/31/96 11,316 11,031 11,157
7/31/97 16,672 16,751 16,974
7/31/98 21,212 20,087 20,247
7/31/99 26,893 24,917 24,338
7/31/00 $36,931 $30,991 $26,522
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 $37,638 ($37,438 with the contingent deferred
sales charge); a $10,000 investment in the fund's class C shares would
have been valued at $37,866 and no contingent deferred sales charges
would apply; a $10,000 investment in the fund's class M shares would
have been valued at $38,079 ($36,757 at public offering price).
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 7/31/00
Class A Class B Class C Class M
-----------------------------------------------------------------------------
Distributions (number)* -- -- -- --
-----------------------------------------------------------------------------
Total $-- $-- $-- $--
-----------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
-----------------------------------------------------------------------------
7/31/99 $21.54 $22.85 $21.23 $21.50 $21.34 $22.11
-----------------------------------------------------------------------------
7/31/00 29.58 31.38 28.94 29.32 29.15 30.21
-----------------------------------------------------------------------------
*The fund did not make any distributions during the period.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 6/30/00 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (10/2/95) (8/1/97) (2/1/99) (8/1/97)
NAV POP NAV CDSC NAV CDSC NAV POP
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 36.28% 28.44% 35.29% 30.29% 35.30% 34.30% 35.57% 30.83%
-------------------------------------------------------------------------------------
Life of fund 302.10 278.92 286.39 284.39 288.60 288.60 290.85 277.28
Annual average 34.12 32.45 33.00 32.85 33.16 33.16 33.32 32.33
-------------------------------------------------------------------------------------
</TABLE>
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost. See first
page of performance section for performance calculation method.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 5.75% maximum sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B or C shares and assumes redemption at the
end of the period. Your fund's class B CDSC declines from a 5% maximum
during the first year to 1% during the sixth year. After the sixth year,
the CDSC no longer applies. The CDSC for class C shares is 1% for one
year after purchase.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index* is an unmanaged list of common stocks that
is frequently used as a general measure of stock market performance.
Russell 1000 Growth Index* contains those Russell 1000 securities with a
greater-than-average growth orientation. (The Russell 1000 Index is
composed of the 1000 largest companies in the Russell 3000 Index.)
Companies in this index tend to exhibit higher price-to-book and
price-to-earnings ratios, lower dividend yields and higher forecasted
growth values than 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 Growth Opportunities Fund
We have audited the accompanying statement of assets and liabilities of
Putnam Growth Opportunities Fund (a series of Putnam Investment Funds),
including the fund's portfolio, as of July 31, 2000, the related
statement of operations for the year then ended, and the statements of
changes in net assets and financial highlights for each of the years or
periods in the two-year period then ended. These financial statements
and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The
financial highlights for each of the years in the three-year period
ended July 31, 1998 were audited by other auditors whose report dated
September 11, 1998 expressed an unqualified opinion on those financial
highlights.
We conducted our audits 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 July 31, 2000, by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide 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 Growth Opportunities Fund as of July 31,
2000, the results of its operations for the year then ended, changes in
its net assets and financial highlights for each of the years or periods
in the two-year period then ended, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
Boston, Massachusetts
September 1, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
July 31, 2000
COMMON STOCKS (98.5%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Biotechnology (4.1%)
-------------------------------------------------------------------------------------------------------------------
2,332,700 Amgen, Inc. (NON) $ 151,479,706
938,700 Genentech, Inc. (NON) 142,799,738
----------------
294,279,444
Broadcasting (2.1%)
-------------------------------------------------------------------------------------------------------------------
995,100 Clear Channel Communications, Inc. (NON) 75,814,181
986,200 Echostar Communications Corp. Class A (NON) 38,893,263
1,336,500 General Motors Corp. Class H (NON) 34,581,938
----------------
149,289,382
Cable Television (2.3%)
-------------------------------------------------------------------------------------------------------------------
7,368,800 AT&T Corp. - Liberty Media Group Class A (NON) 163,955,800
Communications Equipment (15.4%)
-------------------------------------------------------------------------------------------------------------------
593,000 Brocade Communications Systems, Inc. (NON) 105,924,625
6,310,100 Cisco Systems, Inc. (NON) 412,917,169
462,900 Juniper Networks, Inc. (NON) 65,934,319
6,403,800 Nokia OYJ ADR (Finland) 283,768,388
2,206,700 Nortel Networks Corp. (Canada) 164,123,313
1,132,500 Tellabs, Inc. (NON) 73,612,500
----------------
1,106,280,314
Computers (7.9%)
-------------------------------------------------------------------------------------------------------------------
3,038,600 EMC Corp. (NON) 258,660,825
2,893,900 Sun Microsystems, Inc. (NON) 305,125,581
----------------
563,786,406
Conglomerates (9.1%)
-------------------------------------------------------------------------------------------------------------------
7,791,700 General Electric Co. (SEG) 400,785,569
4,744,300 Tyco International, Ltd. 253,820,050
----------------
654,605,619
Consumer Goods (1.0%)
-------------------------------------------------------------------------------------------------------------------
1,610,900 Estee Lauder Cos. Class A 70,879,600
Electronics (12.6%)
-------------------------------------------------------------------------------------------------------------------
413,500 Broadcom Corp. Class A (NON) 92,727,375
5,350,800 Intel Corp. 357,165,900
1,708,900 JDS Uniphase Corp. (NON) 201,863,813
1,070,500 Maxim Integrated Products, Inc. (NON) 70,719,906
3,081,200 Texas Instruments, Inc. 180,827,925
----------------
903,304,919
Entertainment (3.1%)
-------------------------------------------------------------------------------------------------------------------
3,364,006 Viacom, Inc. Class B (NON) 223,075,648
Insurance (1.7%)
-------------------------------------------------------------------------------------------------------------------
1,396,200 American International Group, Inc. 122,429,288
Investment Banking/Brokerage (2.7%)
-------------------------------------------------------------------------------------------------------------------
545,200 Merrill Lynch & Co., Inc. 70,467,100
1,362,500 Morgan Stanley, Dean Witter, Discover and Co. 124,328,125
----------------
194,795,225
Media (1.8%)
-------------------------------------------------------------------------------------------------------------------
1,696,000 Time Warner, Inc. 130,062,000
Medical Technology (1.3%)
-------------------------------------------------------------------------------------------------------------------
1,029,476 PE Corp.- PE Biosystems Group 89,757,439
Pharmaceuticals (7.1%)
-------------------------------------------------------------------------------------------------------------------
1,050,500 Lilly (Eli) & Co. 109,120,688
6,471,025 Pfizer, Inc. 279,062,953
684,700 Pharmacia Corp. 37,487,325
1,839,300 Schering-Plough Corp. 79,434,769
----------------
505,105,735
Retail (4.3%)
-------------------------------------------------------------------------------------------------------------------
2,866,200 Home Depot, Inc. (The) 148,325,850
2,839,000 Wal-Mart Stores, Inc. 155,967,563
----------------
304,293,413
Semiconductor (1.6%)
-------------------------------------------------------------------------------------------------------------------
1,517,500 Applied Materials, Inc. (NON) 115,140,313
Software (11.0%)
-------------------------------------------------------------------------------------------------------------------
470,800 I2 Technologies, Inc. (NON) 61,086,300
3,723,800 Microsoft Corp. (NON) 259,967,788
2,953,100 Oracle Corp. (NON) 222,036,206
640,800 Siebel Systems, Inc. (NON) 92,916,000
1,475,700 VERITAS Software Corp. (NON) 150,429,169
----------------
786,435,463
Technology Services (1.2%)
-------------------------------------------------------------------------------------------------------------------
1,555,100 America Online, Inc. (NON) 82,906,269
Telecommunications (7.7%)
-------------------------------------------------------------------------------------------------------------------
469,100 Level 3 Communication, Inc. (NON) 32,104,031
1,468,700 Metromedia Fiber Network, Inc. Class A (NON) 51,588,088
1,891,200 Nextel Communications, Inc. Class A (NON) 105,788,994
1,884,911 NEXTLINK Communications, Inc. Class A (NON) 62,319,870
3,078,400 Sprint Corp. (PCS Group) (NON) 170,081,600
169,600 TyCom, Ltd. (Bermuda) (NON) 5,777,000
2,895,300 Vodaphone Group PLC ADR (United Kingdom) 124,859,813
----------------
552,519,396
Transportation Services (0.5%)
-------------------------------------------------------------------------------------------------------------------
624,700 United Parcel Service, Inc. Class B 36,701,125
----------------
Total Common Stocks (cost $5,196,441,991) $ 7,049,602,798
SHORT-TERM INVESTMENTS (2.0%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 50,000,000 Merrill Lynch & Co., Inc. effective yield of 6.50%,
August 3, 2000 $ 49,981,944
92,011,000 Interest in $600,000,000 joint repurchase agreement
dated July 31, 2000 with S.B.C. Warburg Inc.
due August 1, 2000 with respect to various
U.S. Treasury obligations -- maturity value of
$92,027,843 for an effective yield of 6.59% 92,011,000
----------------
Total Short-Term Investments (cost $141,992,944) $ 141,992,944
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $5,338,434,935) (b) $ 7,191,595,742
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $7,156,495,296.
(b) The aggregate identified cost on a tax basis is $5,350,303,196,
resulting in gross unrealized appreciation and depreciation of
$2,091,577,101 and $250,284,555, respectively, or net unrealized
appreciation of $1,841,292,546.
(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 July 31,
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 July 31, 2000
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
-----------------------------------------------------------------------
S&P 500 Index
(Long) $48,203,150 $49,205,910 Sep-00 $(1,002,760)
-----------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $5,338,434,935) (Note 1) $7,191,595,742
-------------------------------------------------------------------------------------------
Dividends, interest and other receivables 550,087
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 24,590,898
-------------------------------------------------------------------------------------------
Receivable for securities sold 114,749,052
-------------------------------------------------------------------------------------------
Receivable for variation margin 231,150
-------------------------------------------------------------------------------------------
Unamortized organizational expenses 449
-------------------------------------------------------------------------------------------
Total assets 7,331,717,378
Liabilities
-------------------------------------------------------------------------------------------
Payable to subcustiodian (Note 2) 21,460,696
-------------------------------------------------------------------------------------------
Payable for securities purchased 132,747,467
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 5,890,408
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 9,085,582
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,007,320
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 19,240
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,794
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 3,985,680
-------------------------------------------------------------------------------------------
Other accrued expenses 1,022,895
-------------------------------------------------------------------------------------------
Total liabilities 175,222,082
-------------------------------------------------------------------------------------------
Net assets $7,156,495,296
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $5,439,100,132
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (134,762,883)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,852,158,047
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $7,156,495,296
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($3,177,204,843 divided by 107,408,753 shares) $29.58
-------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $29.58)* $31.38
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($3,418,795,433 divided by 118,118,037 shares)** $28.94
-------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($320,460,087 divided by 10,931,563 shares)** $29.32
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($164,702,851 divided by 5,650,179 shares) $29.15
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $29.15)* $30.21
-------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($75,332,082 divided by 2,533,696 shares) $29.73
-------------------------------------------------------------------------------------------
* 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
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended July 31, 2000
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Dividends (net foreign tax of $185,993) $ 13,636,126
-------------------------------------------------------------------------------------------
Interest 5,784,568
-------------------------------------------------------------------------------------------
Total investment income 19,420,694
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 28,455,500
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 6,661,588
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 59,657
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 37,439
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 5,781,475
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 26,401,804
-------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 1,908,359
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,023,463
-------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 2,696
-------------------------------------------------------------------------------------------
Other 3,014,842
-------------------------------------------------------------------------------------------
Total expenses 73,346,823
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (744,341)
-------------------------------------------------------------------------------------------
Net expenses 72,602,482
-------------------------------------------------------------------------------------------
Net investment loss (53,181,788)
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (96,899,522)
-------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (2,138,328)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
futures contracts during the year 1,433,144,717
-------------------------------------------------------------------------------------------
Net gain on investments 1,334,106,867
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $1,280,925,079
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended July 31
---------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment loss $ (53,181,788) $ (14,552,426)
--------------------------------------------------------------------------------------------------
Net realized loss on investments (99,037,850) (31,220,468)
--------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,433,144,717 328,414,959
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,280,925,079 282,642,065
--------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 2,806,267,045 2,175,405,698
--------------------------------------------------------------------------------------------------
Total increase in net assets 4,087,192,124 2,458,047,763
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 3,069,303,172 611,255,409
--------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $-- and $--, respectively) $7,156,495,296 $3,069,303,172
--------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS A
------------------------------------------------------------------------------------------------------
For the period
Per-share Oct. 2, 1995+
operating performance Year ended July 31 to July 31
------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $21.54 $16.99 $13.38 $10.15 $8.50
------------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------------
Net investment income (loss) (.16)(d) (.09)(d) (.07)(a)(d) .03(a) .03(a)
------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 8.20 4.64 3.71 4.43 1.67
------------------------------------------------------------------------------------------------------
Total from
investment operations 8.04 4.55 3.64 4.46 1.70
------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------
From net
investment income -- -- -- (.04) (.04)
------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.03) (1.19) (.01)
------------------------------------------------------------------------------------------------------
Total distributions -- -- (.03) (1.23) (.05)
------------------------------------------------------------------------------------------------------
Net asset value,
end of period $29.58 $21.54 $16.99 $13.38 $10.15
------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 37.33 26.78 27.23 47.34 20.08*
------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,177,205 $1,348,515 $287,291 $5,385 $2,647
------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .97 1.01 1.25(a) 1.05(a) .89*(a)
------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.59) (.48) (.43)(a) .20(a) .30*(a)
------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 45.65 82.18 70.90 145.10 151.15*
------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund reflect a reduction of
$0.01 per share for each of class A, B and M, for the period ended July
31, 1998 and $0.11 per share for each of the periods ended July 31, 1997
and July 31, 1996.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges. For periods prior to July 31, 1999 an
expense limitation was in effect. Without the limitation, the total
return would have been lower.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(e) Net investment income (loss) was less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS B
----------------------------------------------------------------------------
For the period
Per-share Aug. 1, 1997+
operating performance Year ended July 31 to July 31
----------------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $21.23 $16.86 $13.38
----------------------------------------------------------------------------
Investment operations
----------------------------------------------------------------------------
Net investment income (loss)(d) (.37) (.24) (.18)(a)
----------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 8.08 4.61 3.69
----------------------------------------------------------------------------
Total from
investment operations 7.71 4.37 3.51
----------------------------------------------------------------------------
Less distributions:
----------------------------------------------------------------------------
From net
investment income -- -- --
----------------------------------------------------------------------------
From net realized gain
on investments -- -- (.03)
----------------------------------------------------------------------------
Total distributions -- -- (.03)
----------------------------------------------------------------------------
Net asset value,
end of period $28.94 $21.23 $16.86
----------------------------------------------------------------------------
Ratios and supplemental data
----------------------------------------------------------------------------
Total return at
net asset value (%)(b) 36.32 25.92 26.25*
----------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,418,795 $1,539,409 $299,195
----------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.72 1.76 2.00*(a)
----------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (1.34) (1.23) (1.19)*(a)
----------------------------------------------------------------------------
Portfolio turnover (%) 45.65 82.18 70.90
----------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund reflect a reduction of
$0.01 per share for each of class A, B and M, for the period ended July
31, 1998 and $0.11 per share for each of the periods ended July 31, 1997
and July 31, 1996.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges. For periods prior to July 31, 1999 an
expense limitation was in effect. Without the limitation, the total
return would have been lower.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(e) Net investment income (loss) was less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS C
------------------------------------------------------------------------
For the period
Per-share Year ended Feb. 1, 1999+
operating performance July 31 to July 31
------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $21.50 $21.24
------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------
Net investment income (loss)(d) (.38) (.12)
------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 8.20 .38
------------------------------------------------------------------------
Total from
investment operations 7.82 .26
------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------
From net
investment income -- --
------------------------------------------------------------------------
From net realized gain
on investments -- --
------------------------------------------------------------------------
Total distributions -- --
------------------------------------------------------------------------
Net asset value,
end of period $29.32 $21.50
------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------
Total return at
net asset value (%)(b) 36.37 1.22*
------------------------------------------------------------------------
Net assets, end of period
(in thousands) $320,460 $70,286
------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.72 .88*
------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (1.35) (.63)*
------------------------------------------------------------------------
Portfolio turnover (%) 45.65 82.18
------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund reflect a reduction of
$0.01 per share for each of class A, B and M, for the period ended July
31, 1998 and $0.11 per share for each of the periods ended July 31, 1997
and July 31, 1996.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges. For periods prior to July 31, 1999 an
expense limitation was in effect. Without the limitation, the total
return would have been lower.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(e) Net investment income (loss) was less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS M
----------------------------------------------------------------------------
For the period
Per-share Aug. 1, 1997+
operating performance Year ended July 31 to July 31
----------------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $21.34 $16.91 $13.38
----------------------------------------------------------------------------
Investment operations
----------------------------------------------------------------------------
Net investment income (loss)(d) (.30) (.19) (.14)(a)
----------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 8.11 4.62 3.70
----------------------------------------------------------------------------
Total from
investment operations 7.81 4.43 3.56
----------------------------------------------------------------------------
Less distributions:
----------------------------------------------------------------------------
From net
investment income -- -- --
----------------------------------------------------------------------------
From net realized gain
on investments -- -- (.03)
----------------------------------------------------------------------------
Total distributions -- -- (.03)
----------------------------------------------------------------------------
Net asset value,
end of period $29.15 $21.34 $16.91
----------------------------------------------------------------------------
Ratios and supplemental data
----------------------------------------------------------------------------
Total return at
net asset value (%)(b) 36.60 26.20 26.63*
----------------------------------------------------------------------------
Net assets, end of period
(in thousands) $164,703 $90,285 $24,769
----------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.47 1.51 1.75*(a)
----------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (1.08) (.98) (.93)*(a)
----------------------------------------------------------------------------
Portfolio turnover (%) 45.65 82.18 70.90
----------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund reflect a reduction of
$0.01 per share for each of class A, B and M, for the period ended July
31, 1998 and $0.11 per share for each of the periods ended July 31, 1997
and July 31, 1996.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges. For periods prior to July 31, 1999 an
expense limitation was in effect. Without the limitation, the total
return would have been lower.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(e) Net investment income (loss) was less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS Y
------------------------------------------------------------------------
For the period
Per-share Year ended July 1, 1999+
operating performance July 31 to July 31
------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $21.55 $22.27
------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------
Net investment income (loss)(d) (.10) --(e)
------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 8.28 (.72)
------------------------------------------------------------------------
Total from
investment operations 8.18 (.72)
------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------
From net
investment income -- --
------------------------------------------------------------------------
From net realized gain
on investments -- --
------------------------------------------------------------------------
Total distributions -- --
------------------------------------------------------------------------
Net asset value,
end of period $29.73 $21.55
------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------
Total return at
net asset value (%)(b) 37.96 (3.23)*
------------------------------------------------------------------------
Net assets, end of period
(in thousands) $75,332 $20,808
------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .72 .06*
------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.34) (.02)*
------------------------------------------------------------------------
Portfolio turnover (%) 45.65 82.18
------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund reflect a reduction of
$0.01 per share for each of class A, B and M, for the period ended July
31, 1998 and $0.11 per share for each of the periods ended July 31, 1997
and July 31, 1996.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges. For periods prior to July 31, 1999 an
expense limitation was in effect. Without the limitation, the total
return would have been lower.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) Per share net investment income (loss) has been determined on the
basis of the weighted average number of shares outstanding during the
period.
(e) Net investment income (loss) was less than $0.01 per share.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
July 31, 2000
Note 1
Significant accounting policies
Putnam Growth Opportunities Fund (the "fund") is one of a series of
Putnam Investment Funds (the "trust") which is registered under the
Investment Company Act 0f 1940, as amended, as a diversified, open-end
management investment company. The fund invests primarily in common
stocks of companies that Putnam Investment Management, Inc. ("Putnam
Management"), the fund's manager, a wholly-owned subsidiary of Putnam
Investments, Inc., believes have potential for capital appreciation
significantly greater than that of the market averages.
The fund offers class A, class B, class C, class M and class Y shares.
Class A shares are sold with a maximum front-end sales charge of 5.75%.
Class B shares, which convert to class A shares after approximately
eight years, do not pay a front-end sales charge but pay a higher
ongoing distribution fee than class A shares, and are subject to a
contingent deferred sales charge, if those shares are redeemed within
six years of purchase. Class C shares are subject to the same fees and
expenses as class B shares, except that class C shares have a one-year
1.00% contingent deferred sales charge and do not convert to class A
shares. Class M shares are sold with a maximum front end sales charge of
3.50% and pay an ongoing distribution fee that is higher than class A
shares but lower than class B and class C shares. Class Y shares, which
are sold at net asset value, are generally subject to the same expenses
as class A, class B, class C and class M shares, but do not bear a
distribution fee. Class Y shares are sold to defined contribution plans
that invest at least $150 million in a combination of Putnam funds and
other accounts managed by affiliates of Putnam Management.
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 uninvited cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Management. These balances may be invested in one or more
repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Gains or losses on securities sold are determined
on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date. Non-cash dividends, if any, are recorded at the fair
market value of the securities received.
E) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended
July 31, 2000, the fund had no borrowings against the line of credit.
F) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
At July 31, 2000, the fund had a capital loss carryover of approximately
$91,162,000 available to offset future capital gains, if any. The amount
of the carryover and the expiration dates are:
Loss Carryover Expiration
-------------- ------------------
$ 506,000 July 31, 2006
28,172,000 July 31, 2007
62,484,000 July 31, 2008
G) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences include temporary and permanent
differences of losses on wash sale transactions, post-October loss
deferrals, organization costs and unrealized gains and losses on certain
futures contracts. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations. For the
year ended July 31, 2000, the fund reclassified $53,181,788 to decrease
undistributed net investment loss and $53,181,788 to decrease
paid-in-capital. The calculation of net investment income per share in
the financial highlights table excludes these adjustments.
H) Expenses of the trust Expenses directly charged or attributable to
any fund will be paid from the assets of that fund. Generally, expenses
of the trust will be allocated among and charged to the assets of each
fund on a basis that the Trustees deem fair and equitable, which may be
based on the relative assets of each fund or the nature of the services
performed and relative applicability to each fund.
I) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities
and Exchange Commission and with various states and the initial public
offering of its shares were $8,843. These expenses are being amortized
on projected net asset levels over a five-year period.
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.
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.
Under the subcustodian contract between the subcustodian bank and Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments,
Inc., the subcustodian bank has a lien on the securities of the fund to
the extent permitted by the fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At July 31, 2000, the payable to the subcustodian
bank represents the amount due for cash advance for the settlement of a
security purchased.
Custodial functions for the fund's assets are provided by PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended July 31, 2000, fund expenses were reduced by $744,341
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 $3,799
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B, class C and class M shares pursuant to Rule 12b-1
under the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Retail Management Inc., a wholly owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Retail Management, Inc. at an annual rate up to
0.35%, 1.00%, 1.00% and 1.00% of the average net assets attributable to
class A, class B, class C and class M shares, respectively. The Trustees
have approved payment by the fund at an annual rate of 0.25%, 1.00%,
1.00% and 0.75% of the average net assets attributable to class A, class
B, class C and class M shares, respectively.
For the year ended July 31, 2000, Putnam Retail Management, Inc., acting
as underwriter received net commissions of $4,022,259 and $124,628 from
the sale of class A and class M shares, respectively, and received
$3,439,185 and $61,809 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. A deferred
sales charge of up to 1% is assessed on certain redemptions of class A
shares. For the year ended July 31, 2000, Putnam Retail Management,
Inc., acting as underwriter received $32,494 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended July 31, 2000, cost of purchases and proceeds from
sales of investment securities other than short-term investments
aggregated $5,067,120,238 and $2,384,111,090, respectively. There were
no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At July 31, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended July 31, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 67,455,879 $1,887,475,636
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
67,455,879 1,887,475,636
Shares
repurchased (22,657,857) (620,346,623)
---------------------------------------------------------------------------
Net increase $44,798,022 $1,267,129,013
---------------------------------------------------------------------------
Year ended July 31, 1999
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 60,495,064 $1,226,507,333
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
60,495,064 1,226,507,333
Shares
repurchased (14,796,454) (297,764,756)
---------------------------------------------------------------------------
Net increase 45,698,610 $ 928,742,577
---------------------------------------------------------------------------
Year ended July 31, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 63,098,871 $1,715,080,611
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
63,098,871 1,715,080,611
Shares
repurchased (17,486,774) (476,297,713)
---------------------------------------------------------------------------
Net increase 45,612,097 $1,238,782,898
---------------------------------------------------------------------------
Year ended July 31, 1999
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 64,661,133 $1,294,888,144
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
64,661,133 1,294,888,144
Shares
repurchased (9,895,865) (194,839,289)
---------------------------------------------------------------------------
Net increase 54,765,268 $1,100,048,855
---------------------------------------------------------------------------
Year ended July 31, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 8,497,708 $240,054,653
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
8,497,708 240,054,653
Shares
repurchased (835,231) (23,491,185)
---------------------------------------------------------------------------
Net increase 7,662,477 $216,563,468
---------------------------------------------------------------------------
For the period February 1, 1999
(commencement of operations) to
July 31, 1999
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 3,383,619 $72,850,113
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
3,383,619 72,850,113
Shares
repurchased (114,533) (2,464,821)
---------------------------------------------------------------------------
Net increase 3,269,086 $70,385,292
---------------------------------------------------------------------------
Year ended July 31, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 2,642,156 $71,820,706
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
2,642,156 71,820,706
Shares
repurchased (1,222,665) (33,553,731)
---------------------------------------------------------------------------
Net increase 1,419,491 $38,266,975
---------------------------------------------------------------------------
Year ended July 31, 1999
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 4,076,095 $78,161,548
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
4,076,095 78,161,548
Shares
repurchased (1,310,460) (23,322,789)
---------------------------------------------------------------------------
Net increase 2,765,635 $54,838,759
---------------------------------------------------------------------------
Year ended July 31, 2000
---------------------------------------------------------------------------
Class Y Shares Amount
---------------------------------------------------------------------------
Shares sold 2,794,152 $80,464,553
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
2,794,152 80,464,553
Shares
repurchased (1,226,232) (34,939,862)
---------------------------------------------------------------------------
Net increase 1,567,920 $45,524,691
---------------------------------------------------------------------------
For the period July 1, 1999
(commencement of operations) to
July 31, 1999
---------------------------------------------------------------------------
Class Y Shares Amount
---------------------------------------------------------------------------
Shares sold 1,006,739 $22,318,441
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
1,006,739 22,318,441
Shares
repurchased (40,963) (928,226)
---------------------------------------------------------------------------
Net increase 965,776 $21,390,215
---------------------------------------------------------------------------
FEDERAL TAX INFORMATION
(Unaudited)
The Form 1099 you receive in January 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
KPMG LLP
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jeffrey R. Lindsey
Vice President and Fund Manager
C. Beth Cotner
Vice President and Fund Manager
David J. Santos
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 Growth
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
and Putnam Quarterly Ranking Summary. For more information or to request
a prospectus, call toll free: 1-800-225-1581.
You can also learn more at Putnam Investments' Web site:
www.putnaminvestments.com.
Not FDIC Insured, May Lose Value, No Bank Guarantee
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
PRST STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
AN061-63667 2AP/2HJ/2HK/2HL 9/00
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
---------------------------------------------------------------------------
Putnam Growth Opportunities Fund
Supplement to Annual Report dated 7/31/00
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to defined contribution plans investing $150 million or
more in one or more of Putnam's funds or private accounts. Performance of
class Y shares, which incur neither a front-end load, distribution fee, nor
contingent deferred sales charge, will differ from performance of class A,
B, C, and M shares, which are discussed more extensively in the annual
report.
ANNUAL RESULTS AT A GLANCE
---------------------------------------------------------------------------
Total return
for periods ended 7/31/00 NAV
1 year 37.96%
Life of fund (since class A inception, 10/2/95) 297.65
Annual average 33.08
Share value: NAV
7/31/99 $21.55
7/31/00 29.73
---------------------------------------------------------------------------
The fund did not make any distributions during this period.
---------------------------------------------------------------------------
Please note that past performance does not indicate future results. Returns
shown for class Y shares for periods prior to their inception are derived
from the historical performance of class A shares, adjusted to reflect the
initial sales charge currently applicable to class A shares. These returns
have not been adjusted to reflect differences in operating expenses which,
for class Y shares, are lower than the operating expenses applicable to
class A shares. All returns assume reinvestment of distributions at net
asset value. For a portion of these periods, the fund was offered on a
limited basis and had limited assets. Performance data reflect an expense
limitation previously in effect, without which returns would have been
lower. Without the limitation, total returns would have been lower.
Investment return and principal value will fluctuate so your shares, when
redeemed, may be worth more or less than their original cost. See full
report for information on comparative benchmarks. If you have questions,
please consult your fund prospectus or call Putnam toll free at
1-800-752-9894.
