PROSPECTUS
June 30, 1999
PUTNAM DIVERSIFIED
EQUITY TRUST
CLASS A, B, C AND M SHARES
INVESTMENT CATEGORY: GROWTH
This prospectus explains what you should know about this mutual
fund before you invest. Please read it carefully.
Putnam Investment Management, Inc. (Putnam Management), which has
managed mutual funds since 1937, manages the fund.
These securities have not been approved or disapproved by the
Securities and Exchange Commission nor has the Commission passed
upon the accuracy or adequacy of this prospectus. Any statement to
the contrary is a crime.
LOGO
BOSTON(LONDON(TOKYO
CONTENTS
2 Fund summary
2 Goal
2 Main investment strategies
2 Main risks
2 Performance information
4 Fees and expenses
5 What are the fund's main investment strategies and related risks?
7 Who manages the fund?
7 How does the fund price its shares?
8 How do I buy fund shares?
10 How do I sell fund shares?
10 How do I exchange fund shares?
11 Fund distributions and taxes
12 Financial highlights
FUND SUMMARY
GOAL
The fund seeks capital appreciation.
MAIN INVESTMENT STRATEGIES - GLOBAL GROWTH AND VALUE STOCKS
The fund normally invests mostly in common stock of companies
worldwide. The fund first selects thecountries and industries
Putnam Management finds attractive. Within them, it seeks stocks
offering opportunity for gain. These may include both growth
and value stocks. Growth stocks are issued by companies whose
earnings Putnam Management believes are likely to grow faster than
the economy as a whole. Value stocks are those that Putnam
Management believes are currently undervalued compared to their
true worth.
The fund invests mainly in medium and large-sized companies,
although it can invest in companies of any size. Although the fund
emphasizes investments in developed countries, it may also invest
in companies located in developing (also known as emerging)
markets.
MAIN RISKS
The main risks that could adversely affect the value of this
fund's shares and the total return on your investment include
The risks of investing outside the United States, such as currency
fluctuations, economic or financial instability, lack of timely or
reliable financial information, or unfavorable political or legal
developments in foreign markets. These risks are increased for
investments in emerging markets.
The risk that the stock price of one or more of the companies in
the fund's portfolio will fall, or will fail to appreciate as
anticipated by Putnam Management. Many factors can adversely
affect a stock's performance, including factors related to a
specific company or industry or general financial market
conditions. This risk is generally greater for small and medium-
sized companies, which tend to be more vulnerable to adverse
developments.
The risk that movements in the securities markets will adversely
affect the price of the fund's investments, regardless of how well
the companies in which the fund invests perform.
You can lose money by investing in the fund. The fund may not
achieve its goals, and is not intended as a complete investment
program. An investment in the fund is not a deposit of a bank and
is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
PERFORMANCE INFORMATION
The following information provides some indication of the fund's
risks. The chart shows year-to-year changes in the performance of
one of the fund's classes of shares, class A shares. The table
following the chart compares the fund's performance to that of two
broad measures of market performance. Of course, the fund's past
performance is not an indication of future performance.
CALENDAR YEAR TOTAL RETURNS FOR CLASS A SHARES
1998 17.95%
1997 23.37%
1996 16.56%
1995 28.86%
Performance figures in the bar chart do not reflect the impact of
sales charges. If they did, performance would be less than that
shown. Year-to-date performance through March 31, 1999 was 7.08%.
During the periods shown in the bar chart, the highest return for
a quarter was 21.20% (quarter ending 12/31/98) and the lowest
return for a quarter was -14.67% (quarter ending 9/30/98).
Average Annual Total Returns (for periods ending 12/31/98)
Past 1 year Since inception (7/1/94)
Class A 11.18% 18.03%
Class B 12.10% 18.66%
Class C 16.19% 18.85%
Class M 13.31% 18.26%
S&P 500 Index 28.58% 27.91%
MSCI EAFE 20.00% 8.22%
Unlike the bar chart, this performance information reflects the
impact of sales charges. Class A and class M share performance
reflects the current maximum initial sales charges; class B and
class C share performance reflects the maximum applicable deferred
sales charge if shares had been redeemed on 12/31/98. For periods
before the inception of class C shares (2/1/99) and class M shares
(7/3/95), performance shown for these classes in the table is
based on the performance of the fund's class A shares, adjusted to
reflect the appropriate sales charge and the higher 12b-1 fees
paid by the class C and class M shares. The fund's performance is
compared to the Standard & Poor's 500 Index, an unmanaged index of
common stocks frequently used as a general measure of U.S. stock
market performance, and the Europe, Australia and Far East (EAFE)
component of the Morgan Stanley Capital International
(MSCI) World Index, an unmanaged index of equity securities listed
on the stock exchanges of Europe, Australia and the Far East.
FEES AND EXPENSES
This table summarizes the fees and expenses you may pay if you
invest in the fund. Expenses are based on the fund's last
fiscal year.
Shareholder Fees
(fees paid directly from your investment)
Class A Class B Class C Class M
Maximum Sales Charge
(load) Imposed on
Purchases (as a percentage
of the offering price) 5.75% NONE* NONE* 3.50%*
Maximum Deferred Sales Charge
(load) (as a
percentage of the original
purchase price or redemption
proceeds, whichever is lower) NONE** 5.00% 1.00% NONE
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
Total Annual
Management Distribution Other Fund Operating
Fees (12b-1) Fees Expenses Expenses
Class A 0.68% 0.34% 0.24% 1.26%
Class B 0.68% 1.00% 0.24% 1.92%
Class C 0.68% 1.00% 0.24% 1.92%
Class M 0.68% 0.75% 0.24% 1.67%
* The higher 12b-1 fees borne by class B, class C and class M
shares may cause long-term class B, class C and class M
shareholders to pay more than the total sales charges paid
by class A shareholders .
** A deferred sales charge of up to 1% may be imposed on certain
redemptions of class A shares bought without an initial sales
charge.
EXAMPLE
This example translates the "total annual fund operating expenses"
shown in the preceding table into dollar amounts. By doing this,
you can more easily compare the cost of investing in the fund to
the cost of investing in other mutual funds. The example makes
certain assumptions. It assumes that you invest $10,000 in the
fund for the time periods shown and then, except as shown for
class B and class C shares, redeem all your shares at the end of
those periods. It also assumes a 5% return on your investment each
year and that the fund's operating expenses remain the same. The
example is hypothetical; your actual costs and returns may be
higher or lower.
1 year 3 years 5 years 10 years
Class A $696 $952 $1,227 $2,010
Class B $695 $903 $1,237 $2,072*
Class B $195 $603 $1,037 $2,072*
(no redemption)
Class C $295 $603 $1,037 $2,243
Class C $195 $603 $1,037 $2,243
(no redemption)
Class M $514 $858 $1,226 $2,257
* Reflects the conversion of class B shares to class A shares,
which pay lower 12b-1 fees. Conversion occurs no more than eight
years after purchase.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES AND RELATED RISKS?
Any investment carries with it some level of risk that generally
reflects its potential for reward. The fund pursues its goal by
investing mainly in growth and value stocks issued by companies
worldwide. Putnam Management will consider, among other things, a
company's financial strength, competitive position in its industry
and projected future earnings and dividends when deciding whether
to buy or sell investments. A description of the risks associated
with the fund's main investment strategies follows.
COMMON STOCKS. Common stock represents an ownership interest in a
company. The value of a company's stock may fall as a result of
factors relating directly to that company, such as decisions made
by its management or lower demand for the company's products or
services. Similarly, a stock's value may fall because of factors
affecting not just the company, but companies in a number of
different industries, such as increases in production costs. The
value of a company's stock may also be affected by changes in
financial markets relatively unrelated to the company or its
industry, such as changes in interest rates or currency exchange
rates. In addition, a company's stock generally pays dividends
only after the company makes required payments to holders of its
bonds and other debt. For this reason, the value of the stock will
usually react more strongly than the bonds and other debt to
actual or perceived changes in the company's financial condition
or prospects.
GROWTH STOCKS. The fund may invest in stocks of companies that
Putnam Management believes have earnings that will grow faster
than the economy as a whole. These growth stocks typically trade
at higher multiples of current earnings than other stocks.
Therefore, the values of growth stocks may be more sensitive to
changes in current or expected earnings than the values of other
stocks. If Putnam Management's assessment of the prospects for the
company's earnings growth is wrong, or if its judgment of how
other investors will value the company's earnings growth is wrong,
then the price of the company's stock may fall or not approach the
value that Putnam Management has placed on it.
VALUE STOCKS. The fund may also invest in companies that are not
expected to experience significant earnings growth, but whose
stock Putnam Management believes is undervalued compared to its
true worth. These companies may have experienced adverse business
developments or may be subject to special risks that have caused
their stocks to be out of favor. If Putnam Management's assessment
of a company's prospects is wrong, or if other investors do not
eventually recognize the value of the company, then the price of
the company's stock may fall or may not approach the value that
Putnam Management has placed on it.
FOREIGN INVESTMENTS. The fund may invest without limit in
securities of foreign issuers. Foreign investments involve certain
special risks, including
Unfavorable changes in currency exchange rates: Foreign
investments are normally issued and traded in foreign currencies.
As a result, their values may be affected by changes in the
exchange rates between particular foreign currencies and the U.S.
dollar.
Political and economic developments: Foreign investments may be
subject to the risks of seizure by a foreign government,
imposition of restrictions on the exchange or transport of foreign
currency, and tax increases.
Unreliable or untimely information: There may be less information
publicly available about a foreign company than about most U.S.
companies, and foreign companies are usually not subject to
accounting, auditing and financial reporting standards and
practices as stringent as those in the United States.
Limited legal recourse: Legal remedies for investors such as the
fund may be more limited than those available in the United
States.
Limited markets: Certain foreign investments may be less liquid
(harder to buy and sell) and more volatile than domestic
investments, which means the fund may at times be unable to sell
these foreign investments at desirable prices. For the same
reason, the fund may at times find it difficult to value its
foreign investments.
Trading practices: Brokerage commissions and other fees are
generally higher for foreign investments than for domestic
investments. The procedures and rules for settling foreign
transactions may also involve delays in payment, delivery or
recovery of money or investments.
Lower Yield: Common stocks of foreign companies have historically
offered lower dividends than comparable U.S. companies. Foreign
withholding taxes may further reduce the amount of income
available to distribute to shareholders of the fund. The fund's
yield is therefore expected to be lower than yields of most funds
that invest mainly in common stocks of U.S. companies.
Certain of these risks may also apply to some extent to U.S.-
traded investments that are denominated in foreign currencies,
investments in U.S. companies that are traded in foreign markets,
or to investments in U.S. companies that have significant foreign
operations. Special U.S. tax considerations may apply to the
fund's foreign investments.
The risks of foreign investments are typically increased
in less developed and developing countries, which are sometimes
referred to as emerging markets. For example, political and
economic structures in these countries may be young and developing
rapidly, which can cause instability. These countries are also
more likely to experience high levels of inflation, deflation or
currency devaluation, which could hurt their economies and
securities markets. For these and other reasons, investments in
emerging markets are often considered speculative.
DERIVATIVES. The fund may engage in a variety of transactions
involving derivatives, such as futures, options, warrants and swap
contracts. Derivatives are financial instruments whose value
depends upon, or is derived from, the value of something else,
such as one or more underlying investments, pools of investments,
indexes or currencies. The fund's return of a derivative typically
depends on the change in the value of the investment, pool of
investments, index or currency specified in the derivative
instrument.
The fund may use derivatives both for hedging and non-hedging
purposes. The decision as to whether and to what extent the fund
will use derivatives for hedging purposes will depend upon a
number of factors, including market conditions, the fund's
investments and the availability of suitable derivatives. Although
Putnam Management has the flexibility to use these strategies, it
may choose not to for a variety of reasons, even under very
volatile market conditions. Derivatives involve special risks and
may result in losses. The fund will be dependent on Putnam
Management's ability to analyze and manage these sophisticated
instruments. The prices of derivatives may move in unexpected
ways, especially in abnormal market conditions. Some derivatives
are leveraged and therefore may magnify or otherwise increase
investment losses to the fund. The fund's use of derivatives may
also increase the amount of taxes payable by shareholders.
Other risks arise from the potential inability to terminate or
sell derivatives positions. A liquid secondary market may not
always exist for the fund's derivatives positions at any time. In
fact, many over-the-counter instruments (investments not traded on
an exchange) will not be liquid. Over-the-counter instruments also
involve the risk that the other party will not meet its
obligations to the fund. For further information about the risks
of derivatives, see the statement of additional information (SAI).
SMALLER COMPANIES. The fund can invest in small and medium-sized
companies. These companies, which may have market capitalizations
of less than $1 billion, are more likely than larger companies to
have limited product lines, markets or financial resources, or to
depend on a small, inexperienced management group. Stocks of these
companies may trade less frequently and in limited volume, and
their prices may fluctuate more than stocks of other companies.
Stocks of these companies may therefore be more vulnerable to
adverse developments than those of larger companies.
FREQUENT TRADING. The fund may buy and sell investments relatively
often, which involves higher brokerage commissions and other
expenses, and may increase the amount of taxes payable by
shareholders.
OTHER INVESTMENTS. In addition to the main investment strategies
described above, the fund may also make other types of
investments, such as investments in preferred stocks, convertible
securities and fixed income securities, and, therefore, may be
subject to other risks, as described in the fund's SAI .
ALTERNATIVE STRATEGIES. At times Putnam Management may judge that
market conditions make pursuing the fund's investment strategies
inconsistent with the best interests of its shareholders. Putnam
Management then may temporarily use alternative strategies that
are mainly designed to limit the fund's losses, including
investing solely in the United States. Although Putnam Management
has the flexibility to use these strategies, it may choose not to
for a variety of reasons, even in very volatile market conditions.
These strategies may cause the fund to miss out on investment
opportunities, and may prevent the fund from achieving its goal.
CHANGES IN POLICIES. The fund's Trustees may change the fund's
goal, investment strategies and other policies without shareholder
approval, except as otherwise indicated.
WHO MANAGES THE FUND?
The fund's Trustees oversee the general conduct of the fund's
business. The Trustees have retained Putnam Management to be the
fund's investment manager, responsible for making investment
decisions for the fund and managing the fund's other affairs and
business. The fund pays Putnam Management a quarterly management
fee for these services based on the fund's average net assets. The
fund paid Putnam Management a management fee of 0.68% of average
net assets for the fund's last fiscal year. Putnam Management's
address is One Post Office Square, Boston, MA 02109.
The following officers of Putnam Management have had primary
responsibility for the day-to-day management of the fund's
portfolio since the years shown below. Their experience as
portfolio managers or investment analysts over at least the last
five years is also shown.
Manager Since Experience
Omid Kamshad
Managing Director 1997 Employed by Putnam Management since 1996.
Prior to 1996, Mr. Kamshad was employed by
Lombard Odier International and prior to
April, 1995, was employed by Baring Asset
Management Company.
Justin M. Scott
Managing Director 1998 Employed by Putnam Management since 1988.
Michael K. Arends
Senior Vice President 1999 Employed by Putnam Management since 1997.
Prior to November, 1997, Mr. Arends was
employed by Phoenix Duff & Phelps and prior to
August, 1994, was employed by Kemper
Financial Services.
Michael P. Stack
Senior Vice President 1998 Employed by Putnam Management since 1997.
Prior to November, 1997, Mr. Stack was
employed by Independence Investment
Associates Inc.
Paul C. Warren
Senior Vice President 1998 Employed by Putnam Management since 1997.
Prior to May, 1997, Mr. Warren was employed
by IDS Fund Management, and prior to August,
1994, was employed by Pilgrim Baxter Associates.
YEAR 2000 ISSUES. The fund could be adversely affected if the
computer systems used by Putnam Management and the fund's other
service providers do not properly process and calculate date-
related information relating to the end of this century and the
beginning of the next. While year 2000-related computer problems
could have a negative effect on the fund, both in its operations
and in its investments, Putnam Management is working to avoid such
problems and to obtain assurances from service providers that they
are taking similar steps. No assurances, though, can be provided
that the fund will not be adversely impacted by these matters.
HOW DOES THE FUND PRICE ITS SHARES?
The price of the fund's shares is based on its net asset value
(NAV). The NAV per share of each class equals the total value of
its assets, less its liabilities, divided by the number of its
outstanding shares. Shares are only valued as of the close of
regular trading on the New York Stock Exchange each day the
exchange is open.
The fund values its investments for which market quotations are
readily available at market value. It values short-term
investments that will mature within 60 days at amortized cost,
which approximates market value. It values all other investments
and assets at their fair value.
The fund translates prices for its investments quoted in foreign
currencies into U.S. dollars at current exchange rates. As a
result, changes in the value of those currencies in relation to
the U.S. dollar may affect the fund's NAV. Because foreign markets
may be open at different times than the New York Stock Exchange,
the value of the fund's shares may change on days when
shareholders are not able to buy or sell them. If events
materially affecting the values of the fund's foreign investments
occur between the close of foreign markets and the close of
regular trading on the New York Stock Exchange, these investments
will be valued at their fair value.
HOW DO I BUY FUND SHARES?
You can open a fund account with as little as $500 and make
additional investments at any time with as little as $50. The fund
sells its shares at the offering price, which is the NAV plus any
applicable sales charge. Your financial advisor or Putnam Investor
Services generally must receive your completed buy order before
the close of regular trading on the New York Stock Exchange for
your shares to be bought at that day's offering price.
You can buy shares
THROUGH A FINANCIAL ADVISOR. Your advisor will be responsible for
furnishing all necessary documents to Putnam Investor Services,
and may charge you for his or her services.
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
through your advisor or Putnam Investor Services at 1-800-225-
1581.
You may also complete an order form and write a check for the
amount you wish to invest, payable to the fund. Return the check
and completed form to Putnam Mutual Funds.
The fund may periodically close to new purchases of shares or
refuse any order to buy shares if the fund determines that doing
so would be in the best interests of the fund and its
shareholders.
WHICH CLASS OF SHARES IS BEST FOR ME?
This prospectus offers you a choice of four classes of fund
shares: A, B, C and M. This allows you to choose among different
types of sales charges and different levels of ongoing operating
expenses, as illustrated in the "Fees and expenses" section. The
class of shares that is best for you depends on a number of
factors, including the amount you plan to invest and how long you
plan to hold the shares. Here is a summary of the differences
among the classes of shares:
CLASS A SHARES
Initial sales charge of up to 5.75%
Lower sales charge for investments of $50,000 or more
No deferred sales charge (except on certain redemptions of shares
bought without an initial sales charge)
Lower annual expenses, and higher dividends, than class B, C or M
shares because of lower 12b-1 fee
CLASS B SHARES
No initial sales charge; your entire investment goes to work for
you
Deferred sales charge of up to 5% if you sell shares within 6
years after you bought them
Higher annual expenses, and lower dividends, than class A or M
shares because of higher 12b-1 fee
Convert automatically to class A shares after 8 years, reducing
the future 12b-1 fee (may convert sooner in some cases)
Orders for class B shares for more than $250,000 are treated as
orders for class A shares or refused
CLASS C SHARES
No initial sales charge; your entire investment goes to work for
you
Deferred sales charge of 1.00% if you sell shares within 1
year after you bought them
Higher annual expenses, and lower dividends, than class A or M
shares because of higher 12b-1 fee
No conversion to class A shares, so future 12b-1 fee does not
decrease
Orders of $1,000,000 or more and orders which because of a right
of accumulation or statement of intent would qualify for the
purchase of class A shares without an initial sales charge will be
treated as orders for class A shares or declined
CLASS M SHARES
Initial sales charge of up to 3.50%
Lower sales charges for larger investments of $50,000 or more
No deferred sales charge
Lower annual expenses, and higher dividends, than class B or C
shares because of lower 12b-1 fee
Higher annual expenses, and lower dividends, than class A shares
because of higher 12b-1 fee
No conversion to class A shares, so future 12b-1 fee does not
decrease
Initial sales charges for class A and M shares
Class A sales charge Class M sales charge
as a percentage of: as a percentage of:
Amount of purchase Net Amount Offering Net Amount Offering
at offering price ($) Invested price* invested Price*
Under 50,000 6.10% 5.75% 3.63% 3.50%
50,000 but under 100,000 4.71 4.50 2.56 2.50
100,000 but under 250,000 3.63 3.50 1.52 1.50
250,000 but under 500,000 2.56 2.50 1.01 1.00
500,000 but under 1,000,000 2.04 2.00 NONE NONE
1,000,000 and above NONE NONE NONE NONE
* Offering price includes sales charge.
Deferred sales charges for class B, class C and certain class A
shares
If you sell (redeem) class B shares within six years after you
bought them, you will generally pay a deferred sales charge
according to the following schedule.
Year after purchase
1 2 3 4 5 6 7+
Charge 5% 4% 3% 3% 2% 1% 0%
A deferred sales charge of 1% will apply to class C shares
if redeemed within one year of purchase. A deferred sales charge
of up to 1% may apply to class A shares purchased without an
initial sales charge, if redeemed within two years after purchase.
Deferred sales charges will be based on the lower of the shares'
cost and current NAV. Shares not subject to any charge will be
redeemed first, followed by shares held longest. You may sell
shares acquired by reinvestment of distributions without a charge
at any time.
YOU MAY BE ELIGIBLE FOR REDUCTIONS AND WAIVERS OF SALES CHARGES.
Sales charges may be reduced or waived under certain circumstances
and for certain groups. Information about reductions and waivers
of sales charges is included in the SAI. You may consult your
financial advisor or Putnam Mutual Funds for assistance.
DISTRIBUTION (12B-1) PLANS. The fund has adopted distribution
plans to pay for the marketing of fund shares and for services
provided to shareholders. The plans provide for payments at annual
rates (based on average net assets) of up to 0.65% on class A
shares and 1.00% on class B, class C and class M shares. The
Trustees currently limit payments on class A shares to an amount
sufficient to compensate investment dealers, up to an annual rate
of 0.50% of average net assets. The Trustees currently limit
payments on class M shares to 0.75% of average net assets. Because
these fees are paid out of the fund's assets on an ongoing basis,
they will increase the cost of your investment. The higher fees
for class B, class C and class M shares may cost you more than
paying the initial sales charge for class A shares. Because class
C and class M shares, unlike class B shares, do not convert to
class A shares, class C and class M shares may cost you more over
time than class B shares.
HOW DO I SELL FUND SHARES?
You can sell your shares back to the fund any day the New York
Stock Exchange is open, either through your financial advisor or
directly to the fund. Payment for redemption may be delayed until
the fund collects the purchase price of shares, which may take up
to 15 calendar days after the purchase date.
SELLING SHARES THROUGH YOUR FINANCIAL ADVISOR. Your advisor must
receive your request in proper form before the close of regular
trading on the New York Stock Exchange for you to receive that
day's NAV, less any applicable deferred sales charge. Your advisor
will be responsible for furnishing all necessary documents to
Putnam Investor Services on a timely basis and may charge you for
his or her services.
SELLING SHARES DIRECTLY TO THE FUND. Putnam Investor Services must
receive your request in proper form before the close of regular
trading on the New York Stock Exchange in order to receive that
day's NAV, less any applicable sales charge.
By mail. Send a signed letter of instruction to Putnam Investor
Services. If you have certificates for the shares you want to
sell, you must include them along with completed stock power
forms.
By telephone. You may use Putnam's Telephone Redemption Privilege
to redeem shares valued at less than $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 accept
redemption and transfer instructions received by telephone.
The Telephone Redemption Privilege is not available if there are
certificates for your shares. The Telephone Redemption Privilege
may be modified or terminated without notice.
ADDITIONAL DOCUMENTS. If you
sell shares with a value of $100,000 or more,
want your redemption proceeds sent to an address other than your
address as it appears on Putnam's records, or
have notified Putnam of a change in address within the preceding
15 days ,
the signatures of registered owners or their legal representatives
must be guaranteed by a bank, broker-dealer or certain other
financial institutions. Stock power forms are available from your
financial advisor, Putnam Investor Services and many commercial
banks.
Putnam Investor Services usually requires additional documents for
the sale of shares by a corporation, partnership, agent or
fiduciary, or a surviving joint owner. Contact Putnam Investor
Services for details.
WHEN WILL THE FUND PAY ME? The fund generally sends you payment
for your shares the business day after your request is received.
Under unusual circumstances, the fund may suspend redemptions, or
postpone payment for more than seven days, as permitted by federal
securities law.
REDEMPTION BY THE FUND. If you own fewer shares than the minimum
set by the Trustees (presently 20 shares), the fund may redeem
your shares without your permission and send you the proceeds. The
fund may also redeem shares if you own more than a maximum amount
set by the Trustees. There is presently no maximum, but the
Trustees could set a maximum that would apply to both present and
future shareholders.
HOW DO I EXCHANGE FUND SHARES?
If you want to switch your investment from one Putnam fund to
another, you can exchange your fund shares for shares of the same
class of another Putnam fund at NAV. Not all Putnam funds offer
all classes of shares or are open to new investors. If you
exchange shares subject to a deferred sales charge, the
transaction will not be subject to the deferred sales charge. When
you redeem the shares acquired through the exchange, the
redemption may be subject to the deferred sales charge, depending
upon when you originally purchased the shares. The deferred sales
charge 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 deferred sales charge applicable to your
class of shares. For purposes of computing the deferred sales
charge, 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, complete an Exchange Authorization Form
and send it to Putnam Investor Services. The form is available
from Putnam Investor Services. A Telephone Exchange Privilege is
currently available for amounts up to $500,000. The Telephone
Exchange Privilege is not available if the fund issued
certificates for your shares. Ask your financial advisor or Putnam
Investor Services for prospectuses of other Putnam funds. Some
Putnam funds are not available in 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 otherwise to
promote the best interests of the fund, the fund reserves the
right to revise or terminate the exchange privilege, limit the
amount or number of exchanges or reject any exchange. The fund
into which you would like to exchange may also reject your
exchange. These actions may apply to all shareholders or only to
those shareholders whose exchanges Putnam Management determines
are likely to have a negative effect on the fund or other Putnam
funds. Consult Putnam Investor Services before requesting an
exchange.
FUND DISTRIBUTIONS AND TAXES
The fund distributes any net investment income and any net
realized capital gains at least once a year. You may choose to:
reinvest all distributions in additional shares;
receive any distributions from net investment income in cash while
reinvesting capital gains distributions in additional shares; or
receive all distributions in cash.
If you do not select an option when you open your account, all
distributions will be reinvested. If you do not cash a
distribution check within a specified period or notify Putnam
Investor Services to issue a new check, the distribution will be
reinvested in the fund. You will not receive any interest on
uncashed distribution or redemption checks. Similarly, if any
correspondence sent by the fund or Putnam Investor Services is
returned as "undeliverable," fund distributions will automatically
be reinvested in the fund or in another Putnam fund.
For federal income tax purposes, distributions of investment
income are taxable as ordinary income. Taxes on distributions of
capital gains are determined by how long the fund owned the
investments that generated them, rather than how long you have
owned your shares. Distributions are taxable to you even if they
are paid from income or gains earned by the fund before your
investment (and thus were included in the price you paid).
Distributions of gains from investments that the fund owned for
more than one year will be taxable as capital gains. Distributions
of gains from investments that the fund owned for one year or less
will be taxable as ordinary income. Distributions are taxable
whether you received them in cash or reinvested them in additional
shares.
The fund's investments in foreign securities may be subject to
foreign withholding taxes. In that case, the fund's yield on those
securities would be decreased. Shareholders may be entitled
to claim a credit or deduction with respect to foreign taxes. In
addition, the fund's investment in foreign securities or foreign
currencies may increase the amount of taxes payable by
shareholders.
Any gain resulting from the sale or exchange of your shares will
generally also be subject to tax. You should consult your tax
advisor for more information on your own tax situation, including
possible foreign, state and local taxes.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand
the fund's recent financial performance. Certain information
reflects financial results for a single fund share. The total
returns represent the rate that an investor would have earned or
lost on an investment in the fund, assuming reinvestment of all
dividends and distributions. This information has been derived
from the fund's financial statements, which have been audited by
PricewaterhouseCoopers LLP. Its report and the fund's financial
statements are included in the fund's annual report to
shareholders, which is available upon request.
FINANCIAL HIGHLIGHTS
CLASS A
Per-share operating performance Year ended Feb. 28
Year ended Feb. 29 For the period July 1, 1994+ to Feb. 28
1999 1998 1997 1996 1995
Net asset value,
beginning of period $13.18 $11.85 $11.02 $8.83 $8.50
Investment operations
Net investment income (loss) .02c .03c .06c .06 .03c
Net realized and unrealized
gain on investments 1.66 3.06 1.77 2.60 .32
Total from investment
operations 1.68 3.09 1.83 2.66 .35
Less distributions:
From net investment income -- (.05) (.12) (.08) --
From net realized gain on
investments (1.24) (1.66) (.83) (.39) --
In excess of net investment
income -- (.05) (.05) -- --
In excess of net realized
gain on investments -- -- -- -- (.02)
Total distributions (1.24) (1.76) (1.00) (.47) (.02)
Net asset value, end of
period $13.62 $13.18 $11.85 $11.02 $8.83
Ratios and supplemental data
Total return at net
asset value (%)a 13.08 27.74 16.92 30.58 4.13*
Net assets, end of period
(in thousands) $302,556 $270,536 $199,305 $142,513 $93,144
Ratio of expenses to
average net assets (%)b 1.26 1.37 1.43 1.56 1.12*
Ratio of net investment income
to average net assets (%) .17 .20 .48 .60 .37*
Portfolio turnover (%) 241.46 97.77 82.07 72.00 46.52*
+ Commencement of operations.
* Not annualized.
a Total return assumes dividend reinvestment and does not
reflect the effect of sales charges.
b The ratio of expenses to average net assets for the period
ended February 29, 1996 and thereafter includes amounts paid
through brokerage service and expense offset arrangements. Prior
period ratios exclude these amounts.
c Per share net investment income (loss) has been determined on
the basis of the weighted average number of shares outstanding
during the period.
FINANCIAL HIGHLIGHTS
CLASS B
For the
Year period
ended July 1, 1994+
Per-share operating performance Year ended Feb. 28 Feb. 29 to Feb. 28
1999 1998 1997 1996 1995
Net asset value,
beginning of period $13.07 $11.77 $10.97 $8.80 $8.50
Investment operations
Net investment income (loss) (.07)c (.06)c (.01)c .01 --c
Net realized and unrealized
gain on investments 1.64 3.05 1.76 2.60 .32
Total from investment operations 1.57 2.99 1.75 2.61 .32
Less distributions:
From net investment income -- (.01) (.09) (.05) --
From net realized gain on
investments (1.24) (1.66) (.83) (.39) --
In excess of net investment
income -- (.02) (.03) -- --
In excess of net realized gain
on investments -- -- -- -- (.02)
Total distributions (1.24) (1.69) (.95) (.44) (.02)
Net asset value, end of period $13.40 $13.07 $11.77 $10.97 $8.80
Ratios and supplemental data
Total return at net asset value
(%)a 12.33 26.98 16.19 30.05 3.77*
Net assets, end of period
(in thousands) $377,386 $333,642 $232,117 $150,679 $75,998
Ratio of expenses to
average net assets (%)b 1.92 2.00 2.02 2.09 1.45*
Ratio of net investment income (loss)
to average net assets (%) (.49) (.44) (.12) .05 .05*
Portfolio turnover (%) 241.46 97.77 82.07 72.00 46.52*
+ Commencement of operations.
* Not annualized.
a Total return assumes dividend reinvestment and does not
reflect the effect of sales charges.
b The ratio of expenses to average net assets for the period
ended February 29, 1996 and thereafter includes amounts paid
through brokerage service and expense offset arrangements. Prior
period ratios exclude these amounts.
c Per share net investment income (loss) has been determined on
the basis of the weighted average number of shares outstanding
during the period.
FINANCIAL HIGHLIGHTS
CLASS C
For the period
February 1, 1999+
Per-share operating performance to February 28
1999
Net asset value,
beginning of period $14.15
Investment operations
Net investment income (loss) -- c
Net realized and unrealized
gain on investments (.52)
Total from investment operations (.52)
Less distributions:
From net investment income --
From net realized gain on investments --
In excess of net investment income --
In excess of net realized gain on investments --
Total distributions --
Net asset value, end of period $13.63
Ratios and supplemental data
Total return at net asset value (%)a (3.68)*
Net assets, end of period
(in thousands) $190
Ratio of expenses to
average net assets (%)b .15*
Ratio of net investment income (loss)
to average net assets (%) (.05)*
Portfolio turnover (%) 241.46
+ Commencement of operations.
* Not annualized.
a Total return assumes dividend reinvestment and does not
reflect the effect of sales charges.
b The ratio of expenses to average net assets for the period
ended February 29, 1996 and thereafter includes amounts paid
through brokerage service and expense offset arrangements.
c Per share net investment income (loss) has been determined on
the basis of the weighted average number of shares outstanding
during the period.
FINANCIAL HIGHLIGHTS
CLASS M
For the period
July 3, 1995+
Per-share operating performance Year ended Feb. 28 to Feb. 29
1999 1998 1997 1996
Net asset value,
beginning of period $13.11 $11.80 $11.01 $9.76
Investment operations
Net investment income (loss) (.03)c (.03)c .01c --c
Net realized and unrealized
gain on investments 1.64 3.07 1.78 1.72
Total from investment operations 1.61 3.04 1.79 1.72
Less distributions:
From net investment income -- (.03) (.12) (.08)
From net realized gain on
investments (1.24) (1.66) (.83) (.39)
In excess of net investment income -- (.04) (.05) --
In excess of net realized gain
on investments -- -- -- --
Total distributions (1.24) (1.73) (1.00) (.47)
Net asset value,
end of period $13.48 $13.11 $11.80 $11.01
Ratios and supplemental data
Total return at net asset
value (%)a 12.61 27.36 16.51 17.95*
Net assets, end of period
(in thousands) $29,384 $25,145 $14,791 $3,901
Ratio of expenses to
average net assets (%)b 1.67 1.75 1.77 1.23*
Ratio of net investment income (loss)
to average net assets (%) (.25) (.22) .05 --*
Portfolio turnover (%) 241.46 97.77 82.07 72.00
+ Commencement of operations.
* Not annualized.
a Total return assumes dividend reinvestment and does not
reflect the effect of sales charges.
b The ratio of expenses to average net assets for the period
ended February 29, 1996 and thereafter includes amounts paid
through brokerage service and expense offset arrangements.
c Per share net investment income (loss) has been determined on
the basis of the weighted average number of shares outstanding
during the period.
FOR MORE INFORMATION ABOUT PUTNAM DIVERSIFIED EQUITY TRUST
The fund's statement of additional information (SAI) and annual
and semi-annual reports to shareholders include additional
information about the fund. The SAI, and the auditor's report and
financial statements included in the fund's most recent annual
report to its shareholders, are incorporated by reference into
this prospectus, which means they are part of this prospectus for
legal purposes. The fund's annual report discusses the market
conditions and investment strategies that significantly affected
the fund's performance during its last fiscal year. You may get
free copies of these materials, request other information about
the fund and other Putnam funds, or make shareholder inquiries, by
contacting your financial advisor or Putnam's Web site, or by
calling Putnam toll-free at 1-800-225-1581.
You may review and copy information about the fund, including its
SAI, at the Securities and Exchange Commission's public reference
room in Washington, D.C. You may call the Commission at 1-800-SEC-
0330 for information about the operation of the public reference
room. You may also access reports and other information about the
fund on the Commission's Internet site at http://www.sec.gov. You
may get copies of this information, with payment of a duplication
fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009. You may need to refer to the fund's
file number.
PUTNAM INVESTMENTS
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
1-800-225-1581
ADDRESS CORRESPONDENCE TO:
PUTNAM INVESTOR SERVICES
P.O. BOX 989
BOSTON, MA 02103
www.putnaminv.com
File No. 811 - 7165
PUTNAM DIVERSIFIED EQUITY TRUST
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
JUNE 30, 1999
This SAI is not a prospectus and is only authorized for
distribution when accompanied or preceded by the prospectus of the
fund dated June 30, 1999, as revised from time to time. This SAI
contains information that may be useful to investors but that is
not included in the prospectus. If the fund has more than one
form of current prospectus, each reference to the prospectus in
this SAI shall include all of the fund's prospectuses, unless
otherwise noted. The SAI should be read together with the
applicable prospectus. Certain disclosure has been incorporated
by reference from the fund's annual report. For a free copy of
the fund's annual report or prospectus, call Putnam Investor
Services at 1-800-225-1581 or write Putnam Investor Services,
Mailing address: P.O. Box 41203, Providence, RI 02940-1203.
Part I of this SAI contains specific information about the fund.
Part II includes information about the fund and the other Putnam
funds.
TABLE OF CONTENTS
PART I
FUND ORGANIZATION AND CLASSIFICATION I-3
INVESTMENT RESTRICTIONS I-3
CHARGES AND EXPENSES I-5
INVESTMENT PERFORMANCE I-11
ADDITIONAL OFFICERS I-12
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS I-13
PART II
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS II-1
TAXES II-25
MANAGEMENT II-28
DETERMINATION OF NET ASSET VALUE II-36
HOW TO BUY SHARES II-37
DISTRIBUTION PLANS II-48
INVESTOR SERVICES II-49
SIGNATURE GUARANTEES II-52
SUSPENSION OF REDEMPTIONS II-53
SHAREHOLDER LIABILITY II-53
STANDARD PERFORMANCE MEASURES II-53
COMPARISON OF PORTFOLIO PERFORMANCE II-54
SECURITIES RATINGS II-58
DEFINITIONS II-62
SAI
PART I
FUND ORGANIZATION AND CLASSIFICATION
Putnam Diversified Equity Trust is a Massachusetts business trust
organized on April 13, 1994. A copy of the Agreement and
Declaration of Trust, which is governed by Massachusetts law, is
on file with the Secretary of State of The Commonwealth of
Massachusetts.
The fund is an open-end, diversified management investment company
with an unlimited number of authorized shares of beneficial
interest. The Trustees may, without shareholder approval, create
two or more series of shares representing separate investment
portfolios. Any such series of shares may be divided without
shareholder approval into two or more classes of shares having
such preferences and special or relative rights and privileges as
the Trustees determine. The fund's shares are not currently
divided into series. The fund offers 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 certain classes of shares, contact your
investment dealer or Putnam Mutual Funds (at 1-800-225-1581).
Each share has one vote, with fractional shares voting
proportionally. Shares of all classes will vote together as a
single class except when otherwise required by law or as
determined by the Trustees. Shares are freely transferable, are
entitled to dividends as declared by the Trustees, and, if the
fund were liquidated, would receive the net assets of the fund.
The fund may suspend the sale of shares at any time and may refuse
any order to purchase shares. Although the fund is not required
to hold annual meetings of its shareholders, shareholders holding
at least 10% of the outstanding shares entitled to vote have the
right to call a meeting to elect or remove Trustees, or to take
other actions as provided in the Agreement and Declaration of
Trust.
The fund is a "diversified" investment company under the
Investment Company Act of 1940. This means that with respect to
75% of its total assets, the fund may not invest more than 5% of
its total assets in the securities of any one issuer (except U.S.
government securities). The remaining 25% of its total assets is
not subject to this restriction. To the extent the fund invests a
significant portion of its assets in the securities of a
particular issuer, it will be subject to an increased risk of loss
if the market value of such issuer's securities declines.
INVESTMENT RESTRICTIONS
AS FUNDAMENTAL INVESTMENT RESTRICTIONS, WHICH MAY NOT BE CHANGED
WITHOUT A VOTE OF A MAJORITY OF THE OUTSTANDING VOTING SECURITIES,
THE FUND MAY NOT AND WILL NOT:
(1) Borrow money in excess of 10% of the value (taken at the
lower of cost or current value) of its total assets (not including
the amount borrowed) at the time the borrowing is made, and then
only from banks as a temporary measure to facilitate the meeting
of redemption requests (not for leverage) which might otherwise
require the untimely disposition of portfolio investments or for
extraordinary or emergency purposes. Such borrowings will be
repaid before any additional investments are purchased.
(2) Underwrite securities issued by other persons except to the
extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under certain
federal securities laws.
(3) Purchase or sell real estate, although it may purchase
securities of issuers which deal in real estate, securities which
are secured by interests in real estate, and securities which
represent interests in real estate, and it may acquire and dispose
of real estate or interests in real estate acquired through the
exercise of its rights as a holder of debt obligations secured by
real estate or interests therein.
(4) Purchase or sell commodities or commodity contracts, except
that the fund may purchase and sell financial futures contracts
and options.
(5) Make loans, except by purchase of debt obligations in which
the fund may invest consistent with its investment policies, by
entering into repurchase agreements with respect to not more than
25% of its total assets (taken at current value) or through the
lending of its portfolio securities with respect to not more than
25% of its total assets (taken at current value).
(6) With respect to 75% of its total assets, invest in securities
of any issuer if, immediately after such investment, more than 5%
of the total assets of the fund (taken at current value) would be
invested in the securities of such issuer; provided that this
limitation does not apply to obligations issued or guaranteed as
to interest or principal by the U.S. government or its agencies or
instrumentalities or its political subdivisions.
(7) With respect to 75% of its total assets, acquire more than 10%
of the voting securities of any issuer.
(8) Purchase securities (other than securities of the U.S.
government, its agencies or instrumentalities) if, as a result of
such purchase, more than 25% of the fund's total assets would be
invested in any one industry.
(9) Issue any class of securities which is senior to the fund's
shares of beneficial interest.
Although certain of the fund's fundamental investment restrictions
permit it to borrow money to a limited extent, the fund does not
currently intend to do so and did not do so last year.
The Investment Company Act of 1940 provides that a "vote of a
majority of the outstanding voting securities" of the fund means
the affirmative vote of the lesser of (1) more than 50% of the
outstanding fund shares, or (2) 67% or more of the shares present
at a meeting if more than 50% of the outstanding fund shares are
represented at the meeting in person or by proxy.
IT IS CONTRARY TO THE FUND'S PRESENT POLICY, WHICH MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL, TO:
Invest in (a) securities which are not readily marketable, (b)
securities restricted as to resale (excluding securities
determined by the Trustees of the fund (or the person designated
by the Trustees of the fund to make such determinations) to be
readily marketable), and (c) repurchase agreements maturing in
more than seven days, if, as a result, more than 15% of the fund's
net assets (taken at current value) would be invested in
securities described in (a), (b) and (c) above.
GLOBAL INVESTMENTS.The fund normally invests at least 65% of
its assets in equity securities of companies located in at least
three different countries, one of which may be the United
States.
- ---------------------
All percentage limitations on investments (other than pursuant to
the non-fundamental restriction) will apply at the time of the
making of an investment and shall not be considered violated
unless an excess or deficiency occurs or exists immediately after
and as a result of such investment.
---------------------
The portfolio turnover rate for the fund's 1998 fiscal year was
higher than the portfolio turnover rate for the fund's prior
fiscal year due to the implementation of a change in the fund's
investment strategy to permit it to have more flexibility in
choosing investments consistent with its being a global fund.
- ---------------------
CHARGES AND EXPENSES
MANAGEMENT FEES
Under a Management Contract dated June 20, 1996, the fund pays a
quarterly fee to Putnam Management based on the average net assets
of the fund, as determined at the close of each business day
during the quarter, at the annual rate of 0.70% of the first $500
million of the fund's average net assets, 0.60% of the next $500
million, 0.55% of the next $500 million, 0.50% of the next $5
billion, 0.475% of the next $5 billion, 0.455% of the next $5
billion, 0.44% of the next $5 billion, and 0.43% thereafter. For
the past three fiscal years, pursuant to the Management Contract
(and a management contract in effect prior to June 20, 1996, under
which the management fee payable to Putnam Management was paid at
the rate of 0.70% of the first $500 million of the fund's average
net assets, 0.60% of the next $500 million, 0.55% of the next $500
million, and 0.50% of any amount over $1.5 billion), the fund
incurred the following fees:
FISCAL YEAR MANAGEMENT
FEE PAID
1999 $4,487,302
1998 $3,683,382
1997 $2,619,329
Brokerage commissions
The following table shows brokerage commissions paid during the
fiscal periods indicated:
FISCAL YEAR BROKERAGE COMMISSIONS
1999 $4,024,672
1998 $1,557,446
1997 $895,074
The following table shows transactions placed with brokers and
dealers during the most recent fiscal year to recognize research,
statistical and quotation services received by Putnam Management
and its affiliates:
PERCENT OF
DOLLAR VALUE TOTAL AMOUNT OF
OF THESE TRANSACTIONS TRANSACTIONS COMMISSIONS
$1,755,830,895 66.48% $3,189,735
ADMINISTRATIVE EXPENSE REIMBURSEMENT
The fund reimbursed Putnam Management for administrative services
during fiscal 1999, including compensation of certain fund
officers and contributions to the Putnam Investments, Inc. Profit
Sharing Retirement Plan for their benefit, as follows:
PORTION OF TOTAL
REIMBURSEMENT FOR
TOTAL COMPENSATION AND
REIMBURSEMENT CONTRIBUTIONS
$10,550 $8,805
TRUSTEE RESPONSIBILITIES AND FEES
The Trustees are responsible for generally overseeing the conduct
of the fund's business. Subject to such policies as the
Trustees may determine, Putnam Management furnishes a continuing
investment program for the fund and makes investment decisions on
its behalf. Subject to the control of the Trustees, Putnam
Management also manages the fund's other affairs and business.
Each Trustee receives a fee for his or her services. Each Trustee
also receives fees for serving as Trustee of other Putnam funds.
The Trustees periodically review their fees to assure that such
fees continue to be appropriate in light of their responsibilities
as well as in relation to fees paid to trustees of other mutual
fund complexes. The Trustees meet monthly over a two-day period,
except in August. The Board Policy Committee, which consists
solely of Trustees not affiliated with Putnam Management and is
responsible for recommending Trustee compensation, estimates that
Committee and Trustee meeting time together with the appropriate
preparation requires the equivalent of at least three business
days per Trustee meeting. The following table shows the year each
Trustee was first elected a Trustee of the Putnam funds, the fees
paid to each Trustee by the fund for fiscal 1999 and the fees paid
to each Trustee by all of the Putnam funds during calendar year
1998:
COMPENSATION TABLE
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
Pension or Estimated annual
Aggregate retirement benefits benefits from all Total compensation
Compensation accrued as part of Putnam funds upon from all Putnam
TRUSTEE/YEAR from the fund(1) fund expenses retirement (2) funds (3)
Jameson A. Baxter/ 1994 $1,252 $273 $95,000 $207,000(4)
Hans H. Estin/1972 1,108 531 95,000 182,500
John A. Hill/1985 (5) 1,187 210 115,000 200,500(4)
Ronald J. Jackson/1996 1,231 170 95,000 200,500(4)
Paul L. Joskow/1997 1,108 32 95,000 180,500(4)
Elizabeth T. Kennan/1992 1,214 295 95,000 200,500
Lawrence J. Lasser/1992 1,091 222 95,000 178,500
John H. Mullin, III/1997 1,125 50 95,000 180,500(4)
Robert E. Patterson/1984 1,102 162 95,000 181,500
Donald S. Perkins/1982 1,108 571 95,000 182,500
William F. Pounds/1971 (5) 1,212 596 115,000 215,000
George Putnam/1957 1,091 596 95,000 179,500
George Putnam, III/1984 1,102 107 95,000 181,500
A.J.C. Smith/1986 1,073 361 95,000 176,500
W. Thomas Stephens/1997 1,103 46 95,000 181,500(4)
W. Nicholas Thorndike/1992 1,108 422 95,000 182,500
(1) Includes an annual retainer and an attendance fee for each
meeting attended.
(2) Assumes that each Trustee retires at the normal retirement
date. Estimated benefits for each Trustee are based on Trustee
fee rates in effect during calendar 1998.
(3) As of December 31, 1998, there were 113 funds in the Putnam
family.
(4) Includes compensation deferred pursuant to a Trustee
Compensation Deferral Plan.
(5) Includes additional compensation for service as Vice Chairman
of the Putnam funds.
Under a Retirement Plan for Trustees of the Putnam funds (the
"Plan"), each Trustee who retires with at least five years of
service as a Trustee of the funds is entitled to receive an annual
retirement benefit equal to one-half of the average annual
compensation paid to such Trustee for the last three years of
service prior to retirement. This retirement benefit is payable
during a Trustee's lifetime, beginning the year following
retirement, for a number of years equal to such Trustee's years of
service. A death benefit, also available under the Plan, assures
that the Trustee and his or her beneficiaries will receive benefit
payments for the lesser of an aggregate period of (i) ten years or
(ii) such Trustee's total years of service.
The Plan Administrator (a committee comprised of Trustees that are
not "interested persons" of the fund, as defined in the Investment
Company Act of 1940) may terminate or amend the Plan at any time,
but no termination or amendment will result in a reduction in the
amount of benefits (i) currently being paid to a Trustee at the
time of such termination or amendment, or (ii) to which a current
Trustee would have been entitled had he or she retired immediately
prior to such termination or amendment.
For additional information concerning the Trustees, see
"Management" in Part II of this SAI.
SHARE OWNERSHIP
At March 31, 1999, the officers and Trustees of the fund as a
group owned less than 1% of the outstanding shares of each class
of the fund, and, except as noted below, to the knowledge of the
fund, no person owned of record or beneficially 5% or more of any
class of shares of the fund:
SHAREHOLDER NAME PERCENTAGE
CLASS AND ADDRESS OWNED
C DONALDSON LUFKIN & JENRETTE
P.O. Box 2052
Jersey City, NJ 07303 26.50%
C Gerald N. Appel
1742 Carlson Lane
Redondo Beach, CA 90278 8.70%
C Marcia J. O'Neill
633 Mount Bona Way
Boulder City, NV 89005 5.90%
C First Trust Corp TTEE
P.O. Box 173301
Denver, CO 30217 5.80%
C Darrell R. Landis
1755 Bentley Street
Clearwater, FL 33755 5.40%
DISTRIBUTION FEES
During fiscal 1999, the fund paid the following 12b-1 fees to
Putnam Mutual Funds:
CLASS A CLASS B CLASS C CLASS M
$969,992 $3,551,585 $38 $206,632
Class A sales charges and contingent deferred sales charges
Putnam Mutual Funds received sales charges with respect to class A
shares in the following amounts during the periods indicated:
SALES CHARGES
TOTAL RETAINED BY PUTNAM CONTINGENT
FISCAL FRONT END MUTUAL FUNDS AFTER DEFERRED SALES
YEAR SALES CHARGES DEALER CONCESSIONS CHARGES
1999 $1,228,107 $191,156 $1,734
1998 $1,365,406 $211,953 $2,897
1997 $1,604,658 $251,672 $400
CLASS B CONTINGENT DEFERRED SALES CHARGES
Putnam Mutual Funds received contingent deferred sales charges
upon redemptions of class B shares in the following amounts during
the periods indicated:
CONTINGENT DEFERRED
FISCAL YEAR SALES CHARGES
1999 $435,135
1998 $324,862
1997 $252,841
Class C contingent deferred sales charges
Putnam Mutual Funds received contingent deferred sales charges
upon redemptions of class C shares in the following amounts during
the periods indicated:
CONTINGENT DEFERRED
FISCAL YEAR SALES CHARGES
1999 $0
CLASS M SALES CHARGES
Putnam Mutual Funds received sales charges with respect to class M
shares in the following amounts during the periods indicated:
SALES CHARGES
TOTAL RETAINED BY PUTNAM
FISCAL YEAR SALES CHARGES MUTUAL FUNDS AFTER DEALER CONCESSIONS
1999 $139,425 $23,825
1998 $131,190 $21,220
1997 $174,922 $29,248
Investor servicing and custody fees and expenses
During the 1999 fiscal year, the fund incurred $1,321,269 in fees
and out-of-pocket expenses for investor servicing and custody
services provided by Putnam Fiduciary Trust Company.
INVESTMENT PERFORMANCE
STANDARD PERFORMANCE MEASURES
(for periods ended 2/28/99)
CLASS A CLASS B CLASS C CLASS M
INCEPTION DATE 7/1/94 7/1/94 2/1/99 7/3/95
AVERAGE ANNUAL TOTAL RETURN
1 year 6.60% 7.33% 11.53% 8.63%
Life of fund 18.01% 18.63% 18.82% 18.24%
Returns for class A and class M shares reflect the deduction of
the current maximum initial sales charges of 5.75% for class A
shares and 3.50% for class M shares.
Returns for class B and class C shares reflect the deduction of
the applicable contingent deferred sales charge ("CDSC") ,
which for class B shares is 5% in the first year, declining
to 1% in the sixth year, and eliminated thereafter, and for class
C shares is 1% in the first year and eliminated thereafter.
Returns shown for class C and class M shares for periods prior to
their inception are derived from the historical performance of
class A shares, adjusted to reflect both the deduction of the
initial sales charge or CDSC, if any, currently applicable to each
class and the higher operating expenses applicable to such shares.
Returns shown for class A shares have not been adjusted to reflect
payments under the class A distribution plan prior to its
implementation. All returns assume reinvestment of distributions
at net asset value and represent past performance; they do not
guarantee future results. Investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
See "Standard performance measures" in Part II of this SAI for
information on how performance is calculated.
ADDITIONAL OFFICERS
In addition to the persons listed as fund officers in Part II of
this SAI, each of the following persons is also a Vice President
of the fund and certain of the other Putnam funds, the total
number of which is noted parenthetically. Officers of Putnam
Management hold the same offices in Putnam Management's parent
company, Putnam Investments, Inc.
OFFICER NAME (AGE) (NUMBER OF FUNDS)
OMID KAMSHAD (36) (5 FUNDS). Managing Director of Putnam
Management. Prior to January, 1996, Mr. Kamshad was Director of
Investments at Lombard Odier International and prior to April,
1995, he was a Director at Baring Asset Management Company.
JUSTIN M. SCOTT (41) (4 FUNDS). Managing Director of
Putnam Management.
MICHAEL K. ARENDS (45) (2 FUNDS). Senior Vice President of Putnam
Management. Prior to November, 1997, Mr. Arends was Managing
Director, Equities, at Phoenix Duff & Phelps. Prior to August,
1994, Mr. Arends was a Portfolio Manager with Kemper Financial
Services.
MICHAEL P. STACK (40) (5 FUNDS). Senior Vice President of
Putnam Management. Prior to November, 1997, Mr. Stack was a
Senior Vice President and Portfolio Manager at Independence
Investment Associates Inc.
PAUL C. WARREN (38) (7 FUNDS). Senior Vice President of
Putnam Management. Prior to May, 1997, Mr. Warren was a Director
at IDS Fund Management, and prior to August, 1994, was a Director
at Pilgrim Baxter Associates.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP, 160 Federal Street, Boston,
Massachusetts 02110, are the fund's independent accountants,
providing audit services, tax return review and other tax
consulting services and assistance and consultation in connection
with the review of various Securities and Exchange Commission
filings. The Report of Independent Accountants, financial
highlights and financial statements included in the fund's Annual
Report for the fiscal year ended February 28, 1999, filed
electronically on April 21, 1999 (File No. 811- 7165) , are
incorporated by reference into this SAI. The financial highlights
included in the prospectus and incorporated by reference into this
SAI and the financial statements incorporated by reference into
the prospectus and this SAI have been so included and incorporated
in reliance upon the report of the independent accountants, given
on their authority as experts in auditing and accounting.
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