Prospectus
June 30, 2000, as revised November 30, 2000
Putnam Small Cap Value Fund
Class Y shares
Investment Category: Growth and Income
This prospectus explains what you should know about this mutual fund
before you invest. Please read it carefully.
Putnam Investment Management, Inc. (Putnam Management), which has managed
mutual funds since 1937, manages the fund.
These securities have not been approved or disapproved by the Securities
and Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this prospectus. Any statement to the contrary is a crime.
CONTENTS
2 Fund summary
2 Goal
2 Main investment strategies
2 Main risks
2 Fees and expenses
3 What are the fund's main investment strategies and related risks?
5 Who manages the fund?
5 How does the fund price its shares?
6 How do I buy fund shares?
7 How do I sell fund shares?
7 How do I exchange fund shares?
8 Fund distributions and taxes
Putnam Defined Contribution Plans
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Fund summary
GOAL
The fund seeks capital appreciation.
MAIN INVESTMENT STRATEGIES -- VALUE STOCKS
We invest mainly in common stocks of U.S. companies, with a focus on value
stocks -- stocks we believe are currently under valued by the market. If we
are correct and other investors recognize the value of the company, the
price of the stock may rise. We invest mainly in small companies. These are
companies of a size similar to those in the Russell 2000 Index, a commonly
used measure of small company performance.
MAIN RISKS
The main risks that could adversely affect the value of this fund's shares
and the total return on your investment include:
* The risk that the stock price of one or more of the companies in the
fund's portfolio will fall, or will fail to rise. Many factors can
adversely affect a stock's performance, including both general financial
market conditions and factors related to a specific company or industry.
This risk is generally greater for small and midsized companies, which tend
to be more vulnerable to adverse developments.
* The risk that movements in financial markets will adversely affect the
price of the fund's investments, regardless of how well the companies in
which we invest perform. The market as a whole may not favor the types of
investments we make.
You can lose money by investing in the fund. The fund may not achieve its
goals, and is not intended as a complete investment program. An investment
in the fund is not a deposit in a bank and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Performance information for the fund has not been included since, at the
time of this printing, the fund had not been in operation for a full
calendar year.
FEES AND EXPENSES
This table summarizes the fees and expenses you may pay if you invest in
class Y shares of the fund. Expenses are based on the fund's class A shares
(not offered by this prospectus) for the fund's last fiscal year.
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
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Total Annual
Management Other Fund Operating
Fees Expenses Expenses
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Class Y 0.80% 0.51% 1.31%
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EXAMPLE
The example translates the expenses shown in the preceding table into
dollar amounts. By doing this, you can more easily compare the cost of
investing in the fund to the cost of investing in other mutual funds. The
example makes certain assumptions. It assumes that you invest $10,000 in
the fund for the time periods shown and then redeem all your shares at the
end of those periods. It also assumes a 5% return on your investment each
year and that the fund's operating expenses remain the same. The example is
hypothetical; your actual costs and returns may be higher or lower.
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1 year 3 years 5 years 10 years
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Class Y $133 $415 $718 $1,579
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What are the fund's main investment strategies and related risks?
Any investment carries with it some level of risk that generally reflects
its potential for reward. We pursue the fund's goal by investing mainly in
common stock of small companies, with a focus on value stocks. We will
consider, among other things, a company's financial strength, competitive
position in its industry and projected future earnings, cash flows and
dividends when deciding whether to buy or sell investments. A description
of the risks associated with the fund's main investment strategies follows.
* Common stocks. Common stock represents an ownership interest in a
company. The value of a company's stock may fall as a result of factors
relating directly to that company, such as decisions made by its management
or lower demand for the company's products or services. A stock's value may
also fall because of factors affecting not just the company, but also
companies in the same industry or in a number of different industries, such
as increases in production costs. The value of a company's stock may also
be affected by changes in financial markets that are relatively unrelated
to the company or its industry, such as changes in interest rates or
currency exchange rates. In addition, a company's stock generally pays
dividends only after the company invests in its own business and makes
required payments to holders of its bonds and other debt. For this reason,
the value of a company's stock will usually react more strongly than its
bonds and other debt to actual or perceived changes in the company's
financial condition or prospects. Stocks of smaller companies may be more
vulnerable to adverse developments than those of larger companies.
Companies whose stock we believe is undervalued by the market may have
experienced adverse business developments or may be subject to special
risks that have caused their stocks to be out of favor. If our assessment
of a company's prospects is wrong, or if other investors do not similarly
recognize the value of the company, then the price of the company's stock
may fall or may not approach the value that we have placed on it.
* Smaller companies. We may invest in smaller companies. Smaller companies,
which may have a market capitalization of less than $1 billion, are more
likely than larger companies to have limited product lines, markets or
financial resources, or to depend on a small, inexperienced management
group. Stocks of these companies often trade less frequently and in limited
volume, and their prices may fluctuate more than stocks of larger
companies. Stocks of smaller companies may therefore be more vulnerable to
adverse developments than those of larger companies.
* Foreign investments. We may invest in securities of foreign issuers.
Foreign investments involve certain special risks. For example, their
values may decline in response to changes in currency exchange rates,
unfavorable political and legal developments, unreliable or untimely
information, and economic and financial instability. In addition, the
liquidity of these investments may be more limited than for U.S.
investments, which means we may at times be unable to sell them at
desirable prices. Foreign settlement procedures may also involve additional
risks. These risks are generally greater in the case of developing (also
known as emerging) markets with less developed legal and financial systems.
Certain of these risks may also apply to U.S. investments that are
denominated in foreign currencies or that are traded in foreign markets, or
to securities of U.S. companies that have significant foreign operations.
* Other investments. In addition to the main investment strategies
described above, we may make other investments, such as investments in
preferred stocks, convertible securities, debt instruments and derivatives,
which may be subject to other risks, as described in the fund's statement
of additional information (SAI).
* Alternative strategies. At times we may judge that market conditions make
pursuing the fund's usual investment strategies inconsistent with the best
interests of its shareholders. We then may temporarily use alternative
strategies that are mainly designed to limit losses. However, we may choose
not to use these strategies for a variety of reasons, even in very volatile
market conditions. These strategies may cause the fund to miss out on
investment opportunities, and may prevent the fund from achieving its goal.
* Changes in policies. The fund's Trustees may change the fund's goal,
investment strategies and other policies without shareholder approval,
except as otherwise indicated.
Who manages the fund?
The fund's Trustees oversee the general conduct of the fund's business. The
Trustees have retained Putnam Management to be the fund's investment
manager, responsible for making investment decisions for the fund and
managing the fund's other affairs and business. The fund pays Putnam
Management a quarterly management fee for these services at the annual rate
of 0.80% of the first $500 million of the average net asset value of the
fund; 0.70% of the next $500 million; 0.65% of the next $500 million; 0.60%
of the next $5 billion; 0.575% of the next $5 billion; 0.555% of the next
$5 billion; 0.54% of the next $5 billion; and 0.53% thereafter. Putnam
Management's address is One Post Office Square, Boston, MA 02109.
The following officers of Putnam Management have had primary responsibility
for the day-to-day management of the fund's portfolio since the years shown
below. Their experience as portfolio managers or investment analysts over
at least the last five years is also shown.
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Manager Since Experience
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Edward T. Shadek, Jr. 1999 1997 - Present Putnam Management
Managing Director Prior to March 1997 Newbold's Asset
Management Co.
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Jeffrey W. Netols 1999 1993 - Present Putnam Management
Senior Vice President
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How does the fund price its shares?
The price of the fund's shares is based on its net asset value (NAV). The
NAV per share of each class equals the total value of its assets, less its
liabilities, divided by the number of its outstanding shares. Shares are
only valued as of the close of regular trading on the New York Stock
Exchange each day the exchange is open.
The fund values its investments for which market quotations are readily
available at market value. It values short-term investments that will
mature within 60 days at amortized cost, which approximates market value.
It values all other investments and assets at their fair value.
The fund translates prices for its investments quoted in foreign currencies
into U.S. dollars at current exchange rates. As a result, changes in the
value of those currencies in relation to the U.S. dollar may affect the
fund's NAV. Because foreign markets may be open at different times than the
New York Stock Exchange, the value of the fund's shares may change on days
when shareholders are not able to buy or sell them. If events materially
affecting the values of the fund's foreign investments occur between the
close of foreign markets and the close of regular trading on the New York
Stock Exchange, these investments will be valued at their fair value.
How do I buy fund shares?
All orders to purchase shares must be made through your employer's
retirement plan. For more information about how to purchase shares of the
fund through your employer's plan or limitations on the amount that may be
purchased, please consult your employer.
Putnam Retail Management, Inc. (Putnam Retail Management) generally must
receive your plan's completed buy order before the close of regular trading
on the New York Stock Exchange for shares to be bought at that day's
offering price.
To eliminate the need for safekeeping, the fund will not issue certificates
for shares.
The fund may periodically close to new purchases of shares or refuse any
order to buy shares if Putnam Management determines that doing so would be
in the best interests of the fund and its shareholders.
* Eligible purchasers. A defined contribution plan (including a corporate
IRA) is eligible to purchase class Y shares if
* the plan, its sponsor and other employee benefit plans of the sponsor
invest at least $150 million in Putnam funds and other investments managed
by Putnam Management or its affiliates, or
* the plan's sponsor confirms a good faith expectation that investments in
Putnam-managed assets by the sponsor and its employee benefit plans will
attain $150 million (using the higher of purchase price or current market
value) within one year of initial purchase, and agrees that class Y shares
may be redeemed and class A shares purchased if that level is not attained.
College savings plans that qualify for tax-exempt treatment under Section
529 of the Internal Revenue Code are also eligible to purchase class Y
shares.
How do I sell fund shares?
Subject to any restrictions imposed by your employer's plan, you can sell
your shares through the plan back to the fund any day the New York Stock
Exchange is open. For more information about how to sell shares of the fund
through your employer's plan, including any charges that the plan may
impose, please consult your employer.
Your plan administrator must send a signed letter of instruction to Putnam
Investor Services. The price you will receive is the next NAV per share
calculated after the fund receives the instruction in proper form. In order
to receive that day's NAV, Putnam Investor Services must receive the
instruction before the close of regular trading on the New York Stock
Exchange.
The fund generally sends payment for your shares the business day after
your request is received. Under unusual circumstances, the fund may suspend
redemptions, or postpone payment for more than seven days, as permitted by
federal securities law.
How do I exchange fund shares?
Subject to any restrictions your plan imposes, you can exchange your fund
shares for shares of other Putnam funds offered through your employer's
plan without a sales charge. Contact your plan administrator or Putnam
Investor Services for more information.
The exchange privilege is not intended as a vehicle for short-term trading.
Excessive exchange activity may interfere with portfolio management and
have an adverse effect on all shareholders. In order to limit excessive
exchange activity and otherwise to promote the best interests of the fund,
the fund reserves the right to revise or terminate the exchange privilege,
limit the amount or number of exchanges or reject any exchange. The fund
into which you would like to exchange may also reject your exchange. These
actions may apply to all shareholders or only to those shareholders whose
exchanges Putnam Management determines are likely to have a negative effect
on the fund or other Putnam funds.
Fund distributions and taxes
The fund normally distributes any net investment income and any net
realized capital gains annually.
The terms of your employer's plan will govern how your employer's plan may
receive distributions from the fund. Generally, periodic distributions from
the fund to your employer's plan are reinvested in additional fund shares,
although your employer's plan may permit you to receive fund distributions
from net investment income in cash while reinvesting capital gains
distributions in additional shares or to receive all fund distributions in
cash. If you do not select another option, all distributions will be
reinvested in additional fund shares.
Generally, for federal income tax purposes, fund distributions are taxable
as ordinary income, except that any distributions of long-term capital
gains will be taxed as such regardless of how long you have held your
shares. However, distributions by the fund to retirement plans that qualify
for tax-exempt treatment under federal income tax laws will not be taxable.
Special tax rules apply to investments through such plans. You should
consult your tax advisor to determine the suitability of the fund as an
investment through such a plan and the tax treatment of distributions
(including distributions of amounts attributable to an investment in the
fund) from such a plan.
The fund's investments in foreign securities may be subject to foreign
withholding taxes. In that case, the fund's return on those investments
would be decreased.
You should consult your tax advisor for more information on your own tax
situation, including possible foreign, state and local taxes.
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For more information
about Putnam Small Cap
Value Fund
The fund's statement of additional information (SAI) and annual and
semi-annual reports to shareholders include additional information about
the fund. The SAI, and the auditor's report and financial statements
included in the fund's most recent annual report to its shareholders, are
incorporated by reference into this prospectus, which means they are part
of this prospectus for legal purposes. The fund's annual report discusses
the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year. You may get
free copies of these materials, request other information about the fund
and other Putnam funds, or make shareholder inquiries, by calling Putnam
toll-free at 1-800-752-9894.
You may review and copy information about the fund, including its SAI, at
the Securities and Exchange Commission's public reference room in
Washington, D.C. You may call the Commission at 1-202-942-8090 for
information about the operation of the public reference room. You may also
access reports and other information about the fund on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. You may get
copies of this information, with payment of a duplication fee, by
electronic request at the following E-mail address: [email protected], by
writing the Commission's Public Reference Section, Washington, D.C.
20549-0102. You may need to refer to the fund's file number.
P U T N A M I N V E S T M E N T S
Putnam Defined Contribution Plans
One Post Office Square
Boston, Massachusetts 02109
1-800-752-9894
Address correspondence to
Putnam Investor Services
P.O. Box 9740
Providence, Rhode Island 02940-9740
www.putnaminvestments.com
67178 11/00 File No. 811-7237
