PUTNAM INVESTMENT FUNDS, 497, 1995-10-06

PUTNAM INVESTMENT FUNDS
497, 1995-10-06

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PROSPECTUS
October 2, 1995

Putnam American Renaissance Fund
Putnam Basic Value Fund
Putnam Research Fund
INVESTMENT STRATEGY: GROWTH

Putnam Balanced Fund
Putnam Global Utilities Fund
Putnam Real Estate Opportunities Fund
INVESTMENT STRATEGY: GROWTH AND INCOME

This prospectus explains concisely what you should know before
investing in shares of Putnam American Renaissance Fund,
Putnam Basic Value Fund, Putnam Balanced Fund, Putnam Global
Utilities Fund , Putnam Real Estate Opportunities Fund
or Putnam Research Fund (collectively, the "funds" and each a
"fund"), each a portfolio of Putnam Investment Funds (the
"Trust"). Please read it carefully and keep it for future
reference. You can find more detailed information in the
October 2 , 1995 statement of additional information
("SAI"), as amended from time to time. For a free copy of the
SAI or other information, call Putnam Investor Services at 1-800-
225-1581. The SAI has been filed with the Securities and
Exchange Commission 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 FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED .

BOSTON * LONDON * TOKYO
<PAGE>
ABOUT THE FUNDS

EXPENSES SUMMARY 4
This section describes the sales charges, management fees, and
annual operating expenses that apply to a fund's shares. Use it
to help you estimate the impact of transaction costs on your
investment over time.

FINANCIAL HIGHLIGHTS 6
Study this table to see, among other things, how a fund
performed each year for the past 10 years or since it began
investment operations if it has been in operation for less than
10 years.

OBJECTIVES 11
Read this section to make sure a fund's objectives are
consistent with your own.

HOW THE FUNDS PURSUE THEIR OBJECTIVES 11
This section explains in detail how a fund seeks its investment
objectives.

HOW PERFORMANCE IS SHOWN 27
This section describes and defines the measures used to assess
a fund's performance. All data are based on a fund's past
investment results and do not predict future performance.

HOW THE FUNDS ARE MANAGED 28
Consult this section for information about a fund's
management, allocation of a fund's expenses, and how purchases
and sales of securities are made for the fund.

ORGANIZATION AND HISTORY 30
In this section, you will learn when a fund was introduced,
how it is organized, how it may offer shares, and who its
Trustees are.

ABOUT YOUR INVESTMENT

HOW TO BUY SHARES 32
This section describes the ways you may purchase shares and
tells you the minimum amounts required to open various types of
accounts. It explains how sales charges are determined and how
you may become eligible for reduced sales charges on shares.

DISTRIBUTION PLAN 35
This section tells you what distribution fees are charged against
shares of a fund.

HOW TO SELL SHARES 36
In this section you can learn how to sell shares of a fund,
either directly to the fund or through an investment dealer.

HOW TO EXCHANGE SHARES 37
Find out in this section how you may exchange shares of a fund
for shares of other Putnam funds. The section also explains how
exchanges can be made without sales charges and the conditions
under which sales charges may be required.

HOW A FUND VALUES ITS SHARES 38
This section explains how a fund determines the value of its
shares.

HOW A FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS;
TAX INFORMATION 38
This section describes the various options you have in choosing
how to receive dividends from a fund. It also discusses the
federal tax status of the payments and counsels shareholders to
seek specific advice about their own situation.

ABOUT PUTNAM INVESTMENTS, INC. 40

Read this section to learn more about the companies that
provide the marketing, investment management, and shareholder
account services to Putnam funds and their shareholders.

APPENDIX 41
Securities ratings<PAGE>
ABOUT THE FUNDS

EXPENSES SUMMARY

Expenses are one of several factors to consider when investing
. The following table summarizes your maximum transaction
costs from investing in a fund and estimated expenses which each
fund expects to incur in the current fiscal year. The
examples show the cumulative expenses attributable
to a hypothetical $1,000 investment over specified
periods.

SHAREHOLDER TRANSACTION EXPENSES

Maximum sales charge imposed
on purchases (as a percentage
of offering price) 5.75%

Deferred sales charge (as a
percentage of the lower of
original purchase price or
redemption proceeds) NONE*
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>

American Global Real Estate
Renaissance Basic Value Balanced Utilities Opportunities Research
Fund Fund Fund Fund Fund Fund

Management fees 0% 0% 0% 0% 0% 0%
(after expense limitation)
Other expenses 1.01% 1.09% 0.79% 0.69% 1.09% 1.01%
(after expense limitation)
Total fund operating
expenses 1.01% 1.09% 0.79% 0.69% 1.09% 1.01%
(after expense limitation)

</TABLE>
The table is provided to help you understand the expenses of investing
in a fund and your share of the operating
expenses that each fund expects to incur during the current fiscal
year. The estimated annual management fees
and "Other expenses " shown in the table reflect an expense limitation
currently in effect. In the absence of the expense limitation, management
fees, "Other expenses " and total fund operating expenses would be
as follows:

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
American Global Real Estate
Renaissance Basic Value Balanced Utilities Opportunities Research
Fund Fund Fund Fund Fund Fund

Management Fees 0.70% 0.70% 0.65% 0.80% 0.70% 0.65%
Other Expenses 1.41% 1.49% 1.49% 1.70% 1.49% 1.41%
Total Fund
Operating Expenses 2.11% 2.19% 2.14% 2.50% 2.19% 2.06%

</TABLE>

"Other expenses " are based on estimated amounts for each 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 year 3 years

American Renaissance Fund $67 $88
Basic Value Fund $68 $90
Balanced Fund $65 $81
Global Utilities Fund $64 $78
Real Estate Opportunities Fund $68 $90
Research Fund $67 $88

The examples do not represent past or future expense
levels. Actual expenses may be greater or less than those shown.
Federal regulations require the examples to assume a 5%
annual return, but actual annual return varies .

* A deferred sales charge of up to 1.00% is assessed
on certain redemptions of shares that were
purchased without an initial sales charge .
See "How to buy shares."

FINANCIAL HIGHLIGHTS

The following tables present unaudited per share
financial information for the Basic Value, Balanced, Global
Utilities and Real Estate Opportunities funds. The
American Renaissance and Research funds commenced operations on
October 2, 1995. The financial statements included in the
semi-annual reports to shareholders for the period ended
February 28, 1995 for the Basic Value and
Real Estate Opportunities funds and for the period ended
March 31, 1995 for the Balanced and Global
Utilities funds are incorporated by reference into this
prospectus.
<PAGE>
PUTNAM BASIC VALUE FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)

January 3, 1995
(commencement
of operations)
to February 28,
1995*+

NET ASSET VALUE, BEGINNING OF PERIOD $8.50
INVESTMENT OPERATIONS:
Net investment income .04(a)
Net realized and unrealized
gain on investments .30
TOTAL FROM INVESTMENT OPERATIONS .34(a)
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain on investments --
TOTAL DISTRIBUTIONS --
NET ASSET VALUE, END OF PERIOD $8.84
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%)(b) 4.00(c)
NET ASSETS, END OF PERIOD (in thousands) $1,750
Ratio of expenses to average net assets (%) .20(a)(c)
Ratio of net investment income
to average net assets (%) .49(a)(c)
Portfolio turnover (%) 30.87(c)

* Unaudited.
+ Per share net investment income for the period January 3,
1995 (commencement of operations) to February 28, 1995 has
been determined on the basis of the weighted average number
of shares outstanding during the period.
(a) Reflects an expense limitation in effect during the period.
As a result of such limitation, expenses for the fund
reflect a reduction of $0.01 per share.
(b) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(c) Not annualized.
<PAGE>
PUTNAM BALANCED FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)

January 9, 1995
(commencement
of operations) to
March 31, 1995*+

NET ASSET VALUE, BEGINNING OF PERIOD $8.51
INVESTMENT OPERATIONS:
Net investment income .06(a)
Net realized and unrealized
gain on investments .60
TOTAL FROM INVESTMENT OPERATIONS .66(a)
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain on investments --
TOTAL DISTRIBUTIONS --
NET ASSET VALUE, END OF PERIOD $9.17
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%)(b) 7.76(c)
NET ASSETS, END OF PERIOD (in thousands) $1,693
Ratio of expenses to average net assets (%) .18(a)(c)
Ratio of net investment income
to average net assets (%) .77(a)(c)
Portfolio turnover (%) 35.35(c)

* Unaudited.
+ Per share net investment income for the period January 9,
1995 (commencement of operations) to March 31, 1995 has been
determined on the basis of the weighted average number of
shares outstanding during the period.
(a) Reflects an expense limitation in effect during the period.
As a result of such limitation, expenses for the fund
reflect a reduction of $0.05 per share.
(b) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(c) Not annualized.
<PAGE>
PUTNAM GLOBAL UTILITIES FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)

January 11, 1995
commencement
of operations) to
March 31, 1995*+

NET ASSET VALUE, BEGINNING OF PERIOD $8.05
INVESTMENT OPERATIONS:
Net investment income .06(a)
Net realized and unrealized
loss on investments .34(a)**
TOTAL FROM INVESTMENT OPERATIONS .40(a)
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain on investments --
TOTAL DISTRIBUTIONS --
NET ASSET VALUE, END OF PERIOD $8.45
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%)(b) 4.97(c)
NET ASSETS, END OF PERIOD (in thousands) $1,553
Ratio of expenses to average net assets (%) .01(c)
Ratio of net investment income
to average net assets (%) .70(c)
Portfolio turnover (%) 8.84(c)

* Unaudited.
** The per share amount does not correspond with the net
realized and unrealized loss for the fund for the period due
to the timing of the sales of fund shares and the amount of
per share realized and unrealized gains and losses at such
times.
+ Per share net investment income for the period January 11,
1995 (commencement of operations) to March 31, 1995 has been
determined on the basis of the weighted average number of
shares outstanding during the period.
(a) Reflects an expense limitation in effect during the period.
As a result of such limitation, expenses for the fund
reflect a reduction of $0.02 per share.
(b) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(c) Not annualized.
<PAGE>
PUTNAM REAL ESTATE OPPORTUNITIES FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)

January 3, 1995
(commencement
of operations)
to February 28,
1995*+

NET ASSET VALUE, BEGINNING OF PERIOD $8.50
INVESTMENT OPERATIONS:
Net investment income .06
Net realized and unrealized
loss on investments (.09)(a)
TOTAL FROM INVESTMENT OPERATIONS (.03)(a)
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain on investments --
TOTAL DISTRIBUTIONS --
NET ASSET VALUE, END OF PERIOD $8.47
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%)(b) (.35)
Net assets, end of period (in thousands) $1,557
Ratio of expenses to average net assets (%) .08(a)(c)
Ratio of net investment income
to average net assets (%) .71(a)(c)
Portfolio turnover (%) 33.64(c)

* Unaudited.
+ Per share net investment income for the period January 3,
1995 (commencement of operations) to February 28, 1995 has
been determined on the basis of the weighted average number
of shares outstanding during the period.
(a) Reflects an expense limitation in effect during the period.
As a result of such limitation, expenses for the fund
reflect a reduction of $0.02 per share.
(b) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(c) Not annualized.<PAGE>
OBJECTIVES

PUTNAM AMERICAN RENAISSANCE FUND seeks capital
appreciation.

PUTNAM BASIC VALUE FUND seeks long-term capital
appreciation.

PUTNAM BALANCED FUND seeks capital growth and current
income.

PUTNAM GLOBAL UTILITIES FUND seeks capital growth and
current income. The fund concentrates its investments in
securities issued by companies in the utilities industries.

PUTNAM REAL ESTATE OPPORTUNITIES FUND seeks capital
growth and current income. The fund concentrates its investments
in securities issued by companies in the real estate industries.

PUTNAM RESEARCH FUND seeks capital appreciation.

Each fund is represented by a separate series of shares of
beneficial interest and pursues its investment objective through
its separate investment policies. For more information about the
investment strategies employed by the funds, see "Common
investment policies and techniques" below. None of the funds is
intended to be a complete investment program, and there is no
assurance that any fund will achieve its objective.

HOW THE FUNDS PURSUE THEIR OBJECTIVES

PUTNAM AMERICAN RENAISSANCE FUND

The fund will invest primarily in common stocks of U.S. companies
that Putnam Investment Management, Inc., the fund's investment
manager ("Putnam Management"), believes will benefit from major,
long-term trends in the economy, business conditions, consumer
behavior or public perceptions of the environment. Putnam
Management attempts to identify these trends in their early
stages, and then attempts to identify the economic sectors that
may benefit from them. In selecting securities from these
sectors, Putnam Management will consider a variety of factors,
including an issuer's financial strength, competitive position
and projected future earnings. In addition, the fund may also
invest a portion of its assets in securities of companies that,
although not in any of the sectors that Putnam Management
believes may benefit from such trends, are expected to experience
above-average growth.

The fund is unlike most equity mutual funds in that its
investments will be comprised of a relatively small number of
issuers. Because Putnam Management evaluates securities for the
fund based on their potential for capital appreciation, the
fund's investments may not appreciate or yield significant income
over the shorter term, and as a result the fund's total return
over certain periods may be less than that of other equity mutual
funds. In addition, although the fund will not invest more than
25% of its assets in any one industry, the fund's emphasis on a
relatively limited number of sectors of the economy at any given
time may make the value of fund shares more susceptible to any
single economic, political or regulatory development than the
shares of a more widely diversified mutual fund. As a result,
the value of fund shares may fluctuate more than the shares of
other equity mutual funds. Achievement of the fund's goals will
be dependent not only on Putnam Management's ability to select
individual investments, but also on Putnam Management's ability
to accurately identify the long-term trends described above and
the economic sectors that will benefit from those trends.

Putnam Management expects that under normal market conditions the
fund will invest primarily in securities of issuers with equity
market capitalizations above $1 billion. However, the fund may
also invest in small to medium-sized companies that have equity
market capitalizations below this level. These companies will
generally have a proprietary product or profitable market niche
and the potential to grow very rapidly. Such companies may
present greater opportunities for capital appreciation, but may
also involve greater risk. They may have limited product lines,
markets or financial resources, or may depend on a limited
management group. Their securities may trade less frequently and
in limited volume, and only in the over-the-counter market or on
a regional securities exchange. As a result, these securities
may fluctuate in value more than those of larger, more
established companies.

Common stocks are normally the fund's main investments. However,
the fund may purchase preferred stocks, debt securities and
convertible securities (both bonds and preferred stocks) if
Putnam Management believes they would help achieve the fund's
objective of capital appreciation. These securities may include
securities in the lower-rated categories. Securities in the
lower-rated categories are considered to be primarily speculative
and may be in default. The fund may invest up to 35% of its
assets in securities in the lower-rated categories, and is not
subject to any other limitation based on securities ratings. The
fund may also invest up to 20% of its assets in securities
principally traded in foreign markets, engage in foreign currency
exchange transactions and transactions in futures contracts and
options, enter into repurchase agreements, loan its portfolio
securities and purchase securities for future delivery. See
"Common investment policies and techniques" below. The fund may
also hold a portion of its assets in cash or high-quality money
market instruments.

PUTNAM BASIC VALUE FUND

The fund will invest primarily in common stocks which Putnam
Management believes are undervalued at the time of
purchase and have the potential for long-term capital
appreciation. The fund is unlike most equity mutual funds in
that its investments will be comprised of a relatively small
number of issuers (currently expected to be approximately 40 to
50). Because Putnam Management evaluates securities for the fund
based on their long-term potential for capital appreciation, the
fund's investments may not appreciate or yield significant income
over the shorter term, and as a result the fund's total return
over certain periods may be less than that of other equity mutual
funds. Putnam Management's investment decisions may be contrary
to those of most other investors.

In selecting common stocks for the fund, Putnam Management will
consider, among other things, an issuer's financial strength,
competitive position and projected future earnings. The fund's
investments may include widely-traded common stocks of larger
companies as well as common stocks of smaller, less well known
companies. Small to medium-sized companies may present greater
opportunities for capital appreciation, but may also involve
greater risk. They may have limited product lines, markets or
financial resources, or may depend on a limited management group.
Their securities may trade less frequently and in limited volume,
and only in the over-the-counter market or on a regional
securities exchange. As a result, these securities may fluctuate
in value more than those of larger, more established companies.

Common stocks and other equity securities are normally the fund's
main investments. However, the fund may purchase preferred
stocks, debt securities and convertible securities (both bonds
and preferred stocks) if Putnam Management believes they would
help achieve the fund's objective of long-term capital
appreciation. These securities may include securities in the
lower-rated categories. Securities in the lower-rated categories
are considered to be primarily speculative and may be in default.
The fund may invest up to 35% of its assets in securities in the
lower-rated categories, and is not subject to any other
limitation based on securities ratings. The fund may also invest
in securities principally traded in foreign markets, engage in
foreign currency exchange transactions and transactions in
futures contracts and options, enter into repurchase agreements,
loan its portfolio securities and purchase securities for future
delivery. See "Common investment policies and techniques" below.
The fund may also hold a portion of its assets in cash or high-
quality money market instruments.
<PAGE>
PUTNAM BALANCED FUND

The fund will invest in a combination of equity and fixed-income
securities. The portion of the fund's assets invested in equity
securities and fixed-income securities will vary from time to
time in light of the fund's investment objective, changes in
interest rates, and economic and other factors. However, under
normal market conditions the fund expects to invest at least 25%
of its total assets in fixed-income securities, which for this
purpose includes debt securities, preferred stocks and that
portion of the value of convertible securities attributable to
the fixed-income characteristics of those securities. The fund
may also hold a portion of its assets in cash or high-quality
money market instruments.

In selecting equity securities for the fund's portfolio, Putnam
Management focuses on securities which it believes are
attractively priced and have good financial strength as well as
above average earnings potential. Although the fund's equity
investments will typically emphasize issuers with equity
market capitalizations in excess of $1 billion, the fund may also
invest in small to medium-sized companies that have equity
market capitalizations below this level. These companies
generally have a proprietary product or profitable market niche
and the potential to grow very rapidly. Such companies may
present greater opportunities for capital appreciation, but may
also involve greater risk. They may have limited product lines,
markets or financial resources, or may depend on a limited
management group. Their securities may trade less frequently and
in limited volume, and only in the over-the-counter market or on
a regional securities exchange. As a result, these securities
may fluctuate in value more than those of larger, more
established companies.

In selecting fixed-income securities for the fund's portfolio,
Putnam Management may take full advantage of the entire range of
fixed-income securities and may adjust the average maturity of
the fund's fixed-income investments from time to time depending
on its assessment of relative yields on securities of different
maturities and types and its expectations on future changes in
interest rates. The fund's investments in fixed-income
securities may include both government and corporate obligations.
Consistent with the fund's investment objective, the fund may
invest without limit in fixed-income securities rated at the time
of purchase at least B by Standard & Poor's ("S&P") or Moody's
Investors Service, Inc. ("Moody's"), or in unrated securities
determined by Putnam Management to be of comparable quality.
Securities in the lower-rated categories are considered to be
primarily speculative and may be in default. See "Common
investment policies and techniques -- Lower-rated fixed-income
securities" below.

The fund may also invest in securities principally traded in
foreign markets, engage in foreign currency exchange transactions
and transactions in futures contracts and options, enter into
repurchase agreements, loan its portfolio securities and purchase
securities for future delivery. See "Common investment policies
and techniques" below.

PUTNAM GLOBAL UTILITIES FUND

The fund seeks its objective by investing under normal market
conditions at least 65% of its total assets in equity securities
of companies principally engaged in the utilities industries.
The fund may at times invest up to 100% of its assets in
securities principally traded in securities markets outside the
United States, and will under normal market conditions invest its
assets in at least three different countries, one of which may be
the United States. The fund presently expects that it will
invest a significant portion of its assets in less developed and
developing nations, whose securities markets are sometimes
referred to as "emerging securities markets." See "Common
investment practices and techniques" below. In unusual market
circumstances where Putnam Management believes that foreign
investing may involve undue risks, 100% of the fund's assets may
be invested in the United States.

Companies in the utilities industries include companies engaged
in the manufacture, production, generation, transmission, sale or
distribution of electric or gas energy or other types of energy
and companies engaged in telecommunications, including telephone,
telegraph, satellite, microwave, cable and other communications
media. Putnam Management deems a particular company to be
"principally engaged" in the utilities industries if at the time
of investment Putnam Management determines that at least 50% of
the company's assets, revenues or profits are derived from one or
more of those industries. The fund may also invest in securities
of issuers in other industries if Putnam Management believes they
will help achieve the fund's objective.

Common stocks and other equity securities are normally the fund's
main investments. However, the fund may purchase preferred
stocks, debt securities and convertible securities (both bonds
and preferred stocks) if Putnam Management believes they would
help achieve the fund's objective. These securities may include
securities in the lower-rated categories. Securities in the
lower-rated categories are considered to be primarily speculative
and may be in default. The fund may also engage in foreign
currency exchange transactions and transactions in futures
contracts and options, enter into repurchase agreements, loan its
portfolio securities and purchase securities for future delivery.
See "Common investment policies and techniques" below. The fund
may also hold a portion of its assets in cash or high-quality
money market instruments.

RISK FACTORS. Since the fund's investments are concentrated in
the utilities industries, the value of its shares can be expected
to change in light of factors affecting those industries, and may
fluctuate more widely than the value of shares of a portfolio
that invests in a broader range of industries. Many utility
companies, especially electric, gas and other energy-related
utility companies, have historically been subject to risks of
increases in fuel and other operating costs, changes in interest
rates on borrowings for capital improvement programs, changes in
applicable laws and regulations, changes in technology which may
render existing plants, equipment or products obsolete, the
effects of energy conservation and operating constraints, and
increased costs and delays associated with compliance with
environmental regulations. In particular, regulatory changes
with respect to nuclear and conventionally-fueled power
generating facilities could increase costs or impair the ability
of utility companies to operate such facilities or obtain
adequate return on invested capital. Generally, prices charged
by utilities are regulated in the United States and in foreign
countries with the intention of protecting the public while
ensuring that utility companies earn a return sufficient to allow
them to attract capital in order to grow and continue to provide
appropriate services. There can be no assurance that such
pricing policies or rates of return will continue in the future.

In recent years, regulatory changes in the United States have
increasingly allowed utility companies to provide services and
products outside their traditional geographic areas and lines of
business, creating new areas of competition within the utilities
industries. This trend toward deregulation and the emergence of
new entrants have caused non-regulated providers of utility
services to become a significant part of the utilities
industries. Putnam Management believes that the emergence of
competition and deregulation will result in certain utility
companies being able to earn more than their traditional
regulated rates of return, while others may be forced to defend
their core business from increased competition and may be less
profitable. Although Putnam Management seeks to take advantage
of favorable investment opportunities that may arise from these
structural changes, there can be no assurance that the fund will
benefit from any such changes.

Foreign utility companies may also be subject to regulation,
which may differ substantially from that in the United States.
Foreign utility companies may be more heavily regulated than U.S.
utility companies and, as in the United States, generally are
required to seek government approval for rate increases. In
addition, many foreign utilities use fuels that cause more
pollution than those used in the United States, which may require
such utilities to invest in pollution control equipment or switch
to more expensive fuels to meet any future pollution
restrictions. Foreign regulatory systems vary from country to
country and may evolve in ways different from regulation in the
United States.

Securities of foreign utility companies often have lower dividend
yields than securities of U.S. utility companies, although such
securities may have greater potential for capital appreciation.
In addition, the markets for such securities are often less
liquid and more volatile than U.S. markets. There is currently a
relatively limited amount of such securities available for
investment by the fund, and the fund's ability to invest its
assets outside the United States may therefore be limited. The
fund's investments in foreign issuers may include recently
privatized enterprises. The ability of foreign entities, such as
the fund, to participate in privatization may be limited by local
law, or the price or terms on which the fund may be able to
participate may be less advantageous than for local investors.
Moreover, there can be no assurance that governments that have
embarked on privatization programs will continue to divest their
ownership of state enterprises, that proposed privatizations will
be successful or that governments will not re-nationalize
enterprises that have been privatized. Furthermore, in the case
of certain of the enterprises in which the fund may invest, large
blocks of the stock of those enterprises may be held by a small
group of stockholders, even after the initial equity offerings by
those enterprises. The sale of some portion or all of those
blocks could have an adverse effect on the price of the stock of
any such enterprise.

PUTNAM REAL ESTATE OPPORTUNITIES FUND

Under normal market conditions, the fund will invest at least 65%
of its total assets in securities of companies principally
engaged in the real estate industries. Examples of companies in
the real estate industries include real estate investment trusts
(REITs), real estate developers, mortgage lenders and servicers,
construction companies and building material suppliers. Putnam
Management deems a particular company to be "principally engaged"
in the real estate industries if at the time of investment Putnam
Management determines that at least 50% of the company's assets,
revenues or profits are derived from businesses related to real
estate.

The fund expects to invest primarily in common stocks that have
the potential for capital appreciation, current income, or both.
However, the fund may purchase preferred stocks, debt securities,
convertible securities (both bonds and preferred stocks) and
warrants if Putnam Management believes they would help achieve
the fund's objective. These securities may include securities in
the lower-rated categories. Securities in the lower-rated
categories are considered to be primarily speculative and may be
in default. The fund may also invest in securities principally
traded in foreign markets, engage in foreign currency exchange
transactions and transactions in futures contracts and options,
enter into repurchase agreements, loan its portfolio securities
and purchase securities for future delivery. See "Common
investment policies and techniques" below. The fund may also
hold a portion of its assets in cash or high-quality money market
instruments.

RISK FACTORS. Since the fund's investments are concentrated in
the real estate industries, the value of its shares can be
expected to change in light of factors affecting those
industries, and may fluctuate more widely than the value of
shares of a portfolio that invests in a broader range of
industries. Factors affecting the performance of real estate
ventures or securities issued by companies engaged in businesses
related to real estate may include excess supply of real property
in certain markets, changes in zoning laws, completion of
construction, changes in real estate value and property taxes,
sufficient level of occupancy, adequate rent to cover operating
expenses, and local and regional markets for competing assets.
In addition, like the performance of other commercial ventures or
the securities issued by companies in industries unrelated to
real estate, the performance of real estate ventures and
securities issued by companies in the real estate industries may
be affected by changes in interest rates, prudent management of
insurance risks, adequacy of financing available in capital
markets, competent management, changes in applicable laws and
governmental regulations (including taxes), and social and
economic trends.

It is currently expected that equity REITs, which own real estate
directly, will represent a substantial portion of the fund's
investments in REITs. The fund may also invest in mortgage
REITs, which make construction, development or long-term mortgage
loans, and hybrid REITs, which share characteristics of equity
REITs and mortgage REITs. Equity REITs will be affected by
changes in the value of the underlying property owned by the
REITs, while mortgage REITs will be affected by the value of the
properties to which they have extended credit. REITs are
dependent upon the skill of each REIT's management, may not be
diversified and are subject to the risks of financing projects.

The fund could under certain circumstances own real estate
directly as a result of a default on debt securities it owns. If
the fund has rental income or income from the direct disposition
of real property, the receipt of such income may adversely affect
its ability to retain its tax status as a regulated investment
company. See "Distribution and taxes" below. REITs are also
subject to substantial cash flow dependency, defaults by
borrowers, self-liquidation and the risk of failing to qualify
for tax-free pass-through of income under the Internal Revenue
Code and/or to maintain exemption from the Investment Company Act
of 1940. By investing in REITs indirectly through the fund, a
shareholder bears not only a proportionate share of the expenses
of the fund, but also, indirectly, similar expenses of the REITs.

PUTNAM RESEARCH FUND

The fund invests primarily in common stocks recommended by Putnam
Management's Equity Research Department as having the greatest
potential for capital appreciation. Because the analysts in
Putnam Management's Equity Research Department emphasize
fundamental analysis, Putnam Management, when selecting
securities for the fund, will focus primarily on individual
securities rather than sector or industry weightings.
Notwithstanding this focus on individual securities, Putnam
Management currently expects that the fund's portfolio will
invest in securities representing most (and at times possibly
all) of the sectors included in the Standard & Poor's 500
Composite Stock Price Index. The fund is not an index fund and
its portfolio is not intended to replicate the index.

Putnam Management expects that under normal market conditions the
fund will invest primarily in securities of issuers with market
capitalizations above $500 million. From time to time, however,
a portion of the fund's assets may be invested in securities of
companies with equity market capitalizations below this level.
These companies may present greater opportunities for capital
appreciation, but may also involve greater risks. They may have
limited product lines, markets or financial resources, or may
depend on a limited management group. Their securities may trade
less frequently and in limited volume. As a result, the prices
of these securities may fluctuate more than prices of securities
of larger, more established companies.

COMMON INVESTMENT POLICIES AND TECHNIQUES

FOREIGN INVESTMENTS. Each of Putnam American Renaissance
Fund, Putnam Basic Value Fund, Putnam Balanced Fund ,
Putnam Real Estate Opportunities Fund and Putnam Research
Fund may invest up to 20% of its assets in securities principally
traded in foreign markets. Each such fund may also purchase
Eurodollar certificates of deposit without regard to the 20%
limit. Putnam Global Utilities Fund may invest without limit in
securities principally traded in foreign markets.

Since foreign securities are normally denominated and traded in
foreign currencies, the value of a 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 with 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 those in the United States. Foreign
settlement procedures and trade regulations may involve certain
risks (such as delay in payment or delivery of securities or in
the recovery of a fund's assets held abroad) and expenses not
present in the settlement of domestic investments.

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
investments in securities of certain issuers located in
those foreign countries. Special tax considerations apply to
foreign securities.

The risks described above, including the risks of nationalization
or expropriation of assets, are typically increased to the extent
that a fund invests in issuers located in less developed and
developing nations, whose securities markets are sometimes
referred to as "emerging securities markets." Investments in
securities located in such countries are speculative and subject
to certain special risks. Political and economic structures in
many of these countries may be in their infancy and developing
rapidly, and such countries may lack the social, political and
economic stability characteristic of more developed countries.
Certain of these countries have in the past failed to recognize
private property rights and have at times nationalized or
expropriated the assets of private companies. In addition,
unanticipated political or social developments may affect the
values of the fund's investments in these countries and the
availability to the fund of additional investments in these
countries. The small size, limited trading volume and relative
inexperience of the securities markets in these countries may
make the fund's investments in such countries illiquid and more
volatile than investments in more developed countries, and the
fund may be required to establish special custodial or other
arrangements before making investments in these countries. There
may be little financial or accounting information available with
respect to issuers located in these countries, and it may be
difficult as a result to assess the value or prospects of an
investment in such issuers.

A MORE DETAILED EXPLANATION OF FOREIGN INVESTMENTS, AND THE RISKS
AND SPECIAL TAX CONSIDERATIONS ASSOCIATED WITH THEM, IS INCLUDED
IN THE SAI.

FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Putnam Management may
engage in foreign currency exchange transactions to protect
against uncertainty in the level of future exchange rates.
Putnam Management may engage in foreign currency exchange
transactions in connection with the purchase and sale of
portfolio securities ("transaction hedging") and to protect the
value of specific portfolio positions ("position hedging").

Each fund may engage in transaction hedging to protect against a
change in the foreign currency exchange rate between the date on
which the fund contracts to purchase or sell the security and the
settlement date, or to "lock in" the U.S. dollar equivalent of a
dividend or interest payment in a foreign currency. Each fund
may purchase or sell a foreign currency on a spot (or cash) basis
at the prevailing spot rate as part of its transaction hedging
strategies. If conditions warrant, each fund may also enter into
contracts to purchase or sell foreign currencies at a future date
("forward contracts") and may purchase and sell foreign currency
futures contracts as part of its transaction hedging strategies.
A foreign currency forward contract is a negotiated agreement to
exchange currency at a future time at a rate or rates that may be
higher or lower than the spot rate. Foreign currency futures
contracts are standardized exchange-traded contracts and have
margin requirements. Each fund may also purchase exchange-listed
and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies.

Each fund may engage in "position hedging" to protect against the
decline in the value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or
quoted (or an increase in the value of the foreign currencies for
securities which the fund intends to buy, when the fund holds
cash reserves or short-term investments). For position hedging
purposes, each fund may purchase or sell foreign currency futures
contracts, foreign currency forward contracts, and put and call
options on foreign currency futures contracts and on foreign
currencies on exchanges or over-the-counter markets. In
connection with position hedging, each fund may also purchase or
sell foreign currencies on a spot basis.

Each fund's currency hedging transactions may call for the
delivery of one foreign currency in exchange for another foreign
currency and may at times involve currencies other than those in
which its portfolio securities are then denominated. Putnam
Management will engage in such "cross hedging" activities when it
believes that such transactions provide significant hedging
opportunities for a fund. Cross hedging transactions by a fund
involve the risk of imperfect correlation between changes in the
values of the currencies to which such transactions relate and
changes in the value of the currency or other asset or liability
which is the subject of the hedge.

Hedging transactions involve costs and may result in losses.
There is no assurance that appropriate foreign currency exchange
transactions will be available with respect to all currencies in
which a fund's investments may be denominated. A fund's ability
to engage in hedging transactions may be limited by tax
considerations. A fund's hedging transactions may affect the
character or amount of its distributions.

LOWER-RATED FIXED-INCOME SECURITIES. Lower-rated fixed-income
securities are generally regarded as those rated below Baa by
Moody's or BBB by S&P or securities of comparable quality as
determined by Putnam Management. These securities are often
referred to as "junk bonds." Securities rated Baa or BBB, while
considered investment-grade, are more vulnerable to adverse
economic conditions than securities in the higher rating
categories and have speculative elements. Although the values of
fixed-income securities generally fluctuate with movements in
interest rates, the values of lower-rated fixed-income securities
generally fluctuate more than those of higher-rated fixed-income
securities. In addition, the lower rating reflects a greater
possibility that the financial condition of the issuer, or
adverse changes in general economic conditions, or both, may
impair the ability of the issuer to make payments of interest and
repayments of principal. The rating services' descriptions of
fixed-income securities are included in the Appendix to this
prospectus. A 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.

At times, some or all of each fund's fixed-income investments may
include securities as to which that 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.
Under adverse market or economic conditions or in the event of
adverse changes in the financial condition of the issuer, a 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 a 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.

Putnam Management seeks to minimize the risks of investing in
lower-rated securities through investment analysis and attention
to current developments in interest rates and economic
conditions. The lower ratings of certain fixed-income securities
held by a fund reflect a greater possibility that adverse changes
in the financial condition of their issuers, or in general
economic conditions, or both, or an unanticipated rise in
interest rates, may impair the ability of their issuers to make
payments of interest and principal. In addition, under such
circumstances the values of such securities may be more volatile,
and the markets for such securities may be less liquid, than
those for higher-rated securities, and the fund may as a result
find it more difficult to determine the fair value of such
securities. When a fund invests in fixed-income securities in
the lower rating categories, the achievement of its goals is more
dependent on Putnam Management's investment analysis than would
be the case if the fund were investing in fixed-income securities
in the higher rating categories.

Each 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 value of zero-coupon bonds is subject
to greater fluctuation in response to changes in market interest
rates than bonds which 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. Even though such bonds do not pay current
interest in cash, a fund is nonetheless required to accrue
interest income on such investments and to distribute such
amounts at least annually to shareholders. Thus, a fund could be
required at times to liquidate other investments in order to
satisfy its distribution requirements.

Certain securities held by a fund may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were
to redeem securities held by a fund during a time of declining
interest rates, the fund might not be able to reinvest the
proceeds in securities providing the same investment return as
the securities redeemed.

For additional information concerning the risks associated with
investment by a fund in securities in the lower rating
categories, see the SAI.

PORTFOLIO TURNOVER. The length of time a fund has held a
particular security is not generally a consideration in
investment decisions. A change in the securities held by a fund
is known as "portfolio turnover." As a result of a fund's
investment policies, under certain market conditions a fund's
portfolio turnover rate may be higher than that of other mutual
funds. Portfolio turnover generally involves some expense to a
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 portfolio turnover rates , based on
its experience, Putnam Management believes that such rate will
not exceed 200%.

DEFENSIVE STRATEGIES. At times Putnam Management may judge that
conditions in the securities markets make pursuing the basic
investment strategy of one or more of the funds inconsistent with
the best interests of such fund's shareholders. At such times
Putnam Management may temporarily use alternative strategies,
primarily designed to reduce fluctuations in the value of such
fund's assets. In implementing these "defensive" strategies, a
fund may invest without limit in cash or money market
instruments, preferred stocks, debt securities issued by the
U.S. government or its agencies or instrumentalities, or in any
other securities Putnam Management considers consistent with such
defensive strategies. In addition, when pursuing such defensive
strategies, Putnam Global Utilities Fund may invest without limit
in securities primarily traded in U.S. markets. It is impossible
to predict when, or for how long, any of the funds will use
alternative strategies.

DIVERSIFICATION. Each fund is a "diversified" investment company
under the Investment Company Act of 1940. This means that with
respect to 75% of its total assets each fund may not invest more
than 5% of its total assets in the securities of any one issuer
(except U.S. government securities). The remaining 25% of each
fund's total assets is not subject to this restriction. To the
extent a fund invests a significant portion of its assets in the
securities of a particular issuer, such fund will be subject to
an increased risk of loss if the market value of such issuer's
securities declines.

FINANCIAL FUTURES AND RELATED OPTIONS. Each fund may buy and
sell financial futures contracts on stock indexes and foreign
currencies, and each fund (other than the American
Renaissance, Basic Value and Research funds) may buy
and sell financial futures contracts on U.S. Government
securities and foreign fixed-income securities. A futures
contract is a contract to buy or sell units of a particular stock
index, or a certain amount of a U.S. Government security, foreign
fixed-income security or foreign currency, at an agreed price on
a specified future date. Depending on the change in value of the
index, security or currency between the time when a fund enters
into and terminates a futures contract, such fund realizes a gain
or loss. Each fund may purchase and sell futures contracts for
hedging purposes and to adjust its exposure to the relevant stock
or bond markets. For example, when Putnam Management wants to
increase Putnam Balanced Fund's exposure to equity securities, it
may do so by taking long positions in futures contracts on equity
indices such as futures contracts on the Standard & Poor's 500
Composite Stock Price Index. Similarly, when Putnam Management
wants to increase the fund's exposure to fixed-income securities,
it may do so by taking long positions in futures contracts
relating to fixed-income securities such as futures contracts on
U.S. Treasury bonds or notes. Each fund may buy and sell call
and put options on futures contracts or on stock indices 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.

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 stock index, 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 a 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. A
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 and options on
futures for purposes other than hedging may be regarded as
speculative. Because the markets for options and futures on
foreign fixed-income securities and foreign currencies are
relatively new and still developing, each fund's ability to
engage in such transactions may be limited. Certain provisions
of the Internal Revenue Code and certain regulatory requirements
may also limit a 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 SAI.

OPTIONS. Each 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. A 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 a 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, a 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. A fund may terminate an option that it has
written prior to its expiration by entering into a closing
purchase transaction in which it purchases an option having the
same terms as the option written. Each fund may also buy and
sell put and call options for hedging purposes. Each 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 a fund's assets. Each fund's use
of these strategies may be limited by applicable law.

SECURITIES LOANS, REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS.
Each 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. Each
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 a fund
if the other party should default on its obligation and such fund
is delayed or prevented from recovering the collateral or
completing the transaction.

DERIVATIVES

Certain of the instruments in which each fund will 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.

LIMITING INVESTMENT RISK. Specific investment restrictions help
each fund limit investment risks for its shareholders. These
restrictions prohibit each fund from investing more than:

(a) with respect to 75% of its total assets, 5% of its total
assets in securities of any one issuer, other than the U.S.
government, its agencies or instrumentalities;*

(b) 25% of its total assets in any one industry, except that
under normal market conditions Putnam Real Estate Opportunities
Fund will invest more than 25% of its total assets in issuers in
the real estate group of industries and Putnam Global Utilities
Fund will invest more than 25% of its total assets in issuers in
the utilities group of industries;* 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 Trust's Trustees
(or the person designated by the Trust'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 SAI for the full text
of these policies and the funds' other fundamental investment
policies. 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 policies without shareholder approval. As
a matter of policy, the Trustees would not materially change a
fund's investment objective without shareholder approval.

HOW PERFORMANCE IS SHOWN

A 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 the period. 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 a class, if shorter) through the most recent calendar
quarter represents the average annual compounded rate of return
on an investment of $1,000 in a fund invested at the maximum
public offering price. 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 the
sales charge were used.

ALL DATA ARE BASED ON PAST INVESTMENT RESULTS AND
DO NOT PREDICT FUTURE PERFORMANCE.

Investment performance, which will vary, is based on many
factors, including market conditions, the composition of a fund's
portfolio, a fund's operating expenses and which class of shares
the investor purchases . Investment performance also often
reflects the risks associated with each fund's investment
objective and policies. These factors should be considered when
comparing a fund's investment results with those of other
mutual funds and other investment vehicles.

Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. Each fund's performance may
be compared to that of various indexes . See the
SAI.

HOW THE FUNDS ARE MANAGED

THE TRUSTEES OF THE TRUST ARE RESPONSIBLE FOR GENERALLY
OVERSEEING THE CONDUCT OF EACH FUND'S BUSINESS. Subject to such
policies as the Trustees may determine, Putnam Management
furnishes a continuing investment program for each fund and makes
investment decisions on its behalf. Subject to the control of
the Trustees, Putnam Management also manages the funds' other
affairs and business.

Each fund pays Putnam Management a quarterly fee for these
services based on the fund's average net assets. See "Expenses
summary" and the SAI.

The following officers of Putnam Management have had
primary responsibility for the day-to-day management of
the indicated funds' portfolios since the year stated below:

Business experience
Year (at least 5 years)
------ -----------------
Thomas R. Bogan 1995 Employed as an investment
Senior Vice President professional by Putnam
Research fund Management since 1994.
Prior to November, 1994,
Mr. Bogan was Senior
Analyst of Lord, Abbett &
Co.

David L. King 1994 Employed as an investment
Senior Vice President professional by Putnam
Basic Value fund Management since 1983.
<PAGE>
Carol C. McMullen 1995 Employed as an investment
Managing Director professional by Putnam
American Renaissance Management since 1995. Prior
fund to June, 1995, Ms. McMullen
was Senior Vice President and
Senior Portfolio Manager of
Baring Asset Management.

Jeanne L. Mockard 1994 Employed as an investment
Senior Vice President professional by Putnam
Real Estate Opportunities Management since 1990.
fund

C. Patrick O'Donnell 1995 Employed as an investment
Managing Director professional by Putnam
Research fund Management since 1994.
Prior to May, 1994, Mr.
O'Donnell was the founder and
President of Exeter Research
Inc.

David J. Santos 1994 Employed as an investment
Vice President professional by Putnam
Balanced fund Management since 1986.

Sheldon N. Simon
1994 Employed as an investment
Senior Vice President professional by Putnam

Global Utilities fund Management since 1984.

Kenneth J. Taubes 1994 Employed as an investment
Senior Vice President professional by Putnam
Balanced fund Management since 1991.
Prior
to June, 1991, Mr. Taubes was
Senior Vice President of
the Finance Division of U.S.
Trust Company

Each fund pays its share of 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. The fund also
reimburses Putnam Management for a portion of the
compensation and related expenses of certain officers of the
Trust and their staff who provide administrative services to the
Trust . The total reimbursement is determined annually by
the Trustees.

Putnam Management places all orders for purchases and sales of
the funds' 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 funds (and, if permitted by law, of the
other Putnam funds) as a factor in the selection of broker-
dealers.

Under a Management Contract dated December 2, 1994, as revised
July 14, 1995, the Trust pays a quarterly fee to Putnam
Management based on the average net assets of each fund, as
determined at the close of each business day during the quarter,
at the following annual rates, expressed as a percentage of each
fund's average net assets: Putnam Balanced Fund and Putnam
Research Fund - 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%
thereafter; Putnam American Renaissance Fund, Putnam Basic Value
Fund and Putnam Real Estate Opportunities Fund - 0.70% of the
first $500 million, 0.60% of the next $500 million, 0.55% of the
next $500 million, 0.50% of the next $5 billion, 0.475% of the
next $5 billion, 0.455% of the next $5 billion, 0.44% of the next
$5 billion, and 0.43% thereafter; and Putnam Global Utilities
Fund - 0.80% of the first $500 million, 0.70% of the next $500
million, 0.65% of the next $500 million, 0.60% of the next $5
billion, 0.575% of the next $5 billion, 0.555% of the next $5
billion, 0.54% of the next $5 billion, and 0.53% thereafter.

In order to limit the funds' expenses during their start-up
periods, Putnam Management has agreed to limit its compensation
(and, to the extent necessary, bear other expenses) through June
30, 1996 for Putnam American Renaissance Fund and Putnam Research
Fund and through December 31, 1995 for Putnam Basic Value Fund,
Putnam Balanced Fund, Putnam Global Utilities Fund and Putnam
Real Estate Opportunities Fund, to the extent that expenses of a
fund (exclusive of brokerage, interest, taxes, deferred
organizational and extraordinary expense, and payments under the
Trust's Distribution Plan) would exceed the following annual
rates, expressed as a percentage of each fund's average net
assets: Putnam American Renaissance Fund, Putnam Basic Value
Fund, Putnam Real Estate Opportunities Fund and Putnam Research
Fund, 1.00%; Putnam Balanced Fund, 0.70%; and Putnam Global
Utilities Fund, 0.60%. For the purpose of determining any such
limitation on Putnam Management's compensation, fund expenses
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.

ORGANIZATION AND HISTORY

The Trust is a Massachusetts business trust organized on October
31, 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. As of
September 30 , 1995, Putnam Investments, Inc. owned more
than 25% of the shares of each of the funds and therefore may be
deemed to "control" each of the funds. Prior to January 6, 1995,
the Trust was known as Putnam Equity Funds.

The Trust is an open-end, diversified, management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the Trust may, without
shareholder approval, be divided into two or more series of
shares representing separate investment portfolios and are
currently divided into seven series of shares. Only
shares of Putnam American Renaissance Fund, Putnam Basic
Value Fund, Putnam Balanced Fund, Putnam Global Utilities Fund
, Putnam Real Estate Opportunities Fund and Putnam
Research Fund are offered by this prospectus. Any such
series of shares may be further 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 Trustees currently have
authorized the issuance of four classes of shares. Only class A
shares are currently being offered by the funds.

Each share has one vote, with fractional shares voting
proportionally. Shares of each fund 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 a fund were
liquidated, would receive the net assets of that fund. The funds
may suspend the sale of shares at any time and may refuse any
order to purchase shares. Although the Trust is not required to
hold annual meetings of its shareholders, shareholders holding at
least 10% of the outstanding shares entitled to vote have the
right to call a meeting to elect or remove Trustees, or to take
other actions as provided in the Agreement and Declaration of
Trust.

If you own fewer shares than a minimum amount set by the Trustees
(presently 20 shares), a fund may choose to redeem your shares
and pay you for them. You will receive at least 30 days' written
notice before a fund redeems your shares, and you may purchase
additional shares at any time to avoid a redemption. A fund may
also redeem shares if you own shares above a maximum amount set
by the Trustees. There is presently no maximum, but the Trustees
may establish one at any time, which could apply to both present
and future shareholders.

THE TRUSTEES OF THE TRUST : 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, 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
Institute 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 Trustees of the Trust are also
Trustees of the other Putnam funds. Those marked with an
asterisk (*) are or may be deemed to be "interested persons" of
the Trust, Putnam Management or Putnam Mutual Funds.

ABOUT YOUR INVESTMENT

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 write a check for the amount you wish to
invest, payable to the fund . Return the completed form
and check 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.

The public offering price of shares is the net asset value plus a
sales charge that varies depending on the size of your
purchase . The fund receives the net asset value.
The sales charge is allocated between your investment
dealer and Putnam Mutual Funds as shown in the following table,
except when Putnam Mutual Funds, in its discretion, allocates the
entire amount to your investment dealer.

SALES CHARGE AMOUNT OF
AS A PERCENTAGE OF: SALES CHARGE
------------------- REALLOWED TO
NET DEALERS AS A
AMOUNT OF TRANSACTION AMOUNT OFFERING PERCENTAGE OF
AT OFFERING PRICE ($) INVESTED PRICE OFFERING PRICE
- -----------------------------------------------------------------

Under 50,000 6.10% 5.75% 5.00%
50,000 but under 100,000 4.71 4.50 3.75
100,000 but under 250,000 3.63 3.50 2.75
250,000 but under 500,000 2.56 2.50 2.00
500,000 but under 1,000,000 2.04 2.00 1.75
- ------------------------- ---------------------------------
- -------

There is no initial sales charge on purchases of shares
of $1 million or more. However, a contingent deferred sales
charge ("CDSC") of 1.00% or 0.50%, respectively, will be
imposed if you redeem these 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, there are no sales charges on shares
purchased by participant-directed employee benefit plans with
at least 200 eligible employees (prior to December 1, 1995, of
companies with more than 750 employees).

Shares purchased by certain investors investing $1 million or
more who 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, a fund will first redeem shares not subject to any
charge. Putnam Mutual Funds receives the entire amount of any
CDSC you pay. See the SAI for more information about the CDSC.

Except as stated below, Putnam Mutual Funds pays investment
dealers of record commissions on sales of fund 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 with at least
200 eligible employees, or prior to December 1, 1995, a plan
sponsored by an employer with more than 750 employees), Putnam
Mutual Funds pays commissions during each one-year measuring
period, determined as described above, at the rate of 1.00% of
the first $2 million, 0.80% of the next $1 million and 0.50%
thereafter, except that commissions on sales prior to December 1,
1995 are based on cumulative purchases during the life of the
account and are paid 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%.

GENERAL

YOU MAY BE ELIGIBLE TO BUY 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 SAI.

A participant-directed employee benefit plan participating in
a "multi-fund" program approved by Putnam Mutual Funds may
include amounts invested in the other mutual funds participating
in such program for purposes of determining whether the plan may
purchase class A shares at net asset value . These
investments will also be included for purposes of the discount
privileges and programs described above.

Each fund may sell shares at net asset value without an
initial sales charge or a CDSC to a 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, 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, a fund may sell shares at net asset value
without an initial sales charge or a CDSC in connection with the
acquisition by a 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. See the SAI.

Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
shares of the funds 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 a 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, no fund will issue share
certificates. Putnam Mutual Funds will from time to time, at its
expense, provide additional promotional incentives or payments to
dealers that sell shares of the Putnam funds. These incentives
or payments may include payments for travel expenses, including
lodging, incurred in connection with trips taken by invited
registered representatives and their guests to locations within
and outside the United States for meetings or seminars of a
business nature. In some instances, these incentives or payments
may be offered only to certain dealers who have sold or may sell
significant amounts of shares.

DISTRIBUTION PLAN

The Trust has adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940, although the
Trust is not currently making any payments pursuant to the
plan . The purpose of the plan is to permit the
Trust to compensate Putnam Mutual Funds for services provided and
expenses incurred by it in promoting the sale of shares of the
funds, reducing redemptions, or maintaining or providing services
provided to shareholders by Putnam Mutual Funds or dealers.

The plan provides for payments by the funds to Putnam
Mutual Funds at the annual rate of up to 0.35% of a fund's
average net assets, subject to the authority of the 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. 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

You can sell your shares to a fund any day the New York Stock
Exchange is open, either directly to a fund or through your
investment dealer. A fund will only redeem shares for which it
has received payment.

SELLING SHARES DIRECTLY TO A FUND. Send a signed letter of
instruction or stock power form to Putnam Investor Services. The
price you will receive is the next net asset value calculated
after a fund receives your request in proper form less any
applicable CDSC. In order to receive that day's net asset value,
Putnam Investor Services must receive your request before the
close of regular trading on the New York Stock Exchange.

If you sell shares having a net asset value of $100,000 or
more, the signatures of registered owners or their legal
representatives must be guaranteed by a bank, broker-dealer or
certain other financial institutions. See the SAI for more
information about where to obtain a signature guarantee. Stock
power forms are available from your investment dealer, Putnam
Investor Services and many commercial banks.

If you want your redemption proceeds sent to an address other
than your address as it appears on Putnam's records, a signature
guarantee is required. Putnam Investor Services usually requires
additional documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or a surviving joint owner.
Contact Putnam Investor Services for details.

A FUND GENERALLY SENDS YOU PAYMENT FOR YOUR SHARES THE BUSINESS
DAY AFTER YOUR REQUEST IS RECEIVED. Under unusual circumstances,
a fund may suspend redemptions, or postpone payment for more than
seven days, as permitted by federal securities law.

You may use Putnam's Telephone Redemption Privilege to redeem
shares valued up to $100,000 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 this event, you may wish to
submit a written redemption request, as described above, or
contact your investment dealer, as described below. The
Telephone Redemption Privilege 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 certain other Putnam
funds at net asset value beginning 15 days after purchase. To
exchange your shares, simply complete an Exchange Authorization
Form and send it to Putnam Investor Services. The form is
available from Putnam Investor Services. For federal
income tax purposes, an exchange is treated as a sale of shares
and generally results in a capital gain or loss. A Telephone
Exchange Privilege is currently available for amounts up to
$500,000. Putnam Investor Services' procedures for telephonic
transactions are described above under "How to sell shares." 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 a fund, a 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 SAI to find out more about the
exchange privilege.

HOW A FUND VALUES ITS SHARES

A FUND CALCULATES THE NET ASSET VALUE OF A SHARE 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 A FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS ; TAX
INFORMATION

Putnam American Renaissance Fund, Putnam Basic Value Fund
and Putnam Research Fund distribute any net investment
income and any net realized capital gains at least annually.
Putnam Balanced Fund, Putnam Global Utilities Fund and Putnam
Real Estate Opportunities Fund distribute any net investment
income at least quarterly and any net realized capital gains at
least annually. Any net capital gains will be distributed at
least annually. Capital gains distributions are made after
applying any available capital loss carryovers.

YOU CAN CHOOSE FROM THREE DISTRIBUTION OPTIONS:

- Reinvest
all
distributions
from a fund in
additional
shares of that
fund without a
sales charge;

- Receive
distributions
from net
investment
income in cash
while
reinvesting net
capital gains
distributions
in additional
shares of that
fund without a
sales charge;
or

- Receive all
distributions
in cash.

You can change your distribution option by notifying Putnam
Investor Services in writing. If you do not select an option
when you open your account, all distributions will be reinvested.
You will receive a statement confirming reinvestment of
distributions from a fund in additional shares of that fund (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 a fund or Putnam Investor Services is
returned as "undeliverable," fund distributions will
automatically be reinvested in that fund or in another Putnam
fund.

Each fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements necessary for it to be relieved of federal
taxes on income and gains it distributes to shareholders. Each
fund will distribute substantially all of its ordinary income and
capital gain net income on a current basis.

Each fund's 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 your fund will notify you of the amount and
tax status of distributions paid to you by the fund for the
preceding year.

A fund's transactions in foreign currencies and hedging
activities may produce a difference between its book income and
taxable income. This difference may cause a portion of the
fund's income distributions to constitute a return of capital for
tax purposes or require the fund to make distributions exceeding
book income to qualify as a regulated investment company.

If at the end of each fiscal year of a fund, more than 50% of the
value of the fund's total assets is represented by securities of
foreign corporations, each fund intends to make an election
permitted by the Internal Revenue Code so that shareholders who
are U.S. citizens or U.S. corporations may claim a foreign tax
credit or deduction (but not both) on their U.S. income tax
returns.

For corporate shareholders, any distributions received by Putnam
Real Estate Opportunities Fund from real estate investment trusts
will not qualify for the corporate dividends-received deduction.
Putnam Real Estate Opportunities Fund's investments in REIT
equity securities 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. The fund's investments in REIT equity
securities may at other times result in the fund's receipt of
cash in excess of the REIT's earnings; if the fund distributes
such amounts, such distribution would constitute a return of
capital to fund shareholders for federal income tax purposes.

The foregoing is a summary of certain federal income tax
consequences of investing in a fund. You should consult your tax
adviser to determine the precise effect of an investment in a
fund on your particular tax situation (including possible
liability for state and local taxes).

ABOUT PUTNAM INVESTMENTS, INC .

Putnam Management has been managing mutual funds since 1937.
Putnam Mutual Funds is the principal underwriter of the
Trust 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>
APPENDIX

SECURITIES RATINGS. The rating services' descriptions of
corporate bonds are:

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-edge." 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 risks appear somewhat larger
than in 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 other 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 differ from the highest rated issues only in
small degree.

A--Debt rated A has a strong capacity to pay interest and repay
principal although they are 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 for bonds in higher-rated categories.

BB-B-CCC-CC-C--Debt rated BB, B, CCC, CC, and C is regarded, on
balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such debt
will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

D--Debt rated D is 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.<PAGE>

PUTNAM AMERICAN RENAISSANCE FUND
PUTNAM BASIC VALUE FUND
PUTNAM BALANCED FUND
PUTNAM GLOBAL UTILITIES FUND
PUTNAM REAL ESTATE OPPORTUNITIES FUND
PUTNAM RESEARCH FUND

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 :

Putnam Basic Value Fund
Putnam Balanced Fund
Putnam Global Utilities Fund
Putnam Real Estate Opportunities Fund

Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
<PAGE>
Putnam American Renaissance Fund
Putnam Research Fund

Price Waterhouse LLP
160 Federal Street
Boston, MA 02110

PUTNAMINVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
<PAGE>
PUTNAM AMERICAN RENAISSANCE FUND
PUTNAM BALANCED FUND
PUTNAM BASIC VALUE FUND
PUTNAM GLOBAL UTILITIES FUND
PUTNAM REAL ESTATE OPPORTUNITIES FUND
PUTNAM RESEARCH FUND
(EACH REFERRED TO HEREIN AS A "FUND")

SERIES OF PUTNAM INVESTMENT FUNDS (THE "TRUST")

FORM N-1A
PART B

STATEMENT OF ADDITIONAL INFORMATION ("SAI")
October 2 , 1995

This SAI is not a prospectus and is only authorized for
distribution when accompanied or preceded by the prospectus of
the funds dated October 2 , 1995, as revised from
time to time. This SAI contains information which may be useful
to investors but which is not included in the prospectus. If
a fund has more than one form of current prospectus
, each reference to the prospectus in this SAI shall
include all of the fund's prospectuses ,
unless otherwise noted. The SAI should be read together with the
applicable prospectus. 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 SAI contains specific information about the funds.
Part II includes information about the funds and the other Putnam
funds.
<PAGE>
TABLE OF CONTENTS
PART I

INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . I-3

CHARGES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . .I-6

ADDITIONAL OFFICERS . . . . . . . . . . . . . . . . . . . . . . .I-9

INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . I- 10

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- 50

SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . II- 56

SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . II- 56

SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . II- 56

STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . II- 57

COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . II- 58

DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . II- 63

<PAGE>
SAI
PART I

INVESTMENT RESTRICTIONS

AS FUNDAMENTAL INVESTMENT RESTRICTIONS, WHICH MAY NOT BE CHANGED
WITH RESPECT TO A FUND WITHOUT A VOTE OF A MAJORITY OF THE
OUTSTANDING VOTING SECURITIES OF SUCH FUND, THE FUND MAY
NOT AND WILL NOT :

(1) Borrow money in excess of 10% of the value (taken at the
lower of cost or current value) of its total assets (not
including the amount borrowed) at the time the borrowing is made,
and then only from banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio
investments or for extraordinary or emergency purposes. Such
borrowings will be repaid before any additional investments are
purchased.

(2) Underwrite securities issued by other persons except to the
extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under certain
federal securities laws.

(3) Purchase or sell real estate, although it may purchase
securities of issuers which deal in real estate, securities which
are secured by interests in real estate, and securities which
represent interests in real estate, and it may acquire and
dispose of real estate or interests in real estate acquired
through the exercise of its rights as a holder of debt
obligations secured by real estate or interests therein.

(4) Purchase or sell commodities or commodity contracts, except
that the fund may purchase and sell financial futures contracts
and options.

(5) Make loans, except by purchase of debt obligations in which
the fund may invest consistent with its investment policies, by
entering into repurchase agreements with respect to not more than
25% of its total assets (taken at current value) or through the
lending of its portfolio securities with respect to not more than
25% of its total assets (taken at current value).

(6) With respect to 75% of its total assets, invest in
securities of any issuer if, immediately after such investment,
more than 5% of the total assets of the fund (taken at current
value) would be invested in the securities of such issuer;
provided that this limitation does not apply to obligations
issued or guaranteed as to interest or principal by the U.S.
government or its political subdivisions.

(7) With respect to 75% of its total assets, acquire more than
10% of the voting securities of any issuer.

(8) Purchase securities (other than securities of the U.S.
government, its agencies or instrumentalities) if, as a result of
such purchase, more than 25% of the fund's total assets would be
invested in any one industry, except that Putnam Real Estate
Opportunities Fund may invest more than 25% of its total assets
in securities of issuers in any industry in the real estate group
of industries and Putnam Global Utilities Fund may invest more
than 25% of its total assets in securities of issuers in any
industry in the utilities group of industries.

(9) Issue any class of securities which is senior to the fund's
shares of beneficial interest.

IT IS CONTRARY TO EACH 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) (Not applicable to Putnam Global Utilities Fund.) Invest in
warrants (other than warrants acquired by a 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 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 interests therein, 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 any issuer, if, to the knowledge of
the fund, officers and Trustees of the Trust 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.

(8) Invest in securities of an issuer which, together with any
predecessors, controlling persons, general partners and
guarantors, have a record of less than three years' continuous
business operation or relevant business experience, if, as a
result, the aggregate of such investments would exceed 5% of the
value of the fund's net assets; provided, however, that this
restriction shall not apply to any obligations of the U.S.
government or instrumentalities or agencies.

Although certain of the funds' fundamental investment
restrictions permit them to borrow money to a limited
extent, they do not currently intend to do so. For the
purpose of fundamental investment restriction 8 above, each
fund will consider securities backed by the credit of
different foreign governments as representing separate
industries.

---------------------

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
a majority of the outstanding voting securities" of a fund
means the affirmative vote of the lesser of (1) more than 50% of
the outstanding shares of that fund, or (2) 67% or more of the
shares of that fund present at a meeting if more than 50% of the
outstanding shares of that fund are represented at the
meeting in person or by proxy.

CHARGES AND EXPENSES

TRUSTEE FEES

Each Trustee receives a fee for his or her services. Each
Trustee also receives fees for serving as Trustee of other Putnam
funds. The Trustees periodically review their fees to assure
that such fees continue to be appropriate in light of their
responsibilities as well as in relation to fees paid to trustees
of other mutual fund complexes. The Trustees meet monthly over a
two-day period, except in August. The 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
following table shows the year each Trustee was first
elected a Trustee of the Putnam funds, the estimated fees to be
paid to each Trustee by each fund for fiscal 1995 and the
fees paid to each Trustee by all of the Putnam funds during the
calendar year 1994 :<PAGE>

COMPENSATION TABLE

AGGREGATE COMPENSATION FROM*+
<TABLE>
<S> <C> <C> <C> <C> <C> <C>

PUTNAM PUTNAM PUTNAM PUTNAM
AMERICAN PUTNAM BASIC GLOBAL REAL ESTATE PUTNAM
RENAISSANCE BALANCED VALUE UTILITIESOPPORTUNITIES RESEARCH ALL
TRUSTEES/YEAR FUND+ FUND++ FUND+++ FUND++ FUND+++ FUND+ PUTNAM FUNDS**
- ----------------------------------------------------------------- ----------------------------------------
Jameson A. Baxter/1994$122 $122 $122 $122 $122 $122 $135,850
Hans H. Estin/1972 122 122 122 122 122 122 141,850
John A. Hill/1985 122 122 122 122 122 122 143,850
Elizabeth T. Kennan/1992 122 122 122 122 122 122 141,850
Lawrence J. Lasser/1992122 122 122 122 122 122 141,850
Robert E. Patterson/1984 122 122 122 122 122 122 144,850
Donald S. Perkins/1982 122 122 122 122 122 122 139,850
William F. Pounds/1971 122 122 122 122 122 122 143,850
George Putnam/1957 122 122 122 122 122 122 141,850
George Putnam, III/1984122 122 122 122 122 122 141,850
Eli Shapiro/1995*** 122 122 122 122 122 122 N/A
A.J.C. Smith/1986 122 122 122 122 122 122 137,850
W. Nicholas Thorndike/1992 122 122 122 122 122 122 144,850
- ----------------------------------------------------------------- -----------------------------------------
</TABLE>

* Including 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 as a 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 1989 , which benefits terminated at the
end of 1994.
+ Reflects a typical full fiscal year based upon Putnam Basic
Value Fund.

<PAGE>

The 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 each 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 will receive similar benefits upon their retirement. A
Trustee who retired in calendar 1994 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 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 Trustees, see
"Management of the Fund" in Part II of this SAI.

SHARE OWNERSHIP

At August 31, 1995, the officers and Trustees of the Trust
as a group owned 3.44% of the outstanding shares of Putnam
Balanced Fund, 7.27% of the outstanding shares of
Putnam Basic Value Fund, 3.67% of the outstanding
shares of Putnam Global Utilities Fund, 6.56% of the
outstanding shares of Putnam Real Estate Opportunities
Fund and to the knowledge of the Trust no
person owned of record or beneficially 5% or more of the
shares of any fund of the Trust, except that Putnam Investments,
Inc. owned of record and beneficially 100% of Putnam
American Renaissance Fund, 95.30% of Putnam
Balanced Fund, 84.90% of Putnam Basic Value Fund, 96.00%
of Putnam Global Utilities Fund, 91.50% of Putnam Real
Estate Opportunities Fund and 100% of Putnam Research
Fund . Putnam Investments, Inc. is incorporated in
Massachusetts, and its parent corporation, Marsh & McLennan
Companies, Inc., is incorporated in Delaware. The address of
Putnam Investments, Inc. is One Post Office Square, Boston, MA
02109.

<PAGE>
ADDITIONAL OFFICERS

In addition to the persons listed as officers of the Trust in
Part II of this SAI, each of the following persons
of the Trust and Vice President of certain of the Putnam
funds . Officers of Putnam Management hold the same offices
in Putnam Management's parent company, Putnam Investments, Inc.

THOMAS R. BOGAN, Vice President. Senior Vice President of
Putnam Management. Prior to November, 1994, Mr. Bogan was Senior
Analyst at Lord, Abbett & Co.

PETER CARMAN, Vice President. Senior Managing Director of Putnam
Management. Prior to August 1, 1993, Mr. Carman was Chief
Investment Officer, Chairman of the U.S. Equity Investment Policy
Committee and a Director of Sanford C. Bernstein & Company, Inc.

DAVID L. KING, Vice President. Senior Vice President of Putnam
Management.

CAROL C. MCMULLEN, Vice President . Managing Director
of Putnam Management. Prior to June, 1995, Ms. McMullen was
Senior Vice President and Senior Portfolio Manager of Baring
Asset Management.
JEANNE L. MOCKARD, Vice President. Senior Vice President of
Putnam Management.

JOHN J. MORGAN, JR., Vice President. Managing Director of Putnam
Management.

C. PATRICK O'DONNELL, JR., Vice President . Managing
Director of Putnam Management. Prior to May 1994, Mr. O'Donnell
was the founder and President of Exeter Research Inc.

ANTHONY W. REGAN, Vice President. Senior Managing Director of
Putnam Management. Director of Putnam Investments, Inc. Vice
President and Trust Officer of Putnam Fiduciary Trust
Company.

THOMAS V. REILLY, Vice President. Managing Director of Putnam
Management.

DAVID J. SANTOS, Vice President. Vice President of Putnam
Management.

JUSTIN M. SCOTT, Vice President. Senior Vice President of Putnam
Management.

SHELDON N. SIMON, Vice President. Senior Vice President of
Putnam Management.

KENNETH J. TAUBES, Vice President. Senior Vice President of
Putnam Management . Prior to June , 1991, Mr.
Taubes was Senior Vice President of the Finance Division of U.S.
Trust Company.

INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS

Price Waterhouse LLP, 160 Federal Street, Boston, MA, 02110
are the independent accountants for Putnam American Renaissance
Fund and Putnam Research Fund, 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.

Coopers & Lybrand L.L.P., One Post Office Square, Boston, MA
02109, are the independent accountants for the Putnam
Basic Value Fund, Putnam Balanced Fund, Putnam Global Fund and
Putnam Real Estate Fund , 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 unaudited financial
statements included in the Semi-Annual Reports for the period
ended February 28, 1995 for Putnam Basic Value Fund and Putnam
Real Estate Opportunities Fund, filed electronically on May 1,
1995 and for the period ended March 31, 1995 (811-7237),
for Putnam Balanced Fund and Putnam Global Utilities Fund, filed
electronically on May 30, 1995 (811-7237), are incorporated by
reference into this SAI.
The Report of Independent Accountants and Statements of
Assets and Liabilities have been included in this SAI in reliance
upon the report of Coopers & Lybrand, L.L.P. , given on
their authority as experts in auditing and accounting.

As of the date of the Statements of Assets and Liabilities below,
the Trust was named Putnam Equity Funds. The Statement of
Assets and Liabilities reflect this former name.

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholder and Board of Trustees of Putnam Equity Funds

We have audited the accompanying statements of assets and
liabilities of Putnam Basic Value Fund, Putnam Balanced Fund,
Putnam Global Utilities Fund and Putnam Real Estate Opportunities
Fund (the "Funds") of Putnam Equity Funds (the "Trust"), as of
December 13, 1994. These statements are the responsibility of
the Funds' management. Our responsibility is to express an
opinion on the financial statements 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 statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our
procedures included confirmation of cash owned as of December 13,
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 statements referred to above
present fairly, in all material respects, the financial position
of the Funds of the Trust as of December 13, 1994, in conformity
with generally accepted accounting principles.

Coopers & Lybrand L.L.P.

Boston, Massachusetts
December 15, 1994
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
PUTNAM BALANCED FUND
(A SERIES OF PUTNAM EQUITY FUNDS)

December 13, 1994

Assets:

Cash . . . . . . . . . . . . . . . . . . . . . . . $20,000.00
Estimated deferred organization expenses
(Note 1) . . . . . . . . . . . . . . . . . . . . . 6,425.00
--------

Total assets. . . . . . . . . . . . . . . . . . . . . . 26,425.00

Liabilities:

Estimated organization expenses payable
(Note 1) . . . . . . . . . . . . . . . . . . . . . 6,425.00
--------
Commitments (Notes 1, 2 and 3)
Net assets applicable to 2,352.941 Class A
shares outstanding . . . . . . . . . . . . . . . . $20,000
=======

Computation of net asset value, redemption and offering
price per share:
Net asset value and redemption price per share
($20,000 divided by 2,352.941 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
=====

See Notes to Statement of Assets and Liabilities<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
PUTNAM BASIC VALUE FUND
(A SERIES OF PUTNAM EQUITY FUNDS)

December 13, 1994

Assets:

Cash . . . . . . . . . . . . . . . . . . . . . . . $20,000.00
Estimated deferred organization expenses
(Note 1) . . . . . . . . . . . . . . . . . . . . . 6,425.00
--------
Total assets. . . . . . . . . . . . . . . . . . . . . . 26,425.00

Liabilities:

Computation of net asset value, redemption and offering
price per share:
Net asset value and redemption price per share
($20,000 divided by 2,352.941 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
======

See Notes to Statement of Assets and Liabilities<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
PUTNAM GLOBAL UTILITIES FUND
(A SERIES OF PUTNAM EQUITY FUNDS)

December 13, 1994

Assets:

Cash . . . . . . . . . . . . . . . . . . . . . . . $20,000.00
Estimated deferred organization expenses
(Note 1) . . . . . . . . . . . . . . . . . . . . . 6,425.00
---------
Total assets. . . . . . . . . . . . . . . . . . . . . . 26,425.00

Liabilities:

Estimated organization expenses payable
(Note 1) . . . . . . . . . . . . . . . . . . . . . 6,425.00
----------
Commitments (Notes 1, 2 and 3)
Net assets applicable to 2,352.941 Class A
shares outstanding . . . . . . . . . . . . . . . . $20,000
========

Computation of net asset value, redemption and offering
price per share:
Net asset value and redemption price per share
($20,000 divided by 2,352.941 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
=======

See Notes to Statement of Assets and Liabilities<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
PUTNAM REAL ESTATE OPPORTUNITIES FUND
(A SERIES OF PUTNAM EQUITY FUNDS)

December 13, 1994

Assets:

Cash . . . . . . . . . . . . . . . . . . . . . . . $20,000.00
Estimated deferred organization expenses
(Note 1) . . . . . . . . . . . . . . . . . . . . . 6,425.00
----------
Total assets. . . . . . . . . . . . . . . . . . . . . . 26,425.00

Liabilities:

Estimated organization expenses payable
(Note 1) . . . . . . . . . . . . . . . . . . . . . 6,425.00
----------

Commitments (Notes 1, 2 and 3)
Net assets applicable to 2,352.941 Class A
shares outstanding . . . . . . . . . . . . . . . . $20,000
========

Computation of net asset value, redemption and offering
price per share:
Net asset value and redemption price per share
($20,000 divided by 2,352.941 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
======

See Notes to Statement of Assets and Liabilities<PAGE>
NOTES TO STATEMENTS OF ASSETS AND LIABILITIES

NOTE 1. ORGANIZATION

The Trust was organized as a Massachusetts business trust under
an Agreement and Declaration of Trust, dated October 31, 1994,
and is registered under the Investment Company Act of 1940, as
amended, as an open-end, diversified, management investment
company, consisting of a series of investment portfolios
(the"Funds"), each of which is represented by a separate series
of shares of beneficial interest. The Trust currently consists
of five Funds. Financial Statements for only Putnam Balanced
Fund, Putnam Basic Value Fund, Putnam Global Utilities Fund and
Putnam Real Estate Opportunities Fund are contained in this SAI.
Each Fund offers Class A shares. The Trust's Agreement and
Declaration of Trust permits the issuance of an unlimited number
of shares. The Trust has had no operations other than those
relating to organizational matters and the initial capital
contribution of $100,000 to the Trust. Each Fund's outstanding
shares are owned by Putnam Investments, Inc.

Upon the sale of its shares to the public, the Trust 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 December 13, 1994, estimated deferred
organization expenses for each Fund are $6,425.00 based upon
estimated registration, legal and accounting costs. Each Fund
will amortize such expenses borne by it over its first five years
of operation based upon projected net asset levels. Putnam
Investments, Inc. has agreed that if any of the initial shares of
any 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 Trust has entered into a Management Contract with Putnam
Management. As compensation for the services rendered,
facilities furnished, and expenses borne by Putnam Management,
the Trust will pay Putnam Management a fee, computed and paid
quarterly based on the average net assets of each Fund for the
quarter. Such fee is based on the following annual rates: Putnam
Balanced Fund - 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%
thereafter; Putnam Real Estate Opportunities Fund and Putnam
Basic Value Fund - 0.70% of the first $500 million, 0.60% of the
next $500 million, 0.55% of the next $500 million, 0.50% of the
next $5 billion, 0.475% of the next $5 billion, 0.455% of the
next $5 billion, 0.44% of the next $5 billion, and 0.43%
thereafter; and Putnam Global Utilities Fund - 0.80% of the first
$500 million, 0.70% of the next $500 million, 0.65% of the next
$500 million, 0.60% of the next $5 billion, 0.575% of the next $5
billion, 0.555% of the next $5 billion, 0.54% of the next $5
billion, and 0.53% thereafter.

NOTE 3. DISTRIBUTION PLAN

The Trust has entered into a Distribution Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 relating to its
Class A shares. Each Fund will, upon the approval of such
payments by the Trustees of such Fund, pay 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.
No payments are presently being made under the Distribution Plan.

TABLE OF CONTENTS

MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . . . . . II-1

TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-25

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-30

DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . .II-40

HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-41

DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . . . . . .II-54

INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-55

SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . .II-60

SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . .II-61

SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . .II-61

STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . . . . .II-61

COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . . . . .II-63

DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-67

<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 objectives(s), 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. This
expense may include brokerage commissions or dealer markups 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 at times may be unable to establish the fair value
of such securities.

Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' analysis at the time
of rating. Consequently, the rating assigned to any particular
security is not necessarily a reflection of the issuer's current
financial condition, which may be better or worse than the rating
would indicate. In addition, the rating assigned to a security
by Moody's Investors Service, Inc. or Standard & Poor's (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 SAI 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. 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. The values of lower-
rated securities may often be affected to a greater extent by
changes in general economic conditions and business conditions
affecting the issuers of such securities and their industries.
Negative publicity or investor perceptions may also adversely
affect the values of lower-rated securities. Changes by
recognized rating services in their ratings of any fixed-income
security and changes in the ability of an issuer to make payments
of interest and principal may also affect the value of these
investments. Changes in the value of portfolio securities
generally will not affect income derived from these securities,
but will affect 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. However, Putnam
Management will monitor the investment to determine whether its
retention will assist in meeting the fund's investment
objective(s).

Issuers of lower-rated securities are often highly leveraged, so
that their ability to service their debt obligations during an
economic downturn or during sustained periods of rising interest
rates may be impaired. Such issuers may not have more
traditional methods of financing available to them and may be
unable to repay outstanding obligations at maturity by
refinancing. The risk of loss due to default in payment of
interest or repayment of principal by such issuers is
significantly greater because such securities frequently are
unsecured and subordinated to the prior payment of senior
indebtedness.

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 all or a major portion.
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 these securities when Putnam Management
believes it advisable to do so or may be able to sell the
securities only at prices lower than if they were more widely
held. Under these circumstances, it may also be more difficult
to determine the fair value of such securities for purposes of
computing 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 participate in various legal proceedings or
take possession of and manage assets securing the issuer's
obligations on such securities. This could 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. The ability of a holder of a tax-exempt security to
enforce the terms of that security in a bankruptcy proceeding may
be more limited than would be the case with respect to privately-
issued securities. 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 and payment-in-
kind bonds do not pay current interest in cash, their value is
subject to greater fluctuation in response to changes in market
interest rates than bonds that 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 in cash. The fund is required to
accrue interest income on such investments and to distribute such
amounts at least annually to shareholders even though such bonds
do not pay current interest in cash. Thus, the fund could be
required at times to liquidate investments in order to satisfy
its dividend requirements.

To the extent the fund invests in 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. This may be particularly true with respect to tax-
exempt securities, as 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.

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.

PRIVATE PLACEMENTS

The fund may invest in securities that are purchased in private
placements and, accordingly, are subject to restrictions on
resale as a matter of contract or under federal securities laws.
Because there may be relatively few potential purchasers for such
investments, especially 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. At times,
it may also be more difficult to determine the fair value of such
securities for purposes of computing the fund's net assets value.

MORTGAGE RELATED SECURITIES

The fund may invest in 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.

Mortgage-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 securities include both
interest and a partial repayment of principal. Besides the
scheduled repayment of principal, repayments of principal may
result from the voluntary prepayment, refinancing, or foreclosure
of the underlying mortgage loans. If property owners make
unscheduled prepayments of their mortgage loans, these
prepayments will result in early payment of the applicable
mortgage-related securities. In that event the fund may be
unable to invest the proceeds from the early payment of the
mortgage-related securities in an investment that provides as
high a yield as the mortgage-related securities. Consequently,
early payment associated with mortgage-related securities may
cause these securities to experience significantly greater price
and yield volatility than that experienced by traditional fixed-
income securities. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates,
general economic conditions, the location and age of the mortgage
and other social and demographic conditions. During periods of
falling interest rates, the rate of mortgage prepayments tends to
increase, thereby tending to decrease the life of mortgage-
related securities. During periods of rising interest rates, the
rate of mortgage prepayments usually decreases, thereby tending
to increase the life of mortgage-related securities. If the life
of a mortgage-related security is inaccurately predicted, the
fund may not be able to realize the rate of return it expected.

Mortgage-backed securities are less effective than other types of
securities as a means of "locking in" attractive long-term
interest rates. One reason is the need to reinvest prepayments
of principal; another is the possibility of significant
unscheduled prepayments resulting from declines in interest
rates. These prepayments would have to be reinvested at lower
rates. As a result, these securities may have less potential for
capital appreciation during periods of declining interest rates
than other securities of comparable maturities, although they may
have a similar risk of decline in market value during periods of
rising interest rates.

Prepayments may cause losses in securities purchased at a
premium. At times, some of the mortgage-backed securities in
which the fund may invest will have higher than market interest
rates and therefore will be purchased at a premium above their
par value. Unscheduled prepayments, which are made at par, will
cause the fund to experience a loss equal to any unamortized
premium.

CMOs may be issued by a U.S. government agency or instrumentality
or by a private issuer. Although payment of the principal of,
and interest on, the underlying collateral securing privately
issued CMOs may be guaranteed by the U.S. government or its
agencies or instrumentalities, these CMOs represent obligations
solely of the private issuer and are not insured or guaranteed by
the U.S. government, its agencies or instrumentalities or any
other person or entity.

Prepayments could cause early retirement of CMOs. CMOs are
designed to reduce the risk of prepayment for investors by
issuing multiple classes of securities, each having different
maturities, interest rates and payment schedules, and with the
principal and interest on the underlying mortgages allocated
among the several classes in various ways. Payment of interest
or principal on some classes or series of CMOs may be subject to
contingencies or some classes or series may bear some or all of
the risk of default on the underlying mortgages. CMOS of
different classes or series are generally retired in sequence as
the underlying mortgage loans in the mortgage pool are repaid.
If enough mortgages are repaid ahead of schedule, the classes or
series of a CMO with the earliest maturities generally will be
retired prior to their maturities. Thus, the early retirement of
particular classes or series of a CMO held by the fund would have
the same effect as the prepayment of mortgages underlying other
mortgage-backed securities.

Prepayments could result in losses on stripped mortgage-backed
securities. Stripped mortgage-backed securities are usually
structured with two classes that receive different portions of
the interest and principal distributions on a pool of mortgage
loans. The fund may invest in both the interest-only or "IO"
class and the principal-only or "PO" class. 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. A rapid rate of principal
prepayments may have a measurable adverse effect on the fund's
yield to maturity to the extent it invests in IOs. If the assets
underlying the IO experience greater than anticipated prepayments
of principal, the fund may fail to recoup fully its initial
investment in these securities. Conversely, POs tend to increase
in value if prepayments are greater than anticipated and decline
if prepayments are slower than anticipated.

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.

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 the 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 may 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 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
objective(s) 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. 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.

Foreign-traded options are subject to many of the same risks
presented by internationally-traded securities. In addition,
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 for hedging and non-hedging purposes. The use of
futures and options transactions for purposes other than hedging
entails greater risks. 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. If the fund is unable to enter into
a closing transaction, the amount of the fund's potential loss is
unlimited. 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 various
factors affecting securities markets, including interest rates.
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 position held by the fund, the fund may
seek to close out such 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. 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 securities held in its portfolio,
and the prices of the fund's 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 particular
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.

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(s). 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. 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 is also subject to
Putnam Management's ability to predict movements in the direction
of the market. For example, 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 profitable position 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. Since foreign securities are normally
denominated and traded in foreign currencies, the value of the
fund's assets may be affected favorably or unfavorably by changes
in currency exchange rates, exchange control regulations and
restrictions or prohibitions on the repatriation of foreign
currencies. 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, including the risks of nationalization
or expropriation of assets, are typically increased to the extent
that the fund invests in issuers located in less developed and
developing nations, whose securities markets are sometimes
referred to as "emerging securities markets." Investments in
securities located in such countries are speculative and subject
to certain special risks. Political and economic structures in
many of these countries may be in their infancy and developing
rapidly, and such countries may lack the social, political and
economic stability characteristic of more developed countries.
Certain of these countries have in the past failed to recognize
private property rights and have at times nationalized and
expropriated the assets of private companies.

In addition, unanticipated political or social developments may
affect the values of the fund's investments in these countries
and the availability to the fund of additional investments in
these countries. The small size, limited trading volume and
relative inexperience of the securities markets in these
countries may make the fund's investments in such countries
illiquid and more volatile than investments in more developed
countries, and the fund may be required to establish special
custodial or other arrangements before making investments in
these countries. There may be little financial or accounting
information available with respect to issuers located in these
countries, and it may be difficult as a result to assess the
value or prospects of an investment in such issuers.

FOREIGN CURRENCY TRANSACTIONS

Unless otherwise specified in the prospectus or Part I of this
SAI, the fund may engage without limit in currency exchange
transactions, including purchasing and selling foreign currency,
foreign currency options, foreign currency forward contracts and
foreign currency futures contracts and related options, 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). 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.

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. See "Risk factors in options
transactions" above.

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.

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, forward contracts and futures
contracts) 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, forward contracts and
futures contracts, since exchange rates may not be free to
fluctuate in response to other market forces.

The value of a foreign currency option, forward contract or
futures contract 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, forward contracts and
futures contracts, 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.

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 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 of the risks described above. Foreign currency
options are traded primarily in the over-the-counter market,
although options on foreign currencies are also 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.

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 currencies 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 delegation 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 as interest excludable from
shareholders' 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 hedging
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 (i) a
dividend to the extent of the fund's remaining earnings and
profits (including earnings and profits arising from tax-exempt
income), (ii) thereafter as a return of capital to the extent of
the recipient's basis in the shares, and (iii) thereafter as gain
from the sale or exchange of a capital asset. 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. Distributions from capital gains are
made after applying any available capital loss carryovers. 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 SAI or
incorporated by reference into this SAI.

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 "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."

A "passive foreign investment company" is any foreign
corporation: (i) 75 percent of more of the income of which for
the taxable year is passive income, or (ii) the average
percentage of the assets of which (generally by value, but by
adjusted tax basis in certain cases) that produce or are held for
the production of passive income is at least 50 percent.
Generally, passive income for this purpose means dividends,
interest (including income equivalent to interest), royalties,
rents, annuities, the excess of gains over losses from certain
property transactions and commodities transactions, and foreign
currency gains. Passive income for this purpose does not include
rents and royalties received by the foreign corporation from
active business and certain income received from related persons.

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 shares of
the same fund 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 under-reported 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 correct
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 NAME (AGE)

*+GEORGE PUTNAM (69), 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 (67), 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 (52), Trustee. President, Baxter Associates,
Inc. (consultants to management). Director of Avondale Federal
Savings Bank, ASHTA Chemicals, Inc. and Banta Corporation.
Chairman Emeritus of the Board of Trustees, Mount Holyoke
College.

+HANS H. ESTIN (67), 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 (57), Trustee. President Emeritus and
Professor, Mount Holyoke College. Director, the Kentucky Home
Life Insurance Companies, NYNEX Corporation, Northeast Utilities
and Talbots. Trustee of the University of Notre Dame.

*LAWRENCE J. LASSER (52), 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.

JOHN A. HILL (53), 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 (50), Trustee. Executive Vice President,
Cabot Partners Limited Partnership (a registered investment
adviser).

*DONALD S. PERKINS (68), 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 (44), Trustee. President, New Generation
Research, Inc. (publisher of bankruptcy information). Director,
World Environment Center.

ELI SHAPIRO (79), 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 (61), Trustee. Chairman, Chief Executive Officer
and Director, Marsh & McLennan Companies, Inc.

W. NICHOLAS THORNDIKE (62), 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.

OFFICERS NAME (AGE)

CHARLES E. PORTER (57), Executive Vice President. Managing
Director of Putnam Investments, Inc. and Putnam Management.

PATRICIA C. FLAHERTY (48), Senior Vice President. Senior Vice
President of Putnam Investments, Inc. and Putnam Management.

WILLIAM N. SHIEBLER (53), Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. President and
Director of Putnam Mutual Funds.

GORDON H. SILVER (48), Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. and Putnam
Management.

JOHN R. VERANI (56), Vice President. Senior Vice President of
Putnam Investments, Inc. and Putnam Management.

PAUL M. O'NEIL (42), Vice President. Vice President of Putnam
Investments, Inc. and Putnam Management.

JOHN D. HUGHES (60), Vice President and Treasurer.

BEVERLY MARCUS (51), Clerk and Assistant Treasurer.

*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 the
fund. SEE "ADDITIONAL OFFICERS" IN PART I OF THIS SAI. 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 AND INFORMATION
CONCERNING RETIREMENT GUIDELINES FOR THE TRUSTEES, SEE "CHARGES
AND EXPENSES" IN PART I OF THIS SAI.

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 AND ITS AFFILIATES

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 $78 billion in assets
in nearly 4.5 million shareholder accounts at June 30, 1995. 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
June 30, 1995, Putnam Management and its affiliates managed over
$109 billion in assets, including over $16 billion in tax-exempt
securities and over $47 billion in retirement plan assets.

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, custodian fees and transfer
agency fees paid or allowed by the fund.

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 "CHARGES AND EXPENSES" IN PART I OF THIS
SAI. 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 SAI (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. 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. THE TERMS OF ANY
EXPENSE LIMITATION FROM TIME TO TIME IN EFFECT ARE DESCRIBED IN
EITHER THE PROSPECTUS OR PART I OF THIS SAI.

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 Putnam funds, 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 "CHARGES AND EXPENSES" IN PART I OF THIS SAI.
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.

PERSONAL INVESTMENTS BY EMPLOYEES OF PUTNAM MANAGEMENT

Employees of Putnam Management are permitted to engage in
personal securities transactions, subject to requirements and
restrictions set forth in Putnam Management's Code of Ethics.
The Code of Ethics contains provisions and requirements designed
to identify and address certain conflicts of interest between
personal investment activities and the interests of investment
advisory clients such as the funds. Among other things, the Code
of Ethics, consistent with standards recommended by the
Investment Company Institute's Advisory Group on Personal
Investing, prohibits certain types of transactions absent prior
approval, imposes time periods during which personal transactions
may not be made in certain securities, and requires the
submission of duplicate broker confirmations and quarterly
reporting of securities transactions. Additional restrictions
apply to portfolio managers, traders, research analysts and
others involved in the investment advisory process. Exceptions
to these and other provisions of the Code of Ethics may be
granted in particular circumstances after review by appropriate
personnel.

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 "CHARGES AND EXPENSES" IN PART I
OF THIS SAI 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 "CHARGES AND EXPENSES" IN PART I
OF THIS SAI 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 on the basis of the number of shareholder accounts,
the number of transactions and the assets of the fund. 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 shareholder service components demonstrated that
Putnam Investor Services tied for highest scores, with two other
mutual fund companies, 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 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 "CHARGES AND EXPENSES" IN PART I OF THIS SAI 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 and other fixed-income 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 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 securities are valued at the mean between the
last reported bid and asked prices. Short-term investments
having remaining maturities of 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. 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 valued at fair value on the
basis of valuations furnished by pricing services, 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 SAI contains additional
information which may be of interest to investors.

Class A shares and class M shares are generally 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 SAI
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 or class
M 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 B shares will automatically convert into class A shares at
the end of the month eight years after the purchase date. 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 condition that such conversions
will not constitute taxable events for Federal tax purposes.

Class Y shares, which are not subject to sales charges or a CDSC,
are available only to certain defined contribution plans. See
the prospectus that offers class Y shares for more information.

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. Pre-authorized 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 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 all other 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 is subject to additional
requirements. In the case of Putnam American Government Income
Fund, Putnam Asia Pacific Growth Fund, Putnam Asset Allocation
Funds, 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 objective(s)
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 The
Nasdaq Stock Market, Inc. 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 on The
Nasdaq Stock Market, Inc. 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
without an initial sales charge or a CDSC in connection with the
acquisition of substantially all of the securities owned by other
investment companies or personal holding companies, 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. The fund may sell class M shares at net
asset value to members of qualified groups. See "Group
purchases of class A and class M shares" below.

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 of 1986, as amended (the
"Code"));

(iv) tax-exempt organizations qualifying under Section
501(c)(3) of the Internal Revenue Code (not including tax-
exempt organizations qualifying under Section 403(b)(7) (a
"403(b) plan") of the Code; 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 of Intention. 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 of Intention 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 of Intention 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 of Intention
which are eligible for purchase under a Statement of Intention
(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.

GROUP PURCHASES OF CLASS A AND CLASS M SHARES. Members of
qualified groups may purchase class A shares of the fund at a
group sales charge rate of 4.50% 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. Members of qualified
groups may also purchase class M shares at net asset value.

To receive the class A or class M group rate, group members must
purchase 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 shares directly to
Putnam Investor Services. Purchases of 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 shares purchased under the class A group discount
are included in calculating the purchased amount for the purposes
of these requirements.

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, with respect to the class
A discount only, 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) with respect to the class A discount
only, 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, with respect to the class A
discount only, 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 participant-
directed qualified retirement plans with at least 200 eligible
employees, or prior to December 1, 1995, a plan sponsored by an
employer or by affiliated employers which have at least 750
employees and, beginning December 1, 1995, the fund may sell
class M shares at net asset value to participant-directed
qualified retirement plans with at least 50 eligible employees.

A participant-directed qualified retirement plan participating in
a "multi-fund" program approved by Putnam Mutual Funds may
include amounts invested in the other mutual funds participating
in such program for purposes of determining whether the plan may
purchase class A shares at net asset value based on the size of
the purchase as described in the prospectus. These investments
will also be included for purposes of the discount privileges and
programs described above.

Additional information about participant-directed qualified
retirement 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 with at least 200 eligible employees, or prior
to December 1, 1995, a plan sponsored by an employer with more
than 750 employees), Putnam Mutual Funds pays commissions during
each one-year measuring period, determined as described above, at
the rate of 1.00% of the first $2 million, 0.80% of the next $1
million and 0.50% thereafter, except that commissions on sales
prior to December 1, 1995 are based on cumulative purchases
during the life of the account and are paid 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 an
ACWP and recalculated thereafter on a pro rata basis at the time
of each ACWP payment. Therefore, shareholders who have chosen an
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) of the Code
or from a 403(b) plan 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.

DISTRIBUTION PLANS

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 SAI 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.
<PAGE>
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 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 1 year after the date of the
check.

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. 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 sell shares" in the
prospectus. Money market funds and certain other funds will not
issue share certificates. A shareholder may send to Putnam
Investor Services any certificates which have been previously
issued 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 of 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 the Reinstatement 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 paying the distribution 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 the fund paying
the distribution 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 ("ACWP"). An investor who owns or
buys shares of the fund valued at $10,000 or more at the current
public offering price may open an ACWP 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 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 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 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 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 plan at any
time. A 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 SAI 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 the Government National Mortgage Association ("GNMAs"),
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 highlights" 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, generally reflecting
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, including 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 in its broad investment class as
determined by Morningstar, Inc. Morningstar ratings cover
a variety of performance periods, including 3-year, 5-
year, 10-year and overall performance. The performance
factor for the overall rating 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 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. The fund may from time to time refer to results
published in various periodicals, including Barrons, Financial
World, Forbes, Fortune, Investor's Business Daily, Kiplinger's
Personal Finance Magazine, Money, U.S. News and World Report and
The Wall Street Journal.

Independent, unmanaged indexes, such as those listed below, may
be used to present a comparative benchmark of fund performance.
The performance figures of an index reflect changes in market
prices, reinvestment of all dividend and interest payments and,
where applicable, deduction of foreign withholding taxes, and do
not take into account brokerage commissions or other costs.
Because the fund is a managed portfolio, the securities it owns
will not match those in an index. Securities in an index may
change from time to time.

THE CONSUMER PRICE INDEX, prepared by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the rate
of inflation. The index shows the average change in the
cost of selected consumer goods and services and does not
represent a return on an investment vehicle.

THE DOW JONES INDUSTRIAL AVERAGE is an index of 30 common
stocks frequently used as a general measure of stock
market performance.

THE DOW JONES UTILITIES AVERAGE is an index of 15 utility
stocks frequently used as a general measure of stock
market performance.

CS FIRST BOSTON HIGH YIELD INDEX is a market-weighted
index including publicly traded bonds having a rating
below BBB by Standard & Poor's and Baa by Moody's.

THE LEHMAN BROTHERS CORPORATE BOND INDEX is an index of
publicly issued, fixed-rate, non-convertible
investment-grade domestic corporate debt securities
frequently used as a general measure of the performance of
fixed-income securities.

THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX is an
index of publicly issued U.S. Treasury obligations, debt
obligations of U.S. government agencies (excluding
mortgage-backed securities), fixed-rate, non-convertible,
investment-grade corporate debt securities and U.S.
dollar-denominated, SEC-registered non-convertible debt
issued by foreign governmental entities or international
agencies used as a general measure of the performance of
fixed-income securities.

THE LEHMAN BROTHERS INTERMEDIATE TREASURY BOND INDEX is an
index of publicly issued U.S. Treasury obligations with
maturities of up to ten years and is used as a general
gauge of the market for intermediate-term fixed-income
securities.

THE LEHMAN BROTHERS LONG-TERM TREASURY BOND INDEX is an
index of publicly issued U.S. Treasury obligations
(excluding flower bonds and foreign-targeted issues) that
are U.S. dollar-denominated and have maturities of 10
years or greater.

THE LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX
includes 15- and 30-year fixed rate securities backed by
mortgage pools of the Government National Mortgage
Association, Federal Home Loan Mortgage Corporation, and
Federal National Mortgage Association.

THE LEHMAN BROTHERS MUNICIPAL BOND INDEX is an index of
approximately 20,000 investment-grade, fixed-rate
tax-exempt bonds.

THE LEHMAN BROTHERS TREASURY BOND INDEX is an index of
publicly issued U.S. Treasury obligations (excluding
flower bonds and foreign-targeted issues) that are U.S.
dollar denominated, have a minimum of one year to
maturity, and are issued in amounts over $100 million.

THE MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX is an
index of approximately 1,482 equity securities listed on
the stock exchanges of the United States, Europe, Canada,
Australia, New Zealand and the Far East, with all values
expressed in U.S. dollars.

THE MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX is an
index of approximately 1,045 equity securities issued by
companies located in 18 countries and listed on the stock
exchanges of Europe, Australia, and the Far East. All
values are expressed in U.S. dollars.

THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE INDEX is
an index of approximately 627 equity securities issued by
companies located in one of 13 European countries, with
all values expressed in U.S. dollars.

THE MORGAN STANLEY CAPITAL INTERNATIONAL PACIFIC INDEX is
an index of approximately 418 equity securities issued by
companies located in 5 countries and listed on the
exchanges of Australia, New Zealand, Japan, Hong Kong,
Singapore/Malaysia. All values are expressed in U.S.
dollars.

THE NASDAQ INDUSTRIAL AVERAGE is an index of stocks traded
in The Nasdaq Stock Market, Inc. National Market System.

THE SALOMON BROTHERS LONG-TERM HIGH-GRADE CORPORATE BOND
INDEX is an index of publicly traded corporate bonds
having a rating of at least AA by Standard & Poor's or Aa
by Moody's and is frequently used as a general measure of
the performance of fixed-income securities.

THE SALOMON BROTHERS LONG-TERM TREASURY INDEX is an index
of U.S. government securities with maturities greater than
10 years.

THE SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX is an
index that tracks the performance of the 14 government
bond markets of Australia, Austria, Belgium Canada,
Denmark, France, Germany, Italy, Japan, Netherlands,
Spain, Sweden, United Kingdom and the United States.
Country eligibility is determined by market capitalization
and investability criteria.

THE SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX (non
$U.S.) is an index of foreign government bonds calculated
to provide a measure of performance in the government bond
markets outside of the United States.

STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX is an
index of common stocks frequently used as a general
measure of stock market performance.

STANDARD & POOR'S 40 UTILITIES INDEX is an index of 40
utility stocks.

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.