Prospectus
October 30, 1999, as
revised August 30, 2000
Putnam International Growth
and Income 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
3 Performance information
4 Fees and expenses
4 What are the fund's main investment strategies
and related risks?
7 Who manages the fund?
8 How does the fund price its shares?
8 How do I buy fund shares?
9 How do I sell fund shares?
10 How do I exchange fund shares?
10 Fund distributions and taxes
Putnam Defined Contribution Plans
[SCALE LOGO OMITTED]
Fund summary
GOAL
The fund seeks capital growth. Current income is a secondary objective.
MAIN INVESTMENT STRATEGIES -- INTERNATIONAL VALUE STOCKS
We normally invest mostly in common stocks of companies outside the United
States. We invest mainly in value stocks that offer the potential for
income. Value stocks are those that we believe are currently undervalued
by the market. If we are correct and other investors recognize the value of
the company, the price of these stocks may rise. We invest mainly in
midsized and large companies, although we can invest in companies of any
size. Although we emphasize investments in developed countries, we may
also invest in companies located in developing (also known as emerging)
markets.
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 risks of investing outside the United States, such as currency
fluctuations, economic or financial instability, lack of timely or
reliable financial information or unfavorable political or legal
developments. These risks are increased for investments in emerging markets.
* 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 stocks we buy.
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
The following chart provides some indication of the fund's risks by
showing year-to-year changes in the performance of the fund's class Y
shares. The table following the chart compares the fund's performance to
that of a broad measure of market performance. Of course, a fund's past
performance is not an indication of future performance.
[GRAPHIC OMITTED: vertical bar chart CALENDAR YEAR TOTAL RETURNS]
CALENDAR YEAR TOTAL RETURNS
Plot points
1998 11.64%
1997 20.52%
Year-to-date performance through 9/30/99 was 17.12%. During the periods
shown in the bar chart, the highest return for a quarter was 17.16%
(quarter ending 12/31/98) and the lowest return for a quarter was -17.67%
(quarter ending 9/30/98).
Performance of class Y shares, which were not in existence during the
period, in the bar chart and table following the chart, is derived from the
historical performance of the fund's class A shares (not offered by this
prospectus). Performance of class Y shares prior to their inception does
not reflect the initial sales charge currently applicable to class A shares
or differences in operating expenses which, for class Y shares, are lower
than the operating expenses applicable to class A shares.
Average Annual Total Returns (for periods ending 12/31/98)
-------------------------------------------------------------------------------
Past Since
1 year inception
(8/1/96)
Class Y 11.64% 17.02%
MSCI EAFE Index 20.00% 10.62%
The fund's performance is compared to the Morgan Stanley Capital
International (MSCI) EAFE Index, an unmanaged index of equity securities
from Europe, Australasia, and the Far East, with all values expressed in
U.S. dollars.
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 last fiscal
year.
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
-------------------------------------------------------------------------------
Total Annual
Management Other Fund Operating
Fees Fees Expenses
-------------------------------------------------------------------------------
0.76% 0.29% 1.05%
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.
-------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
-------------------------------------------------------------------------------
Class Y $107 $334 $579 $1,283
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
value stocks that offer the potential for income and are issued by
companies outside the United States. We will consider, among other things,
a company's financial strength, competitive position in its industry and
projected future earnings and dividends when deciding which investments to
buy or sell. A description of the risks associated with our 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 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 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 makes required payments to holders
of its bonds and other debt. For this reason, the value of the stock will
usually react more strongly than 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.
* Value stocks. We invest in companies whose stock we believe is undervalued
by the market, often because the market has overreacted to adverse
developments, or has failed to appreciate positive changes. These
companies 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.
* Foreign investments. We may invest without limit in securities of
foreign issuers. Foreign investments involve certain special risks,
including:
* Unfavorable changes in currency exchange rates: Foreign investments
are typically issued and traded in foreign currencies. As a result,
their values may be affected by changes in exchange rates between
foreign currencies and the U.S. dollar.
* Political and economic developments: Foreign investments may be
subject to the risks of seizure by a foreign government, imposition of
restrictions on the exchange or export of foreign currency, and tax
increases.
* Unreliable or untimely information: There may be less information
publicly available about a foreign company than about most U.S.
companies, and foreign companies are usually not subject to accounting,
auditing and financial reporting standards and practices as stringent as
those in the United States.
* Limited legal recourse: Legal remedies for investors may be more
limited than the remedies available in the United States.
* Limited markets: Certain foreign investments may be less liquid (harder
to buy and sell) and more volatile than U.S. investments, which means
we may at times be unable to sell these foreign investments at desirable
prices. For the same reason, we may at times find it difficult to value
the fund's foreign investments.
* Trading practices: Brokerage commissions and other fees are generally
higher for foreign investments than for U.S. investments. The procedures
and rules governing foreign transactions and custody may also involve
delays in payment, delivery or recovery of money or investments.
* Lower yield: Common stocks of foreign companies have historically offered
lower dividends than stocks of comparable U.S. companies. Foreign
withholding taxes may further reduce the amount of income available to
distribute to shareholders of the fund. The fund's yield is therefore
expected to be lower than yields of most funds that invest mainly in U.S.
companies.
The risks of foreign investments are typically increased in less developed
countries, which are sometimes referred to as emerging markets. For
example, political and economic structures in these countries may be
changing rapidly, which can cause instability. These countries are also
more likely to experience high levels of inflation, deflation or currency
devaluation, which could hurt their economies and securities markets. For
these and other reasons, investments in emerging markets are often
considered speculative.
Certain of these risks may also apply to some extent to U.S.-traded
investments that are denominated in foreign currencies, investments in U.S.
companies that are traded in foreign markets, or to investments in U.S.
companies that have significant foreign operations. Special U.S. tax
considerations may apply to our foreign investments.
* Derivatives. We may engage in a variety of transactions involving
derivatives, such as futures, options, warrants and swap contracts.
Derivatives are financial instruments whose value depends upon, or is
derived from, the value of something else, such as one or more underlying
investments, pools of investments, indexes or currencies. We may use
derivatives both for hedging and non-hedging purposes. However, we may
also choose not to use derivatives based on our evaluation of market
conditions or the unavailability of suitable derivatives.
Derivatives involve special risks and may result in losses. The fund
depends on our ability to handle these sophisticated instruments. The
prices of derivatives may move in unexpected ways, especially in abnormal
market conditions. Some derivatives are "leveraged" and therefore may
magnify or otherwise increase investment losses.
Other risks arise from our potential inability to terminate or sell
derivatives positions. A liquid secondary market may not always exist for
the fund's derivatives positions at any time. In fact, many
over-the-counter instruments (investments not traded on an exchange) will
not be liquid. Over-the-counter instruments also involve the risk that the
other party to the derivative transaction will not meet its obligations.
For further information about the risks of derivatives, see the statement
of additional information (SAI).
* Other investments. In addition to the main investment strategies
described above, we may also make other types of investments, such as
investments in preferred stocks, convertible securities and debt
securities, which may be subject to other risks, as described in the
SAI.
* Alternative strategies. At times we may judge that market conditions
make pursuing our usual investment strategies inconsistent with the
best interests of the shareholders. We then may temporarily use
alternative strategies that are mainly designed to limit losses,
including investing solely in the United States. However, we may
choose not to use these strategies for a variety of reasons, even in
very volatile market conditions. These strategies may cause us to miss
out on investment opportunities, and may prevent us from achieving the
fund's 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 based on the
fund's average net assets. The fund paid Putnam Management a management fee
of 0.76% of average net assets for the fund's last fiscal year. 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.
-------------------------------------------------------------------------------
Manager Since Experience
-------------------------------------------------------------------------------
Deborah F. Kuenstner 1997 Employed by Putnam
Managing Director Management since 1997. Prior
to March 1997, Ms. Kuenstner
was employed at Dupont
Pension Fund Investment.
-------------------------------------------------------------------------------
Colin Moore 2000 Employed by Putnam Management
Managing Director since 2000. Prior to May
2000, Mr. Moore was employed
by Rockefeller & Co., Inc.
-------------------------------------------------------------------------------
George W. Stairs 1997 Employed by Putnam
Senior Vice President Management since 1994.
-------------------------------------------------------------------------------
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.
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 distributes any net investment income quarterly and any net
realized capital gains at least once a year.
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 another option is not selected, 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.
You should consult your tax advisor for more information on your own tax
situation, including possible foreign, state and local taxes.
[This page left intentionally blank]
For more information about Putnam
International Growth and Income 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, or 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: , by writing the Commission's
Public Reference Section , Washington, D.C. 20549- 0102. You may need to
refer to the fund's file number.
PUTNAM INVESTMENTS
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.putnaminv.com
File No. 811 - 7513
