As filed with the Securities and Exchange Commission on
December 27, 2000
Registration No. 33-3515
811-7513
------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM N-1A
----
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
----
----
Pre-Effective Amendment No. / /
----
----
Post-Effective Amendment No. 39 / X /
and ----
----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X /
ACT OF 1940 ----
----
Amendment No. 41 / X /
(Check appropriate box or boxes) ----
-----------------
PUTNAM FUNDS TRUST
(Exact name of registrant as specified in charter)
One Post Office Square, Boston, Massachusetts 02109
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code
(617) 292-1000
-----------------
It is proposed that this filing will become effective
(check appropriate box)
----
/ / immediately upon filing pursuant to paragraph (b)
----
----
/ x / on (December 30, 2000) pursuant to paragraph (b)
----
----
/ / 60 days after filing pursuant to paragraph (a) (1)
/ / on (date) pursuant to paragraph (a) (1) of Rule 485.
/ / 75 days after filing pursuant to paragraph (a) (2)
----
----
/ / on (date) pursuant to paragraph (a) (2) of Rule 485.
----
If appropriate, check the following box:
----
/ / this post-effective amendment designates a new
---- effective date for a previously filed post-effective amendment.
------------------
JOHN R. VERANI, Vice President
PUTNAM FUNDS TRUST
One Post Office Square
Boston, Massachusetts 02109
(Name and address of agent for service)
------------------
Copy to:
JOHN W. GERSTMAYR, Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
------------------
Part C
This Post-Effective Amendment relates solely to Putnam Latin America
Fund, Putnam Asia Pacific Fund II and Putnam High Yield Trust II.
Information contained in the Registrant's Registration Statement
relating to any other series of the Registrant is neither amended nor
superseded hereby.
As filed with the Securities and Exchange Commission on
December 27, 2000
Registration No. 33-56339
811-7237
------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM N-1A
----
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
----
----
Pre-Effective Amendment No. / /
----
----
Post-Effective Amendment No. 38 / X /
and ----
----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X /
ACT OF 1940 ----
----
Amendment No. 36 / X /
(Check appropriate box or boxes) ----
PUTNAM INVESTMENT FUNDS
(Exact name of registrant as specified in charter)
One Post Office Square, Boston, Massachusetts 02109
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code
(617) 292-1000
-----------------
It is proposed that this filing will become effective
(check appropriate box)
----
/ / immediately upon filing pursuant to paragraph (b)
----
----
/ x / on December 30, 2000 pursuant to paragraph (b)
----
----
/ / 60 days after filing pursuant to paragraph (a) (1)
/ / on (date) pursuant to paragraph (a) (1) of Rule 485.
/ / 75 days after filing pursuant to paragraph (a) (2)
----
----
/ / on (date) pursuant to paragraph (a) (2) of Rule 485.
----
If appropriate, check the following box:
----
/ / this post-effective amendment designates a new
---- effective date for a previously filed post-effective amendment.
------------------
JOHN R. VERANI, Vice President
PUTNAM INVESTMENT FUNDS
One Post Office Square
Boston, Massachusetts 02109
(Name and address of agent for service)
------------------
Copy to:
JOHN W. GERSTMAYR, Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
------------------
Part C
This Post-Effective Amendment relates solely to Putnam International
Fund, Putnam New Value Fund, Putnam International Voyager Fund and
Putnam Emerging Markets Fund. Information contained in the Registrant's
Registration Statement relating to any other series of the Registrant is
neither amended nor superseded hereby.
Prospectus
DECEMBER 30, 2000
Putnam Latin America Fund
Putnam Asia Pacific Fund II
Putnam International Fund
Class A shares
Investment Category: Growth
This prospectus explains what you should know about these mutual funds
before you invest. Please read it carefully.
Putnam Investment Management, Inc. (Putnam Management), which has
managed mutual funds since 1937, manages these funds.
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 summaries
[2] Goal
[2] Main investment strategies
[2] Main risks
[3] Performance information
[5] Fees and expenses
[6] What are each fund's main investment strategies and related risks?
[8] Who manages the funds?
[9] How does a fund price its shares?
[9] How do I buy fund shares?
[10] How do I sell fund shares?
[11] How do I exchange fund shares?
[11] Fund distributions and taxes
[12] Financial highlights
[SCALE LOGO OMITTED]
Fund summaries
GOAL
Each fund seeks long-term capital appreciation.
MAIN INVESTMENT STRATEGIES:
Putnam Latin America Fund. We invest mainly in common stocks of
Latin American companies, which are typically developing or emerging
market companies. Emerging market companies are companies that are
located in or derive most of their revenues from business in countries
with developing markets. We may invest in companies of any size. Because
we invest mainly in developing (also known as emerging) markets, we will
invest significantly in small and midsized companies.
Putnam Asia Pacific Fund II. We invest mainly in common stocks of
Asian (other than Japanese) companies. We first select the countries
and industries we believe are attractive, then we look for companies
with stock prices that reflect a value lower than that which we place on
the company or whose earnings we believe are likely to grow over time.
We also look for the presence of factors that we believe will cause the
stock price to rise. We may invest in companies of any size. Because we
invest mainly in developing (also known as emerging) markets, we will
invest significantly in small and midsized companies.
Putnam International Fund. We invest mainly in common stocks of
companies outside the United States. We first select the countries and
industries we believe are attractive, then seek stocks offering
opportunity for gain. We look for companies with stock prices that
reflect a value lower than that which we place on the company or whose
earnings we believe are likely to grow over time. We also look for the
presence of factors that we believe will cause the stock price to rise.
We invest mainly in midsized and large companies, although we can invest
in companies of any size. Although we emphasize investments in developed
countries, we may also invest in companies located in developing (also
known as emerging) markets.
MAIN RISKS
The main risks that could adversely affect the value of the funds'
shares and the total return on your investment include:
* The risks of investing outside the United States, such as currency
fluctuations, economic or financial instability, lack of timely or
reliable financial information or unfavorable political or legal
developments. These risks are increased for investments in emerging
markets, which constitute most of our investments for Putnam Latin
America Fund and Putnam Asia Pacific Fund II.
* For Putnam Latin America Fund and Putnam Asia Pacific Fund II the
risks of investing mostly in one geographic region. Investments in a
single region, even though representing a number of different countries
within the region, may be affected by common economic forces and other
factors. This vulnerability to factors affecting Asian or Latin
American investments is significantly greater than it would be for a
more geographically diversified fund, and may result in greater
losses and volatility.
* 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.
Because most emerging market companies tend to be small by U.S.
standards, Putnam Latin America Fund and Putnam Asia Pacific Fund II
may be particularly vulnerable to this risk.
* 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.
You can lose money by investing in a fund. A fund may not achieve
its goal, and is not intended as a complete investment program. An
investment in a 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 each fund's
risks. The chart shows year-to-year changes in the performance of the
fund's shares. The table following the chart compares the fund's
performance to that of a broad measure of market performance. Of course,
a fund's past performance is not an indication of future performance.
Putnam Latin America Fund
[GRAPHIC OMITTED: vertical bar chart CALENDAR YEAR TOTAL RETURNS]
CALENDAR YEAR TOTAL RETURNS
1999 76.19%
Performance figures in the bar chart do not reflect the impact of sales
charges. If they did, performance would be less than that shown.
Year-to-date performance through 9/30/00 was -7.53%. During the period
shown in the bar chart, the highest return for a quarter was 42.52%
(quarter ending 12/31/99) and the lowest return for a quarter was -8.58%
(quarter ending 9/30/99).
Putnam Asia Pacific Fund II
1999 89.96%
Performance figures in the bar chart do not reflect the impact of sales
charges. If they did, performance would be less than that shown.
Year-to-date performance through 9/30/00 was -27.05%. During the period
shown in the bar chart, the highest return for a quarter was 40.96%
(quarter ending 6/30/99) and the lowest return for a quarter was -5.35%
(quarter ending 9/30/99).
Putnam International Fund
1999 41.89%
1998 18.82%
1997 9.48%
1996 7.33%
Performance figures in the bar chart do not reflect the impact of sales
charges. If they did, performance would be less than that shown.
Year-to-date performance through 9/30/00 was - 11.28%. During the
periods shown in the bar chart, the highest return for a quarter was
22.42% (quarter ending 12/31/99) and the lowest return for a quarter
was -13.91% (quarter ending 9/30/98).
Average Annual Total Returns (for periods ending 12/31/99)
-----------------------------------------------------------------------------
Past Since
1 year inception
(3/23/98)
-----------------------------------------------------------------------------
Putnam Latin America Fund 66.05% -0.62%
MSCI Emerging Market Latin 65.45% 3.87%
America Index
-----------------------------------------------------------------------------
Average Annual Total Returns (for periods ending 12/31/99)
-----------------------------------------------------------------------------
Past Since
1 year inception
(3/23/98)
-----------------------------------------------------------------------------
Putnam Asia Pacific Fund II 79.08% 31.24%
MSCI AC Asia Free ex Japan Index 64.66% 20.77%
-----------------------------------------------------------------------------
Average Annual Total Returns (for periods ending 12/31/99)
-----------------------------------------------------------------------------
Past Since
1 year inception
(12/28/95)
-----------------------------------------------------------------------------
Putnam International Fund 33.77% 16.71%
MSCI/EAFE Index 26.96% 13.24%
-----------------------------------------------------------------------------
Unlike the bar chart, this performance information reflects the impact
of sales charges. Class A share performance reflects the current
maximum initial sales charge. Each fund's performance through August
31, 2001 benefited from Putnam Management's agreement (since
inception) to limit the fund's expenses. Putnam Latin America Fund's
performance is compared to the MSCI Emerging Market Latin America Index,
an unmanaged index of approximately 218 securities representing 7 Latin
American markets, with all values expressed in US dollars. Putnam Asia
Pacific Fund II's performance is compared to the MSCI AC Asia Free ex
Japan Index, an arithmetic, market value weighted average of the
performance of the securities listed on the stock exchange of those
countries, excluding issues denominated in yen. Putnam International
Fund's performance is compared to the Europe, Australia and Far East
(EAFE) component of the Morgan Stanley Capital International (MSCI)
World Index, an unmanaged index of equity securities listed on the stock
exchanges of Europe, Australia and the Far East.
FEES AND EXPENSES
This table summarizes the fees and expenses you may pay if you invest in
a fund. Expenses are based on the fund's last fiscal year.
Shareholder Fees (fees paid directly from your investment)
-------------------------------------------------------------------------------
Class A
Maximum Sales Charge (Load)
Imposed on Purchases (as a percentage of
the offering price) 5.75%
Maximum Deferred Sales Charge (Load)
as a percentage of the original
purchase price or redemption
proceeds, whichever is lower) NONE*
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Annual Fund Operating Expenses**
(expenses that are deducted from fund assets)
---------------------------------------------------------------------------------------
Total Annual
Management Other Fund Operating Expense Net
Fees Expenses Expenses Reimbursement Expenses
<S> <C> <C> <C> <C> <C>
Putnam Latin America
Fund 1.00% 1.56% 2.56% (0.91)% 1.65%
Putnam Asia Pacific
Fund II 1.00% 1.30% 2.30% (0.65)% 1.65%
Putnam International
Fund 0.80% 0.70% 1.50% (0.04)% 1.46%
---------------------------------------------------------------------------------------
</TABLE>
* 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 August 31, 2001.
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 funds to the cost of investing in other mutual funds.
The example makes certain assumptions. It assumes that you invest
$10,000 in each 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 each 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
-------------------------------------------------------------------------------
Putnam Latin America Fund $733 $1,244 $1,780 $3,240
Putnam Asia Pacific Fund II $733 $1,193 $1,679 $3,012
Putnam International Fund $715 $1,018 $1,343 $2,259
-------------------------------------------------------------------------------
What are each 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 Putnam Latin America
Fund's goal by investing mainly in stocks issued by Latin American
companies. We pursue Putnam Asia Pacific Fund II's goal by
investing mainly in stocks issued by Asian(other than Japanese)
companies. We pursue Putnam International Fund's goal by investing
mainly in stocks issued by companies outside of the United States.
With respect to Putnam International Fund, under normal market
conditions, we invest at least 65% of the fund's total assets in the
equity securities of companies located in at least three countries other
than the United States. To determine whether a company is located
outside of the United States, we look at the following factors: where
the company's securities trade, where the company is located or
organized, or where the company derives its revenues or profits. With
respect to Putnam Asia Pacific Fund II and Putnam Latin America Fund,
under normal market conditions, we invest at least 65% of each fund's
total assets in Asian (with respect to Putnam Asia Pacific Fund II) and
Latin American (with respect to Putnam Latin America Fund) companies.
Putnam Asia Pacific Fund II will not invest in securities of Japanese
companies. To determine whether a company is Asian or Latin American,
we look at the following factors: where the company's securities trade,
where the company is located or organized, or where the company derives
its revenues or profits. We will consider, among other factors, a
company's financial strength, competitive position in its industry,
projected future earnings, cash flows and dividends when deciding which
investments to buy or sell. 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 directly relating 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 its 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 stocks that trade 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. Seeking earnings growth may result in significant
investments in the technology sector, which may be subject to greater
volatility than other sectors of the economy.
Companies whose stock we believe is undervalued by the market may have
experienced adverse business developments or may be subject to special
risks that have caused their stocks to be out of favor. If our
assessment of a company's prospects is wrong, or if other investors do
not similarly recognize the value of the company, then the price of the
company's stock may fall or may not approach the value that we have
placed on it.
Foreign investments. Foreign investments involve certain special
risks, including:
* Unfavorable changes in currency exchange rates: Foreign investments are
typically issued and traded in foreign currencies. As a result, their
values may be affected by changes in exchange rates between foreign
currencies and the U.S. dollar.
* Political and economic developments: Foreign investments may be subject
to the risks of seizure by a foreign government, imposition of
restrictions on the exchange or export of foreign currency, and tax
increases.
* Unreliable or untimely information: There may be less information
publicly available about a foreign company than about most U.S.
companies, and foreign companies are usually not subject to accounting,
auditing and financial reporting standards and practices as stringent
as those in the United States.
* Limited legal recourse: Legal remedies for investors may be more limited
than the remedies available in the United States.
* Limited markets: Certain foreign investments may be less liquid (harder
to buy and sell) and more volatile than most U.S. investments, which
means we may at times be unable to sell these foreign investments at
desirable prices. For the same reason, we may at times find it difficult
to value the fund's foreign investments.
* Trading practices: Brokerage commissions and other fees are generally
higher for foreign investments than for U.S. investments. The procedures
and rules governing foreign transactions and custody may also involve
delays in payment, delivery or recovery of money or investments.
* Lower yield: Common stocks of foreign companies have historically
offered lower dividends than stocks of comparable U.S. companies.
Foreign withholding taxes may further reduce the amount of income
available to distribute to shareholders of the fund.
The risks of foreign investments are typically increased in less
developed countries, which are sometimes referred to as emerging
markets. For example, political and economic structures in these
countries may be changing rapidly, which can cause instability. These
countries are also more likely to experience high levels of inflation,
deflation or currency devaluation, which could hurt their economies and
securities markets. For these and other reasons, investments in emerging
markets are often considered speculative.
Certain of these risks may also apply to some extent to U.S.-traded
investments that are denominated in foreign currencies, investments in
U.S. companies that are traded in foreign markets or investments in
U.S. companies that have significant foreign operations. Special U.S.
tax considerations may apply to each fund's foreign investments.
* Geographic focus. Developments in Asian and Latin American
economies will generally have a greater effect on Putnam Latin America
Fund and Putnam Asia Pacific Fund II than they would on a more
geographically diversified fund, which may result in greater losses and
volatility.
* Derivatives. We may engage in a variety of transactions involving
derivatives, such as futures, options, warrants and swap contracts.
Derivatives are financial instruments whose value depends upon, or is
derived from, the value of something else, such as one or more
underlying investments, pools of investments, indexes or currencies. We
may use derivatives both for hedging and non-hedging purposes. However,
we may also choose not to use derivatives, based on our evaluation of
market conditions or the availability of suitable derivatives.
Derivatives involve special risks and may result in losses. The
successful use of derivatives depends on our ability to manage these
sophisticated instruments. The prices of derivatives may move in
unexpected ways due to the use of leverage or other factors, especially
in unusual market conditions, and may result in increased volatility.
The use of derivatives may also increase the amount of taxes payable by
shareholders.
Other risks arise from our potential inability to terminate or sell
derivatives positions. A liquid secondary market may not always exist
for the fund's derivatives positions at any time. In fact, many
over-the-counter instruments (investments not traded on an exchange)
will not be liquid. Over-the-counter instruments also involve the risk
that the other party to the derivative transaction will not meet its
obligations. For further information about the risks of derivatives,
see the statement of additional information (SAI).
* Small companies. Putnam Latin America Fund and Putnam Asia Pacific
Fund II invest in small companies. These companies, some of 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 small companies may therefore be more
vulnerable to adverse developments than those of larger companies. Small
companies in foreign countries could be relatively smaller than those in
the United States.
* 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 also make other types of investments, such as
investments in preferred stocks, convertible securities and debt
securities, which may be subject to other risks, as described in the
SAI.
* Alternative strategies. Under normal market conditions, we keep a
fund's portfolio fully invested, with minimal cash holdings. However,
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, including investing solely in
the United States. We may choose. however, 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 Trustees may change the fund's goal,
investment strategies and other policies without shareholder approval,
except as otherwise indicated.
Who manages the funds?
Each fund's Trustees oversee the general conduct of the fund's
business. The Trustees have retained Putnam Management to be each
fund's investment manager, responsible for making investment decisions
for the fund and managing the fund's other affairs and business.
Each fund pays Putnam Management a quarterly management fee for these
services based on the fund's average net assets. Putnam Latin America
Fund, Putnam Asia Pacific Fund II and Putnam International Fund paid
Putnam Management a management fee of 0.09% (after expense limitation),
0.35% (after expense limitation) and 0.76% (after expense limitation)
of average net assets for each fund's last fiscal year, respectively.
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 indicated 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.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Manager Since Experience
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Putnam Latin America Fund
Thomas R. Haslett 1998 1996-Present Putnam Management
Managing Director Prior to December 1996 Montgomery Asset
Management. Ltd.
------------------------------------------------------------------------------------
Stephen S. Oler 1998 1997-Present Putnam Management
Senior Vice President Prior to June 1997 Templeton
Investments
Prior to March 1996 Baring Asset
Management
------------------------------------------------------------------------------------
Claudio Brocado 1999 1999-Present Putnam Management
Vice President Prior to August 1999 Stires, O'Donnell
& Co.
Prior to January 1999 Coast Partners
Prior to November 1998 Dresdner RCM
Global Investors
Prior to October 1997 Valores Finamex
------------------------------------------------------------------------------------
Putnam Asia Pacific Fund II
Simon Davis 2000 2000-Present Putnam Management
Senior Vice President Prior to September 2000 Deutsche Asset
Management
------------------------------------------------------------------------------------
Carmel Peters 1998 1997-Present Putnam Management
Senior Vice President Prior to May 1997 Wheelock Natwest
Investment
Management
Prior to February 1996 Rothschild Asset
Management Asia
Pacific
------------------------------------------------------------------------------------
Paul C. Warren 1999 1997-Present Putnam Management
Senior Vice President Prior to May 1997 Director, IDS Fund
Management
------------------------------------------------------------------------------------
Putnam International Fund
Justin Scott 1995 1988-Present Putnam Management
Managing Director
------------------------------------------------------------------------------------
Omid Kamshad 1999 1996-Present Putnam Managemenet
Managing Director Prior to January 1996 Lombard Odier
International
------------------------------------------------------------------------------------
Geirluv Lode 1999 1997-Present Putnam Management
Senior Vice President Prior to July 1997 Chancellor
Liechtenstein
Global Trust Asset
Management
------------------------------------------------------------------------------------
</TABLE>
How does a fund price its shares?
The price of a 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.
Each 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.
Each 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 each fund's NAV. Because foreign markets may be open at
different times than the New York Stock Exchange, the value of each
fund's shares may change on days when shareholders are not able to buy
or sell them. If events materially affecting the values of each 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). Each 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 $25
or more per month through automatic deductions from your bank checking
or savings account. Application forms are available through your advisor
or Putnam Investor Services at 1-800-225-1581.
You may also complete an order form and write a check for the amount you
wish to invest, payable to the appropriate fund. Return the check and
completed form to Putnam Investor Services.
The fund may periodically close to new purchases of shares or refuse any
order to buy shares if the fund determines that doing so would be in the
best interests of the fund and its shareholders.
-------------------------------------------------------------------------------
Initial sales charges for class A shares
-------------------------------------------------------------------------------
Class A sales charge
as a percentage of:
-------------------------------------------------------------------------------
Amount of purchase Net amount Offering
at offering price ($) invested price*
-------------------------------------------------------------------------------
Under 50,000 6.10% 5.75%
50,000 but under 100,000 4.71 4.50
100,000 but under 250,000 3.63 3.50
250,000 but under 500,000 2.56 2.50
500,000 but under 1,000,000 2.04 2.00
1,000,000 and above NONE NONE
-------------------------------------------------------------------------------
* Offering price includes sales charge.
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 Retail Management for assistance.
* Distribution (12b-1) plans. Each fund has adopted distribution plans
to pay for the marketing of fund shares and for services provided to
shareholders, although the funds are not currently making any payments
pursuant to the plans. The plans provide for payments at annual rates
(based on average net assets) of up to 0.35%. Should the Trustees
decide in the future to approve payments under the plan, this
prospectus will be revised.
How do I sell fund shares?
You can sell your shares back to the appropriate fund any day the New
York Stock Exchange is open, either through your financial advisor or
directly to the fund. Payment for redemption may be delayed until the
fund collects the purchase price of shares, which may be 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.
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 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? A 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. Each 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. 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
Each fund normally distributes any net investment income 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.
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 a 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 funds before your investment (and thus were included in the price
you paid). Distributions of gains from investments that the funds
owned for more than one year are taxable as capital gains.
Distributions of gains from investments that the funds owned for one
year or less are taxable as ordinary income. Distributions are taxable
whether you receive them in cash or reinvest them in additional
shares.
A 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 may be entitled to claim a
credit or deduction with respect to foreign taxes. In addition, a
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 is intended to help you understand a
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 for Putnam Latin America Fund and Putnam Asia Pacific
Fund II has been derived from each fund's financial statements which
have been audited by PricewaterhouseCoopers LLP. This information for
Putnam International Fund has been derived from the fund's financial
statements for the year ended August 31, 2000 which have been audited
by KPMG LLP. The information for Putnam International Fund for all
periods prior to the year ended August 31, 2000 has been derived from
the fund's financial statements, which were audited by the fund's
previous independent accountants. The accountant's report and each
fund's financial statements are included in each fund's annual report to
shareholders, which is available upon request.
<TABLE>
<CAPTION>
Putnam Latin America Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
For the period
March 23, 1998+
Year ended August 31 to August 31
-----------------------------------------------------------------------------------
2000 1999 1998
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $5.98 $4.46 $8.50
-----------------------------------------------------------------------------------
Investment operations
Net investment income (a)(d) .01 .09 .06
Net realized and unrealized
gain (loss) on investments 2.70 1.58 (4.10)
-----------------------------------------------------------------------------------
Total from investment operations 2.71 1.67 (4.04)
-----------------------------------------------------------------------------------
Less distributions:
From net investment income (.02) (.15) --
-----------------------------------------------------------------------------------
Net asset value, end of period $8.67 $5.98 $4.46
-----------------------------------------------------------------------------------
Ratios and supplemental data
Total return at net asset
value (%)(b) 45.33 38.27 (47.53)
-----------------------------------------------------------------------------------
Net assets, end of period $3,342 $1,753 $1,133
-----------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) 1.65 1.65 .73*
Ratio of net investment income
to average net assets (%)(d) .16 1.53 .87
Portfolio turnover (%) 101.74 131.26 44.39
-----------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset arrangements.
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses for the fund for the periods
ended August 31, 2000, August 31, 1999 and August 31, 1998
reflect a reduction of $0.07, $0.12 and $0.08 per share, respectively.
</TABLE>
<TABLE>
<CAPTION>
Putnam Asia Pacific Fund II
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
For the period
March 23, 1998+
Year ended August 31 to August 31
-----------------------------------------------------------------------------------
2000 1999 1998
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $10.90 $5.23 $8.50
-----------------------------------------------------------------------------------
Investment operations
Net investment income(loss)(a)(b) (.04) .03 .06
Net realized and unrealized
gain (loss) on investments .92 5.75 (3.33)
-----------------------------------------------------------------------------------
Total from investment operations .88 5.78 (3.27)
-----------------------------------------------------------------------------------
Less distributions:
From net investment income -- (.03) --
In excess of net investment income -- (.06) --
From return of capital -- (.02) --
-----------------------------------------------------------------------------------
Total distributions -- (.11) --
-----------------------------------------------------------------------------------
Net asset value, end of period $11.78 $10.90 $5.23
-----------------------------------------------------------------------------------
Ratios and supplemental data
Total return at net asset
value (%)(c) 8.07 111.52 (38.47)*
-----------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $4,156 $3,129 $1,331
-----------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b)(d) 1.65 1.65 .73*
Ratio of net investment income
(loss) to average net assets
(%)(b) (.34) .35 .99*
Portfolio turnover (%) 288.55 234.28 202.60*
-----------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses for the fund reflect a reduction
of $.08, $.12 and $.07 per share for the periods ended August 31, 2000,
August 31, 1999 and August 31, 1998, respectively.
(c) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(d) Includes amounts paid through expense offset arrangements.
</TABLE>
<TABLE>
<CAPTION>
Putnam International Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
For the period
Dec. 28, 1995+
Year ended August 31 to August 31
-----------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.45 $9.92 $9.58 $8.58 $8.50
-----------------------------------------------------------------------------------
Investment operations
Net investment income
(loss) (d) .01(a) .03(a) .04 .07 .08
Net realized and unrealized
gain on investments 2.02 2.95 .45 1.15 --
-----------------------------------------------------------------------------------
Total from investment
operations 2.03 2.98 .49 1.22 .08
-----------------------------------------------------------------------------------
Less distributions:
From net investment income (.24) (.06) (.06) (.09) --
From net realized gain on
investments (1.26) (.39) (.09) (.13) --
-----------------------------------------------------------------------------------
Total distributions (1.50) (.45) (.15) (.22) --
-----------------------------------------------------------------------------------
Net asset value,
end of period $12.98 $12.45 $9.92 $9.58 $8.58
-----------------------------------------------------------------------------------
Ratios and supplemental data
Total return at
net asset value (%)(b) 16.37 30.76 5.29 14.43 .94*
Net assets, end of period
(in thousands) $7,755 $5,390 $3,858 $3,664 $3,144
-----------------------------------------------------------------------------------
Ratio of expenses to
average net assets
(%)(c)(d) 1.46 1.49 1.47 1.45 .98*
Ratio of net investment
income to average net
assets (%)(d) .11 .23 .40 .74 .96*
Portfolio turnover (%) 31.95 55.80 38.61 76.09 48.18*
-----------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of
weighted average number of shares outstanding during the period.
(b) Total return does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements.
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses for the fund for the period
ended August 31, 2000, August 31, 1999, August 31, 1998, August 31,
1997, and August 31, 1996, reflect a reduction of $0.01, $0.05, $0.04,
$0.03, and $0.05 per share, respectively.
</TABLE>
For more information about Putnam Latin America
Fund, Putnam Asia Pacific Fund II, and Putnam
International Fund
Each fund's statement of additional information (SAI) and annual and
semi-annual reports to shareholders include additional information about
each fund. The SAI, and the independent accountants reports and
financial statements included in Putnam Latin America Fund and Putnam
Asia Pacific Fund II's most recent annual reports to it shareholders and
in Putnam International Fund's two most recent annual reports to it
shareholders, are incorporated by reference into this prospectus, which
means they are part of this prospectus for legal purposes. Each 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 any Putnam fund, or make shareholder inquiries, by
contacting your financial advisor, by visiting Putnam's Internet site,
or by calling Putnam toll-free at 1-800-225-1581.
You may review and copy information about a 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.
PUTNAM INVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
1-800-225-1581
Address correspondence to
Putnam Investor Services
P.O. Box 41203
Providence, Rhode Island 02940-1203
www.putnaminvestments.com
File Nos.
Putnam Latin America Fund and
Putnam Asia Pacific Fund II (each a series of Putnam Funds Trust)
811-7513
Putnam International Fund (a series of Putnam Investment Funds)
811-7237
68161/00
PUTNAM LATIN AMERICA FUND
PUTNAM ASIA PACIFIC FUND II
(A SERIES OF PUTNAM FUNDS TRUST)
PUTNAM INTERNATIONAL FUND
(A SERIES OF PUTNAM INVESTMENT FUNDS)
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
December 30, 2000
This SAI is not a prospectus. If a fund has more than one form of
current prospectus, each reference to the prospectus in this SAI shall
include all of the fund's prospectuses, unless otherwise noted. The SAI
should be read together with the applicable prospectus. Certain
disclosure has been incorporated by reference from the Putnam Latin
America Fund and the Putnam Asia Pacific Fund II's annual reports and
the Putnam International Fund's two previous annual reports. For a free
copy of the funds' annual report or prospectus dated December 30,
2000, as revised from time to time, call Putnam Investor Services at
1-800-225-1581 or write Putnam Investor Services, Mailing address: P.O.
Box 41203, Providence, RI 02940-1203.
Part I of this SAI contains specific information about the funds. Part
II includes information about these funds and the other Putnam funds.
TABLE OF CONTENTS
PART I
FUND ORGANIZATION AND CLASSIFICATION I-3
INVESTMENT RESTRICTIONS I-4
CHARGES AND EXPENSES I-5
INVESTMENT PERFORMANCE I-14
ADDITIONAL OFFICERS I-15
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS I-16
PART II
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS II-1
TAXES II-24
MANAGEMENT II-28
DETERMINATION OF NET ASSET VALUE II-35
HOW TO BUY SHARES II-36
DISTRIBUTION PLANS II-46
INVESTOR SERVICES II-50
SIGNATURE GUARANTEES II-54
SUSPENSION OF REDEMPTIONS II-54
SHAREHOLDER LIABILITY II-54
STANDARD PERFORMANCE MEASURES II-54
COMPARISON OF PORTFOLIO PERFORMANCE II-56
SECURITIES RATINGS II-61
DEFINITIONS II-64
SAI
PART I
FUND ORGANIZATION AND CLASSIFICATION
Putnam Latin America Fund and Putnam Asia Pacific Fund II are a
diversified series of Putnam Funds Trust, a Massachusetts business trust
organized on January 22, 1996. Putnam International Fund is a
diversified series of Putnam Investment Funds, a Massachusetts business
trust organized in October 31, 1994. A copy of each Agreement and
Declaration of Trust, which is governed by Massachusetts law, is on file
with the Secretary of State of The Commonwealth of Massachusetts. Prior
to January 6, 1995, the Putnam Investment Funds was known as Putnam
Equity Funds.
Both Trusts are open-end diversified management investment companies
with an unlimited number of authorized shares of beneficial interest.
The Trustees may, without shareholder approval, create two or more
series of shares representing separate investment portfolios. Any such
series of shares may be divided without shareholder approval into two or
more classes of shares having such preferences and special or relative
rights and privileges as the Trustees determine. Each fund may offer
classes of shares with different sales charges and expenses.
Each share has one vote, with fractional shares voting proportionally.
Shares of all classes will vote together as a single class except when
otherwise required by law or as determined by the Trustees. Shares are
freely transferable, are entitled to dividends as declared by the
Trustees, and, if the fund were liquidated, would receive the net
assets of the fund. Each fund may suspend the sale of shares at any
time and may refuse any order to purchase shares. Although each fund is
not required to hold annual meetings of its shareholders, shareholders
holding at least 10% of the outstanding shares entitled to vote have the
right to call a meeting to elect or remove Trustees, or to take other
actions as provided in its Agreement and Declaration of Trust.
Each fund may suspend the sale of shares at any time and may refuse
any order to purchase shares. Although each fund is not required to
hold annual meetings of its shareholders, shareholders holding at least
10% of the outstanding shares entitled to vote have the right to call a
meeting to elect or remove Trustees, or to take other actions as
provided in the Agreement and Declaration of Trust.
Each fund is a "diversified" investment company under the Investment
Company Act of 1940. This means that with respect to 75% of its total
assets, the fund may not invest more than 5% of its total assets in the
securities of any one issuer (except U.S. government securities). The
remaining 25% of its total assets is not subject to this restriction.
To the extent each fund invests a significant portion of its assets in
the securities of a particular issuer, it will be subject to an
increased risk of loss if the market value of such issuer's securities
declines.
INVESTMENT RESTRICTIONS
As fundamental investment restrictions, which may not be changed without
a vote of a majority of the outstanding voting securities of a fund
created under the Trust, each fund may not and will not:
(1)(a) (Putnam International Fund) Borrow money in excess of 10% of the
value (taken at the lower of cost or current value) of its total assets
(not including the amount borrowed) at the time the borrowing is made,
and then only from banks as a temporary measure to facilitate the meeting
of redemption requests (not for leverage) which might otherwise require
the untimely disposition of portfolio investments or for extraordinary or
emergency purposes. Such borrowings will be repaid before any additional
investments are purchased.
(1)(b) (Putnam Latin America Fund and Putnam Asia Pacific Fund II)
Borrow money in excess of 33 1/3% of the value of its total assets (not
including the amount borrowed) at the time the borrowing is made.
(2) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments,
it may be deemed to be an underwriter under certain federal securities
laws.
(3) Purchase or sell real estate, although it may purchase securities of
issuers which deal in real estate, securities which are secured by
interests in real estate, and securities which represent interests in
real estate, and it may acquire and dispose of real estate or interests
in real estate acquired through the exercise of its rights as a holder
of debt obligations secured by real estate or interests therein.
(4) Purchase or sell commodities or commodity contracts, except that the
fund may purchase and sell financial futures contracts and options.
(5)(a) (Putnam International Fund) Make loans, except by purchase of
debt obligations in which the fund may invest consistent with its
investment policies, by entering into repurchase agreements with
respect to not more than 25% of its total assets (taken at current
value) or through the lending of its portfolio securities with
respect to not more than 25% of its total assets (taken at current
value).
(5)(b) (Putnam Latin America Fund and Putnam Asia Pacific Fund II) Make
loans, except by purchase of debt obligations in which the fund may
invest consistent with its investment policies (including without
limitation debt obligations issued by other Putnam Funds), by entering
into repurchase agreements, or by the lending of its portfolio
securities.
(6) With respect to 75% of its total assets, invest in securities of any
issuer if, immediately after such investment, more than 5% of the total
assets of the fund (taken at current value) would be invested in the
securities of such issuer; provided that this limitation does not apply
to obligations issued or guaranteed as to interest or principal by the
U.S. government or its political subdivisions.
(7) With respect to 75% of its total assets, acquire more than 10% of
the voting securities of any issuer.
(8) Purchase securities (other than securities of the U.S. government,
its agencies or instrumentalities) if, as a result of such purchase,
more than 25% of the fund's total assets would be invested in any one
industry.
(9) Issue any class of securities which is senior to the fund's shares
of beneficial interest.
Although certain of the funds' fundamental investment restrictions
permit them to borrow money to a limited extent, the funds do not
currently intend to do so and did not do so last year.
The Investment Company Act of 1940 provides that a "vote of a majority
of the outstanding voting securities" of the fund means the affirmative
vote of the lesser of (1) more than 50% of the outstanding fund shares,
or (2) 67% or more of the shares present at a meeting if more than 50%
of the outstanding fund shares are represented at the meeting in person
or by proxy.
The following non-fundamental investment policies may be changed by the
Trustees without shareholder approval:
(1) Invest in (a) securities which are not readily marketable, (b)
securities restricted as to resale (excluding securities determined by
the Trustees of the relevant Trust (or the person designated by the
Trustees of the relevant Trust to make such determinations) to be
readily marketable), and (c) repurchase agreements maturing in more than
seven days, if, as a result, more than 15% of the fund's net assets
(taken at current value) would be invested in securities described in
(a), (b) and (c) above.
Foreign investments. We normally invest at least 65% of Putnam
International Fund's total assets in equity securities of companies
located in at least three countries other than the United States. We
consider the following types of companies to be located in a country
other than the United States:
-- companies organized under the laws of a country other than the United
States,
-- companies whose principal office is located outside the United States,
-- companies whose securities are principally traded on foreign markets,
-- companies that earn 50% or more of their total revenues or profits from
business outside of the United States, or
-- companies with 50% or more of their assets located in a country outside
of the United States.
Geographic focus.
Putnam Latin America Fund. We normally invest at least 65% of Putnam
Latin America Fund's total assets in Latin American companies. We
consider the following to be Latin American companies:
-- companies organized under the laws of a Latin American country,
-- companies whose principal office is located in a Latin American country,
-- companies whose common stock is traded principally on a securities
exchange in Latin America,
-- companies that earn 50% or more of their total revenues or profits from
business in Latin America, or
-- companies with 50% or more of their assets located in a Latin American
country.
Latin American countries include the countries of Central America, South
America, the Caribbean and Mexico.
Putnam Asia Pacific Fund II. We normally invest at least 65% of the
fund's total assets in Asian companies other than Japan. We consider
the following to be Asian companies:
-- companies organized under the laws of an Asian country,
-- companies whose principal office is located in an Asian country,
-- companies whose common stock is traded principally on a securities
exchange in Asia,
-- companies that earn 50% or more of their total revenues or profits from
business in Asia, or
-- companies with 50% or more of their assets located in an Asian country.
Putnam Asia Pacific Fund II will not, however, invest in securities of
Japanese companies. For these purposes, a Japanese company is a company
whose principal office is located in Japan and that earns 50% or more of
its total revenues from business in Japan.
---------------------------------
All percentage limitations on investments (other than pursuant to the
non-fundamental restriction(1) above) will apply at the time of the
making of an investment and shall not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result
of such investment.
---------------------------------
CHARGES AND EXPENSES
Management fees
Under a Management Contract dated June 7, 1996, as revised October 3,
1996, December 6, 1996, November 6, 1997, December 8, 1997, January 8,
1998, March 5, 1998, May 8, 2000 and June 5, 2000 Putnam Latin America
Fund and Putnam Asia Pacific Fund II pay a quarterly fee to Putnam
Management based on the average net assets of that fund, as determined
at the close of each business day during the quarter, at the annual rate
of 1.00% of the first $500 million of the fund's average net assets,
0.90% of the next $500 million, 0.85% of the next $500 million, 0.80% of
the next $5 billion, 0.775% of the next $5 billion, 0.755% of the next
$5 billion, 0.74% of the next $5 billion and 0.73% of any excess
thereafter.
Under a Management Contract dated, December 2, 1994, as revised July 14,
1995, December 1,1995, April 1, 1997, March 6, 1998, July 10, 1998,
March 12, 1999, July 1, 1999 and September 10, 1999, Putnam
International Fund pays a quarterly fee to Putnam Management based on
the average net assets of the fund, as determined at the close of each
business day during the quarter, at the annual rate of 0.80% of the
first $500 million of the fund's average net assets, 0.70% of the next
$500 million, 0.65% of the next $500 million, 0.60% of the next $5
billion, 0.575% of the next $5 billion, 0.555% of the next $5 billion,
0.54% of the next $5 billion, and 0.53% of any excess thereafter.
For the past three fiscal years, pursuant to each management contract,
each fund incurred the following fees:
Reflecting a
reduction in the
following amounts
Fiscal Management pursuant to an
year fee paid expense limitation
Putnam Latin America Fund
2000 $27,190 $24,851
1999 $15,740 $33,890
1998* $ 7,996 $19,319
Reflecting a
reduction in the
following amounts
Fiscal Management pursuant to an
year fee paid expense limitation
Putnam Asia Pacific Fund II
2000 $40,745 $26,659
1999 $22,438 $31,933
1998* $ 8,103 $20,848
Reflecting a
reduction in the
following amounts
Fiscal Management pursuant to an
year fee paid expense limitation
Putnam International Fund
2000 $54,469 $ 2,810
1999 $37,031 $21,331
1998 $32,260 $15,856
*For the period from March 23, 1998 (commencement of operations) to
August 31, 1998.
Expense limitation. In order to limit expenses, Putnam Management has
agreed to limit its compensation (and, to the extent necessary, bear
other expenses) through August 31, 2001 for each of Putnam Latin
America Fund, Putnam Asia Pacific Fund II and Putnam International Fund
to the extent that expenses of the funds (exclusive of brokerage,
interest, taxes, deferred organizational and extraordinary expenses, and
payments under the funds' distribution plans) would exceed an annual
rate of 1.65% of Putnam Latin America Fund's and Putnam Asia Pacific
Fund II's and 1.45% of Putnam International Fund's average net assets:
For the purpose of determining any such limitation on Putnam
Management's compensation, expenses of the funds do not reflect the
application of commissions or cash management credits that may reduce
designated fund expenses.
Brokerage commissions
The following table shows brokerage commissions paid during the fiscal
periods indicated:
Fiscal Brokerage
year commissions
Putnam Latin America Fund
2000 $11,626
1999 $ 8,978
1998 $ 4,684*
Fiscal Brokerage
year commissions
Putnam Asia Pacific Fund II
2000 $84,388
1999 $39,111
1998 $14,966*
Fiscal Brokerage
year commissions
Putnam International Fund
2000 $9,633
1999 $8,860
1998 $6,848
*For the period from March 23, 1998 (commencement of operations) to
August 31, 1998.
The following table shows transactions placed with brokers and dealers
during the most recent fiscal year to recognize research, statistical
and quotation services received by Putnam Management and its affiliates:
Dollar value Percent of
of these total Amount of
transactions transactions commissions
Putnam Latin America Fund $ 2,761,865 54.84% $ 8,743
Putnam Asia Pacific Fund II $16,300,698 77.99% $71,819
Putnam International Fund $ 2,054,329 36.08% $ 4,003
Administrative expense reimbursement
The funds reimbursed Putnam Management for administrative services
during fiscal 2000, including compensation of certain fund officers
and contributions to the Putnam Investments, Inc. Profit Sharing
Retirement Plan for their benefit, as follows:
Portion of total
reimbursement for
Total compensation and
reimbursement contributions
Putnam Latin America Fund $40 $33
Putnam Asia Pacific Fund II $40 $33
Putnam International Fund $40 $33
Trustee responsibilities and fees
The Trustees are responsible for generally overseeing the conduct of
fund business. Subject to such policies as the Trustees may determine,
Putnam Management furnishes a continuing investment program for the fund
and makes investment decisions on its behalf. Subject to the control of
the Trustees, Putnam Management also manages the fund's other affairs
and business.
Each Trustee receives a fee for his or her services. Each Trustee also
receives fees for serving as Trustee of other Putnam funds. The
Trustees periodically review their fees to assure that such fees
continue to be appropriate in light of their responsibilities as well as
in relation to fees paid to trustees of other mutual fund complexes.
The Trustees meet monthly over a two-day period, except in August. The
Board Policy Committee, which consists solely of Trustees not affiliated
with Putnam Management and is responsible for recommending Trustee
compensation, estimates that Committee and Trustee meeting time together
with the appropriate preparation requires the equivalent of at least
three business days per Trustee meeting. The following table shows the
year each Trustee was first elected a Trustee of the Putnam funds, the
fees paid to each Trustee by the fund for fiscal 2000 and the fees
paid to each Trustee by all of the Putnam funds during calendar year
1999:
<TABLE>
<CAPTION>
COMPENSATION TABLE
Pension or retirement benefits
Aggregate compensation from (1): accrued as part of fund expenses(2) Estimated
-------------------------------- ------------------------------------ annual Total
Putnam Putnam Putnam Putnam benefits compensation
Latin Asia Putnam Latin Asia Putnam from all from all
America Pacific International America Pacific International Putnam funds Putnam
Trustee/Year Fund Fund II Fund Fund Fund II Fund upon retirement (2) funds (3)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jameson A. Baxter/
1994 (4) $122 $124 $122 $25 $25 $25 $95,000 $191,000
Hans H. Estin/
1972 $122 $124 $122 $58 $58 $58 $95,000 $190,000
John A. Hill/
1985 (4)(5) $122 $124 $123 $29 $29 $29 $115,000 $239,750
Ronald J. Jackson/
1996 (4) $122 $124 $122 $34 $34 $34 $95,000 $193,500
Paul L. Joskow/
1997 (4) $122 $124 $122 $13 $13 $13 $95,000 $191,000
Elizabeth T. Kennan/
1992 $121 $123 $121 $38 $38 $38 $95,000 $190,000
Lawrence J. Lasser/
1992 (7) $123 $123 $120 $29 $29 $29 $95,000 $189,000
John H. Mullin III/
1997 (4) $121 $123 $121 $20 $20 $20 $95,000 $196,000
Robert E. Patterson/
1984 $122 $124 $121 $20 $20 $20 $95,000 $190,250
William F. Pounds/
1971 (5)(6) $11 $104 $104 $66 $66 $66 $115,000 $231,000
George Putnam/
1957 (6) $103 $103 $103 $57 $57 $57 $95,000 $190,000
George Putnam, III/
1984 $122 $125 $122 $13 $13 $13 $95,000 $190,000
A.J.C. Smith/
1986 (7) $120 $120 $121 $42 $42 $42 $95,000 $188,000
W. Thomas Stephens/
1997 (4) $120 $122 $120 $19 $19 $19 $95,000 $188,000
W. Nicholas Thorndike/
1992 $119 $121 $119 $53 $53 $53 $95,000 $190,000
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes an annual retainer and an attendance fee for each meeting
attended.
(2) Assumes that each Trustee retires at the normal retirement date.
For Trustees who are not within three years of retirement, estimated
benefits for each Trustee are based on Trustee fee rates in effect
during calendar 1999.
(3) As of December 31, 1999, there were 114 funds in the Putnam
family.
(4) Includes compensation deferred pursuant to a Trustee Compensation
Deferral Plan.
(5) Includes additional compensation for service as Vice Chairman of
the Putnam funds. Mr. Hill was elected Chairman of the Putnam funds as
of July 1, 2000.
(6) Reflects retirement from the Board of Trustees of the Putnam funds
on June 30, 2000.
(7) Commencing July 1, 2000, Marsh & McLennan Companies, Inc.
compensates Mr. Lasser and Mr. Smith for their services as Trustees.
The estimated annual retirement benefits and related fund expenses shown
in this table for Messrs. Lasser and Smith reflect benefits earned under
the Funds' retirement plan prior to that date.
Under a Retirement Plan for Trustees of the Putnam funds (the "Plan"),
each Trustee who retires with at least five years of service as a
Trustee of the funds is entitled to receive an annual retirement benefit
equal to one-half of the average annual compensation paid to such
Trustee for the last three years of service prior to retirement. This
retirement benefit is payable during a Trustee's lifetime, beginning the
year following retirement, for a number of years equal to such Trustee's
years of service. A death benefit, also available under the Plan,
assures that the Trustee and his or her beneficiaries will receive
benefit payments for the lesser of an aggregate period of (i) ten years
or (ii) such Trustee's total years of service.
The Plan Administrator (a committee comprised of Trustees that are not
"interested persons" of the fund, as defined in the Investment Company
Act of 1940) may terminate or amend the Plan at any time, but no
termination or amendment will result in a reduction in the amount of
benefits (i) currently being paid to a Trustee at the time of such
termination or amendment, or (ii) to which a current Trustee would have
been entitled had he or she retired immediately prior to such
termination or amendment.
For additional information concerning the Trustees, see "Management" in
Part II of this SAI.
Share ownership - to be supplied
At November 30, 2000, the officers and Trustees of each fund as a group
owned less than 1% of each fund and owned less than 1% of the
outstanding shares of Putnam International Fund. Except as noted
below, to the knowledge of each fund, no person owned of record or
beneficially 5% or more of any class of shares of the fund:
Putnam Latin America Fund
Shareholder name Percentage
and address owned
Putnam Investments, Inc. *81.30%
Putnam Asia Pacific Fund II
Shareholder name Percentage
and address owned
Putnam Investments, Inc. *87.90%
Putnam International Fund
Shareholder name Percentage
and address owned
Putnam Investments, Inc. *94.00%
* One Post Office Square, Boston, Ma 02109
Distribution Fees
During fiscal 2000, Putnam Retail Management, Inc. received no
distribution payments with respect to Putnam Latin America Fund, Putnam
Asia Pacific Fund II and Putnam International Fund.
Sales charges and contingent deferred sales charges
During fiscal 2000, Putnam Retail Management, Inc. received no sales
charges with respect to Putnam Latin America Fund, Putnam Asia Pacific
Fund II and Putnam International Fund.
Investor servicing and custody fees and expenses
During the 2000 fiscal year, each fund incurred the following fees
and out-of-pocket expenses for investor servicing and custody services
provided by Putnam Fiduciary Trust Company:
Putnam Latin America Fund $ 4,459
Putnam Asia Pacific Fund II $ 6,310
Putnam International Fund $10,190
INVESTMENT PERFORMANCE*
Standard performance measures
(for periods ended August 31, 2000)
Putnam Latin America Fund
Inception Date 3/23/98
Average annual total return+
1 year 37.08%
Life of fund - 0.26%
Putnam Asia Pacific Fund II
Inception Date 3/23/98
Average annual total return+
1 year 1.09%
Life of fund 12.24%
Putnam International Fund
Inception Date 12/28/95
Average annual total return+
1 year 9.68%
Life of fund 12.62%
*The funds are offered on a limited basis and have limited assets.
+ Reflecting an expense limitation in effect during the period. In the
absence of the expense limitation, total return shown would have been
lower. The per share amount of the expense limitation is set forth in
the section of the prospectus entitled "Financial highlights."
Returns reflect the deduction of the current maximum initial sales
charges of 5.75%.
All returns assume reinvestment of distributions at net asset value and
represent past performance; they do not guarantee future results.
Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
See "Standard Performance Measures" in Part II of this SAI for
information on how performance is calculated.
ADDITIONAL OFFICERS
In addition to the persons listed as fund officers in Part II of this
SAI, each of the following persons is also a Vice President of each
fund and certain of the other Putnam funds, the total number of which is
noted parenthetically. Officers of Putnam Management hold the same
offices in Putnam Management's parent company, Putnam Investments, Inc.
Officer Name (Age) (Number of funds)
Thomas R. Haslett (38) (4 funds). Managing Director of Putnam
Management. Prior to December, 1996, Mr. Haslett was Managing Director
Montgomery Asset Management Ltd.
John J. Morgan, Jr.(59) (28 funds). Managing Director of Putnam
Management.
Justin M. Scott(42) (15 funds). Managing Director of Putnam
Management.
Paul Warren (40) (7 funds). Senior Vice President of Putnam
Management. Prior to May, 1997, Mr. Warren was a Director at IDS Fund
Management.
Omid Kamshad (39) (7 funds). Managing Director of Putnam Management.
Prior to January, 1996, Mr. Kamshad was Director of Investments at
Lombard Odier International and prior to April, 1995, he was Director at
Baring Asset Management Company.
Geirulv Lode (38) (1 fund). Senior Vice President of Putnam
Management. Prior to May 1995, Mr. Lode was a Securities Analyst at
Chancellor Lgt. Asset Management. Prior to May, 1995, Mr. Lode was
employed at Frank Russell Co.
Stephen Oler (39) (4 funds). Senior Vice President of Putnam
Management. Prior to June, 1997, Mr. Oler was a Vice President at
Templeton Investments, and prior to March, 1996 was a Senior Vice
President at Baring Asset Management.
Carmel Peters (49) (4 funds). Senior Vice President of Putnam
Management. Prior to May, 1997, Ms. Peters was a Managing Director and
Chief Investment Officer of Wheelock Natwest Investment Management, Hong
Kong, and prior to February, 1996, Ms. Peters was a Director and Chief
Investment Officer or Rothschild Asset Management Asia Pacific, Hong
Kong.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, are Putnam Asia Pacific Fund II's and Putnam Latin America
Fund's independent accountants, providing audit services, tax return
review and other tax consulting services and assistance and consultation
in connection with the review of various Securities and Exchange
Commission filings. The Report of Independent Accountants, financial
highlights and financial statements included in the funds' Annual
Report for the fiscal year ended August 30, 2000, filed electronically
on October 25, 2000 (File No. 811-7513), are incorporated by reference
into this SAI. The financial highlights included in the prospectus
and incorporated by reference into this SAI and the financial statements
incorporated by reference into the prospectus and this SAI have been so
included and incorporated in reliance upon the report of the independent
accountants, given on their authority as experts in auditing and
accounting.
KPMG LLP, 99 High Street, Boston, Massachusetts 02110, are Putnam
International Fund's independent accountants, providing audit services,
tax return review and other tax consulting services and assistance and
consultation in connection with the review of various Securities and
Exchange Commission filings. The Report of Independent Accountants,
financial highlights and financial statements included in the fund's
Annual Reports for the fiscal years ended August 30, 1999 and August 30,
2000 are incorporated by reference into this SAI. The fund's Annual
report for fiscal year ended August 30, 2000 was filed electronically on
October 25, 2000 (File No. 811-7237). The financial highlights included
in the prospectus and incorporated by reference into this SAI and the
financial statements incorporated by reference into the prospectus and
this SAI have been so included and incorporated in reliance upon the
reports of the independent accountants and previous independent
accountants, PricewaterhouseCoopers LLP, given on their authority as
experts in auditing and accounting.
TABLE OF CONTENTS
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS II-1
TAXES II-24
MANAGEMENT II-28
DETERMINATION OF NET ASSET VALUE II-35
HOW TO BUY SHARES II-36
DISTRIBUTION PLANS II-46
INVESTOR SERVICES II-50
SIGNATURE GUARANTEES II-54
SUSPENSION OF REDEMPTIONS II-54
SHAREHOLDER LIABILITY II-55
STANDARD PERFORMANCE MEASURES II-55
COMPARISON OF PORTFOLIO PERFORMANCE II-56
SECURITIES RATINGS II-61
DEFINITIONS II-65
THE PUTNAM FUNDS
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
PART II
As noted in the prospectus, in addition to the principal investment
strategies and the principal risks described in the prospectus, the fund
may employ other investment practices and may be subject to other risks,
which are described below. Because the following is a combined
description of investment strategies of all of the Putnam funds, certain
matters described herein may not apply to your fund. Unless a strategy
or policy described below is specifically prohibited by the investment
restrictions explained in the fund's prospectus or Part I of this SAI,
or by applicable law, the fund may engage in each of the practices
described below. Shareholders who purchase shares at net asset value
through employer-sponsored defined contribution plans should also
consult their employer for information about the extent to which the
matters described below apply to them.
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS
Foreign Investments
Foreign securities are normally denominated and traded in foreign
currencies. As a result, the value of the fund's foreign investments
and the value of its shares may be affected favorably or unfavorably by
changes in currency exchange rates relative to the U.S. dollar. There
may be less information publicly available about a foreign issuer than
about a U.S. issuer, and foreign issuers may not be subject to
accounting, auditing and financial reporting standards and practices
comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than
securities of comparable U.S. issuers. Foreign brokerage commissions
and other fees are also generally higher than in the United States.
Foreign settlement procedures and trade regulations may involve certain
risks (such as delay in payment or delivery of securities or in the
recovery of the fund's assets held abroad) and expenses not present in
the settlement of investments in U.S. markets.
In addition, foreign securities may be subject to the risk of
nationalization or expropriation of assets, imposition of currency
exchange controls, foreign withholding taxes or restrictions on the
repatriation of foreign currency, confiscatory taxation, political or
financial instability and diplomatic developments which could affect the
value of the fund's investments in certain foreign countries. Dividends
or interest on, or proceeds from the sale of, foreign securities may be
subject to foreign withholding taxes, and special U.S. tax
considerations may apply.
Legal remedies available to investors in certain foreign countries may
be more limited than those available with respect to investments in the
United States or in other foreign countries. The laws of some foreign
countries may limit the fund's ability to invest in securities of
certain issuers organized under the laws of those foreign countries.
The risks described above, including the risks of nationalization or
expropriation of assets, typically are increased in connection with
investments in "emerging markets." For example, political and economic
structures in these countries may be in their infancy and developing
rapidly, and such countries may lack the social, political and economic
stability characteristic of more developed countries. Certain of these
countries have in the past failed to recognize private property rights
and have at times nationalized and expropriated the assets of private
companies. High rates of inflation or currency devaluations may
adversely affect the economies and securities markets of such countries.
Investments in emerging markets may be considered speculative.
The currencies of certain emerging market countries have experienced
devaluations relative to the U.S. dollar, and future devaluations may
adversely affect the value of assets denominated in such currencies.
Many emerging market countries have experienced substantial, and in some
periods extremely high, rates of inflation or deflation for many years,
and future inflation may adversely affect the economies and securities
markets of such countries.
In addition, unanticipated political or social developments may affect
the value of investments in emerging markets and the availability of
additional investments in these markets. The small size, limited
trading volume and relative inexperience of the securities markets in
these countries may make investments in securities traded in emerging
markets illiquid and more volatile than investments in securities traded
in more developed countries, and the fund may be required to establish
special custodial or other arrangements before making investments in
securities traded in emerging markets. There may be little financial or
accounting information available with respect to issuers of emerging
market securities, and it may be difficult as a result to assess the
value of prospects of an investment in such securities.
Certain of the foregoing risks may also apply to some extent to
securities of U.S. issuers that are denominated in foreign currencies or
that are traded in foreign markets, or securities of U.S. issuers having
significant foreign operations.
Foreign Currency Transactions
To manage its exposure to foreign currencies, the fund may engage
without limit in foreign currency exchange transactions, including
purchasing and selling foreign currency, foreign currency options,
foreign currency forward contracts and foreign currency futures
contracts and related options. In addition, the fund may write covered
call and put options on foreign currencies for the purpose of increasing
its current return.
Generally, the fund may engage in both "transaction hedging" and
"position hedging." The fund may also engage in foreign currency
transactions for non-hedging purposes, subject to applicable law. When
it engages in transaction hedging, the fund enters into foreign currency
transactions with respect to specific receivables or payables, generally
arising in connection with the purchase or sale of portfolio securities.
The fund will engage in transaction hedging when it desires to "lock in"
the U.S. dollar price of a security it has agreed to purchase or sell,
or the U.S. dollar equivalent of a dividend or interest payment in a
foreign currency. By transaction hedging the fund will attempt to
protect itself against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and the applicable foreign
currency during the period between the date on which the security is
purchased or sold, or on which the dividend or interest payment is
earned, and the date on which such payments are made or received.
The fund may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign
currency. If conditions warrant, for transaction hedging purposes the
fund may also enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") and purchase and sell
foreign currency futures contracts. A foreign currency forward contract
is a negotiated agreement to exchange currency at a future time at a
rate or rates that may be higher or lower than the spot rate. Foreign
currency futures contracts are standardized exchange-traded contracts
and have margin requirements. In addition, for transaction hedging
purposes the fund may also purchase or sell exchange-listed and
over-the-counter call and put options on foreign currency futures
contracts and on foreign currencies.
For transaction hedging purposes the fund may also purchase
exchange-listed and over-the-counter call and put options on foreign
currency futures contracts and on foreign currencies. A put option on a
futures contract gives the fund the right to assume a short position in
the futures contract until the expiration of the option. A put option
on a currency gives the fund the right to sell the currency at an
exercise price until the expiration of the option. A call option on a
futures contract gives the fund the right to assume a long position in
the futures contract until the expiration of the option. A call option
on a currency gives the fund the right to purchase the currency at the
exercise price until the expiration of the option.
The fund may engage in position hedging to protect against a decline in
the value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of the currency in which the securities the fund intends to buy
are denominated, when the fund holds cash or short-term investments).
For position hedging purposes, the fund may purchase or sell, on
exchanges or in over-the-counter markets, foreign currency futures
contracts, foreign currency forward contracts and options on foreign
currency futures contracts and on foreign currencies. In connection
with position hedging, the fund may also purchase or sell foreign
currency on a spot basis.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward or
futures contract. Accordingly, it may be necessary for the fund to
purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security or
securities being hedged is less than the amount of foreign currency the
fund is obligated to deliver and a decision is made to sell the security
or securities and make delivery of the foreign currency. Conversely, it
may be necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of
foreign currency the fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the fund owns or intends to
purchase or sell. They simply establish a rate of exchange which one
can achieve at some future point in time. Additionally, although these
techniques tend to minimize the risk of loss due to a decline in the
value of the hedged currency, they tend to limit any potential gain
which might result from the increase in value of such currency. See
"Risk factors in options transactions."
The fund may seek to increase its current return or to offset some of
the costs of hedging against fluctuations in current exchange rates by
writing covered call options and covered put options on foreign
currencies. The fund receives a premium from writing a call or put
option, which increases the fund's current return if the option expires
unexercised or is closed out at a net profit. The fund may terminate an
option that it has written prior to its expiration by entering into a
closing purchase transaction in which it purchases an option having the
same terms as the option written.
The fund's currency hedging transactions may call for the delivery of
one foreign currency in exchange for another foreign currency and may at
times not involve currencies in which its portfolio securities are then
denominated. Putnam Management will engage in such "cross hedging"
activities when it believes that such transactions provide significant
hedging opportunities for the fund. Cross hedging transactions by the
fund involve the risk of imperfect correlation between changes in the
values of the currencies to which such transactions relate and changes
in the value of the currency or other asset or liability which is the
subject of the hedge.
The fund may also engage in non-hedging currency transactions. For
example, Putnam Management may believe that exposure to a currency is in
the fund's best interest but that securities denominated in that
currency are unattractive. In that case the fund may purchase a
currency forward contract or option in order to increase its exposure to
the currency. In accordance with SEC regulations, the fund will
segregate liquid assets in its portfolio to cover forward contracts used
for non-hedging purposes.
The value of any currency, including U.S. dollars and foreign
currencies, may be affected by complex political and economic factors
applicable to the issuing country. In addition, the exchange rates of
foreign currencies (and therefore the values of foreign currency
options, forward contracts and futures contracts) may be affected
significantly, fixed, or supported directly or indirectly by U.S. and
foreign government actions. Government intervention may increase risks
involved in purchasing or selling foreign currency options, forward
contracts and futures contracts, since exchange rates may not be free to
fluctuate in response to other market forces.
The value of a foreign currency option, forward contract or futures
contract reflects the value of an exchange rate, which in turn reflects
relative values of two currencies, the U.S. dollar and the foreign
currency in question. Because foreign currency transactions occurring
in the interbank market involve substantially larger amounts than those
that may be involved in the exercise of foreign currency options,
forward contracts and futures contracts, investors may be disadvantaged
by having to deal in an odd-lot market for the underlying foreign
currencies in connection with options at prices that are less favorable
than for round lots. Foreign governmental restrictions or taxes could
result in adverse changes in the cost of acquiring or disposing of
foreign currencies.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations
available through dealers or other market sources be firm or revised on
a timely basis. Available quotation information is generally
representative of very large round-lot transactions in the interbank
market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock
market. To the extent that options markets are closed while the markets
for the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be
reflected in the options markets.
The decision as to whether and to what extent the fund will engage in
foreign currency exchange transactions will depend on a number of
factors, including prevailing market conditions, the composition of the
fund's portfolio and the availability of suitable transactions.
Accordingly, there can be no assurance that the fund will engage in
foreign currency exchange transactions at any given time or from time to
time.
Currency forward and futures contracts. A forward foreign currency
contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of
the contract as agreed by the parties, at a price set at the time of the
contract. In the case of a cancelable forward contract, the holder has
the unilateral right to cancel the contract at maturity by paying a
specified fee. The contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial
banks) and their customers. A forward contract generally has no deposit
requirement, and no commissions are charged at any stage for trades. A
foreign currency futures contract is a standardized contract for the
future delivery of a specified amount of a foreign currency at a price
set at the time of the contract. Foreign currency futures contracts
traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date
of a forward contract may be any fixed number of days from the date of
the contract agreed upon by the parties, rather than a predetermined
date in a given month. Forward contracts may be in any amount agreed
upon by the parties rather than predetermined amounts. Also, forward
foreign exchange contracts are traded directly between currency traders
so that no intermediary is required. A forward contract generally
requires no margin or other deposit.
At the maturity of a forward or futures contract, the fund either may
accept or make delivery of the currency specified in the contract, or at
or prior to maturity enter into a closing transaction involving the
purchase or sale of an offsetting contract. Closing transactions with
respect to forward contracts are usually effected with the currency
trader who is a party to the original forward contract. Closing
transactions with respect to futures contracts are effected on a
commodities exchange; a clearing corporation associated with the
exchange assumes responsibility for closing out such contracts.
Positions in the foreign currency futures contracts may be closed out
only on an exchange or board of trade which provides a secondary market
in such contracts. Although the fund intends to purchase or sell
foreign currency futures contracts only on exchanges or boards of trade
where there appears to be an active secondary market, there is no
assurance that a secondary market on an exchange or board of trade will
exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures position and, in the
event of adverse price movements, the fund would continue to be required
to make daily cash payments of variation margin.
Foreign currency options. In general, options on foreign currencies
operate similarly to options on securities and are subject to many of
the risks described above. Foreign currency options are traded
primarily in the over-the-counter market, although options on foreign
currencies are also listed on several exchanges. Options are traded not
only on the currencies of individual nations, but also on the euro, the
joint currency of most countries in the European Union.
The fund will only purchase or write foreign currency options when
Putnam Management believes that a liquid secondary market exists for
such options. There can be no assurance that a liquid secondary market
will exist for a particular option at any specific time. Options on
foreign currencies are affected by all of those factors which influence
foreign exchange rates and investments generally.
Settlement procedures. Settlement procedures relating to the fund's
investments in foreign securities and to the fund's foreign currency
exchange transactions may be more complex than settlements with respect
to investments in debt or equity securities of U.S. issuers, and may
involve certain risks not present in the fund's domestic investments.
For example, settlement of transactions involving foreign securities or
foreign currencies may occur within a foreign country, and the fund may
be required to accept or make delivery of the underlying securities or
currency in conformity with any applicable U.S. or foreign restrictions
or regulations, and may be required to pay any fees, taxes or charges
associated with such delivery. Such investments may also involve the
risk that an entity involved in the settlement may not meet its
obligations.
Foreign currency conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on
the difference (the "spread") between prices at which they are buying
and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to the fund at one rate, while offering a lesser rate
of exchange should the fund desire to resell that currency to the
dealer.
Options on Securities
Writing covered options. The fund may write covered call options and
covered put options on optionable securities held in its portfolio, when
in the opinion of Putnam Management such transactions are consistent
with the fund's investment objective(s) and policies. Call options
written by the fund give the purchaser the right to buy the underlying
securities from the fund at a stated exercise price; put options give
the purchaser the right to sell the underlying securities to the fund at
a stated price.
The fund may write only covered options, which means that, so long as
the fund is obligated as the writer of a call option, it will own the
underlying securities subject to the option (or comparable securities
satisfying the cover requirements of securities exchanges). In the case
of put options, the fund will hold cash and/or high-grade short-term
debt obligations equal to the price to be paid if the option is
exercised. In addition, the fund will be considered to have covered a
put or call option if and to the extent that it holds an option that
offsets some or all of the risk of the option it has written. The fund
may write combinations of covered puts and calls on the same underlying
security.
The fund will receive a premium from writing a put or call option, which
increases the fund's return on the underlying security in the event the
option expires unexercised or is closed out at a profit. The amount of
the premium reflects, among other things, the relationship between the
exercise price and the current market value of the underlying security,
the volatility of the underlying security, the amount of time remaining
until expiration, current interest rates, and the effect of supply and
demand in the options market and in the market for the underlying
security. By writing a call option, the fund limits its opportunity to
profit from any increase in the market value of the underlying security
above the exercise price of the option but continues to bear the risk of
a decline in the value of the underlying security. By writing a put
option, the fund assumes the risk that it may be required to purchase
the underlying security for an exercise price higher than its
then-current market value, resulting in a potential capital loss unless
the security subsequently appreciates in value.
The fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction, in which it
purchases an offsetting option. The fund realizes a profit or loss from
a closing transaction if the cost of the transaction (option premium
plus transaction costs) is less or more than the premium received from
writing the option. If the fund writes a call option but does not own
the underlying security, and when it writes a put option, the fund may
be required to deposit cash or securities with its broker as "margin,"
or collateral, for its obligation to buy or sell the underlying
security. As the value of the underlying security varies, the fund may
have to deposit additional margin with the broker. Margin requirements
are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
Purchasing put options. The fund may purchase put options to protect
its portfolio holdings in an underlying security against a decline in
market value. Such protection is provided during the life of the put
option since the fund, as holder of the option, is able to sell the
underlying security at the put exercise price regardless of any decline
in the underlying security's market price. In order for a put option to
be profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and
transaction costs. By using put options in this manner, the fund will
reduce any profit it might otherwise have realized from appreciation of
the underlying security by the premium paid for the put option and by
transaction costs.
Purchasing call options. The fund may purchase call options to hedge
against an increase in the price of securities that the fund wants
ultimately to buy. Such hedge protection is provided during the life of
the call option since the fund, as holder of the call option, is able to
buy the underlying security at the exercise price regardless of any
increase in the underlying security's market price. In order for a call
option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs.
Risk Factors in Options Transactions
The successful use of the fund's options strategies depends on the
ability of Putnam Management to forecast correctly interest rate and
market movements. For example, if the fund were to write a call option
based on Putnam Management's expectation that the price of the
underlying security would fall, but the price were to rise instead, the
fund could be required to sell the security upon exercise at a price
below the current market price. Similarly, if the fund were to write a
put option based on Putnam Management's expectation that the price of
the underlying security would rise, but the price were to fall instead,
the fund could be required to purchase the security upon exercise at a
price higher than the current market price.
When the fund purchases an option, it runs the risk that it will lose
its entire investment in the option in a relatively short period of
time, unless the fund exercises the option or enters into a closing sale
transaction before the option's expiration. If the price of the
underlying security does not rise (in the case of a call) or fall (in
the case of a put) to an extent sufficient to cover the option premium
and transaction costs, the fund will lose part or all of its investment
in the option. This contrasts with an investment by the fund in the
underlying security, since the fund will not realize a loss if the
security's price does not change.
The effective use of options also depends on the fund's ability to
terminate option positions at times when Putnam Management deems it
desirable to do so. There is no assurance that the fund will be able to
effect closing transactions at any particular time or at an acceptable
price.
If a secondary market in options were to become unavailable, the fund
could no longer engage in closing transactions. Lack of investor
interest might adversely affect the liquidity of the market for
particular options or series of options. A market may discontinue
trading of a particular option or options generally. In addition, a
market could become temporarily unavailable if unusual events -- such as
volume in excess of trading or clearing capability -- were to interrupt
its normal operations.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening transactions.
For example, if an underlying security ceases to meet qualifications
imposed by the market or the Options Clearing Corporation, new series of
options on that security will no longer be opened to replace expiring
series, and opening transactions in existing series may be prohibited.
If an options market were to become unavailable, the fund as a holder of
an option would be able to realize profits or limit losses only by
exercising the option, and the fund, as option writer, would remain
obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying options
purchased or sold by the fund could result in losses on the options. If
trading is interrupted in an underlying security, the trading of options
on that security is normally halted as well. As a result, the fund as
purchaser or writer of an option will be unable to close out its
positions until options trading resumes, and it may be faced with
considerable losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing
Corporation or other options markets may impose exercise restrictions.
If a prohibition on exercise is imposed at the time when trading in the
option has also been halted, the fund as purchaser or writer of an
option will be locked into its position until one of the two
restrictions has been lifted. If the Options Clearing Corporation were
to determine that the available supply of an underlying security appears
insufficient to permit delivery by the writers of all outstanding calls
in the event of exercise, it may prohibit indefinitely the exercise of
put options. The fund, as holder of such a put option, could lose its
entire investment if the prohibition remained in effect until the put
option's expiration.
Foreign-traded options are subject to many of the same risks presented
by internationally-traded securities. In addition, because of time
differences between the United States and various foreign countries, and
because different holidays are observed in different countries, foreign
options markets may be open for trading during hours or on days when
U.S. markets are closed. As a result, option premiums may not reflect
the current prices of the underlying interest in the United States.
Over-the-counter ("OTC") options purchased by the fund and assets held
to cover OTC options written by the fund may, under certain
circumstances, be considered illiquid securities for purposes of any
limitation on the fund's ability to invest in illiquid securities.
Investments in Miscellaneous Fixed-Income Securities
If the fund may invest in inverse floating obligations, premium
securities, or interest-only or principal-only classes of
mortgage-backed securities (IOs and POs), it may do so without limit.
The fund, however, currently does not intend to invest more than 15% of
its assets in inverse floating obligations or more than 35% of its
assets in IOs and POs under normal market conditions.
Lower-rated Securities
The fund may invest in lower-rated fixed-income securities (commonly
known as "junk bonds"). The lower ratings of certain securities held by
the fund reflect a greater possibility that adverse changes in the
financial condition of the issuer or in general economic conditions, or
both, or an unanticipated rise in interest rates, may impair the ability
of the issuer to make payments of interest and principal. The inability
(or perceived inability) of issuers to make timely payment of interest
and principal would likely make the values of securities held by the
fund more volatile and could limit the fund's ability to sell its
securities at prices approximating the values the fund had placed on
such securities. In the absence of a liquid trading market for
securities held by it, the fund at times may be unable to establish the
fair value of such securities.
Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' analysis at the time of
rating. Consequently, the rating assigned to any particular security is
not necessarily a reflection of the issuer's current financial
condition, which may be better or worse than the rating would indicate.
In addition, the rating assigned to a security by Moody's Investors
Service, Inc. or Standard & Poor's (or by any other nationally
recognized securities rating agency) does not reflect an assessment of
the volatility of the security's market value or the liquidity of an
investment in the security. See "Securities ratings."
Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. A
decrease in interest rates will generally result in an increase in the
value of the fund's assets. Conversely, during periods of rising
interest rates, the value of the fund's assets will generally decline.
The values of lower-rated securities may often be affected to a greater
extent by changes in general economic conditions and business conditions
affecting the issuers of such securities and their industries. Negative
publicity or investor perceptions may also adversely affect the values
of lower-rated securities. Changes by nationally recognized securities
rating agencies in their ratings of any fixed-income security and
changes in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments. Changes in
the value of portfolio securities generally will not affect income
derived from these securities, but will affect the fund's net asset
value. The fund will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase. However,
Putnam Management will monitor the investment to determine whether its
retention will assist in meeting the fund's investment objective(s).
Issuers of lower-rated securities are often highly leveraged, so that
their ability to service their debt obligations during an economic
downturn or during sustained periods of rising interest rates may be
impaired. Such issuers may not have more traditional methods of
financing available to them and may be unable to repay outstanding
obligations at maturity by refinancing. The risk of loss due to default
in payment of interest or repayment of principal by such issuers is
significantly greater because such securities frequently are unsecured
and subordinated to the prior payment of senior indebtedness.
At times, a substantial portion of the fund's assets may be invested in
an issue of which the fund, by itself or together with other funds and
accounts managed by Putnam Management or its affiliates, holds all or a
major portion. Although Putnam Management generally considers such
securities to be liquid because of the availability of an institutional
market for such securities, it is possible that, under adverse market or
economic conditions or in the event of adverse changes in the financial
condition of the issuer, the fund could find it more difficult to sell
these securities when Putnam Management believes it advisable to do so
or may be able to sell the securities only at prices lower than if they
were more widely held. Under these circumstances, it may also be more
difficult to determine the fair value of such securities for purposes of
computing the fund's net asset value. In order to enforce its rights in
the event of a default, the fund may be required to participate in
various legal proceedings or take possession of and manage assets
securing the issuer's obligations on such securities. This could
increase the fund's operating expenses and adversely affect the fund's
net asset value. In the case of tax-exempt funds, any income derived
from the fund's ownership or operation of such assets would not be
tax-exempt. The ability of a holder of a tax-exempt security to enforce
the terms of that security in a bankruptcy proceeding may be more
limited than would be the case with respect to securities of private
issuers. In addition, the fund's intention to qualify as a "regulated
investment company" under the Internal Revenue Code may limit the extent
to which the fund may exercise its rights by taking possession of such
assets.
Certain securities held by the fund may permit the issuer at its option
to "call," or redeem, its securities. If an issuer were to redeem
securities held by the fund during a time of declining interest rates,
the fund may not be able to reinvest the proceeds in securities
providing the same investment return as the securities redeemed.
The fund may invest without limit in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer, at its option, to
make current interest payments on the bonds either in cash or in
additional bonds. Because zero-coupon and payment-in-kind bonds do not
pay current interest in cash, their value is subject to greater
fluctuation in response to changes in market interest rates than bonds
that pay interest currently. Both zero-coupon and payment-in-kind bonds
allow an issuer to avoid the need to generate cash to meet current
interest payments. Accordingly, such bonds may involve greater credit
risks than bonds paying interest currently in cash. The fund is
required to accrue interest income on such investments and to distribute
such amounts at least annually to shareholders even though such bonds do
not pay current interest in cash. Thus, it may be necessary at times
for the fund to liquidate investments in order to satisfy its dividend
requirements.
To the extent the fund invests in securities in the lower rating
categories, the achievement of the fund's goals is more dependent on
Putnam Management's investment analysis than would be the case if the
fund were investing in securities in the higher rating categories. This
also may be true with respect to tax-exempt securities, as the amount of
information about the financial condition of an issuer of tax-exempt
securities may not be as extensive as that which is made available by
corporations whose securities are publicly traded.
Loan Participations
The fund may invest in "loan participations." By purchasing a loan
participation, the fund acquires some or all of the interest of a bank
or other lending institution in a loan to a particular borrower. Many
such loans are secured, and most impose restrictive covenants which must
be met by the borrower. These loans are typically made by a syndicate
of banks, represented by an agent bank which has negotiated and
structured the loan and which is responsible generally for collecting
interest, principal, and other amounts from the borrower on its own
behalf and on behalf of the other lending institutions in the syndicate,
and for enforcing its and their other rights against the borrower. Each
of the lending institutions, including the agent bank, lends to the
borrower a portion of the total amount of the loan, and retains the
corresponding interest in the loan.
The fund's ability to receive payments of principal and interest and
other amounts in connection with loan participations held by it will
depend primarily on the financial condition of the borrower. The
failure by the fund to receive scheduled interest or principal payments
on a loan participation would adversely affect the income of the fund
and would likely reduce the value of its assets, which would be
reflected in a reduction in the fund's net asset value. Banks and other
lending institutions generally perform a credit analysis of the borrower
before originating a loan or participating in a lending syndicate. In
selecting the loan participations in which the fund will invest,
however, Putnam Management will not rely solely on that credit analysis,
but will perform its own investment analysis of the borrowers. Putnam
Management's analysis may include consideration of the borrower's
financial strength and managerial experience, debt coverage, additional
borrowing requirements or debt maturity schedules, changing financial
conditions, and responsiveness to changes in business conditions and
interest rates. Putnam Management will be unable to access non-public
information to which other investors in syndicated loans may have
access. Because loan participations in which the fund may invest are
not generally rated by independent credit rating agencies, a decision by
the fund to invest in a particular loan participation will depend almost
exclusively on Putnam Management's, and the original lending
institution's, credit analysis of the borrower. Investments in loan
participations may be of any quality, including "distressed" loans, and
will be subject to the fund's credit quality policy.
Loan participations may be structured in different forms, including
novations, assignments and participating interests. In a novation, the
fund assumes all of the rights of a lending institution in a loan,
including the right to receive payments of principal and interest and
other amounts directly from the borrower and to enforce its rights as a
lender directly against the borrower. The fund assumes the position of
a co-lender with other syndicate members. As an alternative, the fund
may purchase an assignment of a portion of a lender's interest in a
loan. In this case, the fund may be required generally to rely upon the
assigning bank to demand payment and enforce its rights against the
borrower, but would otherwise be entitled to all of such bank's rights
in the loan. The fund may also purchase a participating interest in a
portion of the rights of a lending institution in a loan. In such case,
it will be entitled to receive payments of principal, interest and
premium, if any, but will not generally be entitled to enforce its
rights directly against the agent bank or the borrower, and must rely
for that purpose on the lending institution. The fund may also acquire
a loan participation directly by acting as a member of the original
lending syndicate.
The fund will in many cases be required to rely upon the lending
institution from which it purchases the loan participation to collect
and pass on to the fund such payments and to enforce the fund's rights
under the loan. As a result, an insolvency, bankruptcy or
reorganization of the lending institution may delay or prevent the fund
from receiving principal, interest and other amounts with respect to the
underlying loan. When the fund is required to rely upon a lending
institution to pay to the fund principal, interest and other amounts
received by it, Putnam Management will also evaluate the
creditworthiness of the lending institution.
The borrower of a loan in which the fund holds a participation interest
may, either at its own election or pursuant to terms of the loan
documentation, prepay amounts of the loan from time to time. There is
no assurance that the fund will be able to reinvest the proceeds of any
loan prepayment at the same interest rate or on the same terms as those
of the original loan participation.
Corporate loans in which the fund may purchase a loan participation are
made generally to finance internal growth, mergers, acquisitions, stock
repurchases, leveraged buy-outs and other corporate activities. Under
current market conditions, most of the corporate loan participations
purchased by the fund will represent interests in loans made to finance
highly leveraged corporate acquisitions, known as "leveraged buy-out"
transactions. The highly leveraged capital structure of the borrowers
in such transactions may make such loans especially vulnerable to
adverse changes in economic or market conditions. In addition, loan
participations generally are subject to restrictions on transfer, and
only limited opportunities may exist to sell such participations in
secondary markets. As a result, the fund may be unable to sell loan
participations at a time when it may otherwise be desirable to do so or
may be able to sell them only at a price that is less than their fair
market value.
Certain of the loan participations acquired by the fund may involve
revolving credit facilities under which a borrower may from time to time
borrow and repay amounts up to the maximum amount of the facility. In
such cases, the fund would have an obligation to advance its portion of
such additional borrowings upon the terms specified in the loan
participation. To the extent that the fund is committed to make
additional loans under such a participation, it will at all times hold
and maintain in a segregated account liquid assets in an amount
sufficient to meet such commitments. Certain of the loan participations
acquired by the fund may also involve loans made in foreign currencies.
The fund's investment in such participations would involve the risks of
currency fluctuations described above with respect to investments in the
foreign securities.
Floating Rate and Variable Rate Demand Notes
Floating rate and variable rate demand notes and bonds may have a stated
maturity in excess of one year, but may have features that permit a
holder to demand payment of principal plus accrued interest upon a
specified number of days notice. Frequently, such obligations are
secured by letters of credit or other credit support arrangements
provided by banks. The issuer has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal of the
obligation plus accrued interest upon a specific number of days notice
to the holders. The interest rate of a floating rate instrument may be
based on a known lending rate, such as a bank's prime rate, and is reset
whenever such rate is adjusted. The interest rate on a variable rate
demand note is reset at specified intervals at a market rate.
Mortgage Related and Asset-backed Securities
Mortgage-backed securities, including collateralized mortgage
obligations ("CMOs") and certain stripped mortgage-backed securities
represent a participation in, or are secured by, mortgage loans.
Asset-backed securities are structured like mortgage-backed securities,
but instead of mortgage loans or interests in mortgage loans, the
underlying assets may include such items as motor vehicle installment
sales or installment loan contracts, leases of various types of real and
personal property and receivables from credit card agreements. The
ability of an issuer of asset-backed securities to enforce its security
interest in the underlying assets may be limited.
Mortgage-backed securities have yield and maturity characteristics
corresponding to the underlying assets. Unlike traditional debt
securities, which may pay a fixed rate of interest until maturity, when
the entire principal amount comes due, payments on certain
mortgage-backed securities include both interest and a partial repayment
of principal. Besides the scheduled repayment of principal, repayments
of principal may result from the voluntary prepayment, refinancing or
foreclosure of the underlying mortgage loans. If property owners make
unscheduled prepayments of their mortgage loans, these prepayments will
result in early payment of the applicable mortgage-related securities.
In that event the fund may be unable to invest the proceeds from the
early payment of the mortgage-related securities in an investment that
provides as high a yield as the mortgage-related securities.
Consequently, early payment associated with mortgage-related securities
may cause these securities to experience significantly greater price and
yield volatility than that experienced by traditional fixed-income
securities. The occurrence of mortgage prepayments is affected by
factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. During periods of falling interest rates, the
rate of mortgage prepayments tends to increase, thereby tending to
decrease the life of mortgage-related securities. During periods of
rising interest rates, the rate of mortgage prepayments usually
decreases, thereby tending to increase the life of mortgage-related
securities. If the life of a mortgage-related security is inaccurately
predicted, the fund may not be able to realize the rate of return it
expected.
Mortgage-backed and asset-backed securities are less effective than
other types of securities as a means of "locking in" attractive
long-term interest rates. One reason is the need to reinvest
prepayments of principal; another is the possibility of significant
unscheduled prepayments resulting from declines in interest rates.
These prepayments would have to be reinvested at lower rates. As a
result, these securities may have less potential for capital
appreciation during periods of declining interest rates than other
securities of comparable maturities, although they may have a similar
risk of decline in market value during periods of rising interest rates.
Prepayments may also significantly shorten the effective maturities of
these securities, especially during periods of declining interest rates.
Conversely, during periods of rising interest rates, a reduction in
prepayments may increase the effective maturities of these securities,
subjecting them to a greater risk of decline in market value in response
to rising interest rates than traditional debt securities, and,
therefore, potentially increasing the volatility of the fund.
Prepayments may cause losses on securities purchased at a premium. At
times, some mortgage-backed and asset-backed securities will have higher
than market interest rates and therefore will be purchased at a premium
above their par value. Unscheduled prepayments, which are made at par,
will cause the fund to experience a loss equal to any unamortized
premium.
CMOs may be issued by a U.S. government agency or instrumentality or by
a private issuer. Although payment of the principal of, and interest
on, the underlying collateral securing privately issued CMOs may be
guaranteed by the U.S. government or its agencies or instrumentalities,
these CMOs represent obligations solely of the private issuer and are
not insured or guaranteed by the U.S. government, its agencies or
instrumentalities or any other person or entity.
Prepayments could cause early retirement of CMOs. CMOs are designed to
reduce the risk of prepayment for investors by issuing multiple classes
of securities, each having different maturities, interest rates and
payment schedules, and with the principal and interest on the underlying
mortgages allocated among the several classes in various ways. Payment
of interest or principal on some classes or series of CMOs may be
subject to contingencies or some classes or series may bear some or all
of the risk of default on the underlying mortgages. CMOs of different
classes or series are generally retired in sequence as the underlying
mortgage loans in the mortgage pool are repaid. If enough mortgages are
repaid ahead of schedule, the classes or series of a CMO with the
earliest maturities generally will be retired prior to their maturities.
Thus, the early retirement of particular classes or series of a CMO
would have the same effect as the prepayment of mortgages underlying
other mortgage-backed securities. Conversely, slower than anticipated
prepayments can extend the effective maturities of CMOs, subjecting them
to a greater risk of decline in market value in response to rising
interest rates than traditional debt securities, and, therefore,
potentially increasing their volatility.
Prepayments could result in losses on stripped mortgage-backed
securities. Stripped mortgage-backed securities are usually structured
with two classes that receive different portions of the interest and
principal distributions on a pool of mortgage loans. The yield to
maturity on an interest only or "IO" class of stripped mortgage-backed
securities is extremely sensitive not only to changes in prevailing
interest rates but also to the rate of principal payments (including
prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurable adverse effect on the fund's yield to
maturity to the extent it invests in IOs. If the assets underlying the
IO experience greater than anticipated prepayments of principal, the
fund may fail to recoup fully its initial investment in these
securities. Conversely, principal only or "POs" tend to increase in
value if prepayments are greater than anticipated and decline if
prepayments are slower than anticipated.
The secondary market for stripped mortgage-backed securities may be more
volatile and less liquid than that for other mortgage-backed securities,
potentially limiting the fund's ability to buy or sell those securities
at any particular time.
Hybrid Instruments
These instruments are generally considered derivatives and include
indexed or structured securities, and combine the elements of futures
contracts or options with those of debt, preferred equity or a
depository instrument. A hybrid instrument may be a debt security,
preferred stock, warrant, convertible security, certificate of deposit
or other evidence of indebtedness on which a portion of or all interest
payments, and/or the principal or stated amount payable at maturity,
redemption or retirement, is determined by reference to prices, changes
in prices, or differences between prices, of securities, currencies,
intangibles, goods, articles or commodities (collectively, "underlying
assets"), or by another objective index, economic factor or other
measure, including interest rates, currency exchange rates, or
commodities or securities indices (collectively, "benchmarks"). Hybrid
instruments may take a number of forms, including, but not limited to,
debt instruments with interest or principal payments or redemption terms
determined by reference to the value of an index at a future time,
preferred stock with dividend rates determined by reference to the value
of a currency, or convertible securities with the conversion terms
related to a particular commodity.
The risks of investing in hybrid instruments reflect a combination of
the risks of investing in securities, options, futures and currencies.
An investment in a hybrid instrument may entail significant risks that
are not associated with a similar investment in a traditional debt
instrument that has a fixed principal amount, is denominated in U.S.
dollars or bears interest either at a fixed rate or a floating rate
determined by reference to a common, nationally published benchmark.
The risks of a particular hybrid instrument will depend upon the terms
of the instrument, but may include the possibility of significant
changes in the benchmark(s) or the prices of the underlying assets to
which the instrument is linked. Such risks generally depend upon
factors unrelated to the operations or credit quality of the issuer of
the hybrid instrument, which may not be foreseen by the purchaser, such
as economic and political events, the supply and demand of the
underlying assets and interest rate movements. Hybrid instruments may
be highly volatile and their use by a fund may not be successful.
Hybrid instruments may bear interest or pay preferred dividends at below
market (or even relatively nominal) rates. Alternatively, hybrid
instruments may bear interest at above market rates but bear an
increased risk of principal loss (or gain). The latter scenario may
result if "leverage" is used to structure the hybrid instrument.
Leverage risk occurs when the hybrid instrument is structured so that a
given change in a benchmark or underlying asset is multiplied to produce
a greater value change in the hybrid instrument, thereby magnifying the
risk of loss as well as the potential for gain.
Hybrid instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of
enhancing total return. For example, a fund may wish to take advantage
of expected declines in interest rates in several European countries,
but avoid the transaction costs associated with buying and
currency-hedging the foreign bond positions. One solution would be to
purchase a U.S. dollar-denominated hybrid instrument whose redemption
price is linked to the average three year interest rate in a designated
group of countries. The redemption price formula would provide for
payoffs of less than par if rates were above the specified level.
Furthermore, a fund could limit the downside risk of the security by
establishing a minimum redemption price so that the principal paid at
maturity could not be below a predetermined minimum level if interest
rates were to rise significantly. The purpose of this arrangement,
known as a structured security with an embedded put option, would be to
give the fund the desired European bond exposure while avoiding currency
risk, limiting downside market risk, and lowering transaction costs. Of
course, there is no guarantee that the strategy will be successful and a
fund could lose money if, for example, interest rates do not move as
anticipated or credit problems develop with the issuer of the hybrid
instrument.
Hybrid instruments are potentially more volatile and carry greater
market risks than traditional debt instruments. Depending on the
structure of the particular hybrid instrument, changes in a benchmark
may be magnified by the terms of the hybrid instrument and have an even
more dramatic and substantial effect upon the value of the hybrid
instrument. Also, the prices of the hybrid instrument and the benchmark
or underlying asset may not move in the same direction or at the same
time.
Hybrid instruments may also carry liquidity risk since the instruments
are often "customized" to meet the portfolio needs of a particular
investor, and therefore, the number of investors that are willing and
able to buy such instruments in the secondary market may be smaller than
that for more traditional debt securities. Under certain conditions,
the redemption value of such an investment could be zero. In addition,
because the purchase and sale of hybrid investments could take place in
an over-the-counter market without the guarantee of a central clearing
organization, or in a transaction between the fund and the issuer of the
hybrid instrument, the creditworthiness of the counterparty of the
issuer of the hybrid instrument would be an additional risk factor the
fund would have to consider and monitor. Hybrid instruments also may
not be subject to regulation by the CFTC, which generally regulates the
trading of commodity futures by U.S. persons, the SEC, which regulates
the offer and sale of securities by and to U.S. persons, or any other
governmental regulatory authority.
Structured investments. A structured investment is a security having a
return tied to an underlying index or other security or asset class.
Structured investments generally are individually negotiated agreements
and may be traded over-the-counter. Structured investments are
organized and operated to restructure the investment characteristics of
the underlying security. This restructuring involves the deposit with
or purchase by an entity, such as a corporation or trust, or specified
instruments (such as commercial bank loans) and the issuance by that
entity or one or more classes of securities ("structured securities")
backed by, or representing interests in, the underlying instruments.
The cash flow on the underlying instruments may be apportioned among the
newly issued structured securities to create securities with different
investment characteristics, such as varying maturities, payment
priorities and interest rate provisions, and the extent of such payments
made with respect to structured securities is dependent on the extent of
the cash flow on the underlying instruments. Because structured
securities typically involve no credit enhancement, their credit risk
generally will be equivalent to that of the underlying instruments.
Investments in structured securities are generally of a class of
structured securities that is either subordinated or unsubordinated to
the right of payment of another class. Subordinated structured
securities typically have higher yields and present greater risks than
unsubordinated structured securities. Structured securities are
typically sold in private placement transactions, and there currently is
no active trading market for structured securities. Investments in
government and government-related and restructured debt instruments are
subject to special risks, including the inability or unwillingness to
repay principal and interest, requests to reschedule or restructure
outstanding debt and requests to extend additional loan amounts.
Securities of Other Investment Companies. Securities of other
investment companies, including shares of closed-end investment
companies, unit investment trusts and open-end investment companies,
represent interests in professionally managed portfolios that may invest
in any type of instrument. These types of instruments are often
structured to perform in a similar fashion to a broad based securities
index. Investing in these types of securities involves substantially
the same risks as investing directly in the underlying instruments, but
may involve additional expenses at the investment company-level, such as
portfolio management fees and operating expenses. In addition, these
types of investments involve the risk that they will not perform in
exactly the same fashion, or in response to the same factors, as the
index or underlying instruments. Certain types of investment companies,
such as closed-end investment companies, issue a fixed number of shares
that trade on a stock exchange or over-the-counter at a premium or a
discount to their net asset value. Others are continuously offered at
net asset value, but may also be traded in the secondary market. The
extent to which a fund can invest in securities of other investment
companies is limited by federal securities laws.
Tax-exempt Securities
General description. As used in this SAI, the term "Tax-exempt
securities" includes debt obligations issued by a state, its political
subdivisions (for example, counties, cities, towns, villages, districts
and authorities) and their agencies, instrumentalities or other
governmental units, the interest from which is, in the opinion of bond
counsel, exempt from federal income tax and the corresponding state's
personal income tax. Such obligations are issued to obtain funds for
various public purposes, including the construction of a wide range of
public facilities, such as airports, bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer
works. Other public purposes for which Tax-exempt securities may be
issued include the refunding of outstanding obligations or the payment
of general operating expenses.
Short-term Tax-exempt securities are generally issued by state and local
governments and public authorities as interim financing in anticipation
of tax collections, revenue receipts or bond sales to finance such
public purposes.
In addition, certain types of "private activity" bonds may be issued by
public authorities to finance projects such as privately operated
housing facilities; certain local facilities for supplying water, gas or
electricity; sewage or solid waste disposal facilities; student loans;
or public or private institutions for the construction of educational,
hospital, housing and other facilities. Such obligations are included
within the term Tax-exempt securities if the interest paid thereon is,
in the opinion of bond counsel, exempt from federal income tax and state
personal income tax (such interest may, however, be subject to federal
alternative minimum tax). Other types of private activity bonds, the
proceeds of which are used for the construction, repair or improvement
of, or to obtain equipment for, privately operated industrial or
commercial facilities, may also constitute Tax-exempt securities,
although the current federal tax laws place substantial limitations on
the size of such issues.
Participation interests (Money Market Funds only). The money market
funds may invest in Tax-exempt securities either by purchasing them
directly or by purchasing certificates of accrual or similar instruments
evidencing direct ownership of interest payments or principal payments,
or both, on Tax-exempt securities, provided that, in the opinion of
counsel, any discount accruing on a certificate or instrument that is
purchased at a yield not greater than the coupon rate of interest on the
related Tax-exempt securities will be exempt from federal income tax to
the same extent as interest on the Tax-exempt securities. The money
market funds may also invest in Tax-exempt securities by purchasing from
banks participation interests in all or part of specific holdings of
Tax-exempt securities. These participations may be backed in whole or
in part by an irrevocable letter of credit or guarantee of the selling
bank. The selling bank may receive a fee from the money market funds in
connection with the arrangement. The money market funds will not
purchase such participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service that interest earned
by it on Tax-exempt securities in which it holds such participation
interests is exempt from federal income tax. No money market fund
expects to invest more than 5% of its assets in participation interests.
Stand-by commitments. When the fund purchases Tax-exempt securities, it
has the authority to acquire stand-by commitments from banks and
broker-dealers with respect to those Tax-exempt securities. A stand-by
commitment may be considered a security independent of the Tax-exempt
security to which it relates. The amount payable by a bank or dealer
during the time a stand-by commitment is exercisable, absent unusual
circumstances, would be substantially the same as the market value of
the underlying Tax-exempt security to a third party at any time. The
fund expects that stand-by commitments generally will be available
without the payment of direct or indirect consideration. The fund does
not expect to assign any value to stand-by commitments.
Yields. The yields on Tax-exempt securities depend on a variety of
factors, including general money market conditions, effective marginal
tax rates, the financial condition of the issuer, general conditions of
the Tax-exempt security market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings of
nationally recognized securities rating agencies represent their
opinions as to the credit quality of the Tax-exempt securities which
they undertake to rate. It should be emphasized, however, that ratings
are general and are not absolute standards of quality. Consequently,
Tax-exempt securities with the same maturity and interest rate but with
different ratings may have the same yield. Yield disparities may occur
for reasons not directly related to the investment quality of particular
issues or the general movement of interest rates and may be due to such
factors as changes in the overall demand or supply of various types of
Tax-exempt securities or changes in the investment objectives of
investors. Subsequent to purchase by the fund, an issue of Tax-exempt
securities or other investments may cease to be rated, or its rating may
be reduced below the minimum rating required for purchase by the fund.
Neither event will require the elimination of an investment from the
fund's portfolio, but Putnam Management will consider such an event in
its determination of whether the fund should continue to hold an
investment in its portfolio.
"Moral obligation" bonds. The fund does not currently intend to invest
in so-called "moral obligation" bonds, where repayment is backed by a
moral commitment of an entity other than the issuer, unless the credit
of the issuer itself, without regard to the "moral obligation," meets
the investment criteria established for investments by the fund.
Municipal leases. The fund may acquire participations in lease
obligations or installment purchase contract obligations (collectively,
"lease obligations") of municipal authorities or entities. Lease
obligations do not constitute general obligations of the municipality
for which the municipality's taxing power is pledged. Certain of these
lease obligations contain "non-appropriation" clauses, which provide
that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such
purpose on a yearly basis. In the case of a "non-appropriation" lease,
the fund's ability to recover under the lease in the event of
non-appropriation or default will be limited solely to the repossession
of the leased property, and in any event, foreclosure of that property
might prove difficult.
Inverse Floaters have variable interest rates that typically move in the
opposite direction from movements in prevailing short-term interest rate
levels - rising when prevailing short-term interest rate fall, and vice
versa. The prices of inverse floaters can be considerably more volatile
than the prices of bonds with comparable maturities.
Additional risks. Securities in which the fund may invest, including
Tax-exempt securities, are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of
creditors, such as the federal Bankruptcy Code (including special
provisions related to municipalities and other public entities), and
laws, if any, that may be enacted by Congress or state legislatures
extending the time for payment of principal or interest, or both, or
imposing other constraints upon enforcement of such obligations. There
is also the possibility that, as a result of litigation or other
conditions, the power, ability or willingness of issuers to meet their
obligations for the payment of interest and principal on their
Tax-exempt securities may be materially affected.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax
exemption for interest on debt obligations issued by states and their
political subdivisions. Federal tax laws limit the types and amounts of
tax-exempt bonds issuable for certain purposes, especially industrial
development bonds and private activity bonds. Such limits may affect
the future supply and yields of these types of Tax-exempt securities.
Further proposals limiting the issuance of Tax-exempt securities may
well be introduced in the future. If it appeared that the availability
of Tax-exempt securities for investment by the fund and the value of the
fund's portfolio could be materially affected by such changes in law,
the Trustees of the fund would reevaluate its investment objective and
policies and consider changes in the structure of the fund or its
dissolution.
Convertible Securities
Convertible securities include bonds, debentures, notes, preferred
stocks and other securities that may be converted into or exchanged for,
at a specific price or formula within a particular period of time, a
prescribed amount of common stock or other equity securities of the same
or a different issuer. Convertible securities entitle the holder to
receive interest paid or accrued on debt or dividends paid or accrued on
preferred stock until the security matures or is redeemed, converted or
exchanged.
The market value of a convertible security is a function of its
"investment value" and its "conversion value." A security's "investment
value" represents the value of the security without its conversion
feature (i.e., a nonconvertible fixed income security). The investment
value may be determined by reference to its credit quality and the
current value of its yield to maturity or probable call date. At any
given time, investment value is dependent upon such factors as the
general level of interest rates, the yield of similar nonconvertible
securities, the financial strength of the issuer and the seniority of
the security in the issuer's capital structure. A security's "conversion
value" is determined by multiplying the number of shares the holder is
entitled to receive upon conversion or exchange by the current price of
the underlying security.
If the conversion value of a convertible security is significantly below
its investment value, the convertible security will trade like
nonconvertible debt or preferred stock and its market value will not be
influenced greatly by fluctuations in the market price of the underlying
security. Conversely, if the conversion value of a convertible security
is near or above its investment value, the market value of the
convertible security will be more heavily influenced by fluctuations in
the market price of the underlying security.
The fund's investments in convertible securities may at times include
securities that have a mandatory conversion feature, pursuant to which
the securities convert automatically into common stock or other equity
securities at a specified date and a specified conversion ratio, or that
are convertible at the option of the issuer. Because conversion of the
security is not at the option of the holder, the fund may be required to
convert the security into the underlying common stock even at times when
the value of the underlying common stock or other equity security has
declined substantially.
The fund's investments in convertible securities, particularly
securities that are convertible into securities of an issuer other than
the issuer of the convertible security, may be illiquid. The fund may
not be able to dispose of such securities in a timely fashion or for a
fair price, which could result in losses to the fund.
Alternative Investment Strategies
Under normal market conditions, each fund seeks to remain fully invested
and to minimize its cash holdings. However, at times Putnam Management
may judge that market conditions make pursuing a fund's investment
strategies inconsistent with the best interests of its shareholders.
Putnam Management then may temporarily use alternative strategies that
are mainly designed to limit the fund's losses. In implementing these
strategies, the funds may invest primarily in debt securities, preferred
stocks, U.S. Government and agency obligations, cash or money market
instruments, or any other securities Putnam Management considers
consistent with such defensive strategies.
Money market instruments, or short-term debt instruments, consist of
obligations such as commercial paper, bank obligations (i.e.,
certificates of deposit and bankers' acceptances), repurchase agreements
and various government obligations, such as Treasury bills. These
instruments have a remaining maturity of one year or less and are
generally of high credit quality. Money market instruments may be
structured to be, or may employ a trust or other form so that they are,
eligible investments for money market funds. For example, put features
can be used to modify the maturity of a security or interest rate
adjustment features can be used to enhance price stability. If a
structure fails to function as intended, adverse tax or investment
consequences may result. Neither the Internal Revenue Service (IRS) nor
any other regulatory authority has ruled definitively on certain legal
issues presented by certain structured securities. Future tax or other
regulatory determinations could adversely affect the value, liquidity,
or tax treatment of the income received from these securities or the
nature and timing of distributions made by the funds.
Private Placements and Restricted Securities
The fund may invest in securities that are purchased in private
placements and, accordingly, are subject to restrictions on resale as a
matter of contract or under federal securities laws. Because there may
be relatively few potential purchasers for such investments, especially
under adverse market or economic conditions or in the event of adverse
changes in the financial condition of the issuer, the fund could find it
more difficult to sell such securities when Putnam Management believes
it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. At times,
it may also be more difficult to determine the fair value of such
securities for purposes of computing the fund's net asset value.
While such private placements may often offer attractive opportunities
for investment not otherwise available on the open market, the
securities so purchased are often "restricted securities," i.e.,
securities which cannot be sold to the public without registration
under the Securities Act of 1933 or the availability of an exemption
from registration (such as Rules 144 or 144A), or which are "not readily
marketable" because they are subject to other legal or contractual
delays in or restrictions on resale.
The absence of a trading market can make it difficult to ascertain a
market value for illiquid investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for the fund to sell them promptly
at an acceptable price. The fund may have to bear the extra expense of
registering such securities for resale and the risk of substantial delay
in effecting such registration. Also market quotations are less readily
available. The judgment of Putnam Management may at times play a greater
role in valuing these securities than in the case of publicly traded
securities.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a
limited number of purchasers, or in limited quantities after they have
been held for a specified period of time and other conditions are met
pursuant to an exemption from registration, or in a public offering for
which a registration statement is in effect under the Securities Act of
1933. The fund may be deemed to be an "underwriter" for purposes of the
Securities Act of 1933 when selling restricted securities to the public,
and in such event the fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.
The SEC Staff currently takes the view that any delegation by the
Trustees of the authority to determine that a restricted security is
readily marketable (as described in the investment restrictions of the
funds) must be pursuant to written procedures established by the
Trustees and the Trustees have delegated such authority to Putnam
Management.
Futures Contracts and Related Options
Subject to applicable law the fund may invest without limit in futures
contracts and related options for hedging and non-hedging purposes, such
as to manage the effective duration of the fund's portfolio or as a
substitute for direct investment. A financial futures contract sale
creates an obligation by the seller to deliver the type of financial
instrument called for in the contract in a specified delivery month for
a stated price. A financial futures contract purchase creates an
obligation by the purchaser to take delivery of the type of financial
instrument called for in the contract in a specified delivery month at a
stated price. The specific instruments delivered or taken,
respectively, at settlement date are not determined until on or near
that date. The determination is made in accordance with the rules of
the exchange on which the futures contract sale or purchase was made.
Futures contracts are traded in the United States only on commodity
exchanges or boards of trade -- known as "contract markets" -- approved
for such trading by the Commodity Futures Trading Commission (the
"CFTC"), and must be executed through a futures commission merchant or
brokerage firm which is a member of the relevant contract market.
Although futures contracts (other than index futures) by their terms
call for actual delivery or acceptance of commodities or securities, in
most cases the contracts are closed out before the settlement date
without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or
commodity with the same delivery date. If the price of the initial sale
of the futures contract exceeds the price of the offsetting purchase,
the seller is paid the difference and realizes a gain. Conversely, if
the price of the offsetting purchase exceeds the price of the initial
sale, the seller realizes a loss. If the fund is unable to enter into a
closing transaction, the amount of the fund's potential loss is
unlimited. The closing out of a futures contract purchase is effected
by the purchaser's entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the purchaser realizes
a gain, and if the purchase price exceeds the offsetting sale price, he
realizes a loss. In general, 40% of the gain or loss arising from the
closing out of a futures contract traded on an exchange approved by the
CFTC is treated as short-term gain or loss, and 60% is treated as
long-term gain or loss.
Unlike when the fund purchases or sells a security, no price is paid or
received by the fund upon the purchase or sale of a futures contract.
Upon entering into a contract, the fund is required to deposit with its
custodian in a segregated account in the name of the futures broker an
amount of liquid assets. This amount is known as "initial margin." The
nature of initial margin in futures transactions is different from that
of margin in security transactions in that futures contract margin does
not involve the borrowing of funds to finance the transactions. Rather,
initial margin is similar to a performance bond or good faith deposit
which is returned to the fund upon termination of the futures contract,
assuming all contractual obligations have been satisfied. Futures
contracts also involve brokerage costs.
Subsequent payments, called "variation margin" or "maintenance margin,"
to and from the broker (or the custodian) are made on a daily basis as
the price of the underlying security or commodity fluctuates, making the
long and short positions in the futures contract more or less valuable,
a process known as "marking to the market." For example, when the fund
has purchased a futures contract on a security and the price of the
underlying security has risen, that position will have increased in
value and the fund will receive from the broker a variation margin
payment based on that increase in value. Conversely, when the fund has
purchased a security futures contract and the price of the underlying
security has declined, the position would be less valuable and the fund
would be required to make a variation margin payment to the broker.
The fund may elect to close some or all of its futures positions at any
time prior to their expiration in order to reduce or eliminate a hedge
position then currently held by the fund. The fund may close its
positions by taking opposite positions which will operate to terminate
the fund's position in the futures contracts. Final determinations of
variation margin are then made, additional cash is required to be paid
by or released to the fund, and the fund realizes a loss or a gain.
Such closing transactions involve additional commission costs.
The fund does not intend to purchase or sell futures or related options
for other than hedging purposes, if, as a result, the sum of the initial
margin deposits on the fund's existing futures and related options
positions and premiums paid for outstanding options on futures contracts
would exceed 5% of the fund's net assets.
Options on futures contracts. The fund may purchase and write call and
put options on futures contracts it may buy or sell and enter into
closing transactions with respect to such options to terminate existing
positions. In return for the premium paid, options on futures contracts
give the purchaser the right to assume a position in a futures contract
at the specified option exercise price at any time during the period of
the option. The fund may use options on futures contracts in lieu of
writing or buying options directly on the underlying securities or
purchasing and selling the underlying futures contracts. For example,
to hedge against a possible decrease in the value of its portfolio
securities, the fund may purchase put options or write call options on
futures contracts rather than selling futures contracts. Similarly, the
fund may purchase call options or write put options on futures contracts
as a substitute for the purchase of futures contracts to hedge against a
possible increase in the price of securities which the fund expects to
purchase. Such options generally operate in the same manner as options
purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an offsetting option.
There is no guarantee that such closing transactions can be effected.
The fund will be required to deposit initial margin and maintenance
margin with respect to put and call options on futures contracts written
by it pursuant to brokers' requirements similar to those described above
in connection with the discussion of futures contracts.
Risks of transactions in futures contracts and related options.
Successful use of futures contracts by the fund is subject to Putnam
Management's ability to predict movements in various factors affecting
securities markets, including interest rates. Compared to the purchase
or sale of futures contracts, the purchase of call or put options on
futures contracts involves less potential risk to the fund because the
maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a
loss to the fund when the purchase or sale of a futures contract would
not, such as when there is no movement in the prices of the hedged
investments. The writing of an option on a futures contract involves
risks similar to those risks relating to the sale of futures contracts.
The use of options and futures strategies also involves the risk of
imperfect correlation among movements in the prices of the securities
underlying the futures and options purchased and sold by the fund, of
the options and futures contracts themselves, and, in the case of
hedging transactions, of the securities which are the subject of a
hedge. The successful use of these strategies further depends on the
ability of Putnam Management to forecast interest rates and market
movements correctly.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain market
clearing facilities inadequate, and thereby result in the institution by
exchanges of special procedures which may interfere with the timely
execution of customer orders.
To reduce or eliminate a position held by the fund, the fund may seek to
close out such position. The ability to establish and close out
positions will be subject to the development and maintenance of a liquid
secondary market. It is not certain that this market will develop or
continue to exist for a particular futures contract or option. Reasons
for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain
contracts or options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of contracts or options, or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt
normal operations on an exchange; (v) the facilities of an exchange or a
clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue
the trading of contracts or options (or a particular class or series of
contracts or options), in which event the secondary market on that
exchange for such contracts or options (or in the class or series of
contracts or options) would cease to exist, although outstanding
contracts or options on the exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
U.S. Treasury security futures contracts and options. U.S. Treasury
security futures contracts require the seller to deliver, or the
purchaser to take delivery of, the type of U.S. Treasury security called
for in the contract at a specified date and price. Options on U.S.
Treasury security futures contracts give the purchaser the right in
return for the premium paid to assume a position in a U.S. Treasury
security futures contract at the specified option exercise price at any
time during the period of the option.
Successful use of U.S. Treasury security futures contracts by the fund
is subject to Putnam Management's ability to predict movements in the
direction of interest rates and other factors affecting markets for debt
securities. For example, if the fund has sold U.S. Treasury security
futures contracts in order to hedge against the possibility of an
increase in interest rates which would adversely affect securities held
in its portfolio, and the prices of the fund's securities increase
instead as a result of a decline in interest rates, the fund will lose
part or all of the benefit of the increased value of its securities
which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the fund has
insufficient cash, it may have to sell securities to meet daily
maintenance margin requirements at a time when it may be disadvantageous
to do so.
There is also a risk that price movements in U.S. Treasury security
futures contracts and related options will not correlate closely with
price movements in markets for particular securities. For example, if
the fund has hedged against a decline in the values of tax-exempt
securities held by it by selling Treasury security futures and the
values of Treasury securities subsequently increase while the values of
its tax-exempt securities decrease, the fund would incur losses on both
the Treasury security futures contracts written by it and the tax-exempt
securities held in its portfolio.
Index futures contracts. An index futures contract is a contract to buy
or sell units of an index at a specified future date at a price agreed
upon when the contract is made. Entering into a contract to buy units
of an index is commonly referred to as buying or purchasing a contract
or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or
holding a short position. A unit is the current value of the index.
The fund may enter into stock index futures contracts, debt index
futures contracts, or other index futures contracts appropriate to its
objective(s). The fund may also purchase and sell options on index
futures contracts.
For example, the Standard & Poor's 500 Composite Stock Price Index ("S&P
500") is composed of 500 selected common stocks, most of which are
listed on the New York Stock Exchange. The S&P 500 assigns relative
weightings to the common stocks included in the Index, and the value
fluctuates with changes in the market values of those common stocks. In
the case of the S&P 500, contracts are to buy or sell 500 units. Thus,
if the value of the S&P 500 were $150, one contract would be worth
$75,000 (500 units x $150). The stock index futures contract specifies
that no delivery of the actual stocks making up the index will take
place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the
contract price and the actual level of the stock index at the expiration
of the contract. For example, if the fund enters into a futures
contract to buy 500 units of the S&P 500 at a specified future date at a
contract price of $150 and the S&P 500 is at $154 on that future date,
the fund will gain $2,000 (500 units x gain of $4). If the fund enters
into a futures contract to sell 500 units of the stock index at a
specified future date at a contract price of $150 and the S&P 500 is at
$152 on that future date, the fund will lose $1,000 (500 units x loss of
$2).
There are several risks in connection with the use by the fund of index
futures. One risk arises because of the imperfect correlation between
movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. Putnam Management
will, however, attempt to reduce this risk by buying or selling, to the
extent possible, futures on indices the movements of which will, in its
judgment, have a significant correlation with movements in the prices of
the securities sought to be hedged.
Successful use of index futures by the fund is also subject to Putnam
Management's ability to predict movements in the direction of the
market. For example, it is possible that, where the fund has sold
futures to hedge its portfolio against a decline in the market, the
index on which the futures are written may advance and the value of
securities held in the fund's portfolio may decline. If this occurred,
the fund would lose money on the futures and also experience a decline
in value in its portfolio securities. It is also possible that, if the
fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities
prices increase instead, the fund will lose part or all of the benefit
of the increased value of those securities it has hedged because it will
have offsetting losses in its futures positions. In addition, in such
situations, if the fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements at a time when it
is disadvantageous to do so.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the index
futures and the portion of the portfolio being hedged, the prices of
index futures may not correlate perfectly with movements in the
underlying index due to certain market distortions. First, all
participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures
market are less onerous than margin requirements in the securities
market, and as a result the futures market may attract more speculators
than the securities market does. Increased participation by speculators
in the futures market may also cause temporary price distortions. Due
to the possibility of price distortions in the futures market and also
because of the imperfect correlation between movements in the index and
movements in the prices of index futures, even a correct forecast of
general market trends by Putnam Management may still not result in a
profitable position over a short time period.
Options on stock index futures. Options on index futures are similar to
options on securities except that options on index futures give the
purchaser the right, in return for the premium paid, to assume a
position in an index futures contract (a long position if the option is
a call and a short position if the option is a put) at a specified
exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin
account which represents the amount by which the market price of the
index futures contract, at exercise, exceeds (in the case of a call) or
is less than (in the case of a put) the exercise price of the option on
the index future. If an option is exercised on the last trading day
prior to its expiration date, the settlement will be made entirely in
cash equal to the difference between the exercise price of the option
and the closing level of the index on which the future is based on the
expiration date. Purchasers of options who fail to exercise their
options prior to the exercise date suffer a loss of the premium paid.
Options on Indices
As an alternative to purchasing call and put options on index futures,
the fund may purchase and sell call and put options on the underlying
indices themselves. Such options would be used in a manner identical to
the use of options on index futures.
Index Warrants
The fund may purchase put warrants and call warrants whose values vary
depending on the change in the value of one or more specified securities
indices ("index warrants"). Index warrants are generally issued by
banks or other financial institutions and give the holder the right, at
any time during the term of the warrant, to receive upon exercise of the
warrant a cash payment from the issuer based on the value of the
underlying index at the time of exercise. In general, if the value of
the underlying index rises above the exercise price of the index
warrant, the holder of a call warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference between
the value of the index and the exercise price of the warrant; if the
value of the underlying index falls, the holder of a put warrant will be
entitled to receive a cash payment from the issuer upon exercise based
on the difference between the exercise price of the warrant and the
value of the index. The holder of a warrant would not be entitled to
any payments from the issuer at any time when, in the case of a call
warrant, the exercise price is greater than the value of the underlying
index, or, in the case of a put warrant, the exercise price is less than
the value of the underlying index. If the fund were not to exercise an
index warrant prior to its expiration, then the fund would lose the
amount of the purchase price paid by it for the warrant.
The fund will normally use index warrants in a manner similar to its use
of options on securities indices. The risks of the fund's use of index
warrants are generally similar to those relating to its use of index
options. Unlike most index options, however, index warrants are issued
in limited amounts and are not obligations of a regulated clearing
agency, but are backed only by the credit of the bank or other
institution which issues the warrant. Also, index warrants generally
have longer terms than index options. Although the fund will normally
invest only in exchange-listed warrants, index warrants are not likely
to be as liquid as certain index options backed by a recognized clearing
agency. In addition, the terms of index warrants may limit the fund's
ability to exercise the warrants at such time, or in such quantities, as
the fund would otherwise wish to do.
Short-term Trading
In seeking the fund's objective(s), Putnam Management will buy or sell
portfolio securities whenever Putnam Management believes it appropriate
to do so. From time to time the fund will buy securities intending to
seek short-term trading profits. A change in the securities held by the
fund is known as "portfolio turnover" and generally involves some
expense to the fund. This expense may include brokerage commissions or
dealer markups and other transaction costs on both the sale of
securities and the reinvestment of the proceeds in other securities. If
sales of portfolio securities cause the fund to realize net short-term
capital gains, such gains will be taxable as ordinary income. As a
result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than that of
other mutual funds. Portfolio turnover rate for a fiscal year is the
ratio of the lesser of purchases or sales of portfolio securities to the
monthly average of the value of portfolio securities -- excluding
securities whose maturities at acquisition were one year or less. The
fund's portfolio turnover rate is not a limiting factor when Putnam
Management considers a change in the fund's portfolio.
Securities Loans
The fund may make secured loans of its portfolio securities, on either a
short-term or long-term basis, amounting to not more than 25% of its
total assets, thereby realizing additional income. The risks in lending
portfolio securities, as with other extensions of credit, consist of
possible delay in recovery of the securities or possible loss of rights
in the collateral should the borrower fail financially. As a matter of
policy, securities loans are made to broker-dealers pursuant to
agreements requiring that the loans be continuously secured by
collateral consisting of cash or short-term debt obligations at least
equal at all times to the value of the securities on loan,
"marked-to-market" daily. The borrower pays to the fund an amount equal
to any dividends or interest received on securities lent. The fund
retains all or a portion of the interest received on investment of the
cash collateral or receives a fee from the borrower. Although voting
rights, or rights to consent, with respect to the loaned securities may
pass to the borrower, the fund retains the right to call the loans at
any time on reasonable notice, and it will do so to enable the fund to
exercise voting rights on any matters materially affecting the
investment. The fund may also call such loans in order to sell the
securities.
Repurchase Agreements
The fund, unless it is a money market fund, may enter into repurchase
agreements, amounting to not more than 25% of its total assets. Money
market funds may invest without limit in repurchase agreements. A
repurchase agreement is a contract under which the fund acquires a
security for a relatively short period (usually not more than one week)
subject to the obligation of the seller to repurchase and the fund to
resell such security at a fixed time and price (representing the fund's
cost plus interest). It is the fund's present intention to enter into
repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the U.S.
government or its agencies or instrumentalities. Repurchase agreements
may also be viewed as loans made by the fund which are collateralized by
the securities subject to repurchase. Putnam Management will monitor
such transactions to ensure that the value of the underlying securities
will be at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. If the seller
defaults, the fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of the sale including accrued
interest are less than the resale price provided in the agreement
including interest. In addition, if the seller should be involved in
bankruptcy or insolvency proceedings, the fund may incur delay and costs
in selling the underlying security or may suffer a loss of principal and
interest if the fund is treated as an unsecured creditor and required to
return the underlying collateral to the seller's estate.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the fund may transfer uninvested cash balances into a joint
account, along with cash of other Putnam funds and certain other
accounts. These balances may be invested in one or more repurchase
agreements and/or short-term money market instruments.
Forward Commitments
The fund may enter into contracts to purchase securities for a fixed
price at a future date beyond customary settlement time ("forward
commitments") if the fund sets aside, on the books and records of its
custodian, liquid assets in an amount sufficient to meet the purchase
price, or if the fund enters into offsetting contracts for the forward
sale of other securities it owns. In the case of to-be-announced
("TBA") purchase commitments, the unit price and the estimated principal
amount are established when the fund enters into a contract, with the
actual principal amount being within a specified range of the estimate.
Forward commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the
risk of decline in the value of the fund's other assets. Where such
purchases are made through dealers, the fund relies on the dealer to
consummate the sale. The dealer's failure to do so may result in the
loss to the fund of an advantageous yield or price. Although the fund
will generally enter into forward commitments with the intention of
acquiring securities for its portfolio or for delivery pursuant to
options contracts it has entered into, the fund may dispose of a
commitment prior to settlement if Putnam Management deems it appropriate
to do so. The fund may realize short-term profits or losses upon the
sale of forward commitments.
The fund may enter into TBA sale commitments to hedge its portfolio
positions or to sell securities it owns under delayed delivery
arrangements. Proceeds of TBA sale commitments are not received until
the contractual settlement date. During the time a TBA sale commitment
is outstanding, equivalent deliverable securities, or an offsetting TBA
purchase commitment deliverable on or before the sale commitment date,
are held as "cover" for the transaction. Unsettled TBA sale commitments
are valued at current market value of the underlying securities. If the
TBA sale commitment is closed through the acquisition of an offsetting
purchase commitment, the fund realizes a gain or loss on the commitment
without regard to any unrealized gain or loss on the underlying
security. If the fund delivers securities under the commitment, the
fund realizes a gain or loss from the sale of the securities based upon
the unit price established at the date the commitment was entered into.
Swap Agreements
The fund may enter into swap agreements and other types of
over-the-counter transactions with broker-dealers or other financial
institutions. Depending on their structures, swap agreements may
increase or decrease the fund's exposure to long-or short-term interest
rates (in the United States or abroad), foreign currency values,
mortgage securities, corporate borrowing rates, or other factors such as
security prices or inflation rates. The value of the fund's swap
positions would increase or decrease depending on the changes in value
of the underlying rates, currency values, or other indices or measures.
The fund's ability to engage in certain swap transactions may be limited
by tax considerations.
The fund's ability to realize a profit from such transactions will
depend on the ability of the financial institutions with which it enters
into the transactions to meet their obligations to the fund. Under
certain circumstances, suitable transactions may not be available to the
fund, or the fund may be unable to close out its position under such
transactions at the same time, or at the same price, as if it had
purchased comparable publicly traded securities.
Derivatives
Certain of the instruments in which the fund may invest, such as futures
contracts, options and forward contracts, are considered to be
"derivatives." Derivatives are financial instruments whose value
depends upon, or is derived from, the value of an underlying asset, such
as a security or an index. Further information about these instruments
and the risks involved in their use is included elsewhere in the
prospectus or in this SAI. The fund's use of derivatives may cause the
fund to recognize higher amounts of short-term capital gains, generally
taxed to shareholders at ordinary income tax rates.
TAXES
Taxation of the fund. The fund intends to qualify each year as a
regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). In order to qualify for the
special tax treatment accorded regulated investment companies and their
shareholders, the fund must, among other things:
(a) derive at least 90% of its gross income from dividends, interest,
payments with respect to certain securities loans, and gains from the
sale of stock, securities and foreign currencies, or other income
(including but not limited to gains from options, futures, or forward
contracts) derived with respect to its business of investing in such
stock, securities, or currencies;
(b) distribute with respect to each taxable year at least 90% of the sum
of its taxable net investment income, its net tax-exempt income, and the
excess, if any, of net short-term capital gains over net long-term
capital losses for such year; and
(c) diversify its holdings so that, at the end of each fiscal quarter,
(i) at least 50% of the market value of the fund's assets is represented
by cash and cash items, U.S. government securities, securities of other
regulated investment companies, and other securities limited in respect
of any one issuer to a value not greater than 5% of the value of the
fund's total assets and to not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of
its assets is invested in the securities (other than those of the U.S.
Government or other regulated investment companies) of any one issuer or
of two or more issuers which the fund controls and which are engaged in
the same, similar, or related trades or businesses.
If the fund qualifies as a regulated investment company that is accorded
special tax treatment, the fund will not be subject to federal income
tax on income paid to its shareholders in the form of dividends
(including capital gain dividends).
If the fund failed to qualify as a regulated investment company accorded
special tax treatment in any taxable year, the fund would be subject to
tax on its taxable income at corporate rates, and all distributions from
earnings and profits, including any distributions of net tax-exempt
income and net long-term capital gains, would be taxable to shareholders
as ordinary income. In addition, the fund could be required to
recognize unrealized gains, pay substantial taxes and interest and make
substantial distributions before requalifying as a regulated investment
company that is accorded special tax treatment.
If the fund fails to distribute in a calendar year substantially all of
its ordinary income for such year and substantially all of its capital
gain net income for the one-year period ending October 31 (or later if
the fund is permitted so to elect and so elects), plus any retained
amount from the prior year, the fund will be subject to a 4% excise tax
on the undistributed amounts. A dividend paid to shareholders by the
fund in January of a year generally is deemed to have been paid by the
fund on December 31 of the preceding year, if the dividend was declared
and payable to shareholders of record on a date in October, November or
December of that preceding year. The fund intends generally to make
distributions sufficient to avoid imposition of the 4% excise tax.
Fund distributions. Distributions from the fund (other than
exempt-interest dividends, as discussed below) will be taxable to
shareholders as ordinary income to the extent derived from the fund's
investment income and net short-term gains. Distributions of net capital
gains (that is, the excess of net gains from capital assets held more
than one year over net losses from capital assets held for not more than
one year) will be taxable to shareholders as such, regardless of how
long a shareholder has held the shares in the fund.
Exempt-interest dividends. The fund will be qualified to pay
exempt-interest dividends to its shareholders only if, at the close of
each quarter of the fund's taxable year, at least 50% of the total value
of the fund's assets consists of obligations the interest on which is
exempt from federal income tax. Distributions that the fund properly
designates as exempt-interest dividends are treated as interest
excludable from shareholders' gross income for federal income tax
purposes but may be taxable for federal alternative minimum tax purposes
and for state and local purposes. If the fund intends to be qualified
to pay exempt-interest dividends, the fund may be limited in its ability
to enter into taxable transactions involving forward commitments,
repurchase agreements, financial futures and options contracts on
financial futures, tax-exempt bond indices and other assets.
Part or all of the interest on indebtedness, if any, incurred or
continued by a shareholder to purchase or carry shares of the fund
paying exempt-interest dividends is not deductible. The portion of
interest that is not deductible is equal to the total interest paid or
accrued on the indebtedness, multiplied by the percentage of the fund's
total distributions (not including distributions from net long-term
capital gains) paid to the shareholder that are exempt-interest
dividends. Under rules used by the Internal Revenue Service to
determine when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares may be
considered to have been made with borrowed funds even though such funds
are not directly traceable to the purchase of shares.
In general, exempt-interest dividends, if any, attributable to interest
received on certain private activity obligations and certain industrial
development bonds will not be tax-exempt to any shareholders who are
"substantial users" of the facilities financed by such obligations or
bonds or who are "related persons" of such substantial users.
The fund which is qualified to pay exempt-interest dividends will inform
investors within 60 days of the fund's fiscal year-end of the percentage
of its income distributions designated as tax-exempt. The percentage is
applied uniformly to all distributions made during the year. The
percentage of income designated as tax-exempt for any particular
distribution may be substantially different from the percentage of the
fund's income that was tax-exempt during the period covered by the
distribution.
Hedging transactions. If the fund engages in hedging transactions,
including hedging transactions in options, futures contracts, and
straddles, or other similar transactions, it will be subject to special
tax rules (including constructive sale, mark-to-market, straddle, wash
sale, and short sale rules), the effect of which may be to accelerate
income to the fund, defer losses to the fund, cause adjustments in the
holding periods of the fund's securities, convert long-term capital
gains into short-term capital gains or convert short-term capital losses
into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders. The fund
will endeavor to make any available elections pertaining to such
transactions in a manner believed to be in the best interests of the
fund.
Certain of the fund's hedging activities (including its transactions, if
any, in foreign currencies or foreign currency-denominated instruments)
are likely to produce a difference between its book income and its
taxable income. If the fund's book income exceeds its taxable income,
the distribution (if any) of such excess will be treated as (i) a
dividend to the extent of the fund's remaining earnings and profits
(including earnings and profits arising from tax-exempt income), (ii)
thereafter as a return of capital to the extent of the recipient's basis
in the shares, and (iii) thereafter as gain from the sale or exchange of
a capital asset. If the fund's book income is less than its taxable
income, the fund could be required to make distributions exceeding book
income to qualify as a regulated investment company that is accorded
special tax treatment.
Return of capital distributions. If the fund makes a distribution to
you in excess of its current and accumulated "earnings and profits" in
any taxable year, the excess distribution will be treated as a return of
capital to the extent of your tax basis in your shares, and thereafter
as capital gain. A return of capital is not taxable, but it reduces
your tax basis in your shares, thus reducing any loss or increasing any
gain on a subsequent taxable disposition by you of your shares.
Dividends and distributions on the fund's shares are generally subject
to federal income tax as described herein to the extent they do not
exceed the fund's realized income and gains, even though such dividends
and distributions may economically represent a return of a particular
shareholder's investment. Such distributions are likely to occur in
respect of shares purchased at a time when the fund's net asset value
reflects gains that are either unrealized, or realized but not
distributed.
Securities issued or purchased at a discount. The fund's investment in
securities issued at a discount and certain other obligations will (and
investments in securities purchased at a discount may) require the fund
to accrue and distribute income not yet received. In order to generate
sufficient cash to make the requisite distributions, the fund may be
required to sell securities in its portfolio that it otherwise would
have continued to hold.
Capital loss carryover. Distributions from capital gains are generally
made after applying any available capital loss carryovers. The amounts
and expiration dates of any capital loss carryovers available to the
fund are shown in Note 1 (Federal income taxes) to the financial
statements included in Part I of this SAI or incorporated by reference
into this SAI.
Foreign currency-denominated securities and related hedging
transactions. The fund's transactions in foreign currencies, foreign
currency-denominated debt securities and certain foreign currency
options, futures contracts and forward contracts (and similar
instruments) may give rise to ordinary income or loss to the extent such
income or loss results from fluctuations in the value of the foreign
currency concerned.
If more than 50% of the fund's assets at year end consists of the
securities of foreign corporations, the fund may elect to permit
shareholders to claim a credit or deduction on their income tax returns
for their pro rata portion of qualified taxes paid by the fund to
foreign countries in respect of foreign securities the fund has held for
at least the minimum period specified in the Code. In such a case,
shareholders will include in gross income from foreign sources their pro
rata shares of such taxes. A shareholder's ability to claim a foreign
tax credit or deduction in respect of foreign taxes paid by the fund may
be subject to certain limitations imposed by the Code, as a result of
which a shareholder may not get a full credit or deduction for the
amount of such taxes. In particular, shareholders must hold their fund
shares (without protection from risk of loss) on the ex-dividend date
and for at least 15 additional days during the 30-day period surrounding
the ex-dividend date to be eligible to claim a foreign tax credit with
respect to a given dividend. Shareholders who do not itemize on their
federal income tax returns may claim a credit (but no deduction) for
such foreign taxes.
Investment by the fund in "passive foreign investment companies" could
subject the fund to a U.S. federal income tax or other charge on the
proceeds from the sale of its investment in such a company; however,
this tax can be avoided by making an election to mark such investments
to market annually or to treat the passive foreign investment company as
a "qualified electing fund."
A "passive foreign investment company" is any foreign corporation: (i)
75 percent or more of the income of which for the taxable year is
passive income, or (ii) the average percentage of the assets of which
(generally by value, but by adjusted tax basis in certain cases) that
produce or are held for the production of passive income is at least 50
percent. Generally, passive income for this purpose means dividends,
interest (including income equivalent to interest), royalties, rents,
annuities, the excess of gains over losses from certain property
transactions and commodities transactions, and foreign currency gains.
Passive income for this purpose does not include rents and royalties
received by the foreign corporation from active business and certain
income received from related persons.
Sale or redemption of shares. The sale, exchange or redemption of fund
shares may give rise to a gain or loss. In general, any gain or loss
realized upon a taxable disposition of shares will be treated as
long-term capital gain or loss if the shares have been held for more
than 12 months. Otherwise the gain or loss on the sale, exchange or
redemption of fund shares will be treated as short-term capital gain or
loss. However, if a shareholder sells shares at a loss within six months
of purchase, any loss will be disallowed for Federal income tax purposes
to the extent of any exempt-interest dividends received on such shares.
In addition, any loss (not already disallowed as provided in the
preceding sentence) realized upon a taxable disposition of shares held
for six months or less will be treated as long-term, rather than
short-term, to the extent of any long-term capital gain distributions
received by the shareholder with respect to the shares. All or a
portion of any loss realized upon a taxable disposition of fund shares
will be disallowed if other shares of the same fund are purchased within
30 days before or after the disposition. In such a case, the basis of
the newly purchased shares will be adjusted to reflect the disallowed
loss.
Shares purchased through tax-qualified plans. Special tax rules apply
to investments though defined contribution plans and other tax-qualified
plans. Shareholders should consult their tax adviser to determine the
suitability of shares of a fund as an investment through such plans and
the precise effect of an investment on their particular tax situation.
Backup withholding. The fund generally is required to withhold and
remit to the U.S. Treasury 31% of the taxable dividends and other
distributions paid to any individual shareholder who fails to furnish
the fund with a correct taxpayer identification number (TIN), who has
under-reported dividends or interest income, or who fails to certify to
the fund that he or she is not subject to such withholding.
The Internal Revenue Service recently revised its regulations affecting
the application to foreign investors of the back-up withholding and
withholding tax rules described above. The new regulations will
generally be effective for payments made after December 31, 2000
(although transition rules will apply). In some circumstances, the new
rules will increase the certification and filing requirements imposed on
foreign investors in order to qualify for exemption from the 31% back-up
withholding tax rates under income tax treaties. Foreign investors in a
fund should consult their tax advisers with respect to the potential
application of these new regulations.
MANAGEMENT
Trustees Name (Age)
John A. Hill (58), Chairman and Trustee. Chairman and Managing
Director, First Reserve Corporation (a registered investment adviser
investing in companies in the world-wide energy industry on behalf of
institutional investors). Director of Snyder Oil Corporation,
TransMontaigne Oil Company and various private companies owned by First
Reserve Corporation, and Member of the Board of Advisors of Fund
Directors.
Jameson A. Baxter (56), Trustee. President, Baxter Associates, Inc. (a
management consulting and private investments firm). Director of ASHTA
Chemicals, Inc., Banta Corporation (printing and digital imaging), and
Ryerson Tull, Inc. (America's largest steel service corporation).
Chairman Emeritus of the Board of Trustees, Mount Holyoke College.
+Hans H. Estin (72), Trustee. Chartered Financial Analyst and Vice
Chairman, North American Management Corp. (a registered investment
adviser).
Ronald J. Jackson (56), Trustee. Former Chairman, President and Chief
Executive Officer of Fisher-Price, Inc. (a major toy manufacturer).
*Paul L. Joskow (53), Trustee. Professor of Economics and Management
and Director of the Center for Energy and Environmental Policy Research,
Massachusetts Institute of Technology. Director, New England Electric
System (a public utility holding company), State Farm Indemnity Company
(an automobile insurance company) and the Whitehead Institute for
Biomedical Research (a non-profit research institution). President of
the Yale University Council.
Elizabeth T. Kennan (62), Trustee. President Emeritus and Professor,
Mount Holyoke College. Director, Bell Atlantic (a telecommunications
company), Northeast Utilities, Talbots (a distributor of women's
apparel) and Cambus-Kenneth Bloodstock (a limited liability company
involved in thoroughbred horse breeding and farming).
*Lawrence J. Lasser (57), Trustee and Vice President. President, Chief
Executive Officer and Director of Putnam Investments, Inc. and Putnam
Investment Management, Inc. Director of Marsh & McLennan Companies,
Inc. and the United Way of Massachusetts Bay.
John H. Mullin, III (59), Trustee. Chairman and CEO of Ridgeway Farm.
Director of ACX Technologies, Inc. (a company engaged in the manufacture
of industrial ceramics and packaging products), Alex. Brown Realty,
Inc., The Liberty Corporation (a company engaged in the life insurance
and broadcasting industries) and Carolina Power & Light (a utility
company).
+Robert E. Patterson (55), Trustee. President and Trustee of Cabot
Industrial Trust (a publicly traded real estate investment trust).
Director of Brandywine Trust Company.
*George Putnam III (49), President, Principal Executive Officer and
Trustee. President, New Generation Research, Inc. (a publisher of
financial advisory and other research services relating to bankrupt and
distressed companies) and New Generation Advisers, Inc. (a registered
investment adviser). Director of The Boston Family Office, L.L.C. (a
registered investment advisor).
*A.J.C. Smith (66), Trustee. Director of Marsh & McLennan Companies,
Inc. and Trident Corp. (a limited partnership with over 30 institutional
investors).
W. Thomas Stephens (58), Trustee. President and Chief Executive Officer
of MacMillan Bloedel Ltd. (a major forest products company). Director,
Qwest Communications, New Century Energies (a public utility company),
Trans Canada Pipeliners and Fletcher Challenger Canada.
W. Nicholas Thorndike (67), Trustee. Director of various corporations
and charitable organizations, including Courier Corporation (a book
manufacturer), Bradley Real Estate, Inc. and Providence Journal Co.
Trustee of Cabot Industrial Trust (a publicly traded real estate
investment trust), Eastern Utilities Associates and Northeastern
University.
Officers Name (Age)
Charles E. Porter (62), Executive Vice President. Managing Director of
Putnam Investments, Inc. and Putnam Management.
Patricia C. Flaherty (53), Vice President. Senior Vice President of
Putnam Investments, Inc. and Putnam Management.
Gordon H. Silver (53), Vice President. Director and Senior Managing
Director of Putnam Investments, Inc. and Putnam Management.
Brett C. Browchuk (37), Vice President. Managing Director of Putnam
Management.
Ian C. Ferguson (43), Vice President. Senior Managing Director of
Putnam Investments, Inc. and Putnam Management.
Richard A. Monaghan (46), Vice President. Managing Director of Putnam
Investments, Inc., Putnam Management and Putnam Retail Management.
Richard G. Leibovitch (36), Vice President. Managing Director of Putnam
Management. Prior to February 1999, Mr. Leibovitch was a Managing
Director at J.P. Morgan.
John R. Verani (61), Vice President. Senior Vice President of Putnam
Investments, Inc. and Putnam Management.
John D. Hughes (65), Senior Vice President and Treasurer.
*Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management or Putnam Retail Management.
Messrs. Putnam, III, Lasser and Smith are deemed "interested persons" by
virtue of their positions as officers or shareholders of the fund, or
directors of Putnam Management, Putnam Retail Management, or Marsh &
McLennan Companies, Inc., the parent company of Putnam Management and
Putnam Retail Management.
Mr. Joskow is not currently an "interested person" of the fund but could
be deemed by the Securities and Exchange Commission to be an "interested
person" on account of his prior consulting relationship with National
Economic Research Associates, Inc., a wholly-owned subsidiary of Marsh &
McLennan Companies, Inc., which was terminated as of August 31, 1998.
The balance of the Trustees are not "interested persons."
+Members of the Executive Committee of the Trustees. The Executive
Committee meets between regular meetings of the Trustees as may be
required to review investment matters and other affairs of the fund and
may exercise all of the powers of the Trustees.
---------------------
Certain other officers of Putnam Management are officers of the fund.
See "Additional officers" in Part I of this SAI. The mailing address of
each of the officers and Trustees is One Post Office Square, Boston,
Massachusetts 02109.
Except as stated below, the principal occupations of the officers and
Trustees for the last five years have been with the employers as shown
above, although in some cases they have held different positions with
such employers. Prior to May 2000 and November 1999, Mr. Smith was
Chairman and CEO, respectively, of Marsh & McLennan Companies, Inc.
Prior to September 1998, Mr. Joskow was a consultant to National
Economic Research Associates. Prior to 1996, Mr. Stephens was Chairman
of the Board of Directors, President and Chief Executive Officer of
Johns Manville Corporation. Prior to April 1996, Mr. Ferguson was CEO
at Hong Kong Shanghai Banking Corporation. Prior to February 1998, Mr.
Patterson was Executive Vice President and Director of Acquisitions of
Cabot Partners Limited Partnership. Prior to November 1998, Mr.
Monaghan was Managing Director at Merrill Lynch.
Each Trustee of the fund receives an annual fee and an additional fee
for each Trustees' meeting attended. Trustees who are not interested
persons of Putnam Management and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings and
for special services rendered in that connection. All of the Trustees
are Trustees of all the Putnam funds and each receives fees for his or
her services. For details of Trustees' fees paid by the fund and
information concerning retirement guidelines for the Trustees, see
"Charges and expenses" in Part I of this SAI.
The Agreement and Declaration of Trust of the fund provides that the
fund will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be
involved because of their offices with the fund, except if it is
determined in the manner specified in the Agreement and Declaration of
Trust that they have not acted in good faith in the reasonable belief
that their actions were in the best interests of the fund or that such
indemnification would relieve any officer or Trustee of any liability to
the fund or its shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of his or her duties. The
fund, at its expense, provides liability insurance for the benefit of
its Trustees and officers.
Putnam Management and its affiliates
Putnam Management is one of America's oldest and largest money
management firms. Putnam Management's staff of experienced portfolio
managers and research analysts selects securities and constantly
supervises the fund's portfolio. By pooling an investor's money with
that of other investors, a greater variety of securities can be
purchased than would be the case individually; the resulting
diversification helps reduce investment risk. Putnam Management has
been managing mutual funds since 1937. As of December 31, 1999, the
firm serves as the investment manager for the funds in the Putnam
Family, with over $289 billion in assets in nearly 12 million
shareholder accounts. An affiliate, The Putnam Advisory Company, Inc.,
manages domestic and foreign institutional accounts and mutual funds,
including the accounts of many Fortune 500 companies. Another
affiliate, Putnam Fiduciary Trust Company, provides investment advice to
institutional clients under its banking and fiduciary powers. At
December 31, 1999, Putnam Management and its affiliates managed $391
billion in assets, including nearly $17 billion in tax-exempt securities
and over $99 billion in retirement plan assets.
Putnam Management, Putnam Retail Management and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., a holding company
which in turn is, except for a minority stake owned by employees, owned
by Marsh & McLennan Companies, Inc., a publicly-owned holding company
whose principal businesses are international insurance and reinsurance
brokerage, employee benefit consulting and investment management.
Trustees and officers of the fund who are also officers of Putnam
Management or its affiliates or who are stockholders of Marsh & McLennan
Companies, Inc. will benefit from the advisory fees, sales commissions,
distribution fees, custodian fees and transfer agency fees paid or
allowed by the fund.
The Management Contract
Under a Management Contract between the fund and Putnam Management,
subject to such policies as the Trustees may determine, Putnam
Management, at its expense, furnishes continuously an investment program
for the fund and makes investment decisions on behalf of the fund.
Subject to the control of the Trustees, Putnam Management also manages,
supervises and conducts the other affairs and business of the fund,
furnishes office space and equipment, provides bookkeeping and clerical
services (including determination of the fund's net asset value, but
excluding shareholder accounting services) and places all orders for the
purchase and sale of the fund's portfolio securities. Putnam Management
may place fund portfolio transactions with broker-dealers that furnish
Putnam Management, without cost to it, certain research, statistical and
quotation services of value to Putnam Management and its affiliates in
advising the fund and other clients. In so doing, Putnam Management may
cause the fund to pay greater brokerage commissions than it might
otherwise pay.
For details of Putnam Management's compensation under the Management
Contract, see "Charges and expenses" in Part I of this SAI. Putnam
Management's compensation under the Management Contract may be reduced
in any year if the fund's expenses exceed the limits on investment
company expenses imposed by any statute or regulatory authority of any
jurisdiction in which shares of the fund are qualified for offer or
sale. The term "expenses" is defined in the statutes or regulations of
such jurisdictions, and generally excludes brokerage commissions, taxes,
interest, extraordinary expenses and, if the fund has a distribution
plan, payments made under such plan.
Under the Management Contract, Putnam Management may reduce its
compensation to the extent that the fund's expenses exceed such lower
expense limitation as Putnam Management may, by notice to the fund,
declare to be effective. The expenses subject to this limitation are
exclusive of brokerage commissions, interest, taxes, deferred
organizational and extraordinary expenses and, if the fund has a
distribution plan, payments required under such plan. For the purpose
of determining any such limitation on Putnam Management's compensation,
expenses of the fund shall not reflect the application of commissions or
cash management credits that may reduce designated fund expenses. The
terms of any expense limitation from time to time in effect are
described in the prospectus and/or Part I of this SAI.
In addition to the fee paid to Putnam Management, the fund reimburses
Putnam Management for the compensation and related expenses of certain
officers of the fund and their assistants who provide certain
administrative services for the fund and the other Putnam funds, each of
which bears an allocated share of the foregoing costs. The aggregate
amount of all such payments and reimbursements is determined annually by
the Trustees.
The amount of this reimbursement for the fund's most recent fiscal year
is included in "Charges and Expenses" in Part I of this SAI. Putnam
Management pays all other salaries of officers of the fund. The fund
pays all expenses not assumed by Putnam Management including, without
limitation, auditing, legal, custodial, investor servicing and
shareholder reporting expenses. The fund pays the cost of typesetting
for its prospectuses and the cost of printing and mailing any
prospectuses sent to its shareholders. Putnam Retail Management pays
the cost of printing and distributing all other prospectuses.
The Management Contract provides that Putnam Management shall not be
subject to any liability to the fund or to any shareholder of the fund
for any act or omission in the course of or connected with rendering
services to the fund in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties on the part of
Putnam Management.
The Management Contract may be terminated without penalty by vote of the
Trustees or the shareholders of the fund, or by Putnam Management, on 30
days' written notice. It may be amended only by a vote of the
shareholders of the fund. The Management Contract also terminates
without payment of any penalty in the event of its assignment. The
Management Contract provides that it will continue in effect only so
long as such continuance is approved at least annually by vote of either
the Trustees or the shareholders, and, in either case, by a majority of
the Trustees who are not "interested persons" of Putnam Management or
the fund. In each of the foregoing cases, the vote of the shareholders
is the affirmative vote of a "majority of the outstanding voting
securities" as defined in the Investment Company Act of 1940.
Portfolio Transactions
Investment decisions. Investment decisions for the fund and for the
other investment advisory clients of Putnam Management and its
affiliates are made with a view to achieving their respective investment
objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved. Thus,
a particular security may be bought or sold for certain clients even
though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling the security. In
some instances, one client may sell a particular security to another
client. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security, in which event each
day's transactions in such security are, insofar as possible, averaged
as to price and allocated between such clients in a manner which in
Putnam Management's opinion is equitable to each and in accordance with
the amount being purchased or sold by each. There may be circumstances
when purchases or sales of portfolio securities for one or more clients
will have an adverse effect on other clients.
Brokerage and research services. Transactions on U.S. stock exchanges,
commodities markets and futures markets and other agency transactions
involve the payment by the fund of negotiated brokerage commissions.
Such commissions vary among different brokers. A particular broker may
charge different commissions according to such factors as the difficulty
and size of the transaction. Transactions in foreign investments often
involve the payment of fixed brokerage commissions, which may be higher
than those in the United States. There is generally no stated
commission in the case of securities traded in the over-the-counter
markets, but the price paid by the fund usually includes an undisclosed
dealer commission or mark-up. In underwritten offerings, the price paid
by the fund includes a disclosed, fixed commission or discount retained
by the underwriter or dealer. It is anticipated that most purchases and
sales of securities by funds investing primarily in tax-exempt
securities and certain other fixed-income securities will be with the
issuer or with underwriters of or dealers in those securities, acting as
principal. Accordingly, those funds would not ordinarily pay
significant brokerage commissions with respect to securities
transactions. See "Charges and expenses" in Part I of this SAI for
information concerning commissions paid by the fund.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional
investors to receive brokerage and research services (as defined in the
Securities Exchange Act of 1934, as amended (the "1934 Act")) from
broker-dealers that execute portfolio transactions for the clients of
such advisers and from third parties with which such broker-dealers have
arrangements. Consistent with this practice, Putnam Management receives
brokerage and research services and other similar services from many
broker-dealers with which Putnam Management places the fund's portfolio
transactions and from third parties with which these broker-dealers have
arrangements. These services include such matters as economic analysis,
investment research and database services, industry and company reviews,
evaluations of investments, recommendations as to the purchase and sale
of investments, performance measurement services, subscriptions, pricing
services, quotation services, news services and computer equipment
(investment-related hardware and software) utilized by Putnam
Management's managers and analysts. Where the services referred to
above are used by Putnam Management not exclusively for research
purposes, Putnam Management, based upon its own allocations of expected
use, bears that portion of the cost of these services which directly
relates to their non-research use. Some of these services are of value
to Putnam Management and its affiliates in advising various of their
clients (including the fund), although not all of these services are
necessarily useful and of value in managing the fund. The management
fee paid by the fund is not reduced because Putnam Management and its
affiliates receive these services even though Putnam Management might
otherwise be required to purchase some of these services for cash.
Putnam Management places all orders for the purchase and sale of
portfolio investments for the fund and buys and sells investments for
the fund through a substantial number of brokers and dealers. In so
doing, Putnam Management uses its best efforts to obtain for the fund
the most favorable price and execution available, except to the extent
it may be permitted to pay higher brokerage commissions as described
below. In seeking the most favorable price and execution, Putnam
Management, having in mind the fund's best interests, considers all
factors it deems relevant, including, by way of illustration, price, the
size of the transaction, the nature of the market for the security or
other investment, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker-dealer
involved and the quality of service rendered by the broker-dealer in
other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the Management
Contract, Putnam Management may cause the fund to pay a broker-dealer
which provides "brokerage and research services" (as defined in the 1934
Act) to Putnam Management an amount of disclosed commission for
effecting securities transactions on stock exchanges and other
transactions for the fund on an agency basis in excess of the commission
which another broker-dealer would have charged for effecting that
transaction. Putnam Management's authority to cause the fund to pay any
such greater commissions is subject to such policies as the Trustees may
adopt from time to time. Putnam Management does not currently intend to
cause the fund to make such payments. It is the position of the staff of
the Securities and Exchange Commission that Section 28(e) does not apply
to the payment of such greater commissions in "principal" transactions.
Accordingly Putnam Management will use its best effort to obtain the
most favorable price and execution available with respect to such
transactions, as described above.
The Management Contract provides that commissions, fees, brokerage or
similar payments received by Putnam Management or an affiliate in
connection with the purchase and sale of portfolio investments of the
fund, less any direct expenses approved by the Trustees, shall be
recaptured by the fund through a reduction of the fee payable by the
fund under the Management Contract. Putnam Management seeks to
recapture for the fund soliciting dealer fees on the tender of the
fund's portfolio securities in tender or exchange offers. Any such fees
which may be recaptured are likely to be minor in amount.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. and subject to seeking the most favorable price
and execution available and such other policies as the Trustees may
determine, Putnam Management may consider sales of shares of the fund
(and, if permitted by law, of the other Putnam funds) as a factor in the
selection of broker-dealers to execute portfolio transactions for the
fund.
Principal Underwriter
Putnam Retail Management is the principal underwriter of shares of the
fund and the other continuously offered Putnam funds. Putnam Retail
Management is not obligated to sell any specific amount of shares of the
fund and will purchase shares for resale only against orders for shares.
See "Charges and expenses" in Part I of this SAI for information on
sales charges and other payments received by Putnam Retail Management.
Personal Investments by Employees of Putnam Management and Putnam Retail
Management and Officers and Trustees of the Fund
Employees of Putnam Management and Putnam Retail Management and officers
and Trustees of the fund are subject to significant restrictions on
engaging in personal securities transactions. These restrictions are set
forth in the Codes of Ethics adopted by Putnam Management and Putnam
Retail Management (The Putnam Investments' Code of Ethics) and by the
fund (the Putnam Funds' Code of Ethics). The Putnam Investments' Code of
Ethics and the Putnam Funds' Code of Ethics, in accordance with Rule
17j-1 of the Investment Company Act of 1940, as amended, contain
provisions and requirements designed to identify and address certain
conflicts of interest between personal investment activities and the
interests of the fund.
The Putnam Investments' Code of Ethics does not prohibit personnel from
investing in securities that may be purchased or held by the fund.
However, the Putnam Investments' Code, consistent with standards
recommended by the Investment Company Institute's Advisory Group on
Personal Investing and requirements established by Rule 17j-1, among
other things, prohibits personal securities investments without
pre-clearance, imposes time periods during which personal transactions
may not be made in certain securities by employees with access to
investment information, and requires the timely submission of broker
confirmations and quarterly reporting of personal securities
transactions. Additional restrictions apply to portfolio managers,
traders, research analysts and others involved in the investment
advisory process.
The Putnam Funds' Code of Ethics incorporates and applies the
restrictions of Putnam Investments' Code of Ethics to officers and
Trustees of the fund who are affiliated with Putnam Investments. The
Putnam Funds' Code does not prohibit unaffiliated officers and Trustees
from investing in securities that may be held by the fund; however, the
Putnam Funds' Code regulates the personal securities transactions of
unaffiliated Trustees of the fund, including limiting the time periods
during which they may personally buy and sell certain securities and
requiring them to submit quarterly reports of personal securities
transactions.
The fund's Trustees, in compliance with Rule 17j-1, approved Putnam
Investments' and the Putnam Funds' Codes of Ethics and are required to
approve any material changes to these Codes. The Trustees also provide
continued oversight of personal investment policies and annually
evaluate the implementation and effectiveness of the Codes of Ethics.
Investor Servicing Agent and Custodian
Putnam Investor Services, a division of Putnam Fiduciary Trust Company
("PFTC"), is the fund's investor servicing agent (transfer, plan and
dividend disbursing agent), for which it receives fees that are paid
monthly by the fund as an expense of all its shareholders. The fee paid
to Putnam Investor Services is determined on the basis of the number of
shareholder accounts, the number of transactions and the assets of the
fund. Putnam Investor Services has won the DALBAR Service Award eight
times in the past nine years. In 1997 and 1998, Putnam was the only
company to win all three DALBAR Awards: for service to investors, to
financial advisors, and to variable annuity contract holders. DALBAR,
Inc. an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
PFTC is the custodian of the fund's assets. In carrying out its duties
under its custodian contract, PFTC may employ one or more subcustodians
whose responsibilities include safeguarding and controlling the fund's
cash and securities, handling the receipt and delivery of securities and
collecting interest and dividends on the fund's investments. PFTC and
any subcustodians employed by it have a lien on the securities of the
fund (to the extent permitted by the fund's investment restrictions) to
secure charges and any advances made by such subcustodians at the end of
any day for the purpose of paying for securities purchased by the fund.
The fund expects that such advances will exist only in unusual
circumstances. Neither PFTC nor any subcustodian determines the
investment policies of the fund or decides which securities the fund
will buy or sell. PFTC pays the fees and other charges of any
subcustodians employed by it. The fund may from time to time pay
custodial expenses in full or in part through the placement by Putnam
Management of the fund's portfolio transactions with the subcustodians
or with a third-party broker having an agreement with the subcustodians.
The fund pays PFTC an annual fee based on the fund's assets, securities
transactions and securities holdings and reimburses PFTC for certain
out-of-pocket expenses incurred by it or any subcustodian employed by it
in performing custodial services.
See "Charges and expenses" in Part I of this SAI for information on fees
and reimbursements for investor servicing and custody received by PFTC.
The fees may be reduced by credits allowed by PFTC.
DETERMINATION OF NET ASSET VALUE
The fund determines the net asset value per share of each class of
shares once each day the New York Stock Exchange (the "Exchange") is
open. Currently, the Exchange is closed Saturdays, Sundays and the
following holidays: New Year's Day, Rev. Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July,
Labor Day, Thanksgiving and Christmas. The fund determines net asset
value as of the close of regular trading on the Exchange, currently 4:00
p.m. However, equity options held by the fund are priced as of the
close of trading at 4:10 p.m., and futures contracts on U.S. government
and other fixed-income securities and index options held by the fund are
priced as of their close of trading at 4:15 p.m.
Securities for which market quotations are readily available are valued
at prices which, in the opinion of Putnam Management, most nearly
represent the market values of such securities. Currently, such prices
are determined using the last reported sale price or, if no sales are
reported (as in the case of some securities traded over-the-counter),
the last reported bid price, except that certain securities are valued
at the mean between the last reported bid and asked prices. Short-term
investments having remaining maturities of 60 days or less are valued at
amortized cost, which approximates market value. All other securities
and assets are valued at their fair value following procedures approved
by the Trustees. Liabilities are deducted from the total, and the
resulting amount is divided by the number of shares of the class
outstanding.
Reliable market quotations are not considered to be readily available
for long-term corporate bonds and notes, certain preferred stocks,
tax-exempt securities, and certain foreign securities. These
investments are valued at fair value on the basis of valuations
furnished by pricing services, which determine valuations for normal,
institutional-size trading units of such securities using methods based
on market transactions for comparable securities and various
relationships between securities which are generally recognized by
institutional traders.
If any securities held by the fund are restricted as to resale, Putnam
Management determines their fair value following procedures approved by
the Trustees. The fair value of such securities is generally determined
as the amount which the fund could reasonably expect to realize from an
orderly disposition of such securities over a reasonable period of time.
The valuation procedures applied in any specific instance are likely to
vary from case to case. However, consideration is generally given to
the financial position of the issuer and other fundamental analytical
data relating to the investment and to the nature of the restrictions on
disposition of the securities (including any registration expenses that
might be borne by the fund in connection with such disposition). In
addition, specific factors are also generally considered, such as the
cost of the investment, the market value of any unrestricted securities
of the same class, the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any available
analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of
the Exchange. The values of these securities used in determining the
net asset value of the fund's shares are computed in their local
currencies as of such times. Currency exchange rates are normally
determined at the close of trading in London, England (11:00 a.m., New
York time). Also, because of the amount of time required to collect and
process trading information as to large numbers of securities issues,
the values of certain securities (such as convertible bonds, U.S.
government securities and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest practicable
time prior to the close of the Exchange. Occasionally, events affecting
the value of such securities may occur between the time of the
determination of value and the close of the Exchange which will not be
reflected in the computation of the fund's net asset value. If events
materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value
following procedures approved by the Trustees. In addition, securities
held by some of the funds may be traded in foreign markets that are open
for business on days that the fund is not, and the trading of such
securities on those days may have an impact on the value of a
shareholder's investment at a time when the shareholder cannot buy and
sell shares of the fund.
Money market funds generally value their portfolio securities at
amortized cost according to Rule 2a-7 under the Investment Company Act
of 1940.
HOW TO BUY SHARES
Each prospectus describes briefly how investors may buy shares of the
fund and identifies the share classes offered by that prospectus.
Because of these different sales charges and expenses, the investment
performance of the classes will vary. For more information, including
your eligibility to purchase certain classes of shares, contact your
investment dealer or Putnam Retail Management (at 1-800-225-1581).This
section of the SAI contains more information on how to buy shares and
the features of all share classes offered by Putnam funds. These
features include the sales charges and contingent deferred sales charges
(CDSCs) payable by investors, the conditions under which those charges
may be reduced, and the sales charges, commissions and other amounts
payable by Putnam Retail Management to investment dealers. As set forth
under the following sub-headings of this section, some features apply to
all classes, while others apply only to certain classes:
* General Information describes how to buy shares, identifies the
classes, describes ways of reducing sales charges that apply to all
classes and describes certain payments to investment dealers.
* Additional Information about Class A and Class M Shares describes the
allocation of initial sales charges between Putnam Retail Management and
investment dealers, ways of reducing those sales charges, the CDSC
payable by purchasers of $1 million or more of class A shares and the
commissions on those purchases payable by Putnam Retail Management to
investment dealers.
* Additional Information about Class B and Class C Shares describes the
commissions payable by Putnam Retail Management to investment dealers.
General Information
The fund is currently making a continuous offering of its shares. The
fund receives the entire net asset value of shares sold. The fund will
accept unconditional orders for shares to be executed at the public
offering price based on the net asset value per share next determined
after the order is placed. In the case of class A shares and class M
shares, the public offering price is the net asset value plus the
applicable sales charge, if any. No sales charge is included in the
public offering price of other classes of shares. In the case of orders
for purchase of shares placed through dealers, the public offering price
will be based on the net asset value determined on the day the order is
placed, but only if the dealer receives the order before the close of
regular trading on the Exchange. If the dealer receives the order after
the close of the Exchange, the price will be based on the net asset
value next determined. If funds for the purchase of shares are sent
directly to Putnam Investor Services, they will be invested at the
public offering price based on the net asset value next determined after
receipt. Payment for shares of the fund must be in U.S. dollars; if
made by check, the check must be drawn on a U.S. bank.
Initial and subsequent purchases must satisfy the minimums stated in the
prospectus, except that (i) individual investments under certain
employee benefit plans or Tax Qualified Retirement Plans may be lower,
(ii) persons who are already shareholders may make additional purchases
of $50 or more by sending funds directly to Putnam Investor Services
(see "Your investing account" below), and (iii) for investors
participating in systematic investment plans and military allotment
plans, the initial and subsequent purchases must be $25 or more.
Information about these plans is available from investment dealers or
from Putnam Retail Management.
As a convenience to investors, shares may be purchased through a
systematic investment plan. Pre-authorized monthly bank drafts for a
fixed amount (at least $25) are used to purchase fund shares at the
applicable public offering price next determined after Putnam Retail
Management receives the proceeds from the draft. A shareholder may
choose any day of the month and, if a given month (for example,
February) does not contain that particular date, or if the date falls on
a weekend or holiday, the draft will be processed on the next business
day. Further information and application forms are available from
investment dealers or from Putnam Retail Management.
Except for funds that declare a distribution daily, distributions to be
reinvested are reinvested without a sales charge in shares of the same
class as of the ex-dividend date using the net asset value determined on
that date, and are credited to a shareholder's account on the payment
date. Dividends for Putnam money market funds are credited to a
shareholder's account on the payment date. Distributions for all other
funds that declare a distribution daily are reinvested without a sales
charge as of the last day of the period for which distributions are paid
using the net asset value determined on that date, and are credited to a
shareholder's account on the payment date.
Payment in securities. In addition to cash, the fund may accept
securities as payment for fund shares at the applicable net asset value.
Generally, the fund will only consider accepting securities to increase
its holdings in a portfolio security, or if Putnam Management determines
that the offered securities are a suitable investment for the fund and
in a sufficient amount for efficient management.
While no minimum has been established, it is expected that the fund
would not accept securities with a value of less than $100,000 per issue
as payment for shares. The fund may reject in whole or in part any or
all offers to pay for purchases of fund shares with securities, may
require partial payment in cash for such purchases to provide funds for
applicable sales charges, and may discontinue accepting securities as
payment for fund shares at any time without notice. The fund will value
accepted securities in the manner described in the section
"Determination of Net Asset Value" for valuing shares of the fund. The
fund will only accept securities which are delivered in proper form.
The fund will not accept options or restricted securities as payment for
shares. The acceptance of securities by certain funds in exchange for
fund shares is subject to additional requirements. For federal income
tax purposes, a purchase of fund shares with securities will be treated
as a sale or exchange of such securities on which the investor will
generally realize a taxable gain or loss. The processing of a purchase
of fund shares with securities involves certain delays while the fund
considers the suitability of such securities and while other
requirements are satisfied. For information regarding procedures for
payment in securities, contact Putnam Retail Management. Investors
should not send securities to the fund except when authorized to do so
and in accordance with specific instructions received from Putnam Retail
Management.
Class A shares and class M shares are generally sold with a sales charge
payable at the time of purchase (except for class A shares and class M
shares of money market funds). As used in this SAI and unless the
context requires otherwise, the term "class A shares" includes shares of
funds that offer only one class of shares. The prospectus contains a
table of applicable sales charges.
Class B shares and class C shares are sold subject to a CDSC payable
upon redemption within a specified period after purchase. The
prospectus contains a table of applicable CDSCs.
Class B shares will automatically convert into class A shares no later
than the end of the month eight years after the purchase date, and may,
in the discretion of the Trustees, convert to class A shares earlier.
Class B shares acquired by exchanging class B shares of another Putnam
fund will convert into class A shares based on the time of the initial
purchase. Class B shares acquired through reinvestment of distributions
will convert into Class A shares based on the date of the initial
purchase to which such shares relate. For this purpose, class B shares
acquired through reinvestment of distributions will be attributed to
particular purchases of class B shares in accordance with such
procedures as the Trustees may determine from time to time. The
conversion of class B shares to class A shares is subject to the
condition that such conversions will not constitute taxable events for
Federal tax purposes.
Class Y shares, which are not subject to sales charges or a CDSC, are
available only to certain defined contribution plans and college savings
plans. See the prospectus that offers class Y shares for more
information.
Sales without sales charges or contingent deferred sales charges. The
fund may sell shares without a sales charge or CDSC to:
(i) current and retired Trustees of the fund; officers of the fund;
directors and current and retired U.S. full-time employees of Putnam
Management, Putnam Retail Management, their parent corporations and
certain corporate affiliates; family members of and employee benefit
plans for the foregoing; and partnerships, trusts or other entities in
which any of the foregoing has a substantial interest;
(ii) employer-sponsored retirement plans, for the repurchase of shares
in connection with repayment of plan loans made to plan participants (if
the sum loaned was obtained by redeeming shares of a Putnam fund sold
with a sales charge) (not offered by tax-exempt funds);
(iii) clients of administrators of tax-qualified employer-sponsored
retirement plans which have entered into agreements with Putnam Retail
Management (not offered by tax-exempt funds);
(iv) registered representatives and other employees of broker-dealers
having sales agreements with Putnam Retail Management; employees of
financial institutions having sales agreements with Putnam Retail
Management or otherwise having an arrangement with any such
broker-dealer or financial institution with respect to sales of fund
shares; and their spouses and children under age 21 (Putnam Retail
Management is regarded as the dealer of record for all such accounts);
(v) investors meeting certain requirements who sold shares of certain
Putnam closed-end funds pursuant to a tender offer by such closed-end
fund;
(vi) a trust department of any financial institution purchasing shares
of the fund in its capacity as trustee of any trust (other than a
tax-qualified retirement plan trust), through an arrangement approved by
Putnam Retail Management, if the value of the shares of the fund and
other Putnam funds purchased or held by all such trusts exceeds $1
million in the aggregate; and
(vii) "wrap accounts" maintained for clients of broker-dealers,
financial institutions or financial intermediaries who have entered into
agreements with Putnam Retail Management with respect to such accounts,
which in all cases shall be subject to a wrap fee economically
comparable to a sales charge. Fund shares offered pursuant to this
waiver may not be advertised as "no load," or otherwise offered for sale
at NAV without a wrap fee.
The fund may issue its shares at net asset value without an initial
sales charge or a CDSC in connection with the acquisition of
substantially all of the securities owned by other investment companies
or personal holding companies. The CDSC will be waived on redemptions
to pay premiums for insurance under Putnam's insured investor program.
Investors who set up an Systematic Withdrawal Plan ("SWP") for a share
account (see "Plans available to shareholders -- Systematic Withdrawal
Plan") may withdraw through the SWP up to 12% of the net asset value of
the account (calculated as set forth below) each year without incurring
any CDSC. Shares not subject to a CDSC (such as shares representing
reinvestment of distributions) will be redeemed first and will count
toward the 12% limitation. If there are insufficient shares not subject
to a CDSC, shares subject to the lowest CDSC liability will be redeemed
next until the 12% limit is reached. The 12% figure is calculated on a
pro rata basis at the time of the first payment made pursuant to an SWP
and recalculated thereafter on a pro rata basis at the time of each SWP
payment. Therefore, shareholders who have chosen an SWP based on a
percentage of the net asset value of their account of up to 12% will be
able to receive SWP payments without incurring a CDSC. However,
shareholders who have chosen a specific dollar amount (for example, $100
per month from the fund that pays income distributions monthly) for
their periodic SWP payment should be aware that the amount of that
payment not subject to a CDSC may vary over time depending on the net
asset value of their account. For example, if the net asset value of
the account is $10,000 at the time of payment, the shareholder will
receive $100 free of the CDSC (12% of $10,000 divided by 12 monthly
payments). However, if at the time of the next payment the net asset
value of the account has fallen to $9,400, the shareholder will receive
$94 free of any CDSC (12% of $9,400 divided by 12 monthly payments) and
$6 subject to the lowest applicable CDSC. This SWP privilege may be
revised or terminated at any time.
No CDSC is imposed on the redemption of shares of any class subject to a
CDSC to the extent that the shares redeemed (i) are no longer subject to
the holding period therefor, (ii) resulted from reinvestment of
distributions, or (iii) were exchanged for shares of another Putnam
fund, provided that the shares acquired in such exchange or subsequent
exchanges (including shares of a Putnam money market fund) will continue
to remain subject to the CDSC, if applicable, until the applicable
holding period expires. In determining whether the CDSC applies to each
redemption, shares not subject to a CDSC are redeemed first.
The fund will waive any CDSC on redemptions, in the case of individual,
joint or Uniform Transfers to Minors Act accounts, in the event of death
or post-purchase disability of a shareholder, for the purpose of paying
benefits pursuant to tax-qualified retirement plans ("Benefit
Payments"), or, in the case of living trust accounts, in the event of
the death or post-purchase disability of the settlor of the trust.
Benefit Payments currently include, without limitation, (1)
distributions from an IRA due to death or disability, (2) a return of
excess contributions to an IRA or 401(k) plan, and (3) distributions
from retirement plans qualified under Section 401(a) of the Code or from
a 403(b) plan due to death, disability, retirement or separation from
service. These waivers may be changed at any time. Additional waivers
may apply to IRA accounts opened prior to February 1, 1994.
Payments to dealers. Putnam Retail Management may, at its expense, pay
concessions in addition to the payments disclosed in the prospectus to
dealers that satisfy certain criteria established from time to time by
Putnam Retail Management relating to increasing net sales of shares of
the Putnam funds over prior periods, and certain other factors.
Additional Information About Class A and Class M Shares
The underwriter's commission is the sales charge shown in the prospectus
less any applicable dealer discount. Putnam Retail Management will give
dealers ten days' notice of any changes in the dealer discount. Putnam
Retail Management retains the entire sales charge on any retail sales
made by it.
Putnam Retail Management offers several plans by which an investor may
obtain reduced sales charges on purchases of class A shares and class M
shares. The variations in sales charges reflect the varying efforts
required to sell shares to separate categories of purchasers. These
plans may be altered or discontinued at any time.
The public offering price of class A and class M shares is the net asset
value plus a sales charge that varies depending on the size of your
purchase. The fund receives the net asset value. The sales charge is
allocated between your investment dealer and Putnam Retail Management as
shown in the following table, except when Putnam Retail Management, in
its discretion, allocates the entire amount to your investment dealer.
<TABLE>
<CAPTION>
For Growth Funds, Growth and Income Funds and Asset Allocation Funds
only:
CLASS A CLASS M
Amount of Amount of
Sales charge sales charge Sales charge sales charge
as a reallowed to as a reallowed to
percentage dealers as a percentage dealers as a
Amount of transaction of offering percentage of of offering percentage of
at offering price ($) price offering price price offering price
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Under 50,000 5.75% 5.00% 3.50% 3.00%
50,000 but under 100,000 4.50 3.75 2.50 2.00
100,000 but under 250,000 3.50 2.75 1.50 1.00
250,000 but under 500,000 2.50 2.00 1.00 1.00
500,000 but under 1,000,000 2.00 1.75 NONE NONE
1,000,000 and above NONE NONE NONE NONE
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For Income Funds only (except for Putnam Intermediate U.S. Government
Income Fund and Putnam Preferred Income Fund):
CLASS A CLASS M
Amount of Amount of
Sales charge sales charge Sales charge sales charge
as a reallowed to as a reallowed to
percentage dealers as a percentage dealers as a
Amount of transaction of offering percentage of of offering percentage of
at offering price ($) price offering price price offering price
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Under 50,000 4.75% 4.25% 3.25% 3.00%
50,000 but under 100,000 4.50 4.00 2.25 2.00
100,000 but under 250,000 3.50 3.00 1.50 1.25
250,000 but under 500,000 2.50 2.25 1.00 1.00
500,000 but under 1,000,000 2.00 1.75 NONE NONE
1,000,000 and above NONE NONE NONE NONE
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For Putnam Intermediate U.S. Government Income Fund and Putnam Preferred
Income Fund only:
CLASS A CLASS M
Amount of Amount of
Sales charge sales charge Sales charge sales charge
as a reallowed to as a reallowed to
percentage dealers as a percentage dealers as a
Amount of transaction of offering percentage of of offering percentage of
at offering price ($) price offering price price offering price
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Under 100,000 3.25% 3.00% 2.00% 1.80%
100,000 but under 250,000 2.50 2.25 1.50 1.30
250,000 but under 500,000 2.00 1.75 1.00 1.00
500,000 but under 1,000,000 1.50 1.25 NONE NONE
1,000,000 and above NONE NONE NONE NONE
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For Tax Free Funds only:
CLASS A CLASS M
Amount of Amount of
Sales charge sales charge Sales charge sales charge
as a reallowed to as a reallowed to
percentage dealers as a percentage dealers as a
Amount of transaction of offering percentage of of offering percentage of
at offering price ($) price offering price price offering price
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Under 25,000 4.75% 4.50% 3.25% 3.00%
25,000 but under 50,000 4.50 4.25 3.25 3.00
50,000 but under 100,000 4.50 4.25 2.25 2.00
100,000 but under 250,000 3.75 3.50 1.50 1.25
250,000 but under 500,000 3.00 2.75 1.00 1.00
500,000 but under 1,000,000 2.00 1.85 NONE NONE
1,000,000 and above NONE NONE NONE NONE
---------------------------------------------------------------------------------------
</TABLE>
Combined purchase privilege. The following persons may qualify for the
sales charge reductions or eliminations shown in the prospectus by
combining into a single transaction the purchase of class A shares or
class M shares with other purchases of any class of shares:
(i) an individual, or a "company" as defined in Section 2(a)(8) of the
Investment Company Act of 1940 (which includes corporations which are
corporate affiliates of each other);
(ii) an individual, his or her spouse and their children under
twenty-one, purchasing for his, her or their own account;
(iii) a trustee or other fiduciary purchasing for a single trust estate
or single fiduciary account (including a pension, profit-sharing, or
other employee benefit trust created pursuant to a plan qualified under
Section 401 of the Internal Revenue Code of 1986, as amended (the
"Code"));
(iv) tax-exempt organizations qualifying under Section 501(c)(3) of the
Internal Revenue Code (not including tax-exempt organizations qualifying
under Section 403(b)(7) (a "403(b) plan") of the Code; and
(v) employee benefit plans of a single employer or of affiliated
employers, other than 403(b) plans.
A combined purchase currently may also include shares of any class of
other continuously offered Putnam funds (other than money market funds)
purchased at the same time through a single investment dealer, if the
dealer places the order for such shares directly with Putnam Retail
Management.
Cumulative quantity discount (right of accumulation). A purchaser of
class A shares or class M shares may qualify for a cumulative quantity
discount by combining a current purchase (or combined purchases as
described above) with certain other shares of any class of Putnam funds
already owned. The applicable sales charge is based on the total of:
(i) the investor's current purchase; and
(ii) the maximum public offering price (at the close of business on the
previous day) of:
(a) all shares held by the investor in all of the Putnam funds (except
money market funds); and
(b) any shares of money market funds acquired by exchange from other
Putnam funds; and
(iii) the maximum public offering price of all shares described in
paragraph (ii) owned by another shareholder eligible to participate with
the investor in a "combined purchase" (see above).
To qualify for the combined purchase privilege or to obtain the
cumulative quantity discount on a purchase through an investment dealer,
when each purchase is made the investor or dealer must provide Putnam
Retail Management with sufficient information to verify that the
purchase qualifies for the privilege or discount. The shareholder must
furnish this information to Putnam Investor Services when making direct
cash investments.
Statement of Intention. Investors may also obtain the reduced sales
charges for class A shares or class M shares shown in the prospectus for
investments of a particular amount by means of a written Statement of
Intention, which expresses the investor's intention to invest that
amount (including certain "credits," as described below) within a period
of 13 months in shares of any class of the fund or any other
continuously offered Putnam fund (excluding money market funds). Each
purchase of class A shares or class M shares under a Statement of
Intention will be made at the public offering price applicable at the
time of such purchase to a single transaction of the total dollar amount
indicated in the Statement of Intention. A Statement of Intention may
include purchases of shares made not more than 90 days prior to the date
that an investor signs a Statement; however, the 13-month period during
which the Statement of Intention is in effect will begin on the date of
the earliest purchase to be included.
An investor may receive a credit toward the amount indicated in the
Statement of Intention equal to the maximum public offering price as of
the close of business on the previous day of all shares he or she owns
on the date of the Statement of Intention which are eligible for
purchase under a Statement of Intention (plus any shares of money market
funds acquired by exchange of such eligible shares). Investors do not
receive credit for shares purchased by the reinvestment of
distributions. Investors qualifying for the "combined purchase
privilege" (see above) may purchase shares under a single Statement of
Intention.
The Statement of Intention is not a binding obligation upon the investor
to purchase the full amount indicated. The minimum initial investment
under a Statement of Intention is 5% of such amount, and must be
invested immediately. Class A shares or class M shares purchased with
the first 5% of such amount will be held in escrow to secure payment of
the higher sales charge applicable to the shares actually purchased if
the full amount indicated is not purchased. When the full amount
indicated has been purchased, the escrow will be released. If an
investor desires to redeem escrowed shares before the full amount has
been purchased, the shares will be released from escrow only if the
investor pays the sales charge that, without regard to the Statement of
Intention, would apply to the total investment made to date.
To the extent that an investor purchases more than the dollar amount
indicated on the Statement of Intention and qualifies for a further
reduced sales charge, the sales charge will be adjusted for the entire
amount purchased at the end of the 13-month period, upon recovery from
the investor's dealer of its portion of the sales charge adjustment.
Once received from the dealer, which may take a period of time or may
never occur, the sales charge adjustment will be used to purchase
additional shares at the then current offering price applicable to the
actual amount of the aggregate purchases. These additional shares will
not be considered as part of the total investment for the purpose of
determining the applicable sales charge pursuant to the Statement of
Intention. No sales charge adjustment will be made unless and until the
investor's dealer returns any excess commissions previously received.
To the extent that an investor purchases less than the dollar amount
indicated on the Statement of Intention within the 13-month period, the
sales charge will be adjusted upward for the entire amount purchased at
the end of the 13-month period. This adjustment will be made by
redeeming shares from the account to cover the additional sales charge,
the proceeds of which will be paid to the investor's dealer and Putnam
Retail Management in accordance with the prospectus. If the account
exceeds an amount that would otherwise qualify for a reduced sales
charge, that reduced sales charge will be applied.
Statements of Intention are not available for certain employee benefit
plans.
Statement of Intention forms may be obtained from Putnam Retail
Management or from investment dealers. Interested investors should read
the Statement of Intention carefully.
Group purchases of class A and class M shares. Members of qualified
groups may purchase class A shares of the fund at a group sales charge
rate of 4.50% of the public offering price (4.71% of the net amount
invested). The dealer discount on such sales is 3.75% of the offering
price. Members of qualified groups may also purchase class M shares at
net asset value.
To receive the class A or class M group rate, group members must
purchase shares through a single investment dealer designated by the
group. The designated dealer must transmit each member's initial
purchase to Putnam Retail Management, together with payment and
completed application forms. After the initial purchase, a member may
send funds for the purchase of shares directly to Putnam Investor
Services. Purchases of shares are made at the public offering price
based on the net asset value next determined after Putnam Retail
Management or Putnam Investor Services receives payment for the shares.
The minimum investment requirements described above apply to purchases
by any group member. Only shares purchased under the class A group
discount are included in calculating the purchased amount for the
purposes of these requirements.
Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or association,
or other organized groups of persons (the members of which may include
other qualified groups) provided that: (i) the group has at least 25
members of which, with respect to the class A discount only, at least 10
members participate in the initial purchase; (ii) the group has been in
existence for at least six months; (iii) the group has some purpose in
addition to the purchase of investment company shares at a reduced sales
charge; (iv) the group's sole organizational nexus or connection is not
that the members are credit card holders of a company, policy holders of
an insurance company, customers of a bank or broker-dealer, clients of
an investment adviser or security holders of a company; (v) with respect
to the class A discount only, the group agrees to provide its designated
investment dealer access to the group's membership by means of written
communication or direct presentation to the membership at a meeting on
not less frequently than an annual basis; (vi) the group or its
investment dealer will provide annual certification in form satisfactory
to Putnam Investor Services that the group then has at least 25 members
and, with respect to the class A discount only, that at least ten
members participated in group purchases during the immediately preceding
12 calendar months; and (vii) the group or its investment dealer will
provide periodic certification in form satisfactory to Putnam Investor
Services as to the eligibility of the purchasing members of the group.
Members of a qualified group include: (i) any group which meets the
requirements stated above and which is a constituent member of a
qualified group; (ii) any individual purchasing for his or her own
account who is carried on the records of the group or on the records of
any constituent member of the group as being a good standing employee,
partner, member or person of like status of the group or constituent
member; or (iii) any fiduciary purchasing shares for the account of a
member of a qualified group or a member's beneficiary. For example, a
qualified group could consist of a trade association which would have as
its members individuals, sole proprietors, partnerships and
corporations. The members of the group would then consist of the
individuals, the sole proprietors and their employees, the members of
the partnerships and their employees, and the corporations and their
employees, as well as the trustees of employee benefit trusts acquiring
class A shares for the benefit of any of the foregoing.
A member of a qualified group may, depending upon the value of class A
shares of the fund owned or proposed to be purchased by the member, be
entitled to purchase class A shares of the fund at non-group sales
charge rates shown in the prospectus which may be lower than the group
sales charge rate, if the member qualifies as a person entitled to
reduced non-group sales charges. Such a group member will be entitled
to purchase at the lower rate if, at the time of purchase, the member or
his or her investment dealer furnishes sufficient information for Putnam
Retail Management or Putnam Investor Services to verify that the
purchase qualifies for the lower rate.
Interested groups should contact their investment dealer or Putnam
Retail Management. The fund reserves the right to revise the terms of
or to suspend or discontinue group sales at any time.
Purchases of $1 million or more of Class A shares. Purchases of class A
shares of $1 million or more are not subject to an initial sales charge,
but may be subject to a CDSC, as described below, unless the dealer of
record has, with Putnam Retail Management's approval, waived its
commission or agreed to refund its commission to Putnam Retail
Management if a CDSC would otherwise apply.
* For a class A qualified benefit plan (any employer-sponsored plan or
arrangement), a CDSC of 0.50% (0.75% for a plan with less than $5
million in Putnam funds and other investments managed by Putnam
Management or its affiliates) applies if the plan redeems 90% or more of
its cumulative purchases within two years of the plan's initial purchase
of class A shares.
* For any other purchaser, a CDSC of 1.00% or 0.50% applies to
redemptions within the first or second year, respectively, of purchase.
On sales at net asset value to a class A qualified benefit plan, Putnam
Retail Management pays commissions to the dealer of record at the time
of the sale on net monthly purchases up to the following rates: 1.00%
of the first $1 million, 0.75% of the next $1 million and 0.50%
thereafter.
On sales at net asset value to other investors, Putnam Retail Management
pays commissions on sales during the one-year period beginning with the
date of the initial purchase at net asset value. Each subsequent
one-year measuring period for these purposes begins with the first net
asset value purchase following the end of the prior period. These
commissions are paid at the rate of 1.00% of the amount under $3
million, 0.50% of the next $47 million and 0.25% thereafter.
Different CDSC and commission rates may apply to shares purchased prior
to April 15, 1997 and to shares purchased by investment-only plans prior
to August 1, 1999.
Additional Information About Class B and Class C Shares
Except as noted below, Putnam Retail Management will pay a 4% commission
on sales of class B shares of the fund only to those financial
intermediaries who have entered into service agreements with Putnam
Retail Management. For tax-exempt funds, this commission includes a
0.20% pre-paid service fee (except for Putnam Municipal Income Fund,
which has a 0.25% pre-paid service fee). For Putnam Intermediate U.S.
Government Income Fund, Putnam Retail Management will pay a 2.75%
commission to financial intermediaries selling class B shares of the
fund. Putnam Management pays financial intermediaries a 1% commission
on sales of class C shares of a fund. Class B and class C shares of the
Money Market Fund may only be purchased as part of an exchange from
class B or class C shares of another Putnam fund, or by opening a dollar
cost averaging account, as described in the Money Market Fund's
prospectus. Class B and class C share purchases for the Money Market
Fund are not subject to a separate CDSC, but a if a shareholder
exchanges class B or class C shares from another fund to the Money
Market Fund and then redeems the class B or class C shares of the Money
Market Fund, that redemption will be subject to the CDSC applicable to
the class B or class C shares of the other fund. Therefore no up-front
commission is paid on sales of class B or class C shares for the Money
Market Fund. Putnam Retail Management will retain any CDSC imposed on
redemptions of class B and class C shares to compensate it for the cost
of paying the up-front commissions paid to financial intermediaries for
class B or class C share sales.
DISTRIBUTION PLANS
If the fund or a class of shares of the fund has adopted a distribution
plan, the prospectus describes the principal features of the plan. This
SAI contains additional information which may be of interest to
investors.
Continuance of a plan is subject to annual approval by a vote of the
Trustees, including a majority of the Trustees who are not interested
persons of the fund and who have no direct or indirect interest in the
plan or related arrangements (the "Qualified Trustees"), cast in person
at a meeting called for that purpose. All material amendments to a plan
must be likewise approved by the Trustees and the Qualified Trustees.
No plan may be amended in order to increase materially the costs which
the fund may bear for distribution pursuant to such plan without also
being approved by a majority of the outstanding voting securities of the
fund or the relevant class of the fund, as the case may be. A plan
terminates automatically in the event of its assignment and may be
terminated without penalty, at any time, by a vote of a majority of the
Qualified Trustees or by a vote of a majority of the outstanding voting
securities of the fund or the relevant class of the fund, as the case
may be.
Putnam Retail Management compensates qualifying dealers (including, for
this purpose, certain financial institutions) for sales of shares and
the maintenance of shareholder accounts.
Putnam Retail Management may suspend or modify its payments to dealers.
The payments are also subject to the continuation of the relevant
distribution plan, the terms of the service agreements between the
dealers and Putnam Retail Management and any applicable limits imposed
by the National Association of Securities Dealers, Inc.
Financial institutions receiving payments from Putnam Retail Management
as described above may be required to comply with various state and
federal regulatory requirements, including among others those regulating
the activities of securities brokers or dealers.
Except as otherwise agreed between Putnam Retail Management and a
dealer, for purposes of determining the amounts payable to dealers for
shareholder accounts for which such dealers are designated as the dealer
of record, "average net asset value" means the product of (i) the
average daily share balance in such account(s) and (ii) the average
daily net asset value of the relevant class of shares over the quarter.
Class A shares:
Putnam Retail Management makes quarterly payments to dealers at the
annual rates set forth below (as a percentage of the average net asset
value of class A shares for which such dealers are designated the dealer
of record) except that payments to dealers for shares held by class A
qualified benefit plans may be made at other rates, as described below.
No payments are made during the first year after purchase on shares
purchased at net asset value by shareholders that invest at least $1
million or that are class A qualified benefit plans, unless the
shareholder has made arrangements with Putnam Retail Management and the
dealer of record has waived the sales commission.
<TABLE>
<CAPTION>
Rate Fund
---- -----
<S> <C>
0.25% All funds currently making payments under a
class A distribution plan, except for those
listed below
0.50% for shares purchased on Putnam Diversified Equity Trust
or before 7/1/95; 0.25% for
shares purchased after 7/1/95
0.20% Putnam Tax-Free High Yield Fund
Putnam Tax-Free Insured Fund
0.20% for shares purchased on Putnam Balanced Retirement Fund
or before 12/31/89; 0.25% for Putnam Convertible Income-Growth Trust
shares purchased after 12/31/89 The George Putnam Fund of Boston
Putnam Global Growth Fund
Putnam Global Natural Resources Fund
Putnam Health Sciences Trust
The Putnam Fund for Growth and Income
Putnam Investors Fund
Putnam Vista Fund
Putnam Voyager Fund
0.20% for shares purchased on Putnam High Yield Trust
or before 3/31/90; 0.25% for Putnam U.S. Government Income Trust
shares purchased after 3/31/90
0.20% for shares purchased on Putnam Income Fund
or before 3/31/91; 0.25% for
shares purchased after 3/31/91
0.20% for shares purchased on Putnam Municipal Income Fund
or before 5/7/92; 0.25% for
shares purchased after 5/7/92
0.15% for shares purchased on Putnam Michigan Tax Exempt Income Fund
or before 3/6/92; 0.20% for Putnam Minnesota Tax Exempt Income Fund
shares purchased after 3/6/92 Putnam Ohio Tax Exempt Income Fund
0.15% for shares purchased on Putnam Massachusetts Tax Exempt Income Fund
or before 5/11/92; 0.20% for
shares purchased after 5/11/92
0.15% for shares purchased on Putnam New York Tax Exempt Opportunities Fund
or before 7/12/92; 0.20% for
shares purchased after 7/12/92
0.15% for shares purchased on Putnam California Tax Exempt Income Fund
or before 12/31/92; 0.20% for Putnam New Jersey Tax Exempt Income Fund
shares purchased after 12/31/92 Putnam New York Tax Exempt Income Fund
Putnam Tax Exempt Income Fund
0.15% for shares purchased on Putnam Arizona Tax Exempt Income Fund
or before 3/5/93; 0.20% for
shares purchased after 3/5/93
0.15% for shares purchased on Putnam Florida Tax Exempt Income Fund
or before 7/8/93; 0.20% for Putnam Pennsylvania Tax Exempt Income Fund
shares purchased after 7/8/93
0.00% Putnam California Tax Exempt Money Market Fund
Putnam Money Market Fund
Putnam New York Tax Exempt Money Market Fund
Putnam Preferred Income Fund
Putnam Tax Exempt Money Market Fund
</TABLE>
Putnam Retail Management pays service fees to the dealer of record for
plans at the rate of up to 0.25% of average net assets, depending on the
level of service provided by Putnam Fiduciary Trust Company or its
affiliates, by the dealer of record, and by third parties. Service fees
are paid quarterly to the dealer of record for that quarter.
Class B shares:
Putnam Retail Management makes quarterly payments to dealers at the
annual rates set forth below (as a percentage of the average net asset
value of class B shares for which such dealers are designated the dealer
of record).
Rate Fund
---- -----
0.25% All funds currently making payments under a
class B distribution plan, except for those
listed below
0.25%, except that the first Putnam Municipal Income Fund
year's service fees of 0.25%
are prepaid at time of sale
0.25%, except that the first Putnam Arizona Tax Exempt Income Fund
year's service fees of 0.20% Putnam California Tax Exempt Income Fund
are prepaid at time of sale Putnam Florida Tax Exempt Income Fund
Putnam Massachusetts Tax Exempt Income Fund
Putnam Michigan Tax Exempt Income Fund
Putnam Minnesota Tax Exempt Income Fund
Putnam New Jersey Tax Exempt Income Fund
Putnam New York Tax Exempt Income Fund
Putnam New York Tax Exempt Opportunities Fund
Putnam Ohio Tax Exempt Income Fund
Putnam Pennsylvania Tax Exempt Income Fund
Putnam Tax Exempt Income Fund
0.20% for shares purchased on Putnam Tax-Free Insured Fund
or before 3/31/90; 0.25% for Putnam Tax-Free High Yield
shares purchased after 3/31/90;
first year's service fees are
prepaid at time of sale
0.00% Putnam Money Market Fund
Class C shares:
Putnam Retail Management makes quarterly payments to dealers at the
annual rates set forth below (as a percentage of the average net asset
value of class C shares for which such dealers are designated the dealer
of record).
Rate Fund
---- -----
1.00% All funds currently making payments under a
class C distribution plan, except the fund
listed below
0.50% Putnam Money Market Fund
Class M shares:
Putnam Retail Management makes quarterly payments to dealers at the
annual rates set forth below (as a percentage of the average net asset
value of class M shares for which such dealers are designated the dealer
of record).
Rate Fund
---- -----
0.65% All growth and growth and income funds
currently making payments under a class M
distribution plan
0.40% All income and money market funds currently
making payments under a class M distribution
plan (except for Putnam Preferred Income
Fund and Putnam Money Market Fund)
0.25% Putnam Preferred Income Fund
0.15% Putnam Money Market Fund
INVESTOR SERVICES
Shareholder Information
Each time shareholders buy or sell shares, they will receive a statement
confirming the transaction and listing their current share balance.
(Under certain investment plans, a statement may only be sent
quarterly.) Shareholders will receive a statement confirming
reinvestment of distributions in additional fund shares (or in shares of
other Putnam funds for Dividends Plus accounts) promptly following the
quarter in which the reinvestment occurs. To help shareholders take
full advantage of their Putnam investment, they will receive a Welcome
Kit and a periodic publication covering many topics of interest to
investors. The fund also sends annual and semiannual reports that keep
shareholders informed about its portfolio and performance, and year-end
tax information to simplify their recordkeeping. Easy-to-read, free
booklets on special subjects such as the Exchange Privilege and IRAs are
available from Putnam Investor Services. Shareholders may call Putnam
Investor Services toll-free weekdays at 1-800-225-1581 between 8:30 a.m.
and 8:00 p.m. Boston time for more information, including account
balances. Shareholders can also visit the Putnam web site at
http://www.putnaminvestments.com.
Your Investing Account
The following information provides more detail concerning the operation
of a Putnam Investing Account. For further information or assistance,
investors should consult Putnam Investor Services. Shareholders who
purchase shares through a defined contribution plan should note that not
all of the services or features described below may be available to
them, and they should contact their employer for details.
A shareholder may reinvest a cash distribution without a front-end sales
charge or without the reinvested shares being subject to a CDSC, as the
case may be, by delivering to Putnam Investor Services the uncashed
distribution check, endorsed to the order of the fund. Putnam Investor
Services must receive the properly endorsed check within 1 year after
the date of the check.
The Investing Account also provides a way to accumulate shares of the
fund. In most cases, after an initial investment of $500, a shareholder
may send checks to Putnam Investor Services for $50 or more, made
payable to the fund, to purchase additional shares at the applicable
public offering price next determined after Putnam Investor Services
receives the check. Checks must be drawn on a U.S. bank and must be
payable in U.S. dollars.
Putnam Investor Services acts as the shareholder's agent whenever it
receives instructions to carry out a transaction on the shareholder's
account. Upon receipt of instructions that shares are to be purchased
for a shareholder's account, shares will be purchased through the
investment dealer designated by the shareholder. Shareholders may
change investment dealers at any time by written notice to Putnam
Investor Services, provided the new dealer has a sales agreement with
Putnam Retail Management.
Shares credited to an account are transferable upon written instructions
in good order to Putnam Investor Services and may be sold to the fund as
described under "How do I sell fund shares?" in the prospectus. Money
market funds and certain other funds will not issue share certificates.
A shareholder may send to Putnam Investor Services any certificates
which have been previously issued for safekeeping at no charge to the
shareholder.
Putnam Retail Management, at its expense, may provide certain additional
reports and administrative material to qualifying institutional
investors with fiduciary responsibilities to assist these investors in
discharging their responsibilities. Institutions seeking further
information about this service should contact Putnam Retail Management,
which may modify or terminate this service at any time.
Putnam Investor Services may make special services available to
shareholders with investments exceeding $1,000,000. Contact Putnam
Investor Services for details.
The fund pays Putnam Investor Services' fees for maintaining Investing
Accounts.
Reinstatement Privilege
An investor who has redeemed shares of the fund may reinvest (within 1
year) the proceeds of such sale in shares of the same class of the fund,
or may be able to reinvest (within 1 year) the proceeds in shares of the
same class of one of the other continuously offered Putnam funds
(through the exchange privilege described in the prospectus), including,
in the case of shares subject to a CDSC, the amount of CDSC charged on
the redemption. Any such reinvestment would be at the net asset value
of the shares of the fund(s) the investor selects, next determined after
Putnam Retail Management receives a Reinstatement Authorization. The
time that the previous investment was held will be included in
determining any applicable CDSC due upon redemptions and, in the case of
class B shares, the eight-year period for conversion to class A shares.
Shareholders will receive from Putnam Retail Management the amount of
any CDSC paid at the time of redemption as part of the reinstated
investment, which may be treated as capital gains to the shareholder for
tax purposes. Exercise of the Reinstatement Privilege does not alter
the federal income tax treatment of any capital gains realized on a sale
of fund shares, but to the extent that any shares are sold at a loss and
the proceeds are reinvested in shares of the fund, some or all of the
loss may be disallowed as a deduction. Consult your tax adviser.
Investors who desire to exercise the Reinstatement Privilege should
contact their investment dealer or Putnam Investor Services.
Exchange Privilege
Except as otherwise set forth in this section, by calling Putnam
Investor Services, investors may exchange shares valued up to $500,000
between accounts with identical registrations, provided that no
certificates are outstanding for such shares and no address change has
been made within the preceding 15 days. During periods of unusual
market changes and shareholder activity, shareholders may experience
delays in contacting Putnam Investor Services by telephone to exercise
the telephone exchange privilege.
Putnam Investor Services also makes exchanges promptly after receiving a
properly completed Exchange Authorization Form and, if issued, share
certificates. If the shareholder is a corporation, partnership, agent,
or surviving joint owner, Putnam Investor Services will require
additional documentation of a customary nature. Because an exchange of
shares involves the redemption of fund shares and reinvestment of the
proceeds in shares of another Putnam fund, completion of an exchange may
be delayed under unusual circumstances if the fund were to suspend
redemptions or postpone payment for the fund shares being exchanged, in
accordance with federal securities laws. Exchange Authorization Forms
and prospectuses of the other Putnam funds are available from Putnam
Retail Management or investment dealers having sales contracts with
Putnam Retail Management. The prospectus of each fund describes its
investment objective(s) and policies, and shareholders should obtain a
prospectus and consider these objectives and policies carefully before
requesting an exchange. Shares of certain Putnam funds are not
available to residents of all states. The fund reserves the right to
change or suspend the exchange privilege at any time. Shareholders
would be notified of any change or suspension. Additional information
is available from Putnam Investor Services.
Shareholders of other Putnam funds may also exchange their shares at net
asset value for shares of the fund, as set forth in the current
prospectus of each fund.
For federal income tax purposes, an exchange is a sale on which the
investor generally will realize a capital gain or loss depending on
whether the net asset value at the time of the exchange is more or less
than the investor's basis. The exchange privilege may be revised or
terminated at any time. Shareholders would be notified of any such
change or suspension.
Dividends PLUS
Shareholders may invest the fund's distributions of net investment
income or distributions combining net investment income and short-term
capital gains in shares of the same class of another continuously
offered Putnam fund (the "receiving fund") using the net asset value per
share of the receiving fund determined on the date the fund's
distribution is payable. No sales charge or CDSC will apply to the
purchased shares unless the fund paying the distribution is a money
market fund. The prospectus of each fund describes its investment
objective(s) and policies, and shareholders should obtain a prospectus
and consider these objective(s) and policies carefully before investing
their distributions in the receiving fund. Shares of certain Putnam
funds are not available to residents of all states.
The minimum account size requirement for the receiving fund will not
apply if the current value of your account in the fund paying the
distribution is more than $5,000.
Shareholders of other Putnam funds (except for money market funds, whose
shareholders must pay a sales charge or become subject to a CDSC) may
also use their distributions to purchase shares of the fund at net asset
value.
For federal tax purposes, distributions from the fund which are
reinvested in another fund are treated as paid by the fund to the
shareholder and invested by the shareholder in the receiving fund and
thus, to the extent comprised of taxable income and deemed paid to a
taxable shareholder, are taxable.
The Dividends PLUS program may be revised or terminated at any time.
Plans Available To Shareholders
The plans described below are fully voluntary and may be terminated at
any time without the imposition by the fund or Putnam Investor Services
of any penalty. All plans provide for automatic reinvestment of all
distributions in additional shares of the fund at net asset value. The
fund, Putnam Retail Management or Putnam Investor Services may modify or
cease offering these plans at any time.
Systematic Withdrawal Plan ("SWP"). An investor who owns or buys shares
of the fund valued at $10,000 or more at the current public offering
price may open a SWP plan and have a designated sum of money ($50 or
more) paid monthly, quarterly, semi-annually or annually to the investor
or another person. (Payments from the fund can be combined with
payments from other Putnam funds into a single check through a
designated payment plan.) Shares are deposited in a plan account, and
all distributions are reinvested in additional shares of the fund at net
asset value (except where the plan is utilized in connection with a
charitable remainder trust). Shares in a plan account are then redeemed
at net asset value to make each withdrawal payment. Payment will be
made to any person the investor designates; however, if shares are
registered in the name of a trustee or other fiduciary, payment will be
made only to the fiduciary, except in the case of a profit-sharing or
pension plan where payment will be made to a designee. As withdrawal
payments may include a return of principal, they cannot be considered a
guaranteed annuity or actual yield of income to the investor. The
redemption of shares in connection with a plan generally will result in
a gain or loss for tax purposes. Some or all of the losses realized
upon redemption may be disallowed pursuant to the so-called wash sale
rules if shares of the same fund from which shares were redeemed are
purchased (including through the reinvestment of fund distributions)
within a period beginning 30 days before, and ending 30 days after, such
redemption. In such a case, the basis of the replacement shares will be
increased to reflect the disallowed loss. Continued withdrawals in
excess of income will reduce and possibly exhaust invested principal,
especially in the event of a market decline. The maintenance of a plan
concurrently with purchases of additional shares of the fund would be
disadvantageous to the investor because of the sales charge payable on
such purchases. For this reason, the minimum investment accepted while
a plan is in effect is $1,000, and an investor may not maintain a plan
for the accumulation of shares of the fund (other than through
reinvestment of distributions) and a plan at the same time. The cost of
administering these plans for the benefit of those shareholders
participating in them is borne by the fund as an expense of all
shareholders. The fund, Putnam Retail Management or Putnam Investor
Services may terminate or change the terms of the plan at any time. A
plan will be terminated if communications mailed to the shareholder are
returned as undeliverable.
Investors should consider carefully with their own financial advisers
whether the plan and the specified amounts to be withdrawn are
appropriate in their circumstances. The fund and Putnam Investor
Services make no recommendations or representations in this regard.
Tax Qualified Retirement Plans; 403(b) and SEP Plans. (Not offered by
funds investing primarily in tax-exempt securities.) Investors may
purchase shares of the fund through the following Tax Qualified
Retirement Plans, available to qualified individuals or organizations:
Standard and variable profit-sharing (including 401(k)) and money
purchase pension plans; and
Individual Retirement Account Plans (IRAs).
Each of these Plans has been qualified as a prototype plan by the
Internal Revenue Service. Putnam Investor Services will furnish
services under each plan at a specified annual cost. Putnam Fiduciary
Trust Company serves as trustee under each of these Plans.
Forms and further information on these Plans are available from
investment dealers or from Putnam Retail Management. In addition,
specialized professional plan administration services are available on
an optional basis; contact Putnam Defined Contribution Plan Services at
1-800-225-2465, extension 8600.
A 403(b) Retirement Plan is available for employees of public school
systems and organizations which meet the requirements of Section
501(c)(3) of the Internal Revenue Code. Forms and further information
on the 403(b) Plan are also available from investment dealers or from
Putnam Retail Management. Shares of the fund may also be used in
simplified employee pension (SEP) plans. For further information on the
Putnam prototype SEP plan, contact an investment dealer or Putnam Retail
Management.
Consultation with a competent financial and tax adviser regarding these
Plans and consideration of the suitability of fund shares as an
investment under the Employee Retirement Income Security Act of 1974, or
otherwise, is recommended.
SIGNATURE GUARANTEES
Requests to redeem shares having a net asset value of $100,000 or more,
or to transfer shares or make redemption proceeds payable to anyone
other than the registered account owners, must be signed by all
registered owners or their legal representatives and must be guaranteed
by a bank, broker/dealer, municipal securities dealer or broker, credit
union, national securities exchange, registered securities association,
clearing agency, savings association or trust company, provided such
institution is authorized and acceptable under and conforms with Putnam
Fiduciary Trust Company's signature guarantee procedures. A copy of
such procedures is available upon request. In certain situations, for
example, if you want your redemption proceeds sent to an address other
than your address as it appears on Putnam's records, you may also need
to provide a signature guarantee. Putnam Investor Services usually
requires additional documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or a surviving joint
owner. Contact Putnam Investor Services for more information on Putnam's
signature guarantee and documentation requirements.
SUSPENSION OF REDEMPTIONS
The fund may not suspend shareholders' right of redemption, or postpone
payment for more than seven days, unless the Exchange is closed for
other than customary weekends or holidays, or if permitted by the rules
of the Securities and Exchange Commission during periods when trading on
the Exchange is restricted or during any emergency which makes it
impracticable for the fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted
by order of the Commission for protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the
fund. However, the Agreement and Declaration of Trust disclaims
shareholder liability for acts or obligations of the fund and requires
that notice of such disclaimer be given in each agreement, obligation,
or instrument entered into or executed by the fund or the Trustees. The
Agreement and Declaration of Trust provides for indemnification out of
fund property for all loss and expense of any shareholder held
personally liable for the obligations of the fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the fund would be unable to meet
its obligations. The likelihood of such circumstances is remote.
STANDARD PERFORMANCE MEASURES
Yield and total return data for the fund may from time to time be
presented in Part I of this SAI and in advertisements. In the case of
funds with more than one class of shares, all performance information is
calculated separately for each class. The data is calculated as
follows.
Total return for one-, five- and ten-year periods (or for such shorter
periods as the fund has been in operation or shares of the relevant
class have been outstanding) is determined by calculating the actual
dollar amount of investment return on a $1,000 investment in the fund
made at the beginning of the period, at the maximum public offering
price for class A shares and class M shares and net asset value for
other classes of shares, and then calculating the annual compounded rate
of return which would produce that amount. Total return for a period of
one year is equal to the actual return of the fund during that period.
Total return calculations assume deduction of the fund's maximum sales
charge or CDSC, if applicable, and reinvestment of all fund
distributions at net asset value on their respective reinvestment dates.
The fund's yield is presented for a specified thirty-day period (the
"base period"). Yield is based on the amount determined by (i)
calculating the aggregate amount of dividends and interest earned by the
fund during the base period less expenses for that period, and (ii)
dividing that amount by the product of (A) the average daily number of
shares of the fund outstanding during the base period and entitled to
receive dividends and (B) the per share maximum public offering price
for class A shares or class M shares, as appropriate, and net asset
value for other classes of shares on the last day of the base period.
The result is annualized on a compounding basis to determine the yield.
For this calculation, interest earned on debt obligations held by the
fund is generally calculated using the yield to maturity (or first
expected call date) of such obligations based on their market values
(or, in the case of receivables-backed securities such as the Government
National Mortgage Association ("GNMAs"), based on cost). Dividends on
equity securities are accrued daily at their stated dividend rates. The
amount of expenses used in determining the fund's yield includes, in
addition to expenses actually accrued by the fund, an estimate of the
amount of expenses that the fund would have incurred if brokerage
commissions had not been used to reduce such expenses.
If the fund is a money market fund, yield is computed by determining the
percentage net change, excluding capital changes, in the value of an
investment in one share over the seven-day period for which yield is
presented (the "base period"), and multiplying the net change by 365/7
(or approximately 52 weeks). Effective yield represents a compounding
of the yield by adding 1 to the number representing the percentage
change in value of the investment during the base period, raising that
sum to a power equal to 365/7, and subtracting 1 from the result.
If the fund is a tax-exempt fund, the tax-equivalent yield during the
base period may be presented for shareholders in one or more stated tax
brackets. Tax-equivalent yield is calculated by adjusting the
tax-exempt yield by a factor designed to show the approximate yield that
a taxable investment would have to earn to produce an after-tax yield
equal, for that shareholder, to the tax-exempt yield. The
tax-equivalent yield will differ for shareholders in other tax brackets.
At times, Putnam Management may reduce its compensation or assume
expenses of the fund in order to reduce the fund's expenses. The per
share amount of any such fee reduction or assumption of expenses during
the fund's past five fiscal years (or for the life of the fund, if
shorter) is set forth in the footnotes to the table in the section
entitled "Financial highlights" in the prospectus. Any such fee
reduction or assumption of expenses would increase the fund's yield and
total return for periods including the period of the fee reduction or
assumption of expenses.
All data are based on past performance and do not predict future
results.
COMPARISON OF PORTFOLIO PERFORMANCE
Independent statistical agencies measure the fund's investment
performance and publish comparative information showing how the fund,
and other investment companies, performed in specified time periods.
Three agencies whose reports are commonly used for such comparisons are
set forth below. From time to time, the fund may distribute these
comparisons to its shareholders or to potential investors. The
agencies listed below measure performance based on their own criteria
rather than on the standardized performance measures described in the
preceding section.
Lipper, Inc. distributes mutual fund rankings monthly. The rankings are
based on total return performance calculated by Lipper, generally
reflecting changes in net asset value adjusted for reinvestment of
capital gains and income dividends. They do not reflect deduction of
any sales charges. Lipper rankings cover a variety of performance
periods, including year-to-date, 1-year, 5-year, and 10-year
performance. Lipper classifies mutual funds by investment objective and
asset category.
Morningstar, Inc. distributes mutual fund ratings twice a month. The
ratings are divided into five groups: highest, above average, neutral,
below average and lowest. They represent the fund's historical
risk/reward ratio relative to other funds in its broad investment class
as determined by Morningstar, Inc. Morningstar ratings cover a variety
of performance periods, including 1-year, 3-year, 5-year, 10-year and
overall performance. The performance factor for the overall rating is a
weighted-average assessment of the fund's 1-year, 3-year, 5-year, and
10-year total return performance (if available) reflecting deduction of
expenses and sales charges. Performance is adjusted using quantitative
techniques to reflect the risk profile of the fund. The ratings are
derived from a purely quantitative system that does not utilize the
subjective criteria customarily employed by rating agencies such as
Standard & Poor's and Moody's Investor Service, Inc.
Wiesenberger a division of Thomson Financial publishes and distributes
mutual fund rankings on a monthly basis. The rankings are based
entirely on total return calculated by Weisenberger for periods such as
year-to-date, 1-year, 3-year, 5-year, 10-year and 15-year. Mutual funds
are ranked in general categories (e.g., international bond,
international equity, municipal bond, and maximum capital gain).
Weisenberger rankings do not reflect deduction of sales charges or
certain fees.
Independent publications may also evaluate the fund's performance. The
fund may from time to time refer to results published in various
periodicals, including Barrons, Financial World, Forbes, Fortune,
Investor's Business Daily, Kiplinger's Personal Finance Magazine, Money,
U.S. News and World Report and The Wall Street Journal.
Independent, unmanaged indexes, such as those listed below, may be used
to present a comparative benchmark of fund performance. The performance
figures of an index reflect changes in market prices, reinvestment of
all dividend and interest payments and, where applicable, deduction of
foreign withholding taxes, and do not take into account brokerage
commissions or other costs. Because the fund is a managed portfolio,
the securities it owns will not match those in an index. Securities in
an index may change from time to time.
The Consumer Price Index, prepared by the U.S. Bureau of Labor
Statistics, is a commonly used measure of the rate of inflation. The
index shows the average change in the cost of selected consumer goods
and services and does not represent a return on an investment vehicle.
Credit Suisse First Boston Global High Yield Index is an index of fixed
income, non-convertible, U.S. dollar denominated securities having a
rating of BB and below by Standard & Poor's or Ba by Moody's. The index
is constructed to mirror the U.S. high yield debt market.
The Dow Jones Industrial Average is an index of 30 common stocks
frequently used as a general measure of stock market performance.
The Dow Jones Utilities Average is an index of 15 utility stocks
frequently used as a general measure of stock market performance for the
utilities industry.
The Lehman Brothers Aggregate Bond Index is an index composed of
securities from The Lehman Brothers Government/Corporate Bond Index, The
Lehman Brothers Mortgage-Backed Securities Index and The Lehman Brothers
Asset-Backed Securities Index and is frequently used as a broad market
measure for fixed-income securities.
The Lehman Brothers Asset-Backed Securities Index is an index composed
of credit card, auto, and home equity loans. Included in the index are
pass-through, bullet (noncallable), and controlled amortization
structured debt securities; no subordinated debt is included. All
securities have an average life of at least one year.
The Lehman Brothers Corporate Bond Index is an index of publicly issued,
fixed-rate, non-convertible investment-grade domestic corporate debt
securities frequently used as a general measure of the performance of
fixed-income securities.
The Lehman Brothers Government Bond Index is an index of publicly issued
U.S. Treasury obligations and debt obligations of U.S. government
agencies (including mortgage-backed securities) frequently used as a
general gauge of the market for fixed-income, government securities.
The Lehman Brothers Government/Corporate Bond Index is an index of
publicly issued U.S. Treasury obligations, debt obligations of U.S.
government agencies (excluding mortgage-backed securities), fixed-rate,
non-convertible, investment-grade corporate debt securities and U.S.
dollar-denominated, SEC-registered non-convertible debt issued by
foreign governmental entities or international agencies used as a
general measure of the performance of fixed-income securities.
The Lehman Brothers GNMA Index is an index of mortgage-backed
pass-through securities securities of the Government National Mortgage
Association (GNMA) bonds frequently used as a general gauge of the
market for GNMA securities.
The Lehman Brothers Intermediate Government Bond Index is an index of
publicly issued U.S. Treasury obligations and debt obligations of U.S.
government agencies (excluding mortgage-backed securities) with
maturities of up to ten years frequently used as a general gauge of the
market for intermediate-term, fixed-income, government securities.
The Lehman Brothers Intermediate Treasury Bond Index is an index of
publicly issued U.S. Treasury obligations with maturities of up to ten
years and is used as a general gauge of the market for intermediate-term
fixed-income securities.
The Lehman Brothers Long-Term Treasury Bond Index is an index of
publicly issued U.S. Treasury obligations (excluding flower bonds and
foreign-targeted issues) that are U.S. dollar-denominated and have
maturities of 10 years or greater.
The Lehman Brothers Mortgage-Backed Securities Index is an index that
includes fixed-rate securities backed by the mortgage pools of the
Government National Mortgage Association (GNMA), Federal Home Loan
Mortgage Corporation (FHLMC), and Federal National Mortgage Association
(FNMA).
The Lehman Brothers Municipal Bond Index is an index of long-term,
investment-grade, fixed-rate tax-exempt bonds.
The Lehman Brothers Treasury Bond Index is an index of publicly issued
U.S. Treasury obligations (excluding flower bonds and foreign-targeted
issues) that are U.S. dollar denominated, have a minimum of one year to
maturity, and are issued in amounts over $50 million.
The Lipper Money Market Average is an arithmetic average of the total
return of all money market mutual funds tracked by Lipper, Inc.
The Lipper Natural Resources Average is an arithmetic average of the
total return of all mutual funds tracked by Lipper, Inc. that invest
more than 65% of their equity holdings in the natural resources
industries.
The Lipper Tax Exempt Money Market Average is an arithmetic average of
the total return of all tax exempt money market mutual funds tracked by
Lipper, Inc.
The Merrill Lynch All-Convertible Index is an index of convertible
securities that is commonly used as a general measure of performance for
the convertible securities market.
The Merrill Lynch 91-Day Treasury Bill Index is an index that measures
the performance of U.S. Treasury bills currently available in the
marketplace.
The Merrill Lynch Perpetual Preferred Index is an index of perpetual
preferred securities that is commonly used as a general measure of
performance for the preferred-stock market.
The Morgan Stanley Capital International Emerging Markets Index is an
index of equity securities issued by companies located in emerging
markets with all values expressed in U.S. dollars.
The Morgan Stanley Capital International Emerging Markets Free Index is
an index of equity securities issued by companies located in emerging
markets, available to non-domestic investors, with all values expressed
in U.S. dollars.
The Morgan Stanley Capital International EAFE Index is an index of
equity securities issued by companies located in Europe, Australasia and
the Far East, with all values expressed in U.S. dollars.
The Morgan Stanley Capital International Europe Index is an index of
equity securities issued by companies located in one of the 15 European
countries, with all values expressed in U.S. dollars.
The Morgan Stanley Capital International Pacific Index is an index of
equity securities issued by companies located in one of five Asian
countries and listed on the exchanges of Australia, New Zealand, Japan,
Hong Kong, Singapore/Malaysia, with all values expressed in U.S.
dollars.
The Morgan Stanley Capital International World Index is an index of
global equity securities with all values expressed in U.S. dollars.
The Morgan Stanley Capital International World Free Index is an index of
global equity securities, available to non-domestic investors, with all
values expressed in U.S. dollars.
The NASDAQ Industrial Average is an index of stocks traded in The Nasdaq
Stock Market, Inc. National Market System.
The Russell 1000 Index is an index composed of the 1,000 largest
companies in the Russell 3000 Index, representing approximately 89% of
the Russell 3000 total market capitalization.
The Russell 1000 Growth Index is an index composed of securities with
greater-than-average growth orientation within the Russell 1000 Index.
Companies in this index tend to exhibit higher price-to-book and
price-earnings ratios, lower dividend yields and higher forecasted
growth values than other companies in the Russell 1000 Index.
The Russell 2000 Index is an index composed of the 2,000 smallest
companies in the Russell 3000 Index, representing approximately 11% of
the Russell 3000 total market capitalization.
The Russell 2000 Growth Index is an index composed of securities with
greater-than-average growth orientation within the Russell 2000 Index.
Companies in this index tend to exhibit higher price-to-book and
price-earnings ratios, lower dividend yields and higher forecasted
growth values than other companies in the Russell 2000 Index.
The Russell 3000 Index is an index composed of the 3,000 largest U.S.
companies ranked by total market capitalization, representing
approximately 98% of the U.S. investable equity market.
The Russell Midcap Index is an index composed of the 800 smallest
companies in the Russell 1000 Index, representing approximately 26% of
the Russell 1000 total market capitalization.
The Russell Midcap Growth Index is an index composed of securities with
greater-than-average growth orientation within the Russell Midcap Index.
Each security's growth orientation is determined by a composite score of
the security's price-to-book ratio and forecasted growth rate. Growth
stocks tend to have higher price-to-book ratios and forecasted growth
rates than value stocks.
The Salomon Brothers Extended Market Index is an index of global equity
securities of smaller companies with all values expressed in U.S.
dollars.
The Salomon Brothers Long-Term High-Grade Corporate Bond Index is an
index of publicly traded corporate bonds having a rating of at least AA
by Standard & Poor's or Aa by Moody's and is frequently used as a
general measure of the performance of fixed-income securities.
The Salomon Brothers Long-Term Treasury Index is an index of U.S.
government securities with maturities greater than 10 years.
The Salomon Brothers World Government Bond Index is an index that tracks
the performance of the 18 government bond markets of Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan,
Netherlands, Ireland, Spain, Sweden, Switzerland, United Kingdom, United
States and Portugal. Country eligibility is determined by market
capitalization and investability criteria.
The Salomon Brothers Non-U.S. World Government Bond Index is an index of
foreign government bonds calculated to provide a measure of performance
in the government bond markets outside of the United States.
Standard & Poor's 500 Composite Stock Price Index is an index of common
stocks frequently used as a general measure of stock market performance.
Standard & Poor's 40 Utilities Index is an index of 40 utility stocks.
Standard & Poor's/Barra Value Index is an index constructed by ranking
the securities in the Standard & Poor's 500 Composite Stock Price Index
by price-to-book ratio and including the securities with the lowest
price-to-book ratios that represent approximately half of the market
capitalization of the Standard & Poor's 500 Composite Stock Price Index.
In addition, Putnam Retail Management may distribute to shareholders or
prospective investors illustrations of the benefits of reinvesting
tax-exempt or tax-deferred distributions over specified time periods,
which may include comparisons to fully taxable distributions. These
illustrations use hypothetical rates of tax-advantaged and taxable
returns and are not intended to indicate the past or future performance
of any fund.
SECURITIES RATINGS
The ratings of securities in which the fund may invest will be measured
at the time of purchase and, to the extent a security is assigned a
different rating by one or more of the various rating agencies, Putnam
Management will use the highest rating assigned by any agency. Putnam
Management will not necessarily sell an investment if its rating is
reduced. The following rating services describe rated securities as
follows:
Moody's Investors Service, Inc.
Bonds
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risk appear
somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate, and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Notes
MIG 1/VMIG 1 -- This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2 -- This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
Commercial paper
Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Standard & Poor's
Bonds
AAA -- An obligation rated AAA has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
AA -- An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A -- An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still strong.
BBB -- An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
Obligations rated BB, B, CCC, CC and C are regarded as having
significant speculative characteristics. BB indicates the lowest degree
of speculation and C the highest. While such obligations will likely
have some quality and protective characteristics, these are outweighed
by large uncertainties or major exposures to adverse conditions.
BB -- An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B -- An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet
its financial commitment on the obligations. Adverse business,
financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the
obligation.
CCC -- An obligation rated CCC is currently vulnerable to nonpayment,
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation. In the event of adverse business, financial, or economic
conditions, the obligor is not likely to have the capacity to meet its
financial commitment on the obligation.
CC -- An obligation rated CC is currently highly vulnerable to
nonpayment.
C -- The C rating may be used to cover a situation where a bankruptcy
petition has been filed, or similar action has been taken, but payments
on this obligation are being continued.
D -- An obligation rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition, or the taking of a similar action if payments on an
obligation are jeopardized.
Notes
SP-1 -- Strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given a
plus (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
SP-3 -- Speculative capacity to pay principal and interest.
Commercial paper
A-1 -- This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated `A-1'.
A-3 -- Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
Duff & Phelps Corporation
Long-Term Debt
AAA -- Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- -- High credit quality. Protection factors are strong.
Risk is modest but may vary slightly from time to time because of
economic conditions.
A+, A, A- -- Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- -- Below-average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk
during economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection
factors fluctuate according to industry conditions or company fortunes.
Overall quality may move up or down frequently within this category.
B+, B, B- -- Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will fluctuate
widely according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC -- Well below investment-grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD -- Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
Fitch Investors Service, Inc.
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable
to adverse changes in economic conditions and circumstances than bonds
with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
BB -- Bonds considered to be speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B -- Bonds are considered highly speculative. Bonds in this class are
lightly protected as to the obligor's ability to pay interest over the
life of the issue and repay principal when due.
CCC -- Bonds have certain characteristics which, with passing of time,
could lead to the possibility of default on either principal or interest
payments.
CC -- Bonds are minimally protected. Default in payment of
interest and/or principal seems probable.
C -- Bonds are in actual or imminent default in payment of interest or
principal.
DDD -- Bonds are in default and in arrears in interest and/or principal
payments. Such bonds are extremely speculative and should be valued only
on the basis of their value in liquidation or reorganization of the
obligor.
DEFINITIONS
"Putnam Management" -- Putnam Investment Management, Inc., the fund's
investment manager.
"Putnam Retail Management" -- Putnam Retail Management, Inc.(formerly Putnam
Mutual Funds), the fund's principal underwriter.
"Putnam Fiduciary Trust -- Putnam Fiduciary Trust Company,
Company" the fund's custodian.
"Putnam Investor Services" -- Putnam Investor Services, a division of Putnam
Fiduciary Trust Company, the fund's investor
servicing agent.
[/R]
Prospectus
December 30, 2000
Putnam Emerging Markets Fund
Class A, B, C and M shares
Investment Category: Growth
This prospectus explains what you should know about this mutual fund
before you invest. Please read it carefully.
Putnam Investment Management LLC (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
5 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
[SCALE LOGO OMITTED]
Fund summary
GOAL
The fund seeks long-term capital appreciation.
MAIN INVESTMENT STRATEGIES -- EMERGING MARKET STOCKS
We invest mainly in common stocks of emerging market companies. Emerging
market companies are companies that are located in or derive most of their
revenues from business in countries with developing markets. We first
select the countries and industries we believe are attractive, then look
for companies with stock prices that reflect a value lower than that which
we place on the company or whose earnings we believe are likely to grow
over time. We also look for the presence of factors that we believe will
cause the stock price to rise. We may invest in companies of any size.
Because we invest mainly in developing (also known as emerging) markets, we
will invest significantly in small and midsized 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 risks of investing outside the United States, such as currency
fluctuations, economic or financial instability, lack of timely or reliable
financial information or unfavorable political or legal developments. These
risks are increased for investments in emerging markets, which constitute
most of our investments.
* 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. Because most emerging market
companies tend to be small by U.S. standards, the fund may be particularly
vulnerable to this risk.
* 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.
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 a broad measure 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
1996 23.66%
1997 -7.03%
1998 -24.69%
1999 79.47%
Performance figures in the bar chart do not reflect the impact of sales
charges. If they did, performance would be less than that shown.
Year-to-date performance through 9/30/00 was -24.46%. During the periods
shown in the bar chart, the highest return for a quarter was 39.84%
(quarter ending 12/31/99) and the lowest return for a quarter was -24.84%
(quarter ending 9/30/98).
Average Annual Total Returns (for periods ending 12/31/99)
-------------------------------------------------------------------------------
Since
Past inception
1 year (12/28/95)
-------------------------------------------------------------------------------
Class A 69.12% 9.91%
Class B 73.18% 10.41%
Class C 77.31% 10.76%
Class M 72.50% 9.99%
MSCI Emerging Markets Free Index 66.47% 3.89%
-------------------------------------------------------------------------------
Unlike the bar chart, this performance information reflects the impact of
sales charges. Class A and class M share performance reflects the current
maximum initial sales charges; class B and class C share performance
reflects the maximum applicable deferred sales charge if shares had been
redeemed on 12/31/99. For periods before the inception of class B shares
(10/30/96), class C shares (7/26/99) and class M shares (10/30/96),
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 through 8/31/00
benefited from Putnam Management's agreement to limit the fund's expenses.
The fund's performance is compared to the Morgan Stanley Capital
International (MSCI) Emerging Markets Free Index, an unmanaged index of
equity securities of companies in emerging markets.
FEES AND EXPENSES
This table summarizes the fees and expenses you may pay if you invest in
the fund. Expenses are based on the fund's last fiscal year.
Shareholder Fees (fees paid directly from your investment)
-------------------------------------------------------------------------------
Class A Class B Class C Class M
-------------------------------------------------------------------------------
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of the
offering price) 5.75% NONE NONE 3.50%
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
-------------------------------------------------------------------------------
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
-------------------------------------------------------------------------------
Total Annual
Management Distribution Other Fund Operating
Fees (12b-1) Fees Expenses Expenses
-------------------------------------------------------------------------------
Class A 1.00% 0.25% 0.65% 1.90%
Class B 1.00% 1.00% 0.65% 2.65%
Class C 1.00% 1.00% 0.65% 2.65%
Class M 1.00% 0.75% 0.65% 2.40%
-------------------------------------------------------------------------------
* A deferred sales charge of up to 1% may be imposed on certain redemptions
of class A shares bought without an initial sales charge.
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.
-------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
-------------------------------------------------------------------------------
Class A $757 $1,138 $1,542 $2,669
Class B $768 $1,123 $1,605 $2,802*
Class B
(no redemption) $268 $ 823 $1,405 $2,802*
Class C $368 $ 823 $1,405 $2,938
Class C
(no redemption) $268 $ 823 $1,405 $2,983
Class M $585 $1,072 $1,586 $2,991
-------------------------------------------------------------------------------
* 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
stocks issued by emerging market companies. Under normal market conditions,
we invest at least 65% of the fund's total assets in emerging market
companies. We will consider a country to be an emerging market based on our
evaluation of its level of economic development or the size and experience
of its securities markets. To determine whether a company is an emerging
market company, we look at the following factors: where the company's
securities trade, where the company is located or organized, or where the
company derives its revenues or profits. We will consider, among other
factors, a company's financial strength, competitive position in its
industry, projected future earnings, cash flows and dividends when deciding
which investments to buy or sell. 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
directly relating 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 its
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 may purchase stocks that trade 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. Seeking earnings growth may
result in significant investments in the technology industries, which may
be subject to greater volatility than other areas of the economy.
Companies whose stock we believe is undervalued by the market may have
experienced adverse business developments or may be subject to special
risks that have caused their stocks to be out of favor. If our assessment
of a company's prospects is wrong, or if other investors do not similarly
recognize the value of the company, then the price of the company's stock
may fall or may not approach the value that we have placed on it.
* Foreign investments. Foreign investments involve special risks,
including:
* Unfavorable changes in currency exchange rates: Foreign investments are
typically issued and traded in foreign currencies. As a result, their
values may be affected by changes in exchange rates between foreign
currencies and the U.S. dollar.
* Political and economic developments: Foreign investments may be subject
to the risks of seizure by a foreign government, imposition of restrictions
on the exchange or export of foreign currency, and tax increases.
* Unreliable or untimely information: There may be less information
publicly available about a foreign company than about most U.S. companies,
and foreign companies are usually not subject to accounting, auditing and
financial reporting standards and practices as stringent as those in the
United States.
* Limited legal recourse: Legal remedies for investors may be more limited
than the remedies available in the United States.
* Limited markets: Certain foreign investments may be less liquid (harder
to buy and sell) and more volatile than most U.S. investments, which means
we may at times be unable to sell these foreign investments at desirable
prices. For the same reason, we may at times find it difficult to value the
fund's foreign investments.
* Trading practices: Brokerage commissions and other fees are generally
higher for foreign investments than for U.S. investments. The procedures
and rules governing foreign transactions and custody may also involve
delays in payment, delivery or recovery of money or investments.
* Lower yield: Common stocks of foreign companies have historically offered
lower dividends than stocks of comparable U.S. companies. Foreign
withholding taxes may further reduce the amount of income available to
distribute to shareholders of the fund.
The risks of foreign investments are typically increased in emerging
markets. For example, political and economic structures in these countries
may be changing rapidly, which can cause instability. These countries are
also more likely to experience high levels of inflation, deflation or
currency devaluation, which could hurt their economies and securities
markets. For these and other reasons, investments in emerging markets are
often considered speculative.
Certain of these risks may also apply to some extent to U.S.-traded
investments that are denominated in foreign currencies, investments in U.S.
companies that are traded in foreign markets or investments in U.S.
companies that have significant foreign operations. Special U.S. tax
considerations may apply to the fund's foreign investments.
* Derivatives. We may engage in a variety of transactions involving
derivatives, such as futures, options, warrants and swap contracts.
Derivatives are financial instruments whose value depends upon, or is
derived from, the value of something else, such as one or more underlying
investments, pools of investments, indexes or currencies. We may use
derivatives both for hedging and non-hedging purposes. However, we may also
choose not to use derivatives, based on our evaluation of market conditions
or the availability of suitable derivatives.
Derivatives involve special risks and may result in losses. The successful
use of derivatives depends on our ability to manage these sophisticated
instruments. The prices of derivatives may move in unexpected ways, due to
the use of leverage or other factors, especially in unusual market
conditions and may result in increased volatility. The use of derivatives
may also increase the amount of taxes payable by shareholders.
Other risks arise from our potential inability to terminate or sell
derivatives positions. A liquid secondary market may not always exist for
the fund's derivatives positions at any time. In fact, many
over-the-counter instruments (investments not traded on an exchange) will
not be liquid. Over-the-counter instruments also involve the risk that the
other party to the derivative transaction will not meet its obligations.
For further information about the risks of derivatives, see the statement
of additional information (SAI).
* Small and midsized companies. These companies, some of which may have
market capitalizations 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 small
and midsized companies may therefore be more vulnerable to adverse
developments than those of larger companies. Small and midsized companies
in foreign countries could be relatively smaller than those in the United
States.
* 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 and debt securities, which may be
subject to other risks, as described in the SAI.
* Alternative strategies. Under normal market conditions, we keep the
fund's portfolio fully invested, with minimal cash holdings. However, 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, including investing solely in the United
States. We may choose, however, 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 1.00% of average net assets for the fund's last fiscal year. 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
------------------------------------------------------------------------------
Thomas R. Haslett 1997 1996 - Present Putnam Management
Managing Director Prior to Dec. 1996 Montgomery Asset
Management Ltd.
------------------------------------------------------------------------------
J. Peter Grant 1995 1973 - Present Putnam Management
Senior Vice President
------------------------------------------------------------------------------
Stephen Oler 1997 1997 - Present Putnam Management
Senior Vice President 1996 - 1997 Templeton Investments
Prior to March 1996 Baring Asset
Management Co.
------------------------------------------------------------------------------
Carmel Peters 1997 1997 - Present Putnam Management
Senior Vice President 1996 - 1997 Wheelock Natwest
Investment Management,
Hong Kong
Prior to Feb. 1996 Rothschild Asset
Management Asia
Pacific, Hong Kong
------------------------------------------------------------------------------
Claudio Brocado 2000 1999 - Present Putnam Management
Vice President Jan. 1999 - Aug. 1999 Stines, O'Donnell
& Co.
Nov. 1998 - Jan. 1999 Coast Partners
Oct. 1997 - Nov. 1998 Dresdner RCM Global
Investors
Prior to Oct. 1997 Valores Finamex
------------------------------------------------------------------------------
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 Investor Services.
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 of
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 of
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
Class M shares
* Initial sales charge of up to 3.50%
* Lower sales charge for investments of $50,000 or more
* No deferred sales charge
* Lower annual expenses, and higher dividends, than class B or C shares
because of lower 12b-1 fee
* Higher annual expenses, and lower dividends, than class A shares because
of higher 12b-1 fee
* No conversion to class A shares, so future 12b-1 fee does not decrease
Initial sales charges for class A and M shares
-------------------------------------------------------------------------------
Class A sales charge Class M sales charge
as a percentage of: as a percentage of:
-------------------------------------------------------------------------------
Amount of purchase Net amount Offering Net amount Offering
at offering price ($) invested price* invested price*
-------------------------------------------------------------------------------
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
-------------------------------------------------------------------------------
* 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 of purchase, you will
generally pay a deferred sales charge according to the following schedule.
Year after purchase 1 2 3 4 5 6 7+
-------------------------------------------------------------------------------
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
Retail Management 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 (based on
average net assets) of up to 0.35% 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 redemption may be delayed until the fund collects the
purchase price of shares, which may be 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 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.
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 are taxable as capital gains. Distributions of gains from
investments that the fund owned for one year or less are taxable as
ordinary income. Distributions are taxable whether you receive them in cash
or reinvest 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 may 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 is intended to help you understand a 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
for the year ended August 31, 2000 has been derived from the fund's
financial statements, which have been audited by KPMG LLP. Its report and
the fund's financial statements are included in the fund's annual report to
shareholders, which is available upon request. The information for all
periods prior to the year ended August 31, 2000 has been derived from the
fund's financial statements which have been audited by the fund's previous
independent accountants.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS A
(For a share outstanding throughout the period)
For the period
Dec. 28, 1995+
Year ended August 31 to August 31
------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.35 $5.81 $10.94 $10.28 $8.50
--------------------------------------------------------------------------------------------
Investment operations
Net investment income (loss)d (.10) --ce .01c (.02)c .01c
Net realized and unrealized gain
(loss) on investments 1.51 3.61 (4.94) .81 1.77
--------------------------------------------------------------------------------------------
Total from investment operations 1.41 3.61 (4.93) .79 1.78
--------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.03) (.07) -- (.01) --
From net realized gain on investments -- -- (.20) (.12) --
From return of capital (.06) -- -- -- --
--------------------------------------------------------------------------------------------
Total distributions (.09) (.07) (.20) (.13) --
--------------------------------------------------------------------------------------------
Net asset value,
end of period $10.67 $9.35 $5.81 $10.94 $10.28
--------------------------------------------------------------------------------------------
Ratios and supplemental data
Total return at
net asset value (%)a 14.93 62.45 (45.69) 7.82 20.94*
Net assets, end of period
(in thousands) $83,533 $60,669 $29,239 $49,581 $2,925
--------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)b 1.90 2.10c 2.10c 2.10c 1.25*c
Ratio of net investment income
(loss) to average net assets (%) (.87) .06c .06c (.23)c .11*c
Portfolio turnover (%) 139.96 163.86 112.35 141.81 45.90*
--------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
a Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
b Includes amounts paid through expense offset arrangements.
c Reflects an expense limitation in effect during the period. As a result of such limitation,
expenses for the fund reflect a reduction of $.09 per share for class A for the period ended
August 31, 1996. Expenses for the period ended August 31, 1997 reflect a reduction of $.04
per share for class A. Expenses for the period ended August 31, 1998 reflect a reduction of
$.02 per share for class A. Expenses for the period ended August 31, 1999 reflect a reduction
of $.01 per share for class A.
d Per share net investment income (loss) has been determined on the basis of the weighted average
number of shares outstanding during the period.
e Net investment income and/or distributions from net investment income were less than $0.01
per share.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS B
(For a share outstanding throughout the period)
For the period
Year ended Oct. 30, 1996+
August 31 to August 31
---------------------------------------------
2000 1999 1998 1997
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $9.26 $5.74 $10.87 $9.95
---------------------------------------------------------------------------------------------
Investment operations
Net investment income (loss)d (.18) (.05)c (.07)c (.09)c
Net realized and unrealized
gain (loss) on investments 1.48 3.57 (4.86) 1.14
--------------------------------------------------------------------------------------------
Total from investment operations 1.30 3.52 (4.93) 1.05
--------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.01) --e -- (.01)
From net realized gain on investments -- -- (.20) (.12)
From return of capital (.02) -- -- --
--------------------------------------------------------------------------------------------
Total distributions (.03) -- (.20) (.13)
--------------------------------------------------------------------------------------------
Net asset value,
end of period $10.53 $9.26 $5.74 $10.87
--------------------------------------------------------------------------------------------
Ratios and supplemental data
Total return at
net asset value (%)a 13.96 61.37 (45.99) 10.67*
Net assets, end of period
(in thousands) $52,534 $44,838 $21,722 $38,044
--------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)b 2.65 2.85c 2.85c 2.39*c
Ratio of net investment income (loss)
to average net assets (%) (1.63) (.69)c (.72)c (.76)*c
Portfolio turnover (%) 139.96 163.86 112.35 141.81
--------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
a Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
b Includes amounts paid through expense offset arrangements.
c Reflects an expense limitation in effect during the period. Expenses for the period ended
August 31, 1997 reflect a reduction of $.03 per share for class B. Expenses for the period
ended August 31, 1998 reflect a reduction of $.02 for class B. Expenses for the period ended
August 31, 1999 reflect a reduction of $.02 per share for class B.
d Per share net investment income (loss) has been determined on the basis of the weighted average
number of shares outstanding during the period.
e Net investment income and/or distributions from net investment income were less than $0.01
per share.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS C
(For a share outstanding throughout the period)
For the period
Year ended July 26, 1999+
August 31 to August 31
---------------------------------
2000 1999
------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $9.35 $9.56
------------------------------------------------------------------------------------------------
Investment operations
Net investment income (loss)d (.18) (.02)c
Net realized and unrealized
gain (loss) on investments 1.49 (.19)
------------------------------------------------------------------------------------------------
Total from investment operations 1.31 (.21)
------------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.02) --
From return of capital (.06) --
------------------------------------------------------------------------------------------------
Total distributions (.08) --
------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.58 $9.35
------------------------------------------------------------------------------------------------
Ratios and supplemental data
Total return at
net asset value (%)a 13.89 (2.20)*
Net assets, end of period
(in thousands) $6,160 $81
------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)b 2.65 .29*c
Ratio of net investment income
(loss) to average net assets (%) (1.64) (.25)*c
Portfolio turnover (%) 139.96 163.86
------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
a Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
b Includes amounts paid through expense offset arrangements.
c Reflects an expense limitation in effect during the period. Expenses for the period ended
August 31, 1999 reflect a reduction of $.00 per share for class C.
d Per share net investment income (loss) has been determined on the basis of the weighted
average number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS M
(For a share outstanding throughout the period)
For the period
Year ended Oct. 30, 1996+
August 31 to August 31
-----------------------------------------------
2000 1999 1998 1997
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $9.29 $5.76 $10.89 $9.95
-------------------------------------------------------------------------------------------
Investment operations
Net investment income (loss)d (.15) (.03)c (.05)c (.07)c
Net realized and unrealized
gain (loss) on investments 1.48 3.57 (4.88) 1.14
------------------------------------------------------------------------------------------
Total from investment operations 1.33 3.54 (4.93) 1.07
-------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.01) (.01) -- (.01)
From net realized gain on investments -- -- (.20) (.12)
From return of capital (.03) -- -- --
-------------------------------------------------------------------------------------------
Total distributions (.04) (.01) (.20) (.13)
-------------------------------------------------------------------------------------------
Net asset value,
end of period $10.58 $9.29 $5.76 $10.89
-------------------------------------------------------------------------------------------
Ratios and supplemental data
Total return at
net asset value (%)a 14.24 61.59 (45.91) 10.88*
Net assets, end of period
(in thousands) $3,835 $3,817 $1,993 $4,043
-------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)b 2.40 2.60c 2.60c 2.18*c
Ratio of net investment income
(loss) to average net assets (%) (1.37) (.41)c (.43)c (.53)*c
Portfolio turnover (%) 139.96 163.86 112.35 141.81
-------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
a Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
b Includes amounts paid through expense offset arrangements.
c Reflects an expense limitation in effect during the period. Expenses for the period ended
August 31, 1997 reflect a reduction of $.03 per share for class M. Expenses for the period ended
August 31, 1998 reflect a reduction of $.02 per share for class M. Expenses for the period ended
August 31, 1999 reflect a reduction of $.02 per share for class M.
d Per share net investment income (loss) has been determined on the basis of the weighted
average number of shares outstanding during the period.
</TABLE>
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 Investor Services 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.
For more information
about Putnam Emerging
Markets 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 accountants' reports and financial
statements included in the fund's two most recent annual reports 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 any Putnam fund, or make shareholder inquiries, by
contacting your financial advisor, by visiting Putnam's Internet site, or
by calling Putnam toll-free at 1-800-225-1581.
You may review and copy information about a 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 41203
Providence, Rhode Island 02940-1203
www.putnaminvestments.com
File No. 811-7237 NP004 64197 12/00
PUTNAM EMERGING MARKETS FUND
A SERIES OF PUTNAM INVESTMENT FUNDS
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
DECEMBER 30, 2000
This SAI is not a prospectus. If the fund has more than one form of
current prospectus, each reference to the prospectus in this SAI shall
include all of the fund's prospectuses, unless otherwise noted. The
SAI should be read together with the applicable prospectus. Certain
disclosure has been incorporated by reference from the fund's annual
report. For a free copy of the fund's annual report or prospectus dated
December 30, 2000, as revised from time to time, call Putnam Investor
Services at 1-800-225-1581 or write Putnam Investor Services, Mailing
address: P.O. Box 41203, Providence, RI 02940-1203.
Part I of this SAI contains specific information about the fund. Part
II includes information about the fund and the other Putnam funds.
TABLE OF CONTENTS
PART I
FUND ORGANIZATION AND CLASSIFICATION I-3
INVESTMENT RESTRICTIONS I-4
CHARGES AND EXPENSES I-6
INVESTMENT PERFORMANCE I-14
ADDITIONAL OFFICERS I-15
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS I-16
PART II
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS II-1
TAXES II-27
MANAGEMENT II-31
DETERMINATION OF NET ASSET VALUE II-39
HOW TO BUY SHARES II-40
DISTRIBUTION PLANS II-51
INVESTOR SERVICES II-56
SIGNATURE GUARANTEES II-60
SUSPENSION OF REDEMPTIONS II-60
SHAREHOLDER LIABILITY II-60
STANDARD PERFORMANCE MEASURES II-60
COMPARISON OF PORTFOLIO PERFORMANCE II-62
SECURITIES RATINGS II-66
DEFINITIONS II-71
SAI
PART I
FUND ORGANIZATION AND CLASSIFICATION
Putnam Emerging Markets Fund is a series of Putnam Investment Funds, a
Massachusetts business trust organized on October 31, 1994 (the
"Trust"). A copy of the Agreement and Declaration of Trust, which is
governed by Massachusetts law, is on file with the Secretary of State of
The Commonwealth of Massachusetts. Prior to October 4, 1996, the fund
was known as Putnam Emerging Growth Fund.
The fund is an open-end diversified management investment company with
an unlimited number of authorized shares of beneficial interest. The
Trustees may, without shareholder approval, create two or more series of
shares representing separate investment portfolios. Any such series of
shares may be divided without shareholder approval into two or more
classes of shares having such preferences and special or relative rights
and privileges as the Trustees determine. The fund offers classes of
shares with different sales charges and expenses.
Each share has one vote, with fractional shares voting proportionally.
Shares of all classes will vote together as a single class except when
otherwise required by law or as determined by the Trustees. Shares are
freely transferable, are entitled to dividends as declared by the
Trustees, and, if the fund were liquidated, would receive the net assets
of the fund. The fund may suspend the sale of shares at any time and
may refuse any order to purchase shares. Although the fund is not
required to hold annual meetings of its shareholders, shareholders
holding at least 10% of the outstanding shares entitled to vote have the
right to call a meeting to elect or remove Trustees, or to take other
actions as provided in the Agreement and Declaration of Trust.
The fund is a "diversified" investment company under the Investment
Company Act of 1940. This means that with respect to 75% of its total
assets, the fund may not invest more than 5% of its total assets in the
securities of any one issuer (except U.S. government securities). The
remaining 25% of its total assets is not subject to this restriction.
To the extent the fund invests a significant portion of its assets in
the securities of a particular issuer, it will be subject to an
increased risk of loss if the market value of such issuer's securities
declines.
INVESTMENT RESTRICTIONS
As fundamental investment restrictions, which may not be changed without
a vote of a majority of the outstanding voting securities, the fund may
not and will not:
(1) Borrow money in excess of 10% of the value (taken at the lower of
cost or current value) of its total assets (not including the amount
borrowed) at the time the borrowing is made, and then only from banks as
a temporary measure to facilitate the meeting of redemption requests
(not for leverage) which might otherwise require the untimely
disposition of portfolio investments or for extraordinary or emergency
purposes. Such borrowings will be repaid before any additional
investments are purchased.
(2) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments,
it may be deemed to be an underwriter under certain federal securities
laws.
(3) Purchase or sell real estate, although it may purchase securities of
issuers which deal in real estate, securities which are secured by
interests in real estate, and securities which represent interests in
real estate, and it may acquire and dispose of real estate or interests
in real estate acquired through the exercise of its rights as a holder
of debt obligations secured by real estate or interests therein.
(4) Purchase or sell commodities or commodity contracts, except that the
fund may purchase and sell financial futures contracts and options.
(5) Make loans, except by purchase of debt obligations in which the fund
may invest consistent with its investment policies, by entering into
repurchase agreements with respect to not more than 25% of its total
assets (taken at current value) or through the lending of its portfolio
securities with respect to not more than 25% of its total assets (taken
at current value).
(6) With respect to 75% of its total assets, invest in securities of any
issuer if, immediately after such investment, more than 5% of the total
assets of the fund (taken at current value) would be invested in the
securities of such issuer; provided that this limitation does not apply
to obligations issued or guaranteed as to interest or principal by the
U.S. government or its political subdivisions.
(7) With respect to 75% of its total assets, acquire more than 10% of
the voting securities of any issuer.
(8) Purchase securities (other than securities of the U.S. government,
its agencies or instrumentalities) if, as a result of such purchase,
more than 25% of the fund's total assets would be invested in any one
industry.
(9) Issue any class of securities which is senior to the fund's shares
of beneficial interest.
The Investment Company Act of 1940 provides that a "vote of a majority
of the outstanding voting securities" of the fund means the affirmative
vote of the lesser of (l) more than 50% of the outstanding fund shares,
or (2) 67% or more of the shares present at a meeting if more than 50%
of the outstanding fund shares are represented at the meeting in person
or by proxy.
The following non-fundamental investment policies may be changed by the
Trustees without shareholder approval:
(1) The fund will not invest in (a) securities which are not readily
marketable, (b) securities restricted as to resale (excluding securities
determined by the Trustees of the fund (or the person designated by the
Trustees of the fund to make such determinations) to be readily
marketable), and (c) repurchase agreements maturing in more than seven
days, if, as a result, more than 15% of the fund's net assets (taken at
current value) would be invested in securities described in (a), (b) and
(c) above.
(2) Emerging Markets. The fund normally invests at least 65% of
its total assets in emerging market companies. We consider the following
to be emerging market companies:
* companies organized under the laws of an emerging market country,
* companies whose principal office is located in an emerging market
country,
* companies whose securities are principally traded on a securities
exchange in an emerging market country,
* companies that earn 50% or more of their total revenues or profits
from business in emerging market countries, or
* companies with 50% or more of their assets located in an emerging
market country.
We consider a country to be an "emerging market country" based on our
evaluation of its level of economic development or the size and
experience of its securities markets. While emerging market countries
may change over time depending on market and economic conditions, at
present we believe that these countries include every country in the
world except Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand,
Norway, Singapore, Spain, Sweden, Switzerland, the United Kingdom and
the United States.
All percentage limitations on investments (other than pursuant to
non-fundamental restriction (1)) will apply at the time of the making of
an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
CHARGES AND EXPENSES
Management fees
Under a Management Contract dated December 2, 1994, as most recently
amended on September 10, 1999, the Trust pays a quarterly fee to Putnam
Management based on the average net assets of the fund, as determined at
the close of each business day during the quarter, at the annual rate
of:
1.00% of the first $500 million of average net assets;
0.90% of the next $500 million of average net assets;
0.85% of the next $500 million of average net assets;
0.80% of the next $5 billion of average net assets;
0.775% of the next $5 billion of average net assets;
0.755% of the next $5 billion of average net assets;
0.74% of the next $5 billion of average net assets; and
0.73% of any excess thereafter.
For the past three fiscal years, pursuant to the Management Contract
(and the management contract in effect prior to the July 1, 1999
amendment affecting the fee rates of this fund, under which the
management fee payable to Putnam Management was paid at the rate of
1.20% of the first $500 million of such average net asset value of the
series; 1.10% of the next $500 million; 1.05% of the next $500 million;
1.00% of the next $5 billion; 0.975% of the next $5 billion; 0.955% of
the next $5 billion; 0.94% of the next $5 billion; and 0.93%
thereafter), the fund incurred the following fees.
Reflecting a
reduction in the following
Fiscal Management amount pursuant to an
year fee paid expense limitation
2000 $1,464,805 $ 0
1999 $ 900,899 $183,915
1998 $1,027,357 $169,016
Brokerage commissions
The following table shows brokerage commissions paid during the fiscal
periods indicated:
Fiscal Brokerage
year commissions
2000 $1,377,403
1999 $ 961,580
1998 $ 564,457
The following table shows transactions placed with brokers and dealers
during the most recent fiscal year to recognize research, statistical
and quotation services received by Putnam Management and its affiliates:
Dollar value Percent of
of these total Amount of
transactions transactions commissions
$289,695,193 81.55% $1,205,336
Administrative expense reimbursement
The fund reimbursed Putnam Management for administrative services during
fiscal 2000, including compensation of certain fund officers and
contributions to the Putnam Investments, Inc. Profit Sharing Retirement
Plan for their benefit, as follows:
Portion of total
reimbursement for
Total compensation and
reimbursement contributions
$6,728 $5,501
Trustee responsibilities and fees
The Trustees are responsible for generally overseeing the conduct of
fund business. Subject to such policies as the Trustees may determine,
Putnam Management furnishes a continuing investment program for the fund
and makes investment decisions on its behalf. Subject to the control of
the Trustees, Putnam Management also manages the fund's other affairs
and business.
Each Trustee receives a fee for his or her services. Each Trustee also
receives fees for serving as a Trustee of other Putnam funds. The
Trustees periodically review their fees to assure that such fees
continue to be appropriate in light of their responsibilities as well as
in relation to fees paid to trustees of other mutual fund complexes.
The Trustees meet monthly over a two-day period, except in August. The
Board Policy Committee, which consists solely of Trustees not affiliated
with Putnam Management and is responsible for recommending Trustee
compensation, estimates that Committee and Trustee meeting time together
with the appropriate preparation requires the equivalent of at least
three business days per Trustee meeting. The following table shows the
year each Trustee was first elected a Trustee of the Putnam funds, the
fees paid to each Trustee by the fund for fiscal 2000 and the fees
paid to each Trustee by all of the Putnam funds during calendar year
1999:
<TABLE>
<CAPTION>
COMPENSATION TABLE - PUTNAM EMERGING MARKETS FUND
Estimated annual Total
Aggregate Pension or retirement benefits from all compensation
compensation from benefits accrued as Putnam funds upon from all Putnam
Trustees/Year the fund (1) part of fund expenses retirement (2) funds (3)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jameson A. Baxter/
1994 (4) $774 $185 $95,000 $191,000
Hans H. Estin/
1972 770 419 95,000 190,000
John A. Hill/
1985 (4)(5) 801 212 115,000 239,750
Ronald J. Jackson/
1996 (4) 774 249 95,000 193,500
Paul L. Joskow/
1997 (4) 774 98 95,000 191,000
Elizabeth T. Kennan/
1992 770 274 95,000 190,000
Lawrence J. Lasser/
1992 (7) 772 209 92,500 189,000
John H. Mullin, III/
1997 (4) 768 147 95,000 196,000
Robert E. Patterson/
1984 774 143 95,000 190,250
William F. Pounds/
1971 (5)(6) 661 482 111,000 231,000
George Putnam/
1957 (6) 644 413 92,834 190,000
George Putnam, III/
1984 778 97 95,000 190,000
A.J.C. Smith/
1986 (7) 761 305 91,833 188,000
W. Thomas Stephens/
1997 (4) 766 137 95,000 188,000
W. Nicholas Thorndike/
1992 761 384 95,000 190,000
</TABLE>
(1) Includes an annual retainer and an attendance fee for each meeting
attended.
(2) Assumes that each Trustee retires at the normal retirement date.
For Trustees who are not within three years of retirement, estimated
benefits for each Trustee are based on Trustee fee rates in effect
during calendar 1999.
(3) As of December 31, 1999, there were 114 funds in the Putnam
family.
(4) Includes compensation deferred pursuant to a Trustee Compensation
Deferral Plan.
(5) Includes additional compensation for service as Vice Chairman of
the Putnam funds. Mr. Hill was elected Chairman of the Putnam Funds as
of July 1, 2000.
(6) Reflects retirement from the Board of Trustees of the Putnam funds
on June 30, 2000.
(7) Commencing July 1, 2000, Marsh & McLennan Companies, Inc.,
compensates Mr. Lasser and Mr. Smith for their services as trustees. The
estimated annual retirement benefits and related fund expenses shown in
this table for Messrs. Lasser and Smith reflect benefits earned under
the Funds' retirement plan prior to that date.
Under a Retirement Plan for Trustees of the Putnam funds (the "Plan"),
each Trustee who retires with at least five years of service as a
Trustee of the funds is entitled to receive an annual retirement benefit
equal to one-half of the average annual compensation paid to such
Trustee for the last three years of service prior to retirement. This
retirement benefit is payable during a Trustee's lifetime, beginning the
year following retirement, for a number of years equal to such Trustee's
years of service. A death benefit, also available under the Plan,
assures that the Trustee and his or her beneficiaries will receive
benefit payments for the lesser of an aggregate period of (i) ten years
or (ii) such Trustee's total years of service.
The Plan Administrator (a committee comprised of Trustees that are not
"interested persons" of the fund, as defined in the Investment Company
Act of 1940) may terminate or amend the Plan at any time, but no
termination or amendment will result in a reduction in the amount of
benefits (i) currently being paid to a Trustee at the time of such
termination or amendment, or (ii) to which a current Trustee would have
been entitled had he or she retired immediately prior to such
termination or amendment.
For additional information concerning the Trustees, see "Management" in
Part II of this SAI.
Share ownership
At November 30, 2000, the officers and Trustees of the fund as a group
owned less than 1% of the outstanding shares of each class of the fund,
and, except as noted below, no person owned of record or to the
knowledge of the fund beneficially 5% or more of any class of shares of
the fund:
Class Shareholder name
and address Percentage
owned
A Edward D. Jones 7.40%
P.O. Box 2500
Maryland Heights, MO 63043
A Association of American 6.70
Medical Colleges
2450 N. Street NW
Washington, D.C. 20037
M Darwin Partners 401(k) Savings Plan* 5.74
* The address for the names listed is:
c/o Putnam Fiduciary Trust Company, as trustee of agent , 859 Willard
Street, Quincy, MA 02269
Distribution fees
During fiscal 2000, the fund paid the following 12b-1 fees to Putnam
Retail Management, Inc. (formerly Putnam Mutual Funds):
Class A Class B Class C Class M
$207,432 $555,872 $29,968 $33,700
Class A sales charges and contingent deferred sales charges
Putnam Retail Management, Inc. received sales charges with respect to
class A shares in the following amounts during the periods indicated:
Sales charges
Total retained by Putnam Contingent
Fiscal front-end Retail Management, Inc. deferred sales
year sales charges after dealer concessions charges
2000 $469,310 $79,179 $9,086
1999 $260,229 $42,567 $3,519
1998 $354,009 $57,493 $1,209
Class B contingent deferred sales charges
Putnam Retail Management, Inc. received contingent deferred sales
charges upon redemptions of class B shares in the following amounts
during the periods indicated:
Contingent deferred
Fiscal year sales charges
2000 $133,522
1999 $ 89,167
1998 $ 91,058
Class C contingent deferred sales charges
Putnam Retail Management, Inc. received contingent deferred sales
charges upon redemptions of class C shares in the following amount
during the periods indicated:
Contingent deferred
Fiscal year sales charges
2000 $3,862
1999 $ 13
Class M sales charges
Putnam Retail Management, Inc. received sales charges with respect to
class M shares in the following amounts during the periods indicated:
Sales charges
retained by Putnam
Total Retail Management, Inc.
Fiscal year sales charges after dealer concessions
2000 $12,966 $2,198
1999 $15,575 $2,892
1998 $30,151 $5,252
Investor servicing and custody fees and expenses
During the 2000 fiscal year, the fund incurred $776,272 in fees and
out-of-pocket expenses for investor servicing and custody services
provided by Putnam Fiduciary Trust Company.
INVESTMENT PERFORMANCE*
Standard performance measures
(for periods ended August 31, 2000)
Class A Class B Class C Class M
Inception date: 12/28/95 10/30/96 7/26/99 10/30/96
Average annual total return+
1 year 8.33% 8.96% 12.89% 10.21%
Life of class 4.81% 5.05% 5.35% 4.79%
* For a portion of this period, the fund was offered on a limited basis
and had limited assets.
+Reflecting an expense limitation in effect during the period. In the
absence of the expense limitation, total return shown would have been
lower. The per share amount of the expense limitation is set forth in
the section of the prospectus entitled "Financial highlights."
Returns for class A and class M shares reflect the deduction of the
current maximum initial sales charges of 5.75% for class A shares and
3.50% for class M shares.
Returns for class B and class C shares reflect the deduction of the
applicable contingent deferred sales charge ("CDSC"), which for class B
is 5% in the first year, declining to 1% in the sixth year, and
eliminated thereafter, and for class C is 1% in the first year and
eliminated thereafter.
Returns shown for class B, class C and class M shares for periods prior
to their inception are derived from the historical performance of class
A shares, adjusted to reflect both the deduction of the initial sales
charge or CDSC, if any, currently applicable to each class and the
higher operating expenses applicable to such shares.
Returns shown for class A shares have not been adjusted to reflect
payments under the class A distribution plan prior to its
implementation. All returns assume reinvestment of distributions at net
asset value and represent past performance; they do not guarantee future
results. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than
their original cost.
See "Standard Performance Measures" in Part II of this SAI for
information on how performance is calculated.
ADDITIONAL OFFICERS
In addition to the persons listed as fund officers in Part II of this
SAI, each of the following persons is also a Vice President of the fund
and certain of the other Putnam funds, the total number of which is
noted parenthetically. Officers of Putnam Management hold the same
offices in Putnam Management's parent company, Putnam Investments, Inc.
Officer Name (Age) (Number of funds)
Thomas R. Haslett (age 39) (3 funds), Managing Director of Putnam
Management. Prior to December 1996, Mr. Haslett was Managing Director
of Montgomery Asset Management Ltd.
John J. Morgan, Jr. (age 60) (28 funds), Managing Director of Putnam
Management.
Justin M. Scott (age 43) (15 funds), Managing Director of Putnam
Management.
J. Peter Grant (age 58) (1 fund), Senior Vice President of Putnam
Management.
Stephen Oler (age 39) (3 funds), Senior Vice President of Putnam
Management. Prior to June 1997, Mr. Oler was a Vice President at
Templeton Investments, and prior to March 1996, Mr. Oler was a Senior
Vice President at Baring Asset Management Co.
Carmel Peters (age 49) (4 funds), Senior Vice President of Putnam
Management. Prior to May 1997, Ms. Peters was a Managing Director and
CIO of Wheelock Natwest Investment Management, and prior to February,
1996, Ms. Peters was a Director and CIO of Rothschild Asset Management
Asia Pacific.
Claudio Brocado (age 39)(2 funds), Vice President of Putnam Management.
Prior to August 1999, Mr. Brocado was engaged as an independent
consultant by Stires, O'Donell & Co. Prior to January 1999, Mr. Brocado
was engaged as an independent consultant by Coast Partners. Prior to
November 1998, Mr. Brocado was head of Latin America Business
Development at Dresdner RCM Global Investors. Prior to October 1997, Mr.
Brocado was Director of Research at Valores Finamex.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
KPMG LLP, 99 High Street, Boston, Massachusetts 02110, are the fund's
independent accountants, providing audit services, tax return review and
other tax consulting services and assistance and consultation in
connection with the review of various Securities and Exchange Commission
filings. The Reports of Independent Accountants, financial highlights
and financial statements included in the fund's Annual Reports for the
fiscal years ended August 31, 1999 and August 31, 2000 are
incorporated by reference into this SAI. The fund's Annual Report for
the fiscal year ended August 31, 2000 was filed electronically on
October 25, 2000 (File No. 811-7237). The financial highlights included
in the prospectuses and incorporated by reference into this SAI and
the financial statements incorporated by reference into the
prospectuses and this SAI have been so included and incorporated in
reliance upon the reports of the independent accountants and previous
independent accountants, PricewaterhouseCoopers LLP, given on their
authority as experts in auditing and accounting.
TABLE OF CONTENTS
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS II-1
TAXES II-24
MANAGEMENT II-28
DETERMINATION OF NET ASSET VALUE II-35
HOW TO BUY SHARES II-36
DISTRIBUTION PLANS II-46
INVESTOR SERVICES II-50
SIGNATURE GUARANTEES II-54
SUSPENSION OF REDEMPTIONS II-54
SHAREHOLDER LIABILITY II-55
STANDARD PERFORMANCE MEASURES II-55
COMPARISON OF PORTFOLIO PERFORMANCE II-56
SECURITIES RATINGS II-61
DEFINITIONS II-65
THE PUTNAM FUNDS
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
PART II
As noted in the prospectus, in addition to the principal investment
strategies and the principal risks described in the prospectus, the fund
may employ other investment practices and may be subject to other risks,
which are described below. Because the following is a combined
description of investment strategies of all of the Putnam funds, certain
matters described herein may not apply to your fund. Unless a strategy
or policy described below is specifically prohibited by the investment
restrictions explained in the fund's prospectus or Part I of this SAI,
or by applicable law, the fund may engage in each of the practices
described below. Shareholders who purchase shares at net asset value
through employer-sponsored defined contribution plans should also
consult their employer for information about the extent to which the
matters described below apply to them.
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS
Foreign Investments
Foreign securities are normally denominated and traded in foreign
currencies. As a result, the value of the fund's foreign investments
and the value of its shares may be affected favorably or unfavorably by
changes in currency exchange rates relative to the U.S. dollar. There
may be less information publicly available about a foreign issuer than
about a U.S. issuer, and foreign issuers may not be subject to
accounting, auditing and financial reporting standards and practices
comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than
securities of comparable U.S. issuers. Foreign brokerage commissions
and other fees are also generally higher than in the United States.
Foreign settlement procedures and trade regulations may involve certain
risks (such as delay in payment or delivery of securities or in the
recovery of the fund's assets held abroad) and expenses not present in
the settlement of investments in U.S. markets.
In addition, foreign securities may be subject to the risk of
nationalization or expropriation of assets, imposition of currency
exchange controls, foreign withholding taxes or restrictions on the
repatriation of foreign currency, confiscatory taxation, political or
financial instability and diplomatic developments which could affect the
value of the fund's investments in certain foreign countries. Dividends
or interest on, or proceeds from the sale of, foreign securities may be
subject to foreign withholding taxes, and special U.S. tax
considerations may apply.
Legal remedies available to investors in certain foreign countries may
be more limited than those available with respect to investments in the
United States or in other foreign countries. The laws of some foreign
countries may limit the fund's ability to invest in securities of
certain issuers organized under the laws of those foreign countries.
The risks described above, including the risks of nationalization or
expropriation of assets, typically are increased in connection with
investments in "emerging markets." For example, political and economic
structures in these countries may be in their infancy and developing
rapidly, and such countries may lack the social, political and economic
stability characteristic of more developed countries. Certain of these
countries have in the past failed to recognize private property rights
and have at times nationalized and expropriated the assets of private
companies. High rates of inflation or currency devaluations may
adversely affect the economies and securities markets of such countries.
Investments in emerging markets may be considered speculative.
The currencies of certain emerging market countries have experienced
devaluations relative to the U.S. dollar, and future devaluations may
adversely affect the value of assets denominated in such currencies.
Many emerging market countries have experienced substantial, and in some
periods extremely high, rates of inflation or deflation for many years,
and future inflation may adversely affect the economies and securities
markets of such countries.
In addition, unanticipated political or social developments may affect
the value of investments in emerging markets and the availability of
additional investments in these markets. The small size, limited
trading volume and relative inexperience of the securities markets in
these countries may make investments in securities traded in emerging
markets illiquid and more volatile than investments in securities traded
in more developed countries, and the fund may be required to establish
special custodial or other arrangements before making investments in
securities traded in emerging markets. There may be little financial or
accounting information available with respect to issuers of emerging
market securities, and it may be difficult as a result to assess the
value of prospects of an investment in such securities.
Certain of the foregoing risks may also apply to some extent to
securities of U.S. issuers that are denominated in foreign currencies or
that are traded in foreign markets, or securities of U.S. issuers having
significant foreign operations.
Foreign Currency Transactions
To manage its exposure to foreign currencies, the fund may engage
without limit in foreign currency exchange transactions, including
purchasing and selling foreign currency, foreign currency options,
foreign currency forward contracts and foreign currency futures
contracts and related options. In addition, the fund may write covered
call and put options on foreign currencies for the purpose of increasing
its current return.
Generally, the fund may engage in both "transaction hedging" and
"position hedging." The fund may also engage in foreign currency
transactions for non-hedging purposes, subject to applicable law. When
it engages in transaction hedging, the fund enters into foreign currency
transactions with respect to specific receivables or payables, generally
arising in connection with the purchase or sale of portfolio securities.
The fund will engage in transaction hedging when it desires to "lock in"
the U.S. dollar price of a security it has agreed to purchase or sell,
or the U.S. dollar equivalent of a dividend or interest payment in a
foreign currency. By transaction hedging the fund will attempt to
protect itself against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and the applicable foreign
currency during the period between the date on which the security is
purchased or sold, or on which the dividend or interest payment is
earned, and the date on which such payments are made or received.
The fund may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign
currency. If conditions warrant, for transaction hedging purposes the
fund may also enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") and purchase and sell
foreign currency futures contracts. A foreign currency forward contract
is a negotiated agreement to exchange currency at a future time at a
rate or rates that may be higher or lower than the spot rate. Foreign
currency futures contracts are standardized exchange-traded contracts
and have margin requirements. In addition, for transaction hedging
purposes the fund may also purchase or sell exchange-listed and
over-the-counter call and put options on foreign currency futures
contracts and on foreign currencies.
For transaction hedging purposes the fund may also purchase
exchange-listed and over-the-counter call and put options on foreign
currency futures contracts and on foreign currencies. A put option on a
futures contract gives the fund the right to assume a short position in
the futures contract until the expiration of the option. A put option
on a currency gives the fund the right to sell the currency at an
exercise price until the expiration of the option. A call option on a
futures contract gives the fund the right to assume a long position in
the futures contract until the expiration of the option. A call option
on a currency gives the fund the right to purchase the currency at the
exercise price until the expiration of the option.
The fund may engage in position hedging to protect against a decline in
the value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of the currency in which the securities the fund intends to buy
are denominated, when the fund holds cash or short-term investments).
For position hedging purposes, the fund may purchase or sell, on
exchanges or in over-the-counter markets, foreign currency futures
contracts, foreign currency forward contracts and options on foreign
currency futures contracts and on foreign currencies. In connection
with position hedging, the fund may also purchase or sell foreign
currency on a spot basis.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward or
futures contract. Accordingly, it may be necessary for the fund to
purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security or
securities being hedged is less than the amount of foreign currency the
fund is obligated to deliver and a decision is made to sell the security
or securities and make delivery of the foreign currency. Conversely, it
may be necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of
foreign currency the fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the fund owns or intends to
purchase or sell. They simply establish a rate of exchange which one
can achieve at some future point in time. Additionally, although these
techniques tend to minimize the risk of loss due to a decline in the
value of the hedged currency, they tend to limit any potential gain
which might result from the increase in value of such currency. See
"Risk factors in options transactions."
The fund may seek to increase its current return or to offset some of
the costs of hedging against fluctuations in current exchange rates by
writing covered call options and covered put options on foreign
currencies. The fund receives a premium from writing a call or put
option, which increases the fund's current return if the option expires
unexercised or is closed out at a net profit. The fund may terminate an
option that it has written prior to its expiration by entering into a
closing purchase transaction in which it purchases an option having the
same terms as the option written.
The fund's currency hedging transactions may call for the delivery of
one foreign currency in exchange for another foreign currency and may at
times not involve currencies in which its portfolio securities are then
denominated. Putnam Management will engage in such "cross hedging"
activities when it believes that such transactions provide significant
hedging opportunities for the fund. Cross hedging transactions by the
fund involve the risk of imperfect correlation between changes in the
values of the currencies to which such transactions relate and changes
in the value of the currency or other asset or liability which is the
subject of the hedge.
The fund may also engage in non-hedging currency transactions. For
example, Putnam Management may believe that exposure to a currency is in
the fund's best interest but that securities denominated in that
currency are unattractive. In that case the fund may purchase a
currency forward contract or option in order to increase its exposure to
the currency. In accordance with SEC regulations, the fund will
segregate liquid assets in its portfolio to cover forward contracts used
for non-hedging purposes.
The value of any currency, including U.S. dollars and foreign
currencies, may be affected by complex political and economic factors
applicable to the issuing country. In addition, the exchange rates of
foreign currencies (and therefore the values of foreign currency
options, forward contracts and futures contracts) may be affected
significantly, fixed, or supported directly or indirectly by U.S. and
foreign government actions. Government intervention may increase risks
involved in purchasing or selling foreign currency options, forward
contracts and futures contracts, since exchange rates may not be free to
fluctuate in response to other market forces.
The value of a foreign currency option, forward contract or futures
contract reflects the value of an exchange rate, which in turn reflects
relative values of two currencies, the U.S. dollar and the foreign
currency in question. Because foreign currency transactions occurring
in the interbank market involve substantially larger amounts than those
that may be involved in the exercise of foreign currency options,
forward contracts and futures contracts, investors may be disadvantaged
by having to deal in an odd-lot market for the underlying foreign
currencies in connection with options at prices that are less favorable
than for round lots. Foreign governmental restrictions or taxes could
result in adverse changes in the cost of acquiring or disposing of
foreign currencies.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations
available through dealers or other market sources be firm or revised on
a timely basis. Available quotation information is generally
representative of very large round-lot transactions in the interbank
market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock
market. To the extent that options markets are closed while the markets
for the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be
reflected in the options markets.
The decision as to whether and to what extent the fund will engage in
foreign currency exchange transactions will depend on a number of
factors, including prevailing market conditions, the composition of the
fund's portfolio and the availability of suitable transactions.
Accordingly, there can be no assurance that the fund will engage in
foreign currency exchange transactions at any given time or from time to
time.
Currency forward and futures contracts. A forward foreign currency
contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of
the contract as agreed by the parties, at a price set at the time of the
contract. In the case of a cancelable forward contract, the holder has
the unilateral right to cancel the contract at maturity by paying a
specified fee. The contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial
banks) and their customers. A forward contract generally has no deposit
requirement, and no commissions are charged at any stage for trades. A
foreign currency futures contract is a standardized contract for the
future delivery of a specified amount of a foreign currency at a price
set at the time of the contract. Foreign currency futures contracts
traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date
of a forward contract may be any fixed number of days from the date of
the contract agreed upon by the parties, rather than a predetermined
date in a given month. Forward contracts may be in any amount agreed
upon by the parties rather than predetermined amounts. Also, forward
foreign exchange contracts are traded directly between currency traders
so that no intermediary is required. A forward contract generally
requires no margin or other deposit.
At the maturity of a forward or futures contract, the fund either may
accept or make delivery of the currency specified in the contract, or at
or prior to maturity enter into a closing transaction involving the
purchase or sale of an offsetting contract. Closing transactions with
respect to forward contracts are usually effected with the currency
trader who is a party to the original forward contract. Closing
transactions with respect to futures contracts are effected on a
commodities exchange; a clearing corporation associated with the
exchange assumes responsibility for closing out such contracts.
Positions in the foreign currency futures contracts may be closed out
only on an exchange or board of trade which provides a secondary market
in such contracts. Although the fund intends to purchase or sell
foreign currency futures contracts only on exchanges or boards of trade
where there appears to be an active secondary market, there is no
assurance that a secondary market on an exchange or board of trade will
exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures position and, in the
event of adverse price movements, the fund would continue to be required
to make daily cash payments of variation margin.
Foreign currency options. In general, options on foreign currencies
operate similarly to options on securities and are subject to many of
the risks described above. Foreign currency options are traded
primarily in the over-the-counter market, although options on foreign
currencies are also listed on several exchanges. Options are traded not
only on the currencies of individual nations, but also on the euro, the
joint currency of most countries in the European Union.
The fund will only purchase or write foreign currency options when
Putnam Management believes that a liquid secondary market exists for
such options. There can be no assurance that a liquid secondary market
will exist for a particular option at any specific time. Options on
foreign currencies are affected by all of those factors which influence
foreign exchange rates and investments generally.
Settlement procedures. Settlement procedures relating to the fund's
investments in foreign securities and to the fund's foreign currency
exchange transactions may be more complex than settlements with respect
to investments in debt or equity securities of U.S. issuers, and may
involve certain risks not present in the fund's domestic investments.
For example, settlement of transactions involving foreign securities or
foreign currencies may occur within a foreign country, and the fund may
be required to accept or make delivery of the underlying securities or
currency in conformity with any applicable U.S. or foreign restrictions
or regulations, and may be required to pay any fees, taxes or charges
associated with such delivery. Such investments may also involve the
risk that an entity involved in the settlement may not meet its
obligations.
Foreign currency conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on
the difference (the "spread") between prices at which they are buying
and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to the fund at one rate, while offering a lesser rate
of exchange should the fund desire to resell that currency to the
dealer.
Options on Securities
Writing covered options. The fund may write covered call options and
covered put options on optionable securities held in its portfolio, when
in the opinion of Putnam Management such transactions are consistent
with the fund's investment objective(s) and policies. Call options
written by the fund give the purchaser the right to buy the underlying
securities from the fund at a stated exercise price; put options give
the purchaser the right to sell the underlying securities to the fund at
a stated price.
The fund may write only covered options, which means that, so long as
the fund is obligated as the writer of a call option, it will own the
underlying securities subject to the option (or comparable securities
satisfying the cover requirements of securities exchanges). In the case
of put options, the fund will hold cash and/or high-grade short-term
debt obligations equal to the price to be paid if the option is
exercised. In addition, the fund will be considered to have covered a
put or call option if and to the extent that it holds an option that
offsets some or all of the risk of the option it has written. The fund
may write combinations of covered puts and calls on the same underlying
security.
The fund will receive a premium from writing a put or call option, which
increases the fund's return on the underlying security in the event the
option expires unexercised or is closed out at a profit. The amount of
the premium reflects, among other things, the relationship between the
exercise price and the current market value of the underlying security,
the volatility of the underlying security, the amount of time remaining
until expiration, current interest rates, and the effect of supply and
demand in the options market and in the market for the underlying
security. By writing a call option, the fund limits its opportunity to
profit from any increase in the market value of the underlying security
above the exercise price of the option but continues to bear the risk of
a decline in the value of the underlying security. By writing a put
option, the fund assumes the risk that it may be required to purchase
the underlying security for an exercise price higher than its
then-current market value, resulting in a potential capital loss unless
the security subsequently appreciates in value.
The fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction, in which it
purchases an offsetting option. The fund realizes a profit or loss from
a closing transaction if the cost of the transaction (option premium
plus transaction costs) is less or more than the premium received from
writing the option. If the fund writes a call option but does not own
the underlying security, and when it writes a put option, the fund may
be required to deposit cash or securities with its broker as "margin,"
or collateral, for its obligation to buy or sell the underlying
security. As the value of the underlying security varies, the fund may
have to deposit additional margin with the broker. Margin requirements
are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
Purchasing put options. The fund may purchase put options to protect
its portfolio holdings in an underlying security against a decline in
market value. Such protection is provided during the life of the put
option since the fund, as holder of the option, is able to sell the
underlying security at the put exercise price regardless of any decline
in the underlying security's market price. In order for a put option to
be profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and
transaction costs. By using put options in this manner, the fund will
reduce any profit it might otherwise have realized from appreciation of
the underlying security by the premium paid for the put option and by
transaction costs.
Purchasing call options. The fund may purchase call options to hedge
against an increase in the price of securities that the fund wants
ultimately to buy. Such hedge protection is provided during the life of
the call option since the fund, as holder of the call option, is able to
buy the underlying security at the exercise price regardless of any
increase in the underlying security's market price. In order for a call
option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs.
Risk Factors in Options Transactions
The successful use of the fund's options strategies depends on the
ability of Putnam Management to forecast correctly interest rate and
market movements. For example, if the fund were to write a call option
based on Putnam Management's expectation that the price of the
underlying security would fall, but the price were to rise instead, the
fund could be required to sell the security upon exercise at a price
below the current market price. Similarly, if the fund were to write a
put option based on Putnam Management's expectation that the price of
the underlying security would rise, but the price were to fall instead,
the fund could be required to purchase the security upon exercise at a
price higher than the current market price.
When the fund purchases an option, it runs the risk that it will lose
its entire investment in the option in a relatively short period of
time, unless the fund exercises the option or enters into a closing sale
transaction before the option's expiration. If the price of the
underlying security does not rise (in the case of a call) or fall (in
the case of a put) to an extent sufficient to cover the option premium
and transaction costs, the fund will lose part or all of its investment
in the option. This contrasts with an investment by the fund in the
underlying security, since the fund will not realize a loss if the
security's price does not change.
The effective use of options also depends on the fund's ability to
terminate option positions at times when Putnam Management deems it
desirable to do so. There is no assurance that the fund will be able to
effect closing transactions at any particular time or at an acceptable
price.
If a secondary market in options were to become unavailable, the fund
could no longer engage in closing transactions. Lack of investor
interest might adversely affect the liquidity of the market for
particular options or series of options. A market may discontinue
trading of a particular option or options generally. In addition, a
market could become temporarily unavailable if unusual events -- such as
volume in excess of trading or clearing capability -- were to interrupt
its normal operations.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening transactions.
For example, if an underlying security ceases to meet qualifications
imposed by the market or the Options Clearing Corporation, new series of
options on that security will no longer be opened to replace expiring
series, and opening transactions in existing series may be prohibited.
If an options market were to become unavailable, the fund as a holder of
an option would be able to realize profits or limit losses only by
exercising the option, and the fund, as option writer, would remain
obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying options
purchased or sold by the fund could result in losses on the options. If
trading is interrupted in an underlying security, the trading of options
on that security is normally halted as well. As a result, the fund as
purchaser or writer of an option will be unable to close out its
positions until options trading resumes, and it may be faced with
considerable losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing
Corporation or other options markets may impose exercise restrictions.
If a prohibition on exercise is imposed at the time when trading in the
option has also been halted, the fund as purchaser or writer of an
option will be locked into its position until one of the two
restrictions has been lifted. If the Options Clearing Corporation were
to determine that the available supply of an underlying security appears
insufficient to permit delivery by the writers of all outstanding calls
in the event of exercise, it may prohibit indefinitely the exercise of
put options. The fund, as holder of such a put option, could lose its
entire investment if the prohibition remained in effect until the put
option's expiration.
Foreign-traded options are subject to many of the same risks presented
by internationally-traded securities. In addition, because of time
differences between the United States and various foreign countries, and
because different holidays are observed in different countries, foreign
options markets may be open for trading during hours or on days when
U.S. markets are closed. As a result, option premiums may not reflect
the current prices of the underlying interest in the United States.
Over-the-counter ("OTC") options purchased by the fund and assets held
to cover OTC options written by the fund may, under certain
circumstances, be considered illiquid securities for purposes of any
limitation on the fund's ability to invest in illiquid securities.
Investments in Miscellaneous Fixed-Income Securities
If the fund may invest in inverse floating obligations, premium
securities, or interest-only or principal-only classes of
mortgage-backed securities (IOs and POs), it may do so without limit.
The fund, however, currently does not intend to invest more than 15% of
its assets in inverse floating obligations or more than 35% of its
assets in IOs and POs under normal market conditions.
Lower-rated Securities
The fund may invest in lower-rated fixed-income securities (commonly
known as "junk bonds"). The lower ratings of certain securities held by
the fund reflect a greater possibility that adverse changes in the
financial condition of the issuer or in general economic conditions, or
both, or an unanticipated rise in interest rates, may impair the ability
of the issuer to make payments of interest and principal. The inability
(or perceived inability) of issuers to make timely payment of interest
and principal would likely make the values of securities held by the
fund more volatile and could limit the fund's ability to sell its
securities at prices approximating the values the fund had placed on
such securities. In the absence of a liquid trading market for
securities held by it, the fund at times may be unable to establish the
fair value of such securities.
Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' analysis at the time of
rating. Consequently, the rating assigned to any particular security is
not necessarily a reflection of the issuer's current financial
condition, which may be better or worse than the rating would indicate.
In addition, the rating assigned to a security by Moody's Investors
Service, Inc. or Standard & Poor's (or by any other nationally
recognized securities rating agency) does not reflect an assessment of
the volatility of the security's market value or the liquidity of an
investment in the security. See "Securities ratings."
Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. A
decrease in interest rates will generally result in an increase in the
value of the fund's assets. Conversely, during periods of rising
interest rates, the value of the fund's assets will generally decline.
The values of lower-rated securities may often be affected to a greater
extent by changes in general economic conditions and business conditions
affecting the issuers of such securities and their industries. Negative
publicity or investor perceptions may also adversely affect the values
of lower-rated securities. Changes by nationally recognized securities
rating agencies in their ratings of any fixed-income security and
changes in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments. Changes in
the value of portfolio securities generally will not affect income
derived from these securities, but will affect the fund's net asset
value. The fund will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase. However,
Putnam Management will monitor the investment to determine whether its
retention will assist in meeting the fund's investment objective(s).
Issuers of lower-rated securities are often highly leveraged, so that
their ability to service their debt obligations during an economic
downturn or during sustained periods of rising interest rates may be
impaired. Such issuers may not have more traditional methods of
financing available to them and may be unable to repay outstanding
obligations at maturity by refinancing. The risk of loss due to default
in payment of interest or repayment of principal by such issuers is
significantly greater because such securities frequently are unsecured
and subordinated to the prior payment of senior indebtedness.
At times, a substantial portion of the fund's assets may be invested in
an issue of which the fund, by itself or together with other funds and
accounts managed by Putnam Management or its affiliates, holds all or a
major portion. Although Putnam Management generally considers such
securities to be liquid because of the availability of an institutional
market for such securities, it is possible that, under adverse market or
economic conditions or in the event of adverse changes in the financial
condition of the issuer, the fund could find it more difficult to sell
these securities when Putnam Management believes it advisable to do so
or may be able to sell the securities only at prices lower than if they
were more widely held. Under these circumstances, it may also be more
difficult to determine the fair value of such securities for purposes of
computing the fund's net asset value. In order to enforce its rights in
the event of a default, the fund may be required to participate in
various legal proceedings or take possession of and manage assets
securing the issuer's obligations on such securities. This could
increase the fund's operating expenses and adversely affect the fund's
net asset value. In the case of tax-exempt funds, any income derived
from the fund's ownership or operation of such assets would not be
tax-exempt. The ability of a holder of a tax-exempt security to enforce
the terms of that security in a bankruptcy proceeding may be more
limited than would be the case with respect to securities of private
issuers. In addition, the fund's intention to qualify as a "regulated
investment company" under the Internal Revenue Code may limit the extent
to which the fund may exercise its rights by taking possession of such
assets.
Certain securities held by the fund may permit the issuer at its option
to "call," or redeem, its securities. If an issuer were to redeem
securities held by the fund during a time of declining interest rates,
the fund may not be able to reinvest the proceeds in securities
providing the same investment return as the securities redeemed.
The fund may invest without limit in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer, at its option, to
make current interest payments on the bonds either in cash or in
additional bonds. Because zero-coupon and payment-in-kind bonds do not
pay current interest in cash, their value is subject to greater
fluctuation in response to changes in market interest rates than bonds
that pay interest currently. Both zero-coupon and payment-in-kind bonds
allow an issuer to avoid the need to generate cash to meet current
interest payments. Accordingly, such bonds may involve greater credit
risks than bonds paying interest currently in cash. The fund is
required to accrue interest income on such investments and to distribute
such amounts at least annually to shareholders even though such bonds do
not pay current interest in cash. Thus, it may be necessary at times
for the fund to liquidate investments in order to satisfy its dividend
requirements.
To the extent the fund invests in securities in the lower rating
categories, the achievement of the fund's goals is more dependent on
Putnam Management's investment analysis than would be the case if the
fund were investing in securities in the higher rating categories. This
also may be true with respect to tax-exempt securities, as the amount of
information about the financial condition of an issuer of tax-exempt
securities may not be as extensive as that which is made available by
corporations whose securities are publicly traded.
Loan Participations
The fund may invest in "loan participations." By purchasing a loan
participation, the fund acquires some or all of the interest of a bank
or other lending institution in a loan to a particular borrower. Many
such loans are secured, and most impose restrictive covenants which must
be met by the borrower. These loans are typically made by a syndicate
of banks, represented by an agent bank which has negotiated and
structured the loan and which is responsible generally for collecting
interest, principal, and other amounts from the borrower on its own
behalf and on behalf of the other lending institutions in the syndicate,
and for enforcing its and their other rights against the borrower. Each
of the lending institutions, including the agent bank, lends to the
borrower a portion of the total amount of the loan, and retains the
corresponding interest in the loan.
The fund's ability to receive payments of principal and interest and
other amounts in connection with loan participations held by it will
depend primarily on the financial condition of the borrower. The
failure by the fund to receive scheduled interest or principal payments
on a loan participation would adversely affect the income of the fund
and would likely reduce the value of its assets, which would be
reflected in a reduction in the fund's net asset value. Banks and other
lending institutions generally perform a credit analysis of the borrower
before originating a loan or participating in a lending syndicate. In
selecting the loan participations in which the fund will invest,
however, Putnam Management will not rely solely on that credit analysis,
but will perform its own investment analysis of the borrowers. Putnam
Management's analysis may include consideration of the borrower's
financial strength and managerial experience, debt coverage, additional
borrowing requirements or debt maturity schedules, changing financial
conditions, and responsiveness to changes in business conditions and
interest rates. Putnam Management will be unable to access non-public
information to which other investors in syndicated loans may have
access. Because loan participations in which the fund may invest are
not generally rated by independent credit rating agencies, a decision by
the fund to invest in a particular loan participation will depend almost
exclusively on Putnam Management's, and the original lending
institution's, credit analysis of the borrower. Investments in loan
participations may be of any quality, including "distressed" loans, and
will be subject to the fund's credit quality policy.
Loan participations may be structured in different forms, including
novations, assignments and participating interests. In a novation, the
fund assumes all of the rights of a lending institution in a loan,
including the right to receive payments of principal and interest and
other amounts directly from the borrower and to enforce its rights as a
lender directly against the borrower. The fund assumes the position of
a co-lender with other syndicate members. As an alternative, the fund
may purchase an assignment of a portion of a lender's interest in a
loan. In this case, the fund may be required generally to rely upon the
assigning bank to demand payment and enforce its rights against the
borrower, but would otherwise be entitled to all of such bank's rights
in the loan. The fund may also purchase a participating interest in a
portion of the rights of a lending institution in a loan. In such case,
it will be entitled to receive payments of principal, interest and
premium, if any, but will not generally be entitled to enforce its
rights directly against the agent bank or the borrower, and must rely
for that purpose on the lending institution. The fund may also acquire
a loan participation directly by acting as a member of the original
lending syndicate.
The fund will in many cases be required to rely upon the lending
institution from which it purchases the loan participation to collect
and pass on to the fund such payments and to enforce the fund's rights
under the loan. As a result, an insolvency, bankruptcy or
reorganization of the lending institution may delay or prevent the fund
from receiving principal, interest and other amounts with respect to the
underlying loan. When the fund is required to rely upon a lending
institution to pay to the fund principal, interest and other amounts
received by it, Putnam Management will also evaluate the
creditworthiness of the lending institution.
The borrower of a loan in which the fund holds a participation interest
may, either at its own election or pursuant to terms of the loan
documentation, prepay amounts of the loan from time to time. There is
no assurance that the fund will be able to reinvest the proceeds of any
loan prepayment at the same interest rate or on the same terms as those
of the original loan participation.
Corporate loans in which the fund may purchase a loan participation are
made generally to finance internal growth, mergers, acquisitions, stock
repurchases, leveraged buy-outs and other corporate activities. Under
current market conditions, most of the corporate loan participations
purchased by the fund will represent interests in loans made to finance
highly leveraged corporate acquisitions, known as "leveraged buy-out"
transactions. The highly leveraged capital structure of the borrowers
in such transactions may make such loans especially vulnerable to
adverse changes in economic or market conditions. In addition, loan
participations generally are subject to restrictions on transfer, and
only limited opportunities may exist to sell such participations in
secondary markets. As a result, the fund may be unable to sell loan
participations at a time when it may otherwise be desirable to do so or
may be able to sell them only at a price that is less than their fair
market value.
Certain of the loan participations acquired by the fund may involve
revolving credit facilities under which a borrower may from time to time
borrow and repay amounts up to the maximum amount of the facility. In
such cases, the fund would have an obligation to advance its portion of
such additional borrowings upon the terms specified in the loan
participation. To the extent that the fund is committed to make
additional loans under such a participation, it will at all times hold
and maintain in a segregated account liquid assets in an amount
sufficient to meet such commitments. Certain of the loan participations
acquired by the fund may also involve loans made in foreign currencies.
The fund's investment in such participations would involve the risks of
currency fluctuations described above with respect to investments in the
foreign securities.
Floating Rate and Variable Rate Demand Notes
Floating rate and variable rate demand notes and bonds may have a stated
maturity in excess of one year, but may have features that permit a
holder to demand payment of principal plus accrued interest upon a
specified number of days notice. Frequently, such obligations are
secured by letters of credit or other credit support arrangements
provided by banks. The issuer has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal of the
obligation plus accrued interest upon a specific number of days notice
to the holders. The interest rate of a floating rate instrument may be
based on a known lending rate, such as a bank's prime rate, and is reset
whenever such rate is adjusted. The interest rate on a variable rate
demand note is reset at specified intervals at a market rate.
Mortgage Related and Asset-backed Securities
Mortgage-backed securities, including collateralized mortgage
obligations ("CMOs") and certain stripped mortgage-backed securities
represent a participation in, or are secured by, mortgage loans.
Asset-backed securities are structured like mortgage-backed securities,
but instead of mortgage loans or interests in mortgage loans, the
underlying assets may include such items as motor vehicle installment
sales or installment loan contracts, leases of various types of real and
personal property and receivables from credit card agreements. The
ability of an issuer of asset-backed securities to enforce its security
interest in the underlying assets may be limited.
Mortgage-backed securities have yield and maturity characteristics
corresponding to the underlying assets. Unlike traditional debt
securities, which may pay a fixed rate of interest until maturity, when
the entire principal amount comes due, payments on certain
mortgage-backed securities include both interest and a partial repayment
of principal. Besides the scheduled repayment of principal, repayments
of principal may result from the voluntary prepayment, refinancing or
foreclosure of the underlying mortgage loans. If property owners make
unscheduled prepayments of their mortgage loans, these prepayments will
result in early payment of the applicable mortgage-related securities.
In that event the fund may be unable to invest the proceeds from the
early payment of the mortgage-related securities in an investment that
provides as high a yield as the mortgage-related securities.
Consequently, early payment associated with mortgage-related securities
may cause these securities to experience significantly greater price and
yield volatility than that experienced by traditional fixed-income
securities. The occurrence of mortgage prepayments is affected by
factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. During periods of falling interest rates, the
rate of mortgage prepayments tends to increase, thereby tending to
decrease the life of mortgage-related securities. During periods of
rising interest rates, the rate of mortgage prepayments usually
decreases, thereby tending to increase the life of mortgage-related
securities. If the life of a mortgage-related security is inaccurately
predicted, the fund may not be able to realize the rate of return it
expected.
Mortgage-backed and asset-backed securities are less effective than
other types of securities as a means of "locking in" attractive
long-term interest rates. One reason is the need to reinvest
prepayments of principal; another is the possibility of significant
unscheduled prepayments resulting from declines in interest rates.
These prepayments would have to be reinvested at lower rates. As a
result, these securities may have less potential for capital
appreciation during periods of declining interest rates than other
securities of comparable maturities, although they may have a similar
risk of decline in market value during periods of rising interest rates.
Prepayments may also significantly shorten the effective maturities of
these securities, especially during periods of declining interest rates.
Conversely, during periods of rising interest rates, a reduction in
prepayments may increase the effective maturities of these securities,
subjecting them to a greater risk of decline in market value in response
to rising interest rates than traditional debt securities, and,
therefore, potentially increasing the volatility of the fund.
Prepayments may cause losses on securities purchased at a premium. At
times, some mortgage-backed and asset-backed securities will have higher
than market interest rates and therefore will be purchased at a premium
above their par value. Unscheduled prepayments, which are made at par,
will cause the fund to experience a loss equal to any unamortized
premium.
CMOs may be issued by a U.S. government agency or instrumentality or by
a private issuer. Although payment of the principal of, and interest
on, the underlying collateral securing privately issued CMOs may be
guaranteed by the U.S. government or its agencies or instrumentalities,
these CMOs represent obligations solely of the private issuer and are
not insured or guaranteed by the U.S. government, its agencies or
instrumentalities or any other person or entity.
Prepayments could cause early retirement of CMOs. CMOs are designed to
reduce the risk of prepayment for investors by issuing multiple classes
of securities, each having different maturities, interest rates and
payment schedules, and with the principal and interest on the underlying
mortgages allocated among the several classes in various ways. Payment
of interest or principal on some classes or series of CMOs may be
subject to contingencies or some classes or series may bear some or all
of the risk of default on the underlying mortgages. CMOs of different
classes or series are generally retired in sequence as the underlying
mortgage loans in the mortgage pool are repaid. If enough mortgages are
repaid ahead of schedule, the classes or series of a CMO with the
earliest maturities generally will be retired prior to their maturities.
Thus, the early retirement of particular classes or series of a CMO
would have the same effect as the prepayment of mortgages underlying
other mortgage-backed securities. Conversely, slower than anticipated
prepayments can extend the effective maturities of CMOs, subjecting them
to a greater risk of decline in market value in response to rising
interest rates than traditional debt securities, and, therefore,
potentially increasing their volatility.
Prepayments could result in losses on stripped mortgage-backed
securities. Stripped mortgage-backed securities are usually structured
with two classes that receive different portions of the interest and
principal distributions on a pool of mortgage loans. The yield to
maturity on an interest only or "IO" class of stripped mortgage-backed
securities is extremely sensitive not only to changes in prevailing
interest rates but also to the rate of principal payments (including
prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurable adverse effect on the fund's yield to
maturity to the extent it invests in IOs. If the assets underlying the
IO experience greater than anticipated prepayments of principal, the
fund may fail to recoup fully its initial investment in these
securities. Conversely, principal only or "POs" tend to increase in
value if prepayments are greater than anticipated and decline if
prepayments are slower than anticipated.
The secondary market for stripped mortgage-backed securities may be more
volatile and less liquid than that for other mortgage-backed securities,
potentially limiting the fund's ability to buy or sell those securities
at any particular time.
Hybrid Instruments
These instruments are generally considered derivatives and include
indexed or structured securities, and combine the elements of futures
contracts or options with those of debt, preferred equity or a
depository instrument. A hybrid instrument may be a debt security,
preferred stock, warrant, convertible security, certificate of deposit
or other evidence of indebtedness on which a portion of or all interest
payments, and/or the principal or stated amount payable at maturity,
redemption or retirement, is determined by reference to prices, changes
in prices, or differences between prices, of securities, currencies,
intangibles, goods, articles or commodities (collectively, "underlying
assets"), or by another objective index, economic factor or other
measure, including interest rates, currency exchange rates, or
commodities or securities indices (collectively, "benchmarks"). Hybrid
instruments may take a number of forms, including, but not limited to,
debt instruments with interest or principal payments or redemption terms
determined by reference to the value of an index at a future time,
preferred stock with dividend rates determined by reference to the value
of a currency, or convertible securities with the conversion terms
related to a particular commodity.
The risks of investing in hybrid instruments reflect a combination of
the risks of investing in securities, options, futures and currencies.
An investment in a hybrid instrument may entail significant risks that
are not associated with a similar investment in a traditional debt
instrument that has a fixed principal amount, is denominated in U.S.
dollars or bears interest either at a fixed rate or a floating rate
determined by reference to a common, nationally published benchmark.
The risks of a particular hybrid instrument will depend upon the terms
of the instrument, but may include the possibility of significant
changes in the benchmark(s) or the prices of the underlying assets to
which the instrument is linked. Such risks generally depend upon
factors unrelated to the operations or credit quality of the issuer of
the hybrid instrument, which may not be foreseen by the purchaser, such
as economic and political events, the supply and demand of the
underlying assets and interest rate movements. Hybrid instruments may
be highly volatile and their use by a fund may not be successful.
Hybrid instruments may bear interest or pay preferred dividends at below
market (or even relatively nominal) rates. Alternatively, hybrid
instruments may bear interest at above market rates but bear an
increased risk of principal loss (or gain). The latter scenario may
result if "leverage" is used to structure the hybrid instrument.
Leverage risk occurs when the hybrid instrument is structured so that a
given change in a benchmark or underlying asset is multiplied to produce
a greater value change in the hybrid instrument, thereby magnifying the
risk of loss as well as the potential for gain.
Hybrid instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of
enhancing total return. For example, a fund may wish to take advantage
of expected declines in interest rates in several European countries,
but avoid the transaction costs associated with buying and
currency-hedging the foreign bond positions. One solution would be to
purchase a U.S. dollar-denominated hybrid instrument whose redemption
price is linked to the average three year interest rate in a designated
group of countries. The redemption price formula would provide for
payoffs of less than par if rates were above the specified level.
Furthermore, a fund could limit the downside risk of the security by
establishing a minimum redemption price so that the principal paid at
maturity could not be below a predetermined minimum level if interest
rates were to rise significantly. The purpose of this arrangement,
known as a structured security with an embedded put option, would be to
give the fund the desired European bond exposure while avoiding currency
risk, limiting downside market risk, and lowering transaction costs. Of
course, there is no guarantee that the strategy will be successful and a
fund could lose money if, for example, interest rates do not move as
anticipated or credit problems develop with the issuer of the hybrid
instrument.
Hybrid instruments are potentially more volatile and carry greater
market risks than traditional debt instruments. Depending on the
structure of the particular hybrid instrument, changes in a benchmark
may be magnified by the terms of the hybrid instrument and have an even
more dramatic and substantial effect upon the value of the hybrid
instrument. Also, the prices of the hybrid instrument and the benchmark
or underlying asset may not move in the same direction or at the same
time.
Hybrid instruments may also carry liquidity risk since the instruments
are often "customized" to meet the portfolio needs of a particular
investor, and therefore, the number of investors that are willing and
able to buy such instruments in the secondary market may be smaller than
that for more traditional debt securities. Under certain conditions,
the redemption value of such an investment could be zero. In addition,
because the purchase and sale of hybrid investments could take place in
an over-the-counter market without the guarantee of a central clearing
organization, or in a transaction between the fund and the issuer of the
hybrid instrument, the creditworthiness of the counterparty of the
issuer of the hybrid instrument would be an additional risk factor the
fund would have to consider and monitor. Hybrid instruments also may
not be subject to regulation by the CFTC, which generally regulates the
trading of commodity futures by U.S. persons, the SEC, which regulates
the offer and sale of securities by and to U.S. persons, or any other
governmental regulatory authority.
Structured investments. A structured investment is a security having a
return tied to an underlying index or other security or asset class.
Structured investments generally are individually negotiated agreements
and may be traded over-the-counter. Structured investments are
organized and operated to restructure the investment characteristics of
the underlying security. This restructuring involves the deposit with
or purchase by an entity, such as a corporation or trust, or specified
instruments (such as commercial bank loans) and the issuance by that
entity or one or more classes of securities ("structured securities")
backed by, or representing interests in, the underlying instruments.
The cash flow on the underlying instruments may be apportioned among the
newly issued structured securities to create securities with different
investment characteristics, such as varying maturities, payment
priorities and interest rate provisions, and the extent of such payments
made with respect to structured securities is dependent on the extent of
the cash flow on the underlying instruments. Because structured
securities typically involve no credit enhancement, their credit risk
generally will be equivalent to that of the underlying instruments.
Investments in structured securities are generally of a class of
structured securities that is either subordinated or unsubordinated to
the right of payment of another class. Subordinated structured
securities typically have higher yields and present greater risks than
unsubordinated structured securities. Structured securities are
typically sold in private placement transactions, and there currently is
no active trading market for structured securities. Investments in
government and government-related and restructured debt instruments are
subject to special risks, including the inability or unwillingness to
repay principal and interest, requests to reschedule or restructure
outstanding debt and requests to extend additional loan amounts.
Securities of Other Investment Companies. Securities of other
investment companies, including shares of closed-end investment
companies, unit investment trusts and open-end investment companies,
represent interests in professionally managed portfolios that may invest
in any type of instrument. These types of instruments are often
structured to perform in a similar fashion to a broad based securities
index. Investing in these types of securities involves substantially
the same risks as investing directly in the underlying instruments, but
may involve additional expenses at the investment company-level, such as
portfolio management fees and operating expenses. In addition, these
types of investments involve the risk that they will not perform in
exactly the same fashion, or in response to the same factors, as the
index or underlying instruments. Certain types of investment companies,
such as closed-end investment companies, issue a fixed number of shares
that trade on a stock exchange or over-the-counter at a premium or a
discount to their net asset value. Others are continuously offered at
net asset value, but may also be traded in the secondary market. The
extent to which a fund can invest in securities of other investment
companies is limited by federal securities laws.
Tax-exempt Securities
General description. As used in this SAI, the term "Tax-exempt
securities" includes debt obligations issued by a state, its political
subdivisions (for example, counties, cities, towns, villages, districts
and authorities) and their agencies, instrumentalities or other
governmental units, the interest from which is, in the opinion of bond
counsel, exempt from federal income tax and the corresponding state's
personal income tax. Such obligations are issued to obtain funds for
various public purposes, including the construction of a wide range of
public facilities, such as airports, bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer
works. Other public purposes for which Tax-exempt securities may be
issued include the refunding of outstanding obligations or the payment
of general operating expenses.
Short-term Tax-exempt securities are generally issued by state and local
governments and public authorities as interim financing in anticipation
of tax collections, revenue receipts or bond sales to finance such
public purposes.
In addition, certain types of "private activity" bonds may be issued by
public authorities to finance projects such as privately operated
housing facilities; certain local facilities for supplying water, gas or
electricity; sewage or solid waste disposal facilities; student loans;
or public or private institutions for the construction of educational,
hospital, housing and other facilities. Such obligations are included
within the term Tax-exempt securities if the interest paid thereon is,
in the opinion of bond counsel, exempt from federal income tax and state
personal income tax (such interest may, however, be subject to federal
alternative minimum tax). Other types of private activity bonds, the
proceeds of which are used for the construction, repair or improvement
of, or to obtain equipment for, privately operated industrial or
commercial facilities, may also constitute Tax-exempt securities,
although the current federal tax laws place substantial limitations on
the size of such issues.
Participation interests (Money Market Funds only). The money market
funds may invest in Tax-exempt securities either by purchasing them
directly or by purchasing certificates of accrual or similar instruments
evidencing direct ownership of interest payments or principal payments,
or both, on Tax-exempt securities, provided that, in the opinion of
counsel, any discount accruing on a certificate or instrument that is
purchased at a yield not greater than the coupon rate of interest on the
related Tax-exempt securities will be exempt from federal income tax to
the same extent as interest on the Tax-exempt securities. The money
market funds may also invest in Tax-exempt securities by purchasing from
banks participation interests in all or part of specific holdings of
Tax-exempt securities. These participations may be backed in whole or
in part by an irrevocable letter of credit or guarantee of the selling
bank. The selling bank may receive a fee from the money market funds in
connection with the arrangement. The money market funds will not
purchase such participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service that interest earned
by it on Tax-exempt securities in which it holds such participation
interests is exempt from federal income tax. No money market fund
expects to invest more than 5% of its assets in participation interests.
Stand-by commitments. When the fund purchases Tax-exempt securities, it
has the authority to acquire stand-by commitments from banks and
broker-dealers with respect to those Tax-exempt securities. A stand-by
commitment may be considered a security independent of the Tax-exempt
security to which it relates. The amount payable by a bank or dealer
during the time a stand-by commitment is exercisable, absent unusual
circumstances, would be substantially the same as the market value of
the underlying Tax-exempt security to a third party at any time. The
fund expects that stand-by commitments generally will be available
without the payment of direct or indirect consideration. The fund does
not expect to assign any value to stand-by commitments.
Yields. The yields on Tax-exempt securities depend on a variety of
factors, including general money market conditions, effective marginal
tax rates, the financial condition of the issuer, general conditions of
the Tax-exempt security market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings of
nationally recognized securities rating agencies represent their
opinions as to the credit quality of the Tax-exempt securities which
they undertake to rate. It should be emphasized, however, that ratings
are general and are not absolute standards of quality. Consequently,
Tax-exempt securities with the same maturity and interest rate but with
different ratings may have the same yield. Yield disparities may occur
for reasons not directly related to the investment quality of particular
issues or the general movement of interest rates and may be due to such
factors as changes in the overall demand or supply of various types of
Tax-exempt securities or changes in the investment objectives of
investors. Subsequent to purchase by the fund, an issue of Tax-exempt
securities or other investments may cease to be rated, or its rating may
be reduced below the minimum rating required for purchase by the fund.
Neither event will require the elimination of an investment from the
fund's portfolio, but Putnam Management will consider such an event in
its determination of whether the fund should continue to hold an
investment in its portfolio.
"Moral obligation" bonds. The fund does not currently intend to invest
in so-called "moral obligation" bonds, where repayment is backed by a
moral commitment of an entity other than the issuer, unless the credit
of the issuer itself, without regard to the "moral obligation," meets
the investment criteria established for investments by the fund.
Municipal leases. The fund may acquire participations in lease
obligations or installment purchase contract obligations (collectively,
"lease obligations") of municipal authorities or entities. Lease
obligations do not constitute general obligations of the municipality
for which the municipality's taxing power is pledged. Certain of these
lease obligations contain "non-appropriation" clauses, which provide
that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such
purpose on a yearly basis. In the case of a "non-appropriation" lease,
the fund's ability to recover under the lease in the event of
non-appropriation or default will be limited solely to the repossession
of the leased property, and in any event, foreclosure of that property
might prove difficult.
Inverse Floaters have variable interest rates that typically move in the
opposite direction from movements in prevailing short-term interest rate
levels - rising when prevailing short-term interest rate fall, and vice
versa. The prices of inverse floaters can be considerably more volatile
than the prices of bonds with comparable maturities.
Additional risks. Securities in which the fund may invest, including
Tax-exempt securities, are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of
creditors, such as the federal Bankruptcy Code (including special
provisions related to municipalities and other public entities), and
laws, if any, that may be enacted by Congress or state legislatures
extending the time for payment of principal or interest, or both, or
imposing other constraints upon enforcement of such obligations. There
is also the possibility that, as a result of litigation or other
conditions, the power, ability or willingness of issuers to meet their
obligations for the payment of interest and principal on their
Tax-exempt securities may be materially affected.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax
exemption for interest on debt obligations issued by states and their
political subdivisions. Federal tax laws limit the types and amounts of
tax-exempt bonds issuable for certain purposes, especially industrial
development bonds and private activity bonds. Such limits may affect
the future supply and yields of these types of Tax-exempt securities.
Further proposals limiting the issuance of Tax-exempt securities may
well be introduced in the future. If it appeared that the availability
of Tax-exempt securities for investment by the fund and the value of the
fund's portfolio could be materially affected by such changes in law,
the Trustees of the fund would reevaluate its investment objective and
policies and consider changes in the structure of the fund or its
dissolution.
Convertible Securities
Convertible securities include bonds, debentures, notes, preferred
stocks and other securities that may be converted into or exchanged for,
at a specific price or formula within a particular period of time, a
prescribed amount of common stock or other equity securities of the same
or a different issuer. Convertible securities entitle the holder to
receive interest paid or accrued on debt or dividends paid or accrued on
preferred stock until the security matures or is redeemed, converted or
exchanged.
The market value of a convertible security is a function of its
"investment value" and its "conversion value." A security's "investment
value" represents the value of the security without its conversion
feature (i.e., a nonconvertible fixed income security). The investment
value may be determined by reference to its credit quality and the
current value of its yield to maturity or probable call date. At any
given time, investment value is dependent upon such factors as the
general level of interest rates, the yield of similar nonconvertible
securities, the financial strength of the issuer and the seniority of
the security in the issuer's capital structure. A security's "conversion
value" is determined by multiplying the number of shares the holder is
entitled to receive upon conversion or exchange by the current price of
the underlying security.
If the conversion value of a convertible security is significantly below
its investment value, the convertible security will trade like
nonconvertible debt or preferred stock and its market value will not be
influenced greatly by fluctuations in the market price of the underlying
security. Conversely, if the conversion value of a convertible security
is near or above its investment value, the market value of the
convertible security will be more heavily influenced by fluctuations in
the market price of the underlying security.
The fund's investments in convertible securities may at times include
securities that have a mandatory conversion feature, pursuant to which
the securities convert automatically into common stock or other equity
securities at a specified date and a specified conversion ratio, or that
are convertible at the option of the issuer. Because conversion of the
security is not at the option of the holder, the fund may be required to
convert the security into the underlying common stock even at times when
the value of the underlying common stock or other equity security has
declined substantially.
The fund's investments in convertible securities, particularly
securities that are convertible into securities of an issuer other than
the issuer of the convertible security, may be illiquid. The fund may
not be able to dispose of such securities in a timely fashion or for a
fair price, which could result in losses to the fund.
Alternative Investment Strategies
Under normal market conditions, each fund seeks to remain fully invested
and to minimize its cash holdings. However, at times Putnam Management
may judge that market conditions make pursuing a fund's investment
strategies inconsistent with the best interests of its shareholders.
Putnam Management then may temporarily use alternative strategies that
are mainly designed to limit the fund's losses. In implementing these
strategies, the funds may invest primarily in debt securities, preferred
stocks, U.S. Government and agency obligations, cash or money market
instruments, or any other securities Putnam Management considers
consistent with such defensive strategies.
Money market instruments, or short-term debt instruments, consist of
obligations such as commercial paper, bank obligations (i.e.,
certificates of deposit and bankers' acceptances), repurchase agreements
and various government obligations, such as Treasury bills. These
instruments have a remaining maturity of one year or less and are
generally of high credit quality. Money market instruments may be
structured to be, or may employ a trust or other form so that they are,
eligible investments for money market funds. For example, put features
can be used to modify the maturity of a security or interest rate
adjustment features can be used to enhance price stability. If a
structure fails to function as intended, adverse tax or investment
consequences may result. Neither the Internal Revenue Service (IRS) nor
any other regulatory authority has ruled definitively on certain legal
issues presented by certain structured securities. Future tax or other
regulatory determinations could adversely affect the value, liquidity,
or tax treatment of the income received from these securities or the
nature and timing of distributions made by the funds.
Private Placements and Restricted Securities
The fund may invest in securities that are purchased in private
placements and, accordingly, are subject to restrictions on resale as a
matter of contract or under federal securities laws. Because there may
be relatively few potential purchasers for such investments, especially
under adverse market or economic conditions or in the event of adverse
changes in the financial condition of the issuer, the fund could find it
more difficult to sell such securities when Putnam Management believes
it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. At times,
it may also be more difficult to determine the fair value of such
securities for purposes of computing the fund's net asset value.
While such private placements may often offer attractive opportunities
for investment not otherwise available on the open market, the
securities so purchased are often "restricted securities," i.e.,
securities which cannot be sold to the public without registration
under the Securities Act of 1933 or the availability of an exemption
from registration (such as Rules 144 or 144A), or which are "not readily
marketable" because they are subject to other legal or contractual
delays in or restrictions on resale.
The absence of a trading market can make it difficult to ascertain a
market value for illiquid investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for the fund to sell them promptly
at an acceptable price. The fund may have to bear the extra expense of
registering such securities for resale and the risk of substantial delay
in effecting such registration. Also market quotations are less readily
available. The judgment of Putnam Management may at times play a greater
role in valuing these securities than in the case of publicly traded
securities.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a
limited number of purchasers, or in limited quantities after they have
been held for a specified period of time and other conditions are met
pursuant to an exemption from registration, or in a public offering for
which a registration statement is in effect under the Securities Act of
1933. The fund may be deemed to be an "underwriter" for purposes of the
Securities Act of 1933 when selling restricted securities to the public,
and in such event the fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.
The SEC Staff currently takes the view that any delegation by the
Trustees of the authority to determine that a restricted security is
readily marketable (as described in the investment restrictions of the
funds) must be pursuant to written procedures established by the
Trustees and the Trustees have delegated such authority to Putnam
Management.
Futures Contracts and Related Options
Subject to applicable law the fund may invest without limit in futures
contracts and related options for hedging and non-hedging purposes, such
as to manage the effective duration of the fund's portfolio or as a
substitute for direct investment. A financial futures contract sale
creates an obligation by the seller to deliver the type of financial
instrument called for in the contract in a specified delivery month for
a stated price. A financial futures contract purchase creates an
obligation by the purchaser to take delivery of the type of financial
instrument called for in the contract in a specified delivery month at a
stated price. The specific instruments delivered or taken,
respectively, at settlement date are not determined until on or near
that date. The determination is made in accordance with the rules of
the exchange on which the futures contract sale or purchase was made.
Futures contracts are traded in the United States only on commodity
exchanges or boards of trade -- known as "contract markets" -- approved
for such trading by the Commodity Futures Trading Commission (the
"CFTC"), and must be executed through a futures commission merchant or
brokerage firm which is a member of the relevant contract market.
Although futures contracts (other than index futures) by their terms
call for actual delivery or acceptance of commodities or securities, in
most cases the contracts are closed out before the settlement date
without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or
commodity with the same delivery date. If the price of the initial sale
of the futures contract exceeds the price of the offsetting purchase,
the seller is paid the difference and realizes a gain. Conversely, if
the price of the offsetting purchase exceeds the price of the initial
sale, the seller realizes a loss. If the fund is unable to enter into a
closing transaction, the amount of the fund's potential loss is
unlimited. The closing out of a futures contract purchase is effected
by the purchaser's entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the purchaser realizes
a gain, and if the purchase price exceeds the offsetting sale price, he
realizes a loss. In general, 40% of the gain or loss arising from the
closing out of a futures contract traded on an exchange approved by the
CFTC is treated as short-term gain or loss, and 60% is treated as
long-term gain or loss.
Unlike when the fund purchases or sells a security, no price is paid or
received by the fund upon the purchase or sale of a futures contract.
Upon entering into a contract, the fund is required to deposit with its
custodian in a segregated account in the name of the futures broker an
amount of liquid assets. This amount is known as "initial margin." The
nature of initial margin in futures transactions is different from that
of margin in security transactions in that futures contract margin does
not involve the borrowing of funds to finance the transactions. Rather,
initial margin is similar to a performance bond or good faith deposit
which is returned to the fund upon termination of the futures contract,
assuming all contractual obligations have been satisfied. Futures
contracts also involve brokerage costs.
Subsequent payments, called "variation margin" or "maintenance margin,"
to and from the broker (or the custodian) are made on a daily basis as
the price of the underlying security or commodity fluctuates, making the
long and short positions in the futures contract more or less valuable,
a process known as "marking to the market." For example, when the fund
has purchased a futures contract on a security and the price of the
underlying security has risen, that position will have increased in
value and the fund will receive from the broker a variation margin
payment based on that increase in value. Conversely, when the fund has
purchased a security futures contract and the price of the underlying
security has declined, the position would be less valuable and the fund
would be required to make a variation margin payment to the broker.
The fund may elect to close some or all of its futures positions at any
time prior to their expiration in order to reduce or eliminate a hedge
position then currently held by the fund. The fund may close its
positions by taking opposite positions which will operate to terminate
the fund's position in the futures contracts. Final determinations of
variation margin are then made, additional cash is required to be paid
by or released to the fund, and the fund realizes a loss or a gain.
Such closing transactions involve additional commission costs.
The fund does not intend to purchase or sell futures or related options
for other than hedging purposes, if, as a result, the sum of the initial
margin deposits on the fund's existing futures and related options
positions and premiums paid for outstanding options on futures contracts
would exceed 5% of the fund's net assets.
Options on futures contracts. The fund may purchase and write call and
put options on futures contracts it may buy or sell and enter into
closing transactions with respect to such options to terminate existing
positions. In return for the premium paid, options on futures contracts
give the purchaser the right to assume a position in a futures contract
at the specified option exercise price at any time during the period of
the option. The fund may use options on futures contracts in lieu of
writing or buying options directly on the underlying securities or
purchasing and selling the underlying futures contracts. For example,
to hedge against a possible decrease in the value of its portfolio
securities, the fund may purchase put options or write call options on
futures contracts rather than selling futures contracts. Similarly, the
fund may purchase call options or write put options on futures contracts
as a substitute for the purchase of futures contracts to hedge against a
possible increase in the price of securities which the fund expects to
purchase. Such options generally operate in the same manner as options
purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an offsetting option.
There is no guarantee that such closing transactions can be effected.
The fund will be required to deposit initial margin and maintenance
margin with respect to put and call options on futures contracts written
by it pursuant to brokers' requirements similar to those described above
in connection with the discussion of futures contracts.
Risks of transactions in futures contracts and related options.
Successful use of futures contracts by the fund is subject to Putnam
Management's ability to predict movements in various factors affecting
securities markets, including interest rates. Compared to the purchase
or sale of futures contracts, the purchase of call or put options on
futures contracts involves less potential risk to the fund because the
maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a
loss to the fund when the purchase or sale of a futures contract would
not, such as when there is no movement in the prices of the hedged
investments. The writing of an option on a futures contract involves
risks similar to those risks relating to the sale of futures contracts.
The use of options and futures strategies also involves the risk of
imperfect correlation among movements in the prices of the securities
underlying the futures and options purchased and sold by the fund, of
the options and futures contracts themselves, and, in the case of
hedging transactions, of the securities which are the subject of a
hedge. The successful use of these strategies further depends on the
ability of Putnam Management to forecast interest rates and market
movements correctly.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain market
clearing facilities inadequate, and thereby result in the institution by
exchanges of special procedures which may interfere with the timely
execution of customer orders.
To reduce or eliminate a position held by the fund, the fund may seek to
close out such position. The ability to establish and close out
positions will be subject to the development and maintenance of a liquid
secondary market. It is not certain that this market will develop or
continue to exist for a particular futures contract or option. Reasons
for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain
contracts or options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of contracts or options, or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt
normal operations on an exchange; (v) the facilities of an exchange or a
clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue
the trading of contracts or options (or a particular class or series of
contracts or options), in which event the secondary market on that
exchange for such contracts or options (or in the class or series of
contracts or options) would cease to exist, although outstanding
contracts or options on the exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
U.S. Treasury security futures contracts and options. U.S. Treasury
security futures contracts require the seller to deliver, or the
purchaser to take delivery of, the type of U.S. Treasury security called
for in the contract at a specified date and price. Options on U.S.
Treasury security futures contracts give the purchaser the right in
return for the premium paid to assume a position in a U.S. Treasury
security futures contract at the specified option exercise price at any
time during the period of the option.
Successful use of U.S. Treasury security futures contracts by the fund
is subject to Putnam Management's ability to predict movements in the
direction of interest rates and other factors affecting markets for debt
securities. For example, if the fund has sold U.S. Treasury security
futures contracts in order to hedge against the possibility of an
increase in interest rates which would adversely affect securities held
in its portfolio, and the prices of the fund's securities increase
instead as a result of a decline in interest rates, the fund will lose
part or all of the benefit of the increased value of its securities
which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the fund has
insufficient cash, it may have to sell securities to meet daily
maintenance margin requirements at a time when it may be disadvantageous
to do so.
There is also a risk that price movements in U.S. Treasury security
futures contracts and related options will not correlate closely with
price movements in markets for particular securities. For example, if
the fund has hedged against a decline in the values of tax-exempt
securities held by it by selling Treasury security futures and the
values of Treasury securities subsequently increase while the values of
its tax-exempt securities decrease, the fund would incur losses on both
the Treasury security futures contracts written by it and the tax-exempt
securities held in its portfolio.
Index futures contracts. An index futures contract is a contract to buy
or sell units of an index at a specified future date at a price agreed
upon when the contract is made. Entering into a contract to buy units
of an index is commonly referred to as buying or purchasing a contract
or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or
holding a short position. A unit is the current value of the index.
The fund may enter into stock index futures contracts, debt index
futures contracts, or other index futures contracts appropriate to its
objective(s). The fund may also purchase and sell options on index
futures contracts.
For example, the Standard & Poor's 500 Composite Stock Price Index ("S&P
500") is composed of 500 selected common stocks, most of which are
listed on the New York Stock Exchange. The S&P 500 assigns relative
weightings to the common stocks included in the Index, and the value
fluctuates with changes in the market values of those common stocks. In
the case of the S&P 500, contracts are to buy or sell 500 units. Thus,
if the value of the S&P 500 were $150, one contract would be worth
$75,000 (500 units x $150). The stock index futures contract specifies
that no delivery of the actual stocks making up the index will take
place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the
contract price and the actual level of the stock index at the expiration
of the contract. For example, if the fund enters into a futures
contract to buy 500 units of the S&P 500 at a specified future date at a
contract price of $150 and the S&P 500 is at $154 on that future date,
the fund will gain $2,000 (500 units x gain of $4). If the fund enters
into a futures contract to sell 500 units of the stock index at a
specified future date at a contract price of $150 and the S&P 500 is at
$152 on that future date, the fund will lose $1,000 (500 units x loss of
$2).
There are several risks in connection with the use by the fund of index
futures. One risk arises because of the imperfect correlation between
movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. Putnam Management
will, however, attempt to reduce this risk by buying or selling, to the
extent possible, futures on indices the movements of which will, in its
judgment, have a significant correlation with movements in the prices of
the securities sought to be hedged.
Successful use of index futures by the fund is also subject to Putnam
Management's ability to predict movements in the direction of the
market. For example, it is possible that, where the fund has sold
futures to hedge its portfolio against a decline in the market, the
index on which the futures are written may advance and the value of
securities held in the fund's portfolio may decline. If this occurred,
the fund would lose money on the futures and also experience a decline
in value in its portfolio securities. It is also possible that, if the
fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities
prices increase instead, the fund will lose part or all of the benefit
of the increased value of those securities it has hedged because it will
have offsetting losses in its futures positions. In addition, in such
situations, if the fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements at a time when it
is disadvantageous to do so.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the index
futures and the portion of the portfolio being hedged, the prices of
index futures may not correlate perfectly with movements in the
underlying index due to certain market distortions. First, all
participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures
market are less onerous than margin requirements in the securities
market, and as a result the futures market may attract more speculators
than the securities market does. Increased participation by speculators
in the futures market may also cause temporary price distortions. Due
to the possibility of price distortions in the futures market and also
because of the imperfect correlation between movements in the index and
movements in the prices of index futures, even a correct forecast of
general market trends by Putnam Management may still not result in a
profitable position over a short time period.
Options on stock index futures. Options on index futures are similar to
options on securities except that options on index futures give the
purchaser the right, in return for the premium paid, to assume a
position in an index futures contract (a long position if the option is
a call and a short position if the option is a put) at a specified
exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin
account which represents the amount by which the market price of the
index futures contract, at exercise, exceeds (in the case of a call) or
is less than (in the case of a put) the exercise price of the option on
the index future. If an option is exercised on the last trading day
prior to its expiration date, the settlement will be made entirely in
cash equal to the difference between the exercise price of the option
and the closing level of the index on which the future is based on the
expiration date. Purchasers of options who fail to exercise their
options prior to the exercise date suffer a loss of the premium paid.
Options on Indices
As an alternative to purchasing call and put options on index futures,
the fund may purchase and sell call and put options on the underlying
indices themselves. Such options would be used in a manner identical to
the use of options on index futures.
Index Warrants
The fund may purchase put warrants and call warrants whose values vary
depending on the change in the value of one or more specified securities
indices ("index warrants"). Index warrants are generally issued by
banks or other financial institutions and give the holder the right, at
any time during the term of the warrant, to receive upon exercise of the
warrant a cash payment from the issuer based on the value of the
underlying index at the time of exercise. In general, if the value of
the underlying index rises above the exercise price of the index
warrant, the holder of a call warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference between
the value of the index and the exercise price of the warrant; if the
value of the underlying index falls, the holder of a put warrant will be
entitled to receive a cash payment from the issuer upon exercise based
on the difference between the exercise price of the warrant and the
value of the index. The holder of a warrant would not be entitled to
any payments from the issuer at any time when, in the case of a call
warrant, the exercise price is greater than the value of the underlying
index, or, in the case of a put warrant, the exercise price is less than
the value of the underlying index. If the fund were not to exercise an
index warrant prior to its expiration, then the fund would lose the
amount of the purchase price paid by it for the warrant.
The fund will normally use index warrants in a manner similar to its use
of options on securities indices. The risks of the fund's use of index
warrants are generally similar to those relating to its use of index
options. Unlike most index options, however, index warrants are issued
in limited amounts and are not obligations of a regulated clearing
agency, but are backed only by the credit of the bank or other
institution which issues the warrant. Also, index warrants generally
have longer terms than index options. Although the fund will normally
invest only in exchange-listed warrants, index warrants are not likely
to be as liquid as certain index options backed by a recognized clearing
agency. In addition, the terms of index warrants may limit the fund's
ability to exercise the warrants at such time, or in such quantities, as
the fund would otherwise wish to do.
Short-term Trading
In seeking the fund's objective(s), Putnam Management will buy or sell
portfolio securities whenever Putnam Management believes it appropriate
to do so. From time to time the fund will buy securities intending to
seek short-term trading profits. A change in the securities held by the
fund is known as "portfolio turnover" and generally involves some
expense to the fund. This expense may include brokerage commissions or
dealer markups and other transaction costs on both the sale of
securities and the reinvestment of the proceeds in other securities. If
sales of portfolio securities cause the fund to realize net short-term
capital gains, such gains will be taxable as ordinary income. As a
result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than that of
other mutual funds. Portfolio turnover rate for a fiscal year is the
ratio of the lesser of purchases or sales of portfolio securities to the
monthly average of the value of portfolio securities -- excluding
securities whose maturities at acquisition were one year or less. The
fund's portfolio turnover rate is not a limiting factor when Putnam
Management considers a change in the fund's portfolio.
Securities Loans
The fund may make secured loans of its portfolio securities, on either a
short-term or long-term basis, amounting to not more than 25% of its
total assets, thereby realizing additional income. The risks in lending
portfolio securities, as with other extensions of credit, consist of
possible delay in recovery of the securities or possible loss of rights
in the collateral should the borrower fail financially. As a matter of
policy, securities loans are made to broker-dealers pursuant to
agreements requiring that the loans be continuously secured by
collateral consisting of cash or short-term debt obligations at least
equal at all times to the value of the securities on loan,
"marked-to-market" daily. The borrower pays to the fund an amount equal
to any dividends or interest received on securities lent. The fund
retains all or a portion of the interest received on investment of the
cash collateral or receives a fee from the borrower. Although voting
rights, or rights to consent, with respect to the loaned securities may
pass to the borrower, the fund retains the right to call the loans at
any time on reasonable notice, and it will do so to enable the fund to
exercise voting rights on any matters materially affecting the
investment. The fund may also call such loans in order to sell the
securities.
Repurchase Agreements
The fund, unless it is a money market fund, may enter into repurchase
agreements, amounting to not more than 25% of its total assets. Money
market funds may invest without limit in repurchase agreements. A
repurchase agreement is a contract under which the fund acquires a
security for a relatively short period (usually not more than one week)
subject to the obligation of the seller to repurchase and the fund to
resell such security at a fixed time and price (representing the fund's
cost plus interest). It is the fund's present intention to enter into
repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the U.S.
government or its agencies or instrumentalities. Repurchase agreements
may also be viewed as loans made by the fund which are collateralized by
the securities subject to repurchase. Putnam Management will monitor
such transactions to ensure that the value of the underlying securities
will be at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. If the seller
defaults, the fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of the sale including accrued
interest are less than the resale price provided in the agreement
including interest. In addition, if the seller should be involved in
bankruptcy or insolvency proceedings, the fund may incur delay and costs
in selling the underlying security or may suffer a loss of principal and
interest if the fund is treated as an unsecured creditor and required to
return the underlying collateral to the seller's estate.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the fund may transfer uninvested cash balances into a joint
account, along with cash of other Putnam funds and certain other
accounts. These balances may be invested in one or more repurchase
agreements and/or short-term money market instruments.
Forward Commitments
The fund may enter into contracts to purchase securities for a fixed
price at a future date beyond customary settlement time ("forward
commitments") if the fund sets aside, on the books and records of its
custodian, liquid assets in an amount sufficient to meet the purchase
price, or if the fund enters into offsetting contracts for the forward
sale of other securities it owns. In the case of to-be-announced
("TBA") purchase commitments, the unit price and the estimated principal
amount are established when the fund enters into a contract, with the
actual principal amount being within a specified range of the estimate.
Forward commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the
risk of decline in the value of the fund's other assets. Where such
purchases are made through dealers, the fund relies on the dealer to
consummate the sale. The dealer's failure to do so may result in the
loss to the fund of an advantageous yield or price. Although the fund
will generally enter into forward commitments with the intention of
acquiring securities for its portfolio or for delivery pursuant to
options contracts it has entered into, the fund may dispose of a
commitment prior to settlement if Putnam Management deems it appropriate
to do so. The fund may realize short-term profits or losses upon the
sale of forward commitments.
The fund may enter into TBA sale commitments to hedge its portfolio
positions or to sell securities it owns under delayed delivery
arrangements. Proceeds of TBA sale commitments are not received until
the contractual settlement date. During the time a TBA sale commitment
is outstanding, equivalent deliverable securities, or an offsetting TBA
purchase commitment deliverable on or before the sale commitment date,
are held as "cover" for the transaction. Unsettled TBA sale commitments
are valued at current market value of the underlying securities. If the
TBA sale commitment is closed through the acquisition of an offsetting
purchase commitment, the fund realizes a gain or loss on the commitment
without regard to any unrealized gain or loss on the underlying
security. If the fund delivers securities under the commitment, the
fund realizes a gain or loss from the sale of the securities based upon
the unit price established at the date the commitment was entered into.
Swap Agreements
The fund may enter into swap agreements and other types of
over-the-counter transactions with broker-dealers or other financial
institutions. Depending on their structures, swap agreements may
increase or decrease the fund's exposure to long-or short-term interest
rates (in the United States or abroad), foreign currency values,
mortgage securities, corporate borrowing rates, or other factors such as
security prices or inflation rates. The value of the fund's swap
positions would increase or decrease depending on the changes in value
of the underlying rates, currency values, or other indices or measures.
The fund's ability to engage in certain swap transactions may be limited
by tax considerations.
The fund's ability to realize a profit from such transactions will
depend on the ability of the financial institutions with which it enters
into the transactions to meet their obligations to the fund. Under
certain circumstances, suitable transactions may not be available to the
fund, or the fund may be unable to close out its position under such
transactions at the same time, or at the same price, as if it had
purchased comparable publicly traded securities.
Derivatives
Certain of the instruments in which the fund may invest, such as futures
contracts, options and forward contracts, are considered to be
"derivatives." Derivatives are financial instruments whose value
depends upon, or is derived from, the value of an underlying asset, such
as a security or an index. Further information about these instruments
and the risks involved in their use is included elsewhere in the
prospectus or in this SAI. The fund's use of derivatives may cause the
fund to recognize higher amounts of short-term capital gains, generally
taxed to shareholders at ordinary income tax rates.
TAXES
Taxation of the fund. The fund intends to qualify each year as a
regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). In order to qualify for the
special tax treatment accorded regulated investment companies and their
shareholders, the fund must, among other things:
(a) derive at least 90% of its gross income from dividends, interest,
payments with respect to certain securities loans, and gains from the
sale of stock, securities and foreign currencies, or other income
(including but not limited to gains from options, futures, or forward
contracts) derived with respect to its business of investing in such
stock, securities, or currencies;
(b) distribute with respect to each taxable year at least 90% of the sum
of its taxable net investment income, its net tax-exempt income, and the
excess, if any, of net short-term capital gains over net long-term
capital losses for such year; and
(c) diversify its holdings so that, at the end of each fiscal quarter,
(i) at least 50% of the market value of the fund's assets is represented
by cash and cash items, U.S. government securities, securities of other
regulated investment companies, and other securities limited in respect
of any one issuer to a value not greater than 5% of the value of the
fund's total assets and to not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of
its assets is invested in the securities (other than those of the U.S.
Government or other regulated investment companies) of any one issuer or
of two or more issuers which the fund controls and which are engaged in
the same, similar, or related trades or businesses.
If the fund qualifies as a regulated investment company that is accorded
special tax treatment, the fund will not be subject to federal income
tax on income paid to its shareholders in the form of dividends
(including capital gain dividends).
If the fund failed to qualify as a regulated investment company accorded
special tax treatment in any taxable year, the fund would be subject to
tax on its taxable income at corporate rates, and all distributions from
earnings and profits, including any distributions of net tax-exempt
income and net long-term capital gains, would be taxable to shareholders
as ordinary income. In addition, the fund could be required to
recognize unrealized gains, pay substantial taxes and interest and make
substantial distributions before requalifying as a regulated investment
company that is accorded special tax treatment.
If the fund fails to distribute in a calendar year substantially all of
its ordinary income for such year and substantially all of its capital
gain net income for the one-year period ending October 31 (or later if
the fund is permitted so to elect and so elects), plus any retained
amount from the prior year, the fund will be subject to a 4% excise tax
on the undistributed amounts. A dividend paid to shareholders by the
fund in January of a year generally is deemed to have been paid by the
fund on December 31 of the preceding year, if the dividend was declared
and payable to shareholders of record on a date in October, November or
December of that preceding year. The fund intends generally to make
distributions sufficient to avoid imposition of the 4% excise tax.
Fund distributions. Distributions from the fund (other than
exempt-interest dividends, as discussed below) will be taxable to
shareholders as ordinary income to the extent derived from the fund's
investment income and net short-term gains. Distributions of net capital
gains (that is, the excess of net gains from capital assets held more
than one year over net losses from capital assets held for not more than
one year) will be taxable to shareholders as such, regardless of how
long a shareholder has held the shares in the fund.
Exempt-interest dividends. The fund will be qualified to pay
exempt-interest dividends to its shareholders only if, at the close of
each quarter of the fund's taxable year, at least 50% of the total value
of the fund's assets consists of obligations the interest on which is
exempt from federal income tax. Distributions that the fund properly
designates as exempt-interest dividends are treated as interest
excludable from shareholders' gross income for federal income tax
purposes but may be taxable for federal alternative minimum tax purposes
and for state and local purposes. If the fund intends to be qualified
to pay exempt-interest dividends, the fund may be limited in its ability
to enter into taxable transactions involving forward commitments,
repurchase agreements, financial futures and options contracts on
financial futures, tax-exempt bond indices and other assets.
Part or all of the interest on indebtedness, if any, incurred or
continued by a shareholder to purchase or carry shares of the fund
paying exempt-interest dividends is not deductible. The portion of
interest that is not deductible is equal to the total interest paid or
accrued on the indebtedness, multiplied by the percentage of the fund's
total distributions (not including distributions from net long-term
capital gains) paid to the shareholder that are exempt-interest
dividends. Under rules used by the Internal Revenue Service to
determine when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares may be
considered to have been made with borrowed funds even though such funds
are not directly traceable to the purchase of shares.
In general, exempt-interest dividends, if any, attributable to interest
received on certain private activity obligations and certain industrial
development bonds will not be tax-exempt to any shareholders who are
"substantial users" of the facilities financed by such obligations or
bonds or who are "related persons" of such substantial users.
The fund which is qualified to pay exempt-interest dividends will inform
investors within 60 days of the fund's fiscal year-end of the percentage
of its income distributions designated as tax-exempt. The percentage is
applied uniformly to all distributions made during the year. The
percentage of income designated as tax-exempt for any particular
distribution may be substantially different from the percentage of the
fund's income that was tax-exempt during the period covered by the
distribution.
Hedging transactions. If the fund engages in hedging transactions,
including hedging transactions in options, futures contracts, and
straddles, or other similar transactions, it will be subject to special
tax rules (including constructive sale, mark-to-market, straddle, wash
sale, and short sale rules), the effect of which may be to accelerate
income to the fund, defer losses to the fund, cause adjustments in the
holding periods of the fund's securities, convert long-term capital
gains into short-term capital gains or convert short-term capital losses
into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders. The fund
will endeavor to make any available elections pertaining to such
transactions in a manner believed to be in the best interests of the
fund.
Certain of the fund's hedging activities (including its transactions, if
any, in foreign currencies or foreign currency-denominated instruments)
are likely to produce a difference between its book income and its
taxable income. If the fund's book income exceeds its taxable income,
the distribution (if any) of such excess will be treated as (i) a
dividend to the extent of the fund's remaining earnings and profits
(including earnings and profits arising from tax-exempt income), (ii)
thereafter as a return of capital to the extent of the recipient's basis
in the shares, and (iii) thereafter as gain from the sale or exchange of
a capital asset. If the fund's book income is less than its taxable
income, the fund could be required to make distributions exceeding book
income to qualify as a regulated investment company that is accorded
special tax treatment.
Return of capital distributions. If the fund makes a distribution to
you in excess of its current and accumulated "earnings and profits" in
any taxable year, the excess distribution will be treated as a return of
capital to the extent of your tax basis in your shares, and thereafter
as capital gain. A return of capital is not taxable, but it reduces
your tax basis in your shares, thus reducing any loss or increasing any
gain on a subsequent taxable disposition by you of your shares.
Dividends and distributions on the fund's shares are generally subject
to federal income tax as described herein to the extent they do not
exceed the fund's realized income and gains, even though such dividends
and distributions may economically represent a return of a particular
shareholder's investment. Such distributions are likely to occur in
respect of shares purchased at a time when the fund's net asset value
reflects gains that are either unrealized, or realized but not
distributed.
Securities issued or purchased at a discount. The fund's investment in
securities issued at a discount and certain other obligations will (and
investments in securities purchased at a discount may) require the fund
to accrue and distribute income not yet received. In order to generate
sufficient cash to make the requisite distributions, the fund may be
required to sell securities in its portfolio that it otherwise would
have continued to hold.
Capital loss carryover. Distributions from capital gains are generally
made after applying any available capital loss carryovers. The amounts
and expiration dates of any capital loss carryovers available to the
fund are shown in Note 1 (Federal income taxes) to the financial
statements included in Part I of this SAI or incorporated by reference
into this SAI.
Foreign currency-denominated securities and related hedging
transactions. The fund's transactions in foreign currencies, foreign
currency-denominated debt securities and certain foreign currency
options, futures contracts and forward contracts (and similar
instruments) may give rise to ordinary income or loss to the extent such
income or loss results from fluctuations in the value of the foreign
currency concerned.
If more than 50% of the fund's assets at year end consists of the
securities of foreign corporations, the fund may elect to permit
shareholders to claim a credit or deduction on their income tax returns
for their pro rata portion of qualified taxes paid by the fund to
foreign countries in respect of foreign securities the fund has held for
at least the minimum period specified in the Code. In such a case,
shareholders will include in gross income from foreign sources their pro
rata shares of such taxes. A shareholder's ability to claim a foreign
tax credit or deduction in respect of foreign taxes paid by the fund may
be subject to certain limitations imposed by the Code, as a result of
which a shareholder may not get a full credit or deduction for the
amount of such taxes. In particular, shareholders must hold their fund
shares (without protection from risk of loss) on the ex-dividend date
and for at least 15 additional days during the 30-day period surrounding
the ex-dividend date to be eligible to claim a foreign tax credit with
respect to a given dividend. Shareholders who do not itemize on their
federal income tax returns may claim a credit (but no deduction) for
such foreign taxes.
Investment by the fund in "passive foreign investment companies" could
subject the fund to a U.S. federal income tax or other charge on the
proceeds from the sale of its investment in such a company; however,
this tax can be avoided by making an election to mark such investments
to market annually or to treat the passive foreign investment company as
a "qualified electing fund."
A "passive foreign investment company" is any foreign corporation: (i)
75 percent or more of the income of which for the taxable year is
passive income, or (ii) the average percentage of the assets of which
(generally by value, but by adjusted tax basis in certain cases) that
produce or are held for the production of passive income is at least 50
percent. Generally, passive income for this purpose means dividends,
interest (including income equivalent to interest), royalties, rents,
annuities, the excess of gains over losses from certain property
transactions and commodities transactions, and foreign currency gains.
Passive income for this purpose does not include rents and royalties
received by the foreign corporation from active business and certain
income received from related persons.
Sale or redemption of shares. The sale, exchange or redemption of fund
shares may give rise to a gain or loss. In general, any gain or loss
realized upon a taxable disposition of shares will be treated as
long-term capital gain or loss if the shares have been held for more
than 12 months. Otherwise the gain or loss on the sale, exchange or
redemption of fund shares will be treated as short-term capital gain or
loss. However, if a shareholder sells shares at a loss within six months
of purchase, any loss will be disallowed for Federal income tax purposes
to the extent of any exempt-interest dividends received on such shares.
In addition, any loss (not already disallowed as provided in the
preceding sentence) realized upon a taxable disposition of shares held
for six months or less will be treated as long-term, rather than
short-term, to the extent of any long-term capital gain distributions
received by the shareholder with respect to the shares. All or a
portion of any loss realized upon a taxable disposition of fund shares
will be disallowed if other shares of the same fund are purchased within
30 days before or after the disposition. In such a case, the basis of
the newly purchased shares will be adjusted to reflect the disallowed
loss.
Shares purchased through tax-qualified plans. Special tax rules apply
to investments though defined contribution plans and other tax-qualified
plans. Shareholders should consult their tax adviser to determine the
suitability of shares of a fund as an investment through such plans and
the precise effect of an investment on their particular tax situation.
Backup withholding. The fund generally is required to withhold and
remit to the U.S. Treasury 31% of the taxable dividends and other
distributions paid to any individual shareholder who fails to furnish
the fund with a correct taxpayer identification number (TIN), who has
under-reported dividends or interest income, or who fails to certify to
the fund that he or she is not subject to such withholding.
The Internal Revenue Service recently revised its regulations affecting
the application to foreign investors of the back-up withholding and
withholding tax rules described above. The new regulations will
generally be effective for payments made after December 31, 2000
(although transition rules will apply). In some circumstances, the new
rules will increase the certification and filing requirements imposed on
foreign investors in order to qualify for exemption from the 31% back-up
withholding tax rates under income tax treaties. Foreign investors in a
fund should consult their tax advisers with respect to the potential
application of these new regulations.
MANAGEMENT
Trustees Name (Age)
John A. Hill (58), Chairman and Trustee. Chairman and Managing
Director, First Reserve Corporation (a registered investment adviser
investing in companies in the world-wide energy industry on behalf of
institutional investors). Director of Snyder Oil Corporation,
TransMontaigne Oil Company and various private companies owned by First
Reserve Corporation, and Member of the Board of Advisors of Fund
Directors.
Jameson A. Baxter (56), Trustee. President, Baxter Associates, Inc. (a
management consulting and private investments firm). Director of ASHTA
Chemicals, Inc., Banta Corporation (printing and digital imaging), and
Ryerson Tull, Inc. (America's largest steel service corporation).
Chairman Emeritus of the Board of Trustees, Mount Holyoke College.
+Hans H. Estin (72), Trustee. Chartered Financial Analyst and Vice
Chairman, North American Management Corp. (a registered investment
adviser).
Ronald J. Jackson (56), Trustee. Former Chairman, President and Chief
Executive Officer of Fisher-Price, Inc. (a major toy manufacturer).
*Paul L. Joskow (53), Trustee. Professor of Economics and Management
and Director of the Center for Energy and Environmental Policy Research,
Massachusetts Institute of Technology. Director, New England Electric
System (a public utility holding company), State Farm Indemnity Company
(an automobile insurance company) and the Whitehead Institute for
Biomedical Research (a non-profit research institution). President of
the Yale University Council.
Elizabeth T. Kennan (62), Trustee. President Emeritus and Professor,
Mount Holyoke College. Director, Bell Atlantic (a telecommunications
company), Northeast Utilities, Talbots (a distributor of women's
apparel) and Cambus-Kenneth Bloodstock (a limited liability company
involved in thoroughbred horse breeding and farming).
*Lawrence J. Lasser (57), Trustee and Vice President. President, Chief
Executive Officer and Director of Putnam Investments, Inc. and Putnam
Investment Management, Inc. Director of Marsh & McLennan Companies,
Inc. and the United Way of Massachusetts Bay.
John H. Mullin, III (59), Trustee. Chairman and CEO of Ridgeway Farm.
Director of ACX Technologies, Inc. (a company engaged in the manufacture
of industrial ceramics and packaging products), Alex. Brown Realty,
Inc., The Liberty Corporation (a company engaged in the life insurance
and broadcasting industries) and Carolina Power & Light (a utility
company).
+Robert E. Patterson (55), Trustee. President and Trustee of Cabot
Industrial Trust (a publicly traded real estate investment trust).
Director of Brandywine Trust Company.
*George Putnam III (49), President, Principal Executive Officer and
Trustee. President, New Generation Research, Inc. (a publisher of
financial advisory and other research services relating to bankrupt and
distressed companies) and New Generation Advisers, Inc. (a registered
investment adviser). Director of The Boston Family Office, L.L.C. (a
registered investment advisor).
*A.J.C. Smith (66), Trustee. Director of Marsh & McLennan Companies,
Inc. and Trident Corp. (a limited partnership with over 30 institutional
investors).
W. Thomas Stephens (58), Trustee. President and Chief Executive Officer
of MacMillan Bloedel Ltd. (a major forest products company). Director,
Qwest Communications, New Century Energies (a public utility company),
Trans Canada Pipeliners and Fletcher Challenger Canada.
W. Nicholas Thorndike (67), Trustee. Director of various corporations
and charitable organizations, including Courier Corporation (a book
manufacturer), Bradley Real Estate, Inc. and Providence Journal Co.
Trustee of Cabot Industrial Trust (a publicly traded real estate
investment trust), Eastern Utilities Associates and Northeastern
University.
Officers Name (Age)
Charles E. Porter (62), Executive Vice President. Managing Director of
Putnam Investments, Inc. and Putnam Management.
Patricia C. Flaherty (53), Vice President. Senior Vice President of
Putnam Investments, Inc. and Putnam Management.
Gordon H. Silver (53), Vice President. Director and Senior Managing
Director of Putnam Investments, Inc. and Putnam Management.
Brett C. Browchuk (37), Vice President. Managing Director of Putnam
Management.
Ian C. Ferguson (43), Vice President. Senior Managing Director of
Putnam Investments, Inc. and Putnam Management.
Richard A. Monaghan (46), Vice President. Managing Director of Putnam
Investments, Inc., Putnam Management and Putnam Retail Management.
Richard G. Leibovitch (36), Vice President. Managing Director of Putnam
Management. Prior to February 1999, Mr. Leibovitch was a Managing
Director at J.P. Morgan.
John R. Verani (61), Vice President. Senior Vice President of Putnam
Investments, Inc. and Putnam Management.
John D. Hughes (65), Senior Vice President and Treasurer.
*Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management or Putnam Retail Management.
Messrs. Putnam, III, Lasser and Smith are deemed "interested persons" by
virtue of their positions as officers or shareholders of the fund, or
directors of Putnam Management, Putnam Retail Management, or Marsh &
McLennan Companies, Inc., the parent company of Putnam Management and
Putnam Retail Management.
Mr. Joskow is not currently an "interested person" of the fund but could
be deemed by the Securities and Exchange Commission to be an "interested
person" on account of his prior consulting relationship with National
Economic Research Associates, Inc., a wholly-owned subsidiary of Marsh &
McLennan Companies, Inc., which was terminated as of August 31, 1998.
The balance of the Trustees are not "interested persons."
+Members of the Executive Committee of the Trustees. The Executive
Committee meets between regular meetings of the Trustees as may be
required to review investment matters and other affairs of the fund and
may exercise all of the powers of the Trustees.
---------------------
Certain other officers of Putnam Management are officers of the fund.
See "Additional officers" in Part I of this SAI. The mailing address of
each of the officers and Trustees is One Post Office Square, Boston,
Massachusetts 02109.
Except as stated below, the principal occupations of the officers and
Trustees for the last five years have been with the employers as shown
above, although in some cases they have held different positions with
such employers. Prior to May 2000 and November 1999, Mr. Smith was
Chairman and CEO, respectively, of Marsh & McLennan Companies, Inc.
Prior to September 1998, Mr. Joskow was a consultant to National
Economic Research Associates. Prior to 1996, Mr. Stephens was Chairman
of the Board of Directors, President and Chief Executive Officer of
Johns Manville Corporation. Prior to April 1996, Mr. Ferguson was CEO
at Hong Kong Shanghai Banking Corporation. Prior to February 1998, Mr.
Patterson was Executive Vice President and Director of Acquisitions of
Cabot Partners Limited Partnership. Prior to November 1998, Mr.
Monaghan was Managing Director at Merrill Lynch.
Each Trustee of the fund receives an annual fee and an additional fee
for each Trustees' meeting attended. Trustees who are not interested
persons of Putnam Management and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings and
for special services rendered in that connection. All of the Trustees
are Trustees of all the Putnam funds and each receives fees for his or
her services. For details of Trustees' fees paid by the fund and
information concerning retirement guidelines for the Trustees, see
"Charges and expenses" in Part I of this SAI.
The Agreement and Declaration of Trust of the fund provides that the
fund will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be
involved because of their offices with the fund, except if it is
determined in the manner specified in the Agreement and Declaration of
Trust that they have not acted in good faith in the reasonable belief
that their actions were in the best interests of the fund or that such
indemnification would relieve any officer or Trustee of any liability to
the fund or its shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of his or her duties. The
fund, at its expense, provides liability insurance for the benefit of
its Trustees and officers.
Putnam Management and its affiliates
Putnam Management is one of America's oldest and largest money
management firms. Putnam Management's staff of experienced portfolio
managers and research analysts selects securities and constantly
supervises the fund's portfolio. By pooling an investor's money with
that of other investors, a greater variety of securities can be
purchased than would be the case individually; the resulting
diversification helps reduce investment risk. Putnam Management has
been managing mutual funds since 1937. As of December 31, 1999, the
firm serves as the investment manager for the funds in the Putnam
Family, with over $289 billion in assets in nearly 12 million
shareholder accounts. An affiliate, The Putnam Advisory Company, Inc.,
manages domestic and foreign institutional accounts and mutual funds,
including the accounts of many Fortune 500 companies. Another
affiliate, Putnam Fiduciary Trust Company, provides investment advice to
institutional clients under its banking and fiduciary powers. At
December 31, 1999, Putnam Management and its affiliates managed $391
billion in assets, including nearly $17 billion in tax-exempt securities
and over $99 billion in retirement plan assets.
Putnam Management, Putnam Retail Management and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., a holding company
which in turn is, except for a minority stake owned by employees, owned
by Marsh & McLennan Companies, Inc., a publicly-owned holding company
whose principal businesses are international insurance and reinsurance
brokerage, employee benefit consulting and investment management.
Trustees and officers of the fund who are also officers of Putnam
Management or its affiliates or who are stockholders of Marsh & McLennan
Companies, Inc. will benefit from the advisory fees, sales commissions,
distribution fees, custodian fees and transfer agency fees paid or
allowed by the fund.
The Management Contract
Under a Management Contract between the fund and Putnam Management,
subject to such policies as the Trustees may determine, Putnam
Management, at its expense, furnishes continuously an investment program
for the fund and makes investment decisions on behalf of the fund.
Subject to the control of the Trustees, Putnam Management also manages,
supervises and conducts the other affairs and business of the fund,
furnishes office space and equipment, provides bookkeeping and clerical
services (including determination of the fund's net asset value, but
excluding shareholder accounting services) and places all orders for the
purchase and sale of the fund's portfolio securities. Putnam Management
may place fund portfolio transactions with broker-dealers that furnish
Putnam Management, without cost to it, certain research, statistical and
quotation services of value to Putnam Management and its affiliates in
advising the fund and other clients. In so doing, Putnam Management may
cause the fund to pay greater brokerage commissions than it might
otherwise pay.
For details of Putnam Management's compensation under the Management
Contract, see "Charges and expenses" in Part I of this SAI. Putnam
Management's compensation under the Management Contract may be reduced
in any year if the fund's expenses exceed the limits on investment
company expenses imposed by any statute or regulatory authority of any
jurisdiction in which shares of the fund are qualified for offer or
sale. The term "expenses" is defined in the statutes or regulations of
such jurisdictions, and generally excludes brokerage commissions, taxes,
interest, extraordinary expenses and, if the fund has a distribution
plan, payments made under such plan.
Under the Management Contract, Putnam Management may reduce its
compensation to the extent that the fund's expenses exceed such lower
expense limitation as Putnam Management may, by notice to the fund,
declare to be effective. The expenses subject to this limitation are
exclusive of brokerage commissions, interest, taxes, deferred
organizational and extraordinary expenses and, if the fund has a
distribution plan, payments required under such plan. For the purpose
of determining any such limitation on Putnam Management's compensation,
expenses of the fund shall not reflect the application of commissions or
cash management credits that may reduce designated fund expenses. The
terms of any expense limitation from time to time in effect are
described in the prospectus and/or Part I of this SAI.
In addition to the fee paid to Putnam Management, the fund reimburses
Putnam Management for the compensation and related expenses of certain
officers of the fund and their assistants who provide certain
administrative services for the fund and the other Putnam funds, each of
which bears an allocated share of the foregoing costs. The aggregate
amount of all such payments and reimbursements is determined annually by
the Trustees.
The amount of this reimbursement for the fund's most recent fiscal year
is included in "Charges and Expenses" in Part I of this SAI. Putnam
Management pays all other salaries of officers of the fund. The fund
pays all expenses not assumed by Putnam Management including, without
limitation, auditing, legal, custodial, investor servicing and
shareholder reporting expenses. The fund pays the cost of typesetting
for its prospectuses and the cost of printing and mailing any
prospectuses sent to its shareholders. Putnam Retail Management pays
the cost of printing and distributing all other prospectuses.
The Management Contract provides that Putnam Management shall not be
subject to any liability to the fund or to any shareholder of the fund
for any act or omission in the course of or connected with rendering
services to the fund in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties on the part of
Putnam Management.
The Management Contract may be terminated without penalty by vote of the
Trustees or the shareholders of the fund, or by Putnam Management, on 30
days' written notice. It may be amended only by a vote of the
shareholders of the fund. The Management Contract also terminates
without payment of any penalty in the event of its assignment. The
Management Contract provides that it will continue in effect only so
long as such continuance is approved at least annually by vote of either
the Trustees or the shareholders, and, in either case, by a majority of
the Trustees who are not "interested persons" of Putnam Management or
the fund. In each of the foregoing cases, the vote of the shareholders
is the affirmative vote of a "majority of the outstanding voting
securities" as defined in the Investment Company Act of 1940.
Portfolio Transactions
Investment decisions. Investment decisions for the fund and for the
other investment advisory clients of Putnam Management and its
affiliates are made with a view to achieving their respective investment
objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved. Thus,
a particular security may be bought or sold for certain clients even
though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling the security. In
some instances, one client may sell a particular security to another
client. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security, in which event each
day's transactions in such security are, insofar as possible, averaged
as to price and allocated between such clients in a manner which in
Putnam Management's opinion is equitable to each and in accordance with
the amount being purchased or sold by each. There may be circumstances
when purchases or sales of portfolio securities for one or more clients
will have an adverse effect on other clients.
Brokerage and research services. Transactions on U.S. stock exchanges,
commodities markets and futures markets and other agency transactions
involve the payment by the fund of negotiated brokerage commissions.
Such commissions vary among different brokers. A particular broker may
charge different commissions according to such factors as the difficulty
and size of the transaction. Transactions in foreign investments often
involve the payment of fixed brokerage commissions, which may be higher
than those in the United States. There is generally no stated
commission in the case of securities traded in the over-the-counter
markets, but the price paid by the fund usually includes an undisclosed
dealer commission or mark-up. In underwritten offerings, the price paid
by the fund includes a disclosed, fixed commission or discount retained
by the underwriter or dealer. It is anticipated that most purchases and
sales of securities by funds investing primarily in tax-exempt
securities and certain other fixed-income securities will be with the
issuer or with underwriters of or dealers in those securities, acting as
principal. Accordingly, those funds would not ordinarily pay
significant brokerage commissions with respect to securities
transactions. See "Charges and expenses" in Part I of this SAI for
information concerning commissions paid by the fund.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional
investors to receive brokerage and research services (as defined in the
Securities Exchange Act of 1934, as amended (the "1934 Act")) from
broker-dealers that execute portfolio transactions for the clients of
such advisers and from third parties with which such broker-dealers have
arrangements. Consistent with this practice, Putnam Management receives
brokerage and research services and other similar services from many
broker-dealers with which Putnam Management places the fund's portfolio
transactions and from third parties with which these broker-dealers have
arrangements. These services include such matters as economic analysis,
investment research and database services, industry and company reviews,
evaluations of investments, recommendations as to the purchase and sale
of investments, performance measurement services, subscriptions, pricing
services, quotation services, news services and computer equipment
(investment-related hardware and software) utilized by Putnam
Management's managers and analysts. Where the services referred to
above are used by Putnam Management not exclusively for research
purposes, Putnam Management, based upon its own allocations of expected
use, bears that portion of the cost of these services which directly
relates to their non-research use. Some of these services are of value
to Putnam Management and its affiliates in advising various of their
clients (including the fund), although not all of these services are
necessarily useful and of value in managing the fund. The management
fee paid by the fund is not reduced because Putnam Management and its
affiliates receive these services even though Putnam Management might
otherwise be required to purchase some of these services for cash.
Putnam Management places all orders for the purchase and sale of
portfolio investments for the fund and buys and sells investments for
the fund through a substantial number of brokers and dealers. In so
doing, Putnam Management uses its best efforts to obtain for the fund
the most favorable price and execution available, except to the extent
it may be permitted to pay higher brokerage commissions as described
below. In seeking the most favorable price and execution, Putnam
Management, having in mind the fund's best interests, considers all
factors it deems relevant, including, by way of illustration, price, the
size of the transaction, the nature of the market for the security or
other investment, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker-dealer
involved and the quality of service rendered by the broker-dealer in
other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the Management
Contract, Putnam Management may cause the fund to pay a broker-dealer
which provides "brokerage and research services" (as defined in the 1934
Act) to Putnam Management an amount of disclosed commission for
effecting securities transactions on stock exchanges and other
transactions for the fund on an agency basis in excess of the commission
which another broker-dealer would have charged for effecting that
transaction. Putnam Management's authority to cause the fund to pay any
such greater commissions is subject to such policies as the Trustees may
adopt from time to time. Putnam Management does not currently intend to
cause the fund to make such payments. It is the position of the staff of
the Securities and Exchange Commission that Section 28(e) does not apply
to the payment of such greater commissions in "principal" transactions.
Accordingly Putnam Management will use its best effort to obtain the
most favorable price and execution available with respect to such
transactions, as described above.
The Management Contract provides that commissions, fees, brokerage or
similar payments received by Putnam Management or an affiliate in
connection with the purchase and sale of portfolio investments of the
fund, less any direct expenses approved by the Trustees, shall be
recaptured by the fund through a reduction of the fee payable by the
fund under the Management Contract. Putnam Management seeks to
recapture for the fund soliciting dealer fees on the tender of the
fund's portfolio securities in tender or exchange offers. Any such fees
which may be recaptured are likely to be minor in amount.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. and subject to seeking the most favorable price
and execution available and such other policies as the Trustees may
determine, Putnam Management may consider sales of shares of the fund
(and, if permitted by law, of the other Putnam funds) as a factor in the
selection of broker-dealers to execute portfolio transactions for the
fund.
Principal Underwriter
Putnam Retail Management is the principal underwriter of shares of the
fund and the other continuously offered Putnam funds. Putnam Retail
Management is not obligated to sell any specific amount of shares of the
fund and will purchase shares for resale only against orders for shares.
See "Charges and expenses" in Part I of this SAI for information on
sales charges and other payments received by Putnam Retail Management.
Personal Investments by Employees of Putnam Management and Putnam Retail
Management and Officers and Trustees of the Fund
Employees of Putnam Management and Putnam Retail Management and officers
and Trustees of the fund are subject to significant restrictions on
engaging in personal securities transactions. These restrictions are set
forth in the Codes of Ethics adopted by Putnam Management and Putnam
Retail Management (The Putnam Investments' Code of Ethics) and by the
fund (the Putnam Funds' Code of Ethics). The Putnam Investments' Code of
Ethics and the Putnam Funds' Code of Ethics, in accordance with Rule
17j-1 of the Investment Company Act of 1940, as amended, contain
provisions and requirements designed to identify and address certain
conflicts of interest between personal investment activities and the
interests of the fund.
The Putnam Investments' Code of Ethics does not prohibit personnel from
investing in securities that may be purchased or held by the fund.
However, the Putnam Investments' Code, consistent with standards
recommended by the Investment Company Institute's Advisory Group on
Personal Investing and requirements established by Rule 17j-1, among
other things, prohibits personal securities investments without
pre-clearance, imposes time periods during which personal transactions
may not be made in certain securities by employees with access to
investment information, and requires the timely submission of broker
confirmations and quarterly reporting of personal securities
transactions. Additional restrictions apply to portfolio managers,
traders, research analysts and others involved in the investment
advisory process.
The Putnam Funds' Code of Ethics incorporates and applies the
restrictions of Putnam Investments' Code of Ethics to officers and
Trustees of the fund who are affiliated with Putnam Investments. The
Putnam Funds' Code does not prohibit unaffiliated officers and Trustees
from investing in securities that may be held by the fund; however, the
Putnam Funds' Code regulates the personal securities transactions of
unaffiliated Trustees of the fund, including limiting the time periods
during which they may personally buy and sell certain securities and
requiring them to submit quarterly reports of personal securities
transactions.
The fund's Trustees, in compliance with Rule 17j-1, approved Putnam
Investments' and the Putnam Funds' Codes of Ethics and are required to
approve any material changes to these Codes. The Trustees also provide
continued oversight of personal investment policies and annually
evaluate the implementation and effectiveness of the Codes of Ethics.
Investor Servicing Agent and Custodian
Putnam Investor Services, a division of Putnam Fiduciary Trust Company
("PFTC"), is the fund's investor servicing agent (transfer, plan and
dividend disbursing agent), for which it receives fees that are paid
monthly by the fund as an expense of all its shareholders. The fee paid
to Putnam Investor Services is determined on the basis of the number of
shareholder accounts, the number of transactions and the assets of the
fund. Putnam Investor Services has won the DALBAR Service Award eight
times in the past nine years. In 1997 and 1998, Putnam was the only
company to win all three DALBAR Awards: for service to investors, to
financial advisors, and to variable annuity contract holders. DALBAR,
Inc. an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
PFTC is the custodian of the fund's assets. In carrying out its duties
under its custodian contract, PFTC may employ one or more subcustodians
whose responsibilities include safeguarding and controlling the fund's
cash and securities, handling the receipt and delivery of securities and
collecting interest and dividends on the fund's investments. PFTC and
any subcustodians employed by it have a lien on the securities of the
fund (to the extent permitted by the fund's investment restrictions) to
secure charges and any advances made by such subcustodians at the end of
any day for the purpose of paying for securities purchased by the fund.
The fund expects that such advances will exist only in unusual
circumstances. Neither PFTC nor any subcustodian determines the
investment policies of the fund or decides which securities the fund
will buy or sell. PFTC pays the fees and other charges of any
subcustodians employed by it. The fund may from time to time pay
custodial expenses in full or in part through the placement by Putnam
Management of the fund's portfolio transactions with the subcustodians
or with a third-party broker having an agreement with the subcustodians.
The fund pays PFTC an annual fee based on the fund's assets, securities
transactions and securities holdings and reimburses PFTC for certain
out-of-pocket expenses incurred by it or any subcustodian employed by it
in performing custodial services.
See "Charges and expenses" in Part I of this SAI for information on fees
and reimbursements for investor servicing and custody received by PFTC.
The fees may be reduced by credits allowed by PFTC.
DETERMINATION OF NET ASSET VALUE
The fund determines the net asset value per share of each class of
shares once each day the New York Stock Exchange (the "Exchange") is
open. Currently, the Exchange is closed Saturdays, Sundays and the
following holidays: New Year's Day, Rev. Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July,
Labor Day, Thanksgiving and Christmas. The fund determines net asset
value as of the close of regular trading on the Exchange, currently 4:00
p.m. However, equity options held by the fund are priced as of the
close of trading at 4:10 p.m., and futures contracts on U.S. government
and other fixed-income securities and index options held by the fund are
priced as of their close of trading at 4:15 p.m.
Securities for which market quotations are readily available are valued
at prices which, in the opinion of Putnam Management, most nearly
represent the market values of such securities. Currently, such prices
are determined using the last reported sale price or, if no sales are
reported (as in the case of some securities traded over-the-counter),
the last reported bid price, except that certain securities are valued
at the mean between the last reported bid and asked prices. Short-term
investments having remaining maturities of 60 days or less are valued at
amortized cost, which approximates market value. All other securities
and assets are valued at their fair value following procedures approved
by the Trustees. Liabilities are deducted from the total, and the
resulting amount is divided by the number of shares of the class
outstanding.
Reliable market quotations are not considered to be readily available
for long-term corporate bonds and notes, certain preferred stocks,
tax-exempt securities, and certain foreign securities. These
investments are valued at fair value on the basis of valuations
furnished by pricing services, which determine valuations for normal,
institutional-size trading units of such securities using methods based
on market transactions for comparable securities and various
relationships between securities which are generally recognized by
institutional traders.
If any securities held by the fund are restricted as to resale, Putnam
Management determines their fair value following procedures approved by
the Trustees. The fair value of such securities is generally determined
as the amount which the fund could reasonably expect to realize from an
orderly disposition of such securities over a reasonable period of time.
The valuation procedures applied in any specific instance are likely to
vary from case to case. However, consideration is generally given to
the financial position of the issuer and other fundamental analytical
data relating to the investment and to the nature of the restrictions on
disposition of the securities (including any registration expenses that
might be borne by the fund in connection with such disposition). In
addition, specific factors are also generally considered, such as the
cost of the investment, the market value of any unrestricted securities
of the same class, the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any available
analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of
the Exchange. The values of these securities used in determining the
net asset value of the fund's shares are computed in their local
currencies as of such times. Currency exchange rates are normally
determined at the close of trading in London, England (11:00 a.m., New
York time). Also, because of the amount of time required to collect and
process trading information as to large numbers of securities issues,
the values of certain securities (such as convertible bonds, U.S.
government securities and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest practicable
time prior to the close of the Exchange. Occasionally, events affecting
the value of such securities may occur between the time of the
determination of value and the close of the Exchange which will not be
reflected in the computation of the fund's net asset value. If events
materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value
following procedures approved by the Trustees. In addition, securities
held by some of the funds may be traded in foreign markets that are open
for business on days that the fund is not, and the trading of such
securities on those days may have an impact on the value of a
shareholder's investment at a time when the shareholder cannot buy and
sell shares of the fund.
Money market funds generally value their portfolio securities at
amortized cost according to Rule 2a-7 under the Investment Company Act
of 1940.
HOW TO BUY SHARES
Each prospectus describes briefly how investors may buy shares of the
fund and identifies the share classes offered by that prospectus.
Because of these different sales charges and expenses, the investment
performance of the classes will vary. For more information, including
your eligibility to purchase certain classes of shares, contact your
investment dealer or Putnam Retail Management (at 1-800-225-1581).This
section of the SAI contains more information on how to buy shares and
the features of all share classes offered by Putnam funds. These
features include the sales charges and contingent deferred sales charges
(CDSCs) payable by investors, the conditions under which those charges
may be reduced, and the sales charges, commissions and other amounts
payable by Putnam Retail Management to investment dealers. As set forth
under the following sub-headings of this section, some features apply to
all classes, while others apply only to certain classes:
* General Information describes how to buy shares, identifies the
classes, describes ways of reducing sales charges that apply to all
classes and describes certain payments to investment dealers.
* Additional Information about Class A and Class M Shares describes the
allocation of initial sales charges between Putnam Retail Management and
investment dealers, ways of reducing those sales charges, the CDSC
payable by purchasers of $1 million or more of class A shares and the
commissions on those purchases payable by Putnam Retail Management to
investment dealers.
* Additional Information about Class B and Class C Shares describes the
commissions payable by Putnam Retail Management to investment dealers.
General Information
The fund is currently making a continuous offering of its shares. The
fund receives the entire net asset value of shares sold. The fund will
accept unconditional orders for shares to be executed at the public
offering price based on the net asset value per share next determined
after the order is placed. In the case of class A shares and class M
shares, the public offering price is the net asset value plus the
applicable sales charge, if any. No sales charge is included in the
public offering price of other classes of shares. In the case of orders
for purchase of shares placed through dealers, the public offering price
will be based on the net asset value determined on the day the order is
placed, but only if the dealer receives the order before the close of
regular trading on the Exchange. If the dealer receives the order after
the close of the Exchange, the price will be based on the net asset
value next determined. If funds for the purchase of shares are sent
directly to Putnam Investor Services, they will be invested at the
public offering price based on the net asset value next determined after
receipt. Payment for shares of the fund must be in U.S. dollars; if
made by check, the check must be drawn on a U.S. bank.
Initial and subsequent purchases must satisfy the minimums stated in the
prospectus, except that (i) individual investments under certain
employee benefit plans or Tax Qualified Retirement Plans may be lower,
(ii) persons who are already shareholders may make additional purchases
of $50 or more by sending funds directly to Putnam Investor Services
(see "Your investing account" below), and (iii) for investors
participating in systematic investment plans and military allotment
plans, the initial and subsequent purchases must be $25 or more.
Information about these plans is available from investment dealers or
from Putnam Retail Management.
As a convenience to investors, shares may be purchased through a
systematic investment plan. Pre-authorized monthly bank drafts for a
fixed amount (at least $25) are used to purchase fund shares at the
applicable public offering price next determined after Putnam Retail
Management receives the proceeds from the draft. A shareholder may
choose any day of the month and, if a given month (for example,
February) does not contain that particular date, or if the date falls on
a weekend or holiday, the draft will be processed on the next business
day. Further information and application forms are available from
investment dealers or from Putnam Retail Management.
Except for funds that declare a distribution daily, distributions to be
reinvested are reinvested without a sales charge in shares of the same
class as of the ex-dividend date using the net asset value determined on
that date, and are credited to a shareholder's account on the payment
date. Dividends for Putnam money market funds are credited to a
shareholder's account on the payment date. Distributions for all other
funds that declare a distribution daily are reinvested without a sales
charge as of the last day of the period for which distributions are paid
using the net asset value determined on that date, and are credited to a
shareholder's account on the payment date.
Payment in securities. In addition to cash, the fund may accept
securities as payment for fund shares at the applicable net asset value.
Generally, the fund will only consider accepting securities to increase
its holdings in a portfolio security, or if Putnam Management determines
that the offered securities are a suitable investment for the fund and
in a sufficient amount for efficient management.
While no minimum has been established, it is expected that the fund
would not accept securities with a value of less than $100,000 per issue
as payment for shares. The fund may reject in whole or in part any or
all offers to pay for purchases of fund shares with securities, may
require partial payment in cash for such purchases to provide funds for
applicable sales charges, and may discontinue accepting securities as
payment for fund shares at any time without notice. The fund will value
accepted securities in the manner described in the section
"Determination of Net Asset Value" for valuing shares of the fund. The
fund will only accept securities which are delivered in proper form.
The fund will not accept options or restricted securities as payment for
shares. The acceptance of securities by certain funds in exchange for
fund shares is subject to additional requirements. For federal income
tax purposes, a purchase of fund shares with securities will be treated
as a sale or exchange of such securities on which the investor will
generally realize a taxable gain or loss. The processing of a purchase
of fund shares with securities involves certain delays while the fund
considers the suitability of such securities and while other
requirements are satisfied. For information regarding procedures for
payment in securities, contact Putnam Retail Management. Investors
should not send securities to the fund except when authorized to do so
and in accordance with specific instructions received from Putnam Retail
Management.
Class A shares and class M shares are generally sold with a sales charge
payable at the time of purchase (except for class A shares and class M
shares of money market funds). As used in this SAI and unless the
context requires otherwise, the term "class A shares" includes shares of
funds that offer only one class of shares. The prospectus contains a
table of applicable sales charges.
Class B shares and class C shares are sold subject to a CDSC payable
upon redemption within a specified period after purchase. The
prospectus contains a table of applicable CDSCs.
Class B shares will automatically convert into class A shares no later
than the end of the month eight years after the purchase date, and may,
in the discretion of the Trustees, convert to class A shares earlier.
Class B shares acquired by exchanging class B shares of another Putnam
fund will convert into class A shares based on the time of the initial
purchase. Class B shares acquired through reinvestment of distributions
will convert into Class A shares based on the date of the initial
purchase to which such shares relate. For this purpose, class B shares
acquired through reinvestment of distributions will be attributed to
particular purchases of class B shares in accordance with such
procedures as the Trustees may determine from time to time. The
conversion of class B shares to class A shares is subject to the
condition that such conversions will not constitute taxable events for
Federal tax purposes.
Class Y shares, which are not subject to sales charges or a CDSC, are
available only to certain defined contribution plans and college savings
plans. See the prospectus that offers class Y shares for more
information.
Sales without sales charges or contingent deferred sales charges. The
fund may sell shares without a sales charge or CDSC to:
(i) current and retired Trustees of the fund; officers of the fund;
directors and current and retired U.S. full-time employees of Putnam
Management, Putnam Retail Management, their parent corporations and
certain corporate affiliates; family members of and employee benefit
plans for the foregoing; and partnerships, trusts or other entities in
which any of the foregoing has a substantial interest;
(ii) employer-sponsored retirement plans, for the repurchase of shares
in connection with repayment of plan loans made to plan participants (if
the sum loaned was obtained by redeeming shares of a Putnam fund sold
with a sales charge) (not offered by tax-exempt funds);
(iii) clients of administrators of tax-qualified employer-sponsored
retirement plans which have entered into agreements with Putnam Retail
Management (not offered by tax-exempt funds);
(iv) registered representatives and other employees of broker-dealers
having sales agreements with Putnam Retail Management; employees of
financial institutions having sales agreements with Putnam Retail
Management or otherwise having an arrangement with any such
broker-dealer or financial institution with respect to sales of fund
shares; and their spouses and children under age 21 (Putnam Retail
Management is regarded as the dealer of record for all such accounts);
(v) investors meeting certain requirements who sold shares of certain
Putnam closed-end funds pursuant to a tender offer by such closed-end
fund;
(vi) a trust department of any financial institution purchasing shares
of the fund in its capacity as trustee of any trust (other than a
tax-qualified retirement plan trust), through an arrangement approved by
Putnam Retail Management, if the value of the shares of the fund and
other Putnam funds purchased or held by all such trusts exceeds $1
million in the aggregate; and
(vii) "wrap accounts" maintained for clients of broker-dealers,
financial institutions or financial intermediaries who have entered into
agreements with Putnam Retail Management with respect to such accounts,
which in all cases shall be subject to a wrap fee economically
comparable to a sales charge. Fund shares offered pursuant to this
waiver may not be advertised as "no load," or otherwise offered for sale
at NAV without a wrap fee.
The fund may issue its shares at net asset value without an initial
sales charge or a CDSC in connection with the acquisition of
substantially all of the securities owned by other investment companies
or personal holding companies. The CDSC will be waived on redemptions
to pay premiums for insurance under Putnam's insured investor program.
Investors who set up an Systematic Withdrawal Plan ("SWP") for a share
account (see "Plans available to shareholders -- Systematic Withdrawal
Plan") may withdraw through the SWP up to 12% of the net asset value of
the account (calculated as set forth below) each year without incurring
any CDSC. Shares not subject to a CDSC (such as shares representing
reinvestment of distributions) will be redeemed first and will count
toward the 12% limitation. If there are insufficient shares not subject
to a CDSC, shares subject to the lowest CDSC liability will be redeemed
next until the 12% limit is reached. The 12% figure is calculated on a
pro rata basis at the time of the first payment made pursuant to an SWP
and recalculated thereafter on a pro rata basis at the time of each SWP
payment. Therefore, shareholders who have chosen an SWP based on a
percentage of the net asset value of their account of up to 12% will be
able to receive SWP payments without incurring a CDSC. However,
shareholders who have chosen a specific dollar amount (for example, $100
per month from the fund that pays income distributions monthly) for
their periodic SWP payment should be aware that the amount of that
payment not subject to a CDSC may vary over time depending on the net
asset value of their account. For example, if the net asset value of
the account is $10,000 at the time of payment, the shareholder will
receive $100 free of the CDSC (12% of $10,000 divided by 12 monthly
payments). However, if at the time of the next payment the net asset
value of the account has fallen to $9,400, the shareholder will receive
$94 free of any CDSC (12% of $9,400 divided by 12 monthly payments) and
$6 subject to the lowest applicable CDSC. This SWP privilege may be
revised or terminated at any time.
No CDSC is imposed on the redemption of shares of any class subject to a
CDSC to the extent that the shares redeemed (i) are no longer subject to
the holding period therefor, (ii) resulted from reinvestment of
distributions, or (iii) were exchanged for shares of another Putnam
fund, provided that the shares acquired in such exchange or subsequent
exchanges (including shares of a Putnam money market fund) will continue
to remain subject to the CDSC, if applicable, until the applicable
holding period expires. In determining whether the CDSC applies to each
redemption, shares not subject to a CDSC are redeemed first.
The fund will waive any CDSC on redemptions, in the case of individual,
joint or Uniform Transfers to Minors Act accounts, in the event of death
or post-purchase disability of a shareholder, for the purpose of paying
benefits pursuant to tax-qualified retirement plans ("Benefit
Payments"), or, in the case of living trust accounts, in the event of
the death or post-purchase disability of the settlor of the trust.
Benefit Payments currently include, without limitation, (1)
distributions from an IRA due to death or disability, (2) a return of
excess contributions to an IRA or 401(k) plan, and (3) distributions
from retirement plans qualified under Section 401(a) of the Code or from
a 403(b) plan due to death, disability, retirement or separation from
service. These waivers may be changed at any time. Additional waivers
may apply to IRA accounts opened prior to February 1, 1994.
Payments to dealers. Putnam Retail Management may, at its expense, pay
concessions in addition to the payments disclosed in the prospectus to
dealers that satisfy certain criteria established from time to time by
Putnam Retail Management relating to increasing net sales of shares of
the Putnam funds over prior periods, and certain other factors.
Additional Information About Class A and Class M Shares
The underwriter's commission is the sales charge shown in the prospectus
less any applicable dealer discount. Putnam Retail Management will give
dealers ten days' notice of any changes in the dealer discount. Putnam
Retail Management retains the entire sales charge on any retail sales
made by it.
Putnam Retail Management offers several plans by which an investor may
obtain reduced sales charges on purchases of class A shares and class M
shares. The variations in sales charges reflect the varying efforts
required to sell shares to separate categories of purchasers. These
plans may be altered or discontinued at any time.
The public offering price of class A and class M shares is the net asset
value plus a sales charge that varies depending on the size of your
purchase. The fund receives the net asset value. The sales charge is
allocated between your investment dealer and Putnam Retail Management as
shown in the following table, except when Putnam Retail Management, in
its discretion, allocates the entire amount to your investment dealer.
<TABLE>
<CAPTION>
For Growth Funds, Growth and Income Funds and Asset Allocation Funds
only:
CLASS A CLASS M
Amount of Amount of
Sales charge sales charge Sales charge sales charge
as a reallowed to as a reallowed to
percentage dealers as a percentage dealers as a
Amount of transaction of offering percentage of of offering percentage of
at offering price ($) price offering price price offering price
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Under 50,000 5.75% 5.00% 3.50% 3.00%
50,000 but under 100,000 4.50 3.75 2.50 2.00
100,000 but under 250,000 3.50 2.75 1.50 1.00
250,000 but under 500,000 2.50 2.00 1.00 1.00
500,000 but under 1,000,000 2.00 1.75 NONE NONE
1,000,000 and above NONE NONE NONE NONE
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For Income Funds only (except for Putnam Intermediate U.S. Government
Income Fund and Putnam Preferred Income Fund):
CLASS A CLASS M
Amount of Amount of
Sales charge sales charge Sales charge sales charge
as a reallowed to as a reallowed to
percentage dealers as a percentage dealers as a
Amount of transaction of offering percentage of of offering percentage of
at offering price ($) price offering price price offering price
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Under 50,000 4.75% 4.25% 3.25% 3.00%
50,000 but under 100,000 4.50 4.00 2.25 2.00
100,000 but under 250,000 3.50 3.00 1.50 1.25
250,000 but under 500,000 2.50 2.25 1.00 1.00
500,000 but under 1,000,000 2.00 1.75 NONE NONE
1,000,000 and above NONE NONE NONE NONE
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For Putnam Intermediate U.S. Government Income Fund and Putnam Preferred
Income Fund only:
CLASS A CLASS M
Amount of Amount of
Sales charge sales charge Sales charge sales charge
as a reallowed to as a reallowed to
percentage dealers as a percentage dealers as a
Amount of transaction of offering percentage of of offering percentage of
at offering price ($) price offering price price offering price
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Under 100,000 3.25% 3.00% 2.00% 1.80%
100,000 but under 250,000 2.50 2.25 1.50 1.30
250,000 but under 500,000 2.00 1.75 1.00 1.00
500,000 but under 1,000,000 1.50 1.25 NONE NONE
1,000,000 and above NONE NONE NONE NONE
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For Tax Free Funds only:
CLASS A CLASS M
Amount of Amount of
Sales charge sales charge Sales charge sales charge
as a reallowed to as a reallowed to
percentage dealers as a percentage dealers as a
Amount of transaction of offering percentage of of offering percentage of
at offering price ($) price offering price price offering price
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Under 25,000 4.75% 4.50% 3.25% 3.00%
25,000 but under 50,000 4.50 4.25 3.25 3.00
50,000 but under 100,000 4.50 4.25 2.25 2.00
100,000 but under 250,000 3.75 3.50 1.50 1.25
250,000 but under 500,000 3.00 2.75 1.00 1.00
500,000 but under 1,000,000 2.00 1.85 NONE NONE
1,000,000 and above NONE NONE NONE NONE
---------------------------------------------------------------------------------------
</TABLE>
Combined purchase privilege. The following persons may qualify for the
sales charge reductions or eliminations shown in the prospectus by
combining into a single transaction the purchase of class A shares or
class M shares with other purchases of any class of shares:
(i) an individual, or a "company" as defined in Section 2(a)(8) of the
Investment Company Act of 1940 (which includes corporations which are
corporate affiliates of each other);
(ii) an individual, his or her spouse and their children under
twenty-one, purchasing for his, her or their own account;
(iii) a trustee or other fiduciary purchasing for a single trust estate
or single fiduciary account (including a pension, profit-sharing, or
other employee benefit trust created pursuant to a plan qualified under
Section 401 of the Internal Revenue Code of 1986, as amended (the
"Code"));
(iv) tax-exempt organizations qualifying under Section 501(c)(3) of the
Internal Revenue Code (not including tax-exempt organizations qualifying
under Section 403(b)(7) (a "403(b) plan") of the Code; and
(v) employee benefit plans of a single employer or of affiliated
employers, other than 403(b) plans.
A combined purchase currently may also include shares of any class of
other continuously offered Putnam funds (other than money market funds)
purchased at the same time through a single investment dealer, if the
dealer places the order for such shares directly with Putnam Retail
Management.
Cumulative quantity discount (right of accumulation). A purchaser of
class A shares or class M shares may qualify for a cumulative quantity
discount by combining a current purchase (or combined purchases as
described above) with certain other shares of any class of Putnam funds
already owned. The applicable sales charge is based on the total of:
(i) the investor's current purchase; and
(ii) the maximum public offering price (at the close of business on the
previous day) of:
(a) all shares held by the investor in all of the Putnam funds (except
money market funds); and
(b) any shares of money market funds acquired by exchange from other
Putnam funds; and
(iii) the maximum public offering price of all shares described in
paragraph (ii) owned by another shareholder eligible to participate with
the investor in a "combined purchase" (see above).
To qualify for the combined purchase privilege or to obtain the
cumulative quantity discount on a purchase through an investment dealer,
when each purchase is made the investor or dealer must provide Putnam
Retail Management with sufficient information to verify that the
purchase qualifies for the privilege or discount. The shareholder must
furnish this information to Putnam Investor Services when making direct
cash investments.
Statement of Intention. Investors may also obtain the reduced sales
charges for class A shares or class M shares shown in the prospectus for
investments of a particular amount by means of a written Statement of
Intention, which expresses the investor's intention to invest that
amount (including certain "credits," as described below) within a period
of 13 months in shares of any class of the fund or any other
continuously offered Putnam fund (excluding money market funds). Each
purchase of class A shares or class M shares under a Statement of
Intention will be made at the public offering price applicable at the
time of such purchase to a single transaction of the total dollar amount
indicated in the Statement of Intention. A Statement of Intention may
include purchases of shares made not more than 90 days prior to the date
that an investor signs a Statement; however, the 13-month period during
which the Statement of Intention is in effect will begin on the date of
the earliest purchase to be included.
An investor may receive a credit toward the amount indicated in the
Statement of Intention equal to the maximum public offering price as of
the close of business on the previous day of all shares he or she owns
on the date of the Statement of Intention which are eligible for
purchase under a Statement of Intention (plus any shares of money market
funds acquired by exchange of such eligible shares). Investors do not
receive credit for shares purchased by the reinvestment of
distributions. Investors qualifying for the "combined purchase
privilege" (see above) may purchase shares under a single Statement of
Intention.
The Statement of Intention is not a binding obligation upon the investor
to purchase the full amount indicated. The minimum initial investment
under a Statement of Intention is 5% of such amount, and must be
invested immediately. Class A shares or class M shares purchased with
the first 5% of such amount will be held in escrow to secure payment of
the higher sales charge applicable to the shares actually purchased if
the full amount indicated is not purchased. When the full amount
indicated has been purchased, the escrow will be released. If an
investor desires to redeem escrowed shares before the full amount has
been purchased, the shares will be released from escrow only if the
investor pays the sales charge that, without regard to the Statement of
Intention, would apply to the total investment made to date.
To the extent that an investor purchases more than the dollar amount
indicated on the Statement of Intention and qualifies for a further
reduced sales charge, the sales charge will be adjusted for the entire
amount purchased at the end of the 13-month period, upon recovery from
the investor's dealer of its portion of the sales charge adjustment.
Once received from the dealer, which may take a period of time or may
never occur, the sales charge adjustment will be used to purchase
additional shares at the then current offering price applicable to the
actual amount of the aggregate purchases. These additional shares will
not be considered as part of the total investment for the purpose of
determining the applicable sales charge pursuant to the Statement of
Intention. No sales charge adjustment will be made unless and until the
investor's dealer returns any excess commissions previously received.
To the extent that an investor purchases less than the dollar amount
indicated on the Statement of Intention within the 13-month period, the
sales charge will be adjusted upward for the entire amount purchased at
the end of the 13-month period. This adjustment will be made by
redeeming shares from the account to cover the additional sales charge,
the proceeds of which will be paid to the investor's dealer and Putnam
Retail Management in accordance with the prospectus. If the account
exceeds an amount that would otherwise qualify for a reduced sales
charge, that reduced sales charge will be applied.
Statements of Intention are not available for certain employee benefit
plans.
Statement of Intention forms may be obtained from Putnam Retail
Management or from investment dealers. Interested investors should read
the Statement of Intention carefully.
Group purchases of class A and class M shares. Members of qualified
groups may purchase class A shares of the fund at a group sales charge
rate of 4.50% of the public offering price (4.71% of the net amount
invested). The dealer discount on such sales is 3.75% of the offering
price. Members of qualified groups may also purchase class M shares at
net asset value.
To receive the class A or class M group rate, group members must
purchase shares through a single investment dealer designated by the
group. The designated dealer must transmit each member's initial
purchase to Putnam Retail Management, together with payment and
completed application forms. After the initial purchase, a member may
send funds for the purchase of shares directly to Putnam Investor
Services. Purchases of shares are made at the public offering price
based on the net asset value next determined after Putnam Retail
Management or Putnam Investor Services receives payment for the shares.
The minimum investment requirements described above apply to purchases
by any group member. Only shares purchased under the class A group
discount are included in calculating the purchased amount for the
purposes of these requirements.
Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or association,
or other organized groups of persons (the members of which may include
other qualified groups) provided that: (i) the group has at least 25
members of which, with respect to the class A discount only, at least 10
members participate in the initial purchase; (ii) the group has been in
existence for at least six months; (iii) the group has some purpose in
addition to the purchase of investment company shares at a reduced sales
charge; (iv) the group's sole organizational nexus or connection is not
that the members are credit card holders of a company, policy holders of
an insurance company, customers of a bank or broker-dealer, clients of
an investment adviser or security holders of a company; (v) with respect
to the class A discount only, the group agrees to provide its designated
investment dealer access to the group's membership by means of written
communication or direct presentation to the membership at a meeting on
not less frequently than an annual basis; (vi) the group or its
investment dealer will provide annual certification in form satisfactory
to Putnam Investor Services that the group then has at least 25 members
and, with respect to the class A discount only, that at least ten
members participated in group purchases during the immediately preceding
12 calendar months; and (vii) the group or its investment dealer will
provide periodic certification in form satisfactory to Putnam Investor
Services as to the eligibility of the purchasing members of the group.
Members of a qualified group include: (i) any group which meets the
requirements stated above and which is a constituent member of a
qualified group; (ii) any individual purchasing for his or her own
account who is carried on the records of the group or on the records of
any constituent member of the group as being a good standing employee,
partner, member or person of like status of the group or constituent
member; or (iii) any fiduciary purchasing shares for the account of a
member of a qualified group or a member's beneficiary. For example, a
qualified group could consist of a trade association which would have as
its members individuals, sole proprietors, partnerships and
corporations. The members of the group would then consist of the
individuals, the sole proprietors and their employees, the members of
the partnerships and their employees, and the corporations and their
employees, as well as the trustees of employee benefit trusts acquiring
class A shares for the benefit of any of the foregoing.
A member of a qualified group may, depending upon the value of class A
shares of the fund owned or proposed to be purchased by the member, be
entitled to purchase class A shares of the fund at non-group sales
charge rates shown in the prospectus which may be lower than the group
sales charge rate, if the member qualifies as a person entitled to
reduced non-group sales charges. Such a group member will be entitled
to purchase at the lower rate if, at the time of purchase, the member or
his or her investment dealer furnishes sufficient information for Putnam
Retail Management or Putnam Investor Services to verify that the
purchase qualifies for the lower rate.
Interested groups should contact their investment dealer or Putnam
Retail Management. The fund reserves the right to revise the terms of
or to suspend or discontinue group sales at any time.
Purchases of $1 million or more of Class A shares. Purchases of class A
shares of $1 million or more are not subject to an initial sales charge,
but may be subject to a CDSC, as described below, unless the dealer of
record has, with Putnam Retail Management's approval, waived its
commission or agreed to refund its commission to Putnam Retail
Management if a CDSC would otherwise apply.
* For a class A qualified benefit plan (any employer-sponsored plan or
arrangement), a CDSC of 0.50% (0.75% for a plan with less than $5
million in Putnam funds and other investments managed by Putnam
Management or its affiliates) applies if the plan redeems 90% or more of
its cumulative purchases within two years of the plan's initial purchase
of class A shares.
* For any other purchaser, a CDSC of 1.00% or 0.50% applies to
redemptions within the first or second year, respectively, of purchase.
On sales at net asset value to a class A qualified benefit plan, Putnam
Retail Management pays commissions to the dealer of record at the time
of the sale on net monthly purchases up to the following rates: 1.00%
of the first $1 million, 0.75% of the next $1 million and 0.50%
thereafter.
On sales at net asset value to other investors, Putnam Retail Management
pays commissions on sales during the one-year period beginning with the
date of the initial purchase at net asset value. Each subsequent
one-year measuring period for these purposes begins with the first net
asset value purchase following the end of the prior period. These
commissions are paid at the rate of 1.00% of the amount under $3
million, 0.50% of the next $47 million and 0.25% thereafter.
Different CDSC and commission rates may apply to shares purchased prior
to April 15, 1997 and to shares purchased by investment-only plans prior
to August 1, 1999.
Additional Information About Class B and Class C Shares
Except as noted below, Putnam Retail Management will pay a 4% commission
on sales of class B shares of the fund only to those financial
intermediaries who have entered into service agreements with Putnam
Retail Management. For tax-exempt funds, this commission includes a
0.20% pre-paid service fee (except for Putnam Municipal Income Fund,
which has a 0.25% pre-paid service fee). For Putnam Intermediate U.S.
Government Income Fund, Putnam Retail Management will pay a 2.75%
commission to financial intermediaries selling class B shares of the
fund. Putnam Management pays financial intermediaries a 1% commission
on sales of class C shares of a fund. Class B and class C shares of the
Money Market Fund may only be purchased as part of an exchange from
class B or class C shares of another Putnam fund, or by opening a dollar
cost averaging account, as described in the Money Market Fund's
prospectus. Class B and class C share purchases for the Money Market
Fund are not subject to a separate CDSC, but a if a shareholder
exchanges class B or class C shares from another fund to the Money
Market Fund and then redeems the class B or class C shares of the Money
Market Fund, that redemption will be subject to the CDSC applicable to
the class B or class C shares of the other fund. Therefore no up-front
commission is paid on sales of class B or class C shares for the Money
Market Fund. Putnam Retail Management will retain any CDSC imposed on
redemptions of class B and class C shares to compensate it for the cost
of paying the up-front commissions paid to financial intermediaries for
class B or class C share sales.
DISTRIBUTION PLANS
If the fund or a class of shares of the fund has adopted a distribution
plan, the prospectus describes the principal features of the plan. This
SAI contains additional information which may be of interest to
investors.
Continuance of a plan is subject to annual approval by a vote of the
Trustees, including a majority of the Trustees who are not interested
persons of the fund and who have no direct or indirect interest in the
plan or related arrangements (the "Qualified Trustees"), cast in person
at a meeting called for that purpose. All material amendments to a plan
must be likewise approved by the Trustees and the Qualified Trustees.
No plan may be amended in order to increase materially the costs which
the fund may bear for distribution pursuant to such plan without also
being approved by a majority of the outstanding voting securities of the
fund or the relevant class of the fund, as the case may be. A plan
terminates automatically in the event of its assignment and may be
terminated without penalty, at any time, by a vote of a majority of the
Qualified Trustees or by a vote of a majority of the outstanding voting
securities of the fund or the relevant class of the fund, as the case
may be.
Putnam Retail Management compensates qualifying dealers (including, for
this purpose, certain financial institutions) for sales of shares and
the maintenance of shareholder accounts.
Putnam Retail Management may suspend or modify its payments to dealers.
The payments are also subject to the continuation of the relevant
distribution plan, the terms of the service agreements between the
dealers and Putnam Retail Management and any applicable limits imposed
by the National Association of Securities Dealers, Inc.
Financial institutions receiving payments from Putnam Retail Management
as described above may be required to comply with various state and
federal regulatory requirements, including among others those regulating
the activities of securities brokers or dealers.
Except as otherwise agreed between Putnam Retail Management and a
dealer, for purposes of determining the amounts payable to dealers for
shareholder accounts for which such dealers are designated as the dealer
of record, "average net asset value" means the product of (i) the
average daily share balance in such account(s) and (ii) the average
daily net asset value of the relevant class of shares over the quarter.
Class A shares:
Putnam Retail Management makes quarterly payments to dealers at the
annual rates set forth below (as a percentage of the average net asset
value of class A shares for which such dealers are designated the dealer
of record) except that payments to dealers for shares held by class A
qualified benefit plans may be made at other rates, as described below.
No payments are made during the first year after purchase on shares
purchased at net asset value by shareholders that invest at least $1
million or that are class A qualified benefit plans, unless the
shareholder has made arrangements with Putnam Retail Management and the
dealer of record has waived the sales commission.
<TABLE>
<CAPTION>
Rate Fund
---- -----
<S> <C>
0.25% All funds currently making payments under a
class A distribution plan, except for those
listed below
0.50% for shares purchased on Putnam Diversified Equity Trust
or before 7/1/95; 0.25% for
shares purchased after 7/1/95
0.20% Putnam Tax-Free High Yield Fund
Putnam Tax-Free Insured Fund
0.20% for shares purchased on Putnam Balanced Retirement Fund
or before 12/31/89; 0.25% for Putnam Convertible Income-Growth Trust
shares purchased after 12/31/89 The George Putnam Fund of Boston
Putnam Global Growth Fund
Putnam Global Natural Resources Fund
Putnam Health Sciences Trust
The Putnam Fund for Growth and Income
Putnam Investors Fund
Putnam Vista Fund
Putnam Voyager Fund
0.20% for shares purchased on Putnam High Yield Trust
or before 3/31/90; 0.25% for Putnam U.S. Government Income Trust
shares purchased after 3/31/90
0.20% for shares purchased on Putnam Income Fund
or before 3/31/91; 0.25% for
shares purchased after 3/31/91
0.20% for shares purchased on Putnam Municipal Income Fund
or before 5/7/92; 0.25% for
shares purchased after 5/7/92
0.15% for shares purchased on Putnam Michigan Tax Exempt Income Fund
or before 3/6/92; 0.20% for Putnam Minnesota Tax Exempt Income Fund
shares purchased after 3/6/92 Putnam Ohio Tax Exempt Income Fund
0.15% for shares purchased on Putnam Massachusetts Tax Exempt Income Fund
or before 5/11/92; 0.20% for
shares purchased after 5/11/92
0.15% for shares purchased on Putnam New York Tax Exempt Opportunities Fund
or before 7/12/92; 0.20% for
shares purchased after 7/12/92
0.15% for shares purchased on Putnam California Tax Exempt Income Fund
or before 12/31/92; 0.20% for Putnam New Jersey Tax Exempt Income Fund
shares purchased after 12/31/92 Putnam New York Tax Exempt Income Fund
Putnam Tax Exempt Income Fund
0.15% for shares purchased on Putnam Arizona Tax Exempt Income Fund
or before 3/5/93; 0.20% for
shares purchased after 3/5/93
0.15% for shares purchased on Putnam Florida Tax Exempt Income Fund
or before 7/8/93; 0.20% for Putnam Pennsylvania Tax Exempt Income Fund
shares purchased after 7/8/93
0.00% Putnam California Tax Exempt Money Market Fund
Putnam Money Market Fund
Putnam New York Tax Exempt Money Market Fund
Putnam Preferred Income Fund
Putnam Tax Exempt Money Market Fund
</TABLE>
Putnam Retail Management pays service fees to the dealer of record for
plans at the rate of up to 0.25% of average net assets, depending on the
level of service provided by Putnam Fiduciary Trust Company or its
affiliates, by the dealer of record, and by third parties. Service fees
are paid quarterly to the dealer of record for that quarter.
Class B shares:
Putnam Retail Management makes quarterly payments to dealers at the
annual rates set forth below (as a percentage of the average net asset
value of class B shares for which such dealers are designated the dealer
of record).
Rate Fund
---- -----
0.25% All funds currently making payments under a
class B distribution plan, except for those
listed below
0.25%, except that the first Putnam Municipal Income Fund
year's service fees of 0.25%
are prepaid at time of sale
0.25%, except that the first Putnam Arizona Tax Exempt Income Fund
year's service fees of 0.20% Putnam California Tax Exempt Income Fund
are prepaid at time of sale Putnam Florida Tax Exempt Income Fund
Putnam Massachusetts Tax Exempt Income Fund
Putnam Michigan Tax Exempt Income Fund
Putnam Minnesota Tax Exempt Income Fund
Putnam New Jersey Tax Exempt Income Fund
Putnam New York Tax Exempt Income Fund
Putnam New York Tax Exempt Opportunities Fund
Putnam Ohio Tax Exempt Income Fund
Putnam Pennsylvania Tax Exempt Income Fund
Putnam Tax Exempt Income Fund
0.20% for shares purchased on Putnam Tax-Free Insured Fund
or before 3/31/90; 0.25% for Putnam Tax-Free High Yield
shares purchased after 3/31/90;
first year's service fees are
prepaid at time of sale
0.00% Putnam Money Market Fund
Class C shares:
Putnam Retail Management makes quarterly payments to dealers at the
annual rates set forth below (as a percentage of the average net asset
value of class C shares for which such dealers are designated the dealer
of record).
Rate Fund
---- -----
1.00% All funds currently making payments under a
class C distribution plan, except the fund
listed below
0.50% Putnam Money Market Fund
Class M shares:
Putnam Retail Management makes quarterly payments to dealers at the
annual rates set forth below (as a percentage of the average net asset
value of class M shares for which such dealers are designated the dealer
of record).
Rate Fund
---- -----
0.65% All growth and growth and income funds
currently making payments under a class M
distribution plan
0.40% All income and money market funds currently
making payments under a class M distribution
plan (except for Putnam Preferred Income
Fund and Putnam Money Market Fund)
0.25% Putnam Preferred Income Fund
0.15% Putnam Money Market Fund
INVESTOR SERVICES
Shareholder Information
Each time shareholders buy or sell shares, they will receive a statement
confirming the transaction and listing their current share balance.
(Under certain investment plans, a statement may only be sent
quarterly.) Shareholders will receive a statement confirming
reinvestment of distributions in additional fund shares (or in shares of
other Putnam funds for Dividends Plus accounts) promptly following the
quarter in which the reinvestment occurs. To help shareholders take
full advantage of their Putnam investment, they will receive a Welcome
Kit and a periodic publication covering many topics of interest to
investors. The fund also sends annual and semiannual reports that keep
shareholders informed about its portfolio and performance, and year-end
tax information to simplify their recordkeeping. Easy-to-read, free
booklets on special subjects such as the Exchange Privilege and IRAs are
available from Putnam Investor Services. Shareholders may call Putnam
Investor Services toll-free weekdays at 1-800-225-1581 between 8:30 a.m.
and 8:00 p.m. Boston time for more information, including account
balances. Shareholders can also visit the Putnam web site at
http://www.putnaminvestments.com.
Your Investing Account
The following information provides more detail concerning the operation
of a Putnam Investing Account. For further information or assistance,
investors should consult Putnam Investor Services. Shareholders who
purchase shares through a defined contribution plan should note that not
all of the services or features described below may be available to
them, and they should contact their employer for details.
A shareholder may reinvest a cash distribution without a front-end sales
charge or without the reinvested shares being subject to a CDSC, as the
case may be, by delivering to Putnam Investor Services the uncashed
distribution check, endorsed to the order of the fund. Putnam Investor
Services must receive the properly endorsed check within 1 year after
the date of the check.
The Investing Account also provides a way to accumulate shares of the
fund. In most cases, after an initial investment of $500, a shareholder
may send checks to Putnam Investor Services for $50 or more, made
payable to the fund, to purchase additional shares at the applicable
public offering price next determined after Putnam Investor Services
receives the check. Checks must be drawn on a U.S. bank and must be
payable in U.S. dollars.
Putnam Investor Services acts as the shareholder's agent whenever it
receives instructions to carry out a transaction on the shareholder's
account. Upon receipt of instructions that shares are to be purchased
for a shareholder's account, shares will be purchased through the
investment dealer designated by the shareholder. Shareholders may
change investment dealers at any time by written notice to Putnam
Investor Services, provided the new dealer has a sales agreement with
Putnam Retail Management.
Shares credited to an account are transferable upon written instructions
in good order to Putnam Investor Services and may be sold to the fund as
described under "How do I sell fund shares?" in the prospectus. Money
market funds and certain other funds will not issue share certificates.
A shareholder may send to Putnam Investor Services any certificates
which have been previously issued for safekeeping at no charge to the
shareholder.
Putnam Retail Management, at its expense, may provide certain additional
reports and administrative material to qualifying institutional
investors with fiduciary responsibilities to assist these investors in
discharging their responsibilities. Institutions seeking further
information about this service should contact Putnam Retail Management,
which may modify or terminate this service at any time.
Putnam Investor Services may make special services available to
shareholders with investments exceeding $1,000,000. Contact Putnam
Investor Services for details.
The fund pays Putnam Investor Services' fees for maintaining Investing
Accounts.
Reinstatement Privilege
An investor who has redeemed shares of the fund may reinvest (within 1
year) the proceeds of such sale in shares of the same class of the fund,
or may be able to reinvest (within 1 year) the proceeds in shares of the
same class of one of the other continuously offered Putnam funds
(through the exchange privilege described in the prospectus), including,
in the case of shares subject to a CDSC, the amount of CDSC charged on
the redemption. Any such reinvestment would be at the net asset value
of the shares of the fund(s) the investor selects, next determined after
Putnam Retail Management receives a Reinstatement Authorization. The
time that the previous investment was held will be included in
determining any applicable CDSC due upon redemptions and, in the case of
class B shares, the eight-year period for conversion to class A shares.
Shareholders will receive from Putnam Retail Management the amount of
any CDSC paid at the time of redemption as part of the reinstated
investment, which may be treated as capital gains to the shareholder for
tax purposes. Exercise of the Reinstatement Privilege does not alter
the federal income tax treatment of any capital gains realized on a sale
of fund shares, but to the extent that any shares are sold at a loss and
the proceeds are reinvested in shares of the fund, some or all of the
loss may be disallowed as a deduction. Consult your tax adviser.
Investors who desire to exercise the Reinstatement Privilege should
contact their investment dealer or Putnam Investor Services.
Exchange Privilege
Except as otherwise set forth in this section, by calling Putnam
Investor Services, investors may exchange shares valued up to $500,000
between accounts with identical registrations, provided that no
certificates are outstanding for such shares and no address change has
been made within the preceding 15 days. During periods of unusual
market changes and shareholder activity, shareholders may experience
delays in contacting Putnam Investor Services by telephone to exercise
the telephone exchange privilege.
Putnam Investor Services also makes exchanges promptly after receiving a
properly completed Exchange Authorization Form and, if issued, share
certificates. If the shareholder is a corporation, partnership, agent,
or surviving joint owner, Putnam Investor Services will require
additional documentation of a customary nature. Because an exchange of
shares involves the redemption of fund shares and reinvestment of the
proceeds in shares of another Putnam fund, completion of an exchange may
be delayed under unusual circumstances if the fund were to suspend
redemptions or postpone payment for the fund shares being exchanged, in
accordance with federal securities laws. Exchange Authorization Forms
and prospectuses of the other Putnam funds are available from Putnam
Retail Management or investment dealers having sales contracts with
Putnam Retail Management. The prospectus of each fund describes its
investment objective(s) and policies, and shareholders should obtain a
prospectus and consider these objectives and policies carefully before
requesting an exchange. Shares of certain Putnam funds are not
available to residents of all states. The fund reserves the right to
change or suspend the exchange privilege at any time. Shareholders
would be notified of any change or suspension. Additional information
is available from Putnam Investor Services.
Shareholders of other Putnam funds may also exchange their shares at net
asset value for shares of the fund, as set forth in the current
prospectus of each fund.
For federal income tax purposes, an exchange is a sale on which the
investor generally will realize a capital gain or loss depending on
whether the net asset value at the time of the exchange is more or less
than the investor's basis. The exchange privilege may be revised or
terminated at any time. Shareholders would be notified of any such
change or suspension.
Dividends PLUS
Shareholders may invest the fund's distributions of net investment
income or distributions combining net investment income and short-term
capital gains in shares of the same class of another continuously
offered Putnam fund (the "receiving fund") using the net asset value per
share of the receiving fund determined on the date the fund's
distribution is payable. No sales charge or CDSC will apply to the
purchased shares unless the fund paying the distribution is a money
market fund. The prospectus of each fund describes its investment
objective(s) and policies, and shareholders should obtain a prospectus
and consider these objective(s) and policies carefully before investing
their distributions in the receiving fund. Shares of certain Putnam
funds are not available to residents of all states.
The minimum account size requirement for the receiving fund will not
apply if the current value of your account in the fund paying the
distribution is more than $5,000.
Shareholders of other Putnam funds (except for money market funds, whose
shareholders must pay a sales charge or become subject to a CDSC) may
also use their distributions to purchase shares of the fund at net asset
value.
For federal tax purposes, distributions from the fund which are
reinvested in another fund are treated as paid by the fund to the
shareholder and invested by the shareholder in the receiving fund and
thus, to the extent comprised of taxable income and deemed paid to a
taxable shareholder, are taxable.
The Dividends PLUS program may be revised or terminated at any time.
Plans Available To Shareholders
The plans described below are fully voluntary and may be terminated at
any time without the imposition by the fund or Putnam Investor Services
of any penalty. All plans provide for automatic reinvestment of all
distributions in additional shares of the fund at net asset value. The
fund, Putnam Retail Management or Putnam Investor Services may modify or
cease offering these plans at any time.
Systematic Withdrawal Plan ("SWP"). An investor who owns or buys shares
of the fund valued at $10,000 or more at the current public offering
price may open a SWP plan and have a designated sum of money ($50 or
more) paid monthly, quarterly, semi-annually or annually to the investor
or another person. (Payments from the fund can be combined with
payments from other Putnam funds into a single check through a
designated payment plan.) Shares are deposited in a plan account, and
all distributions are reinvested in additional shares of the fund at net
asset value (except where the plan is utilized in connection with a
charitable remainder trust). Shares in a plan account are then redeemed
at net asset value to make each withdrawal payment. Payment will be
made to any person the investor designates; however, if shares are
registered in the name of a trustee or other fiduciary, payment will be
made only to the fiduciary, except in the case of a profit-sharing or
pension plan where payment will be made to a designee. As withdrawal
payments may include a return of principal, they cannot be considered a
guaranteed annuity or actual yield of income to the investor. The
redemption of shares in connection with a plan generally will result in
a gain or loss for tax purposes. Some or all of the losses realized
upon redemption may be disallowed pursuant to the so-called wash sale
rules if shares of the same fund from which shares were redeemed are
purchased (including through the reinvestment of fund distributions)
within a period beginning 30 days before, and ending 30 days after, such
redemption. In such a case, the basis of the replacement shares will be
increased to reflect the disallowed loss. Continued withdrawals in
excess of income will reduce and possibly exhaust invested principal,
especially in the event of a market decline. The maintenance of a plan
concurrently with purchases of additional shares of the fund would be
disadvantageous to the investor because of the sales charge payable on
such purchases. For this reason, the minimum investment accepted while
a plan is in effect is $1,000, and an investor may not maintain a plan
for the accumulation of shares of the fund (other than through
reinvestment of distributions) and a plan at the same time. The cost of
administering these plans for the benefit of those shareholders
participating in them is borne by the fund as an expense of all
shareholders. The fund, Putnam Retail Management or Putnam Investor
Services may terminate or change the terms of the plan at any time. A
plan will be terminated if communications mailed to the shareholder are
returned as undeliverable.
Investors should consider carefully with their own financial advisers
whether the plan and the specified amounts to be withdrawn are
appropriate in their circumstances. The fund and Putnam Investor
Services make no recommendations or representations in this regard.
Tax Qualified Retirement Plans; 403(b) and SEP Plans. (Not offered by
funds investing primarily in tax-exempt securities.) Investors may
purchase shares of the fund through the following Tax Qualified
Retirement Plans, available to qualified individuals or organizations:
Standard and variable profit-sharing (including 401(k)) and money
purchase pension plans; and
Individual Retirement Account Plans (IRAs).
Each of these Plans has been qualified as a prototype plan by the
Internal Revenue Service. Putnam Investor Services will furnish
services under each plan at a specified annual cost. Putnam Fiduciary
Trust Company serves as trustee under each of these Plans.
Forms and further information on these Plans are available from
investment dealers or from Putnam Retail Management. In addition,
specialized professional plan administration services are available on
an optional basis; contact Putnam Defined Contribution Plan Services at
1-800-225-2465, extension 8600.
A 403(b) Retirement Plan is available for employees of public school
systems and organizations which meet the requirements of Section
501(c)(3) of the Internal Revenue Code. Forms and further information
on the 403(b) Plan are also available from investment dealers or from
Putnam Retail Management. Shares of the fund may also be used in
simplified employee pension (SEP) plans. For further information on the
Putnam prototype SEP plan, contact an investment dealer or Putnam Retail
Management.
Consultation with a competent financial and tax adviser regarding these
Plans and consideration of the suitability of fund shares as an
investment under the Employee Retirement Income Security Act of 1974, or
otherwise, is recommended.
SIGNATURE GUARANTEES
Requests to redeem shares having a net asset value of $100,000 or more,
or to transfer shares or make redemption proceeds payable to anyone
other than the registered account owners, must be signed by all
registered owners or their legal representatives and must be guaranteed
by a bank, broker/dealer, municipal securities dealer or broker, credit
union, national securities exchange, registered securities association,
clearing agency, savings association or trust company, provided such
institution is authorized and acceptable under and conforms with Putnam
Fiduciary Trust Company's signature guarantee procedures. A copy of
such procedures is available upon request. In certain situations, for
example, if you want your redemption proceeds sent to an address other
than your address as it appears on Putnam's records, you may also need
to provide a signature guarantee. Putnam Investor Services usually
requires additional documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or a surviving joint
owner. Contact Putnam Investor Services for more information on Putnam's
signature guarantee and documentation requirements.
SUSPENSION OF REDEMPTIONS
The fund may not suspend shareholders' right of redemption, or postpone
payment for more than seven days, unless the Exchange is closed for
other than customary weekends or holidays, or if permitted by the rules
of the Securities and Exchange Commission during periods when trading on
the Exchange is restricted or during any emergency which makes it
impracticable for the fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted
by order of the Commission for protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the
fund. However, the Agreement and Declaration of Trust disclaims
shareholder liability for acts or obligations of the fund and requires
that notice of such disclaimer be given in each agreement, obligation,
or instrument entered into or executed by the fund or the Trustees. The
Agreement and Declaration of Trust provides for indemnification out of
fund property for all loss and expense of any shareholder held
personally liable for the obligations of the fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the fund would be unable to meet
its obligations. The likelihood of such circumstances is remote.
STANDARD PERFORMANCE MEASURES
Yield and total return data for the fund may from time to time be
presented in Part I of this SAI and in advertisements. In the case of
funds with more than one class of shares, all performance information is
calculated separately for each class. The data is calculated as
follows.
Total return for one-, five- and ten-year periods (or for such shorter
periods as the fund has been in operation or shares of the relevant
class have been outstanding) is determined by calculating the actual
dollar amount of investment return on a $1,000 investment in the fund
made at the beginning of the period, at the maximum public offering
price for class A shares and class M shares and net asset value for
other classes of shares, and then calculating the annual compounded rate
of return which would produce that amount. Total return for a period of
one year is equal to the actual return of the fund during that period.
Total return calculations assume deduction of the fund's maximum sales
charge or CDSC, if applicable, and reinvestment of all fund
distributions at net asset value on their respective reinvestment dates.
The fund's yield is presented for a specified thirty-day period (the
"base period"). Yield is based on the amount determined by (i)
calculating the aggregate amount of dividends and interest earned by the
fund during the base period less expenses for that period, and (ii)
dividing that amount by the product of (A) the average daily number of
shares of the fund outstanding during the base period and entitled to
receive dividends and (B) the per share maximum public offering price
for class A shares or class M shares, as appropriate, and net asset
value for other classes of shares on the last day of the base period.
The result is annualized on a compounding basis to determine the yield.
For this calculation, interest earned on debt obligations held by the
fund is generally calculated using the yield to maturity (or first
expected call date) of such obligations based on their market values
(or, in the case of receivables-backed securities such as the Government
National Mortgage Association ("GNMAs"), based on cost). Dividends on
equity securities are accrued daily at their stated dividend rates. The
amount of expenses used in determining the fund's yield includes, in
addition to expenses actually accrued by the fund, an estimate of the
amount of expenses that the fund would have incurred if brokerage
commissions had not been used to reduce such expenses.
If the fund is a money market fund, yield is computed by determining the
percentage net change, excluding capital changes, in the value of an
investment in one share over the seven-day period for which yield is
presented (the "base period"), and multiplying the net change by 365/7
(or approximately 52 weeks). Effective yield represents a compounding
of the yield by adding 1 to the number representing the percentage
change in value of the investment during the base period, raising that
sum to a power equal to 365/7, and subtracting 1 from the result.
If the fund is a tax-exempt fund, the tax-equivalent yield during the
base period may be presented for shareholders in one or more stated tax
brackets. Tax-equivalent yield is calculated by adjusting the
tax-exempt yield by a factor designed to show the approximate yield that
a taxable investment would have to earn to produce an after-tax yield
equal, for that shareholder, to the tax-exempt yield. The
tax-equivalent yield will differ for shareholders in other tax brackets.
At times, Putnam Management may reduce its compensation or assume
expenses of the fund in order to reduce the fund's expenses. The per
share amount of any such fee reduction or assumption of expenses during
the fund's past five fiscal years (or for the life of the fund, if
shorter) is set forth in the footnotes to the table in the section
entitled "Financial highlights" in the prospectus. Any such fee
reduction or assumption of expenses would increase the fund's yield and
total return for periods including the period of the fee reduction or
assumption of expenses.
All data are based on past performance and do not predict future
results.
COMPARISON OF PORTFOLIO PERFORMANCE
Independent statistical agencies measure the fund's investment
performance and publish comparative information showing how the fund,
and other investment companies, performed in specified time periods.
Three agencies whose reports are commonly used for such comparisons are
set forth below. From time to time, the fund may distribute these
comparisons to its shareholders or to potential investors. The
agencies listed below measure performance based on their own criteria
rather than on the standardized performance measures described in the
preceding section.
Lipper, Inc. distributes mutual fund rankings monthly. The rankings are
based on total return performance calculated by Lipper, generally
reflecting changes in net asset value adjusted for reinvestment of
capital gains and income dividends. They do not reflect deduction of
any sales charges. Lipper rankings cover a variety of performance
periods, including year-to-date, 1-year, 5-year, and 10-year
performance. Lipper classifies mutual funds by investment objective and
asset category.
Morningstar, Inc. distributes mutual fund ratings twice a month. The
ratings are divided into five groups: highest, above average, neutral,
below average and lowest. They represent the fund's historical
risk/reward ratio relative to other funds in its broad investment class
as determined by Morningstar, Inc. Morningstar ratings cover a variety
of performance periods, including 1-year, 3-year, 5-year, 10-year and
overall performance. The performance factor for the overall rating is a
weighted-average assessment of the fund's 1-year, 3-year, 5-year, and
10-year total return performance (if available) reflecting deduction of
expenses and sales charges. Performance is adjusted using quantitative
techniques to reflect the risk profile of the fund. The ratings are
derived from a purely quantitative system that does not utilize the
subjective criteria customarily employed by rating agencies such as
Standard & Poor's and Moody's Investor Service, Inc.
Wiesenberger a division of Thomson Financial publishes and distributes
mutual fund rankings on a monthly basis. The rankings are based
entirely on total return calculated by Weisenberger for periods such as
year-to-date, 1-year, 3-year, 5-year, 10-year and 15-year. Mutual funds
are ranked in general categories (e.g., international bond,
international equity, municipal bond, and maximum capital gain).
Weisenberger rankings do not reflect deduction of sales charges or
certain fees.
Independent publications may also evaluate the fund's performance. The
fund may from time to time refer to results published in various
periodicals, including Barrons, Financial World, Forbes, Fortune,
Investor's Business Daily, Kiplinger's Personal Finance Magazine, Money,
U.S. News and World Report and The Wall Street Journal.
Independent, unmanaged indexes, such as those listed below, may be used
to present a comparative benchmark of fund performance. The performance
figures of an index reflect changes in market prices, reinvestment of
all dividend and interest payments and, where applicable, deduction of
foreign withholding taxes, and do not take into account brokerage
commissions or other costs. Because the fund is a managed portfolio,
the securities it owns will not match those in an index. Securities in
an index may change from time to time.
The Consumer Price Index, prepared by the U.S. Bureau of Labor
Statistics, is a commonly used measure of the rate of inflation. The
index shows the average change in the cost of selected consumer goods
and services and does not represent a return on an investment vehicle.
Credit Suisse First Boston Global High Yield Index is an index of fixed
income, non-convertible, U.S. dollar denominated securities having a
rating of BB and below by Standard & Poor's or Ba by Moody's. The index
is constructed to mirror the U.S. high yield debt market.
The Dow Jones Industrial Average is an index of 30 common stocks
frequently used as a general measure of stock market performance.
The Dow Jones Utilities Average is an index of 15 utility stocks
frequently used as a general measure of stock market performance for the
utilities industry.
The Lehman Brothers Aggregate Bond Index is an index composed of
securities from The Lehman Brothers Government/Corporate Bond Index, The
Lehman Brothers Mortgage-Backed Securities Index and The Lehman Brothers
Asset-Backed Securities Index and is frequently used as a broad market
measure for fixed-income securities.
The Lehman Brothers Asset-Backed Securities Index is an index composed
of credit card, auto, and home equity loans. Included in the index are
pass-through, bullet (noncallable), and controlled amortization
structured debt securities; no subordinated debt is included. All
securities have an average life of at least one year.
The Lehman Brothers Corporate Bond Index is an index of publicly issued,
fixed-rate, non-convertible investment-grade domestic corporate debt
securities frequently used as a general measure of the performance of
fixed-income securities.
The Lehman Brothers Government Bond Index is an index of publicly issued
U.S. Treasury obligations and debt obligations of U.S. government
agencies (including mortgage-backed securities) frequently used as a
general gauge of the market for fixed-income, government securities.
The Lehman Brothers Government/Corporate Bond Index is an index of
publicly issued U.S. Treasury obligations, debt obligations of U.S.
government agencies (excluding mortgage-backed securities), fixed-rate,
non-convertible, investment-grade corporate debt securities and U.S.
dollar-denominated, SEC-registered non-convertible debt issued by
foreign governmental entities or international agencies used as a
general measure of the performance of fixed-income securities.
The Lehman Brothers GNMA Index is an index of mortgage-backed
pass-through securities securities of the Government National Mortgage
Association (GNMA) bonds frequently used as a general gauge of the
market for GNMA securities.
The Lehman Brothers Intermediate Government Bond Index is an index of
publicly issued U.S. Treasury obligations and debt obligations of U.S.
government agencies (excluding mortgage-backed securities) with
maturities of up to ten years frequently used as a general gauge of the
market for intermediate-term, fixed-income, government securities.
The Lehman Brothers Intermediate Treasury Bond Index is an index of
publicly issued U.S. Treasury obligations with maturities of up to ten
years and is used as a general gauge of the market for intermediate-term
fixed-income securities.
The Lehman Brothers Long-Term Treasury Bond Index is an index of
publicly issued U.S. Treasury obligations (excluding flower bonds and
foreign-targeted issues) that are U.S. dollar-denominated and have
maturities of 10 years or greater.
The Lehman Brothers Mortgage-Backed Securities Index is an index that
includes fixed-rate securities backed by the mortgage pools of the
Government National Mortgage Association (GNMA), Federal Home Loan
Mortgage Corporation (FHLMC), and Federal National Mortgage Association
(FNMA).
The Lehman Brothers Municipal Bond Index is an index of long-term,
investment-grade, fixed-rate tax-exempt bonds.
The Lehman Brothers Treasury Bond Index is an index of publicly issued
U.S. Treasury obligations (excluding flower bonds and foreign-targeted
issues) that are U.S. dollar denominated, have a minimum of one year to
maturity, and are issued in amounts over $50 million.
The Lipper Money Market Average is an arithmetic average of the total
return of all money market mutual funds tracked by Lipper, Inc.
The Lipper Natural Resources Average is an arithmetic average of the
total return of all mutual funds tracked by Lipper, Inc. that invest
more than 65% of their equity holdings in the natural resources
industries.
The Lipper Tax Exempt Money Market Average is an arithmetic average of
the total return of all tax exempt money market mutual funds tracked by
Lipper, Inc.
The Merrill Lynch All-Convertible Index is an index of convertible
securities that is commonly used as a general measure of performance for
the convertible securities market.
The Merrill Lynch 91-Day Treasury Bill Index is an index that measures
the performance of U.S. Treasury bills currently available in the
marketplace.
The Merrill Lynch Perpetual Preferred Index is an index of perpetual
preferred securities that is commonly used as a general measure of
performance for the preferred-stock market.
The Morgan Stanley Capital International Emerging Markets Index is an
index of equity securities issued by companies located in emerging
markets with all values expressed in U.S. dollars.
The Morgan Stanley Capital International Emerging Markets Free Index is
an index of equity securities issued by companies located in emerging
markets, available to non-domestic investors, with all values expressed
in U.S. dollars.
The Morgan Stanley Capital International EAFE Index is an index of
equity securities issued by companies located in Europe, Australasia and
the Far East, with all values expressed in U.S. dollars.
The Morgan Stanley Capital International Europe Index is an index of
equity securities issued by companies located in one of the 15 European
countries, with all values expressed in U.S. dollars.
The Morgan Stanley Capital International Pacific Index is an index of
equity securities issued by companies located in one of five Asian
countries and listed on the exchanges of Australia, New Zealand, Japan,
Hong Kong, Singapore/Malaysia, with all values expressed in U.S.
dollars.
The Morgan Stanley Capital International World Index is an index of
global equity securities with all values expressed in U.S. dollars.
The Morgan Stanley Capital International World Free Index is an index of
global equity securities, available to non-domestic investors, with all
values expressed in U.S. dollars.
The NASDAQ Industrial Average is an index of stocks traded in The Nasdaq
Stock Market, Inc. National Market System.
The Russell 1000 Index is an index composed of the 1,000 largest
companies in the Russell 3000 Index, representing approximately 89% of
the Russell 3000 total market capitalization.
The Russell 1000 Growth Index is an index composed of securities with
greater-than-average growth orientation within the Russell 1000 Index.
Companies in this index tend to exhibit higher price-to-book and
price-earnings ratios, lower dividend yields and higher forecasted
growth values than other companies in the Russell 1000 Index.
The Russell 2000 Index is an index composed of the 2,000 smallest
companies in the Russell 3000 Index, representing approximately 11% of
the Russell 3000 total market capitalization.
The Russell 2000 Growth Index is an index composed of securities with
greater-than-average growth orientation within the Russell 2000 Index.
Companies in this index tend to exhibit higher price-to-book and
price-earnings ratios, lower dividend yields and higher forecasted
growth values than other companies in the Russell 2000 Index.
The Russell 3000 Index is an index composed of the 3,000 largest U.S.
companies ranked by total market capitalization, representing
approximately 98% of the U.S. investable equity market.
The Russell Midcap Index is an index composed of the 800 smallest
companies in the Russell 1000 Index, representing approximately 26% of
the Russell 1000 total market capitalization.
The Russell Midcap Growth Index is an index composed of securities with
greater-than-average growth orientation within the Russell Midcap Index.
Each security's growth orientation is determined by a composite score of
the security's price-to-book ratio and forecasted growth rate. Growth
stocks tend to have higher price-to-book ratios and forecasted growth
rates than value stocks.
The Salomon Brothers Extended Market Index is an index of global equity
securities of smaller companies with all values expressed in U.S.
dollars.
The Salomon Brothers Long-Term High-Grade Corporate Bond Index is an
index of publicly traded corporate bonds having a rating of at least AA
by Standard & Poor's or Aa by Moody's and is frequently used as a
general measure of the performance of fixed-income securities.
The Salomon Brothers Long-Term Treasury Index is an index of U.S.
government securities with maturities greater than 10 years.
The Salomon Brothers World Government Bond Index is an index that tracks
the performance of the 18 government bond markets of Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan,
Netherlands, Ireland, Spain, Sweden, Switzerland, United Kingdom, United
States and Portugal. Country eligibility is determined by market
capitalization and investability criteria.
The Salomon Brothers Non-U.S. World Government Bond Index is an index of
foreign government bonds calculated to provide a measure of performance
in the government bond markets outside of the United States.
Standard & Poor's 500 Composite Stock Price Index is an index of common
stocks frequently used as a general measure of stock market performance.
Standard & Poor's 40 Utilities Index is an index of 40 utility stocks.
Standard & Poor's/Barra Value Index is an index constructed by ranking
the securities in the Standard & Poor's 500 Composite Stock Price Index
by price-to-book ratio and including the securities with the lowest
price-to-book ratios that represent approximately half of the market
capitalization of the Standard & Poor's 500 Composite Stock Price Index.
In addition, Putnam Retail Management may distribute to shareholders or
prospective investors illustrations of the benefits of reinvesting
tax-exempt or tax-deferred distributions over specified time periods,
which may include comparisons to fully taxable distributions. These
illustrations use hypothetical rates of tax-advantaged and taxable
returns and are not intended to indicate the past or future performance
of any fund.
SECURITIES RATINGS
The ratings of securities in which the fund may invest will be measured
at the time of purchase and, to the extent a security is assigned a
different rating by one or more of the various rating agencies, Putnam
Management will use the highest rating assigned by any agency. Putnam
Management will not necessarily sell an investment if its rating is
reduced. The following rating services describe rated securities as
follows:
Moody's Investors Service, Inc.
Bonds
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risk appear
somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate, and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Notes
MIG 1/VMIG 1 -- This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2 -- This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
Commercial paper
Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Standard & Poor's
Bonds
AAA -- An obligation rated AAA has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
AA -- An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A -- An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still strong.
BBB -- An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
Obligations rated BB, B, CCC, CC and C are regarded as having
significant speculative characteristics. BB indicates the lowest degree
of speculation and C the highest. While such obligations will likely
have some quality and protective characteristics, these are outweighed
by large uncertainties or major exposures to adverse conditions.
BB -- An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B -- An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet
its financial commitment on the obligations. Adverse business,
financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the
obligation.
CCC -- An obligation rated CCC is currently vulnerable to nonpayment,
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation. In the event of adverse business, financial, or economic
conditions, the obligor is not likely to have the capacity to meet its
financial commitment on the obligation.
CC -- An obligation rated CC is currently highly vulnerable to
nonpayment.
C -- The C rating may be used to cover a situation where a bankruptcy
petition has been filed, or similar action has been taken, but payments
on this obligation are being continued.
D -- An obligation rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition, or the taking of a similar action if payments on an
obligation are jeopardized.
Notes
SP-1 -- Strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given a
plus (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
SP-3 -- Speculative capacity to pay principal and interest.
Commercial paper
A-1 -- This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated `A-1'.
A-3 -- Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
Duff & Phelps Corporation
Long-Term Debt
AAA -- Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- -- High credit quality. Protection factors are strong.
Risk is modest but may vary slightly from time to time because of
economic conditions.
A+, A, A- -- Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- -- Below-average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk
during economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection
factors fluctuate according to industry conditions or company fortunes.
Overall quality may move up or down frequently within this category.
B+, B, B- -- Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will fluctuate
widely according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC -- Well below investment-grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD -- Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
Fitch Investors Service, Inc.
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable
to adverse changes in economic conditions and circumstances than bonds
with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
BB -- Bonds considered to be speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B -- Bonds are considered highly speculative. Bonds in this class are
lightly protected as to the obligor's ability to pay interest over the
life of the issue and repay principal when due.
CCC -- Bonds have certain characteristics which, with passing of time,
could lead to the possibility of default on either principal or interest
payments.
CC -- Bonds are minimally protected. Default in payment of
interest and/or principal seems probable.
C -- Bonds are in actual or imminent default in payment of interest or
principal.
DDD -- Bonds are in default and in arrears in interest and/or principal
payments. Such bonds are extremely speculative and should be valued only
on the basis of their value in liquidation or reorganization of the
obligor.
DEFINITIONS
"Putnam Management" -- Putnam Investment Management, Inc., the fund's
investment manager.
"Putnam Retail Management" -- Putnam Retail Management, Inc.(formerly Putnam
Mutual Funds), the fund's principal underwriter.
"Putnam Fiduciary Trust -- Putnam Fiduciary Trust Company,
Company" the fund's custodian.
"Putnam Investor Services" -- Putnam Investor Services, a division of Putnam
Fiduciary Trust Company, the fund's investor
servicing agent.
Prospectus
December 30, 2000
Putnam International Voyager Fund
Class A, B, C and M shares
Investment Category: Growth
This prospectus explains what you should know about this mutual fund
before you invest. Please read it carefully.
Putnam Investment Management, LLC (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
5 What are the fund's main investment strategies and related risks?
9 Who manages the fund?
9 How does the fund price its shares?
10 How do I buy fund shares?
13 How do I sell fund shares?
15 How do I exchange fund shares?
16 Fund distributions and taxes
17 Financial highlights
[SCALE LOGO OMITTED]
Fund summary
GOAL
The fund seeks long-term capital appreciation.
MAIN INVESTMENT STRATEGIES -- INTERNATIONAL STOCKS
We invest mainly in common stocks of companies outside the United States.
We first select the countries and industries we believe are attractive,
then we look for companies with stock prices that reflect a value lower
than that which we place on the company or whose earnings we believe are
likely to grow over time. We also look for the presence of factors that we
believe will cause the stock price to rise. We invest mainly in small and
midsized companies, although we can invest in companies of any size.
Although we emphasize investments in developed countries, we may also
invest in companies located in developing (also known as emerging) markets.
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 risks of investing outside the United States, such as currency
fluctuations, economic or financial instability, lack of timely or reliable
information or unfavorable political or legal developments. These risks are
increased for investments in emerging markets.
* 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 mid-sized 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 the fund invests perform.
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 one of the fund's
classes of shares, class A shares. The table following the chart compares
the fund's performance to that of a broad measure of market performance. Of
course, the 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
1996 20.08%
1997 16.48%
1998 27.12%
1999 93.30%
Performance figures do not reflect the impact of sales charges. If they
did, performance would be less than that shown. The year-to-date
performance through 9/30/00 was -3.62%. During the period shown in the bar
chart, the highest return for a quarter was 50.27% (quarter ending
12/31/99) and the lowest return for a quarter was -14.18% (quarter ending
9/30/98).
Average Annual Total Returns (for period ending 12/31/99)
-------------------------------------------------------------------------------
Since
Past inception
1 year (12/28/95)
-------------------------------------------------------------------------------
Class A 82.13% 33.86%
Class B 86.67% 34.65%
Class C 90.85% 34.84%
Class M 85.34% 33.96%
MSCI EAFE Index 26.96% 13.24%
-------------------------------------------------------------------------------
Unlike the bar chart, this performance information reflects the impact of
sales charges. Class A and class M share performance reflects the current
maximum initial sales charges; class B and class C performance reflects the
maximum applicable deferred sales charge if shares had been redeemed on
12/31/99. For periods before the inception of class B, class C shares
(7/26/99) and class M shares (10/30/96), performance information shown for
those classes is based on the performance of the fund's class A shares
adjusted to reflect the appropriate sales charge (in the table) and the
higher 12b-1 fees paid by class B, class C and class M shares. The fund's
performance through 8/31/97 benefited from Putnam Management's agreement to
limit expenses. The fund's performance is compared to Morgan Stanley
Capital International EAFE Index, an unmanaged index of approximately 1,045
equity securities issued by companies located in 18 countries and listed on
the stock exchanges of Europe, Australia, and the Far East (with all values
expressed in U.S. dollars).
FEES AND EXPENSES
This table summarizes the fees and expenses you may pay if you invest in
the fund. Expenses are based on the fund's last fiscal year.
Shareholder Fees (fees paid directly from your investment)
-------------------------------------------------------------------------------
Class A Class B Class C Class M
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of the
offering price) 5.75% NONE NONE 3.50%
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
-------------------------------------------------------------------------------
* A deferred sales charge of up to 1% may be imposed on certain redemptions
of class A shares bought without an initial sales charge.
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
-------------------------------------------------------------------------------
Total Annual
Management Distribution Other Fund Operating
Fees (12b-1) Fees Expenses Expenses
-------------------------------------------------------------------------------
Class A 0.90% 0.25% 0.33% 1.48%
Class B 0.90% 1.00% 0.33% 2.23%
Class C 0.90% 1.00% 0.33% 2.23%
Class M 0.90% 0.75% 0.33% 1.98%
-------------------------------------------------------------------------------
EXAMPLE
This 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.
-------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
-------------------------------------------------------------------------------
Class A $717 $1,016 $1,336 $2,242
Class B $726 $ 997 $1,395 $2,376*
Class B (no redemption) $226 $ 697 $1,195 $2,376*
Class C $326 $ 697 $1,195 $2,565
Class C (no redemption) $226 $ 697 $1,195 $2,565
Class M $544 $ 950 $1,380 $2,576
-------------------------------------------------------------------------------
* 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
stocks issued by companies outside the United States. Under normal market
conditions, we invest at least 65% of the fund's total assets in the equity
securities of companies located in at least three countries other than the
United States. To determine whether a company is located outside of the
United States, we look at the following factors: where the company's
securities trade, where the company is located or organized, or where the
company derives its revenues of profits. We will consider, among other
things, a company's financial strength, competitive position in its
industry, and projected future earnings, cash flows and dividends when
deciding which investments to buy or sell. 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
directly relating 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 its
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 may purchase stocks that trade 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. Seeking earnings growth may
result in significant investments in the technology sector, which may be
subject to greater volatility than other sectors of the economy.
Companies whose stock we believe is undervalued by the market may have
experienced adverse business developments or may be subject to special
risks that have caused their stocks to be out of favor. If our assessment
of a company's prospects is wrong, or if other investors do not similarly
recognize the value of the company, then the price of the company's stock
may fall or may not approach the value that we have placed on it.
* Foreign investments. Foreign investments involve certain special risks,
including:
* Unfavorable changes in currency exchange rates: Foreign investments are
typically issued and traded in foreign currencies. As a result, their
values are affected by changes in exchange rates between foreign currencies
and the U.S. dollar.
* Political and economic developments: Foreign investments may be subject
to the risks of seizure by a foreign government, imposition of restrictions
on the exchange or export of foreign currency, and tax increases.
* Unreliable or untimely information: There may be less publicly available
information about a foreign company than about most U.S. companies, and
foreign companies are usually not subject to accounting, auditing and
financial reporting standards and practices as stringent as those in the
United States.
* Limited legal recourse: Legal remedies for investors may be more limited
than the remedies available in the United States.
* Limited markets: Certain foreign investments may be less liquid (harder
to buy and sell) and more volatile than U.S. investments, which means at
times we may be unable to sell these foreign investments at desirable
prices. For the same reason, we may at times find it difficult to value the
fund's foreign investments.
* Trading practices: Brokerage commissions and other fees are generally
higher for foreign investments than for U.S. investments. The procedures
and rules governing foreign transactions and custody may involve delays in
payment, delivery or recovery of money or investments.
* Lower yield: Common stocks of foreign companies historically have offered
lower dividends than stocks of comparable U.S. companies. Foreign
withholding taxes may further reduce the amount of income available to
distribute to shareholders of the fund.
The risks of foreign investments are typically increased in less developed
countries, which are sometimes referred to as emerging markets. For
example, political and economic structures in these countries may be
changing rapidly, which can cause instability. These countries are also
more likely to experience high levels of inflation, deflation or currency
devaluation, which could hurt their economies and securities markets. For
these and other reasons, investments in emerging markets are often
considered speculative.
Certain of these risks may also apply to some extent to U.S.-traded
investments that are denominated in foreign currencies, investments in U.S.
companies that are traded in foreign markets, or to investments in U.S.
companies that have significant foreign operations. Special U.S. tax
considerations may apply to our foreign investments.
* Derivatives. We may engage in a variety of transactions involving
derivatives, such as futures, options, warrants and swap contracts.
Derivatives are financial instruments whose value depends upon, or is
derived from, the value of something else, such as one or more underlying
investments, pools of investments, indexes or currencies. We may use
derivatives both for hedging and non-hedging purposes. However, we may also
choose not to use derivatives, based on our evaluation of market conditions
or the availability of suitable derivatives.
Derivatives involve special risks and may result in losses. The successful
use of derivatives depends on our ability to manage these sophisticated
instruments. The prices of derivatives may move in unexpected ways due to
the use of leverage or other factors especially in unusual market
conditions, and may result in increased volatility. The use of derivatives
may also increase the amount of taxes payable by shareholders.
Other risks arise from our potential inability to terminate or sell
derivatives positions. A liquid secondary market may not always exist for
the fund's derivatives positions at any time. In fact, many
over-the-counter instruments (investments not traded on an exchange) will
not be liquid. Over-the-counter instruments also involve the risk that the
other party to the derivative transaction will not meet its obligations.
For further information about the risks of derivatives, see the statement
of additional information (SAI).
* Small and midsized companies. These companies, some of 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 small
and midsized companies may therefore be more vulnerable to adverse
developments than those of larger companies. Small companies in foreign
countries could be relatively smaller than those in the United States.
* 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 also make other investments, such as investments in
preferred stocks, convertible securities and debt securities, which may be
subject to other risks, as described in the SAI.
* Alternative strategies. Under normal market conditions, we keep the
fund's portfolio fully invested, with minimal cash holdings. However, 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, including investing solely in the United
States. We may choose, however, 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 0.90% of average net assets for the fund's last fiscal year. 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.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Manager Since Experience
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Joseph P. Joseph 1999 1994 - Present Putnam Management
Managing Director
-------------------------------------------------------------------------------
Andrew Graham 1999 1999 - Present Putnam Management
Senior Vice President 1998 - 1999 Scottish Widows Investment
Management
Prior to February 1998 Zurich Investment Management
-------------------------------------------------------------------------------
</TABLE>
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 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 Investor Services.
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% if you sell shares within 6 years of
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 about 8 years, reducing the
future 12b-1 fee (may convert sooner in some cases)
* Orders for class B shares for more than $250,000 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% if you sell shares within one year of
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
Class M shares
* Initial sales charge of up to 3.50%
* Lower sales charges for larger investments of $50,000 or more
* No deferred sales charge
* Lower annual expenses, and higher dividends, than class B or C shares
because of lower 12b-1 fee
* Higher annual expenses, and lower dividends, than class A shares because
of higher 12b-1 fee
* No conversion to class A shares, so future 12b-1 fee does not decrease
Initial sales charges for class A and M shares
-------------------------------------------------------------------------------
Class A sales charge Class M sales charge
as a percentage of: as a percentage of:
-------------------------------------------------------------------------------
Amount of purchase Net amount Offering Net amount Offering
at offering price ($) invested price* invested price*
-------------------------------------------------------------------------------
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
-------------------------------------------------------------------------------
* 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+
-------------------------------------------------------------------------------
Charge 5% 4% 3% 3% 2% 1% 0%
A deferred sales charge of 1% will apply to class C shares 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 after 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
Retail Management for details.
* 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 (based on
average net assets) of up to 0.35% 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 redemption may be delayed until the fund collects the
purchase price of shares which may be 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 signed 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 and transfer 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
Investors 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 shares more than a maximum amount set by the Trustees. There is
presently no maximum, but the Trustees could set a maximum that applies 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 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 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.
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 are taxable as capital gains. Distributions of gains from
investments that the fund owned for one year or less are taxable as
ordinary income. Distributions are taxable whether you receive them in cash
or reinvest them in additional shares.
The fund's investments in foreign securities may be subject to foreign
withholding taxes. In that case, the fund's yield on those securities would
be decreased. Shareholders may be entitled to claim a credit or deduction
with respect to foreign taxes. In addition, the fund's investments 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 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 incorporated by reference into this prospectus and available upon
request.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS A
(For a share outstanding throughout the period)
For the
period
Dec. 28,
1995+ to
Year ended August 31 August 31
---------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $17.28 $12.37 $11.66 $9.47 $8.50
-----------------------------------------------------------------------------------
Investment operations
Net investment income (loss)a .05 (.01) .05 .02d .04d
Net realized and
unrealized gain on
investments 10.13 5.33 1.25 2.28 .93
-----------------------------------------------------------------------------------
Total from investment
operations 10.18 5.32 1.30 2.30 .97
-----------------------------------------------------------------------------------
Less distributions:
From net investment income (.15) (.06) (.04) (.07) --
In excess of net
investment income -- (.08) -- -- --
From net realized gain on
investments (.39) (.27) (.55) (.04) --
In excess of net realized
Gain on investments (.16) -- -- -- --
-----------------------------------------------------------------------------------
Total distributions (.70) (.41) (.59) (.11) --
-----------------------------------------------------------------------------------
Net asset value,
end of period $26.76 $17.28 $12.37 $11.66 $9.47
-----------------------------------------------------------------------------------
Ratios and supplemental data
Total return at
net asset value (%)b 59.46 43.98 11.77 24.44 11.41*
Net assets, end of period
(in thousands) $1,311,822 $216,735 $95,404 $40,687 $2,429
-----------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) c 1.48 1.78 1.92 2.10d 1.26*d
Ratio of net investment income
(loss) to average net assets (%) .17 (.07) .35 .15d .44*d
Portfolio turnover (%) 144.34 106.76 89.50 126.65 55.87*
-----------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
a Per share net investment income (loss) has been determined on the basis of the
weighted average number of shares outstanding during the period.
b Total return assumes dividend reinvestment and does not reflect the effect of
sales charges.
c Includes amounts paid through expense offset and brokerage service arrangements.
d Reflects an expense limitation in effect during the period. As a result of such
limitation, expense for class A reflect a reduction of approximately $0.08 per
share for the year ended August 31, 1996. Expenses for the period ended August 31,
1997 reflect a reduction of $0.02.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS B
(For a share outstanding throughout the period)
For the period
Oct. 30, 1996+
Year ended to August 31 to August 31
----------------------------------------------------
2000 1999 1998 1997
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $17.07 $12.25 $11.60 $9.82
------------------------------------------------------------------------------------
Investment operations
Net investment income (loss)a (.15) (.12) (.05) (.06)d
Net realized and unrealized gain
on investments 10.01 5.27 1.25 1.94
------------------------------------------------------------------------------------
Total from investment operations 9.86 5.15 1.20 1.88
------------------------------------------------------------------------------------
Less distributions:
From net investment income (.07) (.02) -- (.06)
In excess of net investment income -- (.04) -- --
From net realized gain on investments (.39) (.27) (.55) (.04)
In excess of net realized gain
on investments (.16) -- -- --
------------------------------------------------------------------------------------
Total distributions (.62) (.33) (.55) (.10)
------------------------------------------------------------------------------------
Net asset value,
end of period $26.31 $17.07 $12.25 $11.60
------------------------------------------------------------------------------------
Ratios and supplemental data
Total return at
net asset value (%)b 58.24 42.84 10.94 19.35*
Net assets, end of period
(in thousands) $936,798 $171,524 $73,176 $34,463
------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) c 2.23 2.53 2.67 2.39*d
Ratio of net investment income (loss)
to average net assets (%) (.57) (.83) (.43) (.50)*d
Portfolio turnover (%) 144.34 106.76 89.50 126.65
------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
a Per share net investment income (loss) has been determined on the basis of the
weighted average number of shares outstanding during the period.
b Total return assumes dividend reinvestment and does not reflect the effect of
sales charges.
c Includes amounts paid through expense offset and brokerage service arrangements.
d Reflects an expense limitation in effect during the period. As a result of such
limitation, expenses for the period ended August 31, 1997 reflect a reduction
of $0.01.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS C
(For a share outstanding throughout the period)
For the period
Year ended July 26, 1999+
August 31 to August 31
-------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------------
<S> <C> <C
Net asset value,
beginning of period $17.27 $16.21
---------------------------------------------------------------------------------------
Investment operations
Net investment income (loss) a (.11) (.01)
Net realized and unrealized gain
on investments 10.11 1.07
---------------------------------------------------------------------------------------
Total from investment operations 10.00 1.06
---------------------------------------------------------------------------------------
Less distributions:
From net investment income (.13) --
In excess of net investment income -- --
From net realized gain
on investments (.39) --
In excess of net realized
gain on investments (.16) --
---------------------------------------------------------------------------------------
Total distributions (.68) --
---------------------------------------------------------------------------------------
Net asset value,
end of period $26.59 $17.27
---------------------------------------------------------------------------------------
Ratios and supplemental data
Total return at
net asset value (%)b 58.41 6.54*
Net assets, end of period
(in thousands) $170,579 $2,711
---------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)c 2.23 .26*
Ratio of net investment income (loss)
to average net assets (%) (.44) (.14)*
Portfolio turnover (%) 144.34 106.76
---------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
a Per share net investment income (loss) has been determined on the basis of the
weighted average number of shares outstanding during the period.
b Total return assumes dividend reinvestment and does not reflect the effect of
sales charges.
c Includes amounts paid through expense offset and brokerage service arrangements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS M
(For a share outstanding throughout the period)
For the period
Oct. 30, 1996+
Year ended August 31 to August 31
---------------------------------------------------
2000 1999 1998 1997
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $17.15 $12.30 $11.62 $9.82
-----------------------------------------------------------------------------------
Investment operations
Net investment income (loss)a (.10) (.08) (.02) (.03)d
Net realized and unrealized gain
on investments 10.10 5.28 1.25 1.93
-----------------------------------------------------------------------------------
Total from investment operations 10.00 5.20 1.23 1.90
-----------------------------------------------------------------------------------
Less distributions:
From net investment income (.10) (.03) --e (.06)
In excess of net investment income -- (.05) -- --
From net realized gain on investments (.39) (.27) (.55) (.04)
In excess of net realized gain
on investments (.16) -- -- --
-----------------------------------------------------------------------------------
Total distributions (.65) (.35) (.55) (.10)
-----------------------------------------------------------------------------------
Net asset value,
end of period $26.50 $17.15 $12.30 $11.62
-----------------------------------------------------------------------------------
Ratios and supplemental data
Total return at
net asset value (%)b 58.79 43.17 11.20 19.56*
Net assets, end of period
(in thousands) $64,164 $18,701 $8,799 $4,086
-----------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)c 1.98 2.28 2.42 2.18*d
Ratio of net investment income (loss)
to average net assets (%) (.40) (.58) (.18) (.26)*d
Portfolio turnover (%) 144.34 106.76 89.50 126.65
-----------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
a Per share net investment income (loss) has been determined on the basis of the
weighted average number of shares outstanding during the period.
b Total return assumes dividend reinvestment and does not reflect the effect of
sales charges.
c Includes amounts paid through expense offset and brokerage service arrangements.
d Reflects an expense limitation in effect during the period. As a result of such
limitation, expenses for the period ended August 31, 1997 reflect a reduction
of $0.02.
e Distributions from net investment income amounted to less than $0.01 per share
for class M.
</TABLE>
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 Investor Services 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.
For more information
about Putnam International
Voyager 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 any Putnam Fund, or make shareholder inquiries, by
contacting your financial advisor, by visiting Putnam's Internet site, or
by calling Putnam toll-free at 1-800-225-1581.
You may review and copy information about a 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.
PUTNAM INVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
1-800-225-1581
Address correspondence to
Putnam Investor Services
P.O. Box 41203
Providence, Rhode Island 02940-1203
www.putnaminvestments.com
File No. 811-7237 NP011 64195 12/00
Prospectus
December 30, 2000
Putnam International Voyager Fund
Class Y shares
Investment Category: Growth
This prospectus explains what you should know about this mutual fund
before you invest. Please read it carefully.
Putnam Investment Management, LLC (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
11 Financial highlights
Putnam Defined Contribution Plans
[SCALE LOGO OMITTED]
Fund summary
GOAL
The fund seeks long-term capital appreciation.
MAIN INVESTMENT STRATEGIES -- INTERNATIONAL STOCKS
We invest mainly in common stocks of companies outside the United States.
We first select the countries and industries we believe are attractive,
then we look for companies with stock prices that reflect a value lower
than that which we place on the company or whose earnings we believe are
likely to grow over time. We also look for the presence of factors that we
believe will cause the stock price to rise. We invest mainly in small and
midsized companies, although we can invest in companies of any size.
Although we emphasize investments in developed countries, we may also
invest in companies located in developing (also known as emerging) markets.
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 risks of investing outside the United States, such as currency
fluctuations, economic or financial instability, lack of timely or reliable
information or unfavorable political or legal developments. These risks are
increased for investments in emerging markets.
* 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 mid-sized 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 the fund invests perform.
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 chart provides some indication of the fund's risks by showing
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 a
broad measure 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
1996 20.39%
1997 16.77%
1998 27.44%
1999 93.79%
Year-to-date performance through 9/30/00 was -3.40%. During the period
shown in the bar chart, the highest return for a quarter was 50.37%
(quarter ending 12/31/99) and the lowest return for a quarter was -14.13%
(quarter ending 9/30/98).
Performance of class Y shares in the bar chart and table following the
chart, for periods prior to inception (12/31/99) is derived from the
historical performance of class A shares (not offered by this prospectus).
Performance of class Y shares 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 (12/28/95)
-------------------------------------------------------------------------------
Class Y 93.79% 36.21%
MSCI EAFE Index 26.96% 13.24%
-------------------------------------------------------------------------------
The fund's performance through 8/31/97 benefited from Putnam Management's
agreement to limit expenses. The fund's performance is compared to Morgan
Stanley Capital International EAFE Index, an unmanaged index of
approximately 1,045 equity securities issued by companies located in 18
countries and listed on the stock exchanges of Europe, Australia, and the
Far East (with all values expressed in U.S. dollars).
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
Management Other Fund Operating
Fees Expenses Expenses
-------------------------------------------------------------------------------
Class Y 0.90% 0.33% 1.23%
-------------------------------------------------------------------------------
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 $125 $390 $676 $1,489
-------------------------------------------------------------------------------
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
stocks issued by companies outside the United States. Under normal market
conditions, we invest at least 65% of the fund's total assets in the equity
securities of companies located in at least three countries other than the
United States. To determine whether a company is located outside of the
United States, we look at the following factors: where the company's
securities trade, where the company is located or organized, or where the
company derives its revenues or profits. We will consider, among other
things, a company's financial strength, competitive position in its
industry, and projected future earnings, cash flows and dividends when
deciding which investments to buy or sell. 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
directly relating 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 its
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 may purchase stocks that trade 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. Seeking earnings growth may
result in significant investments in the technology sector, which may be
subject to greater volatility than other sectors of the economy.
Companies whose stock we believe is undervalued by the market may have
experienced adverse business developments or may be subject to special
risks that have caused their stocks to be out of favor. If our assessment
of a company's prospects is wrong, or if other investors do not similarly
recognize the value of the company, then the price of the company's stock
may fall or may not approach the value that we have placed on it.
* Foreign investments. Foreign investments involve certain special risks,
including:
* Unfavorable changes in currency exchange rates: Foreign investments are
typically issued and traded in foreign currencies. As a result, their
values are affected by changes in exchange rates between foreign currencies
and the U.S. dollar.
* Political and economic developments: Foreign investments may be subject
to the risks of seizure by a foreign government, imposition of restrictions
on the exchange or export of foreign currency, and tax increases.
* Unreliable or untimely information: There may be less publicly available
information about a foreign company than about most U.S. companies, and
foreign companies are usually not subject to accounting, auditing and
financial reporting standards and practices as stringent as those in the
United States.
* Limited legal recourse: Legal remedies for investors may be more limited
than the remedies available in the United States.
* Limited markets: Certain foreign investments may be less liquid (harder
to buy and sell) and more volatile than U.S. investments, which means at
times we may be unable to sell these foreign investments at desirable
prices. For the same reason, we may at times find it difficult to value the
fund's foreign investments.
* Trading practices: Brokerage commissions and other fees are generally
higher for foreign investments than for U.S. investments. The procedures
and rules governing foreign transactions and custody may involve delays in
payment, delivery or recovery of money or investments.
* Lower yield: Common stocks of foreign companies historically have offered
lower dividends than stocks of comparable U.S. companies. Foreign
withholding taxes may further reduce the amount of income available to
distribute to shareholders of the fund.
The risks of foreign investments are typically increased in less developed
countries, which are sometimes referred to as emerging markets. For
example, political and economic structures in these countries may be
changing rapidly, which can cause instability. These countries are also
more likely to experience high levels of inflation, deflation or currency
devaluation, which could hurt their economies and securities markets. For
these and other reasons, investments in emerging markets are often
considered speculative.
Certain of these risks may also apply to some extent to U.S.- traded
investments that are denominated in foreign currencies, investments in U.S.
companies that are traded in foreign markets, or to investments in U.S.
companies that have significant foreign operations.
* Derivatives. We may engage in a variety of transactions involving
derivatives, such as futures, options, warrants and swap contracts.
Derivatives are financial instruments whose value depends upon, or is
derived from, the value of something else, such as one or more underlying
investments, pools of investments, indexes or currencies. We may use
derivatives both for hedging and non-hedging purposes. However, we may also
choose not to use derivatives, based on our evaluation of market conditions
or the availability of suitable derivatives.
Derivatives involve special risks and may result in losses. The successful
use of derivatives depends on our ability to manage these sophisticated
instruments. The prices of derivatives may move in unexpected ways due to
the use of leverage or other factors especially in unusual market
conditions, and may result in increased volatility.
Other risks arise from our potential inability to terminate or sell
derivatives positions. A liquid secondary market may not always exist for
the fund's derivatives positions at any time. In fact, many
over-the-counter instruments (investments not traded on an exchange) will
not be liquid. Over-the-counter instruments also involve the risk that the
other party to the derivative transaction will not meet its obligations.
For further information about the risks of derivatives, see the statement
of additional information (SAI).
* Small and midsized companies. These companies, some of 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 small
and midsized companies may therefore be more vulnerable to adverse
developments than those of larger companies. Small companies in foreign
countries could be relatively smaller than those in the United States.
* 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 also make other investments, such as investments in
preferred stocks, convertible securities and debt securities, which may be
subject to other risks, as described in the SAI.
* Alternative strategies. Under normal market conditions, we keep the
fund's portfolio fully invested, with minimal cash holdings. However, 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, including investing solely in the United
States. We may choose, however, 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 0.90% of average net assets for the fund's last fiscal year. 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
-------------------------------------------------------------------------------
Joseph P. Joseph 1999 1994 - Present Putnam Management
Managing Director
-------------------------------------------------------------------------------
Andrew Graham 1999 1999 - Present Putnam Management
Senior Vice President 1998 - 1999 Scottish Widows
Investment Management
Prior to Feb. 1998 Zurich Investment
Management
-------------------------------------------------------------------------------
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 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 Retail Management, Inc. (Putnam Retail Management) 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.
College savings plans that qualify for tax-exempt treatment under Section
529 of the Internal Revenue Code and are approved by Putnam Retail
Management are also eligible to purchase class Y shares.
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 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 you do not select another option, 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. You should consult your tax advisor for more
information on your own tax situation, including possible foreign, state
and local taxes.
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.
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.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS Y
(For a share outstanding throughout the period)
For the
period
Feb. 1,
2000+ to
Aug. 31
--------
2000
-----------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $26.48
-----------------------------------------------------------------------
Investment operations
Net investment income a .15
Net realized and unrealized
gain on investments .18
-----------------------------------------------------------------------
Total from
investment operations .33
-----------------------------------------------------------------------
Less distributions:
From net investment income --
In excess of net investment income --
From net realized gain
on investments --
-----------------------------------------------------------------------
Total distributions --
-----------------------------------------------------------------------
Net asset value,
end of period $26.81
-----------------------------------------------------------------------
Ratios and
supplemental data
Total return at
net asset value (%)b 1.25*
Net assets,
end of period
(in thousands) $36,815
-----------------------------------------------------------------------
Ratio of expenses to
average net assets (%)c .72*
Ratio of net investment income
to average net assets (%) .51*
Portfolio turnover (%) 144.34
-----------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
a Per share net investment income (loss) has been determined on the basis
of the weighted average number of shares outstanding during the period.
b Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
c Includes amounts paid through expense offset and brokerage service
arrangements.
</TABLE>
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For more information
about Putnam International
Voyager 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 auditor'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 9740
Providence, Rhode Island 02940-9740
www.putnaminvestments.com
66964 12/00 File No. 811-7237
PUTNAM INTERNATIONAL VOYAGER FUND
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
December 30, 2000
This SAI is not a prospectus. If the fund has more than one form of
current prospectus, each reference to the prospectus in this SAI shall
include all of the fund's prospectuses, unless otherwise noted. The SAI
should be read together with the applicable prospectus. Certain
disclosure has been incorporated by reference from the fund's annual
report. For a free copy of the fund's annual report or prospectus dated
December 30, 2000, as revised from time to time, call Putnam Investor
Services at 1-800-225-1581 or write Putnam Investor Services, Mailing
address: P.O. Box 41203, Providence, RI 02940-1203.
Part I of this SAI contains specific information about the fund. Part
II includes information about the fund and the other Putnam funds.
TABLE OF CONTENTS
PART I
FUND HISTORY AND CLASSIFICATION I-
INVESTMENT RESTRICTIONS I-
CHARGES AND EXPENSES I-
INVESTMENT PERFORMANCE I-
ADDITIONAL OFFICERS I-
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS I-
PART II
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS II-
TAXES II-
MANAGEMENT II-
DETERMINATION OF NET ASSET VALUE II-
HOW TO BUY SHARES II-
DISTRIBUTION PLANS II-
INVESTOR SERVICES II-
SIGNATURE GUARANTEES II-
SUSPENSION OF REDEMPTIONS II-
SHAREHOLDER LIABILITY II-
STANDARD PERFORMANCE MEASURES II-
COMPARISON OF PORTFOLIO PERFORMANCE II-
SECURITIES RATINGS II-
DEFINITIONS II-
SAI
PART I
FUND HISTORY AND CLASSIFICATION
Putnam International Voyager Fund is a diversified series of Putnam
Investment Funds, a Massachusetts business trust organized on October
31, 1994. A copy of the Agreement and Declaration of Trust, which is
governed by Massachusetts law, is on file with the Secretary of State of
The Commonwealth of Massachusetts. Prior to January 6, 1995, the Trust
was known as Putnam Equity Funds. Prior to October 4, 1996, the fund was
known as Putnam Genesis Fund.
The Trust is an open-end management investment company with an unlimited
number of authorized shares of beneficial interest. The Trustees may,
without shareholder approval, create two or more series of shares
representing separate investment portfolios. Any such series of shares
may be divided without shareholder approval into two or more classes of
shares having such preferences and special or relative rights and
privileges as the Trustees determine. The fund offers classes of
shares with different sales charges and expenses.
Each share has one vote, with fractional shares voting proportionally.
The fund may suspend the sale of shares at any time and may refuse any
order to purchase shares. Although the fund is not required
to hold annual meetings of its shareholders, shareholders holding at
least 10% of the outstanding shares entitled to vote have the right to
call a meeting to elect or remove Trustees, or to take other actions as
provided in the Agreement and Declaration of Trust.
The fund is a "diversified" investment company under the Investment
Company Act of 1940. This means that with respect to 75% of its total
assets, the fund may not invest more than 5% of its total assets in the
securities of any one issuer (except U.S. government securities). The
remaining 25% of its total assets is not subject to this restriction.
To the extent the fund invests a significant portion of its assets in
the securities of a particular issuer, it will be subject to an
increased risk of loss if the market value of such issuer's securities
declines.
INVESTMENT RESTRICTIONS
As fundamental investment restrictions, which may not be changed without
a vote of a majority of the outstanding voting securities, the fund may
not and will not:
(1) Borrow money in excess of 10% of the value (taken at the lower of
cost or current value) of its total assets (not including the amount
borrowed) at the time the borrowing is made, and then only from banks as
a temporary measure to facilitate the meeting of redemption requests
(not for leverage) which might otherwise require the untimely
disposition of portfolio investments or for extraordinary or emergency
purposes. Such borrowings will be repaid before any additional
investments are purchased.
(2) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments,
it may be deemed to be an underwriter under certain federal securities
laws.
(3) Purchase or sell real estate, although it may purchase securities of
issuers which deal in real estate, securities which are secured by
interests in real estate, and securities which represent interests in
real estate, and it may acquire and dispose of real estate or interests
in real estate acquired through the exercise of its rights as a holder
of debt obligations secured by real estate or interests therein.
(4) Purchase or sell commodities or commodity contracts, except that the
fund may purchase and sell financial futures contracts and options.
(5) Make loans, except by purchase of debt obligations in which the fund
may invest consistent with its investment policies, by entering into
repurchase agreements with respect to not more than 25% of its total
assets (taken at current value) or through the lending of its portfolio
securities with respect to not more than 25% of its total assets (taken
at current value).
(6) With respect to 75% of its total assets, invest in securities of any
issuer if, immediately after such investment, more than 5% of the total
assets of the fund (taken at current value) would be invested in the
securities of such issuer; provided that this limitation does not apply
to obligations issued or guaranteed as to interest or principal by the
U.S. government or its political subdivisions.
(7) With respect to 75% of its total assets, acquire more than 10% of
the voting securities of any issuer.
(8) Purchase securities (other than securities of the U.S. government,
its agencies or instrumentalities) if, as a result of such purchase,
more than 25% of the fund's total assets would be invested in any one
industry.
(9) Issue any class of securities which is senior to the fund's shares
of beneficial interest.
Although certain of the fund's fundamental investment restrictions
permit it to borrow money to a limited extent, the fund does not
currently intend to do so and did not do so last year.
The Investment Company Act of 1940 provides that a "vote of a majority
of the outstanding voting securities" of the fund means the affirmative
vote of the lesser of (1) more than 50% of the outstanding fund shares,
or (2) 67% or more of the shares present at a meeting if more than 50%
of the outstanding fund shares are represented at the meeting in person
or by proxy.
The following non-fundamental investment policies may be changed by the
Trustees without shareholder approval:
The fund will not invest in (a) securities which are not readily
marketable, (b) securities restricted as to resale (excluding securities
determined by the Trustees of the fund (or the person designated by the
Trustees of the fund to make such determinations) to be readily
marketable), and (c) repurchase agreements maturing in more than seven
days, if, as a result, more than 15% of the fund's net assets (taken at
current value) would be invested in securities described in (a), (b) and
(c) above.
Foreign investments We normally invest at least 65% of the fund's total
assets in equity securities of companies located in at least three
countries other than the United States. We consider the following types
of companies to be located in a country other than the United States:
- companies organized under the laws of a country other than the United
States,
- companies whose principal office is located outside the United States,
- companies whose securities are principally traded on foreign markets,
- companies that earn 50% or more of their total revenues from
business outside of the United States, or
- companies with 50% or more of their assets located in a country outside
of the United States
---------------------------------
All percentage limitations on investments (other than pursuant to the
non-fundamental restriction) will apply at the time of the making of an
investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
---------------------------------
CHARGES AND EXPENSES
Management fees
Under a Management Contract dated December 2, 1994, as revised July 14,
1995, December 1, 1995, March 6, 1998, July 10, 1998, March 12, 1999,
July 1, 1999 and September 10, 1999, the fund pays a quarterly fee to
Putnam Management based on the average net assets of the fund, as
determined at the close of each business day during the quarter, at the
annual rate of 1.00% of the first $500 million of the fund's average net
assets, 0.90% of the next $500 million, 0.85% of the next $500 million,
0.80% of the next $5 billion, 0.775% of the next $5 billion, 0.755% of
the next $5 billion, 0.74% of the next $5 billion and 0.73% of any
excess thereafter. For the past three fiscal years, pursuant to the
Management Contract (and a management contract in effect prior to July
1, 1999), under which the management fee payable to Putnam Management
was paid at the rate of 1.20% of the first $500 million of the fund's
average net assets, 1.10% of the next $500 million, 1.05% of the next
$500 million, 1.00% of the next $5 billion, 0.975% of the next $5
billion, 0.955% of the next $5 billion, 0.94% of the next $5 billion and
0.93% of any excess thereafter), the fund incurred the following fees:
Reflecting a reduction
in the following amounts
Fiscal Management pursuant to an expense
year fee paid limitation
2000 $8,791,477 $0
1999 $2,905,440 $0
1998 $1,604,682 $0
Brokerage commissions
Putnam Mutual Funds compensates qualifying dealers (including, for this
purpose, certain financial institutions) for sales of shares and the
maintenance of shareholder accounts. The following table shows
brokerage commissions paid during the fiscal periods indicated:
Fiscal Brokerage
year commissions
2000 $ 1,529
1999 $1,354,473
1998 $ 665,951
The following table shows transactions placed with brokers and dealers
during the most recent fiscal year to recognize research, statistical
and quotation services received by Putnam Management and its affiliates:
Dollar value Percent of
of these total Amount of
transactions transactions commissions
$0 0.00% $0
Administrative expense reimbursement
The fund reimbursed Putnam Management for administrative services during
fiscal 2000, including compensation of certain fund officers and
contributions to the Putnam Investments, Inc. Profit Sharing Retirement
Plan for their benefit, as follows:
Portion of total
reimbursement for
Total compensation and
reimbursement contributions
$16,816 $13,744
Trustee responsibilities and fees
The Trustees are responsible for generally overseeing the conduct of
fund business. Subject to such policies as the Trustees may determine,
Putnam Management furnishes a continuing investment program for the fund
and makes investment decisions on its behalf. Subject to the control of
the Trustees, Putnam Management also manages the fund's other affairs
and business.
Each Trustee receives a fee for his or her services. Each Trustee also
receives fees for serving as Trustee of other Putnam funds. The
Trustees periodically review their fees to assure that such fees
continue to be appropriate in light of their responsibilities as well as
in relation to fees paid to trustees of other mutual fund complexes.
The Trustees meet monthly over a two-day period, except in August. The
Board Policy Committee, which consists solely of Trustees not affiliated
with Putnam Management and is responsible for recommending Trustee
compensation, estimates that Committee and Trustee meeting time together
with the appropriate preparation requires the equivalent of at least
three business days per Trustee meeting. The following table shows the
year each Trustee was first elected a Trustee of the Putnam funds, the
fees paid to each Trustee by the fund for fiscal 2000 and the fees paid
to each Trustee by all of the Putnam funds during calendar year 1999:
<TABLE>
<CAPTION>
COMPENSATION TABLE
Estimated annual Total
Aggregate Pension or retirement benefits from all compensation
compensation from benefits accrued as Putnam funds upon from all Putnam
Trustees/Year the fund (1) part of fund expenses retirement (2) funds (3)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jameson A. Baxter/
1994 $1,335 $257 $95,000 $191,000 (4)
Hans H. Estin/
1972 1,338 580 95,000 190,000
John A. Hill/
1985 (5) 1,325 294 115,000 239,750 (4)
Ronald J. Jackson/
1996 1,335 351 95,000 193,500 (4)
Paul L. Joskow/
1997 1,335 140 95,000 191,000 (4)
Elizabeth T. Kennan/
1992 1,328 380 95,000 190,000
Lawrence J. Lasser/
1992 1,333 290 95,000 189,000
John H. Mullin, III/
1997 1,323 209 95,000 196,000 (4)
Robert E. Patterson/
1984 1,335 198 95,000 190,250
William F. Pounds/
1971 (5)(6) 989 668 111,000 231,000
George Putnam/
1957 (6) 989 569 92,834 190,000
George Putnam, III/
1984 1,335 134 95,000 190,000
A.J.C. Smith/
1986 (7) 1,309 423 91,833 188,000
W. Thomas Stephens/
1997 1,318 196 95,000 188,000 (4)
W. Nicholas Thorndike/
1992 1,309 533 95,000 190,000
</TABLE>
(1) Includes an annual retainer and an attendance fee for each meeting
attended.
(2) Assumes that each Trustee retires at the normal retirement date.
For Trustee who are not within three years of retirement, estimated
benefits for each Trustee are based on Trustee fee rates in effect
during calendar 1999.
(3) As of December 31, 1999, there were 114 funds in the Putnam family.
(4) Includes compensation deferred pursuant to a Trustee Compensation
Deferral Plan.
(5) Includes additional compensation for service as Vice Chairman of the
Putnam funds. Mr. Hill was elected Chairman of the Putnam Funds as of
July 1, 2000.
(6) Reflects retirement from the Board of Trustees of the
Putnam funds on June 30, 2000.
(7) Commencing July 1, 2000, Marsh & McLennan Companies, Inc.,
compensates Mr. Lasser and Mr. Smith for their services as Trustees.
The estimated annual retirement benefits and related fund expenses shown
in this table for Messrs. Lasser and Smith reflect benefits earned under
the Funds' retirement plan prior to that date.
Under a Retirement Plan for Trustees of the Putnam funds (the "Plan"),
each Trustee who retires with at least five years of service as a
Trustee of the funds is entitled to receive an annual retirement benefit
equal to one-half of the average annual compensation paid to such
Trustee for the last three years of service prior to retirement. This
retirement benefit is payable during a Trustee's lifetime, beginning the
year following retirement, for a number of years equal to such Trustee's
years of service. A death benefit, also available under the Plan,
assures that the Trustee and his or her beneficiaries will receive
benefit payments for the lesser of an aggregate period of (i) ten years
or (ii) such Trustee's total years of service.
The Plan Administrator (a committee comprised of Trustees that are not
"interested persons" of the fund, as defined in the Investment Company
Act of 1940) may terminate or amend the Plan at any time, but no
termination or amendment will result in a reduction in the amount of
benefits (i) currently being paid to a Trustee at the time of such
termination or amendment, or (ii) to which a current Trustee would have
been entitled had he or she retired immediately prior to such
termination or amendment.
For additional information concerning the Trustees, see "Management" in
Part II of this SAI.
Share ownership
[To be updated]
At November 30, 2000, the officers and Trustees of the fund as a group
owned less than 1% of the outstanding shares of each class and, except
as noted below, to the knowledge of the fund no person owned of record
or beneficially 5% or more of any class of the fund:
Shareholder name Percentage
Class and address owned
----- -------------------- --------
Distribution fees
During fiscal 2000, the fund paid the following 12b-1 fees to Putnam
Mutual Funds:
Class A Class B Class C Class M
$1,987,617 $5,883,921 $787,518 $376,236
Class A sales charges and contingent deferred sales charges
Putnam Mutual Funds received sales charges with respect to class A
shares in the following amounts during the periods indicated:
Sales charges
retained by Putnam Contingent
Total Mutual Funds deferred
front-end after sales
Fiscal year sales charges dealer concessions charges
2000 $11,569,305 $1,887,468 $38,319
1999 $ 1,262,007 $ 203,043 $14,230
1998 $ 948,112 $ 157,672 $ 63
Class B contingent deferred sales charges
Putnam Mutual Funds received contingent deferred sales charges upon
redemptions of class B shares in the following amounts during the
periods indicated:
Contingent deferred
Fiscal year sales charges
2000 $568,381
1999 $185,854
1998 $ 82,243
Class C contingent deferred sales charges
Putnam Mutual Funds received contingent deferred sales charges upon
redemptions of class C shares in the following amounts during the
periods indicated:
Contingent deferred
Fiscal year sales charges
2000 $37,470
1999 $ 0
Class M sales charges
Putnam Mutual Funds received sales charges with respect to class M
shares in the following amounts during the periods indicated:
Sales charges
retained by Putnam
Mutual Funds
Total after
Fiscal year sales charges dealer concessions
2000 $560,294 $91,045
1999 $103,491 $19,076
1998 $ 56,454 $ 9,402
Investor servicing and custody fees and expenses
During the 2000 fiscal year, the fund incurred $3,863,204 in fees and
out-of-pocket expenses for investor servicing and custody services
provided by Putnam Fiduciary Trust Company.
INVESTMENT PERFORMANCE
Standard performance measures
(for periods ended August 31, 2000)
Class A Class B Class C Class M Class Y
Inception date: 12/28/95 10/30/96 7/26/99 10/30/96 2/1/00
Average annual total return+
1 year 50.32% 53.24% 57.41% 53.25% 59.95%
Life of fund 29.50% 30.03% 30.20% 29.50% 31.50%
+Reflecting an expense limitation in effect during the period. In the
absence of the expense limitation, total return shown would have been
lower. The per share amount of the expense limitation is set forth in
the section of the prospectus entitled "Financial Highlights."
Returns for class A and class M shares reflect the deduction of the
current maximum initial sales charges of 5.75% for class A shares and
3.50% for class M shares.
Returns for class B and class C shares reflect the deduction of the
applicable contingent deferred sales charge ("CDSC"), which for class B
is 5% in the first year, declining to 1% in the sixth year, and
eliminated thereafter, and for class C is 1% in the first year and
eliminated thereafter.
Returns shown for class B, class C, class M and class Y shares for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the deduction of
the initial sales charge or CDSC, if any, currently applicable to each
class and the higher operating expenses applicable to such shares.
Returns shown for class A shares have not been adjusted to reflect
payments under the class A distribution plan prior to its
implementation. All returns assume reinvestment of distributions at net
asset value and represent past performance; they do not guarantee future
results. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than
their original cost.
See "Standard Performance Measures" in Part II of this SAI for
information on how performance is calculated.
ADDITIONAL OFFICERS
In addition to the persons listed as fund officers in Part II of this
SAI, each of the following persons is also a Vice President of the fund
and certain of the other Putnam funds, the total number of which is
noted parenthetically. Officers of Putnam Management hold the same
offices in Putnam Management's parent company, Putnam Investments, Inc.
Officer Name (Age) (Number of funds)
Joseph P.Joseph (42) (2 funds). Managing Director of Putnam Management.
Omid Kamshad (38) (7 funds). Managing Director of Putnam Management.
Prior to January 1996, Mr. Kamshad was Director at Lombard Odier
International.
John J. Morgan, Jr. (60) (27 funds). Managing Director of Putnam
Management.
Justin M. Scott (43) (4 funds). Managing Director of Putnam Management.
Joshua L. Byrne (36) (5 funds). Senior Vice President of Putnam
Management.
Andrew Graham (34) (1 fund). Senior Vice President of Putnam
Management. Prior to October 1999, Mr. Graham was a Fund Manager at
Scottish Widows Investment Management. Prior to February to 1998, he
was a Fund Manager at Zurich Investment Management.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02109, are the fund's independent accountants, providing audit services,
tax return review and other tax consulting services and assistance and
consultation in connection with the review of various Securities and
Exchange Commission filings. The Report of Independent Accountants,
financial highlights and financial statements included in the fund's
Annual Report for the fiscal year ended August 31, 2000, filed
electronically on October 25, 2000 (File No. 811-7237), are
incorporated by reference into this SAI. The financial highlights
included in the prospectus and incorporated by reference into this SAI
and the financial statements incorporated by reference into the
prospectus and this SAI have been so included and incorporated in
reliance upon the report of the independent accountants, given on their
authority as experts in auditing and accounting.
Prospectus
December 30, 2000
Putnam High Yield Trust II
Class A, B, C and M shares
Investment Category: Income
This prospectus explains what you should know about this mutual fund
before you invest. Please read it carefully.
Putnam Investment Management, LLC (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
2 Performance information
4 Fees and expenses
5 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?
12 How do I sell fund shares?
13 How do I exchange fund shares?
14 Fund distributions and taxes
15 Financial highlights
[SCALE LOGO OMITTED]
Fund summary
GOAL
The fund seeks high current income. Capital growth is a secondary goal when
consistent with achieving high current income.
MAIN INVESTMENT STRATEGIES -- LOWER-RATED BONDS
We mainly invest in bonds that:
* are obligations of U.S. corporations,
* are below investment-grade in quality (junk bonds), and
* have intermediate to long-term maturities (three years or longer).
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 issuers of the fund's investments will not make timely
payments of interest and principal. Because the fund invests significantly
in junk bonds, it is subject to heightened credit risk. Investors should
carefully consider the risks associated with an investment in the fund.
* The risk that movements in financial markets will adversely affect the
value of the fund's investments. This risk includes interest rate risk,
which means that the prices of the fund's investments are likely to fall if
interest rates rise. Interest rate risk is generally highest for
investments with longer maturities.
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 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 a broad measure of market performance. Of course, the 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
1998 0.20%
1999 4.51%
Performance figures in the bar chart do not reflect the impact of sales
charges. If they did, performance would be less than that shown. The
year-to-date performance through 9/30/00 was -2.28%. During the period
shown in the bar chart, the highest return for a quarter was 8.00% (quarter
ending 3/31/98) and the lowest return for a quarter was -8.49% (quarter
ending 9/30/98).
Average Annual Total Returns (for periods ending 12/31/99)
-------------------------------------------------------------------------------
Past Since Inception
1 year inception date
-------------------------------------------------------------------------------
Class A -0.44% -0.11% 12/31/97
Class B -0.97% -0.03% 12/31/97
Class C 2.23% 1.31% 7/26/99
Class M 0.91% 0.47% 12/31/97
First Boston High Yield Index 3.28% 1.92%
-------------------------------------------------------------------------------
Unlike the bar chart, this performance information reflects the impact of
sales charges. Class A and class M share performance reflects the current
maximum initial sales charges; class B and class C performance reflects the
maximum applicable deferred sales charge if shares had been redeemed on
12/31/99. For periods before the inception of class C shares (7/26/99),
performance information shown for that class 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 class C shares.
The fund's performance through 8/31/98 benefited from Putnam Management's
agreement (since inception) to limit the fund's expenses. The fund's
performance is compared to First Boston High Yield Index, an unmanaged
index that is market-weighted and includes publicly-traded bonds having a
rating below BBB by Standard & Poor's and Baa by Moody's.
FEES AND EXPENSES
This table summarizes the fees and expenses you may pay if you invest in
the fund. Expenses are based on the fund's last fiscal year.
Shareholder Fees (fees paid directly from your investment)
-------------------------------------------------------------------------------
Class A Class B Class C Class M
-------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of the offering price) 4.75% 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
-------------------------------------------------------------------------------
* A deferred sales charge of up to 1% may be imposed on certain redemptions
of class A shares bought without an initial sales charge.
-------------------------------------------------------------------------------
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
-------------------------------------------------------------------------------
Total Annual
Management Distribution Other Fund Operating
Fees (12b-1) Fees Expenses Expenses
-------------------------------------------------------------------------------
Class A 0.62% 0.25% 0.14% 1.01%
Class B 0.62% 1.00% 0.14% 1.76%
Class C 0.62% 1.00% 0.14% 1.76%
Class M 0.62% 0.50% 0.14% 1.26%
-------------------------------------------------------------------------------
EXAMPLE
This 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.
-------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
-------------------------------------------------------------------------------
Class A $573 $781 $1,006 $1,653
Class B $679 $854 $1,154 $1,875*
Class B
(no redemption) $179 $554 $ 954 $1,875*
Class C $279 $554 $ 954 $2,073
Class C
(no redemption) $179 $554 $ 954 $2,073
Class M $449 $712 $ 994 $1,798
-------------------------------------------------------------------------------
* 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
lower-rated bonds. Under normal market conditions, the fund invests at
least 80% of its total assets in lower-rated securities, which include debt
securities, convertible debt securities and preferred stock. We will
consider, among other things, credit, interest rate and prepayment risks as
well as general market conditions when deciding whether to buy or sell
investments.
A description of the risks associated with the fund's main investment
strategies follows.
* 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 value of existing debt instruments, and rising
interest rates generally decrease the value of existing debt investments.
Changes in a debt instrument's value usually will not affect the amount of
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 investments give its issuer the option to call, or redeem, its
securities before their maturity date. If an issuer calls its security
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 higher-yielding, higher-risk debt investments that are
rated below BBB or its equivalent at the time of purchase by each
nationally recognized securities rating agency rating such investments, or
are unrated investments that we believe are of comparable quality. We may
invest up to 15% of the fund's total assets in debt investments rated below
CCC or its equivalent, at the time of purchase, by each rating agency
rating such investments, including investments in the lowest rating
category of the rating agency, and unrated investments 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. Lower-rated debt usually has a more limited market than higher-rated
debt, which may at times make it difficult for us to buy or sell certain
debt instruments or to establish their fair value. Credit risk is generally
greater for investments that are issued at less than their face value and
make payments of interest only at maturity rather than at intervals during
the life of the investment.
Credit ratings are based largely on the issuer's historical financial
condition and the rating agencies' investment analysis at the time of
rating. The rating assigned to any particular investment does not
necessarily reflect the issuer's current financial condition, and does not
reflect an assessment of an investment's volatility or liquidity. Although
we consider credit ratings in making investment decisions, we perform our
own investment analysis and do not rely only on ratings assigned by the
rating agencies. The fund depends more on our ability in buying lower-rated
debt than it does in buying investment-grade debt. We may have to
participate in legal proceedings or to take possession of and manage assets
that secure the issuer's obligations. This could increase the fund's
operating expenses and decrease its net asset value.
Although investment-grade investments generally have lower credit risk,
they may share some of the risks of lower-rated investments.
* Foreign investments. We may invest in securities of foreign issuers.
Foreign investments involve certain special risks. For example, their
values may drop in response to changes in currency exchange rates,
unfavorable political and legal developments, unreliable or untimely
information, or economic and financial instability. In addition, the
liquidity of these investments may be more limited than domestic
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
know as emerging) markets that typically have less developed legal and
financial systems.
Certain of these risks may also apply to some extent to U.S.-traded
investments that are denominated in foreign currencies, investments in U.S.
companies that are traded in foreign markets, or investments in U.S.
companies that have significant foreign operations. Special U.S. tax
considerations may apply to our foreign investments.
* Illiquid investments. We may invest up to 15% of the fund's assets in
illiquid investments, which may be considered speculative. The sale of many
of these investments is limited by law. We may not be able to sell the
fund's illiquid investments when we consider it is desirable to do so or we
may be able to sell them only at less than their market value.
* Other investments. In addition to the main investment strategies
described above, we may also make other types of investments, such as
investments in derivatives including futures, options, warrants and swap
contracts, and equity securities, assignments of and participations in
fixed and floating rate loans, 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 0.62% of average net assets for the fund's last fiscal year. Putnam
Management's address is One Post Office Square, Boston, MA 02109.
The following officer and the Credit Team of Putnam Management have had
primary responsibility for the day-to-day management of the fund's
portfolio since the year shown below. Ms. Leichter's experience as a
portfolio manager or investment analyst over at least the last five years
is also shown.
-------------------------------------------------------------------------------
Manager Since Experience
-------------------------------------------------------------------------------
Jennifer E. Leichter 1998 1987 - Present Putnam Management
Managing Director
-------------------------------------------------------------------------------
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 Investor Services.
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 4.75%
* 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% if you sell shares within 6 years of
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 about 8 years, reducing the
future 12b-1 fee (may convert sooner in some cases)
* Orders for class B shares for more than $250,000 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 of
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
Class M shares
* Initial sales charge of up to 3.25%
* Lower sales charges for larger investments of $50,000 or more
* No deferred sales charge
* Lower annual expenses, and higher dividends, than class B or C shares
because of lower 12b-1 fee
* Higher annual expenses, and lower dividends, than class A shares because
of higher 12b-1 fee
* No conversion to class A shares, so future 12b-1 fee does not decrease
-------------------------------------------------------------------------------
Initial sales charges for class A and M shares
-------------------------------------------------------------------------------
Class A sales charge Class M sales charge
as a percentage of: as a percentage of:
-------------------------------------------------------------------------------
Amount of purchase Net amount Offering Net amount Offering
at offering price ($) invested price* invested price*
-------------------------------------------------------------------------------
Under 50,000 4.99% 4.75% 3.63% 3.25%
50,000 but under
100,000 4.71 4.50 2.30 2.25
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
-------------------------------------------------------------------------------
* 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+
-------------------------------------------------------------------------------
Charge 5% 4% 3% 3% 2% 1% 0%
A deferred sales charge of 1% will apply to class C shares 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 after 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
Retail Management 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 (based on
average net assets) of up to 0.35% 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 0.50% 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 redemption 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 signed 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 and transfer 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 shares more than a maximum amount set by the Trustees. There is
presently no maximum, but the Trustees could set a maximum that applies 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 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. 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. Consult Putnam Investor Services before requesting an
exchange.
Fund distributions and taxes
The fund declares a distribution daily based on our projections of its
estimated net investment income. The fund normally distributes any net
investment income monthly 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 distributions 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 are taxable as capital gains. Distributions of gains from
investments that the fund owned for one year or less and gains on the sale
of bonds characterized as market discount are 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 yield on those securities 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 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.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS A
(For a share outstanding throughout the period)
For the period
Dec. 31, 1997+
Year ended August 31 to August 31
-------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $7.49 $8.02 $8.50
--------------------------------------------------------------------------------------
Investment operations
Net investment income a .77 .78 .41d
Net realized and unrealized
loss on investments (.70) (.48) (.47)
--------------------------------------------------------------------------------------
Total from investment operations .07 .30 (.06)
--------------------------------------------------------------------------------------
Less distributions
From net investment income (.77) (.78) (.32)
In excess of net investment income (.01) (.02) (.05)
Return of capital -- (.03) (.05)
--------------------------------------------------------------------------------------
Total distributions (.78) (.83) (.42)
--------------------------------------------------------------------------------------
Net asset value,
end of period $6.78 $7.49 $8.02
--------------------------------------------------------------------------------------
Ratios and supplemental data
Total return at
net asset value (%)b .97 3.85 (1.08)*
Net assets, end of period
(in thousands) $561,606 $594,559 $278,847
--------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)c 1.01 1.06 .84*d
Ratio of net investment income
to average net assets (%) 10.71 9.99 4.57*d
Portfolio turnover (%) 87.91 51.30e 44.05*
--------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
a Per share net investment income has been determined on the basis of the weighted
average number of shares outstanding during the period.
b Total return assumes dividend reinvestment and does not reflect the effect of sales
charges.
c Includes amounts paid through expense offset arrangements.
d Reflects an expense limitation in effect during the period. As a result of such
limitation, expenses for the fund reflect a reduction of less than $0.01 per share
for the period ended August 31, 1998.
e Portfolio turnover excludes the impact of assets received from the acquisition of
Putnam High Yield Total Return Fund.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS B
(For a share outstanding throughout the period)
For the period
Dec. 31, 1997+
Year ended August 31 to August 31
-------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
Beginning of period $7.50 $8.01 $8.50
--------------------------------------------------------------------------------------
Investment operations
Net investment income a .71 .72 .36d
Net realized and unrealized
loss on investments (.69) (.46) (.46)
--------------------------------------------------------------------------------------
Total from investment operations .02 .26 (.10)
--------------------------------------------------------------------------------------
Less distributions
From net investment income (.72) (.72) (.29)
In excess of net investment income (.01) (.02) (.05)
Return of capital -- (.03) (.05)
--------------------------------------------------------------------------------------
Total distributions (.73) (.77) (.39)
--------------------------------------------------------------------------------------
Net asset value,
end of period $6.79 $7.50 $8.01
--------------------------------------------------------------------------------------
Ratios and supplemental data
Total return at
net asset value (%)b 0.21 3.33 (1.58)*
Net assets, end of period
(in thousands) $758,381 $855,729 $444,096
--------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)c 1.76 1.81 1.34*d
Ratio of net investment income
to average net assets (%) 9.96 9.24 4.07*d
Portfolio turnover (%) 87.91 51.30e 44.05*
--------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
a Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
b Total return assumes dividend reinvestment and does not reflect the effect of
sales charges.
c Includes amounts paid through expense offset arrangements.
d Reflects an expense limitation in effect during the period. As a result of such
limitation, expenses for the fund reflect a reduction of less than $0.01 per
share for the period ended August 31, 1998.
e Portfolio turnover excludes the impact of assets received from the acquisition of
Putnam High Yield Total Return Fund.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS C
(For a share outstanding throughout the period)
For the period
Year ended July 26, 1999+
August 31 to August 31
-------------------------------------------------
2000 1999
--------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
Beginning of period $7.50 $7.69
--------------------------------------------------------------------------------------
Investment operations
Net investment income a .71 .08
Net realized and unrealized
loss on investments (.69) (.20)
--------------------------------------------------------------------------------------
Total from investment operations .02 (.12)
--------------------------------------------------------------------------------------
Less distributions
From net investment income (.72) (.07)
In excess of net investment income (.01) --d
Return of capital -- --d
--------------------------------------------------------------------------------------
Total distributions (.73) (.07)
--------------------------------------------------------------------------------------
Net asset value,
end of period $6.79 $7.50
--------------------------------------------------------------------------------------
Ratios and supplemental data
Total return at
net asset value (%)b 0.20 (1.52)*
Net assets, end of period
(in thousands) $17,220 $1,528
--------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)c 1.76 .18*
Ratio of net investment income
to average net assets (%) 9.97 1.18*
Portfolio turnover (%) 87.91 51.30 e
--------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
a Per share net investment income has been determined on the basis of the weighted
average number of shares outstanding during the period.
b Total return assumes dividend reinvestment and does not reflect the effect of sales
charges.
c Includes amounts paid through expense offset arrangements.
d Distributions were less than $0.01 per share.
e Portfolio turnover excludes the impact of assets received from the acquisition of
Putnam High Yield Total Return Fund.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS M
(For a share outstanding throughout the period)
For the period
Dec. 31, 1997+
Year ended August 31 to August 31
-------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $7.50 $8.01 $8.50
--------------------------------------------------------------------------------------
Investment operations
Net investment income a .75 .77 .40d
Net realized and unrealized
loss on investments (.71) (.47) (.48)
--------------------------------------------------------------------------------------
Total from investment operations .04 .30 (.08)
--------------------------------------------------------------------------------------
Less distributions
From net investment income (.75) (.76) (.31)
In excess of net investment income (.01) (.02) (.05)
Return of capital -- (.03) (.05)
--------------------------------------------------------------------------------------
Total distributions (.76) (.81) (.41)
--------------------------------------------------------------------------------------
Net asset value,
end of period $6.78 $7.50 $8.01
--------------------------------------------------------------------------------------
Ratios and supplemental data
Total return at
net asset value (%)b .57 3.86 (1.33)*
Net assets, end of period
(in thousands) $32,928 $39,443 $19,094
--------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)c 1.26 1.31 1.01*d
Ratio of net investment income
to average net assets (%) 10.46 9.71 4.49*d
Portfolio turnover (%) 87.91 51.30e 44.05*
--------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
a Per share net investment income has been determined on the basis of the weighted
average number of shares outstanding during the period.
b Total return assumes dividend reinvestment and does not reflect the effect of sales
charges.
c Includes amounts paid through expense offset arrangements.
d Reflects an expense limitation in effect during the period. As a result of such
limitation, expenses for the fund reflect a reduction of less than $0.01 per share
for the period ended August 31, 1998.
e Portfolio turnover excludes the impact of assets received from the acquisition of
Putnam High Yield Total Return Fund.
</TABLE>
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 Investor Services 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 Funds a
PUTNAM GROWTH FUNDS
Putnam Asia Pacific Growth Fund
Putnam Capital Appreciation Fund
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 Century Growth Fund
Putnam New Opportunities Fund
Putnam OTC & Emerging Growth Fund
Putnam Research Fund
Putnam Tax Smart Equity Fund
Putnam Technology Fund
Putnam Vista Fund
Putnam Voyager Fund
Putnam Voyager Fund II
PUTNAM GROWTH AND INCOME FUNDS
Putnam Balanced Fund
Putnam Balanced Retirement Fund
Putnam Classic Equity 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 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 Fund b
Putnam High Yield Trust b
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 funds c
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 FUNDS d
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 9/30/00.
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 Investor Services 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 High
Yield Trust II
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 any Putnam Fund, or make shareholder inquiries, by
contacting your financial advisor, by visiting Putnam's Internet site
or by calling Putnam toll-free at 1-800-225-1581.
You may review and copy information about a 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 pay-ment 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 41203
Providence, Rhode Island 02940-1203
www.putnaminvestments.com
File No. 811-7513 NP064 64196 12/00
Putnam High Yield II
(a series of Putnam Funds Trust)
Prospectus
December 30, 2000
Putnam High Yield Trust II
Class Y shares
Investment Category: Income
This prospectus explains what you should know about this mutual fund
before you invest. Please read it carefully.
Putnam Investment Management, LLC (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
2 Performance information
4 Fees and expenses
4 What are the fund's main investment strategies and related risks?
7 Who manages the fund?
7 How does the fund price its shares?
8 How do I buy fund shares?
9 How do I sell fund shares?
9 How do I exchange fund shares?
10 Fund distributions and taxes
Putnam Defined Contribution Plans
[SCALE LOGO OMITTED]
Fund summary
GOAL
The fund seeks high current income. Capital growth is a secondary goal when
consistent with achieving high current income.
MAIN INVESTMENT STRATEGIES -- LOWER-RATED BONDS
We mainly invest in bonds that:
* are obligations of U.S. corporations,
* are below investment grade in quality (junk bonds), and
* have intermediate to long-term maturities (three years or longer).
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 issuers of the fund's investments will not make timely
payments of interest and principal. Because the fund invests significantly
in junk bonds, it is subject to heightened credit risk. Investors should
carefully consider the risks associated with an investment in the fund.
* The risk that movements in financial markets will adversely affect the
value of the fund's investments. This risk includes interest rate risk,
which means that the prices of the fund's investments are likely to fall if
interest rates rise. Interest rate risk is generally highest for
investments with longer maturities.
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 chart provides some indication of the fund's risks by showing
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 a
broad measure 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
1998 0.20%
1999 4.51%
Year-to-date performance through 9/30/00 was -2.28%. During the periods
shown in the bar chart, the highest return for a quarter was 8.00% (quarter
ending 3/31/98) and the lowest return for a quarter was -8.49% (quarter
ending 9/30/98).
Performance of class Y shares, which were not in existence during the
periods shown, in the bar chart and table following the chart, was derived
from the historical performance of the fund's 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 (12/31/97)
-------------------------------------------------------------------------------
Class Y 4.51% 2.34%
First Boston High Yield Index 3.28% 1.92%
-------------------------------------------------------------------------------
The fund's performance through 8/31/98 benefited from Putnam Management's
agreement (since inception) to limit the fund's expenses. The fund's
performance is compared to the First Boston High Yield Index, an unmanaged
index that is market-weighted and includes publicly-traded bonds having a
rating below BBB by Standard & Poor's and Baa by Moody's.
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)
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Total Annual
Management Other Fund Operating
Fees Fees Expenses
-------------------------------------------------------------------------------
Class Y 0.62% 0.14% 0.76%
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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 $78 $243 $422 $942
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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
lower-rated bonds. Under normal market conditions, the fund invests at
least 80% of its total assets in lower-rated securities, which include debt
securities, convertible debt securities and preferred stock. We will
consider, among other things, credit, interest rate and prepayment risks as
well as general market conditions when deciding whether to buy or sell
investments.
A description of the risks associated with the fund's main investment
strategies follows.
* 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 value of existing debt instruments, and rising
interest rates generally decrease the value of existing debt investments.
Changes in a debt instrument's value usually will not affect the amount of
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 investments give its issuer the option to call, or redeem, its
securities before their maturity date. If an issuer calls its security
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 higher-yielding, higher-risk debt investments that are
rated below BBB or its equivalent at the time of purchase by each
nationally recognized securities rating agency rating such investments, or
are unrated investments that we believe are of comparable quality. We may
invest up to 15% of the fund's total assets in debt investments rated below
CCC or its equivalent, at the time of purchase, by each rating agency
rating such investments, including investments in the lowest rating
category of the rating agency, and unrated investments 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. Lower-rated debt usually has a more limited market than higher-rated
debt, which may at times make it difficult for us to buy or sell certain
debt instruments or to establish their fair value. Credit risk is generally
greater for investments that are issued at less than their face value and
make payments of interest only at maturity rather than at intervals during
the life of the investment.
Credit ratings are based largely on the issuer's historical financial
condition and the rating agencies' investment analysis at the time of
rating. The rating assigned to any particular investment does not
necessarily reflect the issuer's current financial condition, and does not
reflect an assessment of an investment's volatility or liquidity. Although
we consider credit ratings in making investment decisions, we perform our
own investment analysis and do not rely only on ratings assigned by the
rating agencies. The fund depends more on our ability in buying lower-rated
debt than it does in buying investment-grade debt. We may have to
participate in legal proceedings or to take possession of and manage assets
that secure the issuer's obligations. This could increase the fund's
operating expenses and decrease its net asset value.
Although investment-grade investments generally have lower credit risk,
they may share some of the risks of lower-rated investments.
* Foreign investments. We may invest in securities of foreign issuers.
Foreign investments involve certain special risks. For example, their
values may drop in response to changes in currency exchange rates,
unfavorable political and legal developments, unreliable or untimely
information, or economic and financial instability. In addition, the
liquidity of these investments may be more limited than domestic
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
know as emerging) markets that typically have less developed legal and
financial systems.
Certain of these risks may also apply to some extent to U.S.- traded
investments that are denominated in foreign currencies, investments in U.S.
companies that are traded in foreign markets, or investments in U.S.
companies that have significant foreign operations.
* Illiquid investments. We may invest up to 15% of the fund's assets in
illiquid investments, which may be considered speculative. The sale of many
of these investments is limited by law. We may not be able to sell the
fund's illiquid investments when we consider it is desirable to do so or we
may be able to sell them only at less than their market value.
* Other investments. In addition to the main investment strategies
described above, we may also make other types of investments, such as
investments in derivatives including futures, options, warrants and swap
contracts, and equity securities, assignments of and participations in
fixed and floating rate loans, 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 0.62% of average net assets for the fund's last fiscal year. Putnam
Management's address is One Post Office Square, Boston, MA 02109.
The following officer and the Credit Team of Putnam Management have had
primary responsibility for the day-to-day management of the fund's
portfolio since the year shown below. Ms. Leichter's experience as
portfolio manager or investment analyst over at least the last five years
is also shown.
------------------------------------------------------------------------------
Manager Since Experience
------------------------------------------------------------------------------
Jennifer E. Leichter 1998 1987 - Present Putnam Management
Managing Director
------------------------------------------------------------------------------
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?
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 Retail Management, Inc. (Putnam Retail Management) 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.
College savings plans that qualify for tax-exempt treatment under Section
529 of the Internal Revenue Code and are approved by Putnam Retail
Management are also eligible to purchase class Y shares.
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 declares a distribution daily based on our projections of its
estimated net investment income. The fund normally distributes any net
investment income monthly 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 you do not select another option, 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.
You should consult your tax advisor for more information on your own tax
situation, including possible foreign, state and local taxes.
[This page left intentionally blank]
For more information about
Putnam High Yield Trust II
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 auditor'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.
PUTNAM INVESTMENTS
Putnam Defined Contribution Plans
One Post Office Square
Boston, Massachusetts 02109
1-800-752-9894
Address correspondence to
Putnam Investor Services
P.O. Box 9740
Providence, Rhode Island 02940-9740
www.putnaminvestments.com
67363 12/00 File No. 811-7513
PUTNAM HIGH YIELD TRUST II
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
December 30, 2000
This SAI is not a prospectus. If the fund has more than one form of
current prospectus, each reference to the prospectus in this SAI shall
include all of the fund's prospectuses, unless otherwise noted. The SAI
should be read together with the applicable prospectus. Certain
disclosure has been incorporated by reference from the fund's annual
report. For a free copy of the fund's annual report or prospectus dated
December 30, 2000, as revised from time to time, call Putnam Investor
Services at 1-800-225-1581 or write Putnam Investor Services, Mailing
address: P.O. Box 41203, Providence, RI 02940-1203.
Part I of this SAI contains specific information about the fund. Part
II includes information about the fund and the other Putnam funds.
TABLE OF CONTENTS
PART I
FUND HISTORY AND CLASSIFICATION I-
INVESTMENT RESTRICTIONS I-
DISTRIBUTIONS I-
CHARGES AND EXPENSES I-
INVESTMENT PERFORMANCE I-
ADDITIONAL OFFICERS I-
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS I-
PART II
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS II-
TAXES II-
MANAGEMENT II-
DETERMINATION OF NET ASSET VALUE II-
HOW TO BUY SHARES II-
DISTRIBUTION PLANS II-
INVESTOR SERVICES II-
SIGNATURE GUARANTEES II-
SUSPENSION OF REDEMPTIONS II-
SHAREHOLDER LIABILITY II-
STANDARD PERFORMANCE MEASURES II-
COMPARISON OF PORTFOLIO PERFORMANCE II-
SECURITIES RATINGS II-
DEFINITIONS II-
SAI
PART I
FUND HISTORY AND CLASSIFICATION
Putnam High Yield Trust II is a diversified series of Putnam Funds
Trust, a Massachusetts business trust organized on January 22, 1996. A
copy of the Agreement and Declaration of Trust, which is governed by
Massachusetts law, is on file with the Secretary of State of The
Commonwealth of Massachusetts.
The Trust is an open-end management investment company with an unlimited
number of authorized shares of beneficial interest. The Trustees may,
without shareholder approval, create two or more series of shares
representing separate investment portfolios. Any such series of shares
may be divided without shareholder approval into two or more classes of
shares having such preferences and special or relative rights and
privileges as the Trustees determine. The fund offers other classes of
shares with different sales charges and expenses.
Each share has one vote, with fractional shares voting proportionally.
Shares of all series and classes will vote together as a single class on
all matters except, (i) when required by the Investment Company Act of
1940 or (ii) when the Trustees have determined that a matter affects one
or more series or classes materially differently, shares are voted by
individual series or class. When the Trustees determine that such a
matter affects only the interests of a particular series or class, only
shareholders of such series or class shall be entitled to vote thereon.
Shares are freely transferable, are entitled to dividends as declared by
the Trustees, and, if the fund were liquidated, would receive the net
assets of the fund.
The fund may suspend the sale of shares at any time and may refuse any
order to purchase shares. Although the fund is not required to hold
annual meetings of its shareholders, shareholders holding at least 10%
of the outstanding shares entitled to vote have the right to call a
meeting to elect or remove Trustees, or to take other actions as
provided in the Agreement and Declaration of Trust.
The fund is a "diversified" investment company under the Investment
Company Act of 1940. This means that with respect to 75% of its total
assets, the fund may not invest more than 5% of its total assets in the
securities of any one issuer (except U.S. government securities). The
remaining 25% of its total assets is not subject to this restriction.
To the extent the fund invests a significant portion of its assets in
the securities of a particular issuer, it will be subject to an
increased risk of loss if the market value of such issuer's securities
declines.
INVESTMENT RESTRICTIONS
As fundamental investment restrictions, which may not be changed without
a vote of a majority of the outstanding voting securities, the fund may
not and will not:
(1) Borrow money in excess of 33 1/3% of the value (taken at the lower
of cost or current value) of its total assets (not including the amount
borrowed) at the time the borrowing is made.
(2) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments,
it may be deemed to be an underwriter under federal securities.
(3) Purchase or sell real estate, although it may purchase securities of
issuers which deal in real estate, securities which are secured by
interests in real estate, and securities representing interests in real
estate, and it may acquire and dispose of real estate or interests in
real estate acquired through the exercise of its rights as a holder of
debt obligations secured by real estate or interests therein.
(4) Purchase or sell commodities or commodity contracts, except that the
fund may purchase and sell financial futures contracts and options and
may enter into foreign exchange contracts and other financial
transactions not involving physical commodities.
(5) Make loans, except by purchase of debt obligations in which the fund
may invest consistent with its investment policies, by entering into
repurchase agreements, by lending cash to another Putnam fund or by
lending its portfolio securities.
(6) With respect to 75% of its total assets, invest in securities of any
issuer if, immediately after such investment, more than 5% of the total
assets of the fund (taken at current value) would be invested in the
securities of such issuer; provided that this limitation does not apply
to obligations issued or guaranteed as to interest or principal by the
U.S. government or its agencies or instrumentalities.
(7) Purchase securities (other than securities of the U.S. government,
its agencies or instrumentalities) if, as a result of such purchase,
more than 25% of the fund's total assets would be invested in any one
industry (for the purposes of this limitation each foreign government
shall be deemed to be a separate industry).
(8) With respect to 75% of its total assets, acquire more than 10% of
the outstanding voting securities of any issuer.
(9) Issue any class of securities which is senior to the fund's shares
of beneficial interest, except for permitted borrowings.
Although certain of the fund's fundamental investment restrictions
permit it to borrow money to a limited extent, the fund does not
currently intend to do so and did not do so last year.
The Investment Company Act of 1940 provides that a "vote of a majority
of the outstanding voting securities" of the fund means the affirmative
vote of the lesser of (1) more than 50% of the outstanding fund shares,
or (2) 67% or more of the shares present at a meeting if more than 50%
of the outstanding fund shares are represented at the meeting in person
or by proxy.
The following non-fundamental investment policies may be changed by the
Trustees without shareholder approval:
The fund will not invest in (a) securities which are not readily
marketable, (b) securities restricted as to resale (excluding securities
determined by the Trustees of the fund (or the person designated by the
Trustees of the fund to make such determinations) to be readily
marketable), and (c) repurchase agreements maturing in more than seven
days, if, as a result, more than 15% of the fund's net assets (taken at
current value) would be invested in securities described in (a), (b) and
(c) above.
---------------------------------
All percentage limitations on investments (other than pursuant to the
non-fundamental restriction) will apply at the time of the making of an
investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
---------------------------------
DISTRIBUTIONS
The distribution declared by the fund each day will be in an amount
equal to the projected net investment income for a specified period
(which is generally expected to be one month, although it may be longer
or shorter if deemed appropriate by Putnam Management in light of
existing or anticipated market conditions to avoid sharp fluctuations in
the amount of daily distributions), plus for certain periods
undistributed amounts of such income, divided by the number of days in
that period. The amount of the daily distribution will generally differ
from the fund's daily taxable investment income and book net investment
income computed in accordance with generally accepted accounting
principles, since the daily distribution is calculated on the assumption
that estimated taxable income and book net investment income for the
period are earned pro-rata throughout the period on a daily basis.
Estimated net investment income for any period will be based upon Putnam
Management's projections of investment income to be accrued during the
period less projected expenses of the fund to be accrued for the period.
In estimating net investment income, Putnam Management may reduce the
amounts to provide a reserve of undistributed amounts, which could be
paid in subsequent periods. This procedure may enable the fund to avoid
sharp fluctuations in the total daily distributions from period to
period and to minimize the possibility of making distributions from
paid-in surplus or other capital sources. The reserve may increase the
net asset value of the fund, thereby causing redeeming shareholders to
experience higher capital gains or lower capital losses. For example,
if Putnam Management estimates that the fund's net investment income for
a period will be $.27 per share and if the fund has a reserve of $.06
per share of undistributed income, the daily distribution might be
initially established at $.01 ($.30 divided by 30 days) per share for
each day during the period, leaving a reserve of $.03 per share
available for distribution in subsequent periods. Putnam Management may
revise its estimates of the amounts of net investment income, in which
case the subsequent daily distributions during the period may be revised
accordingly.
CHARGES AND EXPENSES
Management fees
Under a Management Contract dated June 7, 1996, as revised October 3,
1996, December 6, 1996, November 6, 1997, December 8, 1997, January 8,
1998 and March 5, 1998, the fund pays a quarterly fee to Putnam
Management based on the average net assets of the fund, as determined at
the close of each business day during the quarter, at the annual rate of
0.70% of the first $500 million of the fund's average net assets, 0.60%
of the next $500 million, 0.55% of the next $500 million, 0.50% of the
next $5 billion, 0.475% of the next $5 billion, 0.455% of the next $5
billion, 0.44% of the next $5 billion and 0.43% of any excess
thereafter. For the past fiscal year, pursuant to the Management
Contract, the fund incurred the following fees:
Reflecting a reduction
in the following amount
Fiscal Management pursuant to an expense
year fee paid limitation
2000 $8,791,477 $ 0
1999 $7,382,821 $ 0
1998 $1,768,054 $21,821
Brokerage commissions
Putnam Retail Management compensates qualifying dealers
(including, for this purpose, certain financial institutions) for sales
of shares and the maintenance of shareholder accounts. The following
table shows brokerage commissions paid during the fiscal periods
indicated:
Fiscal Brokerage
year commissions
2000 $ 1,529
1999 $64,979
1998 $ 3,509
The following table shows transactions placed with brokers and dealers
during the most recent fiscal year to recognize research, statistical
and quotation services received by Putnam Management and its affiliates:
Dollar value Percent of
of these total Amount of
transactions transactions commissions
$0 0% $0
Administrative expense reimbursement
The fund reimbursed Putnam Management for administrative services during
fiscal 2000, including compensation of certain fund officers and
contributions to the Putnam Investments, Inc. Profit Sharing Retirement
Plan for their benefit, as follows:
Portion of total
reimbursement for
Total compensation and
reimbursement contributions
$16,816 $13,744
Trustee responsibilities and fees
The Trustees are responsible for generally overseeing the conduct of
fund business. Subject to such policies as the Trustees may determine,
Putnam Management furnishes a continuing investment program for the fund
and makes investment decisions on its behalf. Subject to the control of
the Trustees, Putnam Management also manages the fund's other affairs
and business.
Each Trustee receives a fee for his or her services. Each Trustee also
receives fees for serving as Trustee of other Putnam funds. The
Trustees periodically review their fees to assure that such fees
continue to be appropriate in light of their responsibilities as well as
in relation to fees paid to trustees of other mutual fund complexes.
The Trustees meet monthly over a two-day period, except in August. The
Board Policy Committee, which consists solely of Trustees not affiliated
with Putnam Management and is responsible for recommending Trustee
compensation, estimates that Committee and Trustee meeting time together
with the appropriate preparation requires the equivalent of at least
three business days per Trustee meeting. The following table shows the
year each Trustee was first elected a Trustee of the Putnam funds, the
fees paid to each Trustee by the fund for fiscal 2000 and the fees paid
to each Trustee by all of the Putnam funds during calendar year 1999:
<TABLE>
<CAPTION>
COMPENSATION TABLE
Estimated annual Total
Aggregate Pension or retirement benefits from all compensation
compensation from benefits accrued as Putnam funds upon from all Putnam
Trustees/Year the fund (1) part of fund expenses retirement (2) funds (3)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jameson A. Baxter/
1994 (4) $1,924 $434 $95,000 $191,000 (4)
Hans H. Estin/
1972 1,926 985 95,000 190,000
John A.Hill/
1985 (4)(5) 2,186 498 115,000 239,750 (4)
Ronald J. Jackson/
1996 (4) 1,924 585 95,000 193,500 (4)
Paul L. Joskow/
1997 (4) 1,926 230 95,000 191,000 (4)
Elizabeth T. Kennan/
1992 1,917 643 95,000 190,000
Lawrence J. Lasser/
1992 1,918 490 95,000 189,000
John H. Mullin, III/
1997 (4) 1,912 345 95,000 196,000
Robert E. Patterson/
1984 1,924 335 95,000 190,250
William F. Pounds/
1971 (5)(6) 1,819 1,131 111,000 231,000
George Putnam/
1957 (6) 1,642 969 92,834 190,000
George Putnam, III/
1984 1,964 228 95,000 190,000
A.J.C. Smith/
1986 (7) 1,895 717 91,833 188,000
W. Thomas Stephens/
1997 (4) 1,907 322 95,000 188,000 (4)
W. Nicholas Thorndike/
1992 1,898 901 95,000 190,000
</TABLE>
(1) Includes an annual retainer and an attendance fee for each meeting
attended.
(2) Assumes that each Trustee retires at the normal retirement date.
For Trustee who are not within three years of retirement, estimated
benefits for each Trustee are based on Trustee fee rates in effect
during calendar 1999.
(3) As of December 31, 1999, there were 114 funds in the Putnam family.
(4) Includes compensation deferred pursuant to a Trustee Compensation
Deferral Plan. The total amounts of deferred compensation payable by
the fund to Ms. Baxter, Mr. Hill, Mr. Jackson, Mr. Joskow, and Mr.
Mullin as of August 31, 2000 were $1,494, $1,711, $1,494, $1,435, and
$1,405, respectively, including income earned on such amounts.
(5) Includes additional compensation for service as Vice Chairman of the
Putnam funds. Mr. Hill was elected Chairman of the Putnam Funds as of
July 1, 2000.
(6) Reflects retirement from the Board of Trustees of the
Putnam funds on June 30, 2000.
(7) Commencing July 1, 2000, Marsh & McLennan Companies, Inc.,
compensates Mr. Lasser and Mr. Smith for their services as Trustees.
The estimated annual retirement benefits and related fund expenses shown
in this table for Messrs. Lasser and Smith reflect benefits earned under
the Funds' retirement plan prior to that date.
Under a Retirement Plan for Trustees of the Putnam funds (the "Plan"),
each Trustee who retires with at least five years of service as a
Trustee of the funds is entitled to receive an annual retirement benefit
equal to one-half of the average annual compensation paid to such
Trustee for the last three years of service prior to retirement. This
retirement benefit is payable during a Trustee's lifetime, beginning the
year following retirement, for a number of years equal to such Trustee's
years of service. A death benefit, also available under the Plan,
assures that the Trustee and his or her beneficiaries will receive
benefit payments for the lesser of an aggregate period of (i) ten years
or (ii) such Trustee's total years of service.
The Plan Administrator (a committee comprised of Trustees that are not
"interested persons" of the fund, as defined in the Investment Company
Act of 1940) may terminate or amend the Plan at any time, but no
termination or amendment will result in a reduction in the amount of
benefits (i) currently being paid to a Trustee at the time of such
termination or amendment, or (ii) to which a current Trustee would have
been entitled had he or she retired immediately prior to such
termination or amendment.
For additional information concerning the Trustees, see "Management" in
Part II of this SAI.
Share ownership
[To be updated]
At November 30, 2000, the officers and Trustees of the fund as a group
owned less than 1% of the outstanding shares of each class and, except
as noted below, to the knowledge of the fund no person owned of record
or beneficially 5% or more of any class of the fund:
Shareholder name Percentage
Class and address owned
----- -------------------- --------
Distribution fees
During fiscal 2000, the fund paid the following 12b-1 fees to Putnam
Mutual Funds:
Class A Class B Class C Class M
$1,417,881 $8,045,910 $95,588 $181,503
Class A sales charges and contingent deferred sales charges
Putnam Mutual Funds received sales charges with respect to class A
shares in the following amounts during the periods indicated:
Sales charges
Total retained by Putnam Contingent
Fiscal front-end Mutual Funds deferred sales
year sales charges after dealer concessions charges
2000 $3,404,438 $ 429,028 $31,554
1999 $9,307,906 $1,085,690 $76,935
1998 $8,412,912 $ 977,193 $ 1,602
Class B contingent deferred sales charges
Putnam Mutual Funds received contingent deferred sales charges upon
redemptions of class B shares in the following amounts during the
periods indicated:
Contingent deferred
Fiscal year sales charges
2000 $2,728,389
1999 $1,615,621
1998 $ 234,176
Class C contingent deferred sales charges
Putnam Mutual Funds received contingent deferred sales charges upon
redemptions of class C shares in the following amounts during the
periods indicated:
Contingent deferred
Fiscal year sales charges
2000 $14,967
1999 $ 0
Class M sales charges
Putnam Mutual Funds received sales charges with respect to class M
shares in the following amounts during the periods indicated:
Sales charges
retained by Putnam
Mutual Funds
Total after
Fiscal year sales charges dealer concessions
2000 $ 72,289 $ 7,198
1999 $391,184 $37,399
1998 $380,430 $36,783
Investor servicing and custody fees and expenses
During the 2000 fiscal year, the fund incurred $1,348,714 in fees and
out-of-pocket expenses for investor servicing and custody services
provided by Putnam Fiduciary Trust Company.
INVESTMENT PERFORMANCE
Standard performance measures
(for periods ended August 31, 2000)
Class A Class B Class C Class M Class Y
Inception Date 12/31/97 12/31/97 7/26/99 12/31/97 10/2/00
Average annual total return
1 year 3.78% -4.31% -0.71% -2.68% N/A
Life of fund+ 0.42% -0.17% 0.44% -0.11% N/A
Yield
30-day yield 11.23% 11.04% 11.04% 11.18% N/A
+Reflecting an expense limitation in effect during the period. In the
absence of the expense limitation, total return shown would have been
lower. The per share amount of the expense limitation is set forth in
the section of the prospectus entitled "Financial Highlights."
Returns for class A and class M shares reflect the deduction of the
current maximum initial sales charges of 4.75% for class A shares and
3.25% for class M shares.
Returns for class B and class C shares reflect the deduction of the
applicable contingent deferred sales charge ("CDSC"), which for class B
is 5% in the first year, declining to 1% in the sixth year, and is
eliminated thereafter.
Returns shown for class C and class Y shares for periods prior to their
inception are derived from the historical performance of class A shares,
adjusted to reflect both the deduction of the CDSC, if any, and the
higher operating expenses applicable to class C shares.
Returns shown for class A shares have not been adjusted to reflect
payments under the class A distribution plan prior to its
implementation. All returns assume reinvestment of distributions at net
asset value and represent past performance; they do not guarantee future
results. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than
their original cost.
See "Standard Performance Measures" in Part II of this SAI for
information on how performance is calculated.
ADDITIONAL OFFICERS
In addition to the persons listed as fund officers in Part II of this
SAI, each of the following persons is also a Vice President of the fund
and certain of the other Putnam funds, the total number of which is
noted parenthetically. Officers of Putnam Management hold the same
offices in Putnam Management's parent company, Putnam Investments, Inc.
Officer Name (Age) (Number of funds)
Edward H. D'Alelio (48) (21 funds). Managing Director of Putnam
Management.
Steven C. Preacher (36) (4 funds). Managing Director of Putnam
Management.
Jennifer E. Leichter (40) (2 funds). Managing Director of Putnam
Management.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02109, are the fund's independent accountants, providing audit services,
tax return review and other tax consulting services and assistance and
consultation in connection with the review of various Securities and
Exchange Commission filings. The Report of Independent Accountants,
financial highlights and financial statements included in the fund's
Annual Report for the fiscal year ended August 31, 2000, filed
electronically on October 25, 2000 (File No. 811-7237), are
incorporated by reference into this SAI. The financial highlights
included in the prospectus and incorporated by reference into this SAI
and the financial statements incorporated by reference into the
prospectus and this SAI have been so included and incorporated in
reliance upon the report of the independent accountants, given on their
authority as experts in auditing and accounting.
Prospectus
December 30, 2000
Putnam New Value 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, LLC (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
2 Performance information
4 Fees and expenses
5 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?
12 How do I sell fund shares?
13 How do I exchange fund shares?
14 Fund distributions and taxes
15 Financial highlights
[SCALE LOGO OMITTED]
Fund summary
GOAL
The fund seeks long-term capital appreciation.
MAIN INVESTMENT STRATEGIES -- VALUE STOCKS
We invest mainly in common stocks of U.S. companies, with a focus on value
stocks. Value stocks are those that we believe are currently undervalued by
the market. We look for companies undergoing positive change. If we are
correct and other investors recognize the value of the company, the price
of the stock may rise. We invest mainly 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.
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 one of the fund's
classes of shares, class A shares. The table following the chart compares
the fund's performance to that of a broad measure 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
1996 24.53%
1997 18.96%
1998 5.61%
1999 -0.05%
Performance figures in the bar chart do not reflect the impact of sales
charges. If they did, performance would be less than that shown.
Year-to-date performance through 9/30/00 was 11.38%. During the periods
shown in the bar chart, the highest return for a quarter was 16.38%
(quarter ending 12/31/98) and the lowest return for a quarter was -13.91%
(quarter ending 9/30/99).
Average Annual Total Returns (for periods ending 12/31/99)
-------------------------------------------------------------------------------
Past Since inception
1 year (1/3/95)
-------------------------------------------------------------------------------
Class A -5.79% 14.44%
Class B -5.19% 14.71%
Class C -1.63% 14.95%
Class M -4.09% 14.41%
The Russell 3000 Value Index 6.65% 22.15%
-------------------------------------------------------------------------------
Unlike the bar chart, this performance information reflects the impact of
sales charges. Class A and class M share performance reflects the current
maximum initial sales charges; class B and class C share performance
reflects the maximum applicable deferred sales charge if shares had been
redeemed on 12/31/99. For periods before the inception of class B shares
(2/26/96), class C shares (7/26/99) and class M shares (2/26/96),
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 class B, class C
and class M shares. The fund's performance through 8/31/97 benefitted from
Putnam Management's agreement to limit the fund's expenses. The fund's
performance is compared to the Russell 3000 Value Index, an unmanaged index
that measures the performance of those Russell 3000 Index companies with
lower price-to-book ratios and lower forecasted growth values. The fund's
performance was previously compared to the Standard & Poor's 500 Index, an
unmanaged index of common stocks frequently used as a general measure of
U.S. stock market performance. This index was replaced by the Russell 3000
Value Index, which is more representative of the fund's investment
strategies. The average annual total returns for the past 1-year and since
inception ending 12/31/99 were 21.04% and 28.56% for the S&P 500 Index.
FEES AND EXPENSES
This table summarizes the fees and expenses you may pay if you invest in
the fund. Expenses are based on the fund's last fiscal year.
Shareholder Fees (fees paid directly from your investment)
-------------------------------------------------------------------------------
Class A Class B Class C Class M
-------------------------------------------------------------------------------
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of the
offering price) 5.75% NONE NONE 3.50%
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
-------------------------------------------------------------------------------
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
-------------------------------------------------------------------------------
Total Annual
Management Distribution Other Fund Operating
Fees (12b-1) Fees Expenses Expenses
-------------------------------------------------------------------------------
Class A 0.67% 0.25% 0.23% 1.15%
Class B 0.67% 1.00% 0.23% 1.90%
Class C 0.67% 1.00% 0.23% 1.90%
Class M 0.67% 0.75% 0.23% 1.65%
-------------------------------------------------------------------------------
* A deferred sales charge of up to 1% may be imposed on certain redemptions
of class A shares bought without an initial sales charge.
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.
-------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
-------------------------------------------------------------------------------
Class A $686 $920 $1,172 $1,894
Class B $693 $897 $1,227 $2,028*
Class B
(no redemption) $193 $597 $1,027 $2,028*
Class C $293 $597 $1,027 $2,223
Class C
(no redemption) $193 $597 $1,027 $2,223
Class M $512 $853 $1,216 $2,237
-------------------------------------------------------------------------------
* 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
value stocks. We will consider, among other factors, 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 its
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.
Companies whose stock we believe is undervalued by the market may have
experienced adverse business developments or may be subject to special
risks that have caused their stocks to be out of favor. If our assessment
of a company's prospects is wrong, or if other investors do not similarly
recognize the value of the company, then the price of the company's stock
may fall or may not approach the value that we have placed on it.
* Small and midsized companies. These companies, some of 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 small
and midsized companies may therefore be more vulnerable to adverse
developments than those of larger companies.
* Foreign investments. 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 some extent to U.S.-traded
investments that are denominated in foreign currencies, investments in U.S.
companies that are traded in foreign markets or investments in U.S.
companies that have significant foreign operations. Special U.S. tax
considerations may apply to the fund's foreign investments.
* Derivatives. We may engage in a variety of transactions involving
derivatives, such as futures, options, warrants and swap contracts.
Derivatives are financial instruments whose value depends upon, or is
derived from, the value of something else, such as one or more underlying
investments, pools of investments, indexes or currencies. We may use
derivatives both for hedging and non-hedging purposes. However, we may also
choose not to use derivatives, based on our evaluation of market conditions
or the availability of suitable derivatives.
Derivatives involve special risks and may result in losses. The successful
use of derivatives depends on our ability to manage these sophisticated
instruments. The prices of derivatives may move in unexpected ways due to
the use of leverage or other factors, especially in unusual market
conditions, and may result in increased volatility. The use of derivatives
may also increase the amount of taxes payable by shareholders.
Other risks arise from our potential inability to terminate or sell
derivatives positions. A liquid secondary market may not always exist for
the fund's derivatives positions at any time. In fact, many
over-the-counter instruments (investments not traded on an exchange) will
not be liquid. Over-the-counter instruments also involve the risk that the
other party to the derivative transaction will not meet its obligations.
For further information about the risks of derivatives, see the statement
of additional information (SAI).
* Other investments. In addition to the main investment strategies
described above, we may make other investments, such as investments in
preferred stocks, convertible securities and debt instruments, which may be
subject to other risks, as described in the fund's SAI.
* Alternative strategies. Under normal market conditions, we keep the
fund's portfolio fully invested, with minimal cash holdings. However, at
times we may judge that market conditions make pursuing the fund's usual
investment strategies inconsistent with the best interests of the fund's
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 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 0.67% of average net assets for the fund's last fiscal year. Putnam
Management's address is One Post Office Square, Boston, MA 02109.
The following officer of Putnam Management has primary responsibility for
the day-to-day management of the fund's portfolio. His experience as
portfolio manager or investment analyst over at least the last five years
is also shown.
-------------------------------------------------------------------------------
Manager Since Experience
-------------------------------------------------------------------------------
David L. King 1995 1983 - Present Putnam Management
Managing Director
-------------------------------------------------------------------------------
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 Investor Services.
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 of
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
of 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
Class M shares
* Initial sales charge of up to 3.50%
* Lower sales charges for investments of $50,000 or more
* No deferred sales charge
* Lower annual expenses, and higher dividends, than class B or C shares
because of lower 12b-1 fee
* Higher annual expenses, and lower dividends, than class A shares because
of higher 12b-1 fee
* No conversion to class A shares, so future 12b-1 fee does not decrease
-------------------------------------------------------------------------------
Initial sales charges for class A and M shares
-------------------------------------------------------------------------------
Class A sales charge Class M sales charge
as a percentage of: as a percentage of:
-------------------------------------------------------------------------------
Amount of purchase Net amount Offering Net amount Offering
at offering price ($) invested price* invested price*
-------------------------------------------------------------------------------
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
-------------------------------------------------------------------------------
* 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 of purchase, you will
generally pay a deferred sales charge according to the following schedule.
Year after purchase 1 2 3 4 5 6 7+
-------------------------------------------------------------------------------
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
Retail Management 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 (based on
average net assets) of up to 0.35% 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 redemption may be delayed until the fund collects the
purchase price of shares, which may be 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
Investors 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 applies 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 distributes any net investment income 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.
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 are taxable as capital gains. Distributions of gains from
investments that the fund owned for one year or less are taxable as
ordinary income. Distributions are taxable whether you receive them in cash
or reinvest 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 is intended to help you understand a 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.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS A
(For a share outstanding throughout the period)
Year ended August 31
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------
Net asset value,
beginning of period $13.98 $12.01 $14.63 $11.57 $10.53
---------------------------------------------------------------------------------------------
Investment operations
Net investment income .16c .15c .13c .19cd .18d
Net realized gain (loss)
on investments .49 3.27 (1.89) 3.10 1.82
---------------------------------------------------------------------------------------------
Total from
investment operations 0.65 3.42 (1.76) 3.29 2.00
---------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.16) (.13) (.12) (.09) (.26)
From net realized gain
on investments (1.39) (1.32) (.74) (.14) (.70)
---------------------------------------------------------------------------------------------
Total distributions (1.55) (1.45) (.86) (.23) (.96)
---------------------------------------------------------------------------------------------
Net asset value,
end of period $13.08 $13.98 $12.01 $14.63 $11.57
---------------------------------------------------------------------------------------------
Ratios and supplemental data
Total return at
net asset value (%)a 6.13 29.23 (12.83) 28.79 20.29
Net assets, end of period
(in thousands) $331,658 $400,555 $350,430 $429,246 $97,718
---------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)b 1.15 1.09 1.16 1.22d 1.24d
Ratio of net investment income
to average net assets (%) 1.32 1.04 .89 1.40d 2.45d
Portfolio turnover (%) 82.68 87.23 135.56 65.38 33.57
---------------------------------------------------------------------------------------------
a Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
b Includes amounts paid through expense offset and brokerage
service arrangements.
c Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
d Reflects an expense limitation during the period. As a result of such
limitation, expenses for the period ended August 31, 1996 reflect a
reduction of $0.01 per share. Expenses for the year ended
August 31, 1997 reflect a reduction of less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS B
(For a share outstanding throughout the period)
For the
period
Feb. 26,
1996+ to
Year ended August 31 Aug. 31
-------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------
Net asset value,
beginning of period $13.80 $11.87 $14.49 $11.52 $10.86
---------------------------------------------------------------------------------------------
Investment operations
Net investment incomec .07 .04 .02 .09d .10d
Net realized gain (loss)
on investments .49 3.23 (1.86) 3.08 .56
---------------------------------------------------------------------------------------------
Total from
investment operations .56 3.27 (1.84) 3.17 .66
---------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.05) (.02) (.04) (.06) --
From net realized gain
on investments (1.39) (1.32) (.74) (.14) --
---------------------------------------------------------------------------------------------
Total distributions (1.44) (1.34) (.78) (.20) --
---------------------------------------------------------------------------------------------
Net asset value,
end of period $12.92 $13.80 $11.87 $14.49 $11.52
---------------------------------------------------------------------------------------------
Ratios and supplemental data
Total return at
net asset value (%)a 5.36 28.14 (13.48) 27.79 6.08*
Net assets, end of period
(in thousands) $314,364 $423,948 $355,743 $406,783 $94,370
---------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)b 1.90 1.84 1.91 1.97d 1.04*d
Ratio of net investment income
to average net assets (%) .57 .29 .14 .65d .88*d
Portfolio turnover (%) 82.68 87.23 135.56 65.38 33.57
---------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
a Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
b Includes amounts paid through expense offset and brokerage
service arrangements.
c Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
d Reflects an expense limitation during the period. As a result of such
limitation, expenses for the period ended August 31, 1996 reflect a
reduction of $0.02 per share. Expenses for the year ended August 31, 1997
reflect a reduction of less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS C
(For a share outstanding throughout the period)
For the
period
Year July 26,
ended 1999+ to
Aug. 31 Aug. 31
--------------------------
2000 1999
---------------------------------------------------------------------------------------------
<S> <C> <C>
---------------------------------------------------------------------------------------------
Net asset value,
beginning of period $13.97 $15.04
---------------------------------------------------------------------------------------------
Investment operations
Net investment incomec .08 (.02)
Net realized gain (loss)
on investments .46 (1.05)
---------------------------------------------------------------------------------------------
Total from investment operations .54 (1.07)
---------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.15) --
From net realized gain on investments (1.39) --
---------------------------------------------------------------------------------------------
Total distributions (1.54) --
---------------------------------------------------------------------------------------------
Net asset value,
end of period $12.97 $13.97
---------------------------------------------------------------------------------------------
Ratios and supplemental data
Total return at
net asset value (%)a 5.22 (7.12)*
Net assets, end of period
(in thousands) $6,470 $561
---------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)b 1.90 .19*
Ratio of net investment income
to average net assets (%) .62 (.18)*
Portfolio turnover (%) 82.68 87.23
---------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
a Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
b Includes amounts paid through expense offset and brokerage
service arrangements.
c Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS M
(For a share outstanding throughout the period)
For the
period
Feb. 26,
1996+ to
Year ended August 31 Aug. 31
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------
Net asset value,
beginning of period $13.88 $11.93 $14.55 $11.54 $10.86
---------------------------------------------------------------------------------------------
Investment operations
Net investment incomec .10 .08 .06 .12d .11d
Net realized gain (loss)
on investments .49 3.24 (1.87) 3.10 .57
---------------------------------------------------------------------------------------------
Total from
investment operations .59 3.32 (1.81) 3.22 .68
---------------------------------------------------------------------------------------------
Less distributions:
From net investment income (.08) (.05) (.07) (.07) --
From net realized gain
on investments (1.39) (1.32) (.74) (.14) --
---------------------------------------------------------------------------------------------
Total distributions (1.47) (1.37) (.81) (.21) --
---------------------------------------------------------------------------------------------
Net asset value,
end of period $13.00 $13.88 $11.93 $14.55 $11.54
---------------------------------------------------------------------------------------------
Ratios and supplemental data
Total return at
net asset value (%)a 5.62 28.46 (13.25) 28.19 6.26*
Net assets, end of period
(in thousands) $26,692 $37,367 $36,079 $46,761 $11,852
---------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)b 1.65 1.59 1.66 1.72d .91*d
Ratio of net investment income
to average net assets (%) .81 .54 .39 .91d 1.05*d
Portfolio turnover (%) 82.68 87.23 135.56 65.38 33.57
---------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
a Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
b Includes amounts paid through expense offset and brokerage
service arrangements.
c Per share net investment income has been determined on the basis of the
weighted average number of shares outstanding during the period.
d Reflects an expense limitation during the period. As a result of such
limitation, expenses for the period ended August 31, 1996 reflect a
reduction of $0.02 per share. Expenses for the year ended
August 31, 1997 reflect a reduction of less than $0.01 per share.
</TABLE>
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 Investor Services 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 systematic withdrawal
or exchange (out of the fund). These privileges are subject to change or
termination.
For more information about any of these services and privileges, call your
investment advisor or a Putnam customer service representative toll free at
1-800-225-1581.
Putnam Family of Funds a
PUTNAM GROWTH FUNDS
Putnam Asia Pacific Growth Fund
Putnam Capital Appreciation Fund
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 Century Growth Fund
Putnam New Opportunities Fund
Putnam OTC & Emerging Growth Fund
Putnam Research Fund
Putnam Tax Smart Equity Fund
Putnam Technology Fund
Putnam Vista Fund
Putnam Voyager Fund
Putnam Voyager Fund II
PUTNAM GROWTH AND INCOME FUNDS
Putnam Balanced Fund
Putnam Balanced Retirement Fund
Putnam Classic Equity 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 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 Fund b
Putnam High Yield Trust b
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 funds c
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 FUNDS d
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 9/30/00.
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 Investor Services 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 New
Value 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
Internet site, or by calling Putnam toll-free at 1-800-225-1581.
You may review and copy information about a 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 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 41203
Providence, Rhode Island 02940-1203
www.putnaminvestments.com
File No. 811-7237 NP025 64194 12/00
Prospectus
December 30, 2000
Putnam New Value 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, LLC (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
2 Performance information
3 Fees and expenses
4 What are the fund's main investment strategies and related risks?
7 Who manages the fund?
7 How does the fund price its shares?
8 How do I buy fund shares?
8 How do I sell fund shares?
9 How do I exchange fund shares?
9 Fund distributions and taxes
10 Financial highlights
Putnam Defined Contribution Plans
[SCALE LOGO OMITTED]
Fund summary
GOAL
The fund seeks long-term capital appreciation.
MAIN INVESTMENT STRATEGIES -- VALUE STOCKS
We invest mainly in common stocks of U.S. companies, with a focus on value
stocks. Value stocks are those that we believe are currently undervalued by
the market. We look for companies undergoing positive change. If we are
correct and other investors recognize the value of the company, the price
of the stock may rise. We invest mainly 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.
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 chart 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 a
broad measure 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
1996 24.53%
1997 18.96%
1998 5.61%
1999 -0.05%
Year-to-date performance through 9/30/00 was 11.38%. During the periods
shown in the bar chart, the highest return for a quarter was 16.38%
(quarter ending 12/31/98) and the lowest return for a quarter was -13.91%
(quarter ending 9/30/99).
Average Annual Total Returns (for periods ending 12/31/99)
-------------------------------------------------------------------------------
Since
Past inception
1 year (1/3/95)
-------------------------------------------------------------------------------
Class A -0.05% 15.81%
The Russell 3000 Value Index 6.65% 22.15%
-------------------------------------------------------------------------------
Class A share performance reflects the waiver of sales charges for
purchases through eligible retirement plans. The fund's performance through
8/31/97 benefitted from Putnam Management's agreement to limit the fund's
expenses. The fund's performance is compared to the Russell 3000 Value
Index, an unmanaged index that measures the performance of those Russell
3000 Index companies with lower price-to-book ratios and lower forecasted
growth values. The fund's performance was previously compared to the
Standard & Poor's 500 Index, an unmanaged index of common stocks frequently
used as a general measure of U.S. stock market performance. This index was
replaced by the Russell 3000 Value Index, which is more representative of
the fund's investment strategies. The average annual total returns for the
past 1-year and since inception ending 12/31/99 were 21.04% and 28.56% for
the S&P 500 Index.
FEES AND EXPENSES
This table summarizes the fees and expenses you may pay if you buy and hold
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
Management Distribution Other Fund Operating
Fees (12b-1) Fees Expenses Expenses
-------------------------------------------------------------------------------
Class A 0.67% 0.25% 0.23% 1.15%
-------------------------------------------------------------------------------
* 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 Retail Management, Inc. paid a commission on
the plan's purchases.
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 $192 $366 $634 $1,399
-------------------------------------------------------------------------------
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
value stocks. We will consider, among other factors, 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 its
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.
Companies whose stock we believe is undervalued by the market may have
experienced adverse business developments or may be subject to special
risks that have caused their stocks to be out of favor. If our assessment
of a company's prospects is wrong, or if other investors do not similarly
recognize the value of the company, then the price of the company's stock
may fall or may not approach the value that we have placed on it.
* Small and midsized companies. These companies, some of 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 small
and midsized companies may therefore be more vulnerable to adverse
developments than those of larger companies.
* Foreign investments. 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 some extent to U.S.-traded
investments that are denominated in foreign currencies, investments in U.S.
companies that are traded in foreign markets or investments in U.S.
companies that have significant foreign operations. Special U.S. tax
considerations may apply to the fund's foreign investments.
* Derivatives. We may engage in a variety of transactions involving
derivatives, such as futures, options, warrants and swap contracts.
Derivatives are financial instruments whose value depends upon, or is
derived from, the value of something else, such as one or more underlying
investments, pools of investments, indexes or currencies. We may use
derivatives both for hedging and non- hedging purposes. However, we may
also choose not to use derivatives, based on our evaluation of market
conditions or the availability of suitable derivatives.
Derivatives involve special risks and may result in losses. The successful
use of derivatives depends on our ability to manage these sophisticated
instruments. The prices of derivatives may move in unexpected ways due to
the use of leverage or other factors, especially in unusual market
conditions, and may result in increased volatility.
Other risks arise from our potential inability to terminate or sell
derivatives positions. A liquid secondary market may not always exist for
the fund's derivatives positions at any time. In fact, many
over-the-counter instruments (investments not traded on an exchange) will
not be liquid. Over-the-counter instruments also involve the risk that the
other party to the derivative transaction will not meet its obligations.
For further information about the risks of derivatives, see the statement
of additional information (SAI).
* Other investments. In addition to the main investment strategies
described above, we may make other investments, such as investments in
preferred stocks, convertible securities, and debt instruments, which may
be subject to other risks, as described in the SAI.
* Alternative strategies. Under normal market conditions, we keep the
fund's portfolio fully invested, with minimal cash holdings. However, at
times we may judge that market conditions make pursuing the fund's usual
investment strategies inconsistent with the best interests of the fund's
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 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 0.67% of average net assets for the fund's last fiscal year. Putnam
Management's address is One Post Office Square, Boston, MA 02109.
The following officer of Putnam Management has primary responsibility for
the day-to-day management of the fund's portfolio. His experience as
portfolio manager or investment analyst over at least the last five years
is also shown.
------------------------------------------------------------------------------
Manager Since Experience
------------------------------------------------------------------------------
David L. King 1995 1983 - Present Putnam Management
Managing Director
------------------------------------------------------------------------------
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?
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 Retail Management, Inc. (Putnam Retail Management) 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 (based on
average net assets) of up to 0.35%. 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 Retail Management 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 distributes any net investment income and any net realized capital
gains at least 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 you do not select another option, 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 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.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS A
(For a share outstanding throughout the period)
Year ended August 31
---------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.98 $12.01 $14.63 $11.57 $10.53
-----------------------------------------------------------------------------------
Investment operations
Net investment income .16c .15c .13c .19cd .18d
Net realized gain (loss)
on investments .49 3.27 (1.89) 3.10 1.82
-----------------------------------------------------------------------------------
Total from
investment operations 0.65 3.42 (1.76) 3.29 2.00
-----------------------------------------------------------------------------------
Less distributions:
From net investment income (.16) (.13) (.12) (.09) (.26)
From net realized gain
on investments (1.39) (1.32) (.74) (.14) (.70)
-----------------------------------------------------------------------------------
Total distributions (1.55) (1.45) (.86) (.23) (.96)
-----------------------------------------------------------------------------------
Net asset value,
end of period $13.08 $13.98 $12.01 $14.63 $11.57
-----------------------------------------------------------------------------------
Ratios and
supplemental data
Total return at
net asset value (%)a 6.13 29.23 (12.83) 28.79 20.29
Net assets,
end of period
(in thousands) $331,658 $400,555 $350,430 $429,246 $97,718
-----------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)b 1.15 1.09 1.16 1.22d 1.24d
Ratio of net investment
income to average
net assets (%) 1.32 1.04 .89 1.40d 2.45d
Portfolio turnover (%) 82.68 87.23 135.56 65.38 33.57
-----------------------------------------------------------------------------------
a Total return assumes dividend reinvestment and does not reflect the effect of
sales charges.
b Includes amounts paid through expense offset and brokerage service arrangements.
c Per share net investment income has been determined on the basis of the weighted
average number of shares outstanding
during the period.
d Reflects an expense limitation during the period. As a result of such limitation,
expenses for the period ended August 31, 1996 reflect a reduction of $0.01 per
share. Expenses for the year ended August 31, 1997 reflect a reduction of less
than $0.01 per share.
</TABLE>
For more information
about Putnam New Value 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
Internet site, or 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.
PUTNAM INVESTMENTS
Putnam Defined Contribution Plans
One Post Office Square
Boston, Massachusetts 02109
1-800-752-9894
Address correspondence to
Putnam Investor Services
P.O. Box 9740
Providence, Rhode Island 02940-9740
www.putnaminvestments.com
66963 12/00 File No. 811-7237
PUTNAM NEW VALUE FUND
A SERIES OF PUTNAM INVESTMENT FUNDS
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
DECEMBER 30, 2000
This SAI is not a prospectus. If the fund has more than one form of
current prospectus, each reference to the prospectus in this SAI shall
include all of the fund's prospectuses, unless otherwise noted. The SAI
should be read together with the applicable prospectus. Certain
disclosure has been incorporated by reference from the fund's annual
report. For a free copy of the fund's annual report or prospectus dated
December 30, 2000, as revised from time to time, call Putnam Investor
Services at 1-800-225-1581 or write Putnam Investor Services, Mailing
address: P.O. Box 41203, Providence, RI 02940-1203.
Part I of this SAI contains specific information about the fund. Part
II includes information about the fund and the other Putnam funds.
TABLE OF CONTENTS
PART I
FUND ORGANIZATION AND CLASSIFICATION I-3
INVESTMENT RESTRICTIONS I-4
CHARGES AND EXPENSES I-5
INVESTMENT PERFORMANCE I-12
ADDITIONAL OFFICERS I-13
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS I-13
PART II
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS II-1
TAXES II-24
MANAGEMENT II-28
DETERMINATION OF NET ASSET VALUE II- 35
HOW TO BUY SHARES II- 36
DISTRIBUTION PLANS II- 46
INVESTOR SERVICES II- 50
SIGNATURE GUARANTEES II- 54
SUSPENSION OF REDEMPTIONS II- 54
SHAREHOLDER LIABILITY II- 54
STANDARD PERFORMANCE MEASURES II- 54
COMPARISON OF PORTFOLIO PERFORMANCE II- 56
SECURITIES RATINGS II- 61
DEFINITIONS II- 64
SAI
PART I
FUND ORGANIZATION AND CLASSIFICATION
Putnam New Value Fund is a series of Putnam Investment Funds, a
Massachusetts business trust organized on October 31, 1994 (the
"Trust"). A copy of the Agreement and Declaration of Trust, which is
governed by Massachusetts law, is on file with the Secretary of State of
The Commonwealth of Massachusetts. Prior to February 26, 1996, the
fund was known as Putnam Basic Value Fund.
The Trust is an open-end management investment company with an unlimited
number of authorized shares of beneficial interest. The Trustees may,
without shareholder approval, create two or more series of shares
representing separate investment portfolios. Any such series of shares
may be divided without shareholder approval into two or more classes of
shares having such preferences and special or relative rights and
privileges as the Trustees determine. The fund offers classes of shares
with different sales charges and expenses. Because of these different
sales charges and expenses, the investment performance of the classes
will vary.
Each share has one vote, with fractional shares voting proportionally.
Shares of all classes will vote together as a single class except when
otherwise required by law or as determined by the Trustees. Shares are
freely transferable, are entitled to dividends as declared by the
Trustees, and, if the fund were liquidated, would receive the net assets
of the fund. The fund may suspend the sale of shares at any time and
may refuse any order to purchase shares. Although the fund is not
required to hold annual meetings of its shareholders, shareholders
holding at least 10% of the outstanding shares entitled to vote have the
right to call a meeting to elect or remove Trustees, or to take other
actions as provided in the Agreement and Declaration of Trust.
The fund is a"diversified" management investment company under the
Investment Company Act of 1940. This means that with respect to 75% of
its total assets, the fund may not invest more than 5% of its total
assets in the securities of any one issuer (except U.S. government
securities). The remaining 25% of its total assets is not subject to
this restriction. To the extent the fund invests a significant portion
of its assets in the securities of a particular issuer, it will be
subject to an increased risk of loss if the market value of such
issuer's securities declines.
INVESTMENT RESTRICTIONS
As fundamental investment restrictions, which may not be changed without
a vote of a majority of the outstanding voting securities, the fund may
not and will not:
(1) Borrow money in excess of 10% of the value (taken at the lower of
cost or current value) of its total assets (not including the amount
borrowed) at the time the borrowing is made, and then only from banks as
a temporary measure to facilitate the meeting of redemption requests
(not for leverage) which might otherwise require the untimely
disposition of portfolio investments or for extraordinary or emergency
purposes. Such borrowings will be repaid before any additional
investments are purchased.
(2) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments,
it may be deemed to be an underwriter under certain federal securities
laws.
(3) Purchase or sell real estate, although it may purchase securities of
issuers which deal in real estate, securities which are secured by
interests in real estate, and securities which represent interests in
real estate, and it may acquire and dispose of real estate or interests
in real estate acquired through the exercise of its rights as a holder
of debt obligations secured by real estate or interests therein.
(4) Purchase or sell commodities or commodity contracts, except that the
fund may purchase and sell financial futures contracts and options.
(5) Make loans, except by purchase of debt obligations in which the fund
may invest consistent with its investment policies, by entering into
repurchase agreements with respect to not more than 25% of its total
assets (taken at current value) or through the lending of its portfolio
securities with respect to not more than 25% of its total assets (taken
at current value).
(6) With respect to 75% of its total assets, invest in securities of any
issuer if, immediately after such investment, more than 5% of the total
assets of the fund (taken at current value) would be invested in the
securities of such issuer; provided that this limitation does not apply
to obligations issued or guaranteed as to interest or principal by the
U.S. government or its political subdivisions.
(7) With respect to 75% of its total assets, acquire more than 10% of
the voting securities of any issuer.
(8) Purchase securities (other than securities of the U.S. government,
its agencies or instrumentalities) if, as a result of such purchase,
more than 25% of the fund's total assets would be invested in any one
industry.
(9) Issue any class of securities which is senior to the fund's shares
of beneficial interest.
The Investment Company Act of 1940 provides that a "vote of a majority
of the outstanding voting securities" of the fund means the affirmative
vote of the lesser of (1) more than 50% of the outstanding fund shares,
or (2) 67% or more of the shares present at a meeting if more than 50%
of the outstanding fund shares are represented at the meeting in person
or by proxy.
It is contrary to the fund's present policy, which may be changed
without shareholder approval, to:
Invest in (a) securities which are not readily marketable, (b)
securities restricted as to resale (excluding securities determined by
the Trustees of the Trust (or the person designated by the Trustees of
the Trust to make such determinations) to be readily marketable), and
(c) repurchase agreements maturing in more than seven days, if, as a
result, more than 15% of the fund's net assets (taken at current value)
would be invested in securities described in (a), (b) and (c) above.
---------------------------------
All percentage limitations on investments (other than pursuant to the
non-fundamental restriction) will apply at the time of the making of an
investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
---------------------------------
CHARGES AND EXPENSES
Management fees
Under a Management Contract dated December 2, 1994 the fund pays a
quarterly fee to Putnam Management based on the average net assets of
the fund, as determined at the close of each business day during the
quarter, at the annual rate of 0.70% of the first $500 million, 0.60% of
the next $500 million, 0.55% of the next $500 million, 0.50% of the next
$5 billion, 0.475% of the next $5 billion, 0.455% of the next $5
billion, 0.44% of the next $5 billion, and 0.43% thereafter. For the
past three fiscal years, pursuant to the Management Contract, the fund
incurred the following fees:
Fiscal Management
year fee paid
2000 $4,690,436
1999 $5,644,832
1998 $6,327,984
Brokerage commissions
The following table shows brokerage commissions paid during the fiscal
periods indicated:
Fiscal Brokerage
year commissions
2000 $1,607,138
1999 $1,603,629
1998 $2,639,029
The following table shows transactions placed with brokers and dealers
during the most recent fiscal year to recognize research, statistical
and quotation services received by Putnam Management and its affiliates:
Dollar value Percent of
of these total Amount of
transactions transactions commissions
$502,210,081 36.69% $654,095
Administrative expense reimbursement
The fund reimbursed Putnam Management for administrative services during
fiscal 2000, including compensation of certain fund officers and
contributions to the Putnam Investments, Inc. Profit Sharing Retirement
Plan for their benefit, as follows:
Portion of total
reimbursement for
Total compensation and
reimbursement contributions
$9,871 $8,071
Trustee responsibilities and fees
The Trustees are responsible for generally overseeing the conduct of
fund business. Subject to such policies as the Trustees may determine,
Putnam Management furnishes a continuing investment program for the fund
and makes investment decisions on its behalf. Subject to the control of
the Trustees, Putnam Management also manages the fund's other affairs
and business.
Each Trustee receives a fee for his or her services. Each Trustee also
receives fees for serving as Trustee of other Putnam funds. The
Trustees periodically review their fees to assure that such fees
continue to be appropriate in light of their responsibilities as well as
in relation to fees paid to trustees of other mutual fund complexes.
The Trustees meet monthly over a two-day period, except in August. The
Board Policy Committee, which consists solely of Trustees not affiliated
with Putnam Management and is responsible for recommending Trustee
compensation, estimates that Committee and Trustee meeting time together
with the appropriate preparation requires the equivalent of at least
three business days per Trustee meeting. The following table shows the
year each Trustee was first elected a Trustee of the Putnam funds, the
fees paid to each Trustee by the fund for fiscal 2000 and the fees
paid to each Trustee by all of the Putnam funds during calendar year
1999:
<TABLE>
<CAPTION>
COMPENSATION TABLE
Estimated annual Total
Aggregate Pension or retirement benefits from all compensation
compensation from benefits accrued as Putnam funds upon from all Putnam
Trustee/Year the fund (1) part of fund expenses retirement (2) funds (3)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jameson A. Baxter/
1994 (4) $1,176 $267 $95,000 $191,000
Hans H. Estin/
1972 1,177 606 95,000 190,000
John A. Hill/
1985 (4)(5) 1,307 306 115,000 239,750
Ronald J. Jackson/
1996 (4) 1,176 359 95,000 193,500
Paul L. Joskow/
1997 (4) 1,176 141 95,000 191,000
Elizabeth T. Kennan/
1992 1,172 396 95,000 190,000
Lawrence J. Lasser/
1992 (7) 1,172 302 92,500 189,000
John H. Mullin, III/
1997 (4) 1,169 212 95,000 196,200
Robert E. Patterson/
1984 1,176 206 95,000 190,250
William F. Pounds/
1971 (5)(6) 1,108 696 111,000 231,000
George Putnam/
1957 (6) 1,009 597 92,834 190,000
George Putnam, III/
1984 1,183 140 95,000 190,000
A.J.C. Smith/
1986 (7) 1,158 441 91,833 188,000
W. Thomas Stephens/
1997 (4) 1,166 198 95,000 188,000
W. Nicholas Thorndike/
1992 1,159 555 95,000 190,000
</TABLE>
(1) Includes an annual retainer and an attendance fee for each meeting
attended.
(2) Assumes that each Trustee retires at the normal retirement date.
For Trustees who are not within three years of retirement, estimated
benefits for each Trustee are based on Trustee fee rates in effect
during calendar 1999.
(3) As of December 31, 1999, there were 114 funds in the Putnam
family.
(4) Includes compensation deferred pursuant to a Trustee Compensation
Deferral Plan. The total amounts of deferred compensation payable by the
fund to Ms. Baxter, Mr. Hill, Mr. Jackson, Mr. Joskow, Mr. Mullin, and
Mr. Stephens as of August 31, 2000 were $2,205, $3,255, $3,970,
$1,528, $3,614 and $2,661, respectively, including income earned on such
amounts.
(5) Includes additional compensation for service as Vice Chairman of the
Putnam funds. Mr. Hill was elected Chairman of the Putnam Funds as of
July 1, 2000.
(6) Reflects retirement from the Board of Trustees of the Putnam funds
on June 30, 2000.
(7) Commencing July 1, 2000, Marsh & McLennan Companies, Inc.,
compensates Mr. Lasser and Mr. Smith for their services as Trustees.
The estimated annual retirement benefits and related fund expenses shown
in this table for Messrs. Lasser and Smith reflect benefits earned under
the Funds' retirement plan prior to that date.
Under a Retirement Plan for Trustees of the Putnam funds (the "Plan"),
each Trustee who retires with at least five years of service as a
Trustee of the funds is entitled to receive an annual retirement benefit
equal to one-half of the average annual compensation paid to such
Trustee for the last three years of service prior to retirement. This
retirement benefit is payable during a Trustee's lifetime, beginning the
year following retirement, for a number of years equal to such Trustee's
years of service. A death benefit, also available under the Plan,
assures that the Trustee and his or her beneficiaries will receive
benefit payments for the lesser of an aggregate period of (i) ten years
or (ii) such Trustee's total years of service.
The Plan Administrator (a committee comprised of Trustees that are not
"interested persons" of the fund, as defined in the Investment Company
Act of 1940) may terminate or amend the Plan at any time, but no
termination or amendment will result in a reduction in the amount of
benefits (i) currently being paid to a Trustee at the time of such
termination or amendment, or (ii) to which a current Trustee would have
been entitled had he or she retired immediately prior to such
termination or amendment.
For additional information concerning the Trustees, see "Management" in
Part II of this SAI.
Share ownership
At November 30, 2000, the officers and Trustees of the fund as a group
owned less than 1% of the outstanding shares of each class of the fund,
and, except as noted below, to the knowledge of the fund, no person
owned of record or beneficially 5% or more of any class of shares of the
fund.
Class Shareholder name and address Percentage owned
A Edward D. Jones & Co. * 25.00%
B Edward D. Jones & Co. * 7.00%
C Merrill Lynch, Pierce Fenner & Smith
4800 Deerlake Drive E. FL 3,
Jacksonville, FL 32246 5.30%
M Edward D. Jones & Co. * 14.80%
* Address for Edward D. Jones & Co. is P.O. Box 2500, Maryland Heights,
MO 63043
Distribution fees
During fiscal 2000, the fund paid the following 12b-1 fees to Putnam
Retail Management, Inc.:
Class A Class B Class C Class M
$833,353 $3,324,245 $28,582 $227,123
Class A sales charges and contingent deferred sales charges
Putnam Mutual Funds received sales charges with respect to class A
shares in the following amounts during the periods indicated:
Sales charges
Total retained by Putnam Contingent
Fiscal front-end Retail Management, Inc. deferred sales
year sales charges after dealer concessions charges
2000 $1,102,197 $183,761 $13,639
1999 $1,204,172 $195,871 $11,586
1998 $3,064,851 $487,524 $13,603
Class B contingent deferred sales charges
Putnam Mutual Funds received contingent deferred sales charges upon
redemptions of class B shares in the following amounts during the
periods indicated:
Fiscal year Contingent deferred sales charges
2000 $807,794
1999 $874,476
1998 $798,753
Class C contingent deferred sales charges
Putnam Retail Management, Inc. received contingent deferred sales
charges upon redemptions of class C shares in the following amounts
during the period indicated:
Fiscal year Contingent deferred sales charges
2000 $1,730
1999 $ 0
Class M sales charges
Putnam Mutual Funds received sales charges with respect to class M
shares in the following amounts during the periods indicated:
Sales charges
retained by Putnam
Total front-end Retail Management, Inc.
Fiscal year sales charges after dealer concessions
2000 $ 32,782 $ 5,365
1999 $ 57,321 $ 9,567
1998 $150,823 $24,734
Investor servicing and custody fees and expenses
During the 2000 fiscal year, the fund incurred $1,141,019 in fees
and out-of-pocket expenses for investor servicing and custody services
provided by Putnam Fiduciary Trust Company.
INVESTMENT PERFORMANCE
Standard performance measures
(for periods ended August 31, 2000)
Class A Class B Class C Class M
Inception Date (1/3/95) (2/26/96) (7/26/99) (2/26/96)
Average annual total return
1 year 0.05% 0.67% 4.29% 1.95%
5 years 11.79% 11.99% 12.25% 11.75%
Life of fund 14.60% 14.83% 14.90% 14.50%
Returns for class A and class M shares reflect the deduction of the
current maximum initial sales charges of 5.75% for class A shares and
3.50% for class M shares.
Returns for class B and class C shares reflect the deduction of the
applicable contingent deferred sales charge ("CDSC"), which for class B
is 5% in the first year, declining to 1% in the sixth year, and
eliminated thereafter, and for class C is 1% in the first year and
eliminated thereafter.
Returns shown for class B, class C and class M shares for periods prior
to their inception are derived from the historical performance of class
A shares, adjusted to reflect both the deduction of the initial sales
charge or CDSC, if any, currently applicable to each class and, in the
case of class B, class C and class M shares, the higher operating
expenses applicable to such shares.
Returns shown for class A shares have not been adjusted to reflect
payments under the class A distribution plan prior to its
implementation. All returns assume reinvestment of distributions at net
asset value and represent past performance; they do not guarantee future
results. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than
their original cost.
See "Standard Performance Measures" in Part II of this SAI for
information on how performance is calculated.
ADDITIONAL OFFICERS
In addition to the persons listed as fund officers in Part II of this
SAI, each of the following persons is also a Vice President of the fund
and certain of the other Putnam funds, the total number of which is
noted parenthetically. Officers of Putnam Management hold the same
offices in Putnam Management's parent company, Putnam Investments, Inc.
Officer Name (Age) (Number of funds)
David L King (age 44) (9 funds). Managing Director of Putnam
Management.
Deborah F. Kuenstner (age 42) (13 funds). Managing Director of Putnam
Management. Prior to March 1997, Ms. Kuenstner was a Senior Portfolio
Manager at Dupont Pension Fund Investment.
Thomas V. Reilly (age 53) (17 funds). Managing Director of Putnam
Management.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, are the fund's independent accountants, providing audit services,
tax return review and other tax consulting services and assistance and
consultation in connection with the review of various Securities and
Exchange Commission filings. The Report of Independent Accountants,
financial highlights and financial statements included in the fund's
Annual Report for the fiscal year ended August 31, 2000, filed
electronically on October 25, 2000 (File No. 811-7237), are
incorporated by reference into this SAI. The financial highlights
included in the prospectus and incorporated by reference into this SAI
and the financial statements incorporated by reference into the
prospectus and this SAI have been so included and incorporated in
reliance upon the report of the independent accountants, given on their
authority as experts in auditing and accounting.
TABLE OF CONTENTS
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS II-1
TAXES II-24
MANAGEMENT II-28
DETERMINATION OF NET ASSET VALUE II-35
HOW TO BUY SHARES II-36
DISTRIBUTION PLANS II-46
INVESTOR SERVICES II-50
SIGNATURE GUARANTEES II-54
SUSPENSION OF REDEMPTIONS II-54
SHAREHOLDER LIABILITY II-55
STANDARD PERFORMANCE MEASURES II-55
COMPARISON OF PORTFOLIO PERFORMANCE II-56
SECURITIES RATINGS II-61
DEFINITIONS II-65
THE PUTNAM FUNDS
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
PART II
As noted in the prospectus, in addition to the principal investment
strategies and the principal risks described in the prospectus, the fund
may employ other investment practices and may be subject to other risks,
which are described below. Because the following is a combined
description of investment strategies of all of the Putnam funds, certain
matters described herein may not apply to your fund. Unless a strategy
or policy described below is specifically prohibited by the investment
restrictions explained in the fund's prospectus or Part I of this SAI,
or by applicable law, the fund may engage in each of the practices
described below. Shareholders who purchase shares at net asset value
through employer-sponsored defined contribution plans should also
consult their employer for information about the extent to which the
matters described below apply to them.
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS
Foreign Investments
Foreign securities are normally denominated and traded in foreign
currencies. As a result, the value of the fund's foreign investments
and the value of its shares may be affected favorably or unfavorably by
changes in currency exchange rates relative to the U.S. dollar. There
may be less information publicly available about a foreign issuer than
about a U.S. issuer, and foreign issuers may not be subject to
accounting, auditing and financial reporting standards and practices
comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than
securities of comparable U.S. issuers. Foreign brokerage commissions
and other fees are also generally higher than in the United States.
Foreign settlement procedures and trade regulations may involve certain
risks (such as delay in payment or delivery of securities or in the
recovery of the fund's assets held abroad) and expenses not present in
the settlement of investments in U.S. markets.
In addition, foreign securities may be subject to the risk of
nationalization or expropriation of assets, imposition of currency
exchange controls, foreign withholding taxes or restrictions on the
repatriation of foreign currency, confiscatory taxation, political or
financial instability and diplomatic developments which could affect the
value of the fund's investments in certain foreign countries. Dividends
or interest on, or proceeds from the sale of, foreign securities may be
subject to foreign withholding taxes, and special U.S. tax
considerations may apply.
Legal remedies available to investors in certain foreign countries may
be more limited than those available with respect to investments in the
United States or in other foreign countries. The laws of some foreign
countries may limit the fund's ability to invest in securities of
certain issuers organized under the laws of those foreign countries.
The risks described above, including the risks of nationalization or
expropriation of assets, typically are increased in connection with
investments in "emerging markets." For example, political and economic
structures in these countries may be in their infancy and developing
rapidly, and such countries may lack the social, political and economic
stability characteristic of more developed countries. Certain of these
countries have in the past failed to recognize private property rights
and have at times nationalized and expropriated the assets of private
companies. High rates of inflation or currency devaluations may
adversely affect the economies and securities markets of such countries.
Investments in emerging markets may be considered speculative.
The currencies of certain emerging market countries have experienced
devaluations relative to the U.S. dollar, and future devaluations may
adversely affect the value of assets denominated in such currencies.
Many emerging market countries have experienced substantial, and in some
periods extremely high, rates of inflation or deflation for many years,
and future inflation may adversely affect the economies and securities
markets of such countries.
In addition, unanticipated political or social developments may affect
the value of investments in emerging markets and the availability of
additional investments in these markets. The small size, limited
trading volume and relative inexperience of the securities markets in
these countries may make investments in securities traded in emerging
markets illiquid and more volatile than investments in securities traded
in more developed countries, and the fund may be required to establish
special custodial or other arrangements before making investments in
securities traded in emerging markets. There may be little financial or
accounting information available with respect to issuers of emerging
market securities, and it may be difficult as a result to assess the
value of prospects of an investment in such securities.
Certain of the foregoing risks may also apply to some extent to
securities of U.S. issuers that are denominated in foreign currencies or
that are traded in foreign markets, or securities of U.S. issuers having
significant foreign operations.
Foreign Currency Transactions
To manage its exposure to foreign currencies, the fund may engage
without limit in foreign currency exchange transactions, including
purchasing and selling foreign currency, foreign currency options,
foreign currency forward contracts and foreign currency futures
contracts and related options. In addition, the fund may write covered
call and put options on foreign currencies for the purpose of increasing
its current return.
Generally, the fund may engage in both "transaction hedging" and
"position hedging." The fund may also engage in foreign currency
transactions for non-hedging purposes, subject to applicable law. When
it engages in transaction hedging, the fund enters into foreign currency
transactions with respect to specific receivables or payables, generally
arising in connection with the purchase or sale of portfolio securities.
The fund will engage in transaction hedging when it desires to "lock in"
the U.S. dollar price of a security it has agreed to purchase or sell,
or the U.S. dollar equivalent of a dividend or interest payment in a
foreign currency. By transaction hedging the fund will attempt to
protect itself against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and the applicable foreign
currency during the period between the date on which the security is
purchased or sold, or on which the dividend or interest payment is
earned, and the date on which such payments are made or received.
The fund may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign
currency. If conditions warrant, for transaction hedging purposes the
fund may also enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") and purchase and sell
foreign currency futures contracts. A foreign currency forward contract
is a negotiated agreement to exchange currency at a future time at a
rate or rates that may be higher or lower than the spot rate. Foreign
currency futures contracts are standardized exchange-traded contracts
and have margin requirements. In addition, for transaction hedging
purposes the fund may also purchase or sell exchange-listed and
over-the-counter call and put options on foreign currency futures
contracts and on foreign currencies.
For transaction hedging purposes the fund may also purchase
exchange-listed and over-the-counter call and put options on foreign
currency futures contracts and on foreign currencies. A put option on a
futures contract gives the fund the right to assume a short position in
the futures contract until the expiration of the option. A put option
on a currency gives the fund the right to sell the currency at an
exercise price until the expiration of the option. A call option on a
futures contract gives the fund the right to assume a long position in
the futures contract until the expiration of the option. A call option
on a currency gives the fund the right to purchase the currency at the
exercise price until the expiration of the option.
The fund may engage in position hedging to protect against a decline in
the value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of the currency in which the securities the fund intends to buy
are denominated, when the fund holds cash or short-term investments).
For position hedging purposes, the fund may purchase or sell, on
exchanges or in over-the-counter markets, foreign currency futures
contracts, foreign currency forward contracts and options on foreign
currency futures contracts and on foreign currencies. In connection
with position hedging, the fund may also purchase or sell foreign
currency on a spot basis.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward or
futures contract. Accordingly, it may be necessary for the fund to
purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security or
securities being hedged is less than the amount of foreign currency the
fund is obligated to deliver and a decision is made to sell the security
or securities and make delivery of the foreign currency. Conversely, it
may be necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of
foreign currency the fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the fund owns or intends to
purchase or sell. They simply establish a rate of exchange which one
can achieve at some future point in time. Additionally, although these
techniques tend to minimize the risk of loss due to a decline in the
value of the hedged currency, they tend to limit any potential gain
which might result from the increase in value of such currency. See
"Risk factors in options transactions."
The fund may seek to increase its current return or to offset some of
the costs of hedging against fluctuations in current exchange rates by
writing covered call options and covered put options on foreign
currencies. The fund receives a premium from writing a call or put
option, which increases the fund's current return if the option expires
unexercised or is closed out at a net profit. The fund may terminate an
option that it has written prior to its expiration by entering into a
closing purchase transaction in which it purchases an option having the
same terms as the option written.
The fund's currency hedging transactions may call for the delivery of
one foreign currency in exchange for another foreign currency and may at
times not involve currencies in which its portfolio securities are then
denominated. Putnam Management will engage in such "cross hedging"
activities when it believes that such transactions provide significant
hedging opportunities for the fund. Cross hedging transactions by the
fund involve the risk of imperfect correlation between changes in the
values of the currencies to which such transactions relate and changes
in the value of the currency or other asset or liability which is the
subject of the hedge.
The fund may also engage in non-hedging currency transactions. For
example, Putnam Management may believe that exposure to a currency is in
the fund's best interest but that securities denominated in that
currency are unattractive. In that case the fund may purchase a
currency forward contract or option in order to increase its exposure to
the currency. In accordance with SEC regulations, the fund will
segregate liquid assets in its portfolio to cover forward contracts used
for non-hedging purposes.
The value of any currency, including U.S. dollars and foreign
currencies, may be affected by complex political and economic factors
applicable to the issuing country. In addition, the exchange rates of
foreign currencies (and therefore the values of foreign currency
options, forward contracts and futures contracts) may be affected
significantly, fixed, or supported directly or indirectly by U.S. and
foreign government actions. Government intervention may increase risks
involved in purchasing or selling foreign currency options, forward
contracts and futures contracts, since exchange rates may not be free to
fluctuate in response to other market forces.
The value of a foreign currency option, forward contract or futures
contract reflects the value of an exchange rate, which in turn reflects
relative values of two currencies, the U.S. dollar and the foreign
currency in question. Because foreign currency transactions occurring
in the interbank market involve substantially larger amounts than those
that may be involved in the exercise of foreign currency options,
forward contracts and futures contracts, investors may be disadvantaged
by having to deal in an odd-lot market for the underlying foreign
currencies in connection with options at prices that are less favorable
than for round lots. Foreign governmental restrictions or taxes could
result in adverse changes in the cost of acquiring or disposing of
foreign currencies.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations
available through dealers or other market sources be firm or revised on
a timely basis. Available quotation information is generally
representative of very large round-lot transactions in the interbank
market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock
market. To the extent that options markets are closed while the markets
for the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be
reflected in the options markets.
The decision as to whether and to what extent the fund will engage in
foreign currency exchange transactions will depend on a number of
factors, including prevailing market conditions, the composition of the
fund's portfolio and the availability of suitable transactions.
Accordingly, there can be no assurance that the fund will engage in
foreign currency exchange transactions at any given time or from time to
time.
Currency forward and futures contracts. A forward foreign currency
contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of
the contract as agreed by the parties, at a price set at the time of the
contract. In the case of a cancelable forward contract, the holder has
the unilateral right to cancel the contract at maturity by paying a
specified fee. The contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial
banks) and their customers. A forward contract generally has no deposit
requirement, and no commissions are charged at any stage for trades. A
foreign currency futures contract is a standardized contract for the
future delivery of a specified amount of a foreign currency at a price
set at the time of the contract. Foreign currency futures contracts
traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date
of a forward contract may be any fixed number of days from the date of
the contract agreed upon by the parties, rather than a predetermined
date in a given month. Forward contracts may be in any amount agreed
upon by the parties rather than predetermined amounts. Also, forward
foreign exchange contracts are traded directly between currency traders
so that no intermediary is required. A forward contract generally
requires no margin or other deposit.
At the maturity of a forward or futures contract, the fund either may
accept or make delivery of the currency specified in the contract, or at
or prior to maturity enter into a closing transaction involving the
purchase or sale of an offsetting contract. Closing transactions with
respect to forward contracts are usually effected with the currency
trader who is a party to the original forward contract. Closing
transactions with respect to futures contracts are effected on a
commodities exchange; a clearing corporation associated with the
exchange assumes responsibility for closing out such contracts.
Positions in the foreign currency futures contracts may be closed out
only on an exchange or board of trade which provides a secondary market
in such contracts. Although the fund intends to purchase or sell
foreign currency futures contracts only on exchanges or boards of trade
where there appears to be an active secondary market, there is no
assurance that a secondary market on an exchange or board of trade will
exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures position and, in the
event of adverse price movements, the fund would continue to be required
to make daily cash payments of variation margin.
Foreign currency options. In general, options on foreign currencies
operate similarly to options on securities and are subject to many of
the risks described above. Foreign currency options are traded
primarily in the over-the-counter market, although options on foreign
currencies are also listed on several exchanges. Options are traded not
only on the currencies of individual nations, but also on the euro, the
joint currency of most countries in the European Union.
The fund will only purchase or write foreign currency options when
Putnam Management believes that a liquid secondary market exists for
such options. There can be no assurance that a liquid secondary market
will exist for a particular option at any specific time. Options on
foreign currencies are affected by all of those factors which influence
foreign exchange rates and investments generally.
Settlement procedures. Settlement procedures relating to the fund's
investments in foreign securities and to the fund's foreign currency
exchange transactions may be more complex than settlements with respect
to investments in debt or equity securities of U.S. issuers, and may
involve certain risks not present in the fund's domestic investments.
For example, settlement of transactions involving foreign securities or
foreign currencies may occur within a foreign country, and the fund may
be required to accept or make delivery of the underlying securities or
currency in conformity with any applicable U.S. or foreign restrictions
or regulations, and may be required to pay any fees, taxes or charges
associated with such delivery. Such investments may also involve the
risk that an entity involved in the settlement may not meet its
obligations.
Foreign currency conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on
the difference (the "spread") between prices at which they are buying
and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to the fund at one rate, while offering a lesser rate
of exchange should the fund desire to resell that currency to the
dealer.
Options on Securities
Writing covered options. The fund may write covered call options and
covered put options on optionable securities held in its portfolio, when
in the opinion of Putnam Management such transactions are consistent
with the fund's investment objective(s) and policies. Call options
written by the fund give the purchaser the right to buy the underlying
securities from the fund at a stated exercise price; put options give
the purchaser the right to sell the underlying securities to the fund at
a stated price.
The fund may write only covered options, which means that, so long as
the fund is obligated as the writer of a call option, it will own the
underlying securities subject to the option (or comparable securities
satisfying the cover requirements of securities exchanges). In the case
of put options, the fund will hold cash and/or high-grade short-term
debt obligations equal to the price to be paid if the option is
exercised. In addition, the fund will be considered to have covered a
put or call option if and to the extent that it holds an option that
offsets some or all of the risk of the option it has written. The fund
may write combinations of covered puts and calls on the same underlying
security.
The fund will receive a premium from writing a put or call option, which
increases the fund's return on the underlying security in the event the
option expires unexercised or is closed out at a profit. The amount of
the premium reflects, among other things, the relationship between the
exercise price and the current market value of the underlying security,
the volatility of the underlying security, the amount of time remaining
until expiration, current interest rates, and the effect of supply and
demand in the options market and in the market for the underlying
security. By writing a call option, the fund limits its opportunity to
profit from any increase in the market value of the underlying security
above the exercise price of the option but continues to bear the risk of
a decline in the value of the underlying security. By writing a put
option, the fund assumes the risk that it may be required to purchase
the underlying security for an exercise price higher than its
then-current market value, resulting in a potential capital loss unless
the security subsequently appreciates in value.
The fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction, in which it
purchases an offsetting option. The fund realizes a profit or loss from
a closing transaction if the cost of the transaction (option premium
plus transaction costs) is less or more than the premium received from
writing the option. If the fund writes a call option but does not own
the underlying security, and when it writes a put option, the fund may
be required to deposit cash or securities with its broker as "margin,"
or collateral, for its obligation to buy or sell the underlying
security. As the value of the underlying security varies, the fund may
have to deposit additional margin with the broker. Margin requirements
are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
Purchasing put options. The fund may purchase put options to protect
its portfolio holdings in an underlying security against a decline in
market value. Such protection is provided during the life of the put
option since the fund, as holder of the option, is able to sell the
underlying security at the put exercise price regardless of any decline
in the underlying security's market price. In order for a put option to
be profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and
transaction costs. By using put options in this manner, the fund will
reduce any profit it might otherwise have realized from appreciation of
the underlying security by the premium paid for the put option and by
transaction costs.
Purchasing call options. The fund may purchase call options to hedge
against an increase in the price of securities that the fund wants
ultimately to buy. Such hedge protection is provided during the life of
the call option since the fund, as holder of the call option, is able to
buy the underlying security at the exercise price regardless of any
increase in the underlying security's market price. In order for a call
option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs.
Risk Factors in Options Transactions
The successful use of the fund's options strategies depends on the
ability of Putnam Management to forecast correctly interest rate and
market movements. For example, if the fund were to write a call option
based on Putnam Management's expectation that the price of the
underlying security would fall, but the price were to rise instead, the
fund could be required to sell the security upon exercise at a price
below the current market price. Similarly, if the fund were to write a
put option based on Putnam Management's expectation that the price of
the underlying security would rise, but the price were to fall instead,
the fund could be required to purchase the security upon exercise at a
price higher than the current market price.
When the fund purchases an option, it runs the risk that it will lose
its entire investment in the option in a relatively short period of
time, unless the fund exercises the option or enters into a closing sale
transaction before the option's expiration. If the price of the
underlying security does not rise (in the case of a call) or fall (in
the case of a put) to an extent sufficient to cover the option premium
and transaction costs, the fund will lose part or all of its investment
in the option. This contrasts with an investment by the fund in the
underlying security, since the fund will not realize a loss if the
security's price does not change.
The effective use of options also depends on the fund's ability to
terminate option positions at times when Putnam Management deems it
desirable to do so. There is no assurance that the fund will be able to
effect closing transactions at any particular time or at an acceptable
price.
If a secondary market in options were to become unavailable, the fund
could no longer engage in closing transactions. Lack of investor
interest might adversely affect the liquidity of the market for
particular options or series of options. A market may discontinue
trading of a particular option or options generally. In addition, a
market could become temporarily unavailable if unusual events -- such as
volume in excess of trading or clearing capability -- were to interrupt
its normal operations.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening transactions.
For example, if an underlying security ceases to meet qualifications
imposed by the market or the Options Clearing Corporation, new series of
options on that security will no longer be opened to replace expiring
series, and opening transactions in existing series may be prohibited.
If an options market were to become unavailable, the fund as a holder of
an option would be able to realize profits or limit losses only by
exercising the option, and the fund, as option writer, would remain
obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying options
purchased or sold by the fund could result in losses on the options. If
trading is interrupted in an underlying security, the trading of options
on that security is normally halted as well. As a result, the fund as
purchaser or writer of an option will be unable to close out its
positions until options trading resumes, and it may be faced with
considerable losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing
Corporation or other options markets may impose exercise restrictions.
If a prohibition on exercise is imposed at the time when trading in the
option has also been halted, the fund as purchaser or writer of an
option will be locked into its position until one of the two
restrictions has been lifted. If the Options Clearing Corporation were
to determine that the available supply of an underlying security appears
insufficient to permit delivery by the writers of all outstanding calls
in the event of exercise, it may prohibit indefinitely the exercise of
put options. The fund, as holder of such a put option, could lose its
entire investment if the prohibition remained in effect until the put
option's expiration.
Foreign-traded options are subject to many of the same risks presented
by internationally-traded securities. In addition, because of time
differences between the United States and various foreign countries, and
because different holidays are observed in different countries, foreign
options markets may be open for trading during hours or on days when
U.S. markets are closed. As a result, option premiums may not reflect
the current prices of the underlying interest in the United States.
Over-the-counter ("OTC") options purchased by the fund and assets held
to cover OTC options written by the fund may, under certain
circumstances, be considered illiquid securities for purposes of any
limitation on the fund's ability to invest in illiquid securities.
Investments in Miscellaneous Fixed-Income Securities
If the fund may invest in inverse floating obligations, premium
securities, or interest-only or principal-only classes of
mortgage-backed securities (IOs and POs), it may do so without limit.
The fund, however, currently does not intend to invest more than 15% of
its assets in inverse floating obligations or more than 35% of its
assets in IOs and POs under normal market conditions.
Lower-rated Securities
The fund may invest in lower-rated fixed-income securities (commonly
known as "junk bonds"). The lower ratings of certain securities held by
the fund reflect a greater possibility that adverse changes in the
financial condition of the issuer or in general economic conditions, or
both, or an unanticipated rise in interest rates, may impair the ability
of the issuer to make payments of interest and principal. The inability
(or perceived inability) of issuers to make timely payment of interest
and principal would likely make the values of securities held by the
fund more volatile and could limit the fund's ability to sell its
securities at prices approximating the values the fund had placed on
such securities. In the absence of a liquid trading market for
securities held by it, the fund at times may be unable to establish the
fair value of such securities.
Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' analysis at the time of
rating. Consequently, the rating assigned to any particular security is
not necessarily a reflection of the issuer's current financial
condition, which may be better or worse than the rating would indicate.
In addition, the rating assigned to a security by Moody's Investors
Service, Inc. or Standard & Poor's (or by any other nationally
recognized securities rating agency) does not reflect an assessment of
the volatility of the security's market value or the liquidity of an
investment in the security. See "Securities ratings."
Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. A
decrease in interest rates will generally result in an increase in the
value of the fund's assets. Conversely, during periods of rising
interest rates, the value of the fund's assets will generally decline.
The values of lower-rated securities may often be affected to a greater
extent by changes in general economic conditions and business conditions
affecting the issuers of such securities and their industries. Negative
publicity or investor perceptions may also adversely affect the values
of lower-rated securities. Changes by nationally recognized securities
rating agencies in their ratings of any fixed-income security and
changes in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments. Changes in
the value of portfolio securities generally will not affect income
derived from these securities, but will affect the fund's net asset
value. The fund will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase. However,
Putnam Management will monitor the investment to determine whether its
retention will assist in meeting the fund's investment objective(s).
Issuers of lower-rated securities are often highly leveraged, so that
their ability to service their debt obligations during an economic
downturn or during sustained periods of rising interest rates may be
impaired. Such issuers may not have more traditional methods of
financing available to them and may be unable to repay outstanding
obligations at maturity by refinancing. The risk of loss due to default
in payment of interest or repayment of principal by such issuers is
significantly greater because such securities frequently are unsecured
and subordinated to the prior payment of senior indebtedness.
At times, a substantial portion of the fund's assets may be invested in
an issue of which the fund, by itself or together with other funds and
accounts managed by Putnam Management or its affiliates, holds all or a
major portion. Although Putnam Management generally considers such
securities to be liquid because of the availability of an institutional
market for such securities, it is possible that, under adverse market or
economic conditions or in the event of adverse changes in the financial
condition of the issuer, the fund could find it more difficult to sell
these securities when Putnam Management believes it advisable to do so
or may be able to sell the securities only at prices lower than if they
were more widely held. Under these circumstances, it may also be more
difficult to determine the fair value of such securities for purposes of
computing the fund's net asset value. In order to enforce its rights in
the event of a default, the fund may be required to participate in
various legal proceedings or take possession of and manage assets
securing the issuer's obligations on such securities. This could
increase the fund's operating expenses and adversely affect the fund's
net asset value. In the case of tax-exempt funds, any income derived
from the fund's ownership or operation of such assets would not be
tax-exempt. The ability of a holder of a tax-exempt security to enforce
the terms of that security in a bankruptcy proceeding may be more
limited than would be the case with respect to securities of private
issuers. In addition, the fund's intention to qualify as a "regulated
investment company" under the Internal Revenue Code may limit the extent
to which the fund may exercise its rights by taking possession of such
assets.
Certain securities held by the fund may permit the issuer at its option
to "call," or redeem, its securities. If an issuer were to redeem
securities held by the fund during a time of declining interest rates,
the fund may not be able to reinvest the proceeds in securities
providing the same investment return as the securities redeemed.
The fund may invest without limit in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer, at its option, to
make current interest payments on the bonds either in cash or in
additional bonds. Because zero-coupon and payment-in-kind bonds do not
pay current interest in cash, their value is subject to greater
fluctuation in response to changes in market interest rates than bonds
that pay interest currently. Both zero-coupon and payment-in-kind bonds
allow an issuer to avoid the need to generate cash to meet current
interest payments. Accordingly, such bonds may involve greater credit
risks than bonds paying interest currently in cash. The fund is
required to accrue interest income on such investments and to distribute
such amounts at least annually to shareholders even though such bonds do
not pay current interest in cash. Thus, it may be necessary at times
for the fund to liquidate investments in order to satisfy its dividend
requirements.
To the extent the fund invests in securities in the lower rating
categories, the achievement of the fund's goals is more dependent on
Putnam Management's investment analysis than would be the case if the
fund were investing in securities in the higher rating categories. This
also may be true with respect to tax-exempt securities, as the amount of
information about the financial condition of an issuer of tax-exempt
securities may not be as extensive as that which is made available by
corporations whose securities are publicly traded.
Loan Participations
The fund may invest in "loan participations." By purchasing a loan
participation, the fund acquires some or all of the interest of a bank
or other lending institution in a loan to a particular borrower. Many
such loans are secured, and most impose restrictive covenants which must
be met by the borrower. These loans are typically made by a syndicate
of banks, represented by an agent bank which has negotiated and
structured the loan and which is responsible generally for collecting
interest, principal, and other amounts from the borrower on its own
behalf and on behalf of the other lending institutions in the syndicate,
and for enforcing its and their other rights against the borrower. Each
of the lending institutions, including the agent bank, lends to the
borrower a portion of the total amount of the loan, and retains the
corresponding interest in the loan.
The fund's ability to receive payments of principal and interest and
other amounts in connection with loan participations held by it will
depend primarily on the financial condition of the borrower. The
failure by the fund to receive scheduled interest or principal payments
on a loan participation would adversely affect the income of the fund
and would likely reduce the value of its assets, which would be
reflected in a reduction in the fund's net asset value. Banks and other
lending institutions generally perform a credit analysis of the borrower
before originating a loan or participating in a lending syndicate. In
selecting the loan participations in which the fund will invest,
however, Putnam Management will not rely solely on that credit analysis,
but will perform its own investment analysis of the borrowers. Putnam
Management's analysis may include consideration of the borrower's
financial strength and managerial experience, debt coverage, additional
borrowing requirements or debt maturity schedules, changing financial
conditions, and responsiveness to changes in business conditions and
interest rates. Putnam Management will be unable to access non-public
information to which other investors in syndicated loans may have
access. Because loan participations in which the fund may invest are
not generally rated by independent credit rating agencies, a decision by
the fund to invest in a particular loan participation will depend almost
exclusively on Putnam Management's, and the original lending
institution's, credit analysis of the borrower. Investments in loan
participations may be of any quality, including "distressed" loans, and
will be subject to the fund's credit quality policy.
Loan participations may be structured in different forms, including
novations, assignments and participating interests. In a novation, the
fund assumes all of the rights of a lending institution in a loan,
including the right to receive payments of principal and interest and
other amounts directly from the borrower and to enforce its rights as a
lender directly against the borrower. The fund assumes the position of
a co-lender with other syndicate members. As an alternative, the fund
may purchase an assignment of a portion of a lender's interest in a
loan. In this case, the fund may be required generally to rely upon the
assigning bank to demand payment and enforce its rights against the
borrower, but would otherwise be entitled to all of such bank's rights
in the loan. The fund may also purchase a participating interest in a
portion of the rights of a lending institution in a loan. In such case,
it will be entitled to receive payments of principal, interest and
premium, if any, but will not generally be entitled to enforce its
rights directly against the agent bank or the borrower, and must rely
for that purpose on the lending institution. The fund may also acquire
a loan participation directly by acting as a member of the original
lending syndicate.
The fund will in many cases be required to rely upon the lending
institution from which it purchases the loan participation to collect
and pass on to the fund such payments and to enforce the fund's rights
under the loan. As a result, an insolvency, bankruptcy or
reorganization of the lending institution may delay or prevent the fund
from receiving principal, interest and other amounts with respect to the
underlying loan. When the fund is required to rely upon a lending
institution to pay to the fund principal, interest and other amounts
received by it, Putnam Management will also evaluate the
creditworthiness of the lending institution.
The borrower of a loan in which the fund holds a participation interest
may, either at its own election or pursuant to terms of the loan
documentation, prepay amounts of the loan from time to time. There is
no assurance that the fund will be able to reinvest the proceeds of any
loan prepayment at the same interest rate or on the same terms as those
of the original loan participation.
Corporate loans in which the fund may purchase a loan participation are
made generally to finance internal growth, mergers, acquisitions, stock
repurchases, leveraged buy-outs and other corporate activities. Under
current market conditions, most of the corporate loan participations
purchased by the fund will represent interests in loans made to finance
highly leveraged corporate acquisitions, known as "leveraged buy-out"
transactions. The highly leveraged capital structure of the borrowers
in such transactions may make such loans especially vulnerable to
adverse changes in economic or market conditions. In addition, loan
participations generally are subject to restrictions on transfer, and
only limited opportunities may exist to sell such participations in
secondary markets. As a result, the fund may be unable to sell loan
participations at a time when it may otherwise be desirable to do so or
may be able to sell them only at a price that is less than their fair
market value.
Certain of the loan participations acquired by the fund may involve
revolving credit facilities under which a borrower may from time to time
borrow and repay amounts up to the maximum amount of the facility. In
such cases, the fund would have an obligation to advance its portion of
such additional borrowings upon the terms specified in the loan
participation. To the extent that the fund is committed to make
additional loans under such a participation, it will at all times hold
and maintain in a segregated account liquid assets in an amount
sufficient to meet such commitments. Certain of the loan participations
acquired by the fund may also involve loans made in foreign currencies.
The fund's investment in such participations would involve the risks of
currency fluctuations described above with respect to investments in the
foreign securities.
Floating Rate and Variable Rate Demand Notes
Floating rate and variable rate demand notes and bonds may have a stated
maturity in excess of one year, but may have features that permit a
holder to demand payment of principal plus accrued interest upon a
specified number of days notice. Frequently, such obligations are
secured by letters of credit or other credit support arrangements
provided by banks. The issuer has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal of the
obligation plus accrued interest upon a specific number of days notice
to the holders. The interest rate of a floating rate instrument may be
based on a known lending rate, such as a bank's prime rate, and is reset
whenever such rate is adjusted. The interest rate on a variable rate
demand note is reset at specified intervals at a market rate.
Mortgage Related and Asset-backed Securities
Mortgage-backed securities, including collateralized mortgage
obligations ("CMOs") and certain stripped mortgage-backed securities
represent a participation in, or are secured by, mortgage loans.
Asset-backed securities are structured like mortgage-backed securities,
but instead of mortgage loans or interests in mortgage loans, the
underlying assets may include such items as motor vehicle installment
sales or installment loan contracts, leases of various types of real and
personal property and receivables from credit card agreements. The
ability of an issuer of asset-backed securities to enforce its security
interest in the underlying assets may be limited.
Mortgage-backed securities have yield and maturity characteristics
corresponding to the underlying assets. Unlike traditional debt
securities, which may pay a fixed rate of interest until maturity, when
the entire principal amount comes due, payments on certain
mortgage-backed securities include both interest and a partial repayment
of principal. Besides the scheduled repayment of principal, repayments
of principal may result from the voluntary prepayment, refinancing or
foreclosure of the underlying mortgage loans. If property owners make
unscheduled prepayments of their mortgage loans, these prepayments will
result in early payment of the applicable mortgage-related securities.
In that event the fund may be unable to invest the proceeds from the
early payment of the mortgage-related securities in an investment that
provides as high a yield as the mortgage-related securities.
Consequently, early payment associated with mortgage-related securities
may cause these securities to experience significantly greater price and
yield volatility than that experienced by traditional fixed-income
securities. The occurrence of mortgage prepayments is affected by
factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. During periods of falling interest rates, the
rate of mortgage prepayments tends to increase, thereby tending to
decrease the life of mortgage-related securities. During periods of
rising interest rates, the rate of mortgage prepayments usually
decreases, thereby tending to increase the life of mortgage-related
securities. If the life of a mortgage-related security is inaccurately
predicted, the fund may not be able to realize the rate of return it
expected.
Mortgage-backed and asset-backed securities are less effective than
other types of securities as a means of "locking in" attractive
long-term interest rates. One reason is the need to reinvest
prepayments of principal; another is the possibility of significant
unscheduled prepayments resulting from declines in interest rates.
These prepayments would have to be reinvested at lower rates. As a
result, these securities may have less potential for capital
appreciation during periods of declining interest rates than other
securities of comparable maturities, although they may have a similar
risk of decline in market value during periods of rising interest rates.
Prepayments may also significantly shorten the effective maturities of
these securities, especially during periods of declining interest rates.
Conversely, during periods of rising interest rates, a reduction in
prepayments may increase the effective maturities of these securities,
subjecting them to a greater risk of decline in market value in response
to rising interest rates than traditional debt securities, and,
therefore, potentially increasing the volatility of the fund.
Prepayments may cause losses on securities purchased at a premium. At
times, some mortgage-backed and asset-backed securities will have higher
than market interest rates and therefore will be purchased at a premium
above their par value. Unscheduled prepayments, which are made at par,
will cause the fund to experience a loss equal to any unamortized
premium.
CMOs may be issued by a U.S. government agency or instrumentality or by
a private issuer. Although payment of the principal of, and interest
on, the underlying collateral securing privately issued CMOs may be
guaranteed by the U.S. government or its agencies or instrumentalities,
these CMOs represent obligations solely of the private issuer and are
not insured or guaranteed by the U.S. government, its agencies or
instrumentalities or any other person or entity.
Prepayments could cause early retirement of CMOs. CMOs are designed to
reduce the risk of prepayment for investors by issuing multiple classes
of securities, each having different maturities, interest rates and
payment schedules, and with the principal and interest on the underlying
mortgages allocated among the several classes in various ways. Payment
of interest or principal on some classes or series of CMOs may be
subject to contingencies or some classes or series may bear some or all
of the risk of default on the underlying mortgages. CMOs of different
classes or series are generally retired in sequence as the underlying
mortgage loans in the mortgage pool are repaid. If enough mortgages are
repaid ahead of schedule, the classes or series of a CMO with the
earliest maturities generally will be retired prior to their maturities.
Thus, the early retirement of particular classes or series of a CMO
would have the same effect as the prepayment of mortgages underlying
other mortgage-backed securities. Conversely, slower than anticipated
prepayments can extend the effective maturities of CMOs, subjecting them
to a greater risk of decline in market value in response to rising
interest rates than traditional debt securities, and, therefore,
potentially increasing their volatility.
Prepayments could result in losses on stripped mortgage-backed
securities. Stripped mortgage-backed securities are usually structured
with two classes that receive different portions of the interest and
principal distributions on a pool of mortgage loans. The yield to
maturity on an interest only or "IO" class of stripped mortgage-backed
securities is extremely sensitive not only to changes in prevailing
interest rates but also to the rate of principal payments (including
prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurable adverse effect on the fund's yield to
maturity to the extent it invests in IOs. If the assets underlying the
IO experience greater than anticipated prepayments of principal, the
fund may fail to recoup fully its initial investment in these
securities. Conversely, principal only or "POs" tend to increase in
value if prepayments are greater than anticipated and decline if
prepayments are slower than anticipated.
The secondary market for stripped mortgage-backed securities may be more
volatile and less liquid than that for other mortgage-backed securities,
potentially limiting the fund's ability to buy or sell those securities
at any particular time.
Hybrid Instruments
These instruments are generally considered derivatives and include
indexed or structured securities, and combine the elements of futures
contracts or options with those of debt, preferred equity or a
depository instrument. A hybrid instrument may be a debt security,
preferred stock, warrant, convertible security, certificate of deposit
or other evidence of indebtedness on which a portion of or all interest
payments, and/or the principal or stated amount payable at maturity,
redemption or retirement, is determined by reference to prices, changes
in prices, or differences between prices, of securities, currencies,
intangibles, goods, articles or commodities (collectively, "underlying
assets"), or by another objective index, economic factor or other
measure, including interest rates, currency exchange rates, or
commodities or securities indices (collectively, "benchmarks"). Hybrid
instruments may take a number of forms, including, but not limited to,
debt instruments with interest or principal payments or redemption terms
determined by reference to the value of an index at a future time,
preferred stock with dividend rates determined by reference to the value
of a currency, or convertible securities with the conversion terms
related to a particular commodity.
The risks of investing in hybrid instruments reflect a combination of
the risks of investing in securities, options, futures and currencies.
An investment in a hybrid instrument may entail significant risks that
are not associated with a similar investment in a traditional debt
instrument that has a fixed principal amount, is denominated in U.S.
dollars or bears interest either at a fixed rate or a floating rate
determined by reference to a common, nationally published benchmark.
The risks of a particular hybrid instrument will depend upon the terms
of the instrument, but may include the possibility of significant
changes in the benchmark(s) or the prices of the underlying assets to
which the instrument is linked. Such risks generally depend upon
factors unrelated to the operations or credit quality of the issuer of
the hybrid instrument, which may not be foreseen by the purchaser, such
as economic and political events, the supply and demand of the
underlying assets and interest rate movements. Hybrid instruments may
be highly volatile and their use by a fund may not be successful.
Hybrid instruments may bear interest or pay preferred dividends at below
market (or even relatively nominal) rates. Alternatively, hybrid
instruments may bear interest at above market rates but bear an
increased risk of principal loss (or gain). The latter scenario may
result if "leverage" is used to structure the hybrid instrument.
Leverage risk occurs when the hybrid instrument is structured so that a
given change in a benchmark or underlying asset is multiplied to produce
a greater value change in the hybrid instrument, thereby magnifying the
risk of loss as well as the potential for gain.
Hybrid instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of
enhancing total return. For example, a fund may wish to take advantage
of expected declines in interest rates in several European countries,
but avoid the transaction costs associated with buying and
currency-hedging the foreign bond positions. One solution would be to
purchase a U.S. dollar-denominated hybrid instrument whose redemption
price is linked to the average three year interest rate in a designated
group of countries. The redemption price formula would provide for
payoffs of less than par if rates were above the specified level.
Furthermore, a fund could limit the downside risk of the security by
establishing a minimum redemption price so that the principal paid at
maturity could not be below a predetermined minimum level if interest
rates were to rise significantly. The purpose of this arrangement,
known as a structured security with an embedded put option, would be to
give the fund the desired European bond exposure while avoiding currency
risk, limiting downside market risk, and lowering transaction costs. Of
course, there is no guarantee that the strategy will be successful and a
fund could lose money if, for example, interest rates do not move as
anticipated or credit problems develop with the issuer of the hybrid
instrument.
Hybrid instruments are potentially more volatile and carry greater
market risks than traditional debt instruments. Depending on the
structure of the particular hybrid instrument, changes in a benchmark
may be magnified by the terms of the hybrid instrument and have an even
more dramatic and substantial effect upon the value of the hybrid
instrument. Also, the prices of the hybrid instrument and the benchmark
or underlying asset may not move in the same direction or at the same
time.
Hybrid instruments may also carry liquidity risk since the instruments
are often "customized" to meet the portfolio needs of a particular
investor, and therefore, the number of investors that are willing and
able to buy such instruments in the secondary market may be smaller than
that for more traditional debt securities. Under certain conditions,
the redemption value of such an investment could be zero. In addition,
because the purchase and sale of hybrid investments could take place in
an over-the-counter market without the guarantee of a central clearing
organization, or in a transaction between the fund and the issuer of the
hybrid instrument, the creditworthiness of the counterparty of the
issuer of the hybrid instrument would be an additional risk factor the
fund would have to consider and monitor. Hybrid instruments also may
not be subject to regulation by the CFTC, which generally regulates the
trading of commodity futures by U.S. persons, the SEC, which regulates
the offer and sale of securities by and to U.S. persons, or any other
governmental regulatory authority.
Structured investments. A structured investment is a security having a
return tied to an underlying index or other security or asset class.
Structured investments generally are individually negotiated agreements
and may be traded over-the-counter. Structured investments are
organized and operated to restructure the investment characteristics of
the underlying security. This restructuring involves the deposit with
or purchase by an entity, such as a corporation or trust, or specified
instruments (such as commercial bank loans) and the issuance by that
entity or one or more classes of securities ("structured securities")
backed by, or representing interests in, the underlying instruments.
The cash flow on the underlying instruments may be apportioned among the
newly issued structured securities to create securities with different
investment characteristics, such as varying maturities, payment
priorities and interest rate provisions, and the extent of such payments
made with respect to structured securities is dependent on the extent of
the cash flow on the underlying instruments. Because structured
securities typically involve no credit enhancement, their credit risk
generally will be equivalent to that of the underlying instruments.
Investments in structured securities are generally of a class of
structured securities that is either subordinated or unsubordinated to
the right of payment of another class. Subordinated structured
securities typically have higher yields and present greater risks than
unsubordinated structured securities. Structured securities are
typically sold in private placement transactions, and there currently is
no active trading market for structured securities. Investments in
government and government-related and restructured debt instruments are
subject to special risks, including the inability or unwillingness to
repay principal and interest, requests to reschedule or restructure
outstanding debt and requests to extend additional loan amounts.
Securities of Other Investment Companies. Securities of other
investment companies, including shares of closed-end investment
companies, unit investment trusts and open-end investment companies,
represent interests in professionally managed portfolios that may invest
in any type of instrument. These types of instruments are often
structured to perform in a similar fashion to a broad based securities
index. Investing in these types of securities involves substantially
the same risks as investing directly in the underlying instruments, but
may involve additional expenses at the investment company-level, such as
portfolio management fees and operating expenses. In addition, these
types of investments involve the risk that they will not perform in
exactly the same fashion, or in response to the same factors, as the
index or underlying instruments. Certain types of investment companies,
such as closed-end investment companies, issue a fixed number of shares
that trade on a stock exchange or over-the-counter at a premium or a
discount to their net asset value. Others are continuously offered at
net asset value, but may also be traded in the secondary market. The
extent to which a fund can invest in securities of other investment
companies is limited by federal securities laws.
Tax-exempt Securities
General description. As used in this SAI, the term "Tax-exempt
securities" includes debt obligations issued by a state, its political
subdivisions (for example, counties, cities, towns, villages, districts
and authorities) and their agencies, instrumentalities or other
governmental units, the interest from which is, in the opinion of bond
counsel, exempt from federal income tax and the corresponding state's
personal income tax. Such obligations are issued to obtain funds for
various public purposes, including the construction of a wide range of
public facilities, such as airports, bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer
works. Other public purposes for which Tax-exempt securities may be
issued include the refunding of outstanding obligations or the payment
of general operating expenses.
Short-term Tax-exempt securities are generally issued by state and local
governments and public authorities as interim financing in anticipation
of tax collections, revenue receipts or bond sales to finance such
public purposes.
In addition, certain types of "private activity" bonds may be issued by
public authorities to finance projects such as privately operated
housing facilities; certain local facilities for supplying water, gas or
electricity; sewage or solid waste disposal facilities; student loans;
or public or private institutions for the construction of educational,
hospital, housing and other facilities. Such obligations are included
within the term Tax-exempt securities if the interest paid thereon is,
in the opinion of bond counsel, exempt from federal income tax and state
personal income tax (such interest may, however, be subject to federal
alternative minimum tax). Other types of private activity bonds, the
proceeds of which are used for the construction, repair or improvement
of, or to obtain equipment for, privately operated industrial or
commercial facilities, may also constitute Tax-exempt securities,
although the current federal tax laws place substantial limitations on
the size of such issues.
Participation interests (Money Market Funds only). The money market
funds may invest in Tax-exempt securities either by purchasing them
directly or by purchasing certificates of accrual or similar instruments
evidencing direct ownership of interest payments or principal payments,
or both, on Tax-exempt securities, provided that, in the opinion of
counsel, any discount accruing on a certificate or instrument that is
purchased at a yield not greater than the coupon rate of interest on the
related Tax-exempt securities will be exempt from federal income tax to
the same extent as interest on the Tax-exempt securities. The money
market funds may also invest in Tax-exempt securities by purchasing from
banks participation interests in all or part of specific holdings of
Tax-exempt securities. These participations may be backed in whole or
in part by an irrevocable letter of credit or guarantee of the selling
bank. The selling bank may receive a fee from the money market funds in
connection with the arrangement. The money market funds will not
purchase such participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service that interest earned
by it on Tax-exempt securities in which it holds such participation
interests is exempt from federal income tax. No money market fund
expects to invest more than 5% of its assets in participation interests.
Stand-by commitments. When the fund purchases Tax-exempt securities, it
has the authority to acquire stand-by commitments from banks and
broker-dealers with respect to those Tax-exempt securities. A stand-by
commitment may be considered a security independent of the Tax-exempt
security to which it relates. The amount payable by a bank or dealer
during the time a stand-by commitment is exercisable, absent unusual
circumstances, would be substantially the same as the market value of
the underlying Tax-exempt security to a third party at any time. The
fund expects that stand-by commitments generally will be available
without the payment of direct or indirect consideration. The fund does
not expect to assign any value to stand-by commitments.
Yields. The yields on Tax-exempt securities depend on a variety of
factors, including general money market conditions, effective marginal
tax rates, the financial condition of the issuer, general conditions of
the Tax-exempt security market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings of
nationally recognized securities rating agencies represent their
opinions as to the credit quality of the Tax-exempt securities which
they undertake to rate. It should be emphasized, however, that ratings
are general and are not absolute standards of quality. Consequently,
Tax-exempt securities with the same maturity and interest rate but with
different ratings may have the same yield. Yield disparities may occur
for reasons not directly related to the investment quality of particular
issues or the general movement of interest rates and may be due to such
factors as changes in the overall demand or supply of various types of
Tax-exempt securities or changes in the investment objectives of
investors. Subsequent to purchase by the fund, an issue of Tax-exempt
securities or other investments may cease to be rated, or its rating may
be reduced below the minimum rating required for purchase by the fund.
Neither event will require the elimination of an investment from the
fund's portfolio, but Putnam Management will consider such an event in
its determination of whether the fund should continue to hold an
investment in its portfolio.
"Moral obligation" bonds. The fund does not currently intend to invest
in so-called "moral obligation" bonds, where repayment is backed by a
moral commitment of an entity other than the issuer, unless the credit
of the issuer itself, without regard to the "moral obligation," meets
the investment criteria established for investments by the fund.
Municipal leases. The fund may acquire participations in lease
obligations or installment purchase contract obligations (collectively,
"lease obligations") of municipal authorities or entities. Lease
obligations do not constitute general obligations of the municipality
for which the municipality's taxing power is pledged. Certain of these
lease obligations contain "non-appropriation" clauses, which provide
that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such
purpose on a yearly basis. In the case of a "non-appropriation" lease,
the fund's ability to recover under the lease in the event of
non-appropriation or default will be limited solely to the repossession
of the leased property, and in any event, foreclosure of that property
might prove difficult.
Inverse Floaters have variable interest rates that typically move in the
opposite direction from movements in prevailing short-term interest rate
levels - rising when prevailing short-term interest rate fall, and vice
versa. The prices of inverse floaters can be considerably more volatile
than the prices of bonds with comparable maturities.
Additional risks. Securities in which the fund may invest, including
Tax-exempt securities, are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of
creditors, such as the federal Bankruptcy Code (including special
provisions related to municipalities and other public entities), and
laws, if any, that may be enacted by Congress or state legislatures
extending the time for payment of principal or interest, or both, or
imposing other constraints upon enforcement of such obligations. There
is also the possibility that, as a result of litigation or other
conditions, the power, ability or willingness of issuers to meet their
obligations for the payment of interest and principal on their
Tax-exempt securities may be materially affected.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax
exemption for interest on debt obligations issued by states and their
political subdivisions. Federal tax laws limit the types and amounts of
tax-exempt bonds issuable for certain purposes, especially industrial
development bonds and private activity bonds. Such limits may affect
the future supply and yields of these types of Tax-exempt securities.
Further proposals limiting the issuance of Tax-exempt securities may
well be introduced in the future. If it appeared that the availability
of Tax-exempt securities for investment by the fund and the value of the
fund's portfolio could be materially affected by such changes in law,
the Trustees of the fund would reevaluate its investment objective and
policies and consider changes in the structure of the fund or its
dissolution.
Convertible Securities
Convertible securities include bonds, debentures, notes, preferred
stocks and other securities that may be converted into or exchanged for,
at a specific price or formula within a particular period of time, a
prescribed amount of common stock or other equity securities of the same
or a different issuer. Convertible securities entitle the holder to
receive interest paid or accrued on debt or dividends paid or accrued on
preferred stock until the security matures or is redeemed, converted or
exchanged.
The market value of a convertible security is a function of its
"investment value" and its "conversion value." A security's "investment
value" represents the value of the security without its conversion
feature (i.e., a nonconvertible fixed income security). The investment
value may be determined by reference to its credit quality and the
current value of its yield to maturity or probable call date. At any
given time, investment value is dependent upon such factors as the
general level of interest rates, the yield of similar nonconvertible
securities, the financial strength of the issuer and the seniority of
the security in the issuer's capital structure. A security's "conversion
value" is determined by multiplying the number of shares the holder is
entitled to receive upon conversion or exchange by the current price of
the underlying security.
If the conversion value of a convertible security is significantly below
its investment value, the convertible security will trade like
nonconvertible debt or preferred stock and its market value will not be
influenced greatly by fluctuations in the market price of the underlying
security. Conversely, if the conversion value of a convertible security
is near or above its investment value, the market value of the
convertible security will be more heavily influenced by fluctuations in
the market price of the underlying security.
The fund's investments in convertible securities may at times include
securities that have a mandatory conversion feature, pursuant to which
the securities convert automatically into common stock or other equity
securities at a specified date and a specified conversion ratio, or that
are convertible at the option of the issuer. Because conversion of the
security is not at the option of the holder, the fund may be required to
convert the security into the underlying common stock even at times when
the value of the underlying common stock or other equity security has
declined substantially.
The fund's investments in convertible securities, particularly
securities that are convertible into securities of an issuer other than
the issuer of the convertible security, may be illiquid. The fund may
not be able to dispose of such securities in a timely fashion or for a
fair price, which could result in losses to the fund.
Alternative Investment Strategies
Under normal market conditions, each fund seeks to remain fully invested
and to minimize its cash holdings. However, at times Putnam Management
may judge that market conditions make pursuing a fund's investment
strategies inconsistent with the best interests of its shareholders.
Putnam Management then may temporarily use alternative strategies that
are mainly designed to limit the fund's losses. In implementing these
strategies, the funds may invest primarily in debt securities, preferred
stocks, U.S. Government and agency obligations, cash or money market
instruments, or any other securities Putnam Management considers
consistent with such defensive strategies.
Money market instruments, or short-term debt instruments, consist of
obligations such as commercial paper, bank obligations (i.e.,
certificates of deposit and bankers' acceptances), repurchase agreements
and various government obligations, such as Treasury bills. These
instruments have a remaining maturity of one year or less and are
generally of high credit quality. Money market instruments may be
structured to be, or may employ a trust or other form so that they are,
eligible investments for money market funds. For example, put features
can be used to modify the maturity of a security or interest rate
adjustment features can be used to enhance price stability. If a
structure fails to function as intended, adverse tax or investment
consequences may result. Neither the Internal Revenue Service (IRS) nor
any other regulatory authority has ruled definitively on certain legal
issues presented by certain structured securities. Future tax or other
regulatory determinations could adversely affect the value, liquidity,
or tax treatment of the income received from these securities or the
nature and timing of distributions made by the funds.
Private Placements and Restricted Securities
The fund may invest in securities that are purchased in private
placements and, accordingly, are subject to restrictions on resale as a
matter of contract or under federal securities laws. Because there may
be relatively few potential purchasers for such investments, especially
under adverse market or economic conditions or in the event of adverse
changes in the financial condition of the issuer, the fund could find it
more difficult to sell such securities when Putnam Management believes
it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. At times,
it may also be more difficult to determine the fair value of such
securities for purposes of computing the fund's net asset value.
While such private placements may often offer attractive opportunities
for investment not otherwise available on the open market, the
securities so purchased are often "restricted securities," i.e.,
securities which cannot be sold to the public without registration
under the Securities Act of 1933 or the availability of an exemption
from registration (such as Rules 144 or 144A), or which are "not readily
marketable" because they are subject to other legal or contractual
delays in or restrictions on resale.
The absence of a trading market can make it difficult to ascertain a
market value for illiquid investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for the fund to sell them promptly
at an acceptable price. The fund may have to bear the extra expense of
registering such securities for resale and the risk of substantial delay
in effecting such registration. Also market quotations are less readily
available. The judgment of Putnam Management may at times play a greater
role in valuing these securities than in the case of publicly traded
securities.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a
limited number of purchasers, or in limited quantities after they have
been held for a specified period of time and other conditions are met
pursuant to an exemption from registration, or in a public offering for
which a registration statement is in effect under the Securities Act of
1933. The fund may be deemed to be an "underwriter" for purposes of the
Securities Act of 1933 when selling restricted securities to the public,
and in such event the fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.
The SEC Staff currently takes the view that any delegation by the
Trustees of the authority to determine that a restricted security is
readily marketable (as described in the investment restrictions of the
funds) must be pursuant to written procedures established by the
Trustees and the Trustees have delegated such authority to Putnam
Management.
Futures Contracts and Related Options
Subject to applicable law the fund may invest without limit in futures
contracts and related options for hedging and non-hedging purposes, such
as to manage the effective duration of the fund's portfolio or as a
substitute for direct investment. A financial futures contract sale
creates an obligation by the seller to deliver the type of financial
instrument called for in the contract in a specified delivery month for
a stated price. A financial futures contract purchase creates an
obligation by the purchaser to take delivery of the type of financial
instrument called for in the contract in a specified delivery month at a
stated price. The specific instruments delivered or taken,
respectively, at settlement date are not determined until on or near
that date. The determination is made in accordance with the rules of
the exchange on which the futures contract sale or purchase was made.
Futures contracts are traded in the United States only on commodity
exchanges or boards of trade -- known as "contract markets" -- approved
for such trading by the Commodity Futures Trading Commission (the
"CFTC"), and must be executed through a futures commission merchant or
brokerage firm which is a member of the relevant contract market.
Although futures contracts (other than index futures) by their terms
call for actual delivery or acceptance of commodities or securities, in
most cases the contracts are closed out before the settlement date
without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or
commodity with the same delivery date. If the price of the initial sale
of the futures contract exceeds the price of the offsetting purchase,
the seller is paid the difference and realizes a gain. Conversely, if
the price of the offsetting purchase exceeds the price of the initial
sale, the seller realizes a loss. If the fund is unable to enter into a
closing transaction, the amount of the fund's potential loss is
unlimited. The closing out of a futures contract purchase is effected
by the purchaser's entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the purchaser realizes
a gain, and if the purchase price exceeds the offsetting sale price, he
realizes a loss. In general, 40% of the gain or loss arising from the
closing out of a futures contract traded on an exchange approved by the
CFTC is treated as short-term gain or loss, and 60% is treated as
long-term gain or loss.
Unlike when the fund purchases or sells a security, no price is paid or
received by the fund upon the purchase or sale of a futures contract.
Upon entering into a contract, the fund is required to deposit with its
custodian in a segregated account in the name of the futures broker an
amount of liquid assets. This amount is known as "initial margin." The
nature of initial margin in futures transactions is different from that
of margin in security transactions in that futures contract margin does
not involve the borrowing of funds to finance the transactions. Rather,
initial margin is similar to a performance bond or good faith deposit
which is returned to the fund upon termination of the futures contract,
assuming all contractual obligations have been satisfied. Futures
contracts also involve brokerage costs.
Subsequent payments, called "variation margin" or "maintenance margin,"
to and from the broker (or the custodian) are made on a daily basis as
the price of the underlying security or commodity fluctuates, making the
long and short positions in the futures contract more or less valuable,
a process known as "marking to the market." For example, when the fund
has purchased a futures contract on a security and the price of the
underlying security has risen, that position will have increased in
value and the fund will receive from the broker a variation margin
payment based on that increase in value. Conversely, when the fund has
purchased a security futures contract and the price of the underlying
security has declined, the position would be less valuable and the fund
would be required to make a variation margin payment to the broker.
The fund may elect to close some or all of its futures positions at any
time prior to their expiration in order to reduce or eliminate a hedge
position then currently held by the fund. The fund may close its
positions by taking opposite positions which will operate to terminate
the fund's position in the futures contracts. Final determinations of
variation margin are then made, additional cash is required to be paid
by or released to the fund, and the fund realizes a loss or a gain.
Such closing transactions involve additional commission costs.
The fund does not intend to purchase or sell futures or related options
for other than hedging purposes, if, as a result, the sum of the initial
margin deposits on the fund's existing futures and related options
positions and premiums paid for outstanding options on futures contracts
would exceed 5% of the fund's net assets.
Options on futures contracts. The fund may purchase and write call and
put options on futures contracts it may buy or sell and enter into
closing transactions with respect to such options to terminate existing
positions. In return for the premium paid, options on futures contracts
give the purchaser the right to assume a position in a futures contract
at the specified option exercise price at any time during the period of
the option. The fund may use options on futures contracts in lieu of
writing or buying options directly on the underlying securities or
purchasing and selling the underlying futures contracts. For example,
to hedge against a possible decrease in the value of its portfolio
securities, the fund may purchase put options or write call options on
futures contracts rather than selling futures contracts. Similarly, the
fund may purchase call options or write put options on futures contracts
as a substitute for the purchase of futures contracts to hedge against a
possible increase in the price of securities which the fund expects to
purchase. Such options generally operate in the same manner as options
purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an offsetting option.
There is no guarantee that such closing transactions can be effected.
The fund will be required to deposit initial margin and maintenance
margin with respect to put and call options on futures contracts written
by it pursuant to brokers' requirements similar to those described above
in connection with the discussion of futures contracts.
Risks of transactions in futures contracts and related options.
Successful use of futures contracts by the fund is subject to Putnam
Management's ability to predict movements in various factors affecting
securities markets, including interest rates. Compared to the purchase
or sale of futures contracts, the purchase of call or put options on
futures contracts involves less potential risk to the fund because the
maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a
loss to the fund when the purchase or sale of a futures contract would
not, such as when there is no movement in the prices of the hedged
investments. The writing of an option on a futures contract involves
risks similar to those risks relating to the sale of futures contracts.
The use of options and futures strategies also involves the risk of
imperfect correlation among movements in the prices of the securities
underlying the futures and options purchased and sold by the fund, of
the options and futures contracts themselves, and, in the case of
hedging transactions, of the securities which are the subject of a
hedge. The successful use of these strategies further depends on the
ability of Putnam Management to forecast interest rates and market
movements correctly.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain market
clearing facilities inadequate, and thereby result in the institution by
exchanges of special procedures which may interfere with the timely
execution of customer orders.
To reduce or eliminate a position held by the fund, the fund may seek to
close out such position. The ability to establish and close out
positions will be subject to the development and maintenance of a liquid
secondary market. It is not certain that this market will develop or
continue to exist for a particular futures contract or option. Reasons
for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain
contracts or options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of contracts or options, or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt
normal operations on an exchange; (v) the facilities of an exchange or a
clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue
the trading of contracts or options (or a particular class or series of
contracts or options), in which event the secondary market on that
exchange for such contracts or options (or in the class or series of
contracts or options) would cease to exist, although outstanding
contracts or options on the exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
U.S. Treasury security futures contracts and options. U.S. Treasury
security futures contracts require the seller to deliver, or the
purchaser to take delivery of, the type of U.S. Treasury security called
for in the contract at a specified date and price. Options on U.S.
Treasury security futures contracts give the purchaser the right in
return for the premium paid to assume a position in a U.S. Treasury
security futures contract at the specified option exercise price at any
time during the period of the option.
Successful use of U.S. Treasury security futures contracts by the fund
is subject to Putnam Management's ability to predict movements in the
direction of interest rates and other factors affecting markets for debt
securities. For example, if the fund has sold U.S. Treasury security
futures contracts in order to hedge against the possibility of an
increase in interest rates which would adversely affect securities held
in its portfolio, and the prices of the fund's securities increase
instead as a result of a decline in interest rates, the fund will lose
part or all of the benefit of the increased value of its securities
which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the fund has
insufficient cash, it may have to sell securities to meet daily
maintenance margin requirements at a time when it may be disadvantageous
to do so.
There is also a risk that price movements in U.S. Treasury security
futures contracts and related options will not correlate closely with
price movements in markets for particular securities. For example, if
the fund has hedged against a decline in the values of tax-exempt
securities held by it by selling Treasury security futures and the
values of Treasury securities subsequently increase while the values of
its tax-exempt securities decrease, the fund would incur losses on both
the Treasury security futures contracts written by it and the tax-exempt
securities held in its portfolio.
Index futures contracts. An index futures contract is a contract to buy
or sell units of an index at a specified future date at a price agreed
upon when the contract is made. Entering into a contract to buy units
of an index is commonly referred to as buying or purchasing a contract
or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or
holding a short position. A unit is the current value of the index.
The fund may enter into stock index futures contracts, debt index
futures contracts, or other index futures contracts appropriate to its
objective(s). The fund may also purchase and sell options on index
futures contracts.
For example, the Standard & Poor's 500 Composite Stock Price Index ("S&P
500") is composed of 500 selected common stocks, most of which are
listed on the New York Stock Exchange. The S&P 500 assigns relative
weightings to the common stocks included in the Index, and the value
fluctuates with changes in the market values of those common stocks. In
the case of the S&P 500, contracts are to buy or sell 500 units. Thus,
if the value of the S&P 500 were $150, one contract would be worth
$75,000 (500 units x $150). The stock index futures contract specifies
that no delivery of the actual stocks making up the index will take
place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the
contract price and the actual level of the stock index at the expiration
of the contract. For example, if the fund enters into a futures
contract to buy 500 units of the S&P 500 at a specified future date at a
contract price of $150 and the S&P 500 is at $154 on that future date,
the fund will gain $2,000 (500 units x gain of $4). If the fund enters
into a futures contract to sell 500 units of the stock index at a
specified future date at a contract price of $150 and the S&P 500 is at
$152 on that future date, the fund will lose $1,000 (500 units x loss of
$2).
There are several risks in connection with the use by the fund of index
futures. One risk arises because of the imperfect correlation between
movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. Putnam Management
will, however, attempt to reduce this risk by buying or selling, to the
extent possible, futures on indices the movements of which will, in its
judgment, have a significant correlation with movements in the prices of
the securities sought to be hedged.
Successful use of index futures by the fund is also subject to Putnam
Management's ability to predict movements in the direction of the
market. For example, it is possible that, where the fund has sold
futures to hedge its portfolio against a decline in the market, the
index on which the futures are written may advance and the value of
securities held in the fund's portfolio may decline. If this occurred,
the fund would lose money on the futures and also experience a decline
in value in its portfolio securities. It is also possible that, if the
fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities
prices increase instead, the fund will lose part or all of the benefit
of the increased value of those securities it has hedged because it will
have offsetting losses in its futures positions. In addition, in such
situations, if the fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements at a time when it
is disadvantageous to do so.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the index
futures and the portion of the portfolio being hedged, the prices of
index futures may not correlate perfectly with movements in the
underlying index due to certain market distortions. First, all
participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures
market are less onerous than margin requirements in the securities
market, and as a result the futures market may attract more speculators
than the securities market does. Increased participation by speculators
in the futures market may also cause temporary price distortions. Due
to the possibility of price distortions in the futures market and also
because of the imperfect correlation between movements in the index and
movements in the prices of index futures, even a correct forecast of
general market trends by Putnam Management may still not result in a
profitable position over a short time period.
Options on stock index futures. Options on index futures are similar to
options on securities except that options on index futures give the
purchaser the right, in return for the premium paid, to assume a
position in an index futures contract (a long position if the option is
a call and a short position if the option is a put) at a specified
exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin
account which represents the amount by which the market price of the
index futures contract, at exercise, exceeds (in the case of a call) or
is less than (in the case of a put) the exercise price of the option on
the index future. If an option is exercised on the last trading day
prior to its expiration date, the settlement will be made entirely in
cash equal to the difference between the exercise price of the option
and the closing level of the index on which the future is based on the
expiration date. Purchasers of options who fail to exercise their
options prior to the exercise date suffer a loss of the premium paid.
Options on Indices
As an alternative to purchasing call and put options on index futures,
the fund may purchase and sell call and put options on the underlying
indices themselves. Such options would be used in a manner identical to
the use of options on index futures.
Index Warrants
The fund may purchase put warrants and call warrants whose values vary
depending on the change in the value of one or more specified securities
indices ("index warrants"). Index warrants are generally issued by
banks or other financial institutions and give the holder the right, at
any time during the term of the warrant, to receive upon exercise of the
warrant a cash payment from the issuer based on the value of the
underlying index at the time of exercise. In general, if the value of
the underlying index rises above the exercise price of the index
warrant, the holder of a call warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference between
the value of the index and the exercise price of the warrant; if the
value of the underlying index falls, the holder of a put warrant will be
entitled to receive a cash payment from the issuer upon exercise based
on the difference between the exercise price of the warrant and the
value of the index. The holder of a warrant would not be entitled to
any payments from the issuer at any time when, in the case of a call
warrant, the exercise price is greater than the value of the underlying
index, or, in the case of a put warrant, the exercise price is less than
the value of the underlying index. If the fund were not to exercise an
index warrant prior to its expiration, then the fund would lose the
amount of the purchase price paid by it for the warrant.
The fund will normally use index warrants in a manner similar to its use
of options on securities indices. The risks of the fund's use of index
warrants are generally similar to those relating to its use of index
options. Unlike most index options, however, index warrants are issued
in limited amounts and are not obligations of a regulated clearing
agency, but are backed only by the credit of the bank or other
institution which issues the warrant. Also, index warrants generally
have longer terms than index options. Although the fund will normally
invest only in exchange-listed warrants, index warrants are not likely
to be as liquid as certain index options backed by a recognized clearing
agency. In addition, the terms of index warrants may limit the fund's
ability to exercise the warrants at such time, or in such quantities, as
the fund would otherwise wish to do.
Short-term Trading
In seeking the fund's objective(s), Putnam Management will buy or sell
portfolio securities whenever Putnam Management believes it appropriate
to do so. From time to time the fund will buy securities intending to
seek short-term trading profits. A change in the securities held by the
fund is known as "portfolio turnover" and generally involves some
expense to the fund. This expense may include brokerage commissions or
dealer markups and other transaction costs on both the sale of
securities and the reinvestment of the proceeds in other securities. If
sales of portfolio securities cause the fund to realize net short-term
capital gains, such gains will be taxable as ordinary income. As a
result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than that of
other mutual funds. Portfolio turnover rate for a fiscal year is the
ratio of the lesser of purchases or sales of portfolio securities to the
monthly average of the value of portfolio securities -- excluding
securities whose maturities at acquisition were one year or less. The
fund's portfolio turnover rate is not a limiting factor when Putnam
Management considers a change in the fund's portfolio.
Securities Loans
The fund may make secured loans of its portfolio securities, on either a
short-term or long-term basis, amounting to not more than 25% of its
total assets, thereby realizing additional income. The risks in lending
portfolio securities, as with other extensions of credit, consist of
possible delay in recovery of the securities or possible loss of rights
in the collateral should the borrower fail financially. As a matter of
policy, securities loans are made to broker-dealers pursuant to
agreements requiring that the loans be continuously secured by
collateral consisting of cash or short-term debt obligations at least
equal at all times to the value of the securities on loan,
"marked-to-market" daily. The borrower pays to the fund an amount equal
to any dividends or interest received on securities lent. The fund
retains all or a portion of the interest received on investment of the
cash collateral or receives a fee from the borrower. Although voting
rights, or rights to consent, with respect to the loaned securities may
pass to the borrower, the fund retains the right to call the loans at
any time on reasonable notice, and it will do so to enable the fund to
exercise voting rights on any matters materially affecting the
investment. The fund may also call such loans in order to sell the
securities.
Repurchase Agreements
The fund, unless it is a money market fund, may enter into repurchase
agreements, amounting to not more than 25% of its total assets. Money
market funds may invest without limit in repurchase agreements. A
repurchase agreement is a contract under which the fund acquires a
security for a relatively short period (usually not more than one week)
subject to the obligation of the seller to repurchase and the fund to
resell such security at a fixed time and price (representing the fund's
cost plus interest). It is the fund's present intention to enter into
repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the U.S.
government or its agencies or instrumentalities. Repurchase agreements
may also be viewed as loans made by the fund which are collateralized by
the securities subject to repurchase. Putnam Management will monitor
such transactions to ensure that the value of the underlying securities
will be at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. If the seller
defaults, the fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of the sale including accrued
interest are less than the resale price provided in the agreement
including interest. In addition, if the seller should be involved in
bankruptcy or insolvency proceedings, the fund may incur delay and costs
in selling the underlying security or may suffer a loss of principal and
interest if the fund is treated as an unsecured creditor and required to
return the underlying collateral to the seller's estate.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the fund may transfer uninvested cash balances into a joint
account, along with cash of other Putnam funds and certain other
accounts. These balances may be invested in one or more repurchase
agreements and/or short-term money market instruments.
Forward Commitments
The fund may enter into contracts to purchase securities for a fixed
price at a future date beyond customary settlement time ("forward
commitments") if the fund sets aside, on the books and records of its
custodian, liquid assets in an amount sufficient to meet the purchase
price, or if the fund enters into offsetting contracts for the forward
sale of other securities it owns. In the case of to-be-announced
("TBA") purchase commitments, the unit price and the estimated principal
amount are established when the fund enters into a contract, with the
actual principal amount being within a specified range of the estimate.
Forward commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the
risk of decline in the value of the fund's other assets. Where such
purchases are made through dealers, the fund relies on the dealer to
consummate the sale. The dealer's failure to do so may result in the
loss to the fund of an advantageous yield or price. Although the fund
will generally enter into forward commitments with the intention of
acquiring securities for its portfolio or for delivery pursuant to
options contracts it has entered into, the fund may dispose of a
commitment prior to settlement if Putnam Management deems it appropriate
to do so. The fund may realize short-term profits or losses upon the
sale of forward commitments.
The fund may enter into TBA sale commitments to hedge its portfolio
positions or to sell securities it owns under delayed delivery
arrangements. Proceeds of TBA sale commitments are not received until
the contractual settlement date. During the time a TBA sale commitment
is outstanding, equivalent deliverable securities, or an offsetting TBA
purchase commitment deliverable on or before the sale commitment date,
are held as "cover" for the transaction. Unsettled TBA sale commitments
are valued at current market value of the underlying securities. If the
TBA sale commitment is closed through the acquisition of an offsetting
purchase commitment, the fund realizes a gain or loss on the commitment
without regard to any unrealized gain or loss on the underlying
security. If the fund delivers securities under the commitment, the
fund realizes a gain or loss from the sale of the securities based upon
the unit price established at the date the commitment was entered into.
Swap Agreements
The fund may enter into swap agreements and other types of
over-the-counter transactions with broker-dealers or other financial
institutions. Depending on their structures, swap agreements may
increase or decrease the fund's exposure to long-or short-term interest
rates (in the United States or abroad), foreign currency values,
mortgage securities, corporate borrowing rates, or other factors such as
security prices or inflation rates. The value of the fund's swap
positions would increase or decrease depending on the changes in value
of the underlying rates, currency values, or other indices or measures.
The fund's ability to engage in certain swap transactions may be limited
by tax considerations.
The fund's ability to realize a profit from such transactions will
depend on the ability of the financial institutions with which it enters
into the transactions to meet their obligations to the fund. Under
certain circumstances, suitable transactions may not be available to the
fund, or the fund may be unable to close out its position under such
transactions at the same time, or at the same price, as if it had
purchased comparable publicly traded securities.
Derivatives
Certain of the instruments in which the fund may invest, such as futures
contracts, options and forward contracts, are considered to be
"derivatives." Derivatives are financial instruments whose value
depends upon, or is derived from, the value of an underlying asset, such
as a security or an index. Further information about these instruments
and the risks involved in their use is included elsewhere in the
prospectus or in this SAI. The fund's use of derivatives may cause the
fund to recognize higher amounts of short-term capital gains, generally
taxed to shareholders at ordinary income tax rates.
TAXES
Taxation of the fund. The fund intends to qualify each year as a
regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). In order to qualify for the
special tax treatment accorded regulated investment companies and their
shareholders, the fund must, among other things:
(a) derive at least 90% of its gross income from dividends, interest,
payments with respect to certain securities loans, and gains from the
sale of stock, securities and foreign currencies, or other income
(including but not limited to gains from options, futures, or forward
contracts) derived with respect to its business of investing in such
stock, securities, or currencies;
(b) distribute with respect to each taxable year at least 90% of the sum
of its taxable net investment income, its net tax-exempt income, and the
excess, if any, of net short-term capital gains over net long-term
capital losses for such year; and
(c) diversify its holdings so that, at the end of each fiscal quarter,
(i) at least 50% of the market value of the fund's assets is represented
by cash and cash items, U.S. government securities, securities of other
regulated investment companies, and other securities limited in respect
of any one issuer to a value not greater than 5% of the value of the
fund's total assets and to not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of
its assets is invested in the securities (other than those of the U.S.
Government or other regulated investment companies) of any one issuer or
of two or more issuers which the fund controls and which are engaged in
the same, similar, or related trades or businesses.
If the fund qualifies as a regulated investment company that is accorded
special tax treatment, the fund will not be subject to federal income
tax on income paid to its shareholders in the form of dividends
(including capital gain dividends).
If the fund failed to qualify as a regulated investment company accorded
special tax treatment in any taxable year, the fund would be subject to
tax on its taxable income at corporate rates, and all distributions from
earnings and profits, including any distributions of net tax-exempt
income and net long-term capital gains, would be taxable to shareholders
as ordinary income. In addition, the fund could be required to
recognize unrealized gains, pay substantial taxes and interest and make
substantial distributions before requalifying as a regulated investment
company that is accorded special tax treatment.
If the fund fails to distribute in a calendar year substantially all of
its ordinary income for such year and substantially all of its capital
gain net income for the one-year period ending October 31 (or later if
the fund is permitted so to elect and so elects), plus any retained
amount from the prior year, the fund will be subject to a 4% excise tax
on the undistributed amounts. A dividend paid to shareholders by the
fund in January of a year generally is deemed to have been paid by the
fund on December 31 of the preceding year, if the dividend was declared
and payable to shareholders of record on a date in October, November or
December of that preceding year. The fund intends generally to make
distributions sufficient to avoid imposition of the 4% excise tax.
Fund distributions. Distributions from the fund (other than
exempt-interest dividends, as discussed below) will be taxable to
shareholders as ordinary income to the extent derived from the fund's
investment income and net short-term gains. Distributions of net capital
gains (that is, the excess of net gains from capital assets held more
than one year over net losses from capital assets held for not more than
one year) will be taxable to shareholders as such, regardless of how
long a shareholder has held the shares in the fund.
Exempt-interest dividends. The fund will be qualified to pay
exempt-interest dividends to its shareholders only if, at the close of
each quarter of the fund's taxable year, at least 50% of the total value
of the fund's assets consists of obligations the interest on which is
exempt from federal income tax. Distributions that the fund properly
designates as exempt-interest dividends are treated as interest
excludable from shareholders' gross income for federal income tax
purposes but may be taxable for federal alternative minimum tax purposes
and for state and local purposes. If the fund intends to be qualified
to pay exempt-interest dividends, the fund may be limited in its ability
to enter into taxable transactions involving forward commitments,
repurchase agreements, financial futures and options contracts on
financial futures, tax-exempt bond indices and other assets.
Part or all of the interest on indebtedness, if any, incurred or
continued by a shareholder to purchase or carry shares of the fund
paying exempt-interest dividends is not deductible. The portion of
interest that is not deductible is equal to the total interest paid or
accrued on the indebtedness, multiplied by the percentage of the fund's
total distributions (not including distributions from net long-term
capital gains) paid to the shareholder that are exempt-interest
dividends. Under rules used by the Internal Revenue Service to
determine when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares may be
considered to have been made with borrowed funds even though such funds
are not directly traceable to the purchase of shares.
In general, exempt-interest dividends, if any, attributable to interest
received on certain private activity obligations and certain industrial
development bonds will not be tax-exempt to any shareholders who are
"substantial users" of the facilities financed by such obligations or
bonds or who are "related persons" of such substantial users.
The fund which is qualified to pay exempt-interest dividends will inform
investors within 60 days of the fund's fiscal year-end of the percentage
of its income distributions designated as tax-exempt. The percentage is
applied uniformly to all distributions made during the year. The
percentage of income designated as tax-exempt for any particular
distribution may be substantially different from the percentage of the
fund's income that was tax-exempt during the period covered by the
distribution.
Hedging transactions. If the fund engages in hedging transactions,
including hedging transactions in options, futures contracts, and
straddles, or other similar transactions, it will be subject to special
tax rules (including constructive sale, mark-to-market, straddle, wash
sale, and short sale rules), the effect of which may be to accelerate
income to the fund, defer losses to the fund, cause adjustments in the
holding periods of the fund's securities, convert long-term capital
gains into short-term capital gains or convert short-term capital losses
into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders. The fund
will endeavor to make any available elections pertaining to such
transactions in a manner believed to be in the best interests of the
fund.
Certain of the fund's hedging activities (including its transactions, if
any, in foreign currencies or foreign currency-denominated instruments)
are likely to produce a difference between its book income and its
taxable income. If the fund's book income exceeds its taxable income,
the distribution (if any) of such excess will be treated as (i) a
dividend to the extent of the fund's remaining earnings and profits
(including earnings and profits arising from tax-exempt income), (ii)
thereafter as a return of capital to the extent of the recipient's basis
in the shares, and (iii) thereafter as gain from the sale or exchange of
a capital asset. If the fund's book income is less than its taxable
income, the fund could be required to make distributions exceeding book
income to qualify as a regulated investment company that is accorded
special tax treatment.
Return of capital distributions. If the fund makes a distribution to
you in excess of its current and accumulated "earnings and profits" in
any taxable year, the excess distribution will be treated as a return of
capital to the extent of your tax basis in your shares, and thereafter
as capital gain. A return of capital is not taxable, but it reduces
your tax basis in your shares, thus reducing any loss or increasing any
gain on a subsequent taxable disposition by you of your shares.
Dividends and distributions on the fund's shares are generally subject
to federal income tax as described herein to the extent they do not
exceed the fund's realized income and gains, even though such dividends
and distributions may economically represent a return of a particular
shareholder's investment. Such distributions are likely to occur in
respect of shares purchased at a time when the fund's net asset value
reflects gains that are either unrealized, or realized but not
distributed.
Securities issued or purchased at a discount. The fund's investment in
securities issued at a discount and certain other obligations will (and
investments in securities purchased at a discount may) require the fund
to accrue and distribute income not yet received. In order to generate
sufficient cash to make the requisite distributions, the fund may be
required to sell securities in its portfolio that it otherwise would
have continued to hold.
Capital loss carryover. Distributions from capital gains are generally
made after applying any available capital loss carryovers. The amounts
and expiration dates of any capital loss carryovers available to the
fund are shown in Note 1 (Federal income taxes) to the financial
statements included in Part I of this SAI or incorporated by reference
into this SAI.
Foreign currency-denominated securities and related hedging
transactions. The fund's transactions in foreign currencies, foreign
currency-denominated debt securities and certain foreign currency
options, futures contracts and forward contracts (and similar
instruments) may give rise to ordinary income or loss to the extent such
income or loss results from fluctuations in the value of the foreign
currency concerned.
If more than 50% of the fund's assets at year end consists of the
securities of foreign corporations, the fund may elect to permit
shareholders to claim a credit or deduction on their income tax returns
for their pro rata portion of qualified taxes paid by the fund to
foreign countries in respect of foreign securities the fund has held for
at least the minimum period specified in the Code. In such a case,
shareholders will include in gross income from foreign sources their pro
rata shares of such taxes. A shareholder's ability to claim a foreign
tax credit or deduction in respect of foreign taxes paid by the fund may
be subject to certain limitations imposed by the Code, as a result of
which a shareholder may not get a full credit or deduction for the
amount of such taxes. In particular, shareholders must hold their fund
shares (without protection from risk of loss) on the ex-dividend date
and for at least 15 additional days during the 30-day period surrounding
the ex-dividend date to be eligible to claim a foreign tax credit with
respect to a given dividend. Shareholders who do not itemize on their
federal income tax returns may claim a credit (but no deduction) for
such foreign taxes.
Investment by the fund in "passive foreign investment companies" could
subject the fund to a U.S. federal income tax or other charge on the
proceeds from the sale of its investment in such a company; however,
this tax can be avoided by making an election to mark such investments
to market annually or to treat the passive foreign investment company as
a "qualified electing fund."
A "passive foreign investment company" is any foreign corporation: (i)
75 percent or more of the income of which for the taxable year is
passive income, or (ii) the average percentage of the assets of which
(generally by value, but by adjusted tax basis in certain cases) that
produce or are held for the production of passive income is at least 50
percent. Generally, passive income for this purpose means dividends,
interest (including income equivalent to interest), royalties, rents,
annuities, the excess of gains over losses from certain property
transactions and commodities transactions, and foreign currency gains.
Passive income for this purpose does not include rents and royalties
received by the foreign corporation from active business and certain
income received from related persons.
Sale or redemption of shares. The sale, exchange or redemption of fund
shares may give rise to a gain or loss. In general, any gain or loss
realized upon a taxable disposition of shares will be treated as
long-term capital gain or loss if the shares have been held for more
than 12 months. Otherwise the gain or loss on the sale, exchange or
redemption of fund shares will be treated as short-term capital gain or
loss. However, if a shareholder sells shares at a loss within six months
of purchase, any loss will be disallowed for Federal income tax purposes
to the extent of any exempt-interest dividends received on such shares.
In addition, any loss (not already disallowed as provided in the
preceding sentence) realized upon a taxable disposition of shares held
for six months or less will be treated as long-term, rather than
short-term, to the extent of any long-term capital gain distributions
received by the shareholder with respect to the shares. All or a
portion of any loss realized upon a taxable disposition of fund shares
will be disallowed if other shares of the same fund are purchased within
30 days before or after the disposition. In such a case, the basis of
the newly purchased shares will be adjusted to reflect the disallowed
loss.
Shares purchased through tax-qualified plans. Special tax rules apply
to investments though defined contribution plans and other tax-qualified
plans. Shareholders should consult their tax adviser to determine the
suitability of shares of a fund as an investment through such plans and
the precise effect of an investment on their particular tax situation.
Backup withholding. The fund generally is required to withhold and
remit to the U.S. Treasury 31% of the taxable dividends and other
distributions paid to any individual shareholder who fails to furnish
the fund with a correct taxpayer identification number (TIN), who has
under-reported dividends or interest income, or who fails to certify to
the fund that he or she is not subject to such withholding.
The Internal Revenue Service recently revised its regulations affecting
the application to foreign investors of the back-up withholding and
withholding tax rules described above. The new regulations will
generally be effective for payments made after December 31, 2000
(although transition rules will apply). In some circumstances, the new
rules will increase the certification and filing requirements imposed on
foreign investors in order to qualify for exemption from the 31% back-up
withholding tax rates under income tax treaties. Foreign investors in a
fund should consult their tax advisers with respect to the potential
application of these new regulations.
MANAGEMENT
Trustees Name (Age)
John A. Hill (58), Chairman and Trustee. Chairman and Managing
Director, First Reserve Corporation (a registered investment adviser
investing in companies in the world-wide energy industry on behalf of
institutional investors). Director of Snyder Oil Corporation,
TransMontaigne Oil Company and various private companies owned by First
Reserve Corporation, and Member of the Board of Advisors of Fund
Directors.
Jameson A. Baxter (56), Trustee. President, Baxter Associates, Inc. (a
management consulting and private investments firm). Director of ASHTA
Chemicals, Inc., Banta Corporation (printing and digital imaging), and
Ryerson Tull, Inc. (America's largest steel service corporation).
Chairman Emeritus of the Board of Trustees, Mount Holyoke College.
+Hans H. Estin (72), Trustee. Chartered Financial Analyst and Vice
Chairman, North American Management Corp. (a registered investment
adviser).
Ronald J. Jackson (56), Trustee. Former Chairman, President and Chief
Executive Officer of Fisher-Price, Inc. (a major toy manufacturer).
*Paul L. Joskow (53), Trustee. Professor of Economics and Management
and Director of the Center for Energy and Environmental Policy Research,
Massachusetts Institute of Technology. Director, New England Electric
System (a public utility holding company), State Farm Indemnity Company
(an automobile insurance company) and the Whitehead Institute for
Biomedical Research (a non-profit research institution). President of
the Yale University Council.
Elizabeth T. Kennan (62), Trustee. President Emeritus and Professor,
Mount Holyoke College. Director, Bell Atlantic (a telecommunications
company), Northeast Utilities, Talbots (a distributor of women's
apparel) and Cambus-Kenneth Bloodstock (a limited liability company
involved in thoroughbred horse breeding and farming).
*Lawrence J. Lasser (57), Trustee and Vice President. President, Chief
Executive Officer and Director of Putnam Investments, Inc. and Putnam
Investment Management, Inc. Director of Marsh & McLennan Companies,
Inc. and the United Way of Massachusetts Bay.
John H. Mullin, III (59), Trustee. Chairman and CEO of Ridgeway Farm.
Director of ACX Technologies, Inc. (a company engaged in the manufacture
of industrial ceramics and packaging products), Alex. Brown Realty,
Inc., The Liberty Corporation (a company engaged in the life insurance
and broadcasting industries) and Carolina Power & Light (a utility
company).
+Robert E. Patterson (55), Trustee. President and Trustee of Cabot
Industrial Trust (a publicly traded real estate investment trust).
Director of Brandywine Trust Company.
*George Putnam III (49), President, Principal Executive Officer and
Trustee. President, New Generation Research, Inc. (a publisher of
financial advisory and other research services relating to bankrupt and
distressed companies) and New Generation Advisers, Inc. (a registered
investment adviser). Director of The Boston Family Office, L.L.C. (a
registered investment advisor).
*A.J.C. Smith (66), Trustee. Director of Marsh & McLennan Companies,
Inc. and Trident Corp. (a limited partnership with over 30 institutional
investors).
W. Thomas Stephens (58), Trustee. President and Chief Executive Officer
of MacMillan Bloedel Ltd. (a major forest products company). Director,
Qwest Communications, New Century Energies (a public utility company),
Trans Canada Pipeliners and Fletcher Challenger Canada.
W. Nicholas Thorndike (67), Trustee. Director of various corporations
and charitable organizations, including Courier Corporation (a book
manufacturer), Bradley Real Estate, Inc. and Providence Journal Co.
Trustee of Cabot Industrial Trust (a publicly traded real estate
investment trust), Eastern Utilities Associates and Northeastern
University.
Officers Name (Age)
Charles E. Porter (62), Executive Vice President. Managing Director of
Putnam Investments, Inc. and Putnam Management.
Patricia C. Flaherty (53), Vice President. Senior Vice President of
Putnam Investments, Inc. and Putnam Management.
Gordon H. Silver (53), Vice President. Director and Senior Managing
Director of Putnam Investments, Inc. and Putnam Management.
Brett C. Browchuk (37), Vice President. Managing Director of Putnam
Management.
Ian C. Ferguson (43), Vice President. Senior Managing Director of
Putnam Investments, Inc. and Putnam Management.
Richard A. Monaghan (46), Vice President. Managing Director of Putnam
Investments, Inc., Putnam Management and Putnam Retail Management.
Richard G. Leibovitch (36), Vice President. Managing Director of Putnam
Management. Prior to February 1999, Mr. Leibovitch was a Managing
Director at J.P. Morgan.
John R. Verani (61), Vice President. Senior Vice President of Putnam
Investments, Inc. and Putnam Management.
John D. Hughes (65), Senior Vice President and Treasurer.
*Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management or Putnam Retail Management.
Messrs. Putnam, III, Lasser and Smith are deemed "interested persons" by
virtue of their positions as officers or shareholders of the fund, or
directors of Putnam Management, Putnam Retail Management, or Marsh &
McLennan Companies, Inc., the parent company of Putnam Management and
Putnam Retail Management.
Mr. Joskow is not currently an "interested person" of the fund but could
be deemed by the Securities and Exchange Commission to be an "interested
person" on account of his prior consulting relationship with National
Economic Research Associates, Inc., a wholly-owned subsidiary of Marsh &
McLennan Companies, Inc., which was terminated as of August 31, 1998.
The balance of the Trustees are not "interested persons."
+Members of the Executive Committee of the Trustees. The Executive
Committee meets between regular meetings of the Trustees as may be
required to review investment matters and other affairs of the fund and
may exercise all of the powers of the Trustees.
---------------------
Certain other officers of Putnam Management are officers of the fund.
See "Additional officers" in Part I of this SAI. The mailing address of
each of the officers and Trustees is One Post Office Square, Boston,
Massachusetts 02109.
Except as stated below, the principal occupations of the officers and
Trustees for the last five years have been with the employers as shown
above, although in some cases they have held different positions with
such employers. Prior to May 2000 and November 1999, Mr. Smith was
Chairman and CEO, respectively, of Marsh & McLennan Companies, Inc.
Prior to September 1998, Mr. Joskow was a consultant to National
Economic Research Associates. Prior to 1996, Mr. Stephens was Chairman
of the Board of Directors, President and Chief Executive Officer of
Johns Manville Corporation. Prior to April 1996, Mr. Ferguson was CEO
at Hong Kong Shanghai Banking Corporation. Prior to February 1998, Mr.
Patterson was Executive Vice President and Director of Acquisitions of
Cabot Partners Limited Partnership. Prior to November 1998, Mr.
Monaghan was Managing Director at Merrill Lynch.
Each Trustee of the fund receives an annual fee and an additional fee
for each Trustees' meeting attended. Trustees who are not interested
persons of Putnam Management and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings and
for special services rendered in that connection. All of the Trustees
are Trustees of all the Putnam funds and each receives fees for his or
her services. For details of Trustees' fees paid by the fund and
information concerning retirement guidelines for the Trustees, see
"Charges and expenses" in Part I of this SAI.
The Agreement and Declaration of Trust of the fund provides that the
fund will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be
involved because of their offices with the fund, except if it is
determined in the manner specified in the Agreement and Declaration of
Trust that they have not acted in good faith in the reasonable belief
that their actions were in the best interests of the fund or that such
indemnification would relieve any officer or Trustee of any liability to
the fund or its shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of his or her duties. The
fund, at its expense, provides liability insurance for the benefit of
its Trustees and officers.
Putnam Management and its affiliates
Putnam Management is one of America's oldest and largest money
management firms. Putnam Management's staff of experienced portfolio
managers and research analysts selects securities and constantly
supervises the fund's portfolio. By pooling an investor's money with
that of other investors, a greater variety of securities can be
purchased than would be the case individually; the resulting
diversification helps reduce investment risk. Putnam Management has
been managing mutual funds since 1937. As of December 31, 1999, the
firm serves as the investment manager for the funds in the Putnam
Family, with over $289 billion in assets in nearly 12 million
shareholder accounts. An affiliate, The Putnam Advisory Company, Inc.,
manages domestic and foreign institutional accounts and mutual funds,
including the accounts of many Fortune 500 companies. Another
affiliate, Putnam Fiduciary Trust Company, provides investment advice to
institutional clients under its banking and fiduciary powers. At
December 31, 1999, Putnam Management and its affiliates managed $391
billion in assets, including nearly $17 billion in tax-exempt securities
and over $99 billion in retirement plan assets.
Putnam Management, Putnam Retail Management and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., a holding company
which in turn is, except for a minority stake owned by employees, owned
by Marsh & McLennan Companies, Inc., a publicly-owned holding company
whose principal businesses are international insurance and reinsurance
brokerage, employee benefit consulting and investment management.
Trustees and officers of the fund who are also officers of Putnam
Management or its affiliates or who are stockholders of Marsh & McLennan
Companies, Inc. will benefit from the advisory fees, sales commissions,
distribution fees, custodian fees and transfer agency fees paid or
allowed by the fund.
The Management Contract
Under a Management Contract between the fund and Putnam Management,
subject to such policies as the Trustees may determine, Putnam
Management, at its expense, furnishes continuously an investment program
for the fund and makes investment decisions on behalf of the fund.
Subject to the control of the Trustees, Putnam Management also manages,
supervises and conducts the other affairs and business of the fund,
furnishes office space and equipment, provides bookkeeping and clerical
services (including determination of the fund's net asset value, but
excluding shareholder accounting services) and places all orders for the
purchase and sale of the fund's portfolio securities. Putnam Management
may place fund portfolio transactions with broker-dealers that furnish
Putnam Management, without cost to it, certain research, statistical and
quotation services of value to Putnam Management and its affiliates in
advising the fund and other clients. In so doing, Putnam Management may
cause the fund to pay greater brokerage commissions than it might
otherwise pay.
For details of Putnam Management's compensation under the Management
Contract, see "Charges and expenses" in Part I of this SAI. Putnam
Management's compensation under the Management Contract may be reduced
in any year if the fund's expenses exceed the limits on investment
company expenses imposed by any statute or regulatory authority of any
jurisdiction in which shares of the fund are qualified for offer or
sale. The term "expenses" is defined in the statutes or regulations of
such jurisdictions, and generally excludes brokerage commissions, taxes,
interest, extraordinary expenses and, if the fund has a distribution
plan, payments made under such plan.
Under the Management Contract, Putnam Management may reduce its
compensation to the extent that the fund's expenses exceed such lower
expense limitation as Putnam Management may, by notice to the fund,
declare to be effective. The expenses subject to this limitation are
exclusive of brokerage commissions, interest, taxes, deferred
organizational and extraordinary expenses and, if the fund has a
distribution plan, payments required under such plan. For the purpose
of determining any such limitation on Putnam Management's compensation,
expenses of the fund shall not reflect the application of commissions or
cash management credits that may reduce designated fund expenses. The
terms of any expense limitation from time to time in effect are
described in the prospectus and/or Part I of this SAI.
In addition to the fee paid to Putnam Management, the fund reimburses
Putnam Management for the compensation and related expenses of certain
officers of the fund and their assistants who provide certain
administrative services for the fund and the other Putnam funds, each of
which bears an allocated share of the foregoing costs. The aggregate
amount of all such payments and reimbursements is determined annually by
the Trustees.
The amount of this reimbursement for the fund's most recent fiscal year
is included in "Charges and Expenses" in Part I of this SAI. Putnam
Management pays all other salaries of officers of the fund. The fund
pays all expenses not assumed by Putnam Management including, without
limitation, auditing, legal, custodial, investor servicing and
shareholder reporting expenses. The fund pays the cost of typesetting
for its prospectuses and the cost of printing and mailing any
prospectuses sent to its shareholders. Putnam Retail Management pays
the cost of printing and distributing all other prospectuses.
The Management Contract provides that Putnam Management shall not be
subject to any liability to the fund or to any shareholder of the fund
for any act or omission in the course of or connected with rendering
services to the fund in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties on the part of
Putnam Management.
The Management Contract may be terminated without penalty by vote of the
Trustees or the shareholders of the fund, or by Putnam Management, on 30
days' written notice. It may be amended only by a vote of the
shareholders of the fund. The Management Contract also terminates
without payment of any penalty in the event of its assignment. The
Management Contract provides that it will continue in effect only so
long as such continuance is approved at least annually by vote of either
the Trustees or the shareholders, and, in either case, by a majority of
the Trustees who are not "interested persons" of Putnam Management or
the fund. In each of the foregoing cases, the vote of the shareholders
is the affirmative vote of a "majority of the outstanding voting
securities" as defined in the Investment Company Act of 1940.
Portfolio Transactions
Investment decisions. Investment decisions for the fund and for the
other investment advisory clients of Putnam Management and its
affiliates are made with a view to achieving their respective investment
objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved. Thus,
a particular security may be bought or sold for certain clients even
though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling the security. In
some instances, one client may sell a particular security to another
client. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security, in which event each
day's transactions in such security are, insofar as possible, averaged
as to price and allocated between such clients in a manner which in
Putnam Management's opinion is equitable to each and in accordance with
the amount being purchased or sold by each. There may be circumstances
when purchases or sales of portfolio securities for one or more clients
will have an adverse effect on other clients.
Brokerage and research services. Transactions on U.S. stock exchanges,
commodities markets and futures markets and other agency transactions
involve the payment by the fund of negotiated brokerage commissions.
Such commissions vary among different brokers. A particular broker may
charge different commissions according to such factors as the difficulty
and size of the transaction. Transactions in foreign investments often
involve the payment of fixed brokerage commissions, which may be higher
than those in the United States. There is generally no stated
commission in the case of securities traded in the over-the-counter
markets, but the price paid by the fund usually includes an undisclosed
dealer commission or mark-up. In underwritten offerings, the price paid
by the fund includes a disclosed, fixed commission or discount retained
by the underwriter or dealer. It is anticipated that most purchases and
sales of securities by funds investing primarily in tax-exempt
securities and certain other fixed-income securities will be with the
issuer or with underwriters of or dealers in those securities, acting as
principal. Accordingly, those funds would not ordinarily pay
significant brokerage commissions with respect to securities
transactions. See "Charges and expenses" in Part I of this SAI for
information concerning commissions paid by the fund.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional
investors to receive brokerage and research services (as defined in the
Securities Exchange Act of 1934, as amended (the "1934 Act")) from
broker-dealers that execute portfolio transactions for the clients of
such advisers and from third parties with which such broker-dealers have
arrangements. Consistent with this practice, Putnam Management receives
brokerage and research services and other similar services from many
broker-dealers with which Putnam Management places the fund's portfolio
transactions and from third parties with which these broker-dealers have
arrangements. These services include such matters as economic analysis,
investment research and database services, industry and company reviews,
evaluations of investments, recommendations as to the purchase and sale
of investments, performance measurement services, subscriptions, pricing
services, quotation services, news services and computer equipment
(investment-related hardware and software) utilized by Putnam
Management's managers and analysts. Where the services referred to
above are used by Putnam Management not exclusively for research
purposes, Putnam Management, based upon its own allocations of expected
use, bears that portion of the cost of these services which directly
relates to their non-research use. Some of these services are of value
to Putnam Management and its affiliates in advising various of their
clients (including the fund), although not all of these services are
necessarily useful and of value in managing the fund. The management
fee paid by the fund is not reduced because Putnam Management and its
affiliates receive these services even though Putnam Management might
otherwise be required to purchase some of these services for cash.
Putnam Management places all orders for the purchase and sale of
portfolio investments for the fund and buys and sells investments for
the fund through a substantial number of brokers and dealers. In so
doing, Putnam Management uses its best efforts to obtain for the fund
the most favorable price and execution available, except to the extent
it may be permitted to pay higher brokerage commissions as described
below. In seeking the most favorable price and execution, Putnam
Management, having in mind the fund's best interests, considers all
factors it deems relevant, including, by way of illustration, price, the
size of the transaction, the nature of the market for the security or
other investment, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker-dealer
involved and the quality of service rendered by the broker-dealer in
other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the Management
Contract, Putnam Management may cause the fund to pay a broker-dealer
which provides "brokerage and research services" (as defined in the 1934
Act) to Putnam Management an amount of disclosed commission for
effecting securities transactions on stock exchanges and other
transactions for the fund on an agency basis in excess of the commission
which another broker-dealer would have charged for effecting that
transaction. Putnam Management's authority to cause the fund to pay any
such greater commissions is subject to such policies as the Trustees may
adopt from time to time. Putnam Management does not currently intend to
cause the fund to make such payments. It is the position of the staff of
the Securities and Exchange Commission that Section 28(e) does not apply
to the payment of such greater commissions in "principal" transactions.
Accordingly Putnam Management will use its best effort to obtain the
most favorable price and execution available with respect to such
transactions, as described above.
The Management Contract provides that commissions, fees, brokerage or
similar payments received by Putnam Management or an affiliate in
connection with the purchase and sale of portfolio investments of the
fund, less any direct expenses approved by the Trustees, shall be
recaptured by the fund through a reduction of the fee payable by the
fund under the Management Contract. Putnam Management seeks to
recapture for the fund soliciting dealer fees on the tender of the
fund's portfolio securities in tender or exchange offers. Any such fees
which may be recaptured are likely to be minor in amount.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. and subject to seeking the most favorable price
and execution available and such other policies as the Trustees may
determine, Putnam Management may consider sales of shares of the fund
(and, if permitted by law, of the other Putnam funds) as a factor in the
selection of broker-dealers to execute portfolio transactions for the
fund.
Principal Underwriter
Putnam Retail Management is the principal underwriter of shares of the
fund and the other continuously offered Putnam funds. Putnam Retail
Management is not obligated to sell any specific amount of shares of the
fund and will purchase shares for resale only against orders for shares.
See "Charges and expenses" in Part I of this SAI for information on
sales charges and other payments received by Putnam Retail Management.
Personal Investments by Employees of Putnam Management and Putnam Retail
Management and Officers and Trustees of the Fund
Employees of Putnam Management and Putnam Retail Management and officers
and Trustees of the fund are subject to significant restrictions on
engaging in personal securities transactions. These restrictions are set
forth in the Codes of Ethics adopted by Putnam Management and Putnam
Retail Management (The Putnam Investments' Code of Ethics) and by the
fund (the Putnam Funds' Code of Ethics). The Putnam Investments' Code of
Ethics and the Putnam Funds' Code of Ethics, in accordance with Rule
17j-1 of the Investment Company Act of 1940, as amended, contain
provisions and requirements designed to identify and address certain
conflicts of interest between personal investment activities and the
interests of the fund.
The Putnam Investments' Code of Ethics does not prohibit personnel from
investing in securities that may be purchased or held by the fund.
However, the Putnam Investments' Code, consistent with standards
recommended by the Investment Company Institute's Advisory Group on
Personal Investing and requirements established by Rule 17j-1, among
other things, prohibits personal securities investments without
pre-clearance, imposes time periods during which personal transactions
may not be made in certain securities by employees with access to
investment information, and requires the timely submission of broker
confirmations and quarterly reporting of personal securities
transactions. Additional restrictions apply to portfolio managers,
traders, research analysts and others involved in the investment
advisory process.
The Putnam Funds' Code of Ethics incorporates and applies the
restrictions of Putnam Investments' Code of Ethics to officers and
Trustees of the fund who are affiliated with Putnam Investments. The
Putnam Funds' Code does not prohibit unaffiliated officers and Trustees
from investing in securities that may be held by the fund; however, the
Putnam Funds' Code regulates the personal securities transactions of
unaffiliated Trustees of the fund, including limiting the time periods
during which they may personally buy and sell certain securities and
requiring them to submit quarterly reports of personal securities
transactions.
The fund's Trustees, in compliance with Rule 17j-1, approved Putnam
Investments' and the Putnam Funds' Codes of Ethics and are required to
approve any material changes to these Codes. The Trustees also provide
continued oversight of personal investment policies and annually
evaluate the implementation and effectiveness of the Codes of Ethics.
Investor Servicing Agent and Custodian
Putnam Investor Services, a division of Putnam Fiduciary Trust Company
("PFTC"), is the fund's investor servicing agent (transfer, plan and
dividend disbursing agent), for which it receives fees that are paid
monthly by the fund as an expense of all its shareholders. The fee paid
to Putnam Investor Services is determined on the basis of the number of
shareholder accounts, the number of transactions and the assets of the
fund. Putnam Investor Services has won the DALBAR Service Award eight
times in the past nine years. In 1997 and 1998, Putnam was the only
company to win all three DALBAR Awards: for service to investors, to
financial advisors, and to variable annuity contract holders. DALBAR,
Inc. an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
PFTC is the custodian of the fund's assets. In carrying out its duties
under its custodian contract, PFTC may employ one or more subcustodians
whose responsibilities include safeguarding and controlling the fund's
cash and securities, handling the receipt and delivery of securities and
collecting interest and dividends on the fund's investments. PFTC and
any subcustodians employed by it have a lien on the securities of the
fund (to the extent permitted by the fund's investment restrictions) to
secure charges and any advances made by such subcustodians at the end of
any day for the purpose of paying for securities purchased by the fund.
The fund expects that such advances will exist only in unusual
circumstances. Neither PFTC nor any subcustodian determines the
investment policies of the fund or decides which securities the fund
will buy or sell. PFTC pays the fees and other charges of any
subcustodians employed by it. The fund may from time to time pay
custodial expenses in full or in part through the placement by Putnam
Management of the fund's portfolio transactions with the subcustodians
or with a third-party broker having an agreement with the subcustodians.
The fund pays PFTC an annual fee based on the fund's assets, securities
transactions and securities holdings and reimburses PFTC for certain
out-of-pocket expenses incurred by it or any subcustodian employed by it
in performing custodial services.
See "Charges and expenses" in Part I of this SAI for information on fees
and reimbursements for investor servicing and custody received by PFTC.
The fees may be reduced by credits allowed by PFTC.
DETERMINATION OF NET ASSET VALUE
The fund determines the net asset value per share of each class of
shares once each day the New York Stock Exchange (the "Exchange") is
open. Currently, the Exchange is closed Saturdays, Sundays and the
following holidays: New Year's Day, Rev. Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July,
Labor Day, Thanksgiving and Christmas. The fund determines net asset
value as of the close of regular trading on the Exchange, currently 4:00
p.m. However, equity options held by the fund are priced as of the
close of trading at 4:10 p.m., and futures contracts on U.S. government
and other fixed-income securities and index options held by the fund are
priced as of their close of trading at 4:15 p.m.
Securities for which market quotations are readily available are valued
at prices which, in the opinion of Putnam Management, most nearly
represent the market values of such securities. Currently, such prices
are determined using the last reported sale price or, if no sales are
reported (as in the case of some securities traded over-the-counter),
the last reported bid price, except that certain securities are valued
at the mean between the last reported bid and asked prices. Short-term
investments having remaining maturities of 60 days or less are valued at
amortized cost, which approximates market value. All other securities
and assets are valued at their fair value following procedures approved
by the Trustees. Liabilities are deducted from the total, and the
resulting amount is divided by the number of shares of the class
outstanding.
Reliable market quotations are not considered to be readily available
for long-term corporate bonds and notes, certain preferred stocks,
tax-exempt securities, and certain foreign securities. These
investments are valued at fair value on the basis of valuations
furnished by pricing services, which determine valuations for normal,
institutional-size trading units of such securities using methods based
on market transactions for comparable securities and various
relationships between securities which are generally recognized by
institutional traders.
If any securities held by the fund are restricted as to resale, Putnam
Management determines their fair value following procedures approved by
the Trustees. The fair value of such securities is generally determined
as the amount which the fund could reasonably expect to realize from an
orderly disposition of such securities over a reasonable period of time.
The valuation procedures applied in any specific instance are likely to
vary from case to case. However, consideration is generally given to
the financial position of the issuer and other fundamental analytical
data relating to the investment and to the nature of the restrictions on
disposition of the securities (including any registration expenses that
might be borne by the fund in connection with such disposition). In
addition, specific factors are also generally considered, such as the
cost of the investment, the market value of any unrestricted securities
of the same class, the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any available
analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of
the Exchange. The values of these securities used in determining the
net asset value of the fund's shares are computed in their local
currencies as of such times. Currency exchange rates are normally
determined at the close of trading in London, England (11:00 a.m., New
York time). Also, because of the amount of time required to collect and
process trading information as to large numbers of securities issues,
the values of certain securities (such as convertible bonds, U.S.
government securities and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest practicable
time prior to the close of the Exchange. Occasionally, events affecting
the value of such securities may occur between the time of the
determination of value and the close of the Exchange which will not be
reflected in the computation of the fund's net asset value. If events
materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value
following procedures approved by the Trustees. In addition, securities
held by some of the funds may be traded in foreign markets that are open
for business on days that the fund is not, and the trading of such
securities on those days may have an impact on the value of a
shareholder's investment at a time when the shareholder cannot buy and
sell shares of the fund.
Money market funds generally value their portfolio securities at
amortized cost according to Rule 2a-7 under the Investment Company Act
of 1940.
HOW TO BUY SHARES
Each prospectus describes briefly how investors may buy shares of the
fund and identifies the share classes offered by that prospectus.
Because of these different sales charges and expenses, the investment
performance of the classes will vary. For more information, including
your eligibility to purchase certain classes of shares, contact your
investment dealer or Putnam Retail Management (at 1-800-225-1581).This
section of the SAI contains more information on how to buy shares and
the features of all share classes offered by Putnam funds. These
features include the sales charges and contingent deferred sales charges
(CDSCs) payable by investors, the conditions under which those charges
may be reduced, and the sales charges, commissions and other amounts
payable by Putnam Retail Management to investment dealers. As set forth
under the following sub-headings of this section, some features apply to
all classes, while others apply only to certain classes:
* General Information describes how to buy shares, identifies the
classes, describes ways of reducing sales charges that apply to all
classes and describes certain payments to investment dealers.
* Additional Information about Class A and Class M Shares describes the
allocation of initial sales charges between Putnam Retail Management and
investment dealers, ways of reducing those sales charges, the CDSC
payable by purchasers of $1 million or more of class A shares and the
commissions on those purchases payable by Putnam Retail Management to
investment dealers.
* Additional Information about Class B and Class C Shares describes the
commissions payable by Putnam Retail Management to investment dealers.
General Information
The fund is currently making a continuous offering of its shares. The
fund receives the entire net asset value of shares sold. The fund will
accept unconditional orders for shares to be executed at the public
offering price based on the net asset value per share next determined
after the order is placed. In the case of class A shares and class M
shares, the public offering price is the net asset value plus the
applicable sales charge, if any. No sales charge is included in the
public offering price of other classes of shares. In the case of orders
for purchase of shares placed through dealers, the public offering price
will be based on the net asset value determined on the day the order is
placed, but only if the dealer receives the order before the close of
regular trading on the Exchange. If the dealer receives the order after
the close of the Exchange, the price will be based on the net asset
value next determined. If funds for the purchase of shares are sent
directly to Putnam Investor Services, they will be invested at the
public offering price based on the net asset value next determined after
receipt. Payment for shares of the fund must be in U.S. dollars; if
made by check, the check must be drawn on a U.S. bank.
Initial and subsequent purchases must satisfy the minimums stated in the
prospectus, except that (i) individual investments under certain
employee benefit plans or Tax Qualified Retirement Plans may be lower,
(ii) persons who are already shareholders may make additional purchases
of $50 or more by sending funds directly to Putnam Investor Services
(see "Your investing account" below), and (iii) for investors
participating in systematic investment plans and military allotment
plans, the initial and subsequent purchases must be $25 or more.
Information about these plans is available from investment dealers or
from Putnam Retail Management.
As a convenience to investors, shares may be purchased through a
systematic investment plan. Pre-authorized monthly bank drafts for a
fixed amount (at least $25) are used to purchase fund shares at the
applicable public offering price next determined after Putnam Retail
Management receives the proceeds from the draft. A shareholder may
choose any day of the month and, if a given month (for example,
February) does not contain that particular date, or if the date falls on
a weekend or holiday, the draft will be processed on the next business
day. Further information and application forms are available from
investment dealers or from Putnam Retail Management.
Except for funds that declare a distribution daily, distributions to be
reinvested are reinvested without a sales charge in shares of the same
class as of the ex-dividend date using the net asset value determined on
that date, and are credited to a shareholder's account on the payment
date. Dividends for Putnam money market funds are credited to a
shareholder's account on the payment date. Distributions for all other
funds that declare a distribution daily are reinvested without a sales
charge as of the last day of the period for which distributions are paid
using the net asset value determined on that date, and are credited to a
shareholder's account on the payment date.
Payment in securities. In addition to cash, the fund may accept
securities as payment for fund shares at the applicable net asset value.
Generally, the fund will only consider accepting securities to increase
its holdings in a portfolio security, or if Putnam Management determines
that the offered securities are a suitable investment for the fund and
in a sufficient amount for efficient management.
While no minimum has been established, it is expected that the fund
would not accept securities with a value of less than $100,000 per issue
as payment for shares. The fund may reject in whole or in part any or
all offers to pay for purchases of fund shares with securities, may
require partial payment in cash for such purchases to provide funds for
applicable sales charges, and may discontinue accepting securities as
payment for fund shares at any time without notice. The fund will value
accepted securities in the manner described in the section
"Determination of Net Asset Value" for valuing shares of the fund. The
fund will only accept securities which are delivered in proper form.
The fund will not accept options or restricted securities as payment for
shares. The acceptance of securities by certain funds in exchange for
fund shares is subject to additional requirements. For federal income
tax purposes, a purchase of fund shares with securities will be treated
as a sale or exchange of such securities on which the investor will
generally realize a taxable gain or loss. The processing of a purchase
of fund shares with securities involves certain delays while the fund
considers the suitability of such securities and while other
requirements are satisfied. For information regarding procedures for
payment in securities, contact Putnam Retail Management. Investors
should not send securities to the fund except when authorized to do so
and in accordance with specific instructions received from Putnam Retail
Management.
Class A shares and class M shares are generally sold with a sales charge
payable at the time of purchase (except for class A shares and class M
shares of money market funds). As used in this SAI and unless the
context requires otherwise, the term "class A shares" includes shares of
funds that offer only one class of shares. The prospectus contains a
table of applicable sales charges.
Class B shares and class C shares are sold subject to a CDSC payable
upon redemption within a specified period after purchase. The
prospectus contains a table of applicable CDSCs.
Class B shares will automatically convert into class A shares no later
than the end of the month eight years after the purchase date, and may,
in the discretion of the Trustees, convert to class A shares earlier.
Class B shares acquired by exchanging class B shares of another Putnam
fund will convert into class A shares based on the time of the initial
purchase. Class B shares acquired through reinvestment of distributions
will convert into Class A shares based on the date of the initial
purchase to which such shares relate. For this purpose, class B shares
acquired through reinvestment of distributions will be attributed to
particular purchases of class B shares in accordance with such
procedures as the Trustees may determine from time to time. The
conversion of class B shares to class A shares is subject to the
condition that such conversions will not constitute taxable events for
Federal tax purposes.
Class Y shares, which are not subject to sales charges or a CDSC, are
available only to certain defined contribution plans and college savings
plans. See the prospectus that offers class Y shares for more
information.
Sales without sales charges or contingent deferred sales charges. The
fund may sell shares without a sales charge or CDSC to:
(i) current and retired Trustees of the fund; officers of the fund;
directors and current and retired U.S. full-time employees of Putnam
Management, Putnam Retail Management, their parent corporations and
certain corporate affiliates; family members of and employee benefit
plans for the foregoing; and partnerships, trusts or other entities in
which any of the foregoing has a substantial interest;
(ii) employer-sponsored retirement plans, for the repurchase of shares
in connection with repayment of plan loans made to plan participants (if
the sum loaned was obtained by redeeming shares of a Putnam fund sold
with a sales charge) (not offered by tax-exempt funds);
(iii) clients of administrators of tax-qualified employer-sponsored
retirement plans which have entered into agreements with Putnam Retail
Management (not offered by tax-exempt funds);
(iv) registered representatives and other employees of broker-dealers
having sales agreements with Putnam Retail Management; employees of
financial institutions having sales agreements with Putnam Retail
Management or otherwise having an arrangement with any such
broker-dealer or financial institution with respect to sales of fund
shares; and their spouses and children under age 21 (Putnam Retail
Management is regarded as the dealer of record for all such accounts);
(v) investors meeting certain requirements who sold shares of certain
Putnam closed-end funds pursuant to a tender offer by such closed-end
fund;
(vi) a trust department of any financial institution purchasing shares
of the fund in its capacity as trustee of any trust (other than a
tax-qualified retirement plan trust), through an arrangement approved by
Putnam Retail Management, if the value of the shares of the fund and
other Putnam funds purchased or held by all such trusts exceeds $1
million in the aggregate; and
(vii) "wrap accounts" maintained for clients of broker-dealers,
financial institutions or financial intermediaries who have entered into
agreements with Putnam Retail Management with respect to such accounts,
which in all cases shall be subject to a wrap fee economically
comparable to a sales charge. Fund shares offered pursuant to this
waiver may not be advertised as "no load," or otherwise offered for sale
at NAV without a wrap fee.
The fund may issue its shares at net asset value without an initial
sales charge or a CDSC in connection with the acquisition of
substantially all of the securities owned by other investment companies
or personal holding companies. The CDSC will be waived on redemptions
to pay premiums for insurance under Putnam's insured investor program.
Investors who set up an Systematic Withdrawal Plan ("SWP") for a share
account (see "Plans available to shareholders -- Systematic Withdrawal
Plan") may withdraw through the SWP up to 12% of the net asset value of
the account (calculated as set forth below) each year without incurring
any CDSC. Shares not subject to a CDSC (such as shares representing
reinvestment of distributions) will be redeemed first and will count
toward the 12% limitation. If there are insufficient shares not subject
to a CDSC, shares subject to the lowest CDSC liability will be redeemed
next until the 12% limit is reached. The 12% figure is calculated on a
pro rata basis at the time of the first payment made pursuant to an SWP
and recalculated thereafter on a pro rata basis at the time of each SWP
payment. Therefore, shareholders who have chosen an SWP based on a
percentage of the net asset value of their account of up to 12% will be
able to receive SWP payments without incurring a CDSC. However,
shareholders who have chosen a specific dollar amount (for example, $100
per month from the fund that pays income distributions monthly) for
their periodic SWP payment should be aware that the amount of that
payment not subject to a CDSC may vary over time depending on the net
asset value of their account. For example, if the net asset value of
the account is $10,000 at the time of payment, the shareholder will
receive $100 free of the CDSC (12% of $10,000 divided by 12 monthly
payments). However, if at the time of the next payment the net asset
value of the account has fallen to $9,400, the shareholder will receive
$94 free of any CDSC (12% of $9,400 divided by 12 monthly payments) and
$6 subject to the lowest applicable CDSC. This SWP privilege may be
revised or terminated at any time.
No CDSC is imposed on the redemption of shares of any class subject to a
CDSC to the extent that the shares redeemed (i) are no longer subject to
the holding period therefor, (ii) resulted from reinvestment of
distributions, or (iii) were exchanged for shares of another Putnam
fund, provided that the shares acquired in such exchange or subsequent
exchanges (including shares of a Putnam money market fund) will continue
to remain subject to the CDSC, if applicable, until the applicable
holding period expires. In determining whether the CDSC applies to each
redemption, shares not subject to a CDSC are redeemed first.
The fund will waive any CDSC on redemptions, in the case of individual,
joint or Uniform Transfers to Minors Act accounts, in the event of death
or post-purchase disability of a shareholder, for the purpose of paying
benefits pursuant to tax-qualified retirement plans ("Benefit
Payments"), or, in the case of living trust accounts, in the event of
the death or post-purchase disability of the settlor of the trust.
Benefit Payments currently include, without limitation, (1)
distributions from an IRA due to death or disability, (2) a return of
excess contributions to an IRA or 401(k) plan, and (3) distributions
from retirement plans qualified under Section 401(a) of the Code or from
a 403(b) plan due to death, disability, retirement or separation from
service. These waivers may be changed at any time. Additional waivers
may apply to IRA accounts opened prior to February 1, 1994.
Payments to dealers. Putnam Retail Management may, at its expense, pay
concessions in addition to the payments disclosed in the prospectus to
dealers that satisfy certain criteria established from time to time by
Putnam Retail Management relating to increasing net sales of shares of
the Putnam funds over prior periods, and certain other factors.
Additional Information About Class A and Class M Shares
The underwriter's commission is the sales charge shown in the prospectus
less any applicable dealer discount. Putnam Retail Management will give
dealers ten days' notice of any changes in the dealer discount. Putnam
Retail Management retains the entire sales charge on any retail sales
made by it.
Putnam Retail Management offers several plans by which an investor may
obtain reduced sales charges on purchases of class A shares and class M
shares. The variations in sales charges reflect the varying efforts
required to sell shares to separate categories of purchasers. These
plans may be altered or discontinued at any time.
The public offering price of class A and class M shares is the net asset
value plus a sales charge that varies depending on the size of your
purchase. The fund receives the net asset value. The sales charge is
allocated between your investment dealer and Putnam Retail Management as
shown in the following table, except when Putnam Retail Management, in
its discretion, allocates the entire amount to your investment dealer.
<TABLE>
<CAPTION>
For Growth Funds, Growth and Income Funds and Asset Allocation Funds
only:
CLASS A CLASS M
Amount of Amount of
Sales charge sales charge Sales charge sales charge
as a reallowed to as a reallowed to
percentage dealers as a percentage dealers as a
Amount of transaction of offering percentage of of offering percentage of
at offering price ($) price offering price price offering price
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Under 50,000 5.75% 5.00% 3.50% 3.00%
50,000 but under 100,000 4.50 3.75 2.50 2.00
100,000 but under 250,000 3.50 2.75 1.50 1.00
250,000 but under 500,000 2.50 2.00 1.00 1.00
500,000 but under 1,000,000 2.00 1.75 NONE NONE
1,000,000 and above NONE NONE NONE NONE
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For Income Funds only (except for Putnam Intermediate U.S. Government
Income Fund and Putnam Preferred Income Fund):
CLASS A CLASS M
Amount of Amount of
Sales charge sales charge Sales charge sales charge
as a reallowed to as a reallowed to
percentage dealers as a percentage dealers as a
Amount of transaction of offering percentage of of offering percentage of
at offering price ($) price offering price price offering price
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Under 50,000 4.75% 4.25% 3.25% 3.00%
50,000 but under 100,000 4.50 4.00 2.25 2.00
100,000 but under 250,000 3.50 3.00 1.50 1.25
250,000 but under 500,000 2.50 2.25 1.00 1.00
500,000 but under 1,000,000 2.00 1.75 NONE NONE
1,000,000 and above NONE NONE NONE NONE
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For Putnam Intermediate U.S. Government Income Fund and Putnam Preferred
Income Fund only:
CLASS A CLASS M
Amount of Amount of
Sales charge sales charge Sales charge sales charge
as a reallowed to as a reallowed to
percentage dealers as a percentage dealers as a
Amount of transaction of offering percentage of of offering percentage of
at offering price ($) price offering price price offering price
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Under 100,000 3.25% 3.00% 2.00% 1.80%
100,000 but under 250,000 2.50 2.25 1.50 1.30
250,000 but under 500,000 2.00 1.75 1.00 1.00
500,000 but under 1,000,000 1.50 1.25 NONE NONE
1,000,000 and above NONE NONE NONE NONE
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For Tax Free Funds only:
CLASS A CLASS M
Amount of Amount of
Sales charge sales charge Sales charge sales charge
as a reallowed to as a reallowed to
percentage dealers as a percentage dealers as a
Amount of transaction of offering percentage of of offering percentage of
at offering price ($) price offering price price offering price
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Under 25,000 4.75% 4.50% 3.25% 3.00%
25,000 but under 50,000 4.50 4.25 3.25 3.00
50,000 but under 100,000 4.50 4.25 2.25 2.00
100,000 but under 250,000 3.75 3.50 1.50 1.25
250,000 but under 500,000 3.00 2.75 1.00 1.00
500,000 but under 1,000,000 2.00 1.85 NONE NONE
1,000,000 and above NONE NONE NONE NONE
---------------------------------------------------------------------------------------
</TABLE>
Combined purchase privilege. The following persons may qualify for the
sales charge reductions or eliminations shown in the prospectus by
combining into a single transaction the purchase of class A shares or
class M shares with other purchases of any class of shares:
(i) an individual, or a "company" as defined in Section 2(a)(8) of the
Investment Company Act of 1940 (which includes corporations which are
corporate affiliates of each other);
(ii) an individual, his or her spouse and their children under
twenty-one, purchasing for his, her or their own account;
(iii) a trustee or other fiduciary purchasing for a single trust estate
or single fiduciary account (including a pension, profit-sharing, or
other employee benefit trust created pursuant to a plan qualified under
Section 401 of the Internal Revenue Code of 1986, as amended (the
"Code"));
(iv) tax-exempt organizations qualifying under Section 501(c)(3) of the
Internal Revenue Code (not including tax-exempt organizations qualifying
under Section 403(b)(7) (a "403(b) plan") of the Code; and
(v) employee benefit plans of a single employer or of affiliated
employers, other than 403(b) plans.
A combined purchase currently may also include shares of any class of
other continuously offered Putnam funds (other than money market funds)
purchased at the same time through a single investment dealer, if the
dealer places the order for such shares directly with Putnam Retail
Management.
Cumulative quantity discount (right of accumulation). A purchaser of
class A shares or class M shares may qualify for a cumulative quantity
discount by combining a current purchase (or combined purchases as
described above) with certain other shares of any class of Putnam funds
already owned. The applicable sales charge is based on the total of:
(i) the investor's current purchase; and
(ii) the maximum public offering price (at the close of business on the
previous day) of:
(a) all shares held by the investor in all of the Putnam funds (except
money market funds); and
(b) any shares of money market funds acquired by exchange from other
Putnam funds; and
(iii) the maximum public offering price of all shares described in
paragraph (ii) owned by another shareholder eligible to participate with
the investor in a "combined purchase" (see above).
To qualify for the combined purchase privilege or to obtain the
cumulative quantity discount on a purchase through an investment dealer,
when each purchase is made the investor or dealer must provide Putnam
Retail Management with sufficient information to verify that the
purchase qualifies for the privilege or discount. The shareholder must
furnish this information to Putnam Investor Services when making direct
cash investments.
Statement of Intention. Investors may also obtain the reduced sales
charges for class A shares or class M shares shown in the prospectus for
investments of a particular amount by means of a written Statement of
Intention, which expresses the investor's intention to invest that
amount (including certain "credits," as described below) within a period
of 13 months in shares of any class of the fund or any other
continuously offered Putnam fund (excluding money market funds). Each
purchase of class A shares or class M shares under a Statement of
Intention will be made at the public offering price applicable at the
time of such purchase to a single transaction of the total dollar amount
indicated in the Statement of Intention. A Statement of Intention may
include purchases of shares made not more than 90 days prior to the date
that an investor signs a Statement; however, the 13-month period during
which the Statement of Intention is in effect will begin on the date of
the earliest purchase to be included.
An investor may receive a credit toward the amount indicated in the
Statement of Intention equal to the maximum public offering price as of
the close of business on the previous day of all shares he or she owns
on the date of the Statement of Intention which are eligible for
purchase under a Statement of Intention (plus any shares of money market
funds acquired by exchange of such eligible shares). Investors do not
receive credit for shares purchased by the reinvestment of
distributions. Investors qualifying for the "combined purchase
privilege" (see above) may purchase shares under a single Statement of
Intention.
The Statement of Intention is not a binding obligation upon the investor
to purchase the full amount indicated. The minimum initial investment
under a Statement of Intention is 5% of such amount, and must be
invested immediately. Class A shares or class M shares purchased with
the first 5% of such amount will be held in escrow to secure payment of
the higher sales charge applicable to the shares actually purchased if
the full amount indicated is not purchased. When the full amount
indicated has been purchased, the escrow will be released. If an
investor desires to redeem escrowed shares before the full amount has
been purchased, the shares will be released from escrow only if the
investor pays the sales charge that, without regard to the Statement of
Intention, would apply to the total investment made to date.
To the extent that an investor purchases more than the dollar amount
indicated on the Statement of Intention and qualifies for a further
reduced sales charge, the sales charge will be adjusted for the entire
amount purchased at the end of the 13-month period, upon recovery from
the investor's dealer of its portion of the sales charge adjustment.
Once received from the dealer, which may take a period of time or may
never occur, the sales charge adjustment will be used to purchase
additional shares at the then current offering price applicable to the
actual amount of the aggregate purchases. These additional shares will
not be considered as part of the total investment for the purpose of
determining the applicable sales charge pursuant to the Statement of
Intention. No sales charge adjustment will be made unless and until the
investor's dealer returns any excess commissions previously received.
To the extent that an investor purchases less than the dollar amount
indicated on the Statement of Intention within the 13-month period, the
sales charge will be adjusted upward for the entire amount purchased at
the end of the 13-month period. This adjustment will be made by
redeeming shares from the account to cover the additional sales charge,
the proceeds of which will be paid to the investor's dealer and Putnam
Retail Management in accordance with the prospectus. If the account
exceeds an amount that would otherwise qualify for a reduced sales
charge, that reduced sales charge will be applied.
Statements of Intention are not available for certain employee benefit
plans.
Statement of Intention forms may be obtained from Putnam Retail
Management or from investment dealers. Interested investors should read
the Statement of Intention carefully.
Group purchases of class A and class M shares. Members of qualified
groups may purchase class A shares of the fund at a group sales charge
rate of 4.50% of the public offering price (4.71% of the net amount
invested). The dealer discount on such sales is 3.75% of the offering
price. Members of qualified groups may also purchase class M shares at
net asset value.
To receive the class A or class M group rate, group members must
purchase shares through a single investment dealer designated by the
group. The designated dealer must transmit each member's initial
purchase to Putnam Retail Management, together with payment and
completed application forms. After the initial purchase, a member may
send funds for the purchase of shares directly to Putnam Investor
Services. Purchases of shares are made at the public offering price
based on the net asset value next determined after Putnam Retail
Management or Putnam Investor Services receives payment for the shares.
The minimum investment requirements described above apply to purchases
by any group member. Only shares purchased under the class A group
discount are included in calculating the purchased amount for the
purposes of these requirements.
Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or association,
or other organized groups of persons (the members of which may include
other qualified groups) provided that: (i) the group has at least 25
members of which, with respect to the class A discount only, at least 10
members participate in the initial purchase; (ii) the group has been in
existence for at least six months; (iii) the group has some purpose in
addition to the purchase of investment company shares at a reduced sales
charge; (iv) the group's sole organizational nexus or connection is not
that the members are credit card holders of a company, policy holders of
an insurance company, customers of a bank or broker-dealer, clients of
an investment adviser or security holders of a company; (v) with respect
to the class A discount only, the group agrees to provide its designated
investment dealer access to the group's membership by means of written
communication or direct presentation to the membership at a meeting on
not less frequently than an annual basis; (vi) the group or its
investment dealer will provide annual certification in form satisfactory
to Putnam Investor Services that the group then has at least 25 members
and, with respect to the class A discount only, that at least ten
members participated in group purchases during the immediately preceding
12 calendar months; and (vii) the group or its investment dealer will
provide periodic certification in form satisfactory to Putnam Investor
Services as to the eligibility of the purchasing members of the group.
Members of a qualified group include: (i) any group which meets the
requirements stated above and which is a constituent member of a
qualified group; (ii) any individual purchasing for his or her own
account who is carried on the records of the group or on the records of
any constituent member of the group as being a good standing employee,
partner, member or person of like status of the group or constituent
member; or (iii) any fiduciary purchasing shares for the account of a
member of a qualified group or a member's beneficiary. For example, a
qualified group could consist of a trade association which would have as
its members individuals, sole proprietors, partnerships and
corporations. The members of the group would then consist of the
individuals, the sole proprietors and their employees, the members of
the partnerships and their employees, and the corporations and their
employees, as well as the trustees of employee benefit trusts acquiring
class A shares for the benefit of any of the foregoing.
A member of a qualified group may, depending upon the value of class A
shares of the fund owned or proposed to be purchased by the member, be
entitled to purchase class A shares of the fund at non-group sales
charge rates shown in the prospectus which may be lower than the group
sales charge rate, if the member qualifies as a person entitled to
reduced non-group sales charges. Such a group member will be entitled
to purchase at the lower rate if, at the time of purchase, the member or
his or her investment dealer furnishes sufficient information for Putnam
Retail Management or Putnam Investor Services to verify that the
purchase qualifies for the lower rate.
Interested groups should contact their investment dealer or Putnam
Retail Management. The fund reserves the right to revise the terms of
or to suspend or discontinue group sales at any time.
Purchases of $1 million or more of Class A shares. Purchases of class A
shares of $1 million or more are not subject to an initial sales charge,
but may be subject to a CDSC, as described below, unless the dealer of
record has, with Putnam Retail Management's approval, waived its
commission or agreed to refund its commission to Putnam Retail
Management if a CDSC would otherwise apply.
* For a class A qualified benefit plan (any employer-sponsored plan or
arrangement), a CDSC of 0.50% (0.75% for a plan with less than $5
million in Putnam funds and other investments managed by Putnam
Management or its affiliates) applies if the plan redeems 90% or more of
its cumulative purchases within two years of the plan's initial purchase
of class A shares.
* For any other purchaser, a CDSC of 1.00% or 0.50% applies to
redemptions within the first or second year, respectively, of purchase.
On sales at net asset value to a class A qualified benefit plan, Putnam
Retail Management pays commissions to the dealer of record at the time
of the sale on net monthly purchases up to the following rates: 1.00%
of the first $1 million, 0.75% of the next $1 million and 0.50%
thereafter.
On sales at net asset value to other investors, Putnam Retail Management
pays commissions on sales during the one-year period beginning with the
date of the initial purchase at net asset value. Each subsequent
one-year measuring period for these purposes begins with the first net
asset value purchase following the end of the prior period. These
commissions are paid at the rate of 1.00% of the amount under $3
million, 0.50% of the next $47 million and 0.25% thereafter.
Different CDSC and commission rates may apply to shares purchased prior
to April 15, 1997 and to shares purchased by investment-only plans prior
to August 1, 1999.
Additional Information About Class B and Class C Shares
Except as noted below, Putnam Retail Management will pay a 4% commission
on sales of class B shares of the fund only to those financial
intermediaries who have entered into service agreements with Putnam
Retail Management. For tax-exempt funds, this commission includes a
0.20% pre-paid service fee (except for Putnam Municipal Income Fund,
which has a 0.25% pre-paid service fee). For Putnam Intermediate U.S.
Government Income Fund, Putnam Retail Management will pay a 2.75%
commission to financial intermediaries selling class B shares of the
fund. Putnam Management pays financial intermediaries a 1% commission
on sales of class C shares of a fund. Class B and class C shares of the
Money Market Fund may only be purchased as part of an exchange from
class B or class C shares of another Putnam fund, or by opening a dollar
cost averaging account, as described in the Money Market Fund's
prospectus. Class B and class C share purchases for the Money Market
Fund are not subject to a separate CDSC, but a if a shareholder
exchanges class B or class C shares from another fund to the Money
Market Fund and then redeems the class B or class C shares of the Money
Market Fund, that redemption will be subject to the CDSC applicable to
the class B or class C shares of the other fund. Therefore no up-front
commission is paid on sales of class B or class C shares for the Money
Market Fund. Putnam Retail Management will retain any CDSC imposed on
redemptions of class B and class C shares to compensate it for the cost
of paying the up-front commissions paid to financial intermediaries for
class B or class C share sales.
DISTRIBUTION PLANS
If the fund or a class of shares of the fund has adopted a distribution
plan, the prospectus describes the principal features of the plan. This
SAI contains additional information which may be of interest to
investors.
Continuance of a plan is subject to annual approval by a vote of the
Trustees, including a majority of the Trustees who are not interested
persons of the fund and who have no direct or indirect interest in the
plan or related arrangements (the "Qualified Trustees"), cast in person
at a meeting called for that purpose. All material amendments to a plan
must be likewise approved by the Trustees and the Qualified Trustees.
No plan may be amended in order to increase materially the costs which
the fund may bear for distribution pursuant to such plan without also
being approved by a majority of the outstanding voting securities of the
fund or the relevant class of the fund, as the case may be. A plan
terminates automatically in the event of its assignment and may be
terminated without penalty, at any time, by a vote of a majority of the
Qualified Trustees or by a vote of a majority of the outstanding voting
securities of the fund or the relevant class of the fund, as the case
may be.
Putnam Retail Management compensates qualifying dealers (including, for
this purpose, certain financial institutions) for sales of shares and
the maintenance of shareholder accounts.
Putnam Retail Management may suspend or modify its payments to dealers.
The payments are also subject to the continuation of the relevant
distribution plan, the terms of the service agreements between the
dealers and Putnam Retail Management and any applicable limits imposed
by the National Association of Securities Dealers, Inc.
Financial institutions receiving payments from Putnam Retail Management
as described above may be required to comply with various state and
federal regulatory requirements, including among others those regulating
the activities of securities brokers or dealers.
Except as otherwise agreed between Putnam Retail Management and a
dealer, for purposes of determining the amounts payable to dealers for
shareholder accounts for which such dealers are designated as the dealer
of record, "average net asset value" means the product of (i) the
average daily share balance in such account(s) and (ii) the average
daily net asset value of the relevant class of shares over the quarter.
Class A shares:
Putnam Retail Management makes quarterly payments to dealers at the
annual rates set forth below (as a percentage of the average net asset
value of class A shares for which such dealers are designated the dealer
of record) except that payments to dealers for shares held by class A
qualified benefit plans may be made at other rates, as described below.
No payments are made during the first year after purchase on shares
purchased at net asset value by shareholders that invest at least $1
million or that are class A qualified benefit plans, unless the
shareholder has made arrangements with Putnam Retail Management and the
dealer of record has waived the sales commission.
<TABLE>
<CAPTION>
Rate Fund
---- -----
<S> <C>
0.25% All funds currently making payments under a
class A distribution plan, except for those
listed below
0.50% for shares purchased on Putnam Diversified Equity Trust
or before 7/1/95; 0.25% for
shares purchased after 7/1/95
0.20% Putnam Tax-Free High Yield Fund
Putnam Tax-Free Insured Fund
0.20% for shares purchased on Putnam Balanced Retirement Fund
or before 12/31/89; 0.25% for Putnam Convertible Income-Growth Trust
shares purchased after 12/31/89 The George Putnam Fund of Boston
Putnam Global Growth Fund
Putnam Global Natural Resources Fund
Putnam Health Sciences Trust
The Putnam Fund for Growth and Income
Putnam Investors Fund
Putnam Vista Fund
Putnam Voyager Fund
0.20% for shares purchased on Putnam High Yield Trust
or before 3/31/90; 0.25% for Putnam U.S. Government Income Trust
shares purchased after 3/31/90
0.20% for shares purchased on Putnam Income Fund
or before 3/31/91; 0.25% for
shares purchased after 3/31/91
0.20% for shares purchased on Putnam Municipal Income Fund
or before 5/7/92; 0.25% for
shares purchased after 5/7/92
0.15% for shares purchased on Putnam Michigan Tax Exempt Income Fund
or before 3/6/92; 0.20% for Putnam Minnesota Tax Exempt Income Fund
shares purchased after 3/6/92 Putnam Ohio Tax Exempt Income Fund
0.15% for shares purchased on Putnam Massachusetts Tax Exempt Income Fund
or before 5/11/92; 0.20% for
shares purchased after 5/11/92
0.15% for shares purchased on Putnam New York Tax Exempt Opportunities Fund
or before 7/12/92; 0.20% for
shares purchased after 7/12/92
0.15% for shares purchased on Putnam California Tax Exempt Income Fund
or before 12/31/92; 0.20% for Putnam New Jersey Tax Exempt Income Fund
shares purchased after 12/31/92 Putnam New York Tax Exempt Income Fund
Putnam Tax Exempt Income Fund
0.15% for shares purchased on Putnam Arizona Tax Exempt Income Fund
or before 3/5/93; 0.20% for
shares purchased after 3/5/93
0.15% for shares purchased on Putnam Florida Tax Exempt Income Fund
or before 7/8/93; 0.20% for Putnam Pennsylvania Tax Exempt Income Fund
shares purchased after 7/8/93
0.00% Putnam California Tax Exempt Money Market Fund
Putnam Money Market Fund
Putnam New York Tax Exempt Money Market Fund
Putnam Preferred Income Fund
Putnam Tax Exempt Money Market Fund
</TABLE>
Putnam Retail Management pays service fees to the dealer of record for
plans at the rate of up to 0.25% of average net assets, depending on the
level of service provided by Putnam Fiduciary Trust Company or its
affiliates, by the dealer of record, and by third parties. Service fees
are paid quarterly to the dealer of record for that quarter.
Class B shares:
Putnam Retail Management makes quarterly payments to dealers at the
annual rates set forth below (as a percentage of the average net asset
value of class B shares for which such dealers are designated the dealer
of record).
Rate Fund
---- -----
0.25% All funds currently making payments under a
class B distribution plan, except for those
listed below
0.25%, except that the first Putnam Municipal Income Fund
year's service fees of 0.25%
are prepaid at time of sale
0.25%, except that the first Putnam Arizona Tax Exempt Income Fund
year's service fees of 0.20% Putnam California Tax Exempt Income Fund
are prepaid at time of sale Putnam Florida Tax Exempt Income Fund
Putnam Massachusetts Tax Exempt Income Fund
Putnam Michigan Tax Exempt Income Fund
Putnam Minnesota Tax Exempt Income Fund
Putnam New Jersey Tax Exempt Income Fund
Putnam New York Tax Exempt Income Fund
Putnam New York Tax Exempt Opportunities Fund
Putnam Ohio Tax Exempt Income Fund
Putnam Pennsylvania Tax Exempt Income Fund
Putnam Tax Exempt Income Fund
0.20% for shares purchased on Putnam Tax-Free Insured Fund
or before 3/31/90; 0.25% for Putnam Tax-Free High Yield
shares purchased after 3/31/90;
first year's service fees are
prepaid at time of sale
0.00% Putnam Money Market Fund
Class C shares:
Putnam Retail Management makes quarterly payments to dealers at the
annual rates set forth below (as a percentage of the average net asset
value of class C shares for which such dealers are designated the dealer
of record).
Rate Fund
---- -----
1.00% All funds currently making payments under a
class C distribution plan, except the fund
listed below
0.50% Putnam Money Market Fund
Class M shares:
Putnam Retail Management makes quarterly payments to dealers at the
annual rates set forth below (as a percentage of the average net asset
value of class M shares for which such dealers are designated the dealer
of record).
Rate Fund
---- -----
0.65% All growth and growth and income funds
currently making payments under a class M
distribution plan
0.40% All income and money market funds currently
making payments under a class M distribution
plan (except for Putnam Preferred Income
Fund and Putnam Money Market Fund)
0.25% Putnam Preferred Income Fund
0.15% Putnam Money Market Fund
INVESTOR SERVICES
Shareholder Information
Each time shareholders buy or sell shares, they will receive a statement
confirming the transaction and listing their current share balance.
(Under certain investment plans, a statement may only be sent
quarterly.) Shareholders will receive a statement confirming
reinvestment of distributions in additional fund shares (or in shares of
other Putnam funds for Dividends Plus accounts) promptly following the
quarter in which the reinvestment occurs. To help shareholders take
full advantage of their Putnam investment, they will receive a Welcome
Kit and a periodic publication covering many topics of interest to
investors. The fund also sends annual and semiannual reports that keep
shareholders informed about its portfolio and performance, and year-end
tax information to simplify their recordkeeping. Easy-to-read, free
booklets on special subjects such as the Exchange Privilege and IRAs are
available from Putnam Investor Services. Shareholders may call Putnam
Investor Services toll-free weekdays at 1-800-225-1581 between 8:30 a.m.
and 8:00 p.m. Boston time for more information, including account
balances. Shareholders can also visit the Putnam web site at
http://www.putnaminvestments.com.
Your Investing Account
The following information provides more detail concerning the operation
of a Putnam Investing Account. For further information or assistance,
investors should consult Putnam Investor Services. Shareholders who
purchase shares through a defined contribution plan should note that not
all of the services or features described below may be available to
them, and they should contact their employer for details.
A shareholder may reinvest a cash distribution without a front-end sales
charge or without the reinvested shares being subject to a CDSC, as the
case may be, by delivering to Putnam Investor Services the uncashed
distribution check, endorsed to the order of the fund. Putnam Investor
Services must receive the properly endorsed check within 1 year after
the date of the check.
The Investing Account also provides a way to accumulate shares of the
fund. In most cases, after an initial investment of $500, a shareholder
may send checks to Putnam Investor Services for $50 or more, made
payable to the fund, to purchase additional shares at the applicable
public offering price next determined after Putnam Investor Services
receives the check. Checks must be drawn on a U.S. bank and must be
payable in U.S. dollars.
Putnam Investor Services acts as the shareholder's agent whenever it
receives instructions to carry out a transaction on the shareholder's
account. Upon receipt of instructions that shares are to be purchased
for a shareholder's account, shares will be purchased through the
investment dealer designated by the shareholder. Shareholders may
change investment dealers at any time by written notice to Putnam
Investor Services, provided the new dealer has a sales agreement with
Putnam Retail Management.
Shares credited to an account are transferable upon written instructions
in good order to Putnam Investor Services and may be sold to the fund as
described under "How do I sell fund shares?" in the prospectus. Money
market funds and certain other funds will not issue share certificates.
A shareholder may send to Putnam Investor Services any certificates
which have been previously issued for safekeeping at no charge to the
shareholder.
Putnam Retail Management, at its expense, may provide certain additional
reports and administrative material to qualifying institutional
investors with fiduciary responsibilities to assist these investors in
discharging their responsibilities. Institutions seeking further
information about this service should contact Putnam Retail Management,
which may modify or terminate this service at any time.
Putnam Investor Services may make special services available to
shareholders with investments exceeding $1,000,000. Contact Putnam
Investor Services for details.
The fund pays Putnam Investor Services' fees for maintaining Investing
Accounts.
Reinstatement Privilege
An investor who has redeemed shares of the fund may reinvest (within 1
year) the proceeds of such sale in shares of the same class of the fund,
or may be able to reinvest (within 1 year) the proceeds in shares of the
same class of one of the other continuously offered Putnam funds
(through the exchange privilege described in the prospectus), including,
in the case of shares subject to a CDSC, the amount of CDSC charged on
the redemption. Any such reinvestment would be at the net asset value
of the shares of the fund(s) the investor selects, next determined after
Putnam Retail Management receives a Reinstatement Authorization. The
time that the previous investment was held will be included in
determining any applicable CDSC due upon redemptions and, in the case of
class B shares, the eight-year period for conversion to class A shares.
Shareholders will receive from Putnam Retail Management the amount of
any CDSC paid at the time of redemption as part of the reinstated
investment, which may be treated as capital gains to the shareholder for
tax purposes. Exercise of the Reinstatement Privilege does not alter
the federal income tax treatment of any capital gains realized on a sale
of fund shares, but to the extent that any shares are sold at a loss and
the proceeds are reinvested in shares of the fund, some or all of the
loss may be disallowed as a deduction. Consult your tax adviser.
Investors who desire to exercise the Reinstatement Privilege should
contact their investment dealer or Putnam Investor Services.
Exchange Privilege
Except as otherwise set forth in this section, by calling Putnam
Investor Services, investors may exchange shares valued up to $500,000
between accounts with identical registrations, provided that no
certificates are outstanding for such shares and no address change has
been made within the preceding 15 days. During periods of unusual
market changes and shareholder activity, shareholders may experience
delays in contacting Putnam Investor Services by telephone to exercise
the telephone exchange privilege.
Putnam Investor Services also makes exchanges promptly after receiving a
properly completed Exchange Authorization Form and, if issued, share
certificates. If the shareholder is a corporation, partnership, agent,
or surviving joint owner, Putnam Investor Services will require
additional documentation of a customary nature. Because an exchange of
shares involves the redemption of fund shares and reinvestment of the
proceeds in shares of another Putnam fund, completion of an exchange may
be delayed under unusual circumstances if the fund were to suspend
redemptions or postpone payment for the fund shares being exchanged, in
accordance with federal securities laws. Exchange Authorization Forms
and prospectuses of the other Putnam funds are available from Putnam
Retail Management or investment dealers having sales contracts with
Putnam Retail Management. The prospectus of each fund describes its
investment objective(s) and policies, and shareholders should obtain a
prospectus and consider these objectives and policies carefully before
requesting an exchange. Shares of certain Putnam funds are not
available to residents of all states. The fund reserves the right to
change or suspend the exchange privilege at any time. Shareholders
would be notified of any change or suspension. Additional information
is available from Putnam Investor Services.
Shareholders of other Putnam funds may also exchange their shares at net
asset value for shares of the fund, as set forth in the current
prospectus of each fund.
For federal income tax purposes, an exchange is a sale on which the
investor generally will realize a capital gain or loss depending on
whether the net asset value at the time of the exchange is more or less
than the investor's basis. The exchange privilege may be revised or
terminated at any time. Shareholders would be notified of any such
change or suspension.
Dividends PLUS
Shareholders may invest the fund's distributions of net investment
income or distributions combining net investment income and short-term
capital gains in shares of the same class of another continuously
offered Putnam fund (the "receiving fund") using the net asset value per
share of the receiving fund determined on the date the fund's
distribution is payable. No sales charge or CDSC will apply to the
purchased shares unless the fund paying the distribution is a money
market fund. The prospectus of each fund describes its investment
objective(s) and policies, and shareholders should obtain a prospectus
and consider these objective(s) and policies carefully before investing
their distributions in the receiving fund. Shares of certain Putnam
funds are not available to residents of all states.
The minimum account size requirement for the receiving fund will not
apply if the current value of your account in the fund paying the
distribution is more than $5,000.
Shareholders of other Putnam funds (except for money market funds, whose
shareholders must pay a sales charge or become subject to a CDSC) may
also use their distributions to purchase shares of the fund at net asset
value.
For federal tax purposes, distributions from the fund which are
reinvested in another fund are treated as paid by the fund to the
shareholder and invested by the shareholder in the receiving fund and
thus, to the extent comprised of taxable income and deemed paid to a
taxable shareholder, are taxable.
The Dividends PLUS program may be revised or terminated at any time.
Plans Available To Shareholders
The plans described below are fully voluntary and may be terminated at
any time without the imposition by the fund or Putnam Investor Services
of any penalty. All plans provide for automatic reinvestment of all
distributions in additional shares of the fund at net asset value. The
fund, Putnam Retail Management or Putnam Investor Services may modify or
cease offering these plans at any time.
Systematic Withdrawal Plan ("SWP"). An investor who owns or buys shares
of the fund valued at $10,000 or more at the current public offering
price may open a SWP plan and have a designated sum of money ($50 or
more) paid monthly, quarterly, semi-annually or annually to the investor
or another person. (Payments from the fund can be combined with
payments from other Putnam funds into a single check through a
designated payment plan.) Shares are deposited in a plan account, and
all distributions are reinvested in additional shares of the fund at net
asset value (except where the plan is utilized in connection with a
charitable remainder trust). Shares in a plan account are then redeemed
at net asset value to make each withdrawal payment. Payment will be
made to any person the investor designates; however, if shares are
registered in the name of a trustee or other fiduciary, payment will be
made only to the fiduciary, except in the case of a profit-sharing or
pension plan where payment will be made to a designee. As withdrawal
payments may include a return of principal, they cannot be considered a
guaranteed annuity or actual yield of income to the investor. The
redemption of shares in connection with a plan generally will result in
a gain or loss for tax purposes. Some or all of the losses realized
upon redemption may be disallowed pursuant to the so-called wash sale
rules if shares of the same fund from which shares were redeemed are
purchased (including through the reinvestment of fund distributions)
within a period beginning 30 days before, and ending 30 days after, such
redemption. In such a case, the basis of the replacement shares will be
increased to reflect the disallowed loss. Continued withdrawals in
excess of income will reduce and possibly exhaust invested principal,
especially in the event of a market decline. The maintenance of a plan
concurrently with purchases of additional shares of the fund would be
disadvantageous to the investor because of the sales charge payable on
such purchases. For this reason, the minimum investment accepted while
a plan is in effect is $1,000, and an investor may not maintain a plan
for the accumulation of shares of the fund (other than through
reinvestment of distributions) and a plan at the same time. The cost of
administering these plans for the benefit of those shareholders
participating in them is borne by the fund as an expense of all
shareholders. The fund, Putnam Retail Management or Putnam Investor
Services may terminate or change the terms of the plan at any time. A
plan will be terminated if communications mailed to the shareholder are
returned as undeliverable.
Investors should consider carefully with their own financial advisers
whether the plan and the specified amounts to be withdrawn are
appropriate in their circumstances. The fund and Putnam Investor
Services make no recommendations or representations in this regard.
Tax Qualified Retirement Plans; 403(b) and SEP Plans. (Not offered by
funds investing primarily in tax-exempt securities.) Investors may
purchase shares of the fund through the following Tax Qualified
Retirement Plans, available to qualified individuals or organizations:
Standard and variable profit-sharing (including 401(k)) and money
purchase pension plans; and
Individual Retirement Account Plans (IRAs).
Each of these Plans has been qualified as a prototype plan by the
Internal Revenue Service. Putnam Investor Services will furnish
services under each plan at a specified annual cost. Putnam Fiduciary
Trust Company serves as trustee under each of these Plans.
Forms and further information on these Plans are available from
investment dealers or from Putnam Retail Management. In addition,
specialized professional plan administration services are available on
an optional basis; contact Putnam Defined Contribution Plan Services at
1-800-225-2465, extension 8600.
A 403(b) Retirement Plan is available for employees of public school
systems and organizations which meet the requirements of Section
501(c)(3) of the Internal Revenue Code. Forms and further information
on the 403(b) Plan are also available from investment dealers or from
Putnam Retail Management. Shares of the fund may also be used in
simplified employee pension (SEP) plans. For further information on the
Putnam prototype SEP plan, contact an investment dealer or Putnam Retail
Management.
Consultation with a competent financial and tax adviser regarding these
Plans and consideration of the suitability of fund shares as an
investment under the Employee Retirement Income Security Act of 1974, or
otherwise, is recommended.
SIGNATURE GUARANTEES
Requests to redeem shares having a net asset value of $100,000 or more,
or to transfer shares or make redemption proceeds payable to anyone
other than the registered account owners, must be signed by all
registered owners or their legal representatives and must be guaranteed
by a bank, broker/dealer, municipal securities dealer or broker, credit
union, national securities exchange, registered securities association,
clearing agency, savings association or trust company, provided such
institution is authorized and acceptable under and conforms with Putnam
Fiduciary Trust Company's signature guarantee procedures. A copy of
such procedures is available upon request. In certain situations, for
example, if you want your redemption proceeds sent to an address other
than your address as it appears on Putnam's records, you may also need
to provide a signature guarantee. Putnam Investor Services usually
requires additional documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or a surviving joint
owner. Contact Putnam Investor Services for more information on Putnam's
signature guarantee and documentation requirements.
SUSPENSION OF REDEMPTIONS
The fund may not suspend shareholders' right of redemption, or postpone
payment for more than seven days, unless the Exchange is closed for
other than customary weekends or holidays, or if permitted by the rules
of the Securities and Exchange Commission during periods when trading on
the Exchange is restricted or during any emergency which makes it
impracticable for the fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted
by order of the Commission for protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the
fund. However, the Agreement and Declaration of Trust disclaims
shareholder liability for acts or obligations of the fund and requires
that notice of such disclaimer be given in each agreement, obligation,
or instrument entered into or executed by the fund or the Trustees. The
Agreement and Declaration of Trust provides for indemnification out of
fund property for all loss and expense of any shareholder held
personally liable for the obligations of the fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the fund would be unable to meet
its obligations. The likelihood of such circumstances is remote.
STANDARD PERFORMANCE MEASURES
Yield and total return data for the fund may from time to time be
presented in Part I of this SAI and in advertisements. In the case of
funds with more than one class of shares, all performance information is
calculated separately for each class. The data is calculated as
follows.
Total return for one-, five- and ten-year periods (or for such shorter
periods as the fund has been in operation or shares of the relevant
class have been outstanding) is determined by calculating the actual
dollar amount of investment return on a $1,000 investment in the fund
made at the beginning of the period, at the maximum public offering
price for class A shares and class M shares and net asset value for
other classes of shares, and then calculating the annual compounded rate
of return which would produce that amount. Total return for a period of
one year is equal to the actual return of the fund during that period.
Total return calculations assume deduction of the fund's maximum sales
charge or CDSC, if applicable, and reinvestment of all fund
distributions at net asset value on their respective reinvestment dates.
The fund's yield is presented for a specified thirty-day period (the
"base period"). Yield is based on the amount determined by (i)
calculating the aggregate amount of dividends and interest earned by the
fund during the base period less expenses for that period, and (ii)
dividing that amount by the product of (A) the average daily number of
shares of the fund outstanding during the base period and entitled to
receive dividends and (B) the per share maximum public offering price
for class A shares or class M shares, as appropriate, and net asset
value for other classes of shares on the last day of the base period.
The result is annualized on a compounding basis to determine the yield.
For this calculation, interest earned on debt obligations held by the
fund is generally calculated using the yield to maturity (or first
expected call date) of such obligations based on their market values
(or, in the case of receivables-backed securities such as the Government
National Mortgage Association ("GNMAs"), based on cost). Dividends on
equity securities are accrued daily at their stated dividend rates. The
amount of expenses used in determining the fund's yield includes, in
addition to expenses actually accrued by the fund, an estimate of the
amount of expenses that the fund would have incurred if brokerage
commissions had not been used to reduce such expenses.
If the fund is a money market fund, yield is computed by determining the
percentage net change, excluding capital changes, in the value of an
investment in one share over the seven-day period for which yield is
presented (the "base period"), and multiplying the net change by 365/7
(or approximately 52 weeks). Effective yield represents a compounding
of the yield by adding 1 to the number representing the percentage
change in value of the investment during the base period, raising that
sum to a power equal to 365/7, and subtracting 1 from the result.
If the fund is a tax-exempt fund, the tax-equivalent yield during the
base period may be presented for shareholders in one or more stated tax
brackets. Tax-equivalent yield is calculated by adjusting the
tax-exempt yield by a factor designed to show the approximate yield that
a taxable investment would have to earn to produce an after-tax yield
equal, for that shareholder, to the tax-exempt yield. The
tax-equivalent yield will differ for shareholders in other tax brackets.
At times, Putnam Management may reduce its compensation or assume
expenses of the fund in order to reduce the fund's expenses. The per
share amount of any such fee reduction or assumption of expenses during
the fund's past five fiscal years (or for the life of the fund, if
shorter) is set forth in the footnotes to the table in the section
entitled "Financial highlights" in the prospectus. Any such fee
reduction or assumption of expenses would increase the fund's yield and
total return for periods including the period of the fee reduction or
assumption of expenses.
All data are based on past performance and do not predict future
results.
COMPARISON OF PORTFOLIO PERFORMANCE
Independent statistical agencies measure the fund's investment
performance and publish comparative information showing how the fund,
and other investment companies, performed in specified time periods.
Three agencies whose reports are commonly used for such comparisons are
set forth below. From time to time, the fund may distribute these
comparisons to its shareholders or to potential investors. The
agencies listed below measure performance based on their own criteria
rather than on the standardized performance measures described in the
preceding section.
Lipper, Inc. distributes mutual fund rankings monthly. The rankings are
based on total return performance calculated by Lipper, generally
reflecting changes in net asset value adjusted for reinvestment of
capital gains and income dividends. They do not reflect deduction of
any sales charges. Lipper rankings cover a variety of performance
periods, including year-to-date, 1-year, 5-year, and 10-year
performance. Lipper classifies mutual funds by investment objective and
asset category.
Morningstar, Inc. distributes mutual fund ratings twice a month. The
ratings are divided into five groups: highest, above average, neutral,
below average and lowest. They represent the fund's historical
risk/reward ratio relative to other funds in its broad investment class
as determined by Morningstar, Inc. Morningstar ratings cover a variety
of performance periods, including 1-year, 3-year, 5-year, 10-year and
overall performance. The performance factor for the overall rating is a
weighted-average assessment of the fund's 1-year, 3-year, 5-year, and
10-year total return performance (if available) reflecting deduction of
expenses and sales charges. Performance is adjusted using quantitative
techniques to reflect the risk profile of the fund. The ratings are
derived from a purely quantitative system that does not utilize the
subjective criteria customarily employed by rating agencies such as
Standard & Poor's and Moody's Investor Service, Inc.
Wiesenberger a division of Thomson Financial publishes and distributes
mutual fund rankings on a monthly basis. The rankings are based
entirely on total return calculated by Weisenberger for periods such as
year-to-date, 1-year, 3-year, 5-year, 10-year and 15-year. Mutual funds
are ranked in general categories (e.g., international bond,
international equity, municipal bond, and maximum capital gain).
Weisenberger rankings do not reflect deduction of sales charges or
certain fees.
Independent publications may also evaluate the fund's performance. The
fund may from time to time refer to results published in various
periodicals, including Barrons, Financial World, Forbes, Fortune,
Investor's Business Daily, Kiplinger's Personal Finance Magazine, Money,
U.S. News and World Report and The Wall Street Journal.
Independent, unmanaged indexes, such as those listed below, may be used
to present a comparative benchmark of fund performance. The performance
figures of an index reflect changes in market prices, reinvestment of
all dividend and interest payments and, where applicable, deduction of
foreign withholding taxes, and do not take into account brokerage
commissions or other costs. Because the fund is a managed portfolio,
the securities it owns will not match those in an index. Securities in
an index may change from time to time.
The Consumer Price Index, prepared by the U.S. Bureau of Labor
Statistics, is a commonly used measure of the rate of inflation. The
index shows the average change in the cost of selected consumer goods
and services and does not represent a return on an investment vehicle.
Credit Suisse First Boston Global High Yield Index is an index of fixed
income, non-convertible, U.S. dollar denominated securities having a
rating of BB and below by Standard & Poor's or Ba by Moody's. The index
is constructed to mirror the U.S. high yield debt market.
The Dow Jones Industrial Average is an index of 30 common stocks
frequently used as a general measure of stock market performance.
The Dow Jones Utilities Average is an index of 15 utility stocks
frequently used as a general measure of stock market performance for the
utilities industry.
The Lehman Brothers Aggregate Bond Index is an index composed of
securities from The Lehman Brothers Government/Corporate Bond Index, The
Lehman Brothers Mortgage-Backed Securities Index and The Lehman Brothers
Asset-Backed Securities Index and is frequently used as a broad market
measure for fixed-income securities.
The Lehman Brothers Asset-Backed Securities Index is an index composed
of credit card, auto, and home equity loans. Included in the index are
pass-through, bullet (noncallable), and controlled amortization
structured debt securities; no subordinated debt is included. All
securities have an average life of at least one year.
The Lehman Brothers Corporate Bond Index is an index of publicly issued,
fixed-rate, non-convertible investment-grade domestic corporate debt
securities frequently used as a general measure of the performance of
fixed-income securities.
The Lehman Brothers Government Bond Index is an index of publicly issued
U.S. Treasury obligations and debt obligations of U.S. government
agencies (including mortgage-backed securities) frequently used as a
general gauge of the market for fixed-income, government securities.
The Lehman Brothers Government/Corporate Bond Index is an index of
publicly issued U.S. Treasury obligations, debt obligations of U.S.
government agencies (excluding mortgage-backed securities), fixed-rate,
non-convertible, investment-grade corporate debt securities and U.S.
dollar-denominated, SEC-registered non-convertible debt issued by
foreign governmental entities or international agencies used as a
general measure of the performance of fixed-income securities.
The Lehman Brothers GNMA Index is an index of mortgage-backed
pass-through securities securities of the Government National Mortgage
Association (GNMA) bonds frequently used as a general gauge of the
market for GNMA securities.
The Lehman Brothers Intermediate Government Bond Index is an index of
publicly issued U.S. Treasury obligations and debt obligations of U.S.
government agencies (excluding mortgage-backed securities) with
maturities of up to ten years frequently used as a general gauge of the
market for intermediate-term, fixed-income, government securities.
The Lehman Brothers Intermediate Treasury Bond Index is an index of
publicly issued U.S. Treasury obligations with maturities of up to ten
years and is used as a general gauge of the market for intermediate-term
fixed-income securities.
The Lehman Brothers Long-Term Treasury Bond Index is an index of
publicly issued U.S. Treasury obligations (excluding flower bonds and
foreign-targeted issues) that are U.S. dollar-denominated and have
maturities of 10 years or greater.
The Lehman Brothers Mortgage-Backed Securities Index is an index that
includes fixed-rate securities backed by the mortgage pools of the
Government National Mortgage Association (GNMA), Federal Home Loan
Mortgage Corporation (FHLMC), and Federal National Mortgage Association
(FNMA).
The Lehman Brothers Municipal Bond Index is an index of long-term,
investment-grade, fixed-rate tax-exempt bonds.
The Lehman Brothers Treasury Bond Index is an index of publicly issued
U.S. Treasury obligations (excluding flower bonds and foreign-targeted
issues) that are U.S. dollar denominated, have a minimum of one year to
maturity, and are issued in amounts over $50 million.
The Lipper Money Market Average is an arithmetic average of the total
return of all money market mutual funds tracked by Lipper, Inc.
The Lipper Natural Resources Average is an arithmetic average of the
total return of all mutual funds tracked by Lipper, Inc. that invest
more than 65% of their equity holdings in the natural resources
industries.
The Lipper Tax Exempt Money Market Average is an arithmetic average of
the total return of all tax exempt money market mutual funds tracked by
Lipper, Inc.
The Merrill Lynch All-Convertible Index is an index of convertible
securities that is commonly used as a general measure of performance for
the convertible securities market.
The Merrill Lynch 91-Day Treasury Bill Index is an index that measures
the performance of U.S. Treasury bills currently available in the
marketplace.
The Merrill Lynch Perpetual Preferred Index is an index of perpetual
preferred securities that is commonly used as a general measure of
performance for the preferred-stock market.
The Morgan Stanley Capital International Emerging Markets Index is an
index of equity securities issued by companies located in emerging
markets with all values expressed in U.S. dollars.
The Morgan Stanley Capital International Emerging Markets Free Index is
an index of equity securities issued by companies located in emerging
markets, available to non-domestic investors, with all values expressed
in U.S. dollars.
The Morgan Stanley Capital International EAFE Index is an index of
equity securities issued by companies located in Europe, Australasia and
the Far East, with all values expressed in U.S. dollars.
The Morgan Stanley Capital International Europe Index is an index of
equity securities issued by companies located in one of the 15 European
countries, with all values expressed in U.S. dollars.
The Morgan Stanley Capital International Pacific Index is an index of
equity securities issued by companies located in one of five Asian
countries and listed on the exchanges of Australia, New Zealand, Japan,
Hong Kong, Singapore/Malaysia, with all values expressed in U.S.
dollars.
The Morgan Stanley Capital International World Index is an index of
global equity securities with all values expressed in U.S. dollars.
The Morgan Stanley Capital International World Free Index is an index of
global equity securities, available to non-domestic investors, with all
values expressed in U.S. dollars.
The NASDAQ Industrial Average is an index of stocks traded in The Nasdaq
Stock Market, Inc. National Market System.
The Russell 1000 Index is an index composed of the 1,000 largest
companies in the Russell 3000 Index, representing approximately 89% of
the Russell 3000 total market capitalization.
The Russell 1000 Growth Index is an index composed of securities with
greater-than-average growth orientation within the Russell 1000 Index.
Companies in this index tend to exhibit higher price-to-book and
price-earnings ratios, lower dividend yields and higher forecasted
growth values than other companies in the Russell 1000 Index.
The Russell 2000 Index is an index composed of the 2,000 smallest
companies in the Russell 3000 Index, representing approximately 11% of
the Russell 3000 total market capitalization.
The Russell 2000 Growth Index is an index composed of securities with
greater-than-average growth orientation within the Russell 2000 Index.
Companies in this index tend to exhibit higher price-to-book and
price-earnings ratios, lower dividend yields and higher forecasted
growth values than other companies in the Russell 2000 Index.
The Russell 3000 Index is an index composed of the 3,000 largest U.S.
companies ranked by total market capitalization, representing
approximately 98% of the U.S. investable equity market.
The Russell Midcap Index is an index composed of the 800 smallest
companies in the Russell 1000 Index, representing approximately 26% of
the Russell 1000 total market capitalization.
The Russell Midcap Growth Index is an index composed of securities with
greater-than-average growth orientation within the Russell Midcap Index.
Each security's growth orientation is determined by a composite score of
the security's price-to-book ratio and forecasted growth rate. Growth
stocks tend to have higher price-to-book ratios and forecasted growth
rates than value stocks.
The Salomon Brothers Extended Market Index is an index of global equity
securities of smaller companies with all values expressed in U.S.
dollars.
The Salomon Brothers Long-Term High-Grade Corporate Bond Index is an
index of publicly traded corporate bonds having a rating of at least AA
by Standard & Poor's or Aa by Moody's and is frequently used as a
general measure of the performance of fixed-income securities.
The Salomon Brothers Long-Term Treasury Index is an index of U.S.
government securities with maturities greater than 10 years.
The Salomon Brothers World Government Bond Index is an index that tracks
the performance of the 18 government bond markets of Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan,
Netherlands, Ireland, Spain, Sweden, Switzerland, United Kingdom, United
States and Portugal. Country eligibility is determined by market
capitalization and investability criteria.
The Salomon Brothers Non-U.S. World Government Bond Index is an index of
foreign government bonds calculated to provide a measure of performance
in the government bond markets outside of the United States.
Standard & Poor's 500 Composite Stock Price Index is an index of common
stocks frequently used as a general measure of stock market performance.
Standard & Poor's 40 Utilities Index is an index of 40 utility stocks.
Standard & Poor's/Barra Value Index is an index constructed by ranking
the securities in the Standard & Poor's 500 Composite Stock Price Index
by price-to-book ratio and including the securities with the lowest
price-to-book ratios that represent approximately half of the market
capitalization of the Standard & Poor's 500 Composite Stock Price Index.
In addition, Putnam Retail Management may distribute to shareholders or
prospective investors illustrations of the benefits of reinvesting
tax-exempt or tax-deferred distributions over specified time periods,
which may include comparisons to fully taxable distributions. These
illustrations use hypothetical rates of tax-advantaged and taxable
returns and are not intended to indicate the past or future performance
of any fund.
SECURITIES RATINGS
The ratings of securities in which the fund may invest will be measured
at the time of purchase and, to the extent a security is assigned a
different rating by one or more of the various rating agencies, Putnam
Management will use the highest rating assigned by any agency. Putnam
Management will not necessarily sell an investment if its rating is
reduced. The following rating services describe rated securities as
follows:
Moody's Investors Service, Inc.
Bonds
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risk appear
somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate, and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Notes
MIG 1/VMIG 1 -- This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2 -- This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
Commercial paper
Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Standard & Poor's
Bonds
AAA -- An obligation rated AAA has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
AA -- An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A -- An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still strong.
BBB -- An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
Obligations rated BB, B, CCC, CC and C are regarded as having
significant speculative characteristics. BB indicates the lowest degree
of speculation and C the highest. While such obligations will likely
have some quality and protective characteristics, these are outweighed
by large uncertainties or major exposures to adverse conditions.
BB -- An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B -- An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet
its financial commitment on the obligations. Adverse business,
financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the
obligation.
CCC -- An obligation rated CCC is currently vulnerable to nonpayment,
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation. In the event of adverse business, financial, or economic
conditions, the obligor is not likely to have the capacity to meet its
financial commitment on the obligation.
CC -- An obligation rated CC is currently highly vulnerable to
nonpayment.
C -- The C rating may be used to cover a situation where a bankruptcy
petition has been filed, or similar action has been taken, but payments
on this obligation are being continued.
D -- An obligation rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition, or the taking of a similar action if payments on an
obligation are jeopardized.
Notes
SP-1 -- Strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given a
plus (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
SP-3 -- Speculative capacity to pay principal and interest.
Commercial paper
A-1 -- This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated `A-1'.
A-3 -- Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
Duff & Phelps Corporation
Long-Term Debt
AAA -- Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- -- High credit quality. Protection factors are strong.
Risk is modest but may vary slightly from time to time because of
economic conditions.
A+, A, A- -- Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- -- Below-average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk
during economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection
factors fluctuate according to industry conditions or company fortunes.
Overall quality may move up or down frequently within this category.
B+, B, B- -- Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will fluctuate
widely according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC -- Well below investment-grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD -- Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
Fitch Investors Service, Inc.
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable
to adverse changes in economic conditions and circumstances than bonds
with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
BB -- Bonds considered to be speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B -- Bonds are considered highly speculative. Bonds in this class are
lightly protected as to the obligor's ability to pay interest over the
life of the issue and repay principal when due.
CCC -- Bonds have certain characteristics which, with passing of time,
could lead to the possibility of default on either principal or interest
payments.
CC -- Bonds are minimally protected. Default in payment of
interest and/or principal seems probable.
C -- Bonds are in actual or imminent default in payment of interest or
principal.
DDD -- Bonds are in default and in arrears in interest and/or principal
payments. Such bonds are extremely speculative and should be valued only
on the basis of their value in liquidation or reorganization of the
obligor.
DEFINITIONS
"Putnam Management" -- Putnam Investment Management, Inc., the fund's
investment manager.
"Putnam Retail Management" -- Putnam Retail Management, Inc.(formerly Putnam
Mutual Funds), the fund's principal underwriter.
"Putnam Fiduciary Trust -- Putnam Fiduciary Trust Company,
Company" the fund's custodian.
"Putnam Investor Services" -- Putnam Investor Services, a division of Putnam
Fiduciary Trust Company, the fund's investor
servicing agent.
PUTNAM FUNDS TRUST
Putnam Latin America Fund
Putnam Asia Pacific Fund II
Putnam High Yield Fund II
FORM N-1A
PART C
OTHER INFORMATION
Item 23. Exhibits
1. Agreement and Declaration of Trust dated January 22, 1996 --
Incorporated by reference to Registrant's Initial Registration
Statement.
2. By-Laws, as amended July 21, 2000 - Incorporated by reference to
Post-Effective Amendment No. 31 to the Registrant's Registration
Statement.
3. Portions of Agreement and Declaration of Trust Relating to Shareholders'
Rights -- Incorporated by reference to the Registrant's Initial
Registration Statement.
4. Management Contract dated June 7, 1996, as most recently revised
December 11, 2000 - Incorporated by reference to Post-Effective
Amendment No. 38 to the Registrant's Registration Statement.
5a. Distributor's Contract dated June 7, 1996 -- Incorporated by reference
to Pre-Effective Amendment No. 2 to the Registrant's Registration
Statement.
5b. Form of Dealer Sales Contract - Incorporated by reference to Pre-
effective Amendment No. 2 to the Registrant's Registration Statement.
5c. Form of Financial Institution Sales Contract - Incorporated by reference
to Pre- effective Amendment No. 2 to the Registrant's Registration
Statement.
6. Trustee Retirement Plan dated October 4, 1996 --Incorporated by reference
to Post-Effective Amendment No. 4 to the Registrant's Registration
Statement.
7. Custodian Agreement with Putnam Fiduciary Trust Company dated May 3, 1991,
as amended July 13, 1992 - Incorporated by reference to Post-Effective
Amendment No. 2 to the Registrant's Registration Statement.
8. Investor Servicing Agreement dated June 3, 1991 with Putnam Fiduciary
Trust Company -- Incorporated by reference to Pre-Effective Amendment
No. 2 to the Registrant's Registration Statement.
9. Opinion of Ropes & Gray, including consent - Incorporated by reference to
Post-Effective Amendment No. 38 to the Registrant's Registration
Statement.
10. Consent of Independent Accountants - PricewaterhouseCoopers -- Exhibit 1.
11. Not applicable.
12. Investment Letter from Putnam Investments, Inc. to the Registrant --
Incorporated by reference to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement.
13a. Class A Distribution Plan and Agreement dated April 1, 2000 --
Incorporated by reference to Post- effective Amendment No. 27 to the
Registrant's Registration Statement.
13b. Class B Distribution Plan and Agreement dated April 1, 2000 --
Incorporated by reference to Post-Effective Amendment No. 27 to the
Registrant's Registration Statement.
13c. Class C Distribution Plan and Agreement dated April 1, 2000 --
Incorporated by reference to Post-Effective Amendment No. 27 to the
Registrant's Registration Statement.
13d. Class M Distribution Plan and Agreement dated April 1, 2000 --
Incorporated by reference to Post-Effective Amendment No. 27 to the
Registrant's Registration Statement.
13e. Form of Dealer Service Agreement - Incorporated by reference to Pre-
effective Amendment No. 2 to the Registrant's Registration Statement.
13f. Form of Financial Institution Service Agreement -- Incorporated by
reference to Pre- effective Amendment No. 2 to the Registrant's
Registration Statement.
14. Rule 18f-3 Plan -- -- Incorporated by reference to Post-Effective
Amendment No. 24 to the Registrant's Registration Statement.
15a. The Putnam Funds Code of Ethics Incorporated by reference to
Post-Effective Amendment No. 27 to the Registrant's Registration
Statement.
15b. Putnam Investments Code of Ethics Incorporated by reference to
Post-Effective Amendment No. 27 to the Registrant's Registration
Statement.
Item 24. Persons Controlled by or under Common Control with Registrant
As of November 30, 2000, Putnam Investments, Inc. owned:
Putnam Equity Fund 2000 78.00%
Putnam International Fund 2000 89.80%
Putnam International Fund 94.00%
Putnam Mid-Cap Value Fund 89.50%
Putnam Growth Fund 86.00%
Putnam Latin America Fund 81.30%
Putnam Asia Pacific Fund II 87.90%
Putnam U.S. Core Fund 78.20%
Putnam Worldwide Equity Fund 59.90%
Putnam Equity Fund 98 58.80%
Item 25. Indemnification
The information required by this item is incorporated herein by
reference from the Registrant's initial Registration Statement on Form
N-1A under the Investment Company Act of 1940 (File No. 811-7513).
Item 26. Business and Other Connections of Investment Adviser
Except as set forth below, the directors and officers of the Registrant's
investment adviser have been engaged during the past two fiscal years in no
business, vocation or employment of a substantial nature other than as
directors or officers of the investment adviser or certain of its corporate
affiliates. Certain officers of the investment adviser serve as officers
of some or all of the Putnam funds. The address of the investment adviser,
its corporate affiliates and the Putnam Funds is one Post Office Square,
Boston, Massachusetts 02109.
<TABLE>
<CAPTION>
Name Non-Putnam business and other connections
---- -----------------------------------------
<S> <C>
Lauren Allansmith Prior to August 1999, Analyst, Loomis Sayles,
Senior Vice President One Financial Center, Boston, MA 02111
Blake Anderson Trustee, Salem Female Charitable Society,
Managing Director Salem MA 01970
Robert R. Beck Director, Charles Bridge Publishing, 85 Main St.,
Senior Vice President Watertown, MA 02172; Board of Overseers, Beth
Israel Deaconess Medical Center, 330 Brookline
Ave., Boston, MA 02215
Stephen A. Balter Prior to March 2000, Vice President and
Vice President Analyst, Pioneer Investment Management, 60
State St., Boston, MA 02109
Rob A. Bloemker Prior to September 1999, Managing Director,
Senior Vice President Lehman Brothers, 555 California St., 30th
floor, San Francisco, CA 94104
Claudio Brocado Prior to August 1999, independent consultant by
Vice President Stires, O'Donnell & Co. 12 East 44th St., New York,
NY 10017; Prior to January 1999, independent
consultant by Coast Partners, 601 California St.,
San Francisco, CA 94108
Anna Bulkovshteyn Prior to July 1999, Quantitative Analyst, Sun Life
Assistant Vice President Investment Management, 200 King Street West,
Toronto, Ontario M5H 3T4 Canada
Mark Chameih Prior to May 1999, Vice President, Chase
Vice President Manhattan, 125 London Wall, London, UK
Sabina M. Ciminero Prior to August 2000, Research Associate,
Assistant Vice President International Graduate School of Management,
Soldiers Field Road, Boston, MA 02163; Prior to
August 1999, Research Associate, Harvard Business
School, Soldiers Field Road, Boston, MA 02163
James Conklin Prior to May 2000, Vice President, Lehman
Vice President Brothers, 3 World Financial Center, New York, NY
10285
C. Beth Cotner Director, The Lyric Stage Theater, 140
Senior Vice President Clarendon St., Boston, MA 02116
Rick Cotton Prior to August 1999, Manager, Andersen
Vice President Consulting, 100 William St., Wellesley, MA 02481
Lindsey L. Curley Prior to June 1999, Portfolio Analyst, Standish,
Assistant Vice President Ayer & Wood, Inc., One Financial Center, Boston,
MA 02110.
John R.S. Cutler Member, Burst Media, L.L.C., 10 New England
Vice President Executive Park, Burlington, MA 01803
Kenneth Daly President, Andover River Rd. TMA, River Road
Managing Director Transportation Management Association, 7 Shattuck
Rd., Andover, MA 01810
Simon Davis Prior to September 2000, Lead Manager,
Senior Vice President Deutsche Asset Management, 1 Appold St., London,
EC2
Ralph C. Derbyshire Board Member, MSPCC, 399 Boylston St.,
Senior Vice President Boston, MA; Board Member, Winchester After
School Program, Skillings Rd., Winchester, MA
Lisa DeConto Prior to June 2000, Associate Partner, Westgate
Senior Vice President Group, 175 Federal St., Boston, MA 02110; Prior
to May 1999, Principal, LAI Worldwide, 99 High St.,
Boston, MA 02110
Stephen P. Dexter Prior to June 1999, Senior Vice President and
Senior Vice President Senior Portfolio Manager, Scudder Kemper, Inc.
One International Place, Boston, MA
Michael G. Dolan Chairman-Finance Council, St. Mary's Parish,
Assistant Vice President 44 Myrtle St., Melrose, MA 02176; Member,
School Advisory Board, St. Mary's School, 44
Myrtle St., Melrose, MA 02176
Stephen D. Driscoll Prior to April 1999, Compliance Analyst, State
Assistant Vice President Street Bank & Trust, 607 Boylston St., Boston, MA
02116
Edward Driscoll Prior to September 1999, Equity Trader, Fidelity
Vice President Research and Management, 82 Devonshire St.,
Boston, MA 02109
Emily Durbin Board of Directors, Family Service, Inc.,
Vice President Lawrence, MA 01840
Karnig H. Durgarian Board Member, EBRI, Suite 600, 2121 K St.,
Managing Director N.W., Washington, DC 20037-1896. Trustee,
American Assembly, 122 C. St., N.W., Suite 350,
Washington, DC 20001
Nathan Eigerman Trustee, Flower Hill Trust, 298 Marlborough St.,
Senior Vice President #4, Boston, MA 02116
Tony H. Elavia Prior to September 1999, Executive Vice
Senior Vice President President, Voyageur Asset Management, 90 S.
7th Street, Minneapolis, MN 55402
Irene M. Esteves Board of Director Member, American Management
Managing Director Association Finance council, 1601 Broadway,
New York, NY; Board of Director Member, First
Night Boston, 20 Park Plaza, Suite 927, Boston,
MA; Board of Director Member, SC Johnson
Commercialmarkets, 8310 16th St., Stutevant, WI
53177; Board of Director Member, Massachusetts
Taxpayers Foundation, 24 Province St., Boston, MA;
Board of Director Member, Mrs. Bairds Bakeries,
515 Jones St., Suite 200, Fort Worth, Texas 76102
James M. Falvey Prior to August 2000, Senior Vice President,
Senior Vice President Dresdner, Kleinwort, Benson, One Boston Place,
Boston, MA 02108
Ian Ferguson Trustee, Park School, 171 Goddard Avenue,
Senior Managing Director Brookline, MA 02146
Peter M. Fleisher Prior to July 1999, Senior Vice President, Fleet
Senior Vice President National Bank, 75 State Street, Boston, MA 02109
Michael J. Fleming Prior to February 2000, Associate Portfolio Manager,
Vice President International Equity, DuPont Capital Management,
1 Righter Parkway, Suite 3200, Wilmington, DE 19803
Christopher W. Fox Prior to May 2000, Senior Consultant, American
Assistant Vice President Management Systems, 7050 Legato Rd., Fairfax, VA
22033
Henrietta Fraser Prior to October 1998, Manager, Fleming Investment
Senior Vice President Management, 25 Copthall Ave., London EC2R 7DR
Jason Fromer Prior to August 2000, Currency/Macro Trader, Soros
Vice President Fund Management, 888 7th Avenue, 33rd Floor,
New York, NY 10106
Reto Gallati Prior to March 2000, Head of Bank Risk Management,
Senior Vice President Director, KPMG LLP, Badenerstrasse 172, 8004
Zurich, Switzerland
Matthew R. Gage Prior to December, 1999, Audit Manager,
Assistant Vice President Ernst & Young LLP, 200 Clarendon St., Boston, MA
02116
Vivek Gandhi Prior to October 1999, Vice President, Alliance
Vice President Capital Management, 1 Findlayson Green, Singapore,
India; Prior to November 1998, Investment Manager,
Aberdeen Asset Management Asia, 21 Church Street,
Squire 2, Singapore, India
John H. Gernon Prior to June 2000, Vice President, Fidelity
Senior Vice President Investments, Inc., 82 Devonshire St., Boston, MA
02109
John T. Golden Prior to June 2000, Second Vice President,
Vice President John Hancock Funds, 101 Huntington Ave.,
Boston, MA 02199
Andrew Graham Prior to October 1999, Fund Manager, Scottish Widows
Senior Vice President Investment Management, Port Hamilton, 67 Morrison
St., Edinburgh, Scotland
J. Peter Grant Trustee, The Dover Church, Dover, MA 02030
Senior Vice President
Matthew D. Griffin Prior to August 2000, Vice President, Harbor
Vice President Capital Management, 125 High Street, Boston, MA
02110; Prior to June 1999, Analyst, Colonial
Management Associates, Inc., One Financial
Center, Boston, MA 02110
Avram Gusman Prior to July 2000, Senior Vice President and
Vice President Managing Director, Fleet Boston Financial, 100
Federal St., Boston, MA 02110
Paul E. Haagensen Director, Haagensen Research Foundation, 630 West
Senior Vice President 168th St., New York, NY 10032
Eric N. Harthun Prior to March 2000, Portfolio Manager, Boston
Vice President Partners Asset Management, One Financial Center,
Boston, MA 02111
Deborah R. Healey Corporator, New England Baptist Hospital, 125 Parker
Senior Vice President Hill Ave., Boston, MA 02120; Director, NEB
Enterprises, 125 Parker Hill Ave., Boston, MA 02120
Karen Herold Prior to May 2000, Research Analyst,
Assistant Vice President PricewaterhouseCoopers LLP, One Post Office
Square, Boston, MA 02109. Prior to February 1999,
Senior Information Specialist, Fidelity Investments,
One Spartan Way, Merrimack, NH 03054
Jospeh Hosler Prior to February 2000, Vice President, Independent
Vice President Investment Associates, 53 State St., Boston, MA 02109
Ronald Hua Prior to August 1999, Quantitative Analyst, Fidelity
Vice President Investments, 82 Devonshire St., Boston, MA 02109
Eric A. Hutcherson Prior to March 2000, Professional Development
Vice President Manager, Lotus Development Corp., 55 Cambridge
Parkway, Cambridge, MA 02142
Hitoshi Inoue Prior to February 1999, General Manager/Mutual Fund
Vice President Sales, Baring Asset Management (Japan) Limited,
11-A1 Imperial Tower, 1-1-1 Uchisaiwai-cho,
Chiyoda-ku, Tokyo, Japan. Prior to December
1998, Assistant General manager/Institutional
Investors Services Department, New Japan Securities
co., Ltd., 3-11 Kanda-Surugadai, Chiyoda-ku, Tokyo,
Japan
Takeshi Itai Prior to March 2000, Vice President and Client
Senior Vice President Portfolio Manager, Chase Trust Bank Tokyo, 5-2-20-
Akasaka, Minato-ku, Tokyo 107-6113
Amrit Kanwal Prior to August 1999, Vice President, Corporate
Managing Director Development and Strategy, Sequa Corporation, 200
Park Avenue, New York, NY 10166
Rikiya Kato Prior to July 2000, Senior Portfolio Manager,
Vice President Daiwa SB Investments, 7-9 Nihonbashi 2-chome,
Chuo-ku, Tokyo, Japan, 103-0027
Charles H. Krahmer Prior to March 2000, Unit Manager and Business
Assistant Vice President Analyst, Brown Brothers Harriman & Co., 40 Water
St., Boston, MA 02109
Jason A. Kritzer Prior to February 1999, Audit Consultant, Digital
Assistant Vice President Equipment Corp., 111 Powder Mill Rd., Maynard,
MA 01754
Leo Kropywiansky Prior to June 2000, Vice President, Primark Decision
Vice President Economics, 1 World Trade Center, New York, NY 10048
Alexander V. Kozhemiakin Prior to May 1999, Emerging Markets Sovereign
Vice President Analyst, Aeltus Investment Management, 242 Trumball
St., Hartford, CT 06103
Deborah F. Kuenstner Director, Board of Pensions, Presbyterian Church, 1001
Managing Director Market St., Philadelphia, PA
Sharon Lane Prior to August 2000, Information Specialist,
Assistant Vice President Arthur D. Little School of Management, 194 Beacon
St., Chestnut Hill, MA 02467; Prior to March 2000,
Senior Information Research Specialist, Bain & Co.,
2 Copley Place, Boston, MA 02117
Lawrence J. Lasser Director, Marsh & McLennan Companies, Inc.,
President, Director and 1221 Avenue of the Americas, New York, NY
Chief Executive 10020; Board of Governors and Executive
Committee, Investment Company Institute, 1401
H. St., N.W. Suite 1200, Washington, DC 20005;
Board of Overseers, Museum of Fine Arts, 465
Huntington, Ave., Boston, MA 02115; Trustee,
Beth Israel Deaconess Medical Center, 330
Brookline Ave., Boston, MA; Member of the Council
on Foreign Relations, 58 East 68th St., New York,
NY 10021; Member of the Board of Directors of the
United Way of Massachusetts Bay, 245 Summer St.,
Suite 1401, Boston, MA 02110; Trustee of the
Vineyard Open Land Foundation, RFD Box 319X,
Vineyard Haven, MA 02568
Gordon R. Lawrence Prior to July 1999, summer associate, J.P. Morgan
Assistant Vice President Investment Management, 522 Fifth Ave., New York,
NY 10009
Maura W. Leddy Prior to October 1998, Bookkeeper, Davol/Taunton
Vice President Printing, 330 Winthrop Street Taunton, MA 02780.
Richard G. Leibovitch Prior to February 1999, Managing Director, J.P.
Managing Director Morgan, 60 Wall St., New York, NY 10260
Matthew J. Leighton Prior to August 2000, Contractor, Synergistics
Assistant Vice President Tech, Inc., 222 Forbes Road, Braintree, MA 02184;
Prior to September 1999, Assistant Treasurer,
State Street Boston Corporation, P.O. Box ;9280,
Boston, MA 02209
Jesse S. Levitt Prior to August 2000, Financial Analyst, Columbia
Assistant Vice President University Investment Office, 475 Riverside
Drive, Suite 401 New York, NY 10115
Robert Lindenberg Prior to August 2000, Director, Technology, Fleet
Vice President Boston Financial, 100 Federal St., Boston, MA 02110;
Prior to July 1999, Solutions Architect, Cambridge
Technology Partners, 8 Cambridge Center, Cambridge,
MA 02142; Prior to November 1998, Chief Technical
Architect, Platinum Technology, Inc., 8 New England
Executive Park, Burlington, MA 01802
Helen Liu Prior to August 2000, Assistant Vice President
Vice President and Senior Quantitative Analyst, Banc of America
Capital Management, 100 North Broadway, St. Louis,
MO 63102
Angelo M. Lobosco Prior to February 2000, Account Portfolio Analyst,
Vice President Fidelity Investments, 82 Devonshire, Boston, MA
02109
Noboru Machida Prior to October 1998, Senior Analyst, The
Vice President Nikko Research Center Ltd., Nihonbashi Kayabacho,
Chuou-ku Tokyo, Japan 103
Shigeki Makino Prior to August 2000, Director of Research,
Managing Director Fidelity Investments, 82 Devonshire St., Boston,
MA 02109
James Malone Prior to September 2000, Senior Associate, Pioneer
Assistant Vice President Group, Inc., 60 State Street, Boston, MA 02109
Kevin Maloney Institutional Director, Financial Management
Managing Director Association, University of South Florida, College
of Business Administration, Suite 3331, Tampa, FL
33620
Sarah Marshall Prior to August 1999, Associate, McKinsey & Company,
Vice President Inc., 55 E. 52nd St., New York, NY 10010
Erwin W. Martens Prior to October 1999, Global HSAP, Lehman Brothers,
Managing Director 3 World Financial Center, New York, NY 10281
Yumiko Matsubara Prior to August 2000, Senior Consultant, Ernst &
Assistant Vice President Yong Global Financial Services, 223 Uchisaiwai-Cho,
Chiyoda-ku, Tokyo, Japan 100-0011
Nicholas J. Melhuish Prior to August 1999, Assistant Director of
Vice President Schroder Investment Management, 31 Gresham St.,
London, England ECZV8AQ
Peter V. Meyer Prior to July 1999, Conseco Capital Management,
Vice President 11825 N. Pennsylvania Ave., Carmel, IN 46032
James P. Miller Prior to May 2000, Managing Director, Bear Stearns &
Senior Vice President Co., Inc., 245 Park Avenue, New York, NY 10067
Stacy M. Mills Prior to April 1999, Vice President, Manager-Financial
Vice President Accounting and Internal Reporting, State Street
Corporation, 225 Franklin Street, Boston, MA 02110
Ronald L. Mintz Prior to December 1999, Director of Research, Stone &
Vice President Youngberg LLC, 50 California St., San Francisco, CA
94411
Reena Mithal Prior to July 1999, Vice President, Deutsche Bank
Vice President Securities, 31 W. 52nd Street., New York, NY 10019
Jeanne L. Mockard Trustee, The Bryn Mawr School, 109 W. Melrose
Senior Vice President Avenue, Baltimore, MD 21210
Brian J. Monahan Prior to August 2000, Global Emerging Markets
Assitant Vice President Equity Trader, Grantham, Mayo, Van Otterloo, and
Co. LLC, 40 Rowes Wharf, Boston, MA 02110
Colin Moore Prior to June 2000, Chief Investment Officer,
Managing Director Rockefeller & Co., Inc., 30 Rockefeller Plaza,
New York, NY 10112
Dirk Morris Prior to October 1999, Vice President-Global
Managing Director Strategist, Bankers Trust, Chifley Tower, Sydney
NSW 2000 Australia
Kathleen M. Moynihan Prior to August 1999, Attorney, Bell, Boyd &
Assistant Vice President Loyd, 70 W. Madison St., Chicago, IL 60602
Donald E. Mullin Corporate Representative and Board Member,
Senior Vice President Delta Dental Plan of Massachusetts, 10
Presidents Landing, P.O. Box 94104, Medford, MA
02155
Jennifer P. Murphy Prior to September 1999, Managing Director, Morgan
Managing Director Stanley, 1585 Broadway, New York, NY 10036
Kevin F. Murphy Prior to December 1999, Managing Director,
Senior Vice President BankBoston N.A., 210 Berkeley St., Boston, MA 02116
Philip M. Murphy Prior to June 1999, Marketing and Client
Assistant Vice President Relations Association, GE Investments, 3003 Summer
Street, Stamford, CT 06904
Toshio Nagashima Prior to July 1999, General Manager, Product Dept.,
Managing Director Investment Trust Preparation, Sumitomo Bank, 1-3-2-
Marunouchi, Chiyoda-ku, Tokyo 100-0005 Japan
Jonathan M. Nash Prior to April 2000, European Sales Manager, M.F.S.
Vice President International U.K. Ltd., One Angel Court, London,
England EC2R 7HJ
Maria Julia Nisbet Prior to May 1999, Project Manager, Cisalpina
Assistant Vice President Gestioni, Via Boito, 10, Milan, Italy 20121
Craig R. Oliver Prior to August 2000, Principal, Analyst,
Vice President State Street Global Advisors, Two International
Place, Boston, MA 02109
Nancy O'Brien Prior to September 1999, Manager Corporate
Assistant Vice President Disbursements, Fidelity Investments, 82 Devonshire
St., Boston, MA 02129
Teresa O'Day Prior to April 1999, Operations Manager, Compaq
Vice President Computer Corp., 334 South Street, Shrewsbury, MA
01545
Carolyn S. O'Reilly Prior to February 2000, Senior Auditor, Deloitte &
Vice President Touche, 1 Capital Place, P.O. Box 1787 GT, George
Town, Grand Cayman, Cayman Islands, B.W.I. and
prior to December 1998, Senior Auditor, Deloitte &
Touche, 222 Berkeley St., Boston, MA 02116
Dennis E. O'Rourke Prior to March 2000, Analyst, BankBoston N.A.,
Vice President 210 Berkeley St., Boston, MA 02116
Jeffrey F. Peters Prior to June 1999, Principal, McKinsey & Company,
Managing Director 75 Park Plaza, Boston, MA 02116
Keith Plapinger Chairman and Trustee, Advent School, 17
Vice President Brimmer St., Boston, MA 02108
Lisa M. Platia Prior to December 1999, Vice President, Windham
Assistant Vice President Capital Management, 5 Revere St., Cambridge MA 02138
Charles E. Porter Trustee, Anatolia College, 130 Bowdoin St., Suite
Executive Vice President 1201, Boston, MA 02108; Governor, Handel & Hayden
Society, Horticulture Hall, 300 Massachusetts Ave.,
Boston, MA 02115
Quintin R.S. Price Prior to December 1998, Corporate Development
Managing Director Director, The Boots Company PLC, Group Headquarters,
Nottingham NG2 3AA England
Ranjit Ranjamani Prior to June 2000, Director of Finance and
Vice President Business Planning, Xenergy, Inc., 3 Burlington
Woods, Burlington, MA 01803
Nadine McQueen-Reed Prior to March, 1999, Key Account Executive,
Assistant Vice President Fidelity Investments, 130 Tonbridge Road,
Hildenborough, Kent, England, TN11 9DZ
Jakub Rehor Prior to July 2000, Research Associate,
Assistant Vice President Sanford C. Bernstein, 767 Fifth Avenue, New York,
NY 10153
Thomas V. Reilly Trustee, Knox College, 2 East South St.,
Managing Director Galesburg, IL 61401
Brian C. Rose Prior to April 2000, Equity Analyst,
Assistant Vice President Loomis, Sayles & Co. Lp, 1 Financial Center,
Boston, MA 02111
Paul M. Rotell Prior to June 1999, Manager, Kraft Foods,
Assistant Vice President 800 Westchester Ave., Rye Brook, NY 10573
Jeff B. Sacknowitz Prior to November 1999, Investment Associate,
Vice President Independence Investment Associates, 53 State
St., Boston, MA 02109
Robert Salvin Prior to July 2000, Chief Financial Officer,
Senior Vice President Really Easy Internet Inc., 3925 W. Braker Lane,
Austin, TX 78759; Prior to January 2000,
Managing Director, BancBoston Robertson Stephens,
100 Federal St., Boston, MA 02110
Paul D. Scanlon Prior to October 1999, Senior Vice President,
Vice President Olympus Healthcare Group, 775 Trapelo Road,
Waltham, MA 02452
Calvin Schmid Prior to July 2000, Vice President Human
Senior Vice President Resources Leadership Development, J.P. Morgan,
60 Wall St., New York, NY 10005
Justin M. Scott Director, DSI Proprieties (Neja) Ltd., Epping Rd.,
Managing Director Reydon, Essex CM19 5RD
Robert Secor Prior to December 1999, Senior Consultant,
Assistant Vice President Fame Information Services, 148 State Street,
Boston, MA 02110
Anthony R. Sellitto, III Prior to September 2000, Senior Vice President,
Senior Vice President Berger Fund Associates, 210 University Blvd.,
Denver, CO 80206
Jean I. Sievert Prior to October 1998, Vice President, Salomon
Senior Vice President Smith Barney, Seven World Trade Center, New York,
NY 10048
Gordon H. Silver Trustee, Wang Center for the Performing Arts,
Managing Director 270 Tremont St., Boston, MA 02116
David M. Silk Member of Board of Directors, Jobs for Bay
Senior Vice President State Graduates, 451 Andover St., Suite 305,
North Andover, MA 01845
Luke Smith Prior to December 1999, Quantitative Systems
Assistant Vice President Analyst, Colonial Management, One Financial
Center, Boston, MA 02111
Eric H. Sorensen Prior to August 2000, Managing Director,
Managing Director Global Head of Quantitative Research, Salomon
Smith Barney, 7 World Trade Center, New York, NY
10048
Steven Spiegel Director, Ultra Diamond and Gold Outlet,
Senior Managing Director 29 East Madison St., Suite 1800, Chicago, IL
60602; Director, FACES New York University
Medical Center, 550 First Avenue, New York, NY
10016; Trustee, Babson College, One College
Drive, Wellesley, MA 02157
Raman Srivastava Prior to July 1999, Market Risk Analyst,
Assistant Vice President Bank of Nova Scotia, 20 King St., W., Toronto,
ON
Toshifumi Sugimoto Prior to October 1998, Portfolio Manager,
Senior Vice President Deputy General Manager, Nikko Securities
Investment Trust & Management, Fixed Income
Department, 4-3 Nihonbashi, Hakozakicho,
Chuou-ku, Tokyo, Japan, 103-0015
Brendan C. Sullivan Prior to February 2000, Revenue Manager, Boston
Assistant Vice President Financial Data Services, Inc., 2 Heritage Drive,
Quincy, MA 02171
William J. Sullivan Prior to June 1999, Executive Director, SBC
Senior Vice President Warburg Dillion Read, 677 Washington Blvd,
Stamford, CT, 06901
John C. Talanian Member of Board of Directors, the Japan
Managing Director Society of Boston, One Milk Street, Boston, MA
02109
Nicole J. Thorpe Prior to February 1999, President/Owner,
Assistant Vice President Thorpe Resources, P.O. Box 1895, Brockton, MA
02301
Stephen W. Vandermark Prior to March 2000, Vice President, Quantitative
Senior Vice President Analytics, Lehman Brothers, 3 World Financial
Center, New York, NY 10285
John Varenelli Prior to July 2000, Senior Vice President,
Vice President US Trust Bank, 40 Court Street, Boston, MA 02108
Susan Wall Prior to July 2000, Program manager, Liberty
Assistant Vice President Mutual Group, 25 Borthwick Ave., Portsmouth, NH
03801
Christopher C. Watt Prior to July 1999, Finance Manager, Procter &
Vice President Gamble, 1 Procter & Gamble Plaza, Cincinnati, OH
45202
James C. Wiess Prior to April 2000, Portfolio Manager,
Senior Vice President J.P. Morgan, 60 Wall St., New York, NY 10005
Eric Wetlaufer President and Member of Board of Directors,
Managing Director The Boston Security Analysts Society, Inc.,
100 Boylston St., Suite 1050, Boston, MA 02110
Edward F. Whalen Member of the Board of Directors, Hockomock Area
Senior Vice President YMCA, 300 Elmwood St., North Attleboro, MA 02760
Kelly A. Woolbert Prior to November 1999, Investment Analyst, MetLife
Vice President Investment Services, 99 High Street, Boston, MA
02110
Richard P. Wyke Director, Salem YMCA, One Sewall St., Salem,
Senior Vice President MA 01970
Frederick M. Wynn, Jr., Prior to June 2000, Senior Equity Analyst,
Vice President Berger Fund Associates, 210 University Blvd.,
Denver, CO 80206; Prior to March 1999,
Research Analyst, Eagle Asset Management, 880
Carillon Parkway, St. Petersberg, FL 33716
Alex Zinny Prior to June 2000, Proprietary Trader,
Assistant Vice President Leerink Swann, One Financial Center, Boston,
MA 02111; Prior to June 1999, Equity Delivery
Middle Officer, Banque Paribas, 781 7th Avenue,
New York, NY 10019
</TABLE>
Item 27. Principal Underwriter
(a) Putnam Mutual Funds Corp. is the principal underwriter for each of the
following investment companies, including the Registrant:
Putnam American Government Income Fund, Putnam Arizona Tax Exempt Income
Fund, Putnam Asia Pacific Growth Fund, Putnam Asset Allocation Funds,
Putnam Balanced Retirement Fund, Putnam California Tax Exempt Income Fund,
Putnam California Tax Exempt Money Market Fund, Putnam Capital Appreciation
Fund, Putnam Classic Equity Fund, Putnam Convertible Income-Growth Trust,
Putnam Diversified Income Trust, Putnam Equity Income Fund, Putnam Europe
Growth Fund, Putnam Florida Tax Exempt Income Fund, Putnam Funds Trust, The
George Putnam Fund of Boston, Putnam Global Equity Fund, Putnam Global
Governmental Income Trust, Putnam Global Growth Fund, Putnam Global Natural
Resources Fund, The Putnam Fund for Growth and Income, Putnam Health
Sciences Trust, Putnam High Yield Trust, Putnam High Yield Advantage Fund,
Putnam Income Fund, Putnam Intermediate U.S. Government Income Fund, Putnam
International Growth Fund, Putnam Investment Funds, Putnam Investors Fund,
Putnam Massachusetts Tax Exempt Income Fund, Putnam Michigan Tax Exempt
Income Fund, Putnam Minnesota Tax Exempt Income Fund, Putnam Money Market
Fund, Putnam Municipal Income Fund, Putnam New Jersey Tax Exempt Income
Fund, Putnam New Opportunities Fund, Putnam New York Tax Exempt Income
Fund, Putnam New York Tax Exempt Money Market Fund, Putnam New York Tax
Exempt Opportunities Fund, Putnam Ohio Tax Exempt Income Fund, Putnam OTC &
Emerging Growth Fund, Putnam Pennsylvania Tax Exempt Income Fund, Putnam
Preferred Income Fund, Putnam Strategic Income Fund, Putnam Tax Exempt
Income Fund, Putnam Tax Exempt Money Market Fund, Putnam Tax-Free Income
Trust, Putnam Tax Smart Funds Trust, Putnam U.S. Government Income Trust,
Putnam Utilities Growth and Income Fund, Putnam Variable Trust, Putnam
Vista Fund, Putnam Voyager Fund, Putnam Voyager Fund II.
(b) The directors and officers of the Registrant's principal underwriter
are listed below. None of the officers are officers of the Registrant
except:
Name Position and Offices with Registrant
Richard Monaghan Vice President
Gordon Silver Vice President
The principal business address of each person is One Post Office Square,
Boston, MA 02109:
Position and
Name Offices with Underwriter
-----------------------------------------------------------------------------
Allouise,Donna A. Asst. Vice President
Alpaugh,Christopher S. Senior Vice President
Altomare,Mario P. Vice President
Asher,Steven E. Senior Vice President
Avery,Scott A. Senior Vice President
Aymond,Christian E. Senior Vice President
Aymond,Colin C. Vice President
Babcock III,Warren W. Senior Vice President
Ball,Colleen H. Asst. Vice President
Baltimore,Mark H.W. Vice President
Barlow,Jane Asst. Vice President
Barnett,William E. Asst. Vice President
Barrett,Thomas Vice President
Battit,Suzanne J Senior Vice President
Beatty,Steven M. Senior Vice President
Beringer,Thomas C. Vice President
Bettencourt,Jennifer L. Asst. Vice President
Boester,Eric C. Vice President
Boneparth,John F. Managing Director
Boon,David B. Senior Vice President
Bouchard,Keith R. Senior Vice President
Bradford Jr.,Linwood E. Managing Director
Bresnahan,Leslee R. Managing Director
Brockelman,James D. Senior Vice President
Brookman,Joel S. Vice President
Brown,Timothy K. Senior Vice President
Buckner,Gail D. Senior Vice President
Bunker,Christopher M. Vice President
Burrill,Gregory J. Vice President
Cabana,Susan D. Senior Vice President
Cartwright,Patricia A. Asst. Vice President
Casey,David M. Vice President
Castle Jr.,James R. Senior Vice President
Chapman,Frederick Vice President
Chrostowski,Louis F. Senior Vice President
Church,Daniel J. Vice President
Clark,Richard B. Senior Vice President
Clermont,Mary Vice President
Collette,A. Joseph Asst. Vice President
Collman,Kathleen M. Sr Managing Director
Commane,Karen L. Asst. Vice President
Coneeny,Mark L. Managing Director
Connelly,Donald A. Senior Vice President
Connolly,William T. Managing Director
Corbett,Dennis Vice President
Corvinus,F. Nicholas Senior Vice President
Cote,Marie C. Asst. Vice President
Cotto,Stephen P Asst. Vice President
Cotton,Rick Vice President
Crane III,George H. Senior Vice President
Cristo,Chad H. Senior Vice President
Critchell Jr.,D.Alan Vice President
Curran,Peter J. Senior Vice President
Dahill,Jessica E. Vice President
Daly,Kenneth L. Managing Director
Daylor,Donna M. Vice President
DeConto,Lisa B Senior Vice President
DeFao,Michael E. Asst. Vice President
Deluse,Laura R. Asst. Vice President
DiRe,Lisa M. Asst. Vice President
Diaz,Roger Vice President
Divney,Kevin M. Senior Vice President
Donaldson,Scott M. Senior Vice President
Durbin,Emily J. Vice President
Durkee,Christine Vice President
Edlin,David B. Managing Director
Eidelberg,Kathleen E. Asst. Vice President
Elder,Michael D. Senior Vice President
Emhof,Joseph R. Vice President
English,James M. Senior Vice President
Esposito,Vincent Managing Director
Esteves,Irene M. Sr Managing Director
Favaloro,Beth A. Vice President
Fishman,Mitchell B. Senior Vice President
Flaherty,Patricia C. Senior Vice President
Fleisher,Kate Vice President
Fleming,Ellen E. Asst. Vice President
Foley,Timothy P. Vice President
Foran,Carey L. Vice President
Franjul,Sayuri J. Asst. Vice President
Gernon,John H. Senior Vice President
Gibbs,Stephen C. Vice President
Goodfellow,Mark D. Vice President
Goodman,Robert Managing Director
Grace,Linda K. Vice President
Grant,Mitchell T. Managing Director
Graviere,Patrice Senior Vice President
Grey,Eric M. Vice President
Grillo,Tracy E. Asst. Vice President
Guerin,Donnalee Vice President
Hachey,Andrew J Asst. Vice President
Hadley,Christopher Asst. Vice President
Halloran,James E. Vice President
Halloran,Thomas W. Senior Vice President
Harring,Linda Senior Vice President
Harrington,Shannon W. Vice President
Hartig,Robert Vice President
Hasunuma,Sakiko Vice President
Hayes-Castro,Deanna R. Vice President
Heller,Kim G. Asst. Vice President
Hoey,Thomas J. Senior Vice President
Holland,Julie E. Asst. Vice President
Holmes,Maureen A. Vice President
Hotchkiss,Michael F. Senior Vice President
Howes,Douglas E. Vice President
Hutcherson,Eric A. Vice President
Hutchins,Robert B. Vice President
Inoue,Hitoshi Vice President
Itai,Takeshi Senior Vice President
Jackman,Sean R. Asst. Vice President
Jacobsen,Dwight D. Managing Director
Jones,Thomas A. Senior Vice President
Kaminsky,Gregory C. Vice President
Kanwal,Amrit Managing Director
Kapinos,Peter J. Vice President
Keith,Pamela J. Asst. Vice President
Keleher,Kevin J. Vice President
Kelley,Brian J. Senior Vice President
Kelly,David Senior Vice President
Kennedy,Alicia C. Vice President
Kinsman,Anne Senior Vice President
Kircher,Richard T. Asst. Vice President
Kirk,Deborah H. Senior Vice President
Koontz,Jill A. Senior Vice President
Kringdon,Joseph D. Senior Vice President
LaPierre,Christopher W Asst. Vice President
Landers,Bruce M. Vice President
Lane,Linda L. Asst. Vice President
Lathrop,James D. Senior Vice President
Lawlor,Stephanie T. Vice President
Leary,Joan M. Vice President
Leipsitz,Margaret Vice President
Lemire,Kevin Senior Vice President
Levy,Eric S. Senior Vice President
Levy,Norman S. Vice President
Lewandowski,Edward V. Senior Vice President
Li,Mei Asst. Vice President
Lieberman,Samuel L. Senior Vice President
Lilien,David R. Vice President
Linquata,Louis K. Asst. Vice President
Loew,Christopher R. Asst. Vice President
Lord,Caroline F. Asst. Vice President
Lucey,Robert F. Director
Lucey,Thomas J. Director
MacDonald,Richard A. Senior Vice President
Maloof,Renee L. Asst. Vice President
Mancini,Jane M. Managing Director
Mann,Ellen M. Asst. Vice President
Martens,Erwin W. Managing Director
Martino,Michael Managing Director
Mata,Michael A. Senior Vice President
McAvoy,Bridget Vice President
McCarthy,Anne B. Asst. Vice President
McConville,Paul D. Senior Vice President
McCracken,Brian Vice President
McCutcheon,Bruce A Senior Vice President
McDermott,Robert J. Vice President
McNamee,Mary G. Vice President
Meagher,Dorothy B. Vice President
Michejda,Marek A. Vice President
Miller,Gregory T. Vice President
Miller,Jeffrey M. Managing Director
Mills,Stacy M. Vice President
Minsk,Judith Vice President
Monaghan,Richard A. Director
Monahan,Kimberly A. Vice President
Moody,Paul R. Senior Vice President
Moret,Mitchell L. Senior Vice President
Morey,John P. Senior Vice President
Mosher,Barry L. Vice President
Moynihan,Kathleen M. Asst. Vice President
Mullen,Donald E. Senior Vice President
Mullen,Patricia M. Asst. Vice President
Munson,Brian D. Vice President
Murphy Jr.,Kenneth W. Vice President
Murray,Brendan R. Senior Vice President
Nadherny,Robert Senior Vice President
Nagashima,Toshio Managing Director
Nash,Jonathan M. Vice President
Natale,Lisa A. Asst. Vice President
Neary,Ellen R. Vice President
Newell,Amy Jane Vice President
Nickodemus,John P. Senior Vice President
Nicolazzo,Jon C. Vice President
Nisbet,M. Julia Asst. Vice President
O'Brien,Lois C. Senior Vice President
O'Brien,Nancy M. Asst. Vice President
O'Brien,Wendy R. Asst. Vice President
O'Connell,Gayle M. Vice President
O'Connor,Brian P. Vice President
O'Connor,Matthew P. Vice President
O'Day,Teresa S. Vice President
O'Reilly,Carolyn S. Vice President
Orr,Kevin Vice President
Palmer,Patrick J. Vice President
Pampliega,Carlos Senior Vice President
Panek,Raymond S. Asst. Vice President
Parker,Michael T. Asst. Vice President
Parr,Cynthia O. Senior Vice President
Perkins,Erin M. Asst. Vice President
Peters,Jeffrey F. Managing Director
Petitti,Joseph P. Vice President
Petralia,Randolph S. Senior Vice President
Phoenix,John G. Senior Vice President
Phoenix,Joseph Managing Director
Pickard,Gregory L. Asst. Vice President
Plapinger,Keith Senior Vice President
Puddle,David G. Senior Vice President
Pulkrabek,Scott M. Vice President
Putnam,George Director
Quinn,Patrick J. Asst. Vice President
Reed,Frank C. Vice President
Reed,Nadine McQueen Asst. Vice President
Rodts,Jennifer M. Asst. Vice President
Rogers,Deborah A. Vice President
Rotell,Paul M. Asst. Vice President
Rowe,Robert B. Vice President
Rusko,Steven N. Asst. Vice President
Ryan,William M. Vice President
Saccocia,Cynthia M Asst. Vice President
Saunders,Catherine A. Senior Vice President
Sawyer,Matthew A. Vice President
Scales,Matthew B. Asst. Vice President
Scanlon,Michael M. Senior Vice President
Schepp-Dries,Peter Senior Vice President
Schlosberg,Alan R. Asst. Vice President
Schmid,Calvin E. Senior Vice President
Schofield,Shannon D. Senior Vice President
Schultz,Mitchell D. Managing Director
Schwister,Sara M. Asst. Vice President
Scordato,Christine A. Senior Vice President
Selden,Denise D. Senior Vice President
Shamburg,John B. Vice President
Shanahan,Christopher W. Vice President
Shelby,Robert Vice President
Short,Jonathan D. Senior Vice President
Siebold,Mark J. Asst. Vice President
Siemon Jr.,Frank E. Asst. Vice President
Silva,J. Paul Vice President
Silver,Gordon H. Sr Managing Director
Skistimas Jr,John J. Vice President
Solan,Meenakshi S. Asst. Vice President
Soule,Scott W. Asst. Vice President
Spiegel,Steven Sr Managing Director
Sprague,David L. Vice President
Starishevsky,Daniel Vice President
Starr,Loren M. Managing Director
Statuta,Jason M. Vice President
Stickney,Paul R. Senior Vice President
Sugimoto,Toshifumi Senior Vice President
Sullivan,Brendan C. Asst. Vice President
Sullivan,Brian L. Senior Vice President
Sullivan,Deborah H. Asst. Vice President
Sullivan,Elaine M. Senior Vice President
Sullivan,Maryann Asst. Vice President
Suzuki,Toshimi Senior Vice President
Sweeney,Janet C. Senior Vice President
Talanian,John C. Managing Director
Tanaka,Toshiaki Vice President
Tavares,April M. Vice President
Telling,John R. Senior Vice President
Tibbetts,Richard B. Managing Director
Troped Blacker,Bonnie Senior Vice President
Upham,Scott E. Vice President
Veale,David B. Vice President
Velazquez,Joel Asst. Vice President
Vierra,Scott G. Vice President
Walsh,Stephen M. Vice President
Warde,Elizabeth A. Asst. Vice President
Washburn,Andrew O. Senior Vice President
Waters,Mitchell J. Vice President
Watt,Christopher C. Vice President
Welch III,William A. Asst. Vice President
Whalen,Brian Vice President
Whalen,Edward F. Senior Vice President
Whitaker,J. Greg Senior Vice President
White,Patrick J. Asst. Vice President
Woodlock,Ronald J. Vice President
Woolverton,William H. Managing Director
Wright Jr.,Edmund F. Vice President
Yan,Yanfang Vice President
Young,Jason P. Vice President
Zografos,Laura J. Senior Vice President
Zukowski,Virginia A. Senior Vice President
deMont,Lisa M. Senior Vice President
Item 28. Location of Accounts and Records
Persons maintaining physical possession of accounts, books and other
documents required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the Rules promulgated thereunder are
Registrant's Associate Clerk, Judith Cohen; Registrant's investment
adviser, Putnam Investment Management, Inc.; Registrant's principal
underwriter, Putnam Retail Management, Inc.; Registrant's custodian,
Putnam Fiduciary Trust Company ("PFTC"); and Registrant's transfer and
dividend disbursing agent, Putnam Investor Services, a division of PFTC.
The address of the Associate Clerk, investment adviser, principal
underwriter, custodian and transfer and dividend disbursing agent is One
Post Office Square, Boston, Massachusetts 02109.
Item 29. Management Services
None.
Item 30. Undertakings
None.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this
Post-Effective Amendment No. 39 to the registration statement on Form
N-1A (File No. 33-56339) ("Registration Statement") of our reports
dated October 12, 2000, October 12, 2000 and October 13, 2000
relating to the financial statements and financial highlights appearing
in the August 31, 2000 Annual Reports of Putnam Latin America Fund,
Putnam Asia Pacific Fund II and Putnam High Yield Trust Fund II,
respectively, each a series of Putnam Funds Trust, which are also
incorporated by reference in to the Registration Statement. We also
consent to the references to us under the headings"Financial
highlights" and "Independent Accountants and Financial Statements" in
such Registration Statement.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 26, 2000
NOTICE
A copy of the Agreement and Declaration of Trust of Putnam Funds Trust
is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this instrument is
executed on behalf of the Registrant by an officer of the Registrant as
an officer and not individually and the obligations of or arising out of
this instrument are not binding upon any of the Trustees, officers or
shareholders individually but are binding only upon the assets and
property of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the fund certifies that it meets all
of the requirements for effectiveness of this Registration Statement
under Rule 485(b) under the Securities Act of 1933 and has duly caused
this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, duly authorized, in the City of Boston, and The
Commonwealth of Massachusetts, on the 27th day of December, 2000.
Putnam Funds Trust
By: Gordon H. Silver, Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement of Putnam Funds Trust has been
signed below by the following persons in the capacities and on the dates
indicated:
Signature Title
John A. Hill Chairman of the Board; Trustee
George Putnam, III President; Principal Executive Officer; Trustee
John D. Hughes Senior Vice President; Treasurer and
Principal Financial Officer
Paul G. Bucuvalas Assistant Treasurer and
Principal Accounting Officer
Jameson A. Baxter Trustee
Hans H. Estin Trustee
Ronald J. Jackson Trustee
Paul L. Joskow Trustee
Elizabeth T. Kennan Trustee
Lawrence J. Lasser Trustee
John H. Mullin, III Trustee
Robert E. Patterson Trustee
A.J.C. Smith Trustee
W. Thomas Stephens Trustee
W. Nicholas Thorndike Trustee
By: Gordon H. Silver,
as Attorney-in-Fact
December 27, 2000
PUTNAM INVESTMENT FUNDS
Putnam International Fund
Putnam Emerging Markets Fund
International Voyager Fund
Putnam New Value Fund
FORM N-1A
PART C
OTHER INFORMATION
Item 23. Exhibits
1. Amended Agreement and Declaration of Trust dated January 6, 1995 --
Incorporated by reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement.
2. By-Laws as amended through July 21, 2000 -- Incorporated by reference
to Post-Effective Amendment No. 33 to Registrant's Registration
Statement.
3a. Portions of Agreement and Declaration of Trust Relating to Shareholders'
Rights -- Incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement.
3b. Portions of By-Laws Relating to Shareholders' Rights --
Incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement.
4. Management Contract dated December 12, 1994, as revised July 14, 1995,
December 1, 1995, April 1, 1997, March 6, 1998, July 10, 1998, March 12,
1999, July 1, 1999, September 10, 1999 and November 6, 2000 --
Incorporated by reference to Post-Effective Amendment No. 37 to
Registrant's Registration Statement.
5a. Distributor's Contract dated December 2, 1994 -- Incorporated by
reference to Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement.
5b. Form of Dealer Sales Contract - Incorporated by reference to
Pre-effective Amendment No. 1 to the Registrant's Registration
Statement.
5c. Form of Financial Institution Sales Contract - Incorporated by reference
to Pre-effective Amendment No. 1 to the Registrant's Registration
Statement.
6. Trustee Retirement Plan dated October 4, 1996 --Incorporated by reference
to Post-Effective Amendment No. 10 to the Registrant's Registration
Statement.
7. Custodian Agreement with Putnam Fiduciary Trust Company dated May 3, 1991,
as amended July 13, 1992 -- Incorporated by reference to Pre-Effective
Amendment No. 1 to the Registrant's Registration Statement.
8. Investor Servicing Agreement dated June 3, 1991 with Putnam Fiduciary
Trust Company -- Incorporated by reference to Pre-Effective Amendment
No. 1 to the Registrant's Registration Statement.
9. Opinion of Ropes & Gray, including consent -- Incorporated by reference
to Post-Effective Amendment No. 37 to the Registrant's Registration
Statement.
10a. Consent of Independent Accountants for KPMG LLP - Exhibit 1.
10b. Consent of Independent Accountants for PricewaterhouseCoopers LLP --
Exhibit 2.
11. Not applicable.
12. Investment Letter from Putnam Investments, Inc. to the Registrant --
Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement.
13a. Class A Distribution Plan and Agreement dated April 1, 2000 - Incorporated
by reference to Post-Effective Amendment No. 32 to the Registrant's
Registration Statement.
13b. Class B Distribution Plan and Agreement dated April 1, 2000 - Incorporated
by reference to Post-Effective Amendment No. 32 to the Registrant's
Registration Statement.
13c. Class C Distribution Plan and Agreement dated April 1, 2000 - Incorporated
by reference to Post-Effective Amendment No. 32 to the Registrant's
Registration Statement.
13d. Class M Distribution Plan and Agreement dated April 1, 2000 - Incorporated
by reference to Post-Effective Amendment No. 32 to the Registrant's
Registration Statement.
13e. Form of Dealer Service Agreement - Incorporated by reference to
Pre-Effective Amendment No. 1 to the Registrant's Registration Statement.
13f. Form of Financial Institution Service Agreement -- Incorporated by
reference to Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement.
14. Rule 18f-3 Plan -- Incorporated by reference to Post-Effective Amendment
No. 28 to the Registrant's Registration Statement.
15a. The Putnam Funds Code of Ethics -- Incorporated by reference to
Post-Effective Amendment No. 32 to the Registrant's Registration
Statement.
15b. Putnam Investments Code of Ethics -- Incorporated by reference to
Post-Effective Amendment No. 32 to the Registrant's Registration
Statement.
Item 24. Persons Controlled by or under Common Control with Registrant
As of November 30, 2000, Putnam Investments, Inc. owned:
Putnam Equity Fund 2000 78.00%
Putnam International Fund 2000 89.80%
Putnam International Fund 94.00%
Putnam Mid-Cap Value Fund 89.50%
Putnam Growth Fund 86.00%
Putnam Latin America Fund 81.30%
Putnam Asia Pacific Fund II 87.90%
Putnam U.S. Core Fund 78.20%
Putnam Worldwide Equity Fund 59.90%
Putnam Equity Fund 98 58.80%
Item 25. Indemnification
The information required by this item is incorporated herein by
reference to the Registrant's Initial Registration Statement on Form
N-1A under the Investment Company Act of 1940 (File No. 811-7237).
Item 26. Business and Other Connections of Investment Adviser
Except as set forth below, the directors and officers of the Registrant's
investment adviser have been engaged during the past two fiscal years in no
business, vocation or employment of a substantial nature other than as
directors or officers of the investment adviser or certain of its corporate
affiliates. Certain officers of the investment adviser serve as officers
of some or all of the Putnam funds. The address of the investment adviser,
its corporate affiliates and the Putnam Funds is one Post Office Square,
Boston, Massachusetts 02109.
<TABLE>
<CAPTION>
Name Non-Putnam business and other connections
---- -----------------------------------------
<S> <C>
Lauren Allansmith Prior to August 1999, Analyst, Loomis Sayles,
Senior Vice President One Financial Center, Boston, MA 02111
Blake Anderson Trustee, Salem Female Charitable Society,
Managing Director Salem MA 01970
Robert R. Beck Director, Charles Bridge Publishing, 85 Main St.,
Senior Vice President Watertown, MA 02172; Board of Overseers, Beth
Israel Deaconess Medical Center, 330 Brookline
Ave., Boston, MA 02215
Stephen A. Balter Prior to March 2000, Vice President and
Vice President Analyst, Pioneer Investment Management, 60
State St., Boston, MA 02109
Rob A. Bloemker Prior to September 1999, Managing Director,
Senior Vice President Lehman Brothers, 555 California St., 30th
floor, San Francisco, CA 94104
Claudio Brocado Prior to August 1999, independent consultant by
Vice President Stires, O'Donnell & Co. 12 East 44th St., New York,
NY 10017; Prior to January 1999, independent
consultant by Coast Partners, 601 California St.,
San Francisco, CA 94108
Anna Bulkovshteyn Prior to July 1999, Quantitative Analyst, Sun Life
Assistant Vice President Investment Management, 200 King Street West,
Toronto, Ontario M5H 3T4 Canada
Mark Chameih Prior to May 1999, Vice President, Chase
Vice President Manhattan, 125 London Wall, London, UK
Sabina M. Ciminero Prior to August 2000, Research Associate,
Assistant Vice President International Graduate School of Management,
Soldiers Field Road, Boston, MA 02163; Prior to
August 1999, Research Associate, Harvard Business
School, Soldiers Field Road, Boston, MA 02163
James Conklin Prior to May 2000, Vice President, Lehman
Vice President Brothers, 3 World Financial Center, New York, NY
10285
C. Beth Cotner Director, The Lyric Stage Theater, 140
Senior Vice President Clarendon St., Boston, MA 02116
Rick Cotton Prior to August 1999, Manager, Andersen
Vice President Consulting, 100 William St., Wellesley, MA 02481
Lindsey L. Curley Prior to June 1999, Portfolio Analyst, Standish,
Assistant Vice President Ayer & Wood, Inc., One Financial Center, Boston,
MA 02110.
John R.S. Cutler Member, Burst Media, L.L.C., 10 New England
Vice President Executive Park, Burlington, MA 01803
Kenneth Daly President, Andover River Rd. TMA, River Road
Managing Director Transportation Management Association, 7 Shattuck
Rd., Andover, MA 01810
Simon Davis Prior to September 2000, Lead Manager,
Senior Vice President Deutsche Asset Management, 1 Appold St., London,
EC2
Ralph C. Derbyshire Board Member, MSPCC, 399 Boylston St.,
Senior Vice President Boston, MA; Board Member, Winchester After
School Program, Skillings Rd., Winchester, MA
Lisa DeConto Prior to June 2000, Associate Partner, Westgate
Senior Vice President Group, 175 Federal St., Boston, MA 02110; Prior
to May 1999, Principal, LAI Worldwide, 99 High St.,
Boston, MA 02110
Stephen P. Dexter Prior to June 1999, Senior Vice President and
Senior Vice President Senior Portfolio Manager, Scudder Kemper, Inc.
One International Place, Boston, MA
Michael G. Dolan Chairman-Finance Council, St. Mary's Parish,
Assistant Vice President 44 Myrtle St., Melrose, MA 02176; Member,
School Advisory Board, St. Mary's School, 44
Myrtle St., Melrose, MA 02176
Stephen D. Driscoll Prior to April 1999, Compliance Analyst, State
Assistant Vice President Street Bank & Trust, 607 Boylston St., Boston, MA
02116
Edward Driscoll Prior to September 1999, Equity Trader, Fidelity
Vice President Research and Management, 82 Devonshire St.,
Boston, MA 02109
Emily Durbin Board of Directors, Family Service, Inc.,
Vice President Lawrence, MA 01840
Karnig H. Durgarian Board Member, EBRI, Suite 600, 2121 K St.,
Managing Director N.W., Washington, DC 20037-1896. Trustee,
American Assembly, 122 C. St., N.W., Suite 350,
Washington, DC 20001
Nathan Eigerman Trustee, Flower Hill Trust, 298 Marlborough St.,
Senior Vice President #4, Boston, MA 02116
Tony H. Elavia Prior to September 1999, Executive Vice
Senior Vice President President, Voyageur Asset Management, 90 S.
7th Street, Minneapolis, MN 55402
Irene M. Esteves Board of Director Member, American Management
Managing Director Association Finance council, 1601 Broadway,
New York, NY; Board of Director Member, First
Night Boston, 20 Park Plaza, Suite 927, Boston,
MA; Board of Director Member, SC Johnson
Commercialmarkets, 8310 16th St., Stutevant, WI
53177; Board of Director Member, Massachusetts
Taxpayers Foundation, 24 Province St., Boston, MA;
Board of Director Member, Mrs. Bairds Bakeries,
515 Jones St., Suite 200, Fort Worth, Texas 76102
James M. Falvey Prior to August 2000, Senior Vice President,
Senior Vice President Dresdner, Kleinwort, Benson, One Boston Place,
Boston, MA 02108
Ian Ferguson Trustee, Park School, 171 Goddard Avenue,
Senior Managing Director Brookline, MA 02146
Peter M. Fleisher Prior to July 1999, Senior Vice President, Fleet
Senior Vice President National Bank, 75 State Street, Boston, MA 02109
Michael J. Fleming Prior to February 2000, Associate Portfolio Manager,
Vice President International Equity, DuPont Capital Management,
1 Righter Parkway, Suite 3200, Wilmington, DE 19803
Christopher W. Fox Prior to May 2000, Senior Consultant, American
Assistant Vice President Management Systems, 7050 Legato Rd., Fairfax, VA
22033
Henrietta Fraser Prior to October 1998, Manager, Fleming Investment
Senior Vice President Management, 25 Copthall Ave., London EC2R 7DR
Jason Fromer Prior to August 2000, Currency/Macro Trader, Soros
Vice President Fund Management, 888 7th Avenue, 33rd Floor,
New York, NY 10106
Reto Gallati Prior to March 2000, Head of Bank Risk Management,
Senior Vice President Director, KPMG LLP, Badenerstrasse 172, 8004
Zurich, Switzerland
Matthew R. Gage Prior to December, 1999, Audit Manager,
Assistant Vice President Ernst & Young LLP, 200 Clarendon St., Boston, MA
02116
Vivek Gandhi Prior to October 1999, Vice President, Alliance
Vice President Capital Management, 1 Findlayson Green, Singapore,
India; Prior to November 1998, Investment Manager,
Aberdeen Asset Management Asia, 21 Church Street,
Squire 2, Singapore, India
John H. Gernon Prior to June 2000, Vice President, Fidelity
Senior Vice President Investments, Inc., 82 Devonshire St., Boston, MA
02109
John T. Golden Prior to June 2000, Second Vice President,
Vice President John Hancock Funds, 101 Huntington Ave.,
Boston, MA 02199
Andrew Graham Prior to October 1999, Fund Manager, Scottish Widows
Senior Vice President Investment Management, Port Hamilton, 67 Morrison
St., Edinburgh, Scotland
J. Peter Grant Trustee, The Dover Church, Dover, MA 02030
Senior Vice President
Matthew D. Griffin Prior to August 2000, Vice President, Harbor
Vice President Capital Management, 125 High Street, Boston, MA
02110; Prior to June 1999, Analyst, Colonial
Management Associates, Inc., One Financial
Center, Boston, MA 02110
Avram Gusman Prior to July 2000, Senior Vice President and
Vice President Managing Director, Fleet Boston Financial, 100
Federal St., Boston, MA 02110
Paul E. Haagensen Director, Haagensen Research Foundation, 630 West
Senior Vice President 168th St., New York, NY 10032
Eric N. Harthun Prior to March 2000, Portfolio Manager, Boston
Vice President Partners Asset Management, One Financial Center,
Boston, MA 02111
Deborah R. Healey Corporator, New England Baptist Hospital, 125 Parker
Senior Vice President Hill Ave., Boston, MA 02120; Director, NEB
Enterprises, 125 Parker Hill Ave., Boston, MA 02120
Karen Herold Prior to May 2000, Research Analyst,
Assistant Vice President PricewaterhouseCoopers LLP, One Post Office
Square, Boston, MA 02109. Prior to February 1999,
Senior Information Specialist, Fidelity Investments,
One Spartan Way, Merrimack, NH 03054
Jospeh Hosler Prior to February 2000, Vice President, Independent
Vice President Investment Associates, 53 State St., Boston, MA 02109
Ronald Hua Prior to August 1999, Quantitative Analyst, Fidelity
Vice President Investments, 82 Devonshire St., Boston, MA 02109
Eric A. Hutcherson Prior to March 2000, Professional Development
Vice President Manager, Lotus Development Corp., 55 Cambridge
Parkway, Cambridge, MA 02142
Hitoshi Inoue Prior to February 1999, General Manager/Mutual Fund
Vice President Sales, Baring Asset Management (Japan) Limited,
11-A1 Imperial Tower, 1-1-1 Uchisaiwai-cho,
Chiyoda-ku, Tokyo, Japan. Prior to December
1998, Assistant General manager/Institutional
Investors Services Department, New Japan Securities
co., Ltd., 3-11 Kanda-Surugadai, Chiyoda-ku, Tokyo,
Japan
Takeshi Itai Prior to March 2000, Vice President and Client
Senior Vice President Portfolio Manager, Chase Trust Bank Tokyo, 5-2-20-
Akasaka, Minato-ku, Tokyo 107-6113
Amrit Kanwal Prior to August 1999, Vice President, Corporate
Managing Director Development and Strategy, Sequa Corporation, 200
Park Avenue, New York, NY 10166
Rikiya Kato Prior to July 2000, Senior Portfolio Manager,
Vice President Daiwa SB Investments, 7-9 Nihonbashi 2-chome,
Chuo-ku, Tokyo, Japan, 103-0027
Charles H. Krahmer Prior to March 2000, Unit Manager and Business
Assistant Vice President Analyst, Brown Brothers Harriman & Co., 40 Water
St., Boston, MA 02109
Jason A. Kritzer Prior to February 1999, Audit Consultant, Digital
Assistant Vice President Equipment Corp., 111 Powder Mill Rd., Maynard,
MA 01754
Leo Kropywiansky Prior to June 2000, Vice President, Primark Decision
Vice President Economics, 1 World Trade Center, New York, NY 10048
Alexander V. Kozhemiakin Prior to May 1999, Emerging Markets Sovereign
Vice President Analyst, Aeltus Investment Management, 242 Trumball
St., Hartford, CT 06103
Deborah F. Kuenstner Director, Board of Pensions, Presbyterian Church, 1001
Managing Director Market St., Philadelphia, PA
Sharon Lane Prior to August 2000, Information Specialist,
Assistant Vice President Arthur D. Little School of Management, 194 Beacon
St., Chestnut Hill, MA 02467; Prior to March 2000,
Senior Information Research Specialist, Bain & Co.,
2 Copley Place, Boston, MA 02117
Lawrence J. Lasser Director, Marsh & McLennan Companies, Inc.,
President, Director and 1221 Avenue of the Americas, New York, NY
Chief Executive 10020; Board of Governors and Executive
Committee, Investment Company Institute, 1401
H. St., N.W. Suite 1200, Washington, DC 20005;
Board of Overseers, Museum of Fine Arts, 465
Huntington, Ave., Boston, MA 02115; Trustee,
Beth Israel Deaconess Medical Center, 330
Brookline Ave., Boston, MA; Member of the Council
on Foreign Relations, 58 East 68th St., New York,
NY 10021; Member of the Board of Directors of the
United Way of Massachusetts Bay, 245 Summer St.,
Suite 1401, Boston, MA 02110; Trustee of the
Vineyard Open Land Foundation, RFD Box 319X,
Vineyard Haven, MA 02568
Gordon R. Lawrence Prior to July 1999, summer associate, J.P. Morgan
Assistant Vice President Investment Management, 522 Fifth Ave., New York,
NY 10009
Maura W. Leddy Prior to October 1998, Bookkeeper, Davol/Taunton
Vice President Printing, 330 Winthrop Street Taunton, MA 02780.
Richard G. Leibovitch Prior to February 1999, Managing Director, J.P.
Managing Director Morgan, 60 Wall St., New York, NY 10260
Matthew J. Leighton Prior to August 2000, Contractor, Synergistics
Assistant Vice President Tech, Inc., 222 Forbes Road, Braintree, MA 02184;
Prior to September 1999, Assistant Treasurer,
State Street Boston Corporation, P.O. Box ;9280,
Boston, MA 02209
Jesse S. Levitt Prior to August 2000, Financial Analyst, Columbia
Assistant Vice President University Investment Office, 475 Riverside
Drive, Suite 401 New York, NY 10115
Robert Lindenberg Prior to August 2000, Director, Technology, Fleet
Vice President Boston Financial, 100 Federal St., Boston, MA 02110;
Prior to July 1999, Solutions Architect, Cambridge
Technology Partners, 8 Cambridge Center, Cambridge,
MA 02142; Prior to November 1998, Chief Technical
Architect, Platinum Technology, Inc., 8 New England
Executive Park, Burlington, MA 01802
Helen Liu Prior to August 2000, Assistant Vice President
Vice President and Senior Quantitative Analyst, Banc of America
Capital Management, 100 North Broadway, St. Louis,
MO 63102
Angelo M. Lobosco Prior to February 2000, Account Portfolio Analyst,
Vice President Fidelity Investments, 82 Devonshire, Boston, MA
02109
Noboru Machida Prior to October 1998, Senior Analyst, The
Vice President Nikko Research Center Ltd., Nihonbashi Kayabacho,
Chuou-ku Tokyo, Japan 103
Shigeki Makino Prior to August 2000, Director of Research,
Managing Director Fidelity Investments, 82 Devonshire St., Boston,
MA 02109
James Malone Prior to September 2000, Senior Associate, Pioneer
Assistant Vice President Group, Inc., 60 State Street, Boston, MA 02109
Kevin Maloney Institutional Director, Financial Management
Managing Director Association, University of South Florida, College
of Business Administration, Suite 3331, Tampa, FL
33620
Sarah Marshall Prior to August 1999, Associate, McKinsey & Company,
Vice President Inc., 55 E. 52nd St., New York, NY 10010
Erwin W. Martens Prior to October 1999, Global HSAP, Lehman Brothers,
Managing Director 3 World Financial Center, New York, NY 10281
Yumiko Matsubara Prior to August 2000, Senior Consultant, Ernst &
Assistant Vice President Yong Global Financial Services, 223 Uchisaiwai-Cho,
Chiyoda-ku, Tokyo, Japan 100-0011
Nicholas J. Melhuish Prior to August 1999, Assistant Director of
Vice President Schroder Investment Management, 31 Gresham St.,
London, England ECZV8AQ
Peter V. Meyer Prior to July 1999, Conseco Capital Management,
Vice President 11825 N. Pennsylvania Ave., Carmel, IN 46032
James P. Miller Prior to May 2000, Managing Director, Bear Stearns &
Senior Vice President Co., Inc., 245 Park Avenue, New York, NY 10067
Stacy M. Mills Prior to April 1999, Vice President, Manager-Financial
Vice President Accounting and Internal Reporting, State Street
Corporation, 225 Franklin Street, Boston, MA 02110
Ronald L. Mintz Prior to December 1999, Director of Research, Stone &
Vice President Youngberg LLC, 50 California St., San Francisco, CA
94411
Reena Mithal Prior to July 1999, Vice President, Deutsche Bank
Vice President Securities, 31 W. 52nd Street., New York, NY 10019
Jeanne L. Mockard Trustee, The Bryn Mawr School, 109 W. Melrose
Senior Vice President Avenue, Baltimore, MD 21210
Brian J. Monahan Prior to August 2000, Global Emerging Markets
Assitant Vice President Equity Trader, Grantham, Mayo, Van Otterloo, and
Co. LLC, 40 Rowes Wharf, Boston, MA 02110
Colin Moore Prior to June 2000, Chief Investment Officer,
Managing Director Rockefeller & Co., Inc., 30 Rockefeller Plaza,
New York, NY 10112
Dirk Morris Prior to October 1999, Vice President-Global
Managing Director Strategist, Bankers Trust, Chifley Tower, Sydney
NSW 2000 Australia
Kathleen M. Moynihan Prior to August 1999, Attorney, Bell, Boyd &
Assistant Vice President Loyd, 70 W. Madison St., Chicago, IL 60602
Donald E. Mullin Corporate Representative and Board Member,
Senior Vice President Delta Dental Plan of Massachusetts, 10
Presidents Landing, P.O. Box 94104, Medford, MA
02155
Jennifer P. Murphy Prior to September 1999, Managing Director, Morgan
Managing Director Stanley, 1585 Broadway, New York, NY 10036
Kevin F. Murphy Prior to December 1999, Managing Director,
Senior Vice President BankBoston N.A., 210 Berkeley St., Boston, MA 02116
Philip M. Murphy Prior to June 1999, Marketing and Client
Assistant Vice President Relations Association, GE Investments, 3003 Summer
Street, Stamford, CT 06904
Toshio Nagashima Prior to July 1999, General Manager, Product Dept.,
Managing Director Investment Trust Preparation, Sumitomo Bank, 1-3-2-
Marunouchi, Chiyoda-ku, Tokyo 100-0005 Japan
Jonathan M. Nash Prior to April 2000, European Sales Manager, M.F.S.
Vice President International U.K. Ltd., One Angel Court, London,
England EC2R 7HJ
Maria Julia Nisbet Prior to May 1999, Project Manager, Cisalpina
Assistant Vice President Gestioni, Via Boito, 10, Milan, Italy 20121
Craig R. Oliver Prior to August 2000, Principal, Analyst,
Vice President State Street Global Advisors, Two International
Place, Boston, MA 02109
Nancy O'Brien Prior to September 1999, Manager Corporate
Assistant Vice President Disbursements, Fidelity Investments, 82 Devonshire
St., Boston, MA 02129
Teresa O'Day Prior to April 1999, Operations Manager, Compaq
Vice President Computer Corp., 334 South Street, Shrewsbury, MA
01545
Carolyn S. O'Reilly Prior to February 2000, Senior Auditor, Deloitte &
Vice President Touche, 1 Capital Place, P.O. Box 1787 GT, George
Town, Grand Cayman, Cayman Islands, B.W.I. and
prior to December 1998, Senior Auditor, Deloitte &
Touche, 222 Berkeley St., Boston, MA 02116
Dennis E. O'Rourke Prior to March 2000, Analyst, BankBoston N.A.,
Vice President 210 Berkeley St., Boston, MA 02116
Jeffrey F. Peters Prior to June 1999, Principal, McKinsey & Company,
Managing Director 75 Park Plaza, Boston, MA 02116
Keith Plapinger Chairman and Trustee, Advent School, 17
Vice President Brimmer St., Boston, MA 02108
Lisa M. Platia Prior to December 1999, Vice President, Windham
Assistant Vice President Capital Management, 5 Revere St., Cambridge MA 02138
Charles E. Porter Trustee, Anatolia College, 130 Bowdoin St., Suite
Executive Vice President 1201, Boston, MA 02108; Governor, Handel & Hayden
Society, Horticulture Hall, 300 Massachusetts Ave.,
Boston, MA 02115
Quintin R.S. Price Prior to December 1998, Corporate Development
Managing Director Director, The Boots Company PLC, Group Headquarters,
Nottingham NG2 3AA England
Ranjit Ranjamani Prior to June 2000, Director of Finance and
Vice President Business Planning, Xenergy, Inc., 3 Burlington
Woods, Burlington, MA 01803
Nadine McQueen-Reed Prior to March, 1999, Key Account Executive,
Assistant Vice President Fidelity Investments, 130 Tonbridge Road,
Hildenborough, Kent, England, TN11 9DZ
Jakub Rehor Prior to July 2000, Research Associate,
Assistant Vice President Sanford C. Bernstein, 767 Fifth Avenue, New York,
NY 10153
Thomas V. Reilly Trustee, Knox College, 2 East South St.,
Managing Director Galesburg, IL 61401
Brian C. Rose Prior to April 2000, Equity Analyst,
Assistant Vice President Loomis, Sayles & Co. Lp, 1 Financial Center,
Boston, MA 02111
Paul M. Rotell Prior to June 1999, Manager, Kraft Foods,
Assistant Vice President 800 Westchester Ave., Rye Brook, NY 10573
Jeff B. Sacknowitz Prior to November 1999, Investment Associate,
Vice President Independence Investment Associates, 53 State
St., Boston, MA 02109
Robert Salvin Prior to July 2000, Chief Financial Officer,
Senior Vice President Really Easy Internet Inc., 3925 W. Braker Lane,
Austin, TX 78759; Prior to January 2000,
Managing Director, BancBoston Robertson Stephens,
100 Federal St., Boston, MA 02110
Paul D. Scanlon Prior to October 1999, Senior Vice President,
Vice President Olympus Healthcare Group, 775 Trapelo Road,
Waltham, MA 02452
Calvin Schmid Prior to July 2000, Vice President Human
Senior Vice President Resources Leadership Development, J.P. Morgan,
60 Wall St., New York, NY 10005
Justin M. Scott Director, DSI Proprieties (Neja) Ltd., Epping Rd.,
Managing Director Reydon, Essex CM19 5RD
Robert Secor Prior to December 1999, Senior Consultant,
Assistant Vice President Fame Information Services, 148 State Street,
Boston, MA 02110
Anthony R. Sellitto, III Prior to September 2000, Senior Vice President,
Senior Vice President Berger Fund Associates, 210 University Blvd.,
Denver, CO 80206
Jean I. Sievert Prior to October 1998, Vice President, Salomon
Senior Vice President Smith Barney, Seven World Trade Center, New York,
NY 10048
Gordon H. Silver Trustee, Wang Center for the Performing Arts,
Managing Director 270 Tremont St., Boston, MA 02116
David M. Silk Member of Board of Directors, Jobs for Bay
Senior Vice President State Graduates, 451 Andover St., Suite 305,
North Andover, MA 01845
Luke Smith Prior to December 1999, Quantitative Systems
Assistant Vice President Analyst, Colonial Management, One Financial
Center, Boston, MA 02111
Eric H. Sorensen Prior to August 2000, Managing Director,
Managing Director Global Head of Quantitative Research, Salomon
Smith Barney, 7 World Trade Center, New York, NY
10048
Steven Spiegel Director, Ultra Diamond and Gold Outlet,
Senior Managing Director 29 East Madison St., Suite 1800, Chicago, IL
60602; Director, FACES New York University
Medical Center, 550 First Avenue, New York, NY
10016; Trustee, Babson College, One College
Drive, Wellesley, MA 02157
Raman Srivastava Prior to July 1999, Market Risk Analyst,
Assistant Vice President Bank of Nova Scotia, 20 King St., W., Toronto,
ON
Toshifumi Sugimoto Prior to October 1998, Portfolio Manager,
Senior Vice President Deputy General Manager, Nikko Securities
Investment Trust & Management, Fixed Income
Department, 4-3 Nihonbashi, Hakozakicho,
Chuou-ku, Tokyo, Japan, 103-0015
Brendan C. Sullivan Prior to February 2000, Revenue Manager, Boston
Assistant Vice President Financial Data Services, Inc., 2 Heritage Drive,
Quincy, MA 02171
William J. Sullivan Prior to June 1999, Executive Director, SBC
Senior Vice President Warburg Dillion Read, 677 Washington Blvd,
Stamford, CT, 06901
John C. Talanian Member of Board of Directors, the Japan
Managing Director Society of Boston, One Milk Street, Boston, MA
02109
Nicole J. Thorpe Prior to February 1999, President/Owner,
Assistant Vice President Thorpe Resources, P.O. Box 1895, Brockton, MA
02301
Stephen W. Vandermark Prior to March 2000, Vice President, Quantitative
Senior Vice President Analytics, Lehman Brothers, 3 World Financial
Center, New York, NY 10285
John Varenelli Prior to July 2000, Senior Vice President,
Vice President US Trust Bank, 40 Court Street, Boston, MA 02108
Susan Wall Prior to July 2000, Program manager, Liberty
Assistant Vice President Mutual Group, 25 Borthwick Ave., Portsmouth, NH
03801
Christopher C. Watt Prior to July 1999, Finance Manager, Procter &
Vice President Gamble, 1 Procter & Gamble Plaza, Cincinnati, OH
45202
James C. Wiess Prior to April 2000, Portfolio Manager,
Senior Vice President J.P. Morgan, 60 Wall St., New York, NY 10005
Eric Wetlaufer President and Member of Board of Directors,
Managing Director The Boston Security Analysts Society, Inc.,
100 Boylston St., Suite 1050, Boston, MA 02110
Edward F. Whalen Member of the Board of Directors, Hockomock Area
Senior Vice President YMCA, 300 Elmwood St., North Attleboro, MA 02760
Kelly A. Woolbert Prior to November 1999, Investment Analyst, MetLife
Vice President Investment Services, 99 High Street, Boston, MA
02110
Richard P. Wyke Director, Salem YMCA, One Sewall St., Salem,
Senior Vice President MA 01970
Frederick M. Wynn, Jr., Prior to June 2000, Senior Equity Analyst,
Vice President Berger Fund Associates, 210 University Blvd.,
Denver, CO 80206; Prior to March 1999,
Research Analyst, Eagle Asset Management, 880
Carillon Parkway, St. Petersberg, FL 33716
Alex Zinny Prior to June 2000, Proprietary Trader,
Assistant Vice President Leerink Swann, One Financial Center, Boston,
MA 02111; Prior to June 1999, Equity Delivery
Middle Officer, Banque Paribas, 781 7th Avenue,
New York, NY 10019
</TABLE>
Item 27. Principal Underwriter
(a) Putnam Mutual Funds Corp. is the principal underwriter for each of the
following investment companies, including the Registrant:
Putnam American Government Income Fund, Putnam Arizona Tax Exempt Income
Fund, Putnam Asia Pacific Growth Fund, Putnam Asset Allocation Funds,
Putnam Balanced Retirement Fund, Putnam California Tax Exempt Income Fund,
Putnam California Tax Exempt Money Market Fund, Putnam Capital Appreciation
Fund, Putnam Classic Equity Fund, Putnam Convertible Income-Growth Trust,
Putnam Diversified Income Trust, Putnam Equity Income Fund, Putnam Europe
Growth Fund, Putnam Florida Tax Exempt Income Fund, Putnam Funds Trust, The
George Putnam Fund of Boston, Putnam Global Equity Fund, Putnam Global
Governmental Income Trust, Putnam Global Growth Fund, Putnam Global Natural
Resources Fund, The Putnam Fund for Growth and Income, Putnam Health
Sciences Trust, Putnam High Yield Trust, Putnam High Yield Advantage Fund,
Putnam Income Fund, Putnam Intermediate U.S. Government Income Fund, Putnam
International Growth Fund, Putnam Investment Funds, Putnam Investors Fund,
Putnam Massachusetts Tax Exempt Income Fund, Putnam Michigan Tax Exempt
Income Fund, Putnam Minnesota Tax Exempt Income Fund, Putnam Money Market
Fund, Putnam Municipal Income Fund, Putnam New Jersey Tax Exempt Income
Fund, Putnam New Opportunities Fund, Putnam New York Tax Exempt Income
Fund, Putnam New York Tax Exempt Money Market Fund, Putnam New York Tax
Exempt Opportunities Fund, Putnam Ohio Tax Exempt Income Fund, Putnam OTC &
Emerging Growth Fund, Putnam Pennsylvania Tax Exempt Income Fund, Putnam
Preferred Income Fund, Putnam Strategic Income Fund, Putnam Tax Exempt
Income Fund, Putnam Tax Exempt Money Market Fund, Putnam Tax-Free Income
Trust, Putnam Tax Smart Funds Trust, Putnam U.S. Government Income Trust,
Putnam Utilities Growth and Income Fund, Putnam Variable Trust, Putnam
Vista Fund, Putnam Voyager Fund, Putnam Voyager Fund II.
(b) The directors and officers of the Registrant's principal underwriter
are listed below. None of the officers are officers of the Registrant
except:
Name Position and Offices with Registrant
Richard Monaghan Vice President
Gordon Silver Vice President
The principal business address of each person is One Post Office Square,
Boston, MA 02109:
Position and
Name Offices with Underwriter
-----------------------------------------------------------------------------
Allouise,Donna A. Asst. Vice President
Alpaugh,Christopher S. Senior Vice President
Altomare,Mario P. Vice President
Asher,Steven E. Senior Vice President
Avery,Scott A. Senior Vice President
Aymond,Christian E. Senior Vice President
Aymond,Colin C. Vice President
Babcock III,Warren W. Senior Vice President
Ball,Colleen H. Asst. Vice President
Baltimore,Mark H.W. Vice President
Barlow,Jane Asst. Vice President
Barnett,William E. Asst. Vice President
Barrett,Thomas Vice President
Battit,Suzanne J Senior Vice President
Beatty,Steven M. Senior Vice President
Beringer,Thomas C. Vice President
Bettencourt,Jennifer L. Asst. Vice President
Boester,Eric C. Vice President
Boneparth,John F. Managing Director
Boon,David B. Senior Vice President
Bouchard,Keith R. Senior Vice President
Bradford Jr.,Linwood E. Managing Director
Bresnahan,Leslee R. Managing Director
Brockelman,James D. Senior Vice President
Brookman,Joel S. Vice President
Brown,Timothy K. Senior Vice President
Buckner,Gail D. Senior Vice President
Bunker,Christopher M. Vice President
Burrill,Gregory J. Vice President
Cabana,Susan D. Senior Vice President
Cartwright,Patricia A. Asst. Vice President
Casey,David M. Vice President
Castle Jr.,James R. Senior Vice President
Chapman,Frederick Vice President
Chrostowski,Louis F. Senior Vice President
Church,Daniel J. Vice President
Clark,Richard B. Senior Vice President
Clermont,Mary Vice President
Collette,A. Joseph Asst. Vice President
Collman,Kathleen M. Sr Managing Director
Commane,Karen L. Asst. Vice President
Coneeny,Mark L. Managing Director
Connelly,Donald A. Senior Vice President
Connolly,William T. Managing Director
Corbett,Dennis Vice President
Corvinus,F. Nicholas Senior Vice President
Cote,Marie C. Asst. Vice President
Cotto,Stephen P Asst. Vice President
Cotton,Rick Vice President
Crane III,George H. Senior Vice President
Cristo,Chad H. Senior Vice President
Critchell Jr.,D.Alan Vice President
Curran,Peter J. Senior Vice President
Dahill,Jessica E. Vice President
Daly,Kenneth L. Managing Director
Daylor,Donna M. Vice President
DeConto,Lisa B Senior Vice President
DeFao,Michael E. Asst. Vice President
Deluse,Laura R. Asst. Vice President
DiRe,Lisa M. Asst. Vice President
Diaz,Roger Vice President
Divney,Kevin M. Senior Vice President
Donaldson,Scott M. Senior Vice President
Durbin,Emily J. Vice President
Durkee,Christine Vice President
Edlin,David B. Managing Director
Eidelberg,Kathleen E. Asst. Vice President
Elder,Michael D. Senior Vice President
Emhof,Joseph R. Vice President
English,James M. Senior Vice President
Esposito,Vincent Managing Director
Esteves,Irene M. Sr Managing Director
Favaloro,Beth A. Vice President
Fishman,Mitchell B. Senior Vice President
Flaherty,Patricia C. Senior Vice President
Fleisher,Kate Vice President
Fleming,Ellen E. Asst. Vice President
Foley,Timothy P. Vice President
Foran,Carey L. Vice President
Franjul,Sayuri J. Asst. Vice President
Gernon,John H. Senior Vice President
Gibbs,Stephen C. Vice President
Goodfellow,Mark D. Vice President
Goodman,Robert Managing Director
Grace,Linda K. Vice President
Grant,Mitchell T. Managing Director
Graviere,Patrice Senior Vice President
Grey,Eric M. Vice President
Grillo,Tracy E. Asst. Vice President
Guerin,Donnalee Vice President
Hachey,Andrew J Asst. Vice President
Hadley,Christopher Asst. Vice President
Halloran,James E. Vice President
Halloran,Thomas W. Senior Vice President
Harring,Linda Senior Vice President
Harrington,Shannon W. Vice President
Hartig,Robert Vice President
Hasunuma,Sakiko Vice President
Hayes-Castro,Deanna R. Vice President
Heller,Kim G. Asst. Vice President
Hoey,Thomas J. Senior Vice President
Holland,Julie E. Asst. Vice President
Holmes,Maureen A. Vice President
Hotchkiss,Michael F. Senior Vice President
Howes,Douglas E. Vice President
Hutcherson,Eric A. Vice President
Hutchins,Robert B. Vice President
Inoue,Hitoshi Vice President
Itai,Takeshi Senior Vice President
Jackman,Sean R. Asst. Vice President
Jacobsen,Dwight D. Managing Director
Jones,Thomas A. Senior Vice President
Kaminsky,Gregory C. Vice President
Kanwal,Amrit Managing Director
Kapinos,Peter J. Vice President
Keith,Pamela J. Asst. Vice President
Keleher,Kevin J. Vice President
Kelley,Brian J. Senior Vice President
Kelly,David Senior Vice President
Kennedy,Alicia C. Vice President
Kinsman,Anne Senior Vice President
Kircher,Richard T. Asst. Vice President
Kirk,Deborah H. Senior Vice President
Koontz,Jill A. Senior Vice President
Kringdon,Joseph D. Senior Vice President
LaPierre,Christopher W Asst. Vice President
Landers,Bruce M. Vice President
Lane,Linda L. Asst. Vice President
Lathrop,James D. Senior Vice President
Lawlor,Stephanie T. Vice President
Leary,Joan M. Vice President
Leipsitz,Margaret Vice President
Lemire,Kevin Senior Vice President
Levy,Eric S. Senior Vice President
Levy,Norman S. Vice President
Lewandowski,Edward V. Senior Vice President
Li,Mei Asst. Vice President
Lieberman,Samuel L. Senior Vice President
Lilien,David R. Vice President
Linquata,Louis K. Asst. Vice President
Loew,Christopher R. Asst. Vice President
Lord,Caroline F. Asst. Vice President
Lucey,Robert F. Director
Lucey,Thomas J. Director
MacDonald,Richard A. Senior Vice President
Maloof,Renee L. Asst. Vice President
Mancini,Jane M. Managing Director
Mann,Ellen M. Asst. Vice President
Martens,Erwin W. Managing Director
Martino,Michael Managing Director
Mata,Michael A. Senior Vice President
McAvoy,Bridget Vice President
McCarthy,Anne B. Asst. Vice President
McConville,Paul D. Senior Vice President
McCracken,Brian Vice President
McCutcheon,Bruce A Senior Vice President
McDermott,Robert J. Vice President
McNamee,Mary G. Vice President
Meagher,Dorothy B. Vice President
Michejda,Marek A. Vice President
Miller,Gregory T. Vice President
Miller,Jeffrey M. Managing Director
Mills,Stacy M. Vice President
Minsk,Judith Vice President
Monaghan,Richard A. Director
Monahan,Kimberly A. Vice President
Moody,Paul R. Senior Vice President
Moret,Mitchell L. Senior Vice President
Morey,John P. Senior Vice President
Mosher,Barry L. Vice President
Moynihan,Kathleen M. Asst. Vice President
Mullen,Donald E. Senior Vice President
Mullen,Patricia M. Asst. Vice President
Munson,Brian D. Vice President
Murphy Jr.,Kenneth W. Vice President
Murray,Brendan R. Senior Vice President
Nadherny,Robert Senior Vice President
Nagashima,Toshio Managing Director
Nash,Jonathan M. Vice President
Natale,Lisa A. Asst. Vice President
Neary,Ellen R. Vice President
Newell,Amy Jane Vice President
Nickodemus,John P. Senior Vice President
Nicolazzo,Jon C. Vice President
Nisbet,M. Julia Asst. Vice President
O'Brien,Lois C. Senior Vice President
O'Brien,Nancy M. Asst. Vice President
O'Brien,Wendy R. Asst. Vice President
O'Connell,Gayle M. Vice President
O'Connor,Brian P. Vice President
O'Connor,Matthew P. Vice President
O'Day,Teresa S. Vice President
O'Reilly,Carolyn S. Vice President
Orr,Kevin Vice President
Palmer,Patrick J. Vice President
Pampliega,Carlos Senior Vice President
Panek,Raymond S. Asst. Vice President
Parker,Michael T. Asst. Vice President
Parr,Cynthia O. Senior Vice President
Perkins,Erin M. Asst. Vice President
Peters,Jeffrey F. Managing Director
Petitti,Joseph P. Vice President
Petralia,Randolph S. Senior Vice President
Phoenix,John G. Senior Vice President
Phoenix,Joseph Managing Director
Pickard,Gregory L. Asst. Vice President
Plapinger,Keith Senior Vice President
Puddle,David G. Senior Vice President
Pulkrabek,Scott M. Vice President
Putnam,George Director
Quinn,Patrick J. Asst. Vice President
Reed,Frank C. Vice President
Reed,Nadine McQueen Asst. Vice President
Rodts,Jennifer M. Asst. Vice President
Rogers,Deborah A. Vice President
Rotell,Paul M. Asst. Vice President
Rowe,Robert B. Vice President
Rusko,Steven N. Asst. Vice President
Ryan,William M. Vice President
Saccocia,Cynthia M Asst. Vice President
Saunders,Catherine A. Senior Vice President
Sawyer,Matthew A. Vice President
Scales,Matthew B. Asst. Vice President
Scanlon,Michael M. Senior Vice President
Schepp-Dries,Peter Senior Vice President
Schlosberg,Alan R. Asst. Vice President
Schmid,Calvin E. Senior Vice President
Schofield,Shannon D. Senior Vice President
Schultz,Mitchell D. Managing Director
Schwister,Sara M. Asst. Vice President
Scordato,Christine A. Senior Vice President
Selden,Denise D. Senior Vice President
Shamburg,John B. Vice President
Shanahan,Christopher W. Vice President
Shelby,Robert Vice President
Short,Jonathan D. Senior Vice President
Siebold,Mark J. Asst. Vice President
Siemon Jr.,Frank E. Asst. Vice President
Silva,J. Paul Vice President
Silver,Gordon H. Sr Managing Director
Skistimas Jr,John J. Vice President
Solan,Meenakshi S. Asst. Vice President
Soule,Scott W. Asst. Vice President
Spiegel,Steven Sr Managing Director
Sprague,David L. Vice President
Starishevsky,Daniel Vice President
Starr,Loren M. Managing Director
Statuta,Jason M. Vice President
Stickney,Paul R. Senior Vice President
Sugimoto,Toshifumi Senior Vice President
Sullivan,Brendan C. Asst. Vice President
Sullivan,Brian L. Senior Vice President
Sullivan,Deborah H. Asst. Vice President
Sullivan,Elaine M. Senior Vice President
Sullivan,Maryann Asst. Vice President
Suzuki,Toshimi Senior Vice President
Sweeney,Janet C. Senior Vice President
Talanian,John C. Managing Director
Tanaka,Toshiaki Vice President
Tavares,April M. Vice President
Telling,John R. Senior Vice President
Tibbetts,Richard B. Managing Director
Troped Blacker,Bonnie Senior Vice President
Upham,Scott E. Vice President
Veale,David B. Vice President
Velazquez,Joel Asst. Vice President
Vierra,Scott G. Vice President
Walsh,Stephen M. Vice President
Warde,Elizabeth A. Asst. Vice President
Washburn,Andrew O. Senior Vice President
Waters,Mitchell J. Vice President
Watt,Christopher C. Vice President
Welch III,William A. Asst. Vice President
Whalen,Brian Vice President
Whalen,Edward F. Senior Vice President
Whitaker,J. Greg Senior Vice President
White,Patrick J. Asst. Vice President
Woodlock,Ronald J. Vice President
Woolverton,William H. Managing Director
Wright Jr.,Edmund F. Vice President
Yan,Yanfang Vice President
Young,Jason P. Vice President
Zografos,Laura J. Senior Vice President
Zukowski,Virginia A. Senior Vice President
deMont,Lisa M. Senior Vice President
Item 28. Location of Accounts and Records
Persons maintaining physical possession of accounts, books and other
documents required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the Rules promulgated thereunder are
Registrant's Associate Clerk, Judith Cohen; Registrant's investment
adviser, Putnam Investment Management, Inc.; Registrant's principal
underwriter, Putnam Retail Management, Inc.; Registrant's custodian,
Putnam Fiduciary Trust Company ("PFTC"); and Registrant's transfer and
dividend disbursing agent, Putnam Investor Services, a division of PFTC.
The address of the Associate Clerk, investment adviser, principal
underwriter, custodian and transfer and dividend disbursing agent is One
Post Office Square, Boston, Massachusetts 02109.
Item 29. Management Services
None.
Item 30. Undertakings
None.
NOTICE
A copy of the Agreement and Declaration of Trust of Putnam Investment
Funds is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this instrument is
executed on behalf of the Registrant by an officer of the Registrant as
an officer and not individually and the obligations of or arising out of
this instrument are not binding upon any of the Trustees, officers or
shareholders individually but are binding only upon the assets and
property of the relevant series of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the funds certify that they meet all
of the requirements for effectiveness of this Registration Statement
under Rule 485(b) under the Securities Act of 1933 and have duly
caused this Amendment to their Registration Statement to be signed on
its behalf by the undersigned, duly authorized, in the City of Boston,
and The Commonwealth of Massachusetts, on the 27th day of December,
2000.
Putnam Investment Funds
By:/s/Gordon H. Silver, Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement of Putnam Investment Funds has
been signed below by the following persons in the capacities and on the
dates indicated:
Signature Title
John A. Hill Chairman of the Board; Trustee
George Putnam, III President; Principal Executive Officer; Trustee
John D. Hughes Senior Vice President; Treasurer; Principal
Financial Officer
Paul G. Bucuvalas Assistant Treasurer; Principal Accounting Officer
Jameson A. Baxter Trustee
Hans H. Estin Trustee
Ronald J. Jackson Trustee
Paul L. Joskow Trustee
Elizabeth T. Kennan Trustee
Lawrence J. Lasser Trustee
John H. Mullin, III Trustee
Robert E. Patterson Trustee
A.J.C. Smith Trustee
W. Thomas Stephens Trustee
W. Nicholas Thorndike Trustee
By:/s/Gordon H. Silver,
as Attorney-in-Fact
December 27, 2000
Exhibit List
1. Consent of Independent Accountants - KPMG
2. Consent of Independent Accountants - PWC
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this
Post-Effective Amendment No. 38 to the registration statement on Form
N-1A (File No. 33-56339) ("Registration Statement") of our reports dated
October 10, 2000 and October 11, 2000, relating to the financial
statements and financial highlights appearing in the August 31, 2000
Annual Reports of Putnam International Voyager Fund and Putnam New Value
Fund, respectively, each a series of Putnam Investment Funds, which are
also incorporated by reference in to the Registration Statement. Also,
we hereby consent to the incorporation by reference in this
Post-Effective Amendment No. 38 to the registration statement on Form
N-1A (File No. 33-56339) ("Registration Statement") of our reports dated
October 8, 1999 and October 11, 1999 relating to the financial
statements and financial highlights appearing in the August 31, 1999
Annual Reports of Putnam International Fund and Putnam Emerging
Markets Fund, respectively, each a series of Putnam Investment Funds,
which are also incorporated by reference in to the Registration
Statement. We also consent to the references to us under the headings
"Financial highlights" and "Independent Accountants and Financial
Statements" in such Registration Statement.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 26, 2000
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Trustee and Shareholders
The Putnam Emerging Markets Fund and Putnam International Fund:
We consent to the use of our reports dated October 6, 2000 and October
5, 2000, respectively incorporated in this Registration Statement by
reference, to the Putnam Emerging Markets Fund and Putnam International
Fund and to the references to our firm under the captions "Financial
Highlights" in the prospectuses and "Independent Accountants and
Financial Statements" in the Statements of Additional Information.
KPMG LLP
Boston, Massachusetts
December 26, 2000
