One Post Office Square, Boston, MA 02109
CLASS A SHARES
INVESTMENT STRATEGY: INCOME
PROSPECTUS - APRIL 1, 1996, AS REVISED SEPTEMBER 1, 1996
This prospectus explains concisely what you should know before
investing in class A shares of Putnam Intermediate U.S.
Government Income Fund (the "fund") which are offered without
a sales charge through eligible employer-sponsored defined
contribution plans ("defined contribution plans") . Please
read it carefully and keep it for future reference. You can find
more detailed information about the fund in the April 1, 1996
statement of additional information (the "SAI"), as amended from
time to time. For a free copy of the SAI or for other
information, including a prospectus regarding class A shares
for other investors, call Putnam Investor Services at 1-800-
752-9894 . The SAI has been filed with the Securities and
Exchange Commission and is incorporated into this prospectus by
reference.
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
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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 . . . . . . . . . . . . . . . . . . . .
Distribution plan. . . . . . . . . . . . . . .
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.. . . . . . . . . .
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ABOUT THE FUND
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing.
The following table summarizes expenses attributable
to class A 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 A
shares over specified periods.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees .60%
12b-1 fees .25%
Other expenses .35%
Total fund operating expenses 1.20%
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.
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
$12 $38 $66 $145
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.
FINANCIAL HIGHLIGHTS
The following table presents per share financial information for
class A 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 1995 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. The
Trustees of the fund approved changes to the fund's investment
policies on April 6, 1995. As a result, the fund is no longer
required to invest primarily in mortgage-backed securities.
Performance data prior to that date do not reflect the fund's
performance under its current investment policies.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
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FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
FOR THE PERIOD
FEBRUARY 16,1993
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
NOVEMBER 30 NOVEMBER 30
1995 1994 1993
CLASS A
NET ASSET VALUE, BEGINNING OF PERIOD $4.60 $4.91 $5.00
INVESTMENT OPERATIONS
Net investment income .27 .27(b) .21(a)(b)
Net realized and unrealized gain
(loss) on investments .35 (.32) (.09)
TOTAL FROM INVESTMENT OPERATIONS .62 (.05)(b) .12(b)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (.29) (.24) (.21)
Return of capital (.01) (.02) --
TOTAL DISTRIBUTIONS (.30) (.26) (.21)
NET ASSET VALUE, END OF PERIOD $4.92 $4.60 $4.91
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%)(d) 13.85 (1.12) 2.44(c)
NET ASSETS, END OF PERIOD
(in thousands) $57,049 $53,831 $19,088
Ratio of expenses to average
net assets (%)(e) 1.20 1.09 1.05(b)(c)
Ratio of net investment income to
average net assets (%) 5.78 5.59 3.13(b)(c)
Portfolio turnover (%) 383.88 351.62 309.80
(a) Per share net investment income for the period ended November 30, 1993 has
been determined on the basis of the weighted average number of shares
outstanding during the period.
(b) Reflects an expense limitation in effect during the period February 16, 1993
(commencement of operations) to November 30, 1993. As a result of such
limitation, expenses of the fund for the period reflect a reduction of
$0.01 per share. For the year ended November 30, 1994 the reduction was
less than $0.01 per share for class A shares.
(c) Not annualized.
(d) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(e) The ratio of expenses to average net assets for the year ended November
30, 1995 includes amounts paid through expense offset arrangements.
Prior period ratios exclude these amounts.
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OBJECTIVE
Putnam Intermediate U.S. Government Income Fund seeks as high a
level of current income as Putnam Investment Management, Inc.
("Putnam Management") believes is consistent with preservation of
capital. The fund is not intended to be a complete investment
program, and there is no assurance it will achieve its objective.
HOW THE FUND PURSUES ITS OBJECTIVE
BASIC INVESTMENT STRATEGY
The fund will seek its objective by investing under normal
market conditions in a portfolio of U.S. government
securities (as defined below) with a dollar-weighted average
maturity of 3 to 10 years, but may purchase individual securities
with longer or shorter maturities. For purposes of computing
average portfolio maturity, Putnam Management will use the
effective maturities of mortgage-backed securities determined by
reference to published market statistics.
Under normal market conditions, the fund will invest exclusively
in U.S. government securities, and in forward commitments and
repurchase agreements with respect to such securities. "U.S.
government securities" are debt securities issued or guaranteed
by the U.S. government, by various of its agencies, or by various
instrumentalities established or sponsored by the U.S.
government. Some of these obligations are supported by the full
faith and credit of the United States. These obligations include
U.S. Treasury bills, notes, and bonds, mortgage participation
certificates guaranteed by the Government National Mortgage
Association ("Ginnie Mae"), and Federal Housing Administration
debentures.
Other U.S. government securities issued or guaranteed by federal
agencies or government-sponsored enterprises are not supported by
the full faith and credit of the United States. These securities
include obligations supported by the right of the issuer to
borrow from the U.S. Treasury, such as obligations of Federal
Home Loan Banks, and obligations supported only by the credit of
the instrumentality, such as Federal National Mortgage
Association ("Fannie Mae") bonds.
The fund may invest in U.S. government securities that are
mortgage-backed securities, including collateralized mortgage
obligations ("CMOs") and certain stripped mortgage-backed
securities. CMOs and other mortgage-backed securities represent
a participation in, or are secured by, mortgage loans. Stripped
mortgage-backed securities are usually structured with two
classes that receive different portions of the interest and
principal distributions on a pool of mortgage loans. The fund
may invest in both the interest-only or "IO" class and the
principal-only or "PO" class. See "Risk factors" below.
IT IS THE FUND'S CURRENT POLICY TO QUALIFY AS AN ELIGIBLE
INVESTMENT FOR FEDERAL CREDIT UNIONS. Accordingly, the fund will
limit its investments in CMOs, stripped mortgage-backed
securities, zero coupon securities, repurchase agreements and
forward commitments in accordance with the provisions of the
Federal Credit Union Act. This policy is a non-fundamental
investment policy and may be changed by the fund's Trustees
without shareholder approval.
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 the fund's assets. In
implementing these defensive strategies, the fund may invest in
any type of U.S. government securities of any maturity and may
invest primarily in short-term U.S. government securities. In
such cases, the fund's dollar-weighted average maturity may be
less than 3 years. It is impossible to predict when, or for how
long, the fund will use such alternative strategies.
RISK FACTORS
MARKET RISK. U.S. government securities are considered among the
safest of fixed income investments, but their values, like those
of other debt securities, will fluctuate with changes in interest
rates. Changes in the value of portfolio securities will not
affect interest income from those securities but will be reflected
in the fund's net asset value. Thus, a decrease in interest rates
will generally result in an increase in the value of the fund's
shares. Conversely, during periods of rising interest rates, the
value of the fund's shares will generally decline.
The magnitude of these fluctuations will generally be greater
when the fund's average maturity is longer. Because of their
added safety, the yields available from U.S. government
securities are generally lower than the yields available from
comparable corporate debt securities.
DEFAULT RISK. While certain U.S. government securities such as
U.S. Treasury obligations and Ginnie Mae certificates are backed
by the full faith and credit of the U.S. government, other
securities in which the fund may invest are subject to varying
degrees of risk of default. These risk factors include the
credit worthiness of the issuer and, in the case of
mortgage-backed securities, the ability of the mortgagor or other
borrower to meet its obligations.
PREPAYMENT RISK. Mortgage-backed securities have yield and
maturity characteristics corresponding to the underlying assets.
Unlike traditional debt securities, which may pay a fixed rate of
interest until maturity when the entire principal amount comes
due, payments on certain mortgage-backed securities include both
interest and a partial payment of principal. Besides the
scheduled repayment of principal, payments of principal may
result from the voluntary prepayment, refinancing, or foreclosure
of the underlying mortgage loans.
Prepayments may require reinvestment of principal under less
attractive terms. Prepayments may also significantly shorten the
effective maturities of these securities, especially during
periods of declining interest rates. Conversely, during periods
of rising interest rates, a reduction in prepayments may increase
the effective maturities of these securities.
Mortgage-backed securities are less effective than other types of
securities as a means of "locking in" attractive long-term
interest rates. One reason is the need to reinvest prepayments
of principal; another is the possibility of significant
unscheduled prepayments resulting from declines in interest
rates. These prepayments would have to be reinvested at lower
rates. As a result, these securities may have less potential for
capital appreciation during periods of declining interest rates
than other securities of comparable maturities, although they may
have a similar risk of decline in market value during periods of
rising interest rates.
Prepayments may cause losses in securities purchased at a
premium. At times, some of the mortgage-backed in which
the fund may invest will have higher than market interest rates
and therefore will be purchased at a premium above their par
value. Unscheduled prepayments, which are made at par, will
cause the fund to experience a loss equal to any unamortized
premium.
Prepayments could cause early retirement of CMOs. CMOs are
issued with a number of classes or series that have different
maturities and that may represent interests in some or all of the
interest or principal on the underlying collateral. Payment of
interest or principal on some classes or series of CMOs may be
subject to contingencies or some classes or series may bear some
or all of the risk of default on the underlying mortgages. CMOs
of different classes or series are generally retired in sequence
as the underlying mortgage loans in the mortgage pool are repaid.
If enough mortgages are repaid ahead of schedule, the classes or
series of a CMO with the earliest maturities generally will be
retired prior to their maturities. Thus, the early retirement of
particular classes or series of a CMO held by the fund would have
the same effect as the prepayment of mortgages underlying other
mortgage-backed securities.
Prepayments could result in losses on stripped mortgage-backed
securities. The yield-to-maturity on an IO class of stripped
mortgage-backed securities is extremely sensitive not only to
changes in prevailing interest rates but also to the rate of
principal payments (including prepayments) on the underlying
assets. A rapid rate of principal prepayments may have a
measurably adverse effect on the fund's yield - to -
maturity to the extent it invests in IOs. If the assets
underlying the IO experience greater than anticipated prepayments
of principal, the fund may fail to recoup fully its initial
investment in these securities. Conversely, POs tend to increase
in value if prepayments are greater than anticipated and decline
if prepayments are slower than anticipated.
In either event, the secondary market for stripped mortgage-
backed securities may be more volatile and less liquid than that
for other mortgage-backed securities, potentially limiting the
fund's ability to buy or sell those securities at any particular
time.
INVESTMENTS IN PREMIUM SECURITIES
At times, the fund may invest in securities bearing coupon rates
higher than prevailing market rates. Such "premium" securities
are typically purchased at prices greater than the principal
amounts payable on maturity.
The fund does not amortize the premium paid for these securities
in calculating its net investment income. As a result, the
purchase of premium securities provides the fund a higher level
of investment income distributable to shareholders on a current
basis than if the fund purchased securities bearing current
market rates of interest. Because the value of premium
securities tends to approach the principal amount as they
approach maturity (or call price in the case of securities
approaching their first call date), the purchase of such
securities may increase the fund's risk of capital loss if such
securities are held to maturity (or first call date).
During a period of declining interest rates, many of the fund's
portfolio investments will likely bear coupon rates that are
higher than the current market rates, regardless of whether the
securities were originally purchased at a premium. These
securities would generally carry premium market values that would
be reflected in the net asset value of the fund's shares. As a
result, an investor who purchases shares of the fund during such
periods would initially receive higher taxable monthly
distributions (derived from the higher coupon rates payable on
the fund's investments) than might be available from alternative
investments bearing current market interest rates, but the
investor may face an increased risk of capital loss as these
higher coupon securities approach maturity (or first call date).
In evaluating the potential performance of an investment in the
fund, investors may find it useful to compare the fund's current
dividend rate with the fund's "yield," which is computed on a
yield-to-maturity basis in accordance with SEC regulations and
which reflects amortization of market premiums. See "How
performance is shown."
PORTFOLIO TURNOVER
The length of time the fund has held a particular security is not
generally a consideration in investment decisions. A change in
the securities held by the fund is known as "portfolio turnover."
As a result of the fund's investment policies, under certain
market conditions the fund's portfolio turnover rate may be
higher than that of other mutual funds.
Portfolio turnover generally involves some expense to the fund,
including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and reinvestment in
other securities. These transactions may result in realization
of taxable capital gains. The portfolio turnover rates
for fiscal 1995 and 1994 were 383.88% and 351.62%,
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.
SECURITIES LOANS, REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS.
The fund may lend portfolio securities amounting to not more than
25% of its assets to broker-dealers and may enter into repurchase
agreements on up to 25% of its assets. These transactions must
be fully collateralized at all times. The fund may also purchase
securities for future delivery (but not beyond 120 days ,
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.
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 policies
without shareholder approval. As a matter of policy, the
Trustees would not materially change the fund's investment
objective without shareholder approval.
DERIVATIVES
Certain of the instruments in which the fund will invest, such as
CMOs, are considered to be "derivatives." Derivatives are
financial instruments whose value depends upon, or is derived
from, the value of an underlying asset, such as a security or an
index. Further information about these instruments and the risks
involved in their use is included elsewhere in this prospectus
and in the SAI.
HOW PERFORMANCE IS SHOWN
FUND ADVERTISEMENTS MAY, FROM TIME TO TIME INCLUDE
PERFORMANCE INFORMATION . "Yield" for each class of shares is
calculated by dividing the annualized net investment income per
share during a recent 30-day period by the maximum public
offering price per share of the class on the last day of that
period.
For purposes of calculating yield, net investment income is
calculated in accordance with SEC regulations and may differ from
net investment income as determined for financial reporting
purposes. SEC regulations require that net investment income be
calculated on a "yield-to-maturity" basis, which has the effect
of amortizing any premiums or discounts in the current market
value of fixed - income securities. The current dividend
rate is based on net investment income as determined for tax
purposes, which may not reflect amortization in the same manner.
See "How the fund pursues its objective -- Investments in premium
securities."
"Total return" for the one-, five- and ten-year periods (or for
the life of the class A shares of the fund , if
shorter) through the most recent calendar quarter represents the
average annual compounded rate of return on an investment of
$1,000 in the fund invested at the maximum public offering
price . Total return may also be presented for other
periods or based on investment at reduced sales charge levels.
Any quotation of investment performance not reflecting the
maximum initial sales charge would be reduced if the
sales charge were used.
ALL DATA ARE BASED ON PAST INVESTMENT RESULTS AND DO NOT PREDICT
FUTURE PERFORMANCE.
Investment performance, which will vary, is based on many
factors, including market conditions, portfolio
composition , fund operating expenses and which class of
shares the investor purchases. Investment performance also often
reflects the risks associated with the fund's investment
objective and policies. These factors should be considered when
comparing the fund's investment results with those of other
mutual funds and other investment vehicles.
Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. The fund's performance may be
compared to that of various indexes. See the SAI. Because
shares sold through eligible defined contribution plans are sold
without a sales charge, quotations of investment performance
reflecting the deduction of a sales charge will be lower than the
actual investment performance of shares purchased through such
plans.
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 day-to-day management of the fund's
portfolio since the year stated below:
BUSINESS EXPERIENCE
YEAR (AT LEAST 5 YEARS)
---- -------------------------
Michael Martino 1994 Employed as an investment
Managing Director professional by Putnam
Management since 1994. Prior
to January, 1994, Mr. Martino
was employed by Back Bay
Advisors in the positions of
Executive Vice President and
Chief Investment Officer from
1992 to 1994, and Senior Vice
President and Senior Portfolio
Manager from 1990 to 1992.
The fund pays all expenses not assumed by Putnam Management,
including Trustees' fees, auditing, legal, custodial, investor
servicing and shareholder reporting expenses . 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
Putnam Intermediate U.S. Government Income Fund is a
Massachusetts business trust organized under an Agreement and
Declaration of Trust dated November 20, 1990. A copy of the
Agreement and Declaration of Trust, which is governed by
Massachusetts law, is on file with the Secretary of State of The
Commonwealth of Massachusetts. Prior to April 10, 1995, the fund
was known as Putnam Balanced Government Fund.
The fund is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the fund may be divided without
shareholder approval into two or more series of shares
representing separate investment portfolios.
Any such series of shares may be divided without shareholder
approval into two or more classes of shares having such
preferences and special or relative rights and privileges as the
Trustees determine. The fund's shares are currently divided into
four classes. Only the fund's class A 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 establish one at any time, 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.; 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 Overseer of 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.; ELI SHAPIRO, Alfred P.
Sloan Professor of Management, Emeritus, Alfred P. Sloan School
of Management, Massachusetts Institute of Technology; 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 . In order to be eligible to
purchase shares at net asset value , a defined
contribution plan must either initially invest at least $20
million in Putnam funds and other investments managed by Putnam
Management or its affiliates or, if the dealer of record
waives its commission, initially invest at least $1 million in
the fund. Defined contribution plans participating in a "multi-
fund" program approved by Putnam Mutual Funds may include
amounts invested in other mutual funds participating in such
program for purposes of determining whether the plan may
purchase class A shares at net asset value.
Eligible plans may make additional investments of any amount
at any time. To eliminate the need for safekeeping, the fund
will not issue certificates for your shares .
On sales at net asset value to defined contribution plans
initially investing at least $20 million in Putnam funds
and other investments managed by Putnam Management or its
affiliates , Putnam Mutual Funds pays commissions on the
initial investment and on subsequent net quarterly sales at the
rate of 0.15%. Putnam Mutual Funds will from time to
time, at its expense, provide additional promotional incentives
or payments to dealers that sell shares of the Putnam funds.
These incentives or payments may include payments for travel
expenses, including lodging, incurred in connection with trips
taken by invited registered representatives and their guests to
locations within and outside the United States for meetings or
seminars of a business nature. In some instances, these
incentives or payments may be offered only to certain dealers who
have sold or may sell significant amounts of shares. Certain
dealers may not sell all classes of shares.
DISTRIBUTION PLAN
The class A plan provides for payments by the fund to
Putnam Mutual Funds at the annual rate of up to 0.35% of average
net assets attributable to class A shares. The Trustees
currently limit payments under the class A plan to the annual
rate of 0.25% of such assets.
Putnam Mutual Funds makes quarterly payments to qualifying
dealers (including, for this purpose, certain financial
institutions) to compensate them for services provided in
connection with sales of class A shares and the maintenance of
shareholder accounts. The payments are based on the average net
asset value of class A shares attributable to shareholders for
whom the dealers are designated as the dealer of record.
This calculation excludes until one year after purchase shares
purchased at net asset value by shareholders investing $1
million or more. Also excluded until one year after purchase are
shares purchased at net asset value by
participant-directed qualified retirement plans with at least 200
eligible employees. These shares are not subject to the
one-year exclusion provision in cases where certain shareholders
who invested $1 million or more have made arrangements with
Putnam Mutual Funds and the dealer of record waived the sales
commission.
Except as stated below, Putnam Mutual Funds makes the quarterly
payments at the annual rate of 0.25% of such average net asset
value for class A shares.
For participant-directed qualified retirement plans initially
investing less than $20 million in Putnam funds and other
investments managed by Putnam Management or its affiliates,
Putnam Mutual Funds' payments to qualifying dealers on
shares purchased at net asset value are 100% of the rate
stated above if average plan assets in Putnam funds (excluding
money market funds) during the quarter are less than $20 million,
60% of the stated rate if average plan assets are at least $20
million but under $30 million, and 40% of the stated rate if
average plan assets are $30 million or more.
For all other participant-directed qualified retirement plans
purchasing shares at net asset value , Putnam
Mutual Funds makes quarterly payments to qualifying dealers at
the annual rate of 0.10% of the average net asset value of such
shares.
The payments are also subject to the continuation of the
distribution plan, the terms of service agreements between
dealers and Putnam Mutual Funds, and any applicable limits
imposed by the National Association of Securities Dealers, Inc.
HOW TO SELL SHARES
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 your plan
sells 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 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 valued at market value.
Short-term investments that will mature in 60 days or less are
valued at amortized cost, which approximates market value. All
other securities and assets are valued at their fair value
following procedures approved by the Trustees.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX INFORMATION
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 to shareholders. 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 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 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.
<PAGE>
DIFFERENCES BETWEEN THE TYPESET DEFINED CONTRIBUTION AND CLASS Y
(PRINTED)
PROSPECTUS AND THE EDGAR FILING VERSION.
1. PAGINATION IS DIFFERENT IN PRINTED PROSPECTUS
2. SECTION HEADINGS AND SUBHEADINGS IN THE PRINTED PROSPECTUS
ARE PRINTED IN BOLDFACE TYPE
3. THE FIRST FEW DESCRIPTIVE LINES OF CERTAIN PARAGRAPHS, AND
CERTAIN OTHER EMPHASIZED PHRASES, ARE PRINTED IN BOLDFACE
TYPE
4. IN THE PRINTED PROSPECTUS, THE DASHES AT THE BEGINNING OF
CERTAIN SENTENCES ARE REPLACED BY A SOLID BOX
5. THE FIRST PAGE OF THE PRINTED PROSPECTUS CONTAINS A BOX
WITH AN ILLUSTRATION OF THE BALANCE SCALES, THE PUTNAM
LOGO
