Prospectus
July 14, 1995
PUTNAM GROWTH AND INCOME FUND II
CLASS A, B AND M SHARES
INVESTMENT STRATEGY: GROWTH AND INCOME
This Prospectus explains concisely what you should know before
investing in Class A, B or M shares of Putnam Growth and Income
Fund II (the "Fund"). Please read it carefully and keep it for
future reference. You can find more detailed information about
the Fund in the July 14, 1995 Statement of Additional
Information, as amended from time to time. For a free copy of
the Statement or other information, including Prospectuses
regarding any other class of Fund shares, call Putnam Investor
Services at 1-800-225-1581. The Statement has been filed with
the Securities and Exchange Commission and is incorporated into
this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES OF THE FUND 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.
BOSTON * LONDON * TOKYO
<PAGE>
ABOUT THE FUND
Expenses summary 3
.......................................................
Financial highlights 4
.......................................................
Objectives 6
.......................................................
How objectives are pursued 6
.......................................................
Risk factors 7
.......................................................
How performance is shown 11
.......................................................
How the Fund is managed 11
.......................................................
Organization and history 12
.......................................................
ABOUT YOUR INVESTMENT
Alternative sales arrangements 14
.......................................................
How to buy shares 15
.......................................................
Distribution Plans 20
.......................................................
How to sell shares 21
.......................................................
How to exchange shares 23
.......................................................
How the Fund values its shares 24
.......................................................
How distributions are made; tax information 24
ABOUT PUTNAM INVESTMENTS, INC. 25
<PAGE>
ABOUT THE FUND
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing in
the Fund. The following table summarizes your maximum
transaction costs from investing in the Fund and expenses which
the Fund expects to incur in its first fiscal year. The Examples
show the estimated cumulative expenses attributable to a
hypothetical $1,000 investment over specified periods.
CLASS A CLASS B CLASS M
SHARES SHARES SHARES
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Charge
Imposed on Purchases
(as a percentage of
offering price) 5.75% NONE* 3.50%*
Deferred Sales Charge 5.0% in the first
(as a percentage year, declining
of the lower of to 1.0% in the
original purchase sixth year, and
price or redemption eliminated
proceeds) NONE** thereafter NONE
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Management Fees 0.65% 0.65% 0.65%
12b-1 Fees 0.25% 1.00% 0.75%
Other Expenses 0.39% 0.39% 0.39%
Total Fund Operating
Expenses 1.29% 2.04% 1.79%
The table is provided to help you understand the expenses of
investing in the Fund and your share of the operating expenses
which the Fund expects to incur during its first fiscal year.
The 12b-1 fees shown in the table reflect the amount to which the
Trustees currently limit payments under the Class A and Class M
Distribution Plans and the maximum amount permitted under the
Class B Distribution Plan. Management fees and "Other expenses"
are based on estimated amounts for the Fund's first fiscal year.
<PAGE>
EXAMPLES
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and redemption at the end of each
period:
1 3
year years
CLASS A $70 $96
CLASS B $71 $94
CLASS M $53 $89
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return but no redemption:
1 3
year years
CLASS A $70 $96
CLASS B $21 $64
CLASS M $53 $89
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 will vary.
* The higher 12b-1 fees borne by Class B 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 as part of an investment
of $1 million or more. See "How to buy shares - Class A
shares."
FINANCIAL HIGHLIGHTS
The table on the following page presents per share financial
information for Class A, B and M shares. The Fund's financial
statements, which contains additional unaudited performance
information, are available without charge upon request.
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the period)
January 5, 1995 January 5, 1995 January 5, 1995
(commencement of (commencement of(commencement of
operations) to operations) to operations) to
March 31, March 31, March 31,
1995 * 1995* 1995*
Class A** Class B** Class M**
Net asset value,
beginning of period $8.50 $8.50 $8.50
Investment operations
Net investment income .09 .06 .05
Net realized and
unrealized gain on
investments .60 .62 .64
Total from investment
operations .69 .68 .69
Net asset value,
end of period $9.19 $9.18 $9.19
Total investment return at
net asset value (%) (a)8.12(b) 8.00(b) 8.12(b)
Net assets , end of
period (in thousands) $36,937 $30,692 $5,393
Ratio of expenses to
average net assets (%) .38(b) .55(b) .65(b)
Ratio of net investment
income to average
net assets (%) .59(b) .45(b) .33(b)
Portfolio turnover (%) 29.11(b) 29.11(b) 29.11(b)
* Unaudited
** Per share net investment income has been determined on the basis
of weighted average number of shares outstanding during the
period.
(a) Total investment return assumes dividend reinvestment and does
not reflect the effect of sales charges.
(b) Not annualized.
<PAGE>
OBJECTIVES
THE PRIMARY OBJECTIVE OF PUTNAM GROWTH AND INCOME FUND II IS CAPITAL
GROWTH. CURRENT INCOME IS A SECONDARY OBJECTIVE. The Fund is not
intended to be a complete investment program, and there is no
assurance it will achieve its objectives.
HOW OBJECTIVES ARE PURSUED
BASIC INVESTMENT STRATEGY
THE FUND INVESTS PRIMARILY IN COMMON STOCKS THAT OFFER POTENTIAL FOR
CAPITAL GROWTH, AND MAY, CONSISTENT WITH ITS INVESTMENT OBJECTIVES,
INVEST IN STOCKS THAT OFFER POTENTIAL FOR CURRENT INCOME. The Fund
may also purchase corporate bonds, notes and debentures, preferred
stocks, or convertible securities (both debt securities and preferred
stocks) or U.S. government securities, if Putnam Investment
Management, Inc. ("Putnam Management") determines that their purchase
would help further the Fund's investment objectives. The types of
securities held by the Fund may vary from time to time in light of the
Fund's investment objectives, changes in interest rates, and economic
and other factors. When selecting portfolio securities for the Fund
that have the potential for capital growth, Putnam Management will
seek to identify securities that are significantly undervalued in
relation to underlying asset values or earnings potential. The Fund
may also hold a portion of its assets in cash or money market
instruments.
The Fund may also use a variety of derivative strategies, including,
without limitation, options, futures contracts and forward contracts,
which strategies are further described below. See "Risk Factors --
Stock index futures and options" and "Risk Factors -- Other investment
practices -- Options."
At times Putnam Management may judge that conditions in the securities
markets make pursuing the Fund's basic investment strategy
inconsistent with the best interests of its shareholders. At such
times Putnam Management may temporarily use alternative strategies,
primarily designed to reduce fluctuations in the value of the Fund's
assets. In implementing these "defensive" strategies, the Fund may
invest without limit in debt securities or preferred stocks, or invest
in any other securities Putnam Management considers consistent with
such defensive strategies. It is impossible to predict when, or for
how long, the Fund will use such alternative strategies.
PORTFOLIO TURNOVER
The length of time the Fund has held a particular security is not
generally a consideration in investment decisions. A change in the
securities held by the Fund is known as "portfolio turnover." As a
result of the Fund's investment policies, under certain market
conditions the Fund's portfolio turnover rate may be higher than that
of other mutual funds. Portfolio turnover generally involves some
expense to the Fund, including brokerage commissions or dealer mark-
ups and other transaction costs on the sale of securities and
reinvestment in other securities. Such transactions may result in
realization of taxable capital gains. Portfolio turnover rates for
the life of the Fund are shown in the section "Financial highlights."
RISK FACTORS
Foreign investments
The Fund may invest up to 20% of its assets in securities
principally traded in foreign markets. The Fund may also purchase
Eurodollar certificates of deposit, which are denominated in U.S.
dollars and are issued by banks outside the U.S., without regard to
the 20% limit. Since foreign securities are normally denominated and
traded in foreign currencies, the values of the Fund's assets may be
affected favorably or unfavorably by currency exchange rates and
exchange control regulations. There may be less information publicly
available about a foreign company than about a U.S. company, and
foreign companies 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 companies are less
liquid and at times more volatile than securities of comparable U.S.
companies. Foreign brokerage commissions and other fees are also
generally higher than in the United States. Foreign settlement
procedures and trade regulations may involve certain risks (such as
delay in payment or delivery of securities or in the recovery of the
Fund's assets held abroad) and expenses not present in the settlement
of domestic investments.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange controls,
confiscatory taxation, political or financial instability and
diplomatic developments which could affect the value of the Fund's
investments in certain foreign countries. Legal remedies available
to investors in certain foreign countries may be more limited than
those available with respect to investments in the United States or in
other foreign countries. The laws of some foreign countries may limit
the Fund's ability to invest in securities of certain issuers located
in those foreign countries. Special tax considerations apply to
foreign securities.
The risks described above are typically increased to the extent that
the Fund invests in securities traded in under-developed and
developing nations, which are sometimes referred to as "emerging
markets."
The Fund may buy or sell foreign currencies and foreign currency
forward contracts for hedging purposes in connection with its foreign
investments.
A MORE DETAILED EXPLANATION OF FOREIGN INVESTMENTS, AND THE RISKS AND
SPECIAL TAX CONSIDERATIONS ASSOCIATED WITH THEM, IS INCLUDED IN THE
STATEMENT OF ADDITIONAL INFORMATION.
INVESTMENTS IN FIXED-INCOME SECURITIES. The Fund may invest a portion
of its assets in fixed-income securities, including lower-rated fixed-
income securities, which are commonly known as "junk bonds," without
limitation as to credit rating. Like those of other fixed-income
securities, the values of lower-rated fixed-income securities
fluctuate in response to changes in interest rates. Thus, a decrease
in interest rates will generally result in an increase in the value of
such securities. Conversely, during periods of rising interest rates,
the value of the Fund's assets will generally decline. The values of
lower-rated securities generally fluctuate more than those of higher-
rated securities. Securities in the lower rating categories may,
depending on their rating, have large uncertainties or major exposure
to adverse conditions. Securities rated Baa or BBB, 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 securities in the
various rating categories, including the speculative characteristics
of securities in the lower rating categories, are set forth in the
Statement of Additional Information.
The Fund may at times 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.
The values of zero-coupon bonds and payment-in-kind bonds are subject
to greater fluctuation in response to changes in market interest rates
than bonds which pay interest in cash currently. 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
currently. Even though such bonds do not pay current interest in
cash, the Fund is nonetheless required to accrue interest income on
such investments and to distribute such amounts at least annually to
shareholders. Thus, the Fund could be required at times to liquidate
other investments in order to satisfy its distribution requirements.
STOCK INDEX FUTURES AND OPTIONS
THE FUND MAY BUY AND SELL STOCK INDEX FUTURES CONTRACTS FOR HEDGING
PURPOSES. An "index future" is a contract to buy or sell units of a
particular stock index at an agreed price on a specified future date.
Depending on the change in value of the index between the time when
the Fund enters into and terminates an index future transaction, the
Fund realizes a gain or loss. The Fund may buy and sell call and put
options on index futures or on stock indices in addition to or as an
alternative to purchasing or selling index futures or, to the extent
permitted by applicable law, to earn additional income.
THE USE OF INDEX FUTURES AND RELATED OPTIONS INVOLVES CERTAIN SPECIAL
RISKS. FUTURES AND OPTIONS TRANSACTIONS INVOLVE COSTS AND MAY RESULT
IN LOSSES. Certain risks arise because of the possibility of
imperfect correlations between movements in the prices of index
futures and options and movements in the prices of the underlying
stock index or of the common stocks in the Fund's portfolio that are
the subject of a hedge. The successful use of the strategies
described above further depends on Putnam Management's ability to
forecast market movements correctly. Other risks arise from the
Fund's potential inability to close out its index futures or options
positions, and there can be no assurance that a liquid secondary
market will exist for any index future or option at any particular
time. Certain provisions of the Internal Revenue Code and certain
regulatory requirements may limit the Fund's ability to engage in
index futures and options transactions. The use of futures or options
on futures for purposes other than hedging may be regarded as
speculative.
A MORE DETAILED EXPLANATION OF INDEX FUTURES AND OPTIONS TRANSACTIONS,
INCLUDING THE RISKS ASSOCIATED WITH THEM, IS INCLUDED IN THE STATEMENT
OF ADDITIONAL INFORMATION.
OTHER INVESTMENT PRACTICES
THE FUND MAY ALSO ENGAGE TO A LIMITED EXTENT IN THE FOLLOWING
INVESTMENT PRACTICES, EACH OF WHICH INVOLVES CERTAIN SPECIAL RISKS.
THE STATEMENT OF ADDITIONAL INFORMATION CONTAINS MORE DETAILED
INFORMATION ABOUT THESE PRACTICES, INCLUDING LIMITATIONS DESIGNED TO
REDUCE THESE RISKS.
OPTIONS. The Fund may seek to increase its current return by writing
covered call and put options on securities it owns or in which it may
invest. The Fund receives a premium from writing a call or put
option, which increases the Fund's return if the option expires
unexercised or is closed out at a net profit. When the Fund writes a
call option, it gives up the opportunity to profit from any increase
in the price of a security above the exercise price of the option;
when it writes a put option, the Fund takes the risk that it will be
required to purchase a security from the option holder at a price
above the current market price of the security. The Fund may
terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an
option having the same terms as the option written. The Fund may also
buy and sell put and call options for hedging purposes. The Fund may
also from time to time buy and sell combinations of put and call
options on the same underlying security to earn additional income.
The aggregate value of the securities underlying the options may not
exceed 25% of the Fund's assets. The Fund's use of these strategies
may be limited by applicable law.
SECURITIES LOANS, REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS. The
Fund may lend portfolio securities amounting to not more than 25% of
its assets to broker-dealers and may enter into repurchase agreements
on up to 25% of its assets. These transactions must be fully
collateralized at all times. The Fund may also purchase securities
for future delivery, which may increase its overall investment
exposure and involves a risk of loss if the value of the securities
declines prior to the settlement date. These transactions involve
some risk to the Fund if the other party should default on its
obligation and the Fund is delayed or prevented from recovering the
collateral or completing the transaction.
LIMITING INVESTMENT RISK
SPECIFIC INVESTMENT RESTRICTIONS HELP THE FUND LIMIT INVESTMENT RISKS
FOR ITS SHAREHOLDERS. THESE RESTRICTIONS PROHIBIT THE FUND FROM: (a)
(with respect to 75% of its assets) acquiring more than 10% of the
voting securities of any one issuer and investing more than 5% of its
net assets in any one security (except certain government
securities);* (b) investing more than 15% of its net assets in
securities restricted as to resale (excluding securities determined by
the Trustees (or the person designated by the Trustees to make such
determinations) to be readily marketable);* (c) investing more than
25% of its total assets in any one industry (securities of the U.S.
Government, its agencies or instrumentalities are not considered to
represent industries);* or (d) investing more than 15% of its net
assets in any combination of securities that are not readily
marketable, in securities restricted as to resale (excluding
securities determined by the Fund's Trustees (or the person designated
by the Fund's Trustees to make such determinations) to be readily
marketable), and in repurchase agreements maturing in more than seven
days.
Restrictions marked with an asterisk (*) above are summaries of
fundamental investment policies. See the Statement of Additional
Information for the full text of these policies and the Fund's other
fundamental investment policies. Except for investment policies
designated as fundamental in this Prospectus or the Statement, the
investment policies described in this Prospectus and in the Statement
are not fundamental investment policies. The Trustees may change any
non-fundamental investment policies without shareholder approval. As
a matter of policy, the Trustees would not materially change the
Fund's investment objectives without shareholder approval.
HOW PERFORMANCE IS SHOWN
THE FUND'S INVESTMENT PERFORMANCE MAY FROM TIME TO TIME BE INCLUDED IN
ADVERTISEMENTS ABOUT THE FUND. "Yield" for each class of shares is
calculated by dividing the annualized net investment income per share
during a recent 30-day period by the maximum public offering price per
share of such class on the last day of that period. Yield reflects
the deduction of the maximum initial sales charge in the case of Class
A and Class M shares, but does not reflect the deduction of any
contingent deferred sales charge in the case of Class B 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 the Fund invested at the maximum public
offering price (in the case of Class A shares and Class M shares) or
reflecting the deduction of any applicable contingent deferred sales
charge (in the case of Class B 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 such sales charge were used.
ALL DATA IS BASED ON THE FUND'S PAST INVESTMENT RESULTS AND DOES NOT
PREDICT FUTURE PERFORMANCE. Investment performance, which will vary,
is based on many factors, including market conditions, the composition
of the Fund's portfolio, the Fund's operating expenses and which class
of shares you purchase. Investment performance also often reflects
the risks associated with the Fund's investment objectives and
policies. These factors should be considered when comparing the
Fund's investment results to those of other mutual funds and other
investment vehicles. Quotations of investment performance for any
period when an expense limitation was in effect will be greater than
if the limitation had not been in effect. The Fund's performance may
be compared to various indices. See the Statement of Additional
Information.
HOW THE FUND IS MANAGED
THE TRUSTEES OF THE FUND 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. Anthony I.
Kreisel and Thomas V. Reilly, each a Managing Director of Putnam
Management and a Vice President of the Fund, have had primary
responsibility for the day-to-day management of the Fund's portfolio
since the Fund commenced operations in January, 1995. Messrs. Kreisel
and Reilly have been employed by Putnam Management since 1986 and
1982, respectively.
Under a Management Contract dated October 7, 1994, 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 following annual rates, expressed as a percentage of
the Fund's average net assets: 0.65% of the first $500 million, 0.55%
of the next $500 million, 0.50% of the next $500 million, 0.45% of the
next $5 billion, 0.425% of the next $5 billion, 0.405% of the next $5
billion, 0.39% of the next $5 billion and 0.38% of any excess
thereafter.
The Fund pays all expenses not assumed by Putnam Management,
including Trustees' fees, auditing, legal, custodial, investor
servicing and shareholder reporting expenses, and payments under its
Distribution Plans (which are in turn allocated to the relevant class
of shares). The Fund also reimburses Putnam Management for the
compensation and related expenses of certain officers of the Fund and
their staff who provide administrative services to the Fund. The
total reimbursement is determined annually by the Trustees.
Putnam Management places all orders for purchases and sales of the
Fund's 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 shares of the Fund
(and, if permitted by law, of the other Putnam funds) as a factor in
the selection of broker-dealers.
ORGANIZATION AND HISTORY
Putnam Growth and Income Fund II is a Massachusetts business trust
organized on October 5, 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.
Shares of the Fund may, without shareholder approval, be divided into
an unlimited number of 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's shares are currently divided into four classes,
only three of which are currently being offered.
Each share has one vote, with fractional shares voting proportionally.
Shares of each class will vote together as a single class except when
required by law or as determined by the Trustees. Shares are freely
transferable, are entitled to dividends as declared by the Trustees,
and, if the Fund were liquidated, would receive the net assets of the
Fund. The Fund may suspend the sale of shares at any time and may
refuse any order to purchase shares. Although the Fund is not
required to hold annual meetings of its shareholders, shareholders
holding at least 10% of the outstanding shares entitled to vote have
the right to call a meeting to elect or remove Trustees, or to take
other actions as provided in the Agreement and Declaration of Trust.
If you own fewer shares than a minimum amount set by the Trustees
(presently 20 shares), the Fund may choose to redeem your shares and
pay you for them. You will receive at least 30 days' written notice
before the Fund redeems your shares, and you may purchase additional
shares at any time to avoid a redemption. The Fund may also redeem
shares if you own shares above a maximum amount set by the Trustees.
There is presently no maximum, but the Trustees may establish one at
any time, which could apply to both present and future shareholders.
THE FUND'S TRUSTEES: GEORGE PUTNAM,* CHAIRMAN. President of the
Putnam funds. Chairman and Director of Putnam Management and Putnam
Mutual Funds Corp. ("Putnam Mutual Funds"). Director, Marsh &
McLennan Companies, Inc.; WILLIAM F. POUNDS, VICE CHAIRMAN.
Professor of Management, Alfred P. Sloan School of Management,
M.I.T.; JAMESON ADKINS BAXTER, President, Baxter Associates, Inc.;
HANS H. ESTIN, Vice Chairman, North American Management Corp.; JOHN
A. HILL, Principal and Managing Director, First Reserve Corporation;
ELIZABETH T. KENNAN, President Emeritus and Professor, Mount Holyoke
College; LAWRENCE J. LASSER,* Vice President of the Putnam funds.
President, Chief Executive Officer and Director of Putnam Investments,
Inc. and Putnam Management. Director, Marsh & McLennan Companies,
Inc.; ROBERT E. PATTERSON, Executive Vice President, Cabot Partners
Limited Partnership; DONALD S. PERKINS,* Director of various
corporations, including AT&T , Kmart Corporation and Time Warner
Inc.; GEORGE PUTNAM, III,* President, New Generation Research, Inc.;
ELI SHAPIRO, Alfred P. Sloan Professor of Management, Emeritus, Alfred
P. Sloan School of Management, Massachusetts Iinstitute of
Technology ; A.J.C. SMITH,* Chairman, Chief Executive Officer and
Director, Marsh & McLennan Companies, Inc.; and W. NICHOLAS THORNDIKE,
Director of various corporations and charitable organizations,
including Data General Corporation, Bradley Real Estate, Inc. and
Providence Journal Co. Also, Trustee of Massachusetts General
Hospital and Eastern Utilities Associates. The Fund'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
Fund, Putnam Management or Putnam Mutual Funds.
ABOUT YOUR INVESTMENT
ALTERNATIVE SALES ARRANGEMENTS
This Prospectus offers investors three classes of shares which bear
sales charges in different forms and amounts and which bear different
levels of expenses:
CLASS A SHARES. An investor who purchases Class A shares pays
a sales charge at the time of purchase. As a result, Class A shares
are not subject to any charges when they are redeemed (except for
sales at net asset value in excess of $1 million which are subject to
a contingent deferred sales charge). Certain purchases of Class A
shares qualify for reduced sales charges. Class A shares currently
bear a 12b-1 fee at the annual rate of 0.25% of the Fund's average net
assets attributable to Class A shares. See "How to buy shares --
Class A shares."
CLASS B SHARES. Class B shares are sold without an initial sales
charge, but are subject to a contingent deferred sales charge of up to
5.0% if redeemed within six years. Class B shares also bear a higher
12b-1 fee than Class A shares, currently at the annual rate of 1.00%
of the Fund's average net assets attributable to Class B shares.
Class B shares will automatically convert into Class A shares, based
on relative net asset value, approximately eight years after purchase.
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, but
(until conversion) will have a higher expense ratio and pay lower
dividends than Class A shares due to the higher 12b-1 fee. See "How
to buy shares -- Class B shares."
CLASS M SHARES. An investor who purchases Class M shares pays a sales
charge at the time of purchase which is lower than the sales charge
applicable to Class A shares. Class M shares are not subject to any
contingent deferred sales charge when they are redeemed. Certain
purchases of Class M shares qualify for reduced sales charges. Class
M shares currently bear a 12b-1 fee at the annual rate of 0.75% of the
Fund's average net assets attributable to Class M shares. See "How to
buy shares -- Class M shares."
WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which class
of shares provides a more suitable investment for an investor depends
on a number of factors, including the amount and intended length of
the investment. Investors making investments that qualify for reduced
sales charges might consider Class A or Class M shares. Investors who
prefer not to pay an initial sales charge might consider Class B
shares. Orders for Class B shares for $250,000 or more will
be treated as orders for Class A shares or declined. For more
information about these sales arrangements, consult your investment
dealer or Putnam Investor Services. Sales personnel may receive
different compensation depending on which class of shares they sell.
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 and make additional
investments at any time with as little as $50. 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
return it with a check payable to the Fund to Putnam Mutual Funds,
which will act as your agent in purchasing shares through your
designated investment dealer.
BUYING SHARES THROUGH SYSTEMATIC INVESTING. You can make regular
investments of $25 or more per month through automatic deductions from
your bank checking 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. The Fund receives the net asset value. The
sales charge varies depending on the size of your purchase and is
allocated between your investment dealer and Putnam Mutual Funds. The
current sales charges are: <PAGE>
<TABLE>
<CAPTION>
SALES CHARGE AMOUNT OF
AS A PERCENTAGE OF: SALES CHARGE
------------------ REALLOWED
NET TO DEALERS
AMOUNT OF TRANSACTION AMOUNT OFFERING AS A PERCENTAGE
AT OFFERING PRICE INVESTED PRICE OF OFFERING PRICE*
- -----------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Less than $ 50,000 6.10% 5.75% 5.00%
$ 50,000 but less than $100,000 4.71 4.50 3.75
100,000 but less than 250,000 3.63 3.50 2.75
250,000 but less than 500,000 2.56 2.50 2.00
500,000 but less than 1,000,000 2.04 2.00 1.75
- -----------------------------------------------------------------------------------------
/TABLE
<PAGE>
* At the discretion of Putnam Mutual Funds, however, the entire
sales charge may at times be reallowed to dealers. The Staff of
the Securities and Exchange Commission has indicated that
dealers who receive more than 90% of the sales charge may be
considered underwriters.
There is no initial sales charge on purchases of Class A shares of $1
million or more. However, a contingent deferred sales charge ("CDSC")
of 1.00% or 0.50%, respectively, is imposed on redemptions of such
shares within the first or second year after purchase, based on the
lower of the shares' cost and current net asset value. Any shares
acquired by reinvestment of distributions will be redeemed without a
CDSC. In addition, shares purchased by certain investors investing $1
million or more that have made arrangements with Putnam Mutual Funds
and whose dealer of record waived the commission as described below
are not subject to the CDSC. In determining whether a CDSC is
payable, the Fund will first redeem shares not subject to any charge.
Putnam Mutual Funds receives the entire amount of any CDSC you pay.
See the Statement of Additional Information for more information about
the CDSC.
Except as stated below, Putnam Mutual Funds pays investment dealers of
record commissions on sales of Class A shares of $1 million or more
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
amount under $3 million, 0.50% of the next $47 million and 0.25%
thereafter. On sales at net asset value to a participant-directed
qualified retirement plan initially investing less than $20 million in
Putnam funds and other investments managed by Putnam Management or its
affiliates (including a plan sponsored by an employer with more than
750 employees), Putnam Mutual Funds pays commissions on cumulative
purchases during the life of the account at the rate of 1.00% of the
amount under $3 million and 0.50% thereafter. On sales at net asset
value to all other participant-directed qualified retirement plans,
Putnam Mutual Funds pays commissions on the initial investment and on
subsequent net quarterly sales at the rate of 0.15%.
CLASS B SHARES
Class B shares are sold without an initial sales charge, although a
CDSC will be imposed if you redeem shares within six years of
purchase. The following types of shares may be redeemed without
charge at any time: (i) shares acquired by reinvestment of
distributions and (ii) shares otherwise exempt from the CDSC, as
described in "How to buy shares -- General" below. For other shares,
the amount of the charge is determined as a percentage of the lesser
of the current market value or the cost of the shares being redeemed.
The amount of the CDSC will depend on the number of years since you
invested and the dollar amount being redeemed, according to the
following table:
Contingent Deferred
Sales Charge as a
Percentage of
Years Since Purchase Dollar Amount
Payment Made Subject to Charge
------------------- ------------------
0-1......................................5.0%
1-2......................................4.0%
2-3......................................3.0%
3-4......................................3.0%
4-5......................................2.0%
5-6......................................1.0%
6 and thereafter...............................NONE
In determining whether a CDSC is payable on any redemption, the Fund
will first redeem shares not subject to any charge, and then shares
held longest during the six-year period. 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 a share
that has appreciated in value is redeemed during the six-year period,
a CDSC is assessed on its initial purchase price. 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.
CONVERSION OF CLASS B SHARES. Class B shares will automatically
convert into Class A shares at the end of the month eight years after
the purchase date, except as noted below. Class B shares acquired by
exchanging Class B shares of another Putnam fund will convert into
Class A shares based on the time of the initial purchase. Class B
shares acquired through reinvestment of distributions will convert
into Class A shares based on the date of the initial purchase to which
such shares relate. For this purpose, Class B shares acquired through
reinvestment of distributions will be attributed to particular
purchases of Class B shares in accordance with such procedures as the
Trustees may determine from time to time. The conversion of Class B
shares to Class A shares is subject to the continuing availability of
a ruling from the Internal Revenue Service or an opinion of counsel
that such conversions will not constitute taxable events for Federal
tax purposes. There can be no assurance that such ruling or opinion
will be available, and the conversion of Class B shares to Class A
shares will not occur if such ruling or opinion is not available. In
such event, Class B shares would continue to be subject to higher
expenses than Class A shares for an indefinite period.
<PAGE>
CLASS M SHARES
The public offering price of Class M shares is the net asset value
plus a sales charge. The Fund receives the net asset value. The
sales charge varies depending on the size of your purchase and is
allocated between your investment dealer and Putnam Mutual Funds. The
current sales charges are:
<PAGE>
<TABLE>
<CAPTION>
SALES CHARGE
AS A PERCENTAGE OF: AMOUNT OF SALES
------------------- CHARGE REALLOWED
NET TO DEALERS
AMOUNT OF TRANSACTION AMOUNT OFFERING AS A PERCENTAGE OF
AT OFFERING PRICE INVESTED PRICE OFFERING PRICE*
- ------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Less than $ 50,000 3.63% 3.50% 3.00%
$ 50,000 but less than $100,000 2.56 2.50 2.00
100,000 but less than 250,000 1.52 1.50 1.00
250,000 but less than 500,000 1.01 1.00 1.00
500,000 and above None None None
- ------------------------------------------------------------------------------------------
/TABLE
<PAGE>
* At the discretion of Putnam Mutual Funds, however, the
entire sales charge may at times be reallowed to dealers.
The Staff of the Securities and Exchange Commission has
indicated that dealers who receive more than 90% of the
sales charge may be considered underwriters.
Class M shares do not convert into any other class of shares.
GENERAL
YOU MAY BE ELIGIBLE TO BUY CLASS A SHARES AND CLASS M SHARES AT
REDUCED SALES CHARGES. 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, Employee Benefit Plans and other plans. Descriptions are also
included in the order form and in the Statement of Additional
Information. In addition, sales charges will not apply to Class M
shares purchased with redemption proceeds received within the prior
ninety days from non-Putnam mutual funds on which the investor paid a
front-end or contingent deferred sales charge.
The Fund may sell Class A, Class B and Class M shares at net asset
value without an initial sales charge or a CDSC to the Fund's 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, employee benefit
plans of companies with more than 750 employees, 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, the 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, and the CDSC will be waived on redemptions of shares
arising out of death or disability or in connection with certain
withdrawals from IRA or other retirement plans. Up to 12% of the
value of Class B shares subject to a Systematic Withdrawal Plan may
also be redeemed each year without a CDSC. See the Statement of
Additional Information.
Shareholders of other Putnam funds may be entitled to exchange their
shares for, or reinvest distributions from their funds in, shares of
the Fund at net asset value.
If you are considering redeeming or exchanging shares 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,
exchange or transfer. Otherwise the Fund may delay payment 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, the Fund will not issue
certificates 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. Such 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
CLASS A DISTRIBUTION PLAN. The Class A Plan provides for payments by
the Fund to Putnam Mutual Funds at the annual rate of up to 0.35% of
the Fund's average net assets attributable to Class A shares. The
Trustees currently limit payments under the Class A Plan to the annual
rate of 0.25% of such assets. Should the Trustees decide in the
future to approve payments in excess of this amount, shareholders will
be notified and this Prospectus will be revised.
In order to compensate investment dealers (including, for this
purpose, certain financial institutions) for services provided in
connection with sales of Class A shares and the maintenance of
shareholder accounts, Putnam Mutual Funds makes quarterly payments to
qualifying dealers based on the average net asset value of Class A
shares of the Fund which are attributable to shareholders for whom the
dealers are designated as the dealer of record. This calculation
excludes until one year after purchase shares purchased at net asset
value by shareholders investing $1 million or more and by participant-
directed qualified retirement plans sponsored by employers with more
than 750 employees ("NAV Shares"), except for shares owned by certain
investors investing $1 million or more that have made arrangements
with Putnam Mutual Funds and whose dealer of record waived the sales
commission. Except as stated below, Putnam Mutual Funds makes such
payments at the annual rate of 0.25% of such average net asset value
for Class A shares. For participant-directed qualified retirement
plans initially investing less than $20 million in Putnam funds and
other investments managed by Putnam Management or its affiliates,
Putnam Mutual Funds' payments to qualifying dealers on NAV Shares are
100% of the rate stated above if average plan assets in Putnam funds
(excluding money market funds) during the quarter are less than $20
million, 60% of the stated rate if average plan assets are at least
$20 million but less than $30 million, and 40% of the stated rate if
average plan assets are $30 million or more. For all other
participant-directed qualified retirement plans purchasing NAV Shares,
Putnam Mutual Funds makes quarterly payments to qualifying dealers at
the annual rate of 0.10% of the average net asset value of such
shares.
CLASS B AND CLASS M DISTRIBUTION PLANS. The Class B and Class M Plans
provide for payments by the Fund to Putnam Mutual Funds at the annual
rate of up to 1.00% of the Fund's average net assets attributable to
Class B shares and Class M shares, as the case may be. The Trustees
currently limit payments under the Class M Plan to the annual rate of
0.75% of such assets.
Although Class B shares are sold without an initial sales charge,
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 and sales to
investors exempt from the CDSC. The amount paid to dealers at the
time of the sale of Class M shares is set forth above under "How to
buy shares -- Class M shares." In addition, in order to further
compensate dealers (including, for this purpose, certain financial
institutions) for services provided in connection with sales of Class
B shares and Class M shares and the maintenance of shareholder
accounts, Putnam Mutual Funds makes quarterly payments to qualifying
dealers based on the average net asset value of Class B shares and
Class M shares which are attributable to shareholders for whom the
dealers are designated as the dealer of record. Putnam Mutual Funds
makes such payments at an annual rate of 0.25% of such average net
asset value of Class B shares and Class M shares, as the case may be.
Putnam Mutual Funds also pays to dealers, as additional compensation
with respect to the sale of Class M shares, 0.40% of such average net
asset value of Class M shares. For Class M shares, the total annual
payment to dealers equals 0.65% of such average net asset value.
GENERAL. Payments under the Plans are intended to compensate Putnam
Mutual Funds for services provided and expenses incurred by it as
principal underwriter of the Fund's shares, including the payments to
dealers mentioned above. Putnam Mutual Funds may suspend or modify
such payments to dealers. Such 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 Fund any day the New York Stock
Exchange is open, either directly to the Fund or through your
investment dealer. The Fund will only redeem shares for which it has
received payment.
SELLING SHARES DIRECTLY TO THE 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
the 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 Statement of
Additional Information 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.
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.
You may use Putnam's Telephone Redemption Privilege to redeem shares
valued up to $100,000 from your account unless you have notified
Putnam Investor Services of an address change within the preceding 15
days. Unless an investor indicates otherwise on the Account
Application, Putnam Investor Services will be authorized to act upon
redemption and transfer instructions received by telephone from a
shareholder, or any person claiming to act as his or her
representative, who can provide Putnam Investor Services with his or
her 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 which case 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 your
shares which 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 shares for shares of the same class of certain
other Putnam funds at net asset value beginning 15 days after
purchase. Not all Putnam funds offer all classes of shares. 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 and 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. Exchange Authorization
Forms are available by calling or writing 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
which 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 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. Shareholders would be notified of
any such action to the extent required by law. Consult Putnam
Investor Services before requesting an exchange. See the Statement of
Additional Information to find out more about the exchange privilege.
HOW THE FUND VALUES ITS SHARES
THE FUND CALCULATES THE NET ASSET VALUE OF A SHARE OF EACH CLASS BY
DIVIDING THE TOTAL VALUE OF ITS ASSETS, LESS LIABILITIES, BY THE
NUMBER OF ITS SHARES OUTSTANDING. SHARES ARE VALUED AS OF THE CLOSE
OF REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE EACH DAY THE
EXCHANGE IS OPEN. Portfolio securities for which market quotations
are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at
amortized cost, which approximates market value. All other securities
and assets are valued at their fair value following procedures
approved by the Trustees.
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION
The Fund distributes any net investment income at least quarterly and
any net realized capital gains at least annually. Distributions from
capital gains are made after applying any available capital loss
carryovers. Distributions paid by the Fund with respect to Class A
shares will generally be greater than those paid with respect to Class
B and Class M shares because expenses attributable to Class B and
Class M shares will generally be higher.
YOU CAN CHOOSE FROM THREE DISTRIBUTION OPTIONS: (1) reinvest all
distributions in additional Fund shares without a sales charge; (2)
receive distributions from net investment income in cash while
reinvesting capital gains distributions in additional shares without a
sales charge; or (3) 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 in the Fund or in another Putnam fund. If Putnam
Investor Services does not receive your election, the distribution
will be reinvested in the Fund. Similarly, if 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.
The Fund intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements as
necessary for it to be relieved of federal taxes on income and gains
it distributes to shareholders. The Fund will distribute
substantially all of its ordinary income and capital gain net income
on a current basis.
All Fund distributions will be taxable to you as ordinary income,
except that any distributions of net long-term capital gains will be
taxable 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.
Early in each year the Fund will notify you of the amount and tax
status of distributions paid to you by the Fund for the preceding
year.
The foregoing is a summary of certain federal income tax consequences
of investing in the Fund. You should consult your tax adviser to
determine the precise effect of an investment in the Fund on your
particular tax situation (including possible liability for state and
local taxes).
ABOUT PUTNAM INVESTMENTS, INC.
PUTNAM MANAGEMENT HAS BEEN MANAGING MUTUAL FUNDS SINCE 1937. Putnam
Mutual Funds is the principal underwriter of the Fund and of other
Putnam funds. Putnam Fiduciary Trust Company is the Funds' custodian.
Putnam Investor Services, a division of Putnam Fiduciary Trust
Company, is the Funds' investor servicing and transfer agent.
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>
MAKE THE MOST OF YOUR PUTNAM PRIVILEGES
As a Putnam mutual fund shareholder, you have access to a number of
services that can help you build a more effective and flexible
financial program. Here are some of the ways you can use these
privileges to make the most of your Putnam mutual fund investment.
SYSTEMATIC INVESTMENT PLAN
Invest as much as you wish ($25 or more) on any day of the month
except for the 29th, 30th, or 31st. The amount will be automatically
transferred from your checking or savings account.
SYSTEMATIC WITHDRAWAL
Make regular withdrawals of $50 or more monthly, quarterly, or
semiannually from an account valued at $10,000 or more. You may
establish your withdrawal on any day of the month except for the 29th,
30th, or 31st.
SYSTEMATIC EXCHANGE
Transfer assets automatically from one Putnam account to another on a
regular, prearranged basis. There is no additional charge for this
service.
FREE EXCHANGE PRIVILEGE
Exchange money between Putnam funds in the same class of shares
without charge. The exchange privilege allows you to adjust your
investments as your objectives change. A signature guarantee is
required for exchanges of more than $500,000.
<PAGE>
DIVIDENDS PLUS
Diversify your portfolio by investing dividends and other
distributions from one Putnam fund automatically into another at net
asset value.
STATEMENT OF INTENTION
To reduce a front-end sales charge, you agree to invest a minimum
dollar amount over 13 months. Depending on your fund, the minimum is
$25,000, $50,000, or $100,000. Whenever you make an investment under
this arrangement, you or your investment advisor should notify Putnam
that a Statement of Intention is in effect.
Investors may not maintain, within the same fund, simultaneous plans
for systematic investment or exchange and systematic withdrawal or
exchange. These privileges are subject to change or termination.
For more information about any of these services and privileges, call
your investment advisor or a Putnam customer service representative
toll-free at 1-800-225-1581.
<PAGE>
PUTNAM FAMILY OF FUNDS
PUTNAM GROWTH FUNDS
Putnam Asia Pacific Growth Fund
Putnam Diversified Equity Trust
Putnam Europe Growth Fund
Putnam Global Growth Fund
Putnam Health Sciences Trust
Putnam Investors Fund
Putnam Natural Resources Fund
Putnam New Opportunities Fund
Putnam OTC Emerging Growth Fund
Putnam Overseas Growth Fund
Putnam Vista Fund
Putnam Voyager Fund
PUTNAM GROWTH AND INCOME FUNDS
Putnam Balanced Retirement Fund*
Putnam Convertible Income-Growth Trust
Putnam Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Putnam Growth and Income Fund II
Putnam Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Putnam Adjustable Rate U.S. Government Fund
Putnam American Government Income Fund
Putnam Diversified Income Trust
Putnam Federal Income Trust
Putnam Global Governmental Income Trust
Putnam High Yield Advantage Fund
Putnam High Yield Trust
Putnam Income Fund
Putnam Intermediate U.S. Government Fund
Putnam Preferred Income Fund
Putnam U.S. Government Income Trust
<PAGE>
PUTNAM TAX-FREE INCOME FUNDS
Putnam Intermediate Tax Exempt Fund
Putnam Municipal Income Fund
Putnam Tax Exempt Income Fund
Putnam Tax-Free High Yield Fund
Putnam Tax-Free Insured Fund
Putnam State tax-free income funds+
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey,
New York, Ohio, and Pennsylvania
LIFESTAGE(SM) FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that
spread your money across a variety of stocks, bonds, and money market
investments seeking to help maximize your return and reduce your risk.
THE THREE PORTFOLIOS:
Balanced Portfolio
Conservative Portfolio
Growth Portfolio
PUTNAM MONEY MARKET FUNDS
Putnam Money Market Fund
Putnam California Tax Exempt Money Market Fund
Putnam New York Tax Exempt Money Market Fund
Putnam Tax Exempt Money Market Fund
*Formerly Putnam Managed Income Trust
+Not available in all states.
Please call your financial advisor or Putnam to obtain a prospectus
for any Putnam fund. It contains more complete information, including
charges and expenses. Read it carefully before you invest or send
money.
<PAGE>
GLOSSARY OF TERMS
BOND An IOU issued by a government or corporation that
usually pays interest.
- -----------------------------------------------------------------
CAPITAL A rise in an investment's principal value. Also
APPRECIATION used to describe the investment objective of a mutual
fund whose primary criterion for choosing securities is
the potential to rise in value rather than provide
dividend income.
- -----------------------------------------------------------------
CAPITAL A profit or loss on the sale of securities (stocks
GAIN/LOSS or bonds).
- -----------------------------------------------------------------
CLASS A, B, Types of shares, each class offering investors a
M SHARES different choice about how to pay sales charges and
distribution fees. A fund's prospectus explains the
availability and attributes of each type.
- -----------------------------------------------------------------
COMMON A unit of ownership of a corporation.
STOCK
- -----------------------------------------------------------------
CONTINGENT A charge applied at the time of redemption of
DEFERRED certain mutual fund shares, rather than at
SALES the time of purchase. A fund's CDSC generally
CHARGE declines each year until it no longer
(CDSC) applies.
- -----------------------------------------------------------------
DECLARATION The date on which the Trustees approve the amount
DATE of your fund's next distribution.
- -----------------------------------------------------------------
DISTRIBUTION A payment from a mutual fund to shareholders. It may
include interest from bonds and dividends from stocks
(dividend distributions). It may also include profits
from the sale of securities from the fund's portfolio
(capital gains distributions).
- -----------------------------------------------------------------
DIVIDEND For mutual fund shares, a payment derived solely from
dividends or interest paid on securities held in the
portfolio (and not including capital gains).
- -----------------------------------------------------------------
EQUITY Securities representing ownership in a corporation.
SECURITIES Common stock and preferred stock are equity
securities.
- -----------------------------------------------------------------
EX-DIVIDEND The date on or after which a new shareholder will
DATE not receive the fund's next distribution. For Putnam
funds, it is the same as the record date.
- -----------------------------------------------------------------<PAGE>
NET ASSET The basic value of one share of a mutual fund
VALUE (NAV) without regard to sales charges. Some bond funds aim for
a steady NAV, representing stability; most stock funds
work to raise NAV, representing growth in the value of
an investment.
- -----------------------------------------------------------------
PAYABLE DATE The date on which a mutual fund pays its distributions
to shareholders.
- -----------------------------------------------------------------
PUBLIC The purchase price of one class A share or class M
OFFERING share of a mutual fund, including the applicable
PRICE up-front sales charge.
(POP)
- -----------------------------------------------------------------
RECORD DATE The date used to determine which shareholders are
entitled to a distribution. After the record date,
shares are sold "ex-dividend," or without the dividend.
For Putnam funds, the ex-dividend date is the same as
the record date.
- -----------------------------------------------------------------
TOTAL RETURN A measure of performance showing the change in the value
of an investment over a given period, assuming all
earnings are invested back into the fund.
- -----------------------------------------------------------------
YIELD The percentage rate at which a fund's portfolio earns
income from its investments. "Dividend rate" is a
current return that includes interest and dividend
income, net of all fund expenses. "Distribution rate"
is a current return that includes short-term capital
gains, as well as net investment income. "SEC yield" is
a current return based on net investment income over a
recent 30-day period, computed on a yield-to-maturity
basis, which may differ from net investment income as
determined for financial reporting purposes. All of
these returns are calculated by annualizing the
distribution and dividing it by the price of a share at
the end of a period.<PAGE>
PUTNAM GROWTH AND INCOME FUND II
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
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
PUTNAMINVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
<PAGE>
PUTNAM GROWTH AND INCOME FUND II
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION
JULY 14, 1995
This Statement of Additional Information is not a Prospectus and is
only authorized for distribution when accompanied or preceded by
the Prospectus of the Fund dated July 14, 1995, as revised from
time to time. This Statement contains information which may be
useful to investors but which is not included in the Prospectus.
If the Fund has more than one form of current Prospectus, each
reference to the Prospectus in this Statement shall include all the
Fund's Prospectuses, unless otherwise noted. The Statement should
be read together with the applicable Prospectus. Investors may
obtain a free copy of the applicable Prospectus from Putnam
Investor Services, Mailing address: P.O. Box 41203, Providence, RI
02940-1203.
Part I of this Statement contains specific information about the
Fund. Part II includes information about the Fund and the other
Putnam funds.
<PAGE>
TABLE OF CONTENTS
PART I
SECURITIES RATINGS. . . . . . . . . . . . . . . . . . . . . . . . . .I-3
INVESTMENT RESTRICTIONS OF THE FUND. . . . . . . . . . . . . . . . . .I-5
FUND CHARGES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . .I-7
ADDITIONAL OFFICERS OF THE FUND . . . . . . . . . . . . . . . . . . I-10
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS. . . . . . . . . . I-11
PART II
MISCELLANEOUS INVESTMENT PRACTICES. . . . . . . . . . . . . . II-1
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-22
MANAGEMENT OF THE FUND. . . . . . . . . . . . . . . . . . . .II-27
DETERMINATION OF NET ASSET VALUE. . . . . . . . . . . . . . .II-36
HOW TO BUY SHARES . . . . . . . . . . . . . . . . . . . . . .II-38
DISTRIBUTION PLAN . . . . . . . . . . . . . . . . . . . . . .II-49
INVESTOR SERVICES . . . . . . . . . . . . . . . . . . II-
49
SIGNATURE GUARANTEES. . . . . . . . . . . . . . . . . II- 55
SUSPENSION OF REDEMPTIONS . . . . . . . . . . . . . . II- 55
SHAREHOLDER LIABILITY . . . . . . . . . . . . . . . . II- 55
STANDARD PERFORMANCE MEASURES . . . . . . . . . . . . II- 56
COMPARISON OF PORTFOLIO PERFORMANCE . . . . . . . . . II- 57
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . II- 62
<PAGE>
PUTNAM GROWTH AND INCOME FUND II
STATEMENT OF ADDITIONAL INFORMATION
PART I
SECURITIES RATINGS
THE FOLLOWING RATING SERVICES DESCRIBE RATED SECURITIES AS FOLLOWS:
MOODY'S INVESTORS SERVICE, INC.
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 CORPORATION
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 as
having predominantly speculative characterists with
respect to capacity to pay interest and repay principal
. BB indicates the least 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.
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 Standard & Poor's 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.
INVESTMENT RESTRICTIONS OF THE FUND
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) Purchase securities the disposition of which is restricted
under federal securities law if, as a result, such investments
would exceed 15% of the value of the Fund's net assets (excluding
securities determined by the Trustees (or the person designated by
the Trustees to make such determinations) to be readily marketable.
(7) 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 political
subdivisions.
(8) With respect to 75% of its total assets, acquire more than 10%
of the voting securities of any issuer.
(9) 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.
(10) Issue any class of securities which is senior to the Fund's
shares of beneficial interest.
IT IS CONTRARY TO THE FUND'S PRESENT POLICY, WHICH MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL, TO:
(1) Invest in (a) securities which at the time of such investment
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.
(2) Invest in warrants (other than warrants acquired by the Fund
as part of a unit or attached to securities at the time of
purchase) if, as a result, such investments (valued at the lower of
cost or market) would exceed 5% of the value of the Fund's net
assets; provided that not more than 2% of the Fund's net assets may
be invested in warrants not listed on the New York or American
Stock Exchanges.
(3) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts, although it may purchase securities which
represent interests in, are secured by interests in, or which are
issued by issuers which deal in, such leases, rights, or contracts,
and it may acquire or dispose of such leases, rights, or contracts
acquired through the exercise of its rights as a holder of debt
obligations secured thereby.
(4) Invest in securities of registered open-end or closed-end
investment companies, except as they may be acquired as part of a
merger or consolidation or acquisition of assets or by purchases in
the open market involving only customary brokers' commissions.
(5) Make short sales of securities or maintain a short position
for the account of the Fund unless at all times when a short
position is open it owns an equal amount of such securities or owns
securities which, without payment of any further consideration, are
convertible into or exchangeable for securities of the same issue
as, and in equal amount to, the securities sold short.
(6) Purchase or sell real property (including limited partnership
interests), except that the Fund may (a) purchase or sell readily
marketable interests in real estate investment trusts or readily
marketable securities of companies which invest in real estate, (b)
purchase or sell securities that are secured by interests in real
estate, or (c) acquire real estate through exercise of its rights
as a holder of obligations secured by real estate or interests
therein or sell real estate so acquired.
(7) Invest in securities of an issuer, if, to the knowledge of the
Fund, officers and Trustees of the Fund and officers and directors
of Putnam Management who beneficially own more than 0.5% of the
securities of that issuer together own more than 5% of such
securities.
Although certain of the Funds's fundamental investment restrictions
permit the Fund to borrow money to a limited extent, the Fund does
not currently intend to do so and has not done so since its
commencement of operations.
---------------------
All percentage limitations on investments 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 Investment Company Act of 1940 provides that a "vote of the
majority of the outstanding voting securities" of the Fund means
the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund, or (2) 67% or more of the shares
present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy.
FUND CHARGES AND EXPENSES
MANAGEMENT FEES
Under a Management Contract dated October 7, 1994, 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 an annual rate of 0.65% of the first $500 million
of the Fund's average net assets, 0.55% of the next $500 million,
0.50% of the next $500 million, 0.45% of the next $5 billion,
0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39%
of the next $5 billion and 0.38% of any excess thereafter.
TRUSTEE FEES
The Fund pays each Trustee 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 Compensation 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 estimated fees to be paid
to each Trustee by the Fund for the current fiscal year and the
fees paid to each Trustee by all of the Putnam funds during the
calendar year 1994 are shown below:
<PAGE>
<TABLE>
<CAPTION> Year first Retirement
elected as Estimated benefits Total
a Trustee aggregate accrued as compensation
of the compensation part of Fund's from all
Trustees Putnam funds from the Fund* expenses Putnam funds**
- ------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
Jameson A. Baxter 1994 $386 $0 $135,850
Hans H. Estin 1972 $393 0 141,850
John A. Hill 1985 $393 0 143,850
Elizabeth T. Kennan 1992 $393 0 141,850
Lawrence J. Lasser 1992 $393 0 141,850
Robert E. Patterson 1984 $393 0 144,850
Donald S. Perkins 1982 $393 0 139,850
William F. Pounds 1971 $393 0 143,850
George Putnam 1957 $393 0 141,850
George Putnam, III 1984 $393 0 141,850
Eli Shapiro*** 1995 $393 0 N/A
A.J.C. Smith 1986 $393 0 137,850
W. Nicholas Thorndike 1992 $393 0 144,850
- ----------------------------------------------------------------------------------
* Reflects estimated amounts to be paid by the Fund for its fiscal year ended November
30, 1995. Includes an annual retainer and an attendance fee for each meeting attended.
** Reflects total payments received from all Putnam funds in the most recent calendar
year. As of December 31, 1994, there were 86 funds in the Putnam family.
*** Elected Trustee in April 1995. For the calendar year ended December 31, 1994, Dr.
Shapiro received $38,577 in retirement benefits from the Putnam funds in respect of
his prior service as a Trustee from 1984 to 1990, which benefits terminated at the
end of 1994.
</TABLE>
<PAGE>
The Fund's Trustees have approved Retirement Guidelines for
Trustees of the Putnam funds. These guidelines provide generally
that a Trustee who retires after reaching age 72 and who has at
least 10 years of continuous service will be eligible to receive a
retirement benefit from each Putnam fund for which he or she served
as a Trustee. The amount and form of such benefit is subject to
determination annually by the Trustees and, unless otherwise
determined by the Trustees, will be an annual cash benefit payable
for life equal to one-half of the Trustee retainer fees paid by the
Fund at the time of retirement. Several retired Trustees are
currently receiving benefits pursuant to the Guidelines and it is
anticipated that the current Trustees of the Fund will receive
similar benefits upon their retirement. A Trustee who retired in
the most recent calendar year and was eligible to receive benefits
under these Guidelines would have received an annual benefit of
$60,425, based upon the aggregate retainer fees paid by the Putnam
funds for such year. The Trustees of the Fund reserve the right to
amend or terminate such Guidelines and the related payments at any
time, and may modify or waive the foregoing eligibility
requirements when deemed appropriate.
For additional information concerning the Fund's Trustees, see
"Management of the Fund" in Part II of this Statement of Additional
Information.
OWNERSHIP OF FUND SHARES
At May 31, 1995, the officers and Trustees of the Fund as a group
owned less than 1% of the outstanding shares of any class of the
Fund, and to the knowledge of the Fund no person owned of record or
beneficially 5% or more of the shares of any class of the Fund.
ADDITIONAL OFFICERS OF THE FUND
In addition to the persons listed as officers of the Fund in Part
II of this Statement, the following persons are also officers of
the Fund. Officers of Putnam Management hold the same offices in
Putnam Management's parent company, Putnam Investments, Inc.
ANTHONY I. KREISEL, Vice President. Managing Director of Putnam
Management. Vice President, Putnam Fiduciary Trust Company. Vice
President of certain of the Putnam funds.
THOMAS V. REILLY, Vice President. Managing Director of Putnam
Management. Vice President of certain of the Putnam funds.
<PAGE>
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, MA 02109,
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 following Report
of Independent Accountants and statement of assets and liabilities
have been included in this Statement of Additional Information in
reliance upon the report of the independent accountants, given on
their authority as experts in auditing and accounting.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Trustees of
Putnam Growth and Income Fund II
We have audited the accompanying statement of assets and
liabilities of Putnam Growth and Income Fund II as of November 28,
1994. This financial statement is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statement. Our procedures
included confirmation of cash owned as of November 28, 1994 by
correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents
fairly, in all material respects, the financial position of Putnam
Growth and Income Fund II as of November 28, 1994, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 29, 1994
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
PUTNAM GROWTH AND INCOME FUND II
November 28, 1994
Assets:
Cash. . . . . . . . . . . . . . . . . . . . . . $100,000
Deferred organization expenses 74,298
(Note 1). . . . . . . . . . . . . . . . . . . .
-----------
Total assets. . . . . . . . . . . . . . . . . . . . 174,298
Liabilities:
Estimated organization expenses payable
(Note 1). . . . . . . . . . . . . . . . . . . . . . 74,298
---------
Commitments (Notes 1, 2 and 3)
Net assets applicable to 3,921.647 Class A shares,
3,921.569 Class B shares and 3,921.569 Class M shares
outstanding . . . . . . . . . . . . . . . . . . 100,000
========
Computation of net asset value, redemption and
offering price per share:
Net asset value and redemption price per Class A
share ($33,334 divided by 3,921.647 shares) . . . . . $8.50
=====
Offering price per Class A share (100/94.25
of $8.50), reduced on sales of $50,000 or more
and in certain other circumstances -- see "HOW
TO BUY SHARES" . . . . . . . . . . . . . . . . . . $9.02
=====
Net asset value and offering price per Class B
share ($33,333 divided by 3,921.569 shares)
(redemption price per share is equal to net asset
value less any applicable contingent deferred sales
charge) see "HOW TO BUY SHARES". . . . . . . . . . . $8.50
=====
Net asset value and redemption price per Class M
share ($33,333 divided by 3,921.569 shares). . . . . $8.50
=====
Offering price per Class M share (100/96.50
of $8.50), reduced on sales of $50,000 or more
and in certain other circumstances -- see "HOW
TO BUY SHARES" . . . . . . . . . . . . . . . . . . $8.81
=====
See Notes to Statement of Assets and Liabilities
<PAGE>
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
NOTE 1. ORGANIZATION
The Fund was organized as a Massachusetts business trust under an
Agreement and Declaration of Trust, dated October 5, 1994, and is
registered under the Investment Company Act of 1940, as amended, as
an open-end, diversified, management investment company. The Fund
offers Class A, Class B and Class M shares. Its Agreement and
Declaration of Trust permits the issuance of an unlimited number of
shares. The Fund has had no operations other than those relating
to organizational matters and the initial capital contribution of
$100,000 to the Fund. All of the Fund's outstanding shares are
owned by Putnam Investments, Inc.
Upon the sale of its shares to the public, the Fund will become
liable for registration fees payable to the Securities and Exchange
Commission and for not more than $125,000 of expenses in connection
with its organization and the initial public offering of its
shares. Putnam Investment Management, Inc. ("Putnam Management"),
a wholly-owned subsidiary of Putnam Investments, Inc., will pay any
such expenses in excess of that amount and will pay all such
expenses in the event that the initial public offering is
withdrawn. At November 28, 1994 estimated deferred organization
expenses are $74,298, based upon estimated registration, legal and
accounting costs. The Fund will amortize such expenses borne by it
on a straight-line basis over its first five years of operation.
Putnam Investments, Inc. has agreed that if any of the initial
shares of the Fund are redeemed during such amortization period by
any holder thereof, the redemption proceeds will be reduced by the
amount of the then unamortized organization expenses in the same
ratio as the number of shares redeemed bears to the number of
initial shares held at the time of redemption.
NOTE 2. MANAGEMENT CONTRACT
The Fund has entered into a Management Contract with Putnam
Management. As compensation for the services rendered, facilities
furnished, and expenses borne by Putnam Management, the Fund will
pay Putnam Management a fee, computed and paid quarterly based on
the average net assets of the Fund for the quarter. Such fee is
based on the following annual rates: 0.65% of the first $500
million of the Fund's average net assets, 0.55% of the next $500
million, 0.50% of the next $500 million, 0.45% of the next $5
billion, 0.425% of the next $5 billion, 0.405% of the next $5
billion, 0.39% of the next $5 billion and 0.38% of any excess
thereafter.
<PAGE>
NOTE 3. DISTRIBUTION PLANS
The Fund has entered into Distribution Plans pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Fund pays Putnam
Mutual Funds Corp., a wholly-owned subsidiary of Putnam
Investments, Inc., a quarterly distribution fee at the annual rate
of up to 0.35% of the average net assets of the Fund represented by
Class A shares, 1.00% of the average net assets of the Fund
represented by Class B shares and up to 1.00% of the average net
assets of the Fund represented by Class M shares.
<PAGE>
Portfolio of investments owned March
31, 1995 (Unaudited)
Number of
Common Stocks (89.2%)* Shares Value
Aerospace and Defense (0.7%)
Boeing Co. 9,385 505,617
Automotive Parts (2.5%) Dana
Corporation 15,750 401,625
General Motors Corp. 21,125 934,781
Magna International Inc. Cl. A 13,735 523,647
1,860,053
Banks (6.0%)
BankAmerica Corp. 24,080 1,161,860
Bankers Trust New York Corp. 15,910 831,298
CoreStates Financial Corp. 15,010 480,320
Morgan (J.P.) & Co., Inc. 22,570 1,376,770
NationsBank Corp. 10,795 547,846
4,398,094
Basic Industrial Products (0.7%)
Sundstrand Corp. 9,705 488,889
Building Materials (0.5%)
Armstrong World Inds. Inc. 7,450 339,906
Business Equipment and Services (2.9%)
Dow Jones & Co. Inc. 6,490 245,809
IBM Corp. 7,275 595,641
Xerox Corp. 10,895 1,278,801
2,120,251
Chemicals (4.4%)
Eastman Chemical Co. 11,250 625,781
Grace (W.R.) & Co. 15,260 812,595
Witco Chemical Corp. 33,710 990,231
du Pont (E.I.) de Nemours & Co., Ltd 8,860 536,030
Union Carbide Corp. 8,435 258,322
3,222,959
Conglomerates (6.3%)
ITT Corp. 9,175 941,584
Johnson Controls, Inc. 7,945 404,202
TRW, Inc. 28,120 1,936,765
Tenneco Inc. 17,895 843,302
United Technologies Corp. 6,225 430,303
4,556,156
Cosmetics (2.8%) Avon
Products, Inc. 33,430 2,022,515
Consumer Non-Durables (4.5%)
American Brands Inc. 17,510 687,268
Eastman Kodak Co. 38,670 2,054,344
Maytag Corp. 33,395 571,889
3,313,501
Consumer Services (1.1%)
CBS Inc. 1,263 80,832
McGraw-Hill, Inc. 10,230 734,003
814,835
Electrical Equipment (2.1%) Eaton
Corp. 14,345 778,216
Honeywell, Inc. 8,435 315,258
Polaroid Corp. 13,570 471,558
1,565,032
Environmental Control (1.5%)
WMX Technologies, Inc. 39,160 1,076,900
Food and Beverages (1.0%)
Anheuser-Busch Cos., Inc. 120 7,035
Heinz (H.J.) Co. 17,715 682,028
689,063
Forest Products (1.0%)
Weyerhaeuser Co. 18,700 726,963
Health Care (5.1%)
American Home Products Corp. 11,110 791,588
Bristol-Myers Squibb Co. 16,630 1,047,690
Lilly (Eli) & Co. 9,175 670,922
Upjohn Co. 10,825 386,994
Warner-Lambert Co. 10,300 805,975
3,703,169
Household Products (0.5%)
Colgate-Palmolive Co. 5,590 368,940
Insurance and Finance (11.1%)
American Express Co. 25,625 893,672
Aetna Life & Casualty Co. 6,260 356,820
American General Corp. 15,455 498,424
Aon Corp. 5,610 204,765
Bear Stearns Companies, Inc. 21,090 390,165
Beneficial Corp. 33,745 1,324,491
CIGNA Corp. 11,530 861,868
Federal National Mortgage Association 4,465 363,339
First Chicago Corp. 10,510 526,814
First Fidelity Bancorp. 13,745 680,378
Household International Inc. 12,830 558,105
Houston Industries Inc. 6,750 257,344
Lincoln National Corp. 21,235 854,709
Wells Fargo & Co. 2,285 353,317
8,124,211
Machinery (0.5%) Case
Corp. 13,360 334,000
Medical Equipment and Supplies (1.9%)
Baxter International, Inc. 42,155 1,380,576
Oil and Gas (6.8%)
Atlantic Richfield Co. 3,200 368,000
Chevron Corp. 9,210 442,080
Enron Corp. 21,585 712,305
Exxon Corp. 16,060 1,072,005
Imperial Oil Ltd. 13,360 475,950
McDermott International, Inc. 255 6,980
Phillips Petroleum Co. 16,450 602,481
Royal Dutch Petroleum Co. 105 12,600
Sonat, Inc. 11,535 346,050
Total Corp. ADS 30,675 920,250
4,958,701
Paper (1.1%)
Kimberly-Clark Corp. 15,785 820,820
Publishing (1.8%)
Dun & Bradstreet Corp. 24,570 1,292,996
Real Estate (0.5%)
Reliance Group Holdings, Inc. 70,305 377,889
Retail (4.2%)
Blair Corp.
May Department Stores Co. 14,165 524,105
Melville Corporation 26,365 982,096
Penney (J.C.) Co., Inc. 15,925 714,634
Sears, Roebuck & Co. 8,435 450,218
Woolworth Corp. 21,725 399,197
3,070,250
Specialty Consumer Products (1.2%)
Corning Inc. 24,485 881,460
Tobacco (2.5%)
Philip Morris Cos., Inc. 25,945 1,692,911
RJR Nabisco Holdings Corp. 24,240 142,410
1,835,321
Transportation (3.0%)
Conrail Inc. 4,220 236,848
Norfolk Southern Corp. 11,250 752,344
Southern Pacific Rail Corp. 20,380 356,650
Union Pacific Corp. 16,275 895,125
2,240,967
Utilities (11.0%)
American Telephone & Telegraph Co. 19,930 1,031,378
Cinergy Corp. 18,455 459,068
Frontier Corp. 19,685 445,373
Northeast Utilities 31,640 672,350
NYNEX Corp. 34,765 1,377,563
Pacific Gas & Electric Co. 11,565 287,679
Public Service Co. of Colorado 21,585 663,739
Sprint Corp. 43,905 1,328,126
Texas Utilities Co. 10,004 317,627
Union Electric Co. 8,805 311,477
US WEST, Inc. 28,615 1,144,600
8,038,980
Total Common Stocks
(Cost $63,100,864) $ 65,129,014
Convertible Bond and Notes (0.3%)* (Cost
$236,263) Principal
Amount Value
Comcast Corp. cv. notes 1
1/8s, 2007 $ 570,000 $ 233,700
Convertible Preferred Stocks (2.5%)*
Number of
Shares Value
Automotive
Chrysler Corp. Ser. A, $4.625 dep. shs. cv.
pfd. 144A 4,395 $ 510,369
Ford Motor Co. Ser. A, $4.20, cv. pfd. 5,485 484,052
Insurance and Finance
Citicorp Ser. 13, $5.375 ,cv. pfd. 5,730 671,843
Business Equipment and Services
Unisys Corp. Ser. A, $3.75, cv. pfd. 4,465 173,577
Total Convertible Preferred Stocks (Cost
$1,845,477) $ 1,839,841
Short-Term Investments (8.2%)* (Cost
$6,003,140) Principal
Amount Value
Interest in joint repurchase agreement dated
March 31, 1995 with Goldman Sachs,
due April 3, 1995 with respect to various U.S.
Treasury Obligations - maturity value
of $6,003,140 for an effective yield of 6.28%
$6,003,140 $6,003,140
Total Investments
(cost $ 71,185,744) $ 73,205,695
<PAGE>
* Percentages indicated are based on total net assets of
$73,022,566, which corresponds to a net asset value for class A,
class B and class M of $9.19, $9.18 and $9.19 per share,
respectively.
ADR or ADS after the name of a foreign holding stands for
American Depository Receipt or American Depository Shares,
respectively, representing ownership of foreign securities on
deposit with a domestic custodian bank.
144A after the name of a security designates those securities
acquired in transactions exempt from registration under Rule 144A
of the Securities Act of 1933.
These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.<PAGE>
Putnam Growth and Income Fund II
Financial Highlights
(For a share outstanding throughout the period)
January 5, 1995 January 5, 1995 January 5, 1995
(commencement of (commencement of(commencement of
operations) to operations) to operations) to
March 31, March 31, March 31,
1995 * 1995* 1995*
Class A** Class B** Class M**
Net asset value,
beginning of period $8.50 $8.50 $8.50
Investment operations
Net investment income .09 .06 .05
Net realized and
unrealized gain on
investments .60 .62 .64
Total from investment
operations .69 .68 .69
Net asset value,
end of period $9.19 $9.18 $9.19
Total investment return at
net asset value (%) (a)8.12(b) 8.00(b) 8.12(b)
Net assets , end of
period (in thousands) $36,937 $30,692 $5,393
Ratio of expenses to
average net assets (%) .38(b) .55(b) .65(b)
Ratio of net investment
income to average
net assets (%) .59(b) .45(b) .33(b)
Portfolio turnover (%) 29.11(b) 29.11(b) 29.11(b)
* Unaudited
** Per share net investment income has been determined on the basis
of weighted average number of shares outstanding during the
period.
(a) Total investment return assumes dividend reinvestment and does
not reflect the effect of sales charges.
(b) Not annualized.
<PAGE>
Putnam Growth and Income Fund II
Statement of assets and liabilities
March 31, 1995 (Unaudited)
Assets
Investments in securities, at value
(identified cost$71,185,744) (Note 1) $73,205,695
Cash 2,028,783
Dividends and Interest receivable 173,392
Receivable for shares of the fund sold 6,346,549
Receivable for securities sold 2,477,072
Unamortized organization expenses (Note 1) 74,102
Total assets $84,305,593
Liabilities
Payable for securities purchased 11,072,058
Payable for shares of the fund repurchased 22,342
Payable for compensation of Manager (Note 2) 42,029
Payable for compensation of Trustees(Note 2) 1,446
Payable for investor servicing
and custodian fees (Note 2) 23,647
Payable for administrative services (Note 2) 1,206
Payable for distribution fees (Note 2) 30,586
Payable for organization expense (Note 1) 74,298
Other accrued expenses 15,415
Total liabilities 11,283,027
Net assets $73,022,566
Represented by
Paid-in capital (Notes 1 and 5) $70,695,590
Undistributed net investment income (Note 1) 148,737
Accumulated net realized gain on investment
transactions (Note 1) 158,288
Net unrealized appreciation of investments 2,019,951
Total (Representing net assets applicable to
capital shares outstanding) $73,022,566
Computation of net asset value and offering price
Net asset value and redemption price of class A shares
($36,937,116 divided by 4,019,420 shares) $9.19
Offering price per share (100/94.25 of $9.19)* $9.75
Net asset value and offering price of class B shares
($30,691,993 divided by 3,344,935 shares) $9.18
Net asset value and redemption price of class M shares
($5,393,457 divided by 587,188 shares) $9.19
Offering price per share (100/96.50 of $9.19) * $9.52
*On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales the offering price is reduced.
Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial
statements. <PAGE>
Putnam Growth and Income Fund II
Statement
of operations
For the period
January 5, 1995
(commencement of
operations) to
March 31, 1995
(Unaudited)
Investment income:
Dividends (net of foreign tax $862) $243,833
Interest 35,586
Total investment income 279,419
Expenses:
Compensation of Manager (Note 2) 42,029
Investor servicing and custodian fees (Note 2) 24,769
Compensation of Trustees (Note 2) 1,447
Reports to shareholders 4,548
Auditing 4,099
Legal 2,893
Postage 1,110
Distribution fees class A (Note 2) 8,590
Distribution fees class B (Note 2) 25,815
Distribution fees class M (Note 2) 3,372
Registration 8,679
Administrative services (Note 2) 1,207
Amortization of organization expenses (Note 1) 196
Other expenses 1,928
Total expenses 130,682
Net investment income 148,737
Net realized gain on investments (Notes 1 and 4) 158,288
Net unrealized appreciation
of investments during the period 2,019,951
Net gain on investment transactions 2,178,239
Net increase in net assets resulting from operations $2,326,976
The accompanying notes are an integral part of these financial
statements. <PAGE>
Putnam Growth and Income Fund II
Statement of
changes in net assets (Unaudited)
For the period
January 5, 1995
(commencement of
operations) to
March 31, 1995 *
Increase in net assets
Operations:
Net investment income $148,737
Net realized gain on investments 158,288
Net unrealized appreciation of investments 2,019,951
Net increase in net assets resulting from operations 2,326,976
Increase from capital share transactions (Note 4) 70,595,590
Total increase in net assets 72,922,566
Net assets
Beginning of period 100,000
End of period (including undistributed net investment
income of $148,737) $73,022,566
* See Note 2
The accompanying notes are an integral part of these financial
statements. <PAGE>
Putnam Growth and Income Fund II
Notes to
financial statements
March 31, 1995 (Unaudited)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company.
The Fund's primary investment objective is capital growth. Current
income is a secondary objective. The Fund invests primarily in common
stocks that offer the potential for capital growth, and may,
consistent with its investment objectives, invest in stocks
that offer potential for current income.
The Fund offers class A, class B and class M shares. Class A shares
are sold with a maximum front-end sales charge of 5.75%. Class B
shares are not subject to a front-end sales charge, but pay a higher
ongoing distribution fee than class A shares, and may be subject to a
contingent deferred sales charge if they are redeemed within six years
of purchase. Class M shares are sold with a maximum front-end sales
charge of 3.50% and pay ongoing distribution fees that are higher
than class A shares. Expenses of the Fund are borne pro-rata by the
shareholders of each class of shares, except that each class bears
expenses unique to that class (including the distribution fees
applicable to such class). Each class votes as a class only with
respect to its own distribution plan or other matters on which a class
vote is required by law or as determined by the Trustees. Shares of
each class would receive their pro-rata share of the net assets of the
Fund, if the Fund were liquidated. In addition, the Trustees declare
separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles.
A) SECURITY VALUATION Investments for which market quotations are
readily available are valued at market value, which is determined
using the last reported sale price, or, if no sales are reported, as
in the case of some securities traded over-the-counter, the last
reported bid price, except that certain U.S. government obligations
are stated at the mean of the bid and asked prices. Short-term
investments having remaining maturities of 60 days or less are valued
at amortized cost, which approximates market values, and other
investments are valued at fair value following procedures approved by
the Trustees.
B) JOINT TRADING ACCOUNT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund may transfer uninvested
cash balances into a joint trading account, along with the cash of
certain other accounts and other registered investment companies
managed by Putnam Investment Management Inc., (Putnam Management) the
Fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc.
These balances may be invested in one or more repurchase agreements
and/or short-term money market instruments.
C) REPURCHASE AGREEMENTS The Fund, through its custodian, receives
delivery of the underlying securities, the market value of which at
the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. The Fund's Manager is
responsible for determining that the value of these underlying
securities is at all times at least equal to the resale price,
including accrued interest.
D) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security
transactions are accounted for on the trade date (date the order to
buy or sell is executed). Interest income is recorded on the accrual
basis and dividend income is recorded on the ex-dividend date, except
that certain dividends from foreign securities are recorded as soon as
the Fund is informed of the ex-dividend date.
E) FEDERAL TAXES It is the policy of the Fund to distribute all of its
income each year and otherwise to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It
is also the intention of the Fund to distribute an amount sufficient
to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986. Therefore, no provision has been made
for federal taxes on income, capital gains or unrealized appreciation
of securities held and excise tax on income and capital gains.
F) DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are
recorded by the Fund on the ex-dividend date.
G) UNAMORTIZED ORGANIZATION EXPENSES incurred by the Fund in
connection with its organization, its registration with the Securities
and Exchange Commission and with various states, and the initial
public offering of its shares aggregated $74,298. These expenses are
being amortized on a straight-line basis over a five-year period.
NOTE 2
INITIAL CAPITALIZATION AND OFFERING OF SHARES
The Fund was established as a Massachusetts business trust under the
laws of The Commonwealth of Massachusetts on October 5, 1994.
During the period October 5, 1994 to December 30, 1994, the Fund had
no operations other than those related to organizational matters,
including the initial capital contribution of $100,000 and the
issuance of 3,922 Class A, 3,922 Class B and 3,922
Class M shares, respectively, to Putnam Mutual Funds Corp., a
wholly-owned subsidiary of Putnam Investments, Inc. (Putnam Mutual
Funds) on November 28, 1994. Regular investment operations commenced
on January 5, 1995.
<PAGE>
NOTE 3
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the Fund for the quarter. Such fee is based on the following annual
rates: 0.65% of the first $500 million of average net assets, 0.55% of
the next $500 million, 0.50% of the next $500 million, 0.45% of the
next $5 billion, 0.425% of the next $5 billion, 0.405% of the next $5
billion, 0.39% of the next $5 billion and 0.38% of any excess
thereafter.
The Fund also reimburses the Manager for the compensation and related
expenses of certain officers of the Fund and their staff who provide
administrative services to the Fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Trustees of the Fund receive an annual Trustee s fee of $530 and an
additional fee for each Trustees meeting attended. Trustees who are
not interested persons of the Manager and who serve on committees of
the Trustees receive additional fees for attendance at certain
committee meetings.
Custodial functions for the Fund's domestic assets are provided by The
Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
Investor servicing and custodian fees reported in the Statement of
operations for the three months ended March 31, 1995 have been reduced
by credits allowed by PFTC.
The Fund has adopted distributions plans (the "Plans") pursuant
to Rule 12b-1 under the Investment Company Act of 1940. The purpose
of the Plans is to compensate Putnam Mutual Funds Corp., a
wholly-owned subsidiary of Putnam Investments, Inc., for services
provided and expenses incurred by it in distributing shares of the
Fund. The Trustees have approved payment by the Fund at the annual
rates of 0.25%, 1.00% and 0.75% of the average net assets attributable
to Class A, Class B and Class M shares, respectively.
During the period from January 5, 1995 through March 31, 1995, Putnam
Mutual Funds Corp., acting as underwriter, received net commissions
of $188,703 and $14,479 from the sale of Class A and Class M shares,
respectively. A deferred sales charge of up to 1.00% is assessed on
certain redemptions of Class A shares purchased as part of an
investment of $1 million or more. For the period from January 5, 1995
to March 31, 1995, Putnam Mutual Funds Corp., acting as underwriter,
received no such charge on Class A redemptions. Putnam Mutual Funds
Corp. received $2,816 in contingent deferred sales charges from
redemptions of Class B shares.<PAGE>
NOTE 4
PURCHASES AND SALES OF SECURITIES
During the period ended March 31, 1995, purchases and sales of
investment securities other than U.S. government obligations and
short-term investments aggregated $73,166,350 and $8,097,522,
respectively. There were no purchases and sales of U.S. government
obligations during the period. In determining the net gain or loss on
securities sold, the cost of securities has been determined on the
identified cost basis.
NOTE 5
CAPITAL SHARES
At March 31, 1995, there was an unlimited number of shares of
beneficial interest authorized, divided into three classes, Class A,
Class B and Class M capital shares. Transactions in capital shares
were as follows:
For the period
January 5, 1995 (Commencement of
operations) to March 31, 1995
Class A Shares Amount
Shares sold 4,136,096 $36,732,137
Shares issued in connection with
reinvestment of distributions -- --
4,136,096 36,732,137
Shares repurchased (120,598) (1,077,197)
Net increase 4,015,498 $35,654,940
For the period
January 5, 1995 (Commencement of
operations) to March 31, 1995
Class B Shares Amount
Shares sold 3,449,662 $30,705,865
Shares issued in connection with
reinvestment of distributions -- --
3,449,662 30,705,865
Shares repurchased (108,649) (967,870)
Net increase 3,341,013 $29,737,995
<PAGE>
For the period
January 5, 1995 (Commencement of
operations) to March 31, 1995
Class M Shares Amount
Shares sold 586,639 $5,232,827
Shares issued in connection with
reinvestment of distributions -- --
586,639 5,232,827
Shares repurchased (3,373) (30,172)
Net increase 583,266 $5,202,655
<PAGE>
<PAGE>
TABLE OF CONTENTS
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . . . . . II-1
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-22
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-27
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . .II-36
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-38
DISTRIBUTION PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . .II-49
INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-49
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . .II-55
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . .II-55
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . .II-55
STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . . . . .II-56
COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . . . . .II-57
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-62
<PAGE>
THE PUTNAM FUNDS
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
PART II
The following information applies generally to your Fund and to
the other Putnam funds. In certain cases the discussion applies
to some but not all of the funds or their shareholders, and you
should refer to your Prospectus to determine whether the matter
is applicable to you or your Fund. You will also be referred to
Part I for certain information applicable to your particular
Fund. Shareholders who purchase shares at net asset value
through employer-sponsored defined contribution plans should also
consult their employer for information about the extent to which
the matters described below apply to them.
MISCELLANEOUS INVESTMENT PRACTICES
YOUR FUND'S PROSPECTUS STATES WHICH OF THE FOLLOWING INVESTMENT
PRACTICES ARE AVAILABLE TO YOUR FUND. THE FACT THAT YOUR FUND IS
AUTHORIZED TO ENGAGE IN A PARTICULAR PRACTICE DOES NOT
NECESSARILY MEAN THAT IT WILL ACTUALLY DO SO. YOU SHOULD
DISREGARD ANY PRACTICE DESCRIBED BELOW WHICH IS NOT MENTIONED IN
THE PROSPECTUS.
SHORT-TERM TRADING
In seeking the Fund's objective, Putnam Management will buy or
sell portfolio securities whenever Putnam Management believes it
appropriate to do so. In deciding whether to sell a portfolio
security, Putnam Management does not consider how long the Fund
has owned the security. From time to time the Fund will buy
securities intending to seek short-term trading profits. A
change in the securities held by the Fund is known as "portfolio
turnover" and generally involves some expense to the Fund. These
expenses may include brokerage commissions or dealer mark-ups and
other transaction costs on both the sale of securities and the
reinvestment of the proceeds in other securities. If sales of
portfolio securities cause the Fund to realize net short-term
capital gains, such gains will be taxable as ordinary income. As
a result of the Fund's investment policies, under certain market
conditions the Fund's portfolio turnover rate may be higher than
that of other mutual funds. Portfolio turnover rate for a fiscal
year is the ratio of the lesser of purchases or sales of
portfolio securities to the monthly average of the value of
portfolio securities -- excluding securities whose maturities at
acquisition were one year or less. The Fund's portfolio turnover
rate is not a limiting factor when Putnam Management considers a
change in the Fund's portfolio.
<PAGE>
LOWER-RATED SECURITIES
The Fund may invest in lower-rated fixed-income securities
(commonly known as "junk bonds"), to the extent described in the
Prospectus. The lower ratings of certain securities held by the
Fund reflect a greater possibility that adverse changes in the
financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates,
may impair the ability of the issuer to make payments of interest
and principal. The inability (or perceived inability) of issuers
to make timely payment of interest and principal would likely
make the values of securities held by the Fund more volatile and
could limit the Fund's ability to sell its securities at prices
approximating the values the Fund had placed on such securities.
In the absence of a liquid trading market for securities held by
it, the Fund may be unable at times to establish the fair value
of such securities. The rating assigned to a security by Moody's
Investors Service, Inc. or Standard & Poor's Corporation (or by
any other nationally recognized securities rating organization)
does not reflect an assessment of the volatility of the
security's market value or the liquidity of an investment in the
security. See the Prospectus or Part I of this Statement for a
description of security ratings.
Like those of other fixed-income securities, the values of
lower-rated securities fluctuate in response to changes in
interest rates. Thus, a decrease in interest rates will
generally result in an increase in the value of the Fund's
assets. Conversely, during periods of rising interest rates, the
value of the Fund's assets will generally decline. In addition,
the values of such securities are also affected by changes in
general economic conditions and business conditions affecting the
specific industries of their issuers. Changes by recognized
rating services in their ratings of any fixed-income security and
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 cash income derived from such securities, but will affect
the Fund's net asset value. The Fund will not necessarily
dispose of a security when its rating is reduced below its rating
at the time of purchase, although Putnam Management will monitor
the investment to determine whether its retention will assist in
meeting the Fund's investment objective.
At times, a substantial portion of the Fund's assets may be
invested in securities as to which the Fund, by itself or
together with other funds and accounts managed by Putnam
Management and its affiliates, holds a major portion or all of
such securities. Although Putnam Management generally considers
such securities to be liquid because of the availability of an
institutional market for such securities, it is possible that,
under adverse market or economic conditions or in the event of
adverse changes in the financial condition of the issuer, the
Fund could find it more difficult to sell such securities when
Putnam Management believes it advisable to do so or may be able
to sell such securities only at prices lower than if such
securities were more widely held. Under such circumstances, it
may also be more difficult to determine the fair value of such
securities for purposes of computing the Fund's net asset value.
In order to enforce its rights in the event of a default under
such securities, the Fund may be required to take possession of
and manage assets securing the issuer's obligations on such
securities, which may increase the Fund's operating expenses and
adversely affect the Fund's net asset value. In the case of
tax-exempt funds, any income derived from the Fund's ownership or
operation of such assets would not be tax-exempt. In addition,
the Fund's intention to qualify as a "regulated investment
company" under the Internal Revenue Code may limit the extent to
which the Fund may exercise its rights by taking possession of
such assets.
Certain securities held by the Fund may permit the issuer at its
option to "call", or redeem, its securities. If an issuer were
to redeem securities held by the Fund during a time of declining
interest rates, the Fund may not be able to reinvest the proceeds
in securities providing the same investment return as the
securities redeemed.
If the Fund's Prospectus describes so-called "zero-coupon" bonds
and "payment-in-kind" bonds as possible investments, the Fund may
invest without limit in such bonds unless otherwise specified in
the Prospectus. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest
periodically. 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. Because zero-coupon bonds do not
pay current interest, their value is subject to greater
fluctuation in response to changes in market interest rates than
bonds which pay interest currently. Both zero-coupon 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 currently. Even though such bonds do not pay current
interest in cash, the Fund is nonetheless required to accrue
interest income on such investments and to distribute such
amounts at least annually to shareholders. Thus, the Fund could
be required at times to liquidate investments in order to satisfy
its dividend requirements.
The amount of information about the financial condition of an
issuer of tax exempt securities may not be as extensive as that
which is made available by corporations whose securities are
publicly traded. Therefore, to the extent the Fund invests in
tax exempt securities in the lower rating categories, the
achievement of the Fund's goals is more dependent on Putnam
Management's investment analysis than would be the case if the
Fund were investing in securities in the higher rating
categories.
INVESTMENTS IN MISCELLANEOUS FIXED INCOME SECURITIES
Unless otherwise specified in the Prospectus or elsewhere in this
SAI, if the Fund may invest in inverse floating obligations,
premium securities, or interest-only or principal-only classes of
mortgage-backed securities, it may do so without limit. The
Fund, however, currently does not intend to invest more than 15%
of its assets in inverse floating obligations under normal market
conditions.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities, on
either a short-term or long-term basis, amounting to not more
than 25% of its total assets, thereby realizing additional
income. The risks in lending portfolio securities, as with other
extensions of credit, consist of possible delay in recovery of
the securities or possible loss of rights in the collateral
should the borrower fail financially. As a matter of policy,
securities loans are made to broker-dealers pursuant to
agreements requiring that loans be continuously secured by
collateral consisting of cash or short-term debt obligations at
least equal at all times to the value of the securities on loan,
"marked-to-market" daily. The borrower pays to the Fund an
amount equal to any dividends or interest received on securities
lent. The Fund retains all or a portion of the interest received
on investment of the cash collateral or receives a fee from the
borrower. Although voting rights, or rights to consent, with
respect to the loaned securities pass to the borrower, the Fund
retains the right to call the loans at any time on reasonable
notice, and it will do so to enable the Fund to exercise voting
rights on any matters materially affecting the investment. The
Fund may also call such loans in order to sell the securities.
FORWARD COMMITMENTS
The Fund may enter into contracts to purchase securities for a
fixed price at a future date beyond customary settlement time
("forward commitments") if the Fund holds, and maintains until
the settlement date in a segregated account, cash or high-grade
debt obligations in an amount sufficient to meet the purchase
price, or if the Fund enters into offsetting contracts for the
forward sale of other securities it owns. In the case of to-be-
announced ("TBA") purchase commitments, the unit price and the
estimated principal amount are established when the Fund enters
into a contract, with the actual principal amount being within a
specified range of the estimate. Forward commitments may be
considered securities in themselves, and involve a risk of loss
if the value of the security to be purchased declines prior to
the settlement date, which risk is in addition to the risk of
decline in the value of the Fund's other assets. Where such
purchases are made through dealers, the Fund relies on the dealer
to consummate the sale. The dealer's failure to do so may result
in the loss to the Fund of an advantageous yield or price.
Although the Fund will generally enter into forward commitments
with the intention of acquiring securities for its portfolio or
for delivery pursuant to options contracts it has entered into,
the Fund may dispose of a commitment prior to settlement if
Putnam Management deems it appropriate to do so. The Fund may
realize short-term profits or losses upon the sale of forward
commitments.
The Fund may enter into TBA sale commitments to hedge its
portfolio positions or to sell mortgage-backed securities it owns
under delayed delivery arrangements. Proceeds of TBA sale
commitments are not received until the contractual settlement
date. During the time a TBA sale commitment is outstanding,
equivalent deliverable securities, or an offsetting TBA purchase
commitment deliverable on or before the sale commitment date, are
held as "cover" for the transaction. Unsettled TBA sale
commitments are valued at current market value of the underlying
securities. If the TBA sale commitment is closed through the
acquisition of an offsetting purchase commitment, the Fund
realizes a gain or loss on the commitment without regard to any
unrealized gain or loss on the underlying security. If the Fund
delivers securities under the commitment, the Fund realizes a
gain or loss from the sale of the securities based upon the unit
price established at the date the commitment was entered into.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements up to the limit
specified in the Prospectus. A repurchase agreement is a
contract under which the Fund acquires a security for a
relatively short period (usually not more than one week) subject
to the obligation of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the
Fund's cost plus interest). It is the Fund's present intention
to enter into repurchase agreements only with commercial banks
and registered broker-dealers and only with respect to
obligations of the U.S. government or its agencies or
instrumentalities. Repurchase agreements may also be viewed as
loans made by the Fund which are collateralized by the securities
subject to repurchase. Putnam Management will monitor such
transactions to ensure that the value of the underlying
securities will be at least equal at all times to the total
amount of the repurchase obligation, including the interest
factor. If the seller defaults, the Fund could realize a loss on
the sale of the underlying security to the extent that the
proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or
insolvency proceedings, the Fund may incur delay and costs in
selling the underlying security or may suffer a loss of principal
and interest if the Fund is treated as an unsecured creditor and
required to return the underlying collateral to the seller's
estate.
Pursuant to an exemptive order issued by the Securities and
Exchange Commission, the Fund may transfer uninvested cash
balances into a joint account, along with cash of other Putnam
funds and certain other accounts. These balances may be invested
in one or more repurchase agreements and/or short-term money
market instruments.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options
and covered put options on optionable securities held in its
portfolio, when in the opinion of Putnam Management such
transactions are consistent with the Fund's investment objectives
and policies. Call options written by the Fund give the
purchaser the right to buy the underlying securities from the
Fund at a stated exercise price; put options give the purchaser
the right to sell the underlying securities to the Fund at a
stated price.
The Fund may write only covered options, which means that, so
long as the Fund is obligated as the writer of a call option, it
will own the underlying securities subject to the option (or
comparable securities satisfying the cover requirements of
securities exchanges). In the case of put options, the Fund will
hold cash and/or high-grade short-term debt obligations equal to
the price to be paid if the option is exercised. In addition,
the Fund will be considered to have covered a put or call option
if and to the extent that it holds an option that offsets some or
all of the risk of the option it has written. The Fund may write
combinations of covered puts and calls on the same underlying
security.
The Fund will receive a premium from writing a put or call
option, which increases the Fund's return on the underlying
security in the event the option expires unexercised or is closed
out at a profit. The amount of the premium reflects, among other
things, the relationship between the exercise price and the
current market value of the underlying security, the volatility
of the underlying security, the amount of time remaining until
expiration, current interest rates, and the effect of supply and
demand in the options market and in the market for the underlying
security. By writing a call option, the Fund limits its
opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option
but continues to bear the risk of a decline in the value of the
underlying security. By writing a put option, the Fund assumes
the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current
market value, resulting in a potential capital loss unless the
security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction, in
which it purchases an offsetting option. The Fund realizes a
profit or loss from a closing transaction if the cost of the
transaction (option premium plus transaction costs) is less or
more than the premium received from writing the option. Because
increases in the market price of a call option generally reflect
increases in the market price of the security underlying the
option, any loss resulting from a closing purchase transaction
may be offset in whole or in part by unrealized appreciation of
the underlying security owned by the Fund.
If the Fund writes a call option but does not own the underlying
security, and when it writes a put option, the Fund may be
required to deposit cash or securities with its broker as
"margin", or collateral, for its obligation to buy or sell the
underlying security. As the value of the underlying security
varies, the Fund may have to deposit additional margin with the
broker. Margin requirements are complex and are fixed by
individual brokers, subject to minimum requirements currently
imposed by the Federal Reserve Board and by stock exchanges and
other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to
protect its portfolio holdings in an underlying security against
a decline in market value. Such protection is provided during
the life of the put option since the Fund, as holder of the
option, is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying
security's market price. In order for a put option to be
profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the
premium and transaction costs. By using put options in this
manner, the Fund will reduce any profit it might otherwise have
realized from appreciation of the underlying security by the
premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to
hedge against an increase in the price of securities that the
Fund wants ultimately to buy. Such hedge protection is provided
during the life of the call option since the Fund, as holder of
the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying
security's market price. In order for a call option to be
profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and
transaction costs.
RISK FACTORS IN OPTIONS TRANSACTIONS
The successful use of the Fund's options strategies depends on
the ability of Putnam Management to forecast correctly interest
rate and market movements. For example, if the Fund were to
write a call option based on Putnam Management's expectation that
the price of the underlying security would fall, but the price
were to rise instead, the Fund could be required to sell the
security upon exercise at a price below the current market price.
Similarly, if the Fund were to write a put option based on Putnam
Management's expectation that the price of the underlying
security would rise, but the price were to fall instead, the Fund
could be required to purchase the security upon exercise at a
price higher than the current market price.
When the Fund purchases an option, it runs the risk that it will
lose its entire investment in the option in a relatively short
period of time, unless the Fund exercises the option or enters
into a closing sale transaction before the option's expiration.
If the price of the underlying security does not rise (in the
case of a call) or fall (in the case of a put) to an extent
sufficient to cover the option premium and transaction costs, the
Fund will lose part or all of its investment in the option. This
contrasts with an investment by the Fund in the underlying
security, since the Fund will not realize a loss if the
security's price does not change.
The effective use of options also depends on the Fund's ability
to terminate option positions at times when Putnam Management
deems it desirable to do so. There is no assurance that the Fund
will be able to effect closing transactions at any particular
time or at an acceptable price.
If a secondary market in options were to become unavailable, the
Fund could no longer engage in closing transactions. Lack of
investor interest might adversely affect the liquidity of the
market for particular options or series of options. A market may
discontinue trading of a particular option or options generally.
In addition, a market could become temporarily unavailable if
unusual events -- such as volume in excess of trading or clearing
capability -- were to interrupt its normal operations.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening
transactions. For example, if an underlying security ceases to
meet qualifications imposed by the market or the Options Clearing
Corporation, new series of options on that security will no
longer be opened to replace expiring series, and opening
transactions in existing series may be prohibited. If an options
market were to become unavailable, the Fund as a holder of an
option would be able to realize profits or limit losses only by
exercising the option, and the Fund, as option writer, would
remain obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying options
purchased or sold by the Fund could result in losses on the
options. If trading is interrupted in an underlying security,
the trading of options on that security is normally halted as
well. As a result, the Fund as purchaser or writer of an option
will be unable to close out its positions until options trading
resumes, and it may be faced with considerable losses if trading
in the security reopens at a substantially different price. In
addition, the Options Clearing Corporation or other options
markets may impose exercise restrictions. If a prohibition on
exercise is imposed at the time when trading in the option has
also been halted, the Fund as purchaser or writer of an option
will be locked into its position until one of the two
restrictions has been lifted. If the Options Clearing
Corporation were to determine that the available supply of an
underlying security appears insufficient to permit delivery by
the writers of all outstanding calls in the event of exercise, it
may prohibit indefinitely the exercise of put options. The Fund,
as holder of such a put option, could lose its entire investment
if the prohibition remained in effect until the put option's
expiration.
Special risks are presented by internationally-traded options.
Because of time differences between the United States and various
foreign countries, and because different holidays are observed in
different countries, foreign options markets may be open for
trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of
the underlying interest in the United States.
Over-the-counter ("OTC") options purchased by the Fund and assets
held to cover OTC options written by the Fund may, under certain
circumstances, be considered illiquid securities for purposes of
any limitation on the Fund's ability to invest in illiquid
securities.
FUTURES CONTRACTS AND RELATED OPTIONS
Subject to applicable law, and unless otherwise specified in the
Prospectus, the Fund may invest without limit in the types of
futures contracts and related options identified in the
Prospectus. A financial futures contract sale creates an
obligation by the seller to deliver the type of financial
instrument called for in the contract in a specified delivery
month for a stated price. A financial futures contract purchase
creates an obligation by the purchaser to take delivery of the
type of financial instrument called for in the contract in a
specified delivery month at a stated price. The specific
instruments delivered or taken, respectively, at settlement date
are not determined until on or near that date. The determination
is made in accordance with the rules of the exchange on which the
futures contract sale or purchase was made. Futures contracts
are traded in the United States only on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for
such trading by the Commodity Futures Trading Commission (the
"CFTC"), and must be executed through a futures commission
merchant or brokerage firm which is a member of the relevant
contract market.
Although futures contracts (other than index futures) by their
terms call for actual delivery or acceptance of commodities or
securities, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery.
Closing out a futures contract sale is effected by purchasing a
futures contract for the same aggregate amount of the specific
type of financial instrument or commodity with the same delivery
date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid
the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial sale,
the seller realizes a loss. Similarly, the closing out of a
futures contract purchase is effected by the purchaser's entering
into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the purchaser realizes a gain, and if
the purchase price exceeds the offsetting sale price, he realizes
a loss. In general 40% of the gain or loss arising from the
closing out of a futures contract traded on an exchange approved
by the CFTC is treated as short-term gain or loss, and 60% is
treated as long-term gain or loss.
Unlike when the Fund purchases or sells a security, no price is
paid or received by the Fund upon the purchase or sale of a
futures contract. Upon entering into a contract, the Fund is
required to deposit with its custodian in a segregated account in
the name of the futures broker an amount of cash and/or U.S.
Government Securities. This amount is known as "initial margin."
The nature of initial margin in futures transactions is different
from that of margin in security transactions in that futures
contract margin does not involve the borrowing of funds to
finance the transactions. Rather, initial margin is similar to a
performance bond or good faith deposit which is returned to the
Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Futures contracts
also involve brokerage costs.
Subsequent payments, called "variation margin" or "maintenance
margin", to and from the broker (or the custodian) are made on a
daily basis as the price of the underlying security or commodity
fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to
the market." For example, when the Fund has purchased a futures
contract on a security and the price of the underlying security
has risen, that position will have increased in value and the
Fund will receive from the broker a variation margin payment
based on that increase in value. Conversely, when the Fund has
purchased a security futures contract and the price of the
underlying security has declined, the position would be less
valuable and the Fund would be required to make a variation
margin payment to the broker.
The Fund may elect to close some or all of its futures positions
at any time prior to their expiration in order to reduce or
eliminate a hedge position then currently held by the Fund. The
Fund may close its positions by taking opposite positions which
will operate to terminate the Fund's position in the futures
contracts. Final determinations of variation margin are then
made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. Such closing
transactions involve additional commission costs.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write
call and put options on futures contracts it may buy or sell and
enter into closing transactions with respect to such options to
terminate existing positions. Options on future contracts give
the purchaser the right in return for the premium paid to assume
a position in a futures contract at the specified option exercise
price at any time during the period of the option. The Fund may
use options on futures contracts in lieu of writing or buying
options directly on the underlying securities or purchasing and
selling the underlying futures contracts. For example, to hedge
against a possible decrease in the value of its portfolio
securities, the Fund may purchase put options or write call
options on futures contracts rather than selling futures
contracts. Similarly, the Fund may purchase call options or
write put options on futures contracts as a substitute for the
purchase of futures contracts to hedge against a possible
increase in the price of securities which the Fund expects to
purchase. Such options generally operate in the same manner as
options purchased or written directly on the underlying
investments.
As with options on securities, the holder or writer of an option
may terminate his position by selling or purchasing an offsetting
option. There is no guarantee that such closing transactions can
be effected.
The Fund will be required to deposit initial margin and
maintenance margin with respect to put and call options on
futures contracts written by it pursuant to brokers' requirements
similar to those described above in connection with the
discussion of futures contracts.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS.
Successful use of futures contracts by the Fund is subject to
Putnam Management's ability to predict movements in the direction
of interest rates and other factors affecting securities markets.
For example, if the Fund has hedged against the possibility of
decline in the values of its investments and the values of its
investments increase instead, the Fund will lose part or all of
the benefit of the increase through payments of daily maintenance
margin. The Fund may have to sell investments at a time when it
may be disadvantageous to do so in order to meet margin
requirements.
Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves
less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the purchase of
a call or put option on a futures contract would result in a loss
to the Fund when the purchase or sale of a futures contract would
not, such as when there is no movement in the prices of the
hedged investments. The writing of an option on a futures
contract involves risks similar to those risks relating to the
sale of futures contracts.
There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render
certain market clearing facilities inadequate, and thereby result
in the institution by exchanges of special procedures which may
interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the
Fund may seek to close out a position. The ability to establish
and close out positions will be subject to the development and
maintenance of a liquid secondary market. It is not certain that
this market will develop or continue to exist for a particular
futures contract or option. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there
may be insufficient trading interest in certain contracts or
options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii)
trading halts, suspensions or other restrictions may be imposed
with respect to particular classes or series of contracts or
options, or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or a clearing corporation may not
at all times be adequate to handle current trading volume; or
(vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the
trading of contracts or options (or a particular class or series
of contracts or options), in which event the secondary market on
that exchange for such contracts or options (or in the class or
series of contracts or options) would cease to exist, although
outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with
their terms.
U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. If the
Fund invests in tax-exempt securities issued by a governmental
entity, the Fund may purchase and sell futures contracts and
related options on U.S. Treasury securities when, in the opinion
of Putnam Management, price movements in Treasury security
futures and related options will correlate closely with price
movements in the tax-exempt securities which are the subject of
the hedge. U.S. Treasury security futures contracts require the
seller to deliver, or the purchaser to take delivery of, the type
of U.S. Treasury security called for in the contract at a
specified date and price. Options on U.S. Treasury security
futures contracts give the purchaser the right in return for the
premium paid to assume a position in a U.S. Treasury security
futures contract at the specified option exercise price at any
time during the period of the option.
Successful use of U.S. Treasury security futures contracts by the
Fund is subject to Putnam Management's ability to predict
movements in the direction of interest rates and other factors
affecting markets for debt securities. For example, if the Fund
has sold U.S. Treasury security futures contracts in order to
hedge against the possibility of an increase in interest rates
which would adversely affect tax-exempt securities held in its
portfolio, and the prices of the Fund's tax-exempt securities
increase instead as a result of a decline in interest rates, the
Fund will lose part or all of the benefit of the increased value
of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily maintenance margin requirements at
a time when it may be disadvantageous to do so.
There is also a risk that price movements in U.S. Treasury
security futures contracts and related options will not correlate
closely with price movements in markets for tax-exempt
securities. For example, if the Fund has hedged against a
decline in the values of tax-exempt securities held by it by
selling Treasury security futures and the values of Treasury
securities subsequently increase while the values of its
tax-exempt securities decrease, the Fund would incur losses on
both the Treasury security futures contracts written by it and
the tax-exempt securities held in its portfolio. Putnam
Management will seek to reduce this risk by monitoring movements
in markets for U.S. Treasury security futures and options and for
tax-exempt securities closely. The Fund will only purchase or
sell Treasury security futures or related options when, in the
opinion of Putnam Management, price movements in Treasury
security futures and related options will correlate closely with
price movements in tax-exempt securities in which the Fund
invests.
INDEX FUTURES CONTRACTS. An index futures contract is a contract
to buy or sell units of an index at a specified future date at a
price agreed upon when the contract is made. Entering into a
contract to buy units of an index is commonly referred to as
buying or purchasing a contract or holding a long position in
the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short
position. A unit is the current value of the index. The Fund
may enter into stock index futures contracts, debt index futures
contracts, or other index futures contracts appropriate to its
objective. The Fund may also purchase and sell options on index
futures contracts.
For example, the Standard & Poor's Composite 500 Stock Price
Index ("S&P 500") is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange. The S&P 500
assigns relative weightings to the common stocks included in the
Index, and the value fluctuates with changes in the market values
of those common stocks. In the case of the S&P 500, contracts
are to buy or sell 500 units. Thus, if the value of the S&P 500
were $150, one contract would be worth $75,000 (500 units x
$150). The stock index futures contract specifies that no
delivery of the actual stocks making up the index will take
place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the
difference between the contract price and the actual level of the
stock index at the expiration of the contract. For example, if
the Fund enters into a futures contract to buy 500 units of the
S&P 500 at a specified future date at a contract price of $150
and the S&P 500 is at $154 on that future date, the Fund will
gain $2,000 (500 units x gain of $4). If the Fund enters into a
futures contract to sell 500 units of the stock index at a
specified future date at a contract price of $150 and the S&P 500
is at $152 on that future date, the Fund will lose $1,000 (500
units x loss of $2).
There are several risks in connection with the use by the Fund of
index futures as a hedging device. One risk arises because of
the imperfect correlation between movements in the prices of the
index futures and movements in the prices of securities which are
the subject of the hedge. Putnam Management will, however,
attempt to reduce this risk by buying or selling, to the extent
possible, futures on indices the movements of which will, in its
judgment, have a significant correlation with movements in the
prices of the securities sought to be hedged.
Successful use of index futures by the Fund for hedging purposes
is also subject to Putnam Management's ability to predict
movements in the direction of the market. It is possible that,
where the Fund has sold futures to hedge its portfolio against a
decline in the market, the index on which the futures are written
may advance and the value of securities held in the Fund's
portfolio may decline. If this occurred, the Fund would lose
money on the futures and also experience a decline in value in
its portfolio securities. It is also possible that, if the Fund
has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and
securities prices increase instead, the Fund will lose part or
all of the benefit of the increased value of those securities it
has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily
variation margin requirements at a time when it is
disadvantageous to do so.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the
index futures and the portion of the portfolio being hedged, the
prices of index futures may not correlate perfectly with
movements in the underlying index due to certain market
distortions. First, all participants in the futures market are
subject to margin deposit and maintenance requirements. Rather
than meeting additional margin deposit requirements, investors
may close futures contracts through offsetting transactions which
could distort the normal relationship between the index and
futures markets. Second, margin requirements in the futures
market are less onerous than margin requirements in the
securities market, and as a result the futures market may attract
more speculators than the securities market does. Increased
participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price
distortions in the futures market and also because of the
imperfect correlation between movements in the index and
movements in the prices of index futures, even a correct forecast
of general market trends by Putnam Management may still not
result in a successful hedging transaction over a short time
period.
OPTIONS ON STOCK INDEX FUTURES. Options on index futures are
similar to options on securities except that options on index
futures give the purchaser the right, in return for the premium
paid, to assume a position in an index futures contract (a long
position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during
the period of the option. Upon exercise of the option, the
delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the index
futures contract, at exercise, exceeds (in the case of a call) or
is less than (in the case of a put) the exercise price of the
option on the index future. If an option is exercised on the
last trading day prior to its expiration date, the settlement
will be made entirely in cash equal to the difference between the
exercise price of the option and the closing level of the index
on which the future is based on the expiration date. Purchasers
of options who fail to exercise their options prior to the
exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES
As an alternative to purchasing call and put options on index
futures, the Fund may purchase and sell call and put options on
the underlying indices themselves. Such options would be used in
a manner identical to the use of options on index futures.
INDEX WARRANTS
The Fund may purchase put warrants and call warrants whose values
vary depending on the change in the value of one or more
specified securities indices ("index warrants"). Index warrants
are generally issued by banks or other financial institutions and
give the holder the right, at any time during the term of the
warrant, to receive upon exercise of the warrant a cash payment
from the issuer based on the value of the underlying index at the
time of exercise. In general, if the value of the underlying
index rises above the exercise price of the index warrant, the
holder of a call warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference
between the value of the index and the exercise price of the
warrant; if the value of the underlying index falls, the holder
of a put warrant will be entitled to receive a cash payment from
the issuer upon exercise based on the difference between the
exercise price of the warrant and the value of the index. The
holder of a warrant would not be entitled to any payments from
the issuer at any time when, in the case of a call warrant, the
exercise price is greater than the value of the underlying index,
or, in the case of a put warrant, the exercise price is less than
the value of the underlying index. If the Fund were not to
exercise an index warrant prior to its expiration, then the Fund
would lose the amount of the purchase price paid by it for the
warrant.
The Fund will normally use index warrants in a manner similar to
its use of options on securities indices. The risks of the
Fund's use of index warrants are generally similar to those
relating to its use of index options. Unlike most index options,
however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only
by the credit of the bank or other institution which issues the
warrant. Also, index warrants generally have longer terms than
index options. Although the Fund will normally invest only in
exchange-listed warrants, index warrants are not likely to be as
liquid as certain index options backed by a recognized clearing
agency. In addition, the terms of index warrants may limit the
Fund's ability to exercise the warrants at such time, or in such
quantities, as the Fund would otherwise wish to do.
FOREIGN SECURITIES
Under its current policy, which may be changed without
shareholder approval, the Fund may invest up to the limit of its
total assets specified in its Prospectus in securities
principally traded in markets outside the United States.
Eurodollar certificates of deposit are excluded for purposes of
this limitation. Foreign investments can be affected favorably
or unfavorably by changes in currency exchange rates and in
exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S.
company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Securities of
some foreign companies are less liquid or more volatile than
securities of U.S. companies, and foreign brokerage commissions
and custodian fees are generally higher than in the United
States. Investments in foreign securities can involve other
risks different from those affecting U.S. investments, including
local political or economic developments, expropriation or
nationalization of assets and imposition of withholding taxes on
dividend or interest payments. To hedge against possible
variations in foreign exchange rates, the Fund may purchase and
sell forward foreign currency contracts. These represent
agreements to purchase or sell specified currencies at specified
dates and prices. The Fund will only purchase and sell forward
foreign currency contracts in amounts Putnam Management deems
appropriate to hedge existing or anticipated portfolio positions
and will not use such forward contracts for speculative purposes.
Foreign securities, like other assets of the Fund, will be held
by the Fund's custodian or by a subcustodian.
FOREIGN CURRENCY TRANSACTIONS
Unless otherwise specified in the Prospectus, the Fund may engage
without limit in currency exchange transactions, as well as
foreign currency forward and futures contracts, to protect
against uncertainty in the level of future currency exchange
rates. In addition, the Fund may write covered call and put
options on foreign currencies for the purpose of increasing its
current return.
Generally, the Fund may engage in both "transaction hedging" and
"position hedging". When it engages in transaction hedging, the
Fund enters into foreign currency transactions with respect to
specific receivables or payables, generally arising in connection
with the purchase or sale of portfolio securities. The Fund will
engage in transaction hedging when it desires to "lock in" the
U.S. dollar price of a security it has agreed to purchase or
sell, or the U.S. dollar equivalent of a dividend or interest
payment in a foreign currency. By transaction hedging the Fund
will attempt to protect itself against a possible loss resulting
from an adverse change in the relationship between the U.S.
dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold, or
on which the dividend or interest payment is earned, and the date
on which such payments are made or received.
The 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. The 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.
For transaction hedging purposes the Fund may also purchase
exchange-listed and over-the-counter call and put options on
foreign currency futures contracts and on foreign currencies. A
put option on a futures contract gives the Fund the right to
assume a short position in the futures contract until the
expiration of the option. A put option on a currency gives the
Fund the right to sell the currency at an exercise price until
the expiration of the option. A call option on a futures
contract gives the Fund the right to assume a long position in
the futures contract until the expiration of the option. A call
option on a currency gives the Fund the right to purchase the
currency at the exercise price until the expiration of the
option.
When it engages in position hedging, the Fund enters into foreign
currency exchange transactions to protect against a decline in
the values of the foreign currencies in which its portfolio
securities are denominated (or an increase in the value of
currency for securities which the Fund expects to purchase, when
the Fund holds cash or short-term investments). In connection
with position hedging, the Fund may purchase put or call options
on foreign currency and on foreign currency futures contracts and
buy or sell forward contracts and foreign currency futures
contracts. The Fund may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved
will not generally be possible since the future value of such
securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the
dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward
or futures contract. Accordingly, it may be necessary for the
Fund to purchase additional foreign currency on the spot market
(and bear the expense of such purchase) if the market value of
the security or securities being hedged is less than the amount
of foreign currency the Fund is obligated to deliver and a
decision is made to sell the security or securities and make
delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security or securities if
the market value of such security or securities exceeds the
amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in
the underlying prices of the securities which the Fund owns or
intends to purchase or sell. They simply establish a rate of
exchange which one can achieve at some future point in time.
Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the
increase in value of such currency.
The Fund may seek to increase its current return or to offset
some of the costs of hedging against fluctuations in current
exchange rates by writing covered call options and covered put
options on foreign currencies. The Fund receives a premium from
writing a call or put option, which increases the Fund's current
return if the option expires unexercised or is closed out at a
net profit. The Fund may terminate an option that it has written
prior to its expiration by entering into a closing purchase
transaction in which it purchases an option having the same terms
as the option written.
The Fund'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 the Fund. Cross hedging transactions by the 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.
CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign
currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number
of days from the date of the contract as agreed by the parties,
at a price set at the time of the contract. In the case of a
cancelable forward contract, the holder has the unilateral right
to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial
banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage
for trades. A foreign currency futures contract is a
standardized contract for the future delivery of a specified
amount of a foreign currency at a future date at a price set at
the time of the contract. Foreign currency futures contracts
traded in the United States are designed by and traded on
exchanges regulated by the CFTC, such as the New York Mercantile
Exchange.
Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the
maturity date of a forward contract may be any fixed number of
days from the date of the contract agreed upon by the parties,
rather than a predetermined date in a given month. Forward
contracts may be in any amounts agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange
contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires
no margin or other deposit.
At the maturity of a forward or futures contract, the Fund either
may accept or make delivery of the currency specified in the
contract, or at or prior to maturity enter into a closing
transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts
are usually effected with the currency trader who is a party to
the original forward contract. Closing transactions with respect
to futures contracts are effected on a commodities exchange; a
clearing corporation associated with the exchange assumes
responsibility for closing out such contracts.
Positions in the foreign currency futures contracts may be closed
out only on an exchange or board of trade which provides a
secondary market in such contracts. Although the Fund intends to
purchase or sell foreign currency futures contracts only on
exchanges or boards of trade where there appears to be an active
secondary market, there is no assurance that a secondary market
on an exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be
possible to close a futures position and, in the event of adverse
price movements, the Fund would continue to be required to make
daily cash payments of variation margin.
FOREIGN CURRENCY OPTIONS. In general, options on foreign
currencies operate similarly to options on securities and are
subject to many similar risks. Foreign currency options are
traded primarily in the over-the-counter market, although options
on foreign currencies have recently been listed on several
exchanges. Options are traded not only on the currencies of
individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of
currencies, and is the official medium of exchange of the
European Community's European Monetary System.
The Fund will only purchase or write foreign currency options
when Putnam Management believes that a liquid secondary market
exists for such options. There can be no assurance that a liquid
secondary market will exist for a particular option at any
specific time. Options on foreign currencies are affected by all
of those factors which influence foreign exchange rates and
investments generally.
The value of any currency, including U.S. dollars and foreign
currencies, may be affected by complex political and economic
factors applicable to the issuing country. In addition, the
exchange rates of foreign currencies (and therefore the values
of foreign currency options) may be affected significantly,
fixed, or supported directly or indirectly by U.S. and foreign
government actions. Government intervention may increase risks
involved in purchasing or selling foreign currency options, since
exchange rates may not be free to fluctuate in response to other
market forces.
The value of a foreign currency option reflects the value of an
exchange rate, which in turn reflects relative values of two
currencies, the U.S. dollar and the foreign currency in question.
Because foreign currency transactions occurring in the interbank
market involve substantially larger amounts than those that may
be involved in the exercise of foreign currency options,
investors may be disadvantaged by having to deal in an odd lot
market for the underlying foreign currencies in connection with
options at prices that are less favorable than for round lots.
Foreign governmental restrictions or taxes could result in
adverse changes in the cost of acquiring or disposing of foreign
currencies.
There is no systematic reporting of last sale information for
foreign currencies and there is no regulatory requirement that
quotations available through dealers or other market sources be
firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot
transactions in the interbank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1
million) where rates may be less favorable. The interbank market
in foreign currencies is a global, around-the-clock market. To
the extent that options markets are closed while the markets for
the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be
reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the
Fund's investments in foreign securities and to the Fund's
foreign currency exchange transactions may be more complex than
settlements with respect to investments in debt or equity
securities of U.S. issuers, and may involve certain risks not
present in the Fund's domestic investments. For example,
settlement of transactions involving foreign securities or
foreign currency may occur within a foreign country, and the Fund
may be required to accept or make delivery of the underlying
securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay
any fees, taxes or charges associated with such delivery. Such
investments may also involve the risk that an entity involved in
the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers
do not charge a fee for currency conversion, they do realize a
profit based on the difference (the "spread") between prices at
which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to the Fund at one
rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
RESTRICTED SECURITIES
The SEC Staff currently takes the view that any designation by
the Trustees of the authority to determine that a restricted
security is readily marketable (as described in the investment
restrictions of the Funds) must be pursuant to written procedures
established by the Trustees. It is the present intention of the
Funds' Trustees that, if the Trustees decide to delegate such
determinations to Putnam Management or another person, they would
do so pursuant to written procedures, consistent with the Staff's
position. Should the Staff modify its position in the future,
the Trustees would consider what action would be appropriate in
light of the Staff's position at that time.
TAXES
TAXATION OF THE FUND. The Fund intends to qualify each year as a
regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). In order so to
qualify and to qualify for the special tax treatment accorded
regulated investment companies and their shareholders, the Fund
must, among other things:
(a) Derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and
gains from the sale of stock, securities and foreign currencies,
or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its
business of investing in such stock, securities, or currencies;
(b) derive less than 30% of its gross income from the sale or
other disposition of certain assets (including stock or
securities and certain options, futures contracts, forward
contracts and foreign currencies) held for less than three
months;
(c) distribute with respect to each taxable year at least 90% of
the sum of its taxable net investment income, its net tax-exempt
income, and the excess, if any, of net short-term capital gains
over net long-term capital losses for such year; and
(d) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items, U.S. Government
securities, securities of other regulated investment companies,
and other securities limited in respect of any one issuer to a
value not greater than 5% of the value of the Fund's total assets
and to not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities (other than those of the
U.S. Government or other regulated investment companies) of any
one issuer or of two or more issuers which the Fund controls and
which are engaged in the same, similar, or related trades or
businesses.
If the Fund qualifies as a regulated investment company that is
accorded special tax treatment, the Fund will not be subject to
federal income tax on income paid to its shareholders in the form
of dividends (including capital gain dividends).
If the Fund failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the Fund
would be subject to tax on its taxable income at corporate rates,
and all distributions from earnings and profits, including any
distributions of net tax-exempt income and net long-term capital
gains, would be taxable to shareholders as ordinary income. In
addition, the Fund could be required to recognize unrealized
gains, pay substantial taxes and interest and make substantial
distributions before requalifying as a regulated investment
company that is accorded special tax treatment.
If the Fund fails to distribute in a calendar year substantially
all of its ordinary income for such year and substantially all of
its capital gain net income for the one-year period ending
October 31 (or later if the Fund is permitted so to elect and so
elects), plus any retained amount from the prior year, the Fund
will be subject to a 4% excise tax on the undistributed amounts.
A dividend paid to shareholders by the Fund in January of a year
generally is deemed to have been paid by the Fund on December 31
of the preceding year, if the dividend was declared and payable
to shareholders of record on a date in October, November or
December of that preceding year. The Fund intends generally to
make distributions sufficient to avoid imposition of the 4%
excise tax.
EXEMPT-INTEREST DIVIDENDS. The Fund will be qualified to pay
exempt-interest dividends to its shareholders only if, at the
close of each quarter of the Fund's taxable year, at least 50% of
the total value of the Fund's assets consists of obligations the
interest on which is exempt from federal income tax.
Distributions that the Fund properly designates as exempt-
interest dividends are treated by shareholders as interest
excludable from their gross income for federal income tax
purposes but may be taxable for federal alternative minimum tax
purposes and for state and local purposes. If the Fund intends
to be qualified to pay exempt-interest dividends, the Fund may be
limited in its ability to enter into taxable transactions
involving forward commitments, repurchase agreements, financial
futures, and options contracts on financial futures, tax-exempt
bond indices, and other assets.
Part or all of the interest on indebtedness, if any, incurred or
continued by a shareholder to purchase or carry shares of a Fund
paying exempt-interest dividends is not deductible. The portion
of interest that is not deductible is equal to the total interest
paid or accrued on the indebtedness, multiplied by the percentage
of the Fund's total distributions (not including distributions
from net long-term capital gains) paid to the shareholder that
are exempt-interest dividends. Under rules used by the Internal
Revenue Service for determining when borrowed funds are
considered used for the purpose of purchasing or carrying
particular assets, the purchase of shares may be considered to
have been made with borrowed funds even though such funds are not
directly traceable to the purchase of shares.
In general, exempt-interest dividends, if any, attributable to
interest received on certain private activity obligations and
certain industrial development bonds will not be tax-exempt to
any shareholders who are "substantial users" of the facilities
financed by such obligations or bonds or who are "related
persons" of such substantial users.
A Fund which is qualified to pay exempt-interest dividends will
inform investors within 60 days of the Fund's fiscal year-end of
the percentage of its income distributions designated as
tax-exempt. The percentage is applied uniformly to all
distributions made during the year. The percentage of income
designated as tax-exempt for any particular distribution may be
substantially different from the percentage of the Fund's income
that was tax-exempt during the period covered by the
distribution.
HEDGING TRANSACTIONS. If the Fund engages in transactions,
including hedging transactions in options, futures contracts, and
straddles, or other similar transactions, it will be subject to
special tax rules (including mark-to-market, straddle, wash sale,
and short sale rules), the effect of which may be to accelerate
income to the Fund, defer losses to the Fund, cause adjustments
in the holding periods of the Fund's securities, or convert
short-term capital losses into long-term capital losses. These
rules could therefore affect the amount, timing and character of
distributions to shareholders. The Fund will endeavor to make
any available elections pertaining to such transactions in a
manner believed to be in the best interests of the Fund.
Under the 30% of gross income test described above (see "Taxation
of the Fund"), the Fund will be restricted in selling assets held
or considered under Code rules to have been held for less than
three months, and in engaging in certain hedging transactions
(including hedging transactions in options and futures) that in
some circumstances could cause certain Fund assets to be treated
as held for less than three months.
Certain of the Fund's hedging activities (including its
transactions, if any, in foreign currencies or foreign
currency-denominated instruments) are likely to produce a
difference between its book income and its taxable income. If
the Fund's book income exceeds its taxable income, the
distribution (if any) of such excess will be treated as a
dividend to the extent of the Fund's remaining earnings and
profits (including earnings and profits arising from tax-exempt
income), and thereafter as a return of capital or as gain from
the sale or exchange of a capital asset, as the case may be. If
the Fund's book income is less than its taxable income, the Fund
could be required to make distributions exceeding book income to
qualify as a regulated investment company that is accorded
special tax treatment.
RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a
distribution to you in excess of its current and accumulated
"earnings and profits" in any taxable year, the excess
distribution will be treated as a return of capital to the extent
of your tax basis in your shares, and thereafter as capital gain.
A return of capital is not taxable, but it reduces your tax basis
in your shares, thus reducing any loss or increasing any gain on
a subsequent taxable disposition by you of your shares.
SECURITIES ISSUED OR PURCHASED AT A DISCOUNT. The Fund's
investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a
discount may) require the Fund to accrue and distribute income
not yet received. In order to generate sufficient cash to make
the requisite distributions, the Fund may be required to sell
securities in its portfolio that it otherwise would have
continued to hold.
CAPITAL LOSS CARRYOVER. The amounts and expiration dates of any
capital loss carryovers available to the Fund are shown in Note 1
(Federal income taxes) to the financial statements included in
Part I of this Statement or incorporated by reference into this
Statement.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING
TRANSACTIONS. The Fund's transactions in foreign currencies,
foreign currency-denominated debt securities and certain foreign
currency options, futures contracts, and forward contracts (and
similar instruments) may give rise to ordinary income or loss to
the extent such income or loss results from fluctuations in the
value of the foreign currency concerned.
If more than 50% of the Fund's assets at year end consists of the
debt and equity securities of foreign corporations, the Fund may
elect to permit shareholders to claim a credit or deduction on
their income tax returns for their pro rata portion of qualified
taxes paid by the Fund to foreign countries. In such a case,
shareholders will include in gross income from foreign sources
their pro rata shares of such taxes. A shareholder's ability to
claim a foreign tax credit or deduction in respect of foreign
taxes paid by the Fund may be subject to certain limitations
imposed by the Code, as a result of which a shareholder may not
get a full credit or deduction for the amount of such taxes.
Shareholders who do not itemize on their federal income tax
returns may claim a credit (but no deduction) for such foreign
taxes.
Investment by the Fund in certain "passive foreign investment
companies" could subject the Fund to a U.S. federal income tax or
other charge on the proceeds from the sale of its investment in
such a company; however, this tax can be avoided by making an
election to mark such investments to market annually or to treat
the passive foreign investment company as a "qualified electing
fund."
SALE OR REDEMPTION OF SHARES. The sale, exchange or redemption
of Fund shares may give rise to a gain or loss. In general, any
gain or loss realized upon a taxable disposition of shares will
be treated as long-term capital gain or loss if the shares have
been held for more than 12 months, and otherwise as short-term
capital gain or loss. However, if a shareholder sells shares at
a loss within six months of purchase, any loss will be disallowed
for Federal income tax purposes to the extent of any exempt-
interest dividends received on such shares. In addition, any
loss (not already disallowed as provided in the preceding
sentence) realized upon a taxable disposition of shares held for
six months or less will be treated as long-term, rather than
short-term, to the extent of any long-term capital gain
distributions received by the shareholder with respect to the
shares. All or a portion of any loss realized upon a taxable
disposition of Fund shares will be disallowed if other Fund
shares are purchased within 30 days before or after the
disposition. In such a case, the basis of the newly purchased
shares will be adjusted to reflect the disallowed loss.
SHARES PURCHASED THROUGH TAX-QUALIFIED PLANS. Special tax rules
apply to investments though defined contribution plans and other
tax-qualified plans. Shareholders should consult their tax
adviser to determine the suitability of shares of a fund as an
investment through such plans and the precise effect of an
investment on their particular tax situation.
BACKUP WITHHOLDING. The Fund generally is required to withhold
and remit to the U.S. Treasury 31% of the taxable dividends and
other distributions paid to any individual shareholder who fails
to furnish the Fund with a correct taxpayer identification number
(TIN), who has underreported dividends or interest income, or who
fails to certify to the Fund that he or she is not subject to
such withholding. Shareholders who fail to furnish their currect
TIN are subject to a penalty of $50 for each such failure unless
the failure is due to reasonable cause and not wilful neglect.
An individual's taxpayer identification number is his or her
social security number.
MANAGEMENT
TRUSTEES
*+GEORGE PUTNAM, Chairman and President. Chairman and Director
of Putnam Management and Putnam Mutual Funds. Director, The
Boston Company, Inc., Boston Safe Deposit and Trust Company,
Freeport-McMoRan, Inc., General Mills, Inc., Houghton Mifflin
Company, Marsh & McLennan Companies, Inc. and Rockefeller Group,
Inc.
+WILLIAM F. POUNDS, Vice Chairman. Professor of Management,
Alfred P. Sloan School of Management, Massachusetts Institute of
Technology. Director of EG&G, Inc., Fisher Price, Inc., IDEXX,
M/A-COM, Inc., and Sun Company, Inc.
JAMESON A. BAXTER, Trustee. President, Baxter Associates, Inc.
(consultants to management). Director of Avondale Federal Savings
Bank, ASHTA Chemicals, Inc. and Banta Corporation. Chairman of
the Board of Trustees, Mount Holyoke College.
+HANS H. ESTIN, Trustee. Vice Chairman, North American
Management Corp. (a registered investment adviser). Director of
The Boston Company, Inc. and Boston Safe Deposit and Trust
Company.
ELIZABETH T. KENNAN, Trustee. President Emeritus and Professor,
Mount Holyoke College. Director, the Kentucky Home Life
Insurance Companies, NYNEX Corporation, Northeast Utilities and
Talbots and Trustee of the University of Notre Dame.
*LAWRENCE J. LASSER, Trustee and Vice President. President,
Chief Executive Officer and Director of Putnam Investments, Inc.
and Putnam Investment Management, Inc. Director of Marsh &
McLennan Companies, Inc. Vice President of the Putnam funds.
JOHN A. HILL, Trustee. Chairman and Managing Director, First
Reserve Corporation (a registered investment adviser). Director,
Lantana Corporation, Maverick Tube Corporation, Snyder Oil
Corporation and various First Reserve Funds.
+ROBERT E. PATTERSON, Trustee. Executive Vice President, Cabot
Partners Limited Partnership (a registered investment adviser).
*DONALD S. PERKINS, Trustee. Director of various corporations,
including American Telephone & Telegraph Company, AON Corp.,
Cummins Engine Company, Inc., Illinois Power Company, Inland
Steel Industries, Inc., Kmart Corporation, LaSalle Street Fund,
Inc., Springs Industries, Inc., TBG, Inc. and Time Warner Inc.
*#GEORGE PUTNAM, III, Trustee. President, New Generation
Research, Inc. (publisher of bankruptcy information). Director,
World Environment Center.
ELI SHAPIRO, Trustee. Alfred P. Sloan Professor of Management,
Emeritus, Alfred P. Sloan School of Management, Massachusetts
Institute of Technology. Director of Nomura Dividend Fund, Inc.
(a privately held registered investment company managed by Putnam
Management) and former Trustee of the Putnam funds (1984-1990).
*A.J.C. SMITH, Trustee. Chairman, Chief Executive Officer and
Director, Marsh & McLennan Companies, Inc.
W. NICHOLAS THORNDIKE, Trustee. Director of various corporations
and charitable organizations, including Courier Corporation and
Providence Journal Co. Also, Trustee and President of
Massachusetts General Hospital and Trustee of Bradley Real Estate
Trust and Eastern Utilities Associates.
<PAGE>
OFFICERS
CHARLES E. PORTER, Executive Vice President. Managing Director
of Putnam Investments, Inc. and Putnam Investment Management,
Inc. Executive Vice President of the Putnam funds.
PATRICIA C. FLAHERTY, Senior Vice President. Senior Vice
President of Putnam Investments, Inc. and Putnam Investment
Management, Inc.
WILLIAM N. SHIEBLER, Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. President, Chief
Operating Officer and Director of Putnam Mutual Funds. Vice
President of the Putnam funds.
GORDON H. SILVER, Vice President. Senior Managing Director of
Putnam Investments, Inc. and Putnam Investment Management, Inc.
Director, Putnam Investments, Inc. and Putnam Investment
Management, Inc. Vice President of the Putnam funds.
JOHN R. VERANI, Vice President. Senior Vice President of Putnam
Investments, Inc. and Putnam Investment Management, Inc. Vice
President of the Putnam funds.
PAUL M. O'NEIL, Vice President. Vice President of Putnam
Investments, Inc. and Putnam Investment Management, Inc. Vice
President of the Putnam funds.
JOHN D. HUGHES, Vice President and Treasurer. Vice President and
Treasurer of the Putnam funds.
KATHERINE HOWARD, Assistant Vice President. Assistant Vice
President of the Putnam funds.
BEVERLY MARCUS, Clerk and Assistant Treasurer. Clerk and
Assistant Treasurer of the Putnam funds.
*Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the Fund,
Putnam Management or Putnam Mutual Funds.
+Members of the Executive Committee of the Trustees. The
Executive Committee meets between regular meetings of the
Trustees as may be required to review investment matters and
other affairs of the Fund and may exercise all of the powers of
the Trustees.
#George Putnam, III is the son of George Putnam.
-----------------
Certain other officers of Putnam Management are officers of your
Fund. SEE "ADDITIONAL OFFICERS OF THE FUND" IN PART I OF THIS
STATEMENT. The mailing address of each of the officers and
Trustees is One Post Office Square, Boston, Massachusetts 02109.
Except as stated below, the principal occupations of the officers
and Trustees for the last five years have been with the employers
as shown above, although in some cases they have held different
positions with such employers. Prior to January, 1992, Ms.
Baxter was Vice President and Principal, Regency Group, Inc. and
Consultant, The First Boston Corporation. Prior to May, 1991,
Dr. Pounds was Senior Advisor to the Rockefeller Family and
Associates, Chairman of Rockefeller Trust Company and Director of
Rockefeller Group, Inc. During the past five years Dr. Shapiro
has provided economic and financial consulting services to
various clients. Prior to November, 1990, Mr. Shiebler was
President and Chief Operating Officer of the Intercapital
Division of Dean Witter Reynolds, Inc., Vice President of the
Dean Witter Funds and Director of Dean Witter Trust Company.
Each Trustee of the Fund receives an annual fee and an additional
fee for each Trustees' meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on
committees of the Trustees receive additional fees for attendance
at certain committee meetings and for special services rendered
in that connection. All of the Trustees are Trustees of all the
Putnam funds and each receives fees for his or her services. FOR
DETAILS OF TRUSTEES' FEES PAID BY THE FUND, SEE "FUND CHARGES AND
EXPENSES" IN PART I OF THIS STATEMENT.
The Agreement and Declaration of Trust of the Fund provides that
the Fund will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the
Fund, except if it is determined in the manner specified in the
Agreement and Declaration of Trust that they have not acted in
good faith in the reasonable belief that their actions were in
the best interests of the Fund or that such indemnification would
relieve any officer or Trustee of any liability to the Fund or
its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of his or her duties. The
Fund, at its expense, provides liability insurance for the
benefit of its Trustees and officers.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., a holding
company which is in turn wholly owned by Marsh & McLennan
Companies, Inc., a publicly owned holding company whose principal
operating subsidiaries are international insurance and
reinsurance brokers, investment managers and management
consultants.
Trustees and officers of the Fund who are also officers of Putnam
Management or its affiliates or who are stockholders of Marsh &
McLennan Companies, Inc. will benefit from the advisory fees,
sales commissions, distribution fees (if any), custodian fees and
transfer agency fees paid or allowed by the Fund.
PUTNAM MANAGEMENT
Putnam Management is one of America's oldest and largest money
management firms. Putnam Management's staff of experienced
portfolio managers and research analysts selects securities and
constantly supervises the Fund's portfolio. By pooling an
investor's money with that of other investors, a greater variety
of securities can be purchased than would be the case
individually; the resulting diversification helps reduce
investment risk. Putnam Management has been managing mutual funds
since 1937. Today, the firm serves as the investment manager for
the funds in the Putnam Family, with over $67 billion in assets
in over 4.1 million shareholder accounts at December 31, 1994.
An affiliate, The Putnam Advisory Company, Inc., manages domestic
and foreign institutional accounts and mutual funds, including
the accounts of many Fortune 500 companies. Another affiliate,
Putnam Fiduciary Trust Company, provides investment advice to
institutional clients under its banking and fiduciary powers. At
December 31, 1994, Putnam Management and its affiliates managed
over $95 billion in assets, including over $15 billion in tax
exempt securities and over $36 billion in retirement plan assets.
THE MANAGEMENT CONTRACT
Under a Management Contract between the Fund and Putnam
Management, subject to such policies as the Trustees may
determine, Putnam Management, at its expense, furnishes
continuously an investment program for the Fund and makes
investment decisions on behalf of the Fund. Subject to the
control of the Trustees, Putnam Management also manages,
supervises and conducts the other affairs and business of the
Fund, furnishes office space and equipment, provides bookkeeping
and clerical services (including determination of the Fund's net
asset value, but excluding shareholder accounting services) and
places all orders for the purchase and sale of the Fund's
portfolio securities. Putnam Management may place Fund portfolio
transactions with broker-dealers which furnish Putnam Management,
without cost to it, certain research, statistical and quotation
services of value to Putnam Management and its affiliates in
advising the Fund and other clients. In so doing, Putnam
Management may cause the Fund to pay greater brokerage
commissions than it might otherwise pay.
FOR DETAILS OF PUTNAM MANAGEMENT'S COMPENSATION UNDER THE
MANAGEMENT CONTRACT, SEE "FUND CHARGES AND EXPENSES" IN PART I OF
THIS STATEMENT. Putnam Management's compensation under the
Management Contract may be reduced in any year if the Fund's
expenses exceed the limits on investment company expenses imposed
by any statute or regulatory authority of any jurisdiction in
which shares of the Fund are qualified for offer or sale. The
term "expenses" is defined in the statutes or regulations of such
jurisdictions, and generally, excludes brokerage commissions,
taxes, interest, extraordinary expenses and, if the Fund has a
Distribution Plan, payments made under such Plan. The only such
limitation as of the date of this Statement (applicable to any
Fund registered for sale in California) was 2.5% of the first $30
million of average net assets, 2% of the next $70 million and
1.5% of any excess over $100 million.
Under the Management Contract, Putnam Management may reduce its
compensation to the extent that the Fund's expenses exceed such
lower expense limitation as Putnam Management may, by notice to
the Fund, declare to be effective. The expenses subject to this
limitation are exclusive of brokerage commissions, interest,
taxes, deferred organizational and extraordinary expenses and,
if the Fund has a Distribution Plan, payments required under such
Plan. THE TERMS OF ANY EXPENSE LIMITATION FROM TIME TO TIME IN
EFFECT ARE DESCRIBED IN EITHER THE PROSPECTUS OR PART I OF THIS
STATEMENT.
In addition to the fee paid to Putnam Management, the Fund
reimburses Putnam Management for the compensation and related
expenses of certain officers of the Fund and their assistants who
provide certain administrative services for the Fund and the
other funds in the Putnam Family, each of which bears an
allocated share of the foregoing costs. The aggregate amount of
all such payments and reimbursements is determined annually by
the Trustees. THE AMOUNT OF THIS REIMBURSEMENT FOR THE FUND'S
MOST RECENT FISCAL YEAR IS INCLUDED IN "FUND CHARGES AND
EXPENSES" IN PART I OF THIS STATEMENT. Putnam Management pays
all other salaries of officers of the Fund. The Fund pays all
expenses not assumed by Putnam Management including, without
limitation, auditing, legal, custodial, investor servicing and
shareholder reporting expenses. The Fund pays the cost of
typesetting for its Prospectuses and the cost of printing and
mailing any Prospectuses sent to its shareholders. Putnam Mutual
Funds pays the cost of printing and distributing all other
Prospectuses.
The Management Contract provides that Putnam Management shall not
be subject to any liability to the Fund or to any shareholder of
the Fund for any act or omission in the course of or connected
with rendering services to the Fund in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
its duties on the part of Putnam Management.
The Management Contract may be terminated without penalty by vote
of the Trustees or the shareholders of the Fund, or by Putnam
Management, on 30 days' written notice. It may be amended only
by a vote of the shareholders of the Fund. The Management
Contract also terminates without payment of any penalty in the
event of its assignment. The Management Contract provides that
it will continue in effect only so long as such continuance is
approved at least annually by vote of either the Trustees or the
shareholders, and, in either case, by a majority of the Trustees
who are not "interested persons" of Putnam Management or the
Fund. In each of the foregoing cases, the vote of the
shareholders is the affirmative vote of a "majority of the
outstanding voting securities" as defined in the Investment
Company Act of 1940.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. Investment decisions for the Fund and for
the other investment advisory clients of Putnam Management and
its affiliates are made with a view to achieving their respective
investment objectives. Investment decisions are the product of
many factors in addition to basic suitability for the particular
client involved. Thus, a particular security may be bought or
sold for certain clients even though it could have been bought or
sold for other clients at the same time. Likewise, a particular
security may be bought for one or more clients when one or more
other clients are selling the security. In some instances, one
client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously
purchase or sell the same security, in which event each day's
transactions in such security are, insofar as possible, averaged
as to price and allocated between such clients in a manner which
in Putnam Management's opinion is equitable to each and in
accordance with the amount being purchased or sold by each.
There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on
other clients.
BROKERAGE AND RESEARCH SERVICES. Transactions on U.S. stock
exchanges, commodities markets and futures markets and other
agency transactions involve the payment by the Fund of negotiated
brokerage commissions. Such commissions vary among different
brokers. A particular broker may charge different commissions
according to such factors as the difficulty and size of the
transaction. Transactions in foreign investments often involve
the payment of fixed brokerage commissions, which may be higher
than those in the United States. There is generally no stated
commission in the case of securities traded in the
over-the-counter markets, but the price paid by the Fund usually
includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Fund includes a
disclosed, fixed commission or discount retained by the
underwriter or dealer. It is anticipated that most purchases and
sales of securities by funds investing primarily in tax-exempt
securities and certain other fixed-income securities will be with
the issuer or with underwriters of or dealers in those
securities, acting as principal. Accordingly, those funds would
not ordinarily pay significant brokerage commissions with respect
to securities transactions. SEE "FUND CHARGES AND EXPENSES" IN
PART I OF THIS STATEMENT FOR INFORMATION CONCERNING COMMISSIONS
PAID BY THE FUND.
It has for many years been a common practice in the investment
advisory business for advisers of investment companies and other
institutional investors to receive brokerage and research
services (as defined in the Securities Exchange Act of 1934, as
amended (the "1934 Act")) from broker-dealers that execute
portfolio transactions for the clients of such advisers and from
third parties with which such broker-dealers have arrangements.
Consistent with this practice, Putnam Management receives
brokerage and research services and other similar services from
many broker-dealers with which Putnam Management places the
Fund's portfolio transactions and from third parties with which
these broker-dealers have arrangements. These services include
such matters as general economic and market reviews, industry and
company reviews, evaluations of investments, recommendations as
to the purchase and sale of investments, newspapers, magazines,
pricing services, quotation services, news services and personal
computers utilized by Putnam Management's managers and analysts.
Where the services referred to above are not used exclusively by
Putnam Management for research purposes, Putnam Management, based
upon its own allocations of expected use, bears that portion of
the cost of these services which directly relates to their
non-research use. Some of these services are of value to Putnam
Management and its affiliates in advising various of their
clients (including the Fund), although not all of these services
are necessarily useful and of value in managing the Fund. The
management fee paid by the Fund is not reduced because Putnam
Management and its affiliates receive these services even though
Putnam Management might otherwise be required to purchase some of
these services for cash.
Putnam Management places all orders for the purchase and sale of
portfolio investments for the Fund and buys and sells investments
for the Fund through a substantial number of brokers and dealers.
In so doing, Putnam Management uses its best efforts to obtain
for the Fund the most favorable price and execution available,
except to the extent it may be permitted to pay higher brokerage
commissions as described below. In seeking the most favorable
price and execution, Putnam Management, having in mind the Fund's
best interests, considers all factors it deems relevant,
including, by way of illustration, price, the size of the
transaction, the nature of the market for the security or other
investment, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the
broker-dealer involved and the quality of service rendered by the
broker-dealer in other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the
Management Contract, Putnam Management may cause the Fund to pay
a broker-dealer which provides "brokerage and research services"
(as defined in the 1934 Act) to Putnam Management an amount of
disclosed commission for effecting securities transactions on
stock exchanges and other transactions for the Fund on an agency
basis in excess of the commission which another broker-dealer
would have charged for effecting that transaction. Putnam
Management's authority to cause the Fund to pay any such greater
commissions is also subject to such policies as the Trustees may
adopt from time to time. Putnam Management does not currently
intend to cause the Fund to make such payments. It is the
position of the staff of the Securities and Exchange Commission
that Section 28(e) does not apply to the payment of such greater
commissions in "principal" transactions. Accordingly Putnam
Management will use its best effort to obtain the most favorable
price and execution available with respect to such transactions,
as described above.
The Management Contract provides that commissions, fees,
brokerage or similar payments received by Putnam Management or an
affiliate in connection with the purchase and sale of portfolio
investments of the Fund, less any direct expenses approved by the
Trustees, shall be recaptured by the Fund through a reduction of
the fee payable by the Fund under the Management Contract.
Putnam Management seeks to recapture for the Fund soliciting
dealer fees on the tender of the Fund's portfolio securities in
tender or exchange offers. Any such fees which may be recaptured
are likely to be minor in amount.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and subject to seeking
the most favorable price and execution available and such other
policies as the Trustees may determine, Putnam Management may
consider sales of shares of the Fund (and, if permitted by law,
of the other Putnam funds) as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
PRINCIPAL UNDERWRITER
Putnam Mutual Funds is the principal underwriter of shares of the
Fund and the other continuously offered Putnam funds. Putnam
Mutual Funds is not obligated to sell any specific amount of
shares of the Fund and will purchase shares for resale only
against orders for shares. SEE "FUND CHARGES AND EXPENSES" IN
PART I OF THIS STATEMENT FOR INFORMATION ON SALES CHARGES AND
OTHER PAYMENTS RECEIVED BY PUTNAM MUTUAL FUNDS.
INVESTOR SERVICING AGENT AND CUSTODIAN
Putnam Investor Services, a division of Putnam Fiduciary Trust
Company ("PFTC"), is the Fund's investor servicing agent
(transfer, plan and dividend disbursing agent), for which it
receives fees which are paid monthly by the Fund as an expense of
all its shareholders. The fee paid to Putnam Investor Services
is determined by the Trustees taking into account the number of
shareholder accounts and transactions. Putnam Investor Services
has won the DALBAR Quality Tested Service Seal every year since
the award's 1990 inception. Over 10,000 tests of 38 separate
shareholders service components demonstrated that Putnam Investor
Services exceeded the industry standard in all categories.
PFTC is the custodian of the Fund's assets. In carrying out its
duties under its custodian contract, PFTC may employ one or more
subcustodians whose responsibilities will include safeguarding
and controlling the Fund's cash and securities, handling the
receipt and delivery of securities and collecting interest and
dividends on the Fund's investments. PFTC and any subcustodians
employed by it have a lien on the securities of the Fund (to the
extent permitted by the Fund's investment restrictions) to secure
charges and any advances made by such subcustodians at the end of
any day for the purpose of paying for securities purchased by the
Fund. The Fund expects that such advances will exist only in
unusual circumstances. Neither PFTC nor any subcustodian
determines the investment policies of the Fund or decides which
securities the Fund will buy or sell. PFTC pays the fees and
other charges of any subcustodians employed by it. The Fund may
from time to time pay custodial expenses in full or in part
through the placement by Putnam Management of the Fund's
portfolio transactions with the subcustodians or with a third-
party broker having an agreement with the subcustodians. The
Fund pays PFTC an annual fee based on the Fund's assets,
securities transactions and securities holdings and reimburses
PFTC for certain out-of-pocket expenses incurred by it or any
subcustodian employed by it in performing custodial services.
SEE "FUND CHARGES AND EXPENSES" IN PART I OF THIS STATEMENT FOR
INFORMATION ON FEES AND REIMBURSEMENTS FOR INVESTOR SERVICING AND
CUSTODY RECEIVED BY PFTC. THE FEES MAY BE REDUCED BY CREDITS
ALLOWED BY PFTC.
DETERMINATION OF NET ASSET VALUE
The Fund determines the net asset value per share of each class
of shares once each day the New York Stock Exchange (the
"Exchange") is open. Currently, the Exchange is closed
Saturdays, Sundays and the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, the Fourth of July,
Labor Day, Thanksgiving and Christmas. The Fund determines net
asset value as of the close of regular trading on the Exchange,
currently 4:00 p.m. However, equity options held by the Fund are
priced as of the close of trading at 4:10 p.m., and futures
contracts on U.S. Government securities and index options held by
the Fund are priced as of their close of trading at 4:15 p.m.
Securities for which market quotations are readily available are
valued at prices which, in the opinion of the Trustees or Putnam
Management, most nearly represent the market values of such
securities. Currently, such prices are determined using the last
reported sale price or, if no sales are reported (as in the case
of some securities traded over-the-counter), the last reported
bid price, except that certain U.S. Government securities are
stated at the mean between the last reported bid and asked
prices. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates
market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees.
Liabilities are deducted from the total, and the resulting amount
is divided by the number of shares of the class outstanding.
Reliable market quotations are not considered to be readily
available for long-term corporate bonds and notes, certain
preferred stocks, tax-exempt securities, and certain foreign
securities. These investments are stated at fair value on the
basis of valuations furnished by pricing services approved by the
Trustees, which determine valuations for normal,
institutional-size trading units of such securities using methods
based on market transactions for comparable securities and
various relationships between securities which are generally
recognized by institutional traders.
If any securities held by the Fund are restricted as to resale,
Putnam Management determines their fair value following
procedures approved by the Trustees. The fair value of such
securities is generally determined as the amount which the Fund
could reasonably expect to realize from an orderly disposition of
such securities over a reasonable period of time. The valuation
procedures applied in any specific instance are likely to vary
from case to case. However, consideration is generally given to
the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of
the restrictions on disposition of the securities (including any
registration expenses that might be borne by the Fund in
connection with such disposition). In addition, specific factors
are also generally considered, such as the cost of the
investment, the market value of any unrestricted securities of
the same class, the size of the holding, the prices
of any recent transactions or offers with respect to such
securities and any available analysts' reports regarding the
issuer.
Generally, trading in certain securities (such as foreign
securities) is substantially completed each day at various times
prior to the close of the Exchange. The values of these
securities used in determining the net asset value of the Fund's
shares are computed as of such times. Also, because of the
amount of time required to collect and process trading
information as to large numbers of securities issues, the values
of certain securities (such as convertible bonds, U.S. Government
securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest
practicable time prior to the close of the Exchange.
Occasionally, events affecting the value of such securities may
occur between such times and the close of the Exchange which will
not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such
securities occur during such period, then these securities will
be valued at their fair value following procedures approved by
the Trustees.
Money market funds generally value their portfolio securities at
amortized cost according to Rule 2a-7 under the Investment
Company Act of 1940.
HOW TO BUY SHARES
General
The Prospectus contains a general description of how investors
may buy shares of the Fund and states whether the Fund offers
more than one class of shares. This Statement contains
additional information which may be of interest to investors.
Class A shares and Class M shares are sold with a sales charge
payable at the time of purchase (except for Class A shares and
Class M shares of money market funds). As used in this Statement
and unless the context requires otherwise, the term "Class A
shares" includes shares of Funds that offer only one class of
shares. The Prospectus contains a table of applicable sales
charges. For information about how to purchase Class A shares of
a Putnam fund at net asset value through an employer's defined
contribution plan, please consult your employer. Certain
purchases of Class A shares and Class M shares may be exempt from
a sales charge or, in the case of Class A shares, may be subject
to a contingent deferred sales charge ("CDSC"). See "General--
Sales without sales charges or contingent deferred sales
charges", "Additional Information About Class A and Class M
Shares", and "Contingent Deferred Sales Charges--Class A shares".
Class B shares and Class C shares are sold subject to a CDSC
payable upon redemption within a specified period after purchase.
The Prospectus contains a table of applicable CDSCs.
Class Y shares, which are available only to employer-sponsored
defined contribution plans initially investing at least $250
million in a combination of Putnam funds and other investments
managed by Putnam Management or its affiliates, are not subject
to sales charges or a CDSC.
Certain purchase programs described below are not available to
defined contribution plans. Consult your employer for
information on how to purchase shares through your plan.
The Fund is currently making a continuous offering of its shares.
The Fund receives the entire net asset value of shares sold. The
Fund will accept unconditional orders for shares to be executed
at the public offering price based on the net asset value per
share next determined after the order is placed. In the case of
Class A shares and Class M shares, the public offering price is
the net asset value plus the applicable sales charge, if any. No
sales charge is included in the public offering price of other
classes of shares. In the case of orders for purchase of shares
placed through dealers, the public offering price will be based
on the net asset value determined on the day the order is placed,
but only if the dealer receives the order before the close of
regular trading on the Exchange. If the dealer receives the
order after the close of the Exchange, the price will be based on
the net asset value next determined. If funds for the purchase
of shares are sent directly to Putnam Investor Services, they
will be invested at the public offering price based on the net
asset value next determined after receipt. Payment for shares of
the Fund must be in U.S. dollars; if made by check, the check
must be drawn on a U.S. bank.
Initial and subsequent purchases must satisfy the minimums stated
in the Prospectus, except that (i) individual investments under
certain employee benefit plans or Tax Qualified Retirement Plans
may be lower, (ii) persons who are already shareholders may make
additional purchases of $50 or more by sending funds directly to
Putnam Investor Services (see "Your Investing Account" below),
and (iii) for investors participating in systematic investment
plans and military allotment plans, the initial and subsequent
purchases must be $25 or more. Information about these plans is
available from investment dealers or from Putnam Mutual Funds.
As a convenience to investors, shares may be purchased through a
systematic investment plan. Preauthorized monthly bank drafts
for a fixed amount (at least $25) are used to purchase Fund
shares at the applicable public offering price next determined
after Putnam Mutual Funds receives the proceeds from the draft
(normally the 20th of each month, or the next business day
thereafter). Further information and application forms are
available from investment dealers or from Putnam Mutual Funds.
Except for Putnam funds that declare a distribution daily,
distributions to be reinvested are reinvested without a sales
charge in shares of the same class as of the ex-dividend date
using the net asset value determined on that date, and are
credited to a shareholder's account on the payment date.
Dividends for Putnam money market funds are credited to a
shareholder's account on the payment date. Distributions for
Putnam Tax-Free Income Trust and Putnam Preferred Income Fund are
reinvested without a sales charge as of the last day of the
period for which distributions are paid using the net asset value
determined on that date, and are credited to a shareholder's
account on the payment date. Distributions for all other Putnam
funds that declare a distribution daily are reinvested without a
sales charge as of the next day following the period for which
distributions are paid using the net asset value determined on
that date, and are credited to a shareholder's account on the
payment date.
PAYMENT IN SECURITIES. In addition to cash, the Fund may accept
securities as payment for Fund shares at the applicable net asset
value. Generally, the Fund will only consider accepting
securities to increase its holdings in a portfolio security, or
if Putnam Management determines that the offered securities are a
suitable investment for the Fund and in a sufficient amount for
efficient management.
While no minimum has been established, it is expected that the
Fund would not accept securities with a value of less than
$100,000 per issue as payment for shares. The Fund may reject in
whole or in part any or all offers to pay for purchases of Fund
shares with securities, may require partial payment in cash for
such purchases to provide funds for applicable sales charges, and
may discontinue accepting securities as payment for Fund shares
at any time without notice. The Fund will value accepted
securities in the manner described in the section "Determination
of Net Asset Value" for valuing shares of the Fund. The Fund
will only accept securities which are delivered in proper form.
The Fund will not accept options or restricted securities as
payment for shares. The acceptance of securities by certain
Funds in exchange for Fund shares are subject to additional
requirements. In the case of Putnam American Government Income
Fund, Putnam Asia Pacific Growth Fund, Putnam Asset Allocation
Funds: Balanced Portfolio, Putnam Asset Allocation Funds:
Conservative Portfolio, Putnam Asset Allocation Funds: Growth
Portfolio, Putnam Capital Appreciation Fund, Putnam Preferred
Income Fund, Putnam Diversified Equity Trust, Putnam Equity
Income Fund, Putnam Europe Growth Fund, The Putnam Fund for
Growth & Income, Putnam Global Governmental Income Trust, Putnam
Growth and Income Fund II, Putnam High Yield Advantage Fund,
Putnam Investment Funds, Putnam Intermediate Tax Exempt Fund,
Putnam Investment-Grade Bond Fund, Putnam Municipal Income Fund,
Putnam Natural Resources Fund, Putnam OTC Emerging Growth Fund,
Putnam Overseas Growth Fund, Putnam Tax Exempt Income Fund and
Putnam Tax-Free Income Trust, transactions involving the issuance
of Fund shares for securities or assets other than cash will be
limited to a bona-fide re-organization or statutory merger and to
other acquisitions of portfolio securities that meet all the
following conditions: (a) such securities meet the investment
objectives and policies of the Fund; (b) such securities are
acquired for investment and not for resale; (c) such securities
are liquid securities which are not restricted as to transfer
either by law or liquidity of market; and (d) such securities
have a value which is readily ascertainable, as evidenced by a
listing on the American Stock Exchange, the New York Stock
Exchange or NASDAQ. In addition, Putnam Global Governmental
Income Trust may accept only investment grade bonds with prices
regularly stated in publications generally accepted by investors,
such as the London Financial Times and the Association of
International Bond Dealers manual, or securities listed on the
New York or American Stock Exchanges or with NASDAQ, and Putnam
Diversified Income Trust may accept only bonds with prices
regularly stated in publications generally accepted by investors.
For federal income tax purposes, a purchase of Fund shares with
securities will be treated as a sale or exchange of such
securities on which the investor will realize a taxable gain or
loss. The processing of a purchase of Fund shares with
securities involves certain delays while the Fund considers the
suitability of such securities and while other requirements are
satisfied. For information regarding procedures for payment in
securities, contact Putnam Mutual Funds. Investors should not
send securities to the Fund except when authorized to do so and
in accordance with specific instructions received from Putnam
Mutual Funds.
SALES WITHOUT SALES CHARGES OR CONTINGENT DEFERRED SALES CHARGES.
The Fund may sell shares without a sales charge or CDSC to:
(i) current and retired Trustees of the Fund; officers of
the Fund; directors and current and retired U.S. full-time
employees of Putnam Management, Putnam Mutual Funds, their
parent corporations and certain corporate affiliates;
family members of and employee benefit plans for the
foregoing; and partnerships, trusts or other entities in
which any of the foregoing has a substantial interest;
(ii) employee benefit plans, for the repurchase of shares
in connection with repayment of plan loans made to plan
participants (if the sum loaned was obtained by redeeming
shares of a Putnam fund sold with a sales charge) (not
offered by tax-exempt funds);
(iii) clients of administrators of tax-qualified employee
benefit plans which have entered into agreements with
Putnam Mutual Funds (not offered by tax-exempt funds);
(iv) registered representatives and other employees of
broker-dealers having sales agreements with Putnam Mutual
Funds; employees of financial institutions having sales
agreements with Putnam Mutual Funds or otherwise having an
arrangement with any such broker-dealer or financial
institution with respect to sales of Fund shares; and
their spouses and children under age 21 (Putnam Mutual
Funds is regarded as the dealer of record for all such
accounts);
(v) investors meeting certain requirements who sold shares
of certain Putnam closed-end funds pursuant to a tender
offer by such closed-end fund;
(vi) a trust department of any financial institution
purchasing shares of the Fund in its capacity as trustee
of any trust, if the value of the shares of the Fund and
other Putnam funds purchased or held by all such trusts
exceeds $1 million in the aggregate; and
(vii) "wrap accounts" maintained for clients of broker-
dealers, financial institutions or financial planners who
have entered into agreements with Putnam Mutual Funds with
respect to such accounts.
In addition, the Fund may issue its shares at net asset value in
connection with the acquisition of substantially all of the
securities owned by other investment companies or personal
holding companies.
PAYMENTS TO DEALERS. Putnam Mutual Funds may, at its expense,
pay concessions in addition to the payments disclosed in the
Prospectus to dealers which satisfy certain criteria established
from time to time by Putnam Mutual Funds relating to increasing
net sales of shares of the Putnam funds over prior periods, and
certain other factors.
ADDITIONAL INFORMATION ABOUT CLASS A AND CLASS M SHARES
The underwriter's commission is the sales charge shown in the
Prospectus less any applicable dealer discount. Putnam Mutual
Funds will give dealers ten days' notice of any changes in the
dealer discount. Putnam Mutual Funds retains the entire sales
charge on any retail sales made by it.
Putnam Mutual Funds offers several plans by which an investor may
obtain reduced sales charges on purchases of Class A shares and
Class M shares. The variations in sales charges reflect the
varying efforts required to sell shares to separate categories of
purchasers. These plans may be altered or discontinued at any
time.
COMBINED PURCHASE PRIVILEGE. The following persons may qualify
for the sales charge reductions or eliminations shown in the
Prospectus by combining into a single transaction the purchase of
Class A shares or Class M shares with other purchases of any
class of shares:
(i) an individual, or a "company" as defined in Section
2(a)(8) of the Investment Company Act of 1940 (which
includes corporations which are corporate affiliates of
each other);
(ii) an individual, his or her spouse and their children
under twenty-one, purchasing for his, her or their own
account;
(iii) a trustee or other fiduciary purchasing for a single
trust estate or single fiduciary account (including a
pension, profit-sharing, or other employee benefit trust
created pursuant to a plan qualified under Section 401 of
the Internal Revenue Code);
(iv) tax-exempt organizations qualifying under Section
501(c)(3) of the Internal Revenue Code (not including
403(b) plans); and
(v) employee benefit plans of a single employer or of
affiliated employers, other than 403(b) plans.
A combined purchase currently may also include shares of any
class of other continuously offered Putnam funds (other than
money market funds) purchased at the same time through a single
investment dealer, if the dealer places the order for such shares
directly with Putnam Mutual Funds.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). A
purchaser of Class A shares or Class M shares may qualify for a
cumulative quantity discount by combining a current purchase (or
combined purchases as described above) with certain other shares
of any class of Putnam funds already owned. The applicable sales
charge is based on the total of:
(i) the investor's current purchase; and
(ii) the maximum public offering price (at the close of
business on the previous day) of:
(a) all shares held by the investor in all of the
Putnam funds (except money market funds); and
(b) any shares of money market funds acquired by
exchange from other Putnam funds; and
(iii) the maximum public offering price of all shares
described in paragraph (ii) owned by another shareholder
eligible to participate with the investor in a "combined
purchase" (see above).
To qualify for the combined purchase privilege or to obtain the
cumulative quantity discount on a purchase through an investment
dealer, when each purchase is made the investor or dealer must
provide Putnam Mutual Funds with sufficient information to verify
that the purchase qualifies for the privilege or discount. The
shareholder must furnish this information to Putnam Investor
Services when making direct cash investments.
STATEMENT OF INTENTION. Investors may also obtain the reduced
sales charges for Class A shares or Class M shares shown in the
Prospectus for investments of a particular amount by means of a
written Statement of Intention, which expresses the investor's
intention to invest that amount (including certain "credits," as
described below) within a period of 13 months in shares of any
class of the Fund or any other continuously offered Putnam fund
(excluding money market funds). Each purchase of Class A shares
or Class M shares under a Statement of Intention will be made at
the public offering price applicable at the time of such purchase
to a single transaction of the total dollar amount indicated in
the Statement. A Statement of Intention may include purchases of
shares made not more than 90 days prior to the date that an
investor signs a Statement; however, the 13-month period during
which the Statement is in effect will begin on the date of the
earliest purchase to be included.
An investor may receive a credit toward the amount indicated in
the Statement equal to the maximum public offering price as of
the close of business on the previous day of all shares he or she
owns on the date of the Statement which are eligible for purchase
under a Statement (plus any shares of money market funds acquired
by exchange of such eligible shares). Investors do not receive
credit for shares purchased by the reinvestment of distributions.
Investors qualifying for the "combined purchase privilege" (see
above) may purchase shares under a single Statement of Intention.
The Statement of Intention is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum
initial investment under a Statement of Intention is 5% of such
amount, and must be invested immediately. Class A shares or
Class M shares purchased with the first 5% of such amount will be
held in escrow to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount
indicated is not purchased. When the full amount indicated has
been purchased, the escrow will be released. If an investor
desires to redeem escrowed shares before the full amount has been
purchased, the shares will be released from escrow only if the
investor pays the sales charge that, without regard to the
Statement of Intention, would apply to the total investment made
to date.
To the extent that an investor purchases more than the dollar
amount indicated on the Statement of Intention and qualifies for
a further reduced sales charge, the sales charge will be adjusted
for the entire amount purchased at the end of the 13-month
period, upon recovery from the investor's dealer of its portion
of the sales charge adjustment. Once received from the dealer,
which may take a period of time or may never occur, the sales
charge adjustment will be used to purchase additional shares at
the then current offering price applicable to the actual amount
of the aggregate purchases. These additional shares will not be
considered as part of the total investment for the purpose of
determining the applicable sales charge pursuant to the Statement
of Intention. No sales charge adjustment will be made unless and
until the investor's dealer returns any excess commissions
previously received.
To the extent that an investor purchases less than the dollar
amount indicated on the Statement of Intention within the 13-
month period, the sales charge will be adjusted upward for the
entire amount purchased at the end of the 13-month period. This
adjustment will be made by redeeming shares from the account to
cover the additional sales charge, the proceeds of which will be
paid to the investor's dealer and Putnam Mutual Funds in
accordance with the Prospectus. If the account exceeds an amount
that would otherwise qualify for a reduced sales charge, that
reduced sales charge will be applied.
Statements of Intention are not available for certain employee
benefit plans.
Statement of Intention forms may be obtained from Putnam Mutual
Funds or from investment dealers. Interested investors should
read the Statement of Intention carefully.
REDUCED SALES CHARGE FOR GROUP PURCHASES OF CLASS A SHARES.
Members of qualified groups may purchase Class A shares of the
Fund at a group sales charge rate of 4.5% of the public offering
price (4.71% of the net amount invested). The dealer discount on
such sales is 3.75% of the offering price.
To receive the group rate, group members must purchase Class A
shares through a single investment dealer designated by the
group. The designated dealer must transmit each member's initial
purchase to Putnam Mutual Funds, together with payment and
completed application forms. After the initial purchase, a
member may send funds for the purchase of Class A shares directly
to Putnam Investor Services. Purchases of Class A shares are
made at the public offering price based on the net asset value
next determined after Putnam Mutual Funds or Putnam Investor
Services receives payment for the shares. The minimum investment
requirements described above apply to purchases by any group
member. Only Class A shares are included in calculating the
purchased amount.
Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or
association, or other organized groups of persons (the members of
which may include other qualified groups) provided that: (i) the
group has at least 25 members of which at least 10 members
participate in the initial purchase; (ii) the group has been in
existence for at least six months; (iii) the group has some
purpose in addition to the purchase of investment company shares
at a reduced sales charge; (iv) the group's sole organizational
nexus or connection is not that the members are credit card
holders of a company, policy holders of an insurance company,
customers of a bank or broker-dealer, clients of an investment
adviser or security holders of a company; (v) the group agrees to
provide its designated investment dealer access to the group's
membership by means of written communication or direct
presentation to the membership at a meeting on not less
frequently than an annual basis; (vi) the group or its investment
dealer will provide annual certification in form satisfactory to
Putnam Investor Services that the group then has at least 25
members and that at least ten members participated in group
purchases during the immediately preceding 12 calendar months;
and (vii) the group or its investment dealer will provide
periodic certification in form satisfactory to Putnam Investor
Services as to the eligibility of the purchasing members of the
group.
Members of a qualified group include: (i) any group which meets
the requirements stated above and which is a constituent member
of a qualified group; (ii) any individual purchasing for his or
her own account who is carried on the records of the group or on
the records of any constituent member of the group as being a
good standing employee, partner, member or person of like status
of the group or constituent member; or (iii) any fiduciary
purchasing shares for the account of a member of a qualified
group or a member's beneficiary. For example, a qualified group
could consist of a trade association which would have as its
members individuals, sole proprietors, partnerships and
corporations. The members of the group would then consist of the
individuals, the sole proprietors and their employees, the
members of the partnerships and their employees, and the
corporations and their employees, as well as the trustees of
employee benefit trusts acquiring Class A shares for the benefit
of any of the foregoing.
A member of a qualified group may, depending upon the value of
Class A shares of the Fund owned or proposed to be purchased by
the member, be entitled to purchase Class A shares of the Fund at
non-group sales charge rates shown in the Prospectus which may be
lower than the group sales charge rate, if the member qualifies
as a person entitled to reduced non-group sales charges. Such a
group member will be entitled to purchase at the lower rate if,
at the time of purchase, the member or his or her investment
dealer furnishes sufficient information for Putnam Mutual Funds
or Putnam Investor Services to verify that the purchase qualifies
for the lower rate.
Interested groups should contact their investment dealer or
Putnam Mutual Funds. The Fund reserves the right to revise the
terms of or to suspend or discontinue group sales at any time.
EMPLOYEE BENEFIT PLANS; INDIVIDUAL ACCOUNT PLANS. The term
"employee benefit plan" means any plan or arrangement, whether or
not tax-qualified, which provides for the purchase of Class A
shares. The term "affiliated employer" means employers who are
affiliated with each other within the meaning of Section
2(a)(3)(C) of the Investment Company Act of 1940. The term
"individual account plan" means any employee benefit plan whereby
(i) Class A shares are purchased through payroll deductions or
otherwise by a fiduciary or other person for the account of
participants who are employees (or their spouses) of an employer,
or of affiliated employers, and (ii) a separate Investing Account
is maintained in the name of such fiduciary or other person for
the account of each participant in the plan.
The table of sales charges in the Prospectus applies to sales to
employee benefit plans, except that the Fund may sell Class A
shares at net asset value to employee benefit plans, including
individual account plans, of employers or of affiliated employers
which have at least 750 employees to whom such plan is made
available, in connection with a payroll deduction system of plan
funding (or other system acceptable to Putnam Investor Services)
by which contributions or account information for plan
participation are transmitted to Putnam Investor Services by
methods acceptable to Putnam Investor Services. The Fund may
also sell Class A shares at net asset value to employee benefit
plans of employers or of affiliated employers which have at least
750 employees, if such plans are qualified under Section 401 of
the Internal Revenue Code.
Additional information about employee benefit plans and
individual account plans is available from investment dealers or
from Putnam Mutual Funds.
<PAGE>
CONTINGENT DEFERRED SALES CHARGES
CLASS A SHARES. Class A shares purchased at net asset value by
shareholders investing $1 million or more, including purchases
pursuant to any Combined Purchase Privilege, Right of
Accumulation or Statement of Intention, are subject to a CDSC of
1.00% or 0.50%, respectively, if redeemed within the first or
second year after purchase. The Class A CDSC is imposed on the
lower of the cost and the current net asset value of the shares
redeemed. The CDSC does not apply to shares sold without a sales
charge through participant-directed qualified retirement plans
and shares purchased by certain investors investing $1 million or
more that have made arrangements with Putnam Mutual Funds and
whose dealer of record waived the commission described in the
next paragraph.
Except as stated below, Putnam Mutual Funds pays investment
dealers of record commissions on sales of Class A shares of $1
million or more based on an investor's cumulative purchases of
such shares, including purchases pursuant to any Combined
Purchase Privilege, Right of Accumulation or Statement of
Intention, during the one-year period beginning with the date of
the initial purchase at net asset value and each subsequent one-
year period beginning 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 amount under $3 million, 0.50% of the
next $47 million and 0.25% thereafter. On sales at net asset
value to a participant-directed qualified retirement plan
initially investing less than $20 million in Putnam funds and
other investments managed by Putnam Management or its affiliates
(including a plan sponsored by an employer with more than 750
employees), Putnam Mutual Funds pays commissions on cumulative
purchases during the life of the account at the rate of 1.00% of
the amount under $3 million and 0.50% thereafter. On sales at
net asset value to all other participant-directed qualified
retirement plans, Putnam Mutual Funds pays commissions on the
initial investment and on subsequent net quarterly sales (gross
sales minus gross redemptions during the quarter) at the rate of
0.15%. Money market fund shares are excluded from all commission
calculations, except for determining the amount initially
invested by a participant-directed qualified retirement plan.
Commissions on sales at net asset value to such plans are subject
to Putnam Mutual Funds' right to reclaim such commissions if the
shares are redeemed within two years.
Different CDSC and commission rates may apply to shares purchased
before April 1, 1994.
CLASS B AND CLASS C SHARES. Investors who set up an Automatic
Cash Withdrawal Plan (ACWP) for a Class B and Class C share
account (see "Plans Available To Shareholders -- Automatic Cash
Withdrawal Plan") may withdraw through the ACWP up to 12% of the
net asset value of the account (calculated as set forth below)
each year without incurring any CDSC. Shares not subject to a
CDSC (such as shares representing reinvestment of distributions)
will be redeemed first and will count toward the 12% limitation.
If there are insufficient shares not subject to a CDSC, shares
subject to the lowest CDSC liability will be redeemed next until
the 12% limit is reached. The 12% figure is calculated on a pro
rata basis at the time of the first payment made pursuant to a
ACWP and recalculated thereafter on a pro rata basis at the time
of each ACWP payment. Therefore, shareholders who have chosen a
ACWP based on a percentage of the net asset value of their
account of up to 12% will be able to receive ACWP payments
without incurring a CDSC. However, shareholders who have chosen
a specific dollar amount (for example, $100 per month from a fund
that pays income distributions monthly) for their periodic ACWP
payment should be aware that the amount of that payment not
subject to a CDSC may vary over time depending on the net asset
value of their account. For example, if the net asset value of
the account is $10,000 at the time of payment, the shareholder
will receive $100 free of the CDSC (12% of $10,000 divided by 12
monthly payments). However, if at the time of the next payment
the net asset value of the account has fallen to $9,400, the
shareholder will receive $94 free of any CDSC (12% of $9,400
divided by 12 monthly payments) and $6 subject to the lowest
applicable CDSC. This ACWP privilege may be revised or
terminated at any time.
ALL SHARES. No CDSC is imposed on shares of any class subject to
a CDSC ("CDSC Shares") to the extent that the CDSC Shares
redeemed (i) are no longer subject to the holding period
therefor, (ii) resulted from reinvestment of distributions on
CDSC Shares, or (iii) were exchanged for shares of another Putnam
fund, provided that the shares acquired in such exchange or
subsequent exchanges (including shares of a Putnam money market
fund) will continue to remain subject to the CDSC, if applicable,
until the applicable holding period expires. In determining
whether the CDSC applies to each redemption of CDSC Shares, CDSC
Shares not subject to a CDSC are redeemed first.
The Fund will waive any CDSC on redemptions, in the case of
individual or Uniform Transfers to Minors Act accounts, in case
of death or disability or for the purpose of paying benefits
pursuant to tax-qualified retirement plans. Such payments
currently include, without limitation, (1) distributions from an
IRA due to death or disability, (2) a return of excess
contributions to an IRA or 401(k) plan, and (3) distributions
from retirement plans qualified under section 401(a) or section
403(b)(7) (a "403(b) plan") of the Internal Revenue Code of 1986,
as amended (the "Code"), due to death, disability, retirement or
separation from service. The Fund will also waive any CDSC in
the case of the death of one joint tenant. These waivers may be
changed at any time. Additional waivers may apply to IRA
accounts opened prior to February 1, 1994.
<PAGE>
DISTRIBUTION PLAN
If the Fund or a class of shares of the Fund has adopted a
Distribution Plan, the Prospectus describes the principal
features of the Plan. This Statement contains additional
information which may be of interest to investors.
Continuance of a Plan is subject to annual approval by a vote of
the Trustees, including a majority of the Trustees who are not
interested persons of the Fund and who have no direct or indirect
interest in the Plan or related arrangements (the "Qualified
Trustees"), cast in person at a meeting called for that purpose.
All material amendments to a Plan must be likewise approved by
the Trustees and the Qualified Trustees. No Plan may be amended
in order to increase materially the costs which the Fund may bear
for distribution pursuant to such Plan without also being
approved by a majority of the outstanding voting securities of
the Fund or the relevant class of the Fund, as the case may be.
A Plan terminates automatically in the event of its assignment
and may be terminated without penalty, at any time, by a vote of
a majority of the Qualified Trustees or by a vote of a majority
of the outstanding voting securities of the Fund or the relevant
class of the Fund, as the case may be.
If Plan payments are made to reimburse Putnam Mutual Funds for
payments to dealers based on the average net asset value of Fund
shares attributable to shareholders for whom the dealers are
designated as the dealer of record, "average net asset value"
attributable to a shareholder account means the product of (i)
the Fund's average daily share balance of the account and (ii)
the Fund's average daily net asset value per share (or the
average daily net asset value per share of the class, if
applicable). For administrative reasons, Putnam Mutual Funds may
enter into agreements with certain dealers providing for the
calculation of "average net asset value" on the basis of assets
of the accounts of the dealer's customers on an established day
in each quarter.
Financial institutions receiving payments from Putnam Mutual
Funds as described above may be required to comply with various
state and federal regulatory requirements, including among others
those regulating the activities of securities brokers or dealers.
INVESTOR SERVICES
SHAREHOLDER INFORMATION
Each time shareholders buy or sell shares, they will receive a
statement confirming the transaction and listing their current
share balance. (Under certain investment plans, a statement may
only be sent quarterly.) Shareholders 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. To help shareholders take full advantage of
their Putnam investment, they will receive a Welcome Kit and a
periodic publication covering many topics of interest to
investors. The Fund also sends annual and semiannual reports
that keep shareholders informed about its portfolio and
performance, and year-end tax information to simplify their
recordkeeping. Easy-to-read, free booklets on special subjects
such as the Exchange Privilege and IRAs are available from Putnam
Investor Services. Shareholders may call Putnam Investor
Services toll-free weekdays at 1-800-225-1581 between 8:30 a.m.
and 7:00 p.m. Boston time for more information, including account
balances.
YOUR INVESTING ACCOUNT
The following information provides more detail concerning the
operation of a Putnam Investing Account. For further information
or assistance, investors should consult Putnam Investor Services.
Shareholders who purchase shares through a defined contribution
plan should note that not all of the services or features
described below may be available to them, and they should contact
their employer for details.
A shareholder may reinvest a recent cash distribution without a
front-end sales charge or without the reinvested shares being
subject to a CDSC, as the case may be, by delivering to Putnam
Investor Services the uncashed distribution check, endorsed to
the order of the Fund. Putnam Investor Services must receive the
properly endorsed check within 30 days after the date of the
check. Upon written notice to shareholders, the Fund may permit
shareholders who receive cash distributions to reinvest amounts
representing returns of capital without a sales charge or without
being subject to the CDSC.
The Investing Account also provides a way to accumulate shares of
the Fund. In most cases, after an initial investment of $500, a
shareholder may send checks to Putnam Investor Services for $50
or more, made payable to the Fund, to purchase additional shares
at the applicable public offering price next determined after
Putnam Investor Services receives the check. For Putnam
Preferred Income Fund, the minimum initial investment is $25,000
and the minimum subsequent investment is $5,000. Checks must be
drawn on a U.S. bank and must be payable in U.S. dollars.
Putnam Investor Services acts as the shareholder's agent whenever
it receives instructions to carry out a transaction on the
shareholder's account. Upon receipt of instructions that shares
are to be purchased for a shareholder's account, shares will be
purchased through the investment dealer designated by the
shareholder. Shareholders may change investment dealers at any
time by written notice to Putnam Investor Services, provided the
new dealer has a sales agreement with Putnam Mutual Funds.
Shares credited to an account are transferable upon written
instructions in good order to Putnam Investor Services and may be
sold to the Fund as described under "How to buy shares, sell
shares and exchange shares" in the Prospectus. Money market
funds and certain other funds will not issue share certificates.
A shareholder may send any certificates which have been
previously issued to Putnam Investor Services for safekeeping at
no charge to the shareholder.
Putnam Mutual Funds, at its expense, may provide certain
additional reports and administrative material to qualifying
institutional investors with fiduciary responsibilities to assist
these investors in discharging their responsibilities.
Institutions seeking further information about this service
should contact Putnam Mutual Funds, which may modify or terminate
this service at any time.
Putnam Investor Services may make special services available to
shareholders with investments exceeding $1,000,000. Contact
Putnam Investor Services for details.
The Fund pays Putnam Investor Services' fees for maintaining
Investing Accounts.
REINSTATEMENT PRIVILEGE
An investor who has redeemed shares to the Fund may reinvest
(within 1 year) the proceeds of such sale in shares of the same
class of the Fund, or may be able to reinvest (within 1 year) the
proceeds in shares of the same class of one of the other
continuously offered Putnam funds (through the Exchange Privilege
described in the Prospectus), including, in the case of shares
subject to a CDSC, the amount of CDSC charged on the redemption.
Any such reinvestment would be at the net asset value of the
shares of the fund(s) the investor selects, next determined after
Putnam Mutual Funds receives a Reinstatement Authorization. The
time that the previous investment was held will be included in
determining any applicable CDSC due upon redemptions and, in the
case of Class B shares, the eight-year period for conversion to
Class A shares. Shareholders will receive from Putnam Mutual
Funds the amount of any CDSC paid at the time of redemption as
part of the reinstated investment, which may be treated as
capital gains to the shareholder for tax purposes. Exercise of
the Reinstatement Privilege does not alter the federal income tax
treatment of any capital gains realized on a sale of Fund shares,
but to the extent that any shares are sold at a loss and the
proceeds are reinvested in shares of the Fund, some or all of the
loss may be disallowed as a deduction. Consult your tax adviser.
Investors who desire to exercise this Privilege should contact
their investment dealer or Putnam Investor Services.
EXCHANGE PRIVILEGE
Except as otherwise set forth in this section, by calling Putnam
Investor Services, investors may exchange shares valued up to
$500,000 between accounts with identical registrations, provided
that no certificates are outstanding for such shares and no
address change has been made within the preceding 15 days.
During periods of unusual market changes and shareholder
activity, shareholders may experience delays in contacting Putnam
Investor Services by telephone to exercise the Telephone Exchange
Privilege.
Putnam Investor Services also makes exchanges promptly after
receiving a properly completed Exchange Authorization Form and,
if issued, share certificates. If the shareholder is a
corporation, partnership, agent, or surviving joint owner, Putnam
Investor Services will require additional documentation of a
customary nature. Because an exchange of shares involves the
redemption of Fund shares and reinvestment of the proceeds in
shares of another Putnam fund, completion of an exchange may be
delayed under unusual circumstances if the Fund were to suspend
redemptions or postpone payment for the Fund shares being
exchanged, in accordance with federal securities laws. Exchange
Authorization Forms and prospectuses of the other Putnam funds
are available from Putnam Mutual Funds or investment dealers
having sales contracts with Putnam Mutual Funds. The prospectus
of each fund describes its investment objective(s) and policies,
and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange.
Shares of certain Putnam funds are not available to residents of
all states. The Fund reserves the right to change or suspend the
Exchange Privilege at any time. Shareholders would be notified
of any change or suspension. Additional information is available
from Putnam Investor Services.
Shares of the Fund must be held at least 15 days by the
shareholder requesting an exchange. There is no holding period
if the shareholder acquired the shares to be exchanged through
reinvestment of distributions, transfer from another shareholder,
prior exchange or certain employer-sponsored defined contribution
plans. In all cases, the shares to be exchanged must be
registered on the records of the Fund in the name of the
shareholder requesting the exchange.
Shareholders of other Putnam funds may also exchange their shares
at net asset value for shares of the Fund, as set forth in the
current prospectus of each fund.
For federal income tax purposes, an exchange is a sale on which
the investor generally will realize a capital gain or loss
depending on whether the net asset value at the time of the
exchange is more or less than the investor's basis. The Exchange
Privilege may be revised or terminated at any time. Shareholders
would be notified of any such change or suspension.
DIVIDENDS PLUS
Shareholders may invest the Fund's distributions of net
investment income or distributions combining net investment
income and short-term capital gains in shares of the same class
of another continuously offered Putnam fund (the "receiving
fund") using the net asset value per share of the receiving fund
determined on the date the Fund's distribution is payable. No
sales charge or CDSC will apply to the purchased shares unless
the Fund is a money market fund. The prospectus of each fund
describes its investment objective(s) and policies, and
shareholders should obtain a prospectus and consider these
objective(s) and policies carefully before investing their
distributions in the receiving fund. Shares of certain Putnam
funds are not available to residents of all states.
The minimum account size requirement for the receiving fund will
not apply if the current value of your account in this Fund is
more than $5,000.
Shareholders of other Putnam funds (except for money market
funds, whose shareholders must pay a sales charge or become
subject to a CDSC) may also use their distributions to purchase
shares of the Fund at net asset value.
For federal tax purposes, distributions from the Fund which are
reinvested in another fund are treated as paid by the Fund to the
shareholder and invested by the shareholder in the receiving fund
and thus, to the extent comprised of taxable income and deemed
paid to a taxable shareholder, are taxable.
The Dividends PLUS program may be revised or terminated at any
time.
PLANS AVAILABLE TO SHAREHOLDERS
The Plans described below are fully voluntary and may be
terminated at any time without the imposition by the Fund or
Putnam Investor Services of any penalty. All Plans provide for
automatic reinvestment of all distributions in additional shares
of the Fund at net asset value. The Fund, Putnam Mutual Funds or
Putnam Investor Services may modify or cease offering these Plans
at any time.
AUTOMATIC CASH WITHDRAWAL PLAN. An investor who owns or buys
shares of the Fund valued at $10,000 or more at the current
public offering price may open a Withdrawal Plan and have a
designated sum of money ($50 or more) paid monthly, quarterly,
semi-annually or annually to the investor or another person.
(Payments from the Fund can be combined with payments from other
Putnam funds into a single check through a Designated Payment
Plan.) Shares are deposited in a Plan account, and all
distributions are reinvested in additional shares of the Fund at
net asset value (except where the Plan is utilized in connection
with a charitable remainder trust). Shares in a Plan account are
then redeemed at net asset value to make each withdrawal payment.
Payment will be made to any person the investor designates;
however, if shares are registered in the name of a trustee or
other fiduciary, payment will be made only to the fiduciary,
except in the case of a profit-sharing or pension plan where
payment will be made to a designee. As withdrawal payments may
include a return of principal, they cannot be considered a
guaranteed annuity or actual yield of income to the investor.
The redemption of shares in connection with a Withdrawal Plan
generally will result in a gain or loss for tax purposes. Some
or all of the losses realized upon redemption may be disallowed
pursuant to the so-called wash sale rules if shares of the same
fund from which shares were redeemed are purchased (including
through the reinvestment of fund distributions) within a period
beginning 30 days before, and ending 30 days after, such
redemption. In such a case, the basis of the replacement shares
will be increased to reflect the disallowed loss. Continued
withdrawals in excess of income will reduce and possibly exhaust
invested principal, especially in the event of a market decline.
The maintenance of a Withdrawal Plan concurrently with purchases
of additional shares of the Fund would be disadvantageous to the
investor because of the sales charge payable on such purchases.
For this reason, the minimum investment accepted while a
Withdrawal Plan is in effect is $1,000, and an investor may not
maintain a Plan for the accumulation of shares of the Fund (other
than through reinvestment of distributions) and a Withdrawal Plan
at the same time. The cost of administering these Plans for the
benefit of those shareholders participating in them is borne by
the Fund as an expense of all shareholders. The Fund, Putnam
Mutual Funds or Putnam Investor Services may terminate or change
the terms of the Withdrawal Plan at any time. A Withdrawal Plan
will be terminated if communications mailed to the shareholder
are returned as undeliverable.
Investors should consider carefully with their own financial
advisers whether the Plan and the specified amounts to be
withdrawn are appropriate in their circumstances. The Fund and
Putnam Investor Services make no recommendations or
representations in this regard.
TAX QUALIFIED RETIREMENT PLANS; 403(B) AND SEP PLANS. (NOT
OFFERED BY FUNDS INVESTING PRIMARILY IN TAX-EXEMPT SECURITIES.)
Investors may purchase shares of the Fund through the following
Tax Qualified Retirement Plans, available to qualified
individuals or organizations:
Standard and variable profit-sharing (including 401(k))
and money purchase pension plans; and
Individual Retirement Account Plans (IRAs).
Each of these Plans has been qualified as a prototype plan by the
Internal Revenue Service. Putnam Investor Services will furnish
services under each plan at a specified annual cost. Putnam
Fiduciary Trust Company serves as trustee under each of these
Plans.
Forms and further information on these Plans are available from
investment dealers or from Putnam Mutual Funds. In addition,
specialized professional plan administration services are
available on an optional basis; contact Putnam Defined
Contribution Plan Services at 1-800-225-2465, extension 8600.
A 403(b) Retirement Plan is available for employees of public
school systems and organizations which meet the requirements of
Section 501(c)(3) of the Internal Revenue Code. Forms and
further information on the 403(b) Plan are also available from
investment dealers or from Putnam Mutual Funds. Shares of the
Fund may also be used in simplified employee pension (SEP) plans.
For further information on the Putnam prototype SEP plan, contact
an investment dealer or Putnam Mutual Funds.
Consultation with a competent financial and tax adviser regarding
these Plans and consideration of the suitability of Fund shares
as an investment under the Employee Retirement Income Security
Act of 1974, or otherwise, is recommended.
SIGNATURE GUARANTEES
Redemption requests for shares having a net asset value of
$100,000 or more must be signed by the registered owners or their
legal representatives and must be guaranteed by a bank,
broker/dealer, municipal securities dealer or broker, government
securities dealer or broker, credit union, national securities
exchange, registered securities association, clearing agency,
savings association or trust company, provided such institution
is acceptable under and conforms with Putnam Fiduciary Trust
Company's signature guarantee procedures. A copy of such
procedures is available upon request. If you want your
redemption proceeds sent to an address other than your address as
it appears on Putnam's records, you must provide a signature
guarantee. 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.
SUSPENSION OF REDEMPTIONS
The Fund may not suspend shareholders' right of redemption, or
postpone payment for more than seven days, unless the New York
Stock Exchange is closed for other than customary weekends or
holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange
is restricted or during any emergency which makes it
impracticable for the Fund to dispose of its securities or to
determine fairly the value of its net assets, or during any other
period permitted by order of the Commission for protection of
investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the Fund. However, the Agreement and Declaration of Trust
disclaims shareholder liability for acts or obligations of the
Fund and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by
the Fund or the Trustees. The Agreement and Declaration of Trust
provides for indemnification out of Fund property for all loss
and expense of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund would be unable to
meet its obligations. The likelihood of such circumstances is
remote.
STANDARD PERFORMANCE MEASURES
Yield and total return data for the Fund may from time to time be
presented in Part I of this Statement and in advertisements. In
the case of funds with more than one class of shares, all
performance information is calculated separately for each class.
The data is calculated as follows.
Total return for one-, five- and ten-year periods (or for such
shorter periods as the Fund has been in operation or shares of
the relevant class have been outstanding) is determined by
calculating the actual dollar amount of investment return on a
$1,000 investment in the Fund made at the beginning of the
period, at the maximum public offering price for Class A shares
and Class M shares and net asset value for other classes of
shares, and then calculating the annual compounded rate of return
which would produce that amount. Total return for a period of
one year is equal to the actual return of the Fund during that
period. Total return calculations assume deduction of the Fund's
maximum sales charge or CDSC, if applicable, and reinvestment of
all Fund distributions at net asset value on their respective
reinvestment dates.
The Fund's yield is presented for a specified thirty-day period
(the "base period"). Yield is based on the amount determined by
(i) calculating the aggregate amount of dividends and interest
earned by the Fund during the base period less expenses accrued
for that period, and (ii) dividing that amount by the product of
(A) the average daily number of shares of the Fund outstanding
during the base period and entitled to receive dividends and (B)
the per share maximum public offering price for Class A shares or
Class M shares, as appropriate and net asset value for other
classes of shares on the last day of the base period. The result
is annualized on a compounding basis to determine the yield. For
this calculation, interest earned on debt obligations held by the
Fund is generally calculated using the yield to maturity (or
first expected call date) of such obligations based on their
market values (or, in the case of receivables-backed securities
such as GNMA's, based on cost). Dividends on equity securities
are accrued daily at their stated dividend rates.
If the Fund is a money market fund, yield is computed by
determining the percentage net change, excluding capital changes,
in the value of an investment in one share over the seven-day
period for which yield is presented (the "base period"), and
multiplying the net change by 365/7 (or approximately 52 weeks).
Effective yield represents a compounding of the yield by adding 1
to the number representing the percentage change in value of the
investment during the base period, raising that sum to a power
equal to 365/7, and subtracting 1 from the result.
If the Fund is a tax-exempt fund, the tax-equivalent yield during
the base period may be presented for shareholders in one or more
stated tax brackets. Tax-equivalent yield is calculated by
adjusting the tax-exempt yield by a factor designed to show the
approximate yield that a taxable investment would have to earn to
produce an after-tax yield equal, for that shareholder, to the
tax-exempt yield. The tax-equivalent yield will differ for
shareholders in other tax brackets.
At times, Putnam Management may reduce its compensation or assume
expenses of the Fund in order to reduce the Fund's expenses. The
per share amount of any such fee reduction or assumption of
expenses during the Fund's past ten fiscal years (or for the life
of the Fund, if shorter) is reflected in the table in the section
entitled "Financial history" in the Prospectus. Any such fee
reduction or assumption of expenses would increase the Fund's
yield and total return during the period of the fee reduction or
assumption of expenses.
All data are based on past performance and do not predict future
results.
COMPARISON OF PORTFOLIO PERFORMANCE
Independent statistical agencies measure the Fund's investment
performance and publish comparative information showing how the
Fund, and other investment companies, performed in specified time
periods. Three agencies whose reports are commonly used for such
comparisons are set forth below. From time to time, the Fund may
distribute these comparisons to its shareholders or to potential
investors. THE AGENCIES LISTED BELOW MEASURE PERFORMANCE BASED
ON THEIR OWN CRITERIA RATHER THAN ON THE STANDARDIZED
PERFORMANCE MEASURES DESCRIBED IN THE PRECEDING SECTION.
LIPPER ANALYTICAL SERVICES, INC. distributes mutual fund
rankings monthly. The rankings are based on total return
performance calculated by Lipper, reflecting generally
changes in net asset value adjusted for reinvestment of
capital gains and income dividends. They do not reflect
deduction of any sales charges. Lipper rankings cover a
variety of performance periods, for example year-to-date,
1-year, 5-year, and 10-year performance. Lipper
classifies mutual funds by investment objective and asset
category.
MORNINGSTAR, INC. distributes mutual fund ratings twice a
month. The ratings are divided into five groups:
highest, above average, neutral, below average and lowest.
They represent a fund's historical risk/reward ratio
relative to other funds with similar objectives. The
performance factor is a weighted-average assessment of the
Fund's 3-year, 5-year, and 10-year total return
performance (if available) reflecting deduction of
expenses and sales charges. Performance is adjusted using
quantitative techniques to reflect the risk profile of the
fund. The ratings are derived from a purely quantitative
system that does not utilize the subjective criteria
customarily employed by rating agencies such as Standard &
Poor's Corporation and Moody's Investor Service, Inc.
CDA/WIESENBERGER'S MANAGEMENT RESULTS publishes mutual
fund rankings and is distributed monthly. The rankings
are based entirely on total return calculated by
Weisenberger for periods such as year-to-date, 1-year,
3-year, 5-year and 10-year. Mutual funds are ranked in
general categories (e.g., international bond,
international equity, municipal bond, and maximum capital
gain). Weisenberger rankings do not reflect deduction of
sales charges or fees.
Independent publications may also evaluate the Fund's
performance. Certain of those publications are listed below, at
the request of Putnam Mutual Funds, which bears full
responsibility for their use and the descriptions appearing
below. From time to time the Fund may distribute evaluations by
or excerpts from these publications to its shareholders or to
potential investors. The following illustrates the types of
information provided by these publications.
BUSINESS WEEK publishes mutual fund rankings in its
Investment Figures of the Week column. The rankings are
based on 4-week and 52-week total return reflecting
changes in net asset value and the reinvestment of all
distributions. They do not reflect deduction of any sales
charges. Funds are not categorized; they compete in a
large universe of over 2000 funds. The source for
rankings is data generated by Morningstar, Inc.
INVESTOR'S BUSINESS DAILY publishes mutual fund rankings
on a daily basis. The rankings are depicted as the top 25
funds in a given category. The categories are based
loosely on the type of fund, e.g., growth funds, balanced
funds, U.S. government funds, GNMA funds, growth and
income funds, corporate bond funds, etc. Performance
periods for sector equity funds can vary from 4 weeks to
39 weeks; performance periods for other fund groups vary
from 1 year to 3 years. Total return performance reflects
changes in net asset value and reinvestment of dividends
and capital gains. The rankings are based strictly on
total return. They do not reflect deduction of any sales
charges. Performance grades are conferred from A+ to E.
An A+ rating means that the fund has performed within the
top 5% of a general universe of over 2000 funds; an A
rating denotes the top 10%; an A- is given to the top 15%,
etc.
BARRON'S periodically publishes mutual fund rankings. The
rankings are based on total return performance provided by
Lipper Analytical Services. The Lipper total return data
reflects changes in net asset value and reinvestment of
distributions, but does not reflect deduction of any sales
charges. The performance periods vary from short-term
intervals (current quarter or year-to-date, for example)
to long-term periods (five-year or ten-year performance,
for example). Barron's classifies the funds using the
Lipper mutual fund categories, such as Capital
Appreciation Funds, Growth Funds, U.S. Government Funds,
Equity Income Funds, Global Funds, etc. Occasionally,
Barron's modifies the Lipper information by ranking the
funds in asset classes. "Large funds" may be those with
assets in excess of $25 million; "small funds" may be
those with less than $25 million in assets.
THE WALL STREET JOURNAL publishes its Mutual Fund
Scorecard on a daily basis. Each Scorecard is a ranking
of the top-15 funds in a given Lipper Analytical Services
category. Lipper provides the rankings based on its total
return data reflecting changes in net asset value and
reinvestment of distributions and not reflecting any sales
charges. The Scorecard portrays 4-week, year-to-date,
one-year and 5-year performance; however, the ranking is
based on the one-year results. The rankings for any given
category appear approximately once per month.
FORTUNE magazine periodically publishes mutual fund
rankings that have been compiled for the magazine by
Morningstar, Inc. Funds are placed in stock or bond fund
categories (for example, aggressive growth stock funds,
growth stock funds, small company stock funds, junk bond
funds, Treasury bond funds, etc.), with the top-10 stock
funds and the top-5 bond funds appearing in the rankings.
The rankings are based on 3-year annualized total return
reflecting changes in net asset value and reinvestment of
distributions and not reflecting sales charges.
Performance is adjusted using quantitative techniques to
reflect the risk profile of the fund.
MONEY magazine periodically publishes mutual fund rankings
on a database of funds tracked for performance by Lipper
Analytical Services. The funds are placed in 23 stock or
bond fund categories and analyzed for five-year risk
adjusted return. Total return reflects changes in net
asset value and reinvestment of all dividends and capital
gains distributions and does not reflect deduction of any
sales charges. Grades are conferred (from A to E): the
top 20% in each category receive an A, the next 20% a B,
etc. To be ranked, a fund must be at least one year old,
accept a minimum investment of $25,000 or less and have
had assets of at least $25 million as of a given date.
FINANCIAL WORLD publishes its monthly Independent
Appraisals of Mutual Funds, a survey of approximately 1000
mutual funds. Funds are categorized as to type, e.g.,
balanced funds, corporate bond funds, global bond funds,
growth and income funds, U.S. government bond funds, etc.
To compete, funds must be over one year old, have over $1
million in assets, require a maximum of $10,000 initial
investment, and should be available in at least 10 states
in the United States. The funds receive a composite past
performance rating, which weighs the intermediate- and
long-term past performance of each fund versus its
category, as well as taking into account its risk, reward
to risk, and fees. An A+ rated fund is one of the best,
while a D-rated fund is one of the worst. The source for
Financial World rating is Schabacker investment management
in Rockville, MD.
FORBES magazine periodically publishes mutual fund ratings
based on performance over at least two bull and bear
market cycles. The funds are categorized by type,
including stock and balanced funds, taxable bond funds,
municipal bond funds, etc. Data sources include Lipper
Analytical Services and CDA Investment Technologies. The
ratings are based strictly on performance at net asset
value over the given cycles. Funds performing in the top
5% receive an A+ rating; the top 15% receive an A rating;
and so on until the bottom 5% receive an F rating. Each
fund exhibits two ratings, one for performance in "up"
markets and another for performance in "down" markets.
KIPLINGER'S PERSONAL FINANCE MAGAZINE (formerly Changing
Times), periodically publishes rankings of mutual funds
based on one-, three- and five-year total return
performance reflecting changes in net asset value and
reinvestment of dividends and capital gains and not
reflecting deduction of any sales charges. Funds are
ranked by tenths: a rank of 1 means that a fund was among
the highest 10% in total return for the period; a rank of
10 denotes the bottom 10%. Funds compete in categories of
similar funds--aggressive growth funds, growth and income
funds, sector funds, corporate bond funds, global
governmental bond funds, mortgage-backed securities funds,
etc. Kiplinger's also provides a risk-adjusted grade in
both rising and falling markets. Funds are graded against
others with the same objective. The average weekly total
return over two years is calculated. Performance is
adjusted using quantitative techniques to reflect the risk
profile of the fund.
U.S. NEWS AND WORLD REPORT periodically publishes mutual
fund rankings based on an overall performance index (OPI)
devised by Kanon Bloch Carre & Co., a Boston research
firm. Over 2000 funds are tracked and divided into 10
equity, taxable bond and tax-free bond categories. Funds
compete within the 10 groups and three broad categories.
The OPI is a number from 0-100 that measures the relative
performance of funds at least three years old over the
last 1, 3, 5 and 10 years and the last six bear markets.
Total return reflects changes in net asset value and the
reinvestment of any dividends and capital gains
distributions and does not reflect deduction of any sales
charges. Results for the longer periods receive the most
weight.
THE 100 BEST MUTUAL FUNDS YOU CAN BUY (1992), authored by
Gordon K. Williamson. The author's list of funds is
divided into 12 equity and bond fund categories, and the
100 funds are determined by applying four criteria.
First, equity funds whose current management teams have
been in place for less than five years are eliminated.
(The standard for bond funds is three years.) Second, the
author excludes any fund that ranks in the bottom 20
percent of its category's risk level. Risk is determined
by analyzing how many months over the past three years the
fund has underperformed a bank CD or a U.S. Treasury bill.
Third, a fund must have demonstrated strong results for
current three-year and five-year performance. Fourth, the
fund must either possess, in Mr. Williamson's judgment,
"excellent" risk-adjusted return or "superior" return with
low levels of risk. Each of the 100 funds is ranked in
five categories: total return, risk/volatility,
management, current income and expenses. The rankings
follow a five-point system: zero designates "poor"; one
point means "fair"; two points denote "good"; three points
qualify as a "very good"; four points rank as "superior";
and five points mean "excellent."
In addition, Putnam Mutual Funds may distribute to shareholders
or prospective investors illustrations of the benefits of
reinvesting tax-exempt or tax-deferred distributions over
specified time periods, which may include comparisons to fully
taxable distributions. These illustrations use hypothetical
rates of tax-advantaged and taxable returns and are not intended
to indicate the past or future performance of any fund.
<PAGE>
DEFINITIONS
"Putnam Management" -- Putnam Investment Management,
Inc., the Fund's investment
manager.
"Putnam Mutual Funds" -- Putnam Mutual Funds Corp., the
Fund's principal underwriter.
"Putnam Fiduciary Trust -- Putnam Fiduciary Trust Company,
Company" the Fund's custodian.
"Putnam Investor Services" -- Putnam Investor Services, a
division of Putnam Fiduciary
Trust Company, the Fund's
investor servicing agent.
