PUTNAM CONVERTIBLE OPPORTUNITIES & INCOME TRUST, N-2/A, 1995-06-26

PUTNAM CONVERTIBLE OPPORTUNITIES & INCOME TRUST
N-2/A, 1995-06-26

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As Filed with the Securities and Exchange Commission on June 26, 1995
Securities Act File No. 33-57901
Investment Company Act File No. 811-07253

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 3 [X]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 3 [X]
(Check appropriate box or boxes.)

PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST
(Exact name of registrant as specified in charter)

One Post Office Square, Boston, Massachusetts 02109
(Address of Principal Executive Offices) (Zip Code)
(617) 292-1000
(Registrant's Telephone Number, including Area Code)

JOHN R. VERANI
Putnam Convertible Opportunities and Income Trust
One Post Office Square
Boston, Massachusetts 02109
(Name and Address of Agent for Service)

Copies to:

<TABLE>
<CAPTION>
<S> <C> <C>
Thomas A. Hale, Esq. Louis A. Goodman, Esq. John W. Gerstmayr, Esq.
SKADDEN, ARPS, SLATE, MEAGHER
& FLOM SKADDEN, ARPS, SLATE, MEAGHER & FLOM ROPES & GRAY
333 West Wacker Drive One Beacon St. One International Place
Chicago, Illinois 60606 Boston, Massachusetts 02108 Boston, Massachusetts 02110-2624
</TABLE>

Approximate Date of Proposed Public Offering: As soon as practicable after
this Registration Statement becomes effective.

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

<TABLE>

Proposed Proposed
Maximum Maximum
Title of Securities Amount Being Offering Price Aggregate Amount of
Being Registered Registered((1)) Per Unit Offering Price((1)) Registration Fee((2))
<S> <C> <C> <C>
Shares of Beneficial Interest 4,255,000 $25.00 $106,375,000 $12,889
</TABLE>

((1)) Includes 555,000 Shares which may be offered by the Underwriters
pursuant to an option to cover over-allotments.
((2)) Does not include $23,793 previously paid.

<PAGE>
Putnam Convertible Opportunities and Income Trust

Cross Reference Sheet Pursuant to Rule 404(c)
Under the Securities Act of 1933

PARTS A and B of PROSPECTUS*

<TABLE>
<CAPTION>
Item
No. Registration Statement Caption Caption in Prospectus
<S> <C> <C>
1. Outside Front Cover Outside Front Cover
2. Inside Front and Outside Back Cover Page Inside Front and Outside Back Cover Page
3. Fee Table and Synopsis Expenses Summary; Prospectus Summary
4. Financial Highlights Not Applicable
5. Plan of Distribution Cover Page; Outside Front Cover;
Prospectus Summary; Underwriting
6. Selling Shareholders Not Applicable
7. Use of Proceeds Outside Front Cover; Inside Front Cover;
Prospectus Summary; Use of Proceeds;
Investment Objectives and Policies
8. General Description of Registrant Outside Front Cover; Inside Front Cover;
Prospectus Summary; The Fund; Investment
Objectives and Policies; Other Investment
Practices; Special Considerations and Risk
Factors; Investment Restrictions;
Taxation; Portfolio Transactions;
Description of Shares; Determination of
Net Asset Value; Appendix B; Appendix C
9. Management Inside Front Cover; Prospectus Summary;
Investment Manager and Administrator;
Trustees and Officers; Investment
Management Contract; Administrative
Services Contract; Portfolio Transactions;
Custodian, Transfer Agent, Dividend
Disbursing Agent, and Registrar; Statement
of Assets and Liabilities
10. Capital Stock, Long-Term Debt, and Other
Securities Prospectus Summary; Dividends and
Distributions; Dividend Reinvestment Plan;
Description of Shares; Taxation;
Repurchase of Shares; Conversion to Open-
end Status
11. Defaults and Arrears on Senior Securities Not Applicable
12. Legal Proceedings Not Applicable
13. Table of Contents of Statement of Not Applicable
Additional Information
14. Cover Page Not Applicable
15. Table of Contents Not Applicable
16. General Information and History Not Applicable
17. Investment Objective and Policies Outside Front Cover; Inside Front Cover;
Prospectus Summary; Investment Objectives
and Policies; Other Investment Practices;
Special Considerations and Risk Factors;
Investment Restrictions; Appendix B;
Appendix C
18. Management Trustees and Officers
19. Control Persons and Principal Holders of
Securities Description of Shares; Statement of Assets
and Liabilities
20. Investment Advisory and Other Services Prospectus Summary; Investment Manager and
Administrator; Trustees and Officers;
Investment Management Contract;
Administrative Services Contract;
Portfolio Transactions; Statement of
Assets and Liabilities
21. Brokerage Allocation and Other Practices. Portfolio Transactions
22. Tax Status Dividends and Distributions; Dividend
Reinvestment Plan; Taxation
23. Financial Statements Experts; Report of Independent
Accountants; Statement of Assets and
Liabilities
</TABLE>

*Pursuant to General Instruction H of Form N-2, all information required to be
set forth in Part B: Statement of Information has been included in Part A:
The Prospectus.

<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

SUBJECT TO COMPLETION, DATED JUNE 26, 1995
PROSPECTUS 3,700,000 Shares
Putnam Convertible Opportunities and Income Trust
Beneficial Interest

Putnam Convertible Opportunities and Income Trust (the "Fund") seeks
capital appreciation and current income. Under normal market conditions, the
Fund will invest substantially all of its assets in a diversified portfolio
of convertible securities ("Convertible Securities") and nonconvertible,
HIGHER RISK, HIGH YIELD income securities ("Nonconvertible High Yield
Securities").The portion of the Fund's assets invested in Convertible
Securities and in Nonconvertible High Yield Securities will vary from time to
time in light of the Fund's investment objectives, changes in common stock
prices and changes in interest rates and other economic and market factors,
although the Fund will normally invest at least 25%, but no more than 75%, of
its total assets in Convertible Securities and at least 25%, but no more than
75%, of its total assets in Nonconvertible High
(Continued on page 2)

All or substantially all of the Fund's assets may be invested in
securities rated below investment grade and in nonrated securities of
comparable quality. Investments of this type are subject to greater risk of
loss of principal and nonpayment of interest than higher-rated investments
and are predominantly speculative. Due to the risks inherent in investing in
lower-grade securities and securities of small capitalization issuers, an
investment in the Fund should be considered speculative. See "Special
Considerations and Risk Factors."

Prior to this offering there has been no market for the Fund's Shares.
Shares of closed-end investment companies have in the past frequently traded
at a discount from their net asset values. The risks of loss associated with
this characteristic of closed-end investment companies may be greater for
investors expecting to sell the shares soon after the completion of an
initial public offering of the company's shares. See "Special Considerations
and Risk Factors." This Prospectus sets forth in concise form information
about the Fund that a prospective investor should know before investing in
the Fund. Investors are advised to read this Prospectus carefully and to
retain it for future reference. Additional information about the Fund has
been filed with the Securities and Exchange Commission and is available
without charge upon written or oral request.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
Price to Public Sales Load (1) (2) Proceeds to Fund (3)
<S> <C> <C> <C>
Per Share $ 25.00 $0.00 $25.00
Total (4) $92,500,000.00 $0.00 $
</TABLE>

(Footnotes on following page)

The Shares being offered by the several Underwriters named herein are subject
to prior sale, when, as and if accepted by them and subject to certain
conditions. It is expected that certificates for the Shares offered hereby
will be available for delivery on or about June 29, 1995, at the office of
Smith Barney Inc., 388 Greenwich Street, New York, New York 10013.

Smith Barney Inc.
Dain Bosworth
Incorporated
Gruntal & Co., Incorporated
Raymond James & Associates, Inc.
A. G. Edwards & Sons, Inc.
Fahnestock & Co. Inc.
Kemper Securities, Inc.
The Robinson-Humphrey Company, Inc.
Advest, Inc.
First of Michigan Corporation
Legg Mason Wood Walker
Incorporated
Sutro & Co. Incorporated

The date of this Prospectus is June 26, 1995.

<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
SHARES OF THE FUND AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

(Continued from previous page)

Yield Securities. Based upon current market conditions, it is expected that
initially the Fund's assets will be invested approximately equally in each
asset category. Actual initial allocations will depend upon market conditions
at the time of commencement of the Fund's operations.

The Fund is designed for investors willing to assume additional risks in
return for the potential for capital appreciation and current income.
Purchasers should carefully assess the risks associated with an investment in
the Fund.The Fund is not intended to be a complete investment program, and
there is no assurance it will achieve its objectives.

The Fund is a newly organized, closed-end, diversified management
investment company managed by Putnam Investment Management, Inc. The Fund's
address is One Post Office Square, Boston, Massachusetts 02109, and its
telephone number is (617) 292-1000. The Fund's Shares have been approved for
listing on the New York Stock Exchange under the symbol "PCV." The minimum
investment in this offering is 100 Shares ($2,500).

(Footnotes from previous page)

(1) The Fund and Putnam have agreed to indemnify the Underwriters against
certain liabilities, including certain liabilities under the Securities Act
of 1933. See "Underwriting."
(2) Putnam or an affiliate will pay the Underwriters a commission in the
gross amount of 6% of the initial public offering price per Share in
connection with sales of Shares in this offering. See "Underwriting."

(3) Before deduction of organization and offering expenses payable by the
Fund, estimated to be $36,134 and $757,682, respectively.
Organizational expenses will be amortized over a period not to exceed
60 months from the date the Fund commences investment operations.
Offering expenses, which include up to $150,000 to be paid to the
Underwriters in partial reimbursement of their expenses, will be
deducted from net proceeds upon completion of this offering. See "Use
of Proceeds" and "Statement of Assets and Liabilities."

(4) The Fund has granted the several Underwriters an option, exercisable
within 60 days from the date of this Prospectus, to purchase up to an
aggregate of 555,000 additional Shares solely to cover
over-allotments, if any, on the same terms and conditions as set forth
above. If such option is exercised in full, the total Price to Public
will be $106,375,000, the total Sales Load will be $0.00 and the total
Proceeds to Fund will be $106,375,000. See "Underwriting."

<PAGE>
EXPENSES SUMMARY

Expenses are one of several factors to consider when investing in the
Fund. The following table summarizes an investor's transaction costs from
investing in the Fund and expenses which the Fund expects to incur in its
first fiscal year. The Example shows the estimated cumulative expenses
attributable to a hypothetical $1,000 investment in the Fund over specified
periods.
<TABLE>
<CAPTION>
<S> <C> <C>
Shareholder Transaction Expenses
Sales Load
(as a percentage of offering price) NONE(a)
Dividend Reinvestment Plan Fees NONE
Annual Expenses (as a percentage of net assets)
Management Fees(b) 1.10%
Other Expenses .66%
Administrative Service Fees(b) .25%
Other Operating Expenses .41%
Total Annual Expenses 1.76%
</TABLE>

(a) Putnam or an affiliate will pay the Underwriters a commission in the
gross amount of 6% of the initial public offering price per Share in
connection with sales of Shares in this offering. See "Underwriting."

(b) The combined investment management and administrative service fees
payable to Putnam are greater than those paid by most other investment
companies. See "Investment Management Contract" and "Administrative Services
Contract" for additional information.

Example
The following Example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect
to a hypothetical investment in the Fund. These amounts are based upon
payment by the Fund of operating expenses at the levels set forth in the
table above.

An investment of $1,000 would result in the following expenses, assuming
(1) a 5% annual return and (2) reinvestment of all distributions at net asset
value:

1 year 3 years 5 years 10 years
$18 $55 $95 $207

The foregoing table is provided to help an investor understand the costs
and expenses that an investor in the Fund will bear directly or indirectly.
"Other Expenses" shown in the table are based on estimated amounts for the
Fund's first fiscal year. The Example is based on estimated operating
expenses for the Fund's first fiscal year and assumes reinvestment of all
distributions at net asset value. Federal regulations require the Example to
assume a 5% annual return. The Example and the information set forth in the
table above should not be considered a representation of the future expenses
or annual rate of return of the Fund. Actual expenses and annual rate of
return may be more or less than those allowed for purposes of the Example. In
addition, while the Example assumes reinvestment of all distributions at net
asset value, participants in the Fund's Dividend Reinvestment Plan will under
certain circumstances receive Shares purchased by the Plan Agent at a price
which may be above or below net asset value. See "Dividend Reinvestment
Plan."

<PAGE>
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information in this Prospectus assumes that the Underwriters'
over-allotment option will not be exercised. Investors should carefully
consider the information set forth under the heading "Special Considerations
and Risk Factors."

The Fund Putnam Convertible Opportunities and Income Trust
(the "Fund") is a newly organized, closed-end,
diversified management investment company. The Fund
has no operating history. See "The Fund." The Fund is
managed by Putnam Investment Management, Inc.
("Putnam").

The Offering The Fund is offering 3,700,000 shares of beneficial
interest (the "Shares") through a group of
underwriters (the "Underwriters") led by Smith Barney
Inc., A. G. Edwards & Sons, Inc., Advest, Inc., Dain
Bosworth Incorporated, Fahnestock & Co. Inc., First
of Michigan Corporation, Gruntal & Co., Incorporated,
Kemper Securities, Inc., Legg Mason Wood Walker,
Incorporated, Raymond James & Associates, Inc., The
Robinson-Humphrey Company, Inc. and Sutro & Co.
Incorporated. The Underwriters have been granted an
option to purchase up to 555,000 additional Shares
solely to cover over-allotments, if any. The offering
may be terminated by the Underwriters upon the
occurrence of certain conditions. The initial public
offering price is $25.00 per Share. The minimum
investment in this offering is 100 Shares ($2,500).
See "Underwriting."

No Sales Charges The Shares will be sold during the initial public
offering without any sales charges or underwriting
discounts. Putnam or an affiliate will pay the
Underwriters from its own assets a commission in
connection with the sale of the Shares in this
offering. See "Underwriting."

Investment Objectives The Fund's investment objectives are capital
and Policies appreciation and current income. Under normal market
conditions, the Fund will invest substantially all of
its assets (and, in any event, normally at least 80%
of its total assets) in a diversified portfolio of
convertible securities ("Convertible Securities") and
nonconvertible, higher risk, high yield income
securities ("Nonconvertible High Yield Securities").
The Fund expects that all or a substantial portion of
its assets will be invested in lower-grade
Convertible Securities and Nonconvertible High Yield
Securities rated at the time of purchase Ba, B or Caa
by Moody's Investors Service, Inc. ("Moody's") or BB,
B or CCC by Standard & Poor's ("Standard & Poor's")
or in nonrated Convertible Securities and

<PAGE>
Nonconvertible High Yield Securities of comparable
quality as determined by Putnam. Based upon current
market conditions, Putnam expects that Convertible
Securities with conversion values that exceed their
investment values will initially represent a
significant portion of the Fund's investments in
Convertible Securities. Such Convertible Securities
offer greater potential for capital appreciation in
the event of an increase in the price of the
underlying security than do Convertible Securities
with conversion values that are less than their
investment values, but also entail greater risk of
capital loss in the event of a decline in the price
of the underlying security.

The portion of the Fund's assets invested in
Convertible Securities and in Nonconvertible High
Yield Securities will vary from time to time in light
of the Fund's investment objectives, changes in
common stock prices and changes in interest rates and
other economic and market factors, although under
normal market conditions the Fund will invest at
least 25%, but no more than 75%, of its total assets
in Convertible Securities and at least 25%, but no
more than 75%, of its total assets in Nonconvertible
High Yield Securities. Based upon current market
conditions, Putnam expects that initially the Fund's
assets will be invested approximately equally in each
asset category and that Convertible Securities of
small capitalization companies (generally defined as
companies with equity market capitalizations of less
than $1 billion) will initially represent a
significant portion of the Fund's investments in
Convertible Securities. Actual initial allocations
will depend upon market conditions at the time of
commencement of the Fund's investment operations. The
Fund may also invest a portion of its assets in cash
and money market instruments and in common stocks and
other securities with equity features.

The Fund may implement various temporary "defensive"
strategies at times when Putnam determines that
pursuing the Fund's basic investment strategy is not
in the best interests of its shareholders. In
implementing these strategies, the Fund may invest
all or any portion of its assets in investment-grade
nonconvertible debt securities, including U.S.
Government securities, or in any other securities
which Putnam believes are consistent with such
defensive strategies.

Investments by the Fund in lower-grade securities are
subject to greater risk of loss of principal and
nonpayment of interest than higher-rated investments
and are predominantly speculative. Due to the risks
inherent in investing in lower-grade securities and
securities of small capitalization issuers, an
investment in the Fund should be considered
speculative. The Fund is designed

<PAGE>
for investors willing to assume additional risks in
return for the potential for capital appreciation and
current income. The Fund is not intended to be a
complete investment program, and there is no
assurance that the Fund will achieve its investment
objectives. Investors should carefully assess the
risks associated with an investment in the Fund.

See "Investment Objectives and Policies," "Other
Investment Practices," "Special Considerations and
Risk Factors," "Appendix A - Fixed Income Security
Ratings," "Appendix B - Options and Futures Portfolio
Strategies" and "Appendix C - Foreign Currency
Transactions."

Convertible Securities Convertible Securities include bonds, debentures,
notes, preferred stocks and other securities that may
be converted into or exchanged for, at a specified
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. Convertible
Securities also provide the potential to participate
in a portion of the capital appreciation of the
underlying equity security if the market price of
such security increases.

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 on such factors as the general level of
interest rates, the yield of similar nonconvertible
fixed income 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.

<PAGE>
value of the Convertible Security will be more
heavily influenced by fluctuations in the market
price of the underlying security. Based upon current
market conditions, Putnam expects that Convertible
Securities with conversion values that exceed their
investment values will initially represent a
significant portion of the Fund's investments in
Convertible Securities. Such Convertible Securities
offer greater potential for capital appreciation in
the event of an increase in the price of the
underlying security than do Convertible Securities
with conversion values that are less than their
investment values, but also entail greater volatility
and risk of capital loss in the event of a decline in
the price of the underlying security.

See "Investment Objectives and Policies" and "Special
Considerations and Risk Factors."

Nonconvertible High Nonconvertible High Yield Securities include bonds,
Yield Securities debentures, notes and preferred stocks and will
generally be unsecured. Investments by the Fund in
Nonconvertible High Yield Securities entail certain
special risks. See "Investment Objectives and
Policies" and "Special Considerations and Risk
Factors."

Investment Putnam believes that a diversified portfolio of
Considerations Convertible Securities and Nonconvertible High Yield
Securities offers investors attractive opportunities
for capital appreciation and current income. In
Putnam's view, Convertible Securities, under current
market conditions, are attractively valued. See
Appendix D for certain statistical information which
Putnam believes supports this view. Convertible
Securities offer a portion of the capital
appreciation potential of the underlying common
stocks while providing some protection from declines
in stock prices and potentially lower volatility than
common stocks of comparable issuers. This protection
comes from the relatively higher income typically
available from Convertible Securities as compared
with the underlying common stocks and the relatively
senior position of Convertible Securities in the
capital structure of a company compared to common
stocks, although Convertible Securities are typically
subordinated to nonconvertible fixed income
securities of the same issuer. Based upon current
market conditions, Putnam believes that Convertible
Securities of small capitalization issuers may offer,
in general, greater opportunities for capital
appreciation than those of larger capitalization
issuers. This view is based in part on Putnam's
belief that the market for Convertible Securities of
small capitalization

<PAGE>
issuers is relatively inefficient, requiring detailed
investment analysis but, in Putnam's view, currently
offering opportunities for potentially greater
capital appreciation over the longer term. The
potentially greater long-term capital appreciation
opportunities offered by common stocks and
Convertible Securities of small capitalization
issuers are generally accompanied by higher risks. In
Putnam's view, Convertible Securities provide an
attractive means of investing in this sector of the
equity market with the opportunity for a portion of
the capital appreciation potential of an investment
in common stock, with potentially less volatility
over the longer term. Putnam believes that
Nonconvertible High Yield Securities provide
attractive income potential and the potential for
lower volatility over the longer term compared to
common stocks, although they generally have less
potential for capital appreciation. Nonconvertible
High Yield Securities are also subject to greater
risks, including greater volatility, than
higher-rated securities of comparable maturity.

The foregoing views as to the securities in which the
Fund will invest and market and economic conditions
are those of Putnam. There can be no assurance that
Putnam's analysis is or will be correct or that
market conditions will not be different from those
discussed in this section. See "Investment Objectives
and Policies - Investment Considerations" and
"Appendix D - Performance Data and Other Statistical
Information." For a discussion of the risk associated
with investing in the Fund, see "Special
Considerations and Risk Factors."

Investment Manager Putnam will serve as the investment manager and
and Administrator administrator to the Fund. Putnam has been a manager
of mutual funds since 1937, and serves as the
investment manager for the funds in the Putnam
family, with approximately $74 billion in assets in
over three million shareholder accounts as of April
30, 1995, including $5 billion in assets in
closed-end funds. An affiliate, The Putnam Advisory
Company, Inc., manages domestic and foreign
institutional accounts and foreign mutual funds.
Another affiliate, Putnam Fiduciary Trust Company,
provides investment advice to institutional clients
under its banking and fiduciary powers. Putnam and
its affiliates managed approximately $104 billion in
assets as of April 30, 1995, including approximately
$2 billion invested in convertible securities and
nearly $9 billion invested in high yield securities.
See "Investment Manager and Administrator."

<PAGE>
Management Fees The Fund will pay Putnam a quarterly investment
management fee based on the average weekly net asset
value of the Fund at the annual rate of 1.10%. The
combined investment management and administrative
service fees are higher than those paid by most other
investment companies. See "Investment Management
Contract."

Administrative Service The Fund will pay Putnam a quarterly administrative
Fees service fee based on the average weekly net asset
value of the Fund at the annual rate of .25%. The
combined investment management and administrative
service fees are higher than those paid by most other
investment companies. See "Administrative Services
Contract."

Listing and Symbol The Shares have been approved for listing on the New
York Stock Exchange under the symbol "PCV." See
"Underwriting."

Dividends and The Fund intends to pay monthly distributions from
Distributions net investment income, and will distribute all net
realized capital gain at least annually. The first
distribution to shareholders is expected to be paid
within 90 days after the completion of this offering.
See "Dividends and Distributions," "Taxation" and
"Dividend Reinvestment Plan."

Dividend Reinvestment The Fund has established a dividend reinvestment plan
Plan pursuant to which shareholders will have all
distributions of income and capital gains
automatically reinvested in additional Shares of the
Fund, unless they elect to receive such distributions
in cash. Shareholders whose Shares are held in the
name of a broker or nominee which provides a dividend
reinvestment service should consult their broker or
nominee to ensure that an appropriate election is
made on their behalf by such broker or nominee.
Shareholders whose Shares are held by a broker or
nominee which does not provide a dividend
reinvestment service may be required to have their
Shares registered in their own names in order to
participate in the plan. Because the first
distribution paid by the Fund may be paid before the
plan becomes fully operational, shareholders who are
participants in the plan may receive that
distribution in cash. See "Dividend Reinvestment
Plan" and "Taxation."

Repurchase of Shares; The Fund may from time to time repurchase Shares in
Conversion to Open-end the open market or make tender offers for its Shares.
Status This may have the effect of reducing any market
discount. In the event that the Shares trade at a
significant discount to their net asset value for an
extended period of time, Putnam will consider
recommending a share repurchase program to the
Trustees. A decision on whether to recommend a

<PAGE>
share repurchase program will depend on prevailing
market conditions and other factors. Accordingly,
there can be no assurance that Putnam will recommend
a share repurchase program. The Fund may by vote of
its shareholders be converted at any time to an open-
end investment company, which would make the Shares
redeemable upon demand of shareholders at the Shares'
net asset value. The Fund has no present intention of
taking any such action. See "Description of Shares -
Certain Provisions in the Agreement and Declaration
of Trust" and "Repurchase of Shares; Conversion to
Open-end Status."

Custodian, Transfer Putnam Fiduciary Trust Company serves as the Fund's
Agent, custodian, and Putnam Investor Services, a division
Dividend Disbursing of Putnam Fiduciary Trust Company, serves as the
Agent transfer agent, dividend disbursing agent and
and Registrar registrar for the Shares. See "Custodian, Transfer
Agent, Dividend Disbursing Agent and Registrar."

No Preferred Shares; The Fund does not intend to leverage through the
Borrowings issuance of preferred shares or the borrowing of
money for the purpose of enhancing the Fund's
investment performance. The Fund may, however, borrow
money for temporary, extraordinary or emergency
purposes. See "Investment Restrictions."

Special Considerations No operating history. The Fund is a closed-end
and Risk Factors investment company designed primarily as a long-term
investment and not as a trading vehicle. As a newly
organized entity, the Fund has no operating history.

<PAGE>
Although Putnam considers security ratings when
making investment decisions, it performs its own
investment analysis and does not rely principally on
the ratings assigned by rating services.

At times, a substantial portion of the Fund's assets
may be invested in securities as to which the Fund,
by itself or together with other accounts managed by
Putnam and its affiliates, holds a major portion or
all of such securities. In many cases, such
securities may be purchased in private placements
and, accordingly, will be 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 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.

Certain risks associated with investments in
lower-grade securities. Investors should carefully
consider their ability to assume the risks of owning
shares of a mutual fund which invests in lower-grade
securities before making an investment in the Fund.
Securities rated Ba or lower by Moody's or BB or
lower by Standard & Poor's are below investment grade
and are regarded by Moody's and Standard & Poor's, on
balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in
accordance with the terms of the obligation. The
lowest quality securities in which the Fund will
invest are those rated at the time of purchase Caa by
Moody's or CCC by Standard & Poor's or, if unrated,
determined by Putnam to be of comparable quality.
Although securities rated CCC, as well as securities
rated BB and B, may be regarded by Standard & Poor's
as having some quality or protective characteristics,
these are outweighed by large uncertainties or major
exposures to adverse conditions. Securities rated Caa
are regarded by Moody's as being of poor standing.
They may be in default or there may be present
elements of danger with respect to principal or
interest. For more information about the rating
services' descriptions of lower-grade securities, see
"Appendix A - Fixed Income Security Ratings."

<PAGE>
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 value the Fund had placed on such
securities. In the absence of a liquid trading market
for securities held by it, the Fund may find it more
difficult at times to establish the fair market 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 or Standard & Poor's does not reflect an
assessment of the volatility of the security's market
value or of the liquidity of an investment in the
security. The Fund will not necessarily dispose of a
security when its rating is reduced below its rating
at the time of purchase, although Putnam will monitor
the investment to determine whether continued
investment in the security will assist in meeting the
Fund's investment objectives.

The values of lower-grade 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-grade
securities. Because of the greater number of
investment considerations involved in investing in
lower-grade securities, the achievement of the Fund's
objectives depends more on Putnam's analytical
abilities than would be the case if it were investing
primarily in securities in the higher rating
categories.

Issuers of lower-grade 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. In addition, such issuers may not have
more traditional methods of financing available to
them, and may be unable to repay debt at maturity by
refinancing. The risk of loss due to default in

<PAGE>
payment of interest or principal by such issuers is
significantly greater because such securities
frequently are unsecured and subordinated to the
prior payment of senior indebtedness.

Investments in certain Convertible Securities. Putnam
expects that Convertible Securities with conversion
values that exceed their investment values will
initially represent a significant portion of the
Fund's investments in Convertible Securities. Such
Convertible Securities offer greater potential for
capital appreciation in the event of an increase in
the price of the underlying security than do
Convertible Securities with conversion values that
are less than their investment values, but also
entail greater volatility and risk of capital loss
than Convertible Securities with conversion values
that are less than their investment values.

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 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 has declined substantially.

Investments in securities of small capitalization
companies. Based upon current market conditions,
Putnam expects that Convertible Securities of small
capitalization companies (generally defined as
companies with equity market capitalizations of less
than $1 billion) will initially represent a
significant portion of the Fund's investments in
Convertible Securities. These securities may involve
certain special risks. Such companies may have
limited product lines, markets, or financial
resources and may be dependent on a limited
management group. Such securities may trade less
frequently and in smaller volume than more widely
held securities. The values of these securities may
fluctuate more sharply than those of other
securities, and the Fund may experience some
difficulty in establishing or closing out positions
in these securities at prevailing market prices.
There may be less publicly available information
about the issuers of these securities or less market
interest in such securities than in the case of
larger companies, and it may take a longer period of
time for the prices of such securities to reflect the
full value of their issuers' underlying earnings
potential or assets.

<PAGE>
Zero-coupon and Payment-in-Kind securities. The Fund
may invest in zero-coupon securities of governmental
or private issuers, including Brady Bonds and other
sovereign debt, and payment-in-kind securities.
Because zero-coupon securities do not (and
payment-in-kind securities may not) pay current
interest prior to maturity, their values are
generally subject to greater fluctuation in response
to changes in market interest rates than securities
which pay interest currently. Such securities usually
are issued and traded at a deep discount from their
face or par value and may involve greater credit
risks than securities paying interest currently. Even
though such securities do not pay current interest in
cash, the Fund is nonetheless required to accrue
interest income on such investments and to distribute
such amounts at least annually to shareholders. Thus,
the Fund could be required at times to liquidate
other investments in order to satisfy its dividend
requirements. To the extent the Fund is required to
liquidate thinly traded securities, the Fund may not
be able to sell such securities at prices
approximating the values the Fund had placed on such
securities.

Illiquid investments. A portion of the Fund's assets
may be invested in securities that are not readily
marketable, including securities the sale of which is
restricted by contract or under Federal securities
laws. The Fund may not be able to dispose of such
securities in a timely fashion and for a fair price,
which could result in losses to the Fund. The risks
associated with illiquidity will be particularly
acute in situations in which the Fund's operations
require cash, such as when the Fund pays
distributions, and could result in the Fund borrowing
to meet short-term cash requirements or incurring
capital losses on the sale of illiquid securities. In
addition, illiquid securities are generally more
difficult to value.

<PAGE>
recognize a capital loss to the extent the call or
sale price is less than the purchase price.
Additionally, the Fund will recognize a capital loss
if it holds such securities to maturity.

Foreign currencies and foreign investments. The Fund
may invest up to 15% of its total assets in
securities principally traded in foreign markets,
including securities denominated in foreign
currencies. Investments in securities principally
traded in foreign markets may involve considerations
different from investments in domestic securities due
to limited publicly available information, lower
trading volume and possible consequent illiquidity,
greater volatility in price, the possible imposition
of withholding or confiscatory taxes, expropriation
of assets, nationalization, or other adverse
political or economic developments. Foreign companies
may not be subject to auditing and financial
reporting standards and requirements comparable to
those which apply to U.S. companies. Foreign
brokerage commissions and other fees are generally
higher than in the United States. It may be more
difficult to obtain and enforce a judgment against a
foreign issuer. In addition, to the extent the Fund's
foreign investments are not U.S. dollar-denominated,
the Fund may be affected favorably or unfavorably by
changes in currency exchange rates or exchange
control regulations and may incur costs in connection
with conversion between currencies. The currencies of
certain countries in which the Fund may invest have
in the past experienced substantial devaluation
relative to the U.S. dollar. The risks described
above are typically increased to the extent the Fund
invests in lesser developed and developing nations,
which are sometimes referred to as "emerging
markets."

Anti-takeover provisions. The Agreement and
Declaration of Trust includes provisions that could
limit the ability of other persons or entities to
acquire control of the Fund or to cause it to engage
in certain transactions or to modify its structure.
Such provisions may have the effect of depriving
shareholders of an opportunity to sell their Shares
at a premium over prevailing market prices and may
have the effect of inhibiting the Fund's conversion
to open-end status.

Market price of Shares. Shares of closed-end
investment companies often trade at a discount to
their net asset values, and the Fund's Shares may
likewise trade at a discount. The risks associated
with this characteristic of closed-end investment
companies may be greater for investors expecting to
sell shares of a closed-end investment company soon
after the completion of an initial public offering of
the company's

<PAGE>
shares, since the net asset value will be reduced
immediately following the offering as a result of the
payment of organizational and offering expenses. The
market price of the Fund's Shares will be determined
by such factors as relative demand for and supply of
such Shares in the market, the Fund's net asset
value, general market and economic conditions and
other factors beyond the control of the Fund.

See "Special Considerations and Risk Factors," "Use
of Proceeds," "Description of Shares - Certain
Provisions in the Agreement and Declaration of
Trust," "Determination of Net Asset Value" and
"Repurchase of Shares; Conversion to Open-end
Status."

<PAGE>
THE FUND

Putnam Convertible Opportunities and Income Trust (the "Fund") is a
closed-end, diversified management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund is a
Massachusetts business trust organized on February 23, 1995. A copy of the
Agreement and Declaration of Trust (the "Agreement and Declaration of
Trust"), which is governed by Massachusetts law, is on file with the
Secretary of State of The Commonwealth of Massachusetts. As a newly organized
entity, the Fund has no operating history. The Fund's principal office is
located at One Post Office Square, Boston, Massachusetts 02109, and its
telephone number is (617) 292-1000.

INVESTMENT MANAGER AND ADMINISTRATOR

The Fund's investment manager and administrator is Putnam Investment
Management, Inc. ("Putnam"), a Massachusetts corporation with offices at One
Post Office Square, Boston, Massachusetts 02109. Putnam is a wholly-owned
subsidiary of Putnam Investments, Inc., a holding company which is in turn
wholly owned by Marsh & McLennan Companies, Inc., a publicly-owned holding
company whose principal businesses are international insurance and
reinsurance brokerage, employee benefit consulting and investment management.

Putnam has been managing mutual funds since 1937. The firm serves as the
investment manager for the funds in the Putnam family, with approximately $74
billion in assets in over three million shareholder accounts as of April 30,
1995, including $5 billion in assets in 16 closed-end funds. The Putnam
Advisory Company, Inc., an affiliate, manages domestic and foreign
institutional accounts and foreign mutual funds. Another affiliate, Putnam
Fiduciary Trust Company, provides investment advice to institutional clients
under its banking and fiduciary powers. Putnam and its affiliates managed
approximately $104 billion in assets as of April 30, 1995.

As of April 30, 1995, Putnam's 13-member Basic Value Equities Group
managed over $2 billion in convertible securities and its High Yield Group,
which boasts a team of 16 investment professionals with an average of 11
years experience analyzing and selecting high yield securities, managed
nearly $9 billion in high yield assets. Putnam views the convertible
securities market as comprised of three distinct segments--small
capitalization, large capitalization and high yield. Putnam believes this
view is the key to efficient research and effective asset allocation.

USE OF PROCEEDS

The proceeds of this offering are estimated to be $91,706,184 (or
$105,581,184 if the over-allotment option is exercised by the Underwriters in
full) after deducting organizational and offering expenses of the Fund. The
Fund will not pay any underwriting commissions out of the net proceeds of
this offering, and all of such proceeds will be available to the Fund for
investment in portfolio securities. Underwriting commissions of $1.50 per
Share, for a total of $5,550,000 (or $6,382,500 if the over-allotment option
is exercised in full), will be paid to the Underwriters by Putnam or an
affiliate out of its own funds. See "Underwriting."

<PAGE>
The net proceeds will be invested in accordance with the Fund's investment
objectives and policies during a period estimated not to exceed three months
from the completion of this offering, depending on market conditions and the
availability of appropriate securities. Pending such investment, the proceeds
will be invested in high-quality, short-term money market instruments,
investment-grade debt securities and U.S. Government securities.

INVESTMENT OBJECTIVES AND POLICIES

The Fund's investment objectives are capital appreciation and current
income. The Fund is designed primarily as a long-term investment and not as a
trading vehicle. It is not intended to be a complete investment program, and
there is no assurance that the Fund will achieve its investment objectives.

Basic Investment Strategy

Under normal market conditions, the Fund will invest substantially all of its
assets (and, in any event, normally at least 80% of its total assets) in a
diversified portfolio of convertible securities ("Convertible Securities")
and nonconvertible, higher risk, high yield income securities
("Nonconvertible High Yield Securities"). The Fund expects that all or a
substantial portion of its assets will be invested in lower-grade Convertible
Securities and Nonconvertible High Yield Securities rated at the time of
purchase Ba, B or Caa by Moody's Investors Service, Inc. ("Moody's") or BB, B
or CCC by Standard & Poor's ("Standard & Poor's") or in nonrated Convertible
Securities and Nonconvertible High Yield Securities of comparable quality as
determined by Putnam. In Putnam's opinion a combination of these two asset
classes may provide attractive opportunities for capital appreciation and
current income with potentially less volatility over the longer term than a
portfolio of common stocks of comparable issuers. See "Investment
Considerations" below. There can be no assurance that these potential
benefits will be realized by the Fund, and the Fund will have less potential
for capital appreciation than a portfolio comprised solely of common stocks
of comparable issuers.

The portion of the Fund's assets invested in Convertible Securities and in
Nonconvertible High Yield Securities will vary from time to time in light of
the Fund's investment objectives, changes in common stock prices and changes
in interest rates and other economic and market factors, although under
normal market conditions the Fund will invest at least 25%, but no more than
75%, of its total assets in Convertible Securities and at least 25%, but no
more than 75%, of its total assets in Nonconvertible High Yield Securities.
Based upon current market conditions, Putnam expects that initially the
Fund's assets will be invested approximately equally in each asset category
and that Convertible Securities of small capitalization companies (generally
defined as companies with equity market capitalizations of less than $1
billion) will initially represent a significant portion of the Fund's
investments in Convertible Securities. Actual initial allocations will depend
upon market conditions at the time of commencement of the Fund's investment
operations. See "Special Considerations and Risk Factors" below. The Fund may
also invest a portion of its assets in cash and money market instruments and
in common stocks and other securities with equity features.

Convertible Securities. Convertible Securities include bonds, debentures,
notes, preferred stocks and other securities that may be converted into or
exchanged for, at a specified 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.

<PAGE>
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. Based upon current market conditions, Putnam expects that
Convertible Securities with conversion values that exceed their investment
values will initially represent a significant portion of the Fund's
investments in Convertible Securities. Such Convertible Securities offer
greater potential for capital appreciation in the event of an increase in the
price of the underlying security than do Convertible Securities with
conversion values that are less than their investment values, but also entail
greater volatility and risk of capital loss in the event of a decline in the
price of the underlying security.

Nonconvertible High Yield Securities. Nonconvertible High Yield Securities
include bonds, debentures, notes and preferred stocks and will generally be
unsecured. Most of these securities will bear interest at fixed rates. The
Fund may also invest in securities with floating or variable rates of
interest or which involve equity features, such as contingent interest or
participations based on revenues, sales or profits (i.e., interest or other
payments, often in addition to a fixed rate of return, that are based on the
issuer's attainment of specified levels of revenues, sales or profits and
thus enable the holder of the security to participate in the issuer's
business). At times, the Fund may acquire warrants and other equity
securities in connection with the purchase of such securities. Investments by
the Fund in Nonconvertible High Yield Securities entail certain special
risks. See "Special Considerations and Risk Factors" below.

Investment Considerations

The views expressed in this "Investment Considerations" section as to the
securities in which the Fund will invest and market and economic conditions
are those of Putnam. There can be no assurance that Putnam's analysis is or
will be correct or that market conditions will not be different from those
discussed in this section. The statistical information included in this
section, and similar information included in Appendix D, is provided for
illustrative purposes only and is not intended to predict the performance of
the Fund's portfolio or anticipated return to the Fund's shareholders. For a
discussion of the risks associated with investing in the Fund, see "Special
Considerations and Risk Factors" below.

General. Putnam believes that a diversified portfolio of Convertible
Securities and Nonconvertible High Yield Securities offers investors
attractive opportunities for capital appreciation and current income. In
Putnam's view, Convertible Securities, under current market conditions, are
attractively valued. See Appendix D for certain statistical information which
Putnam believes supports this view. Convertible Securities offer a portion of
the

<PAGE>
capital appreciation potential of the underlying common stocks while
providing some protection from declines in stock prices and potentially lower
volatility than common stocks of comparable issuers. This protection comes
from the relatively higher income typically available from Convertible
Securities as compared with the underlying common stocks and the relatively
senior position of Convertible Securities in the capital structure of a
company compared to common stocks, although Convertible Securities are
typically subordinated to nonconvertible fixed income securities of the same
issuer. Putnam believes that Nonconvertible High Yield Securities provide
attractive income potential and the potential for lower volatility over the
longer term compared to common stocks, although they generally have less
potential for capital appreciation. Nonconvertible High Yield Securities are
also subject to greater risks, including greater volatility, than
higher-rated securities of comparable maturity. The portion of the Fund's
assets invested in Convertible Securities and Nonconvertible High Yield
Securities will vary from time to time in light of the Fund's investment
objectives, changes in common stock prices and changes in interest rates and
other economic and market factors. Based upon current market conditions,
Putnam expects that initially the Fund's assets will be invested
approximately equally in each asset category. Actual initial allocations will
depend on market conditions at the time of commencement of the Fund's
investment operations.

Convertible Securities. Convertible Securities offer a portion of the
capital appreciation potential of the underlying common stocks while
providing some protection from declines in stock prices and potentially lower
volatility than common stocks of comparable issuers. From December 31, 1987
(the inception date of the Merrill Lynch All Convertible Bonds & Preferreds
Index (the "Merrill Lynch Convertible Index")) to April 30, 1995, the Merrill
Lynch Convertible Index provided 85.1% of the total return of the S&P 500
Composite Stock Price Index (the "S&P 500") with 72.3% of the volatility, and
89.0% of the total return of the Russell 2000 Index with 56.8% of the
volatility (in each case volatility is measured by standard deviations of
monthly investment results). The performance and volatility of each of the
market indices varied substantially during the period shown. Presentation of
similar information for different periods would show different results. For
additional information concerning the indices, see "Historical index
performance" below and Appendix D, which also includes quarterly performance
results. Of course, past performance is not necessarily indicative of future
performance and there can be no assurance that the markets for Convertible
Securities will perform as they have in the past or that the Fund will
achieve any particular level of return or volatility. Under current market
conditions, Putnam expects that the Fund's investments in Convertible
Securities will emphasize lower-grade Convertible Securities, Convertible
Securities issued by small capitalization issuers and Convertible Securities
whose conversion values exceed their investment values. The total return of
these types of Convertible Securities may experience greater volatility than
the total return of the Merrill Lynch Convertible Index. See Appendix D for
additional information concerning Convertible Securities.

In Putnam's view, Convertible Securities are attractive because (1) they
typically offer higher yields than the underlying common stocks (which may
cause such securities to be more sensitive to fluctuations in interest rates
than the underlying common stocks); (2) the higher yield provides a defensive
characteristic if the price of the underlying common stock declines; (3) the
conversion feature allows for capital appreciation potential if the price of
the underlying common stock increases; and (4) Convertible Securities
historically have been less volatile on a long-term basis than common stocks.
However, in the event of a significant deterioration in the financial
condition of an issuer of Convertible Securities, such securities may no
longer continue to offer some or all of these positive characteristics. Due
to the conversion feature, Convertible Securities do, generally, yield less
than nonconvertible fixed income securities of similar credit quality and
maturity.

<PAGE>
Based upon current market conditions, Putnam believes that Convertible
Securities of small capitalization issuers may offer, in general, greater
opportunities for capital appreciation than those of larger capitalization
issuers. This view is based in part on Putnam's belief that the market for
Convertible Securities of small capitalization issuers is relatively
inefficient, requiring detailed investment analysis but, in Putnam's view,
currently offering opportunities for potentially greater capital appreciation
over the longer term. The potentially greater long-term capital appreciation
opportunities offered by common stocks and Convertible Securities of small
capitalization issuers are generally accompanied by higher risks. In Putnam's
view, Convertible Securities provide an attractive means of investing in this
sector of the equity market with the opportunity for a portion of the capital
appreciation potential of an investment in common stock, with potentially
less volatility over the longer term.

Nonconvertible High Yield Securities. Yields of Nonconvertible High Yield
Securities are generally higher than those of Convertible Securities of
comparable credit quality and maturity. The Fund will seek to provide
additional current income by investing in Nonconvertible High Yield
Securities. These securities will include debt securities and preferred
stocks and will generally be unsecured. According to CS First Boston
Corporation, the market for high yield securities has increased from $123.3
billion on December 31, 1986 to $294 billion on March 31, 1995. Putnam
believes that these securities provide attractive income and the potential
for lower volatility over the longer term compared to common stocks, although
they generally have less capital appreciation potential. Nonconvertible High
Yield Securities are also subject to greater risks, including greater
volatility, than higher-rated securities of comparable maturity.

From December 31, 1987 to April 30, 1995, Nonconvertible High Yield
Securities, as measured by the CS First Boston High Yield Index, provided
83.5% of the total return of the S&P 500 with 61.0% of the volatility, and
87.3% of the total return of the Russell 2000 Index with 47.9% of the
volatility (in each case volatility is measured by standard deviations of
monthly investment results). The performance and volatility of each of the
market indices varied substantially during the period shown. Presentation of
similar information for different periods would show different results. For
additional information concerning the indices, see "Historical index
performance" below and Appendix D, which also includes quarterly performance
results. Of course, past performance is not necessarily indicative of future
performance and there can be no assurance that the markets for Nonconvertible
High Yield Securities will perform as they have in the past or that the Fund
will achieve any particular level of return or volatility. The total return
of the Nonconvertible High Yield Securities in which the Fund will invest may
experience greater volatility than the total return of the CS First Boston
High Yield Index. See Appendix D for additional information concerning
Nonconvertible High Yield Securities.

Combination of asset classes. In Putnam's opinion a combination of these
two asset classes may provide attractive opportunities for capital
appreciation and current income with potentially less volatility over the
longer term than a portfolio of common stocks of comparable issuers. From
December 31, 1987 to April 30, 1995, the 50/50 Convertible and High Yield
Index (an index prepared by Putnam, 50% of the value of which is represented
by the Merrill Lynch Convertible Index and 50% of the value of which is
represented by the CS First Boston High Yield Index, with such weightings
being reset monthly) provided 84.7% of the total return of the S&P 500 with
61.2% of the volatility, and 88.6% of the total return of the Russell 2000
Index with 48.1% of the volatility (in each case volatility is measured by
standard deviations of monthly investment results). The performance and
volatility of each of the indices varied substantially during the period
shown.

<PAGE>
Presentation of similar information for different periods would show
different results. For additional information concerning the indices, see
"Historical index performance" below and Appendix D, which also includes
quarterly performance results. Of course, past performance is not necessarily
indicative of future results and there can be no assurance that the markets
for Convertible Securities or Nonconvertible High Yield Securities will
perform as they have in the past or that the Fund will achieve any particular
level of return or volatility.

Historical index performance. The following table shows the historical
performance and standard deviation of certain market indices for certain
selected periods. These indices are unmanaged and market-weighted and are
not adjusted for fees, commissions or other costs. The securities the Fund
owns will not match, and are not intended to be representative of, those in
any of the indices. This table is not intended to predict the Fund's
performance.

AVERAGE ANNUAL TOTAL RETURN AND STANDARD DEVIATION(1)
(PERIODS ENDED APRIL 30, 1995)

<TABLE>
<CAPTION>
1 Year 3 Years 3 Years 5 Years 5 Years 7 Years
Market indices Ann. Ret. Ann. Ret. Std. Dev. Ann. Ret. Std. Dev. Ann. Ret.
<S> <C> <C> <C> <C> <C> <C>
Merrill Lynch
Convertible Index 6.33% 10.63% 6.73% 13.20% 9.33% 11.23%
CS First Boston
High Yield Index 8.58 10.73 3.95 15.13 7.77 11.34
50/50 Convertible
and High Yield
Index 7.47 10.71 5.01 14.23 7.86 11.34
S&P 500 17.48 10.57 8.04 12.63 11.98 13.69
Russell 2000 Index 7.21 12.53 10.62 12.93 15.93 10.97
</TABLE>

<TABLE>
<CAPTION>
Since Dec. 31, Since Dec. 31,
7 Years 1987 1987 10 Years 10 Years
Market indices Std. Dev. Ann. Ret. (2) Std. Dev. (2) Ann. Ret. Std. Dev.
<S> <C> <C> <C> <C> <C>
Merrill Lynch
Convertible Index 8.72% 11.97% 8.63% n/a n/a
CS First Boston
High Yield Index 7.33 11.74 7.28 n/a n/a
50/50 Convertible
and High Yield
Index 7.36 11.91 7.31 n/a n/a
S&P 500 11.99 14.06 11.94 14.70% 15.18%
Russell 2000 Index 15.14 13.45 15.19 10.98 18.34
</TABLE>

(1) Standard deviation is an annualized statistical measure of the range
of performance within which an index's monthly total return has
fallen. A high standard deviation indicates that the range of
performance has been very wide, meaning that there has been
historically greater volatility. Standard deviations of monthly
returns for a one-year period are not considered statistically
meaningful and are therefore not presented.
(2) The date of inception of the Merrill Lynch Convertible Index.

The Merrill Lynch Convertible Index and the CS First Boston High Yield
Index are commonly accepted indices for the public markets for Convertible
Securities and Nonconvertible High Yield Securities, respectively. The 50/50
Convertible and High Yield Index is an index prepared by Putnam that combines
the Merrill Lynch Convertible Index and the CS First Boston High Yield Index.
The S&P 500 is a commonly accepted index for the U.S. stock market and the
Russell 2000 Index is a commonly accepted index for small capitalization
stocks. Additional information regarding each of these indices, including
information concerning recent changes in the composition of the Merrill Lynch
Convertible Index, is included in Appendix D.

<PAGE>
Appendix D also provides a summary of the investment performance of
various investment companies managed by Putnam that invest primarily in
Convertible Securities, Nonconvertible High Yield Securities or a combination
of both.

Defensive Strategies

There may be times when, in Putnam's judgment, conditions in the securities
markets would make pursuing the Fund's basic investment strategy inconsistent
with the best interests of its shareholders. At such times, Putnam may employ
alternative strategies, primarily designed to reduce fluctuations in the
value of the Fund's assets. In implementing these "defensive" strategies, the
Fund may invest all or any portion of its assets in investment-grade
nonconvertible debt securities, including obligations of the U.S. Government
or its agencies and instrumentalities, or in any other securities which
Putnam believes are consistent with such defensive strategies. It is
impossible to predict when, or for how long, such alternative strategies will
be utilized.

Portfolio Turnover

Putnam will buy and sell securities for the Fund to further its investment
objectives. The length of time the Fund has held a particular security is not
generally a consideration in investment decisions. A change in the securities
held by the Fund is known as "portfolio turnover." As a result of the Fund's
investment policies, under certain market conditions the Fund's portfolio
turnover rate may be higher than that of other investment companies. Although
it is impossible to predict portfolio turnover rate, based on its experience
in managing similar investments, Putnam expects that the annual portfolio
turnover rate of the Fund will not exceed 100% after the initial investment
of the proceeds of this offering in accordance with the Fund's investment
objectives and policies. Portfolio turnover generally involves some expense
to the Fund, including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and reinvestment in other
securities. Such transactions may result in the realization of taxable
capital gains.

Other Investment Practices

The Fund may engage in the following investment practices, each of which may
involve certain special risks:

Foreign currencies and foreign investments. The Fund may invest up to 15%
of its total assets in securities principally traded in foreign markets,
including securities denominated in foreign currencies. The Fund may also
purchase Eurodollar certificates of deposit without regard to this limit. See
"Special Considerations and Risk Factors" for a discussion of the risks
associated with foreign investments.

Futures and options. The Fund may purchase and sell financial futures
contracts and related options and may purchase and sell options on securities
and securities indices to hedge against changes in the values of securities
the Fund owns or expects to purchase. For example, if Putnam expected the
value of the Fund's portfolio securities to decline as a result of an
anticipated general stock market decline, the Fund might sell futures
contracts on the S&P 500. If prices were to fall, the value of securities
held by the Fund would decline, but this decline may be offset, in whole or
in part, by an increase in the value of the Fund's index futures contracts.
Conversely, the increased cost of securities to be acquired by the Fund
caused by a general rise in the stock market may be offset, in whole or in
part, by gains on index futures purchased by the Fund. The Fund could thus
take advantage of the anticipated rise in the values of securities without
actually buying them until the market had stabilized.

<PAGE>
The Fund may also, for hedging purposes, purchase and sell futures
contracts and related options with respect to U.S. Government securities,
including U.S. Treasury bills, notes and bonds, and may purchase and sell
options directly on U.S. Government securities and other securities eligible
for investment by the Fund. Putnam believes that, under certain market
conditions, price movements in U.S. Government securities futures and related
options and in options on such securities may correlate closely with price
movements in other fixed income securities and may as a result provide
hedging opportunities for the Fund. Such futures and options would be used in
a way similar to the Fund's use of index futures and options. The Fund will
only purchase or sell futures or related options when, in the opinion of
Putnam, price movements in such futures and options will correlate closely
with price movements in the securities which are the subject of the hedge.

The successful use of futures and options will usually depend on Putnam's
ability to forecast market movements or interest rates correctly. The Fund's
ability to hedge its portfolio positions through transactions in futures and
options also depends on the degree of correlation between movements in the
prices of such financial futures and options and movements in the prices of
the underlying securities index or U.S. Government securities or of the
securities which are the subject of a hedge. The successful use of futures
and options also depends on the availability of a liquid secondary market to
enable the Fund to close out its positions on a timely basis. There can be no
assurance that such a market will exist at a particular time. In the case of
options purchased by the Fund, the risk of loss is limited to the premium
paid, whereas in the case of options written by the Fund and in the case of
futures transactions, the risk of loss is limited only to the extent that the
increases in the value of the Fund's investments during the period of the
futures contract or option may offset losses on the futures contract or
option over the same period. Certain provisions of the Internal Revenue Code
may limit the Fund's ability to engage in futures and options transactions.
See Appendix B for more detailed information about these practices and the
special risks associated with them.

Securities loans. The Fund may make secured loans of its portfolio
securities 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 in cash or short-term debt obligations at
least equal at all times to the value of the securities lent. The Fund
retains all or a portion of the interest received on investment of the
collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the
borrower, the Fund retains the right to call the loans at any time on
reasonable notice, and it will do so in order that the securities may be
voted by the Fund if the holders of such securities are asked to vote upon or
consent to matters materially affecting the investment. The Fund may also
call such loans in order to sell the securities involved.

Forward commitments. The Fund may make contracts to purchase securities
for a fixed price at a future date beyond customary settlement time ("forward
commitments") if it holds, and maintains until the settlement date in a
segregated account, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or if it enters into offsetting
contracts for the forward sale of other securities it owns. Forward
commitments 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

<PAGE>
with the intention of acquiring portfolio securities, the Fund may dispose of
a commitment prior to settlement if Putnam deems it appropriate to do so. The
Fund may realize short-term capital gains or losses upon the sale of forward
commitments.

Repurchase agreements. The Fund may enter into repurchase agreements with
respect to up to 25% of its total assets (taken at current value). 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 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 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 delays 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.

SPECIAL CONSIDERATIONS AND RISK FACTORS

No operating history. The Fund is a closed-end investment company designed
primarily as a long-term investment and not as a trading vehicle. As a newly
organized entity, the Fund has no operating history.

Investments in fixed income securities. The market value of the Fund's
investments in fixed income securities, and thus the net asset value of the
Shares, will change in response to changes in (i) the perceived
creditworthiness of issuers of those securities, (ii) interest rates, and
(iii) other factors. A decrease in market rates of interest will generally
result in an increase in the value of such securities. Conversely, during
periods of rising interest rates, the value of such securities will generally
decline. The extent of the fluctuation will depend on various other factors,
such as the average maturity of the Fund's investments in fixed income
securities. Although the Fund may invest in securities of any maturity, it is
likely that many of the fixed income securities in which the Fund will invest
will have relatively long maturities. A longer maturity generally is
associated with a greater level of volatility in the market value of such
securities in response to changes in market conditions. In addition,
securities issued at a deep discount are subject to greater fluctuations in
market value in response to changes in interest rates than debt obligations
of comparable maturities that were not issued at a deep discount. Changes in
the value of portfolio securities generally will not affect income derived
from such securities, but will affect the Fund's net asset value.

Although Putnam considers security ratings when making investment
decisions, it performs its own investment analysis and does not rely
principally on the ratings assigned by the rating services. Putnam's analysis
may include consideration of the issuer's experience and management strength,
changing financial condition, borrowing requirements or debt maturity
schedules and its responsiveness to changes in business conditions and
interest rates. Putnam also considers relative values based on anticipated
cash flow, interest or dividend coverage, asset coverage, earnings prospects
and other factors.

<PAGE>
securities. In many cases, such securities may be purchased in private
placements and, accordingly, will be 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 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. In addition, in order to enforce its rights in the event of a
default under such securities, the Fund may be required to take possession of
and manage assets securing the issuer's obligations on such securities, which
may increase the Fund's operating expenses and adversely affect the Fund's
net asset value. 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, because as
a regulated investment company the Fund is subject to certain limitations on
its investments and on the nature of its income. See "Taxation."

Certain risks associated with investments in lower-grade securities. The
Fund may invest all or substantially all of its assets in lower-grade
securities. Securities rated Ba or lower by Moody's or BB or lower by
Standard & Poor's, commonly known as "junk bonds," are below investment grade
and are regarded by Moody's and Standard & Poor's, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. The lowest quality
securities in which the Fund will invest are those rated at the time of
purchase Caa by Moody's or CCC by Standard & Poor's or, if unrated,
determined by Putnam to be of comparable quality. Securities rated CCC by
Standard & Poor's or Caa by Moody's and nonrated securities of comparable
quality involve a high degree of risk. Although securities rated CCC, as well
securities rated BB and B, may be regarded by Standard & Poor's as having
some quality or protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions. Securities rated Caa
are regarded by Moody's as being of poor standing. They may be in default or
there may be present elements of danger with respect to principal or
interest.

Investors should carefully consider their ability to assume the risks of
owning shares of a mutual fund which invests in lower-grade securities before
making an investment in the Fund. These securities are considered to be
predominantly speculative with limited protection of interest and principal
payments. 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. The values of lower-grade 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-grade securities. In the absence of a liquid
trading market for securities held by it, the Fund may find it more difficult
at times to establish the fair market value of such securities. Because of
the greater number of investment considerations involved in investing in
lower-grade securities, the achievement of the Fund's objectives depends more
on Putnam's analytical abilities than would be the case if it were investing
primarily in securities in the higher rating categories.

<PAGE>
Issuers of lower-grade 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.

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 a rating agency does not reflect an
assessment of the volatility of the security's market value or of the
liquidity of an investment in the security. The Fund will not necessarily
dispose of a security when its rating is reduced below its rating at the time
of purchase, although Putnam will monitor the investment to determine whether
continued investment in the security will assist in meeting the Fund's
investment objectives. For more information about the rating services'
descriptions of lower-grade securities, see Appendix A to this Prospectus.

Investments in certain Convertible Securities. Putnam expects that
Convertible Securities with conversion values that exceed their investment
values will initially represent a significant portion of the Fund's
investments in Convertible Securities. Such Convertible Securities offer
greater potential for capital appreciation in the event of an increase in the
price of the underlying security than do Convertible Securities with
conversion values that are less than their investment values, but also entail
greater volatility and risk of capital loss than Convertible Securities with
conversion values that are less than their investment values.

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 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 has
declined substantially.

Investments in securities of small capitalization companies. Based upon
current market conditions, Putnam expects that convertible securities of
small capitalization companies (generally defined as companies with equity
market capitalizations of less than $1 billion) will initially represent a
significant portion of the Fund's investments in Convertible Securities.
These securities may offer greater opportunities for current income and
capital appreciation than those of larger companies, but may involve certain
special risks. Such companies may have limited product lines, markets, or
financial resources and may be dependent on a limited management group. While
the markets in securities of such companies have grown rapidly in recent
years, such securities may trade less frequently and in smaller volume than
more widely held securities. The values of these securities may fluctuate
more sharply than other securities, and the Fund may experience some
difficulty in establishing or closing out positions in these securities at
prevailing market prices. There may be less publicly available information
about the issuers of these securities or less market interest in such
securities than in the case of larger companies, and it may take a longer
period of time for the prices of such securities to reflect the full value of
their issuers' underlying earnings potential or assets.

<PAGE>
Zero-coupon and Payment-in-Kind securities. The Fund may invest in
zero-coupon securities of governmental or private issuers, including Brady
Bonds (which are described below) and other sovereign debt, and in
payment-in-kind securities. Because zero-coupon securities do not (and
payment-in-kind securities may not) pay current interest prior to maturity,
their values are generally subject to greater fluctuation in response to
changes in market interest rates than securities which pay interest
currently. Both zero-coupon and payment-in-kind securities allow an issuer to
avoid the need to generate cash to meet current interest payments.
Payment-in-kind securities, for instance, allow the issuer to make current
interest payments in additional securities. Zero-coupon and payment-in-kind
securities may involve greater credit risks than securities paying interest
currently. Even though such securities do not pay current interest in cash,
the Fund is nonetheless required to accrue interest income on such
investments and to distribute such amounts at least annually to shareholders.
Thus, the Fund could be required at times to liquidate other investments in
order to satisfy its dividend requirements. To the extent the Fund is
required to liquidate thinly traded securities, the Fund may not be able to
sell such securities at prices approximating the values the Fund had placed
on such securities.

Illiquid investments. A portion of the Fund's assets may be invested in
securities that are not readily marketable, including securities the sale of
which is restricted by contract or under Federal securities laws. The Fund
may not be able to dispose of such securities in a timely fashion and for a
fair price, which could result in losses to the Fund. The risks associated
with illiquidity will be particularly acute in situations in which the Fund's
operations require cash, such as when the Fund pays distributions, and could
result in the Fund borrowing to meet short-term cash requirements or
incurring capital losses on the sale of illiquid securities. In addition,
illiquid securities are generally more difficult to value. The Fund may
invest up to 15% of its net assets in securities restricted as to resale,
excluding securities determined by the Fund's Trustees (or the person
designated by the Fund's Trustees to make such determinations) to be readily
marketable.

Redemptions of portfolio securities and Premium securities. Certain
securities held by the Fund may permit the issuer at its option to "call," or
redeem, its securities. If an issuer were to redeem securities held by the
Fund during a time of declining interest rates, the Fund may not be able to
reinvest the proceeds in securities providing the same investment return as
the securities redeemed. If a Convertible Security held by the Fund is called
for redemption, the Fund will be required to redeem the security, convert it
into the underlying security or sell it to a third party, which could result
in losses to the Fund. The Fund may also invest at times in securities with
coupon rates greater than current market rates. Such "premium" securities are
typically purchased at prices greater than the principal amounts payable on
maturity. Because the value of premium securities tends to approach the
principal amount as they approach maturity (or call price in the case of
securities approaching their first call date), the purchase of such
securities may increase the Fund's risk of capital loss if such securities
are held to maturity (or first call date). If securities purchased by the
Fund at a premium are called or sold prior to maturity, the Fund will
recognize a capital loss to the extent the call or sale price is less than
the purchase price.

Foreign currencies and foreign investments. The Fund may invest up to 15%
of its total assets in securities principally traded in foreign markets,
including securities denominated in foreign currencies. The Fund may also
purchase Eurodollar certificates of deposit without regard to this limit.
Since foreign securities are normally denominated and traded in foreign
currencies, the value of the Fund's assets may be affected favorably or
unfavorably by currency exchange rates and exchange control regulations. The
currencies of certain countries in which the Fund may invest have in the past
experienced substantial devaluation relative

<PAGE>
to the U.S. dollar. Even though a portion of the Fund's investment income may
be received or realized in such foreign currencies, the Fund will be required
to compute and distribute its income in U.S. dollars. Therefore, if the
exchange rate for any such currency declines after the Fund's income has been
earned and translated into U.S. dollars but before conversion into U.S.
dollars, the Fund could be required to liquidate portfolio securities to make
such distributions. Although the Fund can engage in a variety of foreign
currency exchange transactions in connection with its foreign investments,
there can be no assurance that Putnam will utilize such strategies at any
given time or with respect to any particular investment. See Appendix C for
additional information about these transactions.

Foreign securities are subject to certain risks not typically associated
with investments in the securities of U.S. issuers, including risks related
to future political and economic developments. There may be less information
publicly available about a foreign issuer than about a U.S. issuer, and
foreign issuers are not generally subject to accounting, auditing,
recordkeeping and financial reporting standards and practices comparable to
those in the United States. Foreign securities markets may be smaller and
have substantially less volume than U.S. markets, and 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 costs and
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 domestic
investments that could adversely affect the Fund's performance. Dividend and
interest income received by the Fund from sources within foreign countries
may be reduced by withholding and other taxes imposed by such countries. Any
such taxes paid by the Fund will reduce its net income available for
distribution to shareholders.

In addition, there may be a possibility of seizure, nationalization or
expropriation of assets, imposition of currency exchange controls,
confiscatory taxation or other foreign governmental laws or restrictions that
might adversely affect the payment of dividends on equity securities and
principal of and interest on debt securities. Additionally, political or
financial instability and diplomatic developments could adversely affect the
value of the Fund's investments in certain foreign countries. Legal remedies
available to investors in certain foreign countries may be more limited than
those available with respect to investments in the United States or in other
foreign countries, and, in the event of a default on a foreign obligation, it
may be difficult for the Fund to obtain or enforce a judgment against the
issuer. The laws of some foreign countries may limit the Fund's ability to
invest in securities of certain issuers located in those countries. Special
tax considerations apply to foreign securities. See "Taxation."

The risks described above are typically increased to the extent that the
Fund invests in issuers located in lesser developed and developing nations,
which are sometimes referred to as "emerging markets." Investments in
securities of issuers located in countries with emerging economies or
securities markets are speculative and subject to certain special risks.
Political and economic structures in many of 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 or expropriated the assets of
private companies. In addition, unanticipated political or social
developments may affect the values of the Fund's investments in these
countries and the availability to the Fund of additional investments in these
countries. The small size, limited trading volume and relative inexperience
of the securities markets in these countries may make the Fund's investments
in such countries illiquid and more volatile than investments in more

<PAGE>
developed countries, and the Fund may be required to establish special
custodial or other arrangements before making investments in these countries.
There may be little financial or accounting information available with
respect to issuers located in these countries, and it may be difficult as a
result to assess the value or prospects of an investment in such issuers.

The Fund's investments in securities of issuers located in countries with
emerging economies or securities markets may include securities issued by
foreign governmental issuers through the exchange of existing commercial bank
loans to such countries for new bonds in connection with debt restructurings,
including Brady Bonds, which are issued under a debt restructuring plan
introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady. These
securities may have no (or only limited) collateralization, and the payment
of interest and principal may be dependent on the willingness and the ability
of the foreign governmental issuer to make payment in accordance with the
terms of the security.

Anti-takeover provisions. The Agreement and Declaration of Trust includes
provisions that could limit the ability of other persons or entities to
acquire control of the Fund or to cause it to engage in certain transactions
or to modify its structure. Such provisions may have the effect of depriving
shareholders of an opportunity to sell their Shares at a premium over
prevailing market prices and may have the effect of inhibiting the Fund's
conversion to open-end status. See "Description of Shares--Certain Provisions
in the Agreement and Declaration of Trust" and "Repurchase of Shares;
Conversion to Open-end Status."

Market price of shares. Shares of closed-end investment companies often
trade at a discount to their net asset values, and the Fund's Shares may
likewise trade at a discount. The risks associated with this characteristic
of closed-end investment companies may be greater for investors expecting to
sell shares of a closed-end investment company soon after the completion of
an initial public offering of the company's shares. The net asset value per
Share will be reduced immediately following the offering as a result of
organizational and offering expenses. See "Use of Proceeds." The market price
of the Fund's Shares will be determined by such factors as relative demand
for and supply of such Shares in the market, the Fund's net asset value,
general market and economic conditions and other factors beyond the control
of the Fund. The Shares are designed primarily for long-term investors, and
investors should not view the Fund as a vehicle for trading purposes. See
"Determination of Net Asset Value" and "Repurchase of Shares; Conversion to
Open-end Status."

INVESTMENT RESTRICTIONS

The Fund has adopted the following investment restrictions which may not
be changed without the affirmative vote of a "majority of the outstanding
voting securities" of the Fund, which is defined in the 1940 Act to mean the
affirmative vote of the lesser of (1) more than 50% of the outstanding Shares
or (2) 67% or more of the Shares present at a meeting if more than 50% of the
outstanding Shares are represented at the meeting in person or by proxy. The
Fund may not:

1. Issue senior securities, as defined in the 1940 Act, other than shares
of beneficial interest with preference rights, except to the extent such
issuance might be involved with respect to borrowings described under
restriction 2 below or with respect to transactions involving futures
contracts, options, and other financial instruments.

<PAGE>
2. 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 (not for leverage) in situations 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.

3. 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.

4. 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.

5. Purchase or sell commodities or commodity contracts, except that it may
purchase or sell futures contracts and options.

6. 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).

7. 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
securities issued or guaranteed as to principal or interest by the U.S.
Government or its agencies or instrumentalities.

8. With respect to 75% of its total assets, acquire more than 10% of the
voting securities of any issuer.

9. Invest more than 25% of the value of its total assets in securities of
issuers in any one industry. (Securities issued or guaranteed as to principal
or interest by the U.S. Government or its agencies or instrumentalities, and
securities backed by the credit of a governmental entity are not considered
to represent industries.)

All percentage limitations on investments will apply at the time of
investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment. Except for the investment restrictions listed above, the other
investment policies described in this Prospectus are not fundamental and may
be changed by approval of the Trustees. As a matter of policy, the Trustees
would not materially change the Fund's investment objectives without
shareholder approval.

TRUSTEES AND OFFICERS

The Trustees of the Fund are responsible for the general oversight of the
Fund's business. The initial Trustees and executive officers of the Fund and
their principal occupations during the last five years are set forth below.
The mailing address of each of the officers and Trustees is One Post Office
Square, Boston, Massachusetts 02109.

<PAGE>
Trustees

Jameson Adkins Baxter. Ms. Baxter, age 51, is the President of Baxter
Associates, Inc., a management and financial consulting firm which she
founded in 1986. During that time, she was also a Vice President and
Principal of the Regency Group, Inc., and a Consultant to First Boston
Corporation, both of which are investment banking firms. From 1965 to 1986,
Ms. Baxter held various positions in investment banking and corporate finance
at First Boston. Ms. Baxter currently also serves as a Director of Banta
Corporation, a Fortune 500 printing company, Avondale Federal Savings Bank, a
savings and loan company, and ASHTA Chemicals, Inc., a basic chemicals
producer. She is also the Chairman Emeritus of the Board of Trustees of Mount
Holyoke College, having previously served as Chairman for five years and as a
Board member for thirteen years; an Honorary Trustee and past President of
the Board of Trustees of the Emma Willard School; and a member of the Board
of Governors of Good Shepherd Hospital. She is also active in various
professional and civic organizations, including the Financial Women's
Association of New York. Ms. Baxter is a graduate of Mount Holyoke College.

Hans H. Estin. Mr. Estin, age 66, is the Vice Chairman of North American
Management Corp., a registered investment adviser serving individual clients
and their families. Mr. Estin currently also serves as a Director of The
Boston Company, Inc., a registered investment adviser which provides
administrative and investment management services to mutual funds and other
institutional investors, and Boston Safe Deposit and Trust Company; a
Corporation Member of Massachusetts General Hospital; and a Trustee of New
England Aquarium. He previously served as the Chairman of the Board of
Trustees of Boston University and is currently active in various other civic
associations, including the Boys & Girls Clubs of Boston, Inc. Mr. Estin is a
graduate of Harvard College and holds honorary doctorates from Merrimack
College and Boston University. He is a Chartered Financial Analyst.

John A. Hill. Mr. Hill, age 53, is the Chairman and Managing Director of
First Reserve Corporation, a registered investment adviser investing in
companies in the worldwide energy industry on behalf of institutional
investors. Prior to acquiring First Reserve in 1983, Mr. Hill held executive
positions with several investment advisory firms and held various positions
with the Federal government, including Associate Director of the Office of
Management and Budget and Deputy Administrator of the Federal Energy
Administration. Mr. Hill currently also serves as a Director of Snyder Oil
Corporation, an exploration and production company which he founded, Maverick
Tube Corporation, a manufacturer of structural steel, pipe and well casings,
PetroCorp Incorporated, an exploration and production company, Enterra
Corporation, an oil field service company, various private companies
controlled by First Reserve Corporation and various First Reserve Funds. He
is currently active in various business associations, including the Economic
Club of New York, and lectures on energy issues in the United States and
Europe. Mr. Hill is a graduate of Southern Methodist University.

Elizabeth T. Kennan. Ms. Kennan, age 57, is President Emeritus and a
professor of Mount Holyoke College. From 1978 through June 1995, she was the
President of Mount Holyoke College. From 1966 to 1978, she was on the faculty
of Catholic University, where she taught history and published numerous
articles. Ms. Kennan currently also serves as a Director of NYNEX
Corporation, a telecommunications company, Northeast Utilities, the Kentucky
Home Life Insurance Companies and Talbots, a women's clothing retailer. She
also serves as a Member of The Folger Shakespeare Library Committee. She is
currently active in various

<PAGE>
educational and civic associations, including the Committee on Economic
Development and the Council on Foreign Relations. Ms. Kennan is a graduate of
Mount Holyoke College, the University of Washington and St. Hilda College at
Oxford University and holds several honorary doctorates.

*Lawrence J. Lasser. Mr. Lasser, age 52, is a Vice President of the Fund
and the other Putnam funds. He has been the President, Chief Executive
Officer and a Director of Putnam Investments, Inc. and Putnam since 1985,
having begun his career there in 1969. Mr. Lasser currently also serves as a
Director of Marsh & McLennan Companies, Inc., the parent company of Putnam,
and INROADS/Central New England, Inc., a job market internship program for
minority high school and college students. He is a Member of the Board of
Overseers of the Museum of Science, the Museum of Fine Arts and the Isabella
Stewart Gardner Museum in Boston. He is also a Trustee of the Beth Israel
Hospital and Buckingham, Browne and Nichols School. Mr. Lasser is a graduate
of Antioch College and Harvard Business School.

Robert E. Patterson. Mr. Patterson, age 50, is the Executive Vice
President and Director of Acquisitions of Cabot Partners Limited Partnership,
a registered investment adviser which manages real estate investments for
institutional investors. Prior to 1990, he was the Executive Vice President
of Cabot, Cabot & Forbes Realty Advisors, Inc., the predecessor company of
Cabot Partners. Prior to that, he was a Senior Vice President of the Beal
Companies, a real estate management, investment and development company. He
has also worked as an attorney and held various positions in state
government, including the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson currently also serves as Chairman of
the Joslin Diabetes Center and as a Director of Brandywine Trust Company. Mr.
Patterson is a graduate of Harvard College and Harvard Law School.

*Donald S. Perkins. Mr. Perkins, age 67, is the retired Chairman of the
Board of Jewel Companies, Inc., a diversified retailer, where among other
roles he served as President, Chief Executive Officer and Chairman of the
Board from 1965 to 1980. He currently also serves as a Director of various
other public corporations, including American Telephone & Telegraph Company,
AON Corp., an insurance company, Cummins Engine Company, Inc., an engine and
power generator equipment manufacturer and assembler, Illinova and Illinois
Power Co., Inland Steel Industries, Inc., Kmart Corporation, a department
store company, LaSalle Street Fund, Inc., a real estate investment trust, and
Time Warner, Inc., the nation's largest media conglomerate. He previously
served as a director of several other major public corporations, including
Corning Glass Works, Eastman Kodak Company and Firestone Tire & Rubber
Company. Mr. Perkins currently also serves as a Trustee and Vice Chairman of
Northwestern University and as a Trustee of the Hospital Research and
Education Trust. He is currently active in various civic and business
associations, including the Business Council and the Civic Committee of the
Commercial Club of Chicago, of which he is the founding Chairman. Mr. Perkins
is a graduate of Yale University and Harvard Business School and holds an
honorary Doctorate from Loyola University of Chicago.

William F. Pounds. Dr. Pounds, age 66, is the Vice Chairman of the Fund
and of the other Putnam funds. He has been a Professor of Management at the
Alfred P. Sloan School of Management at the Massachusetts Institute of
Technology since 1961 and served as Dean of that School from 1966 to 1980. He
previously served as Senior Advisor to Rockefeller & Co., Inc., a registered
investment adviser which manages Rockefeller family assets, and Rockefeller
Trust Company. Dr. Pounds currently also serves as a Director of IDEXX
Laboratories, Inc., M/A-COM, Inc., EG&G, Inc., Perseptive Biosystems, Inc.,
Management Sciences For Health, Inc. and

<PAGE>
Sun Company, Inc. He is also a Trustee of the Museum of Fine Arts in Boston,
an Overseer of WGBH Educational Foundation and a Member of The American
Academy of Arts and Sciences. He previously served as a director of
Fisher-Price, Inc., a major toy manufacturer, and General Mills, Inc., a
major manufacturer and distributor of food products. Dr. Pounds is a graduate
of Carnegie Mellon University.

*George Putnam. Mr. Putnam, age 68, is the Chairman and President of the
Fund and of the other Putnam funds. He is the Chairman and a Director of
Putnam and Putnam Mutual Funds Corp. and a director of Marsh & McLennan
Companies, Inc., their parent company. Mr. Putnam is the son of the founder
of the Putnam funds and Putnam and has been employed in various capacities by
Putnam since 1951, including Chief Executive Officer from 1961 to 1973. He is
a former Overseer and Treasurer of Harvard University; a past Chairman of the
Harvard Management Company; and a Trustee Emeritus of Wellesley College and
Bradford College. Mr. Putnam currently also serves as a Director of The
Boston Company, Inc., Boston Safe Deposit and Trust Company,
Freeport-McMoRan, Inc., a mining and natural resources company, General
Mills, Inc., a major manufacturer of food products, Houghton Mifflin Company,
a major publishing company, and Rockefeller Group, Inc., a real estate
manager. He is also a Trustee of Massachusetts General Hospital, McLean
Hospital, Vincent Memorial Hospital, WGBH Educational Foundation and the
Museum of Fine Arts in Boston; an Overseer of Northeastern University; and a
Member of The American Academy of Arts and Sciences. Mr. Putnam is a graduate
of Harvard College and Harvard Business School and holds honorary doctorates
from Bates College and Harvard University.

*George Putnam, III. Mr. Putnam, age 43, is the President of 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 which provides
advice to private funds specializing in investments in such companies. Prior
to founding New Generation in 1985, Mr. Putnam was an attorney with the
Philadelphia law firm of Dechert Price & Rhodes. Mr. Putnam currently also
serves as a Director of The World Environment Center and the Massachusetts
Audubon Society. He is also a Trustee of the Sea Education Association and
St. Mark's School and an Overseer of the New England Medical Center. Mr.
Putnam is a graduate of Harvard College, Harvard Business School and Harvard
Law School.

Eli Shapiro. Dr. Shapiro, age 78, is the Alfred P. Sloan Professor of
Management, Emeritus at the Alfred P. Sloan School of Management at the
Massachusetts Institute of Technology, having served on the faculty of the
Sloan School for eighteen years. He previously was also on the faculty of
Harvard Business School, The University of Chicago School of Business and
Brooklyn College. During his academic career, Dr. Shapiro authored numerous
publications concerning finance and related topics. Dr. Shapiro previously
served as the President and Chief Executive of the National Bureau of
Economic Research and also previously provided economic and financial
consulting services to various clients. Dr. Shapiro currently serves as a
Director of Nomura Dividend Income Fund, Inc., a privately-held registered
investment company managed by Putnam. He is also a past Director of many
companies, including Reece Corporation, a sewing machine manufacturer,
Commonwealth Mortgage, Dexter Corporation, a manufacturer of plastics and
related products, Avis Corporation, a car rental company, Connecticut Bank
and Trust Company, Connecticut National Gas Corporation, the Federal Home
Loan Bank of Boston, where he served as Chairman from 1977-1989, Travelers'
Corporation, an insurance company, and Norlin Corporation, a musical
instrument manufacturer. Dr. Shapiro is also a past Trustee of Mount Holyoke
College and the Putnam funds (from 1984-1990). Dr. Shapiro is a Fellow of The
American Academy of Arts and Sciences and is active in various

<PAGE>
professional and civic associations, including the American Economic
Association, the American Finance Association and the Council on Foreign
Relations. Dr. Shapiro is a graduate of Brooklyn College and Columbia
University.

*A.J.C. Smith. Mr. Smith, age 60, is the Chairman and Chief Executive
Officer of Marsh & McLennan Companies, Inc. He has been employed by Marsh &
McLennan and related companies in various capacities since 1961. Mr. Smith is
a Director of the Trident Corp., and also serves as a Trustee of the Carnegie
Hall Society, the Central Park Conservancy and The American Institute for
Chartered Property Underwriters and is a Founder of the Museum of Scotland
Society. He was educated in Scotland and is Fellow of the Faculty of
Actuaries in Edinburgh, a Fellow of the Canadian Institute of Actuaries, a
Fellow of the Conference of Actuaries in Public Practice, an Associate of the
Society of Actuaries, and a Member of the American Academy of Actuaries, the
International Actuarial Association and the International Association of
Consulting Actuaries.

W. Nicholas Thorndike. Mr. Thorndike, age 62, serves as a Director of
various corporations and charitable organizations, including Data General
Corporation, a computer and high technology company, Bradley Real Estate,
Inc., a real estate investment trust, Providence Journal Co., a newspaper
publisher, and Courier Corporation, a book binding and printing company. He
is also a Trustee of Eastern Utilities Associates, Massachusetts General
Hospital, where he previously served as chairman, and Northeastern
University. Prior to December 1988, he was the Chairman of the Board and
Managing Partner of Wellington Management Company/Thorndike, Doran, Paine &
Lewis, a registered investment adviser which manages mutual funds and
institutional assets. He also previously served as a Trustee of the
Wellington Group of Funds (now The Vanguard Group) and was the Chairman and a
Director of Ivest Fund, Inc. Mr. Thorndike is a graduate of Harvard College.

*Trustees who are or may be deemed to be "interested persons" (as
defined in the 1940 Act) of the Fund and Putnam. Mr. Putnam is the
father of Mr. George Putnam, III. Mr. Perkins may be deemed to be an
"interested person" of the Fund because of his service as a director
of certain publicly-held companies which include registered
broker-dealer firms among their subsidiaries. Neither the Fund nor any
of the other Putnam funds currently engages in any transactions with
such firms except that certain of such firms act as dealers in the
retail sale of shares of certain Putnam funds in the ordinary course
of their business.

Messrs. Hill, Patterson, Putnam, Pounds and Thorndike and Ms. Baxter are
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.

The Fund's Board of Trustees will initially consist of 13 members and be
divided into three staggered-term classes, with the term of one class
expiring each year commencing with the Fund's 1996 annual meeting of
shareholders. The terms of Messrs. Pounds, Estin and Lasser and Ms. Baxter
expire at the Fund's 1996 annual meeting of shareholders, the terms of
Messrs. Hill, Patterson and Putnam, III and Ms. Kennan expire at the Fund's
1997 annual meeting of shareholders, and the terms of Messrs. Putnam,
Perkins, Shapiro, Smith and Thorndike expire at the Fund's 1998 annual
meeting of shareholders. Upon the completion of a class's initial term, the
Trustees of such class will stand for election every three years. Such
classification may prevent replacement of a majority of the Trustees for up
to two years. See "Description of Shares - Certain Provisions in the
Agreement and Declaration of Trust."

<PAGE>
Officers

Charles E. Porter, Executive Vice President. Managing Director of Putnam and
Putnam Investments, Inc. Executive Vice President of the Putnam funds.

Patricia C. Flaherty, Senior Vice President. Senior Vice President of the
Putnam funds.

Gordon H. Silver, Vice President. Director and Senior Managing Director of
Putnam and Putnam Investments, Inc. Vice President of the Putnam funds.

William N. Shiebler, Vice President. Director and Senior Managing Director
of Putnam Investments, Inc. President and Director of Putnam Mutual Funds
Corp. Vice President of the Putnam funds.

John R. Verani, Vice President. Senior Vice President of Putnam and Putnam
Investments, Inc. Vice President of the Putnam funds.

Robert F. Lucey, Vice President. President and Director of Putnam
Fiduciary Trust Company. Senior Managing Director of Putnam Investments, Inc.
Vice President of the Putnam funds.

Gary N. Coburn, Vice President. Senior Managing Director of Putnam and
Putnam Investments, Inc. Vice President of certain of the Putnam funds.

Thomas V. Reilly, Vice President. Managing Director of Putnam and Putnam
Investments, Inc. Vice President of certain of the Putnam funds.

Edward H. D'Alelio, Vice President. Managing Director of Putnam and Putnam
Investments, Inc. Vice President of certain of the Putnam funds.

Paul M. O'Neil, Vice President. Vice President of Putnam and Putnam
Investments, Inc. Vice President of the Putnam funds.

Jennifer E. Leichter, Vice President. Senior Vice President of Putnam and
Putnam Investments, Inc. Vice President of certain of the Putnam funds.

Hugh H. Mullin, Vice President. Senior Vice President of Putnam and Putnam
Investments, Inc. Vice President of certain of the Putnam funds.

John D. Hughes, Treasurer. Treasurer of the Putnam funds.

Paul G. Bucuvalas, Assistant Treasurer. Assistant Treasurer of the Putnam
funds.

Beverly Marcus, Clerk. Clerk of the Putnam funds.

Except as stated below, the principal occupations of the Fund's officers
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 November, 1990, Mr. Shiebler was President and Chief Operating Officer of
the InterCapital Division of Dean Witter Reynolds.

Ms. Leichter and Mr. Mullin are primarily responsible for the day-to-day
management of the Fund's portfolio. Ms. Leichter has been employed by Putnam
since 1987 and Mr. Mullin has been employed by Putnam since 1986.

<PAGE>
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.

Trustee Compensation Table

The Fund pays each Trustee a fee for his or her services. Each Trustee also
receives fees for serving as Trustee of other Putnam funds. The Trustees
periodically review their fees to assure that such fees continue to be
appropriate in light of their responsibilities as well as in relation to fees
paid to trustees of other mutual fund complexes. The Trustees meet monthly
over a two-day period, except in August. The Compensation Committee, which
consists solely of Trustees not affiliated with Putnam and is responsible for
recommending Trustee compensation, estimates that Committee and Trustee
meeting time together with appropriate preparation requires the equivalent of
at least three business days per Trustee meeting. The estimated fees to be
paid to each Trustee by the Fund for the Fund's first fiscal year and the
fees paid to each Trustee by all of the Putnam funds during 1994 are shown
below:

<TABLE>
<CAPTION>
Year first Estimated Retirement Total
elected as aggregate benefits accrued compensation
a Trustee of compensation as part of from all
Trustee the Putnam funds from the Fund* Fund's expenses Putnam funds**
<S> <C> <C> <C> <C>
Jameson A. Baxter 1994 $1,000 $0 $135,850
Hans H. Estin 1972 1,000 0 141,850
John A. Hill 1985 1,000 0 143,850
Elizabeth T. Kennan 1992 1,000 0 141,850
Lawrence J. Lasser 1992 1,000 0 141,850
Robert E. Patterson 1984 1,000 0 144,850
Donald S. Perkins 1982 1,000 0 139,850
William F. Pounds 1971 1,000 0 143,850
George Putnam 1957 1,000 0 141,850
George Putnam, III 1984 1,000 0 141,850
Eli Shapiro*** 1995 1,000 0 n/a
A.J.C. Smith 1986 1,000 0 137,850
W. Nicholas Thorndike 1992 1,000 0 144,850
</TABLE>

* Reflects estimated amounts to be paid by the Fund for its first fiscal
year, assuming a 12-month period. Includes an annual retainer and an
attendance fee for each meeting attended.

** Reflects total payments received from all Putnam funds in the most recent
calendar year. As of December 31, 1994, there were 86 funds in the Putnam
family.

*** Elected as Trustee of the Putnam funds in April 1995. For the calendar
year ended December 31, 1994, Dr. Shapiro received $38,577 in retirement
benefits from the Putnam funds in respect of his prior service as a Trustee
from 1984 to 1990, which benefits terminated at the end of 1994.

<PAGE>
The Fund's Trustees have approved Retirement Guidelines for Trustees of
the Putnam funds. These guidelines provide generally that a Trustee who
retires after reaching age 72 and who has at least 10 years of continuous
service will be eligible to receive a retirement benefit from each Putnam
fund for which he or she served as a Trustee. The amount and form of such
benefit is subject to determination annually by the Trustees and, unless
otherwise determined by the Trustees, will be an annual cash benefit payable
for life equal to one-half of the Trustee retainer fees paid by the Fund at
the time of retirement. Several retired Trustees are currently receiving
benefits pursuant to the Guidelines and it is anticipated that the current
Trustees of the Fund will receive similar benefits upon their retirement. A
Trustee who retired in the most recent calendar year and was eligible to
receive benefits under these Guidelines would have received an annual benefit
of $60,425, based upon the aggregate retainer fees paid by the Putnam funds
for such year. The Trustees of the Fund reserve the right to amend or
terminate such Guidelines and the related payments at any time, and may
modify or waive the foregoing eligibility requirements when deemed
appropriate.

INVESTMENT MANAGEMENT CONTRACT

Under a Management Contract between the Fund and Putnam, subject to such
policies as the Trustees may determine, Putnam, at its own 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 also places all orders for the purchase and sale of the Fund's
portfolio securities. Under the Management Contract, Putnam agrees to provide
all necessary investment personnel and related support services and to pay
the costs of their compensation, office space and equipment, as well as
certain costs associated with this offering as described in this Prospectus.
The Fund will pay for its organizational costs and certain other costs
associated with this offering, including the cost of printing prospectuses
and sales literature, the reimbursement of certain expenses incurred by the
Underwriters, auditing and legal fees and registration fees payable to the
SEC and the New York Stock Exchange. The Fund will also pay for all of its
operating expenses to the extent not otherwise borne by Putnam. See
"Administrative Services Contract" below.

As compensation for the services rendered, facilities furnished, and
expenses borne by Putnam, the Fund will pay Putnam a quarterly fee based on
the Fund's average net asset value (determined as described below) at the
annual rate of 1.10%. Average net asset value is to be determined by taking
the average of the weekly determinations of net asset value, determined at
the close of the last business day of each week, for each week which ends
during the quarter. The combined investment management and administrative
service fees (described below) are higher than those paid by most other
investment companies.

The Management Contract provides that Putnam 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.

The Management Contract may be terminated without penalty by vote of the
Trustees or the shareholders of the Fund, or by Putnam, 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

<PAGE>

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 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
1940 Act. See "Investment Restrictions."

ADMINISTRATIVE SERVICES CONTRACT

The Fund will pay Putnam a quarterly administrative service fee at the
annual rate of .25% of the Fund's average net asset value pursuant to an
Administrative Services Contract between the Fund and Putnam. Average net
asset value is to be determined by taking the average of the weekly
determinations of net asset value, determined at the close of the last
business day of each week, for each week which ends during the quarter. The
combined investment management and administrative service fees are higher
than those paid by most other investment companies.

Under the terms and conditions of the Administrative Services Contract, in
addition to the fee paid to Putnam, the Fund reimburses Putnam for a portion
of the compensation and related expenses of certain officers of the Fund and
their assistants who provide certain administrative services to the Fund and
the other funds in the Putnam family, each of which bears an allocated share
of the foregoing costs. The aggregate amount of all such payments and
reimbursements will be determined annually by the Trustees. Putnam pays all
other salaries of officers of the Fund. The Fund pays all expenses not
otherwise borne by Putnam including, without limitation, auditing, legal,
custody, and shareholder servicing expenses, fees of Trustees and costs of
preparing and mailing periodic reports and proxy statements to shareholders.

The Administrative Services Contract provides that Putnam 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.

PORTFOLIO TRANSACTIONS

Investment Decisions
Investment decisions for the Fund and for the other investment advisory
clients of Putnam and its affiliates, The Putnam Advisory Company, Inc. and
Putnam Fiduciary Trust Company, 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 clients are selling the security. In some instances,
one client may sell a particular security to another client. Sometimes, 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

<PAGE>
which in Putnam'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 and other agency transactions involve
the payment by the Fund of negotiated brokerage commissions. Such commissions
vary among different brokers. Also, a particular broker may charge different
commissions according to such factors as the difficulty and size of the
transaction. Transactions in foreign securities markets generally involve the
payment of fixed brokerage commissions, which are generally higher than those
in the United States. There is generally no stated commission in the case of
securities 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.

Putnam will place orders for the purchase and sale of portfolio securities
for the Fund and will buy and sell securities for the Fund through a
substantial number of broker-dealers. In so doing, Putnam will use 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, having in mind the Fund's best interests, considers all
factors it deems relevant, including price, the size of the transaction, the
nature of the market for the security, 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.

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) from broker-dealers which
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 receives brokerage and research services from many
broker-dealers with which Putnam places the Fund's portfolio transactions and
from third parties with which these broker-dealers have arrangements. These
services include such matters as general economic and security market
reviews, industry and company reviews, evaluations of securities,
recommendations as to the purchase and sale of securities, newspapers,
magazines, pricing services, quotation services, news services, and personal
computers utilized by Putnam's managers and analysts. Where the services
referred to above are not used exclusively by Putnam for research purposes,
Putnam, 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 and its affiliates, The Putnam
Advisory Company, Inc. and Putnam Fiduciary Trust Company, 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 and its
affiliates receive these services even though Putnam might otherwise be
required to purchase some of these services for cash.

As permitted by Section 28(e) of the Securities Exchange Act of 1934, as
amended, and by the Management Contract, Putnam may cause the Fund to pay a
broker-dealer which provides brokerage and

<PAGE>
research services to Putnam an amount of disclosed commission for effecting a
securities transaction for the Fund in excess of the commission which another
broker-dealer would have charged for effecting that transaction. Putnam's
authority to cause the Fund to pay any such greater commissions is also
subject to such policies as the Trustees may adopt from time to time.

The Management Contract provides that the fee payable to Putnam by the
Fund will be reduced by an amount equal to any commissions, fees, brokerage,
or similar payments received by Putnam or an affiliate in connection with the
purchase and sale of portfolio securities of the Fund, less any direct
expenses approved by the Trustees. Putnam seeks to reduce for the Fund
soliciting dealer fees on the tender of the Fund's portfolio securities in
tender or exchange offers. Any such reductions are likely to be minor in
amount.

Consistent with the Rules of Fair Practice 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 may consider sales of Shares of the Fund by underwriters and dealers
in this offering (and, if permitted by law, sales of the other Putnam funds)
as a factor in the selection of broker-dealers to execute portfolio
transactions for the Fund.

DIVIDENDS AND DISTRIBUTIONS

It is the Fund's policy to make monthly distributions to shareholders from
net investment income. The first distribution to shareholders is expected to
be paid within 90 days after the completion of the offering of the Fund's
Shares.

Net investment income of the Fund consists of all interest and other
income (excluding capital gains and losses) accrued on portfolio assets, less
all expenses of the Fund allocable thereto. Income and expenses of the Fund
are accrued each day. It is currently anticipated that amounts which
economically represent the excess of realized capital gains over realized
capital losses, if any, will be distributed to shareholders at least
annually.

To permit the Fund to maintain a more stable monthly distribution, the
Fund may from time to time pay out less than the entire amount of available
net investment income to shareholders earned in any particular period. Any
such amount retained by the Fund would be available to stabilize future
distributions. As a result, the distributions paid by the Fund for any
particular period may be more or less than the amount of net investment
income actually earned by the Fund during such period. For information
concerning the tax treatment of distributions to shareholders, see
"Taxation." The Fund intends, however, to make such distributions as are
necessary for it to qualify as a regulated investment company that is not
subject to federal tax.

Shareholders may have their dividend or distribution checks sent to
parties other than themselves. A "Dividend Order" form is available from
Putnam Investor Services, mailing address: P.O. Box 41203, Providence, Rhode
Island 02940-1203. After Putnam Investor Services receives this completed
form with all registered owners' signatures guaranteed, the shareholder's
distribution checks will be sent to the bank or other person the shareholder
has designated.

DIVIDEND REINVESTMENT PLAN

The Fund offers a Dividend Reinvestment Plan (the "Plan") for shareholders
pursuant to which shareholders will have all cash distributions automatically
reinvested in additional Shares by The First National Bank of Boston

<PAGE>
as plan agent (the "Plan Agent"), unless they elect to receive all
distributions in cash. Pursuant to an agreement among the Fund, the Plan
Agent, and Putnam Investor Services, Putnam Investor Services, a division of
Putnam Fiduciary Trust Company, furnishes certain administrative and
bookkeeping services relating to the Plan. Shareholders who elect not to
participate in the Plan will receive all distributions in cash paid by check
in U.S. dollars mailed by Putnam Investor Services, as dividend disbursing
agent, directly to the shareholder of record or to the person designated by
such shareholder in a Dividend Order form (or, if the Shares are held in
Street name, then to the nominee). Shareholders whose Shares are held in the
name of a broker or nominee which provides a dividend reinvestment service
should consult their broker or nominee to ensure that an appropriate election
is made on their behalf by the nominee or broker and should similarly make
such consultation in the event of transfer of their Shares to a new broker or
nominee. Shareholders whose Shares are held by a broker or nominee which does
not provide a dividend reinvestment service may be required to have their
Shares registered in their own names in order to participate in the Plan.

If the Trustees declare a dividend or determine to make a capital gain
distribution payable either in Shares or in cash, as shareholders may have
elected, non-participants in the Plan will receive cash and participants in
the Plan will receive the equivalent in Shares. If the market price (plus
estimated brokerage commissions) of the Shares on the payment date for the
dividend or distribution is equal to or exceeds their net asset value as
determined on the payment date, participants will be issued Shares in an
amount equal to the dividend or distribution at a price per Share equal to
the higher of net asset value and 95% of the market price. This discount
reflects savings in underwriting and other costs that the Fund would
otherwise be required to incur to raise additional capital. If the net asset
value exceeds the market price (plus estimated brokerage commissions) of the
Shares at such time, or if the Fund declares a dividend or other distribution
payable only in cash, the Plan Agent will, as agent for Plan participants,
attempt for a specified period to buy Shares in the open market, on the New
York Stock Exchange or elsewhere, for the participants' accounts at a
discount from the Shares' net asset value as determined from time to time
during the period. If the Plan Agent is unable to reinvest the entire amount
of a dividend or distribution payable either in Shares or in cash during the
specified period in Shares at a discount from net asset value, the portion of
the dividend or distribution not so reinvested will in general be invested in
newly-issued Shares at a value equal to the higher of their net asset value
as of the last day of the period and 95% of their market price on the last
day of the period. If, before the Plan Agent has completed reinvestment of
the dividend or distribution, the market price or net asset value of the
Shares exceeds the net asset value of the Shares on the payment date for the
dividend or distribution, the average per Share purchase price paid by the
Plan Agent for reinvestment of the dividend or distribution may be higher
than if the dividend or distribution had been paid in Shares issued by the
Fund on the payment date. Because the first distribution paid by the Fund may
be paid before the Plan becomes fully operational, shareholders who are
participants in the Plan may receive that distribution in cash.

The Plan Agent will maintain all shareholders' accounts in the Plan and
will furnish written confirmation of all transactions in the account,
including information needed by shareholders for tax records. Shares in the
accounts of each Plan participant will be held by the Plan Agent in
non-certificated form in the name of the participant, and each shareholder's
proxy will include those Shares purchased pursuant to the Plan.

In the case of shareholders such as banks, brokers, or nominees which hold
Shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of Shares certified

<PAGE>
from time to time by a record shareholder as representing the total amount
registered in the record shareholder's name and held for the account of
beneficial owners who are to participate in the Plan.

Each participant will pay a proportionate share of brokerage commissions
incurred with respect to the Plan Agent's open market purchases in connection
with the reinvestment of distributions. In each case, the cost per Share
purchased for each participant's account will be the average cost, including
brokerage commissions, of the Shares purchased in the open market. Shares may
be purchased through any of the Underwriters, acting as broker or dealer.

The automatic reinvestment of dividends and distributions will not relieve
participants of any income taxes that may be payable (or required to be
withheld) on dividends or distributions.

The Fund or the Plan Agent may terminate the Plan as applied to any
distribution paid subsequent to written notice sent to the participants in
the Plan at least 30 days before the record date for such distribution. The
Plan may also be amended by the Fund or the Plan Agent on at least 30 days'
prior written notice to participants in the Plan. There is no direct service
charge to participants in the Plan; however, the Fund reserves the right to
amend the Plan to include a service charge payable by the participants.

A shareholder participating in the Plan may withdraw from the Plan at any
time. There is no penalty for non-participation in or withdrawal from the
Plan, and shareholders who have previously withdrawn from the Plan may rejoin
it at any time. Upon termination of participation in the Plan, a shareholder
will receive a certificate or certificates for the full Shares held under the
Plan, and a cash adjustment for any fractional Shares. Changes in election
must be in writing and should include the name of the Fund and the
shareholder's name and address as they appear on the Share certificate. Such
elections, and all other correspondence concerning the Plan, should be sent
to Putnam Investor Services, mailing address: P.O. Box 41203, Providence,
Rhode Island 02940-1203, or shareholders may call Putnam Investor Services at
(800) 634-1587. An election to withdraw from the Plan will, until such
election is changed, be deemed to be an election by a shareholder to take all
subsequent distributions in cash.

TAXATION

The following discussion is based on the advice of Ropes & Gray, counsel
to the Fund, and reflects provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), existing Treasury regulations, rulings published by the
Internal Revenue Service, and other applicable authority as of the date of
this Prospectus. These authorities are subject to change by legislative or
administrative action. The following discussion is only a summary of some of
the important federal tax considerations generally applicable to investments
in the Fund. There may be other federal tax considerations applicable to
particular investors. In addition, income earned through an investment in the
Fund may be subject to state and local taxes. Prospective shareholders are
therefore urged to consult their tax advisors with respect to the tax
consequences to them of an investment in the Fund.

Taxation of the Fund

The Fund intends to qualify each year for taxation as a regulated investment
company under Subchapter M of the Code. If the Fund so qualifies, the Fund
will not be subject to federal income tax on income distributed timely to its
shareholders in the form of dividends or capital gain distributions.

<PAGE>
Qualification for taxation as a regulated investment company under the
Code requires, among other things, that the Fund distribute to its
shareholders each year (or in distributions attributable to such year) at
least 90% of the sum of its net investment income (including, generally,
interest, dividends and certain other income, less certain expenses) and the
excess, if any, of net short-term capital gains over net long-term capital
losses (the "Distribution Requirement"). If the Fund does not qualify for
taxation as a regulated investment company, the Fund's income will be taxed
at the Fund level, and all distributions from earnings and profits, including
distributions of the excess, if any, of net long-term capital gains over net
short-term capital losses ("net capital gain"), will be taxable to
shareholders as ordinary income. In addition, in order to requalify as a
regulated investment company, the Fund may be required to recognize
unrealized gains, pay substantial taxes and interest, and make certain
distributions.

In general, if the Fund fails to distribute in a calendar year
substantially all of its net investment income and substantially all of the
excess, if any, of capital gains over capital losses ("capital gain net
income") for the one-year period ending October 31 of such year (plus any
amount that was not distributed in previous taxable years), the Fund will be
subject to a 4% excise tax on the retained amounts.

In determining the Fund's taxable income for federal income and excise tax
purposes, the Fund will deduct its fees and other operating expenses. In the
possible event that any of such deductions were to be disallowed for tax
purposes, the Fund would be required either to distribute amounts of taxable
income that exceed the Fund's net investment income as determined for
financial reporting purposes (in which case the Fund would incur interest and
penalties for past periods) or to pay federal income and excise taxes (and
interest for past periods) with respect to any such excess taxable income not
distributed.

The Fund's investments and hedging activities are subject to certain
special tax rules. One such rule provides that in order to qualify for
taxation as a regulated investment company, less than 30% of the Fund's gross
income must be derived from the sale or other disposition of certain assets
(including financial futures contracts and options) held for less than three
months (the "Three-Month Rule"). Accordingly, the Fund will be restricted in
selling assets held, or considered to have been held, for less than three
months. Certain Code rules governing the Fund's hedging transactions may
affect the Fund's holding periods in its assets and may, therefore, affect
the Fund's ability to comply with the Three-Month Rule. Code rules may also
alter the timing and character of certain income, gains and losses realized
by the Fund with respect to its transactions in futures contracts, options,
and certain other investments. These rules could affect the amount, timing
and character of distributions to shareholders. In addition, 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.

Taxation of Shareholders

Dividends and other distributions. Distributions of net investment income and
the excess, if any, of net short-term capital gains over net long-term
capital losses, will be taxable to shareholders as ordinary income, and are
anticipated not to be eligible for the corporate dividends-received
deduction. Designated distributions of net capital gain will be taxable to
shareholders as long-term capital gains, without regard to how long a
shareholder has held Shares of the Fund, and will not qualify for the
corporate dividends-received deduction. Distributions in excess of the Fund's
earnings and profits will first reduce the adjusted tax basis

<PAGE>
of a holder's Shares and, after such adjusted tax basis is reduced to zero,
will constitute capital gains to such holder (assuming such Shares are held
as a capital asset).

Certain of the Fund's transactions (including, but not limited to,
transactions in foreign currency-denominated debt securities and holdings in
securities on which the issuer is in default and has suspended or ceased
payment of current interest) may produce a difference between its book income
and its taxable income. This difference may cause part or all of the Fund's
income distributions to constitute nontaxable returns of capital for tax
purposes or, conversely, require the Fund to make taxable distributions
exceeding book income in order to continue to qualify as a regulated
investment company and to avoid any Fund-level income tax.

Dividend and capital gain distributions will be taxable as described above
whether received in cash or in Shares under the Dividend Reinvestment Plan.
The amount of a distribution received in the form of Shares under the
Dividend Reinvestment Plan will be reported for federal income tax purposes
as equal to the amount of cash allocated to the shareholder for the purchase
of Shares on its behalf, notwithstanding whether Shares are actually
purchased or issued by the Fund.

Any dividend declared by the Fund in October, November or December and
payable to shareholders of record on a date in such a month generally is
deemed to have been received by the shareholders on December 31 of such year,
provided that the dividend actually is paid during January of the following
year.

The Fund will notify shareholders each year of the amount and tax status
of dividends and other distributions, including the amount of any
distribution of net capital gain.

Sales of Shares. Except as set forth below, in general, any gain or loss
realized upon a taxable disposition of Shares by a shareholder will be
treated as long-term capital gain or loss if the Shares have been held for
more than twelve months, and otherwise as short-term capital gain or loss,
assuming such Shares are held as a capital asset. However, any loss realized
upon a taxable disposition of Shares held for six months or less will be
treated as long-term, rather than short-term, capital loss to the extent of
any long-term capital gain distributions received by the shareholder with
respect to those Shares. All or a portion of any loss realized upon a taxable
disposition of Shares will be disallowed if other Shares are purchased
(including under the Dividend Reinvestment Plan) 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.

From time to time the Fund may make a tender offer for its Shares. The
terms of any such offer may permit a tendering shareholder to tender all
Shares held, or considered under certain attribution rules to be held, by
such shareholder. Shareholders who tender all Shares held, or considered to
be held, by them will be treated as having sold their Shares and generally
will realize a capital gain or loss. If a shareholder tenders some but not
all of its Shares, such shareholder may be treated as having received a
taxable dividend upon the tender of its Shares. In such a case, there is a
risk that non-tendering shareholders will be treated as having received
taxable distributions from the Fund.

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 or other non-corporate shareholder who fails to furnish the
Fund with a correct taxpayer identification number, who has underreported
dividends or

<PAGE>
interest income, or who fails to certify to the Fund that he or she is not
subject to such withholding. An individual's taxpayer identification number
is his or her social security number. Withholding at a rate of 30% (or lesser
rate established by treaty) may apply to certain distributions to
shareholders that are nonresident aliens or foreign partnerships, trusts or
corporations.

DESCRIPTION OF SHARES

The Trustees of the Fund have authority to issue an unlimited number of
shares of beneficial interest without par value. The Shares outstanding are,
and those offered hereby when issued will be, fully paid and nonassessable by
the Fund, except as set forth in the following paragraph. The Fund's Shares
have no preemptive, conversion, exchange or redemption rights. Each Share has
one vote, with fractional Shares voting proportionately. 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.

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 incurred by
any shareholder held personally liable for the obligations of the Fund. Thus,
the risk of a shareholder's 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.

The Fund has no present intention of offering additional shares, other
than Shares issued pursuant to the Fund's Dividend Reinvestment Plan. Other
offerings of its shares, if made, will require approval of the Trustees. Any
additional offering will not be sold at a price per share (exclusive of
underwriting discounts and commissions) below the then current net asset
value except in connection with an offering to existing shareholders or with
the consent of a majority of the Fund's outstanding Shares.

Certain Provisions in the Agreement and Declaration of Trust

The Agreement and Declaration of Trust includes provisions that could have
the effect of limiting the ability of other entities or persons to acquire
control of the Fund, or to cause it to engage in certain transactions or to
modify its structure. The Fund's Trustees are divided into three classes,
having initial terms of one, two and three years, respectively. At each
annual meeting of shareholders, the term of one class will expire and
Trustees will be elected to serve in that class for terms of three years. The
classification of the Trustees in this manner could delay for up to two years
the replacement of a majority of the Trustees. A Trustee may be removed from
office only by a vote of the holders of at least three-fourths of the Shares
of the Fund entitled to vote on the matter.

The affirmative vote of at least three-fourths of the outstanding Shares
is required to authorize any of the following actions: (1) merger or
consolidation of the Fund, (2) sale of all or substantially all of the assets
of the Fund, (3) liquidation or dissolution of the Fund, (4) conversion of
the Fund to an open-end investment company, or (5) amendment of the Agreement
and Declaration of Trust to reduce the three-quarters vote required to
authorize the actions in (1) through (5) above, unless with respect to any of
the foregoing such

<PAGE>
action has been authorized by the affirmative vote of three-fourths of the
total number of Trustees and three-fourths of the total number of Continuing
Trustees (as defined below), in which case the affirmative vote of a majority
of the outstanding voting securities of the Fund is required in connection
with the actions in (1) through (4) above, and the affirmative vote of a
majority of the outstanding Shares is required in connection with an
amendment of the Agreement and Declaration of Trust. A Continuing Trustee is
a Trustee of the Fund (1) who is not a person or an affiliate of a person who
enters or proposes to enter into a transaction resulting in a merger or
consolidation of the Fund or the sale of all or substantially all of the
assets of the Fund (an "Interested Party") and (2) who has been a Trustee for
a period of at least twelve months (or since the Fund's commencement of
operations if that period is less than twelve months), or is a successor of a
Continuing Trustee who is unaffiliated with an Interested Party and is
recommended to succeed a Continuing Trustee by a majority of the then
Continuing Trustees. A "majority of the outstanding voting securities" of the
Fund is defined in the 1940 Act to mean the affirmative vote of the lesser of
(1) more than 50% of the outstanding Shares or (2) 67% or more of the Shares
present at a meeting if more than 50% of the outstanding Shares are
represented at the meeting in person or by proxy.

The Trustees have determined that the three-quarters voting requirements
described above, which are greater than the minimum requirements under the
1940 Act, are in the best interests of the Fund and its shareholders
generally. Reference is made to the Agreement and Declaration of Trust of the
Fund, on file with the Securities and Exchange Commission, for the full text
of these provisions. These provisions could have the effect of depriving
shareholders of an opportunity to sell their Shares at a premium over
prevailing market prices by discouraging a third party from seeking to obtain
control of the Fund in a tender offer or similar transaction and may have the
effect of inhibiting the Fund's conversion to open-end status.

Principal Shareholder

As of the date of this Prospectus, Putnam Investments, Inc., a Massachusetts
corporation with offices located at One Post Office Square, Boston,
Massachusetts 02109, owned all the outstanding Shares of the Fund, which it
purchased in connection with the contribution of the initial capital of the
Fund. Putnam Investments, Inc. has represented that such Shares were
purchased for investment purposes only and will be sold only pursuant to an
effective registration statement under the Securities Act of 1933, as
amended, or an applicable exemption therefrom.

REPURCHASE OF SHARES; CONVERSION TO OPEN-END STATUS

Shares of closed-end investment companies often trade at a discount to
their net asset values, and the Fund's Shares may likewise trade at a
discount to their net asset value. The market price of the Fund's Shares will
be determined by such factors as relative demand for and supply of such
Shares in the market, the Fund's net asset value, general market and economic
conditions, and other factors beyond the control of the Fund. See
"Determination of Net Asset Value." Although the Fund's shareholders will not
have the right to redeem their Shares, the Fund may take action to repurchase
Shares in the open market or make tender offers for its Shares at their net
asset value. This may have the effect of reducing any market discount from
net asset value. In the event that the Shares trade at a significant discount
to their net asset value for an extended period of time, Putnam will consider
recommending a share repurchase program to the Trustees. A decision on
whether to recommend a share repurchase program will depend on prevailing
market conditions and other factors. Accordingly, there can be no assurance
that Putnam will recommend a share repurchase program.

<PAGE>
The Fund may, by vote of at least three-fourths of the outstanding Shares
(or, under certain circumstances, such lesser percentage as described above
under "Description of Shares - Certain Provisions in the Agreement and
Declaration of Trust"), be converted to an open-end investment company, which
would make the Fund's Shares redeemable upon demand of shareholders at the
Shares' net asset value. Certain provisions of the Fund's Agreement and
Declaration of Trust discussed above may have the effect of depriving
shareholders of an opportunity to sell their Shares at a premium over
prevailing market prices and may have the effect of inhibiting the Fund's
conversion to open-end status.

The Fund has no present intention of taking any actions described in the
foregoing paragraph. There is no assurance that the Fund will, in fact,
decide to undertake any of these actions or, if action is undertaken to
repurchase or tender for Shares, that such action will result in the Shares'
trading at a price which approximates their net asset value. Although Share
repurchases and tender offers could have a favorable effect on the market
price of the Fund's Shares, it should be recognized that the acquisition of
Shares by the Fund will decrease the total assets of the Fund and, therefore,
have the effect of increasing the Fund's expense ratio. Any Share repurchases
or tender offers will be made in accordance with requirements of the
Securities Exchange Act of 1934, as amended, and the 1940 Act. If the Fund
were to make a tender or repurchase offer for its Shares, shareholders would
receive any notice thereof required by applicable law, including any required
information describing the offer and the means by which shareholders might
submit their Shares. If the Fund converted to an open-end company, it could
be required to liquidate its portfolio investments to meet requests for
redemption, and its Shares would no longer be listed on the New York Stock
Exchange.

DETERMINATION OF NET ASSET VALUE

The Fund will determine the net asset value of its Shares at least once
each week as of the close of business on the last day on which the New York
Stock Exchange is open. Net asset value will be determined by dividing the
value of all assets of the Fund (including accrued interest and dividends),
less all liabilities (including accrued expenses), by the total number of
Shares outstanding. Securities and other assets for which quotations are
readily available are valued at market value, which is currently 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 U.S. Government securities are stated at the mean between
the last reported bid and asked prices. Short-term investments having
remaining maturities of 60 days or less are stated at amortized cost, which
approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees.

Reliable market quotations are not considered to be readily available for
long-term corporate bonds and notes, certain preferred stocks or certain
foreign securities. These investments are stated at fair value on the basis
of valuations furnished by pricing services approved by the Trustees, 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
will determine their fair value following procedures approved by the
Trustees. The Trustees periodically review such valuations and procedures.
The fair value of such securities generally will be 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

<PAGE>
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 (both at the time of purchase and
at the time of valuation), 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.

UNDERWRITING

The Underwriters named herein, for whom Smith Barney Inc., 388 Greenwich
Street, New York, New York 10013, A. G. Edwards & Sons, Inc., One North
Jefferson, St. Louis, Missouri 63103, Advest, Inc., 280 Trumbull Street,
Hartford, Connecticut 06103, Dain Bosworth Incorporated, 60 South 6th Street,
Minneapolis, Minnesota 55402, Fahnestock & Co. Inc., 110 Wall Street, New
York, New York 10005, First of Michigan Corporation, 100 Wall Street, New
York, New York 10005, Gruntal & Co., Incorporated, 14 Wall Street, New York,
New York 10005, Kemper Securities, Inc., 77 West Wacker Drive, Chicago,
Illinois 60601, Legg Mason Wood Walker, Incorporated, Legg Mason Tower, 111
South Calvert Street, Baltimore, Maryland 21202, Raymond James & Associates,
Inc., 880 Carillon Parkway, St. Petersburg, Florida 33716, The Robinson-
Humphrey Company, Inc., 3333 Peachtree Road, N.E., Atlanta, Georgia 30326,
and Sutro & Co. Incorporated, 201 California Street, San Francisco,
California 94111, are acting as Representatives, have severally agreed,
subject to the terms and conditions contained in the Underwriting Agreement,
to purchase from the Fund the number of Shares set forth below opposite their
respective names:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
<S> <C>
Smith Barney Inc.
A. G. Edwards & Sons, Inc.
Advest, Inc.
Dain Bosworth Incorporated
Fahnestock & Co. Inc.
First of Michigan Corporation
Gruntal & Co., Incorporated
Kemper Securities, Inc.
Legg Mason Wood Walker, Incorporated
Raymond James & Associates, Inc.
The Robinson-Humphrey Company, Inc.
Sutro & Co. Incorporated
Robert W. Baird & Co. Incorporated
Bear, Stearns & Co. Inc.
William Blair & Company
J.C. Bradford & Co.
Brean Murray, Foster Securities Inc.
JW Charles Securities, Inc.
Chatfield Dean & Co., Inc.
The Chicago Corporation
Coburn & Meredith, Inc.
Cowen & Company
Crowell, Weedon & Co.
Dillon, Read & Co. Inc.
Dominick & Dominick, Incorporated
Donaldson, Lufkin & Jenrette Securities
Corporation
Allen C. Ewing & Co.
Ferris, Baker Watts, Incorporated
First Albany Corporation
Furman Selz Incorporated
Gabelli & Company, Inc.
Hambrecht & Quist LLC
Hanifen, Imhoff Inc.
J.J.B. Hilliard, W.L. Lyons, Inc.
Interstate/Johnson Lane Corporation
Janney Montgomery Scott Inc.
Johnston, Lemon & Co. Incorporated
Josephthal Lyon & Ross Incorporated
Keane Securities Co., Inc.
Kirkpatrick, Pellis, Smith, Polian Inc.
Ladenburg, Thalmann & Co. Inc.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
Number of
Underwriter Shares

<S> <C>
Lazard Freres & Co.
Lehman Brothers Inc.
McDonald & Company Securities, Inc.
Mesirow Financial, Inc.
Moors & Cabot, Inc.
Morgan Keegan & Company, Inc.
Needham & Company, Inc.
The Ohio Company
Oppenheimer & Co., Inc.
PaineWebber Incorporated
Parker/Hunter Incorporated
Pennsylvania Merchant Group Ltd.
Piper Jaffray Inc.
Principal Financial Securities, Inc.
Prudential Securities Incorporated
Punk, Ziegel & Knoell
Ragen MacKenzie Incorporated
Rauscher Pierce Refsnes, Inc.
Robertson, Stephens & Company, L.P.
Roney & Co.
Salomon Brothers Inc.
Scoll & Stringfellow, Inc.
The Seidler Companies Incorporated
Stephens Inc.
Stifel, Nicolaus & Company, Incorporated
Tucker Anthony Incorporated
H.C. Wainwright & Co., Inc.
Wedbush Morgan Securities
Wertheim Schroder & Co. Incorporated
Wheat, First Securities, Inc.
Total
</TABLE>

The Underwriters, through their Representatives, have advised the Fund
that they propose to offer the Shares initially at the public offering price
set forth on the cover page of this Prospectus. There is no sales charge or
underwriting discount charged to investors on purchases of Shares in the
offering. Putnam or an affiliate has agreed to pay the Underwriters from its
own assets a commission in connection with sales of the Shares in the
offering, in the gross amount of $1.50 per Share. Such payment is equal to
6.00% of the initial public offering price per Share. From this amount, the
Underwriters may allow to selected dealers a payment in the amount of $1.00
per Share sold by such dealers and such dealers may reallow a payment of
$0.31 per Share to certain other dealers. The Underwriters reserve the right
to reject orders in whole or in part. After the initial offering, the
offering price and other selling terms may be changed by the Representatives.
The Fund is obligated to sell, and the Underwriters are obligated to
purchase, all of the Shares offered hereby (other than Shares covered by the
over-allotment option described below) if any are sold.

Investors must pay for the Shares on the third business day following the
date of this Prospectus. Investors should consult their broker concerning the
manner and method of payment.

The Fund has granted to the Underwriters an option, exercisable for 60
days from the date of this Prospectus, to purchase up to 555,000 additional
Shares at the initial public offering price as set forth on the cover page of
this Prospectus. Such option may be exercised from time to time by the
Underwriters during such 60-day period, but not more than three times. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments incurred in the sale of the Shares offered hereby. To the
extent such option to purchase is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional Shares as the number set forth next to such
Underwriter's name in the preceding table bears to 3,700,000.

<PAGE>
The Fund and Putnam have each agreed to indemnify the several Underwriters
or contribute to losses arising out of certain liabilities, including certain
liabilities under the Securities Act of 1933, as amended. The Fund has agreed
to pay up to $150,000 to the Underwriters in partial reimbursement of their
expenses in connection with this offering.

The Representatives have informed the Fund that the Underwriters do not
intend to confirm sales to any accounts over which they exercise
discretionary authority.

In connection with the requirements for listing of the Fund's Shares on
the New York Stock Exchange, the Underwriters will undertake to sell lots of
100 or more Shares to a minimum of 2,000 beneficial owners. The minimum
investment requirement is 100 Shares ($2,500).

Prior to this offering, there has been no public market for the Shares of
the Fund. Consequently, the initial public offering price has been determined
through negotiation among the Fund, Putnam and the Representatives. The
Shares have been approved for listing on the New York Stock Exchange under
the symbol "PCV."

The Underwriting Agreement provides that it may be terminated in the
absolute discretion of the Representatives, without liability on the part of
any Underwriter to the Fund or Putnam, if prior to the closing date for the
purchase of the Shares or the closing date for the purchase of the Shares
pursuant to the over-allotment option, as the case may be, (1) trading in
securities generally on any national securities exchange or the Nasdaq
National Market or the Nasdaq Stock Market shall have been suspended or
materially limited or trading in Shares of the Fund shall have been suspended
or materially limited; (2) additional material governmental restrictions, not
in force on the date of the Underwriting Agreement, have been imposed upon
trading in securities generally or a general moratorium on commercial banking
activities in New York or Massachusetts shall have been declared by either
Federal or state authorities; or (3) any outbreak or escalation of
hostilities or other international or domestic calamity, crisis or change in
political, financial or economic conditions occurs, the effect of which is
such as to make it in the judgment of the Representatives impracticable or
inadvisable to commence or continue the offering of the Shares at the
offering price to the public set forth on the cover page of this Prospectus
or to enforce contracts for the resale of the Shares by the Underwriters.

The Underwriters have taken certain actions to discourage short-term
trading of the Shares during a period of time following the initial offering
date. Included in these actions is the withholding of the concession to
dealers in connection with Shares which were sold by such dealers and which
are repurchased for the account of the Underwriters during such period. In
addition, physical delivery of certificates representing Shares is initially
required to transfer ownership.

The Fund anticipates that from time to time the Representatives of the
Underwriters and certain other Underwriters may act as brokers or dealers in
connection with the execution of its portfolio transactions after they have
ceased to be Underwriters and, subject to certain restrictions, may act as
brokers while they are Underwriters.

The Fund has agreed not to offer or sell any additional Shares, other than
Shares issued pursuant to the Fund's Dividend Reinvestment Plan, for a period
of 180 days after the date of the Underwriting Agreement, without the prior
written consent of the Underwriters.

Smith Barney Inc. currently anticipates that it may from time to time
effect OTC market-making transactions in the Shares after completion of the
initial public offering. Smith Barney Inc. is not obligated

<PAGE>
to conduct any such market-making activities and may discontinue such
activities at any time without notice, at its sole discretion. No assurance
can be given as to the liquidity of or the trading market for the Shares as a
result of any market-making activities undertaken by Smith Barney Inc.

CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND REGISTRAR

The Fund's custodian is Putnam Fiduciary Trust Company, an affiliate of
Putnam (the "Custodian"). The transfer agent, dividend disbursing agent and
registrar for the Shares is Putnam Investor Services, a division of Putnam
Fiduciary Trust Company (the "Transfer Agent"). The principal business
address of the Custodian and the Transfer Agent is One Post Office Square,
Boston, Massachusetts 02109. The Transfer Agent is responsible for, among
other things, establishing and maintaining shareholder accounts, issuing
certificates for the Shares, recording transactions in the Shares, monitoring
the number of Shares issued and outstanding from time to time, and effecting
payments of dividends and other distributions declared from time to time by
the Trustees with respect to the Shares. For these services, the Fund pays
the Transfer Agent a monthly fee based on the number of shareholder accounts
and reimburses the Transfer Agent for certain out-of-pocket expenses. All
correspondence and shareholder inquiries should be directed to Putnam
Investor Services, mailing address: P.O. Box 41203, Providence, Rhode Island
02940-1203; telephone: (800) 225-1581.

LEGAL MATTERS

Certain legal matters in connection with the Shares offered hereby will be
passed upon for the Fund by Ropes & Gray, Boston, Massachusetts and for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom, Boston, Massachusetts.
Skadden, Arps, Slate, Meagher & Flom also acts as counsel to Putnam and
certain of its affiliates in connection with other matters.

EXPERTS

The financial statement included in this Prospectus and the Registration
Statement has been so included in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of said firm as
experts in accounting and auditing.

ADDITIONAL INFORMATION

Further information concerning these securities may be found in the
Registration Statement, of which this Prospectus constitutes a part, on file
with the Securities and Exchange Commission.

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees of
Putnam Convertible Opportunities and Income Trust

We have audited the accompanying statement of assets and liabilities of
Putnam Convertible Opportunities and Income Trust as of June 12, 1995. This
financial statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of assets and
liabilities is free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
statement of assets and liabilities. Our procedures included the confirmation
of cash held by the custodian as of June 12, 1995. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall statement of assets and
liabilities presentation. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Putnam
Convertible Opportunities and Income Trust as of June 12, 1995 in conformity
with generally accepted accounting principles.

Coopers & Lybrand L.L.P.
Boston, Massachusetts
June 13, 1995

<PAGE>
PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST
STATEMENT OF ASSETS AND LIABILITIES

June 12, 1995

<TABLE>
<CAPTION>
<S> <C>
Assets
Cash $100,000.00
Deferred organization expenses (Note 1) 36,134.00
$136,134.00
Liabilities
Accrued expenses $ 36,134.00
Commitments (Notes 1 and 2)
$ 36,134.00
NET ASSETS, applicable to 4,000 shares of beneficial
interest without par value issued and outstanding;
unlimited number of shares authorized $100,000.00
NET ASSET VALUE PER SHARE $ 25.00
</TABLE>

Notes to Financial Statement

Note 1. Organization

The Fund was organized as a Massachusetts business trust on February 23,
1995, and is registered under the Investment Company Act of 1940, as amended,
as a closed-end, diversified management investment company. The Fund has had
no operations other than those relating to organizational matters, and the
initial capital contribution of $100,000 has been made by Putnam Investments,
Inc. Certain expenses incurred by the Fund in connection with its
organization and its initial public offering have been or will be paid
initially by Putnam Investment Management, Inc. ("Putnam"), the Fund's
investment manager; however, the Fund will reimburse Putnam for certain of
these costs. Organizational costs, estimated at $36,134.00, have been
capitalized and will be amortized by the Fund over a period not to exceed 60
months from the date the Fund commences operations; offering costs will be
charged to capital upon completion of this offering.

Note 2. Investment Management Contract and Administrative Services Contract

The Fund has entered into an Investment Management Contract with Putnam. As
compensation for the services rendered, facilities furnished, and expenses
borne by Putnam, the Fund will pay Putnam a fee, computed and paid quarterly,
at the annual rate of 1.10% of the average net asset value of the Fund.

The Fund has entered into an Administrative Services Contract with Putnam.
As compensation for the services rendered, facilities furnished, and expenses
borne by Putnam, the Fund will pay Putnam a fee, computed and paid quarterly,
at the annual rate of 0.25% of the average net asset value of the Fund.

<PAGE>
APPENDIX A - FIXED INCOME SECURITY RATINGS

Moody's Investors Service, Inc. describes its classifications of bonds as
follows:

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 some time 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.

Standard & Poor's describes its classifications of bonds as follows:

AAA - Debt rated 'AAA' has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.

AA - Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

A - Debt rated 'A' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.

<PAGE>
BBB - Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than for bonds in higher rated
categories.

BB-B-CCC - Debt rated 'BB', 'B' or 'CCC' is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. 'BB' indicates the least degree of speculation
and 'CCC' the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.

BB - Debt rated 'BB' has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The 'BB' rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied 'BBB-' rating.

B - Debt rated 'B' has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The 'B' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied 'BB' or 'BB-' rating.

CCC - Debt rated 'CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The 'CCC'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'B' or 'B-' rating.

<PAGE>
APPENDIX B - OPTIONS AND FUTURES PORTFOLIO STRATEGIES

Purchasing and Selling Put and Call Options

The Fund may purchase put options on securities to protect its portfolio
securities against a substantial decline in market value. 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 its
portfolio securities by the premium paid for the put option and by
transaction costs.

The Fund may also purchase call options on securities to hedge against an
increase in prices of securities that the Fund ultimately wants to buy. 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. By using call options in this manner, the Fund will
reduce any profit it might have realized had it bought the security at the
time it purchased the call option by an amount equal to the premium paid for
the call option plus transaction costs.

The Fund will not purchase call options if, as a result, more than 5% of
its assets would at the time be invested in such options.

The Fund may write covered call options and covered put options on
securities when, in the opinion of Putnam, such transactions are consistent
with the Fund's investment objectives 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. 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 if owned by the Fund. 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

<PAGE>
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. Because increases in the market price of a call option generally
reflect increases in the market price of the security underlying the option,
any loss resulting from a closing purchase transaction may be offset in whole
or in part by unrealized appreciation of the underlying security owned by the
Fund.

If the Fund writes an 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.

General Characteristics of Futures Contracts and Related Options

The Fund may purchase and sell futures contracts and related options in
order to hedge against a change in the values of securities that the Fund
owns or expects to purchase.

The sale of a futures contract generally creates an obligation by the
seller to deliver the type of financial instrument or commodity called for in
the contract in a specified delivery month for a stated price. (As described
below, however, index futures contracts do not require actual delivery of
securities making up an index.) The purchase of a futures contract creates an
obligation by the purchaser to take delivery of the underlying financial
instrument or commodity in a specified delivery month at a stated price. The
specific instruments delivered or taken, respectively, at settlement date are
not determined until at or near that date. The determination is made in
accordance with the rules of the exchange or board of trade on which the sale
or purchase of the futures contract was made. Futures contracts are traded
only on commodity exchanges or boards of trade - known as "contracts markets"
- - approved for such trading by the Commodity Futures Trading Commission, and
must be executed through a futures commission merchant, or brokerage firm,
which is a member of the relevant contract market.

Although most futures contracts by their terms call for actual delivery or
acceptance of commodities or financial instruments, 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 and 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. Similarly, the closing out
of a futures contract purchase is effected by the purchaser 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.

When the Fund purchases or sells a futures contract, it is required to
deposit with the Fund's custodian an amount of cash and/or securities. This
amount is known as "initial margin." The nature of initial margin is similar
to a performance bond or good faith deposit that is returned to the Fund upon
termination of the contract, assuming the Fund satisfies its contractual
obligations.

Subsequent payments to and from the broker involved in the transaction
occur on a daily basis in a process known as "marking to market." These
payments are called "variation margin" and are made as the

<PAGE>
value of the futures contract fluctuates. For example, when the Fund has
purchased a futures contract and the price of the underlying index, currency
or security has risen, that position may have increased in value, in which
event the Fund would receive from the broker a variation margin payment.
Conversely, when the Fund has purchased a futures contract and the price of
the underlying index, currency or security has declined, the position may be
less valuable, in which event the Fund would be required to make a variation
margin payment to the broker.

When the Fund terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to
the Fund, and the Fund realizes a loss or a gain. Such closing transactions
involve additional commission costs.

Index futures contracts and options. An index futures contract is a
contract to buy or sell units of a specified 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 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 based on 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 investment objectives.

For example, the 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). Index futures contracts specify that no delivery of the actual
securities 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 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 S&P 500 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).

Options on index futures contracts are similar to options on securities
except that options on index futures contracts give the purchaser (holder)
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), rather than to purchase or sell the futures
contract, at the specified exercise price at any time during the period of
the option. Upon exercise of the option, the delivery of the index 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 maintained with respect to the option, 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 futures contract. If an option is
exercised on the last trading day prior to the expiration date of the option,
the settlement will be made on the expiration date entirely in cash based on
the difference between the exercise price of the option and the closing level
of the index on which the futures contracts are based. Purchasers of options
who fail to exercise their options prior to expiration suffer a loss of the
premium paid.

<PAGE>
As an alternative to purchasing and selling call and put options on index
futures contracts, the Fund may purchase and sell call and put options on the
underlying indices themselves. Such options would be used in a manner similar
to the use of options on index futures contracts.

U.S. Government securities futures contracts and options. The Fund may
purchase and sell futures contracts and related options with respect to U.S.
Government securities, including U.S. Treasury notes, bills and bonds, when,
in the opinion of Putnam, price movements in such securities and options will
correlate closely with price movements of the securities which are the
subject of a hedge. U.S. Government securities futures contracts require the
seller to deliver, or the purchaser to take delivery of, the type of U.S.
Government security called for in the contract at a specified date and price.
Options on U.S. Government securities futures contracts give the purchaser
the right in return for the premium paid to assume a position in a U.S.
Government securities futures contract at the specified option exercise price
at any time during the period of the option.

Special Risks of Transactions in Futures Contracts and Options

There are several risks in connection with the use by the Fund of futures
contracts and options on such contracts. One risk arises in connection with
the use of index futures contracts and options because of the imperfect
correlation between movements in the prices of the index futures contracts
and options and movements in the prices of securities which are the subject
of a hedge. As a result, the Fund's hedging transactions based on such
indices may not achieve their intended purposes and may result in losses to
the Fund. Putnam will attempt to reduce these risks by purchasing and
selling, to the extent possible, futures contracts and options, the movements
of which will, in its judgment, correlate closely with movements in the
prices of the Fund's portfolio securities sought to be hedged. There is also
a risk that price movements in U.S. Government securities futures contracts
and options will not correlate closely with price movements in the securities
that are the subject of a hedge.

Successful use of futures contracts and related options by the Fund is
also subject to Putnam's ability to predict correctly 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. If this occurred, the
Fund would lose money on its futures positions.

Similarly, successful use of U.S. Government securities futures contracts
and related options by the Fund is subject to Putnam's ability to predict
correctly movements in the direction of interest rates and other factors
affecting markets for debt securities. For example, if the Fund has sold U.S.
Government securities futures contracts or bought put options in order to
hedge against the possibility of an increase in interest rates which would
adversely affect securities held in its portfolio, and the price of such
portfolio securities increases 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 or options positions.

In addition, the prices of futures and related options may not correlate
perfectly with movements in the underlying index, security or currency due to
certain market distortions. First, all participants in the futures market are
subject to margin deposit requirements. Such requirements may cause investors
to close futures contracts through offsetting transactions which could
distort the normal relationship between the index, security or currency and
futures markets. Second, the margin requirements in the futures market are
less onerous

<PAGE>
than margin requirements in the securities market in general, 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
distortion, even a correct forecast of general market trends by Putnam may
still not result in a profitable transaction over a short time period.

Compared to the purchase or sale of futures contracts, the purchase of
call or put options on securities, currencies, futures contracts, or
securities indices 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 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 price of
the underlying security, currency or index. The writing of an option on a
futures contract, security, currency or index involves risks similar to those
risks relating to the sale of futures contracts.

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.

The Fund's use of these strategies may result in a higher portfolio
turnover rate and additional brokerage costs. In addition, 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.

To reduce or eliminate a position held by the Fund (including for the
purpose of taking a subsequent position in the same futures contract or
option), the Fund may seek to close out a position. Trading in certain
futures contracts and options began only recently. The ability to establish
and close out positions will be subject to the development and maintenance of
a liquid market. It is not certain that this market will develop or continue
to exist. Reasons for the absence of a liquid 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 or
currencies; (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 market on that exchange (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. If a trading market were to
become unavailable, the Fund could no longer engage in closing transactions,
and may be required to maintain a position in an instrument at a time when
Putnam would otherwise have closed out the position. As a result, the Fund
may be unable to limit the amount of any loss resulting from its positions in
such an instrument.

Regulatory Matters

The Fund will not enter into any transactions involving futures or related
options until it has received all necessary regulatory approvals, including
from the Commodity Futures Trading Commission ("CFTC"). There can be no
assurance that such approvals will be obtained.

<PAGE>
APPENDIX C - FOREIGN CURRENCY TRANSACTIONS

Foreign Currency Exchange Transactions

The Fund may engage in currency exchange transactions to protect against
uncertainty in the level of future currency exchange rates. Generally, the
Fund may engage in both "transaction hedging" and "position hedging." When it
engages in transaction hedging, the Fund enters into foreign currency
transactions with respect to specific receivables or payables of the Fund
generally arising in connection with the purchase or sale of its 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 declared, and the date
on which such payments are made or received.

The Fund may purchase and 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.
The Fund may also enter into contracts to purchase or sell foreign currencies
at a future date ("forward contracts") and purchase and sell foreign currency
futures contracts.

For transaction hedging purposes the Fund may also purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures
contract gives the Fund the right to assume a short position in the futures
contract until expiration of the option. A put option on currency gives the
Fund the right to sell a 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 currency gives the Fund the right to purchase a
currency at the exercise price until the expiration of the option.

When it engages in position hedging, the Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the
foreign currencies in which its portfolio securities are denominated (or an
increase in the value of currency for securities which the Fund expects to
purchase, when the Fund holds cash or short-term investments). In connection
with position hedging, the Fund may purchase and sell foreign currency
forward contracts and foreign currency futures contracts and may purchase put
and call options on foreign currencies and foreign currency futures contracts
on exchanges or over-the-counter. The Fund may also purchase or sell foreign
currency on a spot basis.

The precise matching of the amounts of foreign currency exchange
transactions and the value of the securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the dates the foreign currency exchange transactions are entered into
and the dates they mature.

It is impossible to forecast with precision the market value of 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 if a decision is made to sell
the security or securities and make delivery of the foreign currency.
Conversely,

<PAGE>
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 the Fund can
achieve at some future point in time. Additionally, although, if successful,
these techniques can 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.

The currencies of certain foreign countries are not widely traded, and as
a result foreign currency exchange transactions may not be available with
respect to such currencies.

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 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 a hedge.

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 future date 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 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 amounts agreed upon by the parties rather
than predetermined amounts. Also, forward foreign currency contracts are
traded directly between currency traders so that no intermediary is required.
A forward contract generally requires no margin or other deposit.

<PAGE>
At the maturity of a forward or futures contract, the Fund may either
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.

Positions in 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. For
additional information concerning futures contracts and related options, see
Appendix B.

Foreign Currency Options

In general, options on foreign currencies operate similarly to options on
securities and are subject to many similar risks. Foreign currency options
are traded primarily in the over-the-counter market, although options on
foreign currencies have recently been listed on several exchanges.

The Fund will only purchase or write foreign currency options when Putnam
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.

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) may be significantly
affected, fixed, or supported directly or indirectly by government actions.
Government intervention may increase risks involved in purchasing or selling
foreign currency options, since exchange rates may not be free to fluctuate
in response to other market forces.

The value of a foreign currency option 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 or, in the case of cross hedges,
the two foreign currencies 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,
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.

Foreign Currency Markets and Settlement Procedures

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

<PAGE>
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 futures or options markets are closed while the markets
for the underlying currencies remain open, significant price and rate
movements may take place in the underlying currency markets that cannot be
reflected in the futures or options markets.

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 trades of foreign
securities or of foreign currency exchange transactions may occur within a
foreign country, and the Fund may be required to accept or make delivery of
the underlying securities or foreign 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 (or "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.

<PAGE>
APPENDIX D--PERFORMANCE DATA AND OTHER STATISTICAL INFORMATION

Performance Data of Selected Putnam Funds

The Fund is newly organized and has no performance record of its own.
However, Putnam acts as investment manager to a number of open-end and
closed-end investment companies that invest primarily in Convertible
Securities, Nonconvertible High Yield Securities or a combination of both.
The investment objectives and policies of these funds, which differ in
certain respects from the Fund's investment objectives and policies, are
described below. In addition, in certain cases funds having similar
investment objectives and policies may have been managed with different
investment styles and emphasized different sectors of the market for
Convertible Securities or Nonconvertible High Yield Securities. In certain
cases the investment objectives and policies of these funds or their
investment styles have changed since inception. Also, the net assets and
expense ratios of the funds have varied over the periods shown.

The following table sets forth the average annual total return and
standard deviation for these funds as calculated by Lipper Analytical
Services, Inc. ("Lipper") for the periods shown. The total return information
shown in the table does not include the effect of sales charges imposed by
open-end funds. See "Total Return Calculations" below for more information.
Except as noted below, each fund's overall Morningstar rating, which, as
described below under "Morningstar Ratings," is determined by Morningstar,
Inc. based on a weighted average of a fund's Morningstar ratings for selected
periods, is also included in the table. In the narrative following the table,
each fund's average annual total return, calculated using the SEC
standardized total return formula, which reflects the effect of sales charges
imposed by open-end funds, is also presented, along with its Morningstar
rating for each period used in determining its overall Morningstar rating.
The performance and standard deviation information in the table and the
performance information in the narrative following the table do not represent
the Fund's investment performance and standard deviation, nor should it be
considered a prediction of the Fund's performance and standard deviation. The
Fund's performance and standard deviation may be higher or lower than the
performance and standard deviation of the Putnam funds presented below.

<PAGE>
TABLE 1
AVERAGE ANNUAL TOTAL RETURN AND STANDARD DEVIATION(1)
(PERIODS ENDED APRIL 30, 1995)

<TABLE>
<CAPTION>
1 Year 3 Years 3 Years 5 Years 5 Years 7 Years
Putnam Funds Ann. Ret. Ann. Ret. Std. Dev. Ann. Ret. Std. Dev. Ann. Ret.
<S> <C> <C> <C> <C> <C> <C>
Putnam High Income
Convertible and Bond
Fund 6.88% 13.42% 4.59% 16.93% 8.30% 12.81%
Putnam Convertible
Income-Growth Trust
(Class A Shares) (4) 9.44 11.60 5.81 12.92 9.58 11.30
Putnam High Yield
Advantage Fund (Class A
Shares) 4.75 9.47 5.10 15.77 7.87 10.67
Putnam High Yield Trust
(Class A Shares) 4.69 9.11 4.78 14.56 7.19 10.28
PCM High Yield
Fund (5) 8.49 10.89 4.57 15.90 8.11 10.45
Putnam Managed High Yield
Trust (6) 5.34 n/a n/a n/a n/a n/a
</TABLE>

<TABLE>
<CAPTION>
Since Since
Incep- Incep-
7 Years 10 Years 10 Years tion (2) tion (2) Morningstar
Putnam Funds Std. Dev. Ann. Ret. Std. Dev. Ann. Ret. Std. Dev. Rating (3)
<S> <C> <C> <C> <C> <C> <C>
Putnam High Income
Convertible and Bond
Fund 7.66% n/a n/a 11.10% 8.69% 5 stars
Putnam Convertible
Income-Growth Trust
(Class A Shares) (4) 9.17 11.37% 11.68% 11.89 n/a 4 stars
Putnam High Yield
Advantage Fund (Class A
Shares) 7.69 n/a n/a 10.04 7.41 5 stars
Putnam High Yield Trust
(Class A Shares) 6.92 11.06 6.53 11.02 8.85 4 stars
PCM High Yield
Fund (5) 7.92 n/a n/a 10.31 7.84 n/a
Putnam Managed High Yield n/a
Trust (6) n/a n/a n/a 5.50 5.38
</TABLE>

(1) Average annual total return shown in the table does not reflect the
effect of sales charges. For information concerning how Lipper
calculates total return, see "Total Return Calculations" below.
Standard deviation is an annualized statistical measure of the range
of performance within which a fund's monthly total return has fallen.
A high standard deviation indicates that the range of performance has
been very wide, meaning that there has been historically greater
volatility. Standard deviations of monthly returns for a one-year
period are not considered statistically meaningful and are therefore
not presented.
(2) The inception dates for the Putnam funds shown in the table are provided
in the discussion following the table.

(3) As of April 30, 1995. For information concerning how these ratings are
determined by Morningstar, Inc., see "Morningstar Ratings" below.

(4) Lipper does not report the fund's standard deviation for the period June
29, 1972 (the fund's inception) through April 30, 1995.

(5) Insurance-related charges and expenses of the separate accounts investing
in the fund are not reflected in the fund's performance information.
Morningstar does not rate the fund independently from the separate accounts
investing in the fund.

(6) Because the fund has been in operation for less than three years, the
fund has no Morningstar rating.

<PAGE>
Putnam High Income Convertible and Bond Fund ("High Income Convertible"),
which commenced operations on July 16, 1987, is a diversified closed-end
investment company. High Income Convertible's primary investment objective is
high current income. Capital appreciation is a secondary objective. Under
normal market conditions, High Income Convertible invests approximately
60-70% of its assets in convertible securities and common stocks or other
securities received upon conversion or exchange of convertible securities and
30-40% of its assets in Nonconvertible High Yield Securities rated at least
Caa by Moody's or CCC by Standard & Poor's and in nonrated securities
determined by Putnam to be of comparable quality. Unlike the Fund, which
expects that initially its investments in Convertible Securities will
emphasize Convertible Securities with conversion values in excess of their
investment values, High Income Convertible typically emphasizes investments
in convertible securities having conversion values substantially below their
investment values. As a result, such convertible securities tend to trade
more like nonconvertible debt securities or preferred stock. For a discussion
of conversion value, see "Investment Objectives and Policies--Basic
Investment Strategy." High Income Convertible may invest up to 20% of its
assets in securities principally traded in foreign markets. High Income
Convertible may write covered call options with respect to securities in its
portfolio. No more than 5% of High Income Convertible's assets may be
invested in the securities of any one issuer (other than the U.S.
Government). As of April 30, 1995, High Income Convertible had approximately
$119.6 million in assets. For its fiscal year ended August 31, 1994, High
Income Convertible had a total expense ratio of 1.04%. High Income
Convertible's average annual total return, calculated by reference to changes
in net asset value, for the one-, three-, five- and seven-year periods ended
April 30, 1995 and for the life of High Income Convertible through that date
was 6.81%, 13.30%, 17.13%, 13.15% and 11.36%, respectively. High Income
Convertible's average annual total return, calculated by reference to changes
in the market price of its shares, for the one-, three-, five- and seven-year
periods ended April 30, 1995 and for the life of High Income Convertible
through that date was 4.22%, 12.98%, 21.09%, 13.84% and 10.64%, respectively.
High Income Convertible's Morningstar rating for the three- and five-year
periods ended April 30, 1995 was five stars for both periods.

Putnam Convertible Income-Growth Trust ("Convertible Income-Growth"),
which commenced operations on June 29, 1972, is a diversified open-end
investment company investing primarily in convertible securities. Convertible
Income-Growth seeks, with equal emphasis, current income and capital
appreciation. Its secondary objective is conservation of capital. Under
normal market conditions, Convertible Income-Growth invests at least 65% of
its assets in convertible securities. The remainder may be invested in common
stocks, nonconvertible preferred stocks and debt securities. Convertible
Income-Growth will only invest in nonconvertible debt securities rated at
least Caa by Moody's or CCC by Standard & Poor's and may only invest up to
10% of its assets in convertible securities rated Ca or C by Moody's or CC or
C by Standard & Poor's and in nonrated securities determined by Putnam to be
of comparable quality. Convertible Income-Growth may not invest in securities
rated, at the time of purchase, below C by Moody's and Standard & Poor's or
in nonrated securities determined by Putnam to be of comparable quality.
Convertible Income-Growth may invest up to 10% of its assets in securities
principally traded in foreign markets. Convertible Income-Growth may purchase
and sell put and call options on securities. No more than 5% of its assets
may be invested in the securities of any one issuer (other than the U.S.
Government). As an open-end investment company, Convertible Income-Growth can
invest no more than 15% of its assets in illiquid securities. As of April 30,
1995, Convertible Income-Growth had approximately $768.8 million in assets.
For its fiscal year ended October 31, 1994, Convertible Income-Growth had a
total expense ratio of 0.96%. Convertible Income-Growth's average annual
total return for its Class A shares

<PAGE>
for the one-, three-, five-, seven- and ten-year periods ended April 30, 1995
and for the life of Convertible Income-Growth through that date was 3.14%,
9.42%, 11.59%, 10.37%, 10.71% and 11.60%, respectively, adjusted to reflect
deduction of the maximum sales charge of 5.75%. Convertible Income-Growth's
Morningstar rating for its Class A shares for the three-, five- and ten-year
periods ended April 30, 1995 was four stars, four stars and three stars,
respectively.

Putnam High Yield Advantage Fund ("High Yield Advantage"), which commenced
operations on March 25, 1986, is a diversified open-end investment company
investing primarily in high-yielding, lower-rated fixed income securities.
The primary investment objective of High Yield Advantage is high current
income. Capital growth is a secondary objective when consistent with the
objective of high current income. Under normal market conditions, High Yield
Advantage invests at least 80% of its assets in debt securities, convertible
securities and preferred stocks that are consistent with its primary
objective of high current income. High Yield Advantage may invest up to 15%
of its assets in securities rated below Caa by Moody's or CCC by Standard &
Poor's, including securities in the lowest rating category of each rating
agency, and in nonrated securities determined by Putnam to be of comparable
quality. High Yield Advantage may invest up to 20% of its assets in
securities principally traded in foreign markets. No more than 5% of High
Yield Advantage's assets may be invested in the securities of any one issuer
(other than the U.S. Government). As an open-end investment company, High
Yield Advantage can invest no more than 15% of its assets in illiquid
securities. As of April 30, 1995, High Yield Advantage had approximately
$861.6 million in assets. For its fiscal year ended November 30, 1994, High
Yield Advantage had a total expense ratio of 1.03%. High Yield Advantage's
average annual total return for its Class A shares for the one-, three-,
five- and seven-year periods ended April 30, 1995 and for the life of High
Yield Advantage through that date was -0.18%, 7.72%, 14.66%, 9.91% and 9.45%,
respectively, adjusted to reflect deduction of the maximum sales charge of
4.75%. High Yield Advantage's Morningstar rating for its Class A shares for
the three- and five-year periods ended April 30, 1995 was four stars and five
stars, respectively.

Putnam High Yield Trust ("High Yield"), which commenced operations on
February 14, 1978, is a diversified open-end investment company investing
primarily in high-yielding, lower-rated fixed income securities. The primary
investment objective of High Yield is high current income. Capital growth is
a secondary objective when consistent with the objective of high current
income. Under normal market conditions, High Yield invests at least 80% of
its assets in debt securities, convertible securities and preferred stocks
that are consistent with its primary objective of high current income. High
Yield may invest in any security rated, at the time of purchase, at least Caa
by Moody's or CCC by Standard & Poor's and in nonrated securities determined
by Putnam to be of comparable quality. It may invest up to 20% of its assets
in securities principally traded in foreign markets. No more than 5% of High
Yield's assets may be invested in the securities of any one issuer (other
than the U.S. Government). As an open-end investment company, High Yield can
invest no more than 15% of its assets in illiquid securities. As of April 30,
1995, High Yield had approximately $3.6 billion in assets. For its fiscal
year ended August 31, 1994, High Yield had a total expense ratio of 0.94%.
High Yield's average annual total return for its Class A shares for the one-,
three-, five-, seven- and ten-year periods ended April 30, 1995 and for the
life of High Yield through that date was -0.31%, 7.36%, 13.46%, 9.51%, 10.52%
and 10.67%, respectively, adjusted to reflect deduction of the maximum sales
charge of 4.75%. High Yield's Morningstar rating for its Class A shares for
the three-, five- and ten-year periods ended April 30, 1995 was four stars,
five stars and four stars, respectively.

<PAGE>
PCM High Yield Fund ("PCM High Yield"), which commenced operations on
February 1, 1988, is a series of Putnam Capital Manager Trust, an open-end
investment company the shares of which are available only through separate
accounts associated with variable annuity contracts and variable life
insurance policies. PCM High Yield invests primarily in high-yielding,
lower-rated fixed income securities. The primary investment objective of PCM
High Yield is high current income. Capital growth is a secondary objective
when consistent with the objective of high current income. Under normal
market conditions, PCM High Yield invests at least 80% of its assets in debt
securities, convertible securities and preferred stocks that are consistent
with its primary objective of high current income. PCM High Yield may invest
without limit in securities rated, at the time of purchase, at least Caa by
Moody's or CCC by Standard & Poor's, and in nonrated securities determined by
Putnam to be of comparable quality, and may invest up to 15% of its assets in
securities rated below Caa by Moody's or CCC by Standard & Poor's, including
securities in the lowest rating category of each agency, or in nonrated
securities determined by Putnam to be of comparable quality. PCM High Yield
may invest up to 20% of its assets in securities principally traded in
foreign markets. PCM High Yield generally may not invest more than 5% of its
assets in the securities of any issuer. As a series of an open-end investment
company, PCM High Yield can invest no more than 15% of its assets in illiquid
securities. As of April 30, 1995, PCM High Yield had approximately $402.7
million in assets. For its fiscal year ended December 31, 1994, PCM High
Yield had a total expense ratio of .74%. PCM High Yield's average annual
total return for the one-, three-, five- and seven-year periods ended April
30, 1995 and for the life of PCM High Yield through that date was 8.46%,
10.88%, 15.89%, 10.69% and 10.31%, respectively. Insurance-related charges
and expenses of the separate accounts investing in PCM High Yield are not
reflected in PCM High Yield's performance information.

Putnam Managed High Yield Trust ("Managed High Yield"), which commenced
operations on June 26, 1993, is a non-diversified closed-end investment
company investing primarily in high-yielding, lower-rated fixed income
securities. The primary investment objective of Managed High Yield is high
current income. Capital growth is a secondary objective when consistent with
the principal objective of high current income. Under normal market
conditions, Managed High Yield invests at least 80% of its assets in
securities rated Ba or B by Moody's or BB or B by Standard & Poor's or
comparably rated by any other nationally recognized securities rating
organization or in nonrated securities determined by Putnam to be of
comparable quality. Managed High Yield may only invest in securities rated,
at the time of purchase, at least B by Moody's or Standard & Poor's or
comparably rated by any other nationally recognized securities rating
organization or in nonrated securities determined by Putnam to be of
comparable quality. Managed High Yield may invest up to 15% of its assets in
U.S. dollar-denominated securities of foreign issuers and up to 5% of its
assets in securities denominated and traded in foreign currencies. Managed
High Yield may invest up to 25% of its assets in each of any two issuers and,
with respect to the remaining 50% of its assets, may not invest more than 5%
of its assets in the securities of any one issuer (other than the U.S.
Government). As of April 30, 1995, Managed High Yield had approximately $96.5
million in assets. For its fiscal year ended May 31, 1994, Managed High Yield
had a total expense ratio of 1.07%. Managed High Yield's average annual total
return, calculated by reference to changes in net asset value, for the
one-year period ended April 30, 1995 and for the life of Managed High Yield
through that date was 5.75% and 5.74%, respectively. Managed High Yield's
average annual total return, calculated by reference to changes in the market
price of its shares, for the one-year period ended April 30, 1995 and for the
life of Managed High Yield through that date was 6.86% and -1.24%,
respectively.

<PAGE>

Total Return Calculations. Average annual total return calculated by
Putnam using the SEC's standardized total return formula is based upon the
change in value of an assumed initial investment of $1,000 from the beginning
through the end of a period and assumes reinvestment of all dividends and
other distributions. The result is then annualized and expressed as a
percentage of the initial investment, and includes the effect of operating
expenses, including advisory fees and brokerage commissions, and applicable
sales charges in the case of open-end funds. In the case of closed-end funds,
average annual total return is also calculated using this formula and is
based both on changes in the market price of a fund's shares and changes in
net asset value.

Lipper, a firm recognized for its reporting of performance of open-end and
closed-end investment companies, calculates average annual total return by
comparing an investment company's net asset value at the beginning and end of
a period, with the result being expressed as a percentage change in the
beginning net asset value. The net asset value is adjusted to reflect the
compounding effect of reinvesting income dividends as well as capital gains
distributions, if any. Distributions are reinvested on the ex-dividend date
at the ex-dividend net asset value. The cumulative return obtained is then
annualized. According to Lipper, performance data reflects all fees and
expenses other than front-end sales charges or redemption fees.

Other methods of computing average annual total return may produce
different results.

Morningstar Ratings. Morningstar, Inc. ("Morningstar") regularly
distributes mutual fund star ratings. According to Morningstar, these ratings
represent a fund's historical risk/reward ratio relative to other funds.
Total return data underlying this ratio reflects deduction of expenses and
sales charges and is expressed relative to the average performance of other
funds. The risk component underlying this ratio evaluates a fund's downside
volatility relative to that of other funds. To determine a fund's star rating
for a given period, Morningstar subtracts the fund's comparative risk score
from its return score. The resulting number is plotted along a bell curve to
determine the fund's rating for the relevant time period: If a fund scores in
the top 10% of its class it receives five stars (highest); if it falls in the
next 22.5% it receives four stars (above average); a place in the middle 35%
earns it three stars (neutral or average); those lower still, in the next
22.5%, receive two stars (below average); and the bottom 10% get one star
(lowest). Morningstar's overall rating for each fund is based on a weighted
average of the fund's three-, five- and ten-year ratings. The ten-year rating
accounts for 50% of the overall rating, the five-year figure for 30% and the
three-year rating for 20%. If only five years of history are available, the
five-year period is weighted 60% and the three-year period is weighted 40%.
If only three years of data are available, the three-year rating is also the
overall rating.

All of the Putnam funds shown in Table 1 are in Morningstar's hybrid
investment class. For the three-, five- and ten-year periods ended April 30,
1995, Morningstar ranked open-end hybrid funds against a universe of 2,086,
1,520 and 671 funds, respectively. For the three- and five-year periods ended
April 30, 1995, Morningstar ranked closed-end hybrid funds against a universe
of 198 and 166 funds, respectively.

Market Indices

The following table shows the total return of each of the indices shown
under the heading "Investment Considerations" on a quarter-by-quarter basis
since December 31, 1987 (the inception date of the Merrill Lynch All
Convertible Bonds & Preferreds Index). Additional information concerning
these indices, each of which is unmanaged and market-weighted and is not
adjusted for fees, commissions or other costs, is provided after the table.
The securities the Fund owns will not match, and are not intended to be
representative of, those in any of the indices.

<PAGE>
TABLE 2

QUARTERLY RETURNS
<TABLE>
<CAPTION>
Merrill Lynch
All Convertible CS 50/50
Bonds & First Boston Convertible S&P 500 Russell
Preferreds High Yield and High Yield Composite 2000
Index Index Index Stock Price Index Index
<S> <C> <C> <C> <C> <C>
1988
First Quarter 7.54% 5.69% 6.61% 5.75% 19.07%
Second Quarter 4.59 3.36 3.98 6.54 6.59
Third Quarter -0.41 1.76 0.68 0.37 -0.94
Fourth Quarter 0.66 2.24 1.46 3.02 -0.66
1989
First Quarter 5.80 1.74 3.76 7.02 7.70
Second Quarter 4.75 3.61 4.19 8.80 6.37
Third Quarter 4.08 -2.06 0.98 10.65 6.75
Fourth Quarter -2.45 -2.75 -2.60 2.02 -4.95
1990
First Quarter -1.07 -2.58 -1.82 -3.06 -2.21
Second Quarter 3.39 5.74 4.59 6.30 3.86
Third Quarter -11.61 -9.04 -10.29 -13.80 -24.54
Fourth Quarter 2.86 -0.08 1.41 8.98 5.03
1991
First Quarter 16.55 18.52 17.56 14.56 29.74
Second Quarter 2.01 7.41 4.73 -0.21 -1.55
Third Quarter 5.97 7.65 6.82 5.38 8.15
Fourth Quarter 4.74 4.90 4.85 8.36 5.73
1992
First Quarter 7.46 8.19 7.83 -2.55 7.50
Second Quarter 1.99 2.46 2.23 1.97 -6.82
Third Quarter 4.77 3.61 4.20 3.10 2.87
Fourth Quarter 6.61 1.58 4.07 5.11 14.92
1993
First Quarter 8.36 6.97 7.67 4.31 4.27
Second Quarter 3.04 3.89 3.46 0.49 2.18
Third Quarter 4.41 2.48 3.44 2.56 8.74
Fourth Quarter 1.99 4.41 3.21 2.31 2.62
1994
First Quarter -2.76 -1.06 -1.91 -3.81 -2.65
Second Quarter -3.86 -1.44 -2.66 0.39 -3.89
Third Quarter 2.24 1.60 1.93 4.92 6.94
Fourth Quarter -2.78 -0.04 -1.41 0.01 -1.87
1995
First Quarter 6.56 4.71 5.63 9.73 4.61
</TABLE>

<PAGE>
The CS First Boston High Yield Index, which is maintained by CS First
Boston Corporation, is comprised of all publicly traded bonds having an
initial par value of at least $75 million and a rating below BBB by Standard
& Poor's or Baa by Moody's at the time of issuance, a market value of at
least $75 million and a rating below BBB by Standard & Poor's or Baa by
Moody's two months after being downgraded, or an initial par value or a
market value of at least $125 million and a rating of BBB by Standard &
Poor's and Ba by Moody's or BB by Standard & Poor's and Baa by Moody's. The
CS First Boston High Yield Index excludes bonds upgraded above BBB by
Standard & Poor's and Baa by Moody's, defaulted issues with market values
below $20 million for six consecutive months and non-defaulted issues with
market values below $50 million for six consecutive months. The CS First
Boston High Yield Index reflects changes in market prices and reinvestment of
all interest payments.

The Merrill Lynch All Convertible Bonds & Preferreds Index (the "Merrill
Lynch Convertible Index"), which is maintained by Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), includes all significant
publicly-held convertible securities of at least $50 million market value
issued by U.S. corporations with maturities of at least one year. No
securities which are convertible into cash, bonds or preferred stocks as a
result of mergers, no convertible securities of bankrupt issuers, and no
convertible securities with mandatory conversion features are included in the
Merrill Lynch Convertible Index. The Merrill Lynch Convertible Index reflects
changes in market prices and reinvestment of all interest payments.

The 50/50 Convertible and High Yield Index is an index prepared by Putnam,
50% of the value of which is represented by the Merrill Lynch Convertible
Index and 50% of the value of which is represented by the CS First Boston
High Yield Index, with such weightings being reset monthly. Performance
figures for the 50/50 Convertible and High Yield Index reflect changes in
market prices and reinvestment of all interest payments.

The S&P 500 Composite Stock Price Index (the "S&P 500"), which is
maintained by Standard & Poor's, is comprised of 500 stocks that are traded
on the New York or American Stock Exchanges or through The Nasdaq Stock
Market, Inc. According to Standard & Poor's, the stocks are intended to be
representative of important industries within the U.S. economy and many are
issued by companies that are also the leaders of their industries. The S&P
500 performance figures reflect changes in market prices and reinvestment of
all cash dividends.

The Russell 2000 Index (the "Russell 2000") is maintained by Frank Russell
Co. In constructing the Russell 2000, Frank Russell Co. first identifies the
3,000 largest-capitalization common stocks of U.S.-domiciled corporations,
then excludes from such list the 1,000 largest-capitalization common stocks.
The remaining stocks comprise the index. The Russell 2000 performance figures
reflect changes in market prices and reinvestment of all regular cash
dividends.

The foregoing descriptions of the various market indices are based on
current information concerning the criteria for a security's inclusion in
each index. However, such criteria, as well as the securities comprising each
index, are subject to change from time to time. For example, as of January 1,
1995, the securities comprising the Merrill Lynch Convertible Index changed
due to both changes in the criteria for a security's inclusion in the index
(an increase in the minimum market value from $25 million to $50 million) and
changes in the securities included in the index in order for the index to be,
in the opinion of Merrill Lynch, more representative of the convertible
securities market.

<PAGE>
Statistical Information Concerning Convertible Securities

In Putnam's view, Convertible Securities, under current market conditions,
are attractively valued. Putnam's view is based on a variety of factors,
including its analysis of certain statistical data about the market for
Convertible Securities. This data is summarized in the following table. To
the extent available, the information in the following table is as of the end
of each month since the inception of the Merrill Lynch Convertible Index on
December 31, 1987.

TABLE 3
Source: Merrill Lynch Convertible Index

<TABLE>
<CAPTION>
Average Average Average Average Premium to
Current Yield Conversion Premium Break-Even (years) Investment Value
<S> <C> <C> <C> <C>
1988
January 31 n/a n/a n/a n/a
February 29 n/a n/a n/a n/a
March 31 n/a n/a n/a n/a
April 30 n/a n/a n/a n/a
May 31 n/a n/a n/a n/a
June 30 n/a n/a n/a n/a
July 31 n/a n/a n/a n/a
August 31 7.59% n/a 5.14 56.96%
September 30 7.61 n/a 6.52 50.26
October 31 7.57 n/a 5.06 47.17
November 30 7.62 n/a 4.44 44.54
December 31 7.52 33.27% 4.09 48.82
1989
January 31 7.32 30.02 3.36 51.68
February 28 7.32 31.10 3.97 52.74
March 31 7.14 30.37 3.85 54.36
April 30 6.90 28.70 3.41 59.90
May 31 7.06 27.96 3.44 52.43
June 30 7.03 29.15 3.95 48.08
July 31 6.74 27.05 3.26 51.62
August 31 6.76 25.76 3.31 58.01
September 30 6.69 29.14 3.42 61.96
October 31 6.66 33.79 4.34 59.12
November 30 6.53 33.74 4.06 58.36
December 31 6.70 31.18 3.90 58.57
1990
January 31 7.04 39.99 4.82 n/a
February 28 6.96 35.82 4.43 53.44
March 31 6.88 34.71 4.24 60.84
April 30 7.01 37.45 4.61 56.74
May 31 7.13 32.34 3.76 66.33
June 30 6.97 34.48 3.80 57.56
July 31 7.11 38.21 4.00 54.41
August 31 7.59 46.82 4.70 42.80
September 30 7.78 52.20 4.45 46.75
October 31 8.19 49.35 4.36 45.24
November 30 7.91 46.26 4.20 50.60
December 31 7.78 42.19 3.93 50.83
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
Average Average Average Average Premium to
Current Yield Conversion Premium Break-Even (years) Investment Value
<S> <C> <C> <C> <C>
1991
January 31 7.57% 38.90% 3.74 54.32%
February 28 6.77 34.87 3.57 68.38
March 31 6.78 36.15 3.65 59.86
April 30 6.56 38.07 4.09 56.40
May 31 6.36 34.99 3.60 58.92
June 30 6.51 45.02 4.39 52.71
July 31 6.31 43.35 4.09 60.24
August 31 6.11 39.94 3.83 60.41
September 30 6.19 40.90 3.85 59.56
October 31 6.00 48.66 4.72 41.28
November 30 6.24 51.28 5.64 45.76
December 31 6.00 44.43 4.94 51.24
1992
January 31 5.65 46.64 5.19 56.55
February 29 5.60 41.34 4.78 57.93
March 31 5.69 42.39 4.88 50.56
April 30 5.65 41.57 4.42 51.08
May 31 5.55 42.82 4.84 54.36
June 30 5.67 42.82 4.75 46.07
July 31 5.58 43.68 4.81 51.29
August 31 5.67 50.18 5.41 46.67
September 30 5.58 50.41 5.58 44.45
October 31 6.29 49.51 5.35 41.75
November 30 5.41 41.49 4.73 55.34
December 31 5.24 38.85 4.58 52.96
1993
January 31 5.04 34.29 4.05 55.71
February 28 5.00 34.69 4.10 57.62
March 31 5.00 33.07 4.10 61.68
April 30 5.03 37.05 4.33 53.70
May 31 4.94 34.63 4.27 59.25
June 30 4.83 35.10 4.45 61.71
July 31 4.77 36.77 4.42 63.09
August 31 4.74 35.20 4.31 57.65
September 30 4.81 36.61 4.44 55.09
October 31 4.64 33.54 4.44 60.43
November 30 4.79 35.06 4.62 55.91
December 31 4.75 32.11 4.14 58.50
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
Average Average Average Average Premium to
Current Yield Conversion Premium Break-Even (years) Investment Value
<S> <C> <C> <C> <C>
1994
January 31 4.82% 29.70% 3.92 61.79%
February 28 4.90 30.59 4.16 58.30
March 31 5.16 32.61 4.31 51.46
April 30 5.28 32.61 3.94 63.34
May 31 5.34 30.95 3.60 64.59
June 30 5.52 31.97 3.63 62.12
July 31 5.36 30.41 3.16 67.62
August 31 5.29 28.34 3.15 67.41
September 30 5.40 27.87 3.11 63.98
October 31 5.36 27.86 2.97 66.85
November 30 5.63 32.05 3.34 53.21
December 31 5.63 29.03 2.73 54.74
1995
January 31 n/a n/a n/a n/a
February 28 n/a n/a n/a n/a
March 31 5.2 24.5 2.3 65.1
April 30 5.1 24.3 2.6 58.7
</TABLE>

The foregoing data represents the market-weighted average, calculated by
Merrill Lynch, of securities included in the Merrill Lynch Convertible Index.
The conversion premium of a convertible security is the security's price
above its conversion value, expressed as a percentage. A convertible
security's conversion value is determined by multiplying the number of shares
the holder of a convertible security is entitled to receive upon conversion
or exchange by the current price of the underlying security. A convertible
security's break-even period represents the time it will take (measured in
years) for the greater current income of a convertible security (measured as
the excess over the income provided by the underlying security) to offset the
conversion premium. The premium to investment value is the premium of a
convertible security's price above its investment value, expressed as a
percentage. A convertible security's investment value represents the value of
the security without its conversion feature (i.e., a nonconvertible fixed
income security). The yield of a convertible security represents its current
yield.

The information in the table, which is provided for illustrative purposes
only, is as of the dates shown above. Presentation of similar information as
of different points in time would show different results and the data shown
may have varied significantly during the month. The securities the Fund owns
will not match those in the Merrill Lynch Convertible Index and, accordingly,
the information in the table is not intended to reflect the characteristics
of the Fund's portfolio or the Convertible Securities in which it will
invest. There can be no assurance that Putnam's analysis of this data or its
view concerning Convertible Securities is or will be correct. Although Putnam
believes this data supports its view that Convertible Securities are
currently attractively valued, other investment professionals, based on this
or other data, may conclude differently. See "Special Considerations and Risk
Factors" for additional information concerning the risks associated with an
investment in the Fund.

<PAGE>
Statistical Information Concerning Nonconvertible High Yield Securities

The following table provides information as of the end of each quarter since
the inception of the CS First Boston High Yield Index concerning comparative
yields on Nonconvertible High Yield Securities and U.S. Treasury securities.
"Average yield" for Nonconvertible High Yield Securities is based on the
market-weighted average of the "yield-to-worst" of all securities included
in the CS First Boston High Yield Index. According to CS First Boston
Corporation, each security's "yield-to-worst" represents the lowest yield
obtained after calculating the yield to every call date in the call schedule
of a security. "Average spread" represents the market-weighted average of the
difference between the yield-to-worst of each security included in the CS
First Boston High Yield Index and the yield on a U.S. Treasury security of
comparable maturity to such security. Information concerning yields on
convertible securities is included in Table 3. As presented in Table 3,
average yield is calculated based on current yield.

TABLE 4
Source: CS First Boston High Yield Index

<TABLE>
<CAPTION>
Average Yield on
Nonconvertible
High Yield Average
Securities Spread
<S> <C> <C>
1986
March 31 12.42% 4.90%
June 30 12.00 4.51
September 30 12.22 4.73
December 31 12.22 4.95
1987
March 31 12.55 4.00
June 30 12.55 4.35
September 30 13.30 3.80
December 31 13.25 4.59
1988
March 31 12.97 4.67
June 30 12.83 4.24
September 30 13.17 4.43
December 31 13.62 4.48
1989
March 31 13.91 4.51
June 30 14.00 5.91
September 30 14.73 6.36
December 31 15.88 7.90
1990
March 31 16.61 7.94
June 30 15.81 7.36
September 30 18.45 9.70
December 31 18.87 10.96
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
Average Yield on
Nonconvertible
High Yield Average
Securities Spread
<S> <C> <C>
1991
March 31 15.79% 8.02%
June 30 15.26 7.43
September 30 14.26 7.54
December 31 12.81 7.29
1992
March 31 11.17 4.90
June 30 10.94 5.21
September 30 10.57 5.63
December 31 11.14 5.48
1993
March 31 9.92 5.02
June 30 9.87 5.08
September 30 10.05 5.46
December 31 9.04(1) 4.22
1994
March 31 10.57 4.42
June 30 10.83 3.90
September 30 10.98 3.76
December 31 11.65 3.88
1995
March 31 11.32 4.24
April 30 11.04 4.14
</TABLE>

((1)) Reflects the elimination from the index (only as of December 31, 1993)
of one security that CS First Boston Corporation believed would have
materially altered the data.

The information in the table, which is provided for illustrative purposes
only, is as of the dates shown above. Presentation of similar information as
of different points in time would show different results. The securities the
Fund owns will not match those in the CS First Boston High Yield Index and,
accordingly, the information in the table is not intended to reflect the
projected yield of the Fund or of the Nonconvertible High Yield Securities in
which it will invest. Other statistical data concerning Nonconvertible High
Yield Securities may be relevant to investors deciding whether to purchase
shares of the Fund. See "Special Considerations and Risk Factors" for
additional information concerning the risks associated with an investment in
the Fund. Of course, unlike U.S. Treasury securities, Nonconvertible High
Yield Securities are not guaranteed by the U.S. Government.

<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer contained herein and, if given or
made, such information or representations must not be relied upon as having
been authorized by the Fund, Putnam or any of the Underwriters. This
Prospectus does not constitute an offer of any securities other than those to
which it relates or an offer to sell, or a solicitation of an offer to buy,
those to which it relates in any state to any person to whom it is not lawful
to make such offer in such state. The delivery of this Prospectus at any time
does not imply that the information herein is correct as of any time
subsequent to its date. However, if any material change occurs while this
Prospectus is required by law to be delivered, the Prospectus will be amended
or supplemented accordingly.

TABLE OF CONTENTS

Page
Expenses Summary 3
Prospectus Summary 4
The Fund 17
Investment Manager and Administrator 17
Use of Proceeds 17
Investment Objectives and Policies 18
Special Considerations and Risk Factors 25
Investment Restrictions 30
Trustees and Officers 31
Investment Management Contract 38
Administrative Services Contract 39
Portfolio Transactions 39
Dividends and Distributions 41
Dividend Reinvestment Plan 41
Taxation 43
Description of Shares 46
Repurchase of Shares; Conversion to Open-end Status 47
Determination of Net Asset Value 48
Underwriting 49
Custodian, Transfer Agent, Dividend Disbursing Agent, and Registrar 52
Legal Matters 52
Experts 52
Additional Information 52
Report of Independent Accountants 53
Statement of Assets and Liabilities 54
Appendix A - Fixed Income Security Ratings A-1
Appendix B - Options and Futures Portfolio Strategies B-1
Appendix C - Foreign Currency Transactions C-1
Appendix D - Performance Data and Other Statistical Information D-1
</TABLE>

Until July 21, 1995, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be
required to deliver a Prospectus. This is in addition to the obligation of
dealers to deliver a Prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.

[scale logo]
3,700,000 Shares

Putnam Convertible
Opportunities and
Income Trust

Beneficial Interest

P R O S P E C T U S

Smith Barney Inc.
A. G. Edwards & Sons, Inc.
Advest, Inc.
Dain Bosworth
Incorporated
Fahnestock & Co. Inc.
First of Michigan Corporation
Gruntal & Co., Incorporated
Kemper Securities, Inc.
Legg Mason Wood Walker
Incorporated
Raymond James & Associates, Inc.
The Robinson-Humphrey Company, Inc.
Sutro & Co. Incorporated

June 26, 1995

<PAGE>
PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST

PART C

OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(1) Financial Statements included in Parts A and B:

(a) Report of Independent Accountants--June 13, 1995.

(b) Statement of Assets and Liabilities--June 12, 1995.

The Selected Financial Information, Statement of Operations, Statement of
Changes in Net Assets, and Schedules II through VII, inclusive, are omitted
because the required information is included in the financial statement
included in Parts A or B, or because the conditions requiring their filing do
not exist.

(2) Exhibits

(a) - Agreement and Declaration of Trust*

(b) - Bylaws*

(d) (1) - Form of Certificate representing shares of beneficial interest*

(2) - Portions of Agreement and Declaration of Trust Relating to
Shareholders' Rights*

(3) - Portions of Bylaws Relating to Shareholders' Rights*

(e) (1) - Terms and Conditions of Dividend Reinvestment Plan***

(2) - Dividend Reinvestment Plan Agency Agreement***

(f) - Inapplicable

(g) - Investment Management Contract***

(h) (1) - Form of Master Agreement Among Underwriters***

(2) - Form of Underwriting Agreement**

(3) - Form of Master Selected Dealers Agreement

(i) - Inapplicable

(j) - Custodian Agreement***

(k) (1) - Investor Servicing Agreement***

(2) - Administrative Services Contract***

(l) - Opinion and Consent of Ropes & Gray

(m) - Inapplicable

(n) - Consent of Independent Accountants

(o) - Inapplicable

(p) - Initial Capital Agreement

(q) - Inapplicable

(r) - Inapplicable

*Incorporated by reference to the Registrant's initial Registration
Statement.

**Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement.

***Incorporated by reference to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement.

<PAGE>
Item 25. Marketing Arrangements

Reference is made to the Form of Underwriting Agreement for Registrant's
shares of beneficial interest filed as an exhibit to this Registration
Statement.

Item 26. Other Expenses of Issuance and Distribution

<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission fee $ 37,932
NASD fees $ 7,400
New York Stock Exchange Listing Fee $ 84,600
Printing $152,000
Accounting fees and expenses $ 8,000
Legal fees $265,000
Blue Sky fees and expenses $ 20,000
Miscellaneous $182,750
Total $757,682
</TABLE>

Item 27. Persons Controlled by or under Common Control with Registrant
None.

Item 28. Number of Holders of Securities
None.

Item 29. Indemnification
Article VIII of the Registrant's Agreement and Declaration of Trust provides
as follows:

Section 1. The Trust shall indemnify each of its Trustees and officers
(including persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise) (hereinafter referred to as a "Covered
Person") against all liabilities and expenses, including, but not limited to,
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been
involved as a party or otherwise or with which such Covered Person may be or
may have been threatened, while in office or thereafter, by reason of being
or having been such a Covered Person except with respect to any matter as to
which such Covered Person shall have been finally adjudicated in any such
action, suit or other proceeding (a) not to have acted in good faith in the
reasonable belief that such Covered Person's action was in the best interests
of the Trust or (b) to be liable to the Trust or its Shareholders by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's office. Expenses,
including counsel fees so incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments, in compromise or as fines or
penalties), shall be paid from time to time by the Trust in advance of the
final disposition of any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person to repay amounts so paid
to the Trust if it is ultimately determined that indemnification of such
expenses is not authorized under this Article; provided, however, that either
(a) such Covered Person shall have provided appropriate security for such
undertaking, (b) the Trust shall be insured against losses arising from any
such advance payments or (c) either a majority of the disinterested Trustees
acting on the matter (provided that a majority of the disinterested Trustees
then in office acts on the matter), or independent legal counsel in a written
opinion, shall have determined, based upon a review of readily available
facts (as opposed to a full trial type inquiry), that there is reason to
believe that such Covered Person will be found entitled to indemnification
under this Article.

Section 2. As to any matter disposed of (whether by a compromise payment,
pursuant to a consent decree or otherwise) without an adjudication by a
court, or by any other body before which the proceeding was brought, that
such Covered Person either (a) did not act in good faith in the reasonable
belief that his or her action was in the best interests of the Trust or (b)
is liable to the Trust or its Shareholders by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his or her office, indemnification shall be provided if (a)
approved as in the best interests of the Trust, after notice that it involves
such indemnification, by at least a majority of the disinterested Trustees
acting on the matter (provided that a majority of the disinterested Trustees
then in office acts on the matter) upon a determination, based upon a review
of readily available facts (as opposed to a full trial type inquiry), that
such Covered Person acted in good faith in the reasonable belief that his or
her action was in the best interests of the Trust and is not liable to the
Trust or its Shareholders by reason of willful misfeasance, bad faith, gross

<PAGE>
negligence or reckless disregard of the duties involved in the conduct of his
or her office, or (b) there has been obtained an opinion in writing of
independent legal counsel, based upon a review of readily available facts (as
opposed to a full trial type inquiry), to the effect that such Covered Person
appears to have acted in good faith in the reasonable belief that his or her
action was in the best interests of the Trust and that such indemnification
would not protect such Covered Person against any liability to the Trust to
which he or she would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his or her office. Any approval pursuant to this Section shall
not prevent the recovery from any Covered Person of any amount paid to such
Covered Person in accordance with this Section as indemnification if such
Covered Person is subsequently adjudicated by a court of competent
jurisdiction not to have acted in good faith in the reasonable belief that
such Covered Person's action was in the best interests of the Trust or to
have been liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office.

Section 3. The right of indemnification hereby provided shall not be
exclusive of or affect any other rights to which such Covered Person may be
entitled. As used in this Article VIII, the term "Covered Person" shall
include such person's heirs, executors and administrators, and a
"disinterested Trustee" is a Trustee who is not an "interested person" of the
Trust as defined in Section 2(a)(19) of the 1940 Act (or who has been
exempted from being an "interested person" by any rule, regulation or order
of the Securities and Exchange Commission) and against whom none of such
actions, suits or other proceedings or another action, suit or other
proceeding on the same or similar grounds is then or has been pending.
Nothing contained in this Article shall affect any rights to indemnification
to which personnel of the Trust, other than Trustees or officers, and other
persons may be entitled by contract or otherwise under law, nor the power of
the Trust to purchase and maintain liability insurance on behalf of any such
person.

Section 4. In case any Shareholder or former Shareholder shall be held to
be personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs,
executors, administrators or other legal representatives or, in the case of a
corporation or other entity, its corporate or other general successor) shall
be entitled to be held harmless from and indemnified against all loss and
expense arising from such liability.

Reference is made to the Underwriting Agreement, filed as an exhibit to
this Registration Statement, which contains provisions for the
indemnification by the Underwriters and Putnam Investment Management, Inc. of
the Registrant and Trustees, officers and controlling persons of the
Registrant under certain circumstances. Insofar as indemnification for
liability arising under the Securities Act of 1933 may be permitted to
Trustees, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a Trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.

Item 30. 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.

<PAGE>
Non-Putnam business
Name and other connections
John V. Adduci
Assistant Vice President Prior to July, 1993, Human Resources
Manager, First Security Services, 80 Main
St., Reading, MA 01867
Gail S. Attridge
Assistant Vice President Prior to November, 1993, International
Analyst, Keystone Custodian Funds, 200
Berkley Street, Boston, MA 02116
James D. Babcock
Assistant Vice President Prior to June, 1994, Interest Supervisor,
Salomon Brothers, Inc., 7 World Trade
Center, New York, NY 10048
Prior to June, 1993, Audit Manager,
Coopers & Lybrand, One Sylvan Way,
Parsipanny, NJ 07054
Robert K. Baumbach
Vice President Prior to August, 1994, Vice President and
Analyst, Keystone Custodian Funds, 200
Berkley St., Boston, MA 02110
Sharon A. Berka
Vice President Prior to January, 1994, Vice President--
Compensation Manager, BayBanks, Inc.,
175 Federal Street, Boston, MA 02110
Thomas Bogan
Senior Vice President Prior to November, 1994, Analyst, Lord,
Abbett & Co., 767 Fifth Avenue, New York,
NY 10153
Michael F. Bouscaren
Senior Vice President Prior to May, 1994, President and Chairman
of the Board of Directors at Salomon
Series Funds, Inc. and a Director of
Salomon Brothers Asset Management, 7
World Trade Center, New York, NY 10048
Brett Browchuk
Managing Director Prior to April, 1994, Managing Director,
Fidelity Investments, 82 Devonshire St.,
Boston, MA 02109
Carolyn S. Bunten
Assistant Vice President Prior to July, 1993, Assistant Trader,
Scudder Stevens & Clark, Inc., 175
Federal St., Boston, MA 02110
Andrea Burke
Vice President Prior to August, 1994, Vice President and
Portfolio Manager, Back Bay Advisors, 399
Boylston St., Boston, MA 02116
John M. Burton
Assistant Vice President Prior to June, 1994, Manager -- Marketing
Asset Management Pension Services, The
Travelers, Inc., 1 Tower Square,
Hartford, CT 06183
Patricia A. Carey
Assistant Vice President Prior to May, 1993, Research Analyst, John
Hancock Financial Services, 100 Clarendon
St., Boston, MA 02116

<PAGE>
Non-Putnam business
Name and other connections
Peter Carman
Senior Vice President Prior to August, 1993, Chief Investment
Officer, Chairman, U.S. Equity Investment
Policy Committee, Member of Board of
Directors, Sanford C. Bernstein & Co.,
Inc., 767 Fifth Avenue, New York, NY 10153
Steven Cheshire
Vice President Prior to January, 1994, Assistant Vice
President, Wellington Management, 75 State
Street, Boston, MA 02109
Anna Coppola
Assistant Vice President Prior to May, 1993, Associate, Heidrick &
Struggles, One Post Office Square, Boston,
MA 02109
Kenneth L. Daly
Senior Vice President Prior to August, 1993, Vice President,
Fidelity Investments, 82 Devonshire St.,
Boston, MA 02109
John A. DeTore
Managing Director Prior to January, 1994, Director of
Quantitative Portfolio Management,
Wellington Management, 75 State Street,
Boston, MA 02109
Theodore J. Deutz
Vice President Prior to January, 1995, Senior Vice
President, Metropolitan West Securities,
Inc. 10880 Wilshire Blvd., Suite 200, Los
Angeles, CA 90024
Michael G. Dolan
Assistant Vice President Prior to February, 1994, Senior Financial
Analyst, General Electric Company, 1000
Western Ave., Lynn, MA 01905
Joseph J. Eagleeye
Assistant Vice President Prior to August, 1994, Associate, David
Taussig & Associates, 424 University Ave.,
Sacramento, CA 95813
Michael T. Fitzgerald
Senior Vice President Prior to September, 1994, Senior Vice
President, Vantage Global Advisers, 1201
Morningside Dr., Manhattan Beach, CA 90266
Jonathan H. Francis
Senior Vice President Prior to March, 1993, President, J.H.
Francis & Co., N. Pheasant Lane, Westport,
CT 06880
James F. Giblin
Senior Vice President Prior to April, 1993, Managing Director,
CIGNA Corp. Investments, Inc., 900 Cottage
Grove Rd. Bloomfield, CT 06152
Mark D. Goodwin
Assistant Vice President Prior to May, 1994, Manager, Audit &
Operations Analysis, Mitre Corporation,
202 Burlington Rd., Bedford, MA 01730
Stephen A. Gorman
Assistant Vice President Prior to July, 1994, Financial Analyst,
Boston Harbor Trust Company, 100 Federal
St., Boston, MA 02110
<PAGE>
Non-Putnam business
Name and other connections
Kimberly A. Gravel
Assistant Vice President Prior to March, 1993, Account Manager,
Estee Lauder Corp.--Prescriptives
Division, 767 Fifth Ave., New York, NY
10153
Daniel J. Grim
Vice President Prior to May, 1993, Consultant, Connie
Lee, 2445 M Street N.W., Washington, D.C.
20037; Chief Operating Officer, Boardwalk,
Inc., Minocqua, WI 54548
Deborah R. Healey
Senior Vice President Prior to June, 1994, Senior Equity Trader,
Fidelity Management & Research Company,
82 Devonshire St., Boston, MA 02109
Lisa Heitman
Vice President Prior to July, 1994, Securities Analyst,
Lord, Abbett & Company, 767 Fifth Ave.,
New York, NY 10153
Michael F. Hotchkiss
Vice President Prior to May, 1994, Vice President,
Massachusetts Financial Services, 500
Boylston St., Boston, MA 02116
Walter Hunnewell, Jr.
Vice President Prior to April, 1994, Managing Director,
Veronis, Suhler & Associates, 350 Park
Avenue, New York, NY 10022
Joseph Joseph
Vice President Prior to October, 1994, Managing Director,
Vert Independent Capital Research, 53 Wall
St., New York, NY 10052; Prior to August,
1993, Manager, Price Waterhouse, 6th
Avenue, New York, NY 10036
Jeffrey L. Knight
Assistant Vice President Prior to March, 1993, Teacher, Greater
Newburyport Educational Collaborative,
Newburyport, MA 01950
Jeffrey J. Kobylarz
Vice President Prior to May, 1993, Credit Analyst, Dean
Witter Reynolds, Inc., Two World Trade
Center, New York, NY 10048
D. William Kohli
Senior Vice President Prior to September, 1994, Executive Vice
President and Co-Director of Global Bond
Management; Prior to 1993, Portfolio
Manager, Franklin Advisors/Templeton
Investment Counsel, 777 Mariners Island
Blvd., San Mateo, CA 94404
Karen R. Korn
Vice President Prior to June, 1994, Vice President
Assistant to the President, Designs, Inc.
1244 Boylston St., Chestnut Hill, MA 02167
Prior to March, 1993, Vice President,
Paine Webber, Inc., 265 Franklin St.,
Boston, MA 02110
<PAGE>
Non-Putnam business
Name and other connections
Peter B. Krug
Vice President Prior to January, 1995, Owner and
Director, Griswold Special Care, 42 Ethan
Allen Drive, Acton, MA 01720
Lawrence J. Lasser
President, Director and
Chief Executive Officer Director, Marsh & McLennan Companies,
Inc., 1221 Avenue of the Americas, New
York, NY 10020 Director, INROADS/Central
New England, Inc., 99 Bedford St., Boston,
MA 02111
Jeffrey R. Lindsay
Vice President Prior to April, 1994, Vice President and
Board Member, Strategic Portfolio
Management, 900 Ashwood Parkway, Suite
290, Atlanta, GA 30338
Michael Martino
Senior Vice President Prior to January, 1994, Executive Vice
President and Chief Investment Officer
until 1992; Senior Vice President and
Portfolio Manager from 1990 to 1992, Back
Bay Advisors, 399 Boylston St, Boston, MA
02116
Andrew S. Matteis
Vice President Prior to March, 1993, Vice President,
Fitch Investors Service, One State Street
Plaza, New York, NY 10004
Susan A. McCormack
Vice President Prior to May, 1994, Associate Investment
Banker, Merrill Lynch & Co., 350 South
Grand Ave., Suite 2830, Los Angeles, CA
90071
Maziar Minovi
Vice President Prior to January, 1995, Associate
Privatization Specialist, The
International Bank for Reconstruction and
Development, 1818 H St. N.W., Washington,
DC 20433
Michael J. Mufson
Vice President Prior to June, 1993, Senior Equity
Analyst, Stein Roe & Farnham, One South
Wacker Drive, Chicago, Il 60606
Paul G. Murphy
Assistant Vice President Prior to January, 1995, Section Manager,
First Data Corp., 53 State Street, Boston,
MA 02109
Warren S. Naphtal
Senior Vice President Prior to January, 1994, Managing Director,
Continental Bank, 231 So. Lasalle St.,
Chicago, IL 60697
C. Patrick O'Donnell, Jr.
Managing Director Prior to May, 1994, President, Exeter
Research, Inc., 163 Water Street, Exeter,
New Hampshire, 03833
Brian O'Keefe
Vice President Prior to December, 1993, Vice
President--Foreign Exchange Trader, Bank
of Boston, 100 Federal Street, Boston, MA
02109
<PAGE>
Non-Putnam business
Name and other connections
Pat G. Patel
Vice President Prior to April, 1993, Regional Manager,
Zacks Investment Research, 155 N. Wacker
Drive, Chicago, IL 60606
Margaret Pietropaolo
Assistant Vice President Prior to January, 1994, Data
Base/Production Analyst, Wellington
Management, 75 State Street, Boston, MA
02109
George Putnam
Chairman and Director Chairman and Director, Putnam Mutual Funds
Corp.
Director, The Boston Company, Inc., One
Boston Place, Boston, MA 02108
Director, Boston Safe Deposit and Trust
Company, One Boston Place, Boston, MA
02108
Director, Freeport-McMoRan, Inc., 200 Park
Avenue, New York, NY 10166
Director, General Mills, Inc., 9200
Wayzata Boulevard, Minneapolis, MN 55440
Director, Houghton Mifflin Company, One
Beacon Street, Boston, MA 02108
Director, Marsh & McLennan Companies,
Inc., 1221 Avenue of the Americas, New
York, NY 10020
Director, Rockefeller Group, Inc., 1230
Avenue of the Americas, New York, NY 10020
Robert M. Shafto
Assistant Vice President Prior to January, 1995, Account Manager,
IBM Corporation, 404 Wyman St., Waltham,
MA 02254
Mark J. Siegel
Vice President Prior to June, 1993, Vice President,
Salomon Brothers International, Ltd.,
Victoria Plaza, 111 Buckingham Palace
Road, London SW1W 0SB, England
Joanne Soja
Senior Vice President Prior to June, 1993, Managing
Director/Portfolio Manager, Chancellor
Capital Management, 153 East 53rd Street,
New York, NY 10002
Steven Spiegel
Senior Managing Director Prior to January, 1995, Managing Director/
Retirement, Lehman Brothers, Inc., 200
Vesey St., World Financial Center, New
York, NY 10285
George W. Stairs
Vice President Prior to July, 1994, Equity Research
Analyst, ValueQuest Limited, Roundy's
Hill, Marblehead, MA 01945
Roger Sullivan
Senior Vice President Prior to December, 1994, Vice President,
State Street Research & Management Co.,
One Financial Center, Boston, MA 02111

<PAGE>
Non-Putnam business
Name and other connections
Hillary F. Till
Vice President Prior to May, 1994, Fixed-Income
Derivative Trader, Bank of Boston, 100
Federal Street, Boston, MA 02109; Prior to
December, 1993, Equity Analyst, Harvard
Management Company, 600 Atlantic St.,
Boston, MA 02109
Bonnie L. Troped
Vice President Prior to May, 1993, Assistant Vice
President/ Director of Corporate Events,
The Boston Company, One Boston Place,
Boston, MA 02108
Elizabeth A. Underhill
Vice President Prior to August, 1994, Vice President and
Senior Equity Analyst, State Street Bank
and Trust Company, 225 Franklin St.,
Boston, MA 02110
Charles C. Van Vleet
Senior Vice President Prior to August, 1994, Vice President and
Fixed-Income Manager, Alliance Capital
Management, 1345 Avenue of the Americas,
New York,
NY 10105
Francis P. Walsh
Vice President Prior to November, 1994, Research Analyst,
Furman, Selz, Inc. 230 Park Avenue, New
York, NY 10169; Prior to December, 1993,
Strategic Marketing Analyst, Lotus
Development Corporation, 55 Cambridge
Parkway, Cambridge, MA 02142
Michael R. Weinstein
Vice President Prior to March, 1994, Management
Consultant, Arthur D. Little, Acorn Park,
Cambridge, MA 02140

Item 31. Location of Accounts and Records

Persons maintaining physical possession of accounts, books and other
documents required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the Rules promulgated thereunder are Registrant's
Clerk, Beverly Marcus; Registrant's investment adviser, Putnam Investment
Management, Inc.; Registrant's transfer agent, dividend disbursing agent and
registrar, Putnam Investor Services; and Registrant's custodian, Putnam
Fiduciary Trust Company. The address of the Clerk, investment adviser,
custodian and transfer agent, dividend disbursing agent and registrar is One
Post Office Square, Boston, Massachusetts 02109.

Item 32. Management Services

None.

Item 33. Undertakings

(1) The Registrant undertakes to suspend offering of its shares until it
amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10 percent
from its net asset value as of the effective date of the Registration
Statement or (2) the net asset value increases to an amount greater than its
net proceeds as stated in the prospectus.

(2) Inapplicable

(3) Inapplicable

(4) Inapplicable

(5) The undersigned registrant hereby undertakes that:

(a) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.

<PAGE>
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

(6) Inapplicable

(7) At such time as the Registrant determines to make a tender or
repurchase offer or to propose conversion of the Registrant to open-end
status, the Registrant will provide to shareholders a notice thereof
containing all of the information specified by Guide 2 or Guide 4 to Form
N-2, as the case may be.

NOTICE

A copy of the Agreement and Declaration of Trust of Putnam Convertible
Opportunities and Income 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 that 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.

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment No. 3 to its Registration Statement to be signed on
behalf of the undersigned, thereunto duly authorized, in the City of Boston,
and The Commonwealth of Massachusetts, on the 26th day of June, 1995.

PUTNAM CONVERTIBLE OPPORTUNITIES AND
INCOME TRUST
By: Gordon Silver
Name: Gordon Silver
Title: Vice President

Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 3 has been signed below by the following persons
in the capacities indicated on the 26th day of June, 1995.

<TABLE>
<CAPTION>
<S> <C>
Signature Title
* President and Chairman of the Board;
------------------------ Principal Executive Officer; Trustee
George Putnam

*
------------------------ Trustee; Vice Chairman
William F. Pounds Treasurer and Principal Financial

* Trustee; Vice Chairman
----------------------- Officer
John D. Hughes

* Assistant Treasurer and Principal
----------------------- Accounting Officer
Paul G. Bucuvalas

* Trustee
-----------------------
Jameson A. Baxter

* Trustee
----------------------
Hans H. Estin

* Trustee
---------------------
John A. Hill

* Trustee
--------------------
Elizabeth T. Kennan

* Trustee
---------------------
Lawrence J. Lasser

* Trustee
---------------------
Robert E. Patterson

* Trustee
---------------------
Donald S. Perkins

* Trustee
---------------------
George Putnam, III

* Trustee
--------------------
Eli Shapiro

<PAGE>
Signature Title

* Trustee
-------------------
A.J.C. Smith

* Trustee
-------------------
W. Nicholas Thorndike

By: Gordon Silver
-------------------------
</TABLE>

Gordon Silver
Attorney-in-Fact Pursuant to
Powers of Attorney
Previously Filed

<PAGE>
PUTNAM CONVERTIBLE OPPORTUNITIES AND INCOME TRUST

INDEX TO EXHIBITS

Exhibit Title of Exhibit Page
<S> <C> <C>
99.2H3 Form of Master Selected Dealers Agreement
99.2L Opinion and Consent of Ropes & Gray
99.2N Consent of Independent Accountants
99.2P Initial Capital Agreement
</TABLE>

PUTNAM CONVERTIBLE OPPORTUNITIES
AND INCOME TRUST

2,400,000 Common Shares

Beneficial Interest

SELLING AGREEMENT

June , 1995

[Selected Dealer Address]

Ladies and Gentlemen:

In connection with the offering of the above-captioned shares
of beneficial interest (the "Shares") of Putnam Convertible Opportunities and
Income Trust (the "Fund"), the undersigned, as representatives (the
"Representatives") of the underwriters of the Shares (the "Underwriters"),
have reserved, on behalf of the several Underwriters, a portion of the Shares
for sale to selected securities dealers ("Selected Dealers") at the public
offering price stated on the cover page of the enclosed Prospectus dated June ,
1995. Putnam Investment Management, Inc., the investment advisor to the Fund,
has agreed to compensate the Underwriters participating in this transaction.
From such compensation, the Underwriters will pay or allow to the Selected
Dealers in connection with the sales of the Shares in the offering a gross
amount of $ per Share purchased by Selected Dealers (the "Concession"). We
are pleased to invite you to participate in this offering as a Selected Dealer.

1. Sales to Selected Dealers. We are advising you by telegram of the
number of Shares reserved for purchase by you. Please advise Smith Barney Inc.,
388 Greenwich Street, New York, New York 10013 (Attention: Corporate Syndicate
Department), by the time specified in such telegram, of your acceptance of the
Shares reserved for you. Notice of acceptance received after the time specified
and any application for additional Shares will be treated as a subscription for
Shares. Subscription books may be closed by us at any time in our discretion
without notice, and the right is reserved to reject any subscription in whole or
in part. Notification of allotments against subscriptions will be made as
promptly as practicable. Sales of Shares to you will be subject to the terms and
conditions set forth in the Prospectus. In purchasing Shares, you must rely only
on the Prospectus, the receipt of which you acknowledge, and on no other
statements whatsoever, written or oral.

2. Offering Provisions. Shares purchased by you shall be promptly
reoffered to the public at $25.00 per Share except that an amount not exceeding
$ per Share may be allowed to dealers who are actually engaged in the
investment banking or securities business, who execute the written agreement
prescribed by Section 24(c) of Article III of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. (the "NASD") and who are
members in good standing of the NASD or are foreign dealers, not eligible for
membership in the NASD, who represent to you that they will promptly reoffer the
Shares to the public at $25.00 per Share and will abide by the conditions with
respect to foreign brokers and dealers set forth in the first paragraph of
Section 5 hereof.

If we purchase on the open market, for the account of any of the
Underwriters, Shares sold to you, we may charge to your account the full
Concession for each Share so purchased, together with any broker's commission,
if any, and transfer tax paid in connection with such purchase, and you agree to
pay such amounts to us on demand. Alternatively, we may withhold payment of all
or any part of the Concession for a period of time and may determine not to
pay the Concession with respect to the Shares so purchased by us on the open
market. You will advise us from time to time, at our request, of the number of
Shares purchased by you hereunder remaining unsold and you agree to sell to us,
at our request, for the account of one or more of the Underwriters, such number
of such unsold Shares as we may designate, at $25.00 per Share less an amount to
be determined by us, not in excess of the full Concession.

3. Delivery and Payment. Shares purchased by you hereunder shall be
paid for in full at $25.00 per Share or, if we shall so advise you, at such
price less all or any part of the Concession, at the office of Smith Barney
Inc., 388 Greenwich Street, New York, New York 10013, at such time and on such
day as we may advise you, by certified or bank cashier's check payable in New
York Clearing House funds to the order of Smith Barney Inc. against delivery of
certificates evidencing the Shares. Notwithstanding the foregoing, at our
discretion, payment for and delivery of Shares purchased by you hereunder will
be made through the facilities of the Depository Trust Company, if you are a
member, unless you have otherwise notified us prior to the date specified in our
telegram to you, or, if you are not a member, settlement may be made through a
correspondent who is a member pursuant to instructions which you will send to us
prior to such specified date. If you are called upon to pay $25.00 per Share for
the Shares purchased by you, the Concession will be paid to you, less any
amounts charged to your account pursuant to Section 2 above, after termination
of this Agreement. Delivery instructions must be in our hands at such address
and at such time as we request.

4. Termination. Selected Dealers will be governed by the conditions
set forth herein until this Agreement is terminated. We will advise you of the
date and time of termination of this Agreement or of designated provisions
hereof.

5. Position of Selected Dealers and Underwriters. You represent that
you are actually engaged in the investment banking or securities business and
are a member in good standing of the NASD or that you are a foreign dealer, not
eligible for membership in the NASD, which agrees not to offer or sell any
Shares in, or to persons who are nationals or residents of, the United States of
America. In making sales of Shares, if you are such a member, you agree to
comply with all applicable rules of the NASD, including, without limitation, the
NASD's Interpretation with Respect to Free-Riding and Withholding and Section 24
of Article III of the NASD's Rules of Fair Practice, or, if you are a foreign
dealer, you agree to comply with such Interpretation and Sections 8, 24 and 36
of such Article as though you were such a member, and with Section 25 as that
Section applies to a non-member broker or dealer in a foreign country. You also
confirm that you have complied and will comply with the prospectus delivery
requirements of Rule 15c2-8 under the Securities Exchange Act of 1934,
including Rule 15c2-8(b) which requires all participating dealers to distribute
a copy of the Preliminary Prospectus relating to the Shares to each Person to
whom they expect to confirm a sale of the Shares not less than 48 hours prior to
the time they expect to mail such confirmation. You are not authorized to give
any information or make any representations other than those contained in the
Prospectus, or to act as agent for the Fund, any Underwriter or the undersigned.
Notwithstanding the termination of the Agreement, you shall remain liable for
your proportionate amount of any claim, demand or liability which may be
asserted against you alone, or against you together with other dealers
purchasing Shares upon the terms hereof, or against the undersigned, based upon
the claim that the Selected Dealers, or any of them, constitute an association,
an unincorporated business or other separate entity. As Representatives of
each of the Underwriters, the undersigned has full authority to take such action
as may seem advisable to us in respect to all matters pertaining to the offering
of the Shares. Neither we, as Representatives of the Underwriters, nor any of
the Underwriters shall be under any liability to you, except for obligations
expressly assumed in this Agreement and any liabilities under the Securities
Act of 1933, as amended. No obligations on our part will be implied or
inferred herefrom. Each of the Underwriters has authorized us to over-allot in
arranging for sales of the Shares and to purchase and sell Shares for long or
short account. All communications to the undersigned relating to the subject
matter of this Agreement should be addressed to Smith Barney Inc., 388 Greenwich
Street, New York, New York 10013 (Attention: Corporate Syndicate Department),
and any notices to you shall be deemed to have been duly given if mailed or
telegraphed to you at such address as you shall indicate on the last page of
this Agreement or, if you shall not so indicate, the address shown on the first
page of this Agreement.
6. Blue Sky Matters. Neither we, as Representatives of the
Underwriters, nor any of the Underwriters will have any responsibility with
respect to the right of any dealer to sell Shares in any jurisdiction,
notwithstanding any information we may furnish in that connection.

Please confirm your agreement to the foregoing by signing in
the space provided below and returning to us the enclosed counterpart of this
Agreement.

SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
ADVEST, INC.
DAIN BOSWORTH INCORPORATED
FAHNESTOCK & CO. INC.
FIRST OF MICHIGAN CORPORATION
GRUNTAL & CO., INCORPORATED
KEMPER SECURITIES, INC.
LEGG MASON WOOD WALKER INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
SUTRO & CO. INCORPORATED

As Representatives of the
Several Underwriters

By: SMITH BARNEY INC.

By:
Name:
Title:

Confirmed as of the above date.

By:

Address:

June 23, 1995

Putnam Convertible Opportunities and Income Trust
One Post Office Square
Boston, Massachusetts 02109

Ladies and Gentlemen:

We have acted as counsel to Putnam Convertible Opportunities and Income
Trust (the "Trust") in connection with the Registration Statement of the Trust
on Form N-2 (File Nos. 33-57901 and 811-07253) (the "Registration Statement")
under the Securities Act of 1933, as amended (the "Act"), and the Investment
Company Act of 1940, as amended, relating to the proposed sale of up to that
number of shares of beneficial interest, without par value, of the Trust set
forth on the cover page of the Registration Statement (the "Shares"). The Shares
are to be sold pursuant to an Underwriting Agreement, referred to in the
Registration Statement, among the Trust, Putnam Investment Management, Inc.,
Smith Barney Inc., A. G. Edwards & Sons, Inc., Advest, Inc., Dain Bosworth
Incorporated, Fahnestock & Co. Inc., First of Michigan Corporation, Gruntal &
Co., Incorporated, Kemper Securities, Inc., Legg Mason Wood Walker,
Incorporated, Raymond James & Associates, Inc., The Robinson-Humphrey Company,
Inc. and Sutro & Co. Incorporated, as representatives of the several
underwriters named therein (the "Underwriting Agreement").

We have examined the Trust's Agreement and Declaration of Trust on file in
the office of the Secretary of State of The Commonwealth of Massachusetts and
the Clerk of the City of Boston and are familiar with the actions taken by the
Trust's Trustees in connection with the issuance and sale of the Shares. We have
also examined such other documents and records as we have deemed necessary for
the purpose of this opinion.

Based on the foregoing, we are of the opinion that:

1. The Trust is an unincorporated voluntary association with transferable
shares duly organized and validly existing under and by virtue of the laws of
The Commonwealth of Massachusetts and is authorized to issue an unlimited number
of its shares of beneficial interest.

2. The Shares have been duly authorized and, when the Shares are issued
and paid for in accordance with the Underwriting Agreement, the Shares will be
validly issued, fully paid and nonassessable by the Trust.

The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such disclaimer
be given in each note, bond, contract, instrument, certificate or undertaking
entered into or executed by the Trust or its Trustees. The Agreement and
Declaration of Trust provides for indemnification out of the property of the
Trust for all loss and expense of any shareholder of the Trust held personally
liable solely by reason of his being or having been a shareholder. Thus, the
risk of a shareholder's incurring financial loss on account of being a
shareholder is limited to circumstances in which the Trust itself would be
unable to meet its obligations.

We understand that this opinion is to be used in connection with the
registration of the Shares for offering and sale pursuant to the Act. We consent
to the filing of this opinion with and as part of the Registration Statement and
to the reference to our firm in the related prospectus under the captions
"Taxation" and "Legal Matters."

Very truly yours,

Ropes & Gray

CONSENT OF INDEPENDENT ACCOUNTANTS

To the Trustees of
Putnam Convertible Opportunities and Income Trust:

We consent to the inclusion in this Pre-Effective Amendment No. 3 to the
Registration Statement of Putnam Convertible Opportunities and Income Trust
on Form N-2 (Securities Act File No. 33-57901, Investment Company Act File
No. 811-07253) of our report dated June 13, 1995 on our audit of the statement
of assets and liabilities contained in the Prospectus included as part of this
Pre-Effective Amendment. We also consent to the reference to our firm under the
caption "Experts" in the Prospectus included as part of this Pre-Effective
Amendment.

Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.

Boston, Massachusetts
June 21, 1995

June 12, 1995

Putnam Convertible Opportunities
and Income Trust
One Post Office Square
Boston, MA 02109

Gentlemen:

In connection with your sale to us today of 4,000 shares of beneficial
interest (the "Shares") in Putnam Convertible Opportunities and Income Trust
(the "Fund"), we understand that: (i) the Shares have not been registered under
the Securities Act of 1933, as amended; (ii) your sale of the Shares to us is
in reliance on the sale's being exempt under Section 4(2) of the Act as not
involving any public offering; and (iii) in part, your reliance on such
exemption is predicated on our representation, which we hereby confirm, that we
are acquiring the Shares for investment and for our own account as the sole
beneficial owner thereof, and not with a view to or in connection with any
resale or distribution of any or all of the Shares or of any interest therein.
We hereby agree that we will not sell, assign or transfer the Shares or any
interest therein except upon repurchase or redemption by the Fund unless and
until the Shares have been registered under the Securities Act of 1933, as
amended, or you have received an opinion of your counsel indicating to your
satisfaction that such sale, assignment or transfer will not violate the
provisions of the Securities Act of 1933, as amended, or any rules and
regulations promulgated thereunder.

This letter is intended to take effect as an instrument under seal, shall
be construed under the laws of Massachusetts, and is delivered at Boston,
Massachusetts, as of the date written above.

Very truly yours,

PUTNAM INVESTMENTS, INC.

By: Lawrence J. Lasser
---------------------
Lawrence J. Lasser, President