Prospectus
January 30, 2000, as revised March 30, 2000
Putnam Balanced Fund
Class A, B, C and M shares
Investment Category: Growth and Income
This prospectus explains what you should know about this mutual fund
before you invest. Please read it carefully.
Putnam Investment Management, Inc. (Putnam Management), which has managed
mutual funds since 1937, manages the fund.
These securities have not been approved or disapproved by the Securities
and Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this prospectus. Any statement to the contrary is a crime.
CONTENTS
2 Fund summary
2 Goal
2 Main investment strategies
2 Main risks
3 Performance information
4 Fees and expenses
6 What are the fund's main investment strategies and related risks?
9 Who manages the fund?
10 How does the fund price its shares?
11 How do I buy fund shares?
14 How do I sell fund shares?
15 How do I exchange fund shares?
16 Fund distributions and taxes
17 Financial highlights
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Fund summary
GOAL
The fund seeks capital growth and current income.
MAIN INVESTMENT STRATEGIES -- GROWTH STOCKS AND BONDS
We invest mainly in a combination of bonds and U.S. growth stocks, with a
greater focus on growth stocks. Growth stocks are issued by companies that
we believe are fast-growing and whose earnings we believe are likely to
increase over time. Growth in earnings may lead to an increase in the price
of the stock. We buy bonds of governments and private companies. These
bonds are mostly investment-grade in quality with intermediate- to
long-term maturities (three years or longer). We invest in midsized and
large companies.
MAIN RISKS
The main risks that could adversely affect the value of this fund's shares
and the total return on your investment include:
* The risk that the stock price of one or more of the companies in the
fund's portfolio will fall, or will fail to rise. Many factors can
adversely affect a stock's performance, including both general financial
market conditions and factors related to a specific company or industry.
This risk is generally greater for small and midsized companies, which tend
to be more vulnerable to adverse developments.
* The risk that movements in financial markets will adversely affect the
price of the fund's investments, regardless of how well the companies in
which we invest perform. The market as a whole may not favor the types of
investments we make.
* The risk that prices of bonds we buy will fall if interest rates rise.
Interest rate risk is generally higher for investments with longer
maturities.
* The risk that issuers of bonds we buy will not make timely payments of
interest and principal. This credit risk is generally higher for debt that
is below investment-grade in quality.
* The risk that our allocation of investments between stocks and bonds may
adversely affect the fund's performance.
You can lose money by investing in the fund. The fund may not achieve its
goal, and is not intended as a complete investment program. An investment
in the fund is not a deposit in a bank and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
PERFORMANCE INFORMATION
The following information provides some indication of the fund's risks. The
chart shows year-to-year changes in the performance of one of the fund's
classes of shares, class A shares. The table following the chart compares
the fund's performance to that of two broad measures of market performance.
Of course, a fund's past performance is not an indication of future
performance.
[GRAPHIC OMITTED: vertical bar chart CALENDAR YEAR TOTAL RETURNS FOR CLASS A
SHARES]
CALENDAR YEAR TOTAL RETURNS FOR CLASS A SHARES
1995 30.06%
1996 13.75%
1997 21.39%
1998 26.94%
1999 26.97%
Performance figures in the bar chart do not reflect the impact of sales
charges. If they did, performance would be less than that shown. During the
periods shown in the bar chart, the highest return for a quarter was 20.54%
(quarter ending 12/31/99) and the lowest return for a quarter was -5.77%
(quarter ending 9/30/98).
Average Annual Total Returns (for periods ending 12/31/99)
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Since
Past inception
1 year (1/3/95)
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Class A 19.69% 22.27%
Class B 21.02% 22.53%
Class C 25.02% 22.80%
Class M 21.92% 22.23%
Standard & Poor's 500
Composite Stock Index 21.04% 28.56%
Russell 1000 [REGISTRATION MARK] Growth Index 33.16% 32.42%
Lehman Brothers Intermediate
Treasury Bond Index 0.40% 6.92%
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Unlike the bar chart, this performance information reflects the impact of
sales charges. Both class A and class M share performance reflect the
current maximum initial sales charges; both class B and class C share
performance reflect the maximum applicable deferred sales charge if shares
had been redeemed on 12/31/99. For periods before the inception of class B
shares, class C shares and class M shares, performance shown for these
classes in the table is based on the performance of the fund's class A
shares, adjusted to reflect the appropriate sales charge and the higher
12b-1 fees paid by the class B, class C and class M shares. The fund's
performance benefited from Putnam Management's agreement (since inception)
to limit the fund's expenses. The fund's performance is compared to the
Standard & Poor's 500 Composite Stock Index, an unmanaged index of common
stocks that is frequently used as a general measure of stock market
performance, the Russell 1000 [REGISTRATION MARK] Growth Index measures the
performance of those Russell 1000 companies with higher price-to-book ratios
and higher forecasted growth values and the Lehman Brothers Intermediate
Treasury Bond Index, 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.
FEES AND EXPENSES
This table summarizes the fees and expenses you may pay if you invest in
the fund. Except as noted, expenses are based on the fund's last fiscal
year.
Shareholder Fees (fees paid directly from your investment)
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Class A Class B Class C Class M
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Maximum Sales Charge
(Load) Imposed
on Purchases
(as a percentage
of the offering price) 5.75% NONE NONE 3.25%
Maximum Deferred
Sales Charge (Load)
(as a percentage of the
original purchase price
or redemption proceeds,
whichever is lower) NONE* 5.00% 1.00% NONE
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Annual Fund Operating Expenses**
(expenses that are deducted from fund assets)
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Total
Annual
Fund
Management Distribution Other Operating Expense Net
Fees (12b-1) Fees Expenses Expenses Reimbursement Expenses
- -------------------------------------------------------------------------------
Class A 0.65% 0.25% 1.68% 2.58% -1.45% 1.13%
Class B 0.65% 1.00% 1.68% 3.33% -1.45% 1.88%
Class C 0.65% 1.00% 1.68% 3.33% -1.45% 1.88%
Class M 0.65% 0.75% 1.68% 3.08% -1.45% 1.63%
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* A deferred sales charge of up to 1% may be imposed on certain redemptions
of class A shares bought without an initial sales charge.
** Reflects Putnam Management's contractual obligation to limit fund expenses
through September 30, 2000 and the activation of the fund's 12b-1 fees.
EXAMPLE
The example translates the expenses shown in the preceding table into
dollar amounts. By doing this, you can more easily compare the cost of
investing in the fund to the cost of investing in other mutual funds. The
example makes certain assumptions. It assumes that you invest $10,000 in
the fund for the time periods shown and then, except as shown for class B
and class C shares, redeem all your shares at the end of those periods. It
also assumes a 5% return on your investment each year and that the fund's
operating expenses remain the same. The example is hypothetical; your
actual costs and returns may be higher or lower.
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1 year 3 years 5 years 10 years
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Class A $684 $1,201 $1,744 $3,220
Class B $691 $1,189 $1,811 $3,352*
Class B
(no redemption) $191 $ 889 $1,611 $3,352*
Class C $291 $ 889 $1,611 $3,524
Class C
(no redemption) $191 $ 889 $1,611 $3,524
Class M $485 $1,113 $1,766 $3,509
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* Reflects the conversion of class B shares to class A shares, which pay
lower 12b-1 fees. Conversion occurs no more than eight years after
purchase.
What are the fund's main investment strategies and related risks?
Any investment carries with it some level of risk that generally reflects
its potential for reward. We pursue the fund's goal by investing mainly in
bonds and growth stocks. We will consider, among other things, a company's
financial strength, competitive position in its industry, projected future
earnings, cash flows and dividends when deciding whether to buy or sell
investments. A description of the risks associated with the fund's main
investment strategies follows.
* Common stocks. Common stock represents an ownership interest in a
company. The value of a company's stock may fall as a result of factors
relating directly to that company, such as decisions made by its management
or lower demand for the company's products or services. A stock's value may
also fall because of factors affecting not just the company, but also
companies in the same industry or in a number of different industries, such
as increases in production costs. The value of a company's stock may also
be affected by changes in financial markets that are relatively unrelated
to the company or its industry, such as changes in interest rates or
currency exchange rates. In addition, a company's stock generally pays
dividends only after the company invests in its own business and makes
required payments to holders of its bonds and other debt. For this reason,
the value of a company's stock will usually react more strongly than bonds
and other debt to actual or perceived changes in the company's financial
condition or prospects. Stocks of smaller companies may be more vulnerable
to adverse developments than those of larger companies.
We seek to purchase stock that trades at a higher multiple of current
earnings than other stocks. The value of such stocks may be more sensitive
to changes in current or expected earnings than the values of other stocks.
If our assessment of the prospects for a company's earnings growth is
wrong, or if our judgment of how other investors will value the company's
earnings growth is wrong, then the price of the company's stock may fall or
not approach the value that we have placed on it.
* Interest rate risk. The values of bonds and other debt usually rise and
fall in response to changes in interest rates. Declining interest rates
generally increase the values of existing debt instruments, and rising
interest rates generally decrease them. Changes in a debt instrument's
value usually will not affect the amount of interest income paid to the
fund, but will affect the value of the fund's shares. Interest rate risk is
generally greater for investments with longer maturities.
Some securities give the issuer the option to call, or redeem these
investments before their maturity date. If an issuer "calls" its securities
during a time of declining interest rates, we might have to reinvest the
proceeds in an investment offering a lower yield, and therefore might not
benefit from any increase in value as a result of declining interest rates.
"Premium" investments offer interest rates higher than prevailing market
rates. However, they involve a greater risk of loss, because their values
tend to decline over time. You may find it useful to compare the fund's
yield, which factors out the effect of premium investments, with its
current dividend rate, which does not factor out that effect.
* Credit risk. Investors normally expect to be compensated in proportion to
the risk they are assuming. Thus, debt of issuers with poor credit
prospects usually offers higher yields than debt of issuers with more
secure credit. Higher-rated investments generally have lower credit risk.
We invest mostly in investment-grade debt investments. These are rated at
least BBB or its equivalent at the time of purchase by a nationally
recognized securities rating agency, or are unrated investments that we
believe are of comparable quality. We may invest up to 20% of the fund's
total assets in non investment-grade investments. However, we will not
invest in securities rated lower than B or its equivalent by each rating
agency rating the investment or unrated securities that we believe are of
comparable quality. We will not necessarily sell an investment if its
rating is reduced after we buy it.
Investments rated below BBB or its equivalent are known as "junk bonds."
This rating reflects a greater possibility that the issuers may be unable
to make timely payments of interest and principal and thus default. If this
happens, or is perceived as likely to happen, the values of those
investments are likely to fall. A default or expected default could also
make it difficult for us to sell the investments at prices approximating
the values we had previously placed on them. Credit risk is generally
greater for investments that are issued at less than their face value and
that require payments of interest only at maturity rather than at intervals
during the life of the investment.
Although investment grade investments generally have lower credit risk,
they may share some of the risks of non-investment grade investments.
* Mortgage-backed investments. Traditional debt investments typically pay a
fixed rate of interest until maturity, when the entire principal amount is
due. By contrast, payments on mortgage-backed investments typically include
both interest and partial payment of principal. Principal may also be
prepaid voluntarily, or as a result of refinancing or foreclosure. We may
have to invest the proceeds from prepaid investments in other investments
with less attractive terms and yields. Compared to other debt,
mortgage-backed investments are less likely to increase in value during
periods of declining interest rates and have a higher risk of decline in
value during periods of rising interest rates. They may increase the
volatility of a fund. Some mortgage-backed investments receive only the
interest portion or the principal portion of payments on the underlying
mortgages. The yields and values of these investments are extremely
sensitive to changes in interest rates and in the rate of principal
payments on the underlying mortgages. The market for these investments may
be volatile and limited, which may make it difficult to buy or sell them.
* Foreign investments. We may invest in securities of foreign issuers.
Foreign investments involve certain special risks. For example, their
values may decline in response to changes in currency exchange rates,
unfavorable political and legal developments, unreliable or untimely
information, and economic and financial instability. In addition, the
liquidity of these investments may be more limited than for U.S.
investments, which means we may at times be unable to sell them at
desirable prices. Foreign settlement procedures may also involve additional
risks. These risks are generally greater in the case of developing (also
known as emerging) markets with less developed legal and financial systems.
Certain of these risks may also apply to U.S. investments that are
denominated in foreign currencies or that are traded in foreign markets, or
to securities of U.S. companies that have significant foreign operations.
* Smaller companies. We may invest in smaller and mid-sized companies.
Smaller companies, which may have a market capitalization of less than $1
billion, are more likely than larger companies to have limited product
lines, markets or financial resources, or to depend on a small,
inexperienced management group. Stocks of these companies often trade less
frequently and in limited volume, and their prices may fluctuate more than
stocks of larger companies. Stocks of smaller and mid-sized companies may
therefore be more vulnerable to adverse developments than those of larger
companies.
* Frequent trading. We may buy and sell investments relatively often, which
involves higher brokerage commissions and other expenses, and may increase
the amount of taxes payable by shareholders.
* Other investments. In addition to the main investment strategies
described above, we may make other investments, such as investments in
preferred stocks, convertible securities, asset-backed securities and
derivatives, which may be subject to other risks, as described in the
fund's statement of additional information (SAI).
* Alternative strategies. At times we may judge that market conditions make
pursuing the fund's usual investment strategies inconsistent with the best
interests of its shareholders. We then may temporarily use alternative
strategies that are mainly designed to limit losses. However, we may choose
not to use these strategies for a variety of reasons, even in very volatile
market conditions. These strategies may cause the fund to miss out on
investment opportunities, and may prevent the fund from achieving its goal.
* Changes in policies. The fund's Trustees may change the fund's goal,
investment strategies and other policies without shareholder approval,
except as otherwise indicated.
Who manages the fund?
The fund's Trustees oversee the general conduct of the fund's business. The
Trustees have retained Putnam Management to be the fund's investment
manager, responsible for making investment decisions for the fund and
managing the fund's other affairs and business. The fund pays Putnam
Management a quarterly management fee for these services based on the
fund's average net assets. The fund paid Putnam Management a management fee
of 0.65% of average net assets for the fund's last fiscal year. Due to the
expense limitation in effect during the fiscal year, the fund was
reimbursed for the full amount of the management fee. See "Annual Fund
Operating Expenses." Putnam Management's address is One Post Office Square,
Boston, MA 02109.
The following officers of Putnam Management have had primary responsibility
for the day-to-day management of the fund's portfolio since the years shown
below. Their experience as portfolio managers or investment analysts over
at least the last five years is also shown.
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Manager Since Experience
- -----------------------------------------------------------------------------
David Santos 1999 1986 - Present Putnam Management
Senior Vice President
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Manuel Weiss 1998 1987 - Present Putnam Management
Senior Vice President
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Michael Martino 2000 1994 - Present Putnam Management
Vice President
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How does the fund price its shares?
The price of the fund's shares is based on its net asset value (NAV). The
NAV per share of each class equals the total value of its assets, less its
liabilities, divided by the number of its outstanding shares. Shares are
only valued as of the close of regular trading on the New York Stock
Exchange each day the exchange is open.
The fund values its investments for which market quotations are readily
available at market value. It values short-term investments that will
mature within 60 days at amortized cost, which approximates market value.
It values all other investments and assets at their fair value.
The fund translates prices for its investments quoted in foreign currencies
into U.S. dollars at current exchange rates. As a result, changes in the
value of those currencies in relation to the U.S. dollar may affect the
fund's NAV. Because foreign markets may be open at different times than the
New York Stock Exchange, the value of the fund's shares may change on days
when shareholders are not able to buy or sell them. If events materially
affecting the values of the fund's foreign investments occur between the
close of foreign markets and the close of regular trading on the New York
Stock Exchange, these investments will be valued at their fair value.
How do I buy fund shares?
You can open a fund account with as little as $500 and make additional
investments at any time with as little as $50 ($25 through systematic
investing). The fund sells its shares at the offering price, which is the
NAV plus any applicable sales charge. Your financial advisor or Putnam
Investor Services generally must receive your completed buy order before
the close of regular trading on the New York Stock Exchange for your shares
to be bought at that day's offering price.
You can buy shares:
* Through a financial advisor. Your advisor will be responsible for
furnishing all necessary documents to Putnam Investor Services, and may
charge you for his or her services.
* 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 through your advisor or
Putnam Investor Services at 1-800-225-1581.
You may also complete an order form and write a check for the amount you
wish to invest, payable to the fund. Return the check and completed form to
Putnam Mutual Funds.
The fund may periodically close to new purchases of shares or refuse any
order to buy shares if the fund determines that doing so would be in the
best interests of the fund and its shareholders.
WHICH CLASS OF SHARES IS BEST FOR ME?
This prospectus offers you a choice of four classes of fund shares: A, B, C
and M. This allows you to choose among different types of sales charges and
different levels of ongoing operating expenses, as illustrated in the "Fees
and expenses" section. The class of shares that is best for you depends on
a number of factors, including the amount you plan to invest and how long
you plan to hold the shares. Here is a summary of the differences among the
classes of shares:
Class A shares
* Initial sales charge of up to 5.75%
* Lower sales charge for investments of $50,000 or more
* No deferred sales charge (except on certain redemptions of shares bought
without an initial sales charge)
* Lower annual expenses, and higher dividends, than class B, C or M shares
because of lower 12b-1 fee
Class B shares
* No initial sales charge; your entire investment goes to work for you
* Deferred sales charge of up to 5.00% if you sell shares within 6 years
after purchase
* Higher annual expenses, and lower dividends, than class A or M shares
because of higher 12b-1 fee
* Convert automatically to class A shares after 8 years, reducing the
future 12b-1 fee (may convert sooner in some cases)
* Orders for class B shares for $250,000 or more are treated as orders for
class A shares or refused
Class C shares
* No initial sales charge; your entire investment goes to work for you
* Deferred sales charge of 1.00% if you sell shares within one year after
purchase
* Higher annual expenses, and lower dividends, than class A or M shares
because of higher 12b-1 fee
* No conversion to class A shares, so future 12b-1 fee does not decrease
* Orders of $1,000,000 or more and orders that, because of a right of
accumulation or statement of intent, would qualify for the purchase of
class A shares without an initial sales charge will be treated as orders
for class A shares or refused
Class M shares
* Initial sales charge of up to 3.50%
* Lower sales charge for investments of $50,000 or more
* No deferred sales charge
* Lower annual expenses, and higher dividends, than class B or C shares
because of lower 12b-1 fee
* Higher annual expenses, and lower dividends, than class A shares because
of higher 12b-1 fee
* No conversion to class A shares, so future 12b-1 fee does not decrease
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Initial sales charges for class A and M shares
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Class A sales charge Class M sales charge
as a percentage of: as a percentage of:
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Amount of purchase Net amount Offering Net amount Offering
at offering price ($) invested price* invested price*
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Under 50,000 6.10% 5.75% 3.63% 3.50%
50,000 but under
100,000 4.71 4.50 2.56 2.50
100,000 but under
250,000 3.63 3.50 1.52 1.50
250,000 but under
500,000 2.56 2.50 1.01 1.00
500,000 but under
1,000,000 2.04 2.00 NONE NONE
1,000,000 and above NONE NONE NONE NONE
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* Offering price includes sales charge.
Deferred sales charges for class B, class C and certain class A shares
If you sell (redeem) class B shares within six years after you bought them,
you will generally pay a deferred sales charge according to the following
schedule.
Year after purchase 1 2 3 4 5 6 7+
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Charge 5% 4% 3% 3% 2% 1% 0%
A deferred sales charge of 1% will apply to class C shares if redeemed
within one year of purchase. A deferred sales charge of up to 1% may apply
to class A shares purchased without an initial sales charge, if redeemed
within two years of purchase.
Deferred sales charges will be based on the lower of the shares' cost and
current NAV. Shares not subject to any charge will be redeemed first,
followed by shares held longest. You may sell shares acquired by
reinvestment of distributions without a charge at any time.
* You may be eligible for reductions and waivers of sales charges. Sales
charges may be reduced or waived under certain circumstances and for
certain groups. Information about reductions and waivers of sales charges
is included in the SAI. You may consult your financial advisor or Putnam
Mutual Funds for assistance.
* Distribution (12b-1) plans. The fund has adopted distribution plans to
pay for the marketing of fund shares and for services provided to
shareholders. The plans provide for payments at annual rates of up to 0.35%
of the fund's average net assets on class A shares and 1.00% on class B,
class C 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. Because these fees are paid out of the fund's assets on an
ongoing basis, they will increase the cost of your investment. The higher
fees for class B, class C and class M shares may cost you more than paying
the initial sales charge for class A shares. Because class C and class M
shares, unlike class B shares, do not convert to class A shares, class C
and class M shares may cost you more over time than class B shares.
How do I sell fund shares?
You can sell your shares back to the fund any day the New York Stock
Exchange is open, either through your financial advisor or directly to the
fund. Payment for redemptions may be delayed until the fund collects the
purchase price of shares, which may take up to 15 calendar days after the
purchase date.
* Selling shares through your financial advisor. Your advisor must receive
your request in proper form before the close of regular trading on the New
York Stock Exchange for you to receive that day's NAV, less any applicable
deferred sales charge. Your advisor will be responsible for furnishing all
necessary documents to Putnam Investor Services on a timely basis and may
charge you for his or her services.
* Selling shares directly to the fund. Putnam Investor Services must
receive your request in proper form before the close of regular trading on
the New York Stock Exchange in order to receive that day's NAV, less any
applicable sales charge.
By mail. Send a letter of instruction signed by all registered owners or
their legal representatives to Putnam Investor Services. If you have
certificates for the shares you want to sell, you must include them along
with completed stock power forms.
By telephone. You may use Putnam's telephone redemption privilege to redeem
shares valued at less than $100,000 unless you have notified Putnam
Investor Services of an address change within the preceding 15 days, in
which case other requirements may apply. Unless you indicate otherwise on
the account application, Putnam Investor Services will be authorized to
accept redemption instructions received by telephone.
The telephone redemption privilege is not available if there are
certificates for your shares. The telephone redemption privilege may be
modified or terminated without notice.
* Additional requirements. In certain situations, for example, if you sell
shares with a value of $100,000 or more, the signatures of all registered
owners or their legal representatives must be guaranteed by a bank,
broker-dealer or certain other financial institutions. In addition, Putnam
Investor Services usually requires additional documents for the sale of
shares by a corporation, partnership, agent or fiduciary, or a surviving
joint owner. For more information concerning Putnam's signature guarantee
and documentation requirements, contact Putnam Investor Services.
* When will the fund pay me? The 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.
* Redemption by the fund. If you own fewer shares than the minimum set by
the Trustees (presently 20 shares), the fund may redeem your shares without
your permission and send you the proceeds. The fund may also redeem shares
if you own more than a maximum amount set by the Trustees. There is
presently no maximum, but the Trustees could set a maximum that would apply
to both present and future shareholders.
How do I exchange fund shares?
If you want to switch your investment from one Putnam fund to another, you
can exchange your fund shares for shares of the same class of another
Putnam fund at NAV. Not all Putnam funds offer all classes of shares or are
open to new investors. If you exchange shares subject to a deferred sales
charge, the transaction will not be subject to the deferred sales charge.
When you redeem the shares acquired through the exchange, the redemption
may be subject to the deferred sales charge, depending upon when you
originally purchased the shares. The deferred sales charge 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 deferred sales charge
applicable to your class of shares. For purposes of computing the deferred
sales charge, 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
subsequent exchanges among funds.
To exchange your shares, complete an Exchange Authorization Form and send
it to Putnam Investor Services. The form is available from Putnam Investor
Services. A telephone exchange privilege is currently available for amounts
up to $500,000. The telephone exchange privilege is not available if the
fund issued certificates for your shares. Ask your financial advisor or
Putnam Investor Services for prospectuses of other Putnam funds. Some
Putnam funds are not available in 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 otherwise to promote the best interests of the fund,
the fund reserves the right to revise or terminate the exchange privilege,
limit the amount or number of exchanges or reject any exchange. The fund
into which you would like to exchange may also reject your exchange. These
actions may apply to all shareholders or only to those shareholders whose
exchanges Putnam Management determines are likely to have a negative effect
on the fund or other Putnam funds. Consult Putnam Investor Services before
requesting an exchange.
Fund distributions and taxes
The fund normally distributes any net investment income quarterly and any
net realized capital gains annually. You may choose to:
* reinvest all distributions in additional shares;
* receive any distributions from net investment income in cash while
reinvesting capital gains distributions in additional shares; or
* receive all distributions in cash.
If you do not select an option when you open your account, all
distributions will be reinvested. If you do not cash a distribution check
within a specified period or notify Putnam Investor Services to issue a new
check, the distribution will be reinvested in the fund. You will not
receive any interest on uncashed distribution or redemption checks.
Similarly, if any 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's investments in certain debt obligations may cause the fund to
recognize taxable income in excess of the cash generated by such
obligations. Thus, the fund could be required at times to liquidate other
investments in order to satisfy its distribution requirements.
For federal income tax purposes, distributions of investment income are
taxable as ordinary income. Taxes on distributions of capital gains are
determined by how long the fund owned the investments that generated them,
rather than how long you have owned your shares. Distributions are taxable
to you even if they are paid from income or gains earned by the fund before
your investment (and thus were included in the price you paid).
Distributions of gains from investments that the fund owned for more than
one year will be taxable as capital gains. Distributions of gains from
investments that the fund owned for one year or less will be taxable as
ordinary income. Distributions are taxable whether you received them in
cash or reinvested them in additional shares.
The fund's investments in foreign securities may be subject to foreign
withholding taxes. In that case, the fund's return on those investments
would be decreased. Shareholders generally will not be entitled to claim a
credit or deduction with respect to foreign taxes. In addition, the fund's
investment in foreign securities or foreign currencies may increase the
amount of taxes payable by shareholders.
Any gain resulting from the sale or exchange of your shares will generally
also be subject to tax. You should consult your tax advisor for more
information on your own tax situation, including possible foreign, state
and local taxes.
Financial highlights
The financial highlights table for class A shares is intended to help you
understand the fund's recent financial performance. No class B, class C or
class M shares were outstanding during the periods. Certain information
reflects financial results for a single fund share. The total returns
represent the rate that an investor would have earned or lost on an
investment in the fund, assuming reinvestment of all dividends and
distributions. This information has been derived from the fund's financial
statements, which have been audited by PricewaterhouseCoopers LLP. Its
report and the fund's financial statements are included in the fund's
annual report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
For the
period
Jan. 3,
1995+ to
Year ended September 30 Sept. 30
---------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.92 $11.90 $11.03 $10.56 $8.50
- -------------------------------------------------------------------------------
Investment operations
Net investment incomea .25cd .22c .25 .29 .23
Net realized and unrealized
gain on investments 2.02 1.05 2.16 1.18 1.83
- -------------------------------------------------------------------------------
Total from investment
operations 2.27 1.27 2.41 1.47 2.06
- -------------------------------------------------------------------------------
Less distributions:
From net investment income (.22) (.25) (.27) (.35) --
From net realized gain on
investments (1.34) (1.00) (1.27) (.65) --
- -------------------------------------------------------------------------------
Total distributions (1.56) (1.25) (1.54) (1.00) --
- -------------------------------------------------------------------------------
Net asset value,
end of period $12.63 $11.92 $11.90 $11.03 $10.56
- -------------------------------------------------------------------------------
Ratios and supplemental
data
Total return at
net asset value (%)b 20.25 12.18 24.58 15.01 24.24*
Net assets, end of period
(in thousands) $3,967 $3,147 $2,769 $2,246 $1,951
- -------------------------------------------------------------------------------
Ratio of expenses to
average net assets
(%)ac .78 .77 .71 .73 .54*
Ratio of net investment
income to average net
assets (%)a 2.05 1.82 2.29 2.72 2.44*
Portfolio turnover (%) 123.90 139.55 151.15 170.75 95.15*
- -------------------------------------------------------------------------------
+ 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, 1999,
1998, 1997, 1996 and 1995 reflect a reduction of $0.19, $0.13, $0.12, $0.15,
and $0.23 per share, respectively.
b Total return assumes dividend reinvestment and does not reflect the effect of
sales charges.
c The ratio of expenses to average net assets includes amounts paid through
expense offset arrangements.
d Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
</TABLE>
Glossary of terms
- ------------------------------------------------------------------------------
Bond An IOU issued by a government or corporation that
usually pays interest.
- ------------------------------------------------------------------------------
Capital A profit or loss on the sale of securities (generally
gain/loss stocks or bonds).
- ------------------------------------------------------------------------------
Class A, B, C, M Types of shares, each class offering investors a
shares different way to pay sales charges and
distribution fees. A fund's prospectus explains the
availability and attributes of each type.
- ------------------------------------------------------------------------------
Common A unit of ownership of a corporation.
stock
- ------------------------------------------------------------------------------
Distribution A payment from a mutual fund to shareholders. It may
include interest from bonds and dividends from stocks
(dividend distributions). It may also include profits
from the sale of securities from the fund's portfolio
(capital gains distributions).
- ------------------------------------------------------------------------------
Net asset The value of one share of a mutual fund without
value (NAV) regard to sales charges. Some bond funds aim for a
steady NAV, representing stability; most stock funds
aim to raise NAV, representing growth in the value of
an investment.
- ------------------------------------------------------------------------------
Public offering The purchase price of one class A or class M share of
price (POP) a mutual fund, including the applicable "front-end"
sales charge.
- ------------------------------------------------------------------------------
Total return A measure of performance showing the change in the
value of an investment over a given period, assuming
all earnings are reinvested.
- ------------------------------------------------------------------------------
Yield The percentage rate at which a fund has earned income
from its investments over the indicated period.
Make the most of your Putnam privileges
As a Putnam mutual fund shareholder, you have access to a number of services
that can help you build a more effective and flexible financial program. Here
are some of the ways you can use these privileges to make the most of your
Putnam mutual fund investment.
* 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.
* DIVIDENDS PLUS
Diversify your portfolio by investing dividends and other distributions from
one Putnam fund automatically into another at net asset value.
* STATEMENT OF INTENTION
To reduce a front-end sales charge, you may agree to invest a minimum dollar
amount over 13 months. Depending on your fund, the minimum is $25,000,
$50,000, or $100,000. Whenever you make an investment under this arrangement,
you or your investment advisor should notify Putnam Mutual Funds that a
Statement of Intention is in effect.
Investors may not maintain, within the same fund, simultaneous plans for
systematic investment or exchange (into the fund) and system atic 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.
Putnam Family of Fundsa
PUTNAM GROWTH FUNDS
Putnam Asia Pacific Growth Fund
Putnam Capital Appreciation Fundb
Putnam Capital Opportunities Fund
Putnam Emerging Markets Fund
Putnam Europe Growth Fund
Putnam Global Equity Fund
Putnam Global Growth Fund
Putnam Global Natural Resources Fund
Putnam Growth Opportunities Fund
Putnam Health Sciences Trust
Putnam International Growth Fund
Putnam International New Opportunities Fund
Putnam International Voyager Fund
Putnam Investors Fund
Putnam New Opportunities Fundb
Putnam OTC & Emerging Growth Fund
Putnam Research Fund
Putnam Vista Fund
Putnam Voyager Fund
Putnam Voyager Fund II
PUTNAM GROWTH AND INCOME FUNDS
Putnam Balanced Retirement Fund
Putnam Convertible Income-Growth Trust
Putnam Equity Income Fund
The George Putnam Fund of Boston
Putnam Global Growth and Income Fund
The Putnam Fund for Growth and Income
Putnam Growth and Income Fund II
Putnam International Growth and Income Fund
Putnam New Value Fund
Putnam Small Cap Value Fund
Putnam Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Putnam American Government Income Fund
Putnam Diversified Income Trust
Putnam Global Governmental Income Trust
Putnam High Yield Advantage Fundb
Putnam High Yield Trustb
Putnam High Yield Trust II
Putnam Income Fund
Putnam Intermediate U.S. Government Income Fund
Putnam Preferred Income Fund
Putnam Strategic Income Fund
Putnam U.S. Government Income Trust
PUTNAM TAX-FREE INCOME FUNDS
Putnam Municipal Income Fund
Putnam Tax Exempt Income Fund
Putnam Tax-Free High Yield Fund
Putnam Tax-Free Insured Fund
Putnam State tax-free income fundsc
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGE SM FUNDS
Putnam Asset Allocation Funds-three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments
seeking to help maximize your return and reduce your risk.
The three portfolios:
Balanced Portfolio
Conservative Portfolio
Growth Portfolio
PUTNAM MONEY MARKET FUNDSd
Putnam Money Market Fund
Putnam California Tax Exempt Money Market Fund
Putnam New York Tax Exempt Money Market Fund
Putnam Tax Exempt Money Market Fund
a As of 12/31/99.
b New investments restricted; see your financial advisor for details.
c Not available in all states.
d Investments in money market funds are not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although these funds seek to preserve an investment's net asset value at
$1.00 per share, it is possible to lose money by investing in them.
Please call your financial advisor or Putnam Mutual Funds to obtain a
prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Read it carefully before you invest or send
money.
For more information about Putnam Balanced Fund
The fund's statement of additional information (SAI) and annual and
semi-annual reports to shareholders include additional information about
the fund. The SAI and the independent accountant's report and financial
statements included in the fund's most recent annual report to its
shareholders, are incorporated by reference into this prospectus, which
means they are part of this prospectus for legal purposes. The fund's
annual report discusses the market conditions and investment strategies
that significantly affected the fund's performance during its last fiscal
year. You may get free copies of these materials, request other
information about the fund and other Putnam funds, or make shareholder
inquiries, by contacting your financial advisor, by visiting Putnam's Web
site, or by calling Putnam toll-free at 1-800-225-1581.
You may review and copy information about the fund, including its SAI, at
the Securities and Exchange Commission's public reference room in
Washington, D.C. You may call the Commission at 1-202-942-8090 for
information about the operation of the public reference room. You may
also access reports and other information about the fund on the EDGAR
Database on the Commission's Internet site at http://www.sec.gov. You may
get copies of this information, with payment of a duplication fee, by
electronic request at the following E-mail address: [email protected],
or by writing the Commission's Public Reference Section, Washington, D.C.
20549-0102. You may need to refer to the fund's file number.
P U T N A M I N V E S T M E N T S
One Post Office Square
Boston, Massachusetts 02109
1-800-225-1581
Address correspondence to
Putnam Investor Services
P.O. Box 989
Boston, Massachusetts 02103
www.putnaminv.com
File No. 811-7237 NP072 59453 3/00
Prospectus
January 30, 2000 as revised March 30, 2000
Putnam Balanced Fund
Class A shares -- for eligible retirement plans
Investment Category: Growth and Income
This prospectus explains what you should know about this mutual fund
before you invest. Please read it carefully. This prospectus only offers
class A shares of the fund without a sales charge to eligible retirement
plans.
Putnam Investment Management, Inc. (Putnam Management), which has managed
mutual funds since 1937, manages the fund.
These securities have not been approved or disapproved by the Securities
and Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this prospectus. Any statement to the contrary is a crime.
CONTENTS
2 Fund summary
2 Goal
2 Main investment strategies
2 Main risks
3 Performance information
4 Fees and expenses
4 What are the fund's main investment strategies and related risks?
8 Who manages the fund?
8 How does the fund price its shares?
9 How do I buy fund shares?
10 How do I sell fund shares?
10 How do I exchange fund shares?
11 Fund distributions and taxes
12 Financial highlights
Putnam Defined Contribution Plans
[SCALE LOGO OMITTED]
Fund summary
GOAL
The fund seeks capital growth and current income.
MAIN INVESTMENT STRATEGIES -- GROWTH STOCKS AND BONDS
We invest mainly in a combination of bonds and U.S. growth stocks, with a
greater focus on growth stocks. Growth stocks are issued by companies that
we believe are fast-growing and whose earnings we believe are likely to
increase over time. Growth in earnings may lead to an increase in the price
of the stock. We buy bonds of governments and private companies. These
bonds are mostly investment-grade in quality with intermediate- to
long-term maturities (three years or longer). We invest in midsized and
large companies.
MAIN RISKS
The main risks that could adversely affect the value of the fund's shares
and the total return on your investment include:
* The risk that the stock price of one or more of the companies in the
fund's portfolio will fall, or will fail to rise. Many factors can
adversely affect a stock's performance, including both general financial
market conditions and factors related to a specific company or industry.
This risk is generally greater for small and midsized companies, which tend
to be more vulnerable to adverse developments.
* The risk that movements in financial markets will adversely affect the
price of the fund's investments, regardless of how well the companies in
which we invest perform. The market as a whole may not favor the types of
investments we make.
* The risk that prices of bonds we buy will fall if interest rates rise.
Interest rate risk is generally higher for investments with longer
maturities.
* The risk that issuers of bonds we buy will not make timely payments of
interest and principal. This credit risk is generally higher for debt that
is below investment-grade in quality.
* The risk that our allocation of investments between stocks and bonds may
adversely affect the fund's performance.
You can lose money by investing in the fund. The fund may not achieve its
goals, and is not intended as a complete investment program. An investment
in the fund is not a deposit in a bank and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
PERFORMANCE INFORMATION
The following information provides some indication of the fund's risks. The
chart shows year-to-year changes in the performance of the fund's class A
shares. The table following the chart compares the fund's performance to
that of two broad measures of market performance. Of course, a fund's past
performance is not an indication of future performance.
[GRAPHIC OMITTED: vertical bar chart CALENDAR YEAR TOTAL RETURNS FOR CLASS A
SHARES]
CALENDAR YEAR TOTAL RETURNS FOR CLASS A SHARES
1995 30.06%
1996 13.75%
1997 21.39%
1998 26.94%
1999 26.97%
During the periods shown in the bar chart, the highest return for a quarter
was 20.54% (quarter ending 12/31/99) and the lowest return for a quarter
was -5.77% (quarter ending 9/30/98).
- ------------------------------------------------------------------------------
Average Annual Total Returns (for periods ending 12/31/99)
- ------------------------------------------------------------------------------
Since
Past inception
1 year (1/3/95)
- ------------------------------------------------------------------------------
Class A 26.97% 23.74%
Standard & Poor's 500
Composite Stock Index 21.04% 28.56%
Russell 1000 [REGISTRATION MARK]
Growth Index 33.16% 32.42%
Lehman Brothers Intermediate
Treasury Bond Index 0.40% 6.92%
- ------------------------------------------------------------------------------
Class A share performance reflects the waiver of sales charges for
purchases through eligible retirement plans. The fund's performance has
benefited from Putnam Management's agreement (since inception) to limit the
fund's expenses. The fund's performance is compared to the Standard &
Poor's 500 Composite Stock Index, an unmanaged index of common stocks that
is frequently used as a general measure of stock market performance, the
Russell 1000 [REGISTRATION MARK] Growth Index measures the performance of
those Russell 1000 companies with higher price-to-book ratios and higher
forecasted growth values and the Lehman Brothers Intermediate Treasury Bond
Index, an unmanaged 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.
FEES AND EXPENSES
This table summarizes the fees and expenses you may pay if you invest in
class A shares of the fund. Expenses are based on the fund's last fiscal
year.
- ------------------------------------------------------------------------------
Shareholder Fees (fees paid directly from your investment)
- ------------------------------------------------------------------------------
Maximum Sales Charge (Load) NONE
Maximum Deferred Sales Charge (Load) 0.75%*
- ------------------------------------------------------------------------------
Annual Fund Operating Expenses **
(expenses that are deducted from fund assets)
- ------------------------------------------------------------------------------
Total
Annual
Fund
Management Distribution Other Operating Expense Net
Fees (12b-1) Fees Expenses Expenses Reimbursement Expenses
- ------------------------------------------------------------------------------
Class A 0.65% 0.25% 1.68% 2.58% -1.45% 1.13%
- ------------------------------------------------------------------------------
* The deferred sales charge is applicable only to a plan that redeems 90%
or more of its cumulative purchases within two years of its initial
purchase, and only if Putnam Mutual Funds paid a commission on the plan's
purchases.
** Reflects Putnam Management's contractual obligation to limit fund expenses
through September 30, 2000 and the activation of the fund's 12b-1 fees.
EXAMPLE
The example translates the expenses shown in the preceding table into
dollar amounts. By doing this, you can more easily compare the cost of
investing in the fund to the cost of investing in other mutual funds. The
example makes certain assumptions. It assumes that you invest $10,000 in
the fund for the time periods shown and then redeem all your shares at the
end of those periods. It also assumes a 5% return on your investment each
year and that the fund's operating expenses remain the same. The example is
hypothetical; your actual costs and returns may be higher or lower.
- ------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------
Class A $190 $664 $1,240 $2,806
- ------------------------------------------------------------------------------
What are the fund's main investment strategies and related risks?
Any investment carries with it some level of risk that generally reflects
its potential for reward. We pursue the fund's goal by investing mainly in
bonds and growth stocks. We will consider, among other things, a company's
financial strength, competitive position in its industry, projected future
earnings, cash flows and dividends when deciding whether to buy or sell
investments. A description of the risks associated with the fund's main
investment strategies follows.
* Common stocks. Common stock represents an ownership interest in a
company. The value of a company's stock may fall as a result of factors
relating directly to that company, such as decisions made by its management
or lower demand for the company's products or services. A stock's value may
also fall because of factors affecting not just the company, but also
companies in the same industry or in a number of different industries, such
as increases in production costs. The value of a company's stock may also
be affected by changes in financial markets that are relatively unrelated
to the company or its industry, such as changes in interest rates or
currency exchange rates. In addition, a company's stock generally pays
dividends only after the company invests in its own business and makes
required payments to holders of its bonds and other debt. For this reason,
the value of a company's stock will usually react more strongly than bonds
and other debt to actual or perceived changes in the company's financial
condition or prospects. Stocks of smaller companies may be more vulnerable
to adverse developments than those of larger companies.
We seek to purchase stock that trades at a higher multiple of current
earnings than other stock. The value of such stocks may be more sensitive
to changes in current or expected earnings than the values of other stocks.
If our assessment of the prospects for a company's earnings growth is
wrong, or if our judgment of how other investors will value the company's
earnings growth is wrong, then the price of the company's stock may fall or
not approach the value that we have placed on it.
* Interest rate risk. The values of bonds and other debt usually rise and
fall in response to changes in interest rates. Declining interest rates
generally increase the values of existing debt instruments, and rising
interest rates generally decrease them. Changes in a debt instrument's
value usually will not affect the amount of interest income paid to the
fund, but will affect the value of the fund's shares. Interest rate risk is
generally greater for investments with longer maturities.
Some securities give the issuer the option to call, or redeem these
investments before their maturity date. If an issuer "calls" its securities
during a time of declining interest rates, we might have to reinvest the
proceeds in an investment offering a lower yield, and therefore might not
benefit from any increase in value as a result of declining interest rates.
"Premium" investments offer interest rates higher than prevailing market
rates. However, they involve a greater risk of loss, because their values
tend to decline over time. You may find it useful to compare the fund's
yield, which factors out the effect of premium investments, with its
current dividend rate, which does not factor out that effect.
* Credit risk. Investors normally expect to be compensated in proportion to
the risk they are assuming. Thus, debt of issuers with poor credit
prospects usually offers higher yields than debt of issuers with more
secure credit. Higher-rated investments generally have lower credit risk.
We invest mostly in investment-grade debt investments. These are rated at
least BBB or its equivalent at the time of purchase by a nationally
recognized securities rating agency, or are unrated investments that we
believe are of comparable quality. We may invest up to 20% of the fund's
total assets in non investment-grade investments. However, we will not
invest in securities rated lower than B or its equivalent by each rating
agency rating the investment or unrated securities that we believe are of
comparable quality. We will not necessarily sell an investment if its
rating is reduced after we buy it.
Investments rated below BBB or its equivalent are known as "junk bonds."
This rating reflects a greater possibility that the issuers may be unable
to make timely payments of interest and principal and thus default. If this
happens, or is perceived as likely to happen, the values of those
investments will usually be more volatile and are likely to fall. A default
or expected default could also make it difficult for us to sell the
investments at prices approximating the values we had previously placed on
them. Credit risk is generally greater for investments that are issued at
less than their face value and that require payments of interest only at
maturity rather than at intervals during the life of the investment.
Although investment grade investments generally have lower credit risk,
they may share some of the risks of non-investment grade investments.
* Mortgage-backed investments. Traditional debt investments typically pay a
fixed rate of interest until maturity, when the entire principal amount is
due. By contrast, payments on mortgage-backed investments typically include
both interest and partial payment of principal. Principal may also be
prepaid voluntarily, or as a result of refinancing or foreclosure. We may
have to invest the proceeds from prepaid investments in other investments
with less attractive terms and yields. Compared to other debt,
mortgage-backed investments are less likely to increase in value during
periods of declining interest rates and have a higher risk of decline in
value during periods of rising interest rates. They may increase the
volatility of a fund. Some mortgage-backed investments receive only the
interest portion or the principal portion of payments on the underlying
mortgages. The yields and values of these investments are extremely
sensitive to changes in interest rates and in the rate of principal
payments on the underlying mortgages. The market for these investments may
be volatile and limited, which may make it difficult to buy or sell them.
* Foreign investments. We may invest in securities of foreign issuers.
Foreign investments involve certain special risks. For example, their
values may decline in response to changes in currency exchange rates,
unfavorable political and legal developments, unreliable or untimely
information, and economic and financial instability. In addition, the
liquidity of these investments may be more limited than for U.S.
investments, which means we may at times be unable to sell them at
desirable prices. Foreign settlement procedures may also involve additional
risks. These risks are generally greater in the case of developing (also
known as emerging) markets with less developed legal and financial systems.
Certain of these risks may also apply to U.S. investments that are
denominated in foreign currencies or that are traded in foreign markets, or
to securities of U.S. companies that have significant foreign operations.
* Smaller companies. We may invest in smaller and mid-sized companies.
Smaller companies, which may have a market capitalization of less than $1
billion, are more likely than larger companies to have limited product
lines, markets or financial resources, or to depend on a small,
inexperienced management group. Stocks of these companies often trade less
frequently and in limited volume, and their prices may fluctuate more than
stocks of larger companies. Stocks of smaller and mid-sized companies may
therefore be more vulnerable to adverse developments than those of larger
companies.
* Frequent trading. We may buy and sell investments relatively often, which
involves higher brokerage commissions and other expenses.
* Other investments. In addition to the main investment strategies
described above, we may make other investments, such as investments in
preferred stocks, convertible securities, asset-backed securities and
derivatives, which may be subject to other risks, as described in the
fund's statement of additional information (SAI).
* Alternative strategies. At times we may judge that market conditions make
pursuing the fund's usual investment strategies inconsistent with the best
interests of its shareholders. We then may temporarily use alternative
strategies that are mainly designed to limit losses. However, we may choose
not to use these strategies for a variety of reasons, even in very volatile
market conditions. These strategies may cause the fund to miss out on
investment opportunities, and may prevent the fund from achieving its goal.
* Changes in policies. The fund's Trustees may change the fund's goal,
investment strategies and other policies without shareholder approval,
except as otherwise indicated.
Who manages the fund?
The fund's Trustees oversee the general conduct of the fund's business. The
Trustees have retained Putnam Management to be the fund's investment
manager, responsible for making investment decisions for the fund and
managing the fund's other affairs and business. The fund pays Putnam
Management a quarterly management fee for these services based on the
fund's average net assets. The fund paid Putnam Management a management fee
of 0.65% of average net assets for the fund's last fiscal year. Due to the
expense limitation in effect during the fiscal year, the fund was
reimbursed for the full amount of the management fee. See "Annual Fund
Operating Expenses." Putnam Management's address is One Post Office Square,
Boston, MA 02109.
The following officers of Putnam Management have had primary responsibility
for the day-to-day management of the fund's portfolio since the years shown
below. Their experience as portfolio managers or investment analysts over
at least the last five years is also shown.
- ------------------------------------------------------------------------------
Manager Since Experience
- ------------------------------------------------------------------------------
David Santos 1999 1986 - Present Putnam Management
Senior Vice President
- ------------------------------------------------------------------------------
Manuel Weiss 1998 1987 - Present Putnam Management
Senior Vice President
- ------------------------------------------------------------------------------
Michael Martino 2000 1994 - Present Putnam Management
Vice President
- ------------------------------------------------------------------------------
How does the fund price its shares?
The price of the fund's shares is based on its net asset value (NAV). The
NAV equals the total value of its assets, less its liabilities, divided by
the number of its outstanding shares. Shares are only valued as of the
close of regular trading on the New York Stock Exchange each day the
exchange is open.
The fund values its investments for which market quotations are readily
available at market value. It values short-term investments that will
mature within 60 days at amortized cost, which approximates market value.
It values all other investments and assets at their fair value.
The fund translates prices for its investments quoted in foreign currencies
into U.S. dollars at current exchange rates. As a result, changes in the
value of those currencies in relation to the U.S. dollar may affect the
fund's NAV. Because foreign markets may be open at different times than the
New York Stock Exchange, the value of the fund's shares may change on days
when shareholders are not able to buy or sell them. If events materially
affecting the values of the fund's foreign investments occur between the
close of foreign markets and the close of regular trading on the New York
Stock Exchange, these investments will be valued at their fair value.
How do I buy fund 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.
Putnam Mutual Funds Corp. (Putnam Mutual Funds) generally must receive your
plan's completed buy order before the close of regular trading on the New
York Stock Exchange for shares to be bought at that day's offering price.
To eliminate the need for safekeeping, the fund will not issue certificates
for shares.
The fund may periodically close to new purchases of shares or refuse any
order to buy shares if Putnam Management determines that doing so would be
in the best interests of the fund and its shareholders.
* Distribution (12b-1) plan. The fund has adopted a distribution plan to
pay for the marketing of class A shares and for services provided to
shareholders. The plan provides for payments at an annual rate of up to
0.35% of the fund's average net assets. The Trustees currently limit
payments on class A shares to 0.25% of average net assets. Because the fees
are paid out of the fund's assets on an ongoing basis, they will increase
the cost of your investment.
* Eligible retirement plans. An employer-sponsored retirement plan is
eligible to purchase class A shares without an initial sales charge through
this prospectus if it invests at least $1 million in class A shares. A
deferred sales charge of up to 0.75% will apply if the plan redeems 90% or
more of its cumulative purchases within two years of the plan's initial
purchase of class A shares, and only if Putnam Mutual Funds paid a
commission on the plan's purchase. Employer-sponsored plans may make
additional investments of any amount at any time.
How do I sell fund shares?
Subject to any restrictions imposed by your employer's plan, you can sell
your shares through the plan back 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 the plan may
impose, please consult your employer.
Your plan administrator must send a signed letter of instruction to Putnam
Investor Services. The price you will receive is the next NAV per share
calculated after the fund receives the instruction in proper form. In order
to receive that day's NAV, Putnam Investor Services must receive the
instruction before the close of regular trading on the New York Stock
Exchange.
The fund generally sends 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.
How do I exchange fund shares?
Subject to any restrictions your plan imposes, you can exchange your fund
shares for shares of other Putnam funds offered through your employer's
plan without a sales charge. Contact your plan administrator or Putnam
Investor Services for more information.
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 otherwise to promote the best interests of the fund,
the fund reserves the right to revise or terminate the exchange privilege,
limit the amount or number of exchanges or reject any exchange. The fund
into which you would like to exchange may also reject your exchange. These
actions may apply to all shareholders or only to those shareholders whose
exchanges Putnam Management determines are likely to have a negative effect
on the fund or other Putnam funds.
Fund distributions and taxes
The fund normally distributes any net investment income quarterly and any
net realized capital gains annually.
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.
Generally, for federal income tax purposes, fund distributions are taxable
as ordinary income, except that any distributions of long-term capital
gains will be taxed as such regardless of how long you have held your
shares. However, distributions by the fund to 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 advisor to determine the suitability of the fund as an
investment through such a plan and the tax treatment of distributions
(including distributions of amounts attributable to an investment in the
fund) from such a plan.
The fund's investment in certain debt obligations may cause the fund to
recognize taxable income in excess of the cash generated by such
obligations. Thus, the fund could be required at times to liquidate other
investments in order to satisfy its distribution requirements.
The fund's investments in foreign securities may be subject to foreign
withholding taxes. In that case, the fund's return on those investments
would be decreased.
You should consult your tax advisor for more information on your own tax
situation, including possible foreign, state and local taxes.
Financial highlights
The financial highlights table is intended to help you understand the
fund's recent financial performance. Certain information reflects financial
results for a single fund share. The total returns represent the rate that
an investor would have earned or lost on an investment in the fund,
assuming reinvestment of all dividends and distributions. This information
has been derived from the fund's financial statements, which have been
audited by PricewaterhouseCoopers LLP. Its report and the fund's financial
statements are included in the fund's annual report to shareholders, which
is available upon request.
FINANCIAL HIGHLIGHTS
CLASS A
(For a share outstanding throughout the period)
For the
period
Jan. 3,
1995+ to
Year ended September 30 Sept. 30
------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------
Net asset value,
beginning of period $11.92 $11.90 $11.03 $10.56 $8.50
- -----------------------------------------------------------------------------
Investment operations
Net investment
incomea .25cd .22c .25 .29 .23
Net realized and
unrealized gain on
investments 2.02 1.05 2.16 1.18 1.83
- -----------------------------------------------------------------------------
Total from
investment operations 2.27 1.27 2.41 1.47 2.06
- -----------------------------------------------------------------------------
Less distributions:
From net investment
income (.22) (.25) (.27) (.35) --
From net realized
gain on investments (1.34) (1.00) (1.27) (.65) --
- -----------------------------------------------------------------------------
Total distributions (1.56) (1.25) (1.54) (1.00) --
- -----------------------------------------------------------------------------
Net asset value,
end of period $12.63 $11.92 $11.90 $11.03 $10.56
- -----------------------------------------------------------------------------
Ratios and
supplemental data
Total return at
net asset value
(%)b 20.25 12.18 24.58 15.01 24.24*
Net assets,
end of period
(in thousands) $3,967 $3,147 $2,769 $2,246 $1,951
- -----------------------------------------------------------------------------
Ratio of expenses to
average net assets
(%)ac .78 .77 .71 .73 .54*
Ratio of net investment
income to average
net assets (%)a 2.05 1.82 2.29 2.72 2.44*
Portfolio turnover
(%) 123.90 139.55 151.15 170.75 95.15*
- -----------------------------------------------------------------------------
+ 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, 1999,
1998, 1997, 1996 and 1995 reflect a reduction of $0.19, $0.13, $0.12, $0.15,
and $0.23 per share, respectively.
b Total return assumes dividend reinvestment and does not reflect the effect
of sales charges.
c The ratio of expenses to average net assets includes amounts paid through
expense offset arrangements.
d Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
[This page left intentionally blank]
[This page left intentionally blank]
For more information
about Putnam Balanced Fund
The fund's statement of additional information (SAI) and annual and
semi-annual reports to shareholders include additional information about
the fund. The SAI, and the independent accountant's report and financial
statements included in the fund's most recent annual report to its
shareholders, are incorporated by reference into this prospectus, which
means they are part of this prospectus for legal purposes. The fund's
annual report discusses the market conditions and investment strategies
that significantly affected the fund's performance during its last fiscal
year. You may get free copies of these materials, request other
information about the fund and other Putnam funds, or make shareholder
inquiries, by calling Putnam toll-free at 1-800-752-9894.
You may review and copy information about the fund, including its SAI, at
the Securities and Exchange Commission's public reference room in
Washington, D.C. You may call the Commission at 1-202-942-8090 for
information about the operation of the public reference room. You may also
access reports and other information about the fund on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. You may get
copies of this information, with payment of a duplication fee, by
electronic request at the following E-mail address: [email protected],
or by writing the Commission's Public Reference Section, Washington, D.C.
20549-0102. You may need to refer to the fund's file number.
P U T N A M I N V E S T M E N T S
Putnam Defined Contribution Plans
One Post Office Square
Boston, Massachusetts 02109
1-800-752-9894
Address correspondence to
Putnam Investor Services
P.O. Box 989
Boston, Massachusetts 02103
www.putnaminv.com
59532 3/00 File No. 811-7237
Prospectus
January 30, 2000 as revised March 30, 2000
Putnam Balanced Fund
Class Y shares
Investment Category: Growth and Income
This prospectus explains what you should know about this mutual fund
before you invest. Please read it carefully.
Putnam Investment Management, Inc. (Putnam Management), which has managed
mutual funds since 1937, manages the fund.
These securities have not been approved or disapproved by the Securities
and Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this prospectus. Any statement to the contrary is a crime.
CONTENTS
2 Fund summary
2 Goal
2 Main investment strategies
2 Main risks
3 Performance information
4 Fees and expenses
4 What are the fund's main investment strategies and related risks?
8 Who manages the fund?
9 How does the fund price its shares?
9 How do I buy fund shares?
10 How do I sell fund shares?
10 How do I exchange fund shares?
11 Fund distributions and taxes
Putnam Defined Contribution Plans
[SCALE LOGO OMITTED]
Fund summary
GOAL
The fund seeks capital growth and current income.
MAIN INVESTMENT STRATEGIES -- GROWTH STOCKS AND BONDS
We invest mainly in a combination of bonds and U.S. growth stocks, with a
greater focus on growth stocks. Growth stocks are issued by companies that
we believe are fast-growing and whose earnings we believe are likely to
increase over time. Growth in earnings may lead to an increase in the price
of the stock. We buy bonds of governments and private companies. These
bonds are mostly investment-grade in quality with intermediate- to
long-term maturities (three years or longer). We invest in midsized and
large companies.
MAIN RISKS
The main risks that could adversely affect the value of the fund's shares
and the total return on your investment include:
* The risk that the stock price of one or more of the companies in the
fund's portfolio will fall, or will fail to rise. Many factors can
adversely affect a stock's performance, including both general financial
market conditions and factors related to a specific company or industry.
This risk is generally greater for small and midsized companies, which tend
to be more vulnerable to adverse developments.
* The risk that movements in financial markets will adversely affect the
price of the fund's investments, regardless of how well the companies in
which we invest perform. The market as a whole may not favor the types of
investments we make.
* The risk that prices of bonds we buy will fall if interest rates rise.
Interest rate risk is generally higher for investments with longer
maturities.
* The risk that issuers of bonds we buy will not make timely payments of
interest and principal. This credit risk is generally higher for debt that
is below investment-grade in quality.
* The risk that our allocation of investments between stocks and bonds may
adversely affect the fund's performance.
You can lose money by investing in the fund. The fund may not achieve its
goals, and is not intended as a complete investment program. An investment
in the fund is not a deposit in a bank and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
PERFORMANCE INFORMATION
The following information provides some indication of the fund's risks. The
chart shows year-to-year changes in the performance of the fund's class Y
shares. The table following the chart compares the fund's performance to
that of two broad measures of market performance. Of course, a fund's past
performance is not an indication of future performance.
[GRAPHIC OMITTED: vertical bar chart CALENDAR YEAR TOTAL RETURNS]
CALENDAR YEAR TOTAL RETURNS
1995 30.06%
1996 13.75%
1997 21.39%
1998 26.94%
1999 26.97%
During the periods shown in the bar chart, the highest return for a quarter
was 20.54% (quarter ending 12/31/99) and the lowest return for a quarter
was -5.77% (quarter ending 9/30/98).
Performance of class Y shares, which were not in existence during the
period, in the bar chart and table following the chart, is derived from the
historical performance of class A shares (not offered by this prospectus).
Performance of class Y shares prior to their inception does not reflect the
initial sales charge currently applicable to class A shares or differences
in operating expenses which, for class Y shares, are lower than the
operating expenses applicable to class A shares.
- ----------------------------------------------------------------------------
Average Annual Total Returns (for periods ending 12/31/99)
- ----------------------------------------------------------------------------
Since
Past inception
1 year (1/3/95)
- ----------------------------------------------------------------------------
Class Y 26.97% 23.74%
Standard & Poor's 500 Composite Stock Index 21.04% 28.56%
Russell 1000 [REGISTRATION MARK] Growth Index 33.16% 32.42%
Lehman Brothers Intermediate Treasury Bond Index 0.40% 6.92%
- ----------------------------------------------------------------------------
The fund's share performance has benefited from Putnam Management's
agreement (since inception) to limit the fund's expenses. The fund's
performance is compared to the Standard & Poor's 500 Composite Stock Index,
an unmanaged index of common stocks that is frequently used as a general
measure of stock market performance, the Russell 1000 [REGISTRATION MARK]
Growth Index measures the performance of those Russell 1000 companies with
higher price-to-book ratios and higher forecasted growth values and the Lehman
Brothers Intermediate Treasury Bond Index, 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.
FEES AND EXPENSES
This table summarizes the fees and expenses you may pay if you invest in
class Y shares of the fund. Expenses are based on the fund's last fiscal
year.
- ----------------------------------------------------------------------------
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
- ----------------------------------------------------------------------------
Total
Annual
Fund
Management Other Operating Expense Net
Fees Expenses Expenses Reimbursement Expenses
- ----------------------------------------------------------------------------
Class Y 0.65% 1.68% 2.33% -1.45% 0.88%
- ----------------------------------------------------------------------------
EXAMPLE
The example translates the expenses shown in the preceding table into
dollar amounts. By doing this, you can more easily compare the cost of
investing in the fund to the cost of investing in other mutual funds. The
example makes certain assumptions. It assumes that you invest $10,000 in
the fund for the time periods shown and then redeem all your shares at the
end of those periods. It also assumes a 5% return on your investment each
year and that the fund's operating expenses remain the same. The example is
hypothetical; your actual costs and returns may be higher or lower.
- ----------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ----------------------------------------------------------------------------
Class Y $90 $588 $1,113 $2,554
- ----------------------------------------------------------------------------
What are the fund's main investment strategies and related risks?
Any investment carries with it some level of risk that generally reflects
its potential for reward. We pursue the fund's goal by investing mainly in
bonds and growth stocks. We will consider, among other things, a company's
financial strength, competitive position in its industry, projected future
earnings, cash flows and dividends when deciding whether to buy or sell
investments. A description of the risks associated with the fund's main
investment strategies follows.
* Common stocks. Common stock represents an ownership interest in a
company. The value of a company's stock may fall as a result of factors
relating directly to that company, such as decisions made by its management
or lower demand for the company's products or services. A stock's value may
also fall because of factors affecting not just the company, but also
companies in the same industry or in a number of different industries, such
as increases in production costs. The value of a company's stock may also
be affected by changes in financial markets that are relatively unrelated
to the company or its industry, such as changes in interest rates or
currency exchange rates. In addition, a company's stock generally pays
dividends only after the company invests in its own business and makes
required payments to holders of its bonds and other debt. For this reason,
the value of a company's stock will usually react more strongly than bonds
and other debt to actual or perceived changes in the company's financial
condition or prospects. Stocks of smaller companies may be more vulnerable
to adverse developments than those of larger companies.
We seek to purchase stock that trades at a higher multiple of current
earnings than other stocks. The value of such stocks may be more sensitive
to changes in current or expected earnings than the values of other stocks.
If our assessment of the prospects for a company's earnings growth is
wrong, or if our judgment of how other investors will value the company's
earnings growth is wrong, then the price of the company's stock may fall or
not approach the value that we have placed on it.
* Interest rate risk. The values of bonds and other debt usually rise and
fall in response to changes in interest rates. Declining interest rates
generally increase the values of existing debt instruments, and rising
interest rates generally decrease them. Changes in a debt instrument's
value usually will not affect the amount of interest income paid to the
fund, but will affect the value of the fund's shares. Interest rate risk is
generally greater for investments with longer maturities.
Some securities give the issuer the option to call, or redeem these
investments before their maturity date. If an issuer "calls" its securities
during a time of declining interest rates, we might have to reinvest the
proceeds in an investment offering a lower yield, and therefore might not
benefit from any increase in value as a result of declining interest rates.
"Premium" investments offer interest rates higher than prevailing market
rates. However, they involve a greater risk of loss, because their values
tend to decline over time. You may find it useful to compare the fund's
yield, which factors out the effect of premium investments, with its
current dividend rate, which does not factor out that effect.
* Credit risk. Investors normally expect to be compensated in proportion to
the risk they are assuming. Thus, debt of issuers with poor credit
prospects usually offers higher yields than debt of issuers with more
secure credit. Higher-rated investments generally have lower credit risk.
We invest mostly in investment-grade debt investments. These are rated at
least BBB or its equivalent at the time of purchase by a nationally
recognized securities rating agency, or are unrated investments that we
believe are of comparable quality. We may invest up to 20% of the fund's
total assets in non investment-grade investments. However, we will not
invest in securities rated lower than B or its equivalent by each rating
agency rating the investment or unrated securities that we believe are of
comparable quality. We will not necessarily sell an investment if its
rating is reduced after we buy it.
Investments rated below BBB or its equivalent are known as "junk bonds."
This rating reflects a greater possibility that the issuers may be unable
to make timely payments of interest and principal and thus default. If this
happens, or is perceived as likely to happen, the values of those
investments are likely to fall. A default or expected default could also
make it difficult for us to sell the investments at prices approximating
the values we had previously placed on them. Credit risk is generally
greater for investments that are issued at less than their face value and
that require payments of interest only at maturity rather than at intervals
during the life of the investment.
Although investment grade investments generally have lower credit risk,
they may share some of the risks of non-investment grade investments.
* Mortgage-backed investments. Traditional debt investments typically pay a
fixed rate of interest until maturity, when the entire principal amount is
due. By contrast, payments on mortgage-backed investments typically include
both interest and partial payment of principal. Principal may also be
prepaid voluntarily, or as a result of refinancing or foreclosure. We may
have to invest the proceeds from prepaid investments in other investments
with less attractive terms and yields. Compared to other debt,
mortgage-backed investments are less likely to increase in value during
periods of declining interest rates and have a higher risk of decline in
value during periods of rising interest rates. They may increase the
volatility of a fund. Some mortgage-backed investments receive only the
interest portion or the principal portion of payments on the underlying
mortgages. The yields and values of these investments are extremely
sensitive to changes in interest rates and in the rate of principal
payments on the underlying mortgages. The market for these investments may
be volatile and limited, which may make it difficult to buy or sell them.
* Foreign investments. We may invest in securities of foreign issuers.
Foreign investments involve certain special risks. For example, their
values may decline in response to changes in currency exchange rates,
unfavorable political and legal developments, unreliable or untimely
information, and economic and financial instability. In addition, the
liquidity of these investments may be more limited than for U.S.
investments, which means we may at times be unable to sell them at
desirable prices. Foreign settlement procedures may also involve additional
risks. These risks are generally greater in the case of developing (also
known as emerging) markets with less developed legal and financial systems.
Certain of these risks may also apply to U.S. investments that are
denominated in foreign currencies or that are traded in foreign markets, or
to securities of U.S. companies that have significant foreign operations.
* Smaller companies. We may invest in smaller and mid-sized companies.
Smaller companies, which may have a market capitalization of less than $1
billion, are more likely than larger companies to have limited product
lines, markets or financial resources, or to depend on a small,
inexperienced management group. Stocks of these companies often trade less
frequently and in limited volume, and their prices may fluctuate more than
stocks of larger companies. Stocks of smaller and mid-sized companies may
therefore be more vulnerable to adverse developments than those of larger
companies.
* Frequent trading. We may buy and sell investments relatively often, which
involves higher brokerage commissions and other expenses.
* Other investments. In addition to the main investment strategies
described above, we may make other investments, such as investments in
preferred stocks, convertible securities, asset-backed securities and
derivatives, which may be subject to other risks, as described in the
fund's statement of additional information (SAI).
* Alternative strategies. At times we may judge that market conditions make
pursuing the fund's usual investment strategies inconsistent with the best
interests of its shareholders. We then may temporarily use alternative
strategies that are mainly designed to limit losses. However, we may choose
not to use these strategies for a variety of reasons, even in very volatile
market conditions. These strategies may cause the fund to miss out on
investment opportunities, and may prevent the fund from achieving its goal.
* Changes in policies. The fund's Trustees may change the fund's goal,
investment strategies and other policies without shareholder approval,
except as otherwise indicated.
Who manages the fund?
The fund's Trustees oversee the general conduct of the fund's business. The
Trustees have retained Putnam Management to be the fund's investment
manager, responsible for making investment decisions for the fund and
managing the fund's other affairs and business. The fund pays Putnam
Management a quarterly management fee for these services based on the
fund's average net assets. The fund paid Putnam Management a management fee
of 0.65% of average net assets for the fund's last fiscal year. Due to the
expense limitation in effect during the fiscal year, the fund was
reimbursed for the full amount of the management fee. See "Annual Fund
Operating Expenses." Putnam Management's address is One Post Office Square,
Boston, MA 02109.
The following officers of Putnam Management have had primary responsibility
for the day-to-day management of the fund's portfolio since the years shown
below. Their experience as portfolio managers or investment analysts over
at least the last five years is also shown.
- -------------------------------------------------------------------------------
Manager Since Experience
- -------------------------------------------------------------------------------
David Santos 1999 1986 - Present Putnam Management
Senior Vice President
- -------------------------------------------------------------------------------
Manuel Weiss 1998 1987 - Present Putnam Management
Senior Vice President
- -------------------------------------------------------------------------------
Michael Martino 2000 1994 - Present Putnam Management
Vice President
- -------------------------------------------------------------------------------
How does the fund price its shares?
The price of the fund's shares is based on its net asset value (NAV). The
NAV equals the total value of its assets, less its liabilities, divided by
the number of its outstanding shares. Shares are only valued as of the
close of regular trading on the New York Stock Exchange each day the
exchange is open.
The fund values its investments for which market quotations are readily
available at market value. It values short-term investments that will
mature within 60 days at amortized cost, which approximates market value.
It values all other investments and assets at their fair value.
The fund translates prices for its investments quoted in foreign currencies
into U.S. dollars at current exchange rates. As a result, changes in the
value of those currencies in relation to the U.S. dollar may affect the
fund's NAV. Because foreign markets may be open at different times than the
New York Stock Exchange, the value of the fund's shares may change on days
when shareholders are not able to buy or sell them. If events materially
affecting the values of the fund's foreign investments occur between the
close of foreign markets and the close of regular trading on the New York
Stock Exchange, these investments will be valued at their fair value.
How do I buy fund 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.
Putnam Mutual Funds Corp. (Putnam Mutual Funds) generally must receive your
plan's completed buy order before the close of regular trading on the New
York Stock Exchange for shares to be bought at that day's offering price.
To eliminate the need for safekeeping, the fund will not issue certificates
for shares.
The fund may periodically close to new purchases of shares or refuse any
order to buy shares if Putnam Management determines that doing so would be
in the best interests of the fund and its shareholders.
* Eligible purchasers. A defined contribution plan (including a corporate
IRA) is eligible to purchase class Y shares if
* the plan, its sponsor and other employee benefit plans of the sponsor
invest at least $150 million in Putnam funds and other investments managed
by Putnam Management or its affiliates, or
* the plan's sponsor confirms a good faith expectation that investments in
Putnam-managed assets by the sponsor and its employee benefit plans will
attain $150 million (using the higher of purchase price or current market
value) within one year of initial purchase, and agrees that class Y shares
may be redeemed and class A shares purchased if that level is not attained.
How do I sell fund shares?
Subject to any restrictions imposed by your employer's plan, you can sell
your shares through the plan back 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 the plan may
impose, please consult your employer.
Your plan administrator must send a signed letter of instruction to Putnam
Investor Services. The price you will receive is the next NAV per share
calculated after the fund receives the instruction in proper form. In order
to receive that day's NAV, Putnam Investor Services must receive the
instruction before the close of regular trading on the New York Stock
Exchange.
The fund generally sends 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.
How do I exchange fund shares?
Subject to any restrictions your plan imposes, you can exchange your fund
shares for shares of other Putnam funds offered through your employer's
plan without a sales charge. Contact your plan administrator or Putnam
Investor Services for more information.
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 otherwise to promote the best interests of the fund,
the fund reserves the right to revise or terminate the exchange privilege,
limit the amount or number of exchanges or reject any exchange. The fund
into which you would like to exchange may also reject your exchange. These
actions may apply to all shareholders or only to those shareholders whose
exchanges Putnam Management determines are likely to have a negative effect
on the fund or other Putnam funds.
Fund distributions and taxes
The fund normally distributes any net investment income quarterly and any
net realized capital gains annually.
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.
Generally, for federal income tax purposes, fund distributions are taxable
as ordinary income, except that any distributions of long-term capital
gains will be taxed as such regardless of how long you have held your
shares. However, distributions by the fund to 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 advisor to determine the suitability of the fund as an
investment through such a plan and the tax treatment of distributions
(including distributions of amounts attributable to an investment in the
fund) from such a plan.
The fund's investment in certain debt obligations may cause the fund to
recognize taxable income in excess of the cash generated by such
obligations. Thus, the fund could be required at times to liquidate other
investments in order to satisfy its distribution requirements.
The fund's investments in foreign securities may be subject to foreign
withholding taxes. In that case, the fund's return on those investments
would be decreased.
You should consult your tax advisor for more information on your own tax
situation, including possible foreign, state and local taxes.
For more information about Putnam Balanced Fund
The fund's statement of additional information (SAI) and annual and
semi-annual reports to shareholders includes additional information about
the fund. The SAI, and the independent accountant's report and financial
statements included in the fund's most recent annual report to its
shareholders, are incorporated by reference into this prospectus, which
means they are part of this prospectus for legal purposes. The fund's
annual report discusses the market conditions and investment strategies
that significantly affected the fund's performance during its last fiscal
year. You may get free copies of these materials, request other
information about the fund, or make shareholder inquiries, by calling Putnam
toll-free at 1-800-752-9894.
You may review and copy information about the fund, including its SAI, at
the Securities and Exchange Commission's public reference room in
Washington, D.C. You may call the Commission at 1-202-942-8090 for
information about the operation of the public reference room. You may also
access reports and other information about the fund on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. You may get
copies of this information, with payment of a duplication fee, by
electronic request at the following E-mail address: [email protected],
or by writing the Commission's Public Reference Section, Washington, D.C.
20549-0102. You may need to refer to the fund's file number.
P U T N A M I N V E S T M E N T S
Putnam Defined Contribution Plans
One Post Office Square
Boston, Massachusetts 02109
1-800-752-9894
Address correspondence to
Putnam Investor Services
P.O. Box 989
Boston, Massachusetts 02103
www.putnaminv.com
59534 3/00 File No. 811-7237
