THE GEORGE PUTNAM FUND OF BOSTON
One Post Office Square, Boston, MA 02109
Class Y shares
INVESTMENT STRATEGY: GROWTH AND INCOME
PROSPECTUS -- NOVEMBER 30, 1996 , as revised MAY 30, 1997
This prospectus explains concisely what you should know before
investing in class Y shares of The George Putnam Fund of Boston
(the "fund"). Please read it carefully and keep it for future
reference. You can find more detailed information about the fund
in the November 30, 1996 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-
752-9894. 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.
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.
PUTNAM INVESTMENTS
Putnam Defined
Contribution Plans
<PAGE>
ABOUT THE FUND
Expenses summary.....................................
Financial highlights.................................
Objective............................................
How the fund pursues its objective...................
Risk factors....................................
How performance is shown.............................
How the fund is managed..............................
Organization and history.............................
ABOUT YOUR INVESTMENT
How to buy shares....................................
How to sell shares...................................
How to exchange shares...............................
How the fund values its shares.......................
How the fund makes distributions to shareholders; tax
information..........................................
ABOUT PUTNAM INVESTMENTS, INC.............................
APPENDIX
Securities ratings........................................
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 0.55%
Other expenses 0.34%
Total fund operating expenses 0.89%
The table is provided to help you understand the expenses of
investing in the fund and your share of the operating expenses
that the fund incurs. The expenses shown in the table do not
reflect the application of credits that reduce fund expenses.
The annual management fees shown in the table have been restated
to reflect an increase in the management fees payable to Putnam
Investment Management, Inc., the fund's investment manager
("Putnam Management"). Actual management fees were 0.36% and
total fund operating expenses were 0.70%.
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
$9 $28 $49 $110
The example does not represent past or future expense levels.
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.
FINANCIAL HIGHLIGHTS
The table below presents per share financial information for the
life of class Y shares. This information has been derived from
the fund's financial statements, which have been audited and
reported on by the fund's independent accountants. The "Report
of independent accountants" and financial statements included in
the fund's annual report to shareholders for the 1996 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)
APRIL 1, 1994
(COMMENCEMENT
OF OPERATIONS)
YEAR ENDED JULY 31 TO JULY 31
1996 1995 1994
CLASS Y
NET ASSET VALUE, BEGINNING
OF PERIOD $14.92 $13.54 $13.21
INVESTMENT OPERATIONS:
Net investment income .68 .66 .17
Net realized and unrealized
gain on investments 1.50 1.63 .31
TOTAL FROM INVESTMENT
OPERATIONS 2.18 2.29 .48
LESS DISTRIBUTIONS FROM:
Net investment income (.62) (.59)(.15)
Net realized gain
on investments (.63) (.32) --
TOTAL DISTRIBUTIONS (1.25) (.91) (.15)
NET ASSET VALUE, END OF
PERIOD $15.85 $14.92 $13.54
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%)(a) 15.09 18.00 3.65(c)
NET ASSETS, END OF PERIOD
(in thousands) $207,508 $153,597 $71,566
Ratio of expenses to
average net assets (%)(b) .70
.66 .25(c)
Ratio of net investment
income to average
net assets (%) 4.33 4.78 1.34(c)
Portfolio turnover (%) 119.44
102.57 100.69
<PAGE>
(a) Total investment return assumes dividend reinvestment and
does not reflect the
effect of sales charges.
(b) The ratio of expenses to average net assets for the year
ended July 31, 1996 includes
amounts paid through brokerage service and expense offset
arrangements. Prior
period ratios exclude these amounts.
(c) Not annualized.
<PAGE>
OBJECTIVE
The George Putnam Fund of Boston seeks to provide a balanced
investment composed of a well-diversified portfolio of stocks and
bonds which will produce both capital growth and current income.
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
In seeking its objective, the fund may invest in almost any type
of security or negotiable instrument, including cash or money
market instruments. The fund's portfolio will include some
securities selected primarily to provide for capital protection,
others selected for dependable income and still others for growth
in value. The proportion invested in each type of security is
not fixed, although ordinarily no more than 75% of the fund's
assets consist of common stocks and that portion of convertible
securities attributable to conversion rights. The fund may,
however, at times invest more than 75% of its assets in such
securities if Putnam Management determines that unusual market or
economic conditions make it appropriate to do so.
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
concentrate its investments in debt securities, preferred stocks,
cash or money market instruments or invest in any other
securities Putnam Management considers consistent with such
defensive strategies.
It is impossible to predict when, or for how long, these
alternative strategies will be used.
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 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 securities of U.S. issuers that
are denominated in foreign currencies or that are
traded in foreign markets, or securities of U.S. issuers having
significant foreign operations.
For more information about foreign securities and the risks
associated with investment in such securities, 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.
<PAGE>
Portfolio turnover generally involves some expense, including
brokerage commissions or dealer markups and other transaction
costs on 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."
Risk factors
Investments in fixed-income securities. The fund may invest in
both higher-rated and lower-rated fixed-income securities. The
values of fixed-income securities fluctuate in response to
changes in interest rates. Thus, a decrease in interest rates
will generally result in an increase in the value of the fund's
fixed-income securities. Conversely, during periods of rising
interest rates, the value of the fund's fixed-income securities
will generally decline. In addition, the values of such
securities are affected by changes in general economic conditions
and business conditions affecting the specific industries of
their issuers.
Changes by recognized rating services 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 such securities, but will affect the fund's net asset value.
Investors should consider carefully their ability to assume
the risks of owning shares of a mutual fund that may invest
in securities in the lower rating categories .
The fund will invest in securities rated at least B by
a nationally recognized securities rating agency, such as
Standard & Poor's ("S&P") or Moody's Investors Service, Inc.
("Moody's") , or unrated securities that Putnam
Management determines are of comparable quality. 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. Securities rated B (and comparable unrated
securities) are predominantly speculative and have large
uncertainties or major risk exposures to adverse conditions.
Securities rated lower than Baa or BBB (and comparable
unrated securities) are sometimes referred to as "junk
bonds." The rating services' descriptions of securities in the
various rating categories, including the speculative
characteristics of securities in the lower rating categories, are
included in the appendix to this prospectus.
The table below shows the percentages of fund assets
invested during fiscal 1996 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" 23.65% 0.14%
"AA" 1.54% --
"A" 1.88% 0.08%
"BBB" 3.55% 0.11%
"BB" 2.63% 0.51%
"B" 2.38% --
"CCC" 0.08% --
------ -----
Total 35.71% 0.84%
======= =====
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 it 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 as to which the fund, by itself or together with other
funds and accounts managed by Putnam Management and 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 its 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 share some of the risk
factors discussed above with respect to lower-rated securities.
For additional information concerning the risks associated with
investing in securities in the lower rating categories, see the
SAI.
Futures and options
The fund may buy and sell stock index futures contracts. An
"index future" is a contract to buy or sell units of a particular
stock index at an agreed price on a specified future date.
Depending on the change in value of the index between the time
the fund enters into and terminates an index future transaction,
the fund realizes a gain or loss. In addition to or as an
alternative to purchasing or selling index futures, the fund may
buy and sell call and put options on index futures or stock
indexes. The fund may engage in index futures and options
transactions for hedging purposes and for nonhedging purposes,
such as to adjust its exposure to relevant markets or as a
substitute for direct investment.
The use of index futures and related options involves certain
special risks. Futures and options transactions involve costs
and may result in losses.
Certain risks arise from the possibility of imperfect
correlations among movements in the prices of financial futures
and options purchased or sold by the fund, of the underlying
stock index and, in the case of hedging transactions, of the
securities that are the subject of the hedge. The successful use
of the strategies described above further depends on Putnam
Management's ability to forecast market movements correctly.
Other risks arise from the potential inability to close out index
futures or options positions. There can be no assurance that a
liquid secondary market will exist for any index future or option
at any particular time. The 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. Certain
provisions of the Internal Revenue Code and certain regulatory
requirements may limit the use of index futures and options
transactions.
A more detailed explanation of index futures and options
transactions, including the risks associated with them, is
included in the SAI.
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 to broker-dealers and may
enter into repurchase agreements without limit. 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 to the
fund 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 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 from acquiring, with respect to 75% of its total assets,
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;*
(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 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 policies. See the SAI for the full text of these
policies and other fundamental policies. 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 such class on the last day of that period.
"Total return" for the one-, five- and ten-year 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.
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.
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)
---- ----------------------------
Edward P. Bousa Employed as an investment
Senior Vice President 1994 professional by Putnam
Management since October,
1992. Prior to October,
1992, Mr. Bousa was Vice
President and Portfolio
Manager at Fidelity
Investments.
Robert M. Paine Employed as an investment
Senior Vice President
1996 professional by Putnam
Management since
1987.
Kenneth J. Taubes Employed as an investment
Senior Vice President
1993 professional by Putnam
Management since
1991 .
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, of the other Putnam funds) as a
factor in the selection of broker-dealers.
ORGANIZATION AND HISTORY
The George Putnam Fund of Boston is a Massachusetts business
trust organized on November 1, 1937. 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, $1.00 par value, 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 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.
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.; 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., Director of Safety 1st, Inc., Trustee of
Salem Hospital and the Peabody Essex Museum; 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.;
Robert E. Patterson, Executive Vice President and Director of
Acquisitions, Cabot Partners Limited Partnership; 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.; 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 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 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 $250
million. Defined contribution plans that elect to buy class Y
shares upon attaining eligibility will receive class Y shares in
place of any class A shares then owned. 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 $250
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 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,
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 plan, you can
exchange your shares for shares of other Putnam funds available
through your 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 stated at market value. Long-term 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 stated 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 will 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 distributes net investment income quarterly and any net
realized capital gains at least annually. Distributions from
capital gains are made after applying any available capital loss
carryovers.
The terms of your plan will govern how your plan may receive
distributions from the fund. Generally, periodic distributions
from the fund to your plan are reinvested in additional fund
shares, although your 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 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 of net
long-term capital gains will be taxed as such. 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 fund's custodian. Putnam Investor Services, a division of
Putnam Fiduciary Trust Company, is the fund's investor servicing
and transfer agent.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are located at One Post Office Square, Boston,
Massachusetts 02109 and are subsidiaries of Putnam Investments,
Inc., which is wholly 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.
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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.
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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.
Standard & Poor's
Bonds
AAA -- Debt rated 'AAA' has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal
is extremely strong.
AA -- Debt rated 'AA' has a very strong capacity to pay interest
and repay principal and differ from the higher rated issues only
in small degree.
A -- Debt rated 'A' has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB -- Debt rated 'BBB' is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
BB-B-CCC -- Debt rated 'BB', 'B' and 'CCC' is regarded, on
balance, as predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms
of the obligation. 'BB' indicates the lowest degree of
speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions.
BB -- Debt rated `BB' has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The `BB' rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied `BBB-' rating.
<PAGE>
B -- Debt rated `B' has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal. The `B' rating category is also
used for debt subordinated to senior debt that is assigned an
actual or implied `BB' or `BB-' rating.
CCC -- Debt rated `CCC' has a currently identifiable
vulnerability to default, and is dependent upon favorable
business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal.
The `CCC' rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied `B' or `B-'
rating.
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.
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.
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