PROSPECTUS
January 30, 1998, as revised July 30, 1998
Putnam Asset Allocation Funds
Putnam Asset Allocation: Growth Portfolio
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Class A, B, C and M shares
This prospectus explains concisely what you should know before
investing in Putnam Asset Allocation Funds (the "Trust"), a
series investment company offering three separate portfolios:
Putnam Asset Allocation: Growth Portfolio, Putnam Asset
Allocation: Balanced Portfolio and Putnam Asset Allocation:
Conservative Portfolio (the "funds"). Please read it carefully
and keep it for future reference. You can find more detailed
information in the January 30, 1998 statement of additional
information (the "SAI"), as amended from time to time. For a
free copy of the SAI or other information, call Putnam Investor
Services at 1-800-225-1581. The SAI has been filed with the
Securities and Exchange Commission (the "Commission") and is
incorporated into this prospectus by reference. The Commission
maintains a Web site (http://www.sec.gov) that contains the SAI,
material incorporated by reference into this prospectus and the
SAI, and other information regarding registrants that file
electronically with the Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
BOSTON * LONDON * TOKYO
<PAGE>
ABOUT THE FUNDS
Expenses summary
.................................................................
This section describes the sales charges, management fees, and
annual operating expenses that apply to various classes of a
fund's shares. Use it to help you estimate the impact of
transaction costs and recurring expenses on your investment over
time.
Financial highlights
.................................................................
Study these tables to see, among other things, how a fund
performed each year for the past 10 years or since it began
investment operations if it has been in operation for less than
10 years.
Objectives
.................................................................
Read this section to make sure a fund's objective is consistent
with your own.
How the funds pursue their objectives
.................................................................
This section explains in detail how a fund seeks its investment
objective.
How performance is shown
.................................................................
This section describes and defines the measures used to assess
fund performance. All data are based on past investment results
and do not predict future performance.
How the funds are managed
.................................................................
Consult this section for information about a fund's management,
allocation of its expenses, and how it purchases and sells
securities.
Organization and history
.................................................................
In this section, you will learn when a fund was introduced, how
it is organized, how it may offer shares, and who its Trustees
are.
<PAGE>
ABOUT YOUR INVESTMENT
Alternative sales arrangements
.................................................................
Read this section for descriptions of the classes of shares this
prospectus offers and for points you should consider when making
your choice.
How to buy shares
.................................................................
This section describes the ways you may purchase shares and tells
you the minimum amounts required to open various types of
accounts. It explains how sales charges are determined and how
you may become eligible for reduced sales charges.
Distribution plans
.................................................................
This section tells you what distribution fees are charged against
each class of shares.
How to sell shares
.................................................................
In this section you can learn how to sell fund shares, either
directly to a fund or through an investment dealer.
How to exchange shares
.................................................................
Find out in this section how you may exchange fund shares for
shares of other Putnam funds. The section also explains how
exchanges can be made without sales charges and the conditions
under which sales charges may be required.
How a fund values its shares
.................................................................
This section explains how a fund determines the value of its
shares.
How each fund makes distributions to shareholders; tax
information
.................................................................
This section describes the various options you have in choosing
how to receive fund dividends. It also discusses the tax status
of the payments and counsels you to seek specific advice about
your own situation.
ABOUT PUTNAM INVESTMENTS, INC.
.................................................................
Read this section to learn more about the companies that provide
marketing, investment management, and shareholder account
services to Putnam funds and their shareholders.
APPENDIX
Securities ratings
About the funds
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing.
The following table summarizes your maximum transaction costs
from investing in a fund and expenses based on the most recent
fiscal year. The examples show the cumulative expenses
attributable to a hypothetical $1,000 investment over specified
periods.
Class A Class B Class C Class M
shares shares shares shares
Shareholder transaction
expenses
Maximum sales charge
imposed on purchases
(as a percentage
of offering price) 5.75% NONE* NONE* 3.50%*
5.0% in the
Deferred sales charge first year, 1.0% in
(as a percentage of the declining to 1.0% the first
lower of original in the sixth year, year and
purchase price or and eliminated eliminated
redemption proceeds) NONE** thereafter thereafter NONE
Annual fund operating expenses
(as a percentage of average net assets)
Total fund
Management 12b-1 Other operating
fees fees expenses expenses
- ---------- ----- -------------------
Growth Portfolio
Class A 0.66% 0.25% 0.48% 1.39%
Class B 0.66% 1.00% 0.48% 2.14%
Class C 0.66% 1.00% 0.48% 2.14%
Class M 0.66% 0.75% 0.48% 1.89%
Balanced Portfolio
Class A 0.64% 0.25% 0.38% 1.27%
Class B 0.64% 1.00% 0.38% 2.02%
Class C 0.64% 1.00% 0.38% 2.02%
Class M 0.64% 0.75% 0.38% 1.77%
Conservative Portfolio
Class A 0.70% 0.25% 0.43% 1.38%
Class B 0.70% 1.00% 0.43% 2.13%
Class C 0.70% 1.00% 0.43% 2.13%
Class M 0.70% 0.75% 0.43% 1.88%
The table is provided to help you understand the expenses of
investing and your share of fund operating expenses. The
expenses shown in the table do not reflect the application of
credits that reduce fund expenses.
Examples
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and, except as indicated, redemption at
the end of each period:
1 3 5 10
year years years years
Growth Portfolio
Class A $71 $99 $129 $215
Class B $72 $97 $135 $228 ***
Class B (no redemption) $22 $67 $115 $228 ***
Class C $32 $67 $115 $247
Class C (no redemption) $22 $67 $115 $247
Class M $54 $92 $134 $248
Balanced Portfolio
Class A $70 $95 $123 $202
Class B $71 $93 $129 $216 ***
Class B (no redemption) $21 $63 $109 $216 ***
Class C $31 $63 $109 $235
Class C (no redemption) $21 $63 $109 $235
Class M $52 $89 $128 $236
Conservative Portfolio
Class A $71 $99 $129 $214
Class B $72 $97 $134 $227 ***
Class B (no redemption) $22 $67 $114 $227 ***
Class C $32 $67 $114 $246
Class C (no redemption) $22 $67 $114 $246
Class M $53 $92 $133 $247
<PAGE>
The examples do not represent past or future expense levels.
Actual expenses may be greater or less than those shown. Federal
regulations require the examples to assume a 5% annual return,
but actual annual return varies.
* The higher 12b-1 fees borne by class B, class C and class M
shares may cause long-term shareholders to pay more than the
economic equivalent of the maximum permitted front-end sales
charge on class A shares.
** A deferred sales charge of up to 1.00% is assessed on
certain redemptions of class A shares that were purchased
without an initial sales charge. See "How to buy shares -
Class A shares."
*** Reflects conversion of class B shares to class A shares
(which pay lower ongoing expenses) approximately eight years
after purchase. See "Alternative sales arrangements."
FINANCIAL HIGHLIGHTS
The following tables present per share financial information for
class A, B, C and M shares. This information has been derived
from the Trust's financial statements, which have been audited
and reported on by the independent accountants. The "Report of
independent accountants" and financial statements included in the
Trust's annual report to shareholders for the 1997 fiscal year
are incorporated by reference into this prospectus. The Trust's
annual report, which contains additional unaudited performance
information, is available without charge upon request.
<TABLE> <CAPTION>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Putnam Asset Allocation: Growth Portfolio
<S> <C> <C> <C> <C>
For the period
CLASS A February 8, 1994+
Year ended September 30 to September 30
1997 1996 1995 1994
Net asset value,
beginning of period $11.41 $10.06 $8.43 $8.50
Investment Operations:
Net investment income(d) .17 .18 .18(a) .10(a)
Net realized and unrealized
gain (loss) on investments 2.69 1.63 1.53 (.17)
Total from investment
operations 2.86 1.81 1.71 (.07)
Less Distributions:
From net investment
income (.16) (.19) (.08)
From net realized gain
on investments (.47) (.27)
Total distributions (.63) (.46) (.08)
Net asset value,
end of period $13.64 $11.41 $10.06 $8.43
Total investment return at 26.25 18.75 20.45 (.82)*
net asset value (%)(b)
<PAGE>
Net assets, end of period $486,107 $210,531 $122,228 $43,669
(in thousands)
Ratio of expenses to average
net assets (%)(c) 1.39 1.45 1.49(a) .78(a)*
Ratio of net investment income
to average net assets (%) 1.42 1.72 1.98(a) 1.31(a)*
Portfolio turnover (%) 99.96 100.93 88.36 39.90*
Average commission
rate paid(e) $.0417 $.0486
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the period
ended September 30, 1994 reflect a reduction of $0.05 per share. Expenses for the year ended September 30, 1995 reflect
a reduction of less than $0.01 per share.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets for years ended on or after September 30, 1995 includes amounts paid
through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts.
(d) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(e) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1,
1995. /TABLE
<PAGE>
<TABLE> <CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Putnam Asset Allocation: Growth Portfolio
<S> <C> <C> <C> <C>
For the period
CLASS B February 16, 1994+
Year ended September 30 to September 30
1997 1996 1995 1994
Net asset value,
beginning of period $11.29 $9.97 $8.39 $8.50
Investment Operations:
Net investment income(d) .08 .10 .11(a) .06(a)
Net realized and unrealized
gain (loss) on investments 2.67 1.64 1.52 (.17)
Total from investment
operations 2.75 1.74 1.63 (.11)
Less Distributions:
From net investment
income (.10) (.15) (.05)
From net realized gain
on investments (.47) (.27)
Total distributions (.57) (.42) (.05)
Net asset value,
end of period $13.47 $11.29 $9.97 $8.39
Total investment return at
net asset value (%)(b) 25.33 18.04 19.57 (1.29)*
Net assets, end of period
(in thousands) $357,501 $199,871 $116,263 $50,664
Ratio of expenses to average
net assets (%)(c) 2.14 2.21 2.23(a) 1.21(a)*
Ratio of net investment income
to average net assets (%) .68 .95 1.22(a) .80(a)*
Portfolio turnover (%) 99.96 100.93 88.36 39.90*
Average commission
rate paid(e) $.0417 $.0486
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the period
ended September 30, 1994 reflect a reduction of $0.05 per share. Expenses for the year ended September 30, 1995 reflect
a reduction of less than $0.01 per share.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets for years ended on or after September 30, 1995 includes amounts paid
through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts.
(d) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(e) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1,
1995. </TABLE>
<TABLE> <CAPTION>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Putnam Asset Allocation: Growth Portfolio
<S>
<C> <C> <C> <C>
For the period
CLASS C September 1, 1994+
Year ended September 30 to September 30
1997 1996 1995 1994
Net asset value,
beginning of period $11.24 $9.93 $8.39 $8.46
Investment Operations:
Net investment income(d) .08 .10 .11(a) .01(a)
Net realized and unrealized
gain (loss) on investments 2.65 1.63 1.51 (.08)
Total from investment
operations 2.73 1.73 1.62 (.07)
Less Distributions:
From net investment
income (.12) (.15) (.08)
From net realized gain
on investments (.47) (.27)
Total distributions (.59) (.42) (.08)
Net asset value,
end of period $13.38 $11.24 $9.93 $8.39
Total investment return at
net asset value (%)(b) 25.31 18.01 19.46 (.83)*
Net assets, end of period
(in thousands) $68,749 $27,556 $7,985 $385
Ratio of expenses to average
net assets (%)(c) 2.14 2.23 2.23(a) .15(a)*
Ratio of net investment income
to average net assets (%) .67 .94 1.24(a) .14(a)*
Portfolio turnover (%) 99.96 100.93 88.36 39.90*
Average commission
rate paid(e) $.0417 $.0486
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the period
ended September 30, 1994 reflect a reduction of $0.01 per share. Expenses for the year ended September 30, 1995 reflect
a reduction of less than $0.01 per share.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets for years ended on or after September 30, 1995 includes amounts paid
through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts.
(d) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(e) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1,
</TABLE>
<TABLE> <CAPTION>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Putnam Asset Allocation: Growth Portfolio
<S> <C> <C> <C>
For the period
CLASS M February 3, 1995+
Year ended September 30 to September 30
1997 1996 1995
Net asset value,
beginning of period $11.32 $10.01 $8.39
Investment Operations:
Net investment income(d) .11 .12 .08(a)
Net realized and unrealized
gain (loss) on investments 2.67 1.64 1.54
Total from investment
operations 2.78 1.76 1.62
Less Distributions:
From net investment
income (.14) (.18)
From net realized gain
on investments (.47) (.27)
Total distributions (.61) (.45)
Net asset value,
end of period $13.49 $11.32 $10.01
Total investment return at
net asset value (%)(b) 25.63 18.21 19.31*
<PAGE>
Net assets, end of period
(in thousands) $34,381 $12,369 $3,160
Ratio of expenses to average
net assets (%)(c) 1.89 1.95 1.45(a)*
Ratio of net investment income
to average net assets (%) .92 1.16 .79(a)*
Portfolio turnover (%) 99.96 100.93 88.36
Average commission
rate paid(e) $.0417 $.0486
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation in effect during the period. Expenses for the year ended September 30, 1995 reflect
a reduction of less than $0.01 per share.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets for years ended on or after September 30, 1995 includes amounts paid
through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts.
(d) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(e) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1,
1995. </TABLE>
<TABLE> <CAPTION>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Putnam Asset Allocation: Balanced Portfolio
<S> <C> <C> <C> <C>
For the period
CLASS A February 7, 1994+
Year ended September 30 to September 30
1997 1996 1995 1994
Net asset value,
beginning of period $10.71 $9.67 $8.33 $8.50
Investment Operations:
Net investment income(d) .28 .29 .27(a) .16(a)
Net realized and unrealized
gain (loss) on investments 2.13 1.32 1.27 (.28)
Total from investment
operations 2.41 1.61 1.54 (.12)
Less Distributions:
From net investment
income (.31) (.28) (.20) (.05)
From net realized gain
on investments (.53) (.29)
Total distributions (.84) (.57) (.20) (.05)
Net asset value,
end of period $12.28 $10.71 $9.67 $8.33
Total investment return at
net asset value (%)(b) 23.82 17.41 18.73 (1.47)*
<PAGE>
Net assets, end of period $680,720 $327,326 $152,317 $54,483
(in thousands)
Ratio of expenses to average
net assets (%)(c) 1.27 1.33 1.32(a) .83(a)*
Ratio of net investment income
to average net assets (%) 2.44 2.83 2.95(a) 2.13(a)*
Portfolio turnover (%) 136.75 122.12 106.03 52.62*
Average commission
rate paid(e) $.0407 $.0470
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the period
ended September 30, 1994 reflect a reduction of $0.05 per share. Expenses for the year ended September 30, 1995 reflect
a reduction of less than $0.01 per share.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets for years ended on or after September 30, 1995 includes amounts paid
through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts.
(d) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(e) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1,
1995. </TABLE>
<TABLE> <CAPTION>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Putnam Asset Allocation: Balanced Portfolio
<S> <C> <C> <C> <C>
For the period
CLASS B February 11, 1994+
Year ended September 30 to September 30
1997 1996 1995 1994
Net asset value,
beginning of period $10.67 $9.64 $8.31 $8.50
Investment Operations:
Net investment income(d) .19 .21 .20(a) .11(a)
Net realized and unrealized
gain (loss) on investments 2.13 1.32 1.26 (.27)
Total from investment
operations 2.32 1.53 1.46 (.16)
Less Distributions:
From net investment
income (.23) (.21) (.13) (.03)
From net realized gain
on investments (.53)
(.29)
Total distributions (.76) (.50) (.13) (.03)
Net asset value,
end of period $12.23 $10.67 $9.64 $8.31
Total investment return at
net asset value (%)(b) 22.95 16.54 17.83 (1.89)*
Net assets, end of period $442,463 $264,830 $159,230 $81,093
(in thousands)
Ratio of expenses to average
net assets (%)(c) 2.02 2.08 2.07(a) 1.23(a)*
Ratio of net investment income
to average net assets (%) 1.70 2.08 2.26(a) 1.41(a)*
Portfolio turnover (%) 136.75 122.12 106.03 52.62*
Average commission
rate paid(e) $.0407 $.0470
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the period
ended September 30, 1994 reflect a reduction of $0.03 per share. Expenses for the year ended September 30, 1995 reflect
a reduction of less than $0.01 per share.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets for years ended on or after September 30, 1995 includes amounts paid
through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts.
(d) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(e) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1,
1995. </TABLE>
<TABLE> <CAPTION>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Putnam Asset Allocation: Balanced Portfolio
<S> <C> <C> <C>
For the period
CLASS C
September 1, 1994+
Year ended September 30
to September 30
1997 1996 1995
1994
Net asset value,
beginning of period $10.64 $9.62 $8.31 $8.41
Investment Operations:
Net investment income(d) .19 .22 .20(a) .01(a)
Net realized and unrealized
gain (loss) on investments 2.11 1.30 1.27 (.08)
Total from investment
operations 2.30 1.52 1.47 (.07)
Less Distributions:
From net investment
income (.23) (.21) (.16) (.03)
From net realized gain
on investments (.53) (.29)
Total distributions (.76) (.50) (.16) (.03)
Net asset value,
end of period $12.18 $10.64 $9.62 $8.31
Total investment return at
net asset value (%)(b) 22.86 16.47 17.89 (.84)*
Net assets, end of period $70,847 $29,724 $11,921 $441
(in thousands)
Ratio of expenses to average
net assets (%)(c) 2.02 2.09 2.09(a) .16(a)*
Ratio of net investment income
to average net assets (%) 1.70 2.18 2.22(a) .11(a)*
Portfolio turnover (%) 136.75 122.12 106.03 52.62*
Average commission
rate paid(e) $.0407 $.0470
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the period
ended September 30, 1994 reflect a reduction of $0.01 per share. Expenses for the year ended September 30, 1995 reflect
a reduction of less than $0.01 per share.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets for years ended on or after September 30, 1995 includes amounts paid
through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts.
(d) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(e) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1,
1995.
</TABLE>
<TABLE> <CAPTION>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Putnam Asset Allocation: Balanced Portfolio
<S> <C> <C> <C>
For the period
CLASS M February 6, 1995+
Year ended September 30 to September 30
1997 1996 1995
Net asset value,
beginning of period $10.71 $9.66 $8.34
Investment Operations:
Net investment income(d) .22 .24 .14(a)
Net realized and unrealized
gain (loss) on investments 2.13 1.34 1.31
Total from investment
operations 2.35 1.58 1.45
Less Distributions:
From net investment
income (.26) (.24) (.13)
From net realized gain
on investments (.53) (.29)
Total distributions (.79) (.53) (.13)
Net asset value,
end of period $12.27 $10.71 $9.66
Total investment return at
net asset value (%)(b) 23.19 17.05 17.46*
<PAGE>
Net assets, end of period $44,121 $14,967 $3,509
(in thousands)
Ratio of expenses to average
net assets (%)(c) 1.77 1.84 1.38(a)*
Ratio of net investment income
to average net assets (%) 1.93 2.42 1.56(a)*
Portfolio turnover (%) 136.75 122.12 106.03
Average commission
rate paid(e) $.0407 $.0470
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation in effect during the period. Expenses for the year ended September 30, 1995 reflect
a reduction of less than $0.01 per share.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets for years ended on or after September 30, 1995 includes amounts paid
through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts.
(d) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(e) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1,
1995. </TABLE>
<TABLE> <CAPTION>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Putnam Asset Allocation: Conservative Portfolio
<S> <C> <C> <C> <C>
For the period
CLASS A February 7, 1994+
Year ended September 30 to September 30
1997 1996 1995 1994
Net asset value,
beginning of period $9.69 $9.19 $8.23 $8.50
Investment Operations:
Net investment income .38(d) .36 .33(a) .18(a)(d)
Net realized and unrealized
gain (loss) on investments 1.22 .68 .90 (.39)
Total from investment
operations 1.60 1.04 1.23 (.21)
Less Distributions:
From net investment
income (.35) (.36) (.27) (.06)
From net realized gain
on investments (.33)
(.18)
Total distributions (.68) (.54) (.27) (.06)
Net asset value,
end of period $10.61 $9.69 $9.19 $8.23
Total investment return at
net asset value (%)(b) 17.26 11.73 15.27 (2.47)*
Net assets, end of period $295,239 $106,933 $57,341 $25,782
(in thousands)
Ratio of expenses to average
net assets (%)(c) 1.38 1.47 1.22(a) .75(a)*
Ratio of net investment income
to average net assets (%) 3.74 4.08 4.48(a) 2.41(a)*
Portfolio turnover (%) 219.44 183.67 159.80 59.27*
Average commission
rate paid(e) $.0398 $.0495
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the period
ended September 30, 1994 reflect a reduction of $0.05 per share. Expenses for the year ended September 30, 1995 reflect
a reduction of $0.03 per share.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets for periods ended on or after September 30, 1995 includes amounts paid
through expense offset arrangements. Prior period ratios exclude these amounts.
(d) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(e) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1,
1995. </TABLE>
<TABLE> <CAPTION>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Putnam Asset Allocation: Conservative Portfolio
<S> <C> <C> <C> <C>
For the period
CLASS B February 18, 1994+
Year ended September 30 to September 30
1997 1996 1995 1994
Net asset value,
beginning of period $9.66 $9.16 $8.22 $8.50
Investment Operations:
Net investment income .30(d) .29 .30(a) .15(a)(d)
Net realized and unrealized
gain (loss) on investments 1.22 .68 .85 (.39)
Total from investment
operations 1.52 .97 1.15 (.24)
Less Distributions:
From net investment
income (.28) (.29) (.21) (.04)
From net realized gain
on investments (.33) (.18)
Total distributions (.61) (.47) (.21) (.04)
Net asset value,
end of period $10.57 $9.66 $9.16 $8.22
Total investment return at
net asset value (%)(b) 16.36 10.96 14.22 (2.79)*
Net assets, end of period
(in thousands) $138,457 $94,954 $65,783 $38,711
Ratio of expenses to average
net assets (%)(c) 2.13 2.22 1.98(a) 1.21(a)*
Ratio of net investment income
to average net assets (%) 2.97 3.33 3.81(a) 1.92(a)*
Portfolio turnover (%) 219.44 183.67 159.80 59.27*
Average commission
rate paid(e) $.0398 $.0495
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the period
ended September 30, 1994 reflect a reduction of $0.04 per share. Expenses for the year ended September 30, 1995 reflect
a reduction of $0.03 per share.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets for periods ended on or after September 30, 1995 includes amounts paid
through expense offset arrangements. Prior period ratios exclude these amounts.
(d) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(e) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1,
1995. </TABLE>
<TABLE> <CAPTION>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Putnam Asset Allocation: Conservative Portfolio
<S> <C> <C> <C> <C>
For the period
CLASS C September 1, 1994+
Year ended September 30 to September 30
1997 1996 1995 1994
Net asset value,
beginning of period $9.64 $9.15 $8.22 $8.33
Investment Operations:
Net investment income .29(d) .30 .29(a) .03(a)(d)
Net realized and unrealized
gain (loss) on investments 1.24 .66 .87 (.10)
Total from investment
operations 1.53 .96 1.16 (.07)
Less Distributions:
From net investment
income (.28) (.29) (.23) (.04)
From net realized gain
on investments (.33) (.18)
Total distributions (.61) (.47) (.23) (.04)
Net asset value,
end of period $10.56 $9.64 $9.15 $8.22
Total investment return at
net asset value (%)(b) 16.52 10.86 14.41 (.80)*
Net assets, end of period
(in thousands) $29,032 $16,326 $7,198 $273
Ratio of expenses to average
net assets (%)(c) 2.13 2.22 1.89(a) .16(a)*
Ratio of net investment income
to average net assets (%) 2.96 3.30 3.92(a) .48(a)*
Portfolio turnover (%) 219.44 183.67 159.80 59.27*
Average commission
rate paid(e) $.0398 $.0495
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the period
ended September 30, 1994 reflect a reduction of none per share. Expenses for the year ended September 30, 1995 reflect a
reduction of $0.03 per share.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets for periods ended on or after September 30, 1995 includes amounts paid
through expense offset arrangements. Prior period ratios exclude these amounts.
(d) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(e) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1,
1995.
</TABLE>
<TABLE> <CAPTION>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Putnam Asset Allocation: Conservative Portfolio
<S> <C> <C> <C>
For the period
CLASS M February 7, 1995+
Year ended September 30 to September 30
1997 1996 1995
Net asset value,
beginning of period $9.67 $9.18 $8.21
Investment Operations:
Net investment income .32(d) .33 .21(a)
Net realized and unrealized
gain (loss) on investments 1.24 .66 .92
Total from investment
operations 1.56 .99 1.13
Less Distributions:
From net investment
income (.31) (.32) (.16)
From net realized gain
on investments (.33) (.18)
Total distributions (.64) (.50) (.16)
Net asset value,
end of period $10.59 $9.67 $9.18
Total investment return at
net asset value (%)(b) 16.80 11.17 13.92*
Net assets, end of period
(in thousands) $12,689 $4,622 $1,366
Ratio of expenses to average
net assets (%)(c) 1.88 1.96 1.10(a)*
Ratio of net investment income
to average net assets (%) 3.19 3.60 2.73(a)*
Portfolio turnover (%) 219.44 183.67 159.80
Average commission
rate paid(e) $.0398 $.0495
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation in effect during the period. Expenses for the year ended September 30, 1995 reflect
a reduction of $0.02 per share.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets for periods ended on or after September 30, 1995 includes amounts paid
through expense offset arrangements. Prior period ratios exclude these amounts.
(d) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(e) Average commission rate paid on security trades is required for fiscal periods beginning on or after September 1,
1995.
</TABLE>
OBJECTIVES
Putnam Asset Allocation: Growth Portfolio seeks capital
appreciation.
Putnam Asset Allocation: Balanced Portfolio seeks total return.
Putnam Asset Allocation: Conservative Portfolio seeks total
return consistent with preservation of capital.
Each fund is represented by a separate series of shares of
beneficial interest and pursues its investment objective through
its separate investment policies. None of the funds is intended
to be a complete investment program, and there is no assurance
that any fund will achieve its objective.
HOW THE FUNDS PURSUE THEIR OBJECTIVES
Basic investment strategy
Each fund has a different strategic allocation that indicates the
typical percentage allocation of its investments between equity
securities and fixed income securities (including money market
instruments), although Putnam Investment Management, Inc., the
funds' investment manager ("Putnam Management"), may adjust these
allocations within the ranges described below. The funds'
different strategic allocations generally correlate to different
levels of investment risk. The strategic allocation and the
range of active allocation are shown below:
Growth Balanced Conservative
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
Strategic Strategic Strategic
Allocation Range Allocation Range Allocation Range
----------------- ----------------- -----------------
EQUITY
CLASS 80% 65-95% 65% 50-75% 35% 25-45%
FIXED
INCOME
CLASS 20% 5-35% 35% 25-50% 65% 55-75%
The percentage limitations are applied at the time of purchase.
Each fund may also select other investments that do not fall
within the asset classes listed above.
Under normal market conditions, Putnam Management will allocate
the assets of each fund within the specified ranges above or
below the strategic allocation whenever, based on Putnam
Management's experience in qualitative analysis and disciplined
quantitative techniques, its research and analysis indicate
changes in financial markets that reflect changed valuations
within and between the asset classes. Allocating assets within a
specified range above or below a strategic allocation permits
each fund to attempt to optimize performance consistent with its
investment objective. The risks of each asset class vary. For
example, the values of equity securities change in response to
general market and economic conditions and the activities and
changing circumstances of individual issuers, and the values of
fixed income securities change in response to changes in economic
conditions, interest rates and the creditworthiness of individual
issuers. A significant portion of each fund's equity and fixed
income investments may consist of foreign securities, which
involve certain special risks. See "Foreign investments," below.
EQUITY CLASS
Each fund will invest its assets allocated to the Equity Class in
a diversified portfolio of equity securities that Putnam
Management believes have the potential for capital appreciation.
These may include securities of larger companies (defined for
these purposes as companies with equity market capitalizations of
at least $1 billion), equity securities of smaller, less well-
known companies (defined for these purposes as companies with
appreciation due to above-average earnings growth or because they
are undervalued at the time of purchase. In selecting equity
securities for a fund, Putnam Management will consider, among
other things, an issuer's financial strength, competitive
position and projected future earnings and dividends. Common
stocks are normally the main type of each fund's equity
investments. However, each fund may also purchase preferred
stocks, convertible securities, warrants and other equity
securities.
Investing in securities of smaller, less well-known companies may
present greater opportunities for capital appreciation, but may
also involve greater risks. These companies may have limited
product lines, markets or financial resources, or may depend on a
limited management group. Their securities may trade less
frequently and in limited volume, and only in the over-the-
counter market or on a regional securities exchange. As a
result, these securities may fluctuate in value more than
securities of larger, more established companies.
FIXED INCOME CLASS
Each fund will invest its assets allocated to the Fixed Income
Class in a diversified portfolio of fixed-income securities,
including both U.S. and foreign government obligations and
corporate obligations.
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
allocated to the Fixed Income Class. Conversely, during periods
of rising interest rates, the value of fund assets allocated to
such class will generally decline. The magnitude of these
fluctuations will generally be greater for securities with longer
maturities. However, the yields on such securities are also
generally higher. In addition, the values of fixed-income
securities are affected by changes in general economic and
business conditions affecting the specific industries of their
issuers.
Changes by 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 these
securities, but will affect a fund's net asset value.
Each fund may invest in lower-rated fixed-income securities and
in unrated securities determined by Putnam Management to be of
comparable quality. Lower-rated fixed-income securities are
securities rated below BBB or Baa by nationally recognized
securities rating agencies such as Standard & Poor's ("S&P") and
Moody's Investors Service, Inc. ("Moody's) and, together with
unrated securities of comparable quality, are commonly known as
"junk bonds." The values of these securities generally fluctuate
more than those of higher-rated securities. In addition, the
lower rating reflects a greater possibility that the financial
condition of the issuer or adverse changes in general economic
conditions, or both, 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 a 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, a 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.
No fund will purchase any fixed-income security that is rated, by
all of the agencies rating the security, lower than CCC or Caa,
or any unrated security determined to be of comparable quality by
Putnam Management, if as a result, more than 5% of the fund's
total assets would be invested in securities of that quality.
Such securities may be in default and are generally regarded as
having predominantly speculative characteristics.
In addition, the Conservative Portfolio and the Balanced
Portfolio will not purchase any fixed-income security rated, by
all of the agencies rating the security, below BBB and Baa, or
any unrated security determined by Putnam Management to be of
comparable quality, if, as a result, more than 10% of the
Conservative Portfolio's or 35% of the Balanced Portfolio's
total assets would be invested in securities of that quality.
Securities rated BBB or Baa, while considered investment-grade,
are more vulnerable to adverse economic conditions than
securities in the higher-rated categories and have speculative
elements.
The rating services' descriptions of debt securities are included
in the Appendix to this prospectus. 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 in determining
compliance with the foregoing investment limitations.
<PAGE>
The table below shows (for each fund) 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.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Growth Portfolio Balanced Portfolio Conservative Portfolio
------------------------- -------------------------- ------------------------
Unrated Unrated Unrated
Rated securities Rated securities Rated securities
securities, of comparable securities, of comparable securities, of comparable
as percentage quality, as as percentage quality, as as percentage quality, as
of net percentage of of net percentage of of net percentage of
Rating assets net assets assets net assets assets net assets
- -----------------------------------------------------------------------------------------------
"AAA" 7.26% 14.88% 34.71%
"AA" 0.02 0.04 0.09
"A" 0.48 0.97 3.79
"BBB" 0.88 1.75 5.42
"BB" 1.12 0.01% 2.10 0.02% 2.28 0.01
"B" 2.57 0.30 4.51 0.70 4.27 0.62
"CCC" 0.22 0.01 0.43 0.02 0.44 0.02
"CC" 0.02 0.02 0.03
------ ------ ------ ------ ------- -----
Total: 12.57% 0.32% 24.70% 0.74% 51.03% 0.65%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Putnam Management seeks to minimize the risks of investing in
lower-rated securities through careful investment analysis. When
a fund invests in securities in the lower rating categories, the
achievement of that fund's goals is more dependent on Putnam
Management's investment analysis than would be the case if that
fund were investing in fixed-income securities in the higher
rating categories. Investors should carefully consider their
ability to assume the risks of owning shares of a mutual fund
that may invest in lower-rated securities before making an
investment.
A 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 a fund's investment objective.
At times, a substantial portion of fund assets may be invested in
securities of which a 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 a
fund's net asset value.
In order to enforce its rights in the event of a default of these
securities, a 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 a fund's
net asset value.
Certain securities held by a fund may permit the issuer at its
option to "call," or redeem, the securities. If an issuer were
to redeem securities held by a fund during a time of declining
interest rates, that fund might not be able to reinvest the
proceeds in securities providing the same investment return as
the securities redeemed.
A 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, a
fund nonetheless is required to accrue interest income on these
investments and to distribute the interest income on a current
basis. Thus, a fund could be required at times to liquidate
other investments in order to satisfy its distribution
requirements.
Certain investment grade securities in which a 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.
Asset-backed and mortgage-backed securities. Each fund may
invest some or all of its assets allocated to the Fixed Income
Class in asset-backed and mortgage-backed securities, including
collateralized mortgage obligations ("CMOs"). CMOs and other
mortgage-backed securities represent participations in, or are
secured by, mortgage loans and include:
- - Certain securities issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities;
- - Securities issued by private issuers that represent an
interest in or are secured by mortgage-backed securities
issued or guaranteed by the U.S. government or one of its
agencies or instrumentalities; and
- - Securities issued by private issuers that represent an
interest in or are secured by mortgage loans or mortgage-
backed securities without a government guarantee but usually
having some form of private credit enhancement.
Stripped mortgage-backed securities are usually structured with
two classes that receive different portions of the interest and
principal distributions on a pool of mortgage loans. A fund may
invest in both the interest-only or "IO" class and the principal-
only or "PO" class.
Each fund may also invest in asset-backed securities. Asset-
backed securities are structured like mortgage-backed securities,
but instead of mortgage loans or interests in mortgage loans, the
underlying assets may include such items as motor vehicle
installment sales or installment loan contracts, leases of
various types of real and personal property, and receivables from
credit card agreements. The ability of an issuer of asset-backed
securities to enforce its security interest in the underlying
assets may be limited.
Prepayment risk. Mortgage-backed and asset-backed securities have
yield and maturity characteristics corresponding to the
underlying assets. Unlike traditional debt securities, which may
pay a fixed rate of interest until maturity, when the entire
principal amount comes due, payments on certain mortgage-backed
and asset-backed securities include both interest and a partial
payment of principal. Besides the scheduled repayment of
principal, payments of principal may result from the voluntary
prepayment, refinancing, or foreclosure of the underlying
mortgage loans or other assets.
Mortgage-backed and asset-backed securities are less effective
than other types of securities as a means of "locking in"
attractive long-term interest rates. One reason is the need to
reinvest prepayments of principal; another is the possibility of
significant unscheduled prepayments resulting from declines in
interest rates. These prepayments would have to be reinvested at
lower rates. As a result, these securities may have less
potential for capital appreciation during periods of declining
interest rates than other securities of comparable maturities,
although they may have similar risk of decline in market value
during periods of rising interest rates. Prepayments may also
significantly shorten the effective maturities of these
securities, especially during periods of declining interest
rates. Conversely, during periods of rising interest rates, a
reduction in prepayments may increase the effective maturities of
these securities, subjecting them to a greater risk of decline in
market value in response to rising interest rates than
traditional debt securities, and, therefore, potentially
increasing the volatility of a fund.
Prepayments may cause losses on securities purchased at a
premium. At times, some of the mortgage-backed and asset-backed
securities in which a 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 a fund to experience a loss equal to
any unamortized premium.
CMOs. CMOs are issued with a number of classes or series that
have different maturities and that may represent interests in
some or all of the interest or principal on the underlying
collateral. Payment of interest or principal on some classes or
series of CMOs may be subject to contingencies or some classes or
series may bear some or all of the risk of default on the
underlying mortgages. CMOs of different classes or series are
generally retired in sequence as the underlying mortgage loans in
the mortgage pool are repaid. If enough mortgages are repaid
ahead of schedule, the classes or series of a CMO with the
earliest maturities generally will be retired prior to their
maturities. Thus, the early retirement of particular classes or
series of a CMO would have the same effect as the prepayment of
mortgages underlying other mortgage-backed securities.
Conversely, slower than anticipated prepayments can extend the
effective maturities of CMOs, subjecting them to a greater risk
of decline in market value in response to rising interest rates
than traditional debt securities, and, therefore, potentially
increasing the volatility of a fund.
Stripped mortgage-backed securities. The yield to maturity on an
IO or PO class of stripped mortgage-backed securities is
extremely sensitive not only to changes in prevailing interest
rates but also to the rate of principal payments (including
prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurably adverse effect on a fund's
yield to maturity to the extent it invests in IOs. If the assets
underlying the IOs experience greater than anticipated
prepayments of principal, a 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 a
fund's ability to buy or sell those securities at any particular
time.
Money market instruments. Each fund may invest in high quality
money market obligations that Putnam Management believes present
minimal credit risk and may include U.S. government obligations,
certificates of deposit, bankers' acceptances, bank deposits,
other financial institution obligations and commercial paper and
other short-term corporate obligations. These instruments have
various maturities and may have fixed or variable interest rates.
Each fund may also hold a portion of its assets in cash.
Foreign investments
Each 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 a 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. Each 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 a 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 a fund's
assets held abroad) and expenses not present in the settlement of
investments in U.S. markets.
In addition, a 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 that 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 a 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 Conservative Portfolio expects that its investments in
foreign securities generally will not exceed 40% of its total
assets and each of the Growth and Balanced Portfolios expects
that its investments in foreign securities generally will not
exceed 60% of its total assets, although each fund's investments
in foreign securities may exceed these amounts from time to time.
Certain of the foregoing risks may also apply to some extent to
securities of U.S. issuers that are denominated in foreign
currencies or that are traded in foreign markets, or to
securities of U.S. issuers having significant foreign operations.
For more information about foreign securities and the risks
associated with investment in such securities, see the SAI.
Foreign currency exchange transactions
Each fund may engage in foreign currency exchange transactions to
manage its exposure to foreign currencies. Putnam Management may
engage in foreign currency exchange transactions in connection
with the purchase and sale of portfolio securities ("transaction
hedging") and to protect against changes in the value of specific
portfolio positions ("position hedging"). It may also engage in
foreign currency transactions for non-hedging purposes, subject
to applicable law.
A fund may engage in transaction hedging to protect against a
change in foreign currency exchange rates between the date on
which a fund contracts to purchase or sell a security and the
settlement date, or to "lock in" the U.S. dollar equivalent of a
dividend or interest payment in a foreign currency. A fund may
purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign
currency.
If conditions warrant, for transaction hedging purposes a fund
may also enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") and purchase
and sell foreign currency futures contracts. A foreign currency
forward contract is a negotiated agreement to exchange currency
at a future time at a rate or rates that may be higher or lower
than the spot rate. Foreign currency futures contracts are
standardized exchange-traded contracts and have margin
requirements. In addition, for transaction hedging purposes a
fund may also purchase or sell exchange-listed and over-the-
counter call and put options on foreign currency futures
contracts and on foreign currencies.
A fund may engage in position hedging to protect against a
decline in the value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or
quoted (or an increase in the value of the currency in which the
securities a fund intends to buy are denominated, when the fund
holds cash or short-term investments). For position hedging
purposes, a fund may purchase or sell, on exchanges or in over-
the-counter markets, foreign currency futures contracts, foreign
currency forward contracts and options on foreign currency
futures contracts and on foreign currencies. In connection with
position hedging, a fund may also purchase or sell foreign
currency on a spot basis.
A fund's currency hedging transactions may call for the delivery
of one foreign currency in exchange for another foreign currency
and may at times not involve currencies in which its portfolio
securities are then denominated. Putnam Management will engage
in such "cross hedging" activities when it believes that such
transactions provide significant hedging opportunities for a
fund. Cross hedging transactions by a fund involve the risk of
imperfect correlation between changes in the values of the
currencies to which such transactions relate and changes in the
value of the currency or other asset or liability which is the
subject of the hedge.
A fund may also engage in non-hedging currency transactions. For
example, Putnam Management may believe that exposure to a
currency is in a fund's best interest but that securities
denominated in that currency are unattractive. In that case a
fund may purchase a currency forward contract or option in order
to increase its exposure to the currency. In accordance with SEC
regulations, a fund will segregate liquid assets in its portfolio
to cover forward contracts used for non-hedging purposes.
The decision as to whether and to what extent a 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 a fund will engage in foreign currency exchange transactions
at any given time or from time to time.
For a further discussion of the risks associated with purchasing
and selling futures contracts and options, see "Financial futures
and options." The SAI also contains additional information
concerning a fund's use of foreign currency exchange
transactions.
Investments in premium securities
At times, each fund may invest some or all of its assets
allocated to the Fixed Income Class 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.
A fund does not amortize the premium paid for these securities in
calculating its net investment income. As a result, the purchase
of premium securities provides a higher level of investment
income distributable to shareholders on a current basis than if
the fund purchased securities bearing current market rates of
interest. Because the value of premium securities tends to
approach the principal amount as they approach maturity (or call
price in the case of securities approaching their first call
date), the purchase of such securities may increase the risk of
capital loss if such securities are held to maturity (or first
call date).
During a period of declining interest rates, many of a fund's
portfolio investments will likely bear coupon rates that are
higher than the current market rates, regardless of whether the
securities were originally purchased at a premium. These
securities would generally carry premium market values that would
be reflected in the net asset value of fund shares. As a result,
an investor who purchases fund shares during such periods would
initially receive higher taxable monthly distributions (derived
from the higher coupon rates payable on a 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 a fund, investors may
find it useful to compare a fund's current dividend rate with its
"yield," which is computed on a yield-to-maturity basis in
accordance with SEC regulations and which reflects amortization
of market premiums. See "How performance is shown."
Portfolio turnover
The length of time a fund has held a particular security is not
generally a consideration in investment decisions. A change in
the securities held by a fund is known as "portfolio turnover."
As a result of a fund's investment policies, under certain market
conditions each fund's portfolio turnover rate may be higher than
that of other mutual funds.
Portfolio turnover generally involves some expense, including
brokerage commissions or dealer markups and other transaction
costs in connection with the sale of securities and reinvestment
in other securities. These transactions may result in
realization of taxable capital gains. Portfolio turnover rates
are shown in the section "Financial highlights."
Defensive strategies
At times Putnam Management may judge that conditions in the
securities markets make pursuing a fund's basic investment
strategy inconsistent with the best interests of its
shareholders. At such times, Putnam Management may temporarily
use alternative strategies that are primarily designed to reduce
fluctuations in the value of fund assets.
In implementing these defensive strategies, a fund may invest
without regard to the ranges described above for investments in
the various asset classes and may invest without limit in equity
securities, debt securities, preferred stocks, U.S. government
and agency obligations, cash or money market instruments, or in
other securities Putnam Management considers consistent with such
defensive strategies.
It is impossible to predict when, or for how long, these
alternative strategies would be used.
Financial futures and options
Each fund may purchase and sell financial futures contracts on
stock indexes, U.S. government securities, foreign fixed-income
securities and foreign currencies.
A futures contract is a contract to buy or sell units of a
particular stock index, or a certain amount of a U.S. government
security, foreign fixed-income security or foreign currency, at
an agreed price on a specified future date. Depending on the
change in value of the index, security or currency between the
time a fund enters into and terminates a futures contract, that
fund realizes a gain or loss.
A fund may purchase and sell futures contracts for hedging
purposes and for non-hedging purposes, such as to adjust its
exposure to relevant markets or as a substitute for direct
investment. For example, when Putnam Management wants to
increase a fund's exposure to equity securities, it may do so by
taking long positions in futures contracts on equity indices,
such as futures contracts on the Standard & Poor's 500 Composite
Stock Price Index. Similarly, when Putnam Management wants to
increase a fund's exposure to fixed-income securities, it may do
so by taking long positions in futures contracts relating to
fixed-income securities such as futures contracts on U.S.
Treasury securities.
Each fund may buy and sell call and put options on futures
contracts or on stock indexes in addition to or as an alternative
to purchasing or selling futures contracts or, to earn additional
income.
Options and futures transactions involve costs and may result in
losses. The effective use of options and futures strategies
depends on a fund's ability to terminate options and futures
positions at times when Putnam Management deems it desirable to
do so. Although a fund will enter into an option or futures
contract position only if Putnam Management believes that a
liquid secondary market exists for such option or futures
contract, there is no assurance that a fund will be able to
effect closing transactions at any particular time or at an
acceptable price. Options on certain U.S. government securities
are traded in significant volume on securities exchanges.
However, other options which a fund may purchase or sell may be
traded in the "over-the-counter" market rather than on an
exchange. This means that a fund would enter into such option
contracts with particular securities dealers who make markets in
these options. A fund's ability to terminate options positions
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 might fail
to meet their obligations to that fund.
The use of options and futures strategies also involves the risk
of imperfect correlation among movements in the values of the
index, currency or security underlying the futures and options
purchased and sold by a fund, of the option or futures contract
itself, and of the security or currency which is the subject of a
hedge. The successful use of these strategies further depends on
the ability of Putnam Management to forecast interest rates and
market movements correctly.
Because the markets for options and futures on foreign equity
indexes, foreign fixed-income securities and foreign currencies
are relatively new and still developing, the fund's ability to
engage in such transactions may be limited. Certain provisions
of the Internal Revenue Code and certain regulatory requirements
may also limit the use of futures and options transactions.
For a more detailed explanation of futures and options
transactions and the risks associated with them, see the SAI.
Other investment practices
Each fund may also engage to a limited extent 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. A 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 and on foreign currencies. A 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 a fund writes a call option, it gives up the opportunity to
profit from any increase in the price of a security or currency
above the exercise price of the option; when it writes a put
option, a fund takes the risk that it will be required to
purchase a security or currency from the option holder at a price
above the current market price of the security or currency. A
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.
A fund may also buy and sell put and call options, including
combinations of put and call options on the same underlying
security or currency. The use of these strategies may be limited
by applicable law.
Securities loans, repurchase agreements and forward commitments.
A 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. A 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 a fund is delayed or prevented from
recovering the collateral or completing the transaction.
Diversification
Each fund is a "diversified" investment company under the
Investment Company Act of 1940. This means that with respect to
75% of its total assets, a 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 a 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 each fund may invest, such as
futures contracts, options, forward contracts and CMOs, are
considered to be "derivatives." Derivatives are financial
instruments whose value depends upon, or is derived from, the
value of an underlying asset, such as a security, a currency 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 funds' shareholders. These restrictions prohibit each
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 each 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, or of any
foreign government, its agencies or instrumentalities, securities
of supranational entities, and securities backed by the credit of
a governmental entity are not considered to represent
industries);* 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, 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 investment policies. The Trustees may change
any non-fundamental investment policy without shareholder
approval. As a matter of policy, the Trustees would not
materially change a fund's investment objective without
shareholder approval.
HOW PERFORMANCE IS SHOWN
Fund advertisements may, from time to time, include performance
information. "Yield" for each class of shares is calculated by
dividing the annualized net investment income per share during a
recent 30-day period by the maximum public offering price per
share of the class on the last day of that period.
For purposes of calculating yield, net investment income is
calculated in accordance with SEC regulations and may differ from
net investment income as determined for tax purposes. SEC
regulations require that net investment income be calculated on a
"yield-to-maturity" basis, which has the effect of amortizing any
premiums or discounts in the current market value of fixed-income
securities. The current dividend rate is based on net investment
income as determined for tax purposes, which may not reflect
amortization in the same manner. See "How the funds pursue their
objectives -- Investments in premium securities."
Yield is based on the price of the shares, including the maximum
initial sales charge in the case of class A and class M shares,
but does not reflect any contingent deferred sales charge in the
case of class B and class C shares.
"Total return" for the one-, five- and ten-year periods (or for
the life of a class, if shorter) through the most recent calendar
quarter represents the average annual compounded rate of return
on an investment of $1,000 in a fund invested at the maximum
public offering price (in the case of class A and class M shares)
or reflecting the deduction of any applicable contingent deferred
sales charge (in the case of class B and class C shares). Total
return may also be presented for other periods or based on
investment at reduced sales charge levels. Any quotation of
investment performance not reflecting the maximum initial sales
charge or contingent deferred sales charge would be reduced if
the sales charge were used.
All data are based on past investment results and do not predict
future performance. Investment performance, which will vary, is
based on many factors, including market conditions, portfolio
composition, fund operating expenses and the class of shares the
investor purchases. Investment performance also often reflects
the risks associated with a fund's investment objectives and
policies. These factors should be considered when comparing a
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 FUNDS ARE 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 each fund and makes investment decisions on its
behalf. Subject to the control of the Trustees, Putnam
Management also manages each fund's other affairs and business.
The Trust pays Putnam Management a quarterly fee for these
services based on each fund's average net assets. See "Expenses
summary" and the SAI.
Putnam Management's Global Asset Allocation Committee has primary
responsibility for the day-to-day management of each fund's
portfolio.
The Trust 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). Expenses of the Trust directly
charged or attributable to a fund will be paid from the assets of
that fund. General expenses of the Trust will be allocated among
and charged to the assets of the funds and any other series of
the Trust on a basis that the Trustees deem fair and equitable,
which may be based on the nature of the services performed and
relative applicability to, or the relative assets of, the funds
and such series. The Trust also reimburses Putnam Management for
the compensation and related expenses of certain fund officers
and their staff who provide administrative services. The total
reimbursement is determined annually by the Trustees.
Putnam Management places all orders for purchases and sales of
fund securities. In selecting broker-dealers, Putnam Management
may consider research and brokerage services furnished to it and
its affiliates. Subject to seeking the most favorable price and
execution available, Putnam Management may consider sales of fund
shares (and, if permitted by law, shares of the other Putnam
funds) as a factor in the selection of broker-dealers.
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized on
November 4, 1993. 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 Trust is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. The Trustees may, without shareholder
approval, create two or more series of shares representing
separate investment portfolios. Any such series of shares may be
divided without shareholder approval into two or more classes of
shares having such preferences and special or relative rights and
privileges as the Trustees determine. The Trust's shares are
currently divided into three series. Only class A, B, C and M
shares are offered by this prospectus. Each fund may also offer
other classes of shares with different sales charges and
expenses. Because of these different sales charges and expenses,
the investment performance of the classes will vary. For more
information, including your eligibility to purchase any other
class of shares, contact your investment dealer or Putnam Mutual
Funds (at 1-800-225-1581).
Each share has one vote, with fractional shares voting
proportionally. All shares of the Trust will vote together as a
single class without regard to series or classes of shares on all
matters except, (i) when required by the Investment Company Act
of 1940 or when the Trustees have determined that the matter
affects the interests of one or more series or classes materially
differently, shares will be voted by individual series or class;
and (ii) when the Trustees have determined that the matter
affects only the interest of one or more series or classes, only
shareholders of that series or class shall be entitled to vote
thereon. Shares are freely transferable, are entitled to
dividends as declared by the Trustees, and, if a fund were
liquidated, would receive the net assets of that fund. Each fund
may suspend the sale of shares at any time and may refuse any
order to purchase shares. Although the Trust 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), a fund may choose to redeem your shares.
You will receive at least 30 days' written notice before a fund
redeems your shares, and you may purchase additional shares at
any time to avoid a redemption. A 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 Trust'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 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.; John A.
Hill, Chairman and Managing Director, First Reserve Corporation;
Ronald J. Jackson, Former Chairman, President and Chief Executive
Officer of Fisher-Price, Inc., Trustee of Salem Hospital and the
Peabody Essex Museum; Paul L. Joskow,* Elizabeth and James
Killian Professor of Economics and Management and former
Chairman of the Department of Economics at the 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
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. , 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 Trust's 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 Trust, Putnam Management or Putnam Mutual Funds.
About Your Investment
ALTERNATIVE SALES ARRANGEMENTS
Class A shares. If you purchase class A shares, you will
generally pay a sales charge at the time of purchase and, as a
result, will not have to pay any charges when you redeem the
shares. If you purchase class A shares at net asset value you
may have to pay a contingent deferred sales charge ("CDSC") when
you redeem the shares. Certain purchases of class A shares
qualify for reduced sales charges. Class A shares pay lower 12b-1
fees than class B, class C and class M shares. See "How to buy
shares -- Class A shares" and "Distribution plans."
Class B shares. If you purchase class B shares, you will not pay
an initial sales charge, but you may have to pay a CDSC if you
redeem the shares within six years. Class B shares also pay a
higher 12b-1 fee than class A and class M shares. Class B shares
automatically convert into class A shares, based on relative net
asset value, approximately eight years after purchase. For more
information about the conversion of class B shares, including
information about how shares acquired through reinvestment of
distributions are treated and certain circumstances under which
class B shares may not convert into class A shares, see the SAI.
Class B shares provide an investor the benefit of putting all of
the investor's dollars to work from the time the investment is
made. Until conversion, class B shares will have a higher
expense ratio and pay lower dividends than class A and class M
shares because of the higher 12b-1 fee. See "How to buy shares -
- - Class B shares" and "Distribution plans."
Class C shares. Like class B shares, class C shares are sold
without an initial sales charge and are subject to a CDSC if
redeemed within one year of purchase. Class C shares also bear a
higher 12b-1 fee than class A and class M shares. Unlike class B
shares, class C shares do not convert into any other class of
shares. Like class B shares, class C shares provide an investor
the benefit of putting all of the investor's dollars to work from
the time the investment is made. See "How to buy shares -- Class
C shares" and "Distribution plans."
Class M shares. If you purchase class M shares, you will
generally pay a sales charge at the time of purchase that is
lower than the sales charge you would pay for class A shares.
Certain purchases of class M shares qualify for reduced sales
charges. Class M shares pay 12b-1 fees that are lower than class
B and class C shares but higher than class A shares. You will
not have to pay any charges when you redeem class M shares, but
class M shares will not convert into any other class of shares.
See "How to buy shares -- Class M shares" and "Distribution
plans."
Which class is best for you? Which class of shares provides the
most suitable investment for you depends on a number of factors,
including the amount you intend to invest and how long you intend
to hold the shares. If your intended purchase qualifies for
reduced sales charges, you might consider class A or class M
shares. If you prefer not to pay a sales charge at the time of
purchase, you might consider class B or class C shares. Orders
for class B shares for $250,000 or more will be treated as orders
for class A shares or declined. In the case of class C shares,
orders of $1,000,000 or more and orders which because of a right
of accumulation or statement of intent would qualify for the
class A shares breakpoint of $1,000,000 will be treated as orders
for class A shares or declined. See the SAI for more
information. For more information about these sales
arrangements, consult your investment dealer or Putnam Investor
Services. Shares may only be exchanged for shares of the same
class of another Putnam fund. See "How to exchange shares."
HOW TO BUY SHARES
You can open a fund account with as little as $500 (in the case
of class A shares, class B shares and class M shares) and make
additional investments at any time with as little as $50. The
minimum initial investment for class C shares is $10,000. You
can buy fund shares three ways - through most investment dealers,
through Putnam Mutual Funds (at 1-800-225-1581), or through a
systematic investment plan. If you do not have a dealer, Putnam
Mutual Funds can refer you to one.
Buying shares through Putnam Mutual Funds. Complete an order
form and write a check for the amount you wish to invest, payable
to the appropriate fund. Return the completed form and check to
Putnam Mutual Funds, which will act as your agent in purchasing
shares.
Buying shares through systematic investing. You can make regular
investments of $25 or more per month through automatic deductions
from your bank checking or savings account. Application forms
are available from your investment dealer or through Putnam
Investor Services.
Shares are sold at the public offering price based on the net
asset value next determined after Putnam Investor Services
receives your order. In most cases, in order to receive that
day's public offering price, Putnam Investor Services must
receive your order before the close of regular trading on the New
York Stock Exchange. If you buy shares through your investment
dealer, the dealer must receive your order before the close of
regular trading on the New York Stock Exchange to receive that
day's public offering price.
Class A shares
The public offering price of class A shares is the net asset
value plus a sales charge that varies depending on the size of
your purchase. The fund in which you are investing receives the
net asset value. The sales charge is allocated between your
investment dealer and Putnam Mutual Funds as shown in the
following table, except when Putnam Mutual Funds, in its
discretion, allocates the entire amount to your investment
dealer.
Sales charge Amount of
as a percentage of: sales charge
------------------- reallowed to
Net dealers as a
Amount of transaction amount Offering percentage of
at offering price ($) invested price offering price
- -----------------------------------------------------------------
Under 50,000 6.10% 5.75% 5.00%
50,000 but under 100,000 4.71 4.50 3.75
100,000 but under 250,000 3.63 3.50 2.75
250,000 but under 500,000 2.56 2.50 2.00
500,000 but under 1,000,000 2.04 2.00 1.75
- -----------------------------------------------------------------
No initial sales charge applies to purchases of class A shares of
$1 million or more or to purchases by employer-sponsored
retirement plans that have at least 200 eligible employees.
However, a CDSC of 1.00% or 0.50% is imposed on redemptions of
these shares within the first or second year, respectively, after
purchase, unless the dealer of record waived its commission with
Putnam Mutual Funds' approval or unless the purchaser is a class
A qualified benefit plan (a retirement plan for which Putnam
Fiduciary Trust Company or its affiliates provide recordkeeping
or other services in connection with the purchase of class A
shares).
Class A qualified benefit plans may also purchase class A shares
with no initial sales charge. However, except as stated below, a
CDSC of 0.75% of the total amount redeemed (1.00% in the case of
plans for which Putnam Mutual Funds and its affiliates do not act
as trustee or recordkeeper) is imposed on redemptions of these
shares if, within two years of a plan's initial purchase of class
A shares, it redeems 90% or more of its cumulative purchases.
Thereafter, such a plan is no longer liable for any CDSC. The
two-year CDSC applicable to class A qualified benefit plans for
which Putnam Mutual Funds or its affiliates serve as trustee or
recordkeeper ("full service plans") is 0.50% of the total amount
redeemed for full service plans that initially invest at least $5
million but less than $10 million in Putnam funds and other
investments managed by Putnam Management or its affiliates
("Putnam Assets"), and is 0.25% of the total amount redeemed for
full service plans that initially invest at least $10 million but
less than $20 million in Putnam Assets. Class A qualified
benefit plans that initially invest at least $20 million in
Putnam Assets, or whose dealer of record has, with Putnam Mutual
Funds' approval, waived its commission or agreed to refund its
commission to Putnam Mutual Funds in the event a CDSC would
otherwise be applicable, are not subject to any CDSC.
A class A qualified benefit plan participating in a "multi-fund"
program approved by Putnam Mutual Funds may include amounts
invested in other mutual funds participating in such program for
purposes of determining whether the plan may purchase class A
shares at net asset value. These investments will also be
included for purposes of the discount privileges and programs
described elsewhere in this prospectus and in the SAI.
As described in the SAI, Putnam Mutual Funds pays the dealer of
record a commission of up to 1% on sales to class A qualified
benefit plans. Putnam Mutual Funds pays dealers of record
commissions on sales of class A shares of $1 million or more and
sales of class A shares to employer-sponsored retirement plans
that have at least 200 eligible employees and that are not class
A qualified benefit plans based on an investor's cumulative
purchases during the one-year period beginning with the date of
the initial purchase at net asset value. Each subsequent one-
year measuring period for these purposes will begin with the
first net asset value purchase following the end of the prior
period. Such commissions are paid at the rate of 1.00% of the
first $3 million of shares purchased, 0.50% of the next $47
million and 0.25% thereafter.
Class B shares
Class B shares are sold without an initial sales charge, although
a CDSC will be imposed if you redeem shares within a specified
period after purchase, as shown in the table below.
Year 1 2 3 4 5 6 7+
- -------------------------------------------------------------
Charge 5% 4% 3% 3% 2% 1% 0%
Putnam Mutual Funds pays a sales commission equal to 4.00% of the
amount invested to dealers who sell class B shares. These
commissions are not paid on exchanges from other Putnam funds or
on sales to investors exempt from the CDSC.
Class C shares
Class C shares are sold without an initial sales charge, although
a 1.00% CDSC is imposed if you redeem your shares within one year
of purchase. Class C shares have no conversion feature and
therefore will be subject to a higher 12b-1 fee than class A
shares indefinitely.
Putnam Mutual Funds pays a sales commission equal to
1.00% of the amount invested to dealers who sell class C shares
(which includes a prepaid service fee of 0.25%). These
commissions are not paid on sales to investors exempt from the
CDSC.
Class M shares
The public offering price of class M shares is the net asset
value plus a sales charge that varies depending on the size of
your purchase. The fund receives the net asset value. The sales
charge is allocated between your investment dealer and Putnam
Mutual Funds as shown in the following table, except when Putnam
Mutual Funds, at its discretion, allocates the entire amount to
your investment dealer.
<PAGE>
Sales charge Amount of
as a percentage of: sales charge
------------------- reallowed to
Net dealers as a
Amount of transaction amount Offering percentage of
at offering price ($) invested price offering price
- -----------------------------------------------------------------
Under 50,000 3.63% 3.50% 3.00%
50,000 but under 100,000 2.56 2.50 2.00
100,000 but under 250,000 1.52 1.50 1.00
250,000 but under 500,000 1.01 1.00 1.00
500,000 and above NONE NONE NONE
- -----------------------------------------------------------------
Class M qualified benefit plans (retirement plans for which
Putnam Fiduciary Trust Company or its affiliates provide
recordkeeping or other services in connection with the purchase
of class M shares) and members of qualified groups may purchase
class M shares without a sales charge.
General
You may be eligible to buy fund shares at reduced sales charges
or to sell fund shares without a CDSC.
Consult your investment dealer or Putnam Mutual Funds for details
about Putnam's combined purchase privilege, cumulative quantity
discount, statement of intention, group sales plan, employer-
sponsored retirement plans and other plans. Descriptions are
also included in the order form and in the SAI.
Each fund may sell class A, class B, class C and class M shares
at net asset value without an initial sales charge or a CDSC to
current and retired Trustees (and their families), current and
retired employees (and their families) of Putnam Management and
affiliates, registered representatives and other employees (and
their families) of broker-dealers having sales agreements with
Putnam Mutual Funds, employees (and their families) of financial
institutions having sales agreements with Putnam Mutual Funds (or
otherwise having an arrangement with a broker-dealer or financial
institution with respect to sales of fund shares), financial
institution trust departments investing an aggregate of $1
million or more in Putnam funds, clients of certain
administrators of tax-qualified plans, tax-qualified plans when
proceeds from repayments of loans to participants are invested
(or reinvested) in Putnam funds, "wrap accounts" for the benefit
of clients of broker-dealers, financial institutions or financial
planners adhering to certain standards established by Putnam
Mutual Funds, and investors meeting certain requirements who sold
shares of certain Putnam closed-end funds pursuant to a tender
offer by the closed-end fund.
In addition, each fund may sell shares at net asset value without
an initial sales charge or a CDSC in connection with the
acquisition by the fund of assets of an investment company or
personal holding company. The CDSC will be waived on redemptions
of shares arising out of the death or post-purchase disability of
a shareholder or settlor of a living trust account, and on
redemptions in connection with certain withdrawals from IRA or
other retirement plans. Up to 12% of the value of shares subject
to a systematic withdrawal plan may also be redeemed each year
without a CDSC. The SAI contains additional information about
purchasing shares at reduced sales charges.
In determining whether a CDSC is payable on any redemption,
shares not subject to any charge will be redeemed first, followed
by shares held longest during the CDSC period. Any CDSC will be
based on the lower of the shares' cost and net asset value. For
this purpose, the amount of any increase in a share's value above
its initial purchase price is not regarded as a share exempt from
the CDSC. Thus, when you redeem a share that has appreciated in
value during the CDSC period, a CDSC is assessed on its initial
purchase price. Shares acquired by reinvestment of distributions
may be redeemed without a CDSC at any time. For information on
how sales charges are calculated if you exchange your shares, see
"How to exchange shares." Putnam Mutual Funds receives the
entire amount of any CDSC you pay. See the SAI for more
information about the CDSC.
Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
fund shares at net asset value.
If you are considering redeeming or transferring shares to
another person shortly after purchase, you should pay for those
shares with a certified check to avoid any delay in redemption or
transfer. Otherwise, payment may be delayed until the purchase
price of those shares has been collected or, if you redeem by
telephone, until 15 calendar days after the purchase date. To
eliminate the need for safekeeping, certificates will not be
issued for your shares unless you request them.
Putnam Mutual Funds will from time to time, at its expense,
provide additional promotional incentives or payments to dealers
that sell shares of the Putnam funds. These incentives or
payments may include payments for travel expenses, including
lodging, incurred in connection with trips taken by invited
registered representatives and their guests to locations within
and outside the United States for meetings or seminars of a
business nature. In some instances, these incentives or payments
may be offered only to certain dealers who have sold or may sell
significant amounts of shares. Certain dealers may not sell all
classes of shares.
DISTRIBUTION PLANS
The funds have adopted distribution plans to compensate Putnam
Mutual Funds for services provided and expenses incurred by it as
principal underwriter of fund shares, including the payments to
dealers mentioned below. The plans provide for payments by each
fund to Putnam Mutual Funds at the annual rates (expressed as a
percentage of average net assets) of up to 0.35% on class A
shares and up to 1.00% on class B, class C and class M shares.
The Trustees currently limit payments on class A and class M
shares to 0.25% and 0.75% of average net assets, respectively.
Putnam Mutual Funds compensates qualifying dealers (including,
for this purpose, certain financial institutions) for sales of
shares and the maintenance of shareholder accounts.
Putnam Mutual Funds makes quarterly payments to dealers at the
annual rate of 0.25% of the average net asset value of class A
shares for which such dealers are designated as the dealer of
record, except that payments to dealers for shares held by class
A qualified benefit plans are made at reduced rates, as described
in the SAI. No payments are made during the first year after
purchase on shares purchased at net asset value by shareholders
investing $1 million or more or by employer-sponsored retirement
plans that have at least 200 eligible employees or that are class
A qualified benefit plans, unless the shareholder has made
arrangements with Putnam Mutual Funds and the dealer of record
has waived the sales commission.
Putnam Mutual Funds makes quarterly payments to dealers at the
annual rates of 0.25%, 0.75% and 0.65% of the average net asset
value of class B, class C and class M shares, respectively, for
which such dealers are designated as the dealer of record,
provided, however, no payment will be made with respect to the
first four quarters following the sale of class C shares.
Putnam Mutual Funds may suspend or modify its payments to
dealers. The payments are also subject to the continuation of
the relevant distribution plan, the terms of service agreements
between dealers and Putnam Mutual Funds, and any applicable
limits imposed by the National Association of Securities Dealers,
Inc.
HOW TO SELL SHARES
You can sell your shares to the appropriate fund any day the New
York Stock Exchange is open, either directly to the fund or
through your investment dealer. A fund will only redeem shares
for which it has received payment.
Selling shares directly to your fund. Send a signed letter of
instruction or stock power form to Putnam Investor Services,
along with any certificates that represent shares you want to
sell. The price you will receive is the next net asset value
calculated after a fund receives your request in proper form less
any applicable CDSC. In order to receive that day's net asset
value, Putnam Investor Services must receive your request before
the close of regular trading on the New York Stock Exchange.
If you sell shares having a net asset value of $100,000 or more,
the signatures of registered owners or their legal
representatives must be guaranteed by a bank, broker-dealer or
certain other financial institutions. See the SAI for more
information about where to obtain a signature guarantee. Stock
power forms are available from your investment dealer, Putnam
Investor Services and many commercial banks.
If you want your redemption proceeds sent to an address other
than your address as it appears on Putnam's records, a signature
guarantee is required. Putnam Investor Services usually requires
additional documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or a surviving joint owner.
Contact Putnam Investor Services for details.
Your fund generally sends you payment for your shares the
business day after your request is received. Under unusual
circumstances, a fund may suspend redemptions, or postpone
payment for more than seven days, as permitted by federal
securities law.
You may use Putnam's Telephone Redemption Privilege to redeem
shares valued up to $100,000 unless you have notified Putnam
Investor Services of an address change within the preceding 15
days. Unless you indicate otherwise on the account application,
Putnam Investor Services will be authorized to act upon
redemption and transfer instructions received by telephone from
you, or any person claiming to act as your representative, who
can provide Putnam Investor Services with your account
registration and address as it appears on Putnam Investor
Services' records.
Putnam Investor Services will employ these and other reasonable
procedures to confirm that instructions communicated by telephone
are genuine; if it fails to employ reasonable procedures, Putnam
Investor Services may be liable for any losses due to
unauthorized or fraudulent instructions. For information,
consult Putnam Investor Services.
During periods of unusual market changes and shareholder
activity, you may experience delays in contacting Putnam Investor
Services by telephone. In this event, you may wish to submit a
written redemption request, as described above, or contact your
investment dealer, as described below. The Telephone Redemption
Privilege is not available if you were issued certificates for
shares that remain outstanding. The Telephone Redemption
Privilege may be modified or terminated without notice.
Selling shares through your investment dealer. Your dealer must
receive your request before the close of regular trading on the
New York Stock Exchange to receive that day's net asset value.
Your dealer will be responsible for furnishing all necessary
documentation to Putnam Investor Services, and may charge you for
its services.
HOW TO EXCHANGE SHARES
You can exchange your class A shares, class B shares or class M
shares for shares of the same class of certain other Putnam funds
at net asset value. Not all Putnam funds offer all classes of
shares. Class C shares may only be exchanged for class C shares
of one of the other funds described in this prospectus. If you
exchange shares subject to a CDSC, the transaction will not be
subject to the CDSC. However, when you redeem the shares
acquired through the exchange, the redemption may be subject to
the CDSC, depending upon when you originally purchased the
shares. The CDSC will be computed using the schedule of any fund
into or from which you have exchanged your shares that would
result in your paying the highest CDSC applicable to your class
of shares. For purposes of computing the CDSC, the length of
time you have owned your shares will be measured from the date of
original purchase and will not be affected by any exchange.
To exchange your shares, simply complete an Exchange
Authorization Form and send it to Putnam Investor Services. The
form is available from Putnam Investor Services. For federal
income tax purposes, an exchange is treated as a sale of shares
and generally results in a capital gain or loss. A Telephone
Exchange Privilege is currently available for amounts up to
$500,000. Putnam Investor Services' procedures for telephonic
transactions are described above under "How to sell shares." The
Telephone Exchange Privilege is not available if you were issued
certificates for shares that remain outstanding. Ask your
investment dealer or Putnam Investor Services for prospectuses of
other Putnam funds. Shares of certain Putnam funds are not
available to residents of all states.
The exchange privilege is not intended as a vehicle for short-
term trading. Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity and
in other circumstances where Putnam Management or the Trustees
believe doing so would be in the best interests of your fund,
the funds reserve 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 A FUND VALUES ITS SHARES
Each 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 EACH FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX
INFORMATION
The Growth Portfolio distributes any net investment income at
least annually. The Conservative Portfolio and the Balanced
Portfolio distribute any net investment income at least
quarterly.
Distributions from any net capital gains are made at least
annually after applying any available capital loss carryovers.
Distributions paid on class A shares will generally be greater
than those paid on class B shares, class C shares and class M
shares because expenses attributable to class B shares, class C
shares and class M shares will generally be higher.
You can choose from three distribution options:
- - Reinvest all distributions in additional shares without a
sales charge;
- - Receive distributions from net investment income in cash
while reinvesting capital gains distributions in additional
shares without a sales charge; or
- - Receive all distributions in cash.
You can change your distribution option by notifying Putnam
Investor Services in writing. If you do not select an option
when you open your account, all distributions will be reinvested.
All distributions not paid in cash will be reinvested in shares
of the class on which the distributions are paid. You will
receive a statement confirming reinvestment of distributions in
additional fund shares (or in shares of other Putnam funds for
Dividends Plus accounts) promptly following the quarter in which
the reinvestment occurs.
If a check representing a fund distribution is not cashed within
a specified period, Putnam Investor Services will notify you that
you have the option of requesting another check or reinvesting
the distribution. If Putnam Investor Services does not receive
your election, the distribution will be reinvested in the fund.
Similarly, if correspondence sent by a fund or Putnam Investor
Services is returned as "undeliverable," fund distributions will
automatically be reinvested in that fund or in another Putnam
fund.
Each 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. Each fund will
distribute substantially all of its ordinary income and capital
gain net income on a current basis.
Fund distributions will be taxable to you as ordinary income to
the extent derived from the fund's investment income and net
short-term gains (that is, net gains from securities held for not
more than a year). Distributions designated by a fund as
deriving from net gains on securities held for more than one year
but not more than 18 months and from net gains on securities held
for more than 18 months will be taxable to you as such,
regardless of how long you have held the shares. Distributions
will be taxable as described above whether received in cash or in
shares through the reinvestment of distributions.
Fund investments in foreign securities may be subject to
withholding taxes at the source on dividend or interest payments.
In that case, a fund's yield on those securities would be
decreased.
The funds do not expect to be eligible to elect to permit
shareholders to claim a credit or deduction on their income tax
return for their pro rata share of such taxes. If at the end of
a fund's fiscal year more than 50% of the value of its total
assets represents securities of foreign corporations, a fund
intends to make an election permitted by the Internal Revenue
Code to treat any foreign taxes paid by it as paid by it on
securities it has held for at least the minimum period specified
in the Internal Revenue Code as having been paid directly by a
fund's shareholders. In this case, shareholders who are (i) U.S.
citizens, U.S. corporations and, in some cases, U.S. residents
and (ii) who hold their fund shares (without protection from risk
of loss) on the ex-dividend date and for at least 15 additional
days during the 30-day period surrounding the ex-dividend date
generally will be required to include in U.S. taxable income
their pro rata share of such taxes, but may then generally be
entitled to claim a foreign tax credit or deduction (but not
both) for their share of such taxes.
Fund transactions in foreign currencies and hedging activities
may give rise to ordinary income or loss to the extent such
income or loss results from fluctuations in value of the foreign
currency concerned. In addition, such activities will likely
produce a difference between book income and taxable income.
This difference may cause a portion of a fund's income
distributions to constitute a return of capital for tax purposes
or require the fund to make distributions exceeding book income
to qualify as a regulated investment company for tax purposes.
Investment in an entity that qualifies as a "passive foreign
investment company" under the Internal Revenue Code could subject
a fund to a U.S. federal income tax or other charge on certain
"excess distributions" with respect to the investment, and on the
proceeds from disposition of the investment.
Early in each calendar year Putnam Investor Services will notify
you of the amount and tax status of distributions paid to you for
the preceding year.
The foregoing is a summary of certain federal income tax
consequences of investing in a fund. You should consult your tax
adviser to determine the precise effect of an investment in a
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 funds and
of other Putnam funds. Putnam Fiduciary Trust Company is the
custodian of the funds. Putnam Investor Services, a division of
Putnam Fiduciary Trust Company, is the investor servicing and
transfer agent for the funds.
Putnam Management, Putnam Mutual Funds, and Putnam Fiduciary
Trust Company 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>
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 -- 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 differs 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-CC-C -- Debt rated `BB', `B', `CCC', `CC' and `C' 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 and `C' the highest. 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.
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.
CC -- The rating `CC' typically is applied to debt subordinated
to senior debt that is assigned an actual or implied `CCC'
rating.
C -- The rating `C' typically is applied to debt subordinated to
senior debt which is assigned an actual or implied `CCC-' debt
rating. The `C' rating may be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are
continued.
D -- Bonds rated `D' are in payment default. The `D' rating
category is used when interest payments or principal payments are
not made on the date due even if the applicable grace period has
not expired, unless S&P believes that such payments will be made
during such grace period. The `D' rating also will be used on
the filing of a bankruptcy petition if debt service payments are
jeopardized.
Duff & Phelps Corporation
Long-Term Debt
AAA -- Highest credit quality. The risk factors are negligible,
being only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- -- High credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A+, A, A- -- Protection factors are average but adequate.
However, risk factors are more variable and greater in periods of
economic stress.
BBB+, BBB, BBB- -- Below-average protection factors but still
considered sufficient for prudent investment. Considerable
variability in risk during economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or
company fortunes. Overall quality may move up or down frequently
within this category.
B+, B, B- -- Below investment grade and possessing risk that
obligations will not be met when due. Financial protection
factors will fluctuate widely according to economic cycles,
industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a
higher or lower rating grade.
CCC -- Well below investment-grade securities. Considerable
uncertainty exists as to timely payment of principal, interest or
preferred dividends. Protection factors are narrow and risk can
be substantial with unfavorable economic/industry conditions,
and/or with unfavorable company developments.
DD -- Defaulted debt obligations. Issuer failed to meet
scheduled principal and/or interest payments.
Fitch Investors Service, Inc.
AAA -- Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be
affected by reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds
rated AAA.
A -- Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable
to adverse changes in economic conditions and circumstances than
bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
BB -- Bonds considered to be speculative. The obligor's ability
to pay interest and repay principal may be affected over time by
adverse economic changes. However, business and financial
alternatives can be identified which could assist the obligor in
satisfying its debt service requirements.
B -- Bonds are considered highly speculative. Bonds in this class
are lightly protected as to the obligor's ability to pay interest
over the life of the issue and repay principal when due.
CCC -- Bonds have certain characteristics which, with passing of
time, could lead to the possibility of default on either
principal or interest payments.
CC -- Bonds are minimally protected. Default in payment of
interest and/or principal seems probable.
C -- Bonds are in actual or imminent default in payment of
interest or principal.
DDD -- Bonds are in default and in arrears in interest and/or
principal payments. Such bonds are extremely speculative and
should be valued only on the basis of their value in liquidation
or reorganization of the obligor.
<PAGE>
PUTNAM ASSET ALLOCATION FUNDS
PUTNAM ASSET ALLOCATION: GROWTH PORTFOLIO
PUTNAM ASSET ALLOCATION: BALANCED PORTFOLIO
PUTNAM ASSET ALLOCATION: CONSERVATIVE PORTFOLIO
One Post Office Square
Boston, MA 02109
FUND INFORMATION:
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
INVESTOR SERVICING AGENT
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
CUSTODIAN
Putnam Fiduciary Trust Company
One Post Office Square
Boston, MA 02109
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110<PAGE>
PUTNAMINVESTMENTS
P.O. Box 989
Boston, Massachusetts 02103
Toll-free 1-800-225-1581
www.putnaminv.com
