PUTNAM NATURAL RESOURCES FUND (THE "FUND")
Prospectus Supplement dated August 1, 1996 to
Prospectus dated January 1, 1996
The Trustees of the fund have approved changes to the fund's
investment policies that will permit the fund to increase its
investments in foreign securities. In addition, the fund's name
will be changed to "Putnam Global Natural Resources Fund."
Except as otherwise noted, these changes will be effective August
12, 1996.
The following paragraph is added after the first paragraph under
the heading "Basic investment strategy":
The fund follows a global investment strategy. Under normal
market conditions, the fund will invest at least 65% of its
total assets in issuers located in at least three different
countries, one of which may be the United States.
The following sentence replaces the third sentence of the second
paragraph under the heading "Basic investment strategy":
In implementing these "defensive" strategies, the fund may
invest without limit in debt securities or preferred stocks
of companies in any industry, increase the portion of its
assets held in cash or money market instruments, or invest
in any other securities Putnam Investment Management, Inc.,
("Putnam Management") the fund's investment manager
considers consistent with such defensive strategies. For
defensive purposes, the fund may also invest without limit
in issuers located in the United States.
The following sentence replaces the first two sentences of the
first paragraph under the heading "Foreign Investments."
The fund may invest without limit in securities traded in
foreign markets.
The following section is added after the section entitled
"Foreign investments":
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
THE FUND MAY ENGAGE IN FOREIGN CURRENCY EXCHANGE
TRANSACTIONS TO PROTECT AGAINST UNCERTAINTY IN THE LEVEL OF
FUTURE EXCHANGE RATES. Putnam Management may engage in
foreign currency exchange transactions in connection with
the purchase and sale of portfolio securities ("transaction
hedging") and to protect against changes in the value of
specific portfolio positions ("position hedging").
The fund may engage in transaction hedging to protect
against a change in foreign currency exchange rates between
the date on which the fund contracts to purchase or sell a
security and the settlement date, or to "lock in" the U.S.
dollar equivalent of a dividend or interest payment in a
foreign currency. The fund may purchase or sell a foreign
currency on a spot (or cash) basis at the prevailing spot
rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency.
If conditions warrant, for transaction hedging purposes the
fund may also enter into contracts to purchase or sell
foreign currencies at a future date ("forward contracts")
and, if the fund's shareholders approve certain changes to
the fund's investment restrictions at the fund's upcoming
shareholder meeting as described below, purchase and sell
foreign currency futures contracts. A foreign currency
forward contract is a negotiated agreement to exchange
currency at a future time at a rate or rates that may be
higher or lower than the spot rate. Foreign currency
futures contracts are standardized exchange-traded contracts
and have margin requirements. In addition, if the
shareholders approve such changes to the fund's investment
restrictions, or transaction hedging purposes the fund may
also purchase or sell exchange-listed and over-the-counter
call and put options on foreign currency futures contracts
and on foreign currencies.
The fund may engage in position hedging to protect against
the decline in the value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated
or quoted (or an increase in the value of the currency in
which the securities the fund intends to buy are
denominated, when the fund holds cash or short-term
investments). For position hedging purposes, the fund may,
if certain changes to the fund's investment restrictions are
approved, purchase or sell foreign currency futures
contracts, foreign currency forward contracts and options on
foreign currency futures contracts and on foreign currencies
on exchanges or over-the-counter markets. In connection
with position hedging, the fund may also purchase or sell
foreign currency on a spot basis.
The fund's currency hedging transactions may call for the
delivery of one foreign currency in exchange for another
foreign currency and may at times not involve currencies in
which its portfolio securities are then denominated. Putnam
Management will engage in such "cross hedging" activities
when it believes that such transactions provide significant
hedging opportunities for the fund. Cross hedging
transactions by the fund involve the risk of imperfect
correlation between changes in the values of the currencies
to which such transactions relate and changes in the value
of the currency or other asset or liability which is the
subject of the hedge.
The decision as to whether and to what extent the fund will
engage in foreign currency exchange transactions will depend
on a number of factors, including prevailing market
conditions, the composition of the fund's portfolio and the
availability of suitable transactions. Accordingly there
can be no assurance that the fund will engage in foreign
currency exchange transactions at any given time or from
time to time. For more information relating to the fund's
foreign currency exchange transactions, see the statement of
additional information (the "SAI").
The following text replaces the second and third paragraphs under
the heading "How to buy shares -- Class A shares."
There is no initial sales charge on purchases of class A
shares of $1 million or more. However, a CDSC of 1.00% or
0.50%, respectively, will be imposed on redemptions (other
than redemptions by certain participant-directed qualified
retirement plans, which are subject to a two-year CDSC of
1.00%, as described below) within the first or second year
after purchase.
There are also no initial sales charges on Class A shares
purchased by participant-directed qualified retirement plans
with at least 200 eligible employees. A CDSC of 1.00% will,
however, be imposed upon the redemption of shares purchased
after July 31, 1996 at net asset value by a participant-
directed qualified retirement plan (including a plan with at
least 200 eligible employees) that initially invested less
than $20 million in Putnam funds and other investments
managed by Putnam Management or its affiliates and that
sells 90% or more of the amount initially invested within
two years after its initial purchase.
Any CDSC will be based on the lower of the shares' cost and
current net asset value. Any shares acquired by
reinvestment of distributions will be redeemed without a
CDSC.
The following paragraphs are added after the sixth paragraph
under the heading "How the fund makes distributions to
shareholders; Tax information":
Fund transactions in foreign currencies and hedging
activities will likely produce a difference between book
income and taxable income. This difference may cause a
portion of the fund's income distributions to constitute a
return of capital for tax purposes or require the fund to
make distributions exceeding book income to qualify as a
regulated investment company for tax purposes.
SHAREHOLDERS OF THE FUND WHO ARE U.S. CITIZENS OR RESIDENTS
MAY BE ABLE TO CLAIM A FOREIGN TAX CREDIT OR DEDUCTION ON
THEIR U.S. INCOME TAX RETURNS WITH RESPECT TO FOREIGN TAXES
PAID BY THE FUND. If at the end of the fiscal year more
than 50% of the value of the fund's total assets represents
securities of foreign corporations, the fund intends to make
an election permitted by the Internal Revenue Code to treat
any foreign taxes it paid as paid by its shareholders. In
this case, shareholders who are U.S. citizens, U.S.
corporations and, in some cases, U.S. residents generally
will be required to include in U.S. taxable income their pro
rata share of such taxes, but may then generally be entitled
to claim a foreign tax credit or deduction (but not both) on
their share of such taxes.
The fund may own shares in certain foreign investment
entities, referred to as "passive foreign investment
companies." In order to avoid U.S. federal income tax, and
an additional charge on a portion of any "excess
distribution" from such companies or gain from the
disposition of such shares, the fund has elected to "mark to
market" annually its investments in such entities and will
distribute any resulting net gain to shareholders. As a
result, the fund may be required to sell securities it would
have otherwise continued to hold in order to make
distributions to shareholders to avoid any fund-level tax.
At a meeting to be held on July 31, 1996, shareholders of
the fund will be asked to approve a number of changes to the
fund's fundamental investment restrictions, including the
elimination of certain of these restrictions. Certain of
these proposals relate to the restrictions set forth in the
prospectus under the heading "Limiting investment risk" on
page 12. If, as anticipated, these proposals receive
sufficient votes for approval at the meeting, the fund will
be able to:
- - acquire more than 10% of the outstanding voting securities
of any issuer with respect to 25% of its total assets;
- - invest more than 5% of its total assets in companies that,
together with any predecessors or controlling persons, have
been in business less than three continuous years;
- - invest more than 25% of its total assets in securities
issued by the U.S. government, its agencies or
instrumentalities;
- - invest up to 5% of its total assets in warrants up to 2% of
its total assets in warrants not listed on the New York or
American Stock Exchange; and
- - enter into foreign currency exchange transactions and other
financial transactions not involving physical commodities.
In addition, the following paragraphs will be added following the
second paragraph under the heading "Other investment practices":
STOCK INDEX FUTURES AND OPTIONS
THE FUND MAY BUY AND SELL STOCK INDEX FUTURES CONTRACTS. An
"index future" is a contract to buy or sell units of a
particular stock index at an agreed price on a specified
future date. Depending on the change in value of the index
between the time the fund enters into and terminates an
index futures transaction, the fund realizes a gain or loss.
In addition to or as an alternative to purchasing or selling
index futures, the fund may buy and sell call and put
options on index futures or stock indexes. The fund may
engage in index futures and options transactions for hedging
purposes and for non-hedging purposes, such as to adjust its
exposure to relevant markets.
THE USE OF INDEX FUTURES AND RELATED OPTIONS INVOLVES
CERTAIN SPECIAL RISKS. FUTURES AND OPTIONS TRANSACTIONS
INVOLVE COSTS AND MAY RESULT IN LOSSES.
Certain risks arise because of the possibility of imperfect
correlations between movements in the prices of index
futures and options and movements in the prices of the
underlying stock index or of the portfolio securities that
are the subject of a hedge. The successful use of the
strategies described above further depends on Putnam
Management's ability to forecast market movements correctly.
Other risks arise from the potential inability to close out
index futures or options positions. There can be no
assurance that a liquid secondary market will exist for any
index future or option at any particular time. The use of
futures and options transactions for purposes other than
hedging entails greater risks. Certain provisions of the
Internal Revenue Code and certain regulatory requirements
may limit the use of index futures and options transactions.
A MORE DETAILED EXPLANATION OF INDEX FUTURES AND OPTIONS
TRANSACTIONS, INCLUDING THE RISKS ASSOCIATED WITH THEM, IS
INCLUDED IN THE SAI.
If any or all of
the
proposals
described above do
not receive
sufficient votes for approval, the fund's prospectuses will be
revised as appropriate. See the SAI for the full text of these
restrictions, as well as the fund's other investment
restrictions, some of which are proposed to be changed at the
July 31, 1996
meeting.
