Putnam
Small Cap
Value
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
We could hardly have chosen a more propitious time to launch Putnam Small
Cap Value Fund. The fund was introduced in April, just as the stocks of
small companies that compose its portfolio staged a long-awaited rally.
Although the managers believed from experience that the time was ripe for
such an upswing, the fund's results in the first four and a half months
went far beyond their expectations.
Such exuberant performance at the outset of a new fund's life often leads
some investors to assume that it will be the norm, and the fund's managers
caution that, while they fully expect the fund to do well over time, there
will be periods of more restrained results. Because the fund will adhere
strictly to its stated investment style, as do all other Putnam funds,
future ebbs and flows will almost surely reflect the fortunes of the
universe of small-company stocks that make up the greater portion of its
portfolio.
That said, it is still encouraging to see the new fund running strong out
of the gate and we look forward to a long and mutually favorable
relationship with its shareholders.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
October 20, 1999
Report from the Fund Managers
Jeffrey W. Netols
Edward T. Shadek, Jr.
In this, our first report to shareholders of Putnam Small Cap Value Fund,
which debuted April 13, 1999, we are pleased to announce that small
companies rallied just as the fund began operations. From our years of
experience managing small company value stocks for institutional clients
we were, of course, aware that it was a favorable time to invest in this
area of the market. However, the strong performance in the fund's initial
days far surpassed our expectations. Although much of the early gain was
offset as rising interest rates depressed stocks across the board in
August, we can nonetheless report a solid performance in the fund's first
four and a half months.
Total return for period ended 8/31/99
Class A Class B Class C
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------
14.00% 7.43% 13.88% 12.88% 13.73% 12.73%
- ------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* FUNDAMENTAL RESEARCH FOCUSES ON STOCK VALUATIONS, COMPANY CHANGE
In discussing the fund's performance for the first time, we think it is
important to outline our investment approach and explain the ways in which
this fund might behave differently from the general market. We invest in
companies with market capitalizations of less than $1.5 billion. By
contrast, stocks in the Dow Jones Industrial Average, a common barometer
of stock market performance, are more than 20 times larger with market
caps of more than $30 billion. Generally speaking, small companies can
nimbly exploit new opportunities or dominate attractive business niches
more efficiently than larger companies. At times, their ability to change
quickly or seize opportunities can result in dramatic increases in value.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance and
finance 12.2%
Electronics and
electrical equipment 11.3%
Retail 8.5%
Basic industrial
products 6.8%
Oil and gas 6.0%
Footnote reads:
*Based on net assets as of 8/31/99. Holdings will vary over time.
Because small companies also carry special risks, we have constructed a
strategy with elements intended to moderate volatility. First, we strive
to identify stocks that are undervalued based on a variety of criteria,
such as the ratio of the stock price to company earnings or to the
company's book value. Undervalued stocks have less inflated expectations
and tend to be less influenced by general market volatility. Once we have
narrowed our choices to a group of undervalued stocks, we look for
companies that have well-established businesses, positive earnings growth,
and quality management. These factors, we believe, can make a stock a
better performer.
In addition to these risk-control techniques, when analyzing a company we
also assess the likelihood that positive change can improve its future
financial performance. Putnam has long relied on this principle, which we
call "cheapness and change," because in our view there is more to value
investing than buying cheap stocks. Examples of positive change include an
internal restructuring or cost-cutting initiative, new management, or
investment in new growth opportunities. These measures, if executed well,
can have a significant impact on a company's bottom-line earnings. Such
changes can attract attention to a solid but obscure company, or they can
spark expansion at a company where growth has hit a plateau.
"The fact is, the valuations in the small-cap area are far and away more
attractive than those in the large-cap universe."
- -- morningstar.com, May 5, 1999
* FUND DEBUTS AS SMALL-COMPANY STOCKS RALLY
As your fund came into existence in April, the market experienced a
significant transition. After a long period of underperformance, small
companies and value-oriented sectors such as capital goods, basic
materials, and energy surged. The Russell 2000 Index, which tracks small
U.S. companies, had declined by more than 5% in the first quarter of 1999,
but then jumped by 9% in April. For the entire second quarter, the Russell
2000 had a return more than two times larger than that of the Russell 1000
Index, a widely used indicator of large company performance.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
General Cable Corp.
Electronics and electrical equipment
Bank United Corp.
Insurance and finance
GenCorp, Inc.
Aerospace and defense
AAR Corp.
Aerospace and defense
Tidewater, Inc.
Oil and gas
M.A. Hanna Co.
Chemicals
Air Express International Corp.
Aerospace and defense
Wallace Computer Services, Inc.
Computer services and software
Fremont General Corp.
Insurance and finance
Owens & Minor, Inc.
Medical supplies and devices
Footnote reads:
These holdings represent 9.3% of the fund's net assets as of 8/31/99.
Portfolio holdings will vary over time.
This turnaround was significant because small companies and value stocks
had been underperforming large growth companies for at least two years,
and by some measures even longer. The catalyst for broadening market
leadership was investor recognition that the United States and
international economies were growing faster than previously expected.
Among the fund's best performing stocks in this period was Air Express
International, which nearly doubled in April and May. It specializes in
transporting valuable freight, such as technological and medical
equipment, all over the world with the reliability and expertise that are
necessary to satisfy demanding business customers. Although this holding,
along with others mentioned in this report, was viewed favorably by fund
management at the close of the fiscal period, all portfolio holdings are
subject to review and adjustment in accordance with the fund's strategy
and may vary in the future.
Historic opportunities among small companies
Historically, large companies and small companies have alternated in leading
the stock market every two or three years. Since 1995, however, large caps
have dominated, with the S&P 500 (Registered trademark) Index nearly doubling
the gain of the Russell 2000 (Registered trademark) Index.
Jeff Netols, co-portfolio manager of Putnam Small Cap Value Fund, is
nevertheless pleased, because this situation presents unusual opportunities.
"Lagging performance has left small companies cheaper across the board than
they were 10 years ago," Jeff believes. "A small-cap value portfolio in 1990
had to focus research on a much smaller list of companies, and, frankly, many
of the businesses were not terribly appealing. Now, however, very high quality
companies are priced attractively. Some of them a few years ago had annual
earnings growth of 30%. Now, they might be growing at 15%, but an unforgiving
market has punished the stock price disproportionately. In 1999, even with
rigorous value requirements, we are able to buy well-managed, lucrative
businesses."
* MERGERS SIGNAL COMPELLING VALUE
During the four and a half month period, several stocks in the portfolio
were involved in acquisition or merger activity that helped drive up their
prices. Although we do not buy stocks based on merger rumors, nonetheless
we were not surprised that some of these stocks could be acquisition
targets. These were well-managed companies selling at bargain prices,
making them logical targets for rivals that want to grow through
acquisition.
In June, CNB Bancshares, one of the fund's top holdings at the time,
agreed to be acquired by Fifth Third Bancorp. CNB, a small midwestern
bank, reported a record increase in income during 1999's first quarter,
demonstrating the quality of its management. Fifth Third acquired CNB to
become the third largest bank in Indiana, while remaining enough of a
"small-town" bank to compete for customers with more personal service than
large money-center banks can provide. CNB was just one of the fund's many
regional bank holdings. The financial sector is likely to continue
consolidating because size offers many advantages in managing customer
accounts.
In the industrial sector, fund holding Omniquip agreed to an acquisition
by a large-cap company, Textron, at a large premium. The stock entered
August trading near $8, then shot up to more than $20 following the August
23 acquisition announcement. Omniquip manufactures lift trucks and other
industrial transport equipment. Over the past few years it rarely exceeded
its earnings forecasts from quarter to quarter, keeping its stock price
relatively cheap. Textron, a large, low-cost provider of industrial
equipment, can use its global marketing capabilities to expand sales of
Omniquip products. We sold the stock following the merger announcement.
Another takeover in the industrial sector involved fund holding Varlen,
which produces truck parts and railroad equipment and was run by a
management team highly effective at cutting costs. In August, Varlen
submitted to a takeover bid launched by Amsted Industries, which serves
the same customers but with a different product line. The final tender
offer of $42 represented a premium of 62% above Varlen's stock price at
the beginning of Amsted's takeover effort in May. We took profits on the
holding after the deal was made.
* HIGH QUALITY COMPANIES STILL UNDERVALUED
As we look ahead to the second half of the fund's fiscal year, we are
optimistic for the portfolio and for small companies in general. The
merger wave that has set records in the past few years appears to be
expanding to include small companies. Based on historical comparisons,
stocks of small companies are still priced attractively relative to large
companies and have a long way to appreciate to close the gap. What is more
impressive to us, however, is the high quality of the companies that meet
our value requirements. In the early 1990s, when small companies were
performing better, it would have been impossible to find such well-managed
companies at the prices we are willing to pay. For that reason, in
particular, we believe the fund has a positive outlook in terms of both
reward and risk.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 8/31/99, there is no guarantee the fund will
continue to hold these securities in the future. This fund invests all or
a portion of its assets in small to midsize companies. Such investments
increase the risk of greater price fluctuations.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its investment strategy. Putnam Small Cap
Value Fund seeks capital appreciation through investments in common stocks of
small companies.
TOTAL RETURN FOR PERIODS ENDED 8/31/99
Class A Class B Class C
(inception dates) (4/13/99) (5/3/99) (7/26/99)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
Life of fund 14.00% 7.43% 13.88% 12.88% 13.73% 12.73%
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/99
Russell Consumer
2000(R) Index price index
- ------------------------------------------------------------------------
Life of fund 4.35% 0.60%
- ------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A shares reflect
the current maximum initial sales charges of 5.75%. Class B share returns
for the 1-, 5-, and 10-year (where available) and life-of-fund periods
reflect the applicable contingent deferred sales charge (CDSC), which is
5% in the first year, declines to 1% in the sixth year, and is eliminated
thereafter. Returns shown for class B shares for periods prior to their
inception are derived from the historical performance of class A shares,
adjusted to reflect the CDSC currently applicable to the class and in the
case of B shares, the higher operating expenses applicable to such shares.
For class C shares, returns for periods prior to their inception are
derived from the historical performance of class A shares, adjusted to
reflect both the CDSC currently applicable to class C shares, which is 1%
for the first year and is eliminated thereafter, and the higher operating
expenses applicable to class C shares. All returns assume reinvestment of
distributions at NAV. Investment return and principal value will fluctuate
so that an investor's shares when redeemed may be worth more or less than
their original cost.
PRICE AND DISTRIBUTION INFORMATION FOR PERIOD ENDED 8/31/99*
Class A Class B Class C
- -----------------------------------------------------------------------
Share value: NAV POP NAV NAV
- -----------------------------------------------------------------------
4/13/99 $8.50 $9.02 -- --
- -----------------------------------------------------------------------
5/3/99** -- -- $9.35 --
- -----------------------------------------------------------------------
7/26/99*** -- -- -- $10.23
- -----------------------------------------------------------------------
8/31/99 9.69 10.28 9.68 9.69
- -----------------------------------------------------------------------
* No distributions were made during the period.
** Inception of class B shares.
*** Inception of class C shares.
TOTAL RETURN FOR PERIOD ENDED 9/30/99 (most recent calendar quarter)
Class A Class B Class C
(inception dates) (4/13/99) (5/3/99) (7/26/99)
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------------------
Life of fund 9.29% 2.99% 9.06% 4.06% 8.92% 7.92%
- -----------------------------------------------------------------------
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.
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.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B or C shares and assumes redemption at the end of
the period. Your fund's class B CDSC declines from a 5% maximum during the
first year to 1% during the sixth year. After the sixth year, the CDSC no
longer applies. The CDSC for class C shares is 1% for one year after
purchase.
Comparative benchmarks
Russell 2000(R) Index measures the performance of the 2,000 smallest
companies in the Russell 3000 Index, which represents approximately 11% of
the total market capitalization of the Russell 3000 Index. As of the
latest reconstitution, the average market capitalization was approximately
$592.0 million; the median market capitalization was approximately $500.0
million. Securities indexes assume reinvestment of all distributions and
interest payments and do not take in account brokerage fees or taxes.
Securities in the fund do not match those in the indexes and performance
of the fund will differ. It is not possible to invest directly in an
index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
A guide to the financial statements
These sections of the report constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price is determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-ended funds, a separate
table is provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
August 31, 1999 (Unaudited)
COMMON STOCKS (99.6%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Aerospace and Defense (5.3%)
- --------------------------------------------------------------------------------------------------------------------------
36,544 AAR Corp. $ 781,128
30,532 Air Express International Corp. 746,126
28,983 Aviall, Inc. (NON) 322,436
21,483 BE Aerospace, Inc. (NON) 371,924
15,710 Cordant Technologies, Inc. 650,001
36,945 GenCorp, Inc. 794,318
19,000 Primex Technologies, Inc. 396,625
12,705 Triumph Group, Inc. (NON) 314,449
--------------
4,377,007
Airlines (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
8,131 Midwest Express Holdings, Inc. (NON) 219,537
Automotive (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
8,714 Borg-Warner Automotive, Inc. 412,826
6,231 Coachmen Industries, Inc. 98,528
17,600 Midas, Inc. 415,800
28,300 TBC Corp. (NON) 203,406
13,494 Tower Automotive, Inc. (NON) 269,880
19,673 Wabash National Corp. 413,133
16,457 Wynn's International, Inc. 296,226
--------------
2,109,799
Basic Industrial Products (6.8%)
- --------------------------------------------------------------------------------------------------------------------------
4,705 AptarGroup, Inc. 121,154
11,078 Asyst Technologies, Inc. (NON) 346,188
20,620 Barnes Group, Inc. 408,534
61,335 DT Industries, Inc. 437,012
21,805 Furon Co. 348,880
20,433 Gardner Denver, Inc. (NON) 392,058
32,857 Gerber Scientific, Inc. 671,515
22,223 Gleason Corp. 416,681
39,396 JLK Direct Distribution, Inc. (NON) 322,555
26,209 Klockner Windsor India Ltd. (India) (NON) 371,840
14,255 Lincoln Electric Holdings, Inc. 288,664
24,000 Material Sciences Corp. (NON) 321,000
9,140 Pentair, Inc. 415,870
8,805 Roper Industries, Inc. 315,329
19,305 Westinghouse Air Brake Co. 389,720
--------------
5,567,000
Biotechnology (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
18,168 Mentor Corp. 424,677
Building and Construction (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
8,800 Ameron International Corp. 402,600
65,661 Apogee Enterprises, Inc. 541,703
21,678 Lennar Corp. 411,882
10,805 Texas Industries, Inc. 345,760
--------------
1,701,945
Business Equipment and Services (5.1%)
- --------------------------------------------------------------------------------------------------------------------------
16,988 ABM Industries Inc. 390,724
29,787 Airgas, Inc. (NON) 390,954
30,936 Bowne & Co. 429,237
24,819 Cambridge Technology Partners, Inc. (NON) 339,710
29,496 Daisytek International Corp. (NON) 342,891
26,900 Falcon Products, Inc. 223,606
15,068 HON INDUSTRIES, Inc. 355,040
17,681 Nichols Research Corp. (NON) 375,721
62,900 Per-se Technologies, Inc. (NON) 224,081
15,049 Standard Register Co. (The) 407,264
12,500 United Stationers, Inc. 282,813
58,344 X-Rite, Inc. 397,469
--------------
4,159,510
Chemicals (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
16,046 Cambrex Corp. 431,236
22,728 Crompton & Knowles Corp. 397,740
17,749 Ferro Corporation 425,976
55,641 Hanna (M.A.) Co. 761,586
39,512 Mississippi Chemical Corp. 298,810
--------------
2,315,348
Computer Services and Software (5.0%)
- --------------------------------------------------------------------------------------------------------------------------
31,066 Analysts International Corp. 415,508
18,400 Ciber, Inc. (NON) 336,950
24,310 Computer Task Group, Inc. 407,193
40,692 FileNET Corp. (NON) 422,180
16,400 Keane, Inc. (NON) 354,650
33,809 Mentor Graphics Corp. (NON) 303,224
36,743 MTS Systems Corp. 404,173
7,000 Project Software & Development, Inc. (NON) 307,563
51,861 Telxon Corp. 434,336
33,827 Wallace Computer Services, Inc. 723,052
--------------
4,108,829
Conglomerates (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
17,819 Aaron Rents, Inc. 337,447
17,120 Banta Corp. 402,320
13,872 Lancaster Colony Corp. 456,042
--------------
1,195,809
Consumer Durable Goods (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
13,100 Bassett Furniture Industries, Inc. 266,913
22,260 CLARCOR, Inc. 399,289
58,845 Racing Champions Corp. (NON) 376,976
--------------
1,043,178
Consumer Non Durables (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
14,360 Chattem, Inc. (NON) 346,435
12,367 True North Communications, Inc. 407,338
10,178 Wesley Jessen VisionCare, Inc. (NON) 312,337
--------------
1,066,110
Consumer Products (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
25,100 Helen of Troy Ltd. (NON) 357,675
29,914 Windmere-Durable Holdings, Inc. (NON) 435,623
--------------
793,298
Electronics and Electrical Equipment (11.3%)
- --------------------------------------------------------------------------------------------------------------------------
12,017 Analogic Corp. 402,570
9,251 Avnet, Inc. 409,357
16,823 Belden, Inc. 394,289
32,095 BMC Industries, Inc. 395,170
6,478 Credence Systems Corp. (NON) 278,554
4,205 DII Group, Inc. (The) (NON) 149,015
8,115 DuPont Photomasks, Inc. (NON) 435,167
13,355 Etec Systems, Inc. (NON) 587,620
24,409 GaSonics International Corp. (NON) 384,442
58,064 General Cable Corp. 841,928
18,663 Genrad, Inc. (NON) 352,264
5,728 Hadco Corp. (NON) 238,070
98,207 IFR Systems, Inc. (NON) 411,242
30,895 International Rectifier Corp. (NON) 498,182
24,100 Intervoice-brite, Inc. (NON) 331,375
11,631 KEMET Corp. (NON) 300,225
29,156 Kent Electronics Corp. (NON) 493,830
20,765 Littlelfuse, Inc. (NON) 412,704
31,086 Pioneer-Standard Electronics, Inc. 439,090
12,178 Pittway Corp. Class A 401,113
44,500 Recoton Corp. (NON) 350,438
11,872 Tektronix, Inc. 394,744
16,846 Vishay Intertechnology, Inc. (NON) 361,136
--------------
9,262,525
Entertainment (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
22,457 Dover Downs Entertainment, Inc. 328,434
Environmental Control (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
28,609 Safety-Kleen Corp. (NON) 364,765
Food and Beverages (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
14,405 International Multifoods Corp. 326,813
11,400 Michael Foods, Inc. 315,638
8,478 Robert Mandavi Corp. (The) (NON) 293,021
10,155 Smithfield Foods, Inc. (NON) 298,303
33,468 United Natural Foods, Inc. (NON) 384,882
18,667 Universal Foods Corp. 394,340
--------------
2,012,997
Health Care (5.2%)
- --------------------------------------------------------------------------------------------------------------------------
14,341 AmeriSource Health Corp. Class A (NON) 370,177
39,566 Conventry Health Care, Inc. (NON) 398,133
14,100 Diagnostic Products Corp. 366,600
185,000 Integrated Health Services, Inc. 566,563
56,621 Matria Healthcare, Inc. (NON) 336,187
21,900 Orthodontic Centers of America, Inc. (NON) 355,875
43,903 Quorum Health Group, Inc. (NON) 386,895
19,500 Renal Care Group, Inc. (NON) 372,938
56,755 United Wisconsin Services 400,832
31,847 US Oncology, Inc. (NON) 326,432
10,617 West Pharmaceutical Services, Inc. 399,465
--------------
4,280,097
Hospital Management and Medical Services (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
9,978 Trigon Healthcare, Inc. (NON) 362,326
11,615 Universal Health Services, Inc. (NON) 387,651
--------------
749,977
Insurance and Finance (12.2%)
- --------------------------------------------------------------------------------------------------------------------------
17,639 AMCORE Financial, Inc. 385,853
16,233 Amerus Life Holdings, Inc. Class A 391,621
23,856 Bank United Corp. Class A 818,559
29,825 Berkley (W.R.) Corp. 678,519
24,200 Centennial Bancorp (NON) 284,350
31,000 Commerce Group, Inc. 689,750
16,990 Commercial Federal Corp. 395,018
19,499 Community First Bankshares 400,339
20,026 Ehhance Financial Services Group, Inc. 410,533
15,205 FBL Financial Group, Inc. Class A 301,249
8,415 First Midwest Bancorp, Inc. 335,548
71,426 Fremont General Corp. 709,796
13,500 Horace Mann Educators Corp. 406,688
12,943 Hudson United Bancorp 411,749
18,557 Imperial Bancorp. (NON) 315,469
31,100 MMI Companies, Inc. 414,019
23,726 Peoples Heritage Financial Group, Inc. 398,893
23,200 Presidential Life Corp. 417,600
16,702 Provident Bankshares Corp. 402,936
16,557 Soutwest Bancorporation of Texas, Inc. (NON) 285,608
38,245 Sovereign Bancorp, Inc. 383,645
29,199 Sterling Bancshares, Inc. 350,388
13,841 Webster Financial Corp. 372,842
--------------
9,960,972
Lodging (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
34,500 Marcus Corp. (The) 411,844
Manufacturing (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
12,300 Tennant Co. 415,894
Medical Supplies and Devices (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
13,831 Arrow International, Inc. 401,099
9,043 Beckman Coulter, Inc. 428,412
21,757 Haemonetics Corp. (NON) 425,621
20,701 Invacare Corp. 386,850
54,873 Meridian Diagnostics, Inc. 418,407
64,007 Owens & Minor, Inc. 708,077
9,500 Varian Medical Systems, Inc. 205,438
17,939 Vital Signs, Inc. 359,901
--------------
3,333,805
Metals and Mining (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
27,282 A. M. Castle & Co. 402,410
18,349 Carpenter Technology Corp. 419,733
16,543 Quanex Corp. 430,118
10,105 Reliance Steel & Aluminum Co. 334,728
--------------
1,586,989
Oil and Gas (6.0%)
- --------------------------------------------------------------------------------------------------------------------------
15,983 Basin Exploratin, Inc. (NON) 363,613
10,930 Devon Energy Corp. 422,171
15,175 Helmerich & Payne, Inc. 418,261
19,035 National-Oilwell, Inc. (NON) 323,595
12,500 Newfield Exploration Co. (NON) 379,688
32,257 Newpark Resources, Inc. (NON) 290,313
23,062 Pride International, Inc. (NON) 343,047
87,000 Range Resources Corp. 478,500
14,270 St. Mary Land & Exploration Co. 378,155
3,135 Stone Energy Corp. (NON) 166,939
23,801 Tidewater, Inc. 773,533
13,900 Tuboscope, Inc. (NON) 202,419
16,349 WD-40 Co. 400,551
--------------
4,940,785
Packaging and Containers (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
29,200 BWAY Corp. (NON) 251,850
11,233 Ivex Packaging Corp. (NON) 174,112
--------------
425,962
Paper and Forest Products (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
15,005 Caraustar Industries, Inc. 340,426
29,024 P.H. Glatfelter Co. 382,754
27,807 Wausau-Mosinee Paper Corp. 382,346
--------------
1,105,526
Publishing (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
11,843 McClatchy Co. (The) 409,324
Real Estate (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
21,052 LNR Property Corp. 392,094
Retail (8.5%)
- --------------------------------------------------------------------------------------------------------------------------
22,954 Authentic Fitness Corp. 397,391
56,237 Baker (J.), Inc. 421,778
30,200 Casey's General Stores, Inc. 403,925
30,974 Cato Corp. (The) 416,213
29,628 CBRL Group, Inc. 388,868
12,900 Claire's Stores, Inc. 242,681
17,383 Coldwater Creek, Inc. (NON) 306,375
46,309 Gymboree Corp. (The) (NON) 240,228
71,596 Heilig-Meyers Co. 380,354
18,700 J. Jill Group, Inc. (NON) 313,225
7,615 Lands' End, Inc. (NON) 383,606
32,000 Luby's, Inc. 428,000
44,800 Maxim Group, Inc. (The) (NON) 235,200
13,946 Micro Warehouse, Inc. (NON) 170,839
32,900 MSC Industrial Direct Co., Inc. Class A (NON) 314,606
31,999 Petco Animal Supplies, Inc. (NON) 399,988
129,230 Pier 1 Imports, Inc. 702,688
20,970 Regis Corp. 401,051
37,718 Wolverine World Wide, Inc. 426,685
--------------
6,973,701
Specialty Consumer Products (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
17,467 Oneida Ltd. 417,025
Telecommunications (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
6,500 ADTRAN, Inc. (NON) 247,813
19,000 Andrew Corp. (Canada) (NON) 332,500
12,257 C&D Technologies, Inc. 386,096
35,937 Communications Systems, Inc. 437,982
9,500 CT Communications, Inc. 384,750
27,400 Davox Corp. (NON) 381,888
15,800 Performance Technologies, Inc. (NON) 510,538
--------------
2,681,567
Textiles (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
30,900 Culp, Inc. 280,031
29,309 Pillowtex Corp. 320,567
--------------
600,598
Transportation (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
16,512 Circle International Group, Inc. 408,672
4,705 USFreightways Corp. 228,193
--------------
636,865
Utilities (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
22,900 AGL Resources, Inc. 413,631
12,533 Applied Power, Inc. 383,823
9,575 Eastern Enterprises 430,262
--------------
1,227,716
--------------
Total Common Stocks (cost $84,479,857) $ 81,601,509
SHORT-TERM INVESTMENTS (5.8%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$2,600,000 Interest in $452,313,000 joint repurchase agreement
dated August 31, 1999 with Morgan (J.P.) & Co., Inc.
due September 1, 1999 with respect to various
U.S. Treasury obligations -- maturity value of $2,600,390
for an effective yield of 5.40% $ 2,600,000
2,173,000 Interest in $469,282,000 joint repurchase agreement
dated August 31, 1999 with Salomon, Smith Barney, Inc.
due September 1, 1999 with respect to various
U.S. Treasury obligations -- maturity value of $2,173,326
for an effective yield of 5.40% 2,173,000
--------------
Total Short-Term Investments (cost $4,773,000) $ 4,773,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $89,252,857) (b) $ 86,374,509
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $81,911,264.
(b) The aggregate identified cost on a tax basis is $89,252,857, resulting in gross unrealized appreciation and
depreciation of $4,057,827 and $6,936,175, respectively, or net unrealized depreciation of $2,878,348.
(NON) Non-income-producing security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
August 31, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $89,252,857) (Note 1) $86,374,509
- -----------------------------------------------------------------------------------------------
Cash 110,208
- -----------------------------------------------------------------------------------------------
Dividends receivable 57,146
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,373,453
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 2,274,761
- -----------------------------------------------------------------------------------------------
Total assets 90,190,077
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 8,005,896
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 27,665
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 116,956
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 38,304
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 166
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 800
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 43,055
- -----------------------------------------------------------------------------------------------
Other accrued expenses 45,971
- -----------------------------------------------------------------------------------------------
Total liabilities 8,278,813
- -----------------------------------------------------------------------------------------------
Net assets $81,911,264
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $83,612,012
- -----------------------------------------------------------------------------------------------
Accumulated net investment loss (Note 1) (141,389)
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 1,318,989
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (2,878,348)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $81,911,264
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($50,367,443 divided by 5,198,798 shares) $9.69
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $9.69)* $10.28
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($30,116,597 divided by 3,112,826 shares)** $9.68
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($1,427,224 divided by 147,249 shares)** $9.69
- -----------------------------------------------------------------------------------------------
* 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
For the period April 13, 1999 (commencement of operations)
to August 31, 1999 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends $ 174,157
- -----------------------------------------------------------------------------------------------
Interest 33,168
- -----------------------------------------------------------------------------------------------
Total investment income 207,325
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 128,999
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 89,646
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 1,435
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 800
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 27,564
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 50,040
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 698
- -----------------------------------------------------------------------------------------------
Reports to shareholders 7,894
- -----------------------------------------------------------------------------------------------
Registration fees 24,767
- -----------------------------------------------------------------------------------------------
Auditing 13,562
- -----------------------------------------------------------------------------------------------
Legal 1,500
- -----------------------------------------------------------------------------------------------
Postage 1,766
- -----------------------------------------------------------------------------------------------
Other 2,356
- -----------------------------------------------------------------------------------------------
Total expenses 351,027
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (2,313)
- -----------------------------------------------------------------------------------------------
Net expenses 348,714
- -----------------------------------------------------------------------------------------------
Net investment loss (141,389)
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 1,318,989
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (2,878,348)
- -----------------------------------------------------------------------------------------------
Net loss on investments (1,559,359)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(1,700,748)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the period April 13, 1999
(commencement of operations)
to August 31, 1999*
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment loss $ (141,389)
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments 1,318,989
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (2,878,348)
- ---------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations (1,700,748)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 81,613,012
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 79,912,264
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period (Note 5) 1,999,000
- ---------------------------------------------------------------------------------------------------------------
End of period (including accumulated net
investment loss of $141,389) $81,911,264
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
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
April 13, 1999+
Per-share to August 31
operating performance (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.21
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.19
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.69
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 14.00*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $50,367
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 0.75*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (0.25)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 26.32*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service arrangements.
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
May 3, 1999+
Per-share to August 31
operating performance (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $9.35
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .37
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .33
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.68
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.53*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $30,117
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 0.89*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (0.47)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 26.32*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service arrangements.
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
July 26, 1999+
Per-share to August 31
operating performance (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $10.23
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.53)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.54)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.69
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (5.28)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,427
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 0.27*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (0.13)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 26.32*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service arrangements.
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
</TABLE>
Notes to financial statements
August 31, 1999 (Unaudited)
Note 1
Significant accounting policies
Putnam Small Cap Value Fund (the "fund") is one of a series of Putnam
Investment Funds (the "trust") which is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-ended management
investment company. The fund seeks capital appreciation by investing
primarily in common stocks of small companies which Putnam Investments
Management, Inc. ("Putnam Management"), the fund's manager, a wholly-owned
subsidiary of Putnam Investments, Inc. believes are currently undervalued.
The fund offers class A, class B and class C shares. The fund began
offering class B shares on May 3, 1999, and class C shares on July 26,
1999. Class A shares are sold with a maximum front-end sales charge of
5.75%. Class B shares, which convert to class A shares after approximately
eight years, do not pay a front-end sales charge, but pay a higher ongoing
distribution fee than class A shares, and are subject to a contingent
deferred sales charge, if those shares are redeemed within six years of
purchase. Class C shares are subject to the same fees and expenses as
class B shares, except that class C shares have a one-year 1.00%
contingent deferred sales charge and do not convert to class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price on the principal market in which the securities are
traded, 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 following procedures
approved by the Trustees. Foreign securities quoted in foreign currencies
are translated into U.S. dollars at the current exchange rate.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Management. These balances may be invested in one or more
repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be in an amount at
least equal to the resale price, including accrued interest. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date.
E) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the period ended
August 31, 1999, the fund had no borrowings against the line of credit.
F) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
G) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations.
H) Expenses of the trust Expenses directly charged or attributable to any
fund will be paid from the assets of that fund. Generally, expenses of the
trust will be allocated among and charged to the assets of each fund on a
basis that the Trustees deem fair and equitable, which may be based on the
relative assets of each fund or the nature of the services performed and
relative applicability to each fund.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.80% of the first $500
million of average net assets, 0.70% of the next $500 million, 0.65% of
the next $500 million, 0.60% of the next $5 billion, 0.575% of the next $5
billion, 0.555% of the next $5 billion, 0.54% of the next $5 billion and
0.53% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the period ended August 31, 1999, fund expenses were reduced by $2,313
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 $411 has
been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension Plan
are equal to 50% of the Trustee's average total retainer and meeting fees
for the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class C shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing
shares of the fund. The Plans provide for payments by the fund to Putnam
Mutual Funds Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the
average net assets attributable to class A, class B and class C shares,
respectively. The Trustees have approved payment by the fund to an annual
rate of 0.25%, 1.00% and 1.00% of the average net assets attributable to
class A, class B and class C shares, respectively.
For the period ended August 31, 1999, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $93,161 from the sale of class A
shares, and received $3,934 and no monies in contingent deferred sales
charges from redemptions of class B and class C shares. A deferred sales
charge of up to 1% is assessed on certain redemptions of class A shares.
For the period ended August 31, 1999, Putnam Mutual Funds Corp., acting as
underwriter received no monies on class A redemptions.
Note 3
Purchase and sales of securities
During the period ended August, 31, 1999, purchases and sales of
investment securities other than short-term investments aggregated
$95,041,202 and $11,880,334, respectively. There were no purchases and
sales of U.S. government obligations. In determining the net gain or loss
on securities sold, the cost of securities has been determined on the
identified cost basis.
Note 4
Capital shares
At August 31, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
For the period April 13, 1999
(commencement of operations)
to August 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 5,536,719 $54,684,908
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
5,536,719 54,684,908
Shares
repurchased (573,097) (5,728,724)
- -----------------------------------------------------------------------------
Net increase 4,963,622 $48,956,184
- -----------------------------------------------------------------------------
For the period May 3, 1999
(commencement of operations)
to August 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 3,217,296 $32,233,189
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
3,217,296 32,233,189
Shares
repurchased (104,470) (1,043,886)
- -----------------------------------------------------------------------------
Net increase 3,112,826 $31,189,303
- -----------------------------------------------------------------------------
For the period July 26, 1999
(commencement of operations)
to August 31, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 147,347 $ 1,468,498
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
147,347 1,468,498
Shares
repurchased (98) (973)
- -----------------------------------------------------------------------------
Net increase 147,249 $ 1,467,525
- -----------------------------------------------------------------------------
Note 5
Initial capitalization and offering
of shares
The trust was established as a Massachusetts business trust on October 31,
1994. During the period October 31, 1994 to April 13, 1999 the fund had no
operations other than those related to organizational matters, including
the initial capital contribution of $1,999,000 and the issuance of 235,176
shares to Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam
Investments, Inc. on April 12, 1999.
At August 31, 1999, Putnam Companies, Inc. owned 344,158 shares of the
fund (6.62% of class A shares outstanding), valued at $3,334,891.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. Please call
your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus for
any Putnam fund. It contains more complete information, including charges and
expenses. Please read it carefully before you invest or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
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 Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
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 Diversified Income Trust II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Edward T. Shadek, Jr.
Vice President and Fund Manager
Jeffrey W. Netols
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
This report is for the information of shareholders of Putnam Small Cap
Value Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For more
information or to request a prospectus, call toll free: 1-800-225-1581.
You can also learn more at Putnam Investments' Web site: www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any
other agency; and involve risk, including the possible loss of the
principal amount invested.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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BULK RATE
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PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
SA069-55215 2MF 10/99
