PROSPECTUS
May 1, 1996
Putnam American Renaissance Fund
Putnam Research Fund
INVESTMENT STRATEGY: GROWTH
Putnam Balanced 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
Balanced 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 funds' May 1, 1996 statement of
additional information (the "SAI"), as amended from time to time.
For a free copy of the SAI or other information, call Putnam
Investor Services at 1-800-225-1581. 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 5
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 10
Read this section to make sure a fund's objective is consistent
with your own.
How the funds pursue their objectives 10
This section explains in detail how a fund seeks its investment
objective.
Common investment policies and techniques; risk factors 15
All investments entail some risk. Read this section to
make sure you understand certain risks that may be involved
when investing in a fund.
How performance is shown 22
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 22
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 a fund.
Organization and history 25
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 27
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 30
This section tells you what distribution fees are charged against
shares of a fund.
How to sell shares 30
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 32
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 32
This section explains how a fund determines the value of its
shares.
How a fund makes distributions to shareholders; tax
information 32
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. 35
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 36
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*
* 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."
Annual fund operating expenses
(as a percentage of average net assets)
Total fund
operating
Other expenses
Management fees expenses (after
(after expense (after expense expense
limitation) limitation) limitation)
American Renaissance 0.00% 1.01% 1.01%
Fund
Balanced Fund 0.20 0.50 0.70
Real Estate
Opportunities Fund 0.50 0.50 1.00
Research Fund 0.00 1.01 1.01
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. "Other
expenses" are based on estimated amounts for each fund's current
fiscal year. The estimated annual management fees and "Other
expenses" shown in the table reflect an expense limitation
currently in effect for each of the funds. The expenses shown in
the table do not reflect the application of credits related to
brokerage service and expense offset arrangements that reduce
certain fund expenses. In the absence of the expense limitation,
estimated management fees, "Other expenses" and total fund
operating expenses would be as follows:
Total fund
Other operating
Management fees expenses expenses
American Renaissance 0.70% 1.41% 2.11%
Fund
Balanced Fund 0.65 0.50 1.15
Real Estate
Opportunities Fund 0.70 0.50 1.20
Research Fund 0.65 1.41 2.06
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
Balanced Fund $64 $79
Real Estate Opportunities Fund $67 $88
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.
FINANCIAL HIGHLIGHTS
The following tables present per share financial information for
the funds. The information for Putnam American Renaissance Fund
and Putnam Research Fund has not been audited. The financial
statements included in the semi-annual reports to shareholders
for the period ended January 31, 1996 for each of Putnam American
Renaissance Fund and Putnam Research Fund are incorporated by
reference into this prospectus. The information for Putnam
Balanced Fund and Putnam Real Estate Opportunities Fund has been
audited and reported on by the funds' independent accountants.
The "Report of independent accountants" and financial statements
included in the annual report to shareholders for the 1995 fiscal
year for each of Putnam Balanced Fund and Putnam Real Estate
Opportunities Fund are incorporated by reference into this
prospectus. The annual reports for each of these funds, which
contain additional unaudited performance information, are
available without charge upon request.
Putnam American Renaissance Fund
Financial highlights
(For a share outstanding throughout the period)
For the period
October 2, 1995
(commencement of operations)
to January 31,
1996*
Net asset value, beginning of period $8.50
Investment operations
Net investment income .02
Net realized and unrealized
gain on investments .99
Total from investment operations 1.01
Less distributions:
From net investment income (.05)
From net realized gains
Total distributions (.05)
Net asset value, end of period $9.46
Total investment return at
market value (%)(a)(b) 11.29(d)
Net assets, end of period
(in thousands) $2,373
Ratio of expenses to average net assets (%) 1.25(a)(c)(d)
Ratio of net investment income .20(a)(d)
to average net assets (%)
Portfolio turnover (%) 42.74(d)
* Unaudited
(a) Reflects an expense limitation in effect during the period.
As a result of such limitation, expenses for the fund reflect a
reduction of approximately $0.90 per share.
(b) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(c) The ration of expenses to average net assets for the period
October 2, 1995 (commencement of operations) to January 31,
1996 includes amounts paid through expenses offset arrangements.
(d) Not annualized.
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Putnam Balanced Fund
Financial highlights
(For a share outstanding throughout the period)
For the period
January 3, 1995
(commencement of operations)
to September 30,
1995
Net asset value, beginning of period $8.50
Investment operations:
Net investment income .23(a)
Net realized and unrealized
gain on investments 1.83(a)
Total from investment operations 2.06(a)
Net asset value, end of period $10.56
Total investment return at
net asset value (%)(b) 24.24(c)
Net assets, end of period (in thousands) $1,951
Ratio of expenses to average net assets (%)(d) .54(a)(c)
Ratio of net investment income 2.44(a)(c)
to average net assets (%)
Portfolio turnover (%) 95.15(c)
(a) Reflects an expense limitation during the period. As a
result of such limitation, expenses for the fund reflect a
reduction of $0.23 per share.
(b) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(c) Not annualized.
(d) The ratio of expenses to average net assets includes amounts
paid through expense offset arrangements.
<PAGE>
Putnam Real Estate Opportunities Fund
Financial highlights
(For a share outstanding throughout the period)
For the period
January 3, 1995
(commencement
of operations)
to August 31,
1995
Net asset value, beginning of period $8.50
Investment operations:
Net investment income .30(a)
Net realized and unrealized
gain on investments .69
Total from investment operations .99
Net asset value, end of period $9.49
Total investment return at
net asset value (%)(b) 11.65(c)
Net assets, end of period (in thousands) $1,829
Ratio of expenses to average net assets (%) .48(a)(c)
Ratio of net investment income
to average net assets (%) 3.52(a)(c)
Portfolio turnover (%) 5.35(c)
(a) Reflects an expense limitation in effect during the period.
As a result of such limitation, expenses for the fund
reflect a reduction of $0.21 per share.
(b) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(c) Not annualized.<PAGE>
Putnam Research Fund
Financial highlights
(For a share outstanding throughout the period)
For the period
October 2, 1995
(commencement of operations)
to January 31,
1996*
Net asset value, beginning of period $8.50
Investment operations
Net investment income
Net realized and unrealized .04
gain on investments .89
Total from investment operations .93
Less distributions from
From net investment income (.05)
Total distributions (.05)
Net asset value, end of period $9.38
Total investment return at
net asset value (%)(a) 10.35(d)
Net assets, end of period (in thousands) $3,910
Ratio of expenses to average net assets (%)(b) .34(c)(d)
Ratio of net investment income .38(c)(d)
to average net assets (%)
Portfolio turnover (%) 19.43(d)
* Unaudited
Per share net investment income for the period October 2,
1995 (commencement of operations) to January 31, 1996 has
been determined on the basis of the weighted average number
of shares outstanding during the period.
(a) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period
October 2, 1995 (commencement of operations) to January 1,
1996 includes amounts paid through expense offset
arrangements.
(c) Reflects an expense limitation in effect during the period.
As a result of such limitation, expenses for the fund
reflect a reduction of $0.06 per share.
(d) Not annualized.<PAGE>
OBJECTIVES
Putnam American Renaissance Fund seeks capital
appreciation.
Putnam Balanced Fund seeks capital growth and current
income.
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; risk factors" 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 Trust'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 by Putnam
Management 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
value of shares of a more widely diversified mutual fund. As a
result, the value of fund shares may fluctuate more than the
value of 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 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; risk factors" below.
The fund may also hold a portion of its assets in cash or high-
quality money market instruments.
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 of 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; risk factors -- 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; risk factors" below.
<PAGE>
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; risk factors" 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, difficulties in
completing 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 changes in 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.
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 an 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.
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 "How a fund makes distributions to shareholders;
tax information" below.
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, although 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 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 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; risk factors" below.
The fund may also hold a portion of its assets in cash or high-
quality money market instruments.
Common investment policies and techniques; risk factors
Foreign investments
Each fund may invest up to 20% of its assets in securities
principally traded in foreign markets. Each fund may also
purchase Eurodollar certificates of deposit without regard to the
20% limit. Since foreign securities are normally denominated and
traded in foreign currencies, the values 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.
<PAGE>
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 that could affect the
value of 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
investments in securities of certain issuers located in those
foreign countries. Special tax considerations apply to foreign
securities.
The risks described above are typically increased for investments
in securities principally traded in, or issued by issuers located
in, underdeveloped and developing nations, which are sometimes
referred to as "emerging markets."
Each fund may buy or sell foreign currencies, foreign currency
futures contracts, foreign currency forward contracts and put and
call options on foreign currencies for hedging purposes in
connection with its foreign investments.
A more detailed explanation of foreign investments, and the risks
and special tax considerations associated with them, is included
in the SAI.
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" and may include securities in
default. 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 income and
principal. 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.
<PAGE>
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 all or a major portion. 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 these securities when Putnam Management
believes it advisable to do so or may be able to sell these
securities only at prices lower than if these securities 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 a fund's net asset value.
In order to enforce its rights in the event of a default under
these securities, a 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.
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 values of zero-coupon bonds and
payment-in-kind bonds are subject to greater fluctuation in
response to changes in market interest rates than bonds that pay
interest in cash currently. Both zero-coupon bonds and payment-
in-kind bonds allow an issuer to avoid the need to generate cash <PAGE>
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 nonetheless is required to accrue interest income on these
investments and to distribute the interest income 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 markups and other
transaction costs on the sale of securities and reinvestment in
other securities. These transactions may result in realization
of taxable capital gains. Portfolio turnover rates for the life
of each of the funds are shown in the section, "Financial
highlights."
Financial futures and options. Each fund may buy and sell
financial futures contracts on stock indexes and foreign
currencies, and Putnam Balanced Fund may buy and sell financial
future 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 security or index at an agreed price
on a specified future date. Depending on the change in value of
the security or index between the time the fund enters into and
terminates an index future transaction, the fund realizes a gain
or loss. In addition to or as an alternative to purchasing or
selling index futures, the fund may buy and sell call and put
options on index futures or stock indexes. The fund may engage
in index futures and options transactions for hedging purposes
and for non-hedging purposes, such as to earn additional income.
The use of index futures and related options involves certain
special risks. Futures and options transactions involve costs
and may result in losses.
Certain risks arise because of the possibility of imperfect
correlations between movements in the prices of index futures and
options and movements in the prices of the underlying stock index
or of the portfolio securities that are the subject of the hedge.
The successful use of the strategies described above further
depends on Putnam Management's ability to forecast market
movements correctly.
Other risks arise from the potential inability to close out index
futures or options positions. There can be no assurance that a
liquid secondary market will exist for any index future or option
at a particular time. The use of futures and options
transactions for purposes other than hedging entails greater
risks. Certain provisions of the Internal Revenue Code and
certain regulatory requirements may limit the use of index
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.
<PAGE>
Each fund may also buy and sell put and call options for hedging
purposes. From time to time, each fund may also 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.
Alternative investment strategies
At times Putnam Management may judge that conditions in the
securities markets make pursuing the basic investment strategy of
a fund 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.
It is impossible to predict when, or for how long, a fund will
use these 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.
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, with respect to 75% of its total assets, from acquiring
more than 10% of the voting securities of any issuer.* They also
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;* 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.
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; and Putnam American
Renaissance 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.
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 May 31, 1996 for Putnam Balanced 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 Real Estate
Opportunities Fund and Putnam Research Fund, 1.00%, and Putnam
Balanced Fund, 0.70%. For the purpose of determining any such
limitation on Putnam Management's compensation, fund expenses
shall not reflect the application of credits related to brokerage
service and expense offset arrangements that may reduce
designated fund expenses. With Trustee approval, these expense
limitations may be terminated earlier, in which event
shareholders would be notified and this prospectus would be
revised.
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)
------ -----------------
American Renaissance Fund
- -------------------------
Carol C. McMullen 1995 Employed as an investment
Managing Director professional by Putnam
Management since 1995. Prior
to June, 1995, Ms. McMullen
was Senior Vice President and
Senior Portfolio Manager of
Baring Asset Management.
<PAGE>
Balanced Fund
- -------------
David J. Santos 1995 Employed as an investment
Vice President professional by Putnam
Management since 1986.
Kenneth J. Taubes 1995 Employed as an investment
Senior Vice President professional by Putnam
Management since 1991. Prior
to June, 1991, Mr. Taubes was
Senior Vice President of the
Finance Division of U.S. Trust
Company.
Real Estate Opportunities Fund
- ------------------------------
Jeanne L. Mockard 1995 Employed as an investment
Senior Vice President professional by Putnam
Management since 1990.
Research Fund
- -------------
Thomas R. Bogan 1995 Employed as an investment
Senior Vice President professional by Putnam
Management since 1994.
Prior to November, 1994,
Mr. Bogan was Senior
Analyst of Lord, Abbett & Co.
Patrick O'Donnell 1995 Employed as an investment
Managing Director professional by Putnam
Management since 1994.
Prior to May, 1994, Mr.
O'Donnell was the founder and
President of Exeter Research
Inc.
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 plans. Expenses of the Trust
directly charged or attributable to a fund will be paid from the
assets of the fund. General expenses of the Trust will be
allocated among and charged to the funds and any other portfolios
of the Trust on a basis that the Trustees deem fair and
equitable, which may be based on the relative assets of the funds
or the nature of the services performed and relative
applicability to a fund. Each 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 funds. 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.
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
November 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 be divided without
shareholder approval into two or more series of shares
representing separate investment portfolios and are currently
divided into eleven series of shares. Only shares of Putnam
American Renaissance Fund, Putnam Balanced Fund, Putnam Real
Estate Opportunities Fund and Putnam Research Fund are offered by
this prospectus.
Any such series of shares may be divided without shareholder
approval into two or more classes of shares having such
preferences and special or relative rights and privileges as the
Trustees determine. The Trustees currently have authorized the
issuance of four classes of shares. Only class A shares are
currently being offered by this prospectus. Each fund may also
offer other classes of shares with different sales charges and
expenses. Because of these different sales charges and expenses,
the investment performance of the classes will vary. For more
information, including your eligibility to purchase any other
class of shares, contact your investment dealer or Putnam Mutual
Funds (at 1-800-225-1581).
Each share has one vote, with fractional shares voting
proportionally. Shares of each fund vote together as a single
class, except when otherwise required by law or as determined by
the Trustees. Shares are freely transferable, are entitled to
dividends as declared by the Trustees, and, if a fund were
liquidated, would receive the net assets of that fund. A fund
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.
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,
Cummins Engine Company, Inc., Springs Industries, Inc. 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 $25 or more per month through automatic deductions
from your bank checking or savings account. Application forms
are available from your investment dealer or through Putnam
Investor Services.
Shares are sold at the public offering price based on the net
asset value next determined after Putnam Investor Services
receives your order. In most cases, in order to receive that
day's public offering price, Putnam Investor Services must
receive your order before the close of regular trading on the New
York Stock Exchange. If you buy shares through your investment
dealer, the dealer must receive your order before the close of
regular trading on the New York Stock Exchange to receive that
day's public offering price.
The public offering price of shares is the net asset value plus a
sales charge that varies depending on the size of your purchase.
The fund receives the net asset value. The sales charge is
allocated between your investment dealer and Putnam Mutual Funds
as shown in the following table, except when Putnam Mutual Funds,
in its discretion, allocates the entire amount to your investment
dealer.
Sales charge Amount of
as a percentage of: sales charge
------------------- reallowed to
Net dealers as a
Amount of transaction amount Offering percentage of
at offering price ($) 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.
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), 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. 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
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 the Trust'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, each fund may sell shares at net asset value without
an initial sales charge or a CDSC in connection with the
acquisition by that fund of assets of an investment company or
personal holding company. The CDSC will be waived on redemptions
of shares arising out of the death or post-purchase disability of
a shareholder or settlor of a living trust account, and on
redemptions in connection with certain withdrawals from IRA or
other retirement plans. Up to 12% of the value of shares subject
to a systematic withdrawal plan may also be redeemed each year
without a CDSC. The SAI contains additional information about
purchasing shares of a fund's shares at reduced sales charges.
Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
shares of a fund at net asset value.
If you are considering redeeming or exchanging shares or
transferring shares to another person shortly after purchase, you
should pay for those shares with a certified check to avoid any
delay in redemption, exchange or transfer. Otherwise 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, the
fund reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any
exchange. Shareholders would be notified of any such action to
the extent required by law. Consult Putnam Investor Services
before requesting an exchange. See the 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 and Putnam Research Fund
distribute any net investment income and any net realized capital
gains at least annually. Putnam Balanced Fund and Putnam Real
Estate Opportunities Fund distribute any net investment income at
least quarterly and any net realized capital gains 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;
<PAGE>
- 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.
For corporate shareholders, any distributions received by Putnam
Real Estate Opportunities Fund from REITs 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
Trust's custodian. Putnam Investor Services, a division of
Putnam Fiduciary Trust Company, is the Trust's 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
The following rating services describe rated securities as
follows:
Moody's Investors Service, Inc.
Aaa--Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt-edged." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high-grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than
the Aaa securities.
A--Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade
obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear
adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba--Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during 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
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 as having predominantly speculative characteristics with
respect to capacity to pay interest and repay principal. 'BB'
indicates the least degree of speculation and 'C' the highest.
While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB -- Debt rated 'BB' has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The 'BB' rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied 'BBB-' rating.
B -- Debt rated 'B' has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal. The 'B' rating category is also
used for debt subordinated to senior debt that is assigned an
actual or implied 'BB' or 'BB-' rating.
CCC -- Debt rated 'CCC' has a currently identifiable
vulnerability to default, and is dependent upon favorable
business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal.
The 'CCC' rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied 'B' or 'B-'
rating.
CC -- The rating 'CC' typically is applied to debt subordinated
to senior debt that is assigned an actual or implied 'CCC'-
rating.
C -- The rating 'C' typically is applied to debt subordinated to
senior debt which is assigned an actual or implied 'CCC-' debt
rating. The 'C' rating may be used to cover a situation where
bankruptcy petition has been filed, but debt service payments are
continued.
D -- Bonds rated 'D' are in payment default. The 'D' rating
category is used when interest payments or principal payments are
not made on the date due even if the applicable grace period has
not expired, unless Standard & Poor's believes that such payments
will be made during such grace period. The 'D' rating also will
be used on the filing of a bankruptcy petition if debt service
payments are jeopardized.
<PAGE>
PUTNAM AMERICAN RENAISSANCE FUND
PUTNAM BALANCED 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 Balanced 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
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