PROSPECTUS
July 30, 1997 ,
as revised February 28,
1998
Putnam Strategic Income Fund
Class A, B and M shares
INVESTMENT STRATEGY: INCOME
This prospectus explains concisely what you should know before
investing in Putnam Strategic Income Fund (the
"fund"). Please read it carefully and keep it for future
reference. You can find more detailed information in the July
30, 1997 statement of additional information (the "SAI"), as
amended from time to time. For a free copy of the SAI or other
information, call Putnam Investor Services at 1-800-225-1581.
The SAI has been filed with the Securities and Exchange
Commission (the "Commission") and is incorporated into this
prospectus by reference. The Commission maintains a Web site
(http://www.sec.gov) that contains the SAI, material incorporated
by reference into this prospectus and the SAI, and other
information regarding registrants that file electronically with
the Commission.
The fund invests primarily in lower-rated bonds, commonly known
as "junk bonds." These investments are subject to a
greater risk of loss of principal and nonpayment of interest.
Investors should carefully assess the risks associated with an
investment in the fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
BOSTON * LONDON * TOKYO
<PAGE>
ABOUT THE FUND
Expenses summary
.................................................................
This section describes the sales charges, management fees, and
annual operating expenses that apply to various classes of the
fund's shares. Use it to help you estimate the impact of
transaction costs and recurring expenses on your
investment over time.
Financial highlights
.................................................................
Study this table to see, among other things, how the fund
performed each year for the past 10 years or since it began
investment operations if it has been in operation for less than
10 years.
Objective
.................................................................
Read this section to make sure the fund's objective is consistent
with your own.
How the fund pursues its objective
.................................................................
This section explains in detail how the fund seeks its investment
objective and identifies risks associated with
the fund's investment policies .
How performance is shown
.................................................................
This section describes and defines the measures used to assess
fund performance. All data are based on past investment results
and do not predict future performance.
How the fund is managed
.................................................................
Consult this section for information about the fund's management,
allocation of its expenses, and how it purchases and
sells securities .
Organization and history
.................................................................
In this section, you will learn when the fund was introduced, how
it is organized, how it may offer shares, and who its Trustees
are.
<PAGE>
ABOUT YOUR INVESTMENT
Alternative sales arrangements
.................................................................
Read this section for descriptions of the classes of shares this
prospectus offers and for points you should consider when making
your choice.
How to buy shares
.................................................................
This section describes the ways you may purchase shares and tells
you the minimum amounts required to open various types of
accounts. It explains how sales charges are determined and how
you may become eligible for reduced sales charges .
Distribution plans
.................................................................
This section tells you what distribution fees are charged against
each class of shares.
How to sell shares
.................................................................
In this section you can learn how to sell fund shares, either
directly to the fund or through an investment dealer.
How to exchange shares
.................................................................
Find out in this section how you may exchange fund shares for
shares of other Putnam funds. The section also explains how
exchanges can be made without sales charges and the conditions
under which sales charges may be required.
How the fund values its shares
.................................................................
This section explains how the fund determines the value of its
shares.
How the fund makes distributions to shareholders; tax information
.................................................................
This section describes the various options you have in choosing
how to receive fund dividends. It also discusses the tax status
of the payments and counsels you to seek specific advice about
your own situation.
ABOUT PUTNAM INVESTMENTS, INC.
.................................................................
Read this section to learn more about the companies that provide
marketing, investment management, and shareholder account
services to Putnam funds and their shareholders.
APPENDIX
Securities ratings<PAGE>
About the fund
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing.
The following table summarizes your maximum transaction costs
from investing in the fund and expenses based on the most recent
fiscal year. The examples show the cumulative expenses
attributable to a hypothetical $1,000 investment over specified
periods.
Class A Class B Class M
shares shares shares
Shareholder transaction
expenses
Maximum sales charge
imposed on purchases
(as a percentage of
offering price) 4.75% NONE* 3.25%*
Deferred sales charge 5.0% in the first
(as a percentage year, declining
of the lower of to 1.0% in the
original purchase sixth year, and
price or redemption eliminated
proceeds) NONE** thereafter NONE
Annual fund operating expenses
(as a percentage of average net assets)
Total fund
Management 12b-1 Other operating
fees+ fees expenses expenses+
- ---------- ----- -------------------
Class A 0.41% 0.25% 0.59% 1.25%
Class B 0.41% 1.00% 0.59% 2.00%
Class M 0.41% 0.50% 0.59% 1.50%
+ after expense limitation
The table is provided to help you understand the expenses of
investing and your share of fund operating expenses. The
expenses shown in the table do not reflect the application of
credits that reduce fund expenses. The management fees and total
fund operating expenses shown in the table reflect an expense
limitation currently in effect. In the absence of an expense
limitation, management fees and total fund operating expenses
would have been 0.70% and 1.54%, respectively, for class A
shares; 0.70% and 2.29%, respectively, for class B shares; and
0.70% and 1.79%, respectively, for class M shares.
Examples
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and, except as indicated, redemption at
the end of each period:
1 3 5 10
year years years years
Class A $60 $85 $113 $191
Class B $70 $93 $128 $213 ***
Class B (no redemption) $20 $63 $108 $213 ***
Class M $47 $78 $112 $206
The examples do not represent past or future expense levels.
Actual expenses may be greater or less than those shown. Federal
regulations require the examples to assume a 5% annual return,
but actual annual return varies.
* The higher 12b-1 fees borne by class B and class M shares
may cause long-term shareholders to pay more than the
economic equivalent of the maximum permitted front-end
sales charge on class A shares.
** A deferred sales charge of up to 1.00% is assessed on
certain redemptions of class A shares that were purchased
without an initial sales charge. See "How to buy shares -
Class A shares."
*** Reflects conversion of class B shares to class A shares
(which pay lower ongoing expenses) approximately eight
years after purchase. See "Alternative sales
arrangements."
FINANCIAL HIGHLIGHTS
The following table presents per share financial information for
class A, B and M shares. This information has been audited and
reported on by the independent accountants. The "Report of
independent accountants" and financial statements included in the
fund's annual report to shareholders for the 1997 fiscal year are
incorporated by reference into this prospectus. The fund's
annual report, which contains additional unaudited performance
information, is available without charge upon request.
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS
A
<TABLE><CAPTION>
For the period
February 26, 1996
Per-share Year ended to May 31 operating
performance March 31,
1997 1996
<S> <C> <C>
Net asset value,
beginning of period $8.38 $8.50
Investment operations
Net investment income(d) .63 .04(c)
Net realized and unrealized
gain (loss) on investments (.02) (.13)
Total from investment operations .61 (.09)
Less distributions
From net investment income (.63) (.03)
From net realized gain
on investments (.02) --
Total distributions (.65) (.03)
Net asset value,
end of period $8.34 $8.38
<PAGE>
Ratios and supplemental data
Total investment return at
net asset value (%)(a) 7.36 (1.41)*
Net assets, end of period
(in thousands) $39,178 $3,799
Ratio of expenses to average
net assets (%)(b)(d) 1.25 .13*
Ratio of net investment income
to average net assets (%)(d) 7.74 .50*
Portfolio turnover (%) 169.27 18.98*
+ Commencement of operations
* Not annualized.
(a) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements.
(c) Per share net investment income has been determined on the
basis of the weighted average number of shares outstanding
during the period.
(d) Reflects an expense limitation during the period. As a
result of such limitation, expenses for each class of
shares reflect a reduction of approximately $0.01 and $0.02
per share for the year ended March 31, 1997 and the period
ended March 31, 1996 respectively.
</TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE><CAPTION>
CLASS B
For the period
February 26, 1996
Per-share Year ended to May 31
operating performance March 31,
1997
1996
<S> <C> <C>
Net asset value,
beginning of period $8.38 $8.50
Investment operations
Net investment income(d) .57 .03(c)
Net realized and unrealized
gain (loss) on investments (.03) (.12)
Total from investment operations .54 (.09)
Less distributions
From net investment income (.56) (.03)
From net realized gain
on investments (.02) --
Total distributions (.58) (.03)
Net asset value,
end of period $8.34 $8.38
<PAGE>
Ratios and supplemental data
Total investment return at
net asset value (%)(a) 6.56 (1.41)*
Net assets, end of period
(in thousands) $57,052 $5,048
Ratio of expenses to average
net assets (%)(b)(d) 2.00 .20*
Ratio of net investment income
to average net assets (%)(d) 6.99 .44*
Portfolio turnover (%) 169.27 18.98*
+ Commencement of operations
* Not annualized.
(a) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements.
(c) Per share net investment income has been determined on the
basis of the weighted average number of shares outstanding
during the period.
(d) Reflects an expense limitation during the period. As a
result of such limitation, expenses for each class of shares
reflect a reduction of approximately $0.01 and $0.02 per
share for the year ended March 31, 1997 and the period
ended March 31, 1996 respectively.
/TABLE
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE><CAPTION>
CLASS M
For the period
February 26, 1996
Per-share Year ended to May 31
operating performance March 31,
1997
1996
<S> <C> <C>
Net asset value,
beginning of period $8.38 $8.50
Investment operations
Net investment income(d) .61 .04(c)
Net realized and unrealized
gain (loss) on investments (.03) (.13)
Total from investment operations .58 (.09)
Less distributions
From net investment income (.60) (.03)
From net realized gain
on investments (.02) --
Total distributions (.62) (.03)
Net asset value,
end of period $8.34 $8.38
<PAGE>
Ratios and supplemental data
Total investment return at
net asset value (%)(a) 7.09 (1.41)*
Net assets, end of period
(in thousands) $5,802 $482
Ratio of expenses to average
net assets (%)(b)(d) 1.05 .14*
Ratio of net investment income
to average net assets (%)(d) 7.48 .50*
Portfolio turnover (%) 169.27 18.98*
+ Commencement of operations
* Not annualized.
(a) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements.
(c) Per share net investment income has been determined on the
basis of the weighted average number of shares outstanding
during the period.
(d) Reflects an expense limitation during the period. As a
result of such limitation, expenses for each class of shares
reflect a reduction of approximately $0.01 and $0.02 per
share for the year ended March 31, 1997 and the period
ended March 31, 1996 respectively.
</TABLE>
<PAGE>
OBJECTIVE
Putnam Strategic Income Fund seeks high current
income consistent with preservation of capital. The fund is not
intended to be a complete investment program, and there is no
assurance it will achieve its objective.
HOW THE FUND PURSUES ITS OBJECTIVE
Basic investment strategy
Under normal market conditions, the fund will invest at least 65%
of its total assets in debt securities of domestic or foreign
issuers, including government and corporate obligations. Putnam
Investment Management, Inc., the fund's investment manager
("Putnam Management"), expects that the fund will invest in debt
securities having longer maturities (10 years or more), but the
fund may invest in debt securities having a broad range of
maturities.
The fund also may invest in preferred stocks, common stocks and
other equity securities, as well as in cash or money market
instruments.
The fund may invest up to 60% of its total assets in securities
rated below BBB or Baa by each nationally recognized securities
rating agency, such as Standard & Poor's ("S&P") or Moody's
Investors Service, Inc. ("Moody's"), rating such securities and
in unrated securities determined by Putnam Management to be of
comparable quality. Securities rated below BBB and Baa (and
comparable unrated securities) are commonly known as "junk
bonds." The fund will not invest more than 15% of its total
assets in securities rated below CCC or Caa by each of the
agencies rating such securities (and in unrated securities
determined by Putnam Management to be of comparable quality),
which may include securities in the lowest rating category of
each rating agency. Such securities may be in default and are
generally regarded by the rating agencies as having extremely
poor prospects of ever attaining any real investment standing.
The foregoing investment limitations will be measured at the time
of purchase and, to the extent that a security is assigned a
different rating by one or more of the various rating agencies,
Putnam Management will use the highest rating assigned by any
agency. The rating services' descriptions of securities in the
lower-rated categories, including the speculative characteristics
of such securities, are included in the appendix to this
prospectus.
In pursuing the fund's investment objective of high current
income consistent with preservation of capital, the fund will
seek to manage the volatility of the portfolio through extensive
credit analysis and diversification among lower- and higher-rated
securities, and domestic and foreign corporate and governmental
obligations.
Alternative investment strategies
At times Putnam Management may judge that conditions in the
securities markets make pursuing the fund's basic investment
strategy inconsistent with the best interests of its shareholders.
At such times, Putnam Management may temporarily use alternative
strategies primarily designed to reduce fluctuations in the value
of fund assets.
In implementing these defensive strategies, the fund may increase
the portion of its assets invested in money market instruments and
in U.S. government or agency obligations, or invest in any other
securities which Putnam Management considers consistent with such
defensive strategies.
It is impossible to predict when, or for how long, these
alternative strategies will be used.
Risk factors
The values of fixed-income securities fluctuate in response to
changes in interest rates. A decrease in interest rates will
generally result in an increase in the value of fund assets.
Conversely, during periods of rising interest rates, the value of
fund assets will generally decline. The magnitude of these
fluctuations generally is greater for securities with longer
maturities. However, the yields on such securities are also
generally higher. In addition, the values of fixed-income
securities are affected by changes in general economic and
business conditions affecting the specific industries of their
issuers.
Changes by nationally recognized rating agencies in
their ratings of a fixed-income security and changes in the
ability of an issuer to make payments of interest and principal
may also affect the value of these investments. Changes in the
value of portfolio securities generally will not affect income
derived from these securities, but will affect the fund's net
asset value.
Investors should carefully consider their ability to assume the
risks of owning shares of a mutual fund that invests in lower-
rated securities before making an investment.
The lower ratings of certain securities held by the fund reflect
a greater possibility that adverse changes in the financial
condition of the issuer, or in general economic conditions, or an
unanticipated rise in interest rates may impair the ability of
the issuer to make payments of interest and principal.
The inability (or perceived inability) of issuers to make timely
payments of interest and principal would likely make the values
of securities held by the fund more volatile and could limit the
fund's ability to sell its securities at prices approximating the
values placed on such securities. In the absence of a liquid
trading market for its portfolio securities, the fund at times
may be unable to establish the fair value of such securities.
The rating assigned to a security by a rating agency does not
reflect an assessment of the volatility of the security's market
value or of the liquidity of an investment in the security.
The table below shows the percentages of fund assets invested
during fiscal 1997 in securities assigned to the various rating
categories by S&P, or, if unrated by S&P, assigned to comparable
rating categories by another rating agency, and in unrated
securities determined by Putnam Management to be of comparable
quality.
Unrated securities
Rated securities, of comparable quality,
as percentage of as percentage of
Rating net assets net assets
"AAA" 30.87% 0.07%
"AA" 4.21% 0.01%
"A" 0.94% 0.12%
"BBB" 2.36% 0.16%
"BB" 12.73% 0.50%
"B" 30.85% 5.15%
"CCC" 2.94% 0.16%
"CC" 0.11% 0.17%
______ ______
Totals 85.01% 6.34%
====== =====
Putnam Management seeks to minimize the risks of investing in
lower-rated securities through careful investment analysis. When
the fund invests in securities in the lower rating categories,
the achievement of the fund's goals is more dependent on Putnam
Management's ability than would be the case if the fund were
investing in securities in the higher rating categories.
The fund will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase.
However, Putnam Management will monitor the investment to
determine whether continued investment in the security will
assist in meeting the fund's investment objective.
At times, a substantial portion of fund assets may be invested in
securities of which the fund, by itself or together with
other funds and accounts managed by Putnam Management or
its affiliates, holds all or a major portion. Under adverse
market or economic conditions or in the event of adverse changes
in the financial condition of the issuer, it may be more
difficult to sell these securities when Putnam Management
believes it advisable to do so. The fund also may be able to
sell the securities only at prices lower than if they were more
widely held. Under these circumstances, it also may be more
difficult to determine the fair value of such securities for
purposes of computing the fund's net asset value.
In order to enforce its rights in the event of a default of these
securities, the fund may be required to participate in various
legal proceedings or take possession of and manage assets
securing the issuer's obligations on the securities. This could
increase fund operating expenses and adversely affect the fund's
net asset value.
Certain securities held by the fund may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were
to redeem securities held by the fund during a time of declining
interest rates, the fund may not be able to reinvest the proceeds
in securities providing the same investment return as the
securities redeemed.
The fund at times may invest in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount and pay interest
only at maturity rather than at intervals during the life of the
security. Payment-in-kind bonds allow the issuer, at its option,
to make current interest payments on the bonds either in cash or
in additional bonds. Both zero-coupon bonds and payment-in-kind
bonds allow an issuer to avoid the need to generate cash to meet
current interest payments. Accordingly, such bonds may involve
greater credit risks than bonds paying interest in cash
currently. The values of zero-coupon bonds and payment-in-kind
bonds are also subject to greater fluctuation in response to
changes in market interest rates than bonds that pay interest in
cash currently.
Even though such bonds do not pay current interest in cash, the
fund nonetheless is required to accrue interest income on these
investments and to distribute the interest income on a current
basis. Thus, the fund could be required at times to liquidate
other investments in order to satisfy its distribution
requirements.
Certain investment grade securities in which the fund may invest
share some of the risk factors discussed above with respect to
lower-rated securities.
<PAGE>
For additional information regarding the risks associated with
investing in securities in the lower rating categories, see the
SAI.
Investments in premium securities
At times, the fund may invest in securities bearing coupon rates
higher than prevailing market rates. Such "premium" securities
are typically purchased at prices greater than the principal
amounts payable on maturity.
The fund does not amortize the premium paid for these securities
in calculating its net investment income. As a result, the
purchase of premium securities provides a higher level of
investment income distributable to shareholders on a current
basis than if the fund purchased securities bearing current
market rates of interest. Because the value of premium
securities tends to approach the principal amount as they
approach maturity (or call price in the case of securities
approaching their first call date), the purchase of such
securities may increase the risk of capital loss if such
securities are held to maturity (or first call date).
During a period of declining interest rates, many of the fund's
portfolio investments will likely bear coupon rates that are
higher than the current market rates, regardless of whether the
securities were originally purchased at a premium. These
securities would generally carry premium market values that would
be reflected in the net asset value of fund shares. As a result,
an investor who purchases fund shares during such periods would
initially receive higher taxable monthly distributions (derived
from the higher coupon rates payable on the fund's investments)
than might be available from alternative investments bearing
current market interest rates, but the investor may face an
increased risk of capital loss as these higher coupon securities
approach maturity (or first call date). In evaluating the
potential performance of an investment in the fund, investors may
find it useful to compare the fund's current dividend rate with
its "yield," which is computed on a yield-to-maturity basis in
accordance with SEC regulations and which reflects amortization
of market premiums. See "How performance is shown."
Portfolio turnover
The length of time the fund has held a particular security is not
generally a consideration in investment decisions. A change in
the securities held by the fund is known as "portfolio turnover."
As a result of the fund's investment policies, under certain
market conditions its portfolio turnover rate may be higher than
that of other mutual funds.
Portfolio turnover generally involves some expense, including
brokerage commissions or dealer markups and other transaction
costs in connection with the sale of securities and
reinvestment in other securities. These transactions may result
in realization of taxable capital gains. Portfolio turnover
rates are shown in the section "Financial highlights."
Foreign investments
The fund may invest in securities of foreign issuers that are not
actively traded in U.S. markets. These foreign investments
involve certain special risks described below.
Foreign securities are normally denominated and traded in foreign
currencies. As a result, the value of the fund's foreign
investments and the value of its shares may be affected favorably
or unfavorably by changes in currency exchange rates relative to
the U.S. dollar. The fund may engage in a variety of foreign
currency exchange transactions in connection with its foreign
investments, including transactions involving futures contracts,
forward contracts and options.
Investments in foreign securities may subject the fund to other
risks as well. For example, there may be less information
publicly available about a foreign issuer than about a U.S.
issuer, and foreign issuers are not generally subject to
accounting, auditing and financial reporting standards and
practices comparable to those in the United States. The
securities of some foreign issuers are less liquid and at times
more volatile than securities of comparable U.S. issuers.
Foreign brokerage commissions and other fees are also generally
higher than in the United States. Foreign settlement procedures
and trade regulations may involve certain risks (such as delay in
payment or delivery of securities or in the recovery of the
fund's assets held abroad) and expenses not present in the
settlement of investments in U.S. markets.
In addition, the fund's investments in foreign securities may be
subject to the risk of nationalization or expropriation of
assets, imposition of currency exchange controls or restrictions
on the repatriation of foreign currency, confiscatory taxation,
political or financial instability and diplomatic developments
which could affect the value of the fund's investments in certain
foreign countries. Dividends or interest on, or proceeds from
the sale of, foreign securities may be subject to foreign
withholding taxes, and special U.S. tax considerations may apply.
Legal remedies available to investors in certain foreign
countries may be more limited than those available with respect
to investments in the United States or in other foreign
countries. The laws of some foreign countries may limit the
fund's ability to invest in securities of certain issuers
organized under the laws of those foreign countries.
The risks described above are typically increased in connection
with investments in less developed and developing nations, which
are sometimes referred to as "emerging markets." For example,
political and economic structures in these countries may be in
their infancy and developing rapidly, causing instability. High
rates of inflation or currency devaluations may adversely affect
the economies and securities markets of such countries.
Investments in emerging markets may be considered speculative.
The fund expects that its investments in foreign securities
generally will not exceed 30% of its total assets, although the
fund's investments in foreign securities may exceed this amount
from time to time. Certain of the foregoing risks may also apply
to some extent to securities of U.S. issuers that are denominated
in foreign currencies or that are traded in foreign markets, or
to securities of U.S. issuers having significant foreign
operations.
The fund may engage in a variety of foreign currency exchange
transactions in connection with its foreign investments,
including transactions involving futures contracts, forward
contracts and options. For a further discussion of the risks
associated with purchasing and selling futures contracts and
options, see "Futures and options." The SAI also contains
information concerning these transactions. 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 about foreign securities and the risks
associated with investment in such securities, see the SAI.
Mortgage-backed and asset-backed securities
The fund may invest without limit in mortgage-backed securities,
including collateralized mortgage obligations ("CMOs") and
certain stripped mortgage-backed securities. CMOs and other
mortgage-backed securities represent participations in, or are
secured by, mortgage loans and include:
- - Certain securities issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities;
<PAGE>
- - Securities issued by private issuers that represent an
interest in or are secured by mortgage-backed securities
issued or guaranteed by the U.S. government or one of its
agencies or instrumentalities; and
- - Securities issued by private issuers that represent an
interest in or are secured by mortgage loans or mortgage-
backed securities without a government guarantee but usually
having some form of private credit enhancement.
Stripped mortgage-backed securities are usually structured with
two classes that receive different portions of the interest and
principal distributions on a pool of mortgage loans. The fund
may invest in both the interest-only or "IO" class and the
principal-only or "PO" class.
The fund may also invest in asset-backed securities. Asset-
backed securities are structured like mortgage-backed securities,
but instead of mortgage loans or interests in mortgage loans, the
underlying assets may include such items as motor vehicle
installment sales or installment loan contracts, leases of
various types of real and personal property, and receivables from
credit card agreements. The ability of an issuer of asset-backed
securities to enforce its security interest in the underlying
assets may be limited.
Prepayment risk. Mortgage-backed and asset-backed securities
have yield and maturity characteristics corresponding to the
underlying assets. Unlike traditional debt securities, which may
pay a fixed rate of interest until maturity when the entire
principal amount comes due, payments on certain mortgage-backed
and asset-backed securities include both interest and a partial
payment of principal. Besides the scheduled repayment of
principal, payments of principal may result from the voluntary
prepayment, refinancing, or foreclosure of the underlying
mortgage loans or other assets.
Mortgage-backed and asset-backed securities are less effective
than other types of securities as a means of "locking in"
attractive long-term interest rates. One reason is the need to
reinvest prepayments of principal; another is the possibility of
significant unscheduled prepayments resulting from declines in
interest rates. These prepayments would have to be reinvested at
lower rates. As a result, these securities may have less
potential for capital appreciation during periods of declining
interest rates than other securities of comparable maturities,
although they may have a similar risk of decline in market value
during periods of rising interest rates. Prepayments may also
significantly shorten the effective maturities of these
securities, especially during periods of declining interest
rates. Conversely, during periods of rising interest rates, a
reduction in prepayments may increase the effective maturities of
these securities, subjecting them to a greater risk of decline in
market value in response to rising interest rates than
traditional debt securities, and, therefore, potentially
increasing the volatility of the fund.
Prepayments may cause losses on securities purchased at a
premium. At times, some of the mortgage-backed and asset-backed
securities in which the fund may invest will have higher than
market interest rates and therefore will be purchased at a
premium above their par value. Unscheduled prepayments, which
are made at par, will cause the fund to experience a loss equal
to any unamortized premium.
CMOS. CMOs are issued with a number of classes or series that
have different maturities and that may represent interests in
some or all of the interest or principal on the underlying
collateral. Payment of interest or principal on some classes or
series of CMOs may be subject to contingencies or some classes or
series may bear some or all of the risk of default on the
underlying mortgages. CMOs of different classes or series are
generally retired in sequence as the underlying mortgage loans in
the mortgage pool are repaid. If enough mortgages are repaid
ahead of schedule, the classes or series of a CMO with the
earliest maturities generally will be retired prior to their
maturities. Thus, the early retirement of particular classes or
series of a CMO would have the same effect as the prepayment of
mortgages underlying other mortgage-backed securities.
Conversely, slower than anticipated prepayments can extend the
effective maturities of CMOs, subjecting them to a greater risk
of decline in market value in response to rising interest rates
than traditional debt securities, and, therefore, potentially
increasing the volatility of the fund.
Stripped mortgage-backed securities. The yield to maturity on an
IO or PO class of stripped mortgage-backed securities is
extremely sensitive not only to changes in prevailing interest
rates but also to the rate of principal payments (including
prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurably adverse effect on the fund's
yield-to-maturity to the extent it invests in IOs. If the assets
underlying the IOs experience greater than anticipated
prepayments of principal, the fund may fail to recoup fully its
initial investment in these securities. Conversely, POs tend to
increase in value if prepayments are greater than anticipated and
decline if prepayments are slower than anticipated.
In either event, the secondary market for stripped mortgage-
backed securities may be more volatile and less liquid than that
for other mortgage-backed securities, potentially limiting the
fund's ability to buy or sell those securities at any particular
time.
Futures and options
The fund may buy and sell futures contracts on securities
indexes, U.S. government securities, foreign fixed-income
securities and on foreign currencies. A futures contract is a
contract to buy or sell units of a particular securities index or
a certain amount of a particular security or foreign currency at
an agreed price on a specified future date. Depending on the
change in value of the index, security or currency when the fund
enters into and terminates a futures contract, the fund realizes
a gain or loss. The fund may purchase and sell options on
futures contracts or on securities indexes directly, in addition
to or as an alternative to purchasing and selling futures
contracts or to earn additional income. The fund may purchase
and sell futures contracts and options for hedging purposes and
for nonhedging purposes, such as to adjust the fund's exposure to
the relevant securities markets or as a substitute for direct
investment.
The use of futures and related options involves certain special
risks. Futures and options transactions involve costs and may
result in losses.
The successful use of futures and related options will usually
depend on Putnam Management's ability to forecast interest rate
and market movements correctly. The use of futures and options
strategies also involves the risk of imperfect correlation
between movements in the prices of futures and options and
movements in the prices of the underlying securities index,
securities or currencies or, in the case of hedging transactions,
in the values of the securities or currencies that are the
subject of a hedge. The successful use of futures and options
also depends on the availability of a liquid secondary market to
enable the fund to close its positions on a timely basis. There
can be no assurance that such a market will exist at a particular
time. The fund's ability to terminate option positions
established in the over-the-counter market may be more limited
than for exchange-traded options and may also involve the risk
that securities dealers participating in such transactions would
fail to meet their obligations to the fund. The use of futures
or options on futures for purposes other than hedging may be
regarded as speculative.
Because the markets for futures and options on foreign fixed-
income securities and foreign currencies are relatively new and
still developing and are subject to certain regulatory
constraints, the fund's ability to engage in such transactions
may be limited. Certain provisions of the Internal Revenue Code
and certain regulatory requirements may limit the use of futures
and options transactions.
A more detailed description of futures and options transactions,
including the risks associated with them, is included in the SAI.
Other investment practices
The fund may also engage in the following investment practices,
each of which involves certain special risks. The SAI contains
more detailed information about these practices, including
limitations designed to reduce these risks.
Options. The fund may seek to increase its current return by
writing covered call and put options on securities it owns or in
which it may invest. The fund receives a premium from writing a
call or put option, which increases the return if the option
expires unexercised or is closed out at a net profit.
When the fund writes a call option, it gives up the opportunity
to profit from any increase in the price of a security above the
exercise price of the option; when it writes a put option, it
takes the risk that it will be required to purchase a security
from the option holder at a price above the current market price
of the security. The fund may terminate an option that it has
written prior to its expiration by entering into a closing
purchase transaction in which it purchases an option having the
same terms as the option written.
The fund may also buy and sell put and call options, including
combinations of put and call options on the same underlying
security. The aggregate value of the securities underlying the
options may not exceed 25% of fund assets. The use of these
strategies may be limited by applicable law.
Securities loans, repurchase agreements and forward commitments.
The fund may lend portfolio securities amounting to not more than
25% of its assets to broker-dealers and may enter into repurchase
agreements on up to 25% of its assets. These transactions must
be fully collateralized at all times. The fund may also purchase
securities for future delivery, which may increase its overall
investment exposure and involves a risk of loss if the value of
the securities declines prior to the settlement date. These
transactions involve some risk if the other party should default
on its obligation and the fund is delayed or prevented from
recovering the collateral or completing the transaction.
Diversification
The fund is a "diversified" investment company under the
Investment Company Act of 1940. This means that with respect to
75% of its total assets, the fund may not invest more than 5% of
its total assets in the securities of any one issuer (except U.S.
government securities). The remaining 25% of its total assets is
not subject to this restriction. To the extent the fund invests
a significant portion of its assets in the securities of a
particular issuer, it will be subject to an increased risk of
loss if the market value of such issuer's securities declines.
Derivatives
Certain of the instruments in which the fund may invest, such as
futures contracts, options, forward contracts and CMOs, are
considered to be "derivatives." Derivatives are financial
instruments whose value depends upon, or is derived from, the value
of an underlying asset, such as a security or an index. Further
information about these instruments and the risks involved in their
use is included elsewhere in this prospectus and in the SAI.
Limiting investment risk
Specific investment restrictions help to limit investment risks
for the fund's shareholders. These restrictions prohibit the
fund, with respect to 75% of its total assets, from acquiring
more than 10% of the voting securities of any one issuer.* They
also prohibit the fund from investing more than:
(a) (with respect to 75% of its total assets) 5% of its total
assets in securities of any one issuer other than the U.S.
government , its agencies or instrumentalities;*
(b) 25% of its total assets in any one industry (other than
securities of the U.S. government, its agencies or
instrumentalities);* or
(c) 15% of its net assets in any combination of securities that
are not readily marketable, in securities restricted as to resale
(excluding securities determined by the fund's Trustees (or the
person designated by the Trustees to make such determinations) to
be readily marketable), and in repurchase agreements maturing in
more than seven days.
Restrictions marked with an asterisk (*) above are
summaries of fundamental investment policies. See the SAI for
the full text of these policies and other fundamental investment
policies. Except as otherwise noted in the SAI, all
percentage limitations described in this prospectus and the SAI
will apply at the time an investment is made, and will not be
considered violated unless an excess or deficiency occurs or
exists immediately after and as a result of such investment.
Except for investment policies designated as fundamental in this
prospectus or the SAI, the investment policies described in this
prospectus and in the SAI are not fundamental policies. The
Trustees may change any non-fundamental investment policy without
shareholder approval. As a matter of policy, the Trustees would
not materially change the fund's investment objective without
shareholder approval.
HOW PERFORMANCE IS SHOWN
Fund advertisements may, from time to time, include performance
information. "Yield" for each class of shares is calculated by
dividing the annualized net investment income per share during a
recent 30-day period by the maximum public offering price per
share of the class on the last day of that period.
For purposes of calculating yield, net investment income is
calculated in accordance with SEC regulations and may differ from
net investment income as determined for tax purposes. SEC
regulations require that net investment income be calculated on a
"yield-to-maturity" basis, which has the effect of amortizing any
premiums or discounts in the current market value of fixed-income
securities. The current dividend rate is based on net investment
income as determined for tax purposes, which may not reflect
amortization in the same manner. See "How the fund pursues its
objective -- Investments in premium securities."
Yield is based on the price of the shares, including the maximum
initial sales charge in the case of class A and class M shares,
but does not reflect any contingent deferred sales charge in the
case of class B shares.
"Total return" for the one-, five- and ten-year periods (or for the
life of a class, if shorter) through the most recent calendar
quarter represents the average annual compounded rate of return on
an investment of $1,000 in the fund invested at the maximum public
offering price (in the case of class A and class M shares) or
reflecting the deduction of any applicable contingent deferred sales
charge (in the case of class B shares). Total return may also be
presented for other periods or based on investment at reduced sales
charge levels. Any quotation of investment performance not
reflecting the maximum initial sales charge or contingent deferred
sales charge would be reduced if the sales charge were used.
All data are based on past investment results and do not predict
future performance. Investment performance, which will vary, is
based on many factors, including market conditions, portfolio
composition, fund operating expenses and which class of shares
the investor purchases. Investment performance also often
reflects the risks associated with the fund's investment
objective and policies. These factors should be considered when
comparing the fund's investment results with those of other
mutual funds and other investment vehicles.
Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. Fund performance may be
compared to that of various indexes. See the SAI.
<PAGE>
HOW THE FUND IS MANAGED
The Trustees are responsible for generally overseeing the conduct of
fund business. Subject to such policies as the Trustees may
determine, Putnam Management furnishes a continuing investment
program for the fund and makes investment decisions on its behalf.
Subject to the control of the Trustees, Putnam Management also
manages the fund's other affairs and business.
The fund pays Putnam Management a quarterly fee for these services
based on average net assets. See "Expenses summary" and the SAI.
The following officers of Putnam Management have had primary
responsibility for the day-to-day management of the fund's
portfolio since the years stated below:
Business experience
Year (at least 5 years)
------ ----------------------
D. William Kohli 1994 Employed as an investment
Managing Director professional by Putnam
Management since 1994.
Prior to September, 1994, Mr.
Kohli was Executive Vice
President and Co-Director of
Global Bond Management and,
prior to October, 1993, Senior
Portfolio Manager at Franklin
Advisors/Templeton Investment
Counsel.
Michael Martino 1994 Employed as an investment
Managing Director professional by Putnam
Management since 1994. Prior
to January, 1994, Mr. Martino
was employed by Back Bay
Advisors as Executive Vice
President and Chief Investment
Officer.
Jennifer E. Leichter 1996 Employed as an investment
Senior Vice President professional by Putnam
Management since 1987.
Kenneth J. Taubes 1997 Employed as an investment
Senior Vice President professional by Putnam
Management since 1991.
<PAGE>
Gail S. Attridge 1997 Employed as an investment
Vice President professional by Putnam
Management since 1993. Prior
to November, 1993, Ms.
Attridge was an Analyst at
Keystone Custody
International.
The fund pays all expenses not assumed by Putnam Management,
including Trustees' fees, auditing, legal, custodial, investor
servicing and shareholder reporting expenses, and payments under
its distribution plans (which are in turn allocated to the
relevant class of shares). The fund also reimburses Putnam
Management for the compensation and related expenses of certain
fund officers and their staff who provide administrative
services. The total reimbursement is determined annually by the
Trustees.
Putnam Management places all orders for purchases and sales of
fund securities. In selecting broker-dealers, Putnam Management
may consider research and brokerage services furnished to it and
its affiliates. Subject to seeking the most favorable price and
execution available, Putnam Management may consider sales of fund
shares (and, if permitted by law, shares of the other Putnam
funds) as a factor in the selection of broker-dealers.
ORGANIZATION AND HISTORY
Putnam Strategic Income Fund is a Massachusetts
business trust organized on October 5, 1994. A copy of the
Agreement and Declaration of Trust, which is governed by
Massachusetts law, is on file with the Secretary of State of The
Commonwealth of Massachusetts. Prior to February 28, 1998,
the fund was known as Putnam Diversified Income Trust II.
Prior to January 4, 1996, the fund was known as Putnam
Investment-Grade Bond Fund.
The fund is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. The Trustees may, without shareholder
approval, create two or more series of shares representing
separate investment portfolios. Any such series of shares may be
divided without shareholder approval into two or more classes of
shares having such preferences and special or relative rights and
privileges as the Trustees determine. The fund's shares are not
currently divided into series. Only class A, B and M shares are
offered by this prospectus. The fund may also offer other
classes of shares with different sales charges and expenses.
Because of these different sales charges and expenses, the
investment performance of the classes will vary. For more
information, including your eligibility to purchase any other
class of shares, contact your investment dealer or Putnam Mutual
Funds at 1-800-225-1581.
Each share has one vote, with fractional shares voting
proportionally. Shares of all classes will vote together as a
single class except when otherwise required by law or as
determined by the Trustees. Shares are freely transferable, are
entitled to dividends as declared by the Trustees, and, if the
fund were liquidated, would receive the net assets of the fund.
The fund may suspend the sale of shares at any time and may
refuse any order to purchase shares. Although the fund is not
required to hold annual meetings of its shareholders,
shareholders holding at least 10% of the outstanding shares
entitled to vote have the right to call a meeting to elect or
remove Trustees, or to take other actions as provided in the
Agreement and Declaration of Trust.
If you own fewer shares than the minimum set by the Trustees
(presently 20 shares), the fund may choose to redeem your shares.
You will receive at least 30 days' written notice before the fund
redeems your shares, and you may purchase additional shares at
any time to avoid a redemption. The fund may also redeem shares
if you own shares above a maximum amount set by the Trustees.
There is presently no maximum, but the Trustees may establish one
at any time, which could apply to both present and future
shareholders.
The funds' Trustees: George Putnam,* Chairman. President
of the Putnam funds. Chairman and Director of Putnam Management
and Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director,
Marsh & McLennan Companies, Inc.; William F. Pounds, Vice
Chairman. Professor of Management, Alfred P. Sloan School of
Management, Massachusetts Institute of Technology; Jameson Adkins
Baxter, President, Baxter Associates, Inc.; Hans H. Estin, Vice
Chairman, North American Management Corp.; John A. Hill, Chairman
and Managing Director, First Reserve Corporation; Ronald J.
Jackson, Former Chairman, President and Chief Executive Officer
of Fisher-Price, Inc., Trustee of Salem Hospital and the
Peabody Essex Museum; Paul L. Joskow,* Professor of Economics
and Management, Massachusetts Institute of Technology, Director,
New England Electric System, State Farm Indemnity Company and
Whitehead Institute for Biomedical Research; Elizabeth T.
Kennan, President Emeritus and Professor, Mount Holyoke College;
Lawrence J. Lasser,* Vice President of the Putnam funds.
President, Chief Executive Officer and Director of Putnam
Investments, Inc. and Putnam Management. Director, Marsh &
McLennan Companies, Inc. ; John H. Mullin, III, Chairman and
CEO of Ridgeway Farm, Director of ACX Technologies, Inc., Alex.
Brown Realty, Inc., The Liberty Corporation and The Ryland Group,
Inc. ; Robert E. Patterson, President and Trustee
of Cabot Industrial Trust ; Donald S. Perkins,* Director of
various corporations, including Cummins Engine Company, Lucent
Technologies, Inc., Springs Industries, Inc. and Time Warner
Inc.; George Putnam, III,* President, New Generation Research,
Inc.; A.J.C. Smith,* Chairman and Chief Executive Officer, Marsh
& McLennan Companies, Inc. ; W. Thomas Stephens, President and
Chief Executive Officer of MacMillan Bloedel Ltd., Director of
Mail-Well Inc., Qwest Communications, The Eagle Picher Trust and
New Century Energies ; and W. Nicholas Thorndike, Director of
various corporations and charitable organizations, including Data
General Corporation, Bradley Real Estate, Inc. and Providence
Journal Co. Also, Trustee of Cabot Industrial Trust,
Massachusetts General Hospital and Eastern Utilities Associates.
The Trustees are also Trustees of the other Putnam funds. Those
marked with an asterisk (*) are or may be deemed to be
"interested persons" of a fund, Putnam Management or
Putnam Mutual Funds.
About Your Investment
ALTERNATIVE SALES ARRANGEMENTS
Class A shares. If you purchase class A shares , you
will generally pay a sales charge at the time of
purchase and, as a result, will not have to
pay any charges when you redeem the shares. If you
purchase class A shares at net asset value , you may have
to pay a contingent deferred sales charge ("CDSC") when
you redeem the shares . Certain purchases of class A shares
qualify for reduced sales charges. Class A shares pay
lower
12b-1 fees than class B and class M shares. See "How
to buy shares
- --
Class A shares" and "Distribution plans."
Class B shares. If you purchase class B shares , you
will not pay an initial sales charge, but you may have
to pay a CDSC if you redeem the shares within
six years . Class B shares also pay a higher 12b-1
fee than class A and class M shares. Class B shares
automatically convert into class A shares, based on relative net
asset value, approximately eight years after purchase. For more
information about the conversion of class B shares,
including information about how shares acquired through
reinvestment of distributions are treated and certain
circumstances under which class B shares may not
convert into class A shares, see the SAI . Class B shares
provide an investor the benefit of putting all of the investor's
dollars to work from the time the investment is made. Until
conversion, class B shares will have a higher expense ratio and
pay lower dividends than class A and class M shares because of
the higher 12b-1 fee. See "How to buy shares
- --
Class B shares"
and "Distribution plans."
Class M shares. If you purchase class M shares , you
will generally pay a sales charge at the time of purchase
that is lower than the sales charge you would pay for
class A shares. Certain purchases of class M shares qualify for
reduced sales charges. Class M shares pay 12b-1
fees that are lower than class B shares but higher
than class A shares. You will
not have
to pay any charges
when you redeem class M shares, but class M shares will not
convert into any other class of shares. See "How to buy shares -
- - Class M shares" and "Distribution plans."
Which class is best for you? Which class of shares
provides the most suitable investment for you
depends on a number of factors, including the amount you
intend to invest and how long you intend to hold the
shares. If your intended investment qualifies
for reduced sales charges , you might consider class A or
class M shares. If you prefer not to pay a sales
charge at the time of purchase, you might consider class B
shares. Orders for class B shares for $250,000 or more will be
treated as orders for class A shares or declined. For more
information about these sales arrangements, consult your
investment dealer or Putnam Investor
Services. Shares may only be exchanged for shares of the
same
class of another Putnam fund. See "How to exchange shares."
HOW TO BUY SHARES
You can open a fund account with as little as $500 and make
additional investments at any time with as little as $50. You
can buy fund shares three ways - through most investment dealers,
through Putnam Mutual Funds (at 1-800-225-1581), or through a
systematic investment plan. If you do not have a dealer, Putnam
Mutual Funds can refer you to one.
Buying shares through your investment dealer. Your dealer
must receive your order before the close of regular trading on
the New York Stock Exchange to receive that day's public offering
price. Your dealer will be responsible for furnishing all
necessary documentation to Putnam Investor Services, and may
charge your for its services.
Buying shares through Putnam Mutual Funds. Complete an order
form and write a check for the amount you wish to invest, payable
to the fund. Return the completed form and check to Putnam
Mutual Funds, which will act as your agent in purchasing shares
through your designated investment dealer.
Buying shares through systematic investing. You can make regular
investments of $25 or more per month through automatic deductions
from your bank checking or savings account. Application forms
are available from your investment dealer or through Putnam
Investor Services.
Shares are sold at the public offering price based on the net
asset value next determined after Putnam Investor Services
receives your order. In most cases, in order to receive that
day's public offering price, Putnam Investor Services must
receive your order before the close of regular trading on the New
York Stock Exchange.
Class A shares
The public offering price of class A shares is the net asset
value plus a sales charge that varies depending on the size of
your purchase. The fund receives the net asset value. The sales
charge is allocated between your investment dealer and Putnam
Mutual Funds as shown in the following table, except when Putnam
Mutual Funds, in its discretion, allocates the entire amount to
your investment dealer.
Sales charge Amount of
as a percentage of: sales charge
------------------- reallowed to
Net dealers as a
Amount of transaction amount Offering percentage of
at offering price ($) invested price offering price
- -----------------------------------------------------------------
Under 50,000 4.99% 4.75% 4.25%
50,000 but under 100,000 4.71 4.50 4.00
100,000 but under 250,000 3.63 3.50 3.00
250,000 but under 500,000 2.56 2.50 2.25
500,000 but under 1,000,000 2.04 2.00 1.75
- -----------------------------------------------------------------
No initial sales charge applies to purchases of class A shares of
$1 million or more, or to purchases by employer-sponsored
retirement plans that have at least 200 eligible employees.
However, a CDSC of 1.00% or 0.50%, respectively, is imposed
within the first or second year after purchase on redemptions of
these shares, unless the dealer of record waived its commission
with Putnam Mutual Funds' approval, or unless the purchaser is a
class A qualified benefit plan (a retirement plan for which
Putnam Fiduciary Trust Company or its affiliates provide
recordkeeping or other services in connection with purchases of
class A shares).
Class A qualified benefit plans may also purchase class A shares
with no initial sales charge. However, except as stated below, a
CDSC of 0.75% of the total amount redeemed (1.00% in the case of
plans for which Putnam Mutual Funds and its affiliates do not act
as trustee or recordkeeper) is imposed on redemptions of these
shares if, within two years of a plan's initial purchase of class
A shares, it redeems 90% or more of its cumulative purchases.
Thereafter, such a plan is no longer liable for any CDSC. The
two-year CDSC applicable to class A qualified benefit plans for
which Putnam Mutual Funds or its affiliates serve as trustee or
recordkeeper ("full service plans") is 0.50% of the total amount
redeemed for full service plans that initially invest at least $5
million but less than $10 million in Putnam funds and other
investments managed by Putnam Management or its affiliates
("Putnam Assets"), and is 0.25% of the total amount redeemed for
full service plans that initially invest at least $10 million but
less than $20 million in Putnam Assets. Class
A qualified
benefit plans that initially invest at least $20 million in
Putnam
Assets, or whose dealer of record has, with Putnam Mutual
Funds' approval, waived its commission or agreed to refund its
commission to Putnam Mutual Funds in the event the CDSC
would otherwise be applicable, are not subject to any CDSC.
A
class A qualified benefit plan participating in a "multi-
fund" program approved by Putnam Mutual Funds may include amounts
invested in other mutual funds participating in such program for
purposes of determining whether the plan may purchase class A
shares at net asset value . These investments will also
be included for purposes of the discount privileges and programs
described elsewhere in this prospectus and in the SAI
.
As described in the SAI, Putnam Mutual Funds pays the dealer of
record a commission of up to 1% on sales to class A qualified
benefit plans. Putnam Mutual Funds pays investment dealers of
record commissions on sales of class A shares of $1 million or
more and sales of class A shares to employer-sponsored retirement
plans that have at least 200 eligible employees and that are not
class A qualified benefit plans based on an investor's cumulative
purchases during the one-year period beginning with the date of
the initial purchase at net asset value. Each subsequent one-
year measuring period for these purposes will begin with the
first net asset value purchase following the end of the prior
period. Such commissions are paid at the rate of 1.00% of the
amount under $3 million, 0.50% of the next $47 million and 0.25%
thereafter.
Class B shares
Class B shares are sold without an initial sales charge, although
a CDSC will be imposed if you redeem shares within a specified
period after purchase, as shown in the table below.
Year 1 2 3 4 5 6 7+
- -------------------------------------------------------------
Charge 5% 4% 3% 3% 2% 1% 0%
Putnam Mutual Funds pays a sales commission equal to 4.00% of the
amount invested to dealers who sell class B shares. These
commissions are not paid on exchanges from other Putnam funds or
on sales to investors exempt from the CDSC.
Class M shares
The public offering price of class M shares is the net asset
value plus a sales charge that varies depending on the size of
your purchase. The fund receives the net asset value. The sales
charge is allocated between your investment dealer and Putnam
Mutual Funds as shown in the following table, except when Putnam
Mutual Funds, at its discretion, allocates the entire amount to
your investment dealer.
Sales charge Amount of
as a percentage of: sales charge
------------------- reallowed to
Net dealers as a
Amount of transaction amount Offering percentage of
at offering price ($) invested price offering price
- -----------------------------------------------------------------
Under 50,000 3.36% 3.25% 3.00%
50,000 but under 100,000 2.30 2.25 2.00
100,000 but under 250,000 1.52 1.50 1.25
250,000 but under 500,000 1.01 1.00 1.00
500,000 and above NONE NONE NONE
Class M qualified retirement plans (retirement plans for
which Putnam Fiduciary Trust company provides recordkeeping or
other services in connection with the purchase of class M shares)
and members of qualified groups may purchase class M
shares without a sales charge.
General
You may be eligible to buy fund shares at reduced sales charges
or to sell fund shares without a CDSC.
Consult your investment dealer or Putnam Mutual Funds for details
about Putnam's combined purchase privilege, cumulative quantity
discount, statement of intention, group sales plan, employer-
sponsored retirement plans, and other plans. Descriptions
are also included in the order form and in the SAI.
The fund may sell class A, class B and class M shares at net
asset value without an initial sales charge or a CDSC to current
and retired Trustees (and their families), current and retired
employees (and their families) of Putnam Management and
affiliates, registered representatives and other employees (and
their families) of broker-dealers having sales agreements with
Putnam Mutual Funds, employees (and their families) of financial
institutions having sales agreements with Putnam Mutual Funds (or
otherwise having an arrangement with a broker-dealer or financial
institution with respect to sales of fund shares), financial
institution trust departments investing an aggregate of $1
million or more in Putnam funds, clients of certain
administrators of tax-qualified plans, tax-qualified plans when
proceeds from repayments of loans to participants are invested
(or reinvested) in Putnam funds, "wrap accounts" for the benefit
of clients of broker-dealers, financial institutions or financial
planners adhering to certain standards established by Putnam
Mutual Funds, and investors meeting certain requirements who sold
shares of certain Putnam closed-end funds pursuant to a tender
offer by the closed-end fund.
In addition, the fund may sell shares at net asset value without
an initial sales charge or a CDSC in connection with the
acquisition by the fund of assets of an investment company or
personal holding company. The CDSC will be waived on redemptions
of shares arising out of the death or post-purchase disability of
a shareholder or settlor of a living trust account, and on
redemptions in connection with certain withdrawals from IRA or
other retirement plans. Up to 12% of the value of shares subject
to a systematic withdrawal plan may also be redeemed each year
without a CDSC. The SAI contains additional information about
purchasing shares at reduced sales charges.
In determining whether a CDSC is payable on any redemption,
shares not subject to any charge will be redeemed first, followed
by shares held longest during the CDSC period. Any CDSC will be
based on the lower of the shares' cost and net asset value. For
this purpose, the amount of any increase in a share's value above
its initial purchase price is not regarded as a share exempt from
the CDSC. Thus, when you redeem a share that has appreciated in
value during the CDSC period, a CDSC is assessed on its initial
purchase price. Any shares acquired by reinvestment of
distributions will be redeemed without a CDSC. For information on
how sales charges are calculated if you exchange your shares, see
"How to exchange shares." Putnam Mutual Funds receives the
entire amount of any CDSC you pay. See the SAI for more
information about the CDSC.
Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
fund shares at net asset value.
If you are considering redeeming shares or transferring shares to
another person shortly after purchase, you should pay for those
shares with a certified check to avoid any delay in redemption
or transfer. Otherwise, payment may be delayed until the
purchase price of those shares has been collected or, if you
redeem by telephone, until 15 calendar days after the purchase
date. To eliminate the need for safekeeping, certificates will
not be issued for your shares unless you request them.
Putnam Mutual Funds will from time to time, at its expense,
provide additional promotional incentives or payments to dealers
that sell shares of the Putnam funds. These incentives or
payments may include payments for travel expenses, including
lodging, incurred in connection with trips taken by invited
registered representatives and their guests to locations within
and outside the United States for meetings or seminars of a
business nature. In some instances, these incentives or payments
may be offered only to certain dealers who have sold or may sell
significant amounts of shares. Certain dealers may not sell all
classes of shares.
DISTRIBUTION PLANS
The fund has adopted distribution plans to compensate Putnam
Mutual Funds for services provided and expenses incurred by it as
principal underwriter of fund shares, including the payments to
dealers mentioned below. The plans provide for payments by the
fund to Putnam Mutual Funds at annual rates (expressed as a
percentage of average net assets) of up to 0.35% on class A
shares and 1.00% on class B and class M shares. The Trustees
currently limit payments on class A and Class M shares to 0.25%
and 0.50% of average net assets, respectively.
Putnam Mutual Funds compensates qualifying dealers (including,
for this purpose, certain financial institutions) for sales of
shares and the maintenance of shareholder accounts.
Putnam Mutual Funds makes quarterly payments to dealers at the
annual rate of up to 0.25% of the average net asset value of
class A shares. The payments to dealers for shares held by class
A qualified benefit plans are made at reduced rates, as described
in the SAI. No payments are made during the first year after
purchase on shares purchased at net asset value by shareholders
investing $1 million or more or by employer-sponsored retirement
plans that have at least 200 eligible employees or that are class
A qualified benefit plans, unless the shareholder has made
arrangements with Putnam Mutual Funds and the dealer of record
has waived the sales commission.
Putnam Mutual Funds makes quarterly payments to dealers at the
annual rates of 0.25% and 0.40% of the average net asset value of
class B and class M shares, respectively.
Putnam Mutual Funds may suspend or modify its payments to
dealers. The payments are also subject to the continuation of
the relevant distribution plan, the terms of service agreements
between dealers and Putnam Mutual Funds, and any applicable
limits imposed by the National Association of Securities Dealers,
Inc.
HOW TO SELL SHARES
You can sell your shares to the fund any day the New York Stock
Exchange is open, either directly to the fund or through your
investment dealer. The fund will only redeem shares for which it
has received payment.
Selling shares directly to your fund. Send a signed letter of
instruction or stock power form to Putnam Investor Services,
along with any certificates that represent shares you want to
sell. The price you will receive is the next net asset value
calculated after the fund receives your request in proper form
less any applicable CDSC. In order to receive that day's net
asset value, Putnam Investor Services must receive your request
before the close of regular trading on the New York Stock
Exchange.
If you sell shares having a net asset value of $100,000 or more,
the signatures of registered owners or their legal
representatives must be guaranteed by a bank, broker-dealer or
certain other financial institutions. See the SAI for more
information about where to obtain a signature guarantee. Stock
power forms are available from your investment dealer, Putnam
Investor Services and many commercial banks.
If you want your redemption proceeds sent to an address other
than your address as it appears on Putnam's records, a signature
guarantee is required. Putnam Investor Services usually requires
additional documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or a surviving joint owner.
Contact Putnam Investor Services for details.
Your fund generally sends you 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.
You may use Putnam's Telephone Redemption Privilege to redeem
shares valued up to $100,000 unless you have notified Putnam
Investor Services of an address change within the preceding 15
days. Unless you indicate otherwise on the account
application, Putnam Investor Services will be authorized to act
upon redemption and transfer instructions received by telephone
from you , or any person claiming to act as your
representative, who can provide Putnam Investor Services with
your account registration and address as it appears on
Putnam Investor Services' records.
Putnam Investor Services will employ these and other reasonable
procedures to confirm that instructions communicated by telephone
are genuine; if it fails to employ reasonable procedures, Putnam
Investor Services may be liable for any losses due to
unauthorized or fraudulent instructions. For information,
consult Putnam Investor Services.
During periods of unusual market changes and shareholder
activity, you may experience delays in contacting Putnam Investor
Services by telephone. In this event, you may wish to submit a
written redemption request, as described above, or contact your
investment dealer, as described below. The Telephone Redemption
Privilege is not available if you were issued certificates for
shares that remain outstanding. The Telephone Redemption
Privilege may be modified or terminated without notice.
Selling shares through your investment dealer. Your dealer must
receive your request before the close of regular trading on the
New York Stock Exchange to receive that day's net asset value.
Your dealer will be responsible for furnishing all necessary
documentation to Putnam Investor Services, and may charge you for
its services.
HOW TO EXCHANGE SHARES
You can exchange your shares for shares of the same class of
certain other Putnam funds at net asset value. Not all Putnam
funds offer all classes of shares. If you exchange shares subject
to a CDSC, the transaction will not be subject to the CDSC.
However, when you redeem the shares acquired through the exchange,
the redemption may be subject to the CDSC, depending upon when you
originally purchased the shares. The CDSC will be computed using
the schedule of any fund into or from which you have exchanged your
shares that would result in your paying the highest CDSC applicable
to your class of shares. For purposes of computing the CDSC, the
length of time you have owned your shares will be measured from the
date of original purchase and will not be affected by any exchange.
To exchange your shares, simply complete an Exchange Authorization
Form and send it to Putnam Investor Services. The form is
available from Putnam Investor Services. For federal income tax
purposes, an exchange is treated as a sale of shares and generally
results in a capital gain or loss. A Telephone Exchange Privilege
is currently available for amounts up to $500,000. Putnam Investor
Services' procedures for telephonic transactions are described
above under "How to sell shares." The Telephone Exchange Privilege
is not available if you were issued certificates for shares that
remain outstanding. Ask your investment dealer or Putnam Investor
Services for prospectuses of other Putnam funds. Shares of certain
Putnam funds are not available to residents of all states.
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 in other
circumstances where Putnam Management or the Trustees believe doing
so would be in the best interests of your fund, the fund reserves
the right to revise or terminate the exchange privilege, limit the
amount or number of exchanges or reject any exchange. Consult
Putnam Investor Services before requesting an exchange. See the
SAI to find out more about the exchange privilege.
HOW THE FUND VALUES ITS SHARES
The fund calculates the net asset value of a share of each class
by dividing the total value of its assets, less liabilities, by
the number of its shares outstanding. Shares are valued as of
the close of regular trading on the New York Stock Exchange
each day the Exchange is open.
Portfolio securities for which market quotations are readily
available are valued at market value. Short-term investments
that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets
are valued at their fair value following procedures approved by
the Trustees.
Securities quoted in foreign currencies are translated into U.S.
dollars at current exchange rates or at such other rates as the
Trustees may determine in computing net asset value. As a
result, fluctuations in the value of such currencies in relation
to the U.S. dollar may affect the net asset value of fund shares
even though there has not been any change in the values of such
securities as quoted in such foreign currencies.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX INFORMATION
The fund will declare a distribution each day in an amount which
is based on Putnam Management's projections of the fund's
estimated net investment income. Normally, the fund will pay
these distributions monthly. The amount of each daily
distribution may differ from actual net investment income
determined in accordance with generally accepted accounting
principles. See "Distributions" in the SAI. The fund will
distribute, at least annually, all net realized capital gains, if
any, after applying any available capital loss carryovers.
Distributions paid on class A shares will generally be greater
than those paid on class B and class M shares because expenses
attributable to class B and class M shares will generally be
higher.
You begin earning distributions on the business day that Putnam
Mutual Funds receives payment for your shares. It is your
responsibility to see that your dealer forwards payment promptly.
You can choose from three distribution options:
- - Reinvest all distributions in additional shares without a
sales charge;
- - Receive distributions from net investment income in cash
while reinvesting capital gains distributions in additional
shares without a sales charge; or
- - Receive all distributions in cash.
You can change your distribution option by notifying Putnam
Investor Services in writing. If you do not select an option
when you open your account, all distributions will be reinvested.
All distributions not paid in cash will be reinvested in shares
of the class on which the distributions are paid. You will
receive a statement confirming reinvestment of distributions in
additional fund shares (or in shares of other Putnam funds
for Dividends Plus accounts) promptly following the quarter in
which the reinvestment occurs.
If a check representing a fund distribution is not cashed within a
specified period, Putnam Investor Services will notify you that
you have the option of requesting another check or reinvesting the
distribution . You will not receive any interest on amounts
represented by uncashed distribution or redemption checks . If
Putnam Investor Services does not receive your election, the
distribution will be reinvested in the fund. Similarly, if
correspondence sent by the fund or Putnam Investor Services is
returned as "undeliverable," fund distributions will automatically
be reinvested in the fund or in another Putnam fund.
The fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
necessary for it to be relieved of federal taxes on income and
gains it distributes to shareholders. The fund will distribute
substantially all of its ordinary income and capital gain net
income on a current basis.
Fund distributions will be taxable to you as ordinary income to
the extent derived from the fund's investment income and net short-
term gains (that is, net gains from securities held for not more
than a year). Distributions designated by the fund as deriving from
net gains on securities held for more than one year but not more
than 18 months and from net gains on securities held for more than
18 months will be taxable to you as such, regardless of
how long you have held the shares. Distributions will be taxable as
described above whether received in cash or in shares through the
reinvestment of distributions.
Fund investments in foreign securities may be subject to withholding
taxes at the source on dividend or interest payments. In that case,
the fund's yield on those securities would be decreased. The fund
does not expect to be eligible to elect to permit shareholders to
claim a credit or deduction on their income tax return for their pro
rata share of such taxes.
Fund transactions in foreign currencies and hedging activities may
give rise to ordinary income or loss to the extent such income or
loss results from fluctuations in value of the foreign currency
concerned. In addition, such 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.
Investment in an entity that qualifies as a "passive foreign
investment company" under the Internal Revenue Code could subject
the fund to a U.S. federal income tax or other charge on certain
"excess distributions" with respect to the investment, and on the
proceeds from disposition of the investment.
Early in each calendar year Putnam Investor Services will
notify you of the amount and tax status of distributions paid to
you for the preceding year.
The foregoing is a summary of certain federal income tax
consequences of investing in the fund. You should consult your
tax adviser to determine the precise effect of an investment in
the fund on your particular tax situation (including possible
liability for state and local taxes).
About Putnam Investments, Inc.
Putnam Management has been managing mutual funds since 1937.
Putnam Mutual Funds is the principal underwriter of the fund and
of other Putnam funds. Putnam Fiduciary Trust Company is the
custodian of the fund. Putnam Investor Services, a division of
Putnam Fiduciary Trust Company, is the investor servicing and
transfer agent for the fund.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are located at One Post Office Square, Boston,
Massachusetts 02119 and are subsidiaries of Putnam
Investments, Inc., which is owned by Marsh & McLennan
Companies, Inc., a publicly-owned holding company whose principal
businesses are international insurance and reinsurance brokerage,
employee benefit consulting and investment management.
<PAGE>
APPENDIX
Securities ratings
The following rating services describe rated securities as
follows:
Moody's Investors Service, Inc.
Bonds
Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edged." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than
the Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such
issues may be in default, or there may be present elements of
danger with respect to principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Standard & Poor's
Bonds
AAA - - An obligation rated AAA has the highest
rating assigned by Standard & Poor's. The obligor's capacity
to meet its financial commitment on the obligation is
extremely strong.
AA -- An obligation rated AA differs from the highest-
rated obligations only in small degree. The
obligor's capacity to meet its financial commitment on the
obligation is very strong.
A -- An obligation rated A is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than obligations in higher - rated
categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
BBB -- An obligation rated BBB exhibits adequate protection
parameters . However , adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on
the obligation.
Obligations rated BB, B, CCC, CC and C are regarded as having
significant speculative characteristics. BB indicates the
lowest degree of speculation and C the highest. While
such obligations will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions.
BB -- An obligation rated BB is less vulnerable to
nonpayment than other speculative issues. However, it faces
major ongoing uncertainties or exposure to adverse business,
financial, or
economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the
obligation .
B -- An obligation rated B is more vulnerable to nonpayment
than obligations rated BB, but the obligor currently has the
capacity to meet its financial commitment on the
obligations . Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the
obligation.
CCC -- An obligation rated CCC is currently
vulnerable to nonpayment , and is dependent upon favorable
business, financial, and economic conditions for the obligor
to met its financial commitment on the obligation . In the
event of adverse business, financial, or economic conditions,
the obligor is not likely to have the capacity to meet
its financial commitment on the obligation.
CC -- An obligation rated CC is currently highly vulnerable to
nonpayment.
C -- The C rating may be used to cover a situation where a
bankruptcy petition has been filed, or similar action has been
taken, but payments on this obligation are
being continued.
D -- An obligation rated D is in payment default.
The D rating category is used when interest payments or
principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon
the filing of a bankruptcy petition , or the taking of a
similar action if payments on an obligation
are jeopardized.
Duff & Phelps Corporation
Long-Term Debt
AAA -- Highest credit quality. The risk factors are negligible,
being only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- -- High credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A+, A, A- -- Protection factors are average but adequate.
However, risk factors are more variable and greater in periods of
economic stress.
BBB+, BBB, BBB- -- Below-average protection factors but still
considered sufficient for prudent investment. Considerable
variability in risk during economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or
company fortunes. Overall quality may move up or down frequently
within this category.
B+, B, B- -- Below investment grade and possessing risk that
obligations will not be met when due. Financial protection
factors will fluctuate widely according to economic cycles,
industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a
higher or lower rating grade.
CCC -- Well below investment-grade securities. Considerable
uncertainty exists as to timely payment of principal, interest or
preferred dividends. Protection factors are narrow and risk can
be substantial with unfavorable economic/industry conditions,
and/or with unfavorable company developments.
DD -- Defaulted debt obligations. Issuer failed to meet
scheduled principal and/or interest payments.
Fitch Investors Service, Inc.
AAA -- Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be
affected by reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds
rated AAA.
A -- Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable
to adverse changes in economic conditions and circumstances than
bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
BB -- Bonds considered to be speculative. The obligor's ability
to pay interest and repay principal may be affected over time by
adverse economic changes. However, business and financial
alternatives can be identified which could assist the obligor in
satisfying its debt service requirements.
B -- Bonds are considered highly speculative. Bonds in this class
are lightly protected as to the obligor's ability to pay interest
over the life of the issue and repay principal when due.
CCC -- Bonds have certain characteristics which, with passing of
time, could lead to the possibility of default on either
principal or interest payments.
CC -- Bonds are minimally protected. Default in payment of
interest and/or principal seems probable.
C -- Bonds are in actual or imminent default in payment of
interest or principal.
DDD -- Bonds are in default and in arrears in interest and/or
principal payments. Such bonds are extremely speculative and
should be valued only on the basis of their value in liquidation
or reorganization of the obligor.
<PAGE>
Glossary of terms
Bond An IOU issued by a government or corporation
that usually pays interest.
- -----------------------------------------------------------------
Capital A rise in an investment's principal value.
appreciation Also used to describe the investment objective
of a mutual fund whose primary criterion for
choosing securities is the potential to rise
in value rather than to provide dividend
income.
- -----------------------------------------------------------------
Capital A profit or loss on the sale of securities
gain/loss (generally stocks or bonds).
- -----------------------------------------------------------------
Class A, B, M Types of shares, each class offering
shares investors a different way to pay sales charges
and distribution fees. A fund's prospectus
explains the availability and attributes of
each type.
- -----------------------------------------------------------------
Common A unit of ownership of a corporation.
stock
- -----------------------------------------------------------------
Contingent A charge applied at the time of redemption of
deferred certain mutual fund shares, rather than at the
sales charge time of purchase. A fund's CDSC generally
(CDSC) declines each year after purchase, until it no
longer applies.
- -----------------------------------------------------------------
Cost basis The purchase price of mutual fund shares for
tax purposes, adjusted for such things as
share splits, distributions, and return of
capital distributions.
- -----------------------------------------------------------------
Declaration The date on which the Trustees approve the
date amount of a mutual fund's next distribution.
- -----------------------------------------------------------------
Distribution A payment from a mutual fund to shareholders.
It may include interest from bonds and
dividends from stocks (dividend
distributions). It may also include profits
from the sale of securities from the fund's
portfolio (capital gains distributions).
- -----------------------------------------------------------------
Diversification Investing in a number of securities to reduce
the effect of any one investment going bad. A
basic premise of mutual fund investing.
- -----------------------------------------------------------------
Dividend For mutual fund shares, a payment derived
solely from dividends or interest paid on
securities held in the portfolio (i.e. not
including capital gains).
- -----------------------------------------------------------------<PAGE>
Equity Securities representing ownership in a
securities corporation. Common stock and preferred stock
are equity securities.
- -----------------------------------------------------------------
Ex-dividend The date on or after which a holder of
date newly-issued shares will not receive the
fund's next distribution. For Putnam funds, it
is the same as the record date.
- -----------------------------------------------------------------
Fiscal year Typically an accounting period of 365 days
(366 days in leap years) for which a mutual
fund prepares financial statements and
performance data. For administrative reasons,
it often differs from a calendar year.
- -----------------------------------------------------------------
Fixed-income Securities that pay an unchanging rate of
securities interest or dividends. Bonds, notes, bills,
money market instruments, and preferred stocks
may all be considered fixed-income securities.
- -----------------------------------------------------------------
Net asset The value of one share of a mutual fund
value (NAV) without regard to sales charges. Some bond
funds aim for a steady NAV, representing
stability; most stock funds aim to raise NAV,
representing growth in the value of an
investment.
- -----------------------------------------------------------------
Payable date The date on which a mutual fund pays its
distributions to shareholders.
- -----------------------------------------------------------------
Public The purchase price of one class A or
offering price class M share of a mutual fund, including the
(POP) applicable "front-end" sales charge.
- -----------------------------------------------------------------
Record date The date used to determine which shareholders
are entitled to a distribution. After the
record date, shares are sold "ex-dividend," or
without the dividend. For Putnam funds, the
ex-dividend date is the same as the record
date.
- -----------------------------------------------------------------
Total return A measure of performance showing the change in
the value of an investment over a given
period, assuming all earnings are reinvested .
- -----------------------------------------------------------------
<PAGE>
Yield The percentage rate at which a fund has earned
income from its investments over the indicated
period. "Dividend rate" is a current return
that includes interest and dividend income,
net of all fund expenses. "Distribution rate"
is a current return that includes short-term
capital gains, as well as net investment
income. "SEC yield" is a current return based
on net investment income over a recent 30-day
period, computed on a yield-to-maturity basis,
which may differ from net investment income as
determined for financial reporting purposes.
All of these returns are calculated by
annualizing the dividends or distributions
over the indicated period and dividing by the
price of a share at the end of the period.
<PAGE>
Make the most of your Putnam privileges
As a Putnam mutual fund shareholder, you have access to a number
of services that can help you build a more effective and flexible
financial program. Here are some of the ways you can use these
privileges to make the most of your Putnam mutual fund
investment.
SYSTEMATIC INVESTMENT PLAN
Invest as much as you wish ($25 or more) on any business day of
the month except for the 29th, 30th, or 31st. The amount you
choose will be automatically transferred each month from your
checking or savings account.
SYSTEMATIC WITHDRAWAL
Make regular withdrawals of $50 or more monthly, quarterly, or
semiannually from your Putnam mutual fund account valued at
$10,000 or more. Your automatic withdrawal may be made on any
business day of the month except for the 29th, 30th, or 31st.
SYSTEMATIC EXCHANGE
Transfer assets automatically from one Putnam account to another
on a regular, prearranged basis. There is no additional charge
for this service.
FREE EXCHANGE PRIVILEGE
Exchange money between Putnam funds in the same class of shares
without charge. The exchange privilege allows you to adjust your
investments as your objectives change. A signature guarantee is
required for exchanges of more than $500,000 and shares of all
Putnam funds may not be available to all investors.
<PAGE>
DIVIDENDS PLUS
Diversify your portfolio by investing dividends and other
distributions from one Putnam fund automatically into another at
net asset value.
STATEMENT OF INTENTION
To reduce a front-end sales charge, you may agree to invest a
minimum dollar amount over 13 months. Depending on your fund,
the minimum is $25,000, $50,000, or $100,000. Whenever you make
an investment under this arrangement, you or your investment
advisor should notify Putnam Mutual Funds that a Statement of
Intention is in effect.
Investors may not maintain, within the same fund, simultaneous
plans for systematic investment or exchange (into the fund) and
systematic withdrawal or exchange (out of the fund). These
privileges are subject to change or termination.
For more information about any of these services and privileges,
call your investment advisor or a Putnam customer service
representative toll free at 1-800-225-1581.
<PAGE>
Putnam Family of Funds*
PUTNAM GROWTH FUNDS
Putnam Asia Pacific Growth Fund
Putnam Capital Appreciation Fund
Putnam Diversified Equity Trust
Putnam Emerging Markets Fund
Putnam Europe Growth Fund
Putnam Global Growth Fund
Putnam Global Natural Resources Fund
Putnam Growth Opportunities Fund
Putnam Health Sciences Trust
Putnam International Growth Fund
Putnam International New Opportunities Fund
Putnam International Voyager Fund
Putnam Investors Fund
Putnam New Opportunities Fund+
Putnam OTC & Emerging Growth Fund
Putnam Vista Fund
Putnam Voyager Fund
Putnam Voyager Fund II
PUTNAM GROWTH AND INCOME FUNDS
Putnam Balanced Retirement Fund
Putnam Convertible Income-Growth Trust
Putnam Equity Income Fund
The George Putnam Fund of Boston
Putnam Global Growth and Income Fund
The Putnam Fund for Growth and Income
Putnam Growth and Income Fund II
Putnam International Growth and Income Fund
Putnam New Value Fund
Putnam Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Putnam American Government Income Fund
Putnam Diversified Income Trust
Putnam Diversified Income Trust II
Putnam Federal Income Trust
Putnam Global Governmental Income Trust
Putnam High Yield Advantage Fund++
Putnam High Yield Total Return Fund
Putnam High Yield Trust+
Putnam Income Fund
Putnam Intermediate U.S. Government Income Fund
Putnam Preferred Income Fund
Putnam U.S. Government Income Trust
PUTNAM TAX-FREE INCOME FUNDS
Putnam Municipal Income Fund
Putnam Tax Exempt Income Fund
Putnam Tax-Free High Yield Fund
Putnam Tax-Free Insured Fund
Putnam State tax-free income funds+++
Arizona, California, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, New York,
Ohio and Pennsylvania
LIFESTAGE(SM) FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that
spread your money across a variety of stocks, bonds, and money
market investments seeking to help maximize your return and
reduce your risk.
The three portfolios:
Balanced Portfolio
Conservative Portfolio
Growth Portfolio
PUTNAM MONEY MARKET FUNDS**
Putnam Money Market Fund
Putnam California Tax Exempt Money Market Fund
Putnam New York Tax Exempt Money Market Fund
Putnam Tax Exempt Money Market Fund
*As of 12/31/97.
+New investments restricted; see your financial advisor for
details.
++New investments restricted as of 1/31/98; see your financial
advisor for details.
+++Not available in all states.
**Investments in money market funds are neither insured nor
guaranteed by the U.S. government. These funds are managed to
maintain a steady net asset value of $1.00 per share, although
there is no assurance this net asset value will be maintained in
the future.
Please call your financial advisor or Putnam Mutual Funds to
obtain a prospectus for any Putnam fund. It contains more
complete information, including charges and expenses. Read it
carefully before you invest or send money.
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PUTNAMINVESTMENTS
P.O. Box 989
Boston, Massachusetts 02103
Toll-free 1-800-225-1581
www.putnaminv.com
