PUTNAM CONVERTIBLE INCOME-GROWTH TRUST ONE POST OFFICE
SQUARE, BOSTON, MA 02109 CLASS Y SHARES
INVESTMENT STRATEGY: GROWTH & INCOME
PROSPECTUS - FEBRUARY 28, 1998 , AS REVISED DECEMBER
30, 1998
This prospectus explains concisely what you should know
before investing in class Y shares of Putnam
Convertible IncomeGrowth Trust (the "fund") which are
offered without a sales charge through eligible
employer-sponsored retirement plans. Please read it
carefully and keep it for future reference. You can
find more detailed information about the fund in the
February 28, 1998 statement of additional information
(the "SAI"), as amended from time to time. For a free
copy of the SAI or for other information, call
Putnam Investor Services at 1-800-7529894. 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 MAY INVEST SIGNIFICANTLY IN LOWERRATED 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.
PUTNAMINVESTMENTS
PUTNAM DEFINED
CONTRIBUTION PLANS
ABOUT THE FUND
Expenses summary. ................................
.......2 Objectives.................................
............ .3
How the fund pursues its
objectives. ....................3
How performance is
shown. ...............................10< /R> How the
fund is managed.
................................
10 Organization and
history. ...............................1 1
ABOUT YOUR INVESTMENT
How to buy shares. .................................
.....13
How to sell shares.....................................
.13 How to exchange
shares. ................................. 14 How
the fund values its
shares. .........................14 How the fund
makes distributions to shareholders;
tax information. ............................
..........15
ABOUT PUTNAM INVESTMENTS,
INC. ..........................16
APPENDIX
Securities ratings. ................................
.....17
ABOUT THE FUND
EXPENSES SUMMARY
Expenses are one of several factors to consider when
investing. The following table summarizes expenses
attributable to class Y shares based on the
fund's most recent fiscal year. The example shows the
cumulative expenses attributable to a hypothetical
$1,000 investment in class Y shares over
specified periods.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.58%
Other expenses 0.20%
Total fund operating expenses 0.78%
The table is provided to help you understand the
expenses of investing in the fund and your share of
fund operating expenses. The expenses shown in the
table do not reflect the application of credits that
reduce fund expenses. "Other expenses" are based on
the operating expenses for the fund's class A
shares.
EXAMPLE
Your investment of $1,000 would incur the following
expenses, assuming 5% annual return and redemption at
the end of each period:
1 3 5 10
YEAR YEARS YEARS YEARS
$8 $25 $43 $97
The example does not represent past or future expense
levels, and actual expenses may be greater or less than
those shown. Federal regulations require the example to
assume a 5% annual return, but actual annual return
varies. The example does not reflect any charges or
expenses related to your employer's plan.
OBJECTIVES
PUTNAM CONVERTIBLE INCOME-GROWTH TRUST SEEKS, WITH
EQUAL EMPHASIS,
CURRENT INCOME AND CAPITAL APPRECIATION. ITS SECONDARY
OBJECTIVE IS CONSERVATION OF CAPITAL. A PARTICULAR
SECURITY SELECTED FOR THE FUND'S PORTFOLIO NEED NOT
REFLECT ALL ASPECTS OF THE FUND'S INVESTMENT
OBJECTIVES. The fund is not intended to be a complete
investment program, and there is no assurance it will
achieve its objectives.
HOW THE FUND PURSUES ITS OBJECTIVES
BASIC INVESTMENT STRATEGY
PUTNAM CONVERTIBLE INCOME-GROWTH TRUST INVESTS
PRIMARILY IN CONVERTIBLE SECURITIES WHICH PUTNAM
INVESTMENT MANAGEMENT, INC. ("PUTNAM MANAGEMENT"), THE
FUND'S INVESTMENT MANAGER, BELIEVES ARE CONSISTENT WITH
THE FUND'S INVESTMENT OBJECTIVE OF CURRENT INCOME AND
CAPITAL APPRECIATION. "Convertible" securities include
corporate bonds, debentures, notes or preferred stocks
that can be converted into (that is, exchanged for)
common stock or other equity securities of the same or
a different issuer, and other securities, such as
warrants, that also provide an opportunity for equity
participation. These securities are generally
convertible at either a stated price or a stated rate
(that is, for a specific number of shares of common
stock or of another security). Because of this
conversion feature, the price of the convertible
security will normally vary in some proportion to
changes in the price of the underlying common stock. A
convertible security will normally also provide a
higher yield than the underlying common stock.
This higher yield may tend to cushion the convertible
security against declines in the price of the
underlying common stock.
THE FUND WILL NORMALLY INVEST AT LEAST 65% OF ITS TOTAL
ASSETS IN CONVERTIBLE SECURITIES. The remainder may be
invested in common stocks and in nonconvertible
preferred stocks and debt securities which Putnam
Management believes will help the fund achieve its
investment objectives.
The fund may also hold a portion of its assets in cash
or money market instruments.
DEFENSIVE 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 invest without limit in cash or money market
instruments, nonconvertible debt securities and
preferred stocks, U.S. government securities, or any
other securities that 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.
The fund will only invest in nonconvertible debt
securities rated at least CCC or Caa by a nationally
recognized securities rating agency, such as Standard &
Poor's ("S&P") or Moody's Investors Service, Inc.
("Moody's"), or unrated nonconvertible debt securities
that Putnam Management determines are of comparable
quality. The fund may invest up to 10% of its net
assets in convertible securities rated CC, Ca or C by a
securities rating agency or in unrated convertible
securities determined by Putnam Management to be of
comparable quality. The fund may not invest in
convertible securities rated at the time of purchase
below C by each rating agency that rates such securities
or in unrated convertible securities Putnam Management
determines to be of comparable quality. 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 in
determining compliance with the foregoing investment
limitations.
Securities in the lower rating categories are considered
to be predominantly speculative and may be in default.
The rating services' descriptions of securities in the
various rating categories, including the speculative
characteristics of securities in the lower rating
categories, are set forth in the Appendix to this
prospectus. The fund may invest in unrated securities
if Putnam Management determines that they are of a
quality at least equal to the rated securities
in which the fund may invest.
Changes by nationally recognized securities
rating agencies in their ratings of a fixedincome
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 LOWERRATED 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 both, 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" 0.68%
0.45%
"AA" 1.02% 0.53%
"A" 6.02% 0.54% "BBB"
4.87% 0.05% "BB" 5.72%
0.43%
"B" 17.73% 5.59% "CCC" 0.94%
0.01% "CC" -- --
"C" -- --
"D" -- 0.05%
------ ----
Total: 36.98% 7.60%
====== ======
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 its 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
objectives.
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 or the fund
may be able to sell the securities only at prices lower
than if they were more widely held. Under these
circumstances, it may also 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, the
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 "zerocoupon"
bonds and "payment-in-kind" bonds. Zerocoupon 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. Paymentin-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
zerocoupon 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.
FOR ADDITIONAL INFORMATION REGARDING THE RISKS
ASSOCIATED WITH INVESTING IN SECURITIES IN THE LOWER
RATING CATEGORIES, SEE THE SAI.
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 for fiscal
1997 and 1996 were 70.74% and 61.43%, respectively.
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.
FOREIGN INVESTMENTS
The fund may invest in securities of foreign issuers
including securities 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 not actively traded on U.S. markets
generally will not exceed 20% 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
the 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 operations.
The fund may engage in a variety of foreign currency
exchange transactions in connection with its foreign
investments, including transactions involving forward
contracts and options. For a further discussion of the
risks associated with purchasing and selling options,
see "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.
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 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
brokerdealers 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 fund
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 options and forward contracts, 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
(securities of the U.S. government, its agencies or
instrumentalities are not considered to represent any
industry);* or
(c) 15% of its net assets in any combination of
securities that are not readily marketable, securities
restricted as to resale (excluding securities
determined by the Trustees (or the person designated
by the Trustees to make such determinations) to be
readily marketable), and 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 nonfundamental investment policy
without shareholder approval. As a matter of policy,
the Trustees would not materially change the fund's
investment objectives 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.
"Total return" for the one-, five- and tenyear
periods (or for the life of the class Y shares ,
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 . Total
return may also be presented for other periods or based
on investment at reduced sales charge levels.
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 the class of
shares the investor purchases. Investment performance
also often reflects the risks associated with the
fund's investment objectives 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.
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 officer of Putnam Management
has had primary responsibility for the dayto-day
management of the fund's portfolio since the year
stated below:
Business experience
Year (at least 5 years)
- ------- -------------------------
Forrest N. Fontana 1998 Employed as an
investment
Senior Vice President professional by Putnam
Management since 1993.
Charles G. Pohl 1992 Employed as an investment
Senior Vice President professional by Putnam
Management since 1983.
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 brokerdealers, 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 Convertible Income-Growth Trust is a
Massachusetts business trust organized on August 13,
1982 as the successor to Putnam Convertible Fund,
Inc., a Massachusetts corporation organized on March
8, 1972. 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.
The fund is an open-end, diversified management
investment company with an unlimited number of
authorized shares of beneficial interest which 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. Only the fund's class Y shares are
offered by this prospectus. The fund also offers 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, at any time, establish one which could
apply to both present and future shareholders.
THE FUND'S 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. ; JOHN A. HILL, VICE CHAIRMAN.
Chairman and Managing Director, First Reserve
Corporation ; WILLIAM F. POUNDS, VICE CHAIRMAN.
Professor Emeritus 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. ; 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. and The Liberty
Corporation ; ROBERT E. PATTERSON, President
and Trustee of Cabot Industrial
Trust and Trustee of the SEA Education
Association ; DONALD S. PERKINS,* Director of
various corporations, including Cummins Engine
Company, Lucent Technologies, Inc., Nanophase
Technologies, Inc. and Springs Industries, 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 Qwest Communications 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 the fund, Putnam
Management or Putnam Mutual Funds.
ABOUT YOUR INVESTMENT
HOW TO BUY SHARES
ALL ORDERS TO PURCHASE SHARES MUST BE MADE THROUGH
YOUR EMPLOYER'S DEFINED CONTRIBUTION PLAN. FOR
MORE INFORMATION ABOUT HOW TO PURCHASE SHARES OF THE
FUND THROUGH YOUR EMPLOYER'S PLAN OR LIMITATIONS ON
THE AMOUNT THAT MAY BE PURCHASED, PLEASE CONSULT YOUR
EMPLOYER. Shares are sold to eligible defined
contribution plans at the net asset value per
share next determined after receipt of an order by
Putnam Mutual Funds. Orders must be received by Putnam
Mutual Funds before the close of regular trading on
the New York Stock Exchange in order to receive that
day's net asset value. Class Y shares are
available to defined contribution plans (including
corporate IRAs) whose investment in Putnam funds
and other assets managed by Putnam Management
or its affiliates , combined with such investments
by the plan's sponsor and the sponsor's other employee
benefit plans, equals at least $150 million (or prior
to 1999, $250 million). Defined contribution plans
that elect to buy class Y shares after attaining
eligibility will receive class Y shares in place of
any class A shares owned at the time of their first
purchase of class Y shares. Class Y shares are also
available to defined contribution plans whose sponsor
confirms a good faith expectation that investments
in Putnam-managed assets by the sponsor and its
employee benefit plans will attain $150 million (using
the higher of purchase price or current market value)
within one year of the initial purchase of class Y
shares, and agrees that class Y shares may be redeemed
and class A shares purchased if that level is not
attained . To eliminate the need for safekeeping,
the fund will not issue certificates for your
shares. Putnam Mutual Funds will from time to
time, at its expense, provide 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.
HOW TO SELL SHARES
SUBJECT TO ANY RESTRICTIONS IMPOSED BY YOUR EMPLOYER'S
PLAN, YOU CAN SELL YOUR SHARES THROUGH THE PLAN TO THE
FUND ANY DAY THE NEW YORK STOCK EXCHANGE IS OPEN. For
more information about how to sell shares of the fund
through your employer's plan, including any charges
that may be imposed by the plan, please consult with
your employer.
Your plan administrator must send a signed letter of
instruction to Putnam Investor Services. The price
you will receive is the next net asset value
calculated after the fund receives the request in
proper form. All requests must be received by the
fund prior to the close of regular trading on the New
York Stock Exchange in order to receive that day's net
asset value. 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.
THE FUND GENERALLY PROVIDES PAYMENT FOR REDEEMED
SHARES THE BUSINESS DAY AFTER THE 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. The fund will only
redeem shares for
which it has received payment.
HOW TO EXCHANGE SHARES
Subject to any restrictions contained in your
employer's plan, you can exchange your shares
for shares of other Putnam funds available through
your employer's plan at net asset value. Contact your
plan administrator or Putnam Investor Services for
more information on how to exchange your shares or how
to obtain prospectuses of other Putnam funds in which
you may invest.
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.
Longterm corporate bonds and notes for which market
quotations are not considered readily available are
stated at fair value on the basis of valuations
furnished by a pricing service approved by the
Trustees which determines valuations for normal,
institutional-size trading units of such securities
using methods based on market transactions for
comparable securities and various relationships
between securities which are generally recognized by
institutional traders.
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.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX
INFORMATION
The fund distributes any net investment income at least
quarterly and any net capital gains at least annually.
Distributions from net capital gains are made after
applying any available capital loss carryovers.
The terms of your employer's plan will govern how your
employer's plan may receive distributions from the
fund. Generally, periodic distributions from the fund
to your employer's plan are reinvested in additional
fund shares, although your employer's plan may permit
you to receive fund distributions from net investment
income in cash while reinvesting capital gains
distributions in additional shares or to receive all
fund distributions in cash. If another option is not
selected, all distributions will be reinvested in
additional fund shares.
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 income taxes on income and gains it
distributes . The fund will distribute
substantially all of its ordinary income and capital
gain net income on a current basis. Generally, fund
distributions are taxable as ordinary income, except
that any distributions designated by the fund as
deriving from net gains on securities held for more
than one year will be taxed as such regardless
of how long you have held your shares. However,
distributions by the fund to employer-sponsored
defined contribution plans that qualify for tax
exempt treatment under federal income tax laws will
not be taxable. Special tax rules apply
to investments through such plans. You should consult
your tax adviser to determine the suitability of the
fund as an investment through such a plan and the tax
treatment of distributions (including distributions of
amounts attributable to an investment in the fund)
from such a plan.
The 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 Defined
Contribution Plans is a division of Putnam Mutual
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 subsidiaries of Putnam
Investments, Inc., which is located at One Post
Office Square, Boston, Massachusetts 02109 and ,
except for a minority stake owned by employees,
are owned by Marsh & McLennan Companies, Inc., a
publiclyowned holding company whose principal
businesses are international insurance and reinsurance
brokerage, employee benefit consulting and investment
management.
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
highestrated 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 higherrated 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 meet 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.
DUFF & PHELPS CORPORATION
LONG-TERM DEBT
AAA -- Highest credit quality. The risk factors are
negligible, being only slightly more than for riskfree
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.
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.
