PROSPECTUS
December 31, 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' December 31, 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 each 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
6
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Read this section to make sure a fund's objective is consistent
with your own.
How the funds pursue their objectives
6
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
This section explains in detail how a fund seeks its investment
objectives.
Risk factors. All investments entail some risk. Read this
section to make sure you understand the risks that are
associated with an investment in a fund.
How performance is shown
17
.
This section describes and defines the measures used to assess
fund performance. All data are based on past investment results
and do not predict future performance.
How the funds are managed
18
.
Consult this section for information about a fund's management,
allocation of its expenses, and how purchases and sales of
securities are made.
Organization and history
21
.
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.
<PAGE>
ABOUT YOUR INVESTMENT
How to buy shares
23
.
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.
Distribution plan
27
.
This section tells you what distribution fees are charged against
shares.
How to sell shares
27
.
In this section you can learn how to sell fund shares, either
directly to a fund or through an investment dealer.
How to exchange shares
29
.
Find out in this section how you may exchange fund shares 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
29
.
This section explains how a fund determines the value of its
shares.
How a fund makes distributions to shareholders; tax
information
29
.
This section describes the various options you have in choosing
how to receive fund dividends. It also discusses the tax status
of the payments and counsels you to seek specific advice about
your own situation.
ABOUT PUTNAM INVESTMENTS, INC.
31
.
Read this section to learn more about the companies that provide
marketing, investment management, and shareholder account
services to Putnam funds and their shareholders.
<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 expenses based on each fund's most
recent 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
Other operating
Management fees+ expenses+ expenses+
Putnam American NONE 1.00% 1.00%
Renaissance Fund
Putnam Balanced Fund NONE 0.73% 0.73%
Putnam Real Estate
Opportunities Fund NONE 0.98% 0.98%
Putnam Research Fund NONE 1.00% 1.00%
+after expense limitation
The table is provided to help you understand the expenses of
investing and your share of fund operating expenses. The
expenses shown in the table do not reflect the application of
credits that reduce fund expenses. The annual fund operating
expenses shown in the table for Putnam American Renaissance Fund
and Putnam Research Fund have been annualized. Actual "Other
expenses" and total fund operating expenses for Putnam Amerian
Renaissance Fund and Putnam Research Fund were 0.89% and 0.86%,
respectively. In the absence of the expense limitation,
management fees, "Other expenses" and total fund operating
expenses would have been as follows:
Total fund
Other operating
Management fees expenses expenses
Putnam American
Renaissance Fund 0.65% 1.85% 2.50%
Putnam Balanced Fund 0.65% 1.50% 2.15%
Putnam Real Estate
Opportunities Fund 0.70% 1.26% 1.96%
Putnam Research Fund 0.65% 1.14% 1.79%
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 5 years 10 years
Putnam American Renaissance
Fund $67 $88 $110 $173
Putnam Balanced Fund $65 $79 $96 $143
Putnam Real Estate
Opportunities Fund $67 $87 $109 $171
Putnam Research Fund $67 $88 $110 $173
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 has been audited and reported on by
each fund's independent accountants. The "Report of independent
accountants" and financial statements included in each fund's
annual report to shareholders for the 1996 fiscal year are
incorporated by reference into this prospectus. Each fund's
annual report, which contains additional unaudited performance
information, is available without charge upon request.
Financial highlights
(For a share outstanding throughout the period)
(The table is incorporated by reference from Post-Effective
Amendment No. 10 to the Fund's Registration Statement, File No.
33-56339.)<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
Basic investment strategy
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.
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 value of fund
assets may be affected favorably or unfavorably by changes in
currency exchange rates relative to the U.S. dollar. 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 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 fund 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 that could affect the
value of investments in certain foreign countries.
Legal remedies available to investors in certain foreign
countries may be limited. 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."
A fund may engage in a variety of foreign currency exchange
transactions in connection with its foreign investments,
including transactions involving futures contracts, forward
contracts and options. For further discussion on the risks
associated with purchasing and selling futures contracts and
options, see "Futures and options." The SAI also contains
information concerning these transactions.
The decision as to whether and to what extent
a fund will engage
in foreign currency exchange transactions will depend on a number
of factors, including prevailing market conditions, the
composition of a fund's portfolio and the availability of
suitable transactions. Accordingly, there can be no assurance
that a
fund will engage in foreign currency exchange transactions
at any given time or from time to time.
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.
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 a 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
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 regarding the risks associated with
investing 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 its
portfolio turnover rate may be higher than that of other mutual
funds.
Portfolio turnover generally involves some expense, including
brokerage commissions or dealer markups and other transaction
costs on the sale of securities and reinvestment in other
securities. These transactions may result in realization of
taxable capital gains. Portfolio turnover rates are shown in the
section "Financial highlights."
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, each fund may buy and sell call and put
options on index futures or stock indexes. Each 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 from the possibility of imperfect
correlations among movements in the prices of index futures and
options and movements in the prices of the underlying stock index
or securities and, in the case of hedging transactions, of the
securities that are the subject of the hedge. The successful use
of the strategies described above further depends on Putnam
Management's ability to forecast market movements correctly.
Other risks arise from the potential inability to close out index
futures or options positions. There can be no assurance that a
liquid secondary market will exist for any index future or option
at a particular time. A fund's ability to terminate an option
position established in the over-the-counter market may be more
limited than for exchange-traded options and may also involve the
risk that securities dealers participating in such transactions
would fail to meet their obligations to the fund. Certain
provisions of the Internal Revenue Code and certain regulatory
requirements may limit the use of index futures and options
transactions.
A more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the SAI.
Options. A 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 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, it
takes the risk that it will be required to purchase a security
from the option holder at a price above the current market price
of the security. 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.
A fund may also buy and sell put and call options, including
combinations of put and call options on the same underlying
security. The aggregate value of the securities underlying the
options may not exceed 25% of fund assets. The 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. A fund
may also purchase securities for future delivery, which may
increase its overall investment exposure and involves a risk of
loss if the value of the securities declines prior to the
settlement date. These transactions involve some risk if the
other party should default on its obligation and a 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, a 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 its 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, it 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 may invest, such as
futures contracts, options and forward contracts, are considered
to be "derivatives." Derivatives are financial instruments whose
value depends upon, or is derived from, the value of an
underlying asset, such as a security or an index. Further
information about these instruments and the risks involved in
their use is included elsewhere in this prospectus and in the
SAI.
Limiting investment risk
Specific investment restrictions help to limit investment risks
for the funds' shareholders. These restrictions prohibit a fund,
with respect to 75% of its total assets, from acquiring more than
10% of the voting securities of any one issuer.* They also
prohibit a 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
Fund advertisements may, from time to time, include performance
information. "Yield" is calculated by dividing the annualized
net investment income per share during a recent 30-day period by
the maximum public offering price per share on the last day of
that period.
"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, portfolio
composition and fund operating expenses. Investment performance
also often reflects the risks associated with a 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. Fund performance may be
compared to that of various indexes. See the SAI.
HOW THE FUNDS ARE MANAGED
The Trustees are responsible for generally overseeing the conduct
of fund business. Subject to such policies as the Trustees may
determine, Putnam Management furnishes a continuing investment
program for each fund and makes investment decisions on its
behalf. Subject to the control of the Trustees, Putnam
Management also manages each fund's other affairs and business.
Each fund pays Putnam Management a quarterly fee for these
services based on average net assets.
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.
Jeffrey R. Lindsey 1996 Employed as an investment
Senior Vice President professional by Putnam
Management since 1994.
Prior to April, 1994, Mr.
Lindsey was Vice President
at Strategic Portfolio
Management Inc.
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.
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
Managing Director 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 assets of the funds and each
other portfolio of the Trust on a basis that the Trustees deem
fair and equitable, which may be based on the relative assets of
the funds and each other portfolio or the nature of the services
performed and relative applicability to each fund or other
portfolio. Each fund also reimburses Putnam Management for the
compensation and related expenses of certain fund officers and
their staff who provide administrative services. The total
reimbursement is determined annually by the Trustees.
Putnam Management places all orders for purchases and sales of
fund securities. In selecting broker-dealers, Putnam Management
may consider research and brokerage services furnished to it and
its affiliates. Subject to seeking the most favorable price and
execution available, Putnam Management may consider sales of fund
shares (and, if permitted by law, of the other Putnam funds) as a
factor in the selection of broker-dealers.
The Trustees of the Trust have approved a new management contract
for Putnam Research Fund, to take effect when and if approved by
shareholders of the fund at a meeting scheduled to be held on
February 6, 1997. If the proposed management contract is not
approved by shareholders, this prospectus will be revised.
Under the proposed management contract, Putnam Research Fund
would pay a quarterly base fee (subject to adjustment as provided
below) to Putnam Management based on the average net assets of
the fund, as determined at the close of each business day during
the quarter, at the following annual rates, expressed as a
percentage of the fund's average net assets: 0.65% of the first
$500 million, 0.55% of the next $500 million, 0.50% of the next
$500 million, 0.45% of the next $5 billion, 0.425% of the next $5
billion, 0.405% of the next $ 5 billion, 0.39% of the next $5
billion, and 0.38% thereafter.
This base fee may be increased or decreased by applying a
performance adjustment formula based on the performance of the
fund relative to that of the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500"), an index of common stocks
frequently used as a general measure of U.S. stock market
performance. The fee, payable for each calendar quarter of the
fund, will be increased or decreased by an incentive payment or
penalty at the annual rate of 0.01% of average net assets for
each full 1% increment by which the fund outperforms or
underperforms the S&P 500 in excess of 3%, subject to a maximum
increase or decrease of 0.07% of average net assets. Performance
will be calculated for these purposes at the beginning of each
calendar quarter, for the thirty-six month period immediately
preceding such quarter (or the life of the fund, if shorter).
For example, under the proposed management contract, if the fund
were to achieve a cumulative total return of 30% for a given
three-year period and the S&P 500 were to return 25% for that
same period, i.e., the fund were to outperform the S&P 500 by 5%,
the fee payable to Putnam Management for the following quarter
would be increased by the annual rate of 0.02% of average net
assets. If the proposed management contract had been in effect
on October 1, 1996, the fund's cumulative total return of 24.03%,
relative to that of the S&P 500, 20.26%, would have resulted in
no performance adjustment to the base fee. The examples are
intended solely to illustrate the effect of the performance
adjustment. The fund's actual return will vary, and may be
greater or less than that of the S&P 500.
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 May
31, 1997 for Putnam Real Estate Opportunities Fund and Putnam
Balanced Fund and through June 30, 1997 for Putnam American
Renaissance Fund and Putnam Research 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. Putnam Management currently expects that the expense
limitation will be continued through the end of each fund's
current fiscal year.
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. Prior
to January 6, 1995, the Trust was known as Putnam Equity Funds.
As of November 30, 1996, 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.
The Trust is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. The Trustees may, without shareholder
approval, create two or more series of shares representing
separate investment portfolios. 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. 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. Each 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.
Although each fund is offering only its own shares in this
prospectus, it is possible that a fund might become liable for
any misstatement in the prospectus about another fund. The
Trustees of the funds have considered this factor in approving
the use of a single prospectus.
If you own fewer shares than the minimum 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 Trust's Trustees: George Putnam,* Chairman. President of
the Putnam funds. Chairman and Director of Putnam Management and
Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director,
Marsh & McLennan Companies, Inc.; William F. Pounds, Vice
Chairman. Professor of Management, Alfred P. Sloan School of
Management, Massachusetts Institute of Technology; Jameson Adkins
Baxter, President, Baxter Associates, Inc.; Hans H. Estin, Vice
Chairman, North American Management Corp.; John A. Hill, Chairman
and Managing Director, First Reserve Corporation; Ronald J.
Jackson, Former Chairman, President and Chief Executive Officer
of Fisher-Price, Inc., Director of Safety 1st, Inc., Trustee of
Salem Hospital and the Peabody Essex Museum; 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 and Director of
Acquisitions, Cabot Partners Limited Partnership; Donald S.
Perkins,* Director of various corporations, including Cummins
Engine Company, Lucent Technologies, 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
and Chief Executive Officer, 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 are also Trustees of the other Putnam
funds. Those marked with an asterisk (*) are or may be deemed to
be "interested persons" of a fund, 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 appropriate 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 $25 or more per month through automatic deductions
from your bank checking or savings account. Application forms
are available from your investment dealer or through Putnam
Investor Services.
Shares are sold at the public offering price based on the net
asset value next determined after Putnam Investor Services
receives your order. In most cases, in order to receive that
day's public offering price, Putnam Investor Services must
receive your order before the close of regular trading on the New
York Stock Exchange. If you buy shares through your investment
dealer, the dealer must receive your order before the close of
regular trading on the New York Stock Exchange to receive that
day's public offering price.
The public offering price of is the net asset value plus a sales
charge that varies depending on the size of your purchase. The
fund receives the net asset value. The sales charge is allocated
between your investment dealer and Putnam Mutual Funds as shown
in the following table, except when Putnam Mutual Funds, in its
discretion, allocates the entire amount to your investment
dealer.
Sales charge Amount of
as a percentage of: sales charge
------------------- reallowed to
Net dealers as a
Amount of transaction amount Offering percentage of
at offering price ($) 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 or purchases by participant-directed qualified
retirement plans with at least 200 eligible employees. However,
a
contingent deferred sales charge of 1.00% will be imposed upon
redemptions of shares purchased at net asset value after July 31,
1996 by a participant-directed qualified retirement plan
(including a plan with at least 200 eligible employees) that
initially invested less than $20 million in Putnam funds and
other
investments managed by Putnam Management or its affiliates and
that redeems 90% or more of the amount initially invested within
two years after initial purchase. Similarly, a CDSC of 1.00% or
0.50%, respectively, will be imposed within the first or second
year after purchase on redemptions by any investor, other than a
participant-directed qualified retirement plan, that purchased
fund shares without an initial sales charge as part of an
investment of $1 million or more.
Shares purchased by investors investing $1 million or more in
shares whose dealer of record waived its commission with the
approval of Putnam Mutual Funds are not subject to the CDSC.
In determining whether a CDSC is payable, shares not subject to
any charge will be redeemed first, followed by shares held
longest
during the CDSC period. Any CDSC will be 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.
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 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%.
A participant-directed qualified retirement plan participating in
a "multi-fund" program approved by Putnam Mutual Funds may
include
amounts invested in 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 elsewhere in this prospectus and in the SAI,
General
You may be eligible to buy fund 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, qualified
retirement plans and other plans. Descriptions are also included
in the order form and in the SAI.
Each fund may sell shares at net asset value without an initial
sales charge or a CDSC to 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 a 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 at reduced sales charges.
Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
fund shares 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, payment
may
be delayed 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,
certificates will not be issued for your shares.
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 each fund to Putnam Mutual
Funds
at the annual rate of up to 0.35% of its 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 the appropriate fund any day the New
York Stock Exchange is open, either directly to the fund or
through your investment dealer. The fund will only redeem shares
for which it has received payment.
Selling shares directly to your 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 the fund receives your request in proper form less any
applicable CDSC. In order to receive that day's net asset value,
Putnam Investor Services must receive your request before the
close of regular trading on the New York Stock Exchange.
If you sell shares having a net asset value of $100,000 or more,
the signatures of registered owners or their legal
representatives
must be guaranteed by a bank, broker-dealer or certain other
financial institutions. See the 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.
Your fund generally sends you payment for your shares the
business
day after your request is received. Under unusual circumstances,
the fund may suspend redemptions, or postpone payment for more
than seven days, as permitted by federal securities law.
You may use Putnam's Telephone Redemption Privilege to redeem
shares valued up to $100,000 from your account unless you have
notified Putnam Investor Services of an address change within the
preceding 15 days. Unless an investor indicates otherwise on the
account application, Putnam Investor Services will be authorized
to act upon redemption and transfer instructions received by
telephone from a shareholder, or any person claiming to act as
his
or her representative, who can provide Putnam Investor Services
with his or her account registration and address as it appears on
Putnam Investor Services' records.
<PAGE>
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. 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 your fund, the fund
reserves the right to revise or terminate the exchange privilege,
limit the amount or number of exchanges or reject any exchange.
Consult Putnam Investor Services before requesting an exchange.
See the SAI to find out more about the exchange privilege.
HOW A FUND VALUES ITS SHARES
Each 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. Distributions from capital gains 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.
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).
<PAGE>
About Putnam Investments, Inc.
Putnam Management has been managing mutual funds since 1937.
Putnam Mutual Funds is the principal underwriter of the funds and
of other Putnam funds. Putnam Fiduciary Trust Company is the
custodian of the funds. Putnam Investor Services, a division of
Putnam Fiduciary Trust Company, is the investor servicing and
transfer agent for the funds.
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 following rating services describe rated securities as
follows:
Moody's Investors Service, Inc.
Bonds
Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edged." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds which are rated Aa are judged to be of high quality
by
all standards. Together with the Aaa group they comprise what
are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the long-term risk appear somewhat larger than the Aaa
securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest
a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
<PAGE>
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
Bonds
AAA -- Debt rated `AAA' has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal
is
extremely strong.
AA -- Debt rated `AA' has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues only
in small degree.
A -- Debt rated `A' has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB -- Debt rated `BBB' is regarded as having an adequate
capacity
to pay interest and repay principal. Whereas it normally
exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB-B-CCC-CC-C -- Debt rated `BB', `B', `CCC', `CC' and `C' is
regarded, on balance, as predominantly speculative with respect
to
capacity to pay interest and repay principal in accordance with
the terms of the obligation. `BB' indicates the lowest 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 a
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 S&P 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
<PAGE>
PUTNAM AMERICAN RENAISSANCE FUND
PUTNAM BALANCED FUND
PUTNAM REAL ESTATE OPPORTUNITIES FUND
PUTNAM RESEARCH FUND
(EACH REFERRED TO HEREIN AS A "FUND"),
EACH A SERIES OF PUTNAM INVESTMENT FUNDS (THE "TRUST")
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
December 31, 1996
This SAI is not a prospectus and is only authorized for
distribution when accompanied or preceded by the prospectus of
the
funds dated December 31, 1996, 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-
4
INVESTMENT PERFORMANCE . . . . . . . . . . . . . . . . . . . . .
. . . .I-14
ADDITIONAL OFFICERS. . . . . . . . . . . . . . . . . . . . . . .
. . . .I-15
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . . . .
. . . .I-17
Part II
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . .
. . . . II-1
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .II-29
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .II-35
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . .
. . . .II-44
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . .
. . . .II-46
DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . . .
. . . .II-59
INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . .
. . . .II-60
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . .
. . . .II-66
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . .
. . . .II-66
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . .
. . . .II-66
STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . .
. . . .II-67
COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . .
. . . .II-68
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .II-73
<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, a 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.
<PAGE>
(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.
(9) Issue any class of securities which is senior to the fund's
shares of beneficial interest.
Although certain of a fund's fundamental investment restrictions
permit it to borrow money to a limited extent, the fund does not
currently intend to do so and did not do so last year.
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 fund shares, or (2) 67% or more of the shares of that
fund present at a meeting if more than 50% of the outstanding
fund
shares are represented at the meeting in person or by proxy.
It is contrary to each fund's present policy, which may be
changed
without shareholder approval, to:
Invest in (a) securities which are not readily marketable,
(b) securities restricted as to resale (excluding securities
determined by the Trustees of the Trust (or the person designated
by the Trustees of the Trust 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.
All percentage limitations on investments (other than pursuant to
non-fundamental restriction (1)) 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.
-------------------------
CHARGES AND EXPENSES
Management fees
Each fund pays a quarterly fee to Putnam Investment Management,
Inc., each fund's investment manager ("Putnam Management"), based
on the average net assets of that fund, as determined at the
close
of each business day during the quarter, at the following rates
expressed as a percentage of each fund's average net assets:
Fund name Contract date Rates
Putnam American 12/12/94 as revised 0.70% of the first $500
Renaissance Fund 7/14/95 and as further million, 0.60% of the
revised 12/1/95 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.
Putnam Balanced 12/12/94 as revised 0.65% of the first $500
Fund 7/14/95 and as further million, 0.55% of the
revised 12/1/95 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 12/12/94 as revised 0.70% of the first $500
Opportunities 7/14/95 and as further million, 0.60% of the
Fund revised 12/1/95 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.
Putnam Research 12/12/94 as revised 0.65% of the first $500
Fund 7/14/95 and as further million, 0.55% of the
revised 12/1/95 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.
At a shareholder meeting scheduled to be held on February 6,
1997,
shareholders of Putnam Research Fund will be asked to approve a
new management contract for that fund. Under the proposed
management contract, the fund would pay a quarterly base fee
(subject to adjustment as provided below) to Putnam Management
based on the average net assets of the fund, as determined at the
close of each business day during the quarter, at the following
annual rates, expressed as a percentage of the fund's average net
assets: 0.65% of the first $500 million, 0.55% of the $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.
This base fee may be increased or decreased by applying a
performance adjustment formula based on the performance of the
fund relative to that of the Standard & Poor's 500 Composite
Stock
Price Index (the "S&P 500"), an index of common stocks frequently
used as a general measure of U.S. stock market performance. The
fee, payable for each calendar quarter of the fund, will be
increased or decreased by an incentive payment or penalty at the
annual rate of 0.01% of average net assets for each full 1%
increment by which the fund outperforms or underperforms the S&P
500 in excess of 3%, subject to a maximum increase or decrease of
0.07% of average net assets. Performance will be calculated for
these purposes at the beginning of each calendar quarter, for the
thirty-six month period immediately preceding such quarter (or
the
life of the fund, if shorter). For example, under the proposed
management contract, if the fund were to achieve a cumulative
total return of 30% for a given three-year period and the S&P 500
were to return 25% for that same period, i.e., the fund were to
outperform the S&P 500 by 5%, the fee payable to Putnam
Management
for the following quarter would be increased by the annual rate
of
0.02% of average net assets. If the proposed management contract
had been in effect on October 1, 1996, the fund's cumulative
total
return of 24.03%, relative to that of the S&P 500, 20.26%, would
have resulted in no performance adjustment to the base fee. The
examples are intended solely to illustrate the effect of the
performance adjustment. The fund's actual return will vary, and
may be greater or less than that of the S&P 500.
If the proposed contract is not ultimately approved by
shareholders, this SAI will be supplemented or revised, as
appropriate.
<PAGE>
For the past fiscal years, pursuant to its existing management
contract, each fund incurred the following fees:
Reflecting a
reduction in the
following amounts
Fiscal Management pursuant to an
Fund name year fee paid expense limitation
Putnam American 1996 $14,050 $29,062
Renaissance Fund
Putnam Balanced Fund 1996 $13,557 $29,606
1995 $8,553 $19,100
Putnam Real Estate
Opportunities Fund 1996 $14,060 $19,662
1995 $7,598 $28,374
Putnam Research Fund 1996 $26,676 $30,948
Expense limitation. In order to limit expenses, Putnam
Management
has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through May 31, 1997 for Putnam
Real Estate Opportunities Fund and Putnam Balanced Fund and
through June 30, 1997 for Putnam American Renaissance Fund and
Putnam Research Fund, to the extent that expenses of the funds
(exclusive of brokerage, interest, taxes, deferred organizational
and extraordinary expense, and payments under the funds'
distribution plans) would exceed the following annual rate 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, expenses of the funds do not reflect the
application
of commissions or cash management credits 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 SAI would be revised. Putnam
Management currently expects that the expense limitation will be
continued through the end of each fund's current fiscal year.
<PAGE>
Brokerage commissions
The following table shows brokerage commissions paid during the
fiscal period indicated:
Fiscal Brokerage
Fund name year commissions
Putnam American Renaissance 1996 $6,139
Fund
Putnam Balanced Fund 1996 $3,290
1995 $3,351
Putnam Real Estate
Opportunities Fund 1996 $1,642
1995 $4,062
Putnam Research Fund 1996 $6,848
The following table shows transactions placed with brokers and
dealers during the most recent fiscal year to recognize research,
statistical and quotation services received by Putnam Management
considered to be particularly useful to it and its affiliates:
Dollar
value Percent of
of these total Amount of
transactions transactions commissions
Putnam American $3,337,756 42.31% $3,394
Renaissance Fund
Putnam Balanced Fund $2,141,691 65.04% $2,214
Putnam Real Estate
Opportunities Fund $211,400 19.03% $684
Putnam Research Fund $484,818 3.78% $485
Administrative expense reimbursement
Each fund reimbursed Putnam Management in the following amounts
for administrative services during fiscal 1996, including the
following amounts for compensation of certain fund officers and
contributions to the Putnam Investments, Inc. Profit Sharing
Retirement Plan for their benefit.
<PAGE>
Portion of total
reimbursement for
Total compensation and
Fund name reimbursement contributions
Putnam American
Renaissance Fund $43 $38
Putnam Balanced Fund $40 $35
Putnam Real Estate
Opportunities Fund $40 $35
Putnam Research Fund $56 $29
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 fees
paid to each Trustee by each fund for fiscal 1996 and the fees
paid to each Trustee by all of the Putnam funds during the
calendar year 1995:
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate
compensation(1) from:
Pension or Estimated
Putnam Putnam
retirement annual benefits
American Putnam Real Estate
Putnam benefits accrued from all All
Renaissance Balanced Opportunities
Research as part of Putnam funds Putnam
Trustees/year Fund Fund Fund
Fund fund expenses(2) upon retirement(3) funds(4)
- -----------------------------------------------------------------
- ------------------------------------------------------
<S> <C> <C> <C>
<C> <C> <C> <C>
Jameson A. Baxter/1994 $124 $123 $123 $124
$0 $71,676 $150,854
Hans H. Estin/1972 123 122 122 123
0 70,043 150,854
John A. Hill/1985(5) 122 122 121 122
0 70,043 149,854
Ronald J. Jackson/1996(6) 21 39 29 21
0 70,043 N/A
Elizabeth T. Kennan/1992 123 122 122 123
0 69,709 148,854
Lawrence J. Lasser/1992 121 121 121 121
0 70,043 150,854
Robert E. Patterson/1984 133 133 132 133
0 71,043 152,854
Donald S. Perkins/1982 122 121 121 122
0 69,376 150,854
William F. Pounds/1971 124 (7) 124 (7) 123 (7) 125
(7) 0 70,543 149,854
George Putnam/1957 123 122 122 123
0 70,043 150,854
George Putnam, III/1984 123 122 122 123
0 70,043 150,854
Eli Shapiro/1995(8) 134 134 133 134
0 47,686 95,372
A.J.C. Smith/1986 121 121 121 121
0 68,252 149,854
W. Nicholas Thorndike/1992 132 132 132 132
0 71,043 152,854
- -----------------------------------------------------------------
- ------------------------------------------------------
(1) Includes an annual retainer and an attendance fee for
each meeting attended.
(2) The Trustees approved a Retirement Plan for Trustees of
the Putnam funds on October 1, 1996. Prior to that date,
voluntary retirement benefits were paid to certain
retired Trustees .
(3) Assumes that each Trustee retires after at least five
years of service. Estimated benefits for each Trustee are
based on amounts paid to such Trustee for the three most
recent calendar years (or, for Trustees who have not
served as Trustees throughout such three-year period,
the average amount paid to each Trustee for such years).
(4) As of December 31, 1995, there were 99 funds in the
Putnam family.
(5) Includes compensation deferred pursuant to a Trustee
Compensation Deferral Plan. The total amount of deferred
compensation payable by the Putnam funds to Mr. Hill was
$51,141. Information on deferred compensation includes
income earned on such amounts.
(6) Elected as a Trustee in May 1996.
(7) Includes additional compensation for service as Vice
Chairman of the Putnam funds.
(8) Elected as a Trustee in April 1995.
</TABLE>
Under a Retirement Plan for Trustees of the Putnam funds (the
"Plan"), each Trustee who retires with at least five years of
service as a Trustee of the funds is entitled to receive an
annual
retirement benefit equal to one-half of the average annual
compensation paid to such Trustee for the last three years of
service prior to retirement. This retirement benefit is payable
during a Trustee's lifetime, beginning the year following
retirement, for a number of years equal to such Trustee's years
of
service. A death benefit is also available under the Plan which
assures that the Trustee and his or her beneficiaries will
receive
benefit payments for the lesser of an aggregate period of (i) ten
years or (ii) such Trustee's total years of service.
The Plan Administrator (a committee comprised of Trustees that
are
not "interested persons" of the fund, as defined in the
Investment
Company Act of 1940) may terminate or amend the Plan at any time,
but no termination or amendment will result in a reduction in the
amount of benefits (i) currently being paid to a Trustee at the
time of such termination or amendment, or (ii) to which a current
Trustee would have been entitled to receive had he or she retired
immediately prior to such termination or amendment.
For additional information concerning the Trustees, see
"Management" in Part II of this SAI.
<PAGE>
Share ownership
At November 30, 1996, the officers and Trustees of the Trust as a
group owned 5.67% of Putnam American Renaissance Fund, 3.81% of
Putnam Balanced Fund, 4.10% Putnam Real Estate Opportunities Fund
and 13.65% of Putnam Research Fund, and except as noted below, to
the knowledge of the Trust, no person owned of record or
beneficially 5.00% or more of the shares of the funds.
Putnam American Renaissance Fund
--------------------------------
Shareholder name Percentage
and address owned
-------------------- --------
Putnam Investments, Inc.* 88.50%
Putnam Balanced Fund
--------------------
Shareholder name Percentage
and address owned
-------------------- --------
Putnam Investments, Inc.* 95.40%
<PAGE>
Putnam Real Estate Opportunities Fund
-------------------------------------
Shareholder name Percentage
and address owned
-------------------- --------
Putnam Investments, Inc.* 90.30%
Putnam Research Fund
--------------------
Shareholder name Percentage
and address owned
-------------------- --------
Putnam Investments, Inc.* 77.20%
Thomas R. Bogan 7.60%
One Devonshire Place
Boston, MA 02109
* One Post Office Square, Boston, MA 02109
Class A sales charges and contingent deferred sales charges
Putnam Mutual Funds received no sales charges with respect to
class A shares for any of the funds during fiscal 1996.
Investor servicing and custody fees and expenses
During the 1996 fiscal year, each fund incurred the following
fees
and out-of-pocket expenses for investor servicing and custody
services provided by Putnam Fiduciary Trust Company.
Fund name
Putnam American Renaissance Fund $11,038
Putnam Balanced Fund $10,098
Putnam Real Estate
Opportunities Fund $6,273
Putnam Research Fund $19,647
<PAGE>
INVESTMENT PERFORMANCE
Standard performance measures
Putnam American Renaissance Fund
(for the period ended July 31, 1996)
Class A
Inception date: October 2, 1995
Annualized total
return
Life of class 13.16%
Putnam Balanced Fund
(for the period ended September 30, 1996)
Class A
Inception date: January 3, 1995
Annualized total
return
1 year 8.44%
Life of class 18.65%
Yield
30-day
Yield 1.96%
Putnam Real Estate Opportunities Fund
(for the period ended August 31, 1996)
Class A
Inception date: January 3, 1995
Annualized total
return
1 year 12.64%
Life of class 14.80%
<PAGE>
Putnam Research Fund
(for the period ended July 31, 1996)
Class A
Inception date: October 2, 1995
Annualized total
return
Life of class 8.64%*
* Represents cumulative, rather than average annual, total
return.
Data represent past performance and are not indicative of future
results. Total return and yield reflect the deduction of the
maximum sales charge of 5.75%. Total return and yield for each
fund reflect an expense limitation currently in effect. Without
the expense limitation, total return would have been 18.78% for
Putnam American Renaissance Fund, 13.75% for Putnam Balanced
Fund,
20.16% for Putnam Real Estate Opportunities Fund and 14.81% for
Putnam Research Fund and the yield for Putnam Balanced Fund
would have been 0.71% . See "Standard performance measures"
in
Part II of this SAI for information on how performance is
calculated. Past performance is no guarantee of future results.
ADDITIONAL OFFICERS
In addition to the persons listed as fund officers in Part II of
this SAI, each of the following persons is also a Vice President
of each fund and certain of the other Putnam funds, the total
number of which is noted parenthetically. Officers of Putnam
Management hold the same offices in Putnam Management's parent
company, Putnam Investments, Inc.
Thomas R. Bogan (age 55) (1 fund). Managing Director of Putnam
Management. Prior to November, 1994, Mr. Bogan was Senior
Analyst
at Lord, Abbett & Co.
Brett C. Browchuk (age 33) (48 funds). Managing Director of
Putnam Management. Prior to April, 1994, Mr. Browchuk was
Managing Director at Fidelity Investments.
Peter Carman (age 55) (40 funds). Senior Managing Director of
Putnam Management. Prior to August, 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.
Ian C. Ferguson (age 39) (22 funds). Senior Managing Director.
Prior to April, 1996, Mr. Ferguson was CEO at Hong Kong Shanghai
Banking Corporation.
David L. King (age 39) (6 funds). Senior Vice President of
Putnam
Management.
J. Peter Grant (age 53) (3 funds). Senior Vice President of
Putnam Management. Senior Vice President of Putnam Fiduciary
Trust Company.
Carol C. McMullen (age 41) (7 funds). 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 (age 33) (4 funds). Senior Vice President of
Putnam Management.
John J. Morgan, Jr. (age 56) (10 funds). Managing Director of
Putnam Management.
Hugh H. Mullin (age 34) (4 funds). Senior Vice President of
Putnam Management.
Patrick O'Donnell (age 50) (1 fund). Managing Director of Putnam
Management. Prior to May, 1994, Mr. O'Donnell was the founder
and
President of Exeter Research Inc.
Anthony W. Regan (age 57) (11 funds). Senior Managing Director
of
Putnam Management. Director of Putnam Investments, Inc.
Thomas V. Reilly (age 49) (15 funds). Managing Director of
Putnam
Management.
David J. Santos (age 38) (3 funds). Vice President of Putnam
Management.
Justin M. Scott (age 39) (10 funds). Managing Director of Putnam
Management.
Sheldon N. Simon (age 39) (2 funds). Senior Vice President of
Putnam Management.
Robert Swift (age 36) (7 funds). Senior Vice President of Putnam
Management. Prior to August, 1995, Mr. Swift was Director and
Portfolio Manager at IAI International/Hill Samuel Investment
Advisors.
Kenneth J. Taubes (age 38) (7 funds). Senior Vice President of
Putnam Management.
<PAGE>
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, MA
02109, are the independent accountants for Putnam Real Estate
Opportunities Fund and Putnam Balanced 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 Report
of
Independent Accountants, financial highlights and financial
statements included in the Annual Report for the fiscal year
ended
August 31, 1996 for Putnam Real Estate Opportunities Fund, and
for
the fiscal year ended September 30, 1996 for Putnam Balanced
Fund,
filed electronically on October 30, 1996 and November 27, 1996,
respectively (File No. 811-7237), are incorporated by reference
into this SAI. The financial highlights included in the
prospectus and incorporated by reference into this SAI and the
financial statements incorporated by reference into the
prospectus
and this SAI have been so included and incorporated in reliance
upon the report of the independent accountants, given on their
authority as experts in auditing and accounting.
Price Waterhouse, LLP, 165 Federal St., Boston, MA 02109, 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. The Reports of Independent Accountants,
financial highlights and financial statements included in the
Annual Reports for the fiscal year ended July 31, 1996, filed
electronically on October 2, 1996 for Putnam American Renaissance
Fund and on October 4, 1996 for Putnam Research Fund (File No.
811-7237), are incorporated by reference into this SAI. The
financial highlights for these funds included in the prospectus
and incorporated by reference into this SAI and the financial
statements for these funds incorporated by reference into the
prospectus and this SAI have been so included and incorporated in
reliance upon the report of the independent accountants, given on
their authority as experts in auditing and accounting.
<PAGE>
December 31, 1996
Putnam International Fund
Putnam Japan Fund
INVESTMENT STRATEGY: GROWTH
Putnam Global Growth and Income Fund
INVESTMENT STRATEGY: GROWTH AND INCOME
This prospectus explains concisely what you should know before
investing in shares of Putnam Global Growth and Income Fund,
Putnam International Fund and Putnam Japan 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
December 31, 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
Page number
Expenses summary
4
.
This section describes the sales charges, management fees, and
annual operating expenses that apply to various classes of 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 the 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
6
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Read this section to make sure a fund's objectives are consistent
with your own.
How the funds pursue their objectives
6
. . . . . . . . . . . . . . . . . . . . . . . . . . .
This section explains in detail how a fund seeks its investment
objectives.
Risk factors. All investments entail some risk. Read this
section to make sure you understand the risks that are
associated with an investment in a fund.
How performance is shown
16
.
This section describes and defines the measures used to assess
fund performance. All data are based on past investment results
and do not predict future performance.
How the funds are managed
16
.
Consult this section for information about a fund's management,
allocation of its expenses, and how purchases and sales of
securities are made.
Organization and history
18
.
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.
<PAGE>
ABOUT YOUR INVESTMENT
Alternative sales arrangements
20
.
Read this section for descriptions of the classes of shares this
prospectus offers and for points you should consider when making
your choice.
How to buy shares
20
.
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
24
.
This section tells you what distribution fees are charged against
shares.
How to sell shares
24
.
In this section you can learn how to sell fund shares, either
directly to a fund or through an investment dealer.
How to exchange shares
25
.
Find out in this section how you may exchange fund shares 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
26
.
This section explains how a fund determines the value of its
shares.
How a fund makes distributions to shareholders; tax
information
26
.
This section describes the various options you have in choosing
how to receive fund dividends. It also discusses the tax status
of the payments and counsels you to seek specific advice about
your own situation.
ABOUT PUTNAM INVESTMENTS, INC.
26
.
Read this section to learn more about the companies that provide
marketing, investment management, and shareholder account
services
to Putnam funds and their shareholders.<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 , in the case of Putnam Global
Growth and Income Fund, expenses based on the most recent fiscal
year and, in the case of Putnam International Fund and Putnam
Japan Fund, estimated expenses which each fund expects to incur
in
its first full 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
Other operating
expenses expenses
(after expense(after expense
limitation, limitation,
Management where where
fees indicated)
indicated)
---------- ---------- ---------
Putnam Global Growth
and Income Fund 0.80% 1.37%
2.17%+
Putnam International Fund NONE 1.45%+ 1.45%+
Putnam Japan Fund NONE 1.45%+ 1.45%+
+after expense limitation
<PAGE>
The table is provided to help you understand the expenses of
investing and your share of fund operating expenses. The expenses
shown in the table do not reflect the application of credits that
reduce fund expenses. Information shown for Putnam Global
Growth and Income reflects the termination of an expense
limitation in effect during fiscal 1996. Actual management fees,
"Other expenses" and total fund operating expenses for Putnam
Global Growth and Income Fund were 0.00%, 1.27% and 1.27%,
respectively. In the absence of the expense limitation,
estimated management fees, "Other expenses" and total
fund
operating expenses for Putnam International Fund and Putnam Japan
Fund would be as follows:
Total fund
Management Other operating
fees expenses expenses
---------- ---------- ----- ----
Putnam International Fund 0.80% 1.52% 2.32%
Putnam Japan Fund 0.80% 1.52% 2.32%
Examples
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and redemption at the end of each
period:
1 3 5 10
year years years years
Putnam Global Growth and Income Fund $78 $122 $167 $293
Putnam International Fund $71 $101 N/A N/A
Putnam Japan Fund $71 $101 N/A N/A
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 table presents per share financial information for
the funds. This information has been audited and reported on by
each fund's independent accountants. The "Report of independent
accountants" and financial statements included in each fund's
annual report to shareholders for the 1996 fiscal period are
incorporated by reference into this prospectus. Each fund's
annual report, which contains additional unaudited performance
information, is available without charge upon request.
Financial highlights
(For a share outstanding throughout the period)
(The table is incorporated by reference from Post-Effective
Amendment No. 10 to the Fund's Registration Statement, File No.
33-56339.)
OBJECTIVES
Putnam Global Growth and Income Fund seeks capital growth.
Current income is a secondary objective.
Putnam International Fund seeks long-term capital appreciation.
Putnam Japan Fund seeks long-term capital appreciation.
Each fund is represented by a separate series of shares of
beneficial interest and pursues its investment objective(s)
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
Basic investment strategy
Putnam Global Growth and Income Fund
The fund will invest primarily in common stocks that offer
potential for capital growth, and may, consistent with its
investment objectives, invest in stocks that offer potential for
current income. The fund may also purchase corporate bonds,
notes
and debentures, preferred stocks, securities convertible into
common stock or other equity securities or U.S. or foreign
government securities if Putnam Investment Management, Inc., the
Trust's investment manager ("Putnam Management"), determines that
their purchase would help further the fund's investment
objectives. The types of securities held by the fund may vary
from time to time in light of the fund's investment objectives,
changes in interest rates, and economic and other factors. When
selecting portfolio securities for the fund that have the
potential for capital growth, Putnam Management will seek to
identify securities that are significantly undervalued in
relation
to underlying asset values or earnings potential. The fund may
also hold a portion of its assets in cash or high-quality money
market instruments.
Under normal market conditions, the fund will invest in at least
three different countries and will normally invest at least 30%,
but not more than 70%, of its total assets in securities of
companies whose principal place of business is in the United
States or whose securities are principally traded in the United
States. Subject to the foregoing, the fund may invest in
securities of issuers in emerging market countries, as well as
securities of issuers in more developed countries. The fund will
consider an issuer of securities to be an "emerging market"
company if it is organized under the laws of an emerging market
country and has a principal office in such country, or if it
derives 50% or more of its revenues from business in emerging
market countries. For these purposes, a country is considered to
be an "emerging market country" based on Putnam Management's
evaluation of its level of economic development or the size and
experience of its securities markets. Investing in emerging
market countries generally involves special risks. See "Common
investment policies and techniques; risk factors -- Foreign
investments" below.
Fixed-income securities in which the fund may invest 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; risk factors"
below.
Putnam International Fund
The fund will invest primarily in equity securities of issuers
which have a principal place of business located outside of the
United States or whose securities are principally traded on
foreign markets. Under normal market conditions, the fund
expects
to invest substantially all of its assets in securities of such
foreign issuers and, in any event, will invest at least 65% of
its
total assets in securities of issuers located in at least three
different countries other than the United States. The fund may
invest in securities of issuers in emerging market countries (as
defined above under "Putnam Global Growth and Income Fund"), as
well as securities of issuers in more developed countries.
Investing in emerging market countries generally involves special
risks. See "Common investment policies and techniques; risk
factors -- Foreign investments."
While the fund will not limit its investments to any particular
type of company, it is the current intention of Putnam Management
to invest the fund's assets primarily in "large-capitalization"
companies (defined for these purposes as companies with equity
market capitalizations of at least $2 billion). Consistent with
the foregoing, the fund may invest in companies whose earnings
are
believed to be in a relatively strong growth trend, or in
companies in which significant further growth is not anticipated
but whose securities are thought to be undervalued. The fund may
also invest in small and relatively less well-known companies
which meet these characteristics. The securities of small and
relatively less well-known companies may present greater
opportunities for capital appreciation, but may also involve
greater risk. See "Common investment policies and techniques;
risk factors -- Investments in securities of small-capitalization
companies."
Common stocks and other equity securities are normally the fund's
main investments. However, the fund may purchase preferred
stock,
debt securities and securities convertible into common stock or
other equity securities 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; risk factors"
below. The fund may also hold a portion of its assets in cash or
high-quality money market instruments.
Putnam Japan Fund
Under normal market conditions, Putnam Management expects that
substantially all of the fund's assets (and, in any event,
normally at least 65% of its total assets) will be invested in
common stocks and other equity securities, including securities
convertible into common stocks or other equity securities, of
Japanese companies. The fund will consider an issuer of
securities to be a "Japanese company" if it is organized under
the laws of Japan and has a principal office in Japan, or if it
derives 50% or more of its total revenues from business in Japan.
Subject to the foregoing, the fund may from time to time invest
in
securities of issuers located in countries other than Japan,
including securities of issuers located in emerging market
countries (as defined above under "Putnam Global Growth and
Income
Fund"). Investing in emerging market countries generally involves
special risks. See "Common investment policies and techniques;
risk factors -- Foreign investments" below.
The fund may invest in companies whose earnings are believed to
be
in a relatively strong growth trend, or in companies in which
significant further growth is not anticipated but whose
securities
are thought to be undervalued. The fund's investments may
include
securities of small capitalization companies which meet these
characteristics. Small capitalization companies (defined for
these purposes as companies with equity market capitalizations of
less than $1 billion) may present greater opportunities for
capital appreciation, but may also involve greater risk. See
"Common investment policies and techniques; risk factors --
Investments in securities of small-capitalization companies."
Common stocks and other equity securities are normally the fund's
main investments. However, the fund may purchase preferred
stock,
debt securities and securities convertible into common stock or
other equity securities 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; risk factors"
below. The fund may also hold a portion of its assets in cash or
high-quality money market instruments.
Risk factors -- Putnam Japan Fund. Because the fund's
investments
are concentrated in a single country, the value of its shares
will
be especially affected by Japanese political, economic, market
and
exchange rate conditions, and may fluctuate more widely than the
value of shares of a fund that invests in companies located in a
number of different countries. Since the Japanese economy is
dependent to a significant extent on foreign trade, the
relationships between Japan and its trading partners and between
the yen and other currencies are expected to have a significant
impact on the Japanese economy generally and therefore are
expected to influence the fund's performance. Japan has in the
past experienced difficult relations with its trading partners,
particularly the United States. It is possible that trade
sanctions or other protectionist measures could impact the
Japanese economy and markets, and have an adverse effect on the
value of the fund's assets, in both the short and long term.
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.
Common investment policies and techniques; risk factors
Investments in securities of small-capitalization companies.
Each
fund may invest in securities of small-capitalization companies
(defined for these purposes as companies with equity market
capitalizations of less than $1 billion). These securities may
involve certain special risks. Such companies may have limited
product lines, markets or financial resources, and may be
dependent on a limited management group. Such securities may
trade less frequently and in smaller volume than more widely held
securities. The values of these securities may fluctuate more
sharply than those of other securities, and the fund may
experience some difficulty in establishing or closing out
positions in these securities at prevailing market prices. There
may be less publicly available information about the issuers of
these securities or less market interest in such securities than
in the case of larger companies, and it may take a longer period
of time for the prices of such securities to reflect the full
value of their issuers' underlying earnings potential or assets.
Foreign investments. Since foreign securities are normally
denominated and traded in foreign currencies, the value of fund
assets may be affected favorably or unfavorably by changes in
currency exchange rates relative to the U.S. dollar. There may
be
less information publicly available about a foreign issuer than
about a U.S. issuer, and foreign issuers may not be subject to
accounting standards 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 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.
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
investments in certain foreign countries.
Legal remedies available to investors in certain foreign
countries
may be limited. 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 greater in less developed
nations, sometimes referred to as "emerging markets." For
instance, political and economic structures in these countries
may
be in their infancy and developing rapidly, causing instability.
High rates of inflation may adversely affect the economies and
securities markets of such countries. In addition, the small
size, limited trading volume and relative inexperience of the
securities markets in these countries may make investments in
such
countries less liquid and more volatile than investments in more
developed countries. Investments in emerging markets are regarded
as speculative.
<PAGE>
For more information regarding foreign investments, see the SAI.
Foreign currency exchange transactions. A fund 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").
A fund may engage in transaction hedging to protect against a
change in the foreign currency exchange rates 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. A 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.
If conditions warrant, for transaction hedging purposes, a 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. 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.
A fund may engage in "position hedging" to protect against a
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 currency in which the fund intends
to
buy are denominated, 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 options on foreign currency
futures contracts and on foreign currencies on exchanges or over-
the-counter markets. In connection with position hedging, a fund
may also purchase or sell foreign currency on a spot basis.
A 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.
The decision as to whether and to what extent a fund will engage
in foreign currency exchange transactions will depend on a number
of factors, including prevailing market conditions, the
composition of a fund's portfolio and the availability of
suitable
transactions. Accordingly, there can be no assurance that a fund
will engage in foreign currency exchange transactions at any
given
time or from time to time.
For a further discussion of the risks associated with purchasing
and selling futures contracts and options, see "Financial futures
and options." The SAI also contains additional information
concerning a fund's use of foreign currency exchange
transactions.
Investments in fixed-income securities. Each of the funds may
invest in both higher-rated and lower-rated fixed-income
securities, and is not subject to any restrictions based on
credit
rating. The values of fixed-income securities generally
fluctuate
in response to changes in interest rates. Thus, a decrease in
interest rates will generally result in an increase in the value
of the fixed-income securities held by the funds. Conversely,
during periods of rising interest rates, the value of the fixed-
income securities held by the funds will generally decline. The
values of lower-rated fixed-income securities, commonly known as
"junk bonds," generally fluctuate more than those of higher-rated
fixed-income securities. Securities in the lower rating
categories may, depending on the rating, have large uncertainties
or major exposure to adverse conditions. The rating services'
descriptions of securities in the various rating categories,
including the speculative characteristics of securities in the
lower rating categories, are set forth in the SAI.
The lower ratings of these securities 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 a fund
may as a result find it more difficult to determine the fair
value
of such securities. When a fund invests in securities in the
lower ratings categories, the achievement of the fund's goals is
more dependent on Putnam Management's ability than would be the
case if the fund were investing in securities in the higher
rating
categories.
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 its portfolio turnover
rate may be higher than that of other mutual funds.
Portfolio turnover generally involves some expense, including
brokerage commissions or dealer markups and other transaction
costs on the sale of securities and reinvestment in other
securities. These transactions may result in realization of
taxable capital gains. Portfolio turnover rates are shown in the
section "Financial highlights."
Financial futures and options. Each fund may purchase and sell
financial futures contracts on stock indexes and foreign
currencies. A futures contract is a contract to buy or sell
units
of a particular security or index, or a certain amount of a
foreign currency, at an agreed price on a specified future date.
Depending on the change in value of the security or index or
currency between the time a fund enters into and terminates a
futures contract, the fund realizes a gain or loss. In addition
to or as an alternative to purchasing or selling futures
contracts, each fund may buy and sell call and put options on
futures contracts or on stock indexes. Each fund may engage in
futures and options transactions for hedging purposes and for
nonhedging purposes, such as to adjust its exposure to relevant
markets or as a substitute for direct investment.
The use of financial futures and related options involves certain
special risks. Futures and options transactions involve costs
and
may result in losses.
Certain risks arise from the possibility of imperfect
correlations
among movements in the prices of financial futures and options
purchased or sold by the fund, of the underlying stock index,
currencies, or securities and, in the case of hedging
transactions, of the securities that are the subject of the
hedge.
The successful use of futures and options further depends on
Putnam Management's ability to forecast market movements
correctly.
Other risks arise from each fund's potential inability to close
out its futures or related options positions, and there can be no
assurance that a liquid secondary market will exist for any
futures contract or option at a particular time. The fund's
ability to terminate option positions established in the
over-the-
counter market may be more limited than for exchange-traded
options and may also involve the risk that securities dealers
participating in such transactions would fail to meet their
obligations to the fund. 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. A 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 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, it
takes the risk that it will be required to purchase a security
from the option holder at a price above the current market price
of the security. 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.
A fund may also buy and sell put and call options, including
combinations of put and call options on the same underlying
security. The aggregate value of the securities underlying
options may not exceed 25% of a fund's assets. The use of these
strategies may be limited by applicable law.
A more detailed explained explanation of options transactions,
including the risks associated with them, is included in the SAI.
Securities loans, repurchase agreements and forward commitments.
A 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. A fund may also purchase
securities for future delivery, which may increase its overall
investment exposure and involves a risk of loss if the value of
the securities declines prior to the settlement date. These
transactions involve some risk if the other party should default
on its obligation and a 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 securities markets make pursuing the
basic investment strategy of a fund inconsistent with the best
interests of that fund's shareholders. At such times Putnam
Management may temporarily use alternative strategies, primarily
designed to reduce fluctuations in the value of a 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 any
foreign government or their agencies or instrumentalities, or in
any other securities Putnam Management considers consistent with
such defensive strategies. In addition, when pursuing these
defensive strategies, a fund may invest without limit in
securities primarily traded in U.S. markets. It is impossible to
predict when, or for how long, each fund 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, a 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 its 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, it 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 a fund may invest, such as
futures contracts, options and forward contracts, are considered
to be "derivatives." Derivatives are financial instruments whose
value depends upon, or is derived from, the value of an
underlying
asset, such as a security or an index. Further information about
these instruments and the risks involved in their use is included
elsewhere in this prospectus and in the SAI.
Limiting investment risk
Specific investment restrictions help to limit investment risks
for the funds' 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 one 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;* 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(s) without shareholder approval.
HOW PERFORMANCE IS SHOWN
Fund advertisements may, from time to time, include performance
information. "Yield" is calculated by dividing the annualized
net
investment income per share during a recent 30-day period by the
maximum public offering price per share on the last day of that
period.
"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, portfolio
composition, fund operating expenses and which class of shares
the
investor purchases. Investment performance also often reflects
the risks associated with a 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. Fund performance may be
compared to that of various indexes. See the SAI.
HOW THE FUNDS ARE MANAGED
The Trustees are responsible for generally overseeing the conduct
of fund business. Subject to such policies as the Trustees may
determine, Putnam Management furnishes a continuing investment
program for 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.
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)
---- -------------------
Putnam Global Growth and
Income Fund
Hugh Mullin 1995 Employed as an investment
Senior Vice President professional by Putnam
Management since 1986.
Justin M. Scott 1995 Employed as an investment
Managing Director professional by Putnam
Management since 1988.
Putnam International Fund
Justin M. Scott 1995 Employed as an investment
Managing Director professional by Putnam
Management since 1988.
Putnam Japan Fund
Robert Swift 1995 Employed as an investment
Senior Vice President professional by Putnam
Management since August, 1995.
Prior to August, 1995, Mr.
Swift was Director and Senior
Portfolio Manager, IAI
International/Hill Samuel
Investment Advisors.
David K. Thomas 1995 Employed as an investment
Senior Vice President professional since 1987.
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 assets of the funds and each
other portfolio of the Trust on a basis that the Trustees deem
fair and equitable, which may be based on the relative assets of
the funds and each other portfolio or the nature of the services
performed and relative applicability to each fund or other
portfolio. Each fund also reimburses Putnam Management for the
compensation and related expenses of certain fund officers and
their staff who provide administrative services. The total
reimbursement is determined annually by the Trustees.
Putnam Management places all orders for purchases and sales of
fund securities. In selecting broker-dealers, Putnam Management
may consider research and brokerage services furnished to it and
its affiliates. Subject to seeking the most favorable price and
execution available, Putnam Management may consider sales of fund
shares (and, if permitted by law, of the other Putnam funds) as a
factor in the selection of broker-dealers.
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: 0.80% of the first $500 million of the average net asset
value of the series; 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% of any excess 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, 1997, 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 an annual rate of 1.45% of each fund's average
net assets. 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. Putnam Management currently expects that the expense
limitation will be continued through the end of each fund's
current fiscal year.
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,
1996, Putnam Investments, Inc. owned more than 25% of the shares
of each fund and therefore may be deemed to "control" the funds.
Prior to January 6, 1995, the Trust was known as Putnam Equity
Funds. Prior to December 28, 1995, Putnam Global Growth and
Income Fund was known as Putnam Global Utilities Fund.
The Trust is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. The Trustees may, without shareholder
approval, create two or more series of shares representing
separate investment portfolios. Only shares of Putnam Global
Growth and Income Fund, Putnam International Fund and Putnam
Japan
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. 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. Each fund
may suspend the sale of shares at any time and may refuse any
order to purchase shares. Although each fund is not required to
hold annual meetings of its shareholders, shareholders holding at
least 10% of the outstanding shares entitled to vote have the
right to call a meeting to elect or remove Trustees, or to take
other actions as provided in the Agreement and Declaration of
Trust.
Although each fund is offering only its own shares in this
prospectus, it is possible that a fund might become liable for
any
misstatement in the prospectus about another fund. The Trustees
of each fund have considered this factor in approving the use of
a
single prospectus.
If you own fewer shares than the minimum 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 Trust's Trustees: George Putnam,* Chairman. President of
the
Putnam funds. Chairman and Director of Putnam Management and
Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director,
Marsh & McLennan Companies, Inc.; William F. Pounds, Vice
Chairman. Professor of Management, Alfred P. Sloan School of
Management, Massachusetts Institute of Technology; Jameson Adkins
Baxter, President, Baxter Associates, Inc.; Hans H. Estin, Vice
Chairman, North American Management Corp.; John A. Hill, Chairman
and Managing Director, First Reserve Corporation; Ronald J.
Jackson, Former Chairman, President and Chief Executive Officer
of
Fisher-Price, Inc., Director of Safety 1st, Inc., Trustee of
Salem
Hospital and the Peabody Essex Museum; 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 and Director of
Acquisitions, Cabot Partners Limited Partnership; Donald S.
Perkins,* Director of various corporations, including Cummins
Engine Company, Lucent Technologies, Inc., Springs Industries,
Inc. and Time Warner Inc.; George Putnam, III,* President, New
Generation Research, Inc.; A.J.C. Smith,* Chairman and Chief
Executive Officer, Marsh & McLennan Companies, Inc.; 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 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 appropriate 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 $25 or more per month through automatic deductions
from your bank checking or savings account. Application forms
are
available from your investment dealer or through Putnam Investor
Services.
Shares are sold at the public offering price based on the net
asset value next determined after Putnam Investor Services
receives your order. In most cases, in order to receive that
day's public offering price, Putnam Investor Services must
receive
your order before the close of regular trading on the New York
Stock Exchange. If you buy shares through your investment
dealer,
the dealer must receive your order before the close of regular
trading on the New York Stock Exchange to receive that day's
public offering price.
Class A shares
The public offering price of class A shares is the net asset
value
plus a sales charge that varies depending on the size of your
purchase. The fund receives the net asset value. The sales
charge is allocated between your investment dealer and Putnam
Mutual Funds as shown in the following table, except when Putnam
Mutual Funds, in its discretion, allocates the entire amount to
your investment dealer.
Sales charge Amount of
as a percentage of: sales charge
------------------- reallowed to
Net dealers as a
Amount of transaction amount Offering percentage of
at offering price ($) 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 class A shares
of
$1 million or more or purchases by participant-directed qualified
retirement plans with at least 200 eligible employees. However,
a
CDSC of 1.00% will be imposed upon redemptions of shares
purchased
at net asset value after July 31, 1996 by a participant-directed
qualified retirement plan (including a plan with at least 200
eligible employees) that initially invested less than $20 million
in Putnam funds and other investments managed by Putnam
Management
or its affiliates and that redeems 90% or more of the amount
initially invested within two years after initial purchase.
Similarly, a CDSC of 1.00% or 0.50%, respectively, will be
imposed
within the first or second year after purchase on redemptions by
any investor, other than a participant-directed qualified
retirement plan, that purchased fund shares without an initial
sales charge as part of an investment of $1 million or more.
Shares purchased by investors investing $1 million or more in
class A shares whose dealer of record waived its commission with
the approval of Putnam Mutual Funds are not subject to the CDSC.
In determining whether a CDSC is payable, shares not subject to
any charge will be redeemed first, followed by shares held
longest
during the CDSC period. Any CDSC will be 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.
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 class A shares of $1
million or more based on an investor's cumulative purchases
during
the one-year period beginning with the date of the initial
purchase at net asset value. Each subsequent one-year measuring
period for these purposes will begin with the first net asset
value purchase following the end of the prior period. Such
commissions are paid at the rate of 1.00% of the amount under $3
million, 0.50% of the next $47 million and 0.25% thereafter.
On sales at net asset value to a participant-directed qualified
retirement plan initially investing less than $20 million in
Putnam funds and other investments managed by Putnam Management
or
its affiliates (including a plan 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%.
A participant-directed qualified retirement plan participating in
a "multi-fund" program approved by Putnam Mutual Funds may
include
amounts invested in 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 elsewhere in this prospectus and in the SAI.
General
You may be eligible to buy fund 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, qualified
retirement plans and other plans. Descriptions are also included
in the order form and in the SAI.
Each fund may sell class A shares at net asset value without an
initial sales charge or a CDSC to 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 a 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 at reduced sales charges.
Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
fund shares 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, payment
may
be delayed 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,
certificates will not be issued for your shares.
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 funds are
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 each fund to Putnam Mutual
Funds
at the annual rate of up to 0.35% of each 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 the appropriate fund any day the New
York Stock Exchange is open, either directly to the fund or
through your investment dealer. The fund will only redeem shares
for which it has received payment.
Selling shares directly to your 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 the fund receives your request in proper form less any
applicable CDSC. In order to receive that day's net asset value,
Putnam Investor Services must receive your request before the
close of regular trading on the New York Stock Exchange.
If you sell shares having a net asset value of $100,000 or more,
the signatures of registered owners or their legal
representatives
must be guaranteed by a bank, broker-dealer or certain other
financial institutions. See the 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.
Your fund generally sends you payment for your shares the
business
day after your request is received. Under unusual circumstances,
the fund may suspend redemptions, or postpone payment for more
than seven days, as permitted by federal securities law.
You may use Putnam's Telephone Redemption Privilege to redeem
shares valued up to $100,000 from your account unless you have
notified Putnam Investor Services of an address change within the
preceding 15 days. Unless an investor indicates otherwise on the
account application, Putnam Investor Services will be authorized
to act upon redemption and transfer instructions received by
telephone from a shareholder, or any person claiming to act as
his
or her representative, who can provide Putnam Investor Services
with his or her account registration and address as it appears on
Putnam Investor Services' records.
Putnam Investor Services will employ these and other reasonable
procedures to confirm that instructions communicated by telephone
are genuine; if it fails to employ reasonable procedures, Putnam
Investor Services may be liable for any losses due to
unauthorized
or fraudulent instructions. For information, consult Putnam
Investor Services.
During periods of unusual market changes and shareholder
activity,
you may experience delays in contacting Putnam Investor Services
by telephone. In 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. 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 your fund, the fund
reserves the right to revise or terminate the exchange privilege,
limit the amount or number of exchanges or reject any exchange.
Consult Putnam Investor Services before requesting an exchange.
See the SAI to find out more about the exchange privilege.
HOW A FUND VALUES ITS SHARES
Each 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 EACH FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX
INFORMATION
Each fund distributes any net investment income and any net
realized capital gains at least annually, except that Putnam
Global Growth and Income distributes any net investment income at
least quarterly. For each fund other than Putnam Global Growth
and Income, distributions from net investment income, if any, are
expected to be small. Distributions from capital gains 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.
Fund distributions will be taxable to you as ordinary income,
except that any distributions of net long-term capital gains will
be taxable as such, regardless of how long you have held the
shares. Distributions will be taxable as described above whether
received in cash or in shares through the reinvestment of
distributions.
Each fund's investments in foreign securities may be subject to
withholding taxes at the source on dividend or interest payments.
In that case, a fund's yield on these securities would be
decreased.
Fund investments in foreign securities may be subject to
withholding taxes at the source on dividend or interest payments.
In that case, a fund's yield on those securities would be
decreased.
If at the end of a fund's fiscal year more than 50% of the value
of the fund's total assets represents securities of foreign
corporations, each fund intends to make an election permitted by
the Internal Revenue Code to treat any foreign taxes it paid as
paid by its shareholders. In this case, shareholders who are
U.S.
citizens, U.S. corporations and, in some cases, U.S. residents
generally will be required to include in U.S. taxable income
their
pro rata share of such taxes, but may then generally be entitled
to claim a foreign tax credit or deduction (but not both) for
their share of such taxes.
Fund transactions in foreign currencies and hedging activities
may
give rise to ordinary income or loss to the extent such income or
loss results from fluctuations in value of the foreign currency
concerned. In addition, such activities will likely produce a
difference between book income and taxable income. This
difference may cause a portion of a 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 for tax purposes.
Investment in an entity that qualifies as a "passive foreign
investment company" under the Internal Revenue Code could subject
a fund to a U.S. federal income tax or other charge on certain
"excess distributions" with respect to the investment, and on the
proceeds from disposition of the investment.
Early in each year Putnam Investor Services will notify you of
the
amount and tax status of distributions paid to you by the fund
for
the preceding year.
The foregoing is a summary of certain federal income tax
consequences of investing in 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 funds 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 investor servicing and transfer
agent for the funds.
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>
PUTNAM GLOBAL GROWTH AND INCOME FUND
PUTNAM INTERNATIONAL FUND
PUTNAM JAPAN 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 Global Growth and Income Fund
Putnam International Fund
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
Putnam Japan Fund
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
<PAGE>
PUTNAM GLOBAL GROWTH AND INCOME FUND
PUTNAM INTERNATIONAL FUND
PUTNAM JAPAN FUND
(EACH REFERRED TO HEREIN AS A "FUND"),
EACH A SERIES OF PUTNAM INVESTMENT FUNDS (THE "TRUST")
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
DECEMBER 31, 1996
This SAI is not a prospectus and is only authorized for
distribution when accompanied or preceded by the prospectus of
the
funds dated December 31, 1996, 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-
5
CHARGES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . .
.I-
7
INVESTMENT PERFORMANCE . . . . . . . . . . . . . . . . . . . . .
I- 13
ADDITIONAL OFFICERS. . . . . . . . . . . . . . . . . . . . . . .
I- 14
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . . . .
I- 15
Part II
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . .
. . . . II-1
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .II-29
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .II-35
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . .
. . . .II-44
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . .
. . . .II-46
DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . . .
. . . .II-59
INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . .
. . . .II-60
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . .
. . . .II-66
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . .
. . . .II-66
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . .
. . . .II-66
STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . .
. . . .II-67
COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . .
. . . .II-68
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .II-73
<PAGE>
SAI
PART I
SECURITIES RATINGS
The following rating services describe rated securities as
follows:
Moody's Investors Service, Inc.
Bonds
Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edged." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds which are rated Aa are judged to be of high quality
by
all standards. Together with the Aaa group they comprise what
are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the long-term risk appear somewhat larger than the Aaa
securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest
a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of
the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any
long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or
have other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Standard & Poor's
Bonds
AAA -- Debt rated `AAA' has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal
is
extremely strong.
AA -- Debt rated `AA' has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues only
in small degree.
A -- Debt rated `A' has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB -- Debt rated `BBB' is regarded as having an adequate
capacity
to pay interest and repay principal. Whereas it normally
exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB-B-CCC-CC-C -- Debt rated `BB', `B', `CCC', `CC' and `C' is
regarded, on balance, as predominantly speculative with respect
to
capacity to pay interest and repay principal in accordance with
the terms of the obligation. `BB' indicates the lowest 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 a
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 S&P believes that such payments will be made
during such grace period. The D rating also will be used on the
filing of a bankruptcy petition if debt service payments are
jeopardized.
INVESTMENT RESTRICTIONS
As fundamental investment restrictions, which may not be changed
without a vote of a majority of the outstanding voting
securities,
each 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.
<PAGE>
(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.
(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:
Invest in (a) securities which are not readily marketable,
(b) securities restricted as to resale (excluding securities
determined by the Trustees of the Trust (or the person designated
by the Trustees of the Trust 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.
Although certain of each fund's fundamental investment
restrictions permit it to borrow money to a limited extent, none
of the funds currently intends to do so and none of the funds did
so last year. For the purpose of fundamental investment
restriction 8 above, the Trust 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 fund shares, or (2) 67% or more of the shares of that
fund present at a meeting if more than 50% of the outstanding
fund
shares are represented at the meeting in person or by proxy.
CHARGES AND EXPENSES
Each fund pays a quarterly fee to Putnam Investment Management,
Inc., each fund's investment manager ("Putnam Management"), based
on the average net assets of that fund, as determined at the
close
of each business day during the quarter, at the following rates,
expressed as a percentage of each fund's average net assets:
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.
Each fund incurred the following fees for the indicated fiscal
periods:
Reflecting a
reduction in the
following amount
pursuant to an
Fiscal Management expense
year fee paid limitation
Fund name
Putnam Global Growth 1996 $15,378 $17,391
and Income Fund 1995* 9,700 36,617
Putnam International Fund 1996** 17,083 17,218
Putnam Japan Fund 1996** 17,294 16,883
* For the period from January 3, 1995 (commencement of
operations) to September 30, 1995.
** For the period from December 28, 1995 (commencement of
operations) to August 31, 1996.
Expense limitation. In order to limit expenses, Putnam
Management
has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through June 30, 1997, to the
extent that expenses of a fund (exclusive of brokerage, interest,
taxes, deferred organizational and extraordinary expense, and
payments under the fund's distribution plans) would exceed the
annual rate of 1.45% of each fund's average net assets. For the
purpose of determining any such limitation on Putnam Management's
compensation, expenses of the funds do 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. Putnam
Management currently expects that the expense limitation will be
continued through the end of each fund's current fiscal year.
Brokerage commissions
The following table shows brokerage commissions paid during the
fiscal periods indicated:
<PAGE>
Fiscal Brokerage
year commissions
------ ------------
Putnam Global Growth and
Income Fund 1996 $11,108
1995* $5,158
Putnam International Fund 1996** $23,564
Putnam Japan Fund 1996** $34,573
* For the period from January 3, 1995 (commencement of
operations) to September 30, 1995.
** For the period from December 28, 1995 (commencement of
operations) to August 31, 1996.
The following table shows transactions placed with brokers and
dealers during the most recent fiscal period to recognize
research, statistical and quotation services received by Putnam
Management and its affiliates:
Dollar
value Percent of
of these total Amount of
transactions transactions commissions
Putnam Global Growth
and Income Fund $1,900,624 41.10% $5,780
Putnam International Fund*$4,558,242 78.97% $19,602
Putnam Japan Fund* $5,487,746 91.81% $32,436
* For the period from December 28, 1995 (commencement of
operations) to August 31, 1996.
Administrative expense reimbursement
The funds reimbursed Putnam Management in the following amounts
for administrative services during fiscal 1996, including the
following amounts for compensation of certain fund officers and
contributions to the Putnam Investments, Inc. Profit Sharing
Retirement Plan for their benefit:
Portion of total
reimbursement for
compensation
Total and
reimbursement contributions
Putnam Global Growth
and Income Fund $40 $35
Putnam International Fund* $17 $15
Putnam Japan Fund* $17 $15
* For the period from December 28, 1995 (commencement of
operations) to August 31, 1996.
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 fees
paid to each Trustee by each fund for fiscal 1996 and fees paid
to
each Trustee by all of the Putnam funds during calendar 1995.
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate
compensation(1) from: Pension on
Estimated
retirement annual
Putnam
benefits benefits
Global Growth Putnam
Putnam All accrued as from all
and Income International
Japan Putnam part of fund Putnam funds
Trustees/year Fund Fund
Fund funds(2) expenses(3) upon retirement(4)
- -----------------------------------------------------------------
- -------------------------------------------------------
<S> <C> <C>
<C> <C> <C>
<C>
Jameson A. Baxter/1994 $124 $122
$122 $150,854 $0 $71,676
Hans H. Estin/1972 122 122
122 150,854 0 70,043
John A. Hill/1985(5) 122 122
122 149,854 0 70,043
Ronald J. Jackson/1996(6) 39 29
29 N/A 0 70,043
Elizabeth T. Kennan/1992 122 122
122 148,854 0 69,709
Lawrence J. Lasser/1992 121 122
122 150,854 0 70,043
Robert E. Patterson/1984 133 126
126 152,854 0 71,043
Donald S. Perkins/1982 121 122
122 150,854 0 69,376
William F. Pounds/1971 124 (7) 123 (7)
123 (7) 149,854 0 70,543
George Putnam/1957 122 122
122 150,854 0 70,043
George Putnam, III/1984 122 122
122 150,854 0 70,043
Eli Shapiro/1995(8) 134 126
126 95,372 0 47,686
A.J.C. Smith/1986 121 122
122 149,854 0 68,252
W. Nicholas Thorndike/1992 132 125
125 152,854 0 71,043
(1
) Includes an annual retainer and an attendance fee for each
meeting attended.
(2) As of December 31, 1995, there were 99 funds in the Putnam
family.
(3) The Trustees approved a Retirement Plan for Trustees of the
Putnam funds on October 1, 1996. Prior to that date,
voluntary retirement benefits were paid to certain retirement
Trustees, and no such benefits were accrued as part of
fund expenses.
(4) Assumes that each Trustee retires after at least five years
of service. Estimated benefits for each Trustee are
based on amounts paid to such Trustee for the three most
recent calendar years (or, for Trustees who have not served
as Trustees throughout such three-year period, the average
amount paid to each Trustee for such years).
(5) Includes compensation deferred pursuant to a Trustee
Compensation Deferral Plan. The total amount of deferred
compensation payable by the Putnam funds to Mr. Hill as of
December 31, 1995 was $51,141. Information on deferred
compensation includes income earned on such amounts.
(6) Elected as a Trustee in May 1996.
(7) Includes additional compensation for service as Vice Chairman
of the Putnam funds.
(8) Elected as a Trustee in April 1995.
/TABLE
<PAGE>
Under a Retirement Plan for Trustees of the Putnam funds (the
"Plan"), each Trustee who retires with at least five years of
service as a Trustee of the funds is entitled to receive an
annual
retirement benefit equal to one-half of the average annual
compensation paid to such Trustee for the last three years of
service prior to retirement. This retirement benefit is payable
during a Trustee's lifetime, beginning the year following
retirement, for a number of years equal to such Trustee's years
of
service. A death benefit is also available under the Plan which
assures that the Trustee and his or her beneficiaries will
receive
benefit payments for the lesser of an aggregate period of (i) ten
years or (ii) such Trustee's total years of service.
The Plan Administrator (a committee comprised of Trustees that
are
not "interested persons" of the fund, as defined in the
Investment
Company Act of 1940) may terminate or amend the Plan at any time,
but no termination or amendment will result in a reduction in the
amount of benefits (i) currently being paid to a Trustee at the
time of such termination or amendment, or (ii) to which a current
Trustee would have been entitled to receive had he or she retired
immediately prior to such termination or amendment.
Share ownership
At November 30, 1996, the officers and Trustees of each fund as a
group owned 4.64% of the outstanding shares of the class A shares
of Putnam Global Growth and Income Fund, 4.50% of Putnam
International Fund and 4.25% of Putnam Japan Fund, and except as
noted below, to the knowledge of the fund no person owned of
record or beneficially 5% or more of the class A shares of the
fund:
Putnam Global Growth and Income Fund
Shareholder name Percentage
and address owned
-------------------- --------
Putnam Investments, Inc.* 95.10%
Putnam International Fund
Shareholder name Percentage
and address owned
-------------------- --------
Putnam Investments, Inc.* 95.20%
Putnam Japan Fund
Shareholder name Percentage
and address owned
-------------------- --------
Putnam Investments, Inc.* 92.90%
<PAGE>
Class A sales charges and contingent deferred sales charges
Putnam Mutual Funds received no sales charges with respect to
class A shares during fiscal 1996 and 1995.
Investor servicing and custody fees and expenses
During the 1996 fiscal period, each fund incurred the following
fees and out-of-pocket expenses for investor servicing and
custody
services provided by Putnam Fiduciary Trust Company:
Putnam Global Growth and Income Fund $4,597
Putnam International Fund* $3,677
Putnam Japan Fund* $4,091
* For the period from December 28, 1995 (commencement of
operations) to August 31, 1996
INVESTMENT PERFORMANCE
Standard performance measures
Putnam Global Growth and Income Fund
(for the period ended September 30, 1996)
Class A
Inception date: 1/3/95
Total return
1 year 9.45%
Life of class 13.23%
Yield+
30-day
Yield 1.41%
+ Reflecting an expense limitation then in effect. In the
absence
of the expense limitation, the fund's yield would have been
0.61% .
Putnam Japan Fund
(for the period ended August 31, 1996)
Class A
Inception date: 12/28/95
Total return
Life of class* -11.64%
<PAGE>
Putnam International Fund
(for the period ended August 31, 1996)
Class A
Inception date: 12/28/95
Total return+
Life of class* -4.88%
*Represents cumulative, rather than average annual, total return.
Data represent past performance and are not indicative of future
results. Total return for class A shares reflects the deduction
of the maximum sales charge of 5.75%. Total return performance
data reflects an expense limitation currently in effect. Without
the expense limitation, total return would have been 14.12%
and
14.54% for the one year period and life of the class,
respectively, for Putnam Global Growth and Income
Fund,
1.24% for Putnam International Fund, and -5.96% for
Putnam Japan Fund. See "Standard performance measures" in Part
II
of this SAI for information on how performance is calculated.
Past performance is no guarantee of future results.
ADDITIONAL OFFICERS
In addition to the persons listed as fund officers in Part II of
this SAI, each of the following persons is also a Vice President
of each fund and certain of the other Putnam funds, the total
number of which is noted parenthetically. Officers of Putnam
Management hold the same offices in Putnam Management's parent
company, Putnam Investments, Inc.
Thomas R. Bogan (age 55) (1 fund). Managing Director of Putnam
Management. Prior to November, 1994, Mr. Bogan was Senior
Analyst
at Lord, Abbett & Co.
Brett C. Browchuk (age 33) (48 funds). Managing Director of
Putnam Management. Prior to April, 1994, Mr. Browchuk was
Managing Director at Fidelity Investments.
Peter Carman (age 55) (40 funds). Senior Managing Director of
Putnam Management. Prior to August, 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.
Ian C. Ferguson (age 39) (22 funds). Senior Managing Director.
Prior to April, 1996, Mr. Ferguson was CEO at Hong Kong Shanghai
Banking Corporation.
David L. King (age 39) (6 funds). Senior Vice President of
Putnam
Management.
<PAGE>
J. Peter Grant (age 53) (3 funds). Senior Vice President of
Putnam Management. Senior Vice President of Putnam Fiduciary
Trust Company.
Carol C. McMullen (age 41) (7 funds). 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 (age 33) (4 funds). Senior Vice President of
Putnam Management.
John J. Morgan, Jr. (age 56) (10 funds). Managing Director of
Putnam Management.
Hugh H. Mullin (age 34) (4 funds). Senior Vice President of
Putnam Management.
Patrick O'Donnell (age 50) (1 fund). Managing Director of Putnam
Management. Prior to May, 1994, Mr. O'Donnell was the founder
and
President of Exeter Research Inc.
Anthony W. Regan (age 57) (11 funds). Senior Managing Director
of
Putnam Management. Director of Putnam Investments, Inc.
Thomas V. Reilly (age 49) (15 funds). Managing Director of
Putnam
Management.
David J. Santos (age 38) (3 funds). Vice President of Putnam
Management.
Justin M. Scott (age 39) (10 funds). Managing Director of Putnam
Management.
Sheldon N. Simon (age 39) (2 funds). Senior Vice President of
Putnam Management.
Robert Swift (age 36) (7 funds). Senior Vice President of Putnam
Management. Prior to August, 1995, Mr. Swift was Director and
Senior Portfolio Manager at IAI International/Hill Samuel
Investment Advisors.
Kenneth J. Taubes (age 38) (7 funds). Senior Vice President of
Putnam Management.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, MA
02109, are the independent accountants for Putnam Global Growth
and Income Fund (formerly Putnam Global Utilities Fund) and
Putnam
International 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 Report of Independent Accountants,
financial highlights and financial statements included in Putnam
Global Growth and Income Fund's Annual Report for the fiscal year
ended September 30, 1996, filed electronically on November 27,
1996 (File No. 811-7237), and the Report of Independent
Accountants, financial highlights and financial statements
included in Putnam International Fund's Annual Report for the
fiscal period ended August 31, 1996, filed electronically on
October 30, 1996 (File No. 811-7237),are incorporated by
reference
into this SAI. The financial highlights included in the
prospectus and incorporated by reference into this SAI and the
financial statements incorporated by reference into the
prospectus
and this SAI have been so included and incorporated in reliance
upon the report of the independent accountants, given on their
authority as experts in auditing and accounting.
Price Waterhouse LLP, 160 Federal Street, Boston, MA, 02110 is
the
independent accountant for Putnam Japan 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 Report
of
Independent Accountants, financial highlights and financial
statements included in the fund's Annual Report for the fiscal
period ended August 31, 1996, filed electronically on October 29,
1996 (File No. 811-7237), are incorporated by reference into this
SAI. The financial highlights included in the prospectus and
incorporated by reference into this SAI and the financial
statements incorporated by reference into the prospectus and this
SAI have been so included and incorporated in reliance upon the
report of the independent accountants, given on their authority
as
experts in auditing and accounting.
<PAGE>
PROSPECTUS
December 31, 1996
Putnam International New Opportunities Fund
Class A, B and M shares
INVESTMENT STRATEGY: GROWTH
This prospectus explains concisely what you should know before
investing in Putnam International New Opportunities Fund (the
"fund"), 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 December 31, 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 FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING
THE
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
BOSTON * LONDON * TOKYO
<PAGE>
ABOUT THE FUND
Expenses summary
page number
.
This section describes the sales charges, management fees, and
annual operating expenses that apply to various classes of the
fund's shares. Use it to help you estimate the impact of
transaction costs on your investment over time.
Financial highlights
.
Study this table to see, among other things, how the 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.
Objective
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Read this section to make sure the fund's objective is consistent
with your own.
How the fund pursues its objective
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
This section explains in detail how the fund seeks its investment
objective.
Risk factors. All investments entail some risk. Read
this section to make sure you understand the risks that are
associated with an investment in the fund.
How performance is shown
.
This section describes and defines the measures used to assess
fund performance. All data are based on past investment results
and do not predict future performance.
How the fund is managed
.
Consult this section for information about the fund's management,
allocation of its expenses, and how purchases and sales of
securities are made.
Organization and history
.
In this section, you will learn when the fund was introduced, how
it is organized, how it may offer shares, and who its Trustees
are.
<PAGE>
ABOUT YOUR INVESTMENT
Alternative sales arrangements
.
Read this section for descriptions of the classes of shares this
prospectus offers and for points you should consider when making
your choice.
How to buy shares
.
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 each class
of
shares.
Distribution plans
.
This section tells you what distribution fees are charged against
each class of shares.
How to sell shares
.
In this section you can learn how to sell fund shares, either
directly to the fund or through an investment dealer.
How to exchange shares
.
Find out in this section how you may exchange fund shares 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 the fund values its shares
.
This section explains how the fund determines the value of its
shares.
How the fund makes distributions to shareholders; tax information
.
This section describes the various options you have in choosing
how to receive fund dividends. It also discusses the tax status
of the payments and counsels you to seek specific advice about
your own situation.
ABOUT PUTNAM INVESTMENTS, INC.
.
Read this section to learn more about the companies that provide
marketing, investment management, and shareholder account
services
to Putnam funds and their shareholders.
<PAGE>
About the fund
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing.
The following table summarizes your maximum transaction costs
from
investing in the fund and expenses based on the most recent
fiscal
year. The examples show the cumulative expenses attributable to
a
hypothetical $1,000 investment over specified periods.
Class A Class B Class M
shares shares shares
Shareholder transaction
expenses
Maximum sales charge
imposed on purchases
(as a percentage of
offering price) 5.75% NONE* 3.50%*
Deferred sales charge 5.0% in the first
(as a percentage year, declining
of the lower of to 1.0% in the
original purchase sixth year, and
price or redemption eliminated
proceeds) NONE** thereafter NONE
Annual fund operating expenses
(as a percentage of average net assets)
Total fund
Management 12b-1 Other operating
fees fees expenses expenses
---------- ----- -------- ----------
Class A 1.17% 0.25% 0.53% 1.95%
Class B 1.17% 1.00% 0.55% 2.72%
Class M 1.17% 0.75% 0.54% 2.46%
The table is provided to help you understand the expenses of
investing and your share of fund operating expenses. The
expenses
shown in the table do not reflect the application of credits that
reduce fund expenses.
<PAGE>
Examples
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and, except as indicated, redemption at
the end of each period:
1 3 5 10
year years years years
Class A $76 $115 $157 $272
Class B $78 $114 $164 $287 ***
Class B (no redemption) $28 $84 $144 $287 ***
Class M $59 $109 $161 $305
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.
* The higher 12b-1 fees borne by class B and class M shares
may cause long-term shareholders to pay more than the
economic equivalent of the maximum permitted front-end
sales charge on class A shares.
** A deferred sales charge of up to 1.00% is assessed on
certain redemptions of class A shares that were purchased
without an initial sales charge. See "How to buy shares -
Class A shares."
*** Reflects conversion of class B shares to class A shares
(which pay lower ongoing expenses) approximately eight
years after purchase. See "Alternative sales
arrangements."
FINANCIAL HIGHLIGHTS
The following table presents per share financial information for
class A, B and M shares. This information has been audited and
reported on by the independent accountants. The "Report of
independent accountants" and financial statements included in the
fund's annual report to shareholders for the 1996 fiscal year are
incorporated by reference into this prospectus. The fund's
annual
report, which contains additional unaudited performance
information, is available without charge upon request.
Financial highlights
(For a share outstanding throughout the period)
(The table is incorporated by reference from Post-Effective
Amendment No. 10 to the Fund's Registration Statement, File No.
33-56339.)<PAGE>
OBJECTIVE
Putnam International New Opportunities Fund seeks long-term
capital appreciation. The fund is not intended to be a complete
investment program, and there is no assurance that it will
achieve
its objective.
HOW THE FUND PURSUES ITS OBJECTIVE
Basic investment strategy
The fund seeks to invest in companies that have above-average
growth prospects due to the fundamental growth of their market
sector. Under normal market conditions, the fund expects to
invest substantially all of its total assets, other than cash or
short-term investments held pending investment, in common stocks,
preferred stocks, convertible preferred stocks, convertible bonds
and other equity securities principally traded in securities
markets outside the United States. The fund will normally
diversify its investments among a number of different countries
and, except when investing for defensive purposes as described
below, will invest at least 65% of its assets in at least three
different countries other than the United States.
Putnam Investment Management, Inc., the fund's investment manager
("Putnam Management"), believes that different market sectors in
different countries will experience different rates of growth
depending on the state of economic development of each country.
As a result, Putnam Management seeks to identify those market
sectors which will experience above-average growth in three broad
categories of economies: less developed economies, developing
economies that have experienced sustained growth over the recent
past, and mature economies. Within the identified growth sectors
of each type of economy, Putnam Management seeks to invest in
particular companies that offer above-average growth prospects.
The sectors in which the fund will invest are likely to change
over time and may include a variety of industries. Subject to
the
fund's investment restrictions, the fund may invest up to
one-half
of its assets in any one particular sector. The fund's emphasis
on particular sectors may make the value of the fund's shares
more
susceptible to any single economic, political or regulatory
development than the shares of an investment company which is
more
widely diversified. As a result, the value of the fund's shares
may fluctuate more than the value of the shares of such an
investment company. The fund may also invest a portion of its
assets in market sectors other than those that Putnam Management
believes will experience above-average growth if Putnam
Management
believes that such investments are consistent with the fund's
investment objective of long-term capital appreciation.
<PAGE>
The securities markets of less developed economies and of many
developing economies are sometimes referred to as "emerging
securities markets." Although the amount of the fund's assets
invested in emerging securities markets will vary over time,
Putnam Management currently expects that a substantial portion of
the fund's assets will be invested in emerging securities
markets.
These markets are generally characterized by limited trading
volume and greater volatility and, as a result, the fund may be
subject to greater risks to the extent of its investments in such
markets. For a discussion of these risks, see "Risk factors"
below.
Companies in the fund's portfolio may include small, rapidly
growing companies with equity market capitalizations of less than
$1 billion. 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. 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.
The fund invests primarily in common stocks and other equity
securities, but may also invest up to 10% of its total assets in
non-convertible debt securities if Putnam Management believes
they
would help achieve the fund's objective of long-term capital
appreciation. The fund may invest in securities in the lower-
rated categories. Securities in the lower-rated categories are
considered to be predominantly speculative and may be in default.
See "Risk factors -- Investments in fixed-income securities."
The
fund may also hold a portion of its assets in cash or
high-quality
money market instruments.
Risk factors
Foreign investments
The fund may invest without limit in securities principally
traded
in foreign markets. Since foreign securities are normally
denominated and traded in foreign currencies, the values of fund
assets may be affected favorably or unfavorably by changes in
currency exchange rates relative to the U.S. dollar. There may
be
less information publicly available about a foreign issuer than
about a U.S. issuer, and foreign issuers may not be subject to
accounting standards 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 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 fund 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 that could affect the value of
investments
in certain foreign countries.
Legal remedies available to investors in certain foreign
countries
may be limited. 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 greater in less developed
nations, sometimes referred to as "emerging markets." For
instance, political and economic structures in these countries
may
be in their infancy and developing rapidly, causing instability.
High rates of inflation may adversely affect the economies and
securities markets of such countries.
In addition, 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.
Investments in emerging markets are regarded as speculative.
For more information regarding foreign investments, see the SAI.
Foreign currencies exchange transactions
The fund 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 against changes
in the value of specific portfolio positions ("position
hedging").
The fund may engage in transaction hedging to protect against a
change in foreign currency exchange rates between the date on
which the fund contracts to purchase or sell a security and the
settlement date, or to "lock in" the U.S. dollar equivalent of a
dividend or interest payment in a foreign currency. 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.
If conditions warrant, for transaction hedging purposes 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. 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. In addition, for transaction hedging purposes the
fund may also purchase or sell exchange-listed and over-the-
counter call and put options on foreign currency futures
contracts
and on foreign currencies.
The fund may engage in position hedging to protect against a
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 currency in which the securities the
fund intends to buy are denominated, when the fund holds cash or
short-term investments). For position hedging purposes, the fund
may purchase or sell foreign currency futures contracts, foreign
currency forward contracts and options on foreign currency
futures
contracts and on foreign currencies on exchanges or in over-the-
counter markets. In connection with position hedging, the fund
may also purchase or sell foreign currency on a spot basis.
The decision as to whether and to what extent the fund will
engage
in foreign currency exchange transactions will depend on a number
of factors, including prevailing market conditions, the
composition of the fund's portfolio and the ability of suitable
transactions. Accordingly, there can be no assurance that the
fund will engage in foreign currency exchange transactions at any
given time or from time to time.
For a further discussion of the risks associated with purchasing
and selling futures contracts and options, see "Financial
futures
and related options." The SAI also contains additional
information concerning the fund's use of foreign currency
exchange
transactions.
Investments in fixed-income securities
Although the fund will invest primarily in common stocks, it may
also invest in both higher-rated and lower-rated fixed-income
securities, and is not subject to any restrictions based on
credit
ratings. The values of fixed-income securities generally
fluctuate in response to changes in interest rates. Thus, a
decrease in interest rates will generally result in an increase
in
the value of the fund's fixed-income investments. Conversely,
during periods of rising interest rates, the value of the fund's
fixed-income investments will generally decline. The values of
lower-rated fixed-income securities, commonly known as "junk
bonds," generally fluctuate more than those of higher-rated
fixed-
income securities. Securities in the lower rating categories
may,
depending on the rating, have large uncertainties or major risk
exposure to adverse conditions, and may include securities in
default. The rating services' descriptions of securities in the
various rating categories, including the speculative
characteristics of securities in the lower rating categories, are
set forth in the SAI.
The lower ratings of these securities 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 the fund invests in securities in the
lower rating categories, the achievement of the fund's goals is
more dependent on Putnam Management's ability than would be the
case if the fund were investing in securities in the higher
rating
categories.
For additional information concerning the risks associated with
investment by the fund in securities in the lower rating
categories, see the SAI.
Portfolio turnover
The length of time the fund has held a particular security is not
generally a consideration in investment decisions. A change in
the securities held by the fund is known as "portfolio turnover."
As a result of the fund's investment policies, under certain
market conditions its portfolio turnover rate may be higher than
that of other mutual funds.
Portfolio turnover generally involves some expense, including
brokerage commissions or dealer markups and other transaction
costs on the sale of securities and reinvestment in other
securities. These transactions may result in realization of
taxable capital gains. Portfolio turnover rates are shown in the
section "Financial highlights."
Financial futures and related options
The fund may buy and sell financial futures contracts on stock
indexes and foreign currencies. A futures contract is a contract
to buy or sell units of a particular stock index, or a certain
amount of a foreign currency, at an agreed price on a specified
future date. Depending on the change in value of the index or
currency between the time the fund enters into and terminates a
futures contract, the fund realizes a gain or loss. In addition
to or as an alternative to purchasing or selling futures
contracts, the fund may buy and sell call and put options on
futures contracts or on stock indexes. The fund may engage in
financial futures and options transactions for hedging purposes
and for non-hedging purposes, such as to adjust its exposure to
relevant markets or as a substitute for direct investment.
The use of futures and options involves certain special risks.
Futures and options transactions involve costs and may result in
losses.
Certain risks arise from the possibility of imperfect
correlations
among movements in the prices of financial futures and options
purchased or sold by the fund, of the underlying stock index or
currency, or of the securities or currencies which are the
subject
of the hedge. The successful use of the strategies describes
above further depends on Putnam Management's ability to forecast
market movements correctly.
Other risks arise from the potential inability to close out
futures or options positions. There can be no assurance that a
liquid secondary market will exist for any futures contract or
option at a particular time. The fund's ability to terminate
option positions established in the over-the-counter market may
be
more limited than for exchange-traded options and may also
involve
the risk that securities dealers participating in such
transactions would fail to meet their obligations to the fund.
Certain provisions of the Internal Revenue Code and certain
regulatory requirements may also limit the fund's ability to
engage in futures and options transactions.
A more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the SAI.
Options. The fund may seek to increase its current return by
writing covered call and put options on securities it owns or in
which it may invest. The fund receives a premium from writing a
call or put option, which increases the return if the option
expires unexercised or is closed out at a net profit.
When the fund writes a call option, it gives up the opportunity
to
profit from any increase in the price of a security above the
exercise price of the option; when it writes a put option, it
takes the risk that it will be required to purchase a security
from the option holder at a price above the current market price
of the security. The fund may terminate an option that it has
written prior to its expiration by entering into a closing
purchase transaction in which it purchases an option having the
same terms as the option written.
The fund may also buy and sell put and call options and from time
to time, may also buy and sell combinations of put and call
options on the same underlying security. The aggregate value of
the securities underlying the options may not exceed 25% of fund
assets. The use of these strategies may be limited by applicable
law.
A more detailed explanation of options transactions, including
the
risks associated with them, is included in the SAI.
Securities loans, repurchase agreements and forward commitments.
The fund may lend portfolio securities amounting to not more than
25% of its assets to broker-dealers and may enter into repurchase
agreements on up to 25% of its assets. These transactions must
be
fully collateralized at all times. The fund may also purchase
securities for future delivery, which may increase its overall
investment exposure and involves a risk of loss if the value of
the securities declines prior to the settlement date. These
transactions involve some risk if the other party should default
on its obligation and the fund is delayed or prevented from
recovering the collateral or completing the transaction.
Defensive strategies
At times Putnam Management may judge that conditions in the
securities markets make pursuing the fund's basic investment
strategy inconsistent with the best interests of its
shareholders.
At such times, Putnam Management may temporarily use alternative
strategies, primarily designed to reduce fluctuations in the
value
of fund assets.
In implementing these defensive strategies, the fund may invest
without limit in cash or money market instruments, preferred
stocks, debt securities issued by the U.S. government or any
foreign government or their agencies or instrumentalities, or
securities primarily traded in the U.S. markets, or in any other
securities Putnam Management considers consistent with such
defensive strategies.
It is impossible to predict when, or for how long, these
alternative strategies would be used.
Diversification
The fund is a "diversified" investment company under the
Investment Company Act of 1940. This means that with respect to
75% of its total assets, the 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 its total fund
assets is not subject to this restriction. To the extent the
fund
invests a significant portion of its assets in the securities of
a
particular issuer, it 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 the fund may invest, such as
futures contracts, options and forward contracts, are considered
to be "derivatives." Derivatives are financial instruments whose
value depends upon, or is derived from, the value of an
underlying
asset, such as a security or an index. Further information about
these instruments and the risks involved in their use is included
elsewhere in this prospectus and in the SAI.
Limiting investment risk
Specific investment restrictions help to limit investment risks
for the fund's shareholders. These restrictions prohibit the
fund, with respect to 75% of its total assets, from acquiring
more
than 10% of the voting securities of any one issuer.* They also
prohibit the fund from investing more than:
(a) with respect to 75% of its total assets, 5% of its total
assets in securities of any one issuer (other than the U.S.
government);*
(b) 25% of its total assets in any one industry;* or
(c) 15% of its net assets in any combination of securities that
are not readily marketable, in securities restricted as to resale
(excluding securities determined by the 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 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 policy without
shareholder approval. As a matter of policy, the Trustees would
not materially change the fund's investment objective without
shareholder approval.
<PAGE>
HOW PERFORMANCE IS SHOWN
Fund advertisements may, from time to time, include performance
information. "Total return" for the one-, five- and ten-year
periods (or for the life of a class, if shorter) through the most
recent calendar quarter represents the average annual compounded
rate of return on an investment of $1,000 in the fund invested at
the maximum public offering price (in the case of class A and
class M shares) or reflecting the deduction of any applicable
contingent deferred sales charge (in the case of class B shares).
Total return may also be presented for other periods or based on
investment at reduced sales charge levels. Any quotation of
investment performance not reflecting the maximum initial sales
charge or contingent deferred sales charge would be reduced if
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, portfolio
composition, fund operating expenses and which class of shares
the
investor purchases. Investment performance also often reflects
the risks associated with investment objective and policies.
These factors should be considered when comparing the fund's
investment results with those of other mutual funds and other
investment vehicles.
Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. Fund performance may be
compared to that of various indexes. See the SAI.
HOW THE FUND IS MANAGED
The Trustees are responsible for generally overseeing the conduct
of fund business. Subject to such policies as the Trustees may
determine, Putnam Management furnishes a continuing investment
program for the fund and makes investment decisions on its
behalf.
Subject to the control of the Trustees, Putnam Management also
manages the fund's other affairs and business.
The fund pays Putnam Management a quarterly fee for the services
based on average net assets. See "Expenses summary" and the SAI.
<PAGE>
The following officers of Putnam Management have had primary
responsibility for the day-to-day management of the fund's
portfolio since the years stated below:
Business experience
Year (at least 5 years)
Justin M. Scott 1995 Employed as an investment
Managing Director professional by Putnam
Management since 1988.
J. Peter Grant 1996 Employed as an investment
Senior Vice President professional by Putnam
Management since 1973.
Robert Swift 1996 Employed as an investment
Senior Vice President professional by Putnam
Management since 1995. Prior
to August, 1995, Mr. Swift was
Director and Senior Portfolio
Manager at IAI
International/Hill Samuel
Investment Advisors.
Ami T. Kuan 1996 Employed as an investment
Vice President professional by Putnam
Management since 1993. Prior
to April, 1993, Ms. Kuan
attended the MIT Sloan School
of Management.
The 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 (which are in turn
allocated
to the relevant class of shares). Expenses of the Trust directly
charged or attributable to the fund will be paid from the assets
of the fund. General expenses of the Trust will be allocated
among and charged to the assets of the fund and each other
portfolio of the Trust on a basis that the Trustees deem fair and
equitable, which may be based on the relative assets of the fund
and each other portfolio or the nature of the services performed
and relative applicability to each fund or other portfolios. The
fund also reimburses Putnam Management for the compensation and
related expenses of certain fund officers and their staff who
provide administrative services. The total reimbursement is
determined annually by the Trustees.
Putnam Management places all orders for purchases and sales of
fund securities. In selecting broker-dealers, Putnam Management
may consider research and brokerage services furnished to it and
its affiliates. Subject to seeking the most favorable price and
execution available, Putnam Management may consider sales of fund
shares (and, if permitted by law, of the other Putnam funds) as a
factor in the selection of broker-dealers.
ORGANIZATION AND HISTORY
Putnam International New Opportunities Fund is a series of Putnam
Investment Funds, 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. 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. The Trustees may, without shareholder
approval, create two or more series of shares representing
separate investment portfolios. Any such series of shares may be
divided without shareholder approval into two or more classes of
shares having such preferences and special or relative rights and
privileges as the Trustees determine. Only class A, B and M
shares are offered by this prospectus. The 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 all classes will vote together as a
single class except when otherwise required by law or as
determined by the Trustees. Shares are freely transferable, are
entitled to dividends as declared by the Trustees, and, if the
fund were liquidated, would receive the net assets of the fund.
The fund may suspend the sale of shares at any time and may
refuse
any order to purchase shares. Although the fund is not required
to hold annual meetings of its shareholders, shareholders holding
at least 10% of the outstanding shares entitled to vote have the
right to call a meeting to elect or remove Trustees, or to take
other actions as provided in the Agreement and Declaration of
Trust.
If you own fewer shares than the minimum set by the Trustees
(presently 20 shares), the fund may choose to redeem your shares.
You will receive at least 30 days' written notice before the fund
redeems your shares, and you may purchase additional shares at
any
time to avoid a redemption. The fund may also redeem shares if
you own shares above a maximum amount set by the Trustees. There
is presently no maximum, but the Trustees may establish one at
any
time, which could apply to both present and future shareholders.
The Trust's Trustees: George Putnam,* Chairman. President of
the
Putnam funds. Chairman and Director of Putnam Management and
Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director,
Marsh & McLennan Companies, Inc.; William F. Pounds, Vice
Chairman. Professor of Management, Alfred P. Sloan School of
Management, Massachusetts Institute of Technology; Jameson Adkins
Baxter, President, Baxter Associates, Inc.; Hans H. Estin, Vice
Chairman, North American Management Corp.; John A. Hill, Chairman
and Managing Director, First Reserve Corporation; Ronald J.
Jackson, Former Chairman, President and Chief Executive Officer
of
Fisher-Price, Inc., Director of Safety 1st, Inc., Trustee of
Salem
Hospital and the Peabody Essex Museum; 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 and Director of
Acquisitions, Cabot Partners Limited Partnership; Donald S.
Perkins,* Director of various corporations, including Cummins
Engine Company, Lucent Technologies, Inc., Springs Industries,
Inc. and Time Warner Inc.; George Putnam, III,* President, New
Generation Research, Inc.; A.J.C. Smith,* Chairman and Chief
Executive Officer, Marsh & McLennan Companies, Inc.; 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 are also Trustees of the other Putnam
funds. Those marked with an asterisk (*) are or may be deemed to
be "interested persons" of the fund, Putnam Management or Putnam
Mutual Funds.
About Your Investment
ALTERNATIVE SALES ARRANGEMENTS
Class A shares. An investor who purchases class A shares pays a
sales charge at the time of purchase. As a result, class A
shares
are not subject to any charges when they are redeemed, except for
certain sales at net asset value that are subject to a contingent
deferred sales charge ("CDSC"). Certain purchases of class A
shares qualify for reduced sales charges. Class A shares bear a
lower 12b-1 fee than class B and class M shares. See "How to buy
shares -- Class A shares" and "Distribution plans."
Class B shares. Class B shares are sold without an initial sales
charge, but are subject to a CDSC if redeemed within a specified
period after purchase. Class B shares also bear a higher 12b-1
fee than class A and class M shares. Class B shares
automatically
convert into class A shares, based on relative net asset value,
approximately eight years after purchase. For more information
about the conversion of class B shares, see the SAI. This
discussion includes information about how shares acquired through
reinvestment of distributions are treated for conversion
purposes.
The discussion also notes certain circumstances under which a
conversion may not occur. Class B shares provide an investor the
benefit of putting all of the investor's dollars to work from the
time the investment is made. Until conversion, class B shares
will have a higher expense ratio and pay lower dividends than
class A and class M shares because of the higher 12b-1 fee. See
"How to buy shares -- Class B shares" and "Distribution plans."
Class M shares. An investor who purchases class M shares pays a
sales charge at the time of purchase that is lower than the sales
charge applicable to class A shares. Certain purchases of class
M
shares qualify for reduced sales charges. Class M shares bear a
12b-1 fee that is lower than class B shares but higher than class
A shares. Class M shares are not subject to any CDSC and do not
convert into any other class of shares. See "How to buy shares
- --
Class M shares" and "Distribution plans."
Which arrangement is best for you? The decision as to which
class of shares provides a more suitable investment for an
investor depends on a number of factors, including the amount and
intended length of the investment. Investors making investments
that qualify for reduced sales charges might consider class A or
class M shares. Investors who prefer not to pay an initial sales
charge might consider class B shares. Orders for class B shares
for $250,000 or more will be treated as orders for class A shares
or declined. For more information about these sales
arrangements, consult your investment dealer or Putnam Investor
Services. Shares may only be exchanged for shares of the same
class of another Putnam fund. See "How to exchange shares."
HOW TO BUY SHARES
You can open a fund account with as little as $500 and make
additional investments at any time with as little as $50. You
can buy fund shares three ways - through most investment dealers,
through Putnam Mutual Funds (at 1-800-225-1581), or through a
systematic investment plan. If you do not have a dealer, Putnam
Mutual Funds can refer you to one.
Buying shares through Putnam Mutual Funds. Complete an order
form and 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.
<PAGE>
Buying shares through systematic investing. You can make regular
investments of $25 or more per month through automatic deductions
from your bank checking or savings account. Application forms
are available from your investment dealer or through Putnam
Investor Services.
Shares are sold at the public offering price based on the net
asset value next determined after Putnam Investor Services
receives your order. In most cases, in order to receive that
day's public offering price, Putnam Investor Services must
receive your order before the close of regular trading on the New
York Stock Exchange. If you buy shares through your investment
dealer, the dealer must receive your order before the close of
regular trading on the New York Stock Exchange to receive that
day's public offering price.
Class A shares
The public offering price of class A shares is the net asset
value plus a sales charge that varies depending on the size of
your purchase. The fund receives the net asset value. The sales
charge is allocated between your investment dealer and Putnam
Mutual Funds as shown in the following table, except when Putnam
Mutual Funds, in its discretion, allocates the entire amount to
your investment dealer.
Sales charge Amount of
as a percentage of: sales charge
------------------- reallowed to
Net dealers as a
Amount of transaction amount Offering percentage of
at offering price ($) 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 class A shares
of
$1 million or more or purchases by participant-directed qualified
retirement plans with at least 200 eligible employees. However,
a
CDSC of 1.00% will be imposed upon redemptions of shares
purchased
at net asset value after July 31, 1996 by a participant-directed
qualified retirement plan (including a plan with at least 200
eligible employees) that initially invested less than $20 million
in Putnam funds and other investments managed by Putnam
Management
or its affiliates and that redeems 90% or more of the amount
initially invested within two years after initial purchase.
Similarly, a CDSC of 1.00% or 0.50%, respectively, will be
imposed
within the first or second year after purchase on redemptions by
any investor, other than a participant-directed qualified
retirement plan, that purchased fund shares without an initial
sales charges as part of an investment of $1 million or more.
Shares purchased by investors investing $1 million or more in
class A shares whose dealer of record waived its commission with
the approval of Putnam Mutual Funds are not subject to the CDSC.
In determining whether a CDSC is payable, shares not subject to
any charge will be redeemed first. 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 class A shares of $1
million or more based on an investor's cumulative purchases
during the one-year period beginning with the date of the initial
purchase at net asset value. Each subsequent one-year measuring
period for these purposes will begin with the first net asset
value purchase following the end of the prior period. Such
commissions are paid at the rate of 1.00% of the amount under $3
million, 0.50% of the next $47 million and 0.25% thereafter.
On sales at net asset value to a participant-directed qualified
retirement plan initially investing less than $20 million in
Putnam funds and other investments managed by Putnam Management
or its affiliates (including a plan 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%.
A participant-directed qualified retirement plan participating in
a "multi-fund" program approved by Putnam Mutual Funds may
include amounts invested in 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 elsewhere in this prospectus and in the SAI.
Class B shares
Class B shares are sold without an initial sales charge, although
a CDSC will be imposed if you redeem shares within a specified
period after purchase, as shown in the table below. The
following types of shares may be redeemed without charge at any
time: (i) shares acquired by reinvestment of distributions, and
(ii) shares otherwise exempt from the CDSC, as described in "How
to buy shares -- General" below. For other shares, the amount of
the charge is determined as a percentage of the lesser of the
current market value or the cost of the shares being redeemed.
Year 1 2 3 4 5 6 7+
- -------------------------------------------------------------
Charge 5% 4% 3% 3% 2% 1% 0%
In determining whether a CDSC is payable on any redemption,
shares
not subject to any charge will be redeemed first, followed by,
shares held longest during the CDSC period. For this purpose,
the
amount of any increase in a share's value above its initial
purchase price is not regarded as a share exempt from the CDSC.
Thus, when a share that has appreciated in value is redeemed
during
the CDSC period, a CDSC is assessed only on its initial purchase
price. For information on how sales charges are calculated if
you
exchange your shares, see "How to exchange shares." Putnam
Mutual
Funds receives the entire amount of any CDSC you pay.
Class M shares
The public offering price of class M 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, at 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 3.63% 3.50% 3.00%
50,000 but under 100,000 2.56 2.50 2.00
100,000 but under 250,000 1.52 1.50 1.00
250,000 but under 500,000 1.01 1.00 1.00
500,000 and above NONE NONE NONE
Sales charges will not apply to class M shares purchased with
redemption proceeds received within the prior 90 days from non-
Putnam mutual funds on which the investor paid a front-end or a
contingent deferred sales charge. Participant-directed qualified
retirement plans with at least 50 eligible employees and members
of qualified groups may also purchase class M shares without a
sales charge.
<PAGE>
General
You may be eligible to buy fund 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, qualified
retirement plans and other plans. Descriptions are also included
in the order form and in the SAI.
The fund may sell class A, class B and class M shares at net
asset
value without an initial sales charge or a CDSC to 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, the fund may sell shares at net asset value without
an initial sales charge or a CDSC in connection with the
acquisition by the fund of assets of an investment company or
personal holding company. 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 at reduced sales charges.
Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
fund shares 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 , payment
may be delayed 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,
certificates will not be issued for your shares unless you
request
them.
Putnam Mutual Funds will from time to time, at its expense,
provide additional promotional incentives or payments to dealers
that sell shares of the Putnam funds. These incentives or
payments may include payments for travel expenses, including
lodging, incurred in connection with trips taken by invited
registered representatives and their guests to locations within
and outside the United States for meetings or seminars of a
business nature. In some instances, these incentives or payments
may be offered only to certain dealers who have sold or may sell
significant amounts of shares. Certain dealers may not sell all
classes of shares.
DISTRIBUTION PLANS
Class A distribution plan. The class A plan provides for
payments
by the fund to Putnam Mutual Funds at the annual rate of up to
0.35% of average net assets attributable to class A shares. The
Trustees currently limit payments under the class A plan to the
annual rate of 0.25% of such assets.
Putnam Mutual Funds makes quarterly payments to qualifying
dealers (including, for this purpose, certain financial
institutions) to compensate them for services provided in
connection with sales of class A shares and the maintenance of
shareholder accounts. The payments are based on the average net
asset value of class A shares attributable to shareholders for
whom the dealers are designated as the dealer of record.
This calculation excludes until one year after purchase shares
purchased at net asset value by shareholders investing $1 million
or more. Also excluded until one year after purchase are shares
purchased at net asset value by participant-directed qualified
retirement plans with at least 200 eligible employees. These
shares are not subject to the one-year exclusion provision in
cases where certain shareholders who invested $1 million or more
have made arrangements with Putnam Mutual Funds and the dealer of
record waived the sales commission.
Except as stated below, Putnam Mutual Funds makes the quarterly
payments at the annual rate of 0.25% of such average net asset
value for class A shares (including shares acquired through
reinvestment of distributions).
For participant-directed qualified retirement plans initially
investing less than $20 million in Putnam funds and other
investments managed by Putnam Management or its affiliates,
Putnam Mutual Funds' payments to qualifying dealers on shares
purchased at net asset value are 100% of the rate stated above if
average plan assets in Putnam funds (excluding money market
funds) during the quarter are less than $20 million, 60% of the
stated rate if average plan assets are at least $20 million but
under $30 million, and 40% of the stated rate if average plan
assets are $30 million or more.
For all other participant-directed qualified retirement plans
purchasing shares at net asset value, Putnam Mutual Funds makes
quarterly payments to qualifying dealers at the annual rate of
0.10% of the average net asset value of such shares.
Class B and class M distribution plans. The class B and class M
plans provide for payments by the fund to Putnam Mutual Funds at
the annual rate of up to 1.00% of average net assets attributable
to class B shares and class M shares, as the case may be. The
Trustees currently limit payments under the class M plan to the
annual rate of 0.75% of such assets.
Although class B shares are sold without an initial sales charge,
Putnam Mutual Funds pays a sales commission equal to 4.00% of the
amount invested to dealers who sell class B shares. These
commissions are not paid on exchanges from other Putnam funds or
on sales to investors exempt from the CDSC.
The amount paid to dealers at the time of the sale of class M
shares is set forth above under "How to buy shares -- Class M
shares." In addition, to further compensate dealers (including
qualifying financial institutions) for services provided in
connection with sales of class B shares and class M shares and
the maintenance of shareholder accounts, Putnam Mutual Funds
makes quarterly payments to qualifying dealers.
The payments are based on the average net asset value of class B
shares and class M shares attributable to shareholders for whom
the dealers are designated as the dealer of record. Putnam
Mutual Funds makes the payments at an annual rate of 0.25% of
such average net asset value of class B shares and class M
shares, as the case may be.
Putnam Mutual Funds also pays to dealers, as additional
compensation with respect to the sale of class M shares, 0.40% of
such average net asset value of class M shares. For class M
shares, the total annual payment to dealers equals 0.65% of such
average net asset value.
General. Payments under the plans are intended to compensate
Putnam Mutual Funds for services provided and expenses incurred
by it as principal underwriter of fund shares, including the
payments to dealers mentioned above. Putnam Mutual Funds may
suspend or modify such payments to dealers.
The payments are also subject to the continuation of the relevant
distribution plan, the terms of service agreements between
dealers and Putnam Mutual Funds, and any applicable limits
imposed by the National Association of Securities Dealers, Inc.
HOW TO SELL SHARES
You can sell your shares to the fund any day the New York Stock
Exchange is open, either directly to the fund or through your
investment dealer. The fund will only redeem shares for which it
has received payment.
Selling shares directly to your fund. Send a signed letter of
instruction or stock power form to Putnam Investor Services,
along with any certificates that represent shares you want to
sell. The price you will receive is the next net asset value
calculated after the fund receives your request in proper form
less any applicable CDSC. In order to receive that day's net
asset value, Putnam Investor Services must receive your request
before the close of regular trading on the New York Stock
Exchange.
If you sell shares having a net asset value of $100,000 or more,
the signatures of registered owners or their legal
representatives must be guaranteed by a bank, broker-dealer or
certain other financial institutions. See the 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.
Your fund generally sends you payment for your shares the
business day after your request is received. Under unusual
circumstances, the fund may suspend redemptions, or postpone
payment for more than seven days, as permitted by federal
securities law.
You may use Putnam's Telephone Redemption Privilege to redeem
shares valued up to $100,000 from your account unless you have
notified Putnam Investor Services of an address change within the
preceding 15 days. Unless an investor indicates otherwise on the
account application, Putnam Investor Services will be authorized
to act upon redemption and transfer instructions received by
telephone from a shareholder, or any person claiming to act as
his or her representative, who can provide Putnam Investor
Services with his or her account registration and address as it
appears on Putnam Investor Services' records.
Putnam Investor Services will employ these and other reasonable
procedures to confirm that instructions communicated by telephone
are genuine; if it fails to employ reasonable procedures, Putnam
Investor Services may be liable for any losses due to
unauthorized or fraudulent instructions. For information,
consult Putnam Investor Services.
During periods of unusual market changes and shareholder
activity, you may experience delays in contacting Putnam Investor
Services by telephone. In 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 is not available if you were issued certificates for
shares that remain outstanding. The Telephone Redemption
Privilege may be modified or terminated without notice.
Selling shares through your investment dealer. Your dealer must
receive your request before the close of regular trading on the
New York Stock Exchange to receive that day's net asset value.
Your dealer will be responsible for furnishing all necessary
documentation to Putnam Investor Services, and may charge you for
its services.
HOW TO EXCHANGE SHARES
You can exchange your shares for shares of the same class of
certain other Putnam funds at net asset value. Not all Putnam
funds offer all classes of shares. If you exchange shares
subject to a CDSC, the transaction will not be subject to the
CDSC. However, when you redeem the shares acquired through the
exchange, the redemption may be subject to the CDSC, depending
upon when you originally purchased the shares. The CDSC will be
computed using the schedule of any fund into or from which you
have exchanged your shares that would result in your paying the
highest CDSC applicable to your class of shares. For purposes
of computing the CDSC, the length of time you have owned your
shares will be measured from the date of original purchase and
will not be affected by any exchange.
To exchange your shares, simply complete an Exchange
Authorization Form and send it to Putnam Investor Services. 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." The
Telephone Exchange Privilege is not available if you were issued
certificates for shares that remain outstanding. Ask your
investment dealer or Putnam Investor Services for prospectuses of
other Putnam funds. Shares of certain Putnam funds are not
available to residents of all states.
The exchange privilege is not intended as a vehicle for short-
term trading. Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity and
in other circumstances where Putnam Management or the Trustees
believe doing so would be in the best interests of your fund, the
fund reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any
exchange. Consult Putnam Investor Services before requesting an
exchange. See the SAI to find out more about the exchange
privilege.
HOW THE FUND VALUES ITS SHARES
The fund calculates the net asset value of a share of each class
by dividing the total value of its assets, less liabilities, by
the number of its shares outstanding. Shares are valued as of
the close of regular trading on the New York Stock Exchange each
day the Exchange is open.
Portfolio securities for which market quotations are readily
available are valued at market value. Short-term investments
that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets
are valued at their fair value following procedures approved by
the Trustees.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX INFORMATION
The fund distributes any net investment income and any net
realized capital gains at least annually. Distributions from net
investment income, if any, are expected to be small.
Distributions from capital gains are made after applying any
available capital loss carryovers. Distributions paid on class A
shares will generally be greater than those paid on class B and
class M shares because expenses attributable to class B and class
M shares will generally be higher.
You can choose from three distribution options:
- - Reinvest all distributions in additional shares without a
sales charge;
- - Receive distributions from net investment income in cash
while reinvesting net capital gains distributions in
additional shares 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.
All distributions not paid in cash will be reinvested in shares
of the class on which the distributions are paid. You will
receive a statement confirming reinvestment of distributions in
additional shares (or in shares of other Putnam funds for
Dividends Plus accounts) promptly following the quarter in which
the reinvestment occurs.
If a check representing a fund distribution is not cashed within
a specified period, Putnam Investor Services will notify you that
you have the option of requesting another check or reinvesting
the distribution in the fund or in another Putnam fund. If
Putnam Investor Services does not receive your election, the
distribution will be reinvested in the fund. Similarly, if
correspondence sent by the fund or Putnam Investor Services is
returned as "undeliverable," fund distributions will
automatically be reinvested in the fund or in another Putnam
fund.
The fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements necessary for it to be relieved of federal taxes on
income and gains it distributes to shareholders. The fund will
distribute substantially all of its ordinary income and capital
gain net income on a current basis.
Fund distributions will be taxable to you as ordinary income,
except that any distributions of net long-term capital gains will
be taxable as such, regardless of how long you have held the
shares. Distributions will be taxable as described above whether
received in cash or in shares through the reinvestment of
distributions.
Fund investments in foreign securities may be subject to
withholding taxes at the source on dividend or interest payments.
In that case, the fund's yield on those securities would be
decreased.
If at the end of the fund's fiscal year more than 50% of the
value of its total assets represents securities of foreign
corporations, the fund intends to make an election permitted by
the Internal Revenue Code to treat any foreign taxes paid by it
as paid by its shareholders. In this case, shareholders who are
U.S. citizens, U.S. corporations and, in some cases, U.S.
residents generally will be required to include in U.S. taxable
income their pro rata share of such taxes, but may then generally
be entitled to claim a foreign tax credit or deduction (but not
both) for their share of such taxes.
Fund transactions in foreign currencies and hedging activities
may give rise to ordinary income or loss to the extent such
income or loss results from fluctuations in value of the foreign
currency concerned. In addition, such activities will likely
produce a difference between 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 for tax purposes.
Investment in an entity that qualifies as a "passive foreign
investment company" under the Internal Revenue Code could subject
the fund to a U.S. federal income tax or other charge on certain
"excess distributions" with respect to the investment, and on the
proceeds from disposition of the investment.
Early in each year Putnam Investor Services will notify you of
the amount and tax status of distributions paid to you for the
preceding year.
The foregoing is a summary of certain federal income tax
consequences of investing in the fund. You should consult your
tax adviser to determine the precise effect of an investment in
the fund on your particular tax situation (including possible
liability for state and local taxes).
About Putnam Investments, Inc.
Putnam Management has been managing mutual funds since 1937.
Putnam Mutual Funds is the principal underwriter of the fund and
of other Putnam funds. Putnam Fiduciary Trust Company is the
custodian of the fund. Putnam Investor Services, a division of
Putnam Fiduciary Trust Company, is the investor servicing and
transfer agent for the fund.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., which is
wholly owned by Marsh & McLennan Companies, Inc., a publicly-
owned holding company whose principal businesses are
international insurance and reinsurance brokerage, employee
benefit consulting and investment management.
<PAGE>
Make the most of your Putnam privileges
The following services are available to you as a Putnam mutual
fund shareholder.
SYSTEMATIC INVESTMENT PLAN Invest as much as you wish ($25 or
more) on any business day of the month except for the 29th, 30th,
or 31st. The amount will be automatically transferred monthly
from your checking or savings account.
SYSTEMATIC WITHDRAWAL Make regular withdrawals of $50 or more
monthly, quarterly, or semiannually from an account valued at
$10,000 or more. Your automatic withdrawal may be made on any
business day of the month except for the 29th, 30th, or 31st.
SYSTEMATIC EXCHANGE Transfer assets automatically from one
Putnam account to another on a regular, prearranged basis. There
is no additional charge for this service.
FREE EXCHANGE PRIVILEGE Exchange money between Putnam funds in
the same class of shares without charge. The exchange privilege
allows you to adjust your investments as your objectives change.
A signature guarantee is required for exchanges of more than
$500,000 and shares of all Putnam funds may not be available to
all investors.
Investors may not maintain, within the same fund, simultaneous
plans for systematic investment or exchange (into the fund) and
systematic withdrawal or exchange (out of the fund). These
privileges are subject to change or termination.
For more information about any of these services and privileges,
call your investment advisor or a Putnam customer service
representative toll-free at 1-800-225-1581.
<PAGE>
PUTNAM INTERNATIONAL NEW OPPORTUNITIES 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
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
PUTNAMINVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
<PAGE>
PUTNAM INTERNATIONAL NEW OPPORTUNITIES FUND
One Post Office Square, Boston, MA 02109
Class A shares
INVESTMENT STRATEGY: GROWTH
PROSPECTUS - December 31, 1996
This prospectus explains concisely what you should know before
investing in class A shares of Putnam International New
Opportunities Fund (the "fund"), a portfolio of Putnam Investment
Funds (the "Trust"), which are offered without a sales charge
through eligible employer-sponsored participant-directed
qualified retirement plans. Please read it carefully and keep it
for future reference. You can find more detailed information
about the fund in the December 31, 1996 statement of additional
information (the "SAI"), as amended from time to time. For a
free copy of the SAI or for other information, including a
prospectus regarding class A shares for other investors, call
Putnam Investor Services at 1-800-752-9894. 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.
PUTNAMINVESTMENTS
Putnam Defined
Contribution Plans
<PAGE>
ABOUT THE FUND
Expenses summary..........................................
Financial highlights......................................
Objective.................................................
How the fund pursues its objective........................
Risk factors.... .......................................
How performance is shown..................................
How the fund is managed...................................
Organization and history..................................
ABOUT YOUR INVESTMENT
How to buy shares.........................................
Distribution plan.........................................
How to sell shares........................................
How to exchange shares....................................
How the fund values its shares............................
How the fund makes distributions to shareholders;
tax information.........................................
ABOUT PUTNAM INVESTMENTS, INC. ...........................
<PAGE>
About the Fund
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing.
The following table summarizes expenses attributable to class A
shares based on the fund's most recent fiscal year. The example
shows the cumulative expenses attributable to a hypothetical
$1,000 investment in class A shares over specified periods.
Annual fund operating expenses
(as a percentage of average net assets)
Management fees 1.17%
12b-1 fees 0.25%
Other expenses 0.53%
Total fund operating expenses 1.95%
The table is provided to help you understand the expenses of
investing in the fund and your share of the operating expenses
that the fund incurs. The expenses shown in the table do not
reflect the application of credits that reduce fund expenses.
Example
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and redemption at the end of each
period:
1 3 5 10
year years years years
$20 $61 $105 $227
The example does not represent past or future expense levels, and
actual expenses may be greater or less than those shown. Federal
regulations require the example to assume a 5% annual return, but
actual annual return varies. The example does not reflect any
charges or expenses related to your employer's plan.
FINANCIAL HIGHLIGHTS
This information has been derived from the fund's financial
statements, which have been audited and reported on by the
independent accountants. The "Report of
Independent
Accountants " and financial statements included in the fund's
annual report to shareholders for the 1996 fiscal year are
incorporated by reference into this prospectus. The fund's
annual report, which contains additional unaudited performance
information is available without charge upon request.
Financial highlights
(For a share outstanding throughout the period)
(The table is incorporated by reference from Post-Effective
Amendment No. 10 to the Fund's Registration Statement, File No.
33-56339.)
OBJECTIVE
Putnam International New Opportunities Fund seeks long-term
capital appreciation. The fund is not intended to be a complete
investment program, and there is no assurance that it will
achieve its objective.
HOW THE FUND PURSUES ITS OBJECTIVE
Basic investment strategy
The fund seeks to invest in companies that have above-average
growth prospects due to the fundamental growth of their market
sector. Under normal market conditions, the fund expects to
invest substantially all of its total assets, other than cash or
short-term investments held pending investment, in common stocks,
preferred stocks, convertible preferred stocks, convertible bonds
and other equity securities principally traded in securities
markets outside the United States. The fund will normally
diversify its investments among a number of different countries
and, except when investing for defensive purposes as described
below, will invest at least 65% of its assets in at least three
different countries other than the United States.
Putnam Investment Management, Inc., the fund's investment manager
("Putnam Management"), believes that different market sectors in
different countries will experience different rates of growth
depending on the state of economic development of each country.
As a result, Putnam Management seeks to identify those market
sectors which will experience above-average growth in three broad
categories of economies: less developed economies, developing
economies that have experienced sustained growth over the recent
past, and mature economies. Within the identified growth sectors
of each type of economy, Putnam Management seeks to invest in
particular companies that offer above-average growth prospects.
The sectors in which the fund will invest are likely to change
over time and may include a variety of industries. Subject to
the fund's investment restrictions, the fund may invest up to
one-half of its assets in any one particular sector. The fund's
emphasis on particular sectors may make the value of the fund's
shares more susceptible to any single economic, political or
regulatory development than the shares of an investment company
which is more widely diversified. As a result, the value of the
fund's shares may fluctuate more than the value of the shares of
such an investment company. The fund may also invest a portion
of its assets in market sectors other than those that Putnam
Management believes will experience above-average growth if
Putnam Management believes that such investments are consistent
with the fund's investment objective of long-term capital
appreciation.
The securities markets of less developed economies and of many
developing economies are sometimes referred to as "emerging
securities markets." Although the amount of the fund's assets
invested in emerging securities markets will vary over time,
Putnam Management currently expects that a substantial portion of
the fund's assets will be invested in emerging securities
markets. These markets are generally characterized by limited
trading volume and greater volatility and, as a result, the fund
may be subject to greater risks to the extent of its investments
in such markets. For a discussion of these risks, see "Risk
factors" below.
Companies in the fund's portfolio may include small, rapidly
growing companies with equity market capitalizations of less than
$1 billion. 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. 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.
The fund invests primarily in common stocks and other equity
securities, but may also invest up to 10% of its total assets in
non-convertible debt securities if Putnam Management believes
they would help achieve the fund's objective of long-term capital
appreciation. The fund may invest in securities in the lower-
rated categories. Securities in the lower-rated categories are
considered to be predominantly speculative and may be in default.
See "Risk factors -- Investments in fixed-income securities."
The fund may also hold a portion of its assets in cash or high-
quality money market instruments.
RISK FACTORS
Foreign investments
The fund may invest without limit in securities principally
traded in foreign markets. Since foreign securities are normally
denominated and traded in foreign currencies, the values of fund
assets may be affected favorably or unfavorably by changes in
currency exchange rates relative to the U.S. dollar. There may
be less information publicly available about a foreign issuer
than about a U.S. issuer, and foreign issuers may not be subject
to accounting standards 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 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 fund 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 that could affect the
value of investments in certain foreign countries.
Legal remedies available to investors in certain foreign
countries may be limited. 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 greater in less developed
nations, sometimes referred to as "emerging markets." For
instance, political and economic structures in these countries
may be in their infancy and developing rapidly, causing
instability. High rates of inflation may adversely affect the
economies and securities markets of such countries.
In addition, 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.
Investments is emerging markets are regarded as speculative.
For more information regarding foreign investments, see the SAI.
The fund 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
against changes in the value of specific portfolio positions
("position hedging").
The fund may engage in transaction hedging to protect against a
change in foreign currency exchange rates between the date on
which the fund contracts to purchase or sell a security and the
settlement date, or to "lock in" the U.S. dollar equivalent of a
dividend or interest payment in a foreign currency. 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.
If conditions warrant, for transaction hedging purposes 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. 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. In addition, for transaction hedging purposes the
fund may also purchase or sell exchange-listed and over-the-
counter call and put options on foreign currency futures
contracts and on foreign currencies.
The fund may engage in position hedging to protect against a
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 currency in which the
securities the fund intends to buy are denominated, when the fund
holds cash or short-term investments). For position hedging
purposes, the fund may purchase or sell foreign currency futures
contracts, foreign currency forward contracts and options on
foreign currency futures contracts and on foreign currencies on
exchanges or in over-the-counter markets. In connection with
position hedging, the fund may also purchase or sell foreign
currency on a spot basis.
The decision as to whether and to what extent the fund will
engage in foreign currency exchange transactions will depend on a
number of factors, including prevailing market conditions, the
composition of the fund's portfolio and the ability of suitable
transactions. Accordingly, there can be no assurance that the
fund will engage in foreign currency exchange transactions at any
given time or from time to time.
For a further discussion of the risks associated with purchasing
and selling futures contracts and options, see "Financial futures
and related options." The SAI also contains additional
information concerning the fund's use of foreign currency
exchange transactions.
Investments in fixed-income securities
Although the fund will invest primarily in common stocks, it may
also invest in both higher-rated and lower-rated fixed-income
securities, and is not subject to any restrictions based on
credit ratings. The values of fixed-income securities generally
fluctuate in response to changes in interest rates. Thus, a
decrease in interest rates will generally result in an increase
in the value of the fund's fixed-income investments. Conversely,
during periods of rising interest rates, the value of the fund's
fixed-income investments will generally decline. The values of
lower-rated fixed-income securities, commonly known as "junk
bonds," generally fluctuate more than those of higher-rated
fixed-income securities. Securities in the lower rating
categories may, depending on the rating, have large uncertainties
or major risk exposure to adverse conditions, and may include
securities in default. The rating services' descriptions of
securities in the various rating categories, including the
speculative characteristics of securities in the lower rating
categories, are set forth in the SAI.
The lower ratings of these securities 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 the fund invests in securities in
the lower rating categories, the achievement of the fund's goals
is more dependent on Putnam Management's ability than would be
the case if the fund were investing in securities in the higher
rating categories.
For additional information concerning the risks associated with
investment by the fund in securities in the lower rating
categories, see the SAI.
Portfolio turnover
The length of time the fund has held a particular security is not
generally a consideration in investment decisions. A change in
the securities held by the fund is known as "portfolio turnover."
As a result of the fund's investment policies, under certain
market conditions its portfolio turnover rate may be higher than
that of other mutual funds.
Portfolio turnover generally involves some expense, including
brokerage commissions or dealer markups and other transaction
costs on the sale of securities and reinvestment in other
securities. These transactions may result in realization of
taxable capital gains. Portfolio turnover rates are shown in the
section "Financial highlights."
Financial futures and related options
The fund may buy and sell financial futures contracts on stock
indexes and foreign currencies. A futures contract is a contract
to buy or sell units of a particular stock index, or a certain
amount of a foreign currency, at an agreed price on a specified
future date. Depending on the change in value of the index or
currency between the time the fund enters into and terminates a
futures contract, the fund realizes a gain or loss. In addition
to or as an alternative to purchasing or selling futures
contracts, the fund may buy and sell call and put options on
futures contracts or on stock indexes. The fund may engage in
financial futures and options transactions for hedging purposes
and for non-hedging purposes, such as to adjust its exposure to
relevant markets or as a substitute for direct investment.
The use of futures and options involves certain special risks.
Futures and options transactions involve costs and may result in
losses.
Certain risks arise from the possibility of imperfect
correlations among movements in the prices of financial futures
and options purchased or sold by the fund, of the underlying
stock index or currency, or of the securities or currencies which
are the subject of the hedge. The successful use of the
strategies describes above further depends on Putnam Management's
ability to forecast market movements correctly.
Other risks arise from the potential inability to close out
futures or options positions. There can be no assurance that a
liquid secondary market will exist for any futures contract or
option at a particular time. The fund's ability to terminate
option positions established in the over-the-counter market may
be more limited than for exchange-traded options and may also
involve the risk that securities dealers participating in such
transactions would fail to meet their obligations to the fund.
Certain provisions of the Internal Revenue Code and certain
regulatory requirements may also limit the fund's ability to
engage in futures and options transactions.
A more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the SAI.
Options. The fund may seek to increase its current return by
writing covered call and put options on securities it owns or in
which it may invest. The fund receives a premium from writing a
call or put option, which increases the return if the option
expires unexercised or is closed out at a net profit.
When the fund writes a call option, it gives up the opportunity
to profit from any increase in the price of a security above the
exercise price of the option; when it writes a put option, it
takes the risk that it will be required to purchase a security
from the option holder at a price above the current market price
of the security. The fund may terminate an option that it has
written prior to its expiration by entering into a closing
purchase transaction in which it purchases an option having the
same terms as the option written.
The fund may also buy and sell put and call options and from time
to time, may also buy and sell combinations of put and call
options on the same underlying security. The aggregate value of
the securities underlying the options may not exceed 25% of fund
assets. The use of these strategies may be limited by applicable
law.
A more detailed explanation of options transactions, including
the risks associated with them, is included in the SAI.
Securities loans, repurchase agreements and forward commitments
The fund may lend portfolio securities amounting to not more than
25% of its assets to broker-dealers and may enter into repurchase
agreements on up to 25% of its assets. These transactions must
be fully collateralized at all times. The fund may also purchase
securities for future delivery, which may increase its overall
investment exposure and involves a risk of loss if the value of
the securities declines prior to the settlement date. These
transactions involve some risk if the other party should default
on its obligation and the fund is delayed or prevented from
recovering the collateral or completing the transaction.
Defensive strategies
At times Putnam Management may judge that conditions in the
securities markets make pursuing the fund's basic investment
strategy inconsistent with the best interests of its
shareholders. At such times, Putnam Management may temporarily
use alternative strategies, primarily designed to reduce
fluctuations in the value of fund assets.
In implementing these defensive strategies, the fund may invest
without limit in cash or money market instruments, preferred
stocks, debt securities issued by the U.S. government or any
foreign government or their agencies or instrumentalities, or
securities primarily traded in the U.S. markets, or in any other
securities Putnam Management considers consistent with such
defensive strategies.
It is impossible to predict when, or for how long, these
alternative strategies would be used.
Diversification
The fund is a "diversified" investment company under the
Investment Company Act of 1940. This means that with respect to
75% of its total assets, the 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 its total fund
assets is not subject to this restriction. To the extent the
fund invests a significant portion of its assets in the
securities of a particular issuer, it 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 the fund may invest, such as
futures contracts, options and forward contracts, are considered
to be "derivatives." Derivatives are financial instruments whose
value depends upon, or is derived from, the value of an
underlying asset, such as a security or an index. Further
information about these instruments and the risks involved in
their use is included elsewhere in this prospectus and in the
SAI.
Limiting investment risk
Specific investment restrictions help to limit investment risks
for the fund's shareholders. These restrictions prohibit the
fund, with respect to 75% of its total assets, from acquiring
more than 10% of the voting securities of any one issuer.* They
also prohibit the fund from investing more than:
(a) with respect to 75% of its total assets, 5% of its total
assets in securities of any one issuer (other than the U.S.
government);*
(b) 25% of its total assets in any one industry;* or
(c) 15% of its net assets in any combination of securities that
are not readily marketable, in securities restricted as to resale
(excluding securities determined by the 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 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 policy without
shareholder approval. As a matter of policy, the Trustees would
not materially change the fund's investment objective without
shareholder approval.
HOW PERFORMANCE IS SHOWN
Fund advertisement may, from time to time, include performance
information. "Total return" for the one-, five- and ten-year
periods (or for the life of the class A shares, if shorter)
through the most recent calendar quarter represents the average
annual compounded rate of return on an investment of $1,000 in
the fund 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, portfolio composition, fund
operating expenses and which class of shares the investor
purchases. Investment performance also often reflects the risks
associated with the fund's investment objective and policies.
These factors should be considered when comparing the fund's
investment results 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. The fund's performance may be
compared to that of various indexes. See the SAI. Because
shares sold through eligible participant-directed qualified
retirement plans are sold without a sales charge, quotations of
investment performance reflecting the deduction of a sales charge
will be lower than the actual investment performance of shares
purchased through such plans.
HOW THE FUND IS MANAGED
The Trustees are responsible for generally overseeing the conduct
of fund business. Subject to such policies as the Trustees may
determine, Putnam Management furnishes a continuing investment
program for the fund and makes investment decisions on its
behalf. Subject to the control of the Trustees, Putnam
Management also manages the fund's other affairs and business.
The fund pays Putnam Management a quarterly fee for the services
based on 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 fund's
portfolio since the years stated below:
Business experience
Year (at least 5 years)
---- -------------------------
Justin M. Scott 1995 Employed as an investment
Managing Director professional by Putnam
Management since 1988.
J. Peter Grant 1996 Employed as an investment
Senior Vice President professional by Putnam
Management since 1973.
Robert Swift 1996 Employed as an investment
Senior Vice President professional by Putnam
Management since 1995. Prior
to August, 1995, Mr. Swift was
Director and Senior Portfolio
Manager at IAI
International/Hill Samuel
Investment Advisors.
Ami T. Kuan 1996 Employed as an investment
Vice President professional by Putnam
Management since 1993. Prior
to April, 1993, Ms. Kuan
attended the MIT Sloan School
of Management.
The 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 (which are in turn
allocated to the relevant class of shares). Expenses of the
Trust directly charged or attributable to the fund will be paid
from the assets of the fund. General expenses of the Trust will
be allocated among and charged to the assets of the fund and each
other portfolio of the Trust on a basis that the Trustees deem
fair and equitable, which may be based on the relative assets of
the fund and each other portfolio or the nature of the services
performed and relative applicability to each fund or other
portfolios. The fund also reimburses Putnam Management for the
compensation and related expenses of certain fund officers and
their staff who provide administrative services. The total
reimbursement is determined annually by the Trustees.
Putnam Management places all orders for purchases and sales of
fund securities. In selecting broker-dealers, Putnam Management
may consider research and brokerage services furnished to it and
its affiliates. Subject to seeking the most favorable price and
execution available, Putnam Management may consider sales of fund
shares (and, if permitted by law, of the other Putnam funds) as a
factor in the selection of broker-dealers.
ORGANIZATION AND HISTORY
Putnam International New Opportunities Fund is a series of Putnam
Investment Funds, 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.
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. The Trustees may, without shareholder
approval, create two or more series of shares representing
separate investment portfolios. Any such series of shares may be
divided without shareholder approval into two or more classes of
shares having such preferences and special or relative rights and
privileges as the Trustees determine. Only the fund's class A
shares are offered by this prospectus. The fund also offers
other classes of shares with different sales charges and
expenses. Because of these different sales charges and expenses,
the investment performance of the classes will vary. For more
information, including your eligibility to purchase any other
class of shares, contact your investment dealer or Putnam Mutual
Funds (at 1-800-225-1581).
Each share has one vote, with fractional shares voting
proportionally. Shares of all classes will vote together as a
single class except when otherwise required by law or as
determined by the Trustees. Shares are freely transferable, are
entitled to dividends as declared by the Trustees, and, if the
fund were liquidated, would receive the net assets of the fund.
The fund may suspend the sale of shares at any time and may
refuse any order to purchase shares. Although the fund is not
required to hold annual meetings of its shareholders,
shareholders holding at least 10% of the outstanding shares
entitled to vote have the right to call a meeting to elect or
remove Trustees, or to take other actions as provided in the
Agreement and Declaration of Trust.
If you own fewer shares than the minimum set by the Trustees
(presently 20 shares), the fund may choose to redeem your shares.
You will receive at least 30 days' written notice before the fund
redeems your shares, and you may purchase additional shares at
any time to avoid a redemption. The fund may also redeem shares
if you own shares above a maximum amount set by the Trustees.
There is presently no maximum, but the Trustees may establish one
at any time, which could apply to both present and future
shareholders.
The Trust's Trustees: George Putnam,* Chairman. President of
the Putnam funds. Chairman and Director of Putnam Management and
Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director,
Marsh & McLennan Companies, Inc.; William F. Pounds, Vice
Chairman. Professor of Management, Alfred P. Sloan School of
Management, Massachusetts Institute of Technology; Jameson Adkins
Baxter, President, Baxter Associates, Inc.; Hans H. Estin, Vice
Chairman, North American Management Corp.; John A. Hill, Chairman
and Managing Director, First Reserve Corporation; Ronald J.
Jackson, Former Chairman, President and Chief Executive Officer
of Fisher-Price, Inc., Director of Safety 1st, Inc., Trustee of
Salem Hospital and the Peabody Essex Museum; 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 and Director of
Acquisitions, Cabot Partners Limited Partnership; Donald S.
Perkins,* Director of various corporations, including Cummins
Engine Company, Lucent Technologies, Inc., Springs Industries,
Inc. and Time Warner Inc.; George Putnam, III,* President, New
Generation Research, Inc.; A.J.C. Smith,* Chairman and Chief
Executive Officer, Marsh & McLennan Companies, Inc.; 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 are also Trustees of the other Putnam
funds. Those marked with an asterisk (*) are or may be deemed to
be "interested persons" of the fund, Putnam Management or Putnam
Mutual Funds.
<PAGE>
About Your Investment
HOW TO BUY SHARES
All orders to purchase shares must be made through your
employer's participant-directed qualified retirement plan. For
more information about how to purchase shares of the fund through
your employer's plan or limitations on the amount that may be
purchased, please consult your employer. Shares are sold to
eligible participant-directed qualified retirement plans at the
net asset value per share next determined after receipt of an
order by Putnam Mutual Funds. Orders must be received by Putnam
Mutual Funds before the close of regular trading on the New York
Stock Exchange in order to receive that day's net asset value. A
participant-directed qualified retirement plan is eligible to
purchase fund shares at net asset value if it invests at least
$20 million in Putnam funds and other investments managed by
Putnam Management and its affiliates and (i) has at least 200
eligible employees or (ii) invests at least $1 million in class A
shares. A participant-directed qualified retirement plan is also
eligible to purchase fund shares at net asset value if its
investment in class A shares is at least $1 million and the
dealer of record waives its commission with the consent of Putnam
Mutual Funds. Participant-directed qualified retirement plans
participating in a "multi-fund" program approved by Putnam Mutual
Funds may include amounts invested in other mutual funds
participating in such program for purposes of determining whether
the plan may purchase class A shares at net asset value.
Eligible plans may make additional investments of any amount at
any time. To eliminate the need for safekeeping, the fund will
not issue certificates for your shares.
On sales at net asset value to participant-directed qualified
retirement plans initially investing at least $20 million in
Putnam funds and other investments managed by Putnam Management
or its affiliates, Putnam Mutual Funds pays commissions on the
initial investment and on subsequent net quarterly sales at the
rate of 0.15%. 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. Certain dealers may not
sell all classes of shares.
<PAGE>
DISTRIBUTION PLAN
Class A distribution plan. The class A plan provides for
payments by the fund to Putnam Mutual Funds at the annual rate of
up to 0.35% of average net assets attributable to class A shares.
The Trustees currently limit payments under the class A plan to
the annual rate of 0.25% of such assets.
Putnam Mutual Funds makes quarterly payments to qualifying
dealers (including, for this purpose, certain financial
institutions) to compensate them for services provided in
connection with sales of class A shares and the maintenance of
shareholder accounts. The payments are based on the average net
asset value of class A shares attributable to shareholders for
whom the dealers are designated as the dealer of record.
This calculation excludes until one year after purchase shares
purchased at net asset value by shareholders investing $1 million
or more. Also excluded until one year after purchase are shares
purchased at net asset value by participant-directed qualified
retirement plans with at least 200 eligible employees. These
shares are not subject to the one-year exclusion provision in
cases where certain shareholders who invested $1 million or more
have made arrangements with Putnam Mutual Funds and the dealer of
record waived the sales commission.
Except as stated below, Putnam Mutual Funds makes the quarterly
payments at the annual rate of 0.25% of such average net asset
value for class A shares (including shares acquired through
reinvestment of distributions).
For participant-directed qualified retirement plans initially
investing less than $20 million in Putnam funds and other
investments managed by Putnam Management or its affiliates,
Putnam Mutual Funds' payments to qualifying dealers on shares
purchased at net asset value are 100% of the rate stated above if
average plan assets in Putnam funds (excluding money market
funds) during the quarter are less than $20 million, 60% of the
stated rate if average plan assets are at least $20 million but
under $30 million, and 40% of the stated rate if average plan
assets are $30 million or more.
For all other participant-directed qualified retirement plans
purchasing shares at net asset value, Putnam Mutual Funds makes
quarterly payments to qualifying dealers at the annual rate of
0.10% of the average net asset value of such shares.
The payments are also subject to the continuation of the
distribution plan, the terms of service agreements between
dealers and Putnam Mutual Funds, and any applicable limits
imposed by the National Association of Securities Dealers, Inc.
HOW TO SELL SHARES
Subject to any restrictions imposed by your employer's plan, you
can sell your shares through the plan to the fund any day the New
York Stock Exchange is open. For more information about how to
sell shares of the fund through your employer's plan, including
any charges that may be imposed by the plan, please consult with
your employer.
Your plan administrator must send a signed letter of instruction
to Putnam Investor Services. The price you will receive is the
next net asset value calculated after the fund receives the
request in proper form. All requests must be received by the
fund prior to the close of regular trading on the New York Stock
Exchange in order to receive that day's net asset value. If your
plan sells shares having a net asset value of $100,000 or more,
the signatures of registered owners or their legal
representatives must be guaranteed by a bank, broker-dealer or
certain other financial institutions. See the SAI for more
information about where to obtain a signature guarantee.
The fund generally provides payment for redeemed shares the
business day after the request is received. Under unusual
circumstances, the fund may suspend redemptions, or postpone
payment for more than seven days, as permitted by federal
securities law. The fund will only redeem shares for which it
has received payment.
HOW TO EXCHANGE SHARES
Subject to any restrictions contained in your plan, you can
exchange your shares for shares of other Putnam funds available
through your plan at net asset value. Contact your plan
administrator or Putnam Investor Services for more information on
how to exchange your shares or how to obtain prospectuses of
other Putnam funds in which you may invest.
The exchange privilege is not intended as a vehicle for short-
term trading. Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity and
in other circumstances where Putnam Management or the Trustees
believe doing so would be in the best interests of your fund, the
fund reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any
exchange. Consult Putnam Investor Services before requesting an
exchange. See the SAI to find out more about the exchange
privilege.
HOW THE FUND VALUES ITS SHARES
The fund calculates the net asset value of a share of each class
by dividing the total value of its assets, less liabilities, by
the number of its shares outstanding. Shares are valued as of
the close of regular trading on the New York Stock Exchange each
day the Exchange is open.
Portfolio securities for which market quotations are readily
available are valued at market value. Short-term investments
that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets
are valued at their fair value following procedures approved by
the Trustees.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX INFORMATION
The fund distributes any net investment income and any net
realized capital gains at least annually. Distributions from net
investment income, if any, are expected to be small.
Distributions from capital gains are made after applying any
available capital loss carryovers.
The terms of your plan will govern how your plan may receive
distributions from the fund. Generally, periodic distributions
from the fund to your plan are reinvested in additional fund
shares, although your plan may permit you to receive fund
distributions from net investment income in cash while
reinvesting capital gains distributions in additional shares or
to receive all fund distributions in cash. If another option is
not selected, all distributions will be reinvested in additional
fund shares.
The fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements necessary for it to be relieved of federal taxes on
income and gains it distributes to shareholders. The fund will
distribute substantially all of its ordinary income and capital
gain net income on a current basis. Generally, fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such regardless of how long you have held your shares. However,
distributions by the fund to employer-sponsored participant-
directed qualified retirement plans that qualify for tax-exempt
treatment under federal income tax laws will not be taxable.
Special tax rules apply to investments through such plans. You
should consult your tax adviser to determine the suitability of
the fund as an investment through such a plan and the tax
treatment of distributions (including distributions of amounts
attributable to an investment in the fund) from such a plan.
<PAGE>
Fund investments in foreign securities may be subject to
withholding taxes at the source on dividend or interest payments.
In that case, the fund's yield on those securities would be
decreased.
Fund transactions in foreign currencies and hedging activities
may give rise to ordinary income or loss to the extent such
income or loss results from fluctuations in value of the foreign
currency concerned. In addition, such activities will likely
produce a difference between 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 for tax purposes.
Investment in an entity that qualifies as a "passive foreign
investment company" under the Internal Revenue Code could subject
the fund to a U.S. federal income tax or other charge on certain
"excess distributions" with respect to the investment, and on the
proceeds from disposition of the investment.
The foregoing is a summary of certain federal income tax
consequences of investing in the fund. You should consult your
tax adviser to determine the precise effect of an investment in
the fund on your particular tax situation (including possible
liability for state and local taxes).
About Putnam Investments, Inc.
Putnam Management has been managing mutual funds since 1937.
Putnam Mutual Funds is the principal underwriter of the fund and
of other Putnam funds. Putnam Defined Contribution Plans is a
division of Putnam Mutual Funds. Putnam Fiduciary Trust Company
is the fund's custodian. Putnam Investor Services, a division of
Putnam Fiduciary Trust Company, is the fund's investor servicing
and transfer agent.
Putnam Management, Putnam Mutual Funds, and Putnam Fiduciary
Trust Company are located at One Post Office Square, Boston,
Massachusetts 02109 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>
PUTNAM INTERNATIONAL NEW OPPORTUNITIES FUND
(a series of Putnam Investment Funds (the "Trust")
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
December 31, 1996
This SAI is not a prospectus and is only authorized for
distribution when accompanied or preceded by the prospectus of
the fund dated December 31, 1996, 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 the fund has
more than one form of current prospectus, each reference to the
prospectus in this SAI shall include all 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 fund.
Part II includes information about the fund and the other Putnam
funds.
<PAGE>
TABLE OF CONTENTS
PART I
SECURITY RATINGS . . . . . . . . . . . . . . . . . . . . . . . .
. . . .I-3
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . .
. . . .I-5
CHARGES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . .
I-
7
INVESTMENT PERFORMANCE . . . . . . . . . . . . . . . . . . . . .
. . . I-13
ADDITIONAL OFFICERS. . . . . . . . . . . . . . . . . . . . . .
.I- 14
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . . . .
. . . I-15
Part II
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . .
. . . II-1
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .II-29
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .II-35
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . .
. . .II-44
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . .
. . .II-46
DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . . .
. . .II-59
INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . .
. . .II-60
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . .
. . .II-66
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . .
. . .II-66
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . .
. . .II-66
STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . .
. . .II-67
COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . .
. . .II-68
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .II-73
<PAGE>
SAI
PART I
SECURITY RATINGS
The following rating services describe rated securities as
follows:
Moody's Investors Service, Inc.
Bonds
Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edged." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than
the Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Standard & Poor's
Bonds
AAA -- Debt rated `AAA' has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal
is extremely strong.
AA -- Debt rated `AA' has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues only
in small degree.
A -- Debt rated `A' has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB -- Debt rated `BBB' is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
BB-B-CCC-CC-C -- Debt rated `BB',`B',`CCC',`CC' and `C' is
regarded, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance
with the terms of the obligation. `BB' indicates the lowest
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 a
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 S&P believes that such payments will be made
during such grace period. The D rating also will be used on the
filing of a bankruptcy petition if debt service payments are
jeopardized.
INVESTMENT RESTRICTIONS
As fundamental investment restrictions, which may not be changed
without a vote of a majority of the outstanding voting
securities, the fund may not and will not:
(1) Borrow money in excess of 10% of the value (taken at the
lower of cost or current value) of its total assets (not
including the amount borrowed) at the time the borrowing is made,
and then only from banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio
investments or for extraordinary or emergency purposes. Such
borrowings will be repaid before any additional investments are
purchased.
(2) Underwrite securities issued by other persons except to the
extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under certain
federal securities laws.
(3) Purchase or sell real estate, although it may purchase
securities of issuers which deal in real estate, securities which
are secured by interests in real estate, and securities which
represent interests in real estate, and it may acquire and
dispose of real estate or interests in real estate acquired
through the exercise of its rights as a holder of debt
obligations secured by real estate or interests therein.
(4) Purchase or sell commodities or commodity contracts, except
that the fund may purchase and sell financial futures contracts
and options.
(5) Make loans, except by purchase of debt obligations in which
the fund may invest consistent with its investment policies, by
entering into repurchase agreements with respect to not more than
25% of its total assets (taken at current value) or through the
lending of its portfolio securities with respect to not more than
25% of its total assets (taken at current value).
(6) 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.
(9) Issue any class of securities which is senior to the fund's
shares of beneficial interest.
<PAGE>
It is contrary to the fund's present policy, which may be changed
without shareholder approval, to:
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 Trust (or the person designated by the Trustees of the Trust
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.
Although certain of the fund's investment restrictions permit it
to borrow money to a limited extent, the fund does not currently
intend to do so and did not do so last year.
---------------------
All percentage limitations on investments will apply at the time
of the making of an investment and shall not be considered
violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.
The Investment Company Act of 1940 provides that a "vote of the
majority of the outstanding voting securities" of the fund means
the affirmative vote of the lesser of (1) more than 50% of the
outstanding fund shares, or (2) 67% or more of the shares
present at a meeting if more than 50% of the outstanding fund
shares are represented at the meeting in person or by proxy.
CHARGES AND EXPENSES
Management fees
Under a Management Contract dated December 2, 1995 the fund pays
a quarterly fee to Putnam Investment Management, Inc., the fund's
investment manager ("Putnam Management"), based on the average
net assets of the fund, as determined at the close of each
business day during the quarter, at the annual rate of 1.20% of
the first $500 million, 1.10% of the next $500 million, 1.05% of
the next $500 million, 1.00% of the next $5 billion, 0.975% of
the next $5 billion, 0.955% of the next $5 billion, 0.94% of the
next $5 billion, and 0.93% thereafter. For the past two fiscal
years, pursuant to the Management Contract, the fund incurred the
following fees:
<PAGE>
Reflecting a
reduction in the
following amounts
Fiscal Management pursuant to an
year fee paid expense limitation
1996 $6,187,712 $59,304
1995 $26,644 $66,625
Brokerage commissions
The following table shows brokerage commissions paid during the
fiscal periods indicated:
Fiscal Brokerage
year commissions
1996 $4,062,485
1995 $89,850
The following table shows transactions placed with brokers and
dealers during the most recent fiscal year to recognize research,
statistical and quotation services received by Putnam Management
and its affiliates:
Dollar
value Percent of
of these total Amount of
transactions transactions commissions
1996 $975,615,810 89.65% 3,904,173
Administrative expense reimbursement
The fund reimbursed Putnam Management in the following amount for
administrative services during fiscal 1996, including the
following amount for compensation of certain officers of the fund
and contributions to the Putnam Investments, Inc. Profit Sharing
Retirement Plan for their benefit:
Portion of total
reimbursement for
Total compensation and
reimbursement contributions
$13,033 $11,499
<PAGE>
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 fees paid to each Trustee by the
fund for fiscal 1996 and the fees paid to each Trustee by all of
the Putnam funds during calendar 1995:
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Estimated Total
Aggregate retirement
annual benefits compensation
compensation benefits accrued
from all from all
from the as part of
Putnam funds Putnam
Trustees/Year fund(1) fund expenses(2) upon
retirement(3) funds(4)
- -----------------------------------------------------------------
- -------------------------
<S> <C> <C>
<C> <C>
Jameson A. Baxter/1994 $1,128 $0
$71,676 $150,854
Hans H. Estin/1972 1,121 0
70,043 150,854
John A. Hill/1985 (5) 1,112 0
70,043 149,854
Ronald J. Jackson/1996(6) 562 0
70,043 n/a
Elizabeth T. Kennan/1992 1,121 0
69,709 148,854
Lawrence J. Lasser/1992 1,109 0
70,043 150,854
Robert E. Patterson/1984 1,238 0
71,043 152,854
Donald S. Perkins/1982 1,114 0
69,376 150,854
William F. Pounds/1971 1,254 (7) 0
70,543 149,854
George Putnam/1957 1,121 0
70,043 150,854
George Putnam, III/1984 1,121 0
70,043 150,854
Eli Shapiro/1995(8) 1,251 0
70,043 95,372
A.J.C. Smith/1986 1,109 0
68,252 149,854
W. Nicholas Thorndike/1992 1,224 0
71,043 152,854
(1) Includes an annual retainer and an attendance fee for each
meeting attended.
(2) The Trustees approved a Retirement Plan for Trustees of the
Putnam funds on October 1,
1996. Prior to that date, voluntary retirement benefits were
paid to certain retired
Trustees .
(3) Assumes that each Trustee retires after at least five years
of service. Estimated
benefits for each Trustee are based on amounts paid to such
Trustee for the three most
recent calendar years (or, for Trustees who have not served
as Trustees throughout such
three-year period, the average amount paid to each Trustee
for such years).
(4) As of December 31, 1995, there were 99 funds in the Putnam
family.
(5) Includes compensation deferred pursuant to a Trustee
Compensation Deferral Plan. The
total amount of deferred compensation payable by the Putnam
funds to Mr. Hill as of
December 31, 1995 was $51,141. Information on deferred
compensation includes income
earned on such amounts.
(6) Elected as a Trustee in May 1996.
(7) Includes additional compensation for service as Vice Chairman
of the Putnam funds.
(8) Elected as a Trustee in April 1995.
/TABLE
<PAGE>
Under a Retirement Plan for Trustees of the Putnam funds (the
"Plan"),
each Trustee who retires with at least five years of service as a
Trustee of the funds is entitled to receive an annual retirement
benefit equal to one-half of the average annual compensation paid
to
such Trustee for the last three years of service prior to
retirement.
This retirement benefit is payable during a Trustee's lifetime,
beginning the year following retirement, for a number of years
equal
to such Trustee's years of service. A death benefit is also
available
under the Plan which assures that the Trustee and his or her
beneficiaries will receive benefit payments for the lesser of an
aggregate period of (i) ten years or (ii) such Trustee's total
years
of service.
The Plan Administrator (a committee comprised of Trustees that
are not
"interested persons" of the fund, as defined in the Investment
Company
Act of 1940) may terminate or amend the Plan at any time, but no
termination or amendment will result in a reduction in the amount
of
benefits (i) currently being paid to a Trustee at the time of
such
termination or amendment, or (ii) to which a current Trustee
would
have been entitled to receive had he or she retired immediately
prior
to such termination or amendment.
For additional information concerning the Trustees, see
"Management"
in Part II of this SAI.
<PAGE>
Share ownership
At November 30, 1996, the officers and Trustees of the fund as a
group
owned less than 1% of the outstanding shares of each class of the
fund, and, except as noted below, to the knowledge of the
fund
no person owned of record or beneficially 5% or more of the
shares of
any class of shares of the fund:
Shareholder name
Percentage
Class and address
owned
A Merrill Lynch, Pierce Fenner & Smith*
5.20%
B Merrill Lynch, Pierce Fenner & Smith*
17.70%
M Merrill Lynch, Pierce Fenner & Smith*
17.80%
* 1 Liberty Plaza, 165 Broadway, New York, NY 10006
Distribution fees
During fiscal 1996, the fund paid the following 12b-1 fees to
Putnam
Mutual Funds:
Class A Class B Class M
$609,296 $2,617,218 $191,059
Class A sales charges and contingent deferred sales charges
Putnam Mutual Funds received sales charges with respect to class
A
shares in the following amounts during the periods indicated:
Sales charges
retained by Putnam
Contingent
Total Mutual Funds
deferred
front-end after
sales
sales charges dealer concessions
charges
Fiscal year
1996 $13,883,090 $1,678,681 $2,516
1995 $390,935 $390,935 $0
<PAGE>
Class B contingent deferred sales charges
Putnam Mutual Funds received contingent deferred sales charges
upon
redemptions of class B shares in the following amounts during the
periods indicated:
Contingent deferred
sales charges
Fiscal year
1996 $281,600
1995 $0
Class M sales charges
Putnam Mutual Funds received sales charges with respect to class
M
shares in the following amounts during the periods indicated:
Sales charges
retained by Putnam
Mutual Funds
Total after
sales charges dealer concessions
Fiscal year
1996 $13,883,090 $115,042
1995 $38,725 $0
Investor servicing and custody fees and expenses
During the 1996 fiscal year, the fund incurred $2,202,095 in fees
and
out-of-pocket expenses for investor servicing and custody
services
provided by Putnam Fiduciary Trust Company.
INVESTMENT PERFORMANCE
Standard performance measures
(for periods ended September 30, 1996)
Class A Class B Class M
Inception date: January 3, 1995 July 21, 1995 July 21, 1995
Annualized
total return
1 year 7.20% 8.02% 9.29%
Life of
class 16.16% 7.73% 8.02%
Data represent past performance and are not indicative of future
results. Total return for class A and class M shares reflects
the
deduction of the maximum sales charge of 5.75% and 3.50%,
respectively. Total return at CDSC for class B shares reflects
the
deduction of the applicable contingent deferred sales charge
("CDSC").
The maximum class B CDSC is 5.0%. See "Standard performance
measures"
in Part II of this SAI for information on how performance is
calculated. Past performance is no guarantee of future results.
ADDITIONAL OFFICERS
In addition to the persons listed as fund officers in Part II of
this
SAI, each of the following persons is also a Vice President of
the
fund and certain of the other Putnam funds, the total number of
which
is noted parenthetically. Officers of Putnam Management hold the
same
offices in Putnam Management's parent company, Putnam
Investments,
Inc.
Thomas R. Bogan (age 55) (1 fund). Managing Director of Putnam
Management. Prior to November, 1994, Mr. Bogan was Senior
Analyst at
Lord, Abbett & Co.
Brett C. Browchuk (age 33) (48 funds). Managing Director of
Putnam
Management. Prior to April, 1994, Mr. Browchuk was Managing
Director
at Fidelity Investments.
Peter Carman (age 55) (40 funds). Senior Managing Director of
Putnam
Management. Prior to August, 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.
Ian C. Ferguson (age 39) (22 funds). Senior Managing Director.
Prior
to April, 1996, Mr. Ferguson was CEO at Hong Kong Shanghai
Banking
Corporation.
David L. King (age 39) (6 funds). Senior Vice President of
Putnam
Management.
Ami T. Kuan (age 34) (4 funds). Vice President of Putnam
Management.
Prior to April, 1993, Ms. Kuan attended the MIT Sloan School of
Management.
J. Peter Grant (age 53) (3 funds). Senior Vice President of
Putnam
Management. Senior Vice President of Putnam Fiduciary Trust
Company.
Carol C. McMullen (age 41) (7 funds). 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 (age 33) (4 funds). Senior Vice President of
Putnam
Management.
John J. Morgan, Jr. (age 56) (10 funds). Managing Director of
Putnam
Management.
Hugh H. Mullin (age 34) (4 funds). Senior Vice President of
Putnam
Management.
Patrick O'Donnell (age 50) (1 fund). Managing Director of Putnam
Management. Prior to May, 1994, Mr. O'Donnell was the founder
and
President of Exeter Research Inc.
Anthony W. Regan (age 57) (11 funds). Senior Managing Director
of
Putnam Management. Director of Putnam Investments, Inc.
Thomas V. Reilly (age 49) (15 funds). Managing Director of
Putnam
Management.
David J. Santos (age 38) (3 funds). Vice President of Putnam
Management.
Justin M. Scott (age 39) (10 funds). Managing Director of Putnam
Management.
Sheldon N. Simon (age 39) (2 funds). Senior Vice President of
Putnam
Management.
Robert Swift (age 36) (7 funds). Senior Vice President of Putnam
Management. Prior to August, 1995, Mr. Swift was Director and
Portfolio Manager at IAI International/Hill Samuel Investment
Advisors.
Kenneth J. Taubes (age 38) (7 funds). Senior Vice President of
Putnam
Management.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, MA
02109,
are the fund's independent accountants, providing audit services,
tax
return review and other tax consulting services and assistance
and
consultation in connection with the review of various Securities
and
Exchange Commission filings. The Report of Independent
Accountants,
financial highlights and audited financial statements included in
the
fund's Annual Report for the fiscal year ended September 30,
1996,
filed electronically on November 27, 1996 (File No. 811-7237),
are
incorporated by reference into this SAI. The financial
highlights
included in the prospectus and incorporated by reference into
this SAI
and the financial statements incorporated by reference into the
prospectus and this SAI have been so included and incorporated in
reliance upon the report of the independent accountants, given on
their authority as experts in auditing and accounting.
<PAGE>
PROSPECTUS
December 31, 1996
Putnam New Value Fund
Class A, B and M shares
INVESTMENT OBJECTIVE: CAPITAL APPRECIATION
INVESTMENT STRATEGY: GROWTH AND INCOME
This prospectus explains concisely what you should know before
investing in Putnam New Value Fund (the "fund"), 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
December 31, 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 FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED
OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR
ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS
OF
PRINCIPAL AMOUNT INVESTED.
BOSTON * LONDON * TOKYO
<PAGE>
ABOUT THE FUND
Expenses summary
page number
.
This section describes the sales charges, management fees, and
annual
operating expenses that apply to various classes of the fund's
shares.
Use it to help you estimate the impact of transaction costs on
your
investment over time.
Financial highlights
.
Study this table to see, among other things, how the 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.
Objective
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Read this section to make sure the fund's objective is consistent
with
your own.
How the fund pursues its objective
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
This section explains in detail how the fund seeks its investment
objective.
Risk factors. All investments entail some risk. Read this
section to make sure you understand the risks that are
associated
with an investment in the fund.
How performance is shown
.
This section describes and defines the measures used to assess
fund
performance. All data are based on past investment results and
do
not predict future performance.
How the fund is managed
.
Consult this section for information about the fund's management,
allocation of its expenses, and how purchases and sales of
securities
are made.
Organization and history
.
In this section, you will learn when the fund was introduced, how
it
is organized, how it may offer shares, and who its Trustees are.
<PAGE>
ABOUT YOUR INVESTMENT
Alternative sales arrangements
.
Read this section for descriptions of the classes of shares this
prospectus offers and for points you should consider when making
your
choice.
How to buy shares
.
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 each class of shares.
Distribution plans
.
This section tells you what distribution fees are charged against
each
class of shares.
How to sell shares
.
In this section you can learn how to sell fund shares, either
directly
to the fund or through an investment dealer.
How to exchange shares
.
Find out in this section how you may exchange fund shares 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 the fund values its shares
.
This section explains how the fund determines the value of its
shares.
How the fund makes distributions to shareholders; tax information
.
This section describes the various options you have in choosing
how to
receive fund dividends. It also discusses the tax status of the
payments and counsels you to seek specific advice about your own
situation.
ABOUT PUTNAM INVESTMENTS, INC.
.
Read this section to learn more about the companies that provide
marketing, investment management, and shareholder account
services to
Putnam funds and their shareholders.<PAGE>
About the fund
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing.
The
following table summarizes your maximum transaction costs from
investing in the fund and expenses based on the most recent
fiscal
year. The examples show the cumulative expenses attributable to
a
hypothetical $1,000 investment over specified periods.
Class A Class B Class M
shares shares shares
Shareholder transaction
expenses
Maximum sales charge
imposed on purchases
(as a percentage of
offering price) 5.75% NONE* 3.50%*
Deferred sales charge 5.0% in the first
(as a percentage year, declining
of the lower of to 1.0% in the
original purchase sixth year, and
price or redemption eliminated
proceeds) NONE** thereafter NONE
Annual fund operating expenses
(as a percentage of average net assets)
Total fund
Management 12b-1 Other operating
feesfees expenses expenses
---------- ----- -------- ----------
Class A 0.70% 0.25% 0.68% 1.63%
Class B 0.70% 1.00% 0.68% 2.38%
Class M 0.70% 0.75% 0.68% 2.13%
The table is provided to help you understand the expenses of
investing
and your share of fund operating expenses. The expenses shown
in the
table do not reflect the application of credits that reduce fund
expenses. The management fees and "Other expenses" shown in the
table
reflect the termination of an expense limitation currently in
effect.
Actual "Other expenses" and total fund operating expenses for
class A
shares were 0.31% and 1.24%, respectively. For class B and class
M
shares, management fees and "Other expenses" are based on
corresponding expenses for class A shares. The 12b-1 fees for
class B
and class M shares reflect amounts currently payable under each
distribution plan.
Examples
Your investment of $1,000 would incur the following expenses,
assuming
5% annual return and, except as indicated, redemption at the end
of
each period:
1 3 5 10
year years years years
Class A $73 $106 $141 $240
Class B $74 $104 $147 $253***
Class B (no redemption) $24 $74 $127 $253***
Class M $56 $99 $145 $273
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.
* The higher 12b-1 fees borne by class B and class M shares
may
cause long-term shareholders to pay more than the economic
equivalent of the maximum permitted front-end sales charge
on
class A shares.
** A deferred sales charge of up to 1.00% is assessed on
certain
redemptions of class A shares that were purchased without
an
initial sales charge. See "How to buy shares -- Class A
shares."
*** Reflects conversation of class B shares to class A shares
(which pay lower ongoing expenses) approximately eight
years
after purchase. See "Alternative sales arrangements."
FINANCIAL HIGHLIGHTS
The following table presents per share financial information for
class
A shares. This information has been audited and reported on by
the
independent accountants. The "Report of independent accountants"
and
financial statements included in the fund's annual report to
shareholders for the 1996 fiscal year are incorporated by
reference
into this prospectus. The fund's annual report, which contains
additional unaudited performance information, is available
without
charge upon request.
Financial highlights
(For a share outstanding throughout the period)
(The table is incorporated by reference from Post-Effective
Amendment No. 10 to the Fund's Registration Statement, File No.
33-56339.)<PAGE>
OBJECTIVE
Putnam New Value Fund seeks long-term capital appreciation. The
fund
is not intended to be a complete investment program, and there is
no
assurance that it will achieve its objective.
HOW THE FUND PURSUES ITS OBJECTIVE
Basic investment strategy
The fund will invest primarily in common stocks which Putnam
Investment Management, Inc., the fund's investment manager
("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 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 for the fund 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,
current
and projected divided rates, competitive position and current and
projected future earnings. Putnam Management currently expects
that a
portion of the fund's investments will include common stocks that
offer the potential for above-average current income.
The fund's investments may include widely-traded common stocks of
larger companies as well as common stocks of small companies with
equity market capitalizations below $1 billion. 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 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. The fund may
also
hold a portion of its assets in cash or high-quality money market
instruments.
Risk Factors
Foreign investments
The fund may invest up to 20% of its assets in securities
principally
traded in foreign markets. The fund may also purchase Eurodollar
certificates of deposit without regard to the 20% limit. Since
foreign securities are normally denominated and traded in foreign
currencies, the value of fund assets may be affected favorably or
unfavorably by currency exchange rates relative to the U.S.
dollar.
There may be less information publicly available about a foreign
issuer than about a U.S. issuer, and foreign issuers may not be
subject to accounting standards 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
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 fund 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 that could affect the value of
investments in
certain foreign countries.
Legal remedies available to investors in certain foreign
countries may
be limited. 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."
The fund may engage in a variety of foreign currency exchange
transactions in connection with its foreign investments,
including
transactions involving futures contracts, forward contracts and
options. For a further discussion of the risks associated with
purchasing and selling futures contracts and options, see
"Options and
futures portfolio strategies." The SAI also contains information
concerning these transactions.
The decision as to whether and to what extent
the
fund will engage in
foreign currency exchange transactions will depend on a number of
factors, including prevailing market conditions, the composition
of
the fund's portfolio and the availability of suitable
transactions.
Accordingly, there can be no assurance
that the
fund will engage in
foreign currency exchange transactions at any given time or from
time
to time.
A more detailed explanation of foreign investments, and the risks
and
special tax considerations associated with them, is included in
the
SAI.
Investments in fixed-income securities
The fund may invest in both higher-rated and lower-rated
fixed-income
securities, and is not subject to any restrictions based on
credit
ratings. The values of fixed-income securities generally
fluctuate in
response to changes in interest rates. Thus, a decrease in
interest
rates will generally result in an increase in the value of the
fund's
fixed-income investments. Conversely, during periods of rising
interest rates, the value of the fund's fixed-income investments
will
generally decline. The values of lower-rated fixed-income
securities,
commonly known as "junk bonds," generally fluctuate more than
those of
higher-rated fixed-income securities. Securities in the lower
rating
categories may, depending on the rating, have large uncertainties
or
major exposure to adverse conditions, and may include securities
in
default.
The lower ratings of these securities 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
the
fund invests in securities in the lower rating categories, the
achievement of the fund's goals is more dependent on Putnam
Management's ability than would be the case if the fund were
investing
in securities in the higher rating categories.
For additional information concerning the risks associated with
investment by the fund in securities in the lower rating
categories,
see the SAI.
Portfolio turnover
The length of time the fund has held a particular security is not
generally a consideration in investment decisions. A change in
the
securities held by the fund is known as "portfolio turnover." As
a
result of the fund's investment policies, under certain market
conditions its portfolio turnover rate may be higher than that of
other mutual funds.
Portfolio turnover generally involves some expense, including
brokerage commissions or dealer markups and other transaction
costs on
the sale of securities and reinvestment in other securities.
These
transactions may result in realization of taxable capital gains.
Portfolio turnover rates are shown in the section "Financial
highlights."
Futures and options
The fund may buy and sell stock index futures contracts. An
"index
future" is a contract to buy or sell units of a particular stock
index
at an agreed price on a specified future date. Depending on the
change in value of the index between the time the fund enters
into and
terminates an index future transaction, the fund realizes a gain
or
loss. In addition to or as an alternative to purchasing or
selling
index futures, the fund may buy and sell call and put options on
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 adjust its exposure to relevant markets or
as a
substitute for direct investment.
The use of index futures and related options involves certain
special
risks. Futures and options transactions involve costs and may
result
in losses.
Certain risks arise from the possibility of imperfect
correlations
among movements in the prices of financial futures and options
purchased or sold by the fund, of the underlying stock index or
securities and, in the case of hedging transactions, of the
securities
that are the subject of the hedge. The successful use of the
strategies described above further depends on Putnam Management's
ability to forecast market movements correctly.
Other risks arise from the potential inability to close out index
futures or options positions. There can be no assurance that a
liquid
secondary market will exist for any index futures or option at
any
particular time. The fund's ability to terminate option
positions
established in the over-the-counter market may be more limited
than
for exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would fail
to
meet their obligations to the fund. Certain provisions of the
Internal Revenue Code and certain regulatory requirements may
limit
the use of index futures and options transactions.
A more detailed explanation of index futures and options
transactions,
including the risks associated with them, is included in the SAI.
Options. The fund may seek to increase its current return by
writing
covered call and put options on securities it owns or in which it
may
invest. The fund receives a premium from writing a call or put
option, which increases the return if the option expires
unexercised
or is closed out at a net profit.
When the fund writes a call option, it gives up the opportunity
to
profit from any increase in the price of a security above the
exercise
price of the option; when it writes a put option, it takes the
risk
that it will be required to purchase a security from the option
holder
at a price above the current market price of the security. The
fund
may terminate an option that it has written prior to its
expiration by
entering into a closing purchase transaction in which it
purchases an
option having the same terms as the option written.
The fund may also buy and sell put and call options, including
combinations of put and call options on the same underlying
security.
The aggregate value of the securities underlying the options may
not
exceed 25% of fund assets. The use of these strategies may be
limited
by applicable law.
A more detailed explanation of options transactions, including
the
risks associated with them, is included in the SAI.
Securities loans, repurchase agreements and forward commitments.
The fund may lend portfolio securities amounting to not more than
25%
of its assets to broker-dealers and may enter into repurchase
agreements on up to 25% of its assets. These transactions must
be
fully collateralized at all times. The fund may also purchase
securities for future delivery, which may increase its overall
investment exposure and involves a risk of loss if the value of
the
securities declines prior to the settlement date. These
transactions
involve some risk if the other party should default on its
obligation
and the fund is delayed or prevented from recovering the
collateral or
completing the transaction.
Defensive strategies
At times Putnam Management may judge that conditions in the
securities
markets make pursuing the fund's basic investment strategy
inconsistent with the best interests of its shareholders. At
such
times, Putnam Management may temporarily use alternative
strategies,
primarily designed to reduce fluctuations in the value of fund
assets.
In implementing these defensive strategies, the fund may invest
without limit in cash or money market instruments, preferred
stocks,
debt securities issued by the U.S. government or any foreign
government or their agencies or instrumentalities, or securities
primarily traded in the U.S. markets, or in any other securities
Putnam Management considers consistent with such defensive
strategies.
It is impossible to predict when, or for how long, these
alternative
strategies would be used.
Diversification
The fund is a "diversified" investment company under the
Investment
Company Act of 1940. This means that, with respect to 75% of its
total assets, the 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 its total assets is not
subject to
this restriction. To the extent the fund invests a significant
portion of its assets in the securities of a particular issuer,
it
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 the fund may invest, such as
futures contracts, options and forward contracts, are considered
to be
"derivatives." Derivatives are financial instruments whose value
depends upon, or is derived from, the value of an underlying
asset,
such as a security or an index. Further information about these
instruments and the risks involved in their use is included
elsewhere
in this prospectus and in the SAI.
Limiting investment risk
Specific investment restrictions help to limit investment risks
for
the fund's shareholders. These restrictions prohibit the fund,
with
respect to 75% of its total assets, from acquiring more than 10%
of
the voting securities of any one issuer.* They also prohibit the
fund
from investing more than:
(a) with respect to 75% of 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;* 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 fund's 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 policy without
shareholder
approval. As a matter of policy, the Trustees would not
materially
change the fund's investment objective without shareholder
approval.
HOW PERFORMANCE IS SHOWN
Fund advertisements may, from time to time, include performance
information. "Total return" for the one-, five- and ten-year
periods
(or for the life of a class, if shorter) through the most recent
calendar quarter represents the average annual compounded rate of
return on an investment of $1,000 in the fund invested at the
maximum
public offering price (in the case of class A and class M shares)
or
reflecting the deduction of any applicable contingent deferred
sales
charge (in the case of class B shares). Total return may also be
presented for other periods or based on investment at reduced
sales
charge levels. Any quotation of investment performance not
reflecting
the maximum initial sales charge or contingent deferred sales
charge
would be reduced if 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, portfolio
composition,
fund operating expenses and which class of shares the investor
purchases. Investment performance also often reflects the risks
associated with the fund's investment objective and policies.
These
factors should be considered when comparing the fund's investment
results with those of other mutual funds and other investment
vehicles.
Quotations of investment performance for any period when an
expense
limitation was in effect will be greater than if the limitation
had
not been in effect. Fund performance may be compared to that of
various indexes. See the SAI.
HOW THE FUND IS MANAGED
The Trustees are responsible for generally overseeing the conduct
of
fund business. Subject to such policies as the Trustees may
determine, Putnam Management furnishes a continuing investment
program
for the fund and makes investment decisions on its behalf.
Subject to
the control of the Trustees, Putnam Management also manages the
fund's
other affairs and business.
The fund pays Putnam Management a quarterly fee for these
services
based on average net assets. See "Expenses summary" and the SAI.
<PAGE>
The following officer of Putnam Management has had primary
responsibility for the day-to-day management of the fund's
portfolio
since the year stated below:
Business experience
Year (at least 5 years)
----- -------------------------
David L. King 1995 Employed as an investment
Senior Vice President professional by Putnam
Management since 1983.
The 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 (which are in turn allocated to the
relevant class of shares). Expenses of the Trust directly
charged or
attributable to the fund will be paid from the assets of the
fund.
General expenses of the Trust will be allocated among and charged
to
the assets of the fund and each other portfolio of the Trust on a
basis that the Trustees deem fair and equitable, which may be
based on
the relative assets of the fund and each other portfolio or the
nature
of the services performed and relative applicability to each fund
or
other portfolios. The fund also reimburses Putnam Management for
the
compensation and related expenses of certain fund officers and
their
staff who provide administrative services. The total
reimbursement is
determined annually by the Trustees.
Putnam Management places all orders for purchases and sales of
fund
securities. In selecting broker-dealers, Putnam Management may
consider research and brokerage services furnished to it and its
affiliates. Subject to seeking the most favorable price and
execution
available, Putnam Management may consider sales of fund shares
(and,
if permitted by law, of the other Putnam funds) as a factor in
the
selection of broker-dealers.
ORGANIZATION AND HISTORY
Putnam New Value Fund is a series of Putnam Investment Funds, 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. 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.
The Trustees may without shareholder approval, create two or more
series of shares representing separate investment portfolios.
Any
such series of shares may be divided without shareholder approval
into
two or more classes of shares having such preferences and special
or
relative rights and privileges as the Trustees determine. Only
class
A, B and M shares are offered by this prospectus. The 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 all classes will vote together as a single class except
when
otherwise required by law or as determined by the Trustees.
Shares of
the fund are freely transferable, are entitled to dividends as
declared by the Trustees, and, if the fund were liquidated, would
receive the net assets of the fund. The fund may suspend the
sale of
shares at any time and may refuse any order to purchase shares.
Although the 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 the minimum set by the Trustees
(presently 20 shares), the fund may choose to redeem your shares.
You
will receive at least 30 days' written notice before the fund
redeems
your shares, and you may purchase additional shares at any time
to
avoid a redemption. The fund may also redeem shares if you own
shares
above a maximum amount set by the Trustees. There is presently
no
maximum, but the Trustees may establish one at any time, which
could
apply to both present and future shareholders.
The Trust's Trustees: George Putnam,* Chairman. President of
the
Putnam funds. Chairman and Director of Putnam Management and
Putnam
Mutual Funds Corp. ("Putnam Mutual Funds"). Director, Marsh &
McLennan Companies, Inc.; William F. Pounds, Vice Chairman.
Professor of Management, Alfred P. Sloan School of Management,
Massachusetts Institute of Technology; Jameson Adkins Baxter,
President, Baxter Associates, Inc.; Hans H. Estin, Vice Chairman,
North American Management Corp.; John A. Hill, Chairman and
Managing
Director, First Reserve Corporation; Ronald J. Jackson, Former
Chairman, President and Chief Executive Officer of Fisher-Price,
Inc.,
Director of Safety 1st, Inc., Trustee of Salem Hospital and the
Peabody Essex Museum; 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 and Director of Acquisitions, Cabot Partners Limited
Partnership; Donald S. Perkins,* Director of various
corporations,
including Cummins Engine Company, Lucent Technologies, Inc.,
Springs
Industries, Inc. and Time Warner Inc.; George Putnam, III,*
President,
New Generation Research, Inc.; A.J.C. Smith,* Chairman and Chief
Executive Officer, Marsh & McLennan Companies, Inc.; 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 are also Trustees of the other Putnam funds. Those
marked
with an asterisk (*) are or may be deemed to be "interested
persons"
of the fund, Putnam Management or Putnam Mutual Funds.
About Your Investment
ALTERNATIVE SALES ARRANGEMENTS
Class A shares. An investor who purchases class A shares pays a
sales
charge at the time of purchase. As a result, class A shares are
not
subject to any charges when they are redeemed, except for certain
sales at net asset value that are subject to a contingent
deferred
sales charge ("CDSC"). Certain purchases of class A shares
qualify
for reduced sales charges. Class A shares bear a lower 12b-1 fee
than
class B and class M shares. See "How to buy shares -- Class A
shares"
and "Distribution plans."
Class B shares. Class B shares are sold without an initial sales
charge, but are subject to a CDSC if redeemed within a specified
period after purchase. Class B shares also bear a higher 12b-1
fee
than class A and class M shares. Class B shares automatically
convert
into class A shares, based on relative net asset value,
approximately
eight years after purchase. For more information about the
conversion
of class B shares, see the SAI. This discussion includes
information
about how shares acquired through reinvestment of distributions
are
treated for conversion purposes. The discussion also notes
certain
circumstances under which a conversion may not occur. Class B
shares
provide an investor the benefit of putting all of the investor's
dollars to work from the time the investment is made. Until
conversion, class B shares will have a higher expense ratio and
pay
lower dividends than class A and class M shares because of the
higher
12b-1 fee. See "How to buy shares -- Class B shares" and
"Distribution plans."
Class M shares. An investor who purchases class M shares pays a
sales
charge at the time of purchase that is lower than the sales
charge
applicable to class A shares. Certain purchases of class M
shares
qualify for reduced sales charges. Class M shares bear a 12b-1
fee
that is lower than class B shares but higher than class A shares.
Class M shares are not subject to any CDSC and do not convert
into any
other class of shares. See "How to buy shares -- Class M shares"
and
"Distribution plans."
Which arrangement is best for you? The decision as to which
class of
shares provides a more suitable investment for an investor
depends on
a number of factors, including the amount and intended length of
the
investment. Investors making investments that qualify for
reduced
sales charges might consider class A or class M shares.
Investors who
prefer not to pay an initial sales charge might consider class B
shares. Orders for class B shares for $250,000 or more will be
treated as orders for class A shares or declined. For more
information about these sales arrangements, consult your
investment
dealer or Putnam Investor Services. Shares may only be exchanged
for
shares of the same class of another Putnam fund. See "How to
exchange
shares."
HOW TO BUY SHARES
You can open a fund account with as little as $500 and make
additional
investments at any time with as little as $50. You can buy fund
shares three ways - through most investment dealers, through
Putnam
Mutual Funds (at 1-800-225-1581), or through a systematic
investment
plan. If you do not have a dealer, Putnam Mutual Funds can refer
you
to one.
Buying shares through Putnam Mutual Funds. Complete an order
form and
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 $25 or more per month through automatic deductions
from
your bank checking or savings account. Application forms are
available from your investment dealer or through Putnam Investor
Services.
Shares are sold at the public offering price based on the net
asset
value next determined after Putnam Investor Services receives
your
order. In most cases, in order to receive that day's public
offering
price, Putnam Investor Services must receive your order before
the
close of regular trading on the New York Stock Exchange. If you
buy
shares through your investment dealer, the dealer must receive
your
order before the close of regular trading on the New York Stock
Exchange to receive that day's public offering price.
<PAGE>
Class A shares
The public offering price of class A shares is the net asset
value
plus a sales charge that varies depending on the size of your
purchase. The fund receives the net asset value. The sales
charge is
allocated between your investment dealer and Putnam Mutual Funds
as
shown in the following table, except when Putnam Mutual Funds, in
its
discretion, allocates the entire amount to your investment
dealer.
Sales charge Amount of
as a percentage of: sales charge
------------------- reallowed to
Net dealers as a
Amount of transaction amount Offering percentage of
at offering price ($) 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 class A shares
of $1
million or more or purchases by participant-directed qualified
retirement plans with at least 200 eligible employees. However,
a
CDSC of 1.00% will be imposed upon redemptions of shares
purchased at
net asset value after July 31, 1996 by a participant-directed
qualified retirement plan (including a plan with at least 200
eligible
employees) that initially invested less than $20 million in
Putnam
funds and other investments managed by Putnam Management or its
affiliates and that redeems 90% or more of the amount initially
invested within two years after initial purchase. Similarly, a
CDSC of
1.00% or 0.50%, respectively, will be imposed within the first or
second year after purchase on redemptions by any investor, other
than
a participant-directed qualified retirement plan, that purchased
fund
shares without an initial sales charge as part of an investment
of $1
million or more.
Shares purchased by investors investing $1 million or more in
class A
shares whose dealer of record waived its commission with the
approval
of Putnam Mutual Funds are not subject to the CDSC.
In determining whether a CDSC is payable, shares not subject to
any
charge will be redeemed first, followed by shares held longest
during
the CDSC period. Any CDSC will be 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. 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 class A shares of $1 million or
more
based on an investor's cumulative purchases during the one-year
period
beginning with the date of the initial purchase at net asset
value.
Each subsequent one-year measuring period for these purposes will
begin with the first net asset value purchase following the end
of the
prior period. Such commissions are paid at the rate of 1.00% of
the
amount under $3 million, 0.50% of the next $47 million and 0.25%
thereafter.
On sales at net asset value to a participant-directed qualified
retirement plan initially investing less than $20 million in
Putnam
funds and other investments managed by Putnam Management or its
affiliates (including a plan 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%.
A participant-directed qualified retirement plan participating in
a
"multi-fund" program approved by Putnam Mutual Funds may include
amounts invested in 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
elsewhere in this prospectus and in the SAI.
Class B shares
Class B shares are sold without an initial sales charge, although
a
CDSC will be imposed if you redeem shares within a specified
period
after purchase, as shown in the table below. The following types
of
shares may be redeemed without charge at any time: (i) shares
acquired by reinvestment of distributions and (ii) shares
otherwise
exempt from the CDSC, as described in "How to buy shares --
General"
below. For other shares, the amount of the charge is determined
as a
percentage of the lesser of the current market value or the cost
of
the shares being redeemed.
Year 1 2 3 4 5 6 7+
- -----------------------------------------------------------
Charge 5% 4% 3% 3% 2% 1% 0%
In determining whether a CDSC is payable on any redemption,
shares not subject to any charge will be redeemed first, followed
by
shares held longest during the CDSC period. For this purpose,
the
amount of any increase in a share's value above its initial
purchase
price is not regarded as a share exempt from the CDSC. Thus,
when a
share that has appreciated in value is redeemed during the CDSC
period, a CDSC is assessed only on its initial purchase price.
For
information on how sales charges are calculated if you exchange
your
shares, see "How to exchange shares." Putnam Mutual Funds
receives
the entire amount of any CDSC you pay.
Class M shares
The public offering price of class M 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, at
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 3.63% 3.50% 3.00%
50,000 but under 100,000 2.56 2.50 2.00
100,000 but under 250,000 1.52 1.50 1.00
250,000 but under 500,000 1.01 1.00 1.00
500,000 and above NONE NONE NONE
Sales charges will not apply to class M shares purchased with
redemption proceeds received within the prior 90 days from
non-Putnam
mutual funds on which the investor paid a front-end or a
contingent
deferred sales charge. Participant-directed qualified
retirement
plans with at least 50 eligible employees and members of
qualified
groups may also purchase class M shares without a sales charge.
General
You may be eligible to buy fund 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, qualified
retirement plans and other plans. Descriptions are also included
in
the order form and in the SAI.
The fund may sell class A, class B and class M shares at
net
asset value without an initial sales charge or a CDSC to 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, shares are available at net asset value without an
initial sales charge or a CDSC in connection with the acquisition
by
the fund of assets of an investment company or personal holding
company. 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 at reduced sales charges.
Shareholders of other Putnam funds may be entitled to exchange
their
shares for, or reinvest distributions from their funds in, fund
shares
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, payment may be delayed 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, certificates will not be
issued
for your shares unless you request them.
Putnam Mutual Funds will from time to time, at its expense,
provide
additional promotional incentives or payments to dealers that
sell
shares of the Putnam funds. These incentives or payments may
include
payments for travel expenses, including lodging, incurred in
connection with trips taken by invited registered representatives
and
their guests to locations within and outside the United States
for
meetings or seminars of a business nature. In some instances,
these
incentives or payments may be offered only to certain dealers who
have
sold or may sell significant amounts of shares. Certain dealers
may
not sell all classes of shares.
DISTRIBUTION PLANS
Class A distribution plan. The class A plan provides for
payments by
the fund to Putnam Mutual Funds at the annual rate of up to 0.35%
of
average net assets attributable to class A shares. The Trustees
currently limit payments under the class A plan to the annual
rate of
0.25% of such assets.
Putnam Mutual Funds makes quarterly payments to qualifying
dealers
(including, for this purpose, certain financial institutions) to
compensate them for services provided in connection with sales of
class A shares and the maintenance of shareholder accounts. The
payments are based on the average net asset value of class A
shares
attributable to shareholders for whom the dealers are designated
as
the dealer of record.
This calculation excludes until one year after purchase shares
purchased at net asset value by shareholders investing $1 million
or
more. Also excluded until one year after purchase are shares
purchased at net asset value by participant-directed qualified
retirement plans with at least 200 eligible employees. These
shares
are not subject to the one-year exclusion provision in cases
where
certain shareholders who invested $1 million or more have made
arrangements with Putnam Mutual Funds and the dealer of record
waived
the sales commission.
Except as stated below, Putnam Mutual Funds makes the quarterly
payments at the annual rate of 0.25% of such average net asset
value
for class A shares (including shares acquired through
reinvestment of
distributions).
For participant-directed qualified retirement plans initially
investing less than $20 million in Putnam funds and other
investments
managed by Putnam Management or its affiliates, Putnam Mutual
Funds'
payments to qualifying dealers on shares purchased at net asset
value
are 100% of the rate stated above if average plan assets in
Putnam
funds (excluding money market funds) during the quarter are less
than
$20 million, 60% of the stated rate if average plan assets are at
least $20 million but under $30 million, and 40% of the stated
rate if
average plan assets are $30 million or more.
For all other participant-directed qualified retirement plans
purchasing shares at net asset value, Putnam Mutual Funds makes
quarterly payments to qualifying dealers at the annual rate of
0.10%
of the average net asset value of such shares.
Class B and class M distribution plans. The class B and class M
plans provide for payments by the fund to Putnam Mutual Funds at
the
annual rate of up to 1.00% of average net assets attributable to
class
B shares and class M shares, as the case may be. The Trustees
currently limit payments under the class M plan to the annual
rate of
0.75% of such assets.
Although class B shares are sold without an initial sales charge,
Putnam Mutual Funds pays a sales commission equal to 4.00% of the
amount invested to dealers who sell class B shares. These
commissions
are not paid on exchanges from other Putnam funds or on sales to
investors exempt from the CDSC.
The amount paid to dealers at the time of the sale of class M
shares
is set forth above under "How to buy shares -- Class M shares."
In
addition, to further compensate dealers (including qualifying
financial institutions) for services provided in connection with
sales
of class B shares and class M shares and the maintenance of
shareholder accounts, Putnam Mutual Funds makes quarterly
payments to
qualifying dealers.
The payments are based on the average net asset value of class B
shares and class M shares attributable to shareholders for whom
the
dealers are designated as the dealer of record. Putnam Mutual
Funds
makes the payments at an annual rate of 0.25% of such average net
asset value of class B shares and class M shares, as the case may
be.
Putnam Mutual Funds also pays to dealers, as additional
compensation
with respect to the sale of class M shares, 0.40% of such average
net
asset value of class M shares. For class M shares, the total
annual
payment to dealers equals 0.65% of such average net asset value.
General. Payments under the plans are intended to compensate
Putnam
Mutual Funds for services provided and expenses incurred by it as
principal underwriter of fund shares, including the payments to
dealers mentioned above. Putnam Mutual Funds may suspend or
modify
such payments to dealers.
The payments are also subject to the continuation of the relevant
distribution plan, the terms of service agreements between
dealers and
Putnam Mutual Funds, and any applicable limits imposed by the
National
Association of Securities Dealers, Inc.
HOW TO SELL SHARES
You can sell your shares to the fund any day the New York Stock
Exchange is open, either directly to the fund or through your
investment dealer. The fund will only redeem shares for which it
has
received payment.
Selling shares directly to your fund. Send a signed letter of
instruction or stock power form to Putnam Investor Services,
along
with any certificates that represent shares you want to sell.
The
price you will receive is the next net asset value calculated
after
the fund receives your request in proper form less any applicable
CDSC. In order to receive that day's net asset value, Putnam
Investor
Services must receive your request before the close of regular
trading
on the New York Stock Exchange.
If you sell shares having a net asset value of $100,000 or more,
the
signatures of registered owners or their legal representatives
must be
guaranteed by a bank, broker-dealer or certain other financial
institutions. See the 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.
Your fund generally sends you payment for your shares the
business day
after your request is received. Under unusual circumstances, the
fund
may suspend redemptions, or postpone payment for more than seven
days,
as permitted by federal securities law.
You may use Putnam's Telephone Redemption Privilege to redeem
shares
valued up to $100,000 from your account unless you have notified
Putnam Investor Services of an address change within the
preceding 15
days. Unless an investor indicates otherwise on the account
application, Putnam Investor Services will be authorized to act
upon
redemption and transfer instructions received by telephone from a
shareholder, or any person claiming to act as his or her
representative, who can provide Putnam Investor Services with his
or
her account registration and address as it appears on Putnam
Investor
Services' records.
Putnam Investor Services will employ these and other reasonable
procedures to confirm that instructions communicated by telephone
are
genuine; if it fails to employ reasonable procedures, Putnam
Investor
Services may be liable for any losses due to unauthorized or
fraudulent instructions. For information, consult Putnam
Investor
Services.
During periods of unusual market changes and shareholder
activity, you
may experience delays in contacting Putnam Investor Services by
telephone. In 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 is not
available
if you were issued certificates for shares that remain
outstanding.
The Telephone Redemption Privilege may be modified or terminated
without notice.
Selling shares through your investment dealer. Your dealer must
receive your request before the close of regular trading on the
New
York Stock Exchange to receive that day's net asset value.
Your dealer will be responsible for furnishing all necessary
documentation to Putnam Investor Services, and may charge you for
its
services.
HOW TO EXCHANGE SHARES
You can exchange your shares for shares of the same class of
certain
other Putnam funds at net asset value beginning 15 days after
purchase. Not all Putnam funds offer all classes of shares. If
you
exchange shares subject to a CDSC, the transaction will not be
subject
to the CDSC. However, when you redeem the shares acquired
through the
exchange, the redemption may be subject to the CDSC, depending
upon
when you originally purchased the shares. The CDSC will be
computed
using the schedule of any fund into or from which you have
exchanged
your shares that would result in your paying the highest CDSC
applicable to your class of shares. For purposes of computing
the
CDSC, the length of time you have owned your shares will be
measured
from the date of original purchase and will not be affected by
any
exchange.
To exchange your shares, simply complete an Exchange
Authorization
Form and send it to Putnam Investor Services. 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." The Telephone Exchange Privilege is not
available if
you were issued certificates for shares that remain outstanding.
Ask
your investment dealer or Putnam Investor Services for
prospectuses of
other Putnam funds. Shares of certain Putnam funds are not
available
to residents of all states.
The exchange privilege is not intended as a vehicle for
short-term
trading. Excessive exchange activity may interfere with
portfolio
management and have an adverse effect on all shareholders. In
order
to limit excessive exchange activity and in other circumstances
where
Putnam Management or the Trustees believe doing so would be in
the
best interests of your 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 THE FUND VALUES ITS SHARES
The fund calculates the net asset value of a share of each class
by
dividing the total value of its assets, less liabilities, by the
number of its shares outstanding. Shares are valued as of the
close
of regular trading on the New York Stock Exchange each day the
Exchange is open.
Portfolio securities for which market quotations are readily
available
are valued at market value. Short-term investments that will
mature
in 60 days or less are valued at amortized cost, which
approximates
market value. All other securities and assets are valued at
their
fair value following procedures approved by the Trustees.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX INFORMATION
The fund distributes any net investment income and any net
realized
capital gains at least annually. Distributions from net
investment
income, if any, are expected to be small. Distributions from
capital
gains are made after applying any available capital loss
carryovers.
Distributions paid on class A shares will generally be greater
than
those paid on class B and class M shares because expenses
attributable
to class B and class M shares will generally be higher.
You can choose from three distribution options:
- - Reinvest all distributions in additional shares without a
sales charge;
- - Receive distributions from net investment income in cash
while reinvesting net capital gains distributions in
additional shares 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. All
distributions
not paid in cash will be reinvested in shares of the class on
which
the distributions are paid. You will receive a statement
confirming
reinvestment of distributions in additional shares (or in shares
of
other Putnam funds for Dividends Plus accounts) promptly
following the
quarter in which the reinvestment occurs.
If a check representing a fund distribution is not cashed within
a
specified period, Putnam Investor Services will notify you that
you
have the option of requesting another check or reinvesting the
distribution in the fund or in another Putnam fund. If Putnam
Investor Services does not receive your election, the
distribution
will be reinvested in the fund. Similarly, if correspondence
sent by
the fund or Putnam Investor Services is returned as
"undeliverable,"
fund distributions will automatically be reinvested in the fund
or in
another Putnam fund.
The fund intends to qualify as a "regulated investment company"
for
federal income tax purposes and to meet all other requirements
necessary for it to be relieved of federal taxes on income and
gains
it distributes to shareholders. The fund will distribute
substantially all of its ordinary income and capital gain net
income
on a current basis.
Fund distributions will be taxable to you as ordinary income,
except
that any distributions of net long-term capital gains will be
taxable
as such, regardless of how long you have held the shares.
Distributions will be taxable as described above whether received
in
cash or in shares through the reinvestment of distributions.
Early in each year Putnam Investor Services will notify you of
the
amount and tax status of distributions paid to you for the
preceding
year.
The foregoing is a summary of certain federal income tax
consequences
of investing in the fund. You should consult your tax adviser to
determine the precise effect of an investment in the fund on your
particular tax situation (including possible liability for state
and
local taxes).
About Putnam Investments, Inc.
Putnam Management has been managing mutual funds since 1937.
Putnam
Mutual Funds is the principal underwriter of the fund and of
other
Putnam funds. Putnam Fiduciary Trust Company is the custodian of
the
fund. Putnam Investor Services, a division of Putnam Fiduciary
Trust
Company, is the investor servicing and transfer agent for the
fund.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are 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>
PUTNAM NEW VALUE 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
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
PUTNAMINVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
<PAGE>
PUTNAM NEW VALUE FUND
(a series of Putnam Investment Funds (the "Trust"))
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
DECEMBER 31, 1996
This SAI is not a prospectus and is only authorized for
distribution
when accompanied or preceded by the prospectus of the fund dated
December 31, 1996, 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 the fund has more than one form of current
prospectus, each reference to the prospectus in this SAI shall
include
all 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 fund.
Part
II includes information about the fund and the other Putnam
funds.
<PAGE>
TABLE OF CONTENTS
PART I
SECURITY RATINGS . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . I-3
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . .
. . . . . . I-5
CHARGES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . .
. . .I-
7
INVESTMENT PERFORMANCE . . . . . . . . . . . . . . . . . . . . .
. . I- 13
ADDITIONAL OFFICERS. . . . . . . . . . . . . . . . . . . . . . .
. . I- 13
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . . . .
. . I- 15
Part II
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . .
. . . . . .II-1
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . II-29
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . II-35
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . .
. . . . . II-44
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . II-46
DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . . .
. . . . . II-59
INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . II-60
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . .
. . . . . II-66
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . .
. . . . . II-66
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . .
. . . . . II-66
STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . .
. . . . . II-67
COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . .
. . . . . II-68
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . II-73
<PAGE>
SAI
PART I
SECURITY RATINGS
The following rating services describe rated securities as
follows:
Moody's Investors Service, Inc.
Bonds
Aaa -- Bonds which are rated Aaa are judged to be of the best
quality.
They carry the smallest degree of investment risk and are
generally
referred to as "gilt edged." Interest payments are protected by
a
large or by an exceptionally stable margin and principal is
secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality
by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the
best bonds because margins of protection may not be as large as
in Aaa
securities or fluctuation of protective elements may be of
greater
amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a
susceptibility
to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear
adequate
for the present but certain protective elements may be lacking or
may
be characteristically unreliable over any great length of time.
Such
bonds lack outstanding investment characteristics and in fact
have
speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often
the protection of interest and principal payments may be very
moderate, and thereby not well safeguarded during both good and
bad
times over the future. Uncertainty of position characterizes
bonds in
this class.
B -- Bonds which are rated B generally lack characteristics of
the
desirable investment. Assurance of interest and principal
payments or
of maintenance of other terms of the contract over any long
period of
time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such
issues
may be in default or there may be present elements of danger with
respect to principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or
have other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds,
and
issues so rated can be regarded as having extremely poor
prospects of
ever attaining any real investment standing.
Standard & Poor's
Bonds
AAA -- Debt rated `AAA' has the highest rating assigned by
Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA -- Debt rated `AA' has a very strong capacity to pay interest
and
repay principal and differs from the higher rated issues only in
small
degree.
A -- Debt rated `A' has a strong capacity to pay interest and
repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt
in higher rated categories.
BBB -- Debt rated `BBB' is regarded as having an adequate
capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity
to pay interest and repay principal for debt in this category
than in
higher rated categories.
BB-B-CCC-CC-C -- Debt rated `BB',`B',`CCC',`CC' and `C' is
regarded,
on balance, as predominantly speculative with respect to capacity
to
pay interest and repay principal in accordance with the terms of
the
obligation. `BB' indicates the lowest 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 a
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
S&P believes that such payments will be made during such grace
period.
The D rating also will be used on the filing of a bankruptcy
petition
if debt service payments are jeopardized.
INVESTMENT RESTRICTIONS
As fundamental investment restrictions, which may not be changed
without a vote of a majority of the outstanding voting securities
of
the 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.
(9) Issue any class of securities which is senior to the
fund's
shares of beneficial interest.
<PAGE>
It is contrary to the fund's present policy, which may be changed
without shareholder approval, to:
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 Trust (or
the
person designated by the Trustees of the Trust 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.
Although certain of the fund's fundamental investment
restrictions
permit it to borrow money to a limited extent, the fund does not
currently intend to do so and did not do so last year.
---------------------
All percentage limitations on investments will apply at the time
of
the making of an investment and shall not be considered
violated unless an excess or deficiency occurs or exists
immediately
after and as a result of such investment.
The Investment Company Act of 1940 provides that a "vote of the
majority of the outstanding voting securities" of the fund means
the
affirmative vote of the lesser of (1) more than 50% of the
outstanding
fund shares, or (2) 67% or more of the shares present at a
meeting if
more than 50% of the outstanding fund shares are represented at
the
meeting in person or by proxy.
CHARGES AND EXPENSES
Management fees
Under a Management Contract dated December 2, 1995 the fund pays
a
quarterly fee to Putnam Investment Management, Inc., the fund's
investment manager ("Putnam Management"), based on the average
net
assets of the fund, as determined at the close of each business
day
during the quarter, at the annual rate of 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. For the past two fiscal years, pursuant to the
Management
Contract, the fund incurred the following fees:
<PAGE>
Reflecting a
reduction in the
following amounts
Fiscal Management pursuant to an
year fee paid expense limitation
1996 $354,699 $185,030
1995 $9,671 $32,910
Brokerage commissions
The following table shows brokerage commissions paid during the
fiscal
period indicated:
Fiscal Brokerage
year commissions
1996 $214,449
1995 $8,320
The following table shows transactions placed with brokers and
dealers
during the most recent fiscal year to recognize research,
statistical
and quotation services Putnam Management considered to be
particularly
useful to it and its affiliates:
Dollar
value Percent of
of these total Amount of
transactions transactions commissions
$30,101,340 14.50% 55,828
Administrative expense reimbursement
The fund reimbursed Putnam Management in the following amount for
administrative services during fiscal 1996, including the
following
amount for compensation of certain officers of the Trust and
contributions to the Putnam Investments, Inc. Profit Sharing
Retirement Plan for their benefit:
Portion of total
reimbursement for
Total compensation and
reimbursement contributions
$4,487 $3,953
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 fees paid to each Trustee by the fund for
fiscal
1996 and the fees paid to each Trustee by all of the Putnam funds
during the calendar year 1995.
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Estimated Total
Aggregate retirement
annual benefits compensation
compensation benefits accrued
from all from all
from the as part of
Putnam funds Putnam
Trustees/Year fund(1) fund expenses(2) upon
retirement(3) funds(4)
- -----------------------------------------------------------------
- -------------------------
<S> <C> <C>
<C> <C>
Jameson A. Baxter/1994 $236 $0
$71,676 $150,854
Hans H. Estin/1972 235 0
70,043 150,854
John A. Hill/1985 (5) 230 0
70,043 149,854
Ronald J. Jackson/1996(6) 118 0
70,043 N/A
Elizabeth T. Kennan/1992 235 0
69,709 148,854
Lawrence J. Lasser/1992 232 0
70,043 150,854
Robert E. Patterson/1984 266 0
71,043 152,854
Donald S. Perkins/1982 234 0
69,376 150,854
William F. Pounds/1971 249 (7) 0
70,543 149,854
George Putnam/1957 235 0
70,043 150,854
George Putnam, III/1984 235 0
70,043 150,854
Eli Shapiro/1995(8) 271 0
70,043 95,372
A.J.C. Smith/1986 232 0
68,252 149,854
W. Nicholas Thorndike/1992 263 0
71,043 152,854
- -----------------------------------------------------------------
- -------------------------
(1) Includes an annual retainer and an attendance fee for each
meeting attended.
(2) The Trustees approved a Retirement Plan for Trustees of the
Putnam funds on October 1,
1996. Prior to that date, voluntary retirement benefits were
paid to certain retired
Trustees .
(3) Assumes that each Trustee retires after at least five years
of service. Estimated
benefits for each Trustee are based on amounts paid to such
Trustee for the three most
recent calendar years (or, for Trustees who have not served
as Trustees throughout such
three-year period, the average amount paid to each Trustee
for such years).
(4) As of December 31, 1995, there were 99 funds in the Putnam
family.
(5) Includes compensation deferred pursuant to a Trustee
Compensation Deferral Plan. The
total amount of deferred compensation payable by the Putnam
funds to Mr. Hill as of
December 31, 1995 was $51,141. Information on deferred
compensation includes income
earned on such amounts.
(6) Elected as a Trustee in May 1996.
(7) Includes additional compensation for service as Vice Chairman
of the Putnam funds.
(8) Elected as a Trustee in April 1995.
/TABLE
<PAGE>
Under a Retirement Plan for Trustees of the Putnam funds (the
"Plan"),
each Trustee who retires with at least five years of service as a
Trustee of the funds is entitled to receive an annual retirement
benefit equal to one-half of the average annual compensation paid
to
such Trustee for the last three years of service prior to
retirement.
This retirement benefit is payable during a Trustee's lifetime,
beginning the year following retirement, for a number of years
equal
to such Trustee's years of service. A death benefit is also
available
under the Plan which assures that the Trustee and his or her
beneficiaries will receive benefit payments for the lesser of an
aggregate period of (i) ten years or (ii) such Trustee's total
years
of service.
The Plan Administrator (a committee comprised of Trustees that
are not
"interested persons" of the fund, as defined in the Investment
Company
Act of 1940) may terminate or amend the Plan at any time, but no
termination or amendment will result in a reduction in the amount
of
benefits (i) currently being paid to a Trustee at the time of
such
termination or amendment, or (ii) to which a current Trustee
would
have been entitled to receive had he or she retired immediately
prior
to such termination or amendment.
For additional information concerning the Trustees, see
"Management"
in Part II of this SAI.
Share ownership
At November 30, 1996, the officers and Trustees of the fund as a
group
owned less than 1% of the outstanding shares of each class of the
fund, and, except as noted below, to the knowledge of the fund no
person owned of record or beneficially 5% or more of any class of
shares of the fund.
Shareholder name Percentage
Class and address owned
B Merrill Lynch, Pierce Fenner & Smith 17.70%
1 Liberty Plaza
165 Broadway
New York, NY 10006
Distribution fees
During fiscal 1996, the fund paid the following 12b-1 fees to
Putnam
Mutual Funds:
Class A Class B Class M
$59,298 $222,791 $19,683
<PAGE>
Class A sales charges and contingent deferred sales charges
Putnam Mutual Funds received sales charges with respect to class
A
shares in the following amounts during the periods indicated:
Sales charges
retained by Putnam Contingent
TotalMutual Funds deferred
front-end after sales
sales charges dealer concessions charges
1996 $3,022,165 $292,640 $0
1995 $0 $0 $0
Class B contingent deferred sales charges
Putnam Mutual Funds received contingent deferred sales charges
upon
redemptions of class B shares in the following amounts during the
periods indicated:
Contingent deferred
sales charges
Fiscal year
1996 $23,071
Class M sales charges
Putnam Mutual Funds received sales charges with respect to class
M
shares in the following amounts during the periods indicated:
Sales charges
retained by Putnam
Mutual Funds
Total after
sales charges dealer concessions
Fiscal year
1996 $210,427 $20,131
Investor servicing and custody fees and expenses
During the 1996 fiscal year, the fund incurred $193,858 in fees
and
out-of-pocket expenses for investor servicing and custody
services
provided by Putnam Fiduciary Trust Company.
<PAGE>
INVESTMENT PERFORMANCE
Standard performance measures
(for periods ended August 31, 1996)
Class A Class B* Class M*
Inception date: 1/3/95 2/26/96 2/26/96
Total return+
1 year 13.40% --- ---
Life of fund 22.69 1.08% 2.58%
*Represents cumulative, rather than average annual, total return.
Yield+
30-day Yield 1.38% 0.72% 0.92%
+ Reflecting an expense limitation then in effect. Without the
expense limitation, total return would have been 13.23% and
22.57% for
class A shares and 0.67%, and 0.20%, respectively, for the class
A, B
and M shares.
Data represent past performance and are not indicative of future
results. Total return for class A and class M shares reflects
the
deduction of the maximum sales charge of 5.75% and 3.50%,
respectively. Total return at CDSC for class B shares reflects
the
deduction of the applicable contingent deferred sales charge
("CDSC").
The maximum class B CDSC is 5.0%. See "Standard performance
measures"
in Part II of this SAI for information on how performance is
calculated. Past performance is no guarantee of future results.
ADDITIONAL OFFICERS
In addition to the persons listed as fund officers in Part II of
this
SAI, each of the following persons is also a Vice President of
the
fund and certain of the other Putnam funds, the total number of
which
is noted parenthetically. Officers of Putnam Management hold the
same
offices in Putnam Management's parent company, Putnam
Investments,
Inc.
Thomas R. Bogan (age 55) (1 fund). Managing Director of Putnam
Management. Prior to November, 1994, Mr. Bogan was Senior
Analyst at
Lord, Abbett & Co.
Brett C. Browchuk (age 33) (48 funds). Managing Director of
Putnam
Management. Prior to April, 1994, Mr. Browchuk was Managing
Director
at Fidelity Investments.
Peter Carman (age 55) (40 funds). Senior Managing Director of
Putnam
Management. Prior to August, 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.
Ian C. Ferguson (age 39) (22 funds). Senior Managing Director.
Prior
to April, 1996, Mr. Ferguson was CEO at Hong Kong Shanghai
Banking
Corporation.
David L. King (age 39) (6 funds). Senior Vice President of
Putnam
Management.
J. Peter Grant (age 53) (3 funds). Senior Vice President of
Putnam
Management. Senior Vice President of Putnam Fiduciary Trust
Company.
Carol C. McMullen (age 41) (7 funds). 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 (age 33) (4 funds). Senior Vice President of
Putnam
Management.
John J. Morgan, Jr. (age 56) (10 funds). Managing Director of
Putnam
Management.
Hugh H. Mullin (age 34) (4 funds). Senior Vice President of
Putnam
Management.
Patrick O'Donnell (age 50) (1 fund). Managing Director of Putnam
Management. Prior to May, 1994, Mr. O'Donnell was the founder
and
President of Exeter Research Inc.
Anthony W. Regan (age 57) (11 funds). Senior Managing Director
of
Putnam Management. Director of Putnam Investments, Inc.
Thomas V. Reilly (age 49) (15 funds). Managing Director of
Putnam
Management.
David J. Santos (age 38) (3 funds). Vice President of Putnam
Management.
Justin M. Scott (age 39) (10 funds). Managing Director of Putnam
Management.
Sheldon N. Simon (age 39) (2 funds). Senior Vice President of
Putnam
Management.
Robert Swift (age 36) (7 funds). Senior Vice President of Putnam
Management. Prior to August, 1995, Mr. Swift was Director and
Portfolio Manager at IAI International/Hill Samuel Investment
Advisors.
Kenneth J. Taubes (age 38) (7 funds). Senior Vice President of
Putnam
Management.
<PAGE>
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, MA
02109,
are the fund's independent accountants, providing audit services,
tax
return review and other tax consulting services and assistance
and
consultation in connection with the review of various Securities
and
Exchange Commission filings. The Report of Independent
Accountants,
financial highlights and audited financial statements included in
the
fund's Annual Report for the fiscal year ended August 31, 1996,
filed
electronically on October 29, 1996 (File No. 811-7237), are
incorporated by reference into this SAI. The financial
highlights
included in the prospectus and incorporated by reference into
this SAI
and the financial statements incorporated by reference into the
prospectus and this SAI have been so included and incorporated in
reliance upon the report of the independent accountants, given on
their authority as experts in auditing and accounting.
<PAGE>
Differences between the typeset (printed) prospectus and the
EDGAR filing version.
1. Each interior page of the prospectus includes
the
word "prospectus" at the bottom of the page.
2. Pagination is different in printed prospectus.
3. Section headings and subheadings in the
printed
prospectus are printed in boldface type with
colored ink.
4. The first page of the printed prospectus
contains
an illustration of balanced scales, Putnam's
logo.
5. The last page of the printed prospectus
contains a
graphic recyclable logo.
