BOSTON -- For many investors in mutual funds run by Putnam Investments, the motto over the past five years has been "Leaving -- what a good idea!"

These days, chastened executives and money managers at Putnam, which was hammered by the fund-trading scandal and poor performance, are struggling to persuade the investing world that the 68-year-old firm is getting its house in order and that financial advisers and their clients won't get burned again.

"We have experienced some damage to the brand name, to Putnam's reputation and image and we have to convince financial advisers that we are worthy of their trust," says Charles "Ed" Haldeman, chief executive of Putnam, a unit of Marsh & McLennan Cos. For a firm that relies on advisers to sell its funds, that kind of harm is "significant," says Mr. Haldeman, who joined the firm in 2002.

Putnam's woes began when it inflicted huge losses on investors in many of its most-popular funds when technology stocks collapsed. Even many of the firm's more middle-of-the road offerings had loaded up on high-priced stocks during the bull market and burned investors on the way down.

Investors were already heading for the exits when the firm was tarred by the mutual-fund share-trading scandal in 2003.

Six of its portfolio managers were accused of profiting from short-term trading in Putnam funds that hurt long-term shareholders and broke the firm's rules. That led to the ouster of Putnam's long-time chief executive, Lawrence Lasser, whose domineering personality had set the tone for nearly two decades.

Investors have pulled $86 billion out of Putnam's stock and bond funds since the start of 2001, an amount equal to a third of the money that Putnam managed in mutual funds at the end of 2000. Redemptions, coupled with the market's downturn, have cut Putnam's total assets under management -- including institutional clients' money -- to $195 billion at the end of June, down from $370 billion at the end of 2000.

To right the ship, Putnam has taken investor-friendly steps such as lowering sales commissions and committing to below-average fund expenses.

Behind the scenes, Mr. Haldeman is also reshaping the firm's culture and stock-picking process in an attempt to smooth the sharp ups and downs of Putnam's funds. He has brought in new blood: of the 90 portfolio managers at Putnam today 49 were around in 2000.

"In a way, it's a $200 billion start-up company," says Richard Monaghan, head of Putnam's fund-sales effort.

So far it has been a tough sell. In the first six months of this year, investors pulled $10.6 billion out of Putnam's funds. And the rebuilding process suffered a setback last month, with the departure of senior portfolio manager Paul Marrkand, who had been a highly visible part the effort to recharge Putnam's struggling stock funds. Mr. Marrkand is joining Wellington Management LLP.

Laura Lutton, an analyst at Morningstar Inc., says that while Putnam is making some progress, "I'd be reluctant to suggest investors wade back in."

For starters, Ms. Lutton says, investors should wait to see if recent performance gains are long-lasting. She also wonders whether Putnam's new approach will result in its funds essentially becoming expensive index funds. "The question is have they stripped out so much risk that the funds are never going to be distinguishable from the crowded field," she says.

John Hill, the independent chairman of the funds' board, says Putnam won't be revived overnight.

"As a practical matter, I think it takes a long time," he says.

The past five years have been harsh for a firm that links its heritage to the Massachusetts Supreme Judicial Court justice who created the legal responsibilities of being a professional money manager. In an 1830 opinion, Samuel Putnam wrote what is known as "the prudent man rule," saying money managers should manage clients' money with prudence, discretion and intelligence, with regard for the safety of the money as well as income -- and not speculation. In 1937, Justice Putnam's great-great-grandson, George Putnam, started the George Putnam Fund of Boston, one of the oldest mutual funds still available to investors.

In 1985 Mr. Lasser took charge and quickly made his mark on the firm. His biggest change was giving responsibility for running funds to teams of portfolio managers instead of single managers.

Mr. Lasser came to be known for a dictatorial management style. He involved himself in everything from food in the executive dining room to the type of pencil holder on employees' desks. He also raised eyebrows by requiring certain employees to sign unusual contracts banning them from working elsewhere in the industry for two years after leaving Putnam -- even if they were fired.

This went far beyond the industry's standard noncompete agreement. Mr. Lasser defended the contracts as necessary to protect Putnam from poaching. He frequently defended his management style as being in the interest of fund shareholders.

The approach paid dividends in the 1990s when Putnam was one of the fastest-growing fund companies. Sales were fueled by its close ties to brokerage houses and by funds chock-a-block with soaring growth stocks.

During the 1990s, Putnam bragged that its funds would stick to their investment mandates and avoid stocks that didn't fit a fund's style in order to chase hot returns, a trend called style drift. "We don't stray beyond borders to dabble with people's destinies," a Putnam ad said in October 1999. "What investors own is what they bought."

The reality was quite different. For example, Putnam's Voyager fund gave investors exposure to fast-growing companies but layered in conservative elements to dampen its ups and downs. In early 1998, a Morningstar analyst compared it with a "kiddie roller coaster" that "wouldn't jump the tracks."

But as the stock-market bubble was about to pop in March 2000, Voyager no longer fit that profile. It held 44 percent of its portfolio in technology stocks, 30 percent more than the Standard & Poor's 500-stock index. Voyager investors lost an average of 22 percent a year from 2000 through 2002, while the S&P 500 lost 14.4 percent a year.

By the end of 2002, 19 of Putnam's 29 stock funds were in the bottom half of their Morningstar categories and seven were doing worse than 80 percent of the competition. Five-year track records were just as ugly.

The problem: Portfolio managers had developed a single-minded focus on picking stocks based on their earnings momentum, a strategy that beat the market handily through the 1990s but failed miserably when the market turned. Egging this on was a culture that focused on short-term results and internal competition, Putnam employees say.

In the autumn of 2002 Mr. Lasser brought in Mr. Haldeman to address the performance woes. But just as he dug into his task, Putnam stumbled again.

In October 2003, the firm disclosed that six of its international stock-fund managers had traded rapidly in and out of Putnam funds, including their own funds. The trading, known as market-timing, skims profits from long-term shareholders and violates Putnam's own rules.

A firestorm quickly engulfed Mr. Lasser and he was forced out of his job. An investigation by the board of Putnam's funds later contended he and other executives had "some knowledge" about the trading but he denied that charge. In the end, Putnam agreed to pay $110 million in fines and restitution to settle regulators' allegations related to the improper trading but didn't admit or deny wrongdoing. Meanwhile, investors, already disillusioned with performance, sprinted for the exits in droves.

Mr. Haldeman was charged with stabilizing the firm, familiar territory for him. Prior to joining Putnam, he had led a largely successful effort to improve performance at Delaware Investments.

The primary mission, Mr. Haldeman says, was taming Putnam's funds. "If you looked at Putnam from 1998 through 2002, if you wanted to know the relative performance of its funds, you only had to ask one question: Is the market up or down?" he says. "If the market was up the funds did extraordinarily well. If it was down they underperformed a lot."

Funds with that kind of volatility are easy to sell when the market is rallying, he notes. But "the buyer tends to come in at the top -- just in time to be incredibly hurt by the inevitable downturn."

"I don't think such high-volatility strategies were particularly good for investors," he says. His mantra is that performance must be "consistent, dependable and leading to superior results over the long term."

To get those kinds of results meant a rethinking of how Putnam picked stocks for its growth funds. Mr. Haldeman's solution has been to layer so-called quantitative investment screens on top of traditional company research. These quantitative screens rank companies measures such as free cash flow, their stock prices relative to earnings and sales growth.

"The problem is that if you exclusively rely on fundamental analysis when stock picking you can get some inadvertent bets in the portfolio that you aren't really aware of, such as a concentration around stocks sensitive to interest rates, or stock size," says Mr. Haldeman, a portfolio manager from 1974 until 1998.

Getting portfolio managers who are used to making their own judgments about stocks to accept using quantitative models is no easy task, he acknowledges. But Richard Cervone, manager of several Putnam funds, says he views the two approaches as "two sides of the same coin," adding that the quantitative models "help target your research."

Other changes were more basic, such as getting Putnam's portfolio managers and stock analysts to communicate. For example, there was no formal mechanism for portfolio managers to provide feedback to analysts about how they were doing, says Kevin Cronin, Putnam's head of investments and a former bond manager. Another was applying logic to where the investment pros had their offices. Stock analysts had long been housed on another floor from the portfolio managers they supported.

"It was like you had a house with no doors between the rooms," Mr. Cronin says. In 2004 portfolio managers were relocated so that team members were all on the same floors.

This effort followed Mr. Haldeman's decision, soon after his arrival at Putnam, to move his office from the elegant executive floor of Putnam's downtown Boston headquarters -- where Mr. Lasser was cloistered -- to a floor occupied by portfolio managers. "He doesn't believe in a lot of layers," says Mr. Hill.

Mr. Hill sees subtle signs that the Putnam culture is changing and that employees are cooperating more, rather than competing against one another. He points to a dinner for portfolio managers and top executives where awards are given to investment teams with the best performance. "Three or four years ago only the winners would clap for themselves ... There just wasn't a collegial feeling," Mr. Hill says. But at the most recent dinner, "everybody was cheering for the winners. There was a feeling that people were happy for their colleagues."

Mr. Hill adds that he and his fellow board members have also been quicker to step up pressure when funds do poorly. For example he cites management changes on Vista and New Opportunities, a pair of Putnam's biggest and worst-performing funds.

After watching several years of turnaround efforts go nowhere, "the board said this is not going to work, you've got to change those people," Mr. Hill says. He adds that Putnam would likely have eventually made the same decision, but "there's no question that we had drawn the line" sooner.

Meanwhile, the board has discouraged Putnam from rolling out new funds. "We've signaled that until performance issues are resolved don't come to us with new funds. They've got to get the current family right," Mr. Hill says. The only fund Putnam has launched in recent years is its Floating Income fund, which Mr. Hill says was delayed by the board for almost 18 months until some board members were convinced that Putnam had the proper expertise to manage it and would market it appropriately.

Putnam executives say the efforts are paying off and that the bulk of Putnam investors are in funds that are now doing better than the competition. Over the past 12 months, Putnam says that 52 percent of the mutual-fund money it manages is in funds beating the median portfolio in their Lipper Inc. category; so far this year, 79 percent of assets are in funds above the median. That contrasts with a three-year track record of just 41 percent of assets above median. Just as important, fewer funds are among the worst performers, with just 4 percent of assets in the bottom 25 percent of their category.

"As far as I'm concerned, when it comes to building a great investment firm we are ahead of schedule," says Mr. Haldeman.

On the sales front, Putnam says withdrawals by institutional clients have eased and it has won back several state pension funds, including those in Massachusetts and Michigan. Individual investors continue to pull money out of the firm's funds, but Mr. Monaghan, the firm's head of sales, says redemption rates are down to industry average. The problem, he says, is generating new sales to offset redemptions. To help get their message out, Putnam officials are making an extensive effort to meet with financial advisers.

Despite the turnaround at some funds such as Putnam Investors, others remain mired at the bottom of the performance rankings. For example, Discovery Growth and Growth Opportunity have both delivered worse returns than 80 percent of comparable funds over the last 12 months.Putnam executives acknowledge the firm's revival is a work in progress. "There is no silver bullet," says Mr. Monaghan.