PUTNAM INVESTMENT-GRADE BOND FUND
One Post Office Square, Boston, MA 02109
Class A shares
INVESTMENT STRATEGY: INCOME
PROSPECTUS- February 2, 1995, as revised May 19, 1995
This Prospectus explains concisely what you should know before
investing in Class A shares of Putnam Investment-Grade Bond Fund
(the "Fund") offered without a sales charge through eligible
employer-sponsored defined contribution plans ("defined
contribution plans") . Please read it carefully and keep it
for future reference. You can find more detailed information
about the Fund in the February 2, 1995 Statement of Additional
Information, as amended from time to time. For a free copy of
the Statement or for other information, including a
Prospectus regarding any other class of Fund shares or
Class A shares for other investors , call Putnam Investor
Services at 1-800- 752-9894 . 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.
PUTNAMINVESTMENTS
Putnam Defined
Contribution Plans
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ABOUT THE FUND
Expenses
summary ..........................................
Objective .................................................
How objective is
pursued ..................................
Risk
factors ..............................................
How performance is
shown ..................................
How the Fund is
managed ...................................
Organization and
history ..................................
ABOUT YOUR INVESTMENT
How to buy
shares .........................................
Distribution
Plan .........................................
How to sell
shares ....................................... .
How to exchange
shares ....................................
How the Fund values its
shares ............................
How distributions are made; tax
information ...............
ABOUT PUTNAM INVESTMENTS,
INC .............................
<PAGE>
About the Fund
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing in
the Fund. The following table summarizes expenses which
the Fund expects to incur in its first fiscal year. The Example
shows the estimated cumulative expenses attributable to a
hypothetical $1,000 investment in Class A shares of the
Fund over specified periods.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.65%
Other Expenses 0.39%
Total Fund Operating Expenses 1.04%
The table is provided to help you understand the expenses of
investing in the Fund and your share of the operating expenses
that the Fund expects to incur during its first fiscal year.
"Other expenses" are based on estimated amounts for the Fund's
first full fiscal year.
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
year years
$11 $33
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 will vary. The Example does
not reflect any charges or expenses related to your employer's
plan.
See "Organization and history" for information about any other
class of shares offered by the Fund.
<PAGE>
OBJECTIVE
Putnam Investment-Grade Bond Fund seeks total return. The Fund
is not intended to be a complete investment program, and there is
no assurance it will achieve its objective.
HOW OBJECTIVE IS PURSUED
Basic investment strategy
Under normal market conditions the Fund will invest at least 65%
of its total assets in debt securities. The Fund may also invest
in preferred stocks and dividend-paying common stocks, as well as
in cash or money market instruments. The Fund will only invest
in debt and other fixed income securities that are of
"investment-grade" quality at the time of purchase or are unrated
but determined by Putnam Investment Management Inc., the Fund's
investment manager ("Putnam Management"), to be of comparable
quality. Investment-grade securities are rated Baa or higher by
Moody's Investors Service, Inc. or BBB or higher by Standard &
Poor's Corporation. Except in circumstances when a downgrade
would cause less than 65% of the Fund's total assets to be
invested in investment-grade fixed income securities, 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
continued investment in the security will assist in meeting the
Fund's investment objective.
The average portfolio duration of the Fund's investments in debt
securities will range from .9 to 2.5 years. "Duration" is a
commonly used measure of the longevity of a debt security which
is derived by discounting principal and interest payments to
their present value using the instrument's current yield to
maturity and the dollar-weighted average time until those
payments will be received. The values of debt securities with
shorter durations generally fluctuate less than securities with
longer durations. The maturity of a debt security is typically
longer than its duration.
The Fund may invest in a variety of asset-backed and mortgage-
backed securities, including collateralized mortgage obligations
("CMOs") and certain stripped mortgage-backed securities. CMOs
and other mortgage-backed securities represent a participation
in, or are secured by, mortgage loans. CMOs are issued with a
number of classes or series which have different maturities and
which may represent interests in some or all of the interest or
principal on the underlying collateral or a combination thereof.
Stripped mortgage-backed securities are usually structured with
two classes that receive different portions of the interest and
<PAGE>
principal distributions on a pool of mortgage loans. The Fund
may invest in both the interest-only or "IO" class and the
principal-only or "PO" class. See "Risk factors" below.
Mortgage-backed securities include certain securities issued or
guaranteed by the U.S. government or one of its agencies or
instrumentalities, such as the Government National Mortgage
Association ("Ginnie Mae"), the Federal National Mortgage
Association ("Fannie Mae") or the Federal Home Loan Mortgage
Corporation ("Freddie Mac"); securities issued by private issuers
that represent an interest in or are collateralized by mortgage-
backed securities issued or guaranteed by the U.S. government or
one of its agencies or instrumentalities; or securities issued by
private issuers that represent an interest in or are
collateralized by mortgage loans.
Asset-backed securities are structured like mortgage-backed
securities, but instead of mortgage loans or interests in
mortgage loans, the underlying assets may include motor vehicle
installment sales or installment loan contracts, leases of
various types of real and personal property, and receivables from
credit card agreements. The ability of an issuer of asset-backed
securities to enforce its security interest in the underlying
assets may be limited.
Defensive strategies
At times Putnam Management may judge that conditions in the
securities markets make pursuing the Fund's basic investment
strategy inconsistent with the best interests of its
shareholders. At such times Putnam Management may temporarily
use alternative strategies, primarily designed to reduce
fluctuations in the value of the Fund's assets. In implementing
these "defensive" strategies, the Fund may increase the portion
of its assets invested in U.S. government or agency obligations,
cash or money market instruments, or invest in any other fixed
income security Putnam Management considers consistent with such
defensive strategies. In such cases, the Fund's average
portfolio duration may differ from that stated in "Basic
investment strategy." 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.
While it is impossible to predict the Fund's portfolio turnover
rate, based on its experience, Putnam Management believes that
such annual rate will not exceed 200%.
RISK FACTORS
Fixed income securities
The values of fixed income securities will fluctuate with changes
in interest rates. Thus, a decrease in interest rates will
generally result in an increase in the value of the Fund's
shares. Conversely, during periods of rising interest rates, the
value of the Fund's shares will generally decline. The magnitude
of these fluctuations will generally be greater when the Fund's
average portfolio duration is longer. Changes in the value of
portfolio securities will not affect interest income from those
securities but will be reflected in the Fund's net asset value.
Whereas certain U.S. government securities such as U.S. Treasury
obligations and Ginnie Mae certificates are backed by the full
faith and credit of the U.S. government, other securities in
which the Fund may invest may be subject to higher degrees of
risk of default depending upon, among other factors, the
creditworthiness of the issuer and, in the case of mortgage-
backed and asset-backed securities, the ability of the mortgagor
or other borrower to meet its obligations. Because of their
added safety, the yields available from U.S. government
securities are generally lower than the yields available from
comparable fixed income securities of private issuers.
Mortgage-backed and asset-backed securities
Mortgage-backed and asset-backed securities have yield and
maturity characteristics corresponding to the underlying assets.
Unlike traditional debt securities, which may pay a fixed rate of
interest until maturity when the entire principal amount comes
due, payments on certain mortgage-backed and asset-backed
securities include both interest and a partial payment of
principal. In addition to scheduled loan amortization, payments
of principal may result from the voluntary prepayment,
refinancing or foreclosure of the underlying mortgage loans or
other assets. Such prepayments may significantly shorten the
effective maturities of certain mortgage-backed and asset-backed
securities, especially during periods of declining interest
rates. Conversely, during periods of rising interest rates, a
reduction in the rate of prepayments may significantly lengthen
the effective maturities of such securities.
Mortgage-backed and asset-backed securities may offer higher
yields than those available from many other types of fixed income
securities but, due to their prepayment aspects, such securities
are less effective than other types of securities as a means of
"locking in" attractive long-term interest rates. This is caused
by the need to reinvest prepayments of principal generally and
the possibility of significant unscheduled prepayments resulting
from declines in interest rates. These prepayments would have to
be reinvested at lower rates. As a result, these securities may
have less potential for capital appreciation during periods of
declining interest rates than other securities of comparable
maturities, although they may have a comparable or greater risk
of decline in market value during periods of rising interest
rates. At times, some of the mortgage-backed and asset-backed
securities in which the Fund may invest will have higher than
market interest rates, and will therefore be purchased at a
premium above their par value. Unscheduled prepayments, because
they are made at par, will cause the Fund to suffer a loss equal
to any unamortized premium.
CMOs of different classes are generally retired in sequence as
the underlying mortgage loans in the mortgage pool are repaid.
In the event of sufficient early prepayments on such mortgages,
the class or series of CMO first to mature generally will be
retired prior to its maturity. Thus, the early retirement of a
particular class or series of CMO held by the Fund would have the
same effect as the prepayment of mortgages underlying other
mortgage-backed securities.
The yield to maturity on an IO class of stripped mortgage-backed
securities is extremely sensitive not only to changes in
prevailing interest rates but also to the rate of principal
payments (including prepayments) on the underlying assets, and a
rapid rate of principal payments may have a material adverse
effect on the Fund's yield to maturity to the extent it invests
in IOs. If the underlying assets experience greater than
anticipated prepayments of principal, the Fund may fail to fully
recoup its initial investment in these securities. Conversely,
POs tend to increase in value if prepayments are greater than
anticipated and decline if prepayments are slower than
anticipated. The secondary market for stripped mortgage-backed
securities may be more volatile and less liquid than that for
other mortgage-backed securities, potentially limiting the Fund's
ability to buy or sell those securities at any particular time.
Foreign investments
The Fund may invest up to 25% of its assets in securities
principally traded in foreign markets. The Fund may also
purchase Eurodollar certificates of deposit without regard to the
25% 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, foreign currency
forward and futures contracts, and options on foreign currencies
and foreign currency futures contracts for hedging purposes in
connection with its foreign investments. 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. These cross hedging transactions involve
the risk of imperfect correlation between changes in the values
of the currencies to which such transactions relate and changes
in the value of the currency or other asset or liability which is
the subject of the hedge.
A more detailed explanation of foreign investments, and the risks
and special tax considerations associated with them, is included
in the Statement of Additional Information.
Financial futures and options
The Fund may buy and sell financial futures contracts on U.S.
government securities, foreign fixed income securities and on
foreign currencies. A futures contract is a contract to buy or
sell a certain amount of a U.S. government or other fixed income
security or a foreign currency at an agreed price on a specified
future date. Depending on the change in value of the security or
currency between the time when the Fund enters into and
terminates a futures contract, the Fund realizes a gain or loss.
The Fund may purchase and sell futures contracts for hedging
purposes, to adjust the risk profile of its portfolio and as a
substitute for direct investments. The Fund may buy and sell
call and put options on futures contracts in addition to or as an
alternative to purchasing or selling futures contracts or, to the
extent permitted by applicable law, to earn additional income.
The use of futures and 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
financial futures and options and movements in the prices of the
underlying securities or currencies or of the securities or
currencies which are the subject of the hedge. The successful
use of futures and options further depends on Putnam Management's
ability to forecast market or interest rate movements correctly.
Other risks arise from the Fund's potential inability to close
out its futures or related options positions, and there can be no
assurance that a liquid secondary market will exist for any
futures contract or option at a 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. The use of futures or options on
futures for purposes other than hedging may be regarded as
speculative. Certain provisions of the Internal Revenue Code and
certain regulatory requirements may also limit the Fund's ability
to engage in futures and options transactions.
A more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the
Statement of Additional Information.
Investments in premium securities
The Fund may at times invest in securities bearing coupon rates
higher than prevailing market rates. Such "premium" securities
are typically purchased at prices greater than the principal
amounts payable on maturity. The Fund does not amortize the
premium paid for such securities in calculating its net
investment income. As a result, the purchase of such securities
provides the Fund a higher level of investment income
distributable to shareholders on a current basis than if the Fund
had purchased securities bearing current market rates of
interest. Because the value of premium securities tends to
approach the principal amount as they approach maturity (or call
price in the case of securities approaching their first call
date), the purchase of such securities may increase the Fund's
risk of capital loss if such securities are held to maturity (or
first call date).
During a period of declining interest rates, many of the Fund's
portfolio investments will likely bear coupon rates which are
higher than the current market rates, regardless of whether such
securities were originally purchased at a premium. Such
securities would generally carry premium market values which
would be reflected in the net asset value of the Fund's shares.
As a result, an investor who purchases shares of the Fund during
such periods would initially receive higher taxable monthly
distributions (derived from the higher coupon rates payable on
the Fund's investments) than might be available from alternative
investments bearing current market interest rates, but may face
an increased risk of capital loss as these higher coupon
securities approach maturity (or first call date). In evaluating
the potential performance of an investment in the Fund, investors
may find it useful to compare the Fund's current dividend rate
with the Fund's "yield," which is computed on a yield-to-maturity
basis in accordance with SEC regulations and which reflects
amortization of market premiums. See "How performance is shown."
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.
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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 investing more than: (a) with respect to 75% of its 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;* or (c) 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 policies. The Trustees
may change any non-fundamental investment policies without
shareholder approval. As a matter of policy, the Trustees would
not materially change the Fund's investment objective without
shareholder approval.
HOW PERFORMANCE IS SHOWN
The Fund's investment performance may from time to time be
included in advertisements about the Fund. "Yield" 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 on the last day of that period.
For this purpose, net investment income is calculated in
accordance with SEC regulations and may differ from net
investment income as determined for financial reporting purposes.
SEC regulations require that net investment income be calculated
on a "yield-to-maturity" basis, which has the effect of
amortizing any premiums or discounts in the current market value
of fixed-income securities. The current dividend rate is based
on net investment income as determined for financial
statement purposes, which may not reflect amortization in the
same manner. See "How objective is pursued -- Investments in
premium securities." The Fund's yield reflects the
deduction of the maximum initial sales charge.
"Total return" for the one-, five- and ten-year periods (or for
the life of the Fund , if shorter) through the most recent
calendar quarter represents the average annual compounded rate of
return on an investment of $1,000 in the Fund invested at the
maximum public offering price. Total return may also be
presented for other periods or based on investment at reduced
sales charge levels. Any quotation of investment performance not
reflecting the maximum initial sales charge would be reduced if
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 objective 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. Because shares sold through eligible defined
contribution plans are sold without a sales charge, quotations of
investment performance reflecting the deduction of a sales charge
will be lower than the actual investment performance on shares
purchased through such plans.
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. Kenneth J. Taubes, Senior Vice President of Putnam
Management and Vice President of the Fund, is primarily
responsible for the day-to-day management of the Fund's
portfolio. Mr. Taubes has been employed by Putnam Management
since 1991. Previously, Mr. Taubes was Senior Vice President of
the Finance Division of U.S. Trust Company.
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 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% thereafter.
Expense limitation. In order to limit the Fund's expenses during
its start-up period, Putnam Management has agreed to limit its
compensation (and, to the extent necessary, bear other expenses
of the Fund) through February 28, 1996, to the extent that
expenses of the Fund (exclusive of brokerage, interest, taxes,
deferred organizational and extraordinary expenses , and
payments under the Fund's Distribution Plan) would exceed an
annual rate of 1.15% of the Fund's average net assets. For the
purpose of determining any such limitation on Putnam Management's
compensation, expenses of the Fund shall not reflect the
application of commissions or cash management credits that may
reduce designated Fund expenses. With Trustee approval, this
expense limitation may be terminated earlier, in which event
shareholders would be notified and this Prospectus would be
revised.
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 Plan (which are in turn allocated to the
relevant class of shares). The Fund also reimburses Putnam
Management for its share of 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 Investment-Grade Bond Fund 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
<PAGE>
Massachusetts. As of the date of this Prospectus, Putnam
Investments, Inc. owned all of the shares of the Fund and
therefore may be deemed to "control" the Fund.
The Fund is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the Fund may, without shareholder
approval, be divided into two or more series of shares
representing separate investment portfolios. Any such series of
shares may be divided without shareholder approval into two or
more classes of shares having such preferences and special or
relative rights and privileges as the Trustees determine. The
Fund's shares are not currently divided into series. The Fund
currently offers two classes of shares. Only the Fund's Class A
shares are offered by this Prospectus. Class Y shares,
which are offered only to defined contribution plans that
initially invest at least $250 million in a combination of Putnam
funds and other investments managed by Putnam Management or its
affiliates, are sold at net asset value and do not bear
a 12b-1 fee. Because Class Y shares bear lower expenses than
Class A shares, the investment performance of Class Y shares will
be greater than that for Class A shares.
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, 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, * Chairman of the Board and Director of Kmart
Corporation and Director of various corporations, including AT&T
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, M.I.T. ; 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
HOW TO BUY SHARES
All orders to purchase shares must be made through
your employer's defined contribution plan. For more
information about how to purchase shares of the Fund through your
employer's plan or limitations on the amount that may be
purchased, please consult your employer. Shares are sold to
eligible defined contribution plans at the net asset value per
share next determined after receipt of an order by Putnam
Mutual Funds . Orders must be received by Putnam Mutual
Funds before the close of regular trading
on the New York Stock Exchange in order to receive
that day's net asset value . In order to be eligible
to purchase shares at net asset value , defined
contribution plans must initially invest at least $1
million or be sponsored by companies with more than 750
employees. Eligible plans may make additional investments of any
amount at any time. To eliminate the need for safekeeping ,
the Fund will not issue certificates for your shares. Sales
personnel may receive different compensation depending on which
class of shares they sell .
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%.
Putnam Mutual Funds may, at its expense, provide additional
promotional incentives or payments to dealers that sell shares of
the Putnam funds. In some instances, these incentives or
payments may be offered only to certain dealers who have sold or
may sell significant amounts of shares.
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940, although the Fund is
not currently making any payments pursuant to the Plan. The
purpose of the Plan is to permit the Fund to compensate Putnam
Mutual Funds for services provided and expenses incurred by it in
promoting the sale of Class A shares of the Fund, reducing
redemptions, or maintaining or improving services provided to
shareholders by Putnam Mutual Funds or dealers. The 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, subject to the authority of the
Fund's Trustees to reduce the amount of payments or to suspend
the Plan for such periods as they may determine. Subject to
these limitations, the amount of such payments and the specific
purposes for which they are made shall be determined by the
Trustees of the Fund. Should the Trustees decide in the future
to approve payments under the Plan, shareholders will be notified
and this Prospectus will be revised.
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 your 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 Statement of Additional Information for
more information about where to obtain a signature guarantee.
The Fund generally provides payment for redeemed
shares the business day after the request is received.
Under unusual circumstances, the Fund may suspend redemptions, or
postpone payment for more than seven days, as permitted by
federal securities law. The Fund will only redeem shares for
which it has received payment.
HOW TO EXCHANGE SHARES
Subject to any restrictions contained in your plan, you
can exchange your shares for shares of other Putnam funds
available through your plan at net asset value .
Contact your plan administrator or Putnam Investor Services on
how to exchange your shares or how to obtain
prospectuses of other Putnam funds in which you may
invest . 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 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.
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION
The Fund will declare a distribution each day in an amount which
is based on Putnam Management's projections of the Fund's
estimated net investment income. Normally, the Fund will pay
these distributions monthly. The amount of each daily
distribution may differ from actual net investment income
determined in accordance with generally accepted accounting
principles. See "Distributions" in the Statement of Additional
Information. Any net capital gains will be distributed at least
annually. Capital gains distributions are made after applying
any available capital loss carryovers.
The terms of your plan will govern how your plan may
receive distributions from the Fund. Generally, periodic
distributions from the Fund to your plan are reinvested
in additional Fund shares , although your plan may
permit Fund distributions from net investment income to be
received by you in cash while reinvesting capital
gains distributions in additional shares or all
Fund distributions to be received 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
taxes on income and gains it distributes . The Fund will
distribute substantially all of its ordinary income and capital
gain net income on a current basis. Generally, Fund
distributions are taxable as ordinary income,
except that any distributions of net long-term capital gains will
be taxed as such . However, distributions
by the Fund to employer-sponsored defined contribution
plans that qualify for tax-exempt treatment under federal income
tax laws will not be taxable. Special tax rules apply to
investments through such plans. You should consult your tax
adviser to determine the suitability of the Fund as an investment
through such a plan and the tax treatment of distributions
(including distributions of amounts attributable to an investment
in the Fund) from such a plan.
The foregoing is a summary of certain federal income tax
consequences of investing in the Fund. You should consult your
tax adviser to determine the precise effect of an investment in
the Fund on your particular tax situation (including possible
liability for state and local taxes).
ABOUT PUTNAM INVESTMENTS, INC .
Putnam Management has been managing mutual funds since 1937.
Putnam Mutual Funds is the principal underwriter of the Fund and
of other Putnam funds. Putnam Defined Contribution Plans is a
division of Putnam Mutual Funds. Putnam Fiduciary Trust
Company is the Fund's custodian. Putnam Investor Services, a
division of Putnam Fiduciary Trust Company, is the Fund's
investor servicing and transfer agent.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are located at One Post Office Square, Boston,
Massachusetts, 02109 and are subsidiaries of Putnam
Investments, Inc., which is wholly owned by Marsh & McLennan
Companies, Inc., a publicly-owned holding company whose principal
businesses are international insurance and reinsurance brokerage,
employee benefit consulting and investment management.
<PAGE>
Differences between the typeset Defined Contribution and Class Y
(printed)
prospectus and the EDGAR filing version.
1. Pagination is different in printed prospectus
2. Section headings and subheadings in the printed prospectus
are printed in boldface type
3. The first few descriptive lines of certain paragraphs, and
certain other emphasized phrases, are printed in boldface
type
4. In the printed prospectus, the dashes at the beginning of
certain sentences are replaced by a solid box
5. The first page of the printed prospectus contains a box
with an illustration of the balance scales, the Putnam
logo
