As filed with the Securities and Exchange Commission on
January 29, 1998
Registration
No. 33-56339
811-7237
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 13
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and
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
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ACT OF 1940
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Amendment No. 11
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(Check appropriate box or boxes)
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PUTNAM INVESTMENT FUNDS
(Exact name of registrant as specified in charter)
One Post Office Square, Boston, Massachusetts 02109
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code
(617) 292-1000
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<PAGE>
It is proposed that this filing will become effective
(check appropriate box)
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/ / immediately upon filing pursuant to paragraph (b)
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/ x / on January 30, 1998 pursuant to paragraph
(b)
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/ / 60 days after filing pursuant to paragraph (a)(1)
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/ / on (date) pursuant to paragraph (a)(1)
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/ / 75 days after filing pursuant to paragraph (a)(2)
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/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
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If appropriate, check the following box:
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/ / this post-effective amendment designates a new
- ---- effective date for a previously filed post-effective
amendment.
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JOHN R. VERANI, Vice President
PUTNAM INVESTMENT FUNDS
One Post Office Square
Boston, Massachusetts 02109
(Name and address of agent for service)
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Copy to:
JOHN W. GERSTMAYR, Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
<PAGE>
PUTNAM INVESTMENT FUNDS TRUST
CROSS REFERENCE SHEET
(as required by Rule 481(a))
Part A
N-1A Item No. Location
1. Cover Page . . . . . . . . . . . . . . Cover page
2. Synopsis . . . . . . . . . . . . . . . Expenses summary
3. Condensed Financial Information. . . . Financial highlights;
How performance is
shown
4. General Description of Registrant. . . Objectives; How the
funds pursue their
objectives;
Organization and
history
5. Management of the Fund . . . . . . . . Expenses summary;
How the funds are
managed; About Putnam
Investments, Inc.
5A. Management's Discussion of Fund
Performance. . . . . . . . . . . . . . (Contained in the
annual report of the
Registrant)
6. Capital Stock and Other Securities . . Cover page;
Organization and
history; How the
funds make
distributions to
shareholders; tax
information
7. Purchase of Securities Being Offered . How to buy shares;
Distribution plans;
How to sell shares;
How to exchange
shares; How the
funds value their
shares
8. Redemption or Repurchase . . . . . . . How to buy shares;
How to sell shares;
How to exchange
shares; Organization
and history
9. Pending Legal Proceedings. . . . . . . Not applicable
Part B
N-1A Item No. Location
10. Cover Page . . . . . . . . . . . . . . Cover page
11. Table of Contents. . . . . . . . . . . Cover page
12. General Information and History. . . . Organization and
history (Part A)
13. Investment Objectives and Policies . . How the funds
pursue their
objectives (Part A);
Investment
restrictions;
Miscellaneous
investment practices
14. Management of the Registrant . . . . . Management (Trustees;
Trustee fees;
Officers); Additional
officers
15. Control Persons and Principal. . . . . Management (Trustees;
Holders of Securities Officers); Charges
and expenses (Share
ownership)
16. Investment Advisory and Other. . . . . Organization and
Services history (Part
A); Management
(Trustees; Officers;
The management
contract; Principal
underwriter; Investor
servicing agent and
custodian); Charges
and expenses;
Distribution plans;
Independent
accountants and
financial statements
17. Brokerage Allocation . . . . . . . . . Management (Portfolio
transactions);
Charges and expenses
<PAGE>
18. Capital Stock and Other Securities . . Organization and
history (Part A); How
the funds make
distributions to
shareholders; tax
information (Part A);
Suspension of
redemptions
19. Purchase, Redemption, and Pricing. . . How to buy shares
of Securities Being Offered (Part A); How to sell
shares (Part A); How
to exchange shares
(Part A); How to buy
shares; Determination
of net asset value;
Suspension of
redemptions
20. Tax Status . . . . . . . . . . . . . . How the funds
make
distributions to
shareholders; tax
information (Part
A); Taxes
21. Underwriters . . . . . . . . . . . . .
Management (Principal
underwriter); Charges
and expenses
22. Calculation of Performance Data. . . . How performance is
shown (Part A);
Investment
performance; Standard
performance measures
23. Financial Statements . . . . . . . . . Independent
accountants and
financial statements
Part C
Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C of the
Registration Statement.
This Post-Effective Amendment relates solely to the
Registrant's Putnam International New Opportunities Fund and
Putnam Global Growth & Income Fund series. Information contained
in the Registrant's Registration Statement relating to any other
series of the Registrant is neither amended nor superseded.
PROSPECTUS
January
30, 1998
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 January 30, 1998
statement of additional information (the "SAI"), as amended from
time to time. For a free copy of the SAI or other information,
call Putnam Investor Services at 1-800-225-1581. The SAI has
been filed with the Securities and Exchange Commission (the
"Commission") and is incorporated into this prospectus by
reference. The Commission maintains a Web site
(http://www.sec.gov) that contains the SAI, material
incorporated by reference into this prospectus and SAI, and other
information regarding registrants that file electronically with
the Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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
.
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 and recurring expenses on your
investment over time.
Financial highlights
.
Study these tables 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.
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 it purchases and
sells securities .
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 .
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 1.10% 0.25% 0.40%
1.75%
Class B 1.10% 1.00% 0.40%
2.50%
Class M 1.10% 0.75% 0.40%
2.25%
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 $74 $109 $147 $252
Class B $75 $108 $153
$265** *
Class B (no redemption) $25 $78 $133
$265***
Class M $57 $103 $151 $284
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 1997 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)
<TABLE> <CAPTION>
CLASS A
<S> <C> <C> <C>
January 3, 1995+
Year ended to
Per-share September 30
September 30
operating performance 1997 1996 1995
Net asset value,
beginning of period $11.69 $10.29 $8.50
Investment operations
Net investment income (loss)(a) (.03) .04 .02
Net realized and unrealized
gain on investments 1.98 1.37 1.77
Total from investment operations 1.95 1.41 1.79
Less distributions:
From net investment income (.04) (.01) --
From net realized gain
on investments --(f) --(f) --
Total distributions (.04) (.01) --
Net asset value, end of period $13.60 $11.69 $10.29
Ratios and supplemental data
Total investment return
at net asset value (%)(c) 16.74 13.76 21.06*
Net assets,
end of period (in thousands) $859,999 $499,396 $15,137
Ratio of expenses
to average net assets(%)(d) 1.75 1.95(b)
1.23(b)*
Ratio of net investment income
to average net assets (%) (.24) .34 .86*
Portfolio turnover (%) 141.29 24.69 9.24*
Average commission rate paid(e) $.0180 $.0190
<PAGE>
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the
basis of the weighted average number of shares outstanding during
the period.
(b) Reflects an expense limitation in effect during the period.
As a result of such limitation, expenses for the fund reflect a
reduction of less than $0.02 and $0.01 per
share for periods ended on or after September 30, 1995 and 1996,
respectively.
(c) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(d) The ratio of expenses to average net assets for periods ended
on or after September 30, 1995 includes amounts paid through
expense offset arrangements with PFTC and brokerage
service arrangements. Prior period ratios exclude these amounts.
(e) Average commission rate paid is required for fiscal periods
beginning on or after September 1, 1995.
(f) Per share distributions were less than $.01 per share,
variances may occur due to rounding.
</TABLE>
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
CLASS B
<TABLE> <CAPTION>
<S> <C> <C> <C>
July 21, 1995+
Year ended to
Per-share September 30
September 30
operating performance 1997 1996 1995
Net asset value,
beginning of period $11.61 $10.28 $10.25
Investment operations
Net investment income (loss)(a)(b)(.13) (.05) (.01)
Net realized and unrealized
gain on investments 1.97 1.39 .04
Total from investment operations 1.84 1.34 .03
Less distributions:
From net investment income -- (.01) --
From net realized gain
on investments --(f) --(f) --
Total distributions -- (.01) --
Net asset value, end of period $13.45 $11.61 $10.28
Ratios and supplemental data
Total investment return
at net asset value (%)(c) 15.87 13.02 .29*
Net assets,
end of period (in thousands) $1,079,912 $573,129 $7,053
Ratio of expenses
to average net assets(%)(d) 2.50 2.72(b)
.83(b)*
Ratio of net investment income
to average net assets (%) (.99) (.43) (.20)*
Portfolio turnover (%) 141.29 24.69 9.24*
Average commission rate paid(e) $.0180 $.0190
<PAGE>
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the
basis of the weighted average number of shares outstanding during
the period.
(b) Reflects an expense limitation in effect during the period.
As a result of such limitation, expenses for the fund reflect a
reduction of less than $0.02 and $0.01 per share for periods
ended on or after September 30, 1995 and 1996, respectively.
(c) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(d) The ratio of expenses to average net assets for periods ended
on or after September 30, 1995 includes amounts paid through
expense offset arrangements with PFTC and brokerage
service arrangements. Prior period ratios exclude these amounts.
(e) Average commission rate paid is required for fiscal periods
beginning on or after September 1, 1995.
(f) Per share distributions were less than $.01 per share,
variances may occur due to rounding.
</TABLE>
<TABLE> <CAPTION>
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
<S> <C> <C> <C>
CLASS M
July 21, 1995+
Year ended to
Per-share September 30
September 30
operating performance 1997 1996 1995
Net asset value,
beginning of period $11.64 $10.29 $10.25
Investment 0perations
Net investment income (loss)(a)(.10) (.02) ---
Net realized and unrealized
gain on investments 1.98 1.38 .04
Total from investment operations 1.88 1.36 .04
Less distributions:
From net investment income (.01)(f) (.01) --
From net realized gains
on investments --(f) --(f) --
Total distributions(f) (.01) (.01) --
Net asset value, end of period $13.51 $11.64 $10.29
Ratios and supplemental data
Total investment return
at net asset value (%)(c) 16.12 13.22 .39*
Net assets,
end of period (in thousands) $91,390 $52,182 $1,259
Ratio of expenses
to average net assets(%)(b)(d) 2.25 2.46(b)
.79(b)*
Ratio of net investment income
to average net assets (%)(b) (.74) (.17) (.15)*
Portfolio turnover (%) 141.29 24.69 9.24*
Average commission rate paid(e) $.0180 $.0190<PAGE>
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the
basis of the weighted average number of shares outstanding during
the period.
(b) Reflects an expense limitation in effect during the period.
As a result of such limitation, expenses for the fund reflect a
reduction of less than $0.02 and $0.01 per share for each class
for periods ended September 30, 1995 and 1996, respectively.
(c) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(d) The ratio of expenses to average net assets for periods ended
on or after September 30, 1995 includes amounts paid through
expense offset arrangements with PFTC and brokerage
service arrangements. Prior period ratios exclude these amounts.
(c) Per share net investment income (loss) has been determined on
the basis of the weighted average number of shares outstanding
during the period.
(e) Average commission rate paid is required for fiscal periods
beginning on or after September 1, 1995.
(f) Per share distributions were less than $.01 per share,
variances may occur due to rounding.
</TABLE>
<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.
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 that are primarily designed to reduce
fluctuations in the value of fund assets.
In implementing these defensive strategies, the fund may invest
without limit in 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
defensive strategies would be used.
Risk factors
Foreign investments
The fund may invest in securities of foreign issuers
that are not actively traded in U.S. markets.
These foreign investments involve certain special risks
described below.
Foreign securities are normally denominated and traded in
foreign currencies . As a result, the value of the fund's
foreign investments and the value of its shares may be
affected favorably or unfavorably by changes in currency exchange
rates relative to the U.S. dollar. The Fund may engage in a
variety of foreign currency exchange transactions in connection
with its foreign investments, including transactions involving
futures contracts, forward contracts and options.
Investments in foreign securities may subject the fund to other
risks as well. For example, there may be less information
publicly available about a foreign issuer than about a U.S.
issuer, and foreign issuers are not generally
subject to accounting , auditing and financial reporting
standards and practices comparable to those in the United
States. The securities of some foreign issuers
are less liquid and at times more volatile than securities of
comparable U.S. issuers . Foreign brokerage commissions
and other fees are also generally higher than in the
United States. Foreign settlement procedures and trade
regulations may involve certain risks (such as delay in payment
or delivery of the fund's assets held abroad) and expenses
not present in the settlement of investments in U.S.
markets .
In addition, the fund's investments in foreign securities
may be subject to the risk of nationalization or
expropriation of assets, imposition of currency exchange controls
or restrictions on the repatriation of foreign currency ,
confiscatory taxation, political or financial instability and
diplomatic developments which could affect the value of
the fund's investments in certain foreign countries.
Dividends or interest on, or proceeds from the sale of foreign
securities may be subject to foreign withholding taxes, and
special U.S. tax considerations may apply.
Legal remedies available to investors in certain foreign
countries may be more limited than those available with
respect to investments in the United States or in other foreign
countries . The laws of some foreign countries may limit
the fund's ability to invest in securities of certain
issuers organized under the laws of those foreign
countries.
The risks described above are typically increased in
connection with investments in less developed nations,
which are sometimes referred to as "emerging markets."
For example , political and economic structures in these
countries may be in their infancy and developing rapidly, causing
instability. High rates of inflation or currency
devaluations may adversely affect the economies and
securities markets of such countries. Investments in
emerging markets may be considered speculative.
Certain of the foregoing risks may also apply to some extent
to securities of U.S. issuers that are denominated in foreign
currencies or that are traded in foreign markets, or to
securities of U.S. issuers having significant foreign
operations.
For more information about foreign securities and the
risks associated with investments in such securities ,
see the SAI.
Foreign currencies exchange transactions
The fund may engage in foreign currency exchange transactions to
manage its exposure to foreign currencies . 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").
It may also engage in foreign currency transactions for non-
hedging purposes, subject to applicable law.
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 on exchanges or in
over-the-counter markets, foreign currency futures contracts,
foreign currency forward contracts and options on foreign
currency futures contracts and on foreign currencies . In
connection with position hedging, the fund may also purchase or
sell foreign currency on a spot basis.
The fund's currency hedging transactions may call for the
delivery of one foreign currency in exchange for another foreign
currency and may at times not involve currencies in which its
portfolio securities are then denominated. Putnam Management
will engage in such "cross hedging" activities when it believes
that such transactions provide significant hedging opportunities
for the fund. Cross hedging transactions by the fund involve the
risk of imperfect correlation between changes in the values of
the currencies to which such transactions relate and changes in
the value of the currency or other asset or liability which is
the subject of the hedge.
The fund may also engage in non-hedging currency transactions.
For example, Putnam Management may believe that exposure to a
currency is in the fund's best interest but that securities
denominated in that currency will not assist the fund in meeting
its objective. In that case the fund may purchase a currency
forward contract or option in order to increase its exposure to
the currency. In accordance with SEC regulations, the fund will
segregate liquid assets in its portfolio to cover forward
contacts used for non-hedging purposes.
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 in connection with 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
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.
For a more detailed explanation of futures and options
transactions, including the risks associated with them,
see 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 use of these
strategies may be limited by applicable law.
Securities loans, repurchase agreements and forward
commitments. The fund may lend portfolio securities amounting to
not more than 25% of its assets to broker-dealers and may enter
into repurchase agreements on up to 25% of its assets. These
transactions must be fully collateralized at all times. The fund
may also purchase securities for future delivery, which may
increase its overall investment exposure and involves a risk of
loss if the value of the securities declines prior to the
settlement date. These transactions involve some risk if the
other party should defaut on its obligation and the fund is
delayed or prevented from recovering the collateral or completing
the transaction.
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 , its agencies or instrumentalities); *
(b) 25% of its total assets in any one industry (securities of
the U.S. government, its agencies or instrumentalities are not
considered to represent any industry);* or
(c) 15% of its net assets in any combination of securities that
are not readily marketable, securities restricted as to
resale (excluding securities determined by the Trustees
(or the person designated by the Trustees to make such
determinations) to be readily marketable), and 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 as otherwise noted, all percentage limitations described
in this prospectus and the SAI will apply at the time an
investment is made, and will not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a
result of such investment. Except for investment policies
designated as fundamental in this prospectus or the SAI, the
investment policies described in this prospectus and in the SAI
are not fundamental policies. The Trustees may change any non-
fundamental investment policy without shareholder approval. As a
matter of policy, the Trustees would not materially change the
fund's investment 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 the 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)
Robert Swift 1996 Employed as an investment
Managing Director professional by Putnam
Management since 1995.
Prior to August, 1995, Mr.
Swift was a Director and
Senior Portfolio Manager at
IAI International/Hill Samuel
Investment Advisors.
Deborah S. Farrell 1997 Employed as an investment
Senior Vice President professional by Putnam
Management since 1997. Prior
to May, 1997, Ms. Farrell was
a Portfolio Manager at
Emerging Markets Investors
Corporation, and prior to May,
1994, Ms. Farrell was Division
Manager, Asian Capital
Markets, at International
Finance Corporation.
J. Peter Grant 1996 Employed as an investment
Senior Vice President professional by Putnam
Management since 1973.
Stephen Oler 1997 Employed as an investment
Senior Vice President professional by Putnam
Management since 1997.
Prior to June, 1997, Mr.
Oler was a Vice President at
Templeton Investments, and
prior to March 1996 was a
Senior Vice President at
Baring Asset Management Co.
Jack Chang 1997 Employed as an investment
Vice President professional by Putnam
Management since 1997.
Prior to July, 1997, Mr. Chang
was a Vice President and
Portfolio Manager at
Columbia Management, and
prior to 1993, was a Vice
President and Portfolio
Manager at Scudder, Stevens &
Clark.
Ami Kuan Danoff
1996 Employed as an investment
Vice President professional by Putnam
Management since 1993. Prior
to April, 1993, Ms.
Danoff attended the MIT
Sloan School of Management.
The fund pays all expenses not assumed by Putnam
Management, including Trustees' fees, auditing, legal, custodial,
investor servicing and shareholder reporting expenses, and
payments under its distribution plans (which are in turn
allocated to the relevant class of shares). 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 series 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 , or the
relative assets of, the fund and such series . 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, shares 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 Trust's 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 , at
any time, establish one 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. , Trustee of Salem Hospital and the
Peabody Essex Museum; Paul L. Joskow,* Professor of Economics
and Management, Massachusetts Institute of Technology, Director,
New England Electric System, State Farm Indemnity Company and
Whitehead Institute for Biomedical Research; Elizabeth T.
Kennan, President Emeritus and Professor, Mount Holyoke College;
Lawrence J. Lasser,* Vice President of the Putnam funds.
President, Chief Executive Officer and Director of Putnam
Investments, Inc. and Putnam Management. Director, Marsh &
McLennan Companies, Inc. ; John H. Mullin, III, Chairman and
CEO of Ridgeway Farm, Director of ACX Technologies, Inc., Alex.
Brown Realty, Inc., The Liberty Corporation and The Ryland Group,
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. ;
W. Thomas Stephens, President and Chief Executive Officer of
MacMillan Bloedel Ltd., Director of Mail-Well Inc., Qwest
Communications, The Eagle Picher Trust and New Century
Energies ; and W. Nicholas Thorndike, Director of various
corporations and charitable organizations, including Data General
Corporation, Bradley Real Estate, Inc. and Providence Journal Co.
Also, Trustee of 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. If you purchase class A shares , you
will generally pay a sales charge at the time of purchase ,
and, as a result, will not have to pay
any charges when you redeem the shares. If you purchase class
A shares at net asset value you may have to pay a
contingent deferred sales charge ("CDSC") when you redeem the
shares . Certain purchases of class A shares qualify for
reduced sales charges. Class A shares pay lower 12b-1
fees than class B and class M shares. See "How to buy
shares -- Class A shares" and "Distribution plans."
Class B shares. If you purchase class B shares , you
will not pay an initial sales charge, but may have to
pay a CDSC if you redeem the shares within six
years . 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, including
information about how shares acquired through reinvestment of
distributions are treated and certain circumstances under
which class B shares may not convert into class A
shares, see the SAI . 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. If you purchase class M shares you
will generally pay a sales charge at the time of purchase
that is lower than the sales charge you would pay for
class A shares. Certain purchases of class M shares qualify for
reduced sales charges. Class M shares pay 12b-1
fees that are lower than class B shares but higher
than class A shares. You will not have to pay any charges
when you redeem class M shares, but class M shares will not
convert into any other class of shares. See "How to buy shares -
- - Class M shares" and "Distribution plans."
Which class is best for you? Which class of shares
provides the most suitable investment for you
depends on a number of factors, including the amount you
intend to invest and how long you intend to hold the
shares. If your intended purchase qualifies for
reduced sales charges , you might consider class A or class
M shares. If you prefer not to pay a sales charge
at the time of purchase, you 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
.
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
- -----------------------------------------------------------------
No initial sales charge applies to purchases of
class A shares of $1 million or more or to purchases by
employer-sponsored retirement plans that have at
least 200 eligible employees. However, a CDSC of 1.00%
or 0.50%, is imposed on redemptions of these shares within the
first or second year, respectively, after
purchase , unless the dealer of record waived its
commission with Putnam Mutual Funds' approval, or
unless the purchaser is a class A qualified benefit plan (a
retirement plan for which Putnam Fiduciary Trust
Company or its affiliates provides recordkeeping or other
services in connection with the purchase of class A shares).
Class A qualified benefit plans may also purchase class A
shares with no initial sales charge. However, as stated
below, a CDSC of 0.75% of the total amount redeemed (1.00% in
the case of plans for which Putnam Mutual Funds or its
affiliates do not serve as Trustee or recordkeeper) is imposed on
redemptions of these shares if, within two years of a plan's
initial purchase of class A shares , it redeems 90% or
more of its cumulative purchases . Thereafter, such a
plan is no longer liable for any CDSC. The two-year CDSC
applicable to class A qualified benefit plans for which Putnam
Mutual Funds or its affiliates serve as trustee and recordkeeper
("full service plans") is 0.50% of the total amount
redeemed for full service plans that initially
invest at least $5 million but less than $10
million in Putnam funds and other investments managed by Putnam
Management or its affiliates ("Putnam Assets"), and is 0.25%
of the total amount redeemed for full service plans that
initially invest at least $10 million but less than $20
million in Putnam Assets. Class A qualified benefit plans that
initially invest at least $20 million in Putnam Assets, or whose
dealer of record has, with Putnam Mutual Funds' approval, waived
its commission or agreed to refund its commission to Putnam
Mutual Funds in the event a CDSC would otherwise be
applicable, are not subject to any CDSC .
A class A qualified benefit 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.
As described in the SAI, Putnam Mutual Funds pays the dealer
of record a commission of up to 1% on sales to class A qualified
benefit plans. Putnam Mutual Funds pays dealers of record
commissions on sales of class A shares of $1 million or more and
sales of class A shares to employer-sponsored retirement plans
that have at least 200 eligible employees and that are not class
A qualified benefit plans 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
first $3 million 0f shares purchased, 0.50% of the next $47
million and 0.25% thereafter.
Class B shares
Class B shares are sold without an initial sales charge, although
a CDSC will be imposed if you redeem shares within a specified
period after purchase, as shown in the table below.
Year 1 2 3 4 5 6 7+
- -------------------------------------------------------------
Charge 5% 4% 3% 3% 2% 1% 0%
Putnam Mutual Funds pays a sales commission equal to 4.00% of
the amount invested to dealers who sell class B shares. These
commissions are not paid on exchanges from other Putnam funds or
on sales to investors exempt from the CDSC.
Class M shares
The public offering price of class M shares is the net asset
value plus a sales charge that varies depending on the size of
your purchase. The fund receives the net asset value. The sales
charge is allocated between your investment dealer and Putnam
Mutual Funds as shown in the following table, except when Putnam
Mutual Funds, at its discretion, allocates the entire amount to
your investment dealer.
Sales charge Amount of
as a percentage of: sales charge
------------------- reallowed to
Net dealers as a
Amount of transaction amount Offering percentage of
at offering price ($) 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
Class M qualified benefit plans (retirement plans for
which Putnam Fiduciary Trust Company or its affiliates
provide recordkeeping or other services in connection with the
purchase of class M shares) and members of qualified groups
may purchase class M shares without a sales charge.
General
You may be eligible to buy fund shares at reduced sales charges
or to sell fund shares without a CDSC .
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, employer-
sponsored 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.
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. Any CDSC will be
based on the lower of the shares' cost and net asset value. 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 you redeem a share that has appreciated in
value during the CDSC period, a CDSC is assessed on its initial
purchase price. Shares acquired by reinvestment of distributions
may be redeemed without a CDSC at any time. 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. See the SAI for more
information about the CDSC.
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
The fund has adopted distribution plans 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 below. The plans provide for
payments by the fund to Putnam Mutual Funds at the annual
rates (expressed as a percentage of average net assets
) of up to 0.35% on class A shares and 1.00% on class B
and class M shares. The Trustees currently limit payments
on class A and class M shares to 0.25% and 0.75% of
average net assets, respectively.
Putnam Mutual Funds compensates qualifying dealers
(including, for this purpose, certain financial institutions)
for sales of shares and the maintenance
of shareholder accounts.
Putnam Mutual Funds makes quarterly payments to dealers
at the annual rate of up to 0.25% of such average net asset
value of class A shares for which such dealers are
designated as the dealer of record except that payments to
dealers for shares held by class A qualified benefit plans are
made at reduced rates, as described in the SAI. No payments are
made during the first year after purchase on shares
purchased at net asset value by shareholders investing $1 million
or more or by employer-sponsored retirement plans that
have at least 200 eligible employees or that are class A
qualified benefit plans, unless the shareholder has made
arrangements with Putnam Mutual Funds and the dealer of record
has waived the sales commission.
Putnam Mutual Funds makes quarterly payments to
dealers at the annual rates of 0.25% and 0.65% of
the average net asset value of class B and class M
shares, respectively, for which such dealers are
designated as the dealer of record.
Putnam Mutual Funds may suspend or modify its
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 unless you have notified
Putnam Investor Services of an address change within the
preceding 15 days. Unless you indicate otherwise on the
account application, Putnam Investor Services will be authorized
to act upon redemption and transfer instructions received by
telephone from you , or any person claiming to act as
your representative, who can provide Putnam Investor
Services with your 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 net 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 fund 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 . 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 to
the extent derived from the fund's investment income and net
short-term gains (that is, net gains from securities held for not
more than a year). Distributions designated by the fund as
deriving from net gains on securities held for more than one year
but not more than 18 months and from net gains on securities held
for more than 18 months will be taxable to you 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 fiscal year of the
fund, more than 50% 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 on securities it has held for at
least the minimum period specified in the Internal Revenue
Code as having been paid directly by the fund's
shareholders. In this case, shareholders who are (i) U.S.
citizens, U.S. corporations and, in some cases, U.S. residents
and (ii) who hold their fund shares (without protection from
risk of loss) on the ex-dividend date and for at least 15
additional days during the 30-day period surrounding the ex-
dividend date 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 calendar 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 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
<PAGE>
PUTNAMINVESTMENTS
P.O. Box 989
Boston, Massachusetts 02103
Toll-free 1-800-225-1581
www.putnaminv.com
PUTNAM INTERNATIONAL NEW OPPORTUNITIES FUND
One Post Office Square, Boston, MA 02109
Class A shares
INVESTMENT STRATEGY: GROWTH
PROSPECTUS - January 30, 1998
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 retirement plans.
Please read it carefully and keep it for future reference. You
can find more detailed information about the fund in the
January 30, 1998 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 (the "Commission") and is incorporated
into this prospectus by reference. The Commission maintains a
Web site (http://www.sec.gov) that contains the SAI, material
incorporated by reference into this prospectus and the SAI, and
other information regarding registrants that file electronically
with the Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PUTNAMINVESTMENTS
Putnam Defined
Contribution Plans
<PAGE>
ABOUT THE FUND
Expenses summary..........................................
Financial highlights......................................
Objective.................................................
How the fund pursues its objective........................
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 1.10%
12b-1 fees 0.25%
Other expenses 0.40%
Total fund operating expenses 1.75%
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
$18 $55 $95 $206
The example does not represent past or future expense levels, and
actual expenses may be greater or less than those shown. Federal
regulations require the example to assume a 5% annual return, but
actual annual return varies. The example does not reflect any
charges or expenses related to your employer's plan.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE> <CAPTION>
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 1997 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)
<S> <C> <C> <C>
CLASS A
January 3, 1995+
Year ended to
Per-share September 30
September 30
operating
performance 1997 1996 1995
Net asset value,
beginning of period $11.69 $10.29 $8.50
Investment Operations
Net investment income (loss)(a)(b)(.03) .04 .02
Net realized and unrealized
gain on investments 1.98 1.37 1.77
Total from investment operations 1.95 1.41 1.79
Less distributions:
From net investment income (.04) (.01) --
From net realized gain
on investments --(f) --(f) --
Total distributions (.04) (.01) --
Net asset value, end of period $13.60 $11.69 $10.29
Ratios and supplemental data
Total investment return
at net asset value (%)(c) 16.74 13.76 21.06*
Net assets,
end of period (in thousands) $859,999 $499,396 $15,137
Ratio of expenses
to average net assets(%)(d) 1.75 1.95(b)
1.23(b)*
Ratio of net investment income
to average net assets (%) (.24) .34 .86*
Portfolio turnover (%) 141.29 24.69 9.24*
Average commission rate paid(e) $.0180 $.0190
<PAGE>
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the
basis of the weighted average number of shares outstanding during
the period.
(b) Reflects an expense limitation in effect during the period.
As a result of such limitation, expenses for the fund reflect a
reduction of less than $0.02 and $0.01 per
share for periods ended September 30, 1995 and 1996,
respectively.
(c) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(d) The ratio of expenses to average net assets for periods ended
on or after September 30, 1995 includes amounts paid through
expense offset arrangements with PFTC and brokerage
service arrangements. Prior period ratios exclude these amounts.
(e) Average commission rate paid is required for fiscal periods
beginning on or after September 1, 1995.
(f) Per share distributions were less than $.01 per share,
variances may occur due to rounding.
</TABLE>
<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.
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.
<PAGE>
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, that are primarily designed to reduce
fluctuations in the value of fund assets.
In implementing these defensive strategies, the fund may invest
without limit in 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.
Risk factors
Foreign investments
The fund may invest in securities of foreign issuers
that are not actively traded in U.S. markets.
These foreign investments involve certain special risks
described below.
Foreign securities are normally denominated and traded in
foreign currencies . As a result, the value of the fund's
foreign investments and the value of its shares may be
affected favorably or unfavorably by changes in currency exchange
rates relative to the U.S. dollar. The Fund may engage in a
variety of foreign currency exchange transactions in connection
with its foreign investments, including transactions involving
futures contracts, forward contracts and options.
Investments in foreign securities may subject the fund to other
risks as well. For example, there may be less information
publicly available about a foreign issuer than about a U.S.
issuer, and foreign issuers are not generally
subject to accounting , auditing and financial reporting
standards and practices comparable to those in the United
States. The securities of some foreign issuers
are less liquid and at times more volatile than securities of
comparable U.S. issuers . Foreign brokerage commissions
and other fees are also generally higher than in the
United States. Foreign settlement procedures and trade
regulations may involve certain risks (such as delay in payment
or delivery of the fund's assets held abroad) and expenses
not present in the settlement of investments in U.S.
markets . In addition, the fund's investments in foreign
securities may be subject to the risk of
nationalization or expropriation of assets, imposition of
currency exchange controls or restrictions on the repatriation
of foreign currency , confiscatory taxation, political or
financial instability and diplomatic developments which
could affect the value of the fund's investments in
certain foreign countries. Dividends or interest on, or
proceeds from the sale of foreign securities may be subject to
foreign withholding taxes, and special U.S. tax considerations
may apply.
Legal remedies available to investors in certain foreign
countries may be more limited than those available with
respect to investments in the United States or in other foreign
countries . The laws of some foreign countries may limit
the fund's ability to invest in securities of certain
issuers organized under the laws of those foreign
countries.
The risks described above are typically increased in
connection with investments in less developed nations,
which are sometimes referred to as "emerging markets."
For example , political and economic structures in these
countries may be in their infancy and developing rapidly, causing
instability. High rates of inflation or currency
devaluations may adversely affect the economies and
securities markets of such countries.
Investments in emerging markets may be considered speculative.
Certain of the foregoing risks may also apply to some extent
to securities of U.S. issuers that are denominated
in foreign currencies or that are traded in foreign markets
, or to securities of U.S. issuers having significant foreign
operations.
For more information about foreign securities and the
risks associated with investments in such securities ,
see the SAI.
Foreign currencies exchange transactions
The fund may engage in foreign currency exchange transactions to
manage its exposure to foreign currencies . 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").
It may also engage in foreign currency transactions for
non-hedging purposes, subject to applicable law.
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 on exchanges or in
over-the-counter markets, foreign currency futures contracts,
foreign currency forward contracts and options on foreign
currency futures contracts and on foreign currencies . In
connection with position hedging, the fund may also purchase or
sell foreign currency on a spot basis.
The fund's currency hedging transactions may call for the
delivery of one foreign currency in exchange for another foreign
currency and may at times not involve currencies in which its
portfolio securities are then denominated. Putnam Management
will engage in such "cross hedging" activities when it believes
that such transactions provide significant hedging opportunities
for the fund. Cross hedging transactions by the fund involve the
risk of imperfect correlation between changes in the values of
the currencies to which such transactions relate and changes in
the value of the currency or other asset or liability which is
the subject of the hedge.
The fund may also engage in non-hedging currency transactions.
For example, Putnam Management may believe that exposure to a
currency is in the fund's best interest but that securities
denominated in that currency will not assist the fund in meeting
its objective. In that case the fund may purchase a currency
forward contract or option in order to increase its exposure to
the currency. In accordance with SEC regulations, the fund will
segregate liquid assets in its portfolio to cover forward
contacts used for non-hedging purposes.
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 in connection with 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
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.
For a more detailed explanation of futures and options
transactions, including the risks associated with them see
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 use of these
strategies may be limited by applicable law.
Securities loans, repurchase agreements and forward
commitments The fund may lend portfolio securities amounting to
not more than 25% of its assets to broker-dealers and may enter
into repurchase agreements on up to 25% of its assets. These
transactions must be fully collateralized at all times. The fund
may also purchase securities for future delivery, which may
increase its overall investment exposure and involves a risk of
loss if the value of the securities declines prior to the
settlement date. These transactions involve some risk if the
other party should default on its obligation and the fund is
delayed or prevented from recovering the collateral or completing
the transaction.
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 its agencies or instrumentalities); *
(b) 25% of its total assets in any one industry (securities of
the U.S. government, its agencies or instrumentalities are not
considered to represent any industry);* or
(c) 15% of its net assets in any combination of securities that
are not readily marketable, securities restricted as to
resale (excluding securities determined by the Trustees
(or the person designated by the Trustees to make such
determinations) to be readily marketable), and 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 as otherwise noted, all percentage limitations described
in this prospectus and the SAI will apply at the time an
investment is made, and will not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a
result of such investment. Except for investment policies
designated as fundamental in this prospectus or the SAI, the
investment policies described in this prospectus and in the SAI
are not fundamental policies. The Trustees may change any
non-fundamental investment policy without shareholder approval.
As a matter of policy, the Trustees would not materially change
the fund's investment 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 the 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:
<PAGE>
Business experience
Year (at least 5 years)
Robert Swift 1996 Employed as an investment
Managing Director professional by Putnam
Management since 1995.
Prior to August, 1995, Mr.
Swift was a Director and
Senior
Portfolio Manager at IAI
International/Hill Samuel
Investment Advisors.
Deborah S. Farrell 1997 Employed as an investment
Senior Vice President professional by Putnam
Management since 1997. Prior
to May, 1997, Ms. Farrell was
a Portfolio Manager at
Emerging Markets Investors
Corporation, and prior to May,
1994, Ms. Farrell was Division
Manager, Asian Capital
Markets, at International
Finance Corporation.
J. Peter Grant 1996 Employed as an investment
Senior Vice President professional by Putnam
Management since 1973.
Stephen Oler 1997 Employed as an investment
Senior Vice President professional by Putnam
Management since 1997.
Prior to June, 1997, Mr.
Oler was a Vice President at
Templeton Investments, and
prior to March 1996 was a
Senior Vice President at
Baring Asset Management Co.
Jack Chang 1997 Employed as an investment
Vice President professional by Putnam
Management since 1997.
Prior to July, 1997, Mr. Chang
was a Vice President and
Portfolio Manager at
Columbia Management, and
prior to 1993, was a Vice
President and Portfolio
Manager at Scudder, Stevens &
Clark.
Ami Kuan Danoff
1996 Employed as an investment
Vice President professional by Putnam
Management since 1993. Prior
to April, 1993, Ms.
Danoff attended the MIT
Sloan School of Management.
The fund pays all expenses not assumed by Putnam
Management, including Trustees' fees, auditing, legal, custodial,
investor servicing and shareholder reporting expenses, and
payments under its distribution plans (which are in turn
allocated to the relevant class of shares). 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 series 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 , or relative
assets of, the fund and such series . 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, shares 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 Trust's 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 , at
any time, establish one 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. , Trustee of Salem Hospital and the
Peabody Essex Museum; Paul L. Joskow,* Professor of Economics
and Management, Massachusetts Institute of Technology, Director,
New England Electric System, State Farm Indemnity Company and
Whitehead Institute for Biomedical Research; Elizabeth T.
Kennan, President Emeritus and Professor, Mount Holyoke College;
Lawrence J. Lasser,* Vice President of the Putnam funds.
President, Chief Executive Officer and Director of Putnam
Investments, Inc. and Putnam Management. Director, Marsh &
McLennan Companies, Inc. ; John H. Mullin, III, Chairman and
CEO of Ridgeway Farm, Director of ACX Technologies, Inc., Alex.
Brown Realty, Inc., The Liberty Corporation and The Ryland Group,
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. ;
W. Thomas Stephens, President and Chief Executive Officer of
MacMillan Bloedel Ltd., Director of Mail-Well Inc., Qwest
Communications, The Eagle Picher Trust and New Century
Energies ; and W. Nicholas Thorndike, Director of various
corporations and charitable organizations, including Data General
Corporation, Bradley Real Estate, Inc. and Providence Journal Co.
Also, Trustee of Massachusetts General Hospital and Eastern
Utilities Associates. The Trustees are also Trustees of the other
Putnam funds. Those marked with an asterisk (*) are or may be
deemed to be "interested persons" of the fund, Putnam Management
or Putnam Mutual Funds.
About Your Investment
HOW TO BUY SHARES
All orders to purchase shares must be made through your
employer's 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 employer-
sponsored 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 class A qualified
benefit plan (an employer-sponsored retirement plan for
which Putnam Fiduciary Trust Company or its affiliates provide
recordkeeping or other services in connection with the purchase
of class A shares) is eligible to purchase fund shares at net
asset value pursuant to this prospectus if it
initially invests at least $20 million in Putnam funds and
other investments managed by Putnam Management or its
affiliates or if its dealer of record has, with Putnam Mutual
Fund's approval, waived its commission or agreed to refund its
commission to Putnam Mutual Funds in the event the plan redeems
90% or more of its cumulative purchases within two years of its
initial purchase. An employer-sponsored retirement plan ,
other than a class A qualified plan is eligible to
purchase fund shares at net asset value pursuant to this
prospectus if its investment in class A shares is at least $1
million , or it has at least 200 eligible employees, and
the dealer of record waives its commission with the consent of
Putnam Mutual Funds. Employee-sponsored 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.
Employer-sponsored 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.
As described in the SAI , Putnam Mutual Funds pays the
dealer of record a commission of up to 1% on sales to class A
qualified benefit plans . 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 PLAN
The fund has adopted a distribution plan 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 below . The plan
provides for payments by the fund to Putnam Mutual Funds at the
annual rate (expressed as a percentage of average net
assets ) of up to 0.35% on class A shares. The Trustees
currently limit payments under the plan to the annual
rate of 0.25% .
Putnam Mutual Funds compensates qualifying dealers
(including, for this purpose, certain financial institutions)
for sales of shares and the maintenance
of shareholder accounts at the annual rate of up to 0.25%
of the average net asset value of class A shares for which
such dealers are designated as the dealer of record. The
payments to dealers for shares held by class A qualified benefit
plans are made at reduced rates, as described in the SAI. No
payments are made during the first year after purchase
on shares purchased at net asset value by shareholders
investing $1 million or more , by employer-sponsored
retirement plans that have at least 200 eligible
employees or by class A qualified benefit plans, unless the
shareholder has made arrangements with Putnam Mutual Funds
and the dealer of record has waived the sales commission.
Putnam Mutual Funds may suspend or modify its payments
to dealers. The payments are also subject to the
continuation of the class A 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.
<PAGE>
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 employer's plan at net asset value. Contact
your plan administrator or Putnam Investor Services for more
information on how to exchange your shares or how to obtain
prospectuses of other Putnam funds in which you may invest.
The exchange privilege is not intended as a vehicle for
short-term trading. Excessive exchange activity may interfere
with portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity and
in other circumstances where Putnam Management or the Trustees
believe doing so would be in the best interests of 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.
<PAGE>
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 net capital gains are made after
applying any available capital loss carryovers.
The terms of your employer's plan will govern how your
employer's plan may receive distributions from the fund.
Generally, periodic distributions from the fund to your
employer's plan are reinvested in additional fund shares,
although your employer's plan may permit you to receive
fund distributions from net investment income in cash while
reinvesting capital gains distributions in additional shares or
to receive all fund distributions in cash. If another option is
not selected, all distributions will be reinvested in additional
fund shares.
The fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements necessary for it to be relieved of federal
income taxes on income and gains it distributes to
shareholders. The fund will distribute substantially all of its
ordinary income and capital gain net income on a current basis.
Generally, fund distributions are taxable as ordinary income,
except that any distributions designated by the fund as
deriving from net gains on securities held for more than one year
but no more than 18 months will be taxed as such regardless
of how long you have held your shares. However, distributions
by the fund to employer-sponsored participant-directed qualified
retirement plans that qualify for tax-exempt treatment under
federal income tax laws will not be taxable. Special tax rules
apply to investments through such plans. You should consult your
tax adviser to determine the suitability of the fund as an
investment through such a plan and the tax treatment of
distributions (including distributions of amounts attributable to
an investment in the fund) from such a plan.
<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 custodian of the fund . Putnam Investor
Services, a division of Putnam Fiduciary Trust Company, is the
investor servicing and transfer agent for the
fund .
Putnam Management, Putnam Mutual Funds, and Putnam Fiduciary
Trust Company are located at One Post Office Square, Boston,
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.
PUTNAM INTERNATIONAL NEW OPPORTUNITIES FUND
(a series of Putnam Investment Funds (the "Trust")
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
January 30, 1998
This SAI is not a prospectus and is only authorized for
distribution when accompanied or preceded by the prospectus of
the fund dated January 30, 1998 , 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- 7
CHARGES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . .
. I- 9
INVESTMENT PERFORMANCE . . . . . . . . . . . . . . . . . . . . .
.I- 15
ADDITIONAL OFFICERS. . . . . . . . . . . . . . . . . . . . . . .
.I- 15
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . . . .
.I- 16
Part II
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . .
. . . . II-1
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II- 30
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .II-35
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . .
II- 45
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . .
. . . .II-46
DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . . .
. . . .II-59
INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . .
. . . .II-60
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . .
II- 65
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . .
. . . .II-66
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . .
. . . .II-66
STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . .
II- 66
COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . .
. . . .II-68
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .
II- 72
<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.
Duff & Phelps Corporation
Long-Term Debt
AAA -- Highest credit quality. The risk factors are negligible,
being only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- -- High credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A+, A, A- -- Protection factors are average but adequate.
However, risk factors are more variable and greater in periods of
economic stress.
BBB+, BBB, BBB- -- Below-average protection factors but still
considered sufficient for prudent investment. Considerable
variability in risk during economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or
company fortunes. Overall quality may move up or down frequently
within this category.
B+, B, B- -- Below investment grade and possessing risk that
obligations will not be met when due. Financial protection
factors will fluctuate widely according to economic cycles,
industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a
higher or lower rating grade.
CCC -- Well below investment-grade securities. Considerable
uncertainty exists as to timely payment of principal, interest or
preferred dividends. Protection factors are narrow and risk can
be substantial with unfavorable economic/industry conditions,
and/or with unfavorable company developments.
DD -- Defaulted debt obligations. Issuer failed to meet
scheduled principal and/or interest payments.
Fitch Investors Service, Inc.
AAA -- Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be
affected by reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds
rated AAA.
A -- Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable
to adverse changes in economic conditions and circumstances than
bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
BB -- Bonds considered to be speculative. The obligor's ability
to pay interest and repay principal may be affected over time by
adverse economic changes. However, business and financial
alternatives can be identified which could assist the obligor in
satisfying its debt service requirements.
B -- Bonds are considered highly speculative. Bonds in this class
are lightly protected as to the obligor's ability to pay interest
over the life of the issue and repay principal when due.
CCC -- Bonds have certain characteristics which, with passing of
time, could lead to the possibility of default on either
principal or interest payments.
CC -- Bonds are minimally protected. Default in payment of
interest and/or principal seems probable.
C -- Bonds are in actual or imminent default in payment of
interest or principal.
DDD -- Bonds are in default and in arrears in interest and/or
principal payments. Such bonds are extremely speculative and
should be valued only on the basis of their value in liquidation
or reorganization of the obligor.
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.
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.
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.
<PAGE>
It is contrary to the 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 fund (or the
person designated by the Trustees of the fund to make such
determinations) to be readily marketable), and (c) repurchase
agreements maturing in more than seven days, if, as a result,
more than 15% of the fund's net assets (taken at current value)
would be invested in securities described in (a), (b) and (c)
above.
---------------------
All percentage limitations on investments other than pursuant
to the non-fundamental restriction above 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
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 three
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
1997 $18,159,774 N/A
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
1997 $12,256,202
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
1997 $4,027,496,637 89.61% 11,382,119
Administrative expense reimbursement
The fund reimbursed Putnam Management for administrative
services during fiscal 1996, including compensation of
certain officers of the fund and contributions to the Putnam
Investments, Inc. Profit Sharing Retirement Plan for their
benefit , as follows :
Portion of total
reimbursement for
Total compensation and
reimbursement contributions
$22,554 $19,885
<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 1997 and the fees paid to each Trustee by
all of the Putnam funds during calendar 1997 :
<PAGE>
COMPENSATION TABLE
<TABLE> <CAPTION>
<S> <C> <C>
<C> <C>
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
upon retirement(2) funds(3)
- -----------------------------------------------------------------
- -------------------------
Jameson A. Baxter/1994 $2,548 $525
$87,500 $176,000
Hans H. Estin/1972 2,517 1,486
87,500 175,000
John A. Hill/1985 2,532 557
87,500 175,000
Ronald J. Jackson/1996 2,548 161
87,500 176,000
Paul L. Joskow/1997(7) N/A N/A
87,500 25,500
Elizabeth T. Kennan/1992 2,516 870
87,500 174,000
Lawrence J. Lasser/1992 2,484 652
87,500 172,000
John H. Mullin, III/1997 (7) N/A N/A
87,500 25,500
Robert E. Patterson/1984 2,548 446
87,500 176,000
Donald S. Perkins/1982 2,548 1,614
87,500 176,000
William F. Pounds/1971 (5) 2,812 1,595
98,000 201,000
George Putnam/1957 2,532 1,702
87,500 175,000
George Putnam, III/1984 2,516 294
87,500 174,000
A.J.C. Smith/1986 2,453 999
87,500 170,000
W. Thomas Stephens/1997(6) 248 N/A
87,500 53,000
W. Nicholas Thorndike/1992 2,548 1,250
87,500 176,000
(1) Includes an annual retainer and an attendance fee for each
meeting attended.
(2) Assumes that each Trustee retires at the normal
retirement date . Estimated benefits for each Trustee are
based on Trustee fee rates in effect during
calendar 1997.
(3) As of December 31, 1997, there were 100
funds in the Putnam family.
(4) Includes compensation deferred pursuant to a Trustee
Compensation Deferral Plan. The total amount
(5) Includes additional compensation for service as Vice
Chairman of the Putnam funds.
(6) Elected as a Trustee in September 1997.
(7) Elected as a Trustee in November 1997 . <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.
</TABLE>
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 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 December 30, 1997 , 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
B Merrill Lynch, Pierce Fenner & Smith*
15.70%
M Merrill Lynch, Pierce Fenner & Smith*
10.60%
* 1 Liberty Plaza, 165 Broadway, New York, NY 10006
Distribution fees
During fiscal 1997 , the fund paid the following 12b-1 fees
to
Putnam Mutual Funds:
Class A Class B Class M
$1,775,218 $8,587,087 $563,633
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
1997 $9,654,391 $1,471,919 34,241
1996 $13,883,090 $1,678,681 $2,516
1995 $390,935 $390,935 $0
Class B contingent deferred sales charge
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
1997 $1,150,489
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
1997 $547,159 $86,136
1996 $13,883,090 $115,042
1995 $38,725 $0
Investor servicing and custody fees and expenses
During the 1997 fiscal year, the fund incurred
$5,303,087 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, 1997)
Class A Class B Class M
Inception date: January 3, 1995 July 21, 1995 July 21, 1995
Average annual
total return
1 year 10.06% 10.87% 12.08%
Life of
fund 16.37% 17.24% 16.85%
Returns for class A and class M shares reflect the
deduction of the current maximum initial sales
charges of 5.75% for class A shares and 3.50% for
class M shares.
Returns for class B shares reflect the deduction of
the applicable contingent deferred sales charge ("CDSC") which
is 5% in the first year, declining to 1% in the sixth year, and
is eliminated thereafter.
Returns shown for class B and class M shares for periods prior to
their inception are derived from the historical performance of
class A shares, adjusted to reflect both the deduction of the
initial sales charge or CDSC, if any, currently applicable to
each class and the higher operating expenses applicable to such
shares.
Returns shown for class A shares have not been adjusted to
reflect payments under the class A distribution plan prior to its
implementation. All returns assume reinvestment of distributions
at net asset value and represent past performance; they do not
guarantee future results. Investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost.
See "Standard Performance measures" in Part II of this SAI
for information on how performance is calculated.
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.
<PAGE>
Brett C. Browchuk (age 34) (53 funds) ,
Managing Director of Putnam Management. Prior to April, 1994,
Mr. Browchuk was Managing Director at Fidelity Investments.
Ian C. Ferguson (age 39) (56 funds) , Senior
Managing Director. Prior to April, 1996, Mr. Ferguson was CEO at
Hong Kong Shanghai Banking Corporation.
Ami Kuan Danoff (age 34) (4 funds) , Vice
President of Putnam Management. Prior to April, 1993, Ms.
Danoff 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.
Robert Swift (age 36) (7 funds) , Managing Director of
Putnam Management. Prior to August, 1995, Mr. Swift was Director
and Portfolio Manager at IAI International/Hill Samuel Investment
Advisors.
Deborah S. Farrell (age 41) (2 funds), Senior Vice President
of Putnam Management since 1997. Prior to May, 1997, Ms. Farrell
was a Portfolio Manager at Emerging Markets Investors
Corporation, and prior to May, 1994, Ms. Farrall was Division
Manager, Asian Capital Markets, at International Finance
Corporation.
Stephen Oler (age 36) (2 funds), Senior Vice
President of Putnam Management. Employed as an investment
professional by Putnam Management since June, 1997. Prior to
June, 1997 Mr. Oler was a Vice President at Templeton
Investments, and prior to March 1996 was a Senior Vice President
at Baring Asset Management Co.
Jack Chang (age 39)(1 fund), Vice President of Putnam
Management. Prior to July, 1997, Mr. Chang was a Vice President
and Portfolio Manager at Columbia Management, and prior to 1993,
was Vice President and Portfolio Manager at Scudder, Stevens &
Clark.
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, 1997 , filed electronically
on December 5, 1997 (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>
TABLE OF CONTENTS
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . . . . . II-1
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-30
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-36
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . .II-46
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-47
DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . . . . . .II-60
INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-61
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . .II-66
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . .II-67
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . .II-67
STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . . . . .II-67
COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . . . . .II-69
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-73
<PAGE>
THE PUTNAM FUNDS
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
PART II
The following information applies generally to your fund and to
the other Putnam funds. In certain cases the discussion applies
to some but not all of the funds or their shareholders, and you
should refer to your prospectus to determine whether the matter
is applicable to you or your fund. You will also be referred to
Part I for certain information applicable to your particular
fund. Shareholders who purchase shares at net asset value
through employer-sponsored defined contribution plans should also
consult their employer for information about the extent to which
the matters described below apply to them.
MISCELLANEOUS INVESTMENT PRACTICES
YOUR FUND'S PROSPECTUS STATES WHICH OF THE FOLLOWING INVESTMENT
PRACTICES ARE AVAILABLE TO YOUR FUND. THE FACT THAT YOUR FUND IS
AUTHORIZED TO ENGAGE IN A PARTICULAR PRACTICE DOES NOT
NECESSARILY MEAN THAT IT WILL ACTUALLY DO SO. YOU SHOULD
DISREGARD ANY PRACTICE DESCRIBED BELOW WHICH IS NOT MENTIONED IN
THE PROSPECTUS.
SHORT-TERM TRADING
In seeking the fund's objective(s), Putnam Management will buy or
sell portfolio securities whenever Putnam Management believes it
appropriate to do so. In deciding whether to sell a portfolio
security, Putnam Management does not consider how long the fund
has owned the security. From time to time the fund will buy
securities intending to seek short-term trading profits. A
change in the securities held by the fund is known as "portfolio
turnover" and generally involves some expense to the fund. This
expense may include brokerage commissions or dealer markups and
other transaction costs on both the sale of securities and the
reinvestment of the proceeds in other securities. If sales of
portfolio securities cause the fund to realize net short-term
capital gains, such gains will be taxable as ordinary income. As
a result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than
that of other mutual funds. Portfolio turnover rate for a fiscal
year is the ratio of the lesser of purchases or sales of
portfolio securities to the monthly average of the value of
portfolio securities -- excluding securities whose maturities at
acquisition were one year or less. The fund's portfolio turnover
rate is not a limiting factor when Putnam Management considers a
change in the fund's portfolio.
Convertible Securities. Convertible securities include bonds,
debentures, notes, preferred stocks and other securities that may
be converted into or exchanged for, at a specific price or
formula within a particular period of time, a prescribed amount
of common stock or other equity securities of the same or a
different issuer. Convertible securities entitle the holder to
receive interest paid or accrued on debt or dividends paid or
accrued on preferred stock until the security matures or is
redeemed, converted or exchanged.
The market value of a convertible security is a function of its
"investment value" and its "conversion value." A security's
"investment value" represents the value of the security without
its conversion feature (i.e., a nonconvertible fixed income
security). The investment value may be determined by reference
to its credit quality and the current value of its yield to
maturity or probable call date. At any given time, investment
value is dependent upon such factors as the general level of
interest rates, the yield of similar nonconvertible securities,
the financial strength of the issuer and the seniority of the
security in the issuer's capital structure. A security's
"conversion value" is determined by multiplying the number of
shares the holder is entitled to receive upon conversion or
exchange by the current price of the underlying security.
If the conversion value of a convertible security is
significantly below its investment value, the convertible
security will trade like nonconvertible debt or preferred stock
and its market value will not be influenced greatly by
fluctuations in the market price of the underlying security.
Conversely, if the conversion value of a convertible security is
near or above its investment value, the market value of the
convertible security will be more heavily influenced by
fluctuations in the market price of the underlying security.
The fund's investments in convertible securities may at times
include securities that have a mandatory conversion feature,
pursuant to which the securities convert automatically into
common stock or other equity securities at a specified date and a
specified conversion ratio, or that are convertible at the option
of the issuer. Because conversion of the security is not at the
option of the holder, the fund may be required to convert the
security into the underlying common stock even at times when the
value of the underlying common stock or other equity security has
declined substantially.
The fund's investments in convertible securities, particularly
securities that are convertible into securities of an issuer
other than the issuer of the convertible security, may be
illiquid. The fund may not be able to dispose of such securities
in a timely fashion or for a fair price, which could result in
losses to the fund.
<PAGE>
LOWER-RATED SECURITIES
The fund may invest in lower-rated fixed-income securities
(commonly known as "junk bonds"), to the extent described in the
prospectus. The lower ratings of certain securities held by the
fund reflect a greater possibility that adverse changes in the
financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates,
may impair the ability of the issuer to make payments of interest
and principal. The inability (or perceived inability) of issuers
to make timely payment of interest and principal would likely
make the values of securities held by the fund more volatile and
could limit the fund's ability to sell its securities at prices
approximating the values the fund had placed on such securities.
In the absence of a liquid trading market for securities held by
it, the fund at times may be unable to establish the fair value
of such securities.
Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' analysis at the time
of rating. Consequently, the rating assigned to any particular
security is not necessarily a reflection of the issuer's current
financial condition, which may be better or worse than the rating
would indicate. In addition, the rating assigned to a security
by Moody's Investors Service, Inc. or Standard & Poor's (or by
any other nationally recognized securities rating organization)
does not reflect an assessment of the volatility of the
security's market value or the liquidity of an investment in the
security. See the prospectus or Part I of this SAI for a
description of security ratings.
Like those of other fixed-income securities, the values of
lower-rated securities fluctuate in response to changes in
interest rates. A decrease in interest rates will generally
result in an increase in the value of the fund's assets.
Conversely, during periods of rising interest rates, the value of
the fund's assets will generally decline. The values of lower-
rated securities may often be affected to a greater extent by
changes in general economic conditions and business conditions
affecting the issuers of such securities and their industries.
Negative publicity or investor perceptions may also adversely
affect the values of lower-rated securities. Changes by
recognized rating services in their ratings of any fixed-income
security and changes in the ability of an issuer to make payments
of interest and principal may also affect the value of these
investments. Changes in the value of portfolio securities
generally will not affect income derived from these securities,
but will affect the fund's net asset value. The fund will not
necessarily dispose of a security when its rating is reduced
below its rating at the time of purchase. However, Putnam
Management will monitor the investment to determine whether its
retention will assist in meeting the fund's investment
objective(s).
Issuers of lower-rated securities are often highly leveraged, so
that their ability to service their debt obligations during an
economic downturn or during sustained periods of rising interest
rates may be impaired. Such issuers may not have more
traditional methods of financing available to them and may be
unable to repay outstanding obligations at maturity by
refinancing. The risk of loss due to default in payment of
interest or repayment of principal by such issuers is
significantly greater because such securities frequently are
unsecured and subordinated to the prior payment of senior
indebtedness.
At times, a substantial portion of the fund's assets may be
invested in securities of which the fund, by itself or together
with other funds and accounts managed by Putnam Management or its
affiliates, holds all or a major portion. Although Putnam
Management generally considers such securities to be liquid
because of the availability of an institutional market for such
securities, it is possible that, under adverse market or economic
conditions or in the event of adverse changes in the financial
condition of the issuer, the fund could find it more difficult to
sell these securities when Putnam Management believes it
advisable to do so or may be able to sell the securities only at
prices lower than if they were more widely held. Under these
circumstances, it may also be more difficult to determine the
fair value of such securities for purposes of computing the
fund's net asset value. In order to enforce its rights in the
event of a default of such securities, the fund may be required
to participate in various legal proceedings or take possession of
and manage assets securing the issuer's obligations on such
securities. This could increase the fund's operating expenses
and adversely affect the fund's net asset value. In the case of
tax-exempt funds, any income derived from the fund's ownership or
operation of such assets would not be tax-exempt. The ability of
a holder of a tax-exempt security to enforce the terms of that
security in a bankruptcy proceeding may be more limited than
would be the case with respect to securities of private issuers.
In addition, the fund's intention to qualify as a "regulated
investment company" under the Internal Revenue Code may limit the
extent to which the fund may exercise its rights by taking
possession of such assets.
Certain securities held by the fund may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were
to redeem securities held by the fund during a time of declining
interest rates, the fund may not be able to reinvest the proceeds
in securities providing the same investment return as the
securities redeemed.
If the fund's prospectus describes so-called "zero-coupon" bonds
and "payment-in-kind" bonds as possible investments, the fund may
invest without limit in such bonds unless otherwise specified in
the prospectus. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in
cash or in additional bonds. Because zero-coupon and payment-in-
kind bonds do not pay current interest in cash, their value is
subject to greater fluctuation in response to changes in market
interest rates than bonds that pay interest currently. Both
zero-coupon and payment-in-kind bonds allow an issuer to avoid
the need to generate cash to meet current interest payments.
Accordingly, such bonds may involve greater credit risks than
bonds paying interest currently in cash. The fund is required to
accrue interest income on such investments and to distribute such
amounts at least annually to shareholders even though such bonds
do not pay current interest in cash. Thus, it may be necessary
at times for the fund to liquidate investments in order to
satisfy its dividend requirements.
To the extent the fund invests in securities in the lower rating
categories, the achievement of the fund's goals is more dependent
on Putnam Management's investment analysis than would be the case
if the fund were investing in securities in the higher rating
categories. This may be particularly true with respect to tax-
exempt securities, as the amount of information about the
financial condition of an issuer of tax-exempt securities may not
be as extensive as that which is made available by corporations
whose securities are publicly traded.
INVESTMENTS IN MISCELLANEOUS FIXED-INCOME SECURITIES
Unless otherwise specified in the prospectus or elsewhere in this
SAI, if the fund may invest in inverse floating obligations,
premium securities, or interest-only or principal-only classes of
mortgage-backed securities (IOs and POs), it may do so without
limit. The fund, however, currently does not intend to invest
more than 15% of its assets in inverse floating obligations or
more than 35% of its assets in IOs and POs under normal market
conditions.
PRIVATE PLACEMENTS
The fund may invest in securities that are purchased in private
placements and, accordingly, are subject to restrictions on
resale as a matter of contract or under federal securities laws.
Because there may be relatively few potential purchasers for such
investments, especially under adverse market or economic
conditions or in the event of adverse changes in the financial
condition of the issuer, the fund could find it more difficult to
sell such securities when Putnam Management believes it advisable
to do so or may be able to sell such securities only at prices
lower than if such securities were more widely held. At times,
it may also be more difficult to determine the fair value of such
securities for purposes of computing the fund's net asset value.
LOAN PARTICIPATIONS
The fund may invest in "loan participations." By purchasing a
loan participation, the fund acquires some or all of the interest
of a bank or other lending institution in a loan to a particular
borrower. Many such loans are secured, and most impose
restrictive covenants which must be met by the borrower.
The loans in which the fund may invest are typically made by a
syndicate of banks, represented by an agent bank which has
negotiated and structured the loan and which is responsible
generally for collecting interest, principal, and other amounts
from the borrower on its own behalf and on behalf of the other
lending institutions in the syndicate and for enforcing its and
their other rights against the borrower. Each of the lending
institutions, including the agent bank, lends to the borrower a
portion of the total amount of the loan, and retains the
corresponding interest in the loan.
The fund's ability to receive payments of principal and interest
and other amounts in connection with loan participations held by
it will depend primarily on the financial condition of the
borrower. The failure by the fund to receive scheduled interest
or principal payments on a loan participation would adversely
affect the income of the fund and would likely reduce the value
of its assets, which would be reflected in a reduction in the
fund's net asset value. Banks and other lending institutions
generally perform a credit analysis of the borrower before
originating a loan or participating in a lending syndicate. In
selecting the loan participations in which the fund will invest,
however, Putnam Management will not rely solely on that credit
analysis, but will perform its own investment analysis of the
borrowers. Putnam Management's analysis may include
consideration of the borrower's financial strength and managerial
experience, debt coverage, additional borrowing requirements or
debt maturity schedules, changing financial conditions, and
responsiveness to changes in business conditions and interest
rates. Because loan participations in which the fund may invest
are not generally rated by independent credit rating agencies, a
decision by the fund to invest in a particular loan participation
will depend almost exclusively on Putnam Management's, and the
original lending institution's, credit analysis of the borrower.
Loan participations may be structured in different forms,
including novations, assignments, and participating interests.
In a novation, the fund assumes all of the rights of a lending
institution in a loan, including the right to receive payments of
principal and interest and other amounts directly from the
borrower and to enforce its rights as a lender directly against
the borrower. The fund assumes the position of a co-lender with
other syndicate members. As an alternative, the fund may
purchase an assignment of a portion of a lender's interest in a
loan. In this case, the fund may be required generally to rely
upon the assigning bank to demand payment and enforce its rights
against the borrower, but would otherwise be entitled to all of
such bank's rights in the loan. The fund may also purchase a
participating interest in a portion of the rights of a lending
institution in a loan. In such case, it will be entitled to
receive payments of principal, interest, and premium, if any, but
will not generally be entitled to enforce its rights directly
against the agent bank or the borrower, but must rely for that
purpose on the lending institution. The fund may also acquire a
loan participation directly by acting as a member of the original
lending syndicate.
The fund will in many cases be required to rely upon the lending
institution from which it purchases the loan participation to
collect and pass on to the fund such payments and to enforce the
fund's rights under the loan. As a result, an insolvency,
bankruptcy, or reorganization of the lending institution may
delay or prevent the fund from receiving principal, interest, and
other amounts with respect to the underlying loan. When the fund
is required to rely upon a lending institution to pay to the fund
principal, interest, and other amounts received by it, Putnam
Management will also evaluate the creditworthiness of the lending
institution.
The borrower of a loan in which the fund holds a participation
interest may, either at its own election or pursuant to terms of
the loan documentation, prepay amounts of the loan from time to
time. There is no assurance that the fund will be able to
reinvest the proceeds of any loan prepayment at the same interest
rate or on the same terms as those of the original loan
participation.
Corporate loans in which the fund may purchase a loan
participation are made generally to finance internal growth,
mergers, acquisitions, stock repurchases, leveraged buy-outs, and
other corporate activities. Under current market conditions,
most of the corporate loan participations purchased by the fund
will represent interests in loans made to finance highly
leveraged corporate acquisitions, known as "leveraged buy-out"
transactions. The highly leveraged capital structure of the
borrowers in such transactions may make such loans especially
vulnerable to adverse changes in economic or market conditions.
In addition, loan participations generally are subject to
restrictions on transfer, and only limited opportunities may
exist to sell such participations in secondary markets. As a
result, the fund may be unable to sell loan participations at a
time when it may otherwise be desirable to do so or may be able
to sell them only at a price that is less than their fair market
value.
Certain of the loan participations acquired by the fund may
involve revolving credit facilities under which a borrower may
from time to time borrow and repay amounts up to the maximum
amount of the facility. In such cases, the fund would have an
obligation to advance its portion of such additional borrowings
upon the terms specified in the loan participation. To the
extent that the fund is committed to make additional loans under
such a participation, it will at all times hold and maintain in a
segregated account liquid assets in an amount sufficient to meet
such commitments. Certain of the loan participations acquired by
the fund may also involve loans made in foreign currencies. The
fund's investment in such participations would involve the risks
of currency fluctuations described above with respect to
investments in the foreign securities.
MORTGAGE RELATED SECURITIES
The fund may invest in mortgage-backed securities, including
collateralized mortgage obligations ("CMOs") and certain stripped
mortgage-backed securities. CMOs and other mortgage-backed
securities represent a participation in, or are secured by,
mortgage loans.
Mortgage-backed securities have yield and maturity
characteristics corresponding to the underlying assets. Unlike
traditional debt securities, which may pay a fixed rate of
interest until maturity, when the entire principal amount comes
due, payments on certain mortgage-backed securities include both
interest and a partial repayment of principal. Besides the
scheduled repayment of principal, repayments of principal may
result from the voluntary prepayment, refinancing, or foreclosure
of the underlying mortgage loans. If property owners make
unscheduled prepayments of their mortgage loans, these
prepayments will result in early payment of the applicable
mortgage-related securities. In that event the fund may be
unable to invest the proceeds from the early payment of the
mortgage-related securities in an investment that provides as
high a yield as the mortgage-related securities. Consequently,
early payment associated with mortgage-related securities may
cause these securities to experience significantly greater price
and yield volatility than that experienced by traditional fixed-
income securities. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates,
general economic conditions, the location and age of the mortgage
and other social and demographic conditions. During periods of
falling interest rates, the rate of mortgage prepayments tends to
increase, thereby tending to decrease the life of mortgage-
related securities. During periods of rising interest rates, the
rate of mortgage prepayments usually decreases, thereby tending
to increase the life of mortgage-related securities. If the life
of a mortgage-related security is inaccurately predicted, the
fund may not be able to realize the rate of return it expected.
Mortgage-backed securities are less effective than other types of
securities as a means of "locking in" attractive long-term
interest rates. One reason is the need to reinvest prepayments
of principal; another is the possibility of significant
unscheduled prepayments resulting from declines in interest
rates. These prepayments would have to be reinvested at lower
rates. As a result, these securities may have less potential for
capital appreciation during periods of declining interest rates
than other securities of comparable maturities, although they may
have a similar risk of decline in market value during periods of
rising interest rates. Prepayments may also significantly shorten
the effective maturities of these securities, especially during
periods of declining interest rates. Conversely, during periods
of rising interest rates, a reduction in prepayments may increase
the effective maturities of these securities, subjecting them to
a greater risk of decline in market value in response to rising
interest rates than traditional debt securities, and, therefore,
potentially increasing the volatility of the fund.
Prepayments may cause losses on securities purchased at a
premium. At times, some of the mortgage-backed securities in
which the fund may invest will have higher than market interest
rates and therefore will be purchased at a premium above their
par value. Unscheduled prepayments, which are made at par, will
cause the fund to experience a loss equal to any unamortized
premium.
CMOs may be issued by a U.S. government agency or instrumentality
or by a private issuer. Although payment of the principal of,
and interest on, the underlying collateral securing privately
issued CMOs may be guaranteed by the U.S. government or its
agencies or instrumentalities, these CMOs represent obligations
solely of the private issuer and are not insured or guaranteed by
the U.S. government, its agencies or instrumentalities or any
other person or entity.
Prepayments could cause early retirement of CMOs. CMOs are
designed to reduce the risk of prepayment for investors by
issuing multiple classes of securities, each having different
maturities, interest rates and payment schedules, and with the
principal and interest on the underlying mortgages allocated
among the several classes in various ways. Payment of interest
or principal on some classes or series of CMOs may be subject to
contingencies or some classes or series may bear some or all of
the risk of default on the underlying mortgages. CMOS of
different classes or series are generally retired in sequence as
the underlying mortgage loans in the mortgage pool are repaid.
If enough mortgages are repaid ahead of schedule, the classes or
series of a CMO with the earliest maturities generally will be
retired prior to their maturities. Thus, the early retirement of
particular classes or series of a CMO held by the fund would have
the same effect as the prepayment of mortgages underlying other
mortgage-backed securities. Conversely, slower than anticipated
prepayments can extend the effective maturities of CMOs,
subjecting them to a greater risk of decline in market value in
response to rising interest rates than traditional debt
securities, and, therefore, potentially increasing the volatility
of the fund.
Prepayments could result in losses on stripped mortgage-backed
securities. Stripped mortgage-backed securities are usually
structured with two classes that receive different portions of
the interest and principal distributions on a pool of mortgage
loans. The fund may invest in both the interest-only or "IO"
class and the principal-only or "PO" class. The yield to
maturity on an IO class of stripped mortgage-backed securities is
extremely sensitive not only to changes in prevailing interest
rates but also to the rate of principal payments (including
prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurable adverse effect on the fund's
yield to maturity to the extent it invests in IOs. If the assets
underlying the IO experience greater than anticipated prepayments
of principal, the fund may fail to recoup fully its initial
investment in these securities. Conversely, POs tend to increase
in value if prepayments are greater than anticipated and decline
if prepayments are slower than anticipated.
The secondary market for stripped mortgage-backed securities may
be more volatile and less liquid than that for other mortgage-
backed securities, potentially limiting the fund's ability to buy
or sell those securities at any particular time.
SECURITIES LOANS
The fund may make secured loans of its portfolio securities, on
either a short-term or long-term basis, amounting to not more
than 25% of its total assets, thereby realizing additional
income. The risks in lending portfolio securities, as with other
extensions of credit, consist of possible delay in recovery of
the securities or possible loss of rights in the collateral
should the borrower fail financially. As a matter of policy,
securities loans are made to broker-dealers pursuant to
agreements requiring that the loans be continuously secured by
collateral consisting of cash or short-term debt obligations at
least equal at all times to the value of the securities on loan,
"marked-to-market" daily. The borrower pays to the fund an
amount equal to any dividends or interest received on securities
lent. The fund retains all or a portion of the interest received
on investment of the cash collateral or receives a fee from the
borrower. Although voting rights, or rights to consent, with
respect to the loaned securities may pass to the borrower, the
fund retains the right to call the loans at any time on
reasonable notice, and it will do so to enable the fund to
exercise voting rights on any matters materially affecting the
investment. The fund may also call such loans in order to sell
the securities.
FORWARD COMMITMENTS
The fund may enter into contracts to purchase securities for a
fixed price at a future date beyond customary settlement time
("forward commitments") if the fund sets aside, on the books and
records of its custodian, liquid assets in an amount sufficient
to meet the purchase price, or if the fund enters into offsetting
contracts for the forward sale of other securities it owns. In
the case of to-be-announced ("TBA") purchase commitments, the
unit price and the estimated principal amount are established
when the fund enters into a contract, with the actual principal
amount being within a specified range of the estimate. Forward
commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in
addition to the risk of decline in the value of the fund's other
assets. Where such purchases are made through dealers, the fund
relies on the dealer to consummate the sale. The dealer's
failure to do so may result in the loss to the fund of an
advantageous yield or price. Although the fund will generally
enter into forward commitments with the intention of acquiring
securities for its portfolio or for delivery pursuant to options
contracts it has entered into, the fund may dispose of a
commitment prior to settlement if Putnam Management deems it
appropriate to do so. The fund may realize short-term profits or
losses upon the sale of forward commitments.
The fund may enter into TBA sale commitments to hedge its
portfolio positions or to sell securities it owns under delayed
delivery arrangements. Proceeds of TBA sale commitments are not
received until the contractual settlement date. During the time
a TBA sale commitment is outstanding, equivalent deliverable
securities, or an offsetting TBA purchase commitment deliverable
on or before the sale commitment date, are held as "cover" for
the transaction. Unsettled TBA sale commitments are valued at
current market value of the underlying securities. If the TBA
sale commitment is closed through the acquisition of an
offsetting purchase commitment, the fund realizes a gain or loss
on the commitment without regard to any unrealized gain or loss
on the underlying security. If the fund delivers securities
under the commitment, the fund realizes a gain or loss from the
sale of the securities based upon the unit price established at
the date the commitment was entered into.
REPURCHASE AGREEMENTS
The fund may enter into repurchase agreements up to the limit
specified in the prospectus. A repurchase agreement is a
contract under which the fund acquires a security for a
relatively short period (usually not more than one week) subject
to the obligation of the seller to repurchase and the fund to
resell such security at a fixed time and price (representing the
fund's cost plus interest). It is the fund's present intention
to enter into repurchase agreements only with commercial banks
and registered broker-dealers and only with respect to
obligations of the U.S. government or its agencies or
instrumentalities. Repurchase agreements may also be viewed as
loans made by the fund which are collateralized by the securities
subject to repurchase. Putnam Management will monitor such
transactions to ensure that the value of the underlying
securities will be at least equal at all times to the total
amount of the repurchase obligation, including the interest
factor. If the seller defaults, the fund could realize a loss on
the sale of the underlying security to the extent that the
proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or
insolvency proceedings, the fund may incur delay and costs in
selling the underlying security or may suffer a loss of principal
and interest if the fund is treated as an unsecured creditor and
required to return the underlying collateral to the seller's
estate.
Pursuant to an exemptive order issued by the Securities and
Exchange Commission, the fund may transfer uninvested cash
balances into a joint account, along with cash of other Putnam
funds and certain other accounts. These balances may be invested
in one or more repurchase agreements and/or short-term money
market instruments.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The fund may write covered call options
and covered put options on optionable securities held in its
portfolio, when in the opinion of Putnam Management such
transactions are consistent with the fund's investment
objective(s) and policies. Call options written by the fund give
the purchaser the right to buy the underlying securities from the
fund at a stated exercise price; put options give the purchaser
the right to sell the underlying securities to the fund at a
stated price.
The fund may write only covered options, which means that, so
long as the fund is obligated as the writer of a call option, it
will own the underlying securities subject to the option (or
comparable securities satisfying the cover requirements of
securities exchanges). In the case of put options, the fund will
hold cash and/or high-grade short-term debt obligations equal to
the price to be paid if the option is exercised. In addition,
the fund will be considered to have covered a put or call option
if and to the extent that it holds an option that offsets some or
all of the risk of the option it has written. The fund may write
combinations of covered puts and calls on the same underlying
security.
The fund will receive a premium from writing a put or call
option, which increases the fund's return on the underlying
security in the event the option expires unexercised or is closed
out at a profit. The amount of the premium reflects, among other
things, the relationship between the exercise price and the
current market value of the underlying security, the volatility
of the underlying security, the amount of time remaining until
expiration, current interest rates, and the effect of supply and
demand in the options market and in the market for the underlying
security. By writing a call option, the fund limits its
opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option
but continues to bear the risk of a decline in the value of the
underlying security. By writing a put option, the fund assumes
the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current
market value, resulting in a potential capital loss unless the
security subsequently appreciates in value.
The fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction, in
which it purchases an offsetting option. The fund realizes a
profit or loss from a closing transaction if the cost of the
transaction (option premium plus transaction costs) is less or
more than the premium received from writing the option. If the
fund writes a call option but does not own the underlying
security, and when it writes a put option, the fund may be
required to deposit cash or securities with its broker as
"margin," or collateral, for its obligation to buy or sell the
underlying security. As the value of the underlying security
varies, the fund may have to deposit additional margin with the
broker. Margin requirements are complex and are fixed by
individual brokers, subject to minimum requirements currently
imposed by the Federal Reserve Board and by stock exchanges and
other self-regulatory organizations.
PURCHASING PUT OPTIONS. The fund may purchase put options to
protect its portfolio holdings in an underlying security against
a decline in market value. Such protection is provided during
the life of the put option since the fund, as holder of the
option, is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying
security's market price. In order for a put option to be
profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the
premium and transaction costs. By using put options in this
manner, the fund will reduce any profit it might otherwise have
realized from appreciation of the underlying security by the
premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The fund may purchase call options to
hedge against an increase in the price of securities that the
fund wants ultimately to buy. Such hedge protection is provided
during the life of the call option since the fund, as holder of
the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying
security's market price. In order for a call option to be
profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and
transaction costs.
RISK FACTORS IN OPTIONS TRANSACTIONS
The successful use of the fund's options strategies depends on
the ability of Putnam Management to forecast correctly interest
rate and market movements. For example, if the fund were to
write a call option based on Putnam Management's expectation that
the price of the underlying security would fall, but the price
were to rise instead, the fund could be required to sell the
security upon exercise at a price below the current market price.
Similarly, if the fund were to write a put option based on Putnam
Management's expectation that the price of the underlying
security would rise, but the price were to fall instead, the fund
could be required to purchase the security upon exercise at a
price higher than the current market price.
When the fund purchases an option, it runs the risk that it will
lose its entire investment in the option in a relatively short
period of time, unless the fund exercises the option or enters
into a closing sale transaction before the option's expiration.
If the price of the underlying security does not rise (in the
case of a call) or fall (in the case of a put) to an extent
sufficient to cover the option premium and transaction costs, the
fund will lose part or all of its investment in the option. This
contrasts with an investment by the fund in the underlying
security, since the fund will not realize a loss if the
security's price does not change.
The effective use of options also depends on the fund's ability
to terminate option positions at times when Putnam Management
deems it desirable to do so. There is no assurance that the fund
will be able to effect closing transactions at any particular
time or at an acceptable price.
If a secondary market in options were to become unavailable, the
fund could no longer engage in closing transactions. Lack of
investor interest might adversely affect the liquidity of the
market for particular options or series of options. A market may
discontinue trading of a particular option or options generally.
In addition, a market could become temporarily unavailable if
unusual events -- such as volume in excess of trading or clearing
capability -- were to interrupt its normal operations.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening
transactions. For example, if an underlying security ceases to
meet qualifications imposed by the market or the Options Clearing
Corporation, new series of options on that security will no
longer be opened to replace expiring series, and opening
transactions in existing series may be prohibited. If an options
market were to become unavailable, the fund as a holder of an
option would be able to realize profits or limit losses only by
exercising the option, and the fund, as option writer, would
remain obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying options
purchased or sold by the fund could result in losses on the
options. If trading is interrupted in an underlying security,
the trading of options on that security is normally halted as
well. As a result, the fund as purchaser or writer of an option
will be unable to close out its positions until options trading
resumes, and it may be faced with considerable losses if trading
in the security reopens at a substantially different price. In
addition, the Options Clearing Corporation or other options
markets may impose exercise restrictions. If a prohibition on
exercise is imposed at the time when trading in the option has
also been halted, the fund as purchaser or writer of an option
will be locked into its position until one of the two
restrictions has been lifted. If the Options Clearing
Corporation were to determine that the available supply of an
underlying security appears insufficient to permit delivery by
the writers of all outstanding calls in the event of exercise, it
may prohibit indefinitely the exercise of put options. The fund,
as holder of such a put option, could lose its entire investment
if the prohibition remained in effect until the put option's
expiration.
Foreign-traded options are subject to many of the same risks
presented by internationally-traded securities. In addition,
because of time differences between the United States and various
foreign countries, and because different holidays are observed in
different countries, foreign options markets may be open for
trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of
the underlying interest in the United States.
Over-the-counter ("OTC") options purchased by the fund and assets
held to cover OTC options written by the fund may, under certain
circumstances, be considered illiquid securities for purposes of
any limitation on the fund's ability to invest in illiquid
securities.
FUTURES CONTRACTS AND RELATED OPTIONS
Subject to applicable law, and unless otherwise specified in the
prospectus, the fund may invest without limit in the types of
futures contracts and related options identified in the
prospectus for hedging and non-hedging purposes, such as to
manage the effective duration of the fund's portfolio or as a
substitute for direct investment. A financial futures contract
sale creates an obligation by the seller to deliver the type of
financial instrument called for in the contract in a specified
delivery month for a stated price. A financial futures contract
purchase creates an obligation by the purchaser to take delivery
of the type of financial instrument called for in the contract in
a specified delivery month at a stated price. The specific
instruments delivered or taken, respectively, at settlement date
are not determined until on or near that date. The determination
is made in accordance with the rules of the exchange on which the
futures contract sale or purchase was made. Futures contracts
are traded in the United States only on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for
such trading by the Commodity Futures Trading Commission (the
"CFTC"), and must be executed through a futures commission
merchant or brokerage firm which is a member of the relevant
contract market.
Although futures contracts (other than index futures) by their
terms call for actual delivery or acceptance of commodities or
securities, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery.
Closing out a futures contract sale is effected by purchasing a
futures contract for the same aggregate amount of the specific
type of financial instrument or commodity with the same delivery
date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid
the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial sale,
the seller realizes a loss. If the fund is unable to enter into
a closing transaction, the amount of the fund's potential loss is
unlimited. The closing out of a futures contract purchase is
effected by the purchaser's entering into a futures contract
sale. If the offsetting sale price exceeds the purchase price,
the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, he realizes a loss. In general, 40%
of the gain or loss arising from the closing out of a futures
contract traded on an exchange approved by the CFTC is treated as
short-term gain or loss, and 60% is treated as long-term gain or
loss.
Unlike when the fund purchases or sells a security, no price is
paid or received by the fund upon the purchase or sale of a
futures contract. Upon entering into a contract, the fund is
required to deposit with its custodian in a segregated account in
the name of the futures broker an amount of liquid assets. This
amount is known as "initial margin." The nature of initial
margin in futures transactions is different from that of margin
in security transactions in that futures contract margin does not
involve the borrowing of funds to finance the transactions.
Rather, initial margin is similar to a performance bond or good
faith deposit which is returned to the fund upon termination of
the futures contract, assuming all contractual obligations have
been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin" or "maintenance
margin," to and from the broker (or the custodian) are made on a
daily basis as the price of the underlying security or commodity
fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to
the market." For example, when the fund has purchased a futures
contract on a security and the price of the underlying security
has risen, that position will have increased in value and the
fund will receive from the broker a variation margin payment
based on that increase in value. Conversely, when the fund has
purchased a security futures contract and the price of the
underlying security has declined, the position would be less
valuable and the fund would be required to make a variation
margin payment to the broker.
The fund may elect to close some or all of its futures positions
at any time prior to their expiration in order to reduce or
eliminate a hedge position then currently held by the fund. The
fund may close its positions by taking opposite positions which
will operate to terminate the fund's position in the futures
contracts. Final determinations of variation margin are then
made, additional cash is required to be paid by or released to
the fund, and the fund realizes a loss or a gain. Such closing
transactions involve additional commission costs.
The fund does not intend to purchase or sell futures or related
options for other than hedging purposes, if, as a result, the sum
of the initial margin deposits on the fund's existing futures and
related options positions and premiums paid for outstanding
options on futures contracts would exceed 5% of the fund's net
assets.
OPTIONS ON FUTURES CONTRACTS. The fund may purchase and write
call and put options on futures contracts it may buy or sell and
enter into closing transactions with respect to such options to
terminate existing positions. In return for the premium paid,
options on future contracts give the purchaser the right to
assume a position in a futures contract at the specified option
exercise price at any time during the period of the option. The
fund may use options on futures contracts in lieu of writing or
buying options directly on the underlying securities or
purchasing and selling the underlying futures contracts. For
example, to hedge against a possible decrease in the value of its
portfolio securities, the fund may purchase put options or write
call options on futures contracts rather than selling futures
contracts. Similarly, the fund may purchase call options or
write put options on futures contracts as a substitute for the
purchase of futures contracts to hedge against a possible
increase in the price of securities which the fund expects to
purchase. Such options generally operate in the same manner as
options purchased or written directly on the underlying
investments.
As with options on securities, the holder or writer of an option
may terminate his position by selling or purchasing an offsetting
option. There is no guarantee that such closing transactions can
be effected.
The fund will be required to deposit initial margin and
maintenance margin with respect to put and call options on
futures contracts written by it pursuant to brokers' requirements
similar to those described above in connection with the
discussion of futures contracts.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS.
Successful use of futures contracts by the fund is subject to
Putnam Management's ability to predict movements in various
factors affecting securities markets, including interest rates.
Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves
less potential risk to the fund because the maximum amount at
risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the purchase of
a call or put option on a futures contract would result in a loss
to the fund when the purchase or sale of a futures contract would
not, such as when there is no movement in the prices of the
hedged investments. The writing of an option on a futures
contract involves risks similar to those risks relating to the
sale of futures contracts.
The use of options and futures strategies also involves the risk
of imperfect correlation among movements in the prices of the
securities underlying the futures and options purchased and sold
by the fund, of the options and futures contracts themselves,
and, in the case of hedging transactions, of the securities which
are the subject of a hedge. The successful use of these
strategies further depends on the ability of Putnam Management to
forecast interest rates and market movements correctly.
There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render
certain market clearing facilities inadequate, and thereby result
in the institution by exchanges of special procedures which may
interfere with the timely execution of customer orders.
To reduce or eliminate a position held by the fund, the fund may
seek to close out such position. The ability to establish and
close out positions will be subject to the development and
maintenance of a liquid secondary market. It is not certain that
this market will develop or continue to exist for a particular
futures contract or option. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there
may be insufficient trading interest in certain contracts or
options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii)
trading halts, suspensions or other restrictions may be imposed
with respect to particular classes or series of contracts or
options, or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or a clearing corporation may not
at all times be adequate to handle current trading volume; or
(vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the
trading of contracts or options (or a particular class or series
of contracts or options), in which event the secondary market on
that exchange for such contracts or options (or in the class or
series of contracts or options) would cease to exist, although
outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with
their terms.
U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. U.S.
Treasury security futures contracts require the seller to
deliver, or the purchaser to take delivery of, the type of U.S.
Treasury security called for in the contract at a specified date
and price. Options on U.S. Treasury security futures contracts
give the purchaser the right in return for the premium paid to
assume a position in a U.S. Treasury security futures contract at
the specified option exercise price at any time during the period
of the option.
Successful use of U.S. Treasury security futures contracts by the
fund is subject to Putnam Management's ability to predict
movements in the direction of interest rates and other factors
affecting markets for debt securities. For example, if the fund
has sold U.S. Treasury security futures contracts in order to
hedge against the possibility of an increase in interest rates
which would adversely affect securities held in its portfolio,
and the prices of the fund's securities increase instead as a
result of a decline in interest rates, the fund will lose part or
all of the benefit of the increased value of its securities which
it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the fund
has insufficient cash, it may have to sell securities to meet
daily maintenance margin requirements at a time when it may be
disadvantageous to do so.
There is also a risk that price movements in U.S. Treasury
security futures contracts and related options will not correlate
closely with price movements in markets for particular
securities. For example, if the fund has hedged against a
decline in the values of tax-exempt securities held by it by
selling Treasury security futures and the values of Treasury
securities subsequently increase while the values of its
tax-exempt securities decrease, the fund would incur losses on
both the Treasury security futures contracts written by it and
the tax-exempt securities held in its portfolio.
INDEX FUTURES CONTRACTS. An index futures contract is a contract
to buy or sell units of an index at a specified future date at a
price agreed upon when the contract is made. Entering into a
contract to buy units of an index is commonly referred to as
buying or purchasing a contract or holding a long position in
the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short
position. A unit is the current value of the index. The fund
may enter into stock index futures contracts, debt index futures
contracts, or other index futures contracts appropriate to its
objective(s). The fund may also purchase and sell options on
index futures contracts.
For example, the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500") is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange. The S&P 500
assigns relative weightings to the common stocks included in the
Index, and the value fluctuates with changes in the market values
of those common stocks. In the case of the S&P 500, contracts
are to buy or sell 500 units. Thus, if the value of the S&P 500
were $150, one contract would be worth $75,000 (500 units x
$150). The stock index futures contract specifies that no
delivery of the actual stocks making up the index will take
place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the
difference between the contract price and the actual level of the
stock index at the expiration of the contract. For example, if
the fund enters into a futures contract to buy 500 units of the
S&P 500 at a specified future date at a contract price of $150
and the S&P 500 is at $154 on that future date, the fund will
gain $2,000 (500 units x gain of $4). If the fund enters into a
futures contract to sell 500 units of the stock index at a
specified future date at a contract price of $150 and the S&P 500
is at $152 on that future date, the fund will lose $1,000 (500
units x loss of $2).
There are several risks in connection with the use by the fund of
index futures. One risk arises because of the imperfect
correlation between movements in the prices of the index futures
and movements in the prices of securities which are the subject
of the hedge. Putnam Management will, however, attempt to reduce
this risk by buying or selling, to the extent possible, futures
on indices the movements of which will, in its judgment, have a
significant correlation with movements in the prices of the
securities sought to be hedged.
Successful use of index futures by the fund is also subject to
Putnam Management's ability to predict movements in the direction
of the market. For example, it is possible that, where the fund
has sold futures to hedge its portfolio against a decline in the
market, the index on which the futures are written may advance
and the value of securities held in the fund's portfolio may
decline. If this occurred, the fund would lose money on the
futures and also experience a decline in value in its portfolio
securities. It is also possible that, if the fund has hedged
against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices
increase instead, the fund will lose part or all of the benefit
of the increased value of those securities it has hedged because
it will have offsetting losses in its futures positions. In
addition, in such situations, if the fund has insufficient cash,
it may have to sell securities to meet daily variation margin
requirements at a time when it is disadvantageous to do so.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the
index futures and the portion of the portfolio being hedged, the
prices of index futures may not correlate perfectly with
movements in the underlying index due to certain market
distortions. First, all participants in the futures market are
subject to margin deposit and maintenance requirements. Rather
than meeting additional margin deposit requirements, investors
may close futures contracts through offsetting transactions which
could distort the normal relationship between the index and
futures markets. Second, margin requirements in the futures
market are less onerous than margin requirements in the
securities market, and as a result the futures market may attract
more speculators than the securities market does. Increased
participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price
distortions in the futures market and also because of the
imperfect correlation between movements in the index and
movements in the prices of index futures, even a correct forecast
of general market trends by Putnam Management may still not
result in a profitable position over a short time period.
OPTIONS ON STOCK INDEX FUTURES. Options on index futures are
similar to options on securities except that options on index
futures give the purchaser the right, in return for the premium
paid, to assume a position in an index futures contract (a long
position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during
the period of the option. Upon exercise of the option, the
delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the index
futures contract, at exercise, exceeds (in the case of a call) or
is less than (in the case of a put) the exercise price of the
option on the index future. If an option is exercised on the
last trading day prior to its expiration date, the settlement
will be made entirely in cash equal to the difference between the
exercise price of the option and the closing level of the index
on which the future is based on the expiration date. Purchasers
of options who fail to exercise their options prior to the
exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES
As an alternative to purchasing call and put options on index
futures, the fund may purchase and sell call and put options on
the underlying indices themselves. Such options would be used in
a manner identical to the use of options on index futures.
INDEX WARRANTS
The fund may purchase put warrants and call warrants whose values
vary depending on the change in the value of one or more
specified securities indices ("index warrants"). Index warrants
are generally issued by banks or other financial institutions and
give the holder the right, at any time during the term of the
warrant, to receive upon exercise of the warrant a cash payment
from the issuer based on the value of the underlying index at the
time of exercise. In general, if the value of the underlying
index rises above the exercise price of the index warrant, the
holder of a call warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference
between the value of the index and the exercise price of the
warrant; if the value of the underlying index falls, the holder
of a put warrant will be entitled to receive a cash payment from
the issuer upon exercise based on the difference between the
exercise price of the warrant and the value of the index. The
holder of a warrant would not be entitled to any payments from
the issuer at any time when, in the case of a call warrant, the
exercise price is greater than the value of the underlying index,
or, in the case of a put warrant, the exercise price is less than
the value of the underlying index. If the fund were not to
exercise an index warrant prior to its expiration, then the fund
would lose the amount of the purchase price paid by it for the
warrant.
The fund will normally use index warrants in a manner similar to
its use of options on securities indices. The risks of the
fund's use of index warrants are generally similar to those
relating to its use of index options. Unlike most index options,
however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only
by the credit of the bank or other institution which issues the
warrant. Also, index warrants generally have longer terms than
index options. Although the fund will normally invest only in
exchange-listed warrants, index warrants are not likely to be as
liquid as certain index options backed by a recognized clearing
agency. In addition, the terms of index warrants may limit the
fund's ability to exercise the warrants at such time, or in such
quantities, as the fund would otherwise wish to do.
FOREIGN INVESTMENTS
The fund may invest in securities of foreign issuers that are not
actively traded in U.S. markets. These foreign investments
involve certain special risks described below.
Foreign securities are normally denominated and traded in foreign
currencies. As a result, the value of the fund's foreign
investments and the value of its shares may be affected favorably
or unfavorably by changes in currency exchange rates relative to
the U.S. dollar. There may be less information publicly
available about a foreign issuer than about a U.S. issuer, and
foreign issuers are not generally subject to accounting, auditing
and financial reporting standards and practices comparable to
those in the United States. The securities of some foreign
issuers are less liquid and at times more volatile than
securities of comparable U.S. issuers. Foreign brokerage
commissions and other fees are also generally higher than in the
United States. Foreign settlement procedures and trade
regulations may involve certain risks (such as delay in payment
or delivery of securities or in the recovery of the fund's assets
held abroad) and expenses not present in the settlement of
investments in U.S. markets.
In addition, the fund's investments in foreign securities may be
subject to the risk of nationalization or expropriation of
assets, imposition of currency exchange controls, foreign
withholding taxes or restrictions on the repatriation of foreign
currency, confiscatory taxation, political or financial
instability and diplomatic developments which could affect the
value of the fund's investments in certain foreign countries.
Dividends or interest on, or proceeds from the sale of, foreign
securities may be subject to foreign withholding taxes, and
special U.S. tax considerations may apply.
Legal remedies available to investors in certain foreign
countries may be more limited than those available with respect
to investments in the United States or in other foreign
countries. The laws of some foreign countries may limit the
fund's ability to invest in securities of certain issuers
organized under the laws of those foreign countries.
The risks described above, including the risks of nationalization
or expropriation of assets, are typically increased in connection
with investments in "emerging markets." For example, political
and economic structures in these countries may be in their
infancy and developing rapidly, and such countries may be in
their infancy and developing rapidly, and such countries may lack
the social, political and economic stability characteristic of
more developed countries. Certain of these countries have in the
past failed to recognize private property rights and have at
times nationalized and expropriated the assets of private
companies. High rates of inflation or currency devaluations may
adversely affect the economies and securities markets of such
countries. Investments in emerging markets may be considered
speculative.
The currencies of certain emerging market countries have
experienced a steady devaluation relative to the U.S. dollar, and
continued devaluations may adversely affect the value of a fund's
assets denominated in such currencies. Many emerging market
companies have experienced substantial, and in some periods
extremely high, rates of inflation for many years, and continued
inflation may adversely affect the economies and securities
markets of such countries.
In addition, unanticipated political or social developments may
affect the value of the fund's investments in emerging markets
and the availability to the fund of additional investments in
these markets. The small size, limited trading volume and
relative inexperience of the securities markets in these
countries may make the fund's investments in securities traded in
emerging markets illiquid and more volatile than investments in
securities traded in more developed countries, and the fund may
be required to establish special custodial or other arrangements
before making investments in securities traded in emerging
markets. There may be little financial or accounting information
available with respect to issuers of emerging market securities,
and it may be difficult as a result to assess the value of
prospects of an investment in such securities.
Certain of the foregoing risks may also apply to some extent to
securities of U.S. issuers that are denominated in foreign
currencies or that are traded in foreign markets, or securities
of U.S. issuers having significant foreign operations.
FOREIGN CURRENCY TRANSACTIONS
Unless otherwise specified in the prospectus or Part I of this
SAI, the fund may engage without limit in currency exchange
transactions, including purchasing and selling foreign currency,
foreign currency options, foreign currency forward contracts and
foreign currency futures contracts and related options, to manage
its exposure to foreign currencies. In addition, the fund may
write covered call and put options on foreign currencies for the
purpose of increasing its current return.
Generally, the fund may engage in both "transaction hedging" and
"position hedging." The fund may also engage in foreign currency
transactions for non-hedging purposes, subject to applicable law.
When it engages in transaction hedging, the fund enters into
foreign currency transactions with respect to specific
receivables or payables, generally arising in connection with the
purchase or sale of portfolio securities. The fund will engage
in transaction hedging when it desires to "lock in" the U.S.
dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a
foreign currency. By transaction hedging the fund will attempt
to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and
the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the
dividend or interest payment is earned, and the date on which
such payments are made or received.
The fund may purchase or sell a foreign currency on a spot (or
cash) basis at the prevailing spot rate in connection with the
settlement of transactions in portfolio securities denominated in
that foreign currency. 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 also enter into contracts to purchase or sell
foreign currencies at a future date ("forward contracts") and
purchase and sell foreign currency futures contracts.
For transaction hedging purposes the fund may also purchase
exchange-listed and over-the-counter call and put options on
foreign currency futures contracts and on foreign currencies. A
put option on a futures contract gives the fund the right to
assume a short position in the futures contract until the
expiration of the option. A put option on a currency gives the
fund the right to sell the currency at an exercise price until
the expiration of the option. A call option on a futures
contract gives the fund the right to assume a long position in
the futures contract until the expiration of the option. A call
option on a currency gives the fund the right to purchase the
currency at the exercise price until the expiration of the
option.
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, on exchanges or in over-
the-counter markets, foreign currency futures contracts, foreign
currency forward contracts and options on foreign currency
futures contracts and on foreign currencies. In connection with
position hedging, the fund may also purchase or sell foreign
currency on a spot basis.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward
or futures contract. Accordingly, it may be necessary for the
fund to purchase additional foreign currency on the spot market
(and bear the expense of such purchase) if the market value of
the security or securities being hedged is less than the amount
of foreign currency the fund is obligated to deliver and a
decision is made to sell the security or securities and make
delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security or securities if
the market value of such security or securities exceeds the
amount of foreign currency the fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in
the underlying prices of the securities which the fund owns or
intends to purchase or sell. They simply establish a rate of
exchange which one can achieve at some future point in time.
Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the
increase in value of such currency. See "Risk factors in options
transactions" above.
The fund may seek to increase its current return or to offset
some of the costs of hedging against fluctuations in current
exchange rates by writing covered call options and covered put
options on foreign currencies. The fund receives a premium from
writing a call or put option, which increases the fund's current
return if the option expires unexercised or is closed out at a
net profit. The fund may terminate an option that it has written
prior to its expiration by entering into a closing purchase
transaction in which it purchases an option having the same terms
as the option written.
The fund's currency hedging transactions may call for the
delivery of one foreign currency in exchange for another foreign
currency and may at times not involve currencies in which its
portfolio securities are then denominated. Putnam Management
will engage in such "cross hedging" activities when it believes
that such transactions provide significant hedging opportunities
for the fund. Cross hedging transactions by the fund involve the
risk of imperfect correlation between changes in the values of
the currencies to which such transactions relate and changes in
the value of the currency or other asset or liability which is
the subject of the hedge.
The fund may also engage in non-hedging currency transactions.
For example, Putnam Management may believe that exposure to a
currency is in the fund's best interest but that securities
denominated in that currency are unattractive. In that case the
fund may purchase a currency forward contract or option in order
to increase its exposure to the currency. In accordance with SEC
regulations, the fund will segregate liquid assets in its
portfolio to cover forward contracts used for non-hedging
purposes.
The value of any currency, including U.S. dollars and foreign
currencies, may be affected by complex political and economic
factors applicable to the issuing country. In addition, the
exchange rates of foreign currencies (and therefore the values of
foreign currency options, forward contracts and futures
contracts) may be affected significantly, fixed, or supported
directly or indirectly by U.S. and foreign government actions.
Government intervention may increase risks involved in purchasing
or selling foreign currency options, forward contracts and
futures contracts, since exchange rates may not be free to
fluctuate in response to other market forces.
The value of a foreign currency option, forward contract or
futures contract reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar
and the foreign currency in question. Because foreign currency
transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in
the exercise of foreign currency options, forward contracts and
futures contracts, investors may be disadvantaged by having to
deal in an odd-lot market for the underlying foreign currencies
in connection with options at prices that are less favorable than
for round lots. Foreign governmental restrictions or taxes could
result in adverse changes in the cost of acquiring or disposing
of foreign currencies.
There is no systematic reporting of last sale information for
foreign currencies and there is no regulatory requirement that
quotations available through dealers or other market sources be
firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot
transactions in the interbank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1
million) where rates may be less favorable. The interbank market
in foreign currencies is a global, around-the-clock market. To
the extent that options markets are closed while the markets for
the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be
reflected in the options markets.
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.
CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign
currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number
of days from the date of the contract as agreed by the parties,
at a price set at the time of the contract. In the case of a
cancelable forward contract, the holder has the unilateral right
to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial
banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage
for trades. A foreign currency futures contract is a
standardized contract for the future delivery of a specified
amount of a foreign currency at a price set at the time of the
contract. Foreign currency futures contracts traded in the
United States are designed by and traded on exchanges regulated
by the CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the
maturity date of a forward contract may be any fixed number of
days from the date of the contract agreed upon by the parties,
rather than a predetermined date in a given month. Forward
contracts may be in any amount agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange
contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires
no margin or other deposit.
At the maturity of a forward or futures contract, the fund either
may accept or make delivery of the currency specified in the
contract, or at or prior to maturity enter into a closing
transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts
are usually effected with the currency trader who is a party to
the original forward contract. Closing transactions with respect
to futures contracts are effected on a commodities exchange; a
clearing corporation associated with the exchange assumes
responsibility for closing out such contracts.
Positions in the foreign currency futures contracts may be closed
out only on an exchange or board of trade which provides a
secondary market in such contracts. Although the fund intends to
purchase or sell foreign currency futures contracts only on
exchanges or boards of trade where there appears to be an active
secondary market, there is no assurance that a secondary market
on an exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be
possible to close a futures position and, in the event of adverse
price movements, the fund would continue to be required to make
daily cash payments of variation margin.
FOREIGN CURRENCY OPTIONS. In general, options on foreign
currencies operate similarly to options on securities and are
subject to many of the risks described above. Foreign currency
options are traded primarily in the over-the-counter market,
although options on foreign currencies are also listed on several
exchanges. Options are traded not only on the currencies of
individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of
currencies, and is the official medium of exchange of the
European Community's European Monetary System.
The fund will only purchase or write foreign currency options
when Putnam Management believes that a liquid secondary market
exists for such options. There can be no assurance that a liquid
secondary market will exist for a particular option at any
specific time. Options on foreign currencies are affected by all
of those factors which influence foreign exchange rates and
investments generally.
SETTLEMENT PROCEDURES. Settlement procedures relating to the
fund's investments in foreign securities and to the fund's
foreign currency exchange transactions may be more complex than
settlements with respect to investments in debt or equity
securities of U.S. issuers, and may involve certain risks not
present in the fund's domestic investments. For example,
settlement of transactions involving foreign securities or
foreign currencies may occur within a foreign country, and the
fund may be required to accept or make delivery of the underlying
securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay
any fees, taxes or charges associated with such delivery. Such
investments may also involve the risk that an entity involved in
the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers
do not charge a fee for currency conversion, they do realize a
profit based on the difference (the "spread") between prices at
which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to the fund at one
rate, while offering a lesser rate of exchange should the fund
desire to resell that currency to the dealer.
RESTRICTED SECURITIES
The SEC Staff currently takes the view that any delegation by the
Trustees of the authority to determine that a restricted security
is readily marketable (as described in the investment
restrictions of the funds) must be pursuant to written procedures
established by the Trustees. It is the present intention of the
funds' Trustees that, if the Trustees decide to delegate such
determinations to Putnam Management or another person, they would
do so pursuant to written procedures, consistent with the Staff's
position. Should the Staff modify its position in the future,
the Trustees would consider what action would be appropriate in
light of the Staff's position at that time.
TAXES
TAXATION OF THE FUND. The fund intends to qualify each year as a
regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). In order so to
qualify and to qualify for the special tax treatment accorded
regulated investment companies and their shareholders, the fund
must, among other things:
(a) Derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and
gains from the sale of stock, securities and foreign currencies,
or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its
business of investing in such stock, securities, or currencies;
(b) distribute with respect to each taxable year at least 90% of
the sum of its taxable net investment income, its net tax-exempt
income, and the excess, if any, of net short-term capital gains
over net long-term capital losses for such year; and
(c) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the fund's
assets is represented by cash and cash items, U.S. government
securities, securities of other regulated investment companies,
and other securities limited in respect of any one issuer to a
value not greater than 5% of the value of the fund's total assets
and to not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities (other than those of the
U.S. Government or other regulated investment companies) of any
one issuer or of two or more issuers which the fund controls and
which are engaged in the same, similar, or related trades or
businesses.
In addition, until the start of the fund's first tax year
beginning after August 5, 1997, the fund must derive less than
30% of its gross income from the sale or other disposition of
certain assets (including stock or securities and certain
options, futures contracts, forward contracts and foreign
currencies) held for less than three months in order to qualify
as a regulated investment company.
If the fund qualifies as a regulated investment company that is
accorded special tax treatment, the fund will not be subject to
federal income tax on income paid to its shareholders in the form
of dividends (including capital gain dividends).
If the fund failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the fund
would be subject to tax on its taxable income at corporate rates,
and all distributions from earnings and profits, including any
distributions of net tax-exempt income and net long-term capital
gains, would be taxable to shareholders as ordinary income. In
addition, the fund could be required to recognize unrealized
gains, pay substantial taxes and interest and make substantial
distributions before requalifying as a regulated investment
company that is accorded special tax treatment.
If the fund fails to distribute in a calendar year substantially
all of its ordinary income for such year and substantially all of
its capital gain net income for the one-year period ending
October 31 (or later if the fund is permitted so to elect and so
elects), plus any retained amount from the prior year, the fund
will be subject to a 4% excise tax on the undistributed amounts.
A dividend paid to shareholders by the fund in January of a year
generally is deemed to have been paid by the fund on December 31
of the preceding year, if the dividend was declared and payable
to shareholders of record on a date in October, November or
December of that preceding year. The fund intends generally to
make distributions sufficient to avoid imposition of the 4%
excise tax.
FUND DISTRIBUTIONS. Distributions from the fund (other than
exempt-interest dividends, as discussed below) will be taxable to
shareholders as ordinary income to the extent derived from the
fund's investment income and net short-term gains. Pursuant to
the Taxpayer Relief Act of 1997, two different tax rates apply to
net capital gains (that is, the excess of net gains from captial
assets held more than one year over net losses from capital
assets held for not more than one year). One rate (generally
28%) applies to net gains on capital assets held for more than
one year but not more than 18 months ("mid-term gains") and a
second, preferred rate (generally 20%) applies to the balance of
such net capital gains ("adjusted net capital gains").
Distributions of net capital gains will be treated in the hands
of shareholders as mid-term gains to the extent designated by the
fund as deriving from net gains from assets held for more than
one year but not more than 18 months, and the balance will be
treated as adjusted net capital gains. Distributions of mid-term
gains and adjusted net capital gains will be taxable to
shareholders as such, regardless of how long a shareholder has
held the shares in the fund.
EXEMPT-INTEREST DIVIDENDS. The fund will be qualified to pay
exempt-interest dividends to its shareholders only if, at the
close of each quarter of the fund's taxable year, at least 50% of
the total value of the fund's assets consists of obligations the
interest on which is exempt from federal income tax.
Distributions that the fund properly designates as exempt-
interest dividends are treated as interest excludable from
shareholders' gross income for federal income tax purposes but
may be taxable for federal alternative minimum tax purposes and
for state and local purposes. If the fund intends to be
qualified to pay exempt-interest dividends, the fund may be
limited in its ability to enter into taxable transactions
involving forward commitments, repurchase agreements, financial
futures and options contracts on financial futures, tax-exempt
bond indices and other assets.
Part or all of the interest on indebtedness, if any, incurred or
continued by a shareholder to purchase or carry shares of a fund
paying exempt-interest dividends is not deductible. The portion
of interest that is not deductible is equal to the total interest
paid or accrued on the indebtedness, multiplied by the percentage
of the fund's total distributions (not including distributions
from net long-term capital gains) paid to the shareholder that
are exempt-interest dividends. Under rules used by the Internal
Revenue Service for determining when borrowed funds are
considered used for the purpose of purchasing or carrying
particular assets, the purchase of shares may be considered to
have been made with borrowed funds even though such funds are not
directly traceable to the purchase of shares.
In general, exempt-interest dividends, if any, attributable to
interest received on certain private activity obligations and
certain industrial development bonds will not be tax-exempt to
any shareholders who are "substantial users" of the facilities
financed by such obligations or bonds or who are "related
persons" of such substantial users.
A fund which is qualified to pay exempt-interest dividends will
inform investors within 60 days of the fund's fiscal year-end of
the percentage of its income distributions designated as
tax-exempt. The percentage is applied uniformly to all
distributions made during the year. The percentage of income
designated as tax-exempt for any particular distribution may be
substantially different from the percentage of the fund's income
that was tax-exempt during the period covered by the
distribution.
HEDGING TRANSACTIONS. If the fund engages in hedging
transactions, including hedging transactions in options, futures
contracts, and straddles, or other similar transactions, it will
be subject to special tax rules (including constructive sale,
mark-to-market, straddle, wash sale, and short sale rules), the
effect of which may be to accelerate income to the fund, defer
losses to the fund, cause adjustments in the holding periods of
the fund's securities, or convert short-term capital losses into
long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders.
The fund will endeavor to make any available elections pertaining
to such transactions in a manner believed to be in the best
interests of the fund.
Under the 30% of gross income test described above (see "Taxation
of the fund"), the fund will be restricted in selling assets held
or considered under Code rules to have been held for less than
three months, and in engaging in certain hedging transactions
(including hedging transactions in options and futures) that in
some circumstances could cause certain fund assets to be treated
as held for less than three months.
Certain of the fund's hedging activities (including its
transactions, if any, in foreign currencies or foreign
currency-denominated instruments) are likely to produce a
difference between its book income and its taxable income. If
the fund's book income exceeds its taxable income, the
distribution (if any) of such excess will be treated as (i) a
dividend to the extent of the fund's remaining earnings and
profits (including earnings and profits arising from tax-exempt
income), (ii) thereafter as a return of capital to the extent of
the recipient's basis in the shares, and (iii) thereafter as gain
from the sale or exchange of a capital asset. If the fund's book
income is less than its taxable income, the fund could be
required to make distributions exceeding book income to qualify
as a regulated investment company that is accorded special tax
treatment.
RETURN OF CAPITAL DISTRIBUTIONS. If the fund makes a
distribution to you in excess of its current and accumulated
"earnings and profits" in any taxable year, the excess
distribution will be treated as a return of capital to the extent
of your tax basis in your shares, and thereafter as capital gain.
A return of capital is not taxable, but it reduces your tax basis
in your shares, thus reducing any loss or increasing any gain on
a subsequent taxable disposition by you of your shares.
SECURITIES ISSUED OR PURCHASED AT A DISCOUNT. The fund's
investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a
discount may) require the fund to accrue and distribute income
not yet received. In order to generate sufficient cash to make
the requisite distributions, the fund may be required to sell
securities in its portfolio that it otherwise would have
continued to hold.
CAPITAL LOSS CARRYOVER. Distributions from capital gains are
made after applying any available capital loss carryovers. The
amounts and expiration dates of any capital loss carryovers
available to the fund are shown in Note 1 (Federal income taxes)
to the financial statements included in Part I of this SAI or
incorporated by reference into this SAI.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING
TRANSACTIONS. The fund's transactions in foreign currencies,
foreign currency-denominated debt securities and certain foreign
currency options, futures contracts and forward contracts (and
similar instruments) may give rise to ordinary income or loss to
the extent such income or loss results from fluctuations in the
value of the foreign currency concerned.
If more than 50% of the fund's assets at year end consists of the
securities of foreign corporations, the fund may elect to permit
shareholders to claim a credit or deduction on their income tax
returns for their pro rata portion of qualified taxes paid by the
fund to foreign countries in respect of foreign securities the
fund has held for at least the minimum period specified in the
Code. In such a case, shareholders will include in gross income
from foreign sources their pro rata shares of such taxes. A
shareholder's ability to claim a foreign tax credit or deduction
in respect of foreign taxes paid by the fund may be subject to
certain limitations imposed by the Code, as a result of which a
shareholder may not get a full credit or deduction for the amount
of such taxes. In particular, shareholders must hold their fund
shares (without protection from risk of loss) on the ex-dividend
date and for at least 15 additional days during the 30-day period
surrounding the ex-dividend date to be eligible to claim a
foreign tax credit with respect to a given dividend.
Shareholders who do not itemize on their federal income tax
returns may claim a credit (but no deduction) for such foreign
taxes.
Investment by the fund in "passive foreign investment companies"
could subject the fund to a U.S. federal income tax or other
charge on the proceeds from the sale of its investment in such a
company; however, this tax can be avoided by making an election
to mark such investments to market annually or to treat the
passive foreign investment company as a "qualified electing
fund."
A "passive foreign investment company" is any foreign
corporation: (i) 75 percent of more of the income of which for
the taxable year is passive income, or (ii) the average
percentage of the assets of which (generally by value, but by
adjusted tax basis in certain cases) that produce or are held for
the production of passive income is at least 50 percent.
Generally, passive income for this purpose means dividends,
interest (including income equivalent to interest), royalties,
rents, annuities, the excess of gains over losses from certain
property transactions and commodities transactions, and foreign
currency gains. Passive income for this purpose does not include
rents and royalties received by the foreign corporation from
active business and certain income received from related persons.
SALE OR REDEMPTION OF SHARES. The sale, exchange or redemption
of fund shares may give rise to a gain or loss. In general, any
gain realized upon a taxable disposition of shares will not be
treated as mid-term capital gain if the shares have been held for
more than 12 months but not more than 18 months, as adjusted net
capital gains if the shares have been held for more than 18
months. Otherwise the gain on the sale, exchange or redemption
of fund shares will be treated as short-term capital gain. In
general, any loss realized upon a taxable disposition of shares
will be treated as long-term loss if the shares have been held
for more than 12 months, and otherwise as short-term capital
gains. However, if a shareholder sells shares at a loss within
six months of purchase, any loss will be disallowed for Federal
income tax purposes to the extent of any exempt-interest
dividends received on such shares. In addition, any loss (not
already disallowed as provided in the preceding sentence)
realized upon a taxable disposition of shares held for six months
or less will be treated as long-term, rather than short-term, to
the extent of any long-term capital gain distributions received
by the shareholder with respect to the shares. All or a portion
of any loss realized upon a taxable disposition of fund shares
will be disallowed if other shares of the same fund are purchased
within 30 days before or after the disposition. In such a case,
the basis of the newly purchased shares will be adjusted to
reflect the disallowed loss.
SHARES PURCHASED THROUGH TAX-QUALIFIED PLANS. Special tax rules
apply to investments though defined contribution plans and other
tax-qualified plans. Shareholders should consult their tax
adviser to determine the suitability of shares of a fund as an
investment through such plans and the precise effect of an
investment on their particular tax situation.
BACKUP WITHHOLDING. The fund generally is required to withhold
and remit to the U.S. Treasury 31% of the taxable dividends and
other distributions paid to any individual shareholder who fails
to furnish the fund with a correct taxpayer identification number
(TIN), who has under-reported dividends or interest income, or
who fails to certify to the fund that he or she is not subject to
such withholding. Shareholders who fail to furnish their correct
TIN are subject to a penalty of $50 for each such failure unless
the failure is due to reasonable cause and not wilful neglect.
An individual's taxpayer identification number is his or her
social security number.
MANAGEMENT
TRUSTEES NAME (AGE)
*+GEORGE PUTNAM (71), Chairman and President. Chairman and
Director of Putnam Management and Putnam Mutual Funds. Director,
Freeport-McMoRan, Inc., Freeport Copper and Gold, Inc., McMoRan
Oil and Gas, Inc., General Mills, Inc., Houghton Mifflin Company
and Marsh & McLennan Companies, Inc.
+WILLIAM F. POUNDS (69), Vice Chairman. Professor of Management,
Alfred P. Sloan School of Management, Massachusetts Institute of
Technology. Director of IDEXX Laboratories, Inc., Perseptive
Biosystems, Inc., Management Sciences for Health, Inc., and Sun
Company, Inc.
JAMESON A. BAXTER (54), Trustee. President, Baxter Associates,
Inc. (a management and financial consultant). Director of
Avondale Federal Savings Bank, ASHTA Chemicals, Inc. and Banta
Corporation (printing and digital imaging). Chairman Emeritus of
the Board of Trustees, Mount Holyoke College.
+HANS H. ESTIN (69), Trustee. Chartered Financial Analyst and
Vice Chairman, North American Management Corp. (a registered
investment adviser).
JOHN A. HILL (55), Trustee. Chairman and Managing Director,
First Reserve Corporation (a registered investment adviser
investing in companies in the world-wide energy industry on
behalf of institutional investors). Director of Maverick Tube
Corporation, PetroCorp Incorporated, Snyder Oil Corporation,
TransMontaigne Oil Company, Weatherford Enterra, Inc. (an oil
field service company) and various private companies owned by
First Reserve Corporation, such as James River Coal and Anker
Coal Corporation, and various First Reserve Funds, such as
American Gas & Oil Investors, Ltd., AmGO II, L.P., First Reserve
Secured Energy Assets Fund, L.P., First Reserve Fund V., L.P.,
First Reserve Fund VI, L.P., and First Reserve Fund VII, L.P.
RONALD J. JACKSON (53), Trustee. 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.
PAUL L. JOSKOW (50), Trustee. Professor of Economics and
Management, Massachusetts Institute of Technology. Director, New
England Electric System, State Farm Indemnity Company and
Whitehead Institute for Biomedical Research.
ELIZABETH T. KENNAN (59), Trustee. President Emeritus and
Professor, Mount Holyoke College. Director, the Kentucky Home
Life Insurance Companies, NYNEX Corporation, Northeast Utilities
and Talbots.
*LAWRENCE J. LASSER (54), Trustee and Vice President. President,
Chief Executive Officer and Director of Putnam Investments, Inc.
and Putnam Investment Management, Inc. Director of Marsh &
McLennan Companies, Inc. and the United Way of Massachusetts Bay.
JOHN E. MULLIN, III (56), Trustee. Chairman and CEO of Ridgeway
Farm, Director of ACX Technologies, Inc., Alex. Brown Realty,
Inc., The Liberty Corporation and The Ryland Group, Inc.
+ROBERT E. PATTERSON (52), Trustee. Executive Vice President and
Director of Acquisitions, Cabot Partners Limited Partnership (a
registered investment adviser) and Massachusetts Industrial
Finance Agency.
*DONALD S. PERKINS (70), Trustee. Director of various
corporations, including AON Corp., Cummins Engine Company, Inc.,
Current Assets L.L.C., LaSalle Street Fund, Inc., LaSalle U.S.
Realty Income and Growth Fund, Inc., Lucent Technologies Inc.,
Ryerson Tull, Inc. (a steel service corporation) Springs
Industries, Inc. (a textile manufacturer), and Time Warner Inc.
*#GEORGE PUTNAM III (46), Trustee. President, New Generation
Research, Inc. (publisher of bankruptcy information) and New
Generation Advisers, Inc. (a registered investment adviser).
Director, Massachusetts Audubon Society and The Boston Family
Office, L.L.C. (a registered investment adviser).
W. THOMAS STEPHENS (55), Trustee. President and Chief Executive
Officer of MacMillan Bloedel Ltd. Director, Mail-Well Inc. (a
supplier of envelopes and high-quality printing services), Qwest
Communications (a fiber optics manufacturer), The Eagle Picher
Trust (a trust etablished to fund the settlement of asbestos-
rerlated claims) and New Century Energies (a public utlity
company).
*A.J.C. SMITH (63), Trustee. Chairman and Chief Executive
Officer, Marsh & McLennan Companies, Inc. Director, Trident
Corp.
W. NICHOLAS THORNDIKE (64), Trustee. Director of various
corporations and charitable organizations, including Courier
Corporation, Data General Corporation, Bradley Real Estate, Inc.,
and Providence Journal Co. and Courier Corporation.
OFFICERS NAME (AGE)
CHARLES E. PORTER (59), Executive Vice President. Managing
Director of Putnam Investments, Inc. and Putnam Management.
PATRICIA C. FLAHERTY (50), Senior Vice President. Senior Vice
President of Putnam Investments, Inc. and Putnam Management.
WILLIAM N. SHIEBLER (55), Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. President and
Director of Putnam Mutual Funds.
GORDON H. SILVER (50), Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. and Putnam
Management.
JOHN R. VERANI (58), Vice President. Senior Vice President of
Putnam Investments, Inc. and Putnam Management.
PAUL M. O'NEIL (44), Vice President. Vice President of Putnam
Investments, Inc. and Putnam Management.
JOHN D. HUGHES (62), Senior Vice President and Treasurer.
BEVERLY MARCUS (53), Clerk and Assistant Treasurer.
*Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund,
Putnam Management or Putnam Mutual Funds.
+Members of the Executive Committee of the Trustees. The
Executive Committee meets between regular meetings of the
Trustees as may be required to review investment matters and
other affairs of the fund and may exercise all of the powers of
the Trustees.
#George Putnam, III is the son of George Putnam.
-----------------
Certain other officers of Putnam Management are officers of the
fund. SEE "ADDITIONAL OFFICERS" IN PART I OF THIS SAI. The
mailing address of each of the officers and Trustees is One Post
Office Square, Boston, Massachusetts 02109.
Except as stated below, the principal occupations of the officers
and Trustees for the last five years have been with the employers
as shown above, although in some cases they have held different
positions with such employers. Prior to 1993, Mr. Jackson was
Chairman of the Board, President and Chief Executive Officer of
Fisher-Price, Inc. Prior to 1996, Mr. Stephens was Chairman of
the Board of Directors, President and Chief Executive Officer of
Johns Manville Corporation.
Each Trustee of the fund receives an annual fee and an additional
fee for each Trustees' meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on
committees of the Trustees receive additional fees for attendance
at certain committee meetings and for special services rendered
in that connection. All of the Trustees are Trustees of all the
Putnam funds and each receives fees for his or her services. FOR
DETAILS OF TRUSTEES' FEES PAID BY THE FUND AND INFORMATION
CONCERNING RETIREMENT GUIDELINES FOR THE TRUSTEES, SEE "CHARGES
AND EXPENSES" IN PART I OF THIS SAI.
The Agreement and Declaration of Trust of the fund provides that
the fund will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the
fund, except if it is determined in the manner specified in the
Agreement and Declaration of Trust that they have not acted in
good faith in the reasonable belief that their actions were in
the best interests of the fund or that such indemnification would
relieve any officer or Trustee of any liability to the fund or
its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of his or her duties. The
fund, at its expense, provides liability insurance for the
benefit of its Trustees and officers.
PUTNAM MANAGEMENT AND ITS AFFILIATES
Putnam Management is one of America's oldest and largest money
management firms. Putnam Management's staff of experienced
portfolio managers and research analysts selects securities and
constantly supervises the fund's portfolio. By pooling an
investor's money with that of other investors, a greater variety
of securities can be purchased than would be the case
individually; the resulting diversification helps reduce
investment risk. Putnam Management has been managing mutual funds
since 1937. Today, the firm serves as the investment manager for
the funds in the Putnam Family, with nearly $160 billion in
assets in over 8 million shareholder accounts at June 30, 1997.
An affiliate, The Putnam Advisory Company, Inc., manages domestic
and foreign institutional accounts and mutual funds, including
the accounts of many Fortune 500 companies. Another affiliate,
Putnam Fiduciary Trust Company, provides investment advice to
institutional clients under its banking and fiduciary powers. At
June 30, 1997, Putnam Management and its affiliates managed
nearly $207 billion in assets, including over $18 billion in tax-
exempt securities and over $51 billion in retirement plan assets.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., a holding
company which is in turn wholly owned by Marsh & McLennan
Companies, Inc., a publicly-owned holding company whose principal
operating subsidiaries are international insurance and
reinsurance brokers, investment managers and management
consultants.
Trustees and officers of the fund who are also officers of Putnam
Management or its affiliates or who are stockholders of Marsh &
McLennan Companies, Inc. will benefit from the advisory fees,
sales commissions, distribution fees, custodian fees and transfer
agency fees paid or allowed by the fund.
THE MANAGEMENT CONTRACT
Under a Management Contract between the fund and Putnam
Management, subject to such policies as the Trustees may
determine, Putnam Management, at its expense, furnishes
continuously an investment program for the fund and makes
investment decisions on behalf of the fund. Subject to the
control of the Trustees, Putnam Management also manages,
supervises and conducts the other affairs and business of the
fund, furnishes office space and equipment, provides bookkeeping
and clerical services (including determination of the fund's net
asset value, but excluding shareholder accounting services) and
places all orders for the purchase and sale of the fund's
portfolio securities. Putnam Management may place fund portfolio
transactions with broker-dealers which furnish Putnam Management,
without cost to it, certain research, statistical and quotation
services of value to Putnam Management and its affiliates in
advising the fund and other clients. In so doing, Putnam
Management may cause the fund to pay greater brokerage
commissions than it might otherwise pay.
FOR DETAILS OF PUTNAM MANAGEMENT'S COMPENSATION UNDER THE
MANAGEMENT CONTRACT, SEE "CHARGES AND EXPENSES" IN PART I OF THIS
SAI. Putnam Management's compensation under the Management
Contract may be reduced in any year if the fund's expenses exceed
the limits on investment company expenses imposed by any statute
or regulatory authority of any jurisdiction in which shares of
the fund are qualified for offer or sale. The term "expenses" is
defined in the statutes or regulations of such jurisdictions, and
generally excludes brokerage commissions, taxes, interest,
extraordinary expenses and, if the fund has a distribution plan,
payments made under such plan.
Under the Management Contract, Putnam Management may reduce its
compensation to the extent that the fund's expenses exceed such
lower expense limitation as Putnam Management may, by notice to
the fund, declare to be effective. The expenses subject to this
limitation are exclusive of brokerage commissions, interest,
taxes, deferred organizational and extraordinary expenses and, if
the fund has a distribution plan, payments required under such
plan. For the purpose of determining any such limitation on
Putnam Management's compensation, expenses of the fund shall not
reflect the application of commissions or cash management credits
that may reduce designated fund expenses. THE TERMS OF ANY
EXPENSE LIMITATION FROM TIME TO TIME IN EFFECT ARE DESCRIBED IN
THE PROSPECTUS AND/OR PART I OF THIS SAI.
In addition to the fee paid to Putnam Management, the fund
reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their assistants who
provide certain administrative services for the fund and the
other Putnam funds, each of which bears an allocated share of the
foregoing costs. The aggregate amount of all such payments and
reimbursements is determined annually by the Trustees.
THE AMOUNT OF THIS REIMBURSEMENT FOR THE FUND'S MOST RECENT
FISCAL YEAR IS INCLUDED IN "CHARGES AND EXPENSES" IN PART I OF
THIS SAI. Putnam Management pays all other salaries of officers
of the fund. The fund pays all expenses not assumed by Putnam
Management including, without limitation, auditing, legal,
custodial, investor servicing and shareholder reporting expenses.
The fund pays the cost of typesetting for its prospectuses and
the cost of printing and mailing any prospectuses sent to its
shareholders. Putnam Mutual Funds pays the cost of printing and
distributing all other prospectuses.
The Management Contract provides that Putnam Management shall not
be subject to any liability to the fund or to any shareholder of
the fund for any act or omission in the course of or connected
with rendering services to the fund in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
its duties on the part of Putnam Management.
The Management Contract may be terminated without penalty by vote
of the Trustees or the shareholders of the fund, or by Putnam
Management, on 30 days' written notice. It may be amended only
by a vote of the shareholders of the fund. The Management
Contract also terminates without payment of any penalty in the
event of its assignment. The Management Contract provides that
it will continue in effect only so long as such continuance is
approved at least annually by vote of either the Trustees or the
shareholders, and, in either case, by a majority of the Trustees
who are not "interested persons" of Putnam Management or the
fund. In each of the foregoing cases, the vote of the
shareholders is the affirmative vote of a "majority of the
outstanding voting securities" as defined in the Investment
Company Act of 1940.
PERSONAL INVESTMENTS BY EMPLOYEES OF PUTNAM MANAGEMENT
Employees of Putnam Management are permitted to engage in
personal securities transactions, subject to requirements and
restrictions set forth in Putnam Management's Code of Ethics.
The Code of Ethics contains provisions and requirements designed
to identify and address certain conflicts of interest between
personal investment activities and the interests of investment
advisory clients such as the funds. Among other things, the Code
of Ethics, consistent with standards recommended by the
Investment Company Institute's Advisory Group on Personal
Investing, prohibits certain types of transactions absent prior
approval, imposes time periods during which personal transactions
may not be made in certain securities, and requires the
submission of duplicate broker confirmations and quarterly
reporting of securities transactions. Additional restrictions
apply to portfolio managers, traders, research analysts and
others involved in the investment advisory process. Exceptions
to these and other provisions of the Code of Ethics may be
granted in particular circumstances after review by appropriate
personnel.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. Investment decisions for the fund and for
the other investment advisory clients of Putnam Management and
its affiliates are made with a view to achieving their respective
investment objectives. Investment decisions are the product of
many factors in addition to basic suitability for the particular
client involved. Thus, a particular security may be bought or
sold for certain clients even though it could have been bought or
sold for other clients at the same time. Likewise, a particular
security may be bought for one or more clients when one or more
other clients are selling the security. In some instances, one
client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously
purchase or sell the same security, in which event each day's
transactions in such security are, insofar as possible, averaged
as to price and allocated between such clients in a manner which
in Putnam Management's opinion is equitable to each and in
accordance with the amount being purchased or sold by each.
There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on
other clients.
BROKERAGE AND RESEARCH SERVICES. Transactions on U.S. stock
exchanges, commodities markets and futures markets and other
agency transactions involve the payment by the fund of negotiated
brokerage commissions. Such commissions vary among different
brokers. A particular broker may charge different commissions
according to such factors as the difficulty and size of the
transaction. Transactions in foreign investments often involve
the payment of fixed brokerage commissions, which may be higher
than those in the United States. There is generally no stated
commission in the case of securities traded in the
over-the-counter markets, but the price paid by the fund usually
includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the fund includes a
disclosed, fixed commission or discount retained by the
underwriter or dealer. It is anticipated that most purchases and
sales of securities by funds investing primarily in tax-exempt
securities and certain other fixed-income securities will be with
the issuer or with underwriters of or dealers in those
securities, acting as principal. Accordingly, those funds would
not ordinarily pay significant brokerage commissions with respect
to securities transactions. SEE "CHARGES AND EXPENSES" IN PART I
OF THIS SAI FOR INFORMATION CONCERNING COMMISSIONS PAID BY THE
FUND.
It has for many years been a common practice in the investment
advisory business for advisers of investment companies and other
institutional investors to receive brokerage and research
services (as defined in the Securities Exchange Act of 1934, as
amended (the "1934 Act")) from broker-dealers that execute
portfolio transactions for the clients of such advisers and from
third parties with which such broker-dealers have arrangements.
Consistent with this practice, Putnam Management receives
brokerage and research services and other similar services from
many broker-dealers with which Putnam Management places the
fund's portfolio transactions and from third parties with which
these broker-dealers have arrangements. These services include
such matters as general economic and market reviews, industry and
company reviews, evaluations of investments, recommendations as
to the purchase and sale of investments, newspapers, magazines,
pricing services, quotation services, news services and personal
computers utilized by Putnam Management's managers and analysts.
Where the services referred to above are not used exclusively by
Putnam Management for research purposes, Putnam Management, based
upon its own allocations of expected use, bears that portion of
the cost of these services which directly relates to their
non-research use. Some of these services are of value to Putnam
Management and its affiliates in advising various of their
clients (including the fund), although not all of these services
are necessarily useful and of value in managing the fund. The
management fee paid by the fund is not reduced because Putnam
Management and its affiliates receive these services even though
Putnam Management might otherwise be required to purchase some of
these services for cash.
Putnam Management places all orders for the purchase and sale of
portfolio investments for the fund and buys and sells investments
for the fund through a substantial number of brokers and dealers.
In so doing, Putnam Management uses its best efforts to obtain
for the fund the most favorable price and execution available,
except to the extent it may be permitted to pay higher brokerage
commissions as described below. In seeking the most favorable
price and execution, Putnam Management, having in mind the fund's
best interests, considers all factors it deems relevant,
including, by way of illustration, price, the size of the
transaction, the nature of the market for the security or other
investment, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the
broker-dealer involved and the quality of service rendered by the
broker-dealer in other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the
Management Contract, Putnam Management may cause the fund to pay
a broker-dealer which provides "brokerage and research services"
(as defined in the 1934 Act) to Putnam Management an amount of
disclosed commission for effecting securities transactions on
stock exchanges and other transactions for the fund on an agency
basis in excess of the commission which another broker-dealer
would have charged for effecting that transaction. Putnam
Management's authority to cause the fund to pay any such greater
commissions is also subject to such policies as the Trustees may
adopt from time to time. Putnam Management does not currently
intend to cause the fund to make such payments. It is the
position of the staff of the Securities and Exchange Commission
that Section 28(e) does not apply to the payment of such greater
commissions in "principal" transactions. Accordingly Putnam
Management will use its best effort to obtain the most favorable
price and execution available with respect to such transactions,
as described above.
The Management Contract provides that commissions, fees,
brokerage or similar payments received by Putnam Management or an
affiliate in connection with the purchase and sale of portfolio
investments of the fund, less any direct expenses approved by the
Trustees, shall be recaptured by the fund through a reduction of
the fee payable by the fund under the Management Contract.
Putnam Management seeks to recapture for the fund soliciting
dealer fees on the tender of the fund's portfolio securities in
tender or exchange offers. Any such fees which may be recaptured
are likely to be minor in amount.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. and subject to seeking the most
favorable price and execution available and such other policies
as the Trustees may determine, Putnam Management may consider
sales of shares of the fund (and, if permitted by law, of the
other Putnam funds) as a factor in the selection of
broker-dealers to execute portfolio transactions for the fund.
PRINCIPAL UNDERWRITER
Putnam Mutual Funds is the principal underwriter of shares of the
fund and the other continuously offered Putnam funds. Putnam
Mutual Funds is not obligated to sell any specific amount of
shares of the fund and will purchase shares for resale only
against orders for shares. SEE "CHARGES AND EXPENSES" IN PART I
OF THIS SAI FOR INFORMATION ON SALES CHARGES AND OTHER PAYMENTS
RECEIVED BY PUTNAM MUTUAL FUNDS.
INVESTOR SERVICING AGENT AND CUSTODIAN
Putnam Investor Services, a division of Putnam Fiduciary Trust
Company ("PFTC"), is the fund's investor servicing agent
(transfer, plan and dividend disbursing agent), for which it
receives fees which are paid monthly by the fund as an expense of
all its shareholders. The fee paid to Putnam Investor Services
is determined on the basis of the number of shareholder accounts,
the number of transactions and the assets of the fund. Putnam
Investor Services won the DALBAR Quality Tested Service Seal in
1990, 1991, 1992, 1993, 1994 and 1995. Over 10,000 tests of 38
separate shareholder service components demonstrated that Putnam
Investor Services tied for highest scores, with two other mutual
fund companies, in all categories.
PFTC is the custodian of the fund's assets. In carrying out its
duties under its custodian contract, PFTC may employ one or more
subcustodians whose responsibilities include safeguarding and
controlling the fund's cash and securities, handling the receipt
and delivery of securities and collecting interest and dividends
on the fund's investments. PFTC and any subcustodians employed
by it have a lien on the securities of the fund (to the extent
permitted by the fund's investment restrictions) to secure
charges and any advances made by such subcustodians at the end of
any day for the purpose of paying for securities purchased by the
fund. The fund expects that such advances will exist only in
unusual circumstances. Neither PFTC nor any subcustodian
determines the investment policies of the fund or decides which
securities the fund will buy or sell. PFTC pays the fees and
other charges of any subcustodians employed by it. The fund may
from time to time pay custodial expenses in full or in part
through the placement by Putnam Management of the fund's
portfolio transactions with the subcustodians or with a third-
party broker having an agreement with the subcustodians. The
fund pays PFTC an annual fee based on the fund's assets,
securities transactions and securities holdings and reimburses
PFTC for certain out-of-pocket expenses incurred by it or any
subcustodian employed by it in performing custodial services.
SEE "CHARGES AND EXPENSES" IN PART I OF THIS SAI FOR INFORMATION
ON FEES AND REIMBURSEMENTS FOR INVESTOR SERVICING AND CUSTODY
RECEIVED BY PFTC. THE FEES MAY BE REDUCED BY CREDITS ALLOWED BY
PFTC.
DETERMINATION OF NET ASSET VALUE
The fund determines the net asset value per share of each class
of shares once each day the New York Stock Exchange (the
"Exchange") is open. Currently, the Exchange is closed
Saturdays, Sundays and the following holidays: New Year's Day,
Rev. Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, the Fourth of July, Labor Day, Thanksgiving
and Christmas. The fund determines net asset value as of the
close of regular trading on the Exchange, currently 4:00 p.m.
However, equity options held by the fund are priced as of the
close of trading at 4:10 p.m., and futures contracts on U.S.
government and other fixed-income securities and index options
held by the fund are priced as of their close of trading at 4:15
p.m.
Securities for which market quotations are readily available are
valued at prices which, in the opinion of Putnam Management, most
nearly represent the market values of such securities.
Currently, such prices are determined using the last reported
sale price or, if no sales are reported (as in the case of some
securities traded over-the-counter), the last reported bid price,
except that certain securities are valued at the mean between the
last reported bid and asked prices. Short-term investments
having remaining maturities of 60 days or less are valued at
amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following
procedures approved by the Trustees. Liabilities are deducted
from the total, and the resulting amount is divided by the number
of shares of the class outstanding.
Reliable market quotations are not considered to be readily
available for long-term corporate bonds and notes, certain
preferred stocks, tax-exempt securities, and certain foreign
securities. These investments are valued at fair value on the
basis of valuations furnished by pricing services, which
determine valuations for normal, institutional-size trading units
of such securities using methods based on market transactions for
comparable securities and various relationships between
securities which are generally recognized by institutional
traders.
If any securities held by the fund are restricted as to resale,
Putnam Management determines their fair value following
procedures approved by the Trustees. The fair value of such
securities is generally determined as the amount which the fund
could reasonably expect to realize from an orderly disposition of
such securities over a reasonable period of time. The valuation
procedures applied in any specific instance are likely to vary
from case to case. However, consideration is generally given to
the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of
the restrictions on disposition of the securities (including any
registration expenses that might be borne by the fund in
connection with such disposition). In addition, specific factors
are also generally considered, such as the cost of the
investment, the market value of any unrestricted securities of
the same class, the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any
available analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign
securities) is substantially completed each day at various times
prior to the close of the Exchange. The values of these
securities used in determining the net asset value of the fund's
shares are computed as of such times. Also, because of the
amount of time required to collect and process trading
information as to large numbers of securities issues, the values
of certain securities (such as convertible bonds, U.S. government
securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest
practicable time prior to the close of the Exchange.
Occasionally, events affecting the value of such securities may
occur between such times and the close of the Exchange which will
not be reflected in the computation of the fund's net asset
value. If events materially affecting the value of such
securities occur during such period, then these securities will
be valued at their fair value following procedures approved by
the Trustees.
Money market funds generally value their portfolio securities at
amortized cost according to Rule 2a-7 under the Investment
Company Act of 1940.
HOW TO BUY SHARES
GENERAL
The prospectus contains a general description of how investors
may buy shares of the fund and states whether the fund offers
more than one class of shares. This SAI contains additional
information which may be of interest to investors.
Class A shares and class M shares are generally sold with a sales
charge payable at the time of purchase (except for class A shares
and class M shares of money market funds). As used in this SAI
and unless the context requires otherwise, the term "class A
shares" includes shares of funds that offer only one class of
shares. The prospectus contains a table of applicable sales
charges. For information about how to purchase class A or class
M shares of a Putnam fund at net asset value through an employer-
sponsored retirement plan, please consult your employer. Certain
purchases of class A shares and class M shares may be exempt from
a sales charge or, in the case of class A shares, may be subject
to a contingent deferred sales charge ("CDSC"). See "General--
Sales without sales charges or contingent deferred sales
charges," "Additional Information About Class A and Class M
shares," and "Contingent Deferred Sales Charges--Class A shares."
Class B shares and class C shares are sold subject to a CDSC
payable upon redemption within a specified period after purchase.
The prospectus contains a table of applicable CDSCs.
Class B shares will automatically convert into class A shares at
the end of the month eight years after the purchase date. Class
B shares acquired by exchanging class B shares of another Putnam
fund will convert into class A shares based on the time of the
initial purchase. Class B shares acquired through reinvestment
of distributions will convert into Class A shares based on the
date of the initial purchase to which such shares relate. For
this purpose, class B shares acquired through reinvestment of
distributions will be attributed to particular purchases of class
B shares in accordance with such procedures as the Trustees may
determine from time to time. The conversion of class B shares to
class A shares is subject to the condition that such conversions
will not constitute taxable events for Federal tax purposes.
Class Y shares, which are not subject to sales charges or a CDSC,
are available only to certain defined contribution plans. See
the prospectus that offers class Y shares for more information.
Certain purchase programs described below are not available to
defined contribution plans. Consult your employer for
information on how to purchase shares through your plan.
The fund is currently making a continuous offering of its shares.
The fund receives the entire net asset value of shares sold. The
fund will accept unconditional orders for shares to be executed
at the public offering price based on the net asset value per
share next determined after the order is placed. In the case of
class A shares and class M shares, the public offering price is
the net asset value plus the applicable sales charge, if any. No
sales charge is included in the public offering price of other
classes of shares. In the case of orders for purchase of shares
placed through dealers, the public offering price will be based
on the net asset value determined on the day the order is placed,
but only if the dealer receives the order before the close of
regular trading on the Exchange. If the dealer receives the
order after the close of the Exchange, the price will be based on
the net asset value next determined. If funds for the purchase
of shares are sent directly to Putnam Investor Services, they
will be invested at the public offering price based on the net
asset value next determined after receipt. Payment for shares of
the fund must be in U.S. dollars; if made by check, the check
must be drawn on a U.S. bank.
Initial and subsequent purchases must satisfy the minimums stated
in the prospectus, except that (i) individual investments under
certain employee benefit plans or Tax Qualified Retirement Plans
may be lower, (ii) persons who are already shareholders may make
additional purchases of $50 or more by sending funds directly to
Putnam Investor Services (see "Your investing account" below),
and (iii) for investors participating in systematic investment
plans and military allotment plans, the initial and subsequent
purchases must be $25 or more. Information about these plans is
available from investment dealers or from Putnam Mutual Funds.
As a convenience to investors, shares may be purchased through a
systematic investment plan. Pre-authorized monthly bank drafts
for a fixed amount (at least $25) are used to purchase fund
shares at the applicable public offering price next determined
after Putnam Mutual Funds receives the proceeds from the draft.
A shareholder may choose any day of the month and, if a given
month (for example, February) does not contain that particular
date, or if the date falls on a weekend or holiday, the draft
will be processed on the next business day. Further information
and application forms are available from investment dealers or
from Putnam Mutual Funds.
Except for funds that declare a distribution daily, distributions
to be reinvested are reinvested without a sales charge in shares
of the same class as of the ex-dividend date using the net asset
value determined on that date, and are credited to a
shareholder's account on the payment date. Dividends for Putnam
money market funds are credited to a shareholder's account on the
payment date. Distributions for all other funds that declare a
distribution daily are reinvested without a sales charge as of
the last day of the period for which distributions are paid using
the net asset value determined on that date, and are credited to
a shareholder's account on the payment date.
PAYMENT IN SECURITIES. In addition to cash, the fund may accept
securities as payment for fund shares at the applicable net asset
value. Generally, the fund will only consider accepting
securities to increase its holdings in a portfolio security, or
if Putnam Management determines that the offered securities are a
suitable investment for the fund and in a sufficient amount for
efficient management.
While no minimum has been established, it is expected that the
fund would not accept securities with a value of less than
$100,000 per issue as payment for shares. The fund may reject in
whole or in part any or all offers to pay for purchases of fund
shares with securities, may require partial payment in cash for
such purchases to provide funds for applicable sales charges, and
may discontinue accepting securities as payment for fund shares
at any time without notice. The fund will value accepted
securities in the manner described in the section "Determination
of Net Asset Value" for valuing shares of the fund. The fund
will only accept securities which are delivered in proper form.
The fund will not accept options or restricted securities as
payment for shares. The acceptance of securities by certain
funds in exchange for fund shares is subject to additional
requirements. For federal income tax purposes, a purchase of
fund shares with securities will be treated as a sale or exchange
of such securities on which the investor will realize a taxable
gain or loss. The processing of a purchase of fund shares with
securities involves certain delays while the fund considers the
suitability of such securities and while other requirements are
satisfied. For information regarding procedures for payment in
securities, contact Putnam Mutual Funds. Investors should not
send securities to the fund except when authorized to do so and
in accordance with specific instructions received from Putnam
Mutual Funds.
SALES WITHOUT SALES CHARGES OR CONTINGENT DEFERRED SALES CHARGES.
The fund may sell shares without a sales charge or CDSC to:
(i) current and retired Trustees of the fund; officers of
the fund; directors and current and retired U.S. full-time
employees of Putnam Management, Putnam Mutual Funds, their
parent corporations and certain corporate affiliates;
family members of and employee benefit plans for the
foregoing; and partnerships, trusts or other entities in
which any of the foregoing has a substantial interest;
(ii) employer-sponsored retirement plans, for the
repurchase of shares in connection with repayment of plan
loans made to plan participants (if the sum loaned was
obtained by redeeming shares of a Putnam fund sold with a
sales charge) (not offered by tax-exempt funds);
(iii) clients of administrators of tax-qualified employer-
sponsored retirement plans which have entered into
agreements with Putnam Mutual Funds (not offered by
tax-exempt funds);
(iv) registered representatives and other employees of
broker-dealers having sales agreements with Putnam Mutual
Funds; employees of financial institutions having sales
agreements with Putnam Mutual Funds or otherwise having an
arrangement with any such broker-dealer or financial
institution with respect to sales of fund shares; and
their spouses and children under age 21 (Putnam Mutual
Funds is regarded as the dealer of record for all such
accounts);
(v) investors meeting certain requirements who sold shares
of certain Putnam closed-end funds pursuant to a tender
offer by such closed-end fund;
(vi) a trust department of any financial institution
purchasing shares of the fund in its capacity as trustee
of any trust, if the value of the shares of the fund and
other Putnam funds purchased or held by all such trusts
exceeds $1 million in the aggregate; and
(vii) "wrap accounts" maintained for clients of broker-
dealers, financial institutions or financial planners who
have entered into agreements with Putnam Mutual Funds with
respect to such accounts.
In addition, the fund may issue its shares at net asset value
without an initial sales charge or a CDSC in connection with the
acquisition of substantially all of the securities owned by other
investment companies or personal holding companies, and the CDSC
will be waived on redemptions of shares arising out of death or
post-purchase disability or 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 fund may sell class M
shares at net asset value to members of qualified groups. See
"Group purchases of class A and class M shares" below. Class A
shares are available without an initial sales charge to eligible
employer-sponsored retirement plans, as described below.
PAYMENTS TO DEALERS. Putnam Mutual Funds may, at its expense,
pay concessions in addition to the payments disclosed in the
prospectus to dealers which satisfy certain criteria established
from time to time by Putnam Mutual Funds relating to increasing
net sales of shares of the Putnam funds over prior periods, and
certain other factors.
ADDITIONAL INFORMATION ABOUT CLASS A AND CLASS M SHARES
The underwriter's commission is the sales charge shown in the
prospectus less any applicable dealer discount. Putnam Mutual
Funds will give dealers ten days' notice of any changes in the
dealer discount. Putnam Mutual Funds retains the entire sales
charge on any retail sales made by it.
Putnam Mutual Funds offers several plans by which an investor may
obtain reduced sales charges on purchases of class A shares and
class M shares. The variations in sales charges reflect the
varying efforts required to sell shares to separate categories of
purchasers. These plans may be altered or discontinued at any
time.
COMBINED PURCHASE PRIVILEGE. The following persons may qualify
for the sales charge reductions or eliminations shown in the
prospectus by combining into a single transaction the purchase of
class A shares or class M shares with other purchases of any
class of shares:
(i) an individual, or a "company" as defined in Section
2(a)(8) of the Investment Company Act of 1940 (which
includes corporations which are corporate affiliates of
each other);
(ii) an individual, his or her spouse and their children
under twenty-one, purchasing for his, her or their own
account;
(iii) a trustee or other fiduciary purchasing for a single
trust estate or single fiduciary account (including a
pension, profit-sharing, or other employee benefit trust
created pursuant to a plan qualified under Section 401 of
the Internal Revenue Code of 1986, as amended (the
"Code"));
(iv) tax-exempt organizations qualifying under Section
501(c)(3) of the Internal Revenue Code (not including tax-
exempt organizations qualifying under Section 403(b)(7) (a
"403(b) plan") of the Code; and
(v) employee benefit plans of a single employer or of
affiliated employers, other than 403(b) plans.
A combined purchase currently may also include shares of any
class of other continuously offered Putnam funds (other than
money market funds) purchased at the same time through a single
investment dealer, if the dealer places the order for such shares
directly with Putnam Mutual Funds.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). A
purchaser of class A shares or class M shares may qualify for a
cumulative quantity discount by combining a current purchase (or
combined purchases as described above) with certain other shares
of any class of Putnam funds already owned. The applicable sales
charge is based on the total of:
(i) the investor's current purchase; and
(ii) the maximum public offering price (at the close of
business on the previous day) of:
(a) all shares held by the investor in all of the
Putnam funds (except money market funds); and
(b) any shares of money market funds acquired by
exchange from other Putnam funds; and
(iii) the maximum public offering price of all shares
described in paragraph (ii) owned by another shareholder
eligible to participate with the investor in a "combined
purchase" (see above).
To qualify for the combined purchase privilege or to obtain the
cumulative quantity discount on a purchase through an investment
dealer, when each purchase is made the investor or dealer must
provide Putnam Mutual Funds with sufficient information to verify
that the purchase qualifies for the privilege or discount. The
shareholder must furnish this information to Putnam Investor
Services when making direct cash investments.
STATEMENT OF INTENTION. Investors may also obtain the reduced
sales charges for class A shares or class M shares shown in the
prospectus for investments of a particular amount by means of a
written Statement of Intention, which expresses the investor's
intention to invest that amount (including certain "credits," as
described below) within a period of 13 months in shares of any
class of the fund or any other continuously offered Putnam fund
(excluding money market funds). Each purchase of class A shares
or class M shares under a Statement of Intention will be made at
the public offering price applicable at the time of such purchase
to a single transaction of the total dollar amount indicated in
the Statement of Intention. A Statement of Intention may include
purchases of shares made not more than 90 days prior to the date
that an investor signs a Statement; however, the 13-month period
during which the Statement of Intention is in effect will begin
on the date of the earliest purchase to be included.
An investor may receive a credit toward the amount indicated in
the Statement of Intention equal to the maximum public offering
price as of the close of business on the previous day of all
shares he or she owns on the date of the Statement of Intention
which are eligible for purchase under a Statement of Intention
(plus any shares of money market funds acquired by exchange of
such eligible shares). Investors do not receive credit for
shares purchased by the reinvestment of distributions. Investors
qualifying for the "combined purchase privilege" (see above) may
purchase shares under a single Statement of Intention.
The Statement of Intention is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum
initial investment under a Statement of Intention is 5% of such
amount, and must be invested immediately. Class A shares or
class M shares purchased with the first 5% of such amount will be
held in escrow to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount
indicated is not purchased. When the full amount indicated has
been purchased, the escrow will be released. If an investor
desires to redeem escrowed shares before the full amount has been
purchased, the shares will be released from escrow only if the
investor pays the sales charge that, without regard to the
Statement of Intention, would apply to the total investment made
to date.
To the extent that an investor purchases more than the dollar
amount indicated on the Statement of Intention and qualifies for
a further reduced sales charge, the sales charge will be adjusted
for the entire amount purchased at the end of the 13-month
period, upon recovery from the investor's dealer of its portion
of the sales charge adjustment. Once received from the dealer,
which may take a period of time or may never occur, the sales
charge adjustment will be used to purchase additional shares at
the then current offering price applicable to the actual amount
of the aggregate purchases. These additional shares will not be
considered as part of the total investment for the purpose of
determining the applicable sales charge pursuant to the Statement
of Intention. No sales charge adjustment will be made unless and
until the investor's dealer returns any excess commissions
previously received.
To the extent that an investor purchases less than the dollar
amount indicated on the Statement of Intention within the 13-
month period, the sales charge will be adjusted upward for the
entire amount purchased at the end of the 13-month period. This
adjustment will be made by redeeming shares from the account to
cover the additional sales charge, the proceeds of which will be
paid to the investor's dealer and Putnam Mutual Funds in
accordance with the prospectus. If the account exceeds an amount
that would otherwise qualify for a reduced sales charge, that
reduced sales charge will be applied.
Statements of Intention are not available for certain employee
benefit plans.
Statement of Intention forms may be obtained from Putnam Mutual
Funds or from investment dealers. Interested investors should
read the Statement of Intention carefully.
GROUP PURCHASES OF CLASS A AND CLASS M SHARES. Members of
qualified groups may purchase class A shares of the fund at a
group sales charge rate of 4.50% of the public offering price
(4.71% of the net amount invested). The dealer discount on such
sales is 3.75% of the offering price. Members of qualified
groups may also purchase class M shares at net asset value.
To receive the class A or class M group rate, group members must
purchase shares through a single investment dealer designated by
the group. The designated dealer must transmit each member's
initial purchase to Putnam Mutual Funds, together with payment
and completed application forms. After the initial purchase, a
member may send funds for the purchase of shares directly to
Putnam Investor Services. Purchases of shares are made at the
public offering price based on the net asset value next
determined after Putnam Mutual Funds or Putnam Investor Services
receives payment for the shares. The minimum investment
requirements described above apply to purchases by any group
member. Only shares purchased under the class A group discount
are included in calculating the purchased amount for the purposes
of these requirements.
Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or
association, or other organized groups of persons (the members of
which may include other qualified groups) provided that: (i) the
group has at least 25 members of which, with respect to the class
A discount only, at least 10 members participate in the initial
purchase; (ii) the group has been in existence for at least six
months; (iii) the group has some purpose in addition to the
purchase of investment company shares at a reduced sales charge;
(iv) the group's sole organizational nexus or connection is not
that the members are credit card holders of a company, policy
holders of an insurance company, customers of a bank or
broker-dealer, clients of an investment adviser or security
holders of a company; (v) with respect to the class A discount
only, the group agrees to provide its designated investment
dealer access to the group's membership by means of written
communication or direct presentation to the membership at a
meeting on not less frequently than an annual basis; (vi) the
group or its investment dealer will provide annual certification
in form satisfactory to Putnam Investor Services that the group
then has at least 25 members and, with respect to the class A
discount only, that at least ten members participated in group
purchases during the immediately preceding 12 calendar months;
and (vii) the group or its investment dealer will provide
periodic certification in form satisfactory to Putnam Investor
Services as to the eligibility of the purchasing members of the
group.
Members of a qualified group include: (i) any group which meets
the requirements stated above and which is a constituent member
of a qualified group; (ii) any individual purchasing for his or
her own account who is carried on the records of the group or on
the records of any constituent member of the group as being a
good standing employee, partner, member or person of like status
of the group or constituent member; or (iii) any fiduciary
purchasing shares for the account of a member of a qualified
group or a member's beneficiary. For example, a qualified group
could consist of a trade association which would have as its
members individuals, sole proprietors, partnerships and
corporations. The members of the group would then consist of the
individuals, the sole proprietors and their employees, the
members of the partnerships and their employees, and the
corporations and their employees, as well as the trustees of
employee benefit trusts acquiring class A shares for the benefit
of any of the foregoing.
A member of a qualified group may, depending upon the value of
class A shares of the fund owned or proposed to be purchased by
the member, be entitled to purchase class A shares of the fund at
non-group sales charge rates shown in the prospectus which may be
lower than the group sales charge rate, if the member qualifies
as a person entitled to reduced non-group sales charges. Such a
group member will be entitled to purchase at the lower rate if,
at the time of purchase, the member or his or her investment
dealer furnishes sufficient information for Putnam Mutual Funds
or Putnam Investor Services to verify that the purchase qualifies
for the lower rate.
Interested groups should contact their investment dealer or
Putnam Mutual Funds. The fund reserves the right to revise the
terms of or to suspend or discontinue group sales at any time.
QUALIFIED BENEFIT PLANS; INDIVIDUAL ACCOUNT PLANS. The terms
"class A qualified benefit plan" and "class M qualified benefit
plan" mean any employer-sponsored plan or arrangement, whether or
not tax-qualified, for which Putnam Fiduciary Trust Company or
its affiliates provide recordkeeping or other services in
connection with the purchase of class A shares or class M shares,
respectively. The term "affiliated employer" means employers who
are affiliated with each other within the meaning of Section
2(a)(3)(C) of the Investment Company Act of 1940. The term
"individual account plan" means any employee benefit plan whereby
(i) class A shares are purchased through payroll deductions or
otherwise by a fiduciary or other person for the account of
participants who are employees (or their spouses) of an employer,
or of affiliated employers, and (ii) a separate investing account
is maintained in the name of such fiduciary or other person for
the account of each participant in the plan.
The table of sales charges in the prospectus applies to sales to
employer-sponsored retirement plans that are not class A
qualified benefit plans, except that the fund may sell class A
shares at net asset value to employee benefit plans, including
individual account plans, of employers or of affiliated employers
which have at least 750 employees to whom such plan is made
available, in connection with a payroll deduction system of plan
funding (or other system acceptable to Putnam Investor Services)
by which contributions or account information for plan
participation are transmitted to Putnam Investor Services by
methods acceptable to Putnam Investor Services. The fund may
also sell class A shares at net asset value to employer-sponsored
retirement plans that initially invest at least $1 million in the
fund or that have at least 200 eligible employees. In addition,
the fund may sell class M shares at net asset value to class M
qualified benefit plans.
An employer-sponsored retirement plan participating in a "multi-
fund" program approved by Putnam Mutual Funds may include amounts
invested in the other mutual funds participating in such program
for purposes of determining whether the plan may purchase class A
shares at net asset value based on the size of the purchase as
described in the prospectus. These investments will also be
included for purposes of the discount privileges and programs
described above.
Additional information about qualified benefit plans and
individual account plans is available from investment dealers or
from Putnam Mutual Funds.
CONTINGENT DEFERRED SALES CHARGES; COMMISSIONS
CLASS A SHARES. Except as described below, a CDSC of 0.75%
(1.00% in the case of plans for which Putnam Mutual Funds and its
affiliates do not act as trustee or record-keeper) of the total
amount redeemed is imposed on redemptions of shares purchased by
class A qualified benefit plans if, within two years of a plan's
initial purchase of class A shares, it redeems 90% or more of its
cumulative purchases. Thereafter, such plan is no longer liable
for any CDSC. The two-year CDSC applicable to class A qualified
benefit plans for which Putnam Mutual Funds or its affiliates
serve as trustee or recordkeeper ("full service plans") is 0.50%
of the total amount redeemed, for full service plans that
initially invest at least $5 million but less than $10 million in
Putnam funds and other investments managed by Putnam Management
or its affiliates ("Putnam Assets"), and is 0.25% of the total
amount redeemed for full service plans that initially invest at
least $10 million but less than $20 million in Putnam Assets.
Class A qualified benefit plans that initially invest at least
$20 million in Putnam Assets, or whose dealer of record has, with
Putnam Mutual Funds' approval, waived its commission or agreed to
refund its commission to Putnam Mutual Funds in the event a CDSC
would otherwise be applicable, are not subject to any CDSC.
Similarly, class A shares purchased at net asset value by any
investor other than a class A qualified benefit plan, including
purchases pursuant to any Combined Purchase Privilege, Right of
Accumulation or Statement of Intention, are subject to a CDSC of
1.00% or 0.50%, respectively, if redeemed within the first or
second year after purchase, unless the dealer of record waived
its commission with Putnam Mutual Funds' approval. The class A
CDSC is imposed on the lower of the cost and the current net
asset value of the shares redeemed.
Except as described below for sales to class A qualified benefit
plans, Putnam Mutual Funds pays investment dealers of record
commissions on sales of class A shares of $1 million or more and
sales to employer-sponsored benefit plans that have at least 200
eligible employees and that are not class A qualified benefit
plans based on cumulative purchases of such shares, including
purchases pursuant to any Combined Purchase Privilege, Right of
Accumulation or Statement of Intention, during the one-year
period beginning with the date of the initial purchase at net
asset value. 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 class A qualified benefit plan,
Putnam Mutual Funds pays commissions to the dealer of record at
the time of the sale on net monthly purchases at the following
rates: 1.00% of the first $1 million, 0.75% of the next $1
million, 0.50% of the next $3 million, 0.20% of the next $5
million, 0.15% of the next $10 million, 0.10% of the next $10
million and 0.05% thereafter, except that commissions on sales to
class A qualified benefit plans initially investing less than $20
million in Putnam funds and other investments managed by Putnam
Management or its affiliates pursuant to a proposal made by
Putnam Mutual Funds on or before April 15, 1997 are based on
cumulative purchases over a one-year measuring period 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
class A qualified benefit plans receiving proposals from Putnam
Mutual Funds on or before April 15, 1997, Putnam Mutual Funds
pays commissions on the initial investment and on subsequent net
quarterly sales (gross sales minus gross redemptions during the
quarter) at the rate of 0.15%. Money market fund shares are
excluded from all commission calculations, except for determining
the amount initially invested by a qualified benefit plan.
Commissions on sales at net asset value to such plans are subject
to Putnam Mutual Funds' right to reclaim such commissions if the
shares are redeemed within two years.
Different CDSC and commission rates may apply to shares purchased
prior to December 1, 1995.
ALL SHARES. Investors who set up an Automatic Cash Withdrawal
Plan ("ACWP") for a share account (see "Plans available to
shareholders -- Automatic Cash Withdrawal Plan") may withdraw
through the ACWP up to 12% of the net asset value of the account
(calculated as set forth below) each year without incurring any
CDSC. Shares not subject to a CDSC (such as shares representing
reinvestment of distributions) will be redeemed first and will
count toward the 12% limitation. If there are insufficient
shares not subject to a CDSC, shares subject to the lowest CDSC
liability will be redeemed next until the 12% limit is reached.
The 12% figure is calculated on a pro rata basis at the time of
the first payment made pursuant to an ACWP and recalculated
thereafter on a pro rata basis at the time of each ACWP payment.
Therefore, shareholders who have chosen an ACWP based on a
percentage of the net asset value of their account of up to 12%
will be able to receive ACWP payments without incurring a CDSC.
However, shareholders who have chosen a specific dollar amount
(for example, $100 per month from a fund that pays income
distributions monthly) for their periodic ACWP payment should be
aware that the amount of that payment not subject to a CDSC may
vary over time depending on the net asset value of their account.
For example, if the net asset value of the account is $10,000 at
the time of payment, the shareholder will receive $100 free of
the CDSC (12% of $10,000 divided by 12 monthly payments).
However, if at the time of the next payment the net asset value
of the account has fallen to $9,400, the shareholder will receive
$94 free of any CDSC (12% of $9,400 divided by 12 monthly
payments) and $6 subject to the lowest applicable CDSC. This
ACWP privilege may be revised or terminated at any time.
No CDSC is imposed on shares of any class subject to a CDSC
("CDSC Shares") to the extent that the CDSC Shares redeemed (i)
are no longer subject to the holding period therefor, (ii)
resulted from reinvestment of distributions on CDSC Shares, or
(iii) were exchanged for shares of another Putnam fund, provided
that the shares acquired in such exchange or subsequent exchanges
(including shares of a Putnam money market fund) will continue to
remain subject to the CDSC, if applicable, until the applicable
holding period expires. In determining whether the CDSC applies
to each redemption of CDSC Shares, CDSC Shares not subject to a
CDSC are redeemed first.
The fund will waive any CDSC on redemptions, in the case of
individual, joint or Uniform Transfers to Minors Act accounts, in
the event of death or post-purchase disability of a shareholder,
for the purpose of paying benefits pursuant to tax-qualified
retirement plans ("Benefit Payments"), or, in the case of living
trust accounts, in the event of the death or post-purchase
disability of the settlor of the trust). Benefit payments
currently include, without limitation, (1) distributions from an
IRA due to death or disability, (2) a return of excess
contributions to an IRA or 401(k) plan, and (3) distributions
from retirement plans qualified under Section 401(a) of the Code
or from a 403(b) plan due to death, disability, retirement or
separation from service. These waivers may be changed at any
time. Additional waivers may apply to IRA accounts opened prior
to February 1, 1994.
DISTRIBUTION PLANS
If the fund or a class of shares of the fund has adopted a
distribution plan, the prospectus describes the principal
features of the plan. This SAI contains additional information
which may be of interest to investors.
Continuance of a plan is subject to annual approval by a vote of
the Trustees, including a majority of the Trustees who are not
interested persons of the fund and who have no direct or indirect
interest in the plan or related arrangements (the "Qualified
Trustees"), cast in person at a meeting called for that purpose.
All material amendments to a plan must be likewise approved by
the Trustees and the Qualified Trustees. No plan may be amended
in order to increase materially the costs which the fund may bear
for distribution pursuant to such plan without also being
approved by a majority of the outstanding voting securities of
the fund or the relevant class of the fund, as the case may be.
A plan terminates automatically in the event of its assignment
and may be terminated without penalty, at any time, by a vote of
a majority of the Qualified Trustees or by a vote of a majority
of the outstanding voting securities of the fund or the relevant
class of the fund, as the case may be.
Putnam Mutual Funds pays service fees to qualifying dealers at
the rates set forth in the Prospectus, except with respect to
shares held by class A qualified benefit plans. Putnam Mutual
Funds pays service fees to the dealer of record for plans for
which Putnam Fiduciary Trust or its affiliates serve as trustee
and recordkeeper at the following annual rates (expressed as a
percentage of the average net asset value (as defined below) of
the plan's class A shares): 0.25% of the first $5 million, 0.20%
of the next $5 million, 0.15% of the next $10 million, 0.10% of
the next $30 million, and 0.05% thereafter. For class A
qualified benefit plans for which Putnam Fiduciary Trust Company
or its affiliates provide some services but do not act as trustee
and recordkeeper, Putnam Mutual Funds will pay service fees to
the dealer of record of up to 0.25% of average net assets,
depending on the level of service provided by Putnam Fiduciary
Trust Company or its affiliates, by the dealer of record, and by
third parties. Service fees are paid quarterly to the dealer of
record for that quarter.
Financial institutions receiving payments from Putnam Mutual
Funds as described above may be required to comply with various
state and federal regulatory requirements, including among others
those regulating the activities of securities brokers or dealers.
Except as otherwise agreed between Putnam Mutual Funds and a
dealer, for purposes of determining the amounts payable to
dealers for shareholder accounts for which such dealers are
designated as the dealer of record, "average net asset value"
means the product of (i) the average daily share balance in such
account(s) and (ii) the average daily net asset value of the
relevant class of shares over the quarter.
Financial institutions receiving payments from Putnam Mutual
Funds as described above may be required to comply with various
state and federal regulatory requirements, including among others
those regulating the activities of securities brokers or dealers.
INVESTOR SERVICES
SHAREHOLDER INFORMATION
Each time shareholders buy or sell shares, they will receive a
statement confirming the transaction and listing their current
share balance. (Under certain investment plans, a statement may
only be sent quarterly.) Shareholders will receive a statement
confirming reinvestment of distributions in additional fund
shares (or in shares of other Putnam funds for Dividends Plus
accounts) promptly following the quarter in which the
reinvestment occurs. To help shareholders take full advantage of
their Putnam investment, they will receive a Welcome Kit and a
periodic publication covering many topics of interest to
investors. The fund also sends annual and semiannual reports
that keep shareholders informed about its portfolio and
performance, and year-end tax information to simplify their
recordkeeping. Easy-to-read, free booklets on special subjects
such as the Exchange Privilege and IRAs are available from Putnam
Investor Services. Shareholders may call Putnam Investor
Services toll-free weekdays at 1-800-225-1581 between 8:30 a.m.
and 7:00 p.m. Boston time for more information, including account
balances.
YOUR INVESTING ACCOUNT
The following information provides more detail concerning the
operation of a Putnam Investing Account. For further information
or assistance, investors should consult Putnam Investor Services.
Shareholders who purchase shares through a defined contribution
plan should note that not all of the services or features
described below may be available to them, and they should contact
their employer for details.
A shareholder may reinvest a cash distribution without a
front-end sales charge or without the reinvested shares being
subject to a CDSC, as the case may be, by delivering to Putnam
Investor Services the uncashed distribution check, endorsed to
the order of the fund. Putnam Investor Services must receive the
properly endorsed check within 1 year after the date of the
check.
The Investing Account also provides a way to accumulate shares of
the fund. In most cases, after an initial investment of $500, a
shareholder may send checks to Putnam Investor Services for $50
or more, made payable to the fund, to purchase additional shares
at the applicable public offering price next determined after
Putnam Investor Services receives the check. Checks must be
drawn on a U.S. bank and must be payable in U.S. dollars.
Putnam Investor Services acts as the shareholder's agent whenever
it receives instructions to carry out a transaction on the
shareholder's account. Upon receipt of instructions that shares
are to be purchased for a shareholder's account, shares will be
purchased through the investment dealer designated by the
shareholder. Shareholders may change investment dealers at any
time by written notice to Putnam Investor Services, provided the
new dealer has a sales agreement with Putnam Mutual Funds.
Shares credited to an account are transferable upon written
instructions in good order to Putnam Investor Services and may be
sold to the fund as described under "How to sell shares" in the
prospectus. Money market funds and certain other funds will not
issue share certificates. A shareholder may send to Putnam
Investor Services any certificates which have been previously
issued for safekeeping at no charge to the shareholder.
Putnam Mutual Funds, at its expense, may provide certain
additional reports and administrative material to qualifying
institutional investors with fiduciary responsibilities to assist
these investors in discharging their responsibilities.
Institutions seeking further information about this service
should contact Putnam Mutual Funds, which may modify or terminate
this service at any time.
Putnam Investor Services may make special services available to
shareholders with investments exceeding $1,000,000. Contact
Putnam Investor Services for details.
The fund pays Putnam Investor Services' fees for maintaining
Investing Accounts.
REINSTATEMENT PRIVILEGE
An investor who has redeemed shares of the fund may reinvest
(within 1 year) the proceeds of such sale in shares of the same
class of the fund, or may be able to reinvest (within 1 year) the
proceeds in shares of the same class of one of the other
continuously offered Putnam funds (through the Exchange Privilege
described in the prospectus), including, in the case of shares
subject to a CDSC, the amount of CDSC charged on the redemption.
Any such reinvestment would be at the net asset value of the
shares of the fund(s) the investor selects, next determined after
Putnam Mutual Funds receives a Reinstatement Authorization. The
time that the previous investment was held will be included in
determining any applicable CDSC due upon redemptions and, in the
case of class B shares, the eight-year period for conversion to
class A shares. Shareholders will receive from Putnam Mutual
Funds the amount of any CDSC paid at the time of redemption as
part of the reinstated investment, which may be treated as
capital gains to the shareholder for tax purposes. Exercise of
the Reinstatement Privilege does not alter the federal income tax
treatment of any capital gains realized on a sale of fund shares,
but to the extent that any shares are sold at a loss and the
proceeds are reinvested in shares of the fund, some or all of the
loss may be disallowed as a deduction. Consult your tax adviser.
Investors who desire to exercise the Reinstatement Privilege
should contact their investment dealer or Putnam Investor
Services.
EXCHANGE PRIVILEGE
Except as otherwise set forth in this section, by calling Putnam
Investor Services, investors may exchange shares valued up to
$500,000 between accounts with identical registrations, provided
that no certificates are outstanding for such shares and no
address change has been made within the preceding 15 days.
During periods of unusual market changes and shareholder
activity, shareholders may experience delays in contacting Putnam
Investor Services by telephone to exercise the Telephone Exchange
Privilege.
Putnam Investor Services also makes exchanges promptly after
receiving a properly completed Exchange Authorization Form and,
if issued, share certificates. If the shareholder is a
corporation, partnership, agent, or surviving joint owner, Putnam
Investor Services will require additional documentation of a
customary nature. Because an exchange of shares involves the
redemption of fund shares and reinvestment of the proceeds in
shares of another Putnam fund, completion of an exchange may be
delayed under unusual circumstances if the fund were to suspend
redemptions or postpone payment for the fund shares being
exchanged, in accordance with federal securities laws. Exchange
Authorization Forms and prospectuses of the other Putnam funds
are available from Putnam Mutual Funds or investment dealers
having sales contracts with Putnam Mutual Funds. The prospectus
of each fund describes its investment objective(s) and policies,
and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange.
Shares of certain Putnam funds are not available to residents of
all states. The fund reserves the right to change or suspend the
Exchange Privilege at any time. Shareholders would be notified
of any change or suspension. Additional information is available
from Putnam Investor Services.
Shareholders of other Putnam funds may also exchange their shares
at net asset value for shares of the fund, as set forth in the
current prospectus of each fund.
For federal income tax purposes, an exchange is a sale on which
the investor generally will realize a capital gain or loss
depending on whether the net asset value at the time of the
exchange is more or less than the investor's basis. The Exchange
Privilege may be revised or terminated at any time. Shareholders
would be notified of any such change or suspension.
DIVIDENDS PLUS
Shareholders may invest the fund's distributions of net
investment income or distributions combining net investment
income and short-term capital gains in shares of the same class
of another continuously offered Putnam fund (the "receiving
fund") using the net asset value per share of the receiving fund
determined on the date the fund's distribution is payable. No
sales charge or CDSC will apply to the purchased shares unless
the fund paying the distribution is a money market fund. The
prospectus of each fund describes its investment objective(s) and
policies, and shareholders should obtain a prospectus and
consider these objective(s) and policies carefully before
investing their distributions in the receiving fund. Shares of
certain Putnam funds are not available to residents of all
states.
The minimum account size requirement for the receiving fund will
not apply if the current value of your account in the fund paying
the distribution is more than $5,000.
Shareholders of other Putnam funds (except for money market
funds, whose shareholders must pay a sales charge or become
subject to a CDSC) may also use their distributions to purchase
shares of the fund at net asset value.
For federal tax purposes, distributions from the fund which are
reinvested in another fund are treated as paid by the fund to the
shareholder and invested by the shareholder in the receiving fund
and thus, to the extent comprised of taxable income and deemed
paid to a taxable shareholder, are taxable.
The Dividends PLUS program may be revised or terminated at any
time.
PLANS AVAILABLE TO SHAREHOLDERS
The plans described below are fully voluntary and may be
terminated at any time without the imposition by the fund or
Putnam Investor Services of any penalty. All plans provide for
automatic reinvestment of all distributions in additional shares
of the fund at net asset value. The fund, Putnam Mutual Funds or
Putnam Investor Services may modify or cease offering these plans
at any time.
AUTOMATIC CASH WITHDRAWAL PLAN ("ACWP"). An investor who owns or
buys shares of the fund valued at $10,000 or more at the current
public offering price may open an ACWP plan and have a designated
sum of money ($50 or more) paid monthly, quarterly, semi-annually
or annually to the investor or another person. (Payments from
the fund can be combined with payments from other Putnam funds
into a single check through a designated payment plan.) Shares
are deposited in a plan account, and all distributions are
reinvested in additional shares of the fund at net asset value
(except where the plan is utilized in connection with a
charitable remainder trust). Shares in a plan account are then
redeemed at net asset value to make each withdrawal payment.
Payment will be made to any person the investor designates;
however, if shares are registered in the name of a trustee or
other fiduciary, payment will be made only to the fiduciary,
except in the case of a profit-sharing or pension plan where
payment will be made to a designee. As withdrawal payments may
include a return of principal, they cannot be considered a
guaranteed annuity or actual yield of income to the investor.
The redemption of shares in connection with a plan generally will
result in a gain or loss for tax purposes. Some or all of the
losses realized upon redemption may be disallowed pursuant to the
so-called wash sale rules if shares of the same fund from which
shares were redeemed are purchased (including through the
reinvestment of fund distributions) within a period beginning 30
days before, and ending 30 days after, such redemption. In such
a case, the basis of the replacement shares will be increased to
reflect the disallowed loss. Continued withdrawals in excess of
income will reduce and possibly exhaust invested principal,
especially in the event of a market decline. The maintenance of
a plan concurrently with purchases of additional shares of the
fund would be disadvantageous to the investor because of the
sales charge payable on such purchases. For this reason, the
minimum investment accepted while a plan is in effect is $1,000,
and an investor may not maintain a plan for the accumulation of
shares of the fund (other than through reinvestment of
distributions) and a plan at the same time. The cost of
administering these plans for the benefit of those shareholders
participating in them is borne by the fund as an expense of all
shareholders. The fund, Putnam Mutual Funds or Putnam Investor
Services may terminate or change the terms of the plan at any
time. A plan will be terminated if communications mailed to the
shareholder are returned as undeliverable.
Investors should consider carefully with their own financial
advisers whether the plan and the specified amounts to be
withdrawn are appropriate in their circumstances. The fund and
Putnam Investor Services make no recommendations or
representations in this regard.
TAX QUALIFIED RETIREMENT PLANS; 403(B) AND SEP PLANS. (NOT
OFFERED BY FUNDS INVESTING PRIMARILY IN TAX-EXEMPT SECURITIES.)
Investors may purchase shares of the fund through the following
Tax Qualified Retirement Plans, available to qualified
individuals or organizations:
Standard and variable profit-sharing (including 401(k))
and money purchase pension plans; and
Individual Retirement Account Plans (IRAs).
Each of these Plans has been qualified as a prototype plan by the
Internal Revenue Service. Putnam Investor Services will furnish
services under each plan at a specified annual cost. Putnam
Fiduciary Trust Company serves as trustee under each of these
Plans.
Forms and further information on these Plans are available from
investment dealers or from Putnam Mutual Funds. In addition,
specialized professional plan administration services are
available on an optional basis; contact Putnam Defined
Contribution Plan Services at 1-800-225-2465, extension 8600.
A 403(b) Retirement Plan is available for employees of public
school systems and organizations which meet the requirements of
Section 501(c)(3) of the Internal Revenue Code. Forms and
further information on the 403(b) Plan are also available from
investment dealers or from Putnam Mutual Funds. Shares of the
fund may also be used in simplified employee pension (SEP) plans.
For further information on the Putnam prototype SEP plan, contact
an investment dealer or Putnam Mutual Funds.
Consultation with a competent financial and tax adviser regarding
these Plans and consideration of the suitability of fund shares
as an investment under the Employee Retirement Income Security
Act of 1974, or otherwise, is recommended.
SIGNATURE GUARANTEES
Redemption requests for shares having a net asset value of
$100,000 or more must be signed by the registered owners or their
legal representatives and must be guaranteed by a bank,
broker/dealer, municipal securities dealer or broker, government
securities dealer or broker, credit union, national securities
exchange, registered securities association, clearing agency,
savings association or trust company, provided such institution
is acceptable under and conforms with Putnam Fiduciary Trust
Company's signature guarantee procedures. A copy of such
procedures is available upon request. If you want your
redemption proceeds sent to an address other than your address as
it appears on Putnam's records, you must provide a signature
guarantee. Putnam Investor Services usually requires additional
documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or a surviving joint owner.
Contact Putnam Investor Services for details.
SUSPENSION OF REDEMPTIONS
The fund may not suspend shareholders' right of redemption, or
postpone payment for more than seven days, unless the New York
Stock Exchange is closed for other than customary weekends or
holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange
is restricted or during any emergency which makes it
impracticable for the fund to dispose of its securities or to
determine fairly the value of its net assets, or during any other
period permitted by order of the Commission for protection of
investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the fund. However, the Agreement and Declaration of Trust
disclaims shareholder liability for acts or obligations of the
fund and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by
the fund or the Trustees. The Agreement and Declaration of Trust
provides for indemnification out of fund property for all loss
and expense of any shareholder held personally liable for the
obligations of the fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
limited to circumstances in which the fund would be unable to
meet its obligations. The likelihood of such circumstances is
remote.
STANDARD PERFORMANCE MEASURES
Yield and total return data for the fund may from time to time be
presented in Part I of this SAI and in advertisements. In the
case of funds with more than one class of shares, all performance
information is calculated separately for each class. The data is
calculated as follows.
Total return for one-, five- and ten-year periods (or for such
shorter periods as the fund has been in operation or shares of
the relevant class have been outstanding) is determined by
calculating the actual dollar amount of investment return on a
$1,000 investment in the fund made at the beginning of the
period, at the maximum public offering price for class A shares
and class M shares and net asset value for other classes of
shares, and then calculating the annual compounded rate of return
which would produce that amount. Total return for a period of
one year is equal to the actual return of the fund during that
period. Total return calculations assume deduction of the fund's
maximum sales charge or CDSC, if applicable, and reinvestment of
all fund distributions at net asset value on their respective
reinvestment dates.
The fund's yield is presented for a specified thirty-day period
(the "base period"). Yield is based on the amount determined by
(i) calculating the aggregate amount of dividends and interest
earned by the fund during the base period less expenses for that
period, and (ii) dividing that amount by the product of (A) the
average daily number of shares of the fund outstanding during the
base period and entitled to receive dividends and (B) the per
share maximum public offering price for class A shares or class M
shares, as appropriate, and net asset value for other classes of
shares on the last day of the base period. The result is
annualized on a compounding basis to determine the yield. For
this calculation, interest earned on debt obligations held by the
fund is generally calculated using the yield to maturity (or
first expected call date) of such obligations based on their
market values (or, in the case of receivables-backed securities
such as the Government National Mortgage Association ("GNMAs"),
based on cost). Dividends on equity securities are accrued daily
at their stated dividend rates. The amount of expenses used in
determining the fund's yield includes, in addition to expenses
actually accrued by the fund, an estimate of the amount of
expenses that the fund would have incurred if brokerage
commissions had not been used to reduce such expenses.
If the fund is a money market fund, yield is computed by
determining the percentage net change, excluding capital changes,
in the value of an investment in one share over the seven-day
period for which yield is presented (the "base period"), and
multiplying the net change by 365/7 (or approximately 52 weeks).
Effective yield represents a compounding of the yield by adding 1
to the number representing the percentage change in value of the
investment during the base period, raising that sum to a power
equal to 365/7, and subtracting 1 from the result.
If the fund is a tax-exempt fund, the tax-equivalent yield during
the base period may be presented for shareholders in one or more
stated tax brackets. Tax-equivalent yield is calculated by
adjusting the tax-exempt yield by a factor designed to show the
approximate yield that a taxable investment would have to earn to
produce an after-tax yield equal, for that shareholder, to the
tax-exempt yield. The tax-equivalent yield will differ for
shareholders in other tax brackets.
At times, Putnam Management may reduce its compensation or assume
expenses of the fund in order to reduce the fund's expenses. The
per share amount of any such fee reduction or assumption of
expenses during the fund's past ten fiscal years (or for the life
of the fund, if shorter) is set forth in the footnotes to the
table in the section entitled "Financial highlights" in the
prospectus. Any such fee reduction or assumption of expenses
would increase the fund's yield and total return for periods
including the period of the fee reduction or assumption of
expenses.
All data are based on past performance and do not predict future
results.
COMPARISON OF PORTFOLIO PERFORMANCE
Independent statistical agencies measure the fund's investment
performance and publish comparative information showing how the
fund, and other investment companies, performed in specified time
periods. Three agencies whose reports are commonly used for such
comparisons are set forth below. From time to time, the fund may
distribute these comparisons to its shareholders or to potential
investors. THE AGENCIES LISTED BELOW MEASURE PERFORMANCE BASED
ON THEIR OWN CRITERIA RATHER THAN ON THE STANDARDIZED PERFORMANCE
MEASURES DESCRIBED IN THE PRECEDING SECTION.
LIPPER ANALYTICAL SERVICES, INC. distributes mutual fund
rankings monthly. The rankings are based on total return
performance calculated by Lipper, generally reflecting
changes in net asset value adjusted for reinvestment of
capital gains and income dividends. They do not reflect
deduction of any sales charges. Lipper rankings cover a
variety of performance periods, including year-to-date,
1-year, 5-year, and 10-year performance. Lipper
classifies mutual funds by investment objective and asset
category.
MORNINGSTAR, INC. distributes mutual fund ratings twice a
month. The ratings are divided into five groups:
highest, above average, neutral, below average and lowest.
They represent a fund's historical risk/reward ratio
relative to other funds in its broad investment class as
determined by Morningstar, Inc. Morningstar ratings cover
a variety of performance periods, including 1-year, 3-
year, 5-year, 10-year and overall performance. The
performance factor for the overall rating is a
weighted-average assessment of the fund's 1-year, 3-year,
5-year, and 10-year total return performance (if
available) reflecting deduction of expenses and sales
charges. Performance is adjusted using quantitative
techniques to reflect the risk profile of the fund. The
ratings are derived from a purely quantitative system that
does not utilize the subjective criteria customarily
employed by rating agencies such as Standard & Poor's and
Moody's Investor Service, Inc.
CDA/WIESENBERGER'S MANAGEMENT RESULTS publishes mutual
fund rankings and is distributed monthly. The rankings
are based entirely on total return calculated by
Weisenberger for periods such as year-to-date, 1-year,
3-year, 5-year and 10-year. Mutual funds are ranked in
general categories (e.g., international bond,
international equity, municipal bond, and maximum capital
gain). Weisenberger rankings do not reflect deduction of
sales charges or fees.
Independent publications may also evaluate the fund's
performance. The fund may from time to time refer to results
published in various periodicals, including Barrons, Financial
World, Forbes, Fortune, Investor's Business Daily, Kiplinger's
Personal Finance Magazine, Money, U.S. News and World Report and
The Wall Street Journal.
Independent, unmanaged indexes, such as those listed below, may
be used to present a comparative benchmark of fund performance.
The performance figures of an index reflect changes in market
prices, reinvestment of all dividend and interest payments and,
where applicable, deduction of foreign withholding taxes, and do
not take into account brokerage commissions or other costs.
Because the fund is a managed portfolio, the securities it owns
will not match those in an index. Securities in an index may
change from time to time.
THE CONSUMER PRICE INDEX, prepared by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the rate
of inflation. The index shows the average change in the
cost of selected consumer goods and services and does not
represent a return on an investment vehicle.
THE DOW JONES INDUSTRIAL AVERAGE is an index of 30 common
stocks frequently used as a general measure of stock
market performance.
THE DOW JONES UTILITIES AVERAGE is an index of 15 utility
stocks frequently used as a general measure of stock
market performance.
CS FIRST BOSTON HIGH YIELD INDEX is a market-weighted
index including publicly traded bonds having a rating
below BBB by Standard & Poor's and Baa by Moody's.
THE LEHMAN BROTHERS AGGREGATE BOND INDEX is an index
composed of securities from The Lehman Brothers
Government/Corporate Bond Index, The Lehman Brothers
Mortgage-Backed Securities Index and The Lehman Brothers
Asset-Backed Securities Index and is frequently used as a
broad market measure for fixed-income securities.
THE LEHMAN BROTHERS ASSET-BACKED SECURITIES INDEX is an
index composed of credit card, auto, and home equity
loans. Included in the index are pass-through, bullet
(noncallable), and controlled amortization structured debt
securities; no subordinated debt is included. All
securities have an average life of at least one year.
THE LEHMAN BROTHERS CORPORATE BOND INDEX is an index of
publicly issued, fixed-rate, non-convertible
investment-grade domestic corporate debt securities
frequently used as a general measure of the performance of
fixed-income securities.
THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX is an
index of publicly issued U.S. Treasury obligations, debt
obligations of U.S. government agencies (excluding
mortgage-backed securities), fixed-rate, non-convertible,
investment-grade corporate debt securities and U.S.
dollar-denominated, SEC-registered non-convertible debt
issued by foreign governmental entities or international
agencies used as a general measure of the performance of
fixed-income securities.
THE LEHMAN BROTHERS INTERMEDIATE TREASURY BOND INDEX is an
index of publicly issued U.S. Treasury obligations with
maturities of up to ten years and is used as a general
gauge of the market for intermediate-term fixed-income
securities.
THE LEHMAN BROTHERS LONG-TERM TREASURY BOND INDEX is an
index of publicly issued U.S. Treasury obligations
(excluding flower bonds and foreign-targeted issues) that
are U.S. dollar-denominated and have maturities of 10
years or greater.
THE LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX
includes 15- and 30-year fixed rate securities backed by
mortgage pools of the Government National Mortgage
Association, Federal Home Loan Mortgage Corporation, and
Federal National Mortgage Association.
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX is an index of
approximately 20,000 investment-grade, fixed-rate
tax-exempt bonds.
THE LEHMAN BROTHERS TREASURY BOND INDEX is an index of
publicly issued U.S. Treasury obligations (excluding
flower bonds and foreign-targeted issues) that are U.S.
dollar denominated, have a minimum of one year to
maturity, and are issued in amounts over $100 million.
THE MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX is an
index of approximately 1,482 equity securities listed on
the stock exchanges of the United States, Europe, Canada,
Australia, New Zealand and the Far East, with all values
expressed in U.S. dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS
INDEX is an index of approximately 1,100 securities
representing 20 emerging markets, with all values
expressed in U.S. dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX is an
index of approximately 1,045 equity securities issued by
companies located in 18 countries and listed on the stock
exchanges of Europe, Australia, and the Far East. All
values are expressed in U.S. dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE INDEX is
an index of approximately 627 equity securities issued by
companies located in one of 13 European countries, with
all values expressed in U.S. dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL PACIFIC INDEX is
an index of approximately 418 equity securities issued by
companies located in 5 countries and listed on the
exchanges of Australia, New Zealand, Japan, Hong Kong,
Singapore/Malaysia. All values are expressed in U.S.
dollars.
THE NASDAQ INDUSTRIAL AVERAGE is an index of stocks traded
in The Nasdaq Stock Market, Inc. National Market System.
THE RUSSELL 2000 INDEX is composed of the 2,000 smallest
securities in the Russell 3000 Index, representing
approximately 7% of the Russell 3000 total market
capitalization. The Russell 3000 Index is composed of
3,000 large U.S. companies ranked by market
capitalization, representing approximately 98% of the U.S.
equity market.
THE SALOMON BROTHERS LONG-TERM HIGH-GRADE CORPORATE BOND
INDEX is an index of publicly traded corporate bonds
having a rating of at least AA by Standard & Poor's or Aa
by Moody's and is frequently used as a general measure of
the performance of fixed-income securities.
THE SALOMON BROTHERS LONG-TERM TREASURY INDEX is an index
of U.S. government securities with maturities greater than
10 years.
THE SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX is an
index that tracks the performance of the 14 government
bond markets of Australia, Austria, Belgium Canada,
Denmark, France, Germany, Italy, Japan, Netherlands,
Spain, Sweden, United Kingdom and the United States.
Country eligibility is determined by market capitalization
and investability criteria.
THE SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX (non
$U.S.) is an index of foreign government bonds calculated
to provide a measure of performance in the government bond
markets outside of the United States.
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX is an
index of common stocks frequently used as a general
measure of stock market performance.
STANDARD & POOR'S 40 UTILITIES INDEX is an index of 40
utility stocks.
STANDARD & POOR'S/BARRA VALUE INDEX is an index
constructed by ranking the securities in the Standard &
Poor's 500 Composite Stock Price Index by price-to-book
ratio and including the securities with the lowest price-
to-book ratios that represent approximately half of the
market capitalization of the Standard & Poor's 500
Composite Stock Price Index.
In addition, Putnam Mutual Funds may distribute to shareholders
or prospective investors illustrations of the benefits of
reinvesting tax-exempt or tax-deferred distributions over
specified time periods, which may include comparisons to fully
taxable distributions. These illustrations use hypothetical
rates of tax-advantaged and taxable returns and are not intended
to indicate the past or future performance of any fund.
DEFINITIONS
"Putnam Management" -- Putnam Investment Management,
Inc., the fund's investment
manager.
"Putnam Mutual Funds" -- Putnam Mutual Funds Corp., the
fund's principal underwriter.
"Putnam Fiduciary Trust -- Putnam Fiduciary Trust Company,
Company" the fund's custodian.
"Putnam Investor Services" -- Putnam Investor Services, a
division of Putnam Fiduciary
Trust Company, the fund's
investor servicing agent.
39646 1/98
Prospectus Supplement dated
January 30, 1998 to:
- -----------------------------------------------------------------
Putnam Global Growth and Income Fund
Prospectus dated December 31, 1996, as revised October 30, 1997
1. The date of the prospectus is changed to January 30, 1998.
2. You can find more detailed information in the January 30,
1998 statement of additional information (the "SAI"), as
amended from time to time. For a free copy of the SAI or
other information, call Putnam Investor Services at
1-800-225-1581. The SAI has been filed with the Securities
and Exchange Commission (the "Commission") and is
incorporated into this prospectus by reference.
3. The section of the prospectus entitled "Expenses summary" is
replaced with the following:
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
<PAGE>
Annual fund operating expenses
(as a percentage of average net assets)
Total fund
Management 12b-1 Other operating
fees+ fees expenses expenses+
- ---------- ----- -------------------
Class A 0.22% 0.25% 1.26% 1.73%
Class B 0.22% 1.00% 1.26% 2.48%
Class M 0.22% 0.75% 1.26% 2.23%
+ 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. For class B and M shares,
management fees and "Other expenses" are based on the
corresponding expenses for class A shares.
In the absence of an expense limitation, management fees and
total fund operating expenses would have been 0.80% and 2.31%,
respectively, for class A shares, 0.80% and 3.06%, respectively,
for class B shares and 0.80% and 2.81%, respectively, for class M
shares. The 12b-1 fees for class A, 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 $74 $109 $146 $250
Class B $75 $107 $152 $263***
Class B (no redemption) $25 $77 $132 $263***
Class M $57 $102 $150 $282
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.
<PAGE>
* 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."
4. The section of the prospectus entitled "Financial
highlights" is replaced with the following:
FINANCIAL HIGHLIGHTS
The following table presents per share financial information for
class A shares. No class B or class M shares were outstanding
during these periods. This information has been audited and
reported on by the fund's independent accountants. The "Report
of independent accountants" and financial statements included in
the fund's annual report to shareholders for the 1997 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.
<PAGE>
Financial highlights
(For a share outstanding throughout the period)
<TABLE> <CAPTION>
<S> <C> <C>
<C>
For the period
Year ended Year
ended January 3, 1995+
Class A shares September 30 September
30 to September 30
1997
1996 1995
Net asset value, beginning
of period $10.77
$9.64 $8.50
Investment operations
Net investment income (a) .14
.21 .27
Net realized and unrealized gain
on investments 3.13
1.30 .87
Total from investment operations 3.27
1.51 1.14
Distributions to shareholders:
From net investment income (.23)
(.36) --
From net realized gain on investments (1.31)
(.02) --
Total distributions (1.54)
(.38) --
Net asset value, end of period $12.50
$10.77 $9.64
Ratios and supplemental data
Total investment return at net
asset value (%)(b) 33.88
16.14 13.41*
Net assets, end of period
(in thousands) $2,885
$2,077 $1,771
Ratio of expenses to average net
assets (%) (a)(c) 1.48
1.27 .49*
Ratio of net investment income
to average net assets (%)(a) 1.19
2.03 3.04*
Portfolio turnover (%) 103.92
222.89 21.68*
Average commission rate paid (d) $.0305
$.0374
<PAGE>
Effective December 28, 1995, the fund expanded its investment
flexibility to include securities
outside of the utilities sector. Investment results for periods
prior to December 28, 1995 may
not reflect those that could have been achieved under the fund's
current investment policies.
+ Commencement of operations.
* Not annualized.
(a) Reflects an expense limitation during the period. As a
result of such limitation, expenses of the fund for the
periods ended September 30, 1997, September 30, 1996 and
September 30, 1995 reflect a reduction of approximately
$.07, $.09 and $.20 per share, respectively.
(b) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage
service arrangements.
(d) Average commission rate paid on security trades is required
for fiscal periods beginning on or after September 1, 1995.
</TABLE>
5. On November 7, 1997, the following two new Trustees were
elected:
Paul L. Joskow,* Professor of Economics and Management,
Massachusetts Institute of Technology, Director, New
England Electric System, State Farm Indemnity Company and
Whitehead Institute for Biomedical Research;
John H. Mullin, III, Chairman and CEO of Ridgeway Farm,
Director of ACX Technologies, Inc., Alex. Brown Realty,
Inc., The Liberty Corporation, and The Ryland Group, Inc.
* Is or may be deemed to be an "interested person" of
Putnam Investment Funds, Putnam Investment Management, Inc.
or Putnam Mutual Funds Corp.
PROSPECTUS
December 31, 1996, as revised
October 30, 1997
Putnam Global Growth and Income Fund
Class A, B and M shares
INVESTMENT STRATEGY: GROWTH AND INCOME
This prospectus explains concisely what you should know before
investing in Putnam Global Growth and Income 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 October 30, 1997 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 (the "Commission") and is incorporated into
this
prospectus by reference. The Commission maintains a Web site
(http://www.sec.gov) that contains the SAI, material incorporated
by
reference into this prospectus and the SAI, and other information
regarding registrants that file electronically with the
Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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 FUND
Page number
Expenses summary
.
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 and
recurring expenses 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.
Objectives
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Read this section to make sure the fund's objectives are
consistent
with your own.
How the fund pursues its objectives
. . . . . . . . . . . . . . . . . . . . . . . . . . .
This section explains in detail how the fund seeks its investment
objectives.
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 it purchases and sells
securities.
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.
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.
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 1996 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 6th 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 0.08% 0.25% 1.37% 1.70%
Class B 0.08% 1.00% 1.37% 2.45%
Class M 0.08% 0.75% 1.37% 2.20%
+ 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
class A shares are actual annual expenses as of September 30,
1996.
For class B and M shares, management fees and "Other expenses"
are
based on the operating expenses for the fund's class A shares.
In the
absence of an expense limitation, management fees and total fund
operating expenses would have been 0.80% and 2.42%, respectively,
for
class A shares, 0.80% and 3.17%, respectively, for class B shares
and
0.80% and 2.92%, respectively, for class M shares. The 12b-1
fees for
class A, class B and class M shares shown in the table reflect
the
amount to which the Trustees currently limit payments under the
relevant 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 $74 $108 $144 $247
Class B $75 $106 $151 $260***
Class B (no redemption) $25 $76 $131 $260***
Class M $57 $101 $149 $280
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 shares. No class B or class M shares were outstanding during
these
periods. This information has been audited and reported on by
the
fund's 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)
<TABLE> <CAPTION>
<S> <C>
<C>
For the period
January 3, 1995
(commencement
Year
ended of operations)
Class A shares September
30 to September 30
1996 1995
Net asset value, beginning of period
$9.64 $8.50
Investment operations:
Net investment income (a)
.21 .27
Net realized and unrealized gain on investments
1.30 .87
Total from investment operations
1.51 1.14
Less Distributions:
From net investment income
(.36) --
From net realized gain on investments
(.02) --
Total distributions
(.38) --
Net asset value, end of period
$10.77 $9.64
Total investment return at net asset value (%) (b)
16.14 13.41*
Net assets, end of period (in thousands)
$2,077 $1,771
Ratio of expenses to average net assets (%) (a) (c)
1.27 .49*
Ratio of net investment income
to average net assets (%)(a)
2.03 3.04*
Portfolio turnover (%)
222.89 21.68*
Average commission rate paid (d)
$0.0374 --
<PAGE>
Effective December 28, 1995, the fund expanded its investment
flexibility to include securities outside of the utilities
sector.
Investment results for periods prior to December 28, 1995 may not
reflect those that would have been achieved under the fund's
current
investment policies.
* Not annualized.
(a) Reflects an expense limitation during the period. As a
result of such limitation, expenses of the fund for the
periods
ended September 30, 1996 and September 30, 1995 reflect a
reduction of approximately $.09 and $.20 per share,
respectively.
(b) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage
service arrangements.
(d) Average commission rate paid is required for fiscal periods
beginning September 1, 1995.
</TABLE>
<PAGE>
OBJECTIVES
Putnam Global Growth and Income Fund seeks capital growth.
Current
income is a secondary objective. The fund is not intended to be
a
complete investment program, and there is no assurance it will
achieve
its objectives.
HOW THE FUND PURSUE ITS OBJECTIVES
Basic investment strategy
In seeking its objectives, the fund follows a global investment
strategy of investing primarily in common stocks traded in
securities
markets located in a number of foreign countries and in the
United
States. The fund may at times invest up to 100% of its assets in
securities principally traded in securities markets outside the
United
States, and will, under normal market conditions, invest at least
65%
of its assets in at least three different countries, one of which
may
be the United States. In unusual market circumstances where
Putnam
Investment Management, Inc., the fund's investment manager
("Putnam
Management"), believes that foreign investing may involve undue
risks,
up to 100% of the fund's assets may be invested in the United
States.
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
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.
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.
The 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.
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
that are primarily designed to reduce fluctuations in the value
of
fund assets.
In implementing these defensive strategies, the fund may invest
without limit in 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.
Risk factors
Foreign investments
The fund may invest in securities of foreign issuers that are not
actively traded in U.S. markets. These foreign investments
involve
certain special risks described below.
Foreign securities are normally denominated and traded in foreign
currencies. As a result, the value of the fund's foreign
investments
and the value of its shares may be affected favorably or
unfavorably
by changes in currency exchange rates relative to the U.S.
dollar.
The fund may engage in a variety of foreign currency exchange
transactions in connection with its foreign investments,
including
transactions involving futures contracts, forward contracts and
options.
Investments in foreign securities may subject the fund to other
risks
as well. For example, there may be less information publicly
available about a foreign issuer than about a U.S. issuer, and
foreign
issuers are not generally subject to accounting, auditing and
financial reporting standards and practices comparable to those
in the
United States. The securities of some foreign issuers are less
liquid
and at times more volatile than securities of comparable U.S.
issuers.
Foreign brokerage commissions and other fees are also generally
higher
than in the United States. Foreign settlement procedures and
trade
regulations may involve certain risks (such as delay in payment
or
delivery of securities or in the recovery of the fund's assets
held
abroad) and expenses not present in the settlement of investments
in
U.S. markets.
In addition, the fund's investments in foreign securities may be
subject to the risk of nationalization or expropriation of
assets,
imposition of currency exchange controls or restrictions on the
repatriation of foreign currency, confiscatory taxation,
political or
financial instability and diplomatic developments which could
affect
the value of the fund's investments in certain foreign countries.
Dividends or interest on, or proceeds from the sale of, foreign
securities may be subject to foreign withholding taxes, and
special
U.S. tax considerations may apply.
Legal remedies available to investors in certain foreign
countries may
be more limited than those available with respect to investments
in
the United States or in other foreign countries. The laws of
some
foreign countries may limit the fund's ability to invest in
securities
of certain issuers organized under the laws of those foreign
countries.
The risks described above are typically increased in connection
with
investments in less developed and developing nations, which are
sometimes referred to as "emerging markets." For example,
political
and economic structures in these countries may be in their
infancy and
developing rapidly, causing instability. High rates of inflation
or
currency devaluations may adversely affect the economies and
securities markets of such countries. Investments in emerging
markets
may be considered speculative.
The fund may invest up to 100% of its assets in securities
principally
traded in foreign markets. Certain of the foregoing risks may
also
apply to some extent to securities of U.S. issuers that are
denominated in foreign currencies or that are traded in foreign
markets, or to securities of U.S. issuers having significant
foreign
operations.
For more information about foreign securities and the risks
associated
with investment in such securities, see the SAI.
<PAGE>
Foreign currency exchange transactions
The fund may engage in foreign currency exchange transactions to
manage its exposure to foreign currencies. 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"). It may also engage in foreign
currency transactions for non-hedging purposes, subject to
applicable
law.
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, on exchanges or in over-the-counter markets, foreign
currency
futures contracts, foreign currency forward contracts and options
on
foreign currency futures contracts and on foreign currencies. In
connection with position hedging, the fund may also purchase or
sell
foreign currency on a spot basis.
The fund's currency hedging transactions may call for the
delivery of
one foreign currency in exchange for another foreign currency and
may
at times not involve currencies in which its portfolio securities
are
then denominated. Putnam Management will engage in such "cross
hedging" activities when it believes that such transactions
provide
significant hedging opportunities for the fund. Cross hedging
transactions by the fund involve the risk of imperfect
correlation
between changes in the values of the currencies to which such
transactions relate and changes in the value of the currency or
other
asset or liability which is the subject of the hedge.
The fund may also engage in non-hedging currency transactions.
For
example, Putnam Management may believe that exposure to a
currency is
in the fund's best interest but that securities denominated in
that
currency will not assist the fund in meeting its objective. In
that
case the fund may purchase a currency forward contract or option
in
order to increase its exposure to the currency. In accordance
with
SEC regulations, the fund will segregate liquid assets in its
portfolio to cover forward contracts used for non-hedging
purposes.
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.
For a further discussion of the risks associated with purchasing
and
selling futures contracts and options, see "Futures and options."
The
SAI also contains additional information concerning the fund's
use of
foreign currency exchange transactions.
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 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 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 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 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
in connection with 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 index futures or stock indexes. The fund may engage
in
index futures and options transactions for hedging purposes and
for
nonhedging purposes, such as to adjust its exposure to relevant
markets or as a substitute for direct investment.
The use of index futures and related options involves certain
special risks. Futures and options transactions involve costs
and
may result in losses.
Certain risks arise from the possibility of imperfect
correlations
among movements in the prices of financial futures and options
purchased or sold by the fund, of the underlying stock index,
currencies or securities and, in the case of hedging
transactions,
of the securities that are the subject of the hedge. The
successful
use of the strategies described above further depends on Putnam
Management's ability to forecast market movements correctly.
Other risks arise from the potential inability to close out index
futures or options positions. There can be no assurance that a
liquid secondary market will exist for any index future or option
at
any particular time. The fund's ability to terminate option
positions established in the over-the-counter market may be more
limited than for exchange-traded options and may also involve the
risk that securities dealers participating in such transactions
would fail to meet their obligations to the fund. Certain
provisions
of the Internal Revenue Code and certain regulatory requirements
may
limit the use of index futures and options transactions.
For a more detailed explanation of index futures and options
transactions, including the risks associated with them, see the
SAI.
Other investment practices
The fund may also engage in the following investment practices,
each
of which involves certain special risks. The SAI contains more
detailed information about these practices, including limitations
designed to reduce these risks.
Options. The fund may seek to increase its current return by
writing covered call and put options on securities it owns or in
which it may invest. The fund receives a premium from writing a
call or put option, which increases the return if the option
expires
unexercised or is closed out at a net profit.
When the fund writes a call option, it gives up the opportunity
to
profit from any increase in the price of a security above the
exercise price of the option; when it writes a put option, it
takes
the risk that it will be required to purchase a security from the
option holder at a price above the current market price of the
security. The fund may terminate an option that it has written
prior to its expiration by entering into a closing purchase
transaction in which it purchases an option having the same terms
as
the option written.
The fund may also buy and sell put and call options, including
combinations of put and call options on the same underlying
security. The use of these strategies may be limited by
applicable
law.
Securities loans, repurchase agreements and forward commitments.
The fund may lend portfolio securities amounting to not more than
25% of its assets to broker-dealers and may enter into repurchase
agreements on up to 25% of its assets. These transactions must
be
fully collateralized at all times. The fund may also purchase
securities for future delivery, which may increase its overall
investment exposure and involves a risk of loss if the value of
the
securities declines prior to the settlement date. These
transactions involve some risk if the other party should default
on
its obligation and the fund is delayed or prevented from
recovering
the collateral or completing the transaction.
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 (securities of
the
U.S. government, its agencies or instrumentalities are not
considered to represent any industry);* or
<PAGE>
(c) 15% of its net assets in any combination of securities that
are
not readily marketable, securities restricted as to resale
(excluding securities determined by the 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 as otherwise noted, all percentage limitations described
in
this prospectus and the SAI will apply at the time an investment
is
made, and will not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of
such investment. Except for investment policies designated as
fundamental in this prospectus or the SAI, the investment
policies
described in this prospectus and in the SAI are not fundamental
policies. The Trustees may change any non-fundamental investment
policies without shareholder approval. As a matter of policy,
the
Trustees would not materially change the fund's investment
objectives without shareholder approval.
HOW PERFORMANCE IS SHOWN
Fund advertisements may, from time to time, include performance
information. "Yield" for each class of shares is calculated by
dividing the annualized net investment income per share during a
recent 30-day period by the maximum public offering price per
share
of the class on the last day of that period.
"Total return" for the one-, five- and ten-year periods (or for
the
life of 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 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 the class of shares the
investor purchases. Investment performance also often reflects
the
risks associated with the fund's investment objectives and
policies.
These factors should be considered <PAGE>
when comparing the fund's investment
results with those of other mutual funds and other investment
vehicles.
Quotations of investment performance for any period when an
expense
limitation was in effect will be greater than if the limitation
had
not been in effect. Fund performance may be compared to that of
various indexes. See the SAI.
HOW THE FUND IS MANAGED
The Trustees are responsible for generally overseeing the conduct
of
fund business. Subject to such policies as the Trustees may
determine, Putnam Management furnishes a continuing investment
program for the fund and makes investment decisions on its
behalf.
Subject to the control of the Trustees, Putnam Management also
manages the fund's other affairs and business.
The fund pays Putnam Management a quarterly fee for these
services
based on average net assets. See "Expenses summary" and the SAI.
The following 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)
---- -------------------
Deborah F. Kuenstner 1997 Employed as an investment
Senior Vice President professional by Putnam
Management since March, 1997.
Prior to March, 1997, Ms.
Kuenstner was the Senior
Portfolio Manager at Dupont
Pension Fund Investment.
Hugh Mullin 1995 Employed as an investment
Senior Vice President professional by Putnam
Management since 1986.
George W. Stairs 1997 Vice President of Putnam Senior
Vice President Management. Prior to July,
1994,
Mr. Stairs was an Associate at
ValueQuest Ltd.
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 any other series of the
Trust
on a basis that the Trustees deem fair and equitable, which may
be
based on the nature of the services performed and relative
applicability to, or the relative assets of, the fund and such
series.
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, shares of the other Putnam
funds)
as a factor in the selection of broker-dealers.
ORGANIZATION AND HISTORY
Putnam Global Growth and Income 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.
Prior
to December 28, 1995, the 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. 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 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, at any time,
establish
one 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., 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.; W. Thomas Stephens, President
and
Chief Executive Officer of MacMillan Bloedel Ltd., Director of
Mail-
Well Inc., Qwest Communications, The Eagle Picher Trust and New
Century Energies; and W. Nicholas Thorndike, Director of various
corporations and charitable organizations, including Data General
Corporation, Bradley Real Estate, Inc. and Providence Journal Co.
Also, Trustee of Massachusetts General Hospital and Eastern
Utilities <PAGE>
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
ALTERNATIVE SALES ARRANGEMENTS
Class A shares. If you purchase class A shares, you will
generally
pay a sales charge at the time of purchase and, as a result, will
not have to pay any charges when you redeem the shares. If you
purchase class A shares at net asset value, you may have to pay a
contingent deferred sales charge ("CDSC") when you redeem the
shares. Certain purchases of class A shares qualify for reduced
sales charges. Class A shares pay lower 12b-1 fees than class B
and
class M shares. See "How to buy shares -- Class A shares" and
"Distribution plans."
Class B shares. If you purchase class B shares, you will not pay
an
initial sales charge, but you may have to pay a CDSC if you
redeem
the shares within six years. Class B shares also pay 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, including information
about
how shares acquired through reinvestment of distributions are
treated and certain circumstances under which class B shares may
not
convert into class A shares, see the SAI. 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. If you purchase class M shares, you will
generally
pay a sales charge at the time of purchase that is lower than the
sales charge you would pay for class A shares. Certain purchases
of
class M shares qualify for reduced sales charges. Class M shares
pay 12b-1 fees that are lower than class B shares but higher than
class A shares. You will not have to pay any charges when you
redeem class M shares, but class M shares will not convert into
any
other class of shares. See "How to buy shares -- Class M shares"
and "Distribution plans."
Which class is best for you? Which class of shares provides the
most suitable investment for you depends on a number of factors,
including the amount you intend to invest and how long you intend
to
hold the shares. If your intended purchase qualifies for reduced
sales charges, you might consider class A or class M shares. If
you
prefer not to pay a sales charge at the time of purchase, you
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.
Buying shares through systematic investing. You can make regular
investments of $25 or more per month through automatic deductions
from your bank checking or savings account. Application forms
are
available from your investment dealer or through Putnam Investor
Services.
Shares are sold at the public offering price based on the net
asset
value next determined after Putnam Investor Services receives
your
order. In most cases, in order to receive that day's public
offering price, Putnam Investor Services must receive your order
before the close of regular trading on the New York Stock
Exchange.
If you buy shares through your investment dealer, the dealer must
receive your order before the close of regular trading on the New
York Stock Exchange to receive that day's public offering price.
Class A shares
The public offering price of class A shares is the net asset
value
plus a sales charge that varies depending on the size of your
purchase. The fund receives the net asset value. The sales
charge
is allocated between your investment dealer and Putnam Mutual
Funds
as shown in the following table, except when Putnam Mutual Funds,
in
its discretion, allocates the entire amount to your investment
dealer.
<PAGE>
Sales charge Amount of
as a percentage of: sales charge
------------------- reallowed to
Net dealers as a
Amount of transaction amount Offering percentage of
at offering price ($) 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
- -----------------------------------------------------------------
No initial sales charge applies to purchases of class A shares of
$1 million or more or to purchases by employer-sponsored
retirement plans
that have at least 200 eligible employees. However, a CDSC of
1.00%
or 0.50% is imposed on redemptions of these shares within the
first or
second year, respectively, after purchase, unless the dealer of
record
waived its commission with Putnam Mutual Funds' approval, or
unless
the purchaser is a class A qualified benefit plan (a retirement
plan
for which Putnam Fiduciary Trust Company or its affiliates
provide
recordkeeping or other services in connection with the purchase
of
class A shares).
Class A qualified benefit plans may also purchase class A shares
with
no initial sales charge. However, except as stated below, a CDSC
of
0.75% of the total amount redeemed (1.00% in the case of plans
for
which Putnam Mutual Funds and its affiliates do not act as
trustee or
recordkeeper) is imposed on redemptions of these shares if,
within two
years of a plan's initial purchase of class A shares, it redeems
90%
or more of its cumulative purchases. Thereafter, such a plan is
no
longer liable for any CDSC. The two-year CDSC applicable to
class A
qualified benefit plans for which Putnam Mutual Funds or its
affiliates serve as trustee or recordkeeper ("full service
plans") is
0.50% of the total amount redeemed for full service plans that
initially invest at least $5 million but less than $10 million in
Putnam funds and other investments managed by Putnam Management
or its
affiliates ("Putnam Assets"), and is 0.25% of the total amount
redeemed for full service plans that initially invest at least
$10
million but less than $20 million in Putnam Assets. Class A
qualified
benefit plans that initially invest at least $20 million in
Putnam
Assets, or whose dealer or record has, with Putnam Mutual Funds'
approval, waived its commission or agreed to refund its
commission to
Putnam Mutual Funds in the event a CDSC would otherwise be
applicable,
are not subject to any CDSC.
A class A qualified benefit 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.
As described in the SAI, Putnam Mutual Funds pays the dealer of
record
a commission of up to 1% on sales to class A qualified benefit
plans.
Putnam Mutual Funds pays dealers of record commissions on sales
of
class A shares of $1 million or more and sales of class A shares
to
employer-sponsored retirement plans that have at least 200
eligible
employees and that are not class A qualified benefit plans 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
first
$3 million of shares purchased, 0.50% of the next $47 million and
0.25% thereafter.
Class B shares
Class B shares are sold without an initial sales charge, although
a
CDSC will be imposed if you redeem shares within a specified
period
after purchase, as shown in the table below.
Year 1 2 3 4 5 6 7+
- -------------------------------------------------------------
Charge 5% 4% 3% 3% 2% 1% 0%
Putnam Mutual Funds pays a sales commission equal to 4.00% of the
amount invested to dealers who sell class B shares. These
commissions
are not paid on exchanges from other Putnam funds or on sales to
investors exempt from the CDSC.
Class M shares
The public offering price of class M shares is the net asset
value
plus a sales charge that varies depending on the size of your
purchase. The fund receives the net asset value. The sales
charge is
allocated between your investment dealer and Putnam Mutual Funds
as
shown in the following table, except when Putnam Mutual Funds, at
its
discretion, allocates the entire amount to your investment
dealer.
<PAGE>
Sales charge Amount of
as a percentage of: sales charge
------------------- reallowed to
Net dealers as a
Amount of transaction amount Offering percentage of
at offering price ($) 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
Class M qualified benefit plans (retirement plans for which
Putnam
Fiduciary Trust Company or its affiliates provide recordkeeping
or
other services in connection with the purchase of class M shares)
and
members of qualified groups may purchase class M shares without a
sales charge.
General
You may be eligible to buy fund shares at reduced sales charges
or to
sell fund shares without a CDSC.
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,
employer-sponsored
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.
<PAGE>
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.
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. Any CDSC will be based on the
lower
of the shares' cost and net asset value. 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 you
redeem a
share that has appreciated in value during the CDSC period, a
CDSC is
assessed on its initial purchase price. Shares acquired by
reinvestment of distributions may be redeemed without a CDSC at
any
time. 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. See the
SAI for
more information about the CDSC.
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 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 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
The fund has adopted distribution plans 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 below. The plans provide for payments by the fund to
Putnam
Mutual Funds at the annual rates (expressed as a percentage of
average
net assets) of up to 0.35% on class A shares and 1.00% on class B
and
class M shares. The Trustees currently limit payments on class A
and
class M shares to 0.25% and 0.75% of average net assets,
respectively.
Putnam Mutual Funds compensates qualifying dealers (including,
for
this purpose, certain financial institutions) for sales of shares
and
the maintenance of shareholder accounts.
Putnam Mutual Funds makes quarterly payments to dealers at the
annual
rate of up to 0.25% of the average net asset value for class A
shares
acquired after that date (including shares acquired through
reinvestment of distributions) for which such dealers are
designated
as the dealer of record, except that payments to dealers for
shares
held by class A qualified benefit plans are made at reduced
rates, as
described in the SAI. No payments are made during the first year
after purchase on shares purchased at net asset value by
shareholders
investing $1 million or more or by employer-sponsored retirement
plans
that have at least 200 eligible employees or that are class A
qualified benefit plans, unless the shareholder has made
arrangements
with Putnam Mutual Funds and the dealer of record has waived the
sales
commission.
Putnam Mutual Funds makes quarterly payments to dealers at the
annual
rates of 0.25% and 0.65% of the average net asset value of class
B and
class M shares, respectively, for which such dealers are
designated as
the dealer of record.
Putnam Mutual Funds may suspend or modify its 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 unless you have notified Putnam Investor
Services of an address change within the preceding 15 days.
Unless
you indicate otherwise on the account application, Putnam
Investor
Services will be authorized to act upon redemption and transfer
instructions received by telephone from you, or any person
claiming to
act as your representative, who can provide Putnam Investor
Services
with your 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.
Securities quoted in foreign currencies are translated into U.S.
dollars at current exchange rates or at such other rates as the
Trustees may determine in computing net asset value. As a
result,
fluctuations in the value of such currencies in relation to the
U.S.
dollar may affect the fund's net asset value even though there
has not
been any change in the values of its portfolio securities as
quoted in
such foreign currencies.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX INFORMATION
The fund distributes any net investment income at least quarterly
and
any net capital gains at least annually. Distributions from net
capital gains are made after applying any available capital loss
carryovers.
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 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 fund shares (or in
shares
of other Putnam funds for Dividends Plus accounts) promptly
following
the quarter in which the reinvestment occurs.
<PAGE>
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. 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 that 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 to
the
extent derived from the fund's investment income and net
short-term
gains (that is, net gains from securities held for not more than
a
year). Distributions designated by the fund as deriving from net
gains on securities held for more than one year but not more than
18
months and from net gains on securities held for more than 18
months
will be taxable to you 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.
The fund does not expect to be eligible to elect to permit
shareholders to claim a credit or deduction on their income tax
return
for their pro rata share of such taxes. 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 on securities it has held for at least the
minimum
period specified in the Internal Revenue Code as having been paid
directly by the fund's shareholders. In this case, shareholders
who
are (i) U.S. citizens, U.S. corporations and, in some cases, U.S.
residents and (ii) who hold their fund shares (without protection
from
risk of loss) on the ex-dividend date and for at least 15
additional
days during the 30-day period surrounding the ex-dividend date
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 calendar 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 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 you choose will be automatically transferred each
month
from your checking or savings account.
SYSTEMATIC WITHDRAWAL Make regular withdrawals of $50 or more
monthly, quarterly, or semiannually from your Putnam mutual fund
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 GLOBAL GROWTH AND INCOME 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
PUTNAM GLOBAL GROWTH AND INCOME FUND
(THE
"FUND"),
(A series of Putnam Investment Funds (The "Trust"))
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
January 30, 1998
This SAI is not a prospectus and is only authorized for
distribution
when accompanied or preceded by the prospectus of the fund
dated January 30, 1998 , 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 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
fund . Part II includes information about the fund
and
the other Putnam funds.
<PAGE>
Table Of Contents
Part I
SECURITIES RATINGS. . . . . . . . . . . . . . . . . . . . . .
. . . . I-3
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . .
. . .I- 7
CHARGES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . .
. . .I- 9
INVESTMENT PERFORMANCE . . . . . . . . . . . . . . . . . . . . .
. . I- 15
ADDITIONAL OFFICERS. . . . . . . . . . . . . . . . . . . . . . .
. . I- 15
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . . . .
. . I- 16
Part II
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . .
. . . . . .II-1
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .II- 30
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .II- 36
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . .
. .II- 46
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . .
. .II- 47
DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . . .
. .II- 60
INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . .
. .II- 61
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . .
. . . . . II-66
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . .
. .II- 67
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . .
. .II- 67
STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . .
. . . . . II-67
COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . .
. .II- 69
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.
Duff & Phelps Corporation
Long-Term Debt
AAA -- Highest credit quality. The risk factors are negligible,
being
only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- -- High credit quality. Protection factors are
strong.
Risk is modest but may vary slightly from time to time because of
economic conditions.
A+, A, A- -- Protection factors are average but adequate.
However,
risk factors are more variable and greater in periods of economic
stress.
BBB+, BBB, BBB- -- Below-average protection factors but still
considered sufficient for prudent investment. Considerable
variability in risk during economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial
protection
factors fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently within
this
category.
B+, B, B- -- Below investment grade and possessing risk that
obligations will not be met when due. Financial protection
factors
will fluctuate widely according to economic cycles, industry
conditions and/or company fortunes. Potential exists for
frequent
changes in the rating within this category or into a higher or
lower
rating grade.
CCC -- Well below investment-grade securities. Considerable
uncertainty exists as to timely payment of principal, interest or
preferred dividends. Protection factors are narrow and risk can
be
substantial with unfavorable economic/industry conditions, and/or
with
unfavorable company developments.
DD -- Defaulted debt obligations. Issuer failed to meet
scheduled
principal and/or interest payments.
Fitch Investors Service, Inc.
AAA -- Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability
to
pay interest and repay principal, which is unlikely to be
affected by
reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high
credit
quality. The obligor's ability to pay interest and repay
principal is
very strong, although not quite as strong as bonds rated AAA.
A -- Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is
considered to be strong, but may be more vulnerable
to adverse changes in economic conditions and circumstances than
bonds
with higher ratings.
BBB -- Bonds considered to be investment grade and of
satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in
economic
conditions and circumstances, however, are more likely to have
adverse
impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below
investment
grade is higher than for bonds with higher ratings.
BB -- Bonds considered to be speculative. The obligor's ability
to
pay interest and repay principal may be affected over time by
adverse
economic changes. However, business and financial alternatives
can be
identified which could assist the obligor in satisfying its debt
service requirements.
B -- Bonds are considered highly speculative. Bonds in this class
are
lightly protected as to the obligor's ability to pay interest
over the
life of the issue and repay principal when due.
CCC -- Bonds have certain characteristics which, with passing of
time,
could lead to the possibility of default on either principal or
interest payments.
CC -- Bonds are minimally protected. Default in payment of
interest
and/or principal seems probable.
C -- Bonds are in actual or imminent default in payment of
interest or
principal.
DDD -- Bonds are in default and in arrears in interest and/or
principal payments. Such bonds are extremely speculative and
should be
valued only on the basis of their value in liquidation or
reorganization of the obligor.
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.
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. 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.
The Investment Company Act of 1940 provides that a "vote of a
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.
It is contrary to the 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
the non-fundamental investment restriction) 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
Under a Management Contract dated as of December 2, 1994, as
revised
July 14, 1995 and further revised December 1, 1995 the
fund pays a quarterly fee to Putnam Management
based on
the average net assets of the fund, as determined at the
close
of each business day during the quarter, at the annual rate
of :
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 For the past two fiscal years,
pursuant to the Management Contract, the fund incurred
the
following fees :
Reflecting a
reduction in the
following amount
pursuant to an
Fiscal Management expense
year fee paid limitation
1997 $19,817 $14,332
1996 $15,378 $17,391
1995* $ 9,700 $36,617
* For the period from January 3, 1995 (commencement of
operations) to
September 30, 1995.
Expense limitation. In order to limit expenses, Putnam
Management has
agreed to limit its compensation (and, to the extent necessary,
bear
other expenses of the fund) through December 31,
1998 ,
to the extent that expenses of the fund (exclusive of
brokerage, interest, taxes, deferred organizational and
extraordinary
expense, and payments under the fund's distribution plans) would
exceed an annual rate of 1.45% of the fund's
average net
assets. For the purpose of determining any such limitation on
Putnam
Management's compensation, expenses of the fund 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 SAI would be revised. Putnam
Management currently expects that the expense limitation will be
continued through the end of the fund's current fiscal
year.
Brokerage commissions
The following table shows brokerage commissions paid during the
fiscal
periods indicated:
Fiscal Brokerage
year commissions
------ ------------
1997 $9,933
1996 $11,108
1995* $5,158
* For the period from January 3, 1995 (commencement of
operations) to
September 30, 1995.
The following table shows transactions placed with brokers and
dealers
during the last 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
$3,357,453 70.27% $8,823
<PAGE>
Administrative expense reimbursement
The fund reimbursed Putnam Management in the following
amounts
for administrative services during fiscal 1997, including
compensation of certain fund officers and contributions
to the
Putnam Investments, Inc. Profit Sharing Retirement Plan for
their
benefit , as follows :
Portion of total
reimbursement for
Total compensation and
reimbursement contributions
$27 $24
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 1997 and fees paid to each
Trustee by all of the Putnam funds during calendar 1997:<PAGE>
COMPENSATION TABLE
<TABLE> <CAPTION>
<S> <C> <C>
<C> <C>
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 upon
retirement(2) funds(3)
--------------------------------------------------------------
- ----------------------------
Jameson A. Baxter/1994 $115 $32
$87,500 $176,000(4)
Hans H. Estin/1972 113 98
87,500 175,000
John A. Hill/1985 114 37
87,500 175,000(4)
Ronald J. Jackson/1996 115 7
87,500 176,000(4)
Paul L. Joskow/1997(7) 0 0
87,500 25,500
Elizabeth T. Kennan/1992 113 62
87,500 174,000
Lawrence J. Lasser/1992 111 46
87,500 172,000
John H. Mullin, III/1997(7) 0 0
87,500 25,500
Robert E. Patterson/1984 115 30
87,500 176,000
Donald S. Perkins/1982 115 107
87,500 176,000
William F. Pounds/1971 (5) 115 103
98,000 201,000
George Putnam/1957 114 113
87,500 175,000
George Putnam, III/1984 113 19
87,500174,000
A.J.C. Smith/1986 109 66
87,500 170,000
W. Thomas Stephens/1997(6) 10 0
87,500 53,000(4)
W. Nicholas Thorndike/1992 115 89
87,500 176,000
(1) Includes an annual retainer and an attendance fee for each
meeting attended.
(2) Assumes that each Trustee retires at the normal retirement
date. Estimated benefits for
each Trustee are based on Trustee fee rates in effect
during calendar 1997.
(3) As of December 31, 1997, there were 101
funds in
the Putnam family.
(4) Includes compensation deferred pursuant to a Trustee
Compensation Deferral Plan.
(5) Includes additional compensation for service as Vice
Chairman
of the Putnam funds.
(6) Elected as a Trustee in September 1997.
(7) Elected as a Trustee in November 1997.
</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 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 December 31, 1997 , the officers and Trustees of the
Trust as a group owned 1.49% (12,787 shares) of the
outstanding shares of each class of the 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 fund:
Shareholder name Percentage
Class and address owned
----- ---------------- ------- ---
A The Putnam Companies, Inc. 25.40%
One Post Office Square
Boston, MA 02109
B Felton Macartney & 5.20%
Nancy Macartney Ttees
Mccartney Family Trust
4239 Corrigan Dr.
Fremont, CA 94536-5906
M Jeffrey D. Matthis & Lori B. 11.70%
Matthis JTWROS
208 Turkey Tree
Cibolo, TX 78108-4213
<PAGE>
M Frank C. Tymrak 11.40%
1576 Blairmoor Ct.
Grosse Pointe, MI 48236-1006
M National Financial Services 11.30%
Corporation
200 Liberty St.
One World Financial Center
New York, NY 10281
M Lynne C. Kuzia 5.70%
60 Cortland Way
Newington, CT 06111-5332
M Holly M. Morin 5.40%
69 Wynding Hills Rd.
East Granby, CT 06026-9631
Distribution fees
During fiscal 1997, 1996 and 1995, the fund did not pay any 12b-1
fees
to Putnam Mutual Funds.
Class A sales charges and contingent deferred sales charges
Putnam Mutual Funds received no sales charges with respect to
class A
shares during fiscal 1997, 1996 and 1995.
Class B contingent deferred sales charges
No class B shares were outstanding during the fiscal periods
1997,
1996 and 1995.
Class M sales charges
No class M shares were outstanding during fiscal periods 1997,
1996
and 1995.
Investor servicing and custody fees and expenses
During the 1997 fiscal period, the fund incurred
$4,773 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 the period ended September 30, 1997)
Class A
Inception date: 1/3/95
Average annual total return+
1 year 26.15%
Life of class 20.37%
Yield++
30-day
Yield 1.36%
+ Reflecting an expense limitation in effect during
the
period . In the absence of the expense limitation, total
return
shown would have been lower. The per share amount of the expense
limitation is set forth in the section of the prospectus entitled
"Financial highlights."
++ Reflecting an expense limitation then in effect. In the
absence of
the expense limitation, the fund's yield would have been
0.89% for class A shares .
Returns for class A shares reflect the deduction of the
current maximum initial sales charge of 5.75%.
No
class B or M shares were outstanding during the period.
Returns shown for class A shares have not been adjusted to
reflect
payments under the class A distribution plan prior to its
implementation. All returns assume reinvestment of distributions
at
net asset value and represent past performance; they do not
guarantee
future results. Investment return and principal value will
fluctuate
so that an investor's shares, when redeemed, may be worth more or
less
than their original cost .
See "Standard performance measures" in Part II of this SAI
for
information on how performance is calculated.
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.
<PAGE>
Ian C. Ferguson (age 40) (56 funds). Senior Managing
Director
. Prior to April, 1996, Mr. Ferguson was CEO at Hong
Kong
Shanghai Banking Corporation.
Brett C. Browchuk (age 34) (53 funds). Managing Director
of
Putnam Management. Prior to April, 1994, Mr. Browchuk was
Managing
Director at Fidelity Investments.
Thomas V. Reilly (age 50) (15 funds). Managing Director
of
Putnam Management.
Justin M. Scott (age 40) (10 funds). Managing Director of
Putnam Management. Managing Director of Putnam Fiduciary
Trust
Company.
Deborah F. Kuenstner (age 39) (1 fund) . Senior Vice
President of Putnam Management. Prior to March, 1997, Ms.
Kuenstner was the Senior Portfolio Manager at Dupont Pension Fund
Investment.
Hugh H. Mullin (age 35) (4 funds). Senior Vice President
of
Putnam Management.
George Stairs (age 48) (2 funds). Senior Vice President
of
Putnam Management. Prior to July 1994, Mr. Stairs was
an
Associate at ValueQuest Ltd.
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 statements and
financial
highlights included in the fund's Annual Report for the
fiscal
year ended September 30, 1997 , filed electronically
on
November 11, 1997 (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>
TABLE OF CONTENTS
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . . . . . II-1
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-30
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-36
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . .II-46
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-47
DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . . . . . .II-60
INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-61
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . .II-66
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . .II-67
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . .II-67
STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . . . . .II-67
COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . . . . .II-69
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-73
<PAGE>
THE PUTNAM FUNDS
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
PART II
The following information applies generally to your fund and to
the other Putnam funds. In certain cases the discussion applies
to some but not all of the funds or their shareholders, and you
should refer to your prospectus to determine whether the matter
is applicable to you or your fund. You will also be referred to
Part I for certain information applicable to your particular
fund. Shareholders who purchase shares at net asset value
through employer-sponsored defined contribution plans should also
consult their employer for information about the extent to which
the matters described below apply to them.
MISCELLANEOUS INVESTMENT PRACTICES
YOUR FUND'S PROSPECTUS STATES WHICH OF THE FOLLOWING INVESTMENT
PRACTICES ARE AVAILABLE TO YOUR FUND. THE FACT THAT YOUR FUND IS
AUTHORIZED TO ENGAGE IN A PARTICULAR PRACTICE DOES NOT
NECESSARILY MEAN THAT IT WILL ACTUALLY DO SO. YOU SHOULD
DISREGARD ANY PRACTICE DESCRIBED BELOW WHICH IS NOT MENTIONED IN
THE PROSPECTUS.
SHORT-TERM TRADING
In seeking the fund's objective(s), Putnam Management will buy or
sell portfolio securities whenever Putnam Management believes it
appropriate to do so. In deciding whether to sell a portfolio
security, Putnam Management does not consider how long the fund
has owned the security. From time to time the fund will buy
securities intending to seek short-term trading profits. A
change in the securities held by the fund is known as "portfolio
turnover" and generally involves some expense to the fund. This
expense may include brokerage commissions or dealer markups and
other transaction costs on both the sale of securities and the
reinvestment of the proceeds in other securities. If sales of
portfolio securities cause the fund to realize net short-term
capital gains, such gains will be taxable as ordinary income. As
a result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than
that of other mutual funds. Portfolio turnover rate for a fiscal
year is the ratio of the lesser of purchases or sales of
portfolio securities to the monthly average of the value of
portfolio securities -- excluding securities whose maturities at
acquisition were one year or less. The fund's portfolio turnover
rate is not a limiting factor when Putnam Management considers a
change in the fund's portfolio.
Convertible Securities. Convertible securities include bonds,
debentures, notes, preferred stocks and other securities that may
be converted into or exchanged for, at a specific price or
formula within a particular period of time, a prescribed amount
of common stock or other equity securities of the same or a
different issuer. Convertible securities entitle the holder to
receive interest paid or accrued on debt or dividends paid or
accrued on preferred stock until the security matures or is
redeemed, converted or exchanged.
The market value of a convertible security is a function of its
"investment value" and its "conversion value." A security's
"investment value" represents the value of the security without
its conversion feature (i.e., a nonconvertible fixed income
security). The investment value may be determined by reference
to its credit quality and the current value of its yield to
maturity or probable call date. At any given time, investment
value is dependent upon such factors as the general level of
interest rates, the yield of similar nonconvertible securities,
the financial strength of the issuer and the seniority of the
security in the issuer's capital structure. A security's
"conversion value" is determined by multiplying the number of
shares the holder is entitled to receive upon conversion or
exchange by the current price of the underlying security.
If the conversion value of a convertible security is
significantly below its investment value, the convertible
security will trade like nonconvertible debt or preferred stock
and its market value will not be influenced greatly by
fluctuations in the market price of the underlying security.
Conversely, if the conversion value of a convertible security is
near or above its investment value, the market value of the
convertible security will be more heavily influenced by
fluctuations in the market price of the underlying security.
The fund's investments in convertible securities may at times
include securities that have a mandatory conversion feature,
pursuant to which the securities convert automatically into
common stock or other equity securities at a specified date and a
specified conversion ratio, or that are convertible at the option
of the issuer. Because conversion of the security is not at the
option of the holder, the fund may be required to convert the
security into the underlying common stock even at times when the
value of the underlying common stock or other equity security has
declined substantially.
The fund's investments in convertible securities, particularly
securities that are convertible into securities of an issuer
other than the issuer of the convertible security, may be
illiquid. The fund may not be able to dispose of such securities
in a timely fashion or for a fair price, which could result in
losses to the fund.
<PAGE>
LOWER-RATED SECURITIES
The fund may invest in lower-rated fixed-income securities
(commonly known as "junk bonds"), to the extent described in the
prospectus. The lower ratings of certain securities held by the
fund reflect a greater possibility that adverse changes in the
financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates,
may impair the ability of the issuer to make payments of interest
and principal. The inability (or perceived inability) of issuers
to make timely payment of interest and principal would likely
make the values of securities held by the fund more volatile and
could limit the fund's ability to sell its securities at prices
approximating the values the fund had placed on such securities.
In the absence of a liquid trading market for securities held by
it, the fund at times may be unable to establish the fair value
of such securities.
Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' analysis at the time
of rating. Consequently, the rating assigned to any particular
security is not necessarily a reflection of the issuer's current
financial condition, which may be better or worse than the rating
would indicate. In addition, the rating assigned to a security
by Moody's Investors Service, Inc. or Standard & Poor's (or by
any other nationally recognized securities rating organization)
does not reflect an assessment of the volatility of the
security's market value or the liquidity of an investment in the
security. See the prospectus or Part I of this SAI for a
description of security ratings.
Like those of other fixed-income securities, the values of
lower-rated securities fluctuate in response to changes in
interest rates. A decrease in interest rates will generally
result in an increase in the value of the fund's assets.
Conversely, during periods of rising interest rates, the value of
the fund's assets will generally decline. The values of lower-
rated securities may often be affected to a greater extent by
changes in general economic conditions and business conditions
affecting the issuers of such securities and their industries.
Negative publicity or investor perceptions may also adversely
affect the values of lower-rated securities. Changes by
recognized rating services in their ratings of any fixed-income
security and changes in the ability of an issuer to make payments
of interest and principal may also affect the value of these
investments. Changes in the value of portfolio securities
generally will not affect income derived from these securities,
but will affect the fund's net asset value. The fund will not
necessarily dispose of a security when its rating is reduced
below its rating at the time of purchase. However, Putnam
Management will monitor the investment to determine whether its
retention will assist in meeting the fund's investment
objective(s).
Issuers of lower-rated securities are often highly leveraged, so
that their ability to service their debt obligations during an
economic downturn or during sustained periods of rising interest
rates may be impaired. Such issuers may not have more
traditional methods of financing available to them and may be
unable to repay outstanding obligations at maturity by
refinancing. The risk of loss due to default in payment of
interest or repayment of principal by such issuers is
significantly greater because such securities frequently are
unsecured and subordinated to the prior payment of senior
indebtedness.
At times, a substantial portion of the fund's assets may be
invested in securities of which the fund, by itself or together
with other funds and accounts managed by Putnam Management or its
affiliates, holds all or a major portion. Although Putnam
Management generally considers such securities to be liquid
because of the availability of an institutional market for such
securities, it is possible that, under adverse market or economic
conditions or in the event of adverse changes in the financial
condition of the issuer, the fund could find it more difficult to
sell these securities when Putnam Management believes it
advisable to do so or may be able to sell the securities only at
prices lower than if they were more widely held. Under these
circumstances, it may also be more difficult to determine the
fair value of such securities for purposes of computing the
fund's net asset value. In order to enforce its rights in the
event of a default of such securities, the fund may be required
to participate in various legal proceedings or take possession of
and manage assets securing the issuer's obligations on such
securities. This could increase the fund's operating expenses
and adversely affect the fund's net asset value. In the case of
tax-exempt funds, any income derived from the fund's ownership or
operation of such assets would not be tax-exempt. The ability of
a holder of a tax-exempt security to enforce the terms of that
security in a bankruptcy proceeding may be more limited than
would be the case with respect to securities of private issuers.
In addition, the fund's intention to qualify as a "regulated
investment company" under the Internal Revenue Code may limit the
extent to which the fund may exercise its rights by taking
possession of such assets.
Certain securities held by the fund may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were
to redeem securities held by the fund during a time of declining
interest rates, the fund may not be able to reinvest the proceeds
in securities providing the same investment return as the
securities redeemed.
If the fund's prospectus describes so-called "zero-coupon" bonds
and "payment-in-kind" bonds as possible investments, the fund may
invest without limit in such bonds unless otherwise specified in
the prospectus. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in
cash or in additional bonds. Because zero-coupon and payment-in-
kind bonds do not pay current interest in cash, their value is
subject to greater fluctuation in response to changes in market
interest rates than bonds that pay interest currently. Both
zero-coupon and payment-in-kind bonds allow an issuer to avoid
the need to generate cash to meet current interest payments.
Accordingly, such bonds may involve greater credit risks than
bonds paying interest currently in cash. The fund is required to
accrue interest income on such investments and to distribute such
amounts at least annually to shareholders even though such bonds
do not pay current interest in cash. Thus, it may be necessary
at times for the fund to liquidate investments in order to
satisfy its dividend requirements.
To the extent the fund invests in securities in the lower rating
categories, the achievement of the fund's goals is more dependent
on Putnam Management's investment analysis than would be the case
if the fund were investing in securities in the higher rating
categories. This may be particularly true with respect to tax-
exempt securities, as the amount of information about the
financial condition of an issuer of tax-exempt securities may not
be as extensive as that which is made available by corporations
whose securities are publicly traded.
INVESTMENTS IN MISCELLANEOUS FIXED-INCOME SECURITIES
Unless otherwise specified in the prospectus or elsewhere in this
SAI, if the fund may invest in inverse floating obligations,
premium securities, or interest-only or principal-only classes of
mortgage-backed securities (IOs and POs), it may do so without
limit. The fund, however, currently does not intend to invest
more than 15% of its assets in inverse floating obligations or
more than 35% of its assets in IOs and POs under normal market
conditions.
PRIVATE PLACEMENTS
The fund may invest in securities that are purchased in private
placements and, accordingly, are subject to restrictions on
resale as a matter of contract or under federal securities laws.
Because there may be relatively few potential purchasers for such
investments, especially under adverse market or economic
conditions or in the event of adverse changes in the financial
condition of the issuer, the fund could find it more difficult to
sell such securities when Putnam Management believes it advisable
to do so or may be able to sell such securities only at prices
lower than if such securities were more widely held. At times,
it may also be more difficult to determine the fair value of such
securities for purposes of computing the fund's net asset value.
LOAN PARTICIPATIONS
The fund may invest in "loan participations." By purchasing a
loan participation, the fund acquires some or all of the interest
of a bank or other lending institution in a loan to a particular
borrower. Many such loans are secured, and most impose
restrictive covenants which must be met by the borrower.
The loans in which the fund may invest are typically made by a
syndicate of banks, represented by an agent bank which has
negotiated and structured the loan and which is responsible
generally for collecting interest, principal, and other amounts
from the borrower on its own behalf and on behalf of the other
lending institutions in the syndicate and for enforcing its and
their other rights against the borrower. Each of the lending
institutions, including the agent bank, lends to the borrower a
portion of the total amount of the loan, and retains the
corresponding interest in the loan.
The fund's ability to receive payments of principal and interest
and other amounts in connection with loan participations held by
it will depend primarily on the financial condition of the
borrower. The failure by the fund to receive scheduled interest
or principal payments on a loan participation would adversely
affect the income of the fund and would likely reduce the value
of its assets, which would be reflected in a reduction in the
fund's net asset value. Banks and other lending institutions
generally perform a credit analysis of the borrower before
originating a loan or participating in a lending syndicate. In
selecting the loan participations in which the fund will invest,
however, Putnam Management will not rely solely on that credit
analysis, but will perform its own investment analysis of the
borrowers. Putnam Management's analysis may include
consideration of the borrower's financial strength and managerial
experience, debt coverage, additional borrowing requirements or
debt maturity schedules, changing financial conditions, and
responsiveness to changes in business conditions and interest
rates. Because loan participations in which the fund may invest
are not generally rated by independent credit rating agencies, a
decision by the fund to invest in a particular loan participation
will depend almost exclusively on Putnam Management's, and the
original lending institution's, credit analysis of the borrower.
Loan participations may be structured in different forms,
including novations, assignments, and participating interests.
In a novation, the fund assumes all of the rights of a lending
institution in a loan, including the right to receive payments of
principal and interest and other amounts directly from the
borrower and to enforce its rights as a lender directly against
the borrower. The fund assumes the position of a co-lender with
other syndicate members. As an alternative, the fund may
purchase an assignment of a portion of a lender's interest in a
loan. In this case, the fund may be required generally to rely
upon the assigning bank to demand payment and enforce its rights
against the borrower, but would otherwise be entitled to all of
such bank's rights in the loan. The fund may also purchase a
participating interest in a portion of the rights of a lending
institution in a loan. In such case, it will be entitled to
receive payments of principal, interest, and premium, if any, but
will not generally be entitled to enforce its rights directly
against the agent bank or the borrower, but must rely for that
purpose on the lending institution. The fund may also acquire a
loan participation directly by acting as a member of the original
lending syndicate.
The fund will in many cases be required to rely upon the lending
institution from which it purchases the loan participation to
collect and pass on to the fund such payments and to enforce the
fund's rights under the loan. As a result, an insolvency,
bankruptcy, or reorganization of the lending institution may
delay or prevent the fund from receiving principal, interest, and
other amounts with respect to the underlying loan. When the fund
is required to rely upon a lending institution to pay to the fund
principal, interest, and other amounts received by it, Putnam
Management will also evaluate the creditworthiness of the lending
institution.
The borrower of a loan in which the fund holds a participation
interest may, either at its own election or pursuant to terms of
the loan documentation, prepay amounts of the loan from time to
time. There is no assurance that the fund will be able to
reinvest the proceeds of any loan prepayment at the same interest
rate or on the same terms as those of the original loan
participation.
Corporate loans in which the fund may purchase a loan
participation are made generally to finance internal growth,
mergers, acquisitions, stock repurchases, leveraged buy-outs, and
other corporate activities. Under current market conditions,
most of the corporate loan participations purchased by the fund
will represent interests in loans made to finance highly
leveraged corporate acquisitions, known as "leveraged buy-out"
transactions. The highly leveraged capital structure of the
borrowers in such transactions may make such loans especially
vulnerable to adverse changes in economic or market conditions.
In addition, loan participations generally are subject to
restrictions on transfer, and only limited opportunities may
exist to sell such participations in secondary markets. As a
result, the fund may be unable to sell loan participations at a
time when it may otherwise be desirable to do so or may be able
to sell them only at a price that is less than their fair market
value.
Certain of the loan participations acquired by the fund may
involve revolving credit facilities under which a borrower may
from time to time borrow and repay amounts up to the maximum
amount of the facility. In such cases, the fund would have an
obligation to advance its portion of such additional borrowings
upon the terms specified in the loan participation. To the
extent that the fund is committed to make additional loans under
such a participation, it will at all times hold and maintain in a
segregated account liquid assets in an amount sufficient to meet
such commitments. Certain of the loan participations acquired by
the fund may also involve loans made in foreign currencies. The
fund's investment in such participations would involve the risks
of currency fluctuations described above with respect to
investments in the foreign securities.
MORTGAGE RELATED SECURITIES
The fund may invest in mortgage-backed securities, including
collateralized mortgage obligations ("CMOs") and certain stripped
mortgage-backed securities. CMOs and other mortgage-backed
securities represent a participation in, or are secured by,
mortgage loans.
Mortgage-backed securities have yield and maturity
characteristics corresponding to the underlying assets. Unlike
traditional debt securities, which may pay a fixed rate of
interest until maturity, when the entire principal amount comes
due, payments on certain mortgage-backed securities include both
interest and a partial repayment of principal. Besides the
scheduled repayment of principal, repayments of principal may
result from the voluntary prepayment, refinancing, or foreclosure
of the underlying mortgage loans. If property owners make
unscheduled prepayments of their mortgage loans, these
prepayments will result in early payment of the applicable
mortgage-related securities. In that event the fund may be
unable to invest the proceeds from the early payment of the
mortgage-related securities in an investment that provides as
high a yield as the mortgage-related securities. Consequently,
early payment associated with mortgage-related securities may
cause these securities to experience significantly greater price
and yield volatility than that experienced by traditional fixed-
income securities. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates,
general economic conditions, the location and age of the mortgage
and other social and demographic conditions. During periods of
falling interest rates, the rate of mortgage prepayments tends to
increase, thereby tending to decrease the life of mortgage-
related securities. During periods of rising interest rates, the
rate of mortgage prepayments usually decreases, thereby tending
to increase the life of mortgage-related securities. If the life
of a mortgage-related security is inaccurately predicted, the
fund may not be able to realize the rate of return it expected.
Mortgage-backed securities are less effective than other types of
securities as a means of "locking in" attractive long-term
interest rates. One reason is the need to reinvest prepayments
of principal; another is the possibility of significant
unscheduled prepayments resulting from declines in interest
rates. These prepayments would have to be reinvested at lower
rates. As a result, these securities may have less potential for
capital appreciation during periods of declining interest rates
than other securities of comparable maturities, although they may
have a similar risk of decline in market value during periods of
rising interest rates. Prepayments may also significantly shorten
the effective maturities of these securities, especially during
periods of declining interest rates. Conversely, during periods
of rising interest rates, a reduction in prepayments may increase
the effective maturities of these securities, subjecting them to
a greater risk of decline in market value in response to rising
interest rates than traditional debt securities, and, therefore,
potentially increasing the volatility of the fund.
Prepayments may cause losses on securities purchased at a
premium. At times, some of the mortgage-backed securities in
which the fund may invest will have higher than market interest
rates and therefore will be purchased at a premium above their
par value. Unscheduled prepayments, which are made at par, will
cause the fund to experience a loss equal to any unamortized
premium.
CMOs may be issued by a U.S. government agency or instrumentality
or by a private issuer. Although payment of the principal of,
and interest on, the underlying collateral securing privately
issued CMOs may be guaranteed by the U.S. government or its
agencies or instrumentalities, these CMOs represent obligations
solely of the private issuer and are not insured or guaranteed by
the U.S. government, its agencies or instrumentalities or any
other person or entity.
Prepayments could cause early retirement of CMOs. CMOs are
designed to reduce the risk of prepayment for investors by
issuing multiple classes of securities, each having different
maturities, interest rates and payment schedules, and with the
principal and interest on the underlying mortgages allocated
among the several classes in various ways. Payment of interest
or principal on some classes or series of CMOs may be subject to
contingencies or some classes or series may bear some or all of
the risk of default on the underlying mortgages. CMOS of
different classes or series are generally retired in sequence as
the underlying mortgage loans in the mortgage pool are repaid.
If enough mortgages are repaid ahead of schedule, the classes or
series of a CMO with the earliest maturities generally will be
retired prior to their maturities. Thus, the early retirement of
particular classes or series of a CMO held by the fund would have
the same effect as the prepayment of mortgages underlying other
mortgage-backed securities. Conversely, slower than anticipated
prepayments can extend the effective maturities of CMOs,
subjecting them to a greater risk of decline in market value in
response to rising interest rates than traditional debt
securities, and, therefore, potentially increasing the volatility
of the fund.
Prepayments could result in losses on stripped mortgage-backed
securities. Stripped mortgage-backed securities are usually
structured with two classes that receive different portions of
the interest and principal distributions on a pool of mortgage
loans. The fund may invest in both the interest-only or "IO"
class and the principal-only or "PO" class. The yield to
maturity on an IO class of stripped mortgage-backed securities is
extremely sensitive not only to changes in prevailing interest
rates but also to the rate of principal payments (including
prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurable adverse effect on the fund's
yield to maturity to the extent it invests in IOs. If the assets
underlying the IO experience greater than anticipated prepayments
of principal, the fund may fail to recoup fully its initial
investment in these securities. Conversely, POs tend to increase
in value if prepayments are greater than anticipated and decline
if prepayments are slower than anticipated.
The secondary market for stripped mortgage-backed securities may
be more volatile and less liquid than that for other mortgage-
backed securities, potentially limiting the fund's ability to buy
or sell those securities at any particular time.
SECURITIES LOANS
The fund may make secured loans of its portfolio securities, on
either a short-term or long-term basis, amounting to not more
than 25% of its total assets, thereby realizing additional
income. The risks in lending portfolio securities, as with other
extensions of credit, consist of possible delay in recovery of
the securities or possible loss of rights in the collateral
should the borrower fail financially. As a matter of policy,
securities loans are made to broker-dealers pursuant to
agreements requiring that the loans be continuously secured by
collateral consisting of cash or short-term debt obligations at
least equal at all times to the value of the securities on loan,
"marked-to-market" daily. The borrower pays to the fund an
amount equal to any dividends or interest received on securities
lent. The fund retains all or a portion of the interest received
on investment of the cash collateral or receives a fee from the
borrower. Although voting rights, or rights to consent, with
respect to the loaned securities may pass to the borrower, the
fund retains the right to call the loans at any time on
reasonable notice, and it will do so to enable the fund to
exercise voting rights on any matters materially affecting the
investment. The fund may also call such loans in order to sell
the securities.
FORWARD COMMITMENTS
The fund may enter into contracts to purchase securities for a
fixed price at a future date beyond customary settlement time
("forward commitments") if the fund sets aside, on the books and
records of its custodian, liquid assets in an amount sufficient
to meet the purchase price, or if the fund enters into offsetting
contracts for the forward sale of other securities it owns. In
the case of to-be-announced ("TBA") purchase commitments, the
unit price and the estimated principal amount are established
when the fund enters into a contract, with the actual principal
amount being within a specified range of the estimate. Forward
commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in
addition to the risk of decline in the value of the fund's other
assets. Where such purchases are made through dealers, the fund
relies on the dealer to consummate the sale. The dealer's
failure to do so may result in the loss to the fund of an
advantageous yield or price. Although the fund will generally
enter into forward commitments with the intention of acquiring
securities for its portfolio or for delivery pursuant to options
contracts it has entered into, the fund may dispose of a
commitment prior to settlement if Putnam Management deems it
appropriate to do so. The fund may realize short-term profits or
losses upon the sale of forward commitments.
The fund may enter into TBA sale commitments to hedge its
portfolio positions or to sell securities it owns under delayed
delivery arrangements. Proceeds of TBA sale commitments are not
received until the contractual settlement date. During the time
a TBA sale commitment is outstanding, equivalent deliverable
securities, or an offsetting TBA purchase commitment deliverable
on or before the sale commitment date, are held as "cover" for
the transaction. Unsettled TBA sale commitments are valued at
current market value of the underlying securities. If the TBA
sale commitment is closed through the acquisition of an
offsetting purchase commitment, the fund realizes a gain or loss
on the commitment without regard to any unrealized gain or loss
on the underlying security. If the fund delivers securities
under the commitment, the fund realizes a gain or loss from the
sale of the securities based upon the unit price established at
the date the commitment was entered into.
REPURCHASE AGREEMENTS
The fund may enter into repurchase agreements up to the limit
specified in the prospectus. A repurchase agreement is a
contract under which the fund acquires a security for a
relatively short period (usually not more than one week) subject
to the obligation of the seller to repurchase and the fund to
resell such security at a fixed time and price (representing the
fund's cost plus interest). It is the fund's present intention
to enter into repurchase agreements only with commercial banks
and registered broker-dealers and only with respect to
obligations of the U.S. government or its agencies or
instrumentalities. Repurchase agreements may also be viewed as
loans made by the fund which are collateralized by the securities
subject to repurchase. Putnam Management will monitor such
transactions to ensure that the value of the underlying
securities will be at least equal at all times to the total
amount of the repurchase obligation, including the interest
factor. If the seller defaults, the fund could realize a loss on
the sale of the underlying security to the extent that the
proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or
insolvency proceedings, the fund may incur delay and costs in
selling the underlying security or may suffer a loss of principal
and interest if the fund is treated as an unsecured creditor and
required to return the underlying collateral to the seller's
estate.
Pursuant to an exemptive order issued by the Securities and
Exchange Commission, the fund may transfer uninvested cash
balances into a joint account, along with cash of other Putnam
funds and certain other accounts. These balances may be invested
in one or more repurchase agreements and/or short-term money
market instruments.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The fund may write covered call options
and covered put options on optionable securities held in its
portfolio, when in the opinion of Putnam Management such
transactions are consistent with the fund's investment
objective(s) and policies. Call options written by the fund give
the purchaser the right to buy the underlying securities from the
fund at a stated exercise price; put options give the purchaser
the right to sell the underlying securities to the fund at a
stated price.
The fund may write only covered options, which means that, so
long as the fund is obligated as the writer of a call option, it
will own the underlying securities subject to the option (or
comparable securities satisfying the cover requirements of
securities exchanges). In the case of put options, the fund will
hold cash and/or high-grade short-term debt obligations equal to
the price to be paid if the option is exercised. In addition,
the fund will be considered to have covered a put or call option
if and to the extent that it holds an option that offsets some or
all of the risk of the option it has written. The fund may write
combinations of covered puts and calls on the same underlying
security.
The fund will receive a premium from writing a put or call
option, which increases the fund's return on the underlying
security in the event the option expires unexercised or is closed
out at a profit. The amount of the premium reflects, among other
things, the relationship between the exercise price and the
current market value of the underlying security, the volatility
of the underlying security, the amount of time remaining until
expiration, current interest rates, and the effect of supply and
demand in the options market and in the market for the underlying
security. By writing a call option, the fund limits its
opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option
but continues to bear the risk of a decline in the value of the
underlying security. By writing a put option, the fund assumes
the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current
market value, resulting in a potential capital loss unless the
security subsequently appreciates in value.
The fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction, in
which it purchases an offsetting option. The fund realizes a
profit or loss from a closing transaction if the cost of the
transaction (option premium plus transaction costs) is less or
more than the premium received from writing the option. If the
fund writes a call option but does not own the underlying
security, and when it writes a put option, the fund may be
required to deposit cash or securities with its broker as
"margin," or collateral, for its obligation to buy or sell the
underlying security. As the value of the underlying security
varies, the fund may have to deposit additional margin with the
broker. Margin requirements are complex and are fixed by
individual brokers, subject to minimum requirements currently
imposed by the Federal Reserve Board and by stock exchanges and
other self-regulatory organizations.
PURCHASING PUT OPTIONS. The fund may purchase put options to
protect its portfolio holdings in an underlying security against
a decline in market value. Such protection is provided during
the life of the put option since the fund, as holder of the
option, is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying
security's market price. In order for a put option to be
profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the
premium and transaction costs. By using put options in this
manner, the fund will reduce any profit it might otherwise have
realized from appreciation of the underlying security by the
premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The fund may purchase call options to
hedge against an increase in the price of securities that the
fund wants ultimately to buy. Such hedge protection is provided
during the life of the call option since the fund, as holder of
the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying
security's market price. In order for a call option to be
profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and
transaction costs.
RISK FACTORS IN OPTIONS TRANSACTIONS
The successful use of the fund's options strategies depends on
the ability of Putnam Management to forecast correctly interest
rate and market movements. For example, if the fund were to
write a call option based on Putnam Management's expectation that
the price of the underlying security would fall, but the price
were to rise instead, the fund could be required to sell the
security upon exercise at a price below the current market price.
Similarly, if the fund were to write a put option based on Putnam
Management's expectation that the price of the underlying
security would rise, but the price were to fall instead, the fund
could be required to purchase the security upon exercise at a
price higher than the current market price.
When the fund purchases an option, it runs the risk that it will
lose its entire investment in the option in a relatively short
period of time, unless the fund exercises the option or enters
into a closing sale transaction before the option's expiration.
If the price of the underlying security does not rise (in the
case of a call) or fall (in the case of a put) to an extent
sufficient to cover the option premium and transaction costs, the
fund will lose part or all of its investment in the option. This
contrasts with an investment by the fund in the underlying
security, since the fund will not realize a loss if the
security's price does not change.
The effective use of options also depends on the fund's ability
to terminate option positions at times when Putnam Management
deems it desirable to do so. There is no assurance that the fund
will be able to effect closing transactions at any particular
time or at an acceptable price.
If a secondary market in options were to become unavailable, the
fund could no longer engage in closing transactions. Lack of
investor interest might adversely affect the liquidity of the
market for particular options or series of options. A market may
discontinue trading of a particular option or options generally.
In addition, a market could become temporarily unavailable if
unusual events -- such as volume in excess of trading or clearing
capability -- were to interrupt its normal operations.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening
transactions. For example, if an underlying security ceases to
meet qualifications imposed by the market or the Options Clearing
Corporation, new series of options on that security will no
longer be opened to replace expiring series, and opening
transactions in existing series may be prohibited. If an options
market were to become unavailable, the fund as a holder of an
option would be able to realize profits or limit losses only by
exercising the option, and the fund, as option writer, would
remain obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying options
purchased or sold by the fund could result in losses on the
options. If trading is interrupted in an underlying security,
the trading of options on that security is normally halted as
well. As a result, the fund as purchaser or writer of an option
will be unable to close out its positions until options trading
resumes, and it may be faced with considerable losses if trading
in the security reopens at a substantially different price. In
addition, the Options Clearing Corporation or other options
markets may impose exercise restrictions. If a prohibition on
exercise is imposed at the time when trading in the option has
also been halted, the fund as purchaser or writer of an option
will be locked into its position until one of the two
restrictions has been lifted. If the Options Clearing
Corporation were to determine that the available supply of an
underlying security appears insufficient to permit delivery by
the writers of all outstanding calls in the event of exercise, it
may prohibit indefinitely the exercise of put options. The fund,
as holder of such a put option, could lose its entire investment
if the prohibition remained in effect until the put option's
expiration.
Foreign-traded options are subject to many of the same risks
presented by internationally-traded securities. In addition,
because of time differences between the United States and various
foreign countries, and because different holidays are observed in
different countries, foreign options markets may be open for
trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of
the underlying interest in the United States.
Over-the-counter ("OTC") options purchased by the fund and assets
held to cover OTC options written by the fund may, under certain
circumstances, be considered illiquid securities for purposes of
any limitation on the fund's ability to invest in illiquid
securities.
FUTURES CONTRACTS AND RELATED OPTIONS
Subject to applicable law, and unless otherwise specified in the
prospectus, the fund may invest without limit in the types of
futures contracts and related options identified in the
prospectus for hedging and non-hedging purposes, such as to
manage the effective duration of the fund's portfolio or as a
substitute for direct investment. A financial futures contract
sale creates an obligation by the seller to deliver the type of
financial instrument called for in the contract in a specified
delivery month for a stated price. A financial futures contract
purchase creates an obligation by the purchaser to take delivery
of the type of financial instrument called for in the contract in
a specified delivery month at a stated price. The specific
instruments delivered or taken, respectively, at settlement date
are not determined until on or near that date. The determination
is made in accordance with the rules of the exchange on which the
futures contract sale or purchase was made. Futures contracts
are traded in the United States only on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for
such trading by the Commodity Futures Trading Commission (the
"CFTC"), and must be executed through a futures commission
merchant or brokerage firm which is a member of the relevant
contract market.
Although futures contracts (other than index futures) by their
terms call for actual delivery or acceptance of commodities or
securities, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery.
Closing out a futures contract sale is effected by purchasing a
futures contract for the same aggregate amount of the specific
type of financial instrument or commodity with the same delivery
date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid
the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial sale,
the seller realizes a loss. If the fund is unable to enter into
a closing transaction, the amount of the fund's potential loss is
unlimited. The closing out of a futures contract purchase is
effected by the purchaser's entering into a futures contract
sale. If the offsetting sale price exceeds the purchase price,
the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, he realizes a loss. In general, 40%
of the gain or loss arising from the closing out of a futures
contract traded on an exchange approved by the CFTC is treated as
short-term gain or loss, and 60% is treated as long-term gain or
loss.
Unlike when the fund purchases or sells a security, no price is
paid or received by the fund upon the purchase or sale of a
futures contract. Upon entering into a contract, the fund is
required to deposit with its custodian in a segregated account in
the name of the futures broker an amount of liquid assets. This
amount is known as "initial margin." The nature of initial
margin in futures transactions is different from that of margin
in security transactions in that futures contract margin does not
involve the borrowing of funds to finance the transactions.
Rather, initial margin is similar to a performance bond or good
faith deposit which is returned to the fund upon termination of
the futures contract, assuming all contractual obligations have
been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin" or "maintenance
margin," to and from the broker (or the custodian) are made on a
daily basis as the price of the underlying security or commodity
fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to
the market." For example, when the fund has purchased a futures
contract on a security and the price of the underlying security
has risen, that position will have increased in value and the
fund will receive from the broker a variation margin payment
based on that increase in value. Conversely, when the fund has
purchased a security futures contract and the price of the
underlying security has declined, the position would be less
valuable and the fund would be required to make a variation
margin payment to the broker.
The fund may elect to close some or all of its futures positions
at any time prior to their expiration in order to reduce or
eliminate a hedge position then currently held by the fund. The
fund may close its positions by taking opposite positions which
will operate to terminate the fund's position in the futures
contracts. Final determinations of variation margin are then
made, additional cash is required to be paid by or released to
the fund, and the fund realizes a loss or a gain. Such closing
transactions involve additional commission costs.
The fund does not intend to purchase or sell futures or related
options for other than hedging purposes, if, as a result, the sum
of the initial margin deposits on the fund's existing futures and
related options positions and premiums paid for outstanding
options on futures contracts would exceed 5% of the fund's net
assets.
OPTIONS ON FUTURES CONTRACTS. The fund may purchase and write
call and put options on futures contracts it may buy or sell and
enter into closing transactions with respect to such options to
terminate existing positions. In return for the premium paid,
options on future contracts give the purchaser the right to
assume a position in a futures contract at the specified option
exercise price at any time during the period of the option. The
fund may use options on futures contracts in lieu of writing or
buying options directly on the underlying securities or
purchasing and selling the underlying futures contracts. For
example, to hedge against a possible decrease in the value of its
portfolio securities, the fund may purchase put options or write
call options on futures contracts rather than selling futures
contracts. Similarly, the fund may purchase call options or
write put options on futures contracts as a substitute for the
purchase of futures contracts to hedge against a possible
increase in the price of securities which the fund expects to
purchase. Such options generally operate in the same manner as
options purchased or written directly on the underlying
investments.
As with options on securities, the holder or writer of an option
may terminate his position by selling or purchasing an offsetting
option. There is no guarantee that such closing transactions can
be effected.
The fund will be required to deposit initial margin and
maintenance margin with respect to put and call options on
futures contracts written by it pursuant to brokers' requirements
similar to those described above in connection with the
discussion of futures contracts.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS.
Successful use of futures contracts by the fund is subject to
Putnam Management's ability to predict movements in various
factors affecting securities markets, including interest rates.
Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves
less potential risk to the fund because the maximum amount at
risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the purchase of
a call or put option on a futures contract would result in a loss
to the fund when the purchase or sale of a futures contract would
not, such as when there is no movement in the prices of the
hedged investments. The writing of an option on a futures
contract involves risks similar to those risks relating to the
sale of futures contracts.
The use of options and futures strategies also involves the risk
of imperfect correlation among movements in the prices of the
securities underlying the futures and options purchased and sold
by the fund, of the options and futures contracts themselves,
and, in the case of hedging transactions, of the securities which
are the subject of a hedge. The successful use of these
strategies further depends on the ability of Putnam Management to
forecast interest rates and market movements correctly.
There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render
certain market clearing facilities inadequate, and thereby result
in the institution by exchanges of special procedures which may
interfere with the timely execution of customer orders.
To reduce or eliminate a position held by the fund, the fund may
seek to close out such position. The ability to establish and
close out positions will be subject to the development and
maintenance of a liquid secondary market. It is not certain that
this market will develop or continue to exist for a particular
futures contract or option. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there
may be insufficient trading interest in certain contracts or
options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii)
trading halts, suspensions or other restrictions may be imposed
with respect to particular classes or series of contracts or
options, or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or a clearing corporation may not
at all times be adequate to handle current trading volume; or
(vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the
trading of contracts or options (or a particular class or series
of contracts or options), in which event the secondary market on
that exchange for such contracts or options (or in the class or
series of contracts or options) would cease to exist, although
outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with
their terms.
U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. U.S.
Treasury security futures contracts require the seller to
deliver, or the purchaser to take delivery of, the type of U.S.
Treasury security called for in the contract at a specified date
and price. Options on U.S. Treasury security futures contracts
give the purchaser the right in return for the premium paid to
assume a position in a U.S. Treasury security futures contract at
the specified option exercise price at any time during the period
of the option.
Successful use of U.S. Treasury security futures contracts by the
fund is subject to Putnam Management's ability to predict
movements in the direction of interest rates and other factors
affecting markets for debt securities. For example, if the fund
has sold U.S. Treasury security futures contracts in order to
hedge against the possibility of an increase in interest rates
which would adversely affect securities held in its portfolio,
and the prices of the fund's securities increase instead as a
result of a decline in interest rates, the fund will lose part or
all of the benefit of the increased value of its securities which
it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the fund
has insufficient cash, it may have to sell securities to meet
daily maintenance margin requirements at a time when it may be
disadvantageous to do so.
There is also a risk that price movements in U.S. Treasury
security futures contracts and related options will not correlate
closely with price movements in markets for particular
securities. For example, if the fund has hedged against a
decline in the values of tax-exempt securities held by it by
selling Treasury security futures and the values of Treasury
securities subsequently increase while the values of its
tax-exempt securities decrease, the fund would incur losses on
both the Treasury security futures contracts written by it and
the tax-exempt securities held in its portfolio.
INDEX FUTURES CONTRACTS. An index futures contract is a contract
to buy or sell units of an index at a specified future date at a
price agreed upon when the contract is made. Entering into a
contract to buy units of an index is commonly referred to as
buying or purchasing a contract or holding a long position in
the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short
position. A unit is the current value of the index. The fund
may enter into stock index futures contracts, debt index futures
contracts, or other index futures contracts appropriate to its
objective(s). The fund may also purchase and sell options on
index futures contracts.
For example, the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500") is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange. The S&P 500
assigns relative weightings to the common stocks included in the
Index, and the value fluctuates with changes in the market values
of those common stocks. In the case of the S&P 500, contracts
are to buy or sell 500 units. Thus, if the value of the S&P 500
were $150, one contract would be worth $75,000 (500 units x
$150). The stock index futures contract specifies that no
delivery of the actual stocks making up the index will take
place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the
difference between the contract price and the actual level of the
stock index at the expiration of the contract. For example, if
the fund enters into a futures contract to buy 500 units of the
S&P 500 at a specified future date at a contract price of $150
and the S&P 500 is at $154 on that future date, the fund will
gain $2,000 (500 units x gain of $4). If the fund enters into a
futures contract to sell 500 units of the stock index at a
specified future date at a contract price of $150 and the S&P 500
is at $152 on that future date, the fund will lose $1,000 (500
units x loss of $2).
There are several risks in connection with the use by the fund of
index futures. One risk arises because of the imperfect
correlation between movements in the prices of the index futures
and movements in the prices of securities which are the subject
of the hedge. Putnam Management will, however, attempt to reduce
this risk by buying or selling, to the extent possible, futures
on indices the movements of which will, in its judgment, have a
significant correlation with movements in the prices of the
securities sought to be hedged.
Successful use of index futures by the fund is also subject to
Putnam Management's ability to predict movements in the direction
of the market. For example, it is possible that, where the fund
has sold futures to hedge its portfolio against a decline in the
market, the index on which the futures are written may advance
and the value of securities held in the fund's portfolio may
decline. If this occurred, the fund would lose money on the
futures and also experience a decline in value in its portfolio
securities. It is also possible that, if the fund has hedged
against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices
increase instead, the fund will lose part or all of the benefit
of the increased value of those securities it has hedged because
it will have offsetting losses in its futures positions. In
addition, in such situations, if the fund has insufficient cash,
it may have to sell securities to meet daily variation margin
requirements at a time when it is disadvantageous to do so.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the
index futures and the portion of the portfolio being hedged, the
prices of index futures may not correlate perfectly with
movements in the underlying index due to certain market
distortions. First, all participants in the futures market are
subject to margin deposit and maintenance requirements. Rather
than meeting additional margin deposit requirements, investors
may close futures contracts through offsetting transactions which
could distort the normal relationship between the index and
futures markets. Second, margin requirements in the futures
market are less onerous than margin requirements in the
securities market, and as a result the futures market may attract
more speculators than the securities market does. Increased
participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price
distortions in the futures market and also because of the
imperfect correlation between movements in the index and
movements in the prices of index futures, even a correct forecast
of general market trends by Putnam Management may still not
result in a profitable position over a short time period.
OPTIONS ON STOCK INDEX FUTURES. Options on index futures are
similar to options on securities except that options on index
futures give the purchaser the right, in return for the premium
paid, to assume a position in an index futures contract (a long
position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during
the period of the option. Upon exercise of the option, the
delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the index
futures contract, at exercise, exceeds (in the case of a call) or
is less than (in the case of a put) the exercise price of the
option on the index future. If an option is exercised on the
last trading day prior to its expiration date, the settlement
will be made entirely in cash equal to the difference between the
exercise price of the option and the closing level of the index
on which the future is based on the expiration date. Purchasers
of options who fail to exercise their options prior to the
exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES
As an alternative to purchasing call and put options on index
futures, the fund may purchase and sell call and put options on
the underlying indices themselves. Such options would be used in
a manner identical to the use of options on index futures.
INDEX WARRANTS
The fund may purchase put warrants and call warrants whose values
vary depending on the change in the value of one or more
specified securities indices ("index warrants"). Index warrants
are generally issued by banks or other financial institutions and
give the holder the right, at any time during the term of the
warrant, to receive upon exercise of the warrant a cash payment
from the issuer based on the value of the underlying index at the
time of exercise. In general, if the value of the underlying
index rises above the exercise price of the index warrant, the
holder of a call warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference
between the value of the index and the exercise price of the
warrant; if the value of the underlying index falls, the holder
of a put warrant will be entitled to receive a cash payment from
the issuer upon exercise based on the difference between the
exercise price of the warrant and the value of the index. The
holder of a warrant would not be entitled to any payments from
the issuer at any time when, in the case of a call warrant, the
exercise price is greater than the value of the underlying index,
or, in the case of a put warrant, the exercise price is less than
the value of the underlying index. If the fund were not to
exercise an index warrant prior to its expiration, then the fund
would lose the amount of the purchase price paid by it for the
warrant.
The fund will normally use index warrants in a manner similar to
its use of options on securities indices. The risks of the
fund's use of index warrants are generally similar to those
relating to its use of index options. Unlike most index options,
however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only
by the credit of the bank or other institution which issues the
warrant. Also, index warrants generally have longer terms than
index options. Although the fund will normally invest only in
exchange-listed warrants, index warrants are not likely to be as
liquid as certain index options backed by a recognized clearing
agency. In addition, the terms of index warrants may limit the
fund's ability to exercise the warrants at such time, or in such
quantities, as the fund would otherwise wish to do.
FOREIGN INVESTMENTS
The fund may invest in securities of foreign issuers that are not
actively traded in U.S. markets. These foreign investments
involve certain special risks described below.
Foreign securities are normally denominated and traded in foreign
currencies. As a result, the value of the fund's foreign
investments and the value of its shares may be affected favorably
or unfavorably by changes in currency exchange rates relative to
the U.S. dollar. There may be less information publicly
available about a foreign issuer than about a U.S. issuer, and
foreign issuers are not generally subject to accounting, auditing
and financial reporting standards and practices comparable to
those in the United States. The securities of some foreign
issuers are less liquid and at times more volatile than
securities of comparable U.S. issuers. Foreign brokerage
commissions and other fees are also generally higher than in the
United States. Foreign settlement procedures and trade
regulations may involve certain risks (such as delay in payment
or delivery of securities or in the recovery of the fund's assets
held abroad) and expenses not present in the settlement of
investments in U.S. markets.
In addition, the fund's investments in foreign securities may be
subject to the risk of nationalization or expropriation of
assets, imposition of currency exchange controls, foreign
withholding taxes or restrictions on the repatriation of foreign
currency, confiscatory taxation, political or financial
instability and diplomatic developments which could affect the
value of the fund's investments in certain foreign countries.
Dividends or interest on, or proceeds from the sale of, foreign
securities may be subject to foreign withholding taxes, and
special U.S. tax considerations may apply.
Legal remedies available to investors in certain foreign
countries may be more limited than those available with respect
to investments in the United States or in other foreign
countries. The laws of some foreign countries may limit the
fund's ability to invest in securities of certain issuers
organized under the laws of those foreign countries.
The risks described above, including the risks of nationalization
or expropriation of assets, are typically increased in connection
with investments in "emerging markets." For example, political
and economic structures in these countries may be in their
infancy and developing rapidly, and such countries may be in
their infancy and developing rapidly, and such countries may lack
the social, political and economic stability characteristic of
more developed countries. Certain of these countries have in the
past failed to recognize private property rights and have at
times nationalized and expropriated the assets of private
companies. High rates of inflation or currency devaluations may
adversely affect the economies and securities markets of such
countries. Investments in emerging markets may be considered
speculative.
The currencies of certain emerging market countries have
experienced a steady devaluation relative to the U.S. dollar, and
continued devaluations may adversely affect the value of a fund's
assets denominated in such currencies. Many emerging market
companies have experienced substantial, and in some periods
extremely high, rates of inflation for many years, and continued
inflation may adversely affect the economies and securities
markets of such countries.
In addition, unanticipated political or social developments may
affect the value of the fund's investments in emerging markets
and the availability to the fund of additional investments in
these markets. The small size, limited trading volume and
relative inexperience of the securities markets in these
countries may make the fund's investments in securities traded in
emerging markets illiquid and more volatile than investments in
securities traded in more developed countries, and the fund may
be required to establish special custodial or other arrangements
before making investments in securities traded in emerging
markets. There may be little financial or accounting information
available with respect to issuers of emerging market securities,
and it may be difficult as a result to assess the value of
prospects of an investment in such securities.
Certain of the foregoing risks may also apply to some extent to
securities of U.S. issuers that are denominated in foreign
currencies or that are traded in foreign markets, or securities
of U.S. issuers having significant foreign operations.
FOREIGN CURRENCY TRANSACTIONS
Unless otherwise specified in the prospectus or Part I of this
SAI, the fund may engage without limit in currency exchange
transactions, including purchasing and selling foreign currency,
foreign currency options, foreign currency forward contracts and
foreign currency futures contracts and related options, to manage
its exposure to foreign currencies. In addition, the fund may
write covered call and put options on foreign currencies for the
purpose of increasing its current return.
Generally, the fund may engage in both "transaction hedging" and
"position hedging." The fund may also engage in foreign currency
transactions for non-hedging purposes, subject to applicable law.
When it engages in transaction hedging, the fund enters into
foreign currency transactions with respect to specific
receivables or payables, generally arising in connection with the
purchase or sale of portfolio securities. The fund will engage
in transaction hedging when it desires to "lock in" the U.S.
dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a
foreign currency. By transaction hedging the fund will attempt
to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and
the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the
dividend or interest payment is earned, and the date on which
such payments are made or received.
The fund may purchase or sell a foreign currency on a spot (or
cash) basis at the prevailing spot rate in connection with the
settlement of transactions in portfolio securities denominated in
that foreign currency. 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 also enter into contracts to purchase or sell
foreign currencies at a future date ("forward contracts") and
purchase and sell foreign currency futures contracts.
For transaction hedging purposes the fund may also purchase
exchange-listed and over-the-counter call and put options on
foreign currency futures contracts and on foreign currencies. A
put option on a futures contract gives the fund the right to
assume a short position in the futures contract until the
expiration of the option. A put option on a currency gives the
fund the right to sell the currency at an exercise price until
the expiration of the option. A call option on a futures
contract gives the fund the right to assume a long position in
the futures contract until the expiration of the option. A call
option on a currency gives the fund the right to purchase the
currency at the exercise price until the expiration of the
option.
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, on exchanges or in over-
the-counter markets, foreign currency futures contracts, foreign
currency forward contracts and options on foreign currency
futures contracts and on foreign currencies. In connection with
position hedging, the fund may also purchase or sell foreign
currency on a spot basis.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward
or futures contract. Accordingly, it may be necessary for the
fund to purchase additional foreign currency on the spot market
(and bear the expense of such purchase) if the market value of
the security or securities being hedged is less than the amount
of foreign currency the fund is obligated to deliver and a
decision is made to sell the security or securities and make
delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security or securities if
the market value of such security or securities exceeds the
amount of foreign currency the fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in
the underlying prices of the securities which the fund owns or
intends to purchase or sell. They simply establish a rate of
exchange which one can achieve at some future point in time.
Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the
increase in value of such currency. See "Risk factors in options
transactions" above.
The fund may seek to increase its current return or to offset
some of the costs of hedging against fluctuations in current
exchange rates by writing covered call options and covered put
options on foreign currencies. The fund receives a premium from
writing a call or put option, which increases the fund's current
return if the option expires unexercised or is closed out at a
net profit. The fund may terminate an option that it has written
prior to its expiration by entering into a closing purchase
transaction in which it purchases an option having the same terms
as the option written.
The fund's currency hedging transactions may call for the
delivery of one foreign currency in exchange for another foreign
currency and may at times not involve currencies in which its
portfolio securities are then denominated. Putnam Management
will engage in such "cross hedging" activities when it believes
that such transactions provide significant hedging opportunities
for the fund. Cross hedging transactions by the fund involve the
risk of imperfect correlation between changes in the values of
the currencies to which such transactions relate and changes in
the value of the currency or other asset or liability which is
the subject of the hedge.
The fund may also engage in non-hedging currency transactions.
For example, Putnam Management may believe that exposure to a
currency is in the fund's best interest but that securities
denominated in that currency are unattractive. In that case the
fund may purchase a currency forward contract or option in order
to increase its exposure to the currency. In accordance with SEC
regulations, the fund will segregate liquid assets in its
portfolio to cover forward contracts used for non-hedging
purposes.
The value of any currency, including U.S. dollars and foreign
currencies, may be affected by complex political and economic
factors applicable to the issuing country. In addition, the
exchange rates of foreign currencies (and therefore the values of
foreign currency options, forward contracts and futures
contracts) may be affected significantly, fixed, or supported
directly or indirectly by U.S. and foreign government actions.
Government intervention may increase risks involved in purchasing
or selling foreign currency options, forward contracts and
futures contracts, since exchange rates may not be free to
fluctuate in response to other market forces.
The value of a foreign currency option, forward contract or
futures contract reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar
and the foreign currency in question. Because foreign currency
transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in
the exercise of foreign currency options, forward contracts and
futures contracts, investors may be disadvantaged by having to
deal in an odd-lot market for the underlying foreign currencies
in connection with options at prices that are less favorable than
for round lots. Foreign governmental restrictions or taxes could
result in adverse changes in the cost of acquiring or disposing
of foreign currencies.
There is no systematic reporting of last sale information for
foreign currencies and there is no regulatory requirement that
quotations available through dealers or other market sources be
firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot
transactions in the interbank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1
million) where rates may be less favorable. The interbank market
in foreign currencies is a global, around-the-clock market. To
the extent that options markets are closed while the markets for
the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be
reflected in the options markets.
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.
CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign
currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number
of days from the date of the contract as agreed by the parties,
at a price set at the time of the contract. In the case of a
cancelable forward contract, the holder has the unilateral right
to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial
banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage
for trades. A foreign currency futures contract is a
standardized contract for the future delivery of a specified
amount of a foreign currency at a price set at the time of the
contract. Foreign currency futures contracts traded in the
United States are designed by and traded on exchanges regulated
by the CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the
maturity date of a forward contract may be any fixed number of
days from the date of the contract agreed upon by the parties,
rather than a predetermined date in a given month. Forward
contracts may be in any amount agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange
contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires
no margin or other deposit.
At the maturity of a forward or futures contract, the fund either
may accept or make delivery of the currency specified in the
contract, or at or prior to maturity enter into a closing
transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts
are usually effected with the currency trader who is a party to
the original forward contract. Closing transactions with respect
to futures contracts are effected on a commodities exchange; a
clearing corporation associated with the exchange assumes
responsibility for closing out such contracts.
Positions in the foreign currency futures contracts may be closed
out only on an exchange or board of trade which provides a
secondary market in such contracts. Although the fund intends to
purchase or sell foreign currency futures contracts only on
exchanges or boards of trade where there appears to be an active
secondary market, there is no assurance that a secondary market
on an exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be
possible to close a futures position and, in the event of adverse
price movements, the fund would continue to be required to make
daily cash payments of variation margin.
FOREIGN CURRENCY OPTIONS. In general, options on foreign
currencies operate similarly to options on securities and are
subject to many of the risks described above. Foreign currency
options are traded primarily in the over-the-counter market,
although options on foreign currencies are also listed on several
exchanges. Options are traded not only on the currencies of
individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of
currencies, and is the official medium of exchange of the
European Community's European Monetary System.
The fund will only purchase or write foreign currency options
when Putnam Management believes that a liquid secondary market
exists for such options. There can be no assurance that a liquid
secondary market will exist for a particular option at any
specific time. Options on foreign currencies are affected by all
of those factors which influence foreign exchange rates and
investments generally.
SETTLEMENT PROCEDURES. Settlement procedures relating to the
fund's investments in foreign securities and to the fund's
foreign currency exchange transactions may be more complex than
settlements with respect to investments in debt or equity
securities of U.S. issuers, and may involve certain risks not
present in the fund's domestic investments. For example,
settlement of transactions involving foreign securities or
foreign currencies may occur within a foreign country, and the
fund may be required to accept or make delivery of the underlying
securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay
any fees, taxes or charges associated with such delivery. Such
investments may also involve the risk that an entity involved in
the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers
do not charge a fee for currency conversion, they do realize a
profit based on the difference (the "spread") between prices at
which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to the fund at one
rate, while offering a lesser rate of exchange should the fund
desire to resell that currency to the dealer.
RESTRICTED SECURITIES
The SEC Staff currently takes the view that any delegation by the
Trustees of the authority to determine that a restricted security
is readily marketable (as described in the investment
restrictions of the funds) must be pursuant to written procedures
established by the Trustees. It is the present intention of the
funds' Trustees that, if the Trustees decide to delegate such
determinations to Putnam Management or another person, they would
do so pursuant to written procedures, consistent with the Staff's
position. Should the Staff modify its position in the future,
the Trustees would consider what action would be appropriate in
light of the Staff's position at that time.
TAXES
TAXATION OF THE FUND. The fund intends to qualify each year as a
regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). In order so to
qualify and to qualify for the special tax treatment accorded
regulated investment companies and their shareholders, the fund
must, among other things:
(a) Derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and
gains from the sale of stock, securities and foreign currencies,
or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its
business of investing in such stock, securities, or currencies;
(b) distribute with respect to each taxable year at least 90% of
the sum of its taxable net investment income, its net tax-exempt
income, and the excess, if any, of net short-term capital gains
over net long-term capital losses for such year; and
(c) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the fund's
assets is represented by cash and cash items, U.S. government
securities, securities of other regulated investment companies,
and other securities limited in respect of any one issuer to a
value not greater than 5% of the value of the fund's total assets
and to not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities (other than those of the
U.S. Government or other regulated investment companies) of any
one issuer or of two or more issuers which the fund controls and
which are engaged in the same, similar, or related trades or
businesses.
In addition, until the start of the fund's first tax year
beginning after August 5, 1997, the fund must derive less than
30% of its gross income from the sale or other disposition of
certain assets (including stock or securities and certain
options, futures contracts, forward contracts and foreign
currencies) held for less than three months in order to qualify
as a regulated investment company.
If the fund qualifies as a regulated investment company that is
accorded special tax treatment, the fund will not be subject to
federal income tax on income paid to its shareholders in the form
of dividends (including capital gain dividends).
If the fund failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the fund
would be subject to tax on its taxable income at corporate rates,
and all distributions from earnings and profits, including any
distributions of net tax-exempt income and net long-term capital
gains, would be taxable to shareholders as ordinary income. In
addition, the fund could be required to recognize unrealized
gains, pay substantial taxes and interest and make substantial
distributions before requalifying as a regulated investment
company that is accorded special tax treatment.
If the fund fails to distribute in a calendar year substantially
all of its ordinary income for such year and substantially all of
its capital gain net income for the one-year period ending
October 31 (or later if the fund is permitted so to elect and so
elects), plus any retained amount from the prior year, the fund
will be subject to a 4% excise tax on the undistributed amounts.
A dividend paid to shareholders by the fund in January of a year
generally is deemed to have been paid by the fund on December 31
of the preceding year, if the dividend was declared and payable
to shareholders of record on a date in October, November or
December of that preceding year. The fund intends generally to
make distributions sufficient to avoid imposition of the 4%
excise tax.
FUND DISTRIBUTIONS. Distributions from the fund (other than
exempt-interest dividends, as discussed below) will be taxable to
shareholders as ordinary income to the extent derived from the
fund's investment income and net short-term gains. Pursuant to
the Taxpayer Relief Act of 1997, two different tax rates apply to
net capital gains (that is, the excess of net gains from captial
assets held more than one year over net losses from capital
assets held for not more than one year). One rate (generally
28%) applies to net gains on capital assets held for more than
one year but not more than 18 months ("mid-term gains") and a
second, preferred rate (generally 20%) applies to the balance of
such net capital gains ("adjusted net capital gains").
Distributions of net capital gains will be treated in the hands
of shareholders as mid-term gains to the extent designated by the
fund as deriving from net gains from assets held for more than
one year but not more than 18 months, and the balance will be
treated as adjusted net capital gains. Distributions of mid-term
gains and adjusted net capital gains will be taxable to
shareholders as such, regardless of how long a shareholder has
held the shares in the fund.
EXEMPT-INTEREST DIVIDENDS. The fund will be qualified to pay
exempt-interest dividends to its shareholders only if, at the
close of each quarter of the fund's taxable year, at least 50% of
the total value of the fund's assets consists of obligations the
interest on which is exempt from federal income tax.
Distributions that the fund properly designates as exempt-
interest dividends are treated as interest excludable from
shareholders' gross income for federal income tax purposes but
may be taxable for federal alternative minimum tax purposes and
for state and local purposes. If the fund intends to be
qualified to pay exempt-interest dividends, the fund may be
limited in its ability to enter into taxable transactions
involving forward commitments, repurchase agreements, financial
futures and options contracts on financial futures, tax-exempt
bond indices and other assets.
Part or all of the interest on indebtedness, if any, incurred or
continued by a shareholder to purchase or carry shares of a fund
paying exempt-interest dividends is not deductible. The portion
of interest that is not deductible is equal to the total interest
paid or accrued on the indebtedness, multiplied by the percentage
of the fund's total distributions (not including distributions
from net long-term capital gains) paid to the shareholder that
are exempt-interest dividends. Under rules used by the Internal
Revenue Service for determining when borrowed funds are
considered used for the purpose of purchasing or carrying
particular assets, the purchase of shares may be considered to
have been made with borrowed funds even though such funds are not
directly traceable to the purchase of shares.
In general, exempt-interest dividends, if any, attributable to
interest received on certain private activity obligations and
certain industrial development bonds will not be tax-exempt to
any shareholders who are "substantial users" of the facilities
financed by such obligations or bonds or who are "related
persons" of such substantial users.
A fund which is qualified to pay exempt-interest dividends will
inform investors within 60 days of the fund's fiscal year-end of
the percentage of its income distributions designated as
tax-exempt. The percentage is applied uniformly to all
distributions made during the year. The percentage of income
designated as tax-exempt for any particular distribution may be
substantially different from the percentage of the fund's income
that was tax-exempt during the period covered by the
distribution.
HEDGING TRANSACTIONS. If the fund engages in hedging
transactions, including hedging transactions in options, futures
contracts, and straddles, or other similar transactions, it will
be subject to special tax rules (including constructive sale,
mark-to-market, straddle, wash sale, and short sale rules), the
effect of which may be to accelerate income to the fund, defer
losses to the fund, cause adjustments in the holding periods of
the fund's securities, or convert short-term capital losses into
long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders.
The fund will endeavor to make any available elections pertaining
to such transactions in a manner believed to be in the best
interests of the fund.
Under the 30% of gross income test described above (see "Taxation
of the fund"), the fund will be restricted in selling assets held
or considered under Code rules to have been held for less than
three months, and in engaging in certain hedging transactions
(including hedging transactions in options and futures) that in
some circumstances could cause certain fund assets to be treated
as held for less than three months.
Certain of the fund's hedging activities (including its
transactions, if any, in foreign currencies or foreign
currency-denominated instruments) are likely to produce a
difference between its book income and its taxable income. If
the fund's book income exceeds its taxable income, the
distribution (if any) of such excess will be treated as (i) a
dividend to the extent of the fund's remaining earnings and
profits (including earnings and profits arising from tax-exempt
income), (ii) thereafter as a return of capital to the extent of
the recipient's basis in the shares, and (iii) thereafter as gain
from the sale or exchange of a capital asset. If the fund's book
income is less than its taxable income, the fund could be
required to make distributions exceeding book income to qualify
as a regulated investment company that is accorded special tax
treatment.
RETURN OF CAPITAL DISTRIBUTIONS. If the fund makes a
distribution to you in excess of its current and accumulated
"earnings and profits" in any taxable year, the excess
distribution will be treated as a return of capital to the extent
of your tax basis in your shares, and thereafter as capital gain.
A return of capital is not taxable, but it reduces your tax basis
in your shares, thus reducing any loss or increasing any gain on
a subsequent taxable disposition by you of your shares.
SECURITIES ISSUED OR PURCHASED AT A DISCOUNT. The fund's
investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a
discount may) require the fund to accrue and distribute income
not yet received. In order to generate sufficient cash to make
the requisite distributions, the fund may be required to sell
securities in its portfolio that it otherwise would have
continued to hold.
CAPITAL LOSS CARRYOVER. Distributions from capital gains are
made after applying any available capital loss carryovers. The
amounts and expiration dates of any capital loss carryovers
available to the fund are shown in Note 1 (Federal income taxes)
to the financial statements included in Part I of this SAI or
incorporated by reference into this SAI.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING
TRANSACTIONS. The fund's transactions in foreign currencies,
foreign currency-denominated debt securities and certain foreign
currency options, futures contracts and forward contracts (and
similar instruments) may give rise to ordinary income or loss to
the extent such income or loss results from fluctuations in the
value of the foreign currency concerned.
If more than 50% of the fund's assets at year end consists of the
securities of foreign corporations, the fund may elect to permit
shareholders to claim a credit or deduction on their income tax
returns for their pro rata portion of qualified taxes paid by the
fund to foreign countries in respect of foreign securities the
fund has held for at least the minimum period specified in the
Code. In such a case, shareholders will include in gross income
from foreign sources their pro rata shares of such taxes. A
shareholder's ability to claim a foreign tax credit or deduction
in respect of foreign taxes paid by the fund may be subject to
certain limitations imposed by the Code, as a result of which a
shareholder may not get a full credit or deduction for the amount
of such taxes. In particular, shareholders must hold their fund
shares (without protection from risk of loss) on the ex-dividend
date and for at least 15 additional days during the 30-day period
surrounding the ex-dividend date to be eligible to claim a
foreign tax credit with respect to a given dividend.
Shareholders who do not itemize on their federal income tax
returns may claim a credit (but no deduction) for such foreign
taxes.
Investment by the fund in "passive foreign investment companies"
could subject the fund to a U.S. federal income tax or other
charge on the proceeds from the sale of its investment in such a
company; however, this tax can be avoided by making an election
to mark such investments to market annually or to treat the
passive foreign investment company as a "qualified electing
fund."
A "passive foreign investment company" is any foreign
corporation: (i) 75 percent of more of the income of which for
the taxable year is passive income, or (ii) the average
percentage of the assets of which (generally by value, but by
adjusted tax basis in certain cases) that produce or are held for
the production of passive income is at least 50 percent.
Generally, passive income for this purpose means dividends,
interest (including income equivalent to interest), royalties,
rents, annuities, the excess of gains over losses from certain
property transactions and commodities transactions, and foreign
currency gains. Passive income for this purpose does not include
rents and royalties received by the foreign corporation from
active business and certain income received from related persons.
SALE OR REDEMPTION OF SHARES. The sale, exchange or redemption
of fund shares may give rise to a gain or loss. In general, any
gain realized upon a taxable disposition of shares will not be
treated as mid-term capital gain if the shares have been held for
more than 12 months but not more than 18 months, as adjusted net
capital gains if the shares have been held for more than 18
months. Otherwise the gain on the sale, exchange or redemption
of fund shares will be treated as short-term capital gain. In
general, any loss realized upon a taxable disposition of shares
will be treated as long-term loss if the shares have been held
for more than 12 months, and otherwise as short-term capital
gains. However, if a shareholder sells shares at a loss within
six months of purchase, any loss will be disallowed for Federal
income tax purposes to the extent of any exempt-interest
dividends received on such shares. In addition, any loss (not
already disallowed as provided in the preceding sentence)
realized upon a taxable disposition of shares held for six months
or less will be treated as long-term, rather than short-term, to
the extent of any long-term capital gain distributions received
by the shareholder with respect to the shares. All or a portion
of any loss realized upon a taxable disposition of fund shares
will be disallowed if other shares of the same fund are purchased
within 30 days before or after the disposition. In such a case,
the basis of the newly purchased shares will be adjusted to
reflect the disallowed loss.
SHARES PURCHASED THROUGH TAX-QUALIFIED PLANS. Special tax rules
apply to investments though defined contribution plans and other
tax-qualified plans. Shareholders should consult their tax
adviser to determine the suitability of shares of a fund as an
investment through such plans and the precise effect of an
investment on their particular tax situation.
BACKUP WITHHOLDING. The fund generally is required to withhold
and remit to the U.S. Treasury 31% of the taxable dividends and
other distributions paid to any individual shareholder who fails
to furnish the fund with a correct taxpayer identification number
(TIN), who has under-reported dividends or interest income, or
who fails to certify to the fund that he or she is not subject to
such withholding. Shareholders who fail to furnish their correct
TIN are subject to a penalty of $50 for each such failure unless
the failure is due to reasonable cause and not wilful neglect.
An individual's taxpayer identification number is his or her
social security number.
MANAGEMENT
TRUSTEES NAME (AGE)
*+GEORGE PUTNAM (71), Chairman and President. Chairman and
Director of Putnam Management and Putnam Mutual Funds. Director,
Freeport-McMoRan, Inc., Freeport Copper and Gold, Inc., McMoRan
Oil and Gas, Inc., General Mills, Inc., Houghton Mifflin Company
and Marsh & McLennan Companies, Inc.
+WILLIAM F. POUNDS (69), Vice Chairman. Professor of Management,
Alfred P. Sloan School of Management, Massachusetts Institute of
Technology. Director of IDEXX Laboratories, Inc., Perseptive
Biosystems, Inc., Management Sciences for Health, Inc., and Sun
Company, Inc.
JAMESON A. BAXTER (54), Trustee. President, Baxter Associates,
Inc. (a management and financial consultant). Director of
Avondale Federal Savings Bank, ASHTA Chemicals, Inc. and Banta
Corporation (printing and digital imaging). Chairman Emeritus of
the Board of Trustees, Mount Holyoke College.
+HANS H. ESTIN (69), Trustee. Chartered Financial Analyst and
Vice Chairman, North American Management Corp. (a registered
investment adviser).
JOHN A. HILL (55), Trustee. Chairman and Managing Director,
First Reserve Corporation (a registered investment adviser
investing in companies in the world-wide energy industry on
behalf of institutional investors). Director of Maverick Tube
Corporation, PetroCorp Incorporated, Snyder Oil Corporation,
TransMontaigne Oil Company, Weatherford Enterra, Inc. (an oil
field service company) and various private companies owned by
First Reserve Corporation, such as James River Coal and Anker
Coal Corporation, and various First Reserve Funds, such as
American Gas & Oil Investors, Ltd., AmGO II, L.P., First Reserve
Secured Energy Assets Fund, L.P., First Reserve Fund V., L.P.,
First Reserve Fund VI, L.P., and First Reserve Fund VII, L.P.
RONALD J. JACKSON (53), Trustee. 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.
PAUL L. JOSKOW (50), Trustee. Professor of Economics and
Management, Massachusetts Institute of Technology. Director, New
England Electric System, State Farm Indemnity Company and
Whitehead Institute for Biomedical Research.
ELIZABETH T. KENNAN (59), Trustee. President Emeritus and
Professor, Mount Holyoke College. Director, the Kentucky Home
Life Insurance Companies, NYNEX Corporation, Northeast Utilities
and Talbots.
*LAWRENCE J. LASSER (54), Trustee and Vice President. President,
Chief Executive Officer and Director of Putnam Investments, Inc.
and Putnam Investment Management, Inc. Director of Marsh &
McLennan Companies, Inc. and the United Way of Massachusetts Bay.
JOHN E. MULLIN, III (56), Trustee. Chairman and CEO of Ridgeway
Farm, Director of ACX Technologies, Inc., Alex. Brown Realty,
Inc., The Liberty Corporation and The Ryland Group, Inc.
+ROBERT E. PATTERSON (52), Trustee. Executive Vice President and
Director of Acquisitions, Cabot Partners Limited Partnership (a
registered investment adviser) and Massachusetts Industrial
Finance Agency.
*DONALD S. PERKINS (70), Trustee. Director of various
corporations, including AON Corp., Cummins Engine Company, Inc.,
Current Assets L.L.C., LaSalle Street Fund, Inc., LaSalle U.S.
Realty Income and Growth Fund, Inc., Lucent Technologies Inc.,
Ryerson Tull, Inc. (a steel service corporation) Springs
Industries, Inc. (a textile manufacturer), and Time Warner Inc.
*#GEORGE PUTNAM III (46), Trustee. President, New Generation
Research, Inc. (publisher of bankruptcy information) and New
Generation Advisers, Inc. (a registered investment adviser).
Director, Massachusetts Audubon Society and The Boston Family
Office, L.L.C. (a registered investment adviser).
W. THOMAS STEPHENS (55), Trustee. President and Chief Executive
Officer of MacMillan Bloedel Ltd. Director, Mail-Well Inc. (a
supplier of envelopes and high-quality printing services), Qwest
Communications (a fiber optics manufacturer), The Eagle Picher
Trust (a trust etablished to fund the settlement of asbestos-
rerlated claims) and New Century Energies (a public utlity
company).
*A.J.C. SMITH (63), Trustee. Chairman and Chief Executive
Officer, Marsh & McLennan Companies, Inc. Director, Trident
Corp.
W. NICHOLAS THORNDIKE (64), Trustee. Director of various
corporations and charitable organizations, including Courier
Corporation, Data General Corporation, Bradley Real Estate, Inc.,
and Providence Journal Co. and Courier Corporation.
OFFICERS NAME (AGE)
CHARLES E. PORTER (59), Executive Vice President. Managing
Director of Putnam Investments, Inc. and Putnam Management.
PATRICIA C. FLAHERTY (50), Senior Vice President. Senior Vice
President of Putnam Investments, Inc. and Putnam Management.
WILLIAM N. SHIEBLER (55), Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. President and
Director of Putnam Mutual Funds.
GORDON H. SILVER (50), Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. and Putnam
Management.
JOHN R. VERANI (58), Vice President. Senior Vice President of
Putnam Investments, Inc. and Putnam Management.
PAUL M. O'NEIL (44), Vice President. Vice President of Putnam
Investments, Inc. and Putnam Management.
JOHN D. HUGHES (62), Senior Vice President and Treasurer.
BEVERLY MARCUS (53), Clerk and Assistant Treasurer.
*Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund,
Putnam Management or Putnam Mutual Funds.
+Members of the Executive Committee of the Trustees. The
Executive Committee meets between regular meetings of the
Trustees as may be required to review investment matters and
other affairs of the fund and may exercise all of the powers of
the Trustees.
#George Putnam, III is the son of George Putnam.
-----------------
Certain other officers of Putnam Management are officers of the
fund. SEE "ADDITIONAL OFFICERS" IN PART I OF THIS SAI. The
mailing address of each of the officers and Trustees is One Post
Office Square, Boston, Massachusetts 02109.
Except as stated below, the principal occupations of the officers
and Trustees for the last five years have been with the employers
as shown above, although in some cases they have held different
positions with such employers. Prior to 1993, Mr. Jackson was
Chairman of the Board, President and Chief Executive Officer of
Fisher-Price, Inc. Prior to 1996, Mr. Stephens was Chairman of
the Board of Directors, President and Chief Executive Officer of
Johns Manville Corporation.
Each Trustee of the fund receives an annual fee and an additional
fee for each Trustees' meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on
committees of the Trustees receive additional fees for attendance
at certain committee meetings and for special services rendered
in that connection. All of the Trustees are Trustees of all the
Putnam funds and each receives fees for his or her services. FOR
DETAILS OF TRUSTEES' FEES PAID BY THE FUND AND INFORMATION
CONCERNING RETIREMENT GUIDELINES FOR THE TRUSTEES, SEE "CHARGES
AND EXPENSES" IN PART I OF THIS SAI.
The Agreement and Declaration of Trust of the fund provides that
the fund will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the
fund, except if it is determined in the manner specified in the
Agreement and Declaration of Trust that they have not acted in
good faith in the reasonable belief that their actions were in
the best interests of the fund or that such indemnification would
relieve any officer or Trustee of any liability to the fund or
its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of his or her duties. The
fund, at its expense, provides liability insurance for the
benefit of its Trustees and officers.
PUTNAM MANAGEMENT AND ITS AFFILIATES
Putnam Management is one of America's oldest and largest money
management firms. Putnam Management's staff of experienced
portfolio managers and research analysts selects securities and
constantly supervises the fund's portfolio. By pooling an
investor's money with that of other investors, a greater variety
of securities can be purchased than would be the case
individually; the resulting diversification helps reduce
investment risk. Putnam Management has been managing mutual funds
since 1937. Today, the firm serves as the investment manager for
the funds in the Putnam Family, with nearly $160 billion in
assets in over 8 million shareholder accounts at June 30, 1997.
An affiliate, The Putnam Advisory Company, Inc., manages domestic
and foreign institutional accounts and mutual funds, including
the accounts of many Fortune 500 companies. Another affiliate,
Putnam Fiduciary Trust Company, provides investment advice to
institutional clients under its banking and fiduciary powers. At
June 30, 1997, Putnam Management and its affiliates managed
nearly $207 billion in assets, including over $18 billion in tax-
exempt securities and over $51 billion in retirement plan assets.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., a holding
company which is in turn wholly owned by Marsh & McLennan
Companies, Inc., a publicly-owned holding company whose principal
operating subsidiaries are international insurance and
reinsurance brokers, investment managers and management
consultants.
Trustees and officers of the fund who are also officers of Putnam
Management or its affiliates or who are stockholders of Marsh &
McLennan Companies, Inc. will benefit from the advisory fees,
sales commissions, distribution fees, custodian fees and transfer
agency fees paid or allowed by the fund.
THE MANAGEMENT CONTRACT
Under a Management Contract between the fund and Putnam
Management, subject to such policies as the Trustees may
determine, Putnam Management, at its expense, furnishes
continuously an investment program for the fund and makes
investment decisions on behalf of the fund. Subject to the
control of the Trustees, Putnam Management also manages,
supervises and conducts the other affairs and business of the
fund, furnishes office space and equipment, provides bookkeeping
and clerical services (including determination of the fund's net
asset value, but excluding shareholder accounting services) and
places all orders for the purchase and sale of the fund's
portfolio securities. Putnam Management may place fund portfolio
transactions with broker-dealers which furnish Putnam Management,
without cost to it, certain research, statistical and quotation
services of value to Putnam Management and its affiliates in
advising the fund and other clients. In so doing, Putnam
Management may cause the fund to pay greater brokerage
commissions than it might otherwise pay.
FOR DETAILS OF PUTNAM MANAGEMENT'S COMPENSATION UNDER THE
MANAGEMENT CONTRACT, SEE "CHARGES AND EXPENSES" IN PART I OF THIS
SAI. Putnam Management's compensation under the Management
Contract may be reduced in any year if the fund's expenses exceed
the limits on investment company expenses imposed by any statute
or regulatory authority of any jurisdiction in which shares of
the fund are qualified for offer or sale. The term "expenses" is
defined in the statutes or regulations of such jurisdictions, and
generally excludes brokerage commissions, taxes, interest,
extraordinary expenses and, if the fund has a distribution plan,
payments made under such plan.
Under the Management Contract, Putnam Management may reduce its
compensation to the extent that the fund's expenses exceed such
lower expense limitation as Putnam Management may, by notice to
the fund, declare to be effective. The expenses subject to this
limitation are exclusive of brokerage commissions, interest,
taxes, deferred organizational and extraordinary expenses and, if
the fund has a distribution plan, payments required under such
plan. For the purpose of determining any such limitation on
Putnam Management's compensation, expenses of the fund shall not
reflect the application of commissions or cash management credits
that may reduce designated fund expenses. THE TERMS OF ANY
EXPENSE LIMITATION FROM TIME TO TIME IN EFFECT ARE DESCRIBED IN
THE PROSPECTUS AND/OR PART I OF THIS SAI.
In addition to the fee paid to Putnam Management, the fund
reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their assistants who
provide certain administrative services for the fund and the
other Putnam funds, each of which bears an allocated share of the
foregoing costs. The aggregate amount of all such payments and
reimbursements is determined annually by the Trustees.
THE AMOUNT OF THIS REIMBURSEMENT FOR THE FUND'S MOST RECENT
FISCAL YEAR IS INCLUDED IN "CHARGES AND EXPENSES" IN PART I OF
THIS SAI. Putnam Management pays all other salaries of officers
of the fund. The fund pays all expenses not assumed by Putnam
Management including, without limitation, auditing, legal,
custodial, investor servicing and shareholder reporting expenses.
The fund pays the cost of typesetting for its prospectuses and
the cost of printing and mailing any prospectuses sent to its
shareholders. Putnam Mutual Funds pays the cost of printing and
distributing all other prospectuses.
The Management Contract provides that Putnam Management shall not
be subject to any liability to the fund or to any shareholder of
the fund for any act or omission in the course of or connected
with rendering services to the fund in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
its duties on the part of Putnam Management.
The Management Contract may be terminated without penalty by vote
of the Trustees or the shareholders of the fund, or by Putnam
Management, on 30 days' written notice. It may be amended only
by a vote of the shareholders of the fund. The Management
Contract also terminates without payment of any penalty in the
event of its assignment. The Management Contract provides that
it will continue in effect only so long as such continuance is
approved at least annually by vote of either the Trustees or the
shareholders, and, in either case, by a majority of the Trustees
who are not "interested persons" of Putnam Management or the
fund. In each of the foregoing cases, the vote of the
shareholders is the affirmative vote of a "majority of the
outstanding voting securities" as defined in the Investment
Company Act of 1940.
PERSONAL INVESTMENTS BY EMPLOYEES OF PUTNAM MANAGEMENT
Employees of Putnam Management are permitted to engage in
personal securities transactions, subject to requirements and
restrictions set forth in Putnam Management's Code of Ethics.
The Code of Ethics contains provisions and requirements designed
to identify and address certain conflicts of interest between
personal investment activities and the interests of investment
advisory clients such as the funds. Among other things, the Code
of Ethics, consistent with standards recommended by the
Investment Company Institute's Advisory Group on Personal
Investing, prohibits certain types of transactions absent prior
approval, imposes time periods during which personal transactions
may not be made in certain securities, and requires the
submission of duplicate broker confirmations and quarterly
reporting of securities transactions. Additional restrictions
apply to portfolio managers, traders, research analysts and
others involved in the investment advisory process. Exceptions
to these and other provisions of the Code of Ethics may be
granted in particular circumstances after review by appropriate
personnel.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. Investment decisions for the fund and for
the other investment advisory clients of Putnam Management and
its affiliates are made with a view to achieving their respective
investment objectives. Investment decisions are the product of
many factors in addition to basic suitability for the particular
client involved. Thus, a particular security may be bought or
sold for certain clients even though it could have been bought or
sold for other clients at the same time. Likewise, a particular
security may be bought for one or more clients when one or more
other clients are selling the security. In some instances, one
client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously
purchase or sell the same security, in which event each day's
transactions in such security are, insofar as possible, averaged
as to price and allocated between such clients in a manner which
in Putnam Management's opinion is equitable to each and in
accordance with the amount being purchased or sold by each.
There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on
other clients.
BROKERAGE AND RESEARCH SERVICES. Transactions on U.S. stock
exchanges, commodities markets and futures markets and other
agency transactions involve the payment by the fund of negotiated
brokerage commissions. Such commissions vary among different
brokers. A particular broker may charge different commissions
according to such factors as the difficulty and size of the
transaction. Transactions in foreign investments often involve
the payment of fixed brokerage commissions, which may be higher
than those in the United States. There is generally no stated
commission in the case of securities traded in the
over-the-counter markets, but the price paid by the fund usually
includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the fund includes a
disclosed, fixed commission or discount retained by the
underwriter or dealer. It is anticipated that most purchases and
sales of securities by funds investing primarily in tax-exempt
securities and certain other fixed-income securities will be with
the issuer or with underwriters of or dealers in those
securities, acting as principal. Accordingly, those funds would
not ordinarily pay significant brokerage commissions with respect
to securities transactions. SEE "CHARGES AND EXPENSES" IN PART I
OF THIS SAI FOR INFORMATION CONCERNING COMMISSIONS PAID BY THE
FUND.
It has for many years been a common practice in the investment
advisory business for advisers of investment companies and other
institutional investors to receive brokerage and research
services (as defined in the Securities Exchange Act of 1934, as
amended (the "1934 Act")) from broker-dealers that execute
portfolio transactions for the clients of such advisers and from
third parties with which such broker-dealers have arrangements.
Consistent with this practice, Putnam Management receives
brokerage and research services and other similar services from
many broker-dealers with which Putnam Management places the
fund's portfolio transactions and from third parties with which
these broker-dealers have arrangements. These services include
such matters as general economic and market reviews, industry and
company reviews, evaluations of investments, recommendations as
to the purchase and sale of investments, newspapers, magazines,
pricing services, quotation services, news services and personal
computers utilized by Putnam Management's managers and analysts.
Where the services referred to above are not used exclusively by
Putnam Management for research purposes, Putnam Management, based
upon its own allocations of expected use, bears that portion of
the cost of these services which directly relates to their
non-research use. Some of these services are of value to Putnam
Management and its affiliates in advising various of their
clients (including the fund), although not all of these services
are necessarily useful and of value in managing the fund. The
management fee paid by the fund is not reduced because Putnam
Management and its affiliates receive these services even though
Putnam Management might otherwise be required to purchase some of
these services for cash.
Putnam Management places all orders for the purchase and sale of
portfolio investments for the fund and buys and sells investments
for the fund through a substantial number of brokers and dealers.
In so doing, Putnam Management uses its best efforts to obtain
for the fund the most favorable price and execution available,
except to the extent it may be permitted to pay higher brokerage
commissions as described below. In seeking the most favorable
price and execution, Putnam Management, having in mind the fund's
best interests, considers all factors it deems relevant,
including, by way of illustration, price, the size of the
transaction, the nature of the market for the security or other
investment, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the
broker-dealer involved and the quality of service rendered by the
broker-dealer in other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the
Management Contract, Putnam Management may cause the fund to pay
a broker-dealer which provides "brokerage and research services"
(as defined in the 1934 Act) to Putnam Management an amount of
disclosed commission for effecting securities transactions on
stock exchanges and other transactions for the fund on an agency
basis in excess of the commission which another broker-dealer
would have charged for effecting that transaction. Putnam
Management's authority to cause the fund to pay any such greater
commissions is also subject to such policies as the Trustees may
adopt from time to time. Putnam Management does not currently
intend to cause the fund to make such payments. It is the
position of the staff of the Securities and Exchange Commission
that Section 28(e) does not apply to the payment of such greater
commissions in "principal" transactions. Accordingly Putnam
Management will use its best effort to obtain the most favorable
price and execution available with respect to such transactions,
as described above.
The Management Contract provides that commissions, fees,
brokerage or similar payments received by Putnam Management or an
affiliate in connection with the purchase and sale of portfolio
investments of the fund, less any direct expenses approved by the
Trustees, shall be recaptured by the fund through a reduction of
the fee payable by the fund under the Management Contract.
Putnam Management seeks to recapture for the fund soliciting
dealer fees on the tender of the fund's portfolio securities in
tender or exchange offers. Any such fees which may be recaptured
are likely to be minor in amount.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. and subject to seeking the most
favorable price and execution available and such other policies
as the Trustees may determine, Putnam Management may consider
sales of shares of the fund (and, if permitted by law, of the
other Putnam funds) as a factor in the selection of
broker-dealers to execute portfolio transactions for the fund.
PRINCIPAL UNDERWRITER
Putnam Mutual Funds is the principal underwriter of shares of the
fund and the other continuously offered Putnam funds. Putnam
Mutual Funds is not obligated to sell any specific amount of
shares of the fund and will purchase shares for resale only
against orders for shares. SEE "CHARGES AND EXPENSES" IN PART I
OF THIS SAI FOR INFORMATION ON SALES CHARGES AND OTHER PAYMENTS
RECEIVED BY PUTNAM MUTUAL FUNDS.
INVESTOR SERVICING AGENT AND CUSTODIAN
Putnam Investor Services, a division of Putnam Fiduciary Trust
Company ("PFTC"), is the fund's investor servicing agent
(transfer, plan and dividend disbursing agent), for which it
receives fees which are paid monthly by the fund as an expense of
all its shareholders. The fee paid to Putnam Investor Services
is determined on the basis of the number of shareholder accounts,
the number of transactions and the assets of the fund. Putnam
Investor Services won the DALBAR Quality Tested Service Seal in
1990, 1991, 1992, 1993, 1994 and 1995. Over 10,000 tests of 38
separate shareholder service components demonstrated that Putnam
Investor Services tied for highest scores, with two other mutual
fund companies, in all categories.
PFTC is the custodian of the fund's assets. In carrying out its
duties under its custodian contract, PFTC may employ one or more
subcustodians whose responsibilities include safeguarding and
controlling the fund's cash and securities, handling the receipt
and delivery of securities and collecting interest and dividends
on the fund's investments. PFTC and any subcustodians employed
by it have a lien on the securities of the fund (to the extent
permitted by the fund's investment restrictions) to secure
charges and any advances made by such subcustodians at the end of
any day for the purpose of paying for securities purchased by the
fund. The fund expects that such advances will exist only in
unusual circumstances. Neither PFTC nor any subcustodian
determines the investment policies of the fund or decides which
securities the fund will buy or sell. PFTC pays the fees and
other charges of any subcustodians employed by it. The fund may
from time to time pay custodial expenses in full or in part
through the placement by Putnam Management of the fund's
portfolio transactions with the subcustodians or with a third-
party broker having an agreement with the subcustodians. The
fund pays PFTC an annual fee based on the fund's assets,
securities transactions and securities holdings and reimburses
PFTC for certain out-of-pocket expenses incurred by it or any
subcustodian employed by it in performing custodial services.
SEE "CHARGES AND EXPENSES" IN PART I OF THIS SAI FOR INFORMATION
ON FEES AND REIMBURSEMENTS FOR INVESTOR SERVICING AND CUSTODY
RECEIVED BY PFTC. THE FEES MAY BE REDUCED BY CREDITS ALLOWED BY
PFTC.
DETERMINATION OF NET ASSET VALUE
The fund determines the net asset value per share of each class
of shares once each day the New York Stock Exchange (the
"Exchange") is open. Currently, the Exchange is closed
Saturdays, Sundays and the following holidays: New Year's Day,
Rev. Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, the Fourth of July, Labor Day, Thanksgiving
and Christmas. The fund determines net asset value as of the
close of regular trading on the Exchange, currently 4:00 p.m.
However, equity options held by the fund are priced as of the
close of trading at 4:10 p.m., and futures contracts on U.S.
government and other fixed-income securities and index options
held by the fund are priced as of their close of trading at 4:15
p.m.
Securities for which market quotations are readily available are
valued at prices which, in the opinion of Putnam Management, most
nearly represent the market values of such securities.
Currently, such prices are determined using the last reported
sale price or, if no sales are reported (as in the case of some
securities traded over-the-counter), the last reported bid price,
except that certain securities are valued at the mean between the
last reported bid and asked prices. Short-term investments
having remaining maturities of 60 days or less are valued at
amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following
procedures approved by the Trustees. Liabilities are deducted
from the total, and the resulting amount is divided by the number
of shares of the class outstanding.
Reliable market quotations are not considered to be readily
available for long-term corporate bonds and notes, certain
preferred stocks, tax-exempt securities, and certain foreign
securities. These investments are valued at fair value on the
basis of valuations furnished by pricing services, which
determine valuations for normal, institutional-size trading units
of such securities using methods based on market transactions for
comparable securities and various relationships between
securities which are generally recognized by institutional
traders.
If any securities held by the fund are restricted as to resale,
Putnam Management determines their fair value following
procedures approved by the Trustees. The fair value of such
securities is generally determined as the amount which the fund
could reasonably expect to realize from an orderly disposition of
such securities over a reasonable period of time. The valuation
procedures applied in any specific instance are likely to vary
from case to case. However, consideration is generally given to
the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of
the restrictions on disposition of the securities (including any
registration expenses that might be borne by the fund in
connection with such disposition). In addition, specific factors
are also generally considered, such as the cost of the
investment, the market value of any unrestricted securities of
the same class, the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any
available analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign
securities) is substantially completed each day at various times
prior to the close of the Exchange. The values of these
securities used in determining the net asset value of the fund's
shares are computed as of such times. Also, because of the
amount of time required to collect and process trading
information as to large numbers of securities issues, the values
of certain securities (such as convertible bonds, U.S. government
securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest
practicable time prior to the close of the Exchange.
Occasionally, events affecting the value of such securities may
occur between such times and the close of the Exchange which will
not be reflected in the computation of the fund's net asset
value. If events materially affecting the value of such
securities occur during such period, then these securities will
be valued at their fair value following procedures approved by
the Trustees.
Money market funds generally value their portfolio securities at
amortized cost according to Rule 2a-7 under the Investment
Company Act of 1940.
HOW TO BUY SHARES
GENERAL
The prospectus contains a general description of how investors
may buy shares of the fund and states whether the fund offers
more than one class of shares. This SAI contains additional
information which may be of interest to investors.
Class A shares and class M shares are generally sold with a sales
charge payable at the time of purchase (except for class A shares
and class M shares of money market funds). As used in this SAI
and unless the context requires otherwise, the term "class A
shares" includes shares of funds that offer only one class of
shares. The prospectus contains a table of applicable sales
charges. For information about how to purchase class A or class
M shares of a Putnam fund at net asset value through an employer-
sponsored retirement plan, please consult your employer. Certain
purchases of class A shares and class M shares may be exempt from
a sales charge or, in the case of class A shares, may be subject
to a contingent deferred sales charge ("CDSC"). See "General--
Sales without sales charges or contingent deferred sales
charges," "Additional Information About Class A and Class M
shares," and "Contingent Deferred Sales Charges--Class A shares."
Class B shares and class C shares are sold subject to a CDSC
payable upon redemption within a specified period after purchase.
The prospectus contains a table of applicable CDSCs.
Class B shares will automatically convert into class A shares at
the end of the month eight years after the purchase date. Class
B shares acquired by exchanging class B shares of another Putnam
fund will convert into class A shares based on the time of the
initial purchase. Class B shares acquired through reinvestment
of distributions will convert into Class A shares based on the
date of the initial purchase to which such shares relate. For
this purpose, class B shares acquired through reinvestment of
distributions will be attributed to particular purchases of class
B shares in accordance with such procedures as the Trustees may
determine from time to time. The conversion of class B shares to
class A shares is subject to the condition that such conversions
will not constitute taxable events for Federal tax purposes.
Class Y shares, which are not subject to sales charges or a CDSC,
are available only to certain defined contribution plans. See
the prospectus that offers class Y shares for more information.
Certain purchase programs described below are not available to
defined contribution plans. Consult your employer for
information on how to purchase shares through your plan.
The fund is currently making a continuous offering of its shares.
The fund receives the entire net asset value of shares sold. The
fund will accept unconditional orders for shares to be executed
at the public offering price based on the net asset value per
share next determined after the order is placed. In the case of
class A shares and class M shares, the public offering price is
the net asset value plus the applicable sales charge, if any. No
sales charge is included in the public offering price of other
classes of shares. In the case of orders for purchase of shares
placed through dealers, the public offering price will be based
on the net asset value determined on the day the order is placed,
but only if the dealer receives the order before the close of
regular trading on the Exchange. If the dealer receives the
order after the close of the Exchange, the price will be based on
the net asset value next determined. If funds for the purchase
of shares are sent directly to Putnam Investor Services, they
will be invested at the public offering price based on the net
asset value next determined after receipt. Payment for shares of
the fund must be in U.S. dollars; if made by check, the check
must be drawn on a U.S. bank.
Initial and subsequent purchases must satisfy the minimums stated
in the prospectus, except that (i) individual investments under
certain employee benefit plans or Tax Qualified Retirement Plans
may be lower, (ii) persons who are already shareholders may make
additional purchases of $50 or more by sending funds directly to
Putnam Investor Services (see "Your investing account" below),
and (iii) for investors participating in systematic investment
plans and military allotment plans, the initial and subsequent
purchases must be $25 or more. Information about these plans is
available from investment dealers or from Putnam Mutual Funds.
As a convenience to investors, shares may be purchased through a
systematic investment plan. Pre-authorized monthly bank drafts
for a fixed amount (at least $25) are used to purchase fund
shares at the applicable public offering price next determined
after Putnam Mutual Funds receives the proceeds from the draft.
A shareholder may choose any day of the month and, if a given
month (for example, February) does not contain that particular
date, or if the date falls on a weekend or holiday, the draft
will be processed on the next business day. Further information
and application forms are available from investment dealers or
from Putnam Mutual Funds.
Except for funds that declare a distribution daily, distributions
to be reinvested are reinvested without a sales charge in shares
of the same class as of the ex-dividend date using the net asset
value determined on that date, and are credited to a
shareholder's account on the payment date. Dividends for Putnam
money market funds are credited to a shareholder's account on the
payment date. Distributions for all other funds that declare a
distribution daily are reinvested without a sales charge as of
the last day of the period for which distributions are paid using
the net asset value determined on that date, and are credited to
a shareholder's account on the payment date.
PAYMENT IN SECURITIES. In addition to cash, the fund may accept
securities as payment for fund shares at the applicable net asset
value. Generally, the fund will only consider accepting
securities to increase its holdings in a portfolio security, or
if Putnam Management determines that the offered securities are a
suitable investment for the fund and in a sufficient amount for
efficient management.
While no minimum has been established, it is expected that the
fund would not accept securities with a value of less than
$100,000 per issue as payment for shares. The fund may reject in
whole or in part any or all offers to pay for purchases of fund
shares with securities, may require partial payment in cash for
such purchases to provide funds for applicable sales charges, and
may discontinue accepting securities as payment for fund shares
at any time without notice. The fund will value accepted
securities in the manner described in the section "Determination
of Net Asset Value" for valuing shares of the fund. The fund
will only accept securities which are delivered in proper form.
The fund will not accept options or restricted securities as
payment for shares. The acceptance of securities by certain
funds in exchange for fund shares is subject to additional
requirements. For federal income tax purposes, a purchase of
fund shares with securities will be treated as a sale or exchange
of such securities on which the investor will realize a taxable
gain or loss. The processing of a purchase of fund shares with
securities involves certain delays while the fund considers the
suitability of such securities and while other requirements are
satisfied. For information regarding procedures for payment in
securities, contact Putnam Mutual Funds. Investors should not
send securities to the fund except when authorized to do so and
in accordance with specific instructions received from Putnam
Mutual Funds.
SALES WITHOUT SALES CHARGES OR CONTINGENT DEFERRED SALES CHARGES.
The fund may sell shares without a sales charge or CDSC to:
(i) current and retired Trustees of the fund; officers of
the fund; directors and current and retired U.S. full-time
employees of Putnam Management, Putnam Mutual Funds, their
parent corporations and certain corporate affiliates;
family members of and employee benefit plans for the
foregoing; and partnerships, trusts or other entities in
which any of the foregoing has a substantial interest;
(ii) employer-sponsored retirement plans, for the
repurchase of shares in connection with repayment of plan
loans made to plan participants (if the sum loaned was
obtained by redeeming shares of a Putnam fund sold with a
sales charge) (not offered by tax-exempt funds);
(iii) clients of administrators of tax-qualified employer-
sponsored retirement plans which have entered into
agreements with Putnam Mutual Funds (not offered by
tax-exempt funds);
(iv) registered representatives and other employees of
broker-dealers having sales agreements with Putnam Mutual
Funds; employees of financial institutions having sales
agreements with Putnam Mutual Funds or otherwise having an
arrangement with any such broker-dealer or financial
institution with respect to sales of fund shares; and
their spouses and children under age 21 (Putnam Mutual
Funds is regarded as the dealer of record for all such
accounts);
(v) investors meeting certain requirements who sold shares
of certain Putnam closed-end funds pursuant to a tender
offer by such closed-end fund;
(vi) a trust department of any financial institution
purchasing shares of the fund in its capacity as trustee
of any trust, if the value of the shares of the fund and
other Putnam funds purchased or held by all such trusts
exceeds $1 million in the aggregate; and
(vii) "wrap accounts" maintained for clients of broker-
dealers, financial institutions or financial planners who
have entered into agreements with Putnam Mutual Funds with
respect to such accounts.
In addition, the fund may issue its shares at net asset value
without an initial sales charge or a CDSC in connection with the
acquisition of substantially all of the securities owned by other
investment companies or personal holding companies, and the CDSC
will be waived on redemptions of shares arising out of death or
post-purchase disability or 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 fund may sell class M
shares at net asset value to members of qualified groups. See
"Group purchases of class A and class M shares" below. Class A
shares are available without an initial sales charge to eligible
employer-sponsored retirement plans, as described below.
PAYMENTS TO DEALERS. Putnam Mutual Funds may, at its expense,
pay concessions in addition to the payments disclosed in the
prospectus to dealers which satisfy certain criteria established
from time to time by Putnam Mutual Funds relating to increasing
net sales of shares of the Putnam funds over prior periods, and
certain other factors.
ADDITIONAL INFORMATION ABOUT CLASS A AND CLASS M SHARES
The underwriter's commission is the sales charge shown in the
prospectus less any applicable dealer discount. Putnam Mutual
Funds will give dealers ten days' notice of any changes in the
dealer discount. Putnam Mutual Funds retains the entire sales
charge on any retail sales made by it.
Putnam Mutual Funds offers several plans by which an investor may
obtain reduced sales charges on purchases of class A shares and
class M shares. The variations in sales charges reflect the
varying efforts required to sell shares to separate categories of
purchasers. These plans may be altered or discontinued at any
time.
COMBINED PURCHASE PRIVILEGE. The following persons may qualify
for the sales charge reductions or eliminations shown in the
prospectus by combining into a single transaction the purchase of
class A shares or class M shares with other purchases of any
class of shares:
(i) an individual, or a "company" as defined in Section
2(a)(8) of the Investment Company Act of 1940 (which
includes corporations which are corporate affiliates of
each other);
(ii) an individual, his or her spouse and their children
under twenty-one, purchasing for his, her or their own
account;
(iii) a trustee or other fiduciary purchasing for a single
trust estate or single fiduciary account (including a
pension, profit-sharing, or other employee benefit trust
created pursuant to a plan qualified under Section 401 of
the Internal Revenue Code of 1986, as amended (the
"Code"));
(iv) tax-exempt organizations qualifying under Section
501(c)(3) of the Internal Revenue Code (not including tax-
exempt organizations qualifying under Section 403(b)(7) (a
"403(b) plan") of the Code; and
(v) employee benefit plans of a single employer or of
affiliated employers, other than 403(b) plans.
A combined purchase currently may also include shares of any
class of other continuously offered Putnam funds (other than
money market funds) purchased at the same time through a single
investment dealer, if the dealer places the order for such shares
directly with Putnam Mutual Funds.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). A
purchaser of class A shares or class M shares may qualify for a
cumulative quantity discount by combining a current purchase (or
combined purchases as described above) with certain other shares
of any class of Putnam funds already owned. The applicable sales
charge is based on the total of:
(i) the investor's current purchase; and
(ii) the maximum public offering price (at the close of
business on the previous day) of:
(a) all shares held by the investor in all of the
Putnam funds (except money market funds); and
(b) any shares of money market funds acquired by
exchange from other Putnam funds; and
(iii) the maximum public offering price of all shares
described in paragraph (ii) owned by another shareholder
eligible to participate with the investor in a "combined
purchase" (see above).
To qualify for the combined purchase privilege or to obtain the
cumulative quantity discount on a purchase through an investment
dealer, when each purchase is made the investor or dealer must
provide Putnam Mutual Funds with sufficient information to verify
that the purchase qualifies for the privilege or discount. The
shareholder must furnish this information to Putnam Investor
Services when making direct cash investments.
STATEMENT OF INTENTION. Investors may also obtain the reduced
sales charges for class A shares or class M shares shown in the
prospectus for investments of a particular amount by means of a
written Statement of Intention, which expresses the investor's
intention to invest that amount (including certain "credits," as
described below) within a period of 13 months in shares of any
class of the fund or any other continuously offered Putnam fund
(excluding money market funds). Each purchase of class A shares
or class M shares under a Statement of Intention will be made at
the public offering price applicable at the time of such purchase
to a single transaction of the total dollar amount indicated in
the Statement of Intention. A Statement of Intention may include
purchases of shares made not more than 90 days prior to the date
that an investor signs a Statement; however, the 13-month period
during which the Statement of Intention is in effect will begin
on the date of the earliest purchase to be included.
An investor may receive a credit toward the amount indicated in
the Statement of Intention equal to the maximum public offering
price as of the close of business on the previous day of all
shares he or she owns on the date of the Statement of Intention
which are eligible for purchase under a Statement of Intention
(plus any shares of money market funds acquired by exchange of
such eligible shares). Investors do not receive credit for
shares purchased by the reinvestment of distributions. Investors
qualifying for the "combined purchase privilege" (see above) may
purchase shares under a single Statement of Intention.
The Statement of Intention is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum
initial investment under a Statement of Intention is 5% of such
amount, and must be invested immediately. Class A shares or
class M shares purchased with the first 5% of such amount will be
held in escrow to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount
indicated is not purchased. When the full amount indicated has
been purchased, the escrow will be released. If an investor
desires to redeem escrowed shares before the full amount has been
purchased, the shares will be released from escrow only if the
investor pays the sales charge that, without regard to the
Statement of Intention, would apply to the total investment made
to date.
To the extent that an investor purchases more than the dollar
amount indicated on the Statement of Intention and qualifies for
a further reduced sales charge, the sales charge will be adjusted
for the entire amount purchased at the end of the 13-month
period, upon recovery from the investor's dealer of its portion
of the sales charge adjustment. Once received from the dealer,
which may take a period of time or may never occur, the sales
charge adjustment will be used to purchase additional shares at
the then current offering price applicable to the actual amount
of the aggregate purchases. These additional shares will not be
considered as part of the total investment for the purpose of
determining the applicable sales charge pursuant to the Statement
of Intention. No sales charge adjustment will be made unless and
until the investor's dealer returns any excess commissions
previously received.
To the extent that an investor purchases less than the dollar
amount indicated on the Statement of Intention within the 13-
month period, the sales charge will be adjusted upward for the
entire amount purchased at the end of the 13-month period. This
adjustment will be made by redeeming shares from the account to
cover the additional sales charge, the proceeds of which will be
paid to the investor's dealer and Putnam Mutual Funds in
accordance with the prospectus. If the account exceeds an amount
that would otherwise qualify for a reduced sales charge, that
reduced sales charge will be applied.
Statements of Intention are not available for certain employee
benefit plans.
Statement of Intention forms may be obtained from Putnam Mutual
Funds or from investment dealers. Interested investors should
read the Statement of Intention carefully.
GROUP PURCHASES OF CLASS A AND CLASS M SHARES. Members of
qualified groups may purchase class A shares of the fund at a
group sales charge rate of 4.50% of the public offering price
(4.71% of the net amount invested). The dealer discount on such
sales is 3.75% of the offering price. Members of qualified
groups may also purchase class M shares at net asset value.
To receive the class A or class M group rate, group members must
purchase shares through a single investment dealer designated by
the group. The designated dealer must transmit each member's
initial purchase to Putnam Mutual Funds, together with payment
and completed application forms. After the initial purchase, a
member may send funds for the purchase of shares directly to
Putnam Investor Services. Purchases of shares are made at the
public offering price based on the net asset value next
determined after Putnam Mutual Funds or Putnam Investor Services
receives payment for the shares. The minimum investment
requirements described above apply to purchases by any group
member. Only shares purchased under the class A group discount
are included in calculating the purchased amount for the purposes
of these requirements.
Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or
association, or other organized groups of persons (the members of
which may include other qualified groups) provided that: (i) the
group has at least 25 members of which, with respect to the class
A discount only, at least 10 members participate in the initial
purchase; (ii) the group has been in existence for at least six
months; (iii) the group has some purpose in addition to the
purchase of investment company shares at a reduced sales charge;
(iv) the group's sole organizational nexus or connection is not
that the members are credit card holders of a company, policy
holders of an insurance company, customers of a bank or
broker-dealer, clients of an investment adviser or security
holders of a company; (v) with respect to the class A discount
only, the group agrees to provide its designated investment
dealer access to the group's membership by means of written
communication or direct presentation to the membership at a
meeting on not less frequently than an annual basis; (vi) the
group or its investment dealer will provide annual certification
in form satisfactory to Putnam Investor Services that the group
then has at least 25 members and, with respect to the class A
discount only, that at least ten members participated in group
purchases during the immediately preceding 12 calendar months;
and (vii) the group or its investment dealer will provide
periodic certification in form satisfactory to Putnam Investor
Services as to the eligibility of the purchasing members of the
group.
Members of a qualified group include: (i) any group which meets
the requirements stated above and which is a constituent member
of a qualified group; (ii) any individual purchasing for his or
her own account who is carried on the records of the group or on
the records of any constituent member of the group as being a
good standing employee, partner, member or person of like status
of the group or constituent member; or (iii) any fiduciary
purchasing shares for the account of a member of a qualified
group or a member's beneficiary. For example, a qualified group
could consist of a trade association which would have as its
members individuals, sole proprietors, partnerships and
corporations. The members of the group would then consist of the
individuals, the sole proprietors and their employees, the
members of the partnerships and their employees, and the
corporations and their employees, as well as the trustees of
employee benefit trusts acquiring class A shares for the benefit
of any of the foregoing.
A member of a qualified group may, depending upon the value of
class A shares of the fund owned or proposed to be purchased by
the member, be entitled to purchase class A shares of the fund at
non-group sales charge rates shown in the prospectus which may be
lower than the group sales charge rate, if the member qualifies
as a person entitled to reduced non-group sales charges. Such a
group member will be entitled to purchase at the lower rate if,
at the time of purchase, the member or his or her investment
dealer furnishes sufficient information for Putnam Mutual Funds
or Putnam Investor Services to verify that the purchase qualifies
for the lower rate.
Interested groups should contact their investment dealer or
Putnam Mutual Funds. The fund reserves the right to revise the
terms of or to suspend or discontinue group sales at any time.
QUALIFIED BENEFIT PLANS; INDIVIDUAL ACCOUNT PLANS. The terms
"class A qualified benefit plan" and "class M qualified benefit
plan" mean any employer-sponsored plan or arrangement, whether or
not tax-qualified, for which Putnam Fiduciary Trust Company or
its affiliates provide recordkeeping or other services in
connection with the purchase of class A shares or class M shares,
respectively. The term "affiliated employer" means employers who
are affiliated with each other within the meaning of Section
2(a)(3)(C) of the Investment Company Act of 1940. The term
"individual account plan" means any employee benefit plan whereby
(i) class A shares are purchased through payroll deductions or
otherwise by a fiduciary or other person for the account of
participants who are employees (or their spouses) of an employer,
or of affiliated employers, and (ii) a separate investing account
is maintained in the name of such fiduciary or other person for
the account of each participant in the plan.
The table of sales charges in the prospectus applies to sales to
employer-sponsored retirement plans that are not class A
qualified benefit plans, except that the fund may sell class A
shares at net asset value to employee benefit plans, including
individual account plans, of employers or of affiliated employers
which have at least 750 employees to whom such plan is made
available, in connection with a payroll deduction system of plan
funding (or other system acceptable to Putnam Investor Services)
by which contributions or account information for plan
participation are transmitted to Putnam Investor Services by
methods acceptable to Putnam Investor Services. The fund may
also sell class A shares at net asset value to employer-sponsored
retirement plans that initially invest at least $1 million in the
fund or that have at least 200 eligible employees. In addition,
the fund may sell class M shares at net asset value to class M
qualified benefit plans.
An employer-sponsored retirement plan participating in a "multi-
fund" program approved by Putnam Mutual Funds may include amounts
invested in the other mutual funds participating in such program
for purposes of determining whether the plan may purchase class A
shares at net asset value based on the size of the purchase as
described in the prospectus. These investments will also be
included for purposes of the discount privileges and programs
described above.
Additional information about qualified benefit plans and
individual account plans is available from investment dealers or
from Putnam Mutual Funds.
CONTINGENT DEFERRED SALES CHARGES; COMMISSIONS
CLASS A SHARES. Except as described below, a CDSC of 0.75%
(1.00% in the case of plans for which Putnam Mutual Funds and its
affiliates do not act as trustee or record-keeper) of the total
amount redeemed is imposed on redemptions of shares purchased by
class A qualified benefit plans if, within two years of a plan's
initial purchase of class A shares, it redeems 90% or more of its
cumulative purchases. Thereafter, such plan is no longer liable
for any CDSC. The two-year CDSC applicable to class A qualified
benefit plans for which Putnam Mutual Funds or its affiliates
serve as trustee or recordkeeper ("full service plans") is 0.50%
of the total amount redeemed, for full service plans that
initially invest at least $5 million but less than $10 million in
Putnam funds and other investments managed by Putnam Management
or its affiliates ("Putnam Assets"), and is 0.25% of the total
amount redeemed for full service plans that initially invest at
least $10 million but less than $20 million in Putnam Assets.
Class A qualified benefit plans that initially invest at least
$20 million in Putnam Assets, or whose dealer of record has, with
Putnam Mutual Funds' approval, waived its commission or agreed to
refund its commission to Putnam Mutual Funds in the event a CDSC
would otherwise be applicable, are not subject to any CDSC.
Similarly, class A shares purchased at net asset value by any
investor other than a class A qualified benefit plan, including
purchases pursuant to any Combined Purchase Privilege, Right of
Accumulation or Statement of Intention, are subject to a CDSC of
1.00% or 0.50%, respectively, if redeemed within the first or
second year after purchase, unless the dealer of record waived
its commission with Putnam Mutual Funds' approval. The class A
CDSC is imposed on the lower of the cost and the current net
asset value of the shares redeemed.
Except as described below for sales to class A qualified benefit
plans, Putnam Mutual Funds pays investment dealers of record
commissions on sales of class A shares of $1 million or more and
sales to employer-sponsored benefit plans that have at least 200
eligible employees and that are not class A qualified benefit
plans based on cumulative purchases of such shares, including
purchases pursuant to any Combined Purchase Privilege, Right of
Accumulation or Statement of Intention, during the one-year
period beginning with the date of the initial purchase at net
asset value. 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 class A qualified benefit plan,
Putnam Mutual Funds pays commissions to the dealer of record at
the time of the sale on net monthly purchases at the following
rates: 1.00% of the first $1 million, 0.75% of the next $1
million, 0.50% of the next $3 million, 0.20% of the next $5
million, 0.15% of the next $10 million, 0.10% of the next $10
million and 0.05% thereafter, except that commissions on sales to
class A qualified benefit plans initially investing less than $20
million in Putnam funds and other investments managed by Putnam
Management or its affiliates pursuant to a proposal made by
Putnam Mutual Funds on or before April 15, 1997 are based on
cumulative purchases over a one-year measuring period 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
class A qualified benefit plans receiving proposals from Putnam
Mutual Funds on or before April 15, 1997, Putnam Mutual Funds
pays commissions on the initial investment and on subsequent net
quarterly sales (gross sales minus gross redemptions during the
quarter) at the rate of 0.15%. Money market fund shares are
excluded from all commission calculations, except for determining
the amount initially invested by a qualified benefit plan.
Commissions on sales at net asset value to such plans are subject
to Putnam Mutual Funds' right to reclaim such commissions if the
shares are redeemed within two years.
Different CDSC and commission rates may apply to shares purchased
prior to December 1, 1995.
ALL SHARES. Investors who set up an Automatic Cash Withdrawal
Plan ("ACWP") for a share account (see "Plans available to
shareholders -- Automatic Cash Withdrawal Plan") may withdraw
through the ACWP up to 12% of the net asset value of the account
(calculated as set forth below) each year without incurring any
CDSC. Shares not subject to a CDSC (such as shares representing
reinvestment of distributions) will be redeemed first and will
count toward the 12% limitation. If there are insufficient
shares not subject to a CDSC, shares subject to the lowest CDSC
liability will be redeemed next until the 12% limit is reached.
The 12% figure is calculated on a pro rata basis at the time of
the first payment made pursuant to an ACWP and recalculated
thereafter on a pro rata basis at the time of each ACWP payment.
Therefore, shareholders who have chosen an ACWP based on a
percentage of the net asset value of their account of up to 12%
will be able to receive ACWP payments without incurring a CDSC.
However, shareholders who have chosen a specific dollar amount
(for example, $100 per month from a fund that pays income
distributions monthly) for their periodic ACWP payment should be
aware that the amount of that payment not subject to a CDSC may
vary over time depending on the net asset value of their account.
For example, if the net asset value of the account is $10,000 at
the time of payment, the shareholder will receive $100 free of
the CDSC (12% of $10,000 divided by 12 monthly payments).
However, if at the time of the next payment the net asset value
of the account has fallen to $9,400, the shareholder will receive
$94 free of any CDSC (12% of $9,400 divided by 12 monthly
payments) and $6 subject to the lowest applicable CDSC. This
ACWP privilege may be revised or terminated at any time.
No CDSC is imposed on shares of any class subject to a CDSC
("CDSC Shares") to the extent that the CDSC Shares redeemed (i)
are no longer subject to the holding period therefor, (ii)
resulted from reinvestment of distributions on CDSC Shares, or
(iii) were exchanged for shares of another Putnam fund, provided
that the shares acquired in such exchange or subsequent exchanges
(including shares of a Putnam money market fund) will continue to
remain subject to the CDSC, if applicable, until the applicable
holding period expires. In determining whether the CDSC applies
to each redemption of CDSC Shares, CDSC Shares not subject to a
CDSC are redeemed first.
The fund will waive any CDSC on redemptions, in the case of
individual, joint or Uniform Transfers to Minors Act accounts, in
the event of death or post-purchase disability of a shareholder,
for the purpose of paying benefits pursuant to tax-qualified
retirement plans ("Benefit Payments"), or, in the case of living
trust accounts, in the event of the death or post-purchase
disability of the settlor of the trust). Benefit payments
currently include, without limitation, (1) distributions from an
IRA due to death or disability, (2) a return of excess
contributions to an IRA or 401(k) plan, and (3) distributions
from retirement plans qualified under Section 401(a) of the Code
or from a 403(b) plan due to death, disability, retirement or
separation from service. These waivers may be changed at any
time. Additional waivers may apply to IRA accounts opened prior
to February 1, 1994.
DISTRIBUTION PLANS
If the fund or a class of shares of the fund has adopted a
distribution plan, the prospectus describes the principal
features of the plan. This SAI contains additional information
which may be of interest to investors.
Continuance of a plan is subject to annual approval by a vote of
the Trustees, including a majority of the Trustees who are not
interested persons of the fund and who have no direct or indirect
interest in the plan or related arrangements (the "Qualified
Trustees"), cast in person at a meeting called for that purpose.
All material amendments to a plan must be likewise approved by
the Trustees and the Qualified Trustees. No plan may be amended
in order to increase materially the costs which the fund may bear
for distribution pursuant to such plan without also being
approved by a majority of the outstanding voting securities of
the fund or the relevant class of the fund, as the case may be.
A plan terminates automatically in the event of its assignment
and may be terminated without penalty, at any time, by a vote of
a majority of the Qualified Trustees or by a vote of a majority
of the outstanding voting securities of the fund or the relevant
class of the fund, as the case may be.
Putnam Mutual Funds pays service fees to qualifying dealers at
the rates set forth in the Prospectus, except with respect to
shares held by class A qualified benefit plans. Putnam Mutual
Funds pays service fees to the dealer of record for plans for
which Putnam Fiduciary Trust or its affiliates serve as trustee
and recordkeeper at the following annual rates (expressed as a
percentage of the average net asset value (as defined below) of
the plan's class A shares): 0.25% of the first $5 million, 0.20%
of the next $5 million, 0.15% of the next $10 million, 0.10% of
the next $30 million, and 0.05% thereafter. For class A
qualified benefit plans for which Putnam Fiduciary Trust Company
or its affiliates provide some services but do not act as trustee
and recordkeeper, Putnam Mutual Funds will pay service fees to
the dealer of record of up to 0.25% of average net assets,
depending on the level of service provided by Putnam Fiduciary
Trust Company or its affiliates, by the dealer of record, and by
third parties. Service fees are paid quarterly to the dealer of
record for that quarter.
Financial institutions receiving payments from Putnam Mutual
Funds as described above may be required to comply with various
state and federal regulatory requirements, including among others
those regulating the activities of securities brokers or dealers.
Except as otherwise agreed between Putnam Mutual Funds and a
dealer, for purposes of determining the amounts payable to
dealers for shareholder accounts for which such dealers are
designated as the dealer of record, "average net asset value"
means the product of (i) the average daily share balance in such
account(s) and (ii) the average daily net asset value of the
relevant class of shares over the quarter.
Financial institutions receiving payments from Putnam Mutual
Funds as described above may be required to comply with various
state and federal regulatory requirements, including among others
those regulating the activities of securities brokers or dealers.
INVESTOR SERVICES
SHAREHOLDER INFORMATION
Each time shareholders buy or sell shares, they will receive a
statement confirming the transaction and listing their current
share balance. (Under certain investment plans, a statement may
only be sent quarterly.) Shareholders will receive a statement
confirming reinvestment of distributions in additional fund
shares (or in shares of other Putnam funds for Dividends Plus
accounts) promptly following the quarter in which the
reinvestment occurs. To help shareholders take full advantage of
their Putnam investment, they will receive a Welcome Kit and a
periodic publication covering many topics of interest to
investors. The fund also sends annual and semiannual reports
that keep shareholders informed about its portfolio and
performance, and year-end tax information to simplify their
recordkeeping. Easy-to-read, free booklets on special subjects
such as the Exchange Privilege and IRAs are available from Putnam
Investor Services. Shareholders may call Putnam Investor
Services toll-free weekdays at 1-800-225-1581 between 8:30 a.m.
and 7:00 p.m. Boston time for more information, including account
balances.
YOUR INVESTING ACCOUNT
The following information provides more detail concerning the
operation of a Putnam Investing Account. For further information
or assistance, investors should consult Putnam Investor Services.
Shareholders who purchase shares through a defined contribution
plan should note that not all of the services or features
described below may be available to them, and they should contact
their employer for details.
A shareholder may reinvest a cash distribution without a
front-end sales charge or without the reinvested shares being
subject to a CDSC, as the case may be, by delivering to Putnam
Investor Services the uncashed distribution check, endorsed to
the order of the fund. Putnam Investor Services must receive the
properly endorsed check within 1 year after the date of the
check.
The Investing Account also provides a way to accumulate shares of
the fund. In most cases, after an initial investment of $500, a
shareholder may send checks to Putnam Investor Services for $50
or more, made payable to the fund, to purchase additional shares
at the applicable public offering price next determined after
Putnam Investor Services receives the check. Checks must be
drawn on a U.S. bank and must be payable in U.S. dollars.
Putnam Investor Services acts as the shareholder's agent whenever
it receives instructions to carry out a transaction on the
shareholder's account. Upon receipt of instructions that shares
are to be purchased for a shareholder's account, shares will be
purchased through the investment dealer designated by the
shareholder. Shareholders may change investment dealers at any
time by written notice to Putnam Investor Services, provided the
new dealer has a sales agreement with Putnam Mutual Funds.
Shares credited to an account are transferable upon written
instructions in good order to Putnam Investor Services and may be
sold to the fund as described under "How to sell shares" in the
prospectus. Money market funds and certain other funds will not
issue share certificates. A shareholder may send to Putnam
Investor Services any certificates which have been previously
issued for safekeeping at no charge to the shareholder.
Putnam Mutual Funds, at its expense, may provide certain
additional reports and administrative material to qualifying
institutional investors with fiduciary responsibilities to assist
these investors in discharging their responsibilities.
Institutions seeking further information about this service
should contact Putnam Mutual Funds, which may modify or terminate
this service at any time.
Putnam Investor Services may make special services available to
shareholders with investments exceeding $1,000,000. Contact
Putnam Investor Services for details.
The fund pays Putnam Investor Services' fees for maintaining
Investing Accounts.
REINSTATEMENT PRIVILEGE
An investor who has redeemed shares of the fund may reinvest
(within 1 year) the proceeds of such sale in shares of the same
class of the fund, or may be able to reinvest (within 1 year) the
proceeds in shares of the same class of one of the other
continuously offered Putnam funds (through the Exchange Privilege
described in the prospectus), including, in the case of shares
subject to a CDSC, the amount of CDSC charged on the redemption.
Any such reinvestment would be at the net asset value of the
shares of the fund(s) the investor selects, next determined after
Putnam Mutual Funds receives a Reinstatement Authorization. The
time that the previous investment was held will be included in
determining any applicable CDSC due upon redemptions and, in the
case of class B shares, the eight-year period for conversion to
class A shares. Shareholders will receive from Putnam Mutual
Funds the amount of any CDSC paid at the time of redemption as
part of the reinstated investment, which may be treated as
capital gains to the shareholder for tax purposes. Exercise of
the Reinstatement Privilege does not alter the federal income tax
treatment of any capital gains realized on a sale of fund shares,
but to the extent that any shares are sold at a loss and the
proceeds are reinvested in shares of the fund, some or all of the
loss may be disallowed as a deduction. Consult your tax adviser.
Investors who desire to exercise the Reinstatement Privilege
should contact their investment dealer or Putnam Investor
Services.
EXCHANGE PRIVILEGE
Except as otherwise set forth in this section, by calling Putnam
Investor Services, investors may exchange shares valued up to
$500,000 between accounts with identical registrations, provided
that no certificates are outstanding for such shares and no
address change has been made within the preceding 15 days.
During periods of unusual market changes and shareholder
activity, shareholders may experience delays in contacting Putnam
Investor Services by telephone to exercise the Telephone Exchange
Privilege.
Putnam Investor Services also makes exchanges promptly after
receiving a properly completed Exchange Authorization Form and,
if issued, share certificates. If the shareholder is a
corporation, partnership, agent, or surviving joint owner, Putnam
Investor Services will require additional documentation of a
customary nature. Because an exchange of shares involves the
redemption of fund shares and reinvestment of the proceeds in
shares of another Putnam fund, completion of an exchange may be
delayed under unusual circumstances if the fund were to suspend
redemptions or postpone payment for the fund shares being
exchanged, in accordance with federal securities laws. Exchange
Authorization Forms and prospectuses of the other Putnam funds
are available from Putnam Mutual Funds or investment dealers
having sales contracts with Putnam Mutual Funds. The prospectus
of each fund describes its investment objective(s) and policies,
and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange.
Shares of certain Putnam funds are not available to residents of
all states. The fund reserves the right to change or suspend the
Exchange Privilege at any time. Shareholders would be notified
of any change or suspension. Additional information is available
from Putnam Investor Services.
Shareholders of other Putnam funds may also exchange their shares
at net asset value for shares of the fund, as set forth in the
current prospectus of each fund.
For federal income tax purposes, an exchange is a sale on which
the investor generally will realize a capital gain or loss
depending on whether the net asset value at the time of the
exchange is more or less than the investor's basis. The Exchange
Privilege may be revised or terminated at any time. Shareholders
would be notified of any such change or suspension.
DIVIDENDS PLUS
Shareholders may invest the fund's distributions of net
investment income or distributions combining net investment
income and short-term capital gains in shares of the same class
of another continuously offered Putnam fund (the "receiving
fund") using the net asset value per share of the receiving fund
determined on the date the fund's distribution is payable. No
sales charge or CDSC will apply to the purchased shares unless
the fund paying the distribution is a money market fund. The
prospectus of each fund describes its investment objective(s) and
policies, and shareholders should obtain a prospectus and
consider these objective(s) and policies carefully before
investing their distributions in the receiving fund. Shares of
certain Putnam funds are not available to residents of all
states.
The minimum account size requirement for the receiving fund will
not apply if the current value of your account in the fund paying
the distribution is more than $5,000.
Shareholders of other Putnam funds (except for money market
funds, whose shareholders must pay a sales charge or become
subject to a CDSC) may also use their distributions to purchase
shares of the fund at net asset value.
For federal tax purposes, distributions from the fund which are
reinvested in another fund are treated as paid by the fund to the
shareholder and invested by the shareholder in the receiving fund
and thus, to the extent comprised of taxable income and deemed
paid to a taxable shareholder, are taxable.
The Dividends PLUS program may be revised or terminated at any
time.
PLANS AVAILABLE TO SHAREHOLDERS
The plans described below are fully voluntary and may be
terminated at any time without the imposition by the fund or
Putnam Investor Services of any penalty. All plans provide for
automatic reinvestment of all distributions in additional shares
of the fund at net asset value. The fund, Putnam Mutual Funds or
Putnam Investor Services may modify or cease offering these plans
at any time.
AUTOMATIC CASH WITHDRAWAL PLAN ("ACWP"). An investor who owns or
buys shares of the fund valued at $10,000 or more at the current
public offering price may open an ACWP plan and have a designated
sum of money ($50 or more) paid monthly, quarterly, semi-annually
or annually to the investor or another person. (Payments from
the fund can be combined with payments from other Putnam funds
into a single check through a designated payment plan.) Shares
are deposited in a plan account, and all distributions are
reinvested in additional shares of the fund at net asset value
(except where the plan is utilized in connection with a
charitable remainder trust). Shares in a plan account are then
redeemed at net asset value to make each withdrawal payment.
Payment will be made to any person the investor designates;
however, if shares are registered in the name of a trustee or
other fiduciary, payment will be made only to the fiduciary,
except in the case of a profit-sharing or pension plan where
payment will be made to a designee. As withdrawal payments may
include a return of principal, they cannot be considered a
guaranteed annuity or actual yield of income to the investor.
The redemption of shares in connection with a plan generally will
result in a gain or loss for tax purposes. Some or all of the
losses realized upon redemption may be disallowed pursuant to the
so-called wash sale rules if shares of the same fund from which
shares were redeemed are purchased (including through the
reinvestment of fund distributions) within a period beginning 30
days before, and ending 30 days after, such redemption. In such
a case, the basis of the replacement shares will be increased to
reflect the disallowed loss. Continued withdrawals in excess of
income will reduce and possibly exhaust invested principal,
especially in the event of a market decline. The maintenance of
a plan concurrently with purchases of additional shares of the
fund would be disadvantageous to the investor because of the
sales charge payable on such purchases. For this reason, the
minimum investment accepted while a plan is in effect is $1,000,
and an investor may not maintain a plan for the accumulation of
shares of the fund (other than through reinvestment of
distributions) and a plan at the same time. The cost of
administering these plans for the benefit of those shareholders
participating in them is borne by the fund as an expense of all
shareholders. The fund, Putnam Mutual Funds or Putnam Investor
Services may terminate or change the terms of the plan at any
time. A plan will be terminated if communications mailed to the
shareholder are returned as undeliverable.
Investors should consider carefully with their own financial
advisers whether the plan and the specified amounts to be
withdrawn are appropriate in their circumstances. The fund and
Putnam Investor Services make no recommendations or
representations in this regard.
TAX QUALIFIED RETIREMENT PLANS; 403(B) AND SEP PLANS. (NOT
OFFERED BY FUNDS INVESTING PRIMARILY IN TAX-EXEMPT SECURITIES.)
Investors may purchase shares of the fund through the following
Tax Qualified Retirement Plans, available to qualified
individuals or organizations:
Standard and variable profit-sharing (including 401(k))
and money purchase pension plans; and
Individual Retirement Account Plans (IRAs).
Each of these Plans has been qualified as a prototype plan by the
Internal Revenue Service. Putnam Investor Services will furnish
services under each plan at a specified annual cost. Putnam
Fiduciary Trust Company serves as trustee under each of these
Plans.
Forms and further information on these Plans are available from
investment dealers or from Putnam Mutual Funds. In addition,
specialized professional plan administration services are
available on an optional basis; contact Putnam Defined
Contribution Plan Services at 1-800-225-2465, extension 8600.
A 403(b) Retirement Plan is available for employees of public
school systems and organizations which meet the requirements of
Section 501(c)(3) of the Internal Revenue Code. Forms and
further information on the 403(b) Plan are also available from
investment dealers or from Putnam Mutual Funds. Shares of the
fund may also be used in simplified employee pension (SEP) plans.
For further information on the Putnam prototype SEP plan, contact
an investment dealer or Putnam Mutual Funds.
Consultation with a competent financial and tax adviser regarding
these Plans and consideration of the suitability of fund shares
as an investment under the Employee Retirement Income Security
Act of 1974, or otherwise, is recommended.
SIGNATURE GUARANTEES
Redemption requests for shares having a net asset value of
$100,000 or more must be signed by the registered owners or their
legal representatives and must be guaranteed by a bank,
broker/dealer, municipal securities dealer or broker, government
securities dealer or broker, credit union, national securities
exchange, registered securities association, clearing agency,
savings association or trust company, provided such institution
is acceptable under and conforms with Putnam Fiduciary Trust
Company's signature guarantee procedures. A copy of such
procedures is available upon request. If you want your
redemption proceeds sent to an address other than your address as
it appears on Putnam's records, you must provide a signature
guarantee. Putnam Investor Services usually requires additional
documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or a surviving joint owner.
Contact Putnam Investor Services for details.
SUSPENSION OF REDEMPTIONS
The fund may not suspend shareholders' right of redemption, or
postpone payment for more than seven days, unless the New York
Stock Exchange is closed for other than customary weekends or
holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange
is restricted or during any emergency which makes it
impracticable for the fund to dispose of its securities or to
determine fairly the value of its net assets, or during any other
period permitted by order of the Commission for protection of
investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the fund. However, the Agreement and Declaration of Trust
disclaims shareholder liability for acts or obligations of the
fund and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by
the fund or the Trustees. The Agreement and Declaration of Trust
provides for indemnification out of fund property for all loss
and expense of any shareholder held personally liable for the
obligations of the fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
limited to circumstances in which the fund would be unable to
meet its obligations. The likelihood of such circumstances is
remote.
STANDARD PERFORMANCE MEASURES
Yield and total return data for the fund may from time to time be
presented in Part I of this SAI and in advertisements. In the
case of funds with more than one class of shares, all performance
information is calculated separately for each class. The data is
calculated as follows.
Total return for one-, five- and ten-year periods (or for such
shorter periods as the fund has been in operation or shares of
the relevant class have been outstanding) is determined by
calculating the actual dollar amount of investment return on a
$1,000 investment in the fund made at the beginning of the
period, at the maximum public offering price for class A shares
and class M shares and net asset value for other classes of
shares, and then calculating the annual compounded rate of return
which would produce that amount. Total return for a period of
one year is equal to the actual return of the fund during that
period. Total return calculations assume deduction of the fund's
maximum sales charge or CDSC, if applicable, and reinvestment of
all fund distributions at net asset value on their respective
reinvestment dates.
The fund's yield is presented for a specified thirty-day period
(the "base period"). Yield is based on the amount determined by
(i) calculating the aggregate amount of dividends and interest
earned by the fund during the base period less expenses for that
period, and (ii) dividing that amount by the product of (A) the
average daily number of shares of the fund outstanding during the
base period and entitled to receive dividends and (B) the per
share maximum public offering price for class A shares or class M
shares, as appropriate, and net asset value for other classes of
shares on the last day of the base period. The result is
annualized on a compounding basis to determine the yield. For
this calculation, interest earned on debt obligations held by the
fund is generally calculated using the yield to maturity (or
first expected call date) of such obligations based on their
market values (or, in the case of receivables-backed securities
such as the Government National Mortgage Association ("GNMAs"),
based on cost). Dividends on equity securities are accrued daily
at their stated dividend rates. The amount of expenses used in
determining the fund's yield includes, in addition to expenses
actually accrued by the fund, an estimate of the amount of
expenses that the fund would have incurred if brokerage
commissions had not been used to reduce such expenses.
If the fund is a money market fund, yield is computed by
determining the percentage net change, excluding capital changes,
in the value of an investment in one share over the seven-day
period for which yield is presented (the "base period"), and
multiplying the net change by 365/7 (or approximately 52 weeks).
Effective yield represents a compounding of the yield by adding 1
to the number representing the percentage change in value of the
investment during the base period, raising that sum to a power
equal to 365/7, and subtracting 1 from the result.
If the fund is a tax-exempt fund, the tax-equivalent yield during
the base period may be presented for shareholders in one or more
stated tax brackets. Tax-equivalent yield is calculated by
adjusting the tax-exempt yield by a factor designed to show the
approximate yield that a taxable investment would have to earn to
produce an after-tax yield equal, for that shareholder, to the
tax-exempt yield. The tax-equivalent yield will differ for
shareholders in other tax brackets.
At times, Putnam Management may reduce its compensation or assume
expenses of the fund in order to reduce the fund's expenses. The
per share amount of any such fee reduction or assumption of
expenses during the fund's past ten fiscal years (or for the life
of the fund, if shorter) is set forth in the footnotes to the
table in the section entitled "Financial highlights" in the
prospectus. Any such fee reduction or assumption of expenses
would increase the fund's yield and total return for periods
including the period of the fee reduction or assumption of
expenses.
All data are based on past performance and do not predict future
results.
COMPARISON OF PORTFOLIO PERFORMANCE
Independent statistical agencies measure the fund's investment
performance and publish comparative information showing how the
fund, and other investment companies, performed in specified time
periods. Three agencies whose reports are commonly used for such
comparisons are set forth below. From time to time, the fund may
distribute these comparisons to its shareholders or to potential
investors. THE AGENCIES LISTED BELOW MEASURE PERFORMANCE BASED
ON THEIR OWN CRITERIA RATHER THAN ON THE STANDARDIZED PERFORMANCE
MEASURES DESCRIBED IN THE PRECEDING SECTION.
LIPPER ANALYTICAL SERVICES, INC. distributes mutual fund
rankings monthly. The rankings are based on total return
performance calculated by Lipper, generally reflecting
changes in net asset value adjusted for reinvestment of
capital gains and income dividends. They do not reflect
deduction of any sales charges. Lipper rankings cover a
variety of performance periods, including year-to-date,
1-year, 5-year, and 10-year performance. Lipper
classifies mutual funds by investment objective and asset
category.
MORNINGSTAR, INC. distributes mutual fund ratings twice a
month. The ratings are divided into five groups:
highest, above average, neutral, below average and lowest.
They represent a fund's historical risk/reward ratio
relative to other funds in its broad investment class as
determined by Morningstar, Inc. Morningstar ratings cover
a variety of performance periods, including 1-year, 3-
year, 5-year, 10-year and overall performance. The
performance factor for the overall rating is a
weighted-average assessment of the fund's 1-year, 3-year,
5-year, and 10-year total return performance (if
available) reflecting deduction of expenses and sales
charges. Performance is adjusted using quantitative
techniques to reflect the risk profile of the fund. The
ratings are derived from a purely quantitative system that
does not utilize the subjective criteria customarily
employed by rating agencies such as Standard & Poor's and
Moody's Investor Service, Inc.
CDA/WIESENBERGER'S MANAGEMENT RESULTS publishes mutual
fund rankings and is distributed monthly. The rankings
are based entirely on total return calculated by
Weisenberger for periods such as year-to-date, 1-year,
3-year, 5-year and 10-year. Mutual funds are ranked in
general categories (e.g., international bond,
international equity, municipal bond, and maximum capital
gain). Weisenberger rankings do not reflect deduction of
sales charges or fees.
Independent publications may also evaluate the fund's
performance. The fund may from time to time refer to results
published in various periodicals, including Barrons, Financial
World, Forbes, Fortune, Investor's Business Daily, Kiplinger's
Personal Finance Magazine, Money, U.S. News and World Report and
The Wall Street Journal.
Independent, unmanaged indexes, such as those listed below, may
be used to present a comparative benchmark of fund performance.
The performance figures of an index reflect changes in market
prices, reinvestment of all dividend and interest payments and,
where applicable, deduction of foreign withholding taxes, and do
not take into account brokerage commissions or other costs.
Because the fund is a managed portfolio, the securities it owns
will not match those in an index. Securities in an index may
change from time to time.
THE CONSUMER PRICE INDEX, prepared by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the rate
of inflation. The index shows the average change in the
cost of selected consumer goods and services and does not
represent a return on an investment vehicle.
THE DOW JONES INDUSTRIAL AVERAGE is an index of 30 common
stocks frequently used as a general measure of stock
market performance.
THE DOW JONES UTILITIES AVERAGE is an index of 15 utility
stocks frequently used as a general measure of stock
market performance.
CS FIRST BOSTON HIGH YIELD INDEX is a market-weighted
index including publicly traded bonds having a rating
below BBB by Standard & Poor's and Baa by Moody's.
THE LEHMAN BROTHERS AGGREGATE BOND INDEX is an index
composed of securities from The Lehman Brothers
Government/Corporate Bond Index, The Lehman Brothers
Mortgage-Backed Securities Index and The Lehman Brothers
Asset-Backed Securities Index and is frequently used as a
broad market measure for fixed-income securities.
THE LEHMAN BROTHERS ASSET-BACKED SECURITIES INDEX is an
index composed of credit card, auto, and home equity
loans. Included in the index are pass-through, bullet
(noncallable), and controlled amortization structured debt
securities; no subordinated debt is included. All
securities have an average life of at least one year.
THE LEHMAN BROTHERS CORPORATE BOND INDEX is an index of
publicly issued, fixed-rate, non-convertible
investment-grade domestic corporate debt securities
frequently used as a general measure of the performance of
fixed-income securities.
THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX is an
index of publicly issued U.S. Treasury obligations, debt
obligations of U.S. government agencies (excluding
mortgage-backed securities), fixed-rate, non-convertible,
investment-grade corporate debt securities and U.S.
dollar-denominated, SEC-registered non-convertible debt
issued by foreign governmental entities or international
agencies used as a general measure of the performance of
fixed-income securities.
THE LEHMAN BROTHERS INTERMEDIATE TREASURY BOND INDEX is an
index of publicly issued U.S. Treasury obligations with
maturities of up to ten years and is used as a general
gauge of the market for intermediate-term fixed-income
securities.
THE LEHMAN BROTHERS LONG-TERM TREASURY BOND INDEX is an
index of publicly issued U.S. Treasury obligations
(excluding flower bonds and foreign-targeted issues) that
are U.S. dollar-denominated and have maturities of 10
years or greater.
THE LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX
includes 15- and 30-year fixed rate securities backed by
mortgage pools of the Government National Mortgage
Association, Federal Home Loan Mortgage Corporation, and
Federal National Mortgage Association.
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX is an index of
approximately 20,000 investment-grade, fixed-rate
tax-exempt bonds.
THE LEHMAN BROTHERS TREASURY BOND INDEX is an index of
publicly issued U.S. Treasury obligations (excluding
flower bonds and foreign-targeted issues) that are U.S.
dollar denominated, have a minimum of one year to
maturity, and are issued in amounts over $100 million.
THE MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX is an
index of approximately 1,482 equity securities listed on
the stock exchanges of the United States, Europe, Canada,
Australia, New Zealand and the Far East, with all values
expressed in U.S. dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS
INDEX is an index of approximately 1,100 securities
representing 20 emerging markets, with all values
expressed in U.S. dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX is an
index of approximately 1,045 equity securities issued by
companies located in 18 countries and listed on the stock
exchanges of Europe, Australia, and the Far East. All
values are expressed in U.S. dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE INDEX is
an index of approximately 627 equity securities issued by
companies located in one of 13 European countries, with
all values expressed in U.S. dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL PACIFIC INDEX is
an index of approximately 418 equity securities issued by
companies located in 5 countries and listed on the
exchanges of Australia, New Zealand, Japan, Hong Kong,
Singapore/Malaysia. All values are expressed in U.S.
dollars.
THE NASDAQ INDUSTRIAL AVERAGE is an index of stocks traded
in The Nasdaq Stock Market, Inc. National Market System.
THE RUSSELL 2000 INDEX is composed of the 2,000 smallest
securities in the Russell 3000 Index, representing
approximately 7% of the Russell 3000 total market
capitalization. The Russell 3000 Index is composed of
3,000 large U.S. companies ranked by market
capitalization, representing approximately 98% of the U.S.
equity market.
THE SALOMON BROTHERS LONG-TERM HIGH-GRADE CORPORATE BOND
INDEX is an index of publicly traded corporate bonds
having a rating of at least AA by Standard & Poor's or Aa
by Moody's and is frequently used as a general measure of
the performance of fixed-income securities.
THE SALOMON BROTHERS LONG-TERM TREASURY INDEX is an index
of U.S. government securities with maturities greater than
10 years.
THE SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX is an
index that tracks the performance of the 14 government
bond markets of Australia, Austria, Belgium Canada,
Denmark, France, Germany, Italy, Japan, Netherlands,
Spain, Sweden, United Kingdom and the United States.
Country eligibility is determined by market capitalization
and investability criteria.
THE SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX (non
$U.S.) is an index of foreign government bonds calculated
to provide a measure of performance in the government bond
markets outside of the United States.
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX is an
index of common stocks frequently used as a general
measure of stock market performance.
STANDARD & POOR'S 40 UTILITIES INDEX is an index of 40
utility stocks.
STANDARD & POOR'S/BARRA VALUE INDEX is an index
constructed by ranking the securities in the Standard &
Poor's 500 Composite Stock Price Index by price-to-book
ratio and including the securities with the lowest price-
to-book ratios that represent approximately half of the
market capitalization of the Standard & Poor's 500
Composite Stock Price Index.
In addition, Putnam Mutual Funds may distribute to shareholders
or prospective investors illustrations of the benefits of
reinvesting tax-exempt or tax-deferred distributions over
specified time periods, which may include comparisons to fully
taxable distributions. These illustrations use hypothetical
rates of tax-advantaged and taxable returns and are not intended
to indicate the past or future performance of any fund.
DEFINITIONS
"Putnam Management" -- Putnam Investment Management,
Inc., the fund's investment
manager.
"Putnam Mutual Funds" -- Putnam Mutual Funds Corp., the
fund's principal underwriter.
"Putnam Fiduciary Trust -- Putnam Fiduciary Trust Company,
Company" the fund's custodian.
"Putnam Investor Services" -- Putnam Investor Services, a
division of Putnam Fiduciary
Trust Company, the fund's
investor servicing agent.
PUTNAM INVESTMENT FUNDS
FORM N-1A
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Index to Financial
Statements and
Supporting
Schedules:
(1) Financial
Statements:
Putnam
Global
Growth and Income
Fund
Statements of
assets
and liabilities --
year
ended September 30,
1997 (a).
Statements of
operations -- year
ended
September 30,
1997 (a).
Statements of
changes
in net assets --
year
ended September
30,
1997 and September
30,
1996 (a).
Financial
highlights
(a)(b).
Notes to financial
statements (a).
Putnam International New
Opportunities Fund
Statements of assets and
liabilities -- year
ended September 30, 1997 (a).
Statements of
operations -- year
ended
September 30, 1997
(a).
Statements of
changes
in net assets --
year
ended September 30,
1997 and September
30, 1996 (a).
Financial
highlights
(a)(b).
Notes to financial
statements (a).
(2) Supporting Schedules:
Putnam Global
Growth
and Income Fund
Schedules I --
Portfolios of
investments owned
- --
September 30,
1997 (a).
Schedules II
through IX
omitted because the
required matter is
not
present.
Putnam International New
Opportunities
Fund
Schedules I -- Portfolios of
investments owned
- -- September 30,
1997 (a).
Schedules II
through IX
omitted because the
required matter is
not
present.
- -----------------
(a) Incorporated by reference into Parts A
and B.
(b) Included in Part A.
(b) Exhibits:
1. Agreement and Declaration of Trust dated October
31,
1994 -- Incorporated by reference to Registrant's
Initial Registration Statement.
2. By-Laws -- Incorporated by reference to
Registrant's
Initial Registration Statement.
3. Not applicable.
4a .Portions of Agreement and Declaration of trust
Relating to Shareholders' Rights -- Incorporated
by
reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement.
4b . Portions of By-Laws Relating to
Shareholders'
Rights -- Incorporated by reference to
Pre-Effective
Amendment No. 1 to the Registrant's Registration
Statement.
5. Management Contract dated December 1,
1995 --
Incorporated by reference to Post-Effective
Amendment No. 9 to the Registrant's Registration
Statement.
6a. Distributor's Contract dated December 2, 1994 --
Incorporated by reference to Pre-Effective
Amendment
No. 1 to the Registrant's Registration Statement.
6b. Form of Specimen Dealer Sales Contract
- --Incorporated
by reference to Pre-Effective Amendment No. 1 to
the
Registrant's Registration Statement.
6c. Form of Specimen Financial Institution Sales
Contract -
- Incorporated by reference to Pre-Effective
Amendment
No. 1 to the Registrant's Registration Statement.
7. Trustee Retirement Plan dated October 4, 1996 -
Incorporated by reference to Post-Effective
Amendment No. 10 to the Registrant's Registration
Statement.
8. Custodian Agreement with Putnam Fiduciary Trust
Company
dated May 3, 1991, as amended July 13, 1992 --
Incorporated by reference to Pre-Effective
Amendment
No. 1 to the Registrant's Registration Statement.
9. Investor Servicing Agreement dated June 3, 1991
with
Putnam Fiduciary Trust Company -- Incorporated by
reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement.
10. Opinion of Ropes & Gray, including consent --
Incorporated by reference to Pre-Effective
Amendment
No. 1 to the Registrant's Registration Statement.
11. Not applicable.
12. Not applicable.
13. Investment Letter from Putnam Investments, Inc. to
the
Registrant -- Incorporated by reference to Pre-
Effective Amendment No. 1 to the Registrant's
Registration Statement.
14a. Form of Prototype Individual Retirement Account
Plan --
Incorporated by reference to Post-Effective
Amendment
No. 8 to the Registrant's Registration Statement.
14b. Form of Prototype Basic Plan Documents and related
Plan
Agreements -- Incorporated by reference to Post-
Effective Amendment No. 8 to the Registrant's
Registration Statement.
15a. Class A Distribution Plan and Agreement
- --Incorporated
by reference to Pre-Effective Amendment No. 1 to
the
Registrant's Registration Statement.
15b. Class B Distribution Plan and Agreement --
Incorporated
by reference to Pre-Effective Amendment No. 1 to
the
Registrant's Registration Statement.
15c. Class M Distribution Plan and Agreement
- --Incorporated
by reference to Pre-Effective Amendment No. 1 to
the
Registrant's Registration Statement.
15d. Form of Specimen Dealer Service Agreement --
Incorporated by reference to Pre-Effective
Amendment
No. 1 to the Registrant's Registration Statement.
15e. Form of Specimen Financial Institution Service
Agreement -- Incorporated by reference to
Pre-Effective
Amendment No. 1 to the Registrant's Registration
Statement.
16. Schedules for computation of performance quotations
- --
Exhibit 1 .
17a . Financial Data Schedule for Putnam Global
Growth
and Income Fund -- Class A shares -- Exhibit
2 .
17d . Financial Data Schedule for Putnam
International
New Opportunities Fund -- Class A shares --Exhibit
3 .
17e . Financial Data Schedule for Putnam
International
New Opportunities Fund -- Class B shares --Exhibit
4 .
17f .
Financial Data Schedule for Putnam International New
Opportunities Fund -- Class M shares --Exhibit 5 .
18. Rule 18f-3(d) Plan -- Incorporated by reference to
Post-Effective Amendment No. 5 to the Registrant's
Registration Statement.
Item 25. Persons Controlled by or under Common Control with
Registrant
As of December 30, 1997 , Putnam
Investments,
Inc. owned 100.00%, 99.40%, 95.50%, 94.50%, 91.60%,
69.50% and
25.40% , respectively of Putnam High Yield Trust II, Putnam
Equity Fund 98 , Putnam Balanced Fund, Putnam
International
Fund, Putnam Japan Fund, Putnam Research Fund and Putnam
Global
Growth and Income Fund.
Item 26. Number of Holders of Securities
As of December 30, 1997 , the number of
record
holders of each class of securities of the Registrant are as
follows:
Number of record holders
--------------------------
Class A Class B Class M
Putnam Global Growth and
Income Fund 630 39631
Punam International New
Opportunities Fund 101,633 126,0838,930
Item 27. Indemnification
The information required by this item is incorporated
herein
by reference to Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A under the Investment Company
Act
of 1940 (File No. 811-7237).
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Except as set forth below, the directors and officers
of the Registrant's investment adviser have been engaged during
the past two fiscal years in no business, vocation or employment
of a substantial nature other than as directors or officers of
the investment adviser or certain of its corporate affiliates.
Certain officers of the investment adviser serve as officers of
some or all of the Putnam funds. The address of the investment
adviser, its corporate affiliates and the Putnam Funds is One
Post Office Square, Boston, Massachusetts 02109.
Name Non-Putnam business and other
connections
Michael J. Abata Prior to May, 1997, Assistant
Assistant Vice President Alliance Capital Management Corp.,
1345 Avenue of the Americas, New
York, NY 10020
Nikesh Arora Prior to April, 1997, Chief Financial
Vice President Officer, Fidelity Investments, 82
Devonshire St., Boston, MA 02110
Michael Arends Prior to May, 1997, Managing Director,
Senior Vice President Equities, Phoenix Duff & Phelps, 56
Prospect St., Hartford, CT 06101
Michael J. Atkin Prior to July, 1997, Director of
Senior Vice President Latin America, Institute of
International Finance, 2000
Pennsylvania Avenue, Washington,
D.C. 20006
Rowland T. Bankes Prior to July, 1997, Senior Fixed-
Vice President Income Trader, Jennison Associates
Capital Corp., One Financial Center,
Boston, MA 02110
Robert R. Beck Director, Charles Bridge Publishing,
Senior Vice President 85 Main St., Watertown, MA 02172
Geoffrey C. Blaisdell Prior to October, 1997, Vice President
Senior Vice President Blackrock Financial, 345 Park
Avenue, New York, NY 10010
John A. Boselli Prior to April, 1996, Senior Manager,
Vice President Price Waterhouse LLP, 200 E.
Randolph Drive, Chicago, IL 60601
<PAGE>
Jeffrey M. Bray Prior to October, 1997, Analyst,
Vice President Lehman Brothers, 3 World Financial
Center, New York, NY 10285
Ronald J. Bukovak Prior to October, 1997, Senior Manager
Vice President Valuation, Price Waterhouse, 200 E.
Randolph Drive, Chicago, IL 60601
Robert W. Burke Member-Executive Committee, The Ridge
Senior Managing Director Club, Country Club Road, Sandwich,
MA 02563; Member-Advisory Board,
Cathedral High School, 74 Union Park
St., So. Boston, MA 02118
Jack P. Chang Prior to July, 1997, Vice President
Vice President Columbia Management Company, 1300
S.W. 6th Ave., Portland, OR 97207
Mary Claire Chase Prior to January, 1997, Director of
Vice President Staff Development, Arthur D. Little
Co., 25 Acorn Park, Cambridge, MA
02140
James E. Corning Prior to October, 1996, Assistant Vice
Assistant Vice President President of Plan Investments at
State Street Bank & Trust, 1776
Heritage Dr., Quincy, MA 02171
C. Beth Cotner Director, The Lyric Stage Theater, 140
Senior Vice President Clarendon St., Boston, MA; Prior to
September, 1995, Executive Vice
President, Director of U.S. Equity
Funds, Kemper Financial Services,
120 S. LaSalle St., Chicago, IL
60603
Kevin M. Cronin Prior February, 1997, Vice President
Senior Vice President and Portfolio Manager, MFS
Investment Management, 500 Boylston
St., Boston, MA 02117
Peter J. Curran Prior to January, 1996, Vice President
Senior Vice President ITT Sheraton Director Worldwide
Staffing, ITT Sheraton Corporation,
60 State St., Boston, MA 02109
William J. Curtin Prior to August, 1996, Managing
Managing Director Director, Chief Global Fixed-Income
Strategist, Lehman Brothers, 3 World
Financial Center, New York, NY 10285
Sean G. Daly Prior to March, 1997, Assistant
Assistant Vice President Vice President-Corporate Accounting,
Fleet Financial Group, 111
Westminster St., Providence, RI
02903
Michael W. Davis Prior to August, 1997, Technical
Vice President Finance Consultant, Bank of America
Mortgage, 50 California St., San
Francisco, CA 94111; Prior to
January, 1996, Consultant, Martin
Davis and Associates, 33215
Sandpiper Rd., Freemont, CA 94555
Michael G. Dolan Chairman-Finance Council, St. Mary's
Assistant Vice President Parish, 44 Myrtle St., Melrose, MA
02176; Member, School Advisory
Board, St. Mary's School, 44 Myrtle
St., Melrose, MA 02176
Andrea Donnelly Prior to March, 1996, Equity Trader,
Assistant Vice President Hellman Jordan Management Company,
Inc., 75 State St., Suite 2420,
Boston, MA 02109
Martha A. Donovan Prior to July, 1996, Assistant
Vice President Treasurer, CBS Inc., 51 W. 52nd St.,
New York, NY 10020
Nathan Eigerman Prior to July, 1996, Quantitative
Assistant Vice President Analyst, Fidelity Management &
Research, 82 Devonshire St., Boston,
MA 02110
Irene M. Esteves Prior to January, 1997, Vice
Managing Director President, Miller Brewing Co., 3939
West Highland Blvd. Milwaukee, WI.
53201
Ian C. Ferguson Prior to April, 1996, Chief
Senior Managing Director Executive Officer, HSBC Asset
Management, Ltd., 6 Bevis Marks,
London, England
Brian J. Fullerton Prior to November, 1995, Vice
Senior Vice President President, Pension and 401(k)
Derivatives Marketing, J.P. Morgan,
60 Wall Street, New York, NY 10260
J. Peter Grant Trustee, The Dover Church, Dover, MA
Senior Vice President 02030
Donnalee Guerin Prior to September, 1996, Corporate
Assistant Vice President Service Manager, Haemonetics Corp.,
400 Wood Rd., Braintree, MA 02184.
Paul E. Haagensen Director, Haagensen Research
Senior Vice President Foundation, 630 West 168th St., New
York, NY 10032
James B. Haines Prior to February, 1997, Associate,
Assistant Vice President Benefits Department, Ropes & Gray,
One International Place, Boston, MA
02110
Matthew C. Halperin Prior to April, 1996, Portfolio
Senior Vice President Manager, Allstate Insurance, 3075
Sanders Road, Northbrook, IL 60062
Mary S. Hapij Prior to March, 1997, Research
Assistant Vice President Library Manager, Pioneering
Management Corp., 60 State Street,
Boston, MA 02109; Prior to January,
1996, Information Resource Center
Manager, Copley Real Estate
Advisers, 399 Boylston St., Boston,
MA 02116
Nigel P. Hart Prior to October, 1997, Senior Vice
Vice President President and Portfolio Manager,
Investment Advisers, 3700 First Bank
Place, Minneapolis, MN 55402
Thomas R. Haslett Prior to December, 1996, Managing
Managing Director Director and Senior Portfolio
Manager, Montgomery Asset
Management, LTD, 101 California St.,
San Franscisco, CA 94111
Timothy E. Hawkins Prior to September, 1997, Investment
Vice President Officer, Liberty Mutual, 175
Berkeley St., Boston, MA 02116
Daniel E. Herbert Prior to April, 1996, Vice President
Vice President and Analyst, Keystone Group, Inc.,
200 Berkeley St., Boston, MA 02116
Thomas J. Hoey Prior to April, 1996, Securities
Vice President Analyst, Driehaus Capital
Management, Inc., 25 East Erie St.,
Chicago, IL 60610
Jerome J. Jacobs Prior to September, 1996, Head of
Managing Director Municipal Bond Group, Vanguard
Group Investments, 100 Vanguard
Blvd., Malvern, PA 19482
Omid Kamshad Prior to January, 1996, Investment
Senior Vice President Director, Lombard Odier, 13
Southampton Place, London, England,
WC1
Mary E. Kearney Trustee, Massachusetts Eye and Ear
Managing Director Infirmary, 243 Charles St., Boston,
MA 02114
Matthew W. Keenan Prior to December, 1996, Copy Editor,
Vice President The Boston Globe, 135 Morrisey
Blvd., Boston, MA 02107
Catherine Kennedy Prior to September, 1997, Principal
Vice President Morgan Stanley, 1585 Broadway, New
York, NY 10036
Jeffrey K. Kerrigan Prior to June, 1997, Vice President,
Assistant Vice President Fleet Investments, 75 State St.,
Boston, MA 02109
David R. King Prior to October, 1997, Vice President
Vice President Massachusetts Financial Services,
500 Boylston St., Boston, MA
Deborah F. Kuenstner Prior to March, 1997, Senior Portfolio
Senior Vice President Manager, DuPont Pension Fund
Investment, 1 Right Parkway,
Wilmington, DE 19850
Thomas J. Kurey Prior to August, 1997, Vice President
Vice President Everen Securities, 77 W. Wacker,
Chicago, IL 60601
Kenneth W. Lang Prior to April, 1997, Vice President,
Vice President Montgomery Securities, 600
Montgomery St., San Francisco, CA
94111
Coleman N. Lannum, III Prior to June, 1997, Director-
Vice President Investor Relations, Mallinckrodt,
Inc., 7733 Forsyth Blvd., St. Louis,
MO 63105
Lawrence J. Lasser Director, Marsh & McLennan Companies,
President, Director Inc., 1221 Avenue of the Americas,
and Chief Executive New York, NY 10020; Board Member,
Artery Business Committee, One
Beacon Street, Boston, MA 02108;
Board of Managers, Investment and
Finance Committees, Beth Israel
Hospital, 330 Brookline Avenue,
Boston, MA 02215; Board of
Governors, Executive Committee,
Investment Company Institute, 1401
H. St., N.W., Suite 1200,
Washington, DC 20005; Board of
Overseers, Museum of Fine Arts, 465
Huntington Ave., Boston, MA 02115;
Board Member, Trust for City Hall
Plaza, Three Center Plaza, Boston,
MA 02108; Board Member, The Vault
Coordinating Committee, c/o John
Hancock Mutual Life Insurance
Company, Law Sector, T-55, P.O. Box
111, Boston, MA 02117
Joan M. Leary Prior to January, 1997, Senior Tax
Assistant Vice President Manager, KPMG, 99 High St., Boston,
MA 02110
Julian W. Lim Prior to July, 1997, Manager, Fidelity
Assistant Vice President Management & Research, 82 Devonshire
St., Boston, MA 02110
Geirulv Lode Prior to July, 1997, Vice President
Vice President Chancellor Lgt. Asset Management,
1166 Avenue of the Americas, New
York, NY 10036
Diana R. Madonna Prior to January, 1997, Librarian,
Assistant Vice President Lipper Analytical Services, Inc.,
1380 Lawrence St., Denver CO 80204
Bruce D. Martin Prior to April, 1997, Vice President,
Vice President Eaton Vance, 29 Federal St., Boston,
MA 02110; Prior to August, 1996,
Senior Research Officer, John
Hancock Mutual Life Insurance Co.,
101 Huntington Ave., Boston, MA
02190
Saba Malak Prior to October, 1997, Consultant,
Vice President The Boston Consultant, Exchange
Place, Boston, MA 02109
Kevin Maloney Trustee, Town of Hanover, NH, Trustee
Managing Director of Trust Funds, Hanover, NH 03755;
President and Board Member,
Hampshire Cooperative Nursery
School, Dartmouth College Highway,
Hanover, NH 03755
Scott M. Maxwell Prior to March, 1997, Chief Financial
Managing Director Officer-Equity Division, Lehman
Brothers, 3 World Financial Center,
New York, NY 10285
William F. McGue Member, Advisory Committee, Academy
Managing Director of Finance, 2 Oliver St., Boston, MA
02109
Mary G. McNamee Prior to December, 1996, Recruitment
Assistant Vice President Consultant, 171 Walnut St. Boston,
MA 02110
Sandeep Mehta Prior to May, 1996, Vice President,
Vice President Wellington Management Co., 100
Vanguard Blvd., Malvern, PA 19355
Carol H. Miller Board Member, The Lyric Stage Theater,
Assistant Vice President 140 Clarendon St., Boston, MA 02116
William H. Miller Prior to October, 1997, Vice
Senior Vice President President and Asset Portfolio
Manager, Delawre Management, One
Commerce Square, Philadelphia, PA;
Prior to January, 1995, Vice
President and Analyst, Janney,
Montgomery, Scott, 1801 Market St.,
Philadelphia, PA 19104
Jeanne L. Mockard Trustee, The Bryn Mawr School, 109
Senior Vice President W. Melrose Avenue, Baltimore, MD
21210
Gerard I. Moore Prior to August, 1997, Vice
Vice President President/Equity Research, Boston
Company Asset Management, One
Boston, Place, Boston, MA 02109
Kelly A. Morgan Prior to September, 1996, Senior Vice
Senior Vice President President and International
Portfolio Manager, Alliance Capital
Management, 1345 Avenue of the
Americas, New York, NY 10020
David D. Motill Prior to April, 1996, Indepdendent
Vice President Consultant, 417 Valley Forge Rd.,
Wayne, PA 19087; Prior to July,
1995, Senior Investment Analyst, SEI
Investments, One Freedom Valley
Drive, Oaks, PA 19456
Lois O'Brien Prior to March, 1996, Director,
Assistant Vice President Training and Development, J. Baker,
Inc., 555 Turnpike St., Canton, MA
02021
Gayle M. O'Connell Prior to March, 1997, Assistant
Assistant Vice President Director of Human Resources, ITT
Sheraton Corporation, 60 State St.,
Boston, MA 02109
Stephen S. Oler Prior to June, 1997, Vice President,
Senior Vice President Templeton Investment Counsel, 500 E.
Broward Blvd., Ft. Lauderdale, FL
33394; Prior to February, 1996,
Senior Vice President, Baring Asset
Management, 125 High St., Boston, MA
02110
Carmel Peters Prior to April, 1997, Managing
Senior Vice President Director/Chief Investment Officer,
Asia Pacific, Wheelock NatWest
Investment Management, Ltd, NatWest
Tower, Times Square, Causeway Bay,
Hong Kong, China; Prior to February,
1996, Chief Investment Officer, Asia
Pacific, Rothschild Asset Management
Asia Pacific, Hong Kong, Alexandra
House, Central Hong Kong, China
William Perry Prior to September, 1997, Senior
Senior Vice President Trader, Fidelity Management &
Research, 82 Devonshire St., Boston,
MA 02110
Keith Plapinger Vice Chairman and Trustee, Advent
Vice President School, 17 Brimmer St., Boston, MA
02108
Charles E. Porter Director, The Boston Fulbright
Executive Vice President Committee, 99 Garden St., Cambridge,
MA; Trustee, Anatolia College and
The American College of
Thessaloniki, 555 10 Pycea,
Thessaloniki, Greece
George Putnam Chairman and Director, Putnam Mutual
Chairman and Director Funds Corp.; Director, The Boston
Company, Inc., One Boston Place,
Boston, MA 02108; Director, Boston
Safe Deposit and Trust Company, One
Boston Place, Boston, MA 02108;
Director, Freeport-McMoRan, Inc.,
200 Park Avenue, New York, NY 10166;
Director, General Mills, Inc., 9200
Wayzata Boulevard, Minneapolis, MN
55440; Director, Houghton Mifflin
Company, One Beacon Street, Boston,
MA 02108; Director, Marsh & McLennan
Companies, Inc., 1221 Avenue of the
Americas, New York, NY 10020;
Director, Rockefeller Group, Inc.,
1230 Avenue of the Americas, New
York, NY 10020
Keith Quinton Director, Eleazar, Inc., West Wheelock
Senior Vice President St., Hanover, NH 03755
Kimberly A. Raynor Prior to April, 1996, Principal,
Vice President Principal, Scudder, Stevens & Clark,
2 International Place, Boston, MA
02110
Paul A. Rokosz Prior to November, 1996, Analyst,
Vice President Kemper Financial Services, 120 S.
Casalle St., Chicago, IL 60606
Michael V. Salm Prior to November, 1997, Mortgage
Vice President Analyst, Blackrock Financial
Management, 345 Park Ave., New York,
NY 10010; Prior to May, 1996,
Trader, Nomura Securities, 2 World
Financial Center, New York, NY 10048
Robert J. Schoen Prior to June, 1997, Sole Proprietor,
Assistant Vice President Schoen Timing Strategies, 315 E.
21st St., New York, NY 10010
Justin M. Scott Director, DSI Properties (Neja) Ltd.
Managing Director Epping Rd., Reydon, Essex CM19 5RD;
Director, DSI Management (Neja)
Ltd., Epping Rd., Reydon, Essex CM19
5RD
Max S. Senter General Partner, M.S. Senter & Sons
Senior Vice President Partnership, 4900 Fayetteville, Rd.,
Raleigh, NC 27611
Mitchell D. Schultz Prior to September, 1996, Vice
Senior Vice President President, Human Resources, The Walt
Disney Co., 500 South Buena Vista
St., Burbank, CA 91510
Edward Shadek, Jr. Prior to March, 1997, Portfolio
Vice President Manager, Newhold Asset Management,
950 Haverford Rd., Bryn Mawr, PA
19010
Gordon H. Silver Trustee, Wang Center for the
Managing Director Performing Arts, 270 Tremont St.,
Boston, MA 02116
Erin J. Spatz Prior to May, 1996, Vice
Vice President President, Pioneering Management
Organization, 60 State St., Boston,
MA 02109
Steven Spiegel Director, Ultra Corp., 29 East
Senior Managing Director Madison St., Chicago, IL 60602;
Trustee, Babson College, One College
Drive, Wellesley, MA 02157; Prior to
December, 1994, Managing
Director/Retirement, Lehman
Brothers, Inc., 200 Vesey St., World
Financial Center, New York, NY 10285
Christopher A. Spurlock Prior to May, 1997, Sales Trader,
Vice President J.P. Morgan, 60 Wall St., New York,
NY; Prior to March, 1996, Equity
Trader, Pioneer Group, 60 State St.,
Boston, MA 02109
Michael P. Stack Prior to November, 1997, Senior
Senior Vice President Vice President and Portfolio
Manager, Independence Investment
Associates, 53 State St., Boston, MA
02109
Casey Strumpf Prior to January, 1997, Director, Blue
Senior Vice President Cross and Blue Shield, 100 Summer
St., Boston, MA 02110
Maryann Sullivan Prior to August, 1996, Unit Manager,
Assistant Vice President First Data Services, 4400 Computer
Dr., Westboro, MA 01581
Heidi A. Tuchen Prior to December 1996, Vice President
Assistant Vice President and Credit Officer, Fleet Financial
Group, 75 State St., Boston, MA
02109
Scott G. Vierra Prior to September, 1997, Staffing
Vice President Lead, Cisco Systems, 250 Apollo
Drive, Chelmsford, MA 01824
David L. Waldman Prior to June, 1997, Senior Portfolio
Managing Director Manager, Lazard Feres Asset
Management, 30 Rockefeller Center,
New York, NY 10112
Paul C. Warren Prior to May, 1997, Director
Senior Vice President IDS Fund Management, LT, One Pacific
Place, Squuensway, Hong Kong, China
Eric Wetlaufer Prior to November, 1997, Managing
Managing Director Director and Portfolio Manager,
Cadence Capital Management, Exchange
Place, Boston, MA 02109
Burton Wilson Prior to March, 1997, Associate
Assistant Vice President Investments-Banking, Robertson
Stephens & Co., 555 California St.,
Suite 2600, San Francisco, CA 94104
Michael R. Yogg Prior to November, 1996, Portfolio
Senior Vice President Manager, State Street Research &
Management, One Financial Center,
Boston, MA 02111
Scott D. Zaleski Prior to May, 1997, Investment Officer
Assistant Vice President State Street Bank & Trust, 1776
Heritage Dr., Quincy, MA 02171;
Prior to September, 1996, Investment
Associate Fidelity Investments, 82
Devonshire St., Boston, MA 02109
Michael P. Zeller Prior to July, 1997, Sales Manager,
Vice President NYNEX Information Resources, 35
Village Rd., Middleton, MA 01949
William E. Zieff Prior to December, 1996, Global Asset
Managing Director Allocation, Granthham, Mayo, Van
Otterloo & Co., 40 Rowes Wharf,
Boston, MA 02110
<PAGE>
Item 29. Principal Underwriter
(a) Putnam Mutual Funds Corp. is the principal underwriter for
each of the following investment companies, including the
Registrant:
Putnam American Government Income Fund, Putnam Arizona Tax Exempt
Income Fund, Putnam Asia Pacific Growth Fund, Putnam Asset
Allocation Funds, Putnam Balanced Retirement Fund, Putnam
California Tax Exempt Income Fund, Putnam California Tax Exempt
Money Market Fund, Putnam Capital Appreciation Fund, Putnam
Convertible Income-Growth Trust, Putnam Diversified Equity Trust,
Putnam Diversified Income Trust, Putnam Diversified Income Trust
II, Putnam Equity Income Fund, Putnam Europe Growth Fund, Putnam
Federal Income Trust, Putnam Florida Tax Exempt Income Fund,
Putnam Funds Trust, The George Putnam Fund of Boston, Putnam
Global Governmental Income Trust, Putnam Global Growth Fund,
Putnam Global Natural Resources Fund, The Putnam Fund for Growth
and Income, Putnam Growth and Income Fund II, Putnam Health
Sciences Trust, Putnam High Yield Trust, Putnam High Yield
Advantage Fund, Putnam High Yield Municipal Trust, Putnam Income
Fund, Putnam Intermediate U.S. Government Income Fund, Putnam
Investment Funds, Putnam Investors Fund, Putnam Massachusetts Tax
Exempt Income Fund, Putnam Michigan Tax Exempt Income Fund,
Putnam Minnesota Tax Exempt Income Fund, Putnam Money Market
Fund, Putnam Municipal Income Fund, Putnam New Jersey Tax Exempt
Income Fund, Putnam New Opportunities Fund, Putnam New York Tax
Exempt Income Fund, Putnam New York Tax Exempt Money Market Fund,
Putnam New York Tax Exempt Opportunities Fund, Putnam Ohio Tax
Exempt Income Fund, Putnam OTC & Emerging Growth Fund, Putnam
Pennsylvania Tax Exempt Income Fund, Putnam Preferred Income
Fund, Putnam Tax Exempt Income Fund, Putnam Tax Exempt Money
Market Fund, Putnam Tax-Free Income Trust, Putnam U.S. Government
Income Trust, Putnam Utilities Growth and Income Fund, Putnam
Variable Trust, Putnam Vista Fund, Putnam Voyager Fund, Putnam
Voyager Fund II.<PAGE>
<TABLE>
<CAPTION>
(b) The directors and officers of the Registrant's principal underwriter are listed
below. The principal business address of each person is One Post Office
Square, Boston, MA 02109:
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
<C> <C> <C>
John V. Adduci Vice President None
Frank Albanese Vice President None
Christopher A. Alders Senior Vice President None
Christopher S. Alpaugh Vice President None
Paulette C. Amisano Vice President None
Jeanne Antill Assistant Vice President None
Margaret Andrews Vice President None
Steven E. Asher Senior Vice President None
Scott A. Avery Senior Vice President None
Christian E. Aymond Vice President None
Suzanne J. Battit Vice President None
Steven M. Beatty Senior Vice President None
John J. Bent Vice President None
Thomas A. Beringer Vice President None
Sharon A. Berka Vice President None
Kathleen A. Blackman Assistant Vice President None
John F. Boneparth Managing Director None
Keith R. Bouchard Senior Vice President None
Linwood E. Bradford, Jr. Vice President None
Linda M. Brady Assistant Vice President None
Mary Ann Brennan Assistant Vice President None
Leslee R. Bresnahan Senior Vice President None
James D. Brockelman Senior Vice President None
Joel S. Brockman Vice President None
Timothy K. Brown Senior Vice President None
Gail D. Buckner Senior Vice President None
Robert W. Burke Senior Managing Director None
Susan D. Cabana Vice President None
Thomas C. Callahan Assistant Vice President None
Robert Capone Vice President None
Patricia A. Cartwright Assistant Vice President None
Janet Casale-Sweeney Senior Vice President None
David M. Casey Vice President None
James R. Castle, Jr. Vice President None
Mary Clare Chase Vice President None
Louis F. Chrostowski Vice President None
Daniel J. Church Vice President None
Richard B. Clark Senior Vice President None
Mary Clermont Assistant Vice President None
John C. Clinton Assistant Vice President None
Kathleen M. Collman Managing Director None
Mark L. Coneeny Senior Vice President None
Clare D. Connelly Assistant Vice President None
Donald A. Connelly Senior Vice President None
Karen E. Connolly Assistant Vice President None
Barry M. Conyers Assistant Vice President None
F. Nicholas Corvinus Senior Vice President None
Thomas A. Cosmer Senior Vice President None
Michele A. Cranston Assistant Vice President None
Chad H. Cristo Vice President None
Peter J. Curran Senior Vice President None
Jessica E. Dahill Vice President None
Kenneth L. Daly Senior Vice President None
Sean G. Daly Assistant Vice President None
Edward H. Dane Vice President None
Nancy M. Days Assistant Vice President None
Pamela De Oliveira-Smith Assistant Vice President None
Lisa M. DeMont Vice President None
Teresa F. Dennehy Vice President None
Karen E. DiStasio Vice President None
Michael G. Dolan Assistant Vice President None
Scott M. Donaldson Vice President None
Deirdre E. Duffy Senior Vice President None
Emily J. Durbin Vice President None
David B. Edlin Managing Director None
Gail A. Eisenkraft Managing Director None
James M. English Senior Vice President None
Vincent Esposito Managing Director None
Irene M. Esteves Director and Managing Director None
Mary K. Farrell Assistant Vice President None
Michael J. Fechter Vice President None
Susan H. Feldman Senior Vice President None
C. Nancy Fisher Managing Director None
Mitchell B. Fishman Senior Vice President None
Joseph C. Fiumara Vice President None
Patricia C. Flaherty Senior Vice President None
Brian J. Fullerton Senior Vice President None
Judy S. Gates Senior Vice President None
Joseph P. Gennaco Senior Vice President None
Mark P. Goodfellow Assistant Vice President None
Robert Goodman Managing Director None
Carol J. Gould Assistant Vice President None
Anthony J. Grace Assistant Vice President None
Linda K. Grace Vice President None
Daniel W. Greenwood Vice President None
Jill Grossberg Assistant Vice President None
Denise Grove Assistant Vice President None
Jeffrey P. Gubala Vice President None
Donnalee Guerin Assistant Vice President None
Salvatore P. Guerra Assistant Vice President None
James B. Haines Assistant Vice President None
Debra Hall Assistant Vice President None
James E. Halloran Vice President None
Thomas W. Halloran Senior Vice President None
Meghan C. Hannigan Assistant Vice President None
John D. Harbeck Vice President None
Bruce D. Harrington Assistant Vice President None
Craig W. Hartigan Vice President None
Howard W. Hawkins, III Vice President None
Deanna R. Hayes-Castro Vice President None
Dennis P. Hearns Senior Vice President None
Gayle A. Hedstrom Assistant Vice President None
Paul P. Heffernan Vice President None
Susan M. Heimanson Vice President None
James Hickey Vice President None
Bess J.M. Hochstein Senior Vice President None
Jeremiah K. Holly, Sr. Vice President None
Maureen A. Holmes Assistant Vice President None
Paula J. Hoyt Assistant Vice President None
William J. Hurley Managing Director and Controller None
Dwight D. Jacobsen Managing Director None
Kevin M. Joyce Senior Vice President None
Karen R. Kay Senior Vice President None
Mary E. Kearney Managing Director None
John P. Keating Vice President None
Brian J. Kelley Vice President None
A. Siobahn Kelly Assistant Vice President None
Anne Kinsman Assistant Vice President None
Deborah H. Kirk Senior Vice President None
Jill A. Koontz Senior Vice President None
Linda G. Kraunelis Assistant Vice President None
Howard H. Kreutzberg Senior Vice President None
Marjorie B. Krieger Assistant Vice President None
Charles Lacasia Vice President None
James D. Lathrop Senior Vice President None
Joan M. Leary Assistant Vice President None
Charles C. Ledbetter Vice President None
Margaret Leipsitz Assistant Vice President None
Kevin Lemire Assistant Vice President None
Anthony J. Leonard Vice President None
Eric S. Levy Senior Vice President None
Edward V. Lewandowski Senior Vice President None
Edward V. Lewandowski, Jr. Vice President None
Samuel L. Lieberman Vice President None
David M. Lifsitz Vice President None
David R. Lilien Vice President None
Ann Marie Linehan Assistant Vice President None
Lisa M. Litant Assistant Vice President None
Thomas W. Littauer Managing Director None
Maura A. Lockwood Vice President None
Rufino R. Lomba Vice President None
Gregory T. Long Vice President None
Peter V. Lucas Senior Vice President None
Kevin Lucey Assistant Vice President None
Robert F. Lucey Director None
Robert F. Lyons Assistant Vice President None
Ann Malatos Assistant Vice President None
Bonnie Mallin Vice President None
Leslie Mannix Senior Vice President None
Frederick S. Marius Vice President None
Karen A. McCafferty Vice President None
Anne B. McCarthy Assistant Vice President None
Paul McConville Vice President None
Brian McCracken Assistant Vice President None
Bruce A. McCutcheon Vice President None
Daniel E. McDermott Assistant Vice President None
Mark J. McKenna Senior Vice President None
Mary G. McNamee Assistant Vice President None
Claye A. Metelmann Vice President None
Eric D. Milgroom Assistant Vice President None
Bart D. Miller Senior Vice President None
Janis E. Miller Managing Director None
Jeffery M. Miller Managing Director None
Ronald K. Mills Vice President None
Matthew P. Mintzer Senior Vice President None
Kimberly A. Monahan Vice President None
Paul R. Moody Vice President None
Peter M. Moore Assistant Vice President None
Mitchell Moret Senior Vice President None
Jean Moses Senior Vice President None
Barry L. Mosher Assistant Vice President None
Donald E. Mullen Vice President None
Paul G. Murphy Vice President None
Brendan R. Murray Vice President None
Robert Nadherny Vice President None
Alexander L. Nelson Managing Director None
Amy Jane Newell Vice President None
John P. Nickodemus Vice President None
Gail A. Nickse Assistant Vice President None
Kristen P. O'Brien Senior Vice President None
Lois C. O'Brien Vice President None
Nancy E. O'Brien Vice President None
Gayle M. O'Connell Assistant Vice President None
Joseph R. Palombo Managing Director None
Scott A. Papes Vice President None
Cynthia O. Parr Vice President None
Dale M. Pelletier Vice President None
Samuel W. Perry Vice President None
Jennifer H. Peterson Assistant Vice President None
Kate Peterson Assistant Vice President None
John G. Phoenix Vice President None
Joseph Phoenix Senior Vice President None
Keith Plapinger Vice President None
Jeffrey P. Pollock Vice President None
Margaret J. Portorski Assitant Vice President None
Douglas H. Powell Vice President None
Howard B. Present Senior Vice President None
Jane E. Price Assistant Vice President None
Scott M. Pulkrabek Vice President None
George Putnam Director Chairman & President
Kimberly Raynor Vice President None
W. Frank Richardson Vice President None
George A. Rio Senior Vice President None
Kris Rodammer Vice President None
Debra V. Rothman Vice President None
Robert B. Rowe Vice President None
Kevin A. Rowell Senior Vice President None
Charles A. Ruys de Perez Senior Vice President None
Deborah A. Ryan Vice President None
Catherine A. Saunders Senior Vice President None
Robbin L. Saunders Vice President None
Karl W. Saur Vice President None
Michael Scanlon Vice President None
Shannon D. Schofield Vice President None
Mitchell D. Schultz Managing Director None
Curt A. Schultzberg Assistant Vice President None
Christine A. Scordato Senior Vice President None
Joseph W. Scott Assistant Vice President None
Elizabeth R. Segers Senior Vice President None
John B. Shamburg Vice President None
Kathleen G. Sharpless Managing Director None
Terence B. Shea Assistant Vice President None
William N. Shiebler Director and President Vice President
Robert J. Shull, II Vice President None
Gordon H. Silver Senior Managing Director Vice President
John Skistimas, Jr. Assistant Vice President None
Stuart C. Smith Assistant Vice President None
Peter J. Southard Vice President None
Steven Spiegel Senior Managing Director None
Nicholas T. Stanojev Senior Vice President None
Paul R. Stickney Vice President None
J. Bradely Stillwagon Vice President None
Casey Strumpf Senior Vice President None
Brian L. Sullivan Senior Vice President None
Elaine M. Sullivan Vice President None
Guy Sullivan Senior Vice President None
Kevin J. Sullivan Vice President None
Maryann Sullivan Assistant Vice President None
Moira Sullivan Vice President None
George C. Sutherland Vice President None
Maureen C. Tallon Vice President None
B. Iris Tanner Assistant Vice President None
April M. Tavares Assistant Vice President None
David S. Taylor Vice President None
John R. Telling Vice President None
Cynthia Tercha Vice President None
Tracy A. Thomas Assistant Vice President None
Richard B. Tibbetts Senior Vice President None
Patrice M. Tirado Vice President None
Janet E. Tosi Vice President None
Bonnie L. Troped Vice President None
Christine M. Twigg Assistant Vice President None
Douglas J. Vander Linde Senior Vice President None
John R. Verani Senior Vice President Vice President
Rajeshiri Vora Vice President None
Mitchell J. Waters Vice President None
Karen Waystack Assistant Vice President None
Dierdre West-Smith Assistant Vice President None
Brian Whalen Vice President None
Edward F. Whalen Senior Vice President None
Peter R. Wheeler Senior Vice President None
J. Gregg Whitaker Vice President None
J. Bennett White Vice President None
Robert A. Williams Vice President None
Leigh T. Williamson Vice President None
Jane Wolfson Senior Vice President None
Benjamin I. Woloshin Vice President None
William H. Woolverton Managing Director None
Michael P. Zeller Vice President None
Laura J. Zografos Vice President None
</TABLE>
<PAGE>
Item 30. Location of Accounts and Records
Persons maintaining physical possession of accounts, books
and other documents required to be maintained by Section 31(a) of
the
Investment Company Act of 1940 and the Rules promulgated
thereunder
are Registrant's Clerk, Beverly Marcus; Registrant's investment
adviser, Putnam Investment Management, Inc.; Registrant's
principal
underwriter, Putnam Mutual Funds Corp.; Registrant's custodian,
Putnam
Fiduciary Trust Company ("PFTC"); and Registrant's transfer and
dividend disbursing agent, Putnam Investor Services, a division
of
PFTC. The address of the Clerk, investment adviser, principal
underwriter, custodian and transfer and dividend disbursing agent
is
One Post Office Square, Boston, Massachusetts 02109.
Item 31. Management Services
None.
Item 32. Undertakings
(a) The Registrant undertakes to furnish to each person to
whom a prospectus of the Registrant is delivered a copy of the
Registrant's latest annual report to shareholders, upon request
and
without charge.
(b) Registrant hereby undertakes, if requested to do so by
the holders of at least 10% of its outstanding shares, to call a
meeting of shareholders for the purposes of voting upon the
question
of removal of a Trustee or Trustees and to assist in
communications
with other shareholders as required by Section 16(c) of the
Investment
Company Act of 1940.
----------------------------
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference
in the Prospectuses and Statements of Additional Information
constituting parts of this Post - Effective Amendment
No.
13 to the Registration Statement of Putnam Investment
Funds
on Form N-1A (File No. 811-7237 or 33-56339) of our report dated
November 11, 1997, on our audit of the financial statements
and
financial highlights of Putnam International New Opportunities
Fund, which report is included in the Annual Report
for
Putnam International New Opportunities Fund, and our
report
dated ___ on our audit of the financial statements and financial
highlights of Putnam Global Growth & Income
Fund which
report is included in the Annual Report for Putnam Global
Growth & Income Fund for the period ended September
30,
1997, which is incorporated by reference into
the
Registration Statement.
We also consent to the references to our firm under the
caption "Independent Accountants and Financial Statements" in
such
Statement of Additional Information and under the
headings
"Financial highlights" in such Prospectus.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 27, 1998
--------------------------
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust
of Putnam
Investment Funds, formerly known as Putnam Equity Funds, is on
file
with the Secretary of State of The Commonwealth of Massachusetts,
and
notice is hereby given that this instrument is executed on behalf
of
the Registrant by an officer of the Registrant as an officer and
not
individually and the obligations of or arising out of this
instrument
are not binding upon any of the Trustees, officers or
shareholders
individually but are binding only upon the assets and property of
the
relevant series of the Registrant.
POWER OF ATTORNEY
I, the undersigned Trustee of Putnam Investment Funds, hereby
severally constitute and appoint George Putnam, Charles E.
Porter,
Gordon H. Silver, Edward A. Benjamin, Timothy W. Diggins and John
W.
Gerstmayr, and each of them singly, my true and lawful attorneys,
with
full power to them and each of them, to sign for me, and in my
name
and in the capacity indicated below, the Registration Statement
on
Form N-1A of Putnam Investment Funds and any and all amendments
(including post-effective amendments) to said Registration
Statement
and to file the same with all exhibits thereto, and other
documents in
connection therewith, with the Securities and Exchange
Commission,
granting unto my said attorneys, and each of them acting alone,
full
power and authority to do and perform each and every act and
thing
requisite or necessary to be done in the premises, as fully to
all
intents and purposes as he might or could do in person, and
hereby
ratify and confirm all that said attorneys or any of them may
lawfully
do or cause to be done by virtue thereof.
WITNESS my hand and seal on the date set forth below.
Signature Title Date
/s/ W. Thomas Stephens
- --------------------- Trustee November 7,
1997
W. Thomas Stephens
<PAGE>
POWER OF ATTORNEY
I, the undersigned Trustee of Putnam Investment Funds, hereby
severally constitute and appoint George Putnam, Charles E.
Porter,
Gordon H. Silver, Edward A. Benjamin, Timothy W. Diggins and John
W.
Gerstmayr, and each of them singly, my true and lawful attorneys,
with
full power to them and each of them, to sign for me, and in my
name
and in the capacity indicated below, the Registration Statement
on
Form N-1A of Putnam Investment Funds and any and all amendments
(including post-effective amendments) to said Registration
Statement
and to file the same with all exhibits thereto, and other
documents in
connection therewith, with the Securities and Exchange
Commission,
granting unto my said attorneys, and each of them acting alone,
full
power and authority to do and perform each and every act and
thing
requisite or necessary to be done in the premises, as fully to
all
intents and purposes as he might or could do in person, and
hereby
ratify and confirm all that said attorneys or any of them may
lawfully
do or cause to be done by virtue thereof.
WITNESS my hand and seal on the date set forth below.
Signature Title Date
/s/ Paul L. Joskow
- --------------------- Trustee November 7, 1997
Paul L. Joskow
<PAGE>
POWER OF ATTORNEY
I, the undersigned Trustee of Putnam Investment Funds, hereby
severally constitute and appoint George Putnam, Charles E.
Porter,
Gordon H. Silver, Edward A. Benjamin, Timothy W. Diggins and John
W.
Gerstmayr, and each of them singly, my true and lawful attorneys,
with
full power to them and each of them, to sign for me, and in my
name
and in the capacity indicated below, the Registration Statement
on
Form N-1A of Putnam Investment Funds and any and all amendments
(including post-effective amendments) to said Registration
Statement
and to file the same with all exhibits thereto, and other
documents in
connection therewith, with the Securities and Exchange
Commission,
granting unto my said attorneys, and each of them acting alone,
full
power and authority to do and perform each and every act and
thing
requisite or necessary to be done in the premises, as fully to
all
intents and purposes as he might or could do in person, and
hereby
ratify and confirm all that said attorneys or any of them may
lawfully
do or cause to be done by virtue thereof.
WITNESS my hand and seal on the date set forth below.
Signature Title Date
/s/ John H. Mullin, III
- --------------------- Trustee November 7, 1997
John H. Mullin, III
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933
and the Investment Company Act of 1940, the Registrant
crtifies
that it meets all of the requirements of this Registration
Statement
pursuant to Rule 485(b) under the Securities Act of 1933 ans
has
duly caused this Amendment to its Registration Statement to be
signed
on its behalf by the undersigned, thereunto duly authorized, in
the
City of Boston, and The Commonwealth of Massachusetts, on the
27th day of January, 1998 .
PUTNAM INVESTMENT FUNDS
By: Gordon H. Silver, Vice
President
Pursuant to the requirements of the Securities
Act of 1933,
this Amendment to the Registration Statement of Putnam Investment
Funds has been signed below by the following persons in the
capacities
and on the dates indicated:
Signature Title
George Putnam President and Chairman of the
Board; Principal Executive Officer;
Trustee
William F. Pounds Vice Chairman; Trustee
John D. Hughes Senior Vice President; Treasurer
and Principal Financial Officer
Paul G. Bucuvalas Assistant Treasurer and
Principal
Accounting Officer
Jameson A. Baxter Trustee
Hans H. Estin Trustee
John A. Hill Trustee
Ronald J. Jackson Trustee
Paul L. Joskow Trustee
Elizabeth T. Kennan Trustee
Lawrence J. Lasser Trustee
John H. Mullin, III Trustee
Robert E. Patterson Trustee
Donald S. Perkins Trustee
George Putnam, III Trustee
A.J.C. Smith Trustee
W. Thomas Stephens Trustee
W. Nicholas Thorndike Trustee
By: Gordon H. Silver,
as Attorney-
in-Fact
January 27, 1998
<PAGE>
EXHIBIT LIST
16. Schedules for computation of performance quotations
- --Exhibit 1.
17a. Financial Data Schedule for Putnam Global Growth and
Income Fund
-- Class A shares -- Exhibit 2.
17d.Financial Data Schedule for Putnam International New
Opportunities Fund -- Class A shares -- Exhibit 3.
17e. Financial Data Schedule for Putnam International New
Opportunities Fund -- Class B shares -- Exhibit 4.
17f. Financial Data Schedule for Putnam International New
Opportunities Fund -- Class M shares -- Exhibit 5.
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Global Growth and Income Fund -- Class A
Shares Fiscal period ending: September 30, 1997
Inception date (if less than 10 years of performance): 1/3/95
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 N/A $1,000
ERV = Ending Redeemable Value $1,261 N/A $1,662
T = Average Annual
Total Return 26.15% N/A 20.37%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $6,137
Expenses $2,666
Reimbursement $0
Average shares 230,853
NAV $12.50
Sales Charge 5.75%
POP $13.26
Yield at POP 1.36%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name:Putnam International New Opportunities Fund
-- Class A Shares
Fiscal period ending: 9/30/97
Inception date (if less than 10 years of performance):
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1000 $1000 $1000
ERV = Ending Redeemable Value $1100.58 $ $1515.05
T = Average Annual
Total Return 10.06% 16.37%*
*Life of fund, if less than 10 years
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name:Putnam International New Opportunities Fund -- Class B
Shares Fiscal period ending: 9/30/97
Inception date (if less than 10 years of performance):
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1000 $1000 $1000
ERV = Ending Redeemable Value $1108.68 $ $1546.30
T = Average Annual
Total Return 10.87 % % 17.24%*
*Life of fund, if less than 10 years
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name:Putnam International New Opportunities Fund
-- Class M Shares
Fiscal period ending:9/30/97
Inception date (if less than 10 years of performance):
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1000 $1000 $1000
ERV = Ending Redeemable Value $1120.80 $ $1532.14
T = Average Annual
Total Return 12.08% % 16.85%*
*Life of fund, if less than 10 years
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Global Growth and Income Fund
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 2,422,972
<INVESTMENTS-AT-VALUE> 2,907,661
<RECEIVABLES> 36,895
<ASSETS-OTHER> 4,793
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,949,349
<PAYABLE-FOR-SECURITIES> 35,350
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,594
<TOTAL-LIABILITIES> 63,944
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,036,363
<SHARES-COMMON-STOCK> 230,852
<SHARES-COMMON-PRIOR> 192,811
<ACCUMULATED-NII-CURRENT> 59,193
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 313,158
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 476,691
<NET-ASSETS> 2,885,405
<DIVIDEND-INCOME> 61,202
<INTEREST-INCOME> 154
<OTHER-INCOME> 0
<EXPENSES-NET> 31,989
<NET-INVESTMENT-INCOME> 29,367
<REALIZED-GAINS-CURRENT> 358,837
<APPREC-INCREASE-CURRENT> 327,464
<NET-CHANGE-FROM-OPS> 808,518
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (44,540)
<DISTRIBUTIONS-OF-GAINS> (252,586)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,348
<NUMBER-OF-SHARES-REDEEMED> (7,804)
<SHARES-REINVESTED> 29,497
<NET-CHANGE-IN-ASSETS> 715,668
<ACCUMULATED-NII-PRIOR> 33,002
<ACCUMULATED-GAINS-PRIOR> 247,645
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19,817
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 36,567
<AVERAGE-NET-ASSETS> 2,477,091
<PER-SHARE-NAV-BEGIN> 10.77
<PER-SHARE-NII> .14
<PER-SHARE-GAIN-APPREC> 3.13
<PER-SHARE-DIVIDEND> (.23)
<PER-SHARE-DISTRIBUTIONS> (1.31)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.50
<EXPENSE-RATIO> 1.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam International New Opportunities Fund
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 1,932,037,323
<INVESTMENTS-AT-VALUE> 2,060,442,683
<RECEIVABLES> 51,794,630
<ASSETS-OTHER> 8,860,717
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,121,098,030
<PAYABLE-FOR-SECURITIES> 56,244,671
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 33,552,417
<TOTAL-LIABILITIES> 89,797,088
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,740,529,223
<SHARES-COMMON-STOCK> 63,237,171
<SHARES-COMMON-PRIOR> 42,718,392
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,783,266)
<ACCUMULATED-NET-GAINS> 161,814,409
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 130,740,576
<NET-ASSETS> 2,031,300,942
<DIVIDEND-INCOME> 19,260,449
<INTEREST-INCOME> 4,698,882
<OTHER-INCOME> 0
<EXPENSES-NET> 34,730,196
<NET-INVESTMENT-INCOME> (10,770,865)
<REALIZED-GAINS-CURRENT> 181,709,608
<APPREC-INCREASE-CURRENT> 64,679,226
<NET-CHANGE-FROM-OPS> 235,617,969
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,892,656)
<DISTRIBUTIONS-OF-GAINS> (97,836)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 80,897,377
<NUMBER-OF-SHARES-REDEEMED> (60,533,499)
<SHARES-REINVESTED> 154,879
<NET-CHANGE-IN-ASSETS> 906,594,343
<ACCUMULATED-NII-PRIOR> 1,194,327
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (8,280,075)
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<GROSS-EXPENSE> 35,601,171
<AVERAGE-NET-ASSETS> 711,180,193
<PER-SHARE-NAV-BEGIN> 11.69
<PER-SHARE-NII> (.03)
<PER-SHARE-GAIN-APPREC> 1.98
<PER-SHARE-DIVIDEND> (.04)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.60
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam International New Opportunities Fund
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 1,932,037,323
<INVESTMENTS-AT-VALUE> 2,060,442,683
<RECEIVABLES> 51,794,630
<ASSETS-OTHER> 8,860,717
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,121,098,030
<PAYABLE-FOR-SECURITIES> 56,244,671
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<OTHER-ITEMS-LIABILITIES> 33,552,417
<TOTAL-LIABILITIES> 89,797,088
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,740,529,223
<SHARES-COMMON-STOCK> 80,286,352
<SHARES-COMMON-PRIOR> 49,371,250
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,783,266)
<ACCUMULATED-NET-GAINS> 161,814,409
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 130,740,576
<NET-ASSETS> 2,031,300,942
<DIVIDEND-INCOME> 19,260,449
<INTEREST-INCOME> 4,698,882
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<EXPENSES-NET> 34,730,196
<NET-INVESTMENT-INCOME> (10,770,865)
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<APPREC-INCREASE-CURRENT> 64,679,226
<NET-CHANGE-FROM-OPS> 235,617,969
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (115,551)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 41,621,976
<NUMBER-OF-SHARES-REDEEMED> (10,714,741)
<SHARES-REINVESTED> 7,867
<NET-CHANGE-IN-ASSETS> 906,594,343
<ACCUMULATED-NII-PRIOR> 1,194,327
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (8,280,075)
<GROSS-ADVISORY-FEES> 18,159,774
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 35,601,171
<AVERAGE-NET-ASSETS> 858,871,399
<PER-SHARE-NAV-BEGIN> 11.61
<PER-SHARE-NII> (.13)
<PER-SHARE-GAIN-APPREC> 1.97
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.45
<EXPENSE-RATIO> 2.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam International New Opportunities Fund
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> CLASS M
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 1,932,037,323
<INVESTMENTS-AT-VALUE> 2,060,442,683
<RECEIVABLES> 51,794,630
<ASSETS-OTHER> 8,860,717
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,121,098,030
<PAYABLE-FOR-SECURITIES> 56,244,671
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 33,552,417
<TOTAL-LIABILITIES> 89,797,088
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,740,529,223
<SHARES-COMMON-STOCK> 6,763,030
<SHARES-COMMON-PRIOR> 4,483,224
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,783,266)
<ACCUMULATED-NET-GAINS> 161,814,409
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 130,740,576
<NET-ASSETS> 2,031,300,942
<DIVIDEND-INCOME> 19,260,449
<INTEREST-INCOME> 4,698,882
<OTHER-INCOME> 0
<EXPENSES-NET> 34,730,196
<NET-INVESTMENT-INCOME> (10,770,865)
<REALIZED-GAINS-CURRENT> 181,709,608
<APPREC-INCREASE-CURRENT> 64,679,226
<NET-CHANGE-FROM-OPS> 235,617,969
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (20,814)
<DISTRIBUTIONS-OF-GAINS> (10,409)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,840,971
<NUMBER-OF-SHARES-REDEEMED> (1,563,309)
<SHARES-REINVESTED> 2,144
<NET-CHANGE-IN-ASSETS> 906,594,343
<ACCUMULATED-NII-PRIOR> 1,194,327
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (8,280,075)
<GROSS-ADVISORY-FEES> 18,159,774
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 35,601,171
<AVERAGE-NET-ASSETS> 75,262,949
<PER-SHARE-NAV-BEGIN> 11.64
<PER-SHARE-NII> (.10)
<PER-SHARE-GAIN-APPREC> 1.98
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.51
<EXPENSE-RATIO> 2.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
