Putnam Growth and Income Fund II
One Post Office Square, Boston, MA 02109
Class Y shares
INVESTMENT STRATEGY: GROWTH AND INCOME
PROSPECTUS - MARCH 30, 1998 , as revised June 30, 1998
This prospectus explains concisely what you should know before
investing in class Y 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 March 30, 1998 statement of additional
information (the "SAI"), as amended from time to time. For a
free copy of the SAI or other information, call Putnam
Investor Services at 1-800-752-9894. The SAI has been filed with
the Securities and Exchange Commission (the "Commission") and is
incorporated into this prospectus by reference. The Commission
maintains a Web site (http://www.sec.gov) that contains the SAI,
material incorporated by reference into this prospectus and
SAI, and the other information regarding registrants that
file electronically with the Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PUTNAMINVESTMENTS
Putnam Defined
Contribution Plans
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ABOUT THE FUND
Expenses summary...........................................
Objectives.................................................
How the fund pursues its objectives........................
How performance is shown...................................
How the fund is managed....................................
Organization and history...................................
ABOUT YOUR INVESTMENT
How to buy shares..........................................
How to sell
shares.........................................
How to exchange shares.....................................
How the fund values its shares.............................
How the fund makes distributions to shareholders;
tax information.......................................
ABOUT PUTNAM INVESTMENTS, INC..............................<PAGE>
About the fund
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing.
The following table summarizes expenses attributable to class
Y shares based on the fund's most recent fiscal year. The
example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in class Y shares over
specified periods.
Annual fund operating expenses
(as a percentage of average net assets)
Management fees .54%
Other expenses .21%
Total fund operating expenses .75%
The table is provided to help you understand the expenses of
investing in the fund and your share of fund operating expenses
that the fund incurs. The expenses shown in the table do not
reflect the application of credits that reduce fund expenses.
Example
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and redemption at the end of each
period:
1 3 5 10
year years years years
$8 $24 $42 $93
The example does not represent past or future expense levels and
actual expenses may be greater or less than those shown. Federal
regulations require the example to assume a 5% annual return, but
actual annual return varies. The example does not reflect any
charges or expenses related to your employer's plan.
<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 THE FUND PURSUES ITS OBJECTIVES
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.
Alternative investment strategies
At times Putnam Management may judge that conditions in the
securities markets make pursuing the fund's basic investment
strategy inconsistent with the best interests of its
shareholders. At such times Putnam Management may temporarily
use alternative strategies that are primarily designed to reduce
fluctuations in the value of fund 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, these
alternative strategies will be used.
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Risk factors
Foreign investments
The fund may invest in securities of foreign issuers including
securities that are not actively traded in U.S. markets. These
foreign investments involve certain special risks described
below.
Foreign securities are normally denominated and traded in foreign
currencies. As a result, the value of the fund's foreign
investments and the value of its shares may be affected favorably
or unfavorably by changes in currency exchange rates relative to
the U.S. dollar. The fund may engage in a variety of foreign
currency exchange transactions in connection with its foreign
investments, including transactions involving futures contracts,
forward contracts and options.
Investments in foreign securities may subject the fund to other
risks as well. For example, there may be less information
publicly available about a foreign issuer than about a U.S.
issuer, and foreign issuers are not generally subject to
accounting, auditing and financial reporting standards and
practices comparable to those in the United States. The
securities of some foreign issuers are less liquid and at times
more volatile than securities of comparable U.S. issuers.
Foreign brokerage commissions and other fees are also generally
higher than in the United States. Foreign settlement procedures
and trade regulations may involve certain risks (such as delay in
payment or delivery of securities or in the recovery of the
fund's assets held abroad) and expenses not present in the
settlement of investments in U.S. markets.
In addition, the fund's investments in foreign securities may be
subject to the risk of nationalization or expropriation of
assets, imposition of currency exchange controls or restrictions
on the repatriation of foreign currency, confiscatory taxation,
political or financial instability and diplomatic developments
which could affect the value of the fund's investments in certain
foreign countries. Dividends or interest on, or proceeds from
the sale of, foreign securities may be subject to foreign
withholding taxes, and special U.S. tax considerations may apply.
Legal remedies available to investors in certain foreign
countries may be more limited than those available with respect
to investments in the United States or in other foreign
countries. The laws of some foreign countries may limit the
fund's ability to invest in securities of certain issuers
organized under the laws of those foreign countries.
The risks described above are typically increased in connection
with investments in less developed and developing nations, which
are sometimes referred to as "emerging markets." For example,
political and economic structures in these countries may be in
their infancy and developing rapidly, causing instability. High
rates of inflation or currency devaluations may adversely affect
the economies and securities markets of such countries.
Investments in emerging markets may be considered speculative.
The fund expects that its investments in foreign securities not
actively traded in U.S. markets generally will not exceed 20% of
its total assets, although the fund's investments in such foreign
securities may exceed this amount from time to time. Certain of
the foregoing risks may also apply to some extent to securities
of U.S. issuers that are denominated in foreign currencies or
that are traded in foreign markets, or securities of U.S. issuers
having significant foreign operations.
The fund may engage in a variety of foreign currency exchange
transactions in connection with its foreign investments,
including transactions involving futures contracts, forward
contracts and options. For a further discussion of the risks
associated with purchasing and selling futures contracts and
options, see "Options and futures portfolio strategies." The SAI
also contains information concerning these transactions. The
decision as to whether and to what extent the fund will engage in
in foreign currency exchange transactions will depend on a number
of factors, including prevailing market conditions, the
composition of the fund's portfolio and the availability of
suitable transactions. Accordingly, there can be no assurance
that the fund will engage in foreign currency exchange
transactions at any time given or from time to time.
For more information about foreign securities and the risks
associated with investment in such securities, see the SAI.
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. The values
of these 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, and may be of poor standing and
predominantly speculative. Certain lower-rated securities may be
in default. 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 SAI.
The fund may invest in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount and pay interest
only at maturity rather than at intervals during the life of the
security. Payment-in-kind bonds allow the issuer, at its option,
to make current interest payments on the bonds either in cash or
in additional bonds. 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 that pay
interest 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. The fund is required
to accrue and distribute interest income on such investments on a
current basis, even though it does not receive that income
currently in cash. Thus, the fund could be required at times to
liquidate other investments in order to satisfy its distribution
requirements.
Futures and options
The fund may buy and sell stock index futures contracts. An
"index future" is a contract to buy or sell units of a particular
stock index at an agreed price on a specified future date.
Depending on the change in value of the index between the time
the fund enters into and terminates an index future transaction,
the fund realizes a gain or loss. In addition to or as an
alternative to purchasing or selling index futures, the fund may
buy and sell call and put options on index futures or stock
indexes. The fund may engage in index futures and options
transactions for hedging purposes and for nonhedging purposes,
such as to adjust its exposure to relevant markets or as a
substitute for direct investment.
The use of index futures and related options involves certain
special risks. Futures and options transactions involve costs
and may result in losses.
Certain risks arise from the possibility of imperfect
correlations among movements in the prices of financial futures
and options purchased or sold by the fund, of the underlying
stock index or securities and, in the case of hedging
transactions, of the securities that are the subject of the
hedge. The successful use of the strategies described above
further depends on Putnam Management's ability to forecast market
movements correctly.
Other risks arise from the potential inability to close out index
futures or options positions. There can be no assurance that a
liquid secondary market will exist for any index future or option
at any particular time. The fund's ability to terminate option
positions established in the over-the-counter market may be more
limited than for exchange-traded options and may also involve the
risk that securities dealers participating in such transactions
would fail to meet their obligations to the fund. Certain
provisions of the Internal Revenue Code and certain regulatory
requirements may limit the use of index futures and options
transactions.
For a more detailed explanation of index futures and options
transactions, including the risks associated with them, see the
SAI.
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 SAI contains more detailed information about these
practices, including limitations designed to reduce these risks.
Options. The fund may seek to increase its current return by
writing covered call and put options on securities it owns or in
which it may invest. The fund receives a premium from writing a
call or put option, which increases the return if the option
expires unexercised or is closed out at a net profit.
When the fund writes a call option, it gives up the opportunity
to profit from any increase in the price of a security above the
exercise price of the option; when it writes a put option, it
takes the risk that it will be required to purchase a security
from the option holder at a price above the current market price
of the security. The fund may terminate an option that it has
written prior to its expiration by entering into a closing
purchase transaction in which it purchases an option having the
same terms as the option written.
The fund may also buy and sell put and call options including
combinations of put and call options on the same underlying
security. The 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 if the other party should default
on its obligation and the fund is delayed or prevented from
recovering the collateral or completing the transaction.
Derivatives
Certain of the instruments in which the fund may invest, such as
futures contracts, options and forward contracts, are considered
to be "derivatives." Derivatives are financial instruments whose
value depends upon, or is derived from, the value of an
underlying asset, such as a security or an index. Further
information about these instruments and the risks involved in
their use is included elsewhere in this prospectus and in the
SAI.
Portfolio turnover
The length of time the fund has held a particular security is not
generally a consideration in investment decisions. A change in
the securities held by the fund is known as "portfolio turnover."
As a result of the fund's investment policies, under certain
market conditions its portfolio turnover rate may be higher than
that of other mutual funds.
Portfolio turnover generally involves some expense, including
brokerage commissions or dealer markups and other transaction
costs on the sale of securities and reinvestment in other
securities. These transactions may result in realization of
taxable capital gains. Portfolio turnover rates for the last two
fiscal years were 74.51% and 83.97%, respectively.
Limiting investment risk
Specific investment restrictions help to limit investment risks
for the fund's shareholders. These restrictions prohibit the
fund, with respect to 75% of its total assets, from acquiring
more than 10% of the voting securities of any one issuer.* They
also prohibit the fund from investing more than :
(a) (with respect to 75% of it's total assets) 5% of its total
assets in securities of any one issuer (other than the U.S.
government, its agencies or instrumentalities);*
(b) 25% of its total assets in any one industry (securities of
the U.S. government, its agencies or instrumentalities are not
considered to represent any industry);* or
(c) 15% of its net assets in any combination of securities that
are not readily marketable, securities restricted as to resale
(excluding securities determined by the Trustees (or the person
designated by the Trustees to make such determinations) to be
readily marketable), and repurchase agreements maturing in more
than seven days.
Restrictions marked with an asterisk (*) above are summaries of
fundamental investment policies. See the SAI for the full text
of these policies and other fundamental investment policies.
Except as otherwise noted in the SAI, all percentage limitations
described in this prospectus and the SAI will apply at the time
an investment is made and will not be considered violated unless
an excess or deficiency occurs or exists immediately after and as
a result of such investment. Except for investment policies
designated as fundamental in this prospectus or the SAI, the
investment policies described in this prospectus and in the SAI
are not fundamental policies. The Trustees may change any non-
fundamental investment policy without shareholder approval. As a
matter of policy, the Trustees would not materially change the
fund's investment objectives without shareholder approval.
HOW PERFORMANCE IS SHOWN
Fund advertisements may, from time to time, include performance
information. "Yield" for each class of shares is calculated by
dividing the annualized net investment income per share during a
recent 30-day period by the maximum public offering price per
share of the class on the last day of that period.
"Total return" for the one-, five- and ten-year periods (or for
the life of the class Y shares if shorter) through the
most recent calendar quarter represents the average annual
compounded rate of return on an investment of $1,000 in the fund
. Total return may also be presented for other periods
.
All data are based on past investment results and do not predict
future performance.
Investment performance, which will vary, is based on many
factors, including market conditions, portfolio composition, fund
operating expenses and the class of shares the investor
purchases. 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 with those of other mutual funds and other
investment vehicles.
Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. Fund performance may be
compared to that of various indexes. See the SAI.
HOW THE FUND IS MANAGED
The Trustees are responsible for generally overseeing the conduct
of fund business. Subject to such policies as the Trustees may
determine, Putnam Management furnishes a continuing investment
program for the fund and makes investment decisions on its
behalf. Subject to the control of the Trustees, Putnam
Management also manages the fund's other affairs and business.
The fund pays Putnam Management a quarterly fee for these
services based on average net assets. See "Expenses summary" and
the SAI.
The following officer of Putnam Management has had primary
responsibility for the day-to-day management of the fund's
portfolio since the year stated below:
Business experience
Year (at least 5 years)
---- --------------------
Anthony I. Kreisel 1995 Employed as an investment
Managing Director professional by Putnam
Management since 1986.
The fund pays all expenses not assumed by Putnam Management,
including Trustees' fees, auditing, legal, custodial, investor
servicing and shareholder reporting expenses, and payments under
its distribution plans (which are in turn allocated to the
relevant class of shares). The fund also reimburses Putnam
Management for the compensation and related expenses of certain
fund officers and their staff who provide administrative
services. The total reimbursement is determined annually by the
Trustees.
Putnam Management places all orders for purchases and sales of
fund securities. In selecting broker-dealers, Putnam Management
may consider research and brokerage services furnished to it and
its affiliates. Subject to seeking the most favorable price and
execution available, Putnam Management may consider sales of
shares of fund shares (and, if permitted by law, shares of the
other Putnam funds) as a factor in the selection of broker-
dealers.
ORGANIZATION AND HISTORY
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. The Trustees may, without shareholder
approval, create two or more series of shares representing
separate investment portfolios. Any such series of shares may be
divided without shareholder approval into two or more classes of
shares having such preferences and special or relative rights and
privileges as the Trustees determine. The fund's shares are not
currently divided into series. Only class Y shares are
offered by this prospectus. The fund also offers other classes
of shares with different sales charges and expenses. Because of
these different sales charges and expenses, the investment
performance of the classes will vary. For more information,
including your eligibility to purchase any other class of shares,
contact your investment dealer or Putnam Mutual Funds (at 1-800-
225-1581).
Each share has one vote, with fractional shares voting
proportionally. Shares of all classes will vote together as a
single class except when otherwise required by law or as
determined by the Trustees. Shares are freely transferable, are
entitled to dividends as declared by the Trustees, and, if the
fund were liquidated, would receive the net assets of the fund.
The fund may suspend the sale of shares at any time and may
refuse any order to purchase shares. Although the fund is not
required to hold annual meetings of its shareholders,
shareholders holding at least 10% of the outstanding shares
entitled to vote have the right to call a meeting to elect or
remove Trustees, or to take other actions as provided in the
Agreement and Declaration of Trust.
If you own fewer shares than a minimum amount set by the Trustees
(presently 20 shares), the fund may choose to redeem your shares.
You will receive at least 30 days' written notice before the fund
redeems your shares, and you may purchase additional shares at
any time to avoid a redemption. The fund may also redeem shares
if you own shares above a maximum amount set by the Trustees.
There is presently no maximum, but the Trustees may, at any time,
establish one which could apply to both present and future
shareholders.
The fund's Trustees: George Putnam,* Chairman. President of the
Putnam funds. Chairman and Director of Putnam Management and
Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director,
Marsh & McLennan Companies, Inc.; William F. Pounds, Vice
Chairman. Professor of Management, Alfred P. Sloan School of
Management, Massachusetts Institute of Technology; Jameson Adkins
Baxter, President, Baxter Associates, Inc.; Hans H. Estin, Vice
Chairman, North American Management Corp.; John A. Hill, Chairman
and Managing Director, First Reserve Corporation; Ronald J.
Jackson, Former Chairman, President and Chief Executive Officer
of Fisher-Price, Inc., Trustee of Salem Hospital and the Peabody
Essex Museum; Paul L. Joskow,* Professor of Economics and
Management, Massachusetts Institute of Technology, Director, New
England Electric System, State Farm Indemnity Company and
Whitehead Institute for Biomedical Research; Elizabeth T. Kennan,
President Emeritus and Professor, Mount Holyoke College; Lawrence
J. Lasser,* Vice President of the Putnam funds. President, Chief
Executive Officer and Director of Putnam Investments, Inc. and
Putnam Management. Director, Marsh & McLennan Companies, Inc.;
John H. Mullin, III, Chairman and CEO of Ridgeway Farm, Director
of ACX Technologies, Inc., Alex. Brown Realty, Inc., and The
Liberty Corporation; Robert E. Patterson, President and Trustee
of Cabot Industrial Trust and Trustee of the SEA Education
Association ; Donald S. Perkins,* Director of various
corporations, including Cummins Engine Company, Lucent
Technologies, Inc., Nanophase Technologies, Inc. Springs
Industries, Inc. and Time Warner Inc.; George Putnam, III,*
President, New Generation Research, Inc.; A.J.C. Smith,* Chairman
and Chief Executive Officer, Marsh & McLennan Companies, Inc.; W.
Thomas Stephens, Chairman and Chief Executive Officer of
MacMillan Bloedel Ltd., Director of Mail-Well Inc., Qwest
Communications, The Eagle Picher Trust and New Century Energies;
and W. Nicholas Thorndike, Director of various corporations and
charitable organizations, including Data General Corporation,
Bradley Real Estate, Inc. and Providence Journal Co. Also,
Trustee of Cabot Industrial Trust, Massachusetts General Hospital
and Eastern Utilities Associates. The Trustees are also Trustees
of the other Putnam funds. Those marked with an asterisk (*) are
or may be deemed to be "interested persons" of the fund, Putnam
Management or Putnam Mutual Funds.
About Your Investment
HOW TO BUY SHARES
All orders to purchase shares must be made through your
employer's defined contribution plan. For more
information about how to purchase shares of the fund through your
employer's plan or limitations on the amount that may be
purchased, please consult your employer. Shares are sold to
eligible defined contribution plans at the net asset value
per share next determined after receipt of an order by Putnam
Mutual Funds. Orders must be received by Putnam Mutual Funds
before the close of regular trading on the New York Stock
Exchange in order to receive that day's net asset value.
Class Y shares are available to defined contribution
plans whose investment in Putnam funds and other
assets managed by Putnam Management or its affiliates ,
combined with such investments by the plan's sponsor and the
sponsor's other employee benefit plans, equals at least
$250 million. Defined contribution plans that elect to buy class
Y shares after attaining eligibility will receive class Y shares
in place of any class A shares owned at the time of their
first purchase of class Y shares. Class Y shares are also
available to defined contribution plans whose sponsor confirms a
good faith expectation that investments in Putnam-managed assets
by the sponsor and its employee benefit plans will attain $250
million (using the higher of purchase price or current
market value) within one year of the initial purchase of class Y
shares, and agrees that class Y shares may be redeemed and
class A shares purchased if that level is not attained .
To eliminate the need for safekeeping, the fund will not issue
certificates for your shares. Putnam Mutual Funds will
from time to time, at its expense, provide promotional
incentives or payments to dealers that sell shares of the Putnam
funds. These incentives or payments may include payments for
travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives and their
guests to locations within and outside the United States for
meetings or seminars of a business nature. In some instances,
these incentives or payments may be offered only to certain
dealers who have sold or may sell significant amounts of shares.
Certain dealers may not sell all classes of shares.
HOW TO SELL SHARES
Subject to any restrictions imposed by your employer's plan, you
can sell your shares through the plan to the fund any day the New
York Stock Exchange is open. For more information about how to
sell shares of the fund through your employer's plan, including
any charges that may be imposed by the plan, please consult with
your employer.
Your plan administrator must send a signed letter of instruction
to Putnam Investor Services. The price you will receive is the
next net asset value calculated after the fund receives the
request in proper form. All requests must be received by the
fund prior to the close of regular trading on the New York Stock
Exchange in order to receive that day's net asset value. If
you sell shares having a net asset value of $100,000 or
more, the signatures of registered owners or their legal
representatives must be guaranteed by a bank, broker-dealer or
certain other financial institutions. See the SAI for more
information about where to obtain a signature guarantee.
The fund generally provides payment for redeemed shares the
business day after the request is received. Under unusual
circumstances, the fund may suspend redemptions, or postpone
payment for more than seven days, as permitted by federal
securities law. The fund will only redeem shares for which it
has received payment.
HOW TO EXCHANGE SHARES
Subject to any restrictions contained in your employer's plan,
you can exchange your shares for shares of other Putnam funds
available through your employer's plan at net asset value.
Contact your plan administrator or Putnam Investor Services for
more information on how to exchange your shares or how to obtain
prospectuses of other Putnam funds in which you may invest.
The exchange privilege is not intended as a vehicle for short-
term trading. Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity and
in other circumstances where Putnam Management or the Trustees
believe doing so would be in the best interests of 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. Consult Putnam Investor Services before requesting an
exchange. See the SAI to find out more about the exchange
privilege.
HOW THE FUND VALUES ITS SHARES
The fund calculates the net asset value of a share of each class
by dividing the total value of its assets, less liabilities, by
the number of its shares outstanding. Shares are valued as of
the close of regular trading on the New York Stock Exchange each
day the Exchange is open.
Portfolio securities for which market quotations are readily
available are valued at market value. Short-term investments
that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets
are valued at their fair value following procedures approved by
the Trustees.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX INFORMATION
The fund distributes any net investment income at least quarterly
and any net realized capital gains at least annually.
Distributions from net capital gains are made after applying any
available capital loss carryovers.
The terms of your employer's plan will govern how your
employer's plan may receive distributions from the fund.
Generally, periodic distributions from the fund to your
employer's plan are reinvested in additional fund shares,
although your employer's plan may permit you to receive
fund distributions from net investment income in cash while
reinvesting capital gains distributions in additional shares or
to receive all fund distributions in cash. If another option is
not selected, all distributions will be reinvested in additional
fund shares.
The fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of federal
income taxes on income and gains it distributes to
shareholders. The fund will distribute substantially all of its
ordinary income and capital gain net income on a current basis.
Generally, fund distributions are taxable as ordinary income,
except that any distributions designated by the fund as
deriving from net gains on securities held for more than one year
but not more than 18 months and from net gains on securities held
for more than 18 months will be taxed as such regardless of
how long you have held your shares. However, distributions by
the fund to employer-sponsored participant-directed qualified
retirement plans that qualify for tax-exempt treatment under
federal income tax laws will not be taxable. Special tax rules
apply to investments through such plans. You should consult your
tax adviser to determine the suitability of the fund as an
investment through such a plan and the tax treatment of
distributions (including distributions of amounts attributable to
an investment in the fund) from such a plan.
The foregoing is a summary of certain federal income tax
consequences of investing in the fund. You should consult your
tax adviser to determine the precise effect of an investment in
the fund on your particular tax situation (including possible
liability for state and local taxes).
About Putnam Investments, Inc.
Putnam Management has been managing mutual funds since 1937.
Putnam Mutual Funds is the principal underwriter of the fund and
of other Putnam funds. Putnam Fiduciary Trust Company is the
custodian of the fund. Putnam Investor Services, a division of
Putnam Fiduciary Trust Company, is the investor servicing and
transfer agent for the fund.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are located at One Post Office Square, Boston, Ma. 02109
and are subsidiaries of Putnam Investments, Inc., which is 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.
