-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LLNoeZgDetnq5aCCvgUHYPrdAK1EGo206ZbYfATKZUKR6r38A/Kx1+jdfoF3vyFe gNTQLYXPxo0uv8aqs7joIg== 0000928816-00-000111.txt : 20000229 0000928816-00-000111.hdr.sgml : 20000229 ACCESSION NUMBER: 0000928816-00-000111 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20000228 EFFECTIVENESS DATE: 20000228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM CONVERTIBLE INCOME GROWTH TRUST CENTRAL INDEX KEY: 0000081247 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 042493360 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 002-43384 FILM NUMBER: 555459 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-02280 FILM NUMBER: 555460 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ STREET 2: MAILSTOP A 14 CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6172921000 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM CONVERTIBLE FUND DATE OF NAME CHANGE: 19841212 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM CONVERTIBLE FUND INC /PRED/ DATE OF NAME CHANGE: 19821109 485BPOS 1 PUTNAM CONVERTIBLE INCOME-GROWTH TRUST As filed with the Securities and Exchange Commission on February 28, 2000 Registration No. 2-43384 811-2280 - ------------------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM N-1A ---- REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X / ---- ---- Pre-Effective Amendment No. / / ---- ---- Post-Effective Amendment No. 37 / X / and/or ---- ---- REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X / ACT OF 1940 ---- ---- Amendment No. 29 / X / (Check appropriate box or boxes) ---- --------------- PUTNAM CONVERTIBLE INCOME-GROWTH TRUST (Exact Name of Registrant as Specified in Charter) One Post Office Square, Boston, Massachusetts 02109 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code (617) 292-1000 -------------- It is proposed that this filing will become effective (check appropriate box) - ---- / / immediately upon filing pursuant to paragraph (b) - ---- - ---- / X / on February 29, 2000 pursuant to paragraph (b) - ---- - ---- / / 60 days after filing pursuant to paragraph (a)(1) - ---- - ---- / / on (date) pursuant to paragraph (a)(1) - ---- - ---- / / 75 days after filing pursuant to paragraph (a)(2) - ---- - ---- / / on (date) pursuant to paragraph (a)(2) of Rule 485. - ---- If appropriate, check the following box: - ---- / / this post-effective amendment designates a new - ---- effective date for a previously filed post-effective amendment. ----------------------- JOHN R. VERANI, Vice President PUTNAM CONVERTIBLE INCOME-GROWTH TRUST One Post Office Square Boston, Massachusetts 02109 (Name and address of agent for service) --------------- Copy to: JOHN W. GERSTMAYR, Esquire ROPES & GRAY One International Place Boston, Massachusetts 02110 Prospectus February 29, 2000 Putnam Convertible Income-Growth Trust Class A, B, C and M shares Investment Category: Growth and Income This prospectus explains what you should know about this mutual fund before you invest. Please read it carefully. Putnam Investment Management, Inc. (Putnam Management), which has managed mutual funds since 1937, manages the fund. These securities have not been approved or disapproved by the Securities and Exchange Commission nor has the Commission passed upon the accuracy or adequacy of this prospectus. Any statement to the contrary is a crime. CONTENTS 2 Fund summary 2 Goal 2 Main investment strategies 2 Main risks 3 Performance information 4 Fees and expenses 6 What are the fund's main investment strategies and related risks? 9 Who manages the fund? 10 How does the fund price its shares? 11 How do I buy fund shares? 14 How do I sell fund shares? 15 How do I exchange fund shares? 16 Fund distributions and taxes 17 Financial highlights [LOGO: BOSTON * LONDON * TOKYO] Fund summary GOAL The fund seeks, with equal emphasis, current income and capital appreciation. Its secondary objective is conservation of capital. MAIN INVESTMENT STRATEGIES -- CONVERTIBLE SECURITIES We invest mainly in U.S. convertible securities. Convertible securities typically are bonds, preferred stocks or warrants that can be converted into or exchanged for common stock. Most of the convertible securities we buy for the fund are convertible into value stocks. Value stocks are those we believe are currently undervalued by the market. If we are correct and other investors recognize the value of the company, the price of the stock may rise. The price of a convertible security normally varies with the price of the underlying stock. A convertible security tends to provide a higher yield than the underlying stock, which may cushion it against declines in the price of that stock. The convertible bonds we buy usually have intermediate- to long-term maturities (three years or longer). We invest mainly in midsized and large companies. MAIN RISKS The main risks that could adversely affect the value of the fund's shares and the total return on your investment include: * The risk that the stock price of one or more of the companies in the fund's portfolio will fall, or will fail to rise. Many factors can adversely affect a stock's performance, including both general financial market conditions and factors related to a specific company or industry. This risk is generally greater for small and midsized companies, which tend to be more vulnerable to adverse developments. * The risk that movements in financial markets will adversely affect the price of the fund's investments, regardless of how well the companies in which we invest perform. The market as a whole may not favor the types of investments we make. * The risk that prices of bonds we buy will fall if interest rates rise. Interest rate risk is generally higher for investments with longer maturities. * The risk that issuers of the bonds we buy will not make timely payments of interest and principal. This credit risk is generally higher for debt that is below investment-grade in quality. Because the fund invests significantly in junk bonds and below investment-grade preferred stocks, this risk is heightened for the fund. Investors should carefully consider the risks associated with an investment in the fund. You can lose money by investing in the fund. The fund may not achieve its goal, and is not intended as a complete investment program. An investment in the fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. PERFORMANCE INFORMATION The following information provides some indication of the fund's risks. The chart shows year-to-year changes in the performance of one of the fund's classes of shares, class A shares. The table following the chart compares the fund's performance to that of two broad measures of market performance. Of course, a fund's past performance is not an indication of future performance. [GRAPHIC OMITTED: vertical bar chart] CALENDAR YEAR TOTAL RETURNS FOR CLASS A SHARES Plot points 1990 -10.02% 1991 29.40% 1992 21.09% 1993 17.03% 1994 -1.92% 1995 23.81% 1996 17.82% 1997 19.64% 1998 4.85% 1999 17.49% Performance figures in the bar chart do not reflect the impact of sales charges. If they did, performance would be less than that shown. During the periods shown in the bar chart, the highest return for a quarter was 14.90% (quarter ending 3/31/91) and the lowest return for a quarter was -12.74% (quarter ending 9/30/90). - ----------------------------------------------------------------------- Average Annual Total Returns (for periods ending 12/31/99) - ----------------------------------------------------------------------- Past Past Past 1 year 5 years 10 years - ----------------------------------------------------------------------- Class A 10.71% 15.16% 12.61% Class B 11.60% 15.45% 12.42% Class C 15.66% 15.68% 12.43% Class M 12.81% 15.14% 12.30% S&P 500 Index 21.04% 28.56% 18.21% Lehman Bros. Corp. Bond Index -1.95% 8.19% 8.22% - ----------------------------------------------------------------------- Unlike the bar chart, this performance information reflects the impact of sales charges. Both class A and class M share performance reflect the current maximum initial sales charges; both class B and class C share performance reflect the maximum applicable deferred sales charge if shares had been redeemed on 12/31/99 and, for class B, assumes conversion to class A shares after eight years. For periods before the inception of class B shares (7/15/93), class C shares (7/26/99) and class M shares (3/13/95), performance shown for these classes in the table is based on the performance of the fund's class A shares, adjusted to reflect the appropriate sales charge and the higher 12b-1 fees paid by class B, class C and class M shares. The fund's performance is compared to the Standard & Poor's 500 Index, an unmanaged index of large-capitalization common stocks frequently used as a general measure of U.S. stock market performance, and the Lehman Brothers Corporate Bond Index, an unmanaged index of corporate bonds. FEES AND EXPENSES This table summarizes the fees and expenses you may pay if you invest in the fund. Expenses are based on the fund's last fiscal year. Shareholder Fees (fees paid directly from your investment) - ------------------------------------------------------------------------------- Class A Class B Class C Class M - ------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of the offering price) 5.75% NONE NONE 3.50% Maximum Deferred Sales Charge (Load) (as a percentage of the original purchase price or redemption proceeds, whichever is lower) NONE* 5.00% 1.00% NONE - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Annual Fund Operating Expenses (expenses that are deducted from fund assets) - ------------------------------------------------------------------------------- Total Annual Management Distribution Other Fund Operating Fees (12b-1) Fees Expenses Expenses - ------------------------------------------------------------------------------- Class A 0.57% 0.25% 0.16% 0.98% Class B 0.57% 1.00% 0.16% 1.73% Class C 0.57% 1.00% 0.16% 1.73% Class M 0.57% 0.75% 0.16% 1.48% - ------------------------------------------------------------------------------- * A deferred sales charge of up to 1% may be imposed on certain redemptions of class A shares bought without an initial sales charge. EXAMPLE The example translates the expenses shown in the preceding table into dollar amounts. By doing this, you can more easily compare the cost of investing in the fund to the cost of investing in other mutual funds. The example makes certain assumptions. It assumes that you invest $10,000 in the fund for the time periods shown and then, except as shown for class B and class C shares, redeem all your shares at the end of those periods. It also assumes a 5% return on your investment each year and that the fund's operating expenses remain the same. The example is hypothetical; your actual costs and returns may be higher or lower. - ------------------------------------------------------------------------------- 1 year 3 years 5 years 10 years - ------------------------------------------------------------------------------- Class A $669 $869 $1,086 $1,707 Class B $676 $845 $1,139 $1,842* Class B (no redemption) $176 $545 $ 939 $1,842* Class C $276 $545 $ 939 $2,041 Class C (no redemption) $176 $545 $ 939 $2,041 Class M $495 $802 $1,130 $2,057 - ------------------------------------------------------------------------------- * Reflects the conversion of class B shares to class A shares, which pay lower 12b-1 fees. Conversion occurs no more than eight years after purchase. What are the fund's main investment strategies and related risks? Any investment carries with it some level of risk that generally reflects its potential for reward. We pursue the fund's goal by investing mainly in convertible securities and value stocks. We will consider, among other things, a company's financial strength, competitive position in its industry, projected future earnings, cash flows and dividends when deciding whether to buy or sell investments. A description of the risks associated with the fund's main investment strategies follows. * Interest rate risk. The values of bonds and other debt usually rise and fall in response to changes in interest rates. Declining interest rates generally increase the values of existing debt instruments, and rising interest rates generally decrease them. Changes in a debt instrument's value usually will not affect the amount of income the fund receives from it, but will affect the value of the fund's shares. Interest rate risk is generally greater for investments with longer maturities. Some securities give the issuers the option to "call," or redeem, them before their maturity date. If an issuer "calls" its securities during a time of declining interest rates, we might have to reinvest the proceeds in an investment offering a lower yield, and therefore might not benefit from any increase in value as a result of declining interest rates. "Premium" investments offer interest rates higher than prevailing market rates. However, they involve a greater risk of loss, because their values tend to decline over time. You may find it useful to compare the fund's yield, which factors out the effect of premium investments, with its current dividend rate, which does not factor out that effect. * Credit risk. Investors normally expect to be compensated in proportion to the risk they are assuming. Thus, debt of issuers with poor credit prospects usually offers higher yields than debt of issuers with more secure credit. Higher-rated investments generally offer lower credit risk. A company's convertible securities generally receive payments only after the company has paid the holders of its non-convertible debt; for this reason, the credit risk of a company's convertible securities is generally greater than that of its non-convertible debt. We invest mostly in non investment-grade convertible securities. These are rated below BBB or its equivalent at the time of purchase by a nationally recognized securities rating agency, or are unrated investments that we believe are of comparable quality. We may invest up to 10% of the fund's net assets in convertible securities rated CC or C or their equivalent at the time of purchase by each rating agency rating the investment, and unrated investments we believe are of comparable quality. We will not invest in non-convertible securities rated below CCC or its equivalent at the time of purchase by each rating agency rating the investment or unrated securities that we think are of comparable quality. We will not necessarily sell an investment if its rating is reduced after we buy it. Investments rated below BBB or its equivalent are known as "junk bonds." This rating reflects a greater possibility that the issuers may be unable to make timely payments of interest and principal and thus default. If this happens, or is perceived as likely to happen, the values of those investments are likely to fall. A default or expected default could also make it difficult for us to sell the investments at prices approximating the values we had previously placed on them. Credit risk is generally greater for investments that are issued at less than their face value and that require payments of interest only at maturity rather than at intervals during the life of the investment. Credit ratings are based largely on the issuer's historical financial condition and the rating agencies' investment analysis at the time of rating. The rating assigned to any particular investment does not necessarily reflect the issuer's current financial condition, and does not reflect an assessment of the investment's volatility or liquidity. Although we consider credit ratings in making investment decisions, we perform our own investment analysis and do not rely only on ratings assigned by the rating agencies. The fund depends more on our ability when we buy lower-rated debt than it does when we buy investment-grade debt. We may have to participate in legal proceedings or take possession of and manage assets that secure the issuer's obligations. This could increase the fund's operating expenses and decrease its net asset value. Although investment-grade investments generally have lower credit risk, they may share some of the risks of non investment-grade investments. * Common stocks. Common stock represents an ownership interest in a company. The value of a company's stock may fall as a result of factors relating directly to that company, such as decisions made by its management or lower demand for the company's products or services. A stock's value may also fall because of factors affecting not just the company, but also companies in the same industry or in a number of different industries, such as increases in production costs. The value of a company's stock may also be affected by changes in financial markets that are relatively unrelated to the company or its industry, such as changes in interest rates or currency exchange rates. In addition, a company's stock generally pays dividends only after the company invests in its own business and makes required payments to holders of its bonds and other debt. For this reason, the value of a company's stock will usually react more strongly than its bonds and other debt to actual or perceived changes in the company's financial condition or prospects. Stocks of smaller companies may be more vulnerable to adverse developments than those of larger companies. Companies whose stock we believe is undervalued by the market may have experienced adverse business developments or may be subject to special risks that have caused their stocks to be out of favor. If our assessment of a company's prospects is wrong, or if other investors do not similarly recognize the value of the company, then the price of the company's stock may fall or may not approach the value we have placed on it. * Foreign investments. We may invest in securities of foreign issuers. Foreign investments involve certain special risks. For example, their values may decline in response to changes in currency exchange rates, unfavorable political and legal developments, unreliable or untimely information, and economic and financial instability. In addition, the liquidity of these investments may be more limited than for U.S. investments, which means we may at times be unable to sell them at desirable prices. Foreign settlement procedures may also involve additional risks. These risks are generally greater in the case of developing (also known as emerging) markets with less developed legal and financial systems. Certain of these risks may also apply to U.S. investments that are denominated in foreign currencies or that are traded in foreign markets, or to securities of U.S. companies that have significant foreign operations. * Smaller companies. We may invest in smaller and midsized companies. Smaller companies, which may have a market capitalization of less than $1 billion, are more likely than larger companies to have limited product lines, markets or financial resources, or to depend on a small, inexperienced management group. Stocks of these companies often trade less frequently and in limited volume, and their prices may fluctuate more than stocks of larger companies. Stocks of smaller and midsized companies may therefore be more vulnerable to adverse developments than those of larger companies. * Other investments. In addition to the main investment strategies described above, the fund may also make other investments, such as investments in common stocks, non-convertible preferred stocks, asset-backed securities and derivatives, which may be subject to other risks, as described in the fund's statement of additional information (SAI). * Alternative strategies. At times we may judge that market conditions make pursuing the fund's usual investment strategies inconsistent with the best interests of its shareholders. We then may temporarily use alternative strategies that are mainly designed to limit losses. However, we may choose not to use these strategies for a variety of reasons, even in very volatile market conditions. These strategies may cause the fund to miss out on investment opportunities, and may prevent the fund from achieving its goal. * Changes in policies. The fund's Trustees may change the fund's goal, investment strategies and other policies described above without shareholder approval, except as otherwise indicated. Who manages the fund? The fund's Trustees oversee the general conduct of the fund's business. The Trustees have retained Putnam Management to be the fund's investment manager, responsible for making investment decisions for the fund and managing the fund's other affairs and business. The fund pays Putnam Management a quarterly management fee for these services based on the fund's average net assets. The fund paid Putnam Management a management fee of 0.57% of average net assets for the fund's last fiscal year. Putnam Management's address is One Post Office Square, Boston, MA 02109. The following officers of Putnam Management have had primary responsibility for the day-to-day management of the fund's portfolio since the years shown below. Their experience as portfolio managers or investment analysts over at least the last five years is also shown. - ---------------------------------------------------------------------- Manager Since Experience - ---------------------------------------------------------------------- Forrest N. Fontana 1998 1993 - Present Putnam Management Senior Vice President - ---------------------------------------------------------------------- Charles G. Pohl 1992 1983 - Present Putnam Management Senior Vice President - ---------------------------------------------------------------------- * Year 2000 issues. The fund could be adversely affected if the computer systems that we and the fund's other service providers use do not properly process and calculate date-related information relating to the year 2000. While year 2000-related computer problems could have a negative effect on the fund, both in its operations and in its investments, we are working to avoid such problems and to obtain assurances from service providers that they are taking similar steps. No assurances, though, can be provided that the fund will not be adversely impacted by these matters. How does the fund price its shares? The price of the fund's shares is based on its net asset value (NAV). The NAV per share of each class equals the total value of its assets, less its liabilities, divided by the number of its outstanding shares. Shares are only valued as of the close of regular trading on the New York Stock Exchange each day the exchange is open. The fund values its investments for which market quotations are readily available at market value. It values short-term investments that will mature within 60 days at amortized cost, which approximates market value. It values all other investments and assets at their fair value. The fund translates prices for its investments quoted in foreign currencies into U.S. dollars at current exchange rates. As a result, changes in the value of those currencies in relation to the U.S. dollar may affect the fund's NAV. Because foreign markets may be open at different times than the New York Stock Exchange, the value of the fund's shares may change on days when shareholders are not able to buy or sell them. If events materially affecting the values of the fund's foreign investments occur between the close of foreign markets and the close of regular trading on the New York Stock Exchange, these investments will be valued at their fair value. How do I buy fund shares? You can open a fund account with as little as $500 and make additional investments at any time with as little as $50 ($25 through systematic investing). The fund sells its shares at the offering price, which is the NAV plus any applicable sales charge. Your financial advisor or Putnam Investor Services generally must receive your completed buy order before the close of regular trading on the New York Stock Exchange for your shares to be bought at that day's offering price. You can buy shares: * Through a financial advisor. Your advisor will be responsible for furnishing all necessary documents to Putnam Investor Services, and may charge you for his or her services. * Through systematic investing. You can make regular investments of $25 or more per month through automatic deductions from your bank checking or savings account. Application forms are available through your advisor or Putnam Investor Services at 1-800-225-1581. You may also complete an order form and write a check for the amount you wish to invest, payable to the fund. Return the check and completed form to Putnam Mutual Funds. The fund may periodically close to new purchases of shares or refuse any order to buy shares if the fund determines that doing so would be in the best interests of the fund and its shareholders. WHICH CLASS OF SHARES IS BEST FOR ME? This prospectus offers you a choice of four classes of fund shares: A, B, C and M. This allows you to choose among different types of sales charges and different levels of ongoing operating expenses, as illustrated in the "Fees and expenses" section. The class of shares that is best for you depends on a number of factors, including the amount you plan to invest and how long you plan to hold the shares. Here is a summary of the differences among the classes of shares: Class A shares * Initial sales charge of up to 5.75% * Lower sales charge for investments of $50,000 or more * No deferred sales charge (except on certain redemptions of shares bought without an initial sales charge) * Lower annual expenses, and higher dividends, than class B, C or M shares because of lower 12b-1 fee Class B shares * No initial sales charge; your entire investment goes to work for you * Deferred sales charge of up to 5.00% if you sell shares within 6 years after purchase * Higher annual expenses, and lower dividends, than class A or M shares because of higher 12b-1 fee * Convert automatically to class A shares after 8 years, reducing the future 12b-1 fee (may convert sooner in some cases) * Orders for class B shares for $250,000 or more are treated as orders for class A shares or refused Class C shares * No initial sales charge; your entire investment goes to work for you * Deferred sales charge of 1.00% if you sell shares within one year after purchase * Higher annual expenses, and lower dividends, than class A or M shares because of higher 12b-1 fee * No conversion to class A shares, so future 12b-1 fee does not decrease * Orders of $1,000,000 or more and orders that, because of a right of accumulation or statement of intent, would qualify for the purchase of class A shares without an initial sales charge will be treated as orders for class A shares or refused Class M shares * Initial sales charge of up to 3.50% * Lower sales charge for investments of $50,000 or more * No deferred sales charge * Lower annual expenses, and higher dividends, than class B or C shares because of lower 12b-1 fee * Higher annual expenses, and lower dividends, than class A shares because of higher 12b-1 fee * No conversion to class A shares, so future 12b-1 fee does not decrease - ------------------------------------------------------------------------------- Initial sales charges for class A and M shares - ------------------------------------------------------------------------------- Class A sales charge Class M sales charge as a percentage of: as a percentage of: - ------------------------------------------------------------------------------- Amount of purchase Net amount Offering Net amount Offering at offering price ($) invested price* invested price* - ------------------------------------------------------------------------------- Under 50,000 6.10% 5.75% 3.63% 3.50% 50,000 but under 100,000 4.71 4.50 2.56 2.50 100,000 but under 250,000 3.63 3.50 1.52 1.50 250,000 but under 500,000 2.56 2.50 1.01 1.00 500,000 but under 1,000,000 2.04 2.00 NONE NONE 1,000,000 and above NONE NONE NONE NONE - ------------------------------------------------------------------------------- * Offering price includes sales charge. Deferred sales charges for class B, class C and certain class A shares If you sell (redeem) class B shares within six years after you bought them, you will generally pay a deferred sales charge according to the following schedule. Year after purchase 1 2 3 4 5 6 7+ - ------------------------------------------------------------------------------- Charge 5% 4% 3% 3% 2% 1% 0% A deferred sales charge of 1% will apply to class C shares if redeemed within one year of purchase. A deferred sales charge of up to 1% may apply to class A shares purchased without an initial sales charge, if redeemed within two years of purchase. Deferred sales charges will be based on the lower of the shares' cost and current NAV. Shares not subject to any charge will be redeemed first, followed by shares held longest. You may sell shares acquired by reinvestment of distributions without a charge at any time. * You may be eligible for reductions and waivers of sales charges. Sales charges may be reduced or waived under certain circumstances and for certain groups. Information about reductions and waivers of sales charges is included in the SAI. You may consult your financial advisor or Putnam Mutual Funds for assistance. * Distribution (12b-1) plans. The fund has adopted distribution plans to pay for the marketing of fund shares and for services provided to shareholders. The plans provide for payments at annual rates (based on average net assets) of up to 0.35% on class A shares and 1.00% on class B, class C and class M shares. The Trustees currently limit payments on class A and class M shares to 0.25% and 0.75% of average net assets, respectively. Because these fees are paid out of the fund's assets on an ongoing basis, they will increase the cost of your investment. The higher fees for class B, class C and class M shares may cost you more than paying the initial sales charge for class A shares. Because class C and class M shares, unlike class B shares, do not convert to class A shares, class C and class M shares may cost you more over time than class B shares. How do I sell fund shares? You can sell your shares back to the fund any day the New York Stock Exchange is open, either through your financial advisor or directly to the fund. Payment for redemption may be delayed until the fund collects the purchase price of shares, which may take up to 15 calendar days after the purchase date. * Selling shares through your financial advisor. Your advisor must receive your request in proper form before the close of regular trading on the New York Stock Exchange for you to receive that day's NAV, less any applicable deferred sales charge. Your advisor will be responsible for furnishing all necessary documents to Putnam Investor Services on a timely basis and may charge you for his or her services. * Selling shares directly to the fund. Putnam Investor Services must receive your request in proper form before the close of regular trading on the New York Stock Exchange in order to receive that day's NAV, less any applicable sales charge. By mail. Send a letter of instruction signed by all registered owners or their legal representatives to Putnam Investor Services. If you have certificates for the shares you want to sell, you must include them along with completed stock power forms. By telephone. You may use Putnam's telephone redemption privilege to redeem shares valued at less than $100,000 unless you have notified Putnam Investor Services of an address change within the preceding 15 days, in which case other requirements may apply. Unless you indicate otherwise on the account application, Putnam Investor Services will be authorized to accept redemption instructions received by telephone. The telephone redemption privilege is not available if there are certificates for your shares. The telephone redemption privilege may be modified or terminated without notice. * Additional requirements. In certain situations, for example, if you sell shares with a value of $100,000 or more, the signatures of all registered owners or their legal representatives must be guaranteed by a bank, broker-dealer or certain other financial institutions. In addition, Putnam Investor Services usually requires additional documents for the sale of shares by a corporation, partnership, agent or fiduciary, or a surviving joint owner. For more information concerning Putnam's signature guarantee and documentation requirements, contact Putnam Investor Services. * When will the fund pay me? The fund generally sends you payment for your shares the business day after your request is received. Under unusual circumstances, the fund may suspend redemptions, or postpone payment for more than seven days, as permitted by federal securities law. * Redemption by the fund. If you own fewer shares than the minimum set by the Trustees (presently 20 shares), the fund may redeem your shares without your permission and send you the proceeds. The fund may also redeem shares if you own more than a maximum amount set by the Trustees. There is presently no maximum, but the Trustees could set a maximum that would apply to both present and future shareholders. How do I exchange fund shares? If you want to switch your investment from one Putnam fund to another, you can exchange your fund shares for shares of the same class of another Putnam fund at NAV. Not all Putnam funds offer all classes of shares or are open to new investors. If you exchange shares subject toa deferred sales charge, the transaction will not be subject to the deferred sales charge. When you redeem the shares acquired through the exchange, the redemption may be subject to the deferred sales charge, depending upon when you originally purchased the shares. The deferred sales charge will be computed using the schedule of any fund into or from which you have exchanged your shares that would result in your paying the highest deferred sales charge applicable to your class of shares. For purposes of computing the deferred sales charge, the length of time you have owned your shares will be measured from the date of original purchase and will not be affected by any subsequent exchanges among funds. To exchange your shares, complete an Exchange Authorization Form and send it to Putnam Investor Services. The form is available from Putnam Investor Services. A telephone exchange privilege is currently available for amounts up to $500,000. The telephone exchange privilege is not available if the fund issued certificates for your shares. Ask your financial advisor or Putnam Investor Services for prospectuses of other Putnam funds. Some Putnam funds are not available in all states. The exchange privilege is not intended as a vehicle for short-term trading. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. In order to limit excessive exchange activity and otherwise to promote the best interests of the fund, the fund reserves the right to revise or terminate the exchange privilege, limit the amount or number of exchanges or reject any exchange. The fund into which you would like to exchange may also reject your exchange. These actions may apply to all shareholders or only to those shareholders whose exchanges Putnam Management determines are likely to have a negative effect on the fund or other Putnam funds. Consult Putnam Investor Services before requesting an exchange. Fund distributions and taxes The fund normally distributes any net investment income quarterly and any net realized capital gains annually. You may choose to: * reinvest all distributions in additional shares; * receive any distributions from net investment income in cash while reinvesting capital gains distributions in additional shares; or * receive all distributions in cash. If you do not select an option when you open your account, all distributions will be reinvested. If you do not cash a distribution check within a specified period or notify Putnam Investor Services to issue a new check, the distribution will be reinvested in the fund. You will not receive any interest on uncashed distribution or redemption checks. Similarly, if any correspondence sent by the fund or Putnam Investor Services is returned as "undeliverable," fund distributions will automatically be reinvested in the fund or in another Putnam fund. For federal income tax purposes, distributions of investment income are taxable as ordinary income. Taxes on distributions of capital gains are determined by how long the fund owned the investments that generated them, rather than how long you have owned your shares. Distributions are taxable to you even if they are paid from income or gains earned by the fund before your investment (and thus were included in the price you paid). Distributions of gains from investments that the fund owned for more than one year will be taxable as capital gains. Distributions of gains from investments that the fund owned for one year or less will be taxable as ordinary income. Distributions are taxable whether you received them in cash or reinvested them in additional shares. The fund's investments in foreign securities may be subject to foreign withholding taxes. In that case, the fund's return on those investments would be decreased. Shareholders generally will not be entitled to claim a credit or deduction with respect to foreign taxes. In addition, the fund's investments in foreign securities or foreign currencies may increase the amount of taxes payable by shareholders. The fund's investments in certain debt obligations may cause the fund to recognize taxable income in excess of the cash generated by such obligations. Thus, the fund could be required at times to liquidate other investments in order to satisfy its distribution requirements. Any gain resulting from the sale or exchange of your shares will generally also be subject to tax. You should consult your tax advisor for more information on your own tax situation, including possible foreign, state and local taxes. Financial highlights The financial highlights table is intended to help you understand the fund's recent financial performance. Certain information reflects financial results for a single fund share. The total returns represent the rate that an investor would have earned or lost on an investment in the fund, assuming reinvestment of all dividends and distributions. This information for the year ended October 31, 1999 has been derived from the fund's financial statements, which have been audited by KPMG LLP. Its report and the fund's financial statements are included in the fund's annual report to shareholders, which is available upon request. The information for all periods prior to the year ended October 31, 1999 has been derived from the fund's financial statements which have been audited by the fund's previous independent accountants.
FINANCIAL HIGHLIGHTS CLASS A (For a share outstanding throughout the period) Year ended October 31 --------------------------------------------------------- 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ Net asset value, beginning of period $20.04 $23.22 $21.24 $19.42 $19.09 - ------------------------------------------------------------------------------------ Investment operations Net investment income .75c .76c .78c .81c .85 Net realized and unrealized gain (loss) on investments 2.30 (1.02) 3.70 2.70 1.60 - ------------------------------------------------------------------------------------ Total from investment operations 3.05 (.26) 4.48 3.51 2.45 - ------------------------------------------------------------------------------------ Less distributions: From net investment income (.75) (.76) (.87) (.98) (.96) In excess of net investment income (.06) (.03) (.06) -- -- From net realized gain on investments (2.02) (2.13) (1.57) (.71) (1.16) - ------------------------------------------------------------------------------------ Total distributions (2.83) (2.92) (2.50) (1.69) (2.12) - ------------------------------------------------------------------------------------ Net asset value, end of period $20.26 $20.04 $23.22 $21.24 $19.42 - ------------------------------------------------------------------------------------ Ratios and supplemental data Total return at net asset value (%)a 16.42 (1.37) 22.86 18.99 14.38 Net assets, end of period (in thousands) $982,956 $1,056,693 $1,168,470 $898,486 $756,645 - ------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)b .98 .97 1.03 1.06 1.16 Ratio of net investment income to average net assets (%) 3.73 3.50 3.56 3.99 4.64 Portfolio turnover (%) 54.74 92.76 70.74 61.43 69.52 - ------------------------------------------------------------------------------------ a Total return assumes dividend reinvestment and does not reflect the effect of sales charges. b Includes amounts paid through expense offset and brokerage service arrangements. c Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
FINANCIAL HIGHLIGHTS CLASS B (For a share outstanding throughout the period) Year ended October 31 --------------------------------------------------------- 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------ Net asset value, beginning of period $19.83 $23.01 $21.09 $19.30 $19.00 - ------------------------------------------------------------------------------------ Investment operations Net investment income .60c .59c .63c .66c .69 Net realized and unrealized gain (loss) on investments 2.27 (1.01) 3.64 2.68 1.61 - ------------------------------------------------------------------------------------ Total from investment operations 2.87 (.42) 4.27 3.34 2.30 - ------------------------------------------------------------------------------------ Less distributions: From net investment income (.60) (.61) (.73) (.84) (.84) In excess of net investment income (.06) (.02) (.05) -- -- From net realized gain on investments (2.02) (2.13) (1.57) (.71) (1.16) - ------------------------------------------------------------------------------------ Total distributions (2.68) (2.76) (2.35) (1.55) (2.00) - ------------------------------------------------------------------------------------ Net asset value, end of period $20.02 $19.83 $23.01 $21.09 $19.30 - ------------------------------------------------------------------------------------ Ratios and supplemental data Total return at net asset value (%)a 15.58 (2.11) 21.89 18.14 13.54 Net assets, end of period (in thousands) $291,017 289,652 $257,163 $146,127 $75,309 - ------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)b 1.73 1.72 1.78 1.81 1.91 Ratio of net investment income to average net assets (%) 2.99 2.74 2.78 3.26 3.92 Portfolio turnover (%) 54.74 92.76 70.74 61.43 69.52 - ------------------------------------------------------------------------------------ a Total return assumes dividend reinvestment and does not reflect the effect of sales charges. b Includes amounts paid through expense offset and brokerage service arrangements. c Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
FINANCIAL HIGHLIGHTS CLASS C (For a share outstanding throughout the period) For the period July 26, 1999+ to Oct. 31, ---------- 1999 - ------------------------------------------------------------------------------------ Net asset value, beginning of period $20.85 - ------------------------------------------------------------------------------------ Investment operations Net investment income .20c Net realized and unrealized gain (loss) on investments (.59) - ------------------------------------------------------------------------------------ Total from investment operations (.39) - ------------------------------------------------------------------------------------ Less distributions: From net investment income (.20) In excess of net investment income (.03) From net realized gain on investments -- - ------------------------------------------------------------------------------------ Total distributions (.23) - ------------------------------------------------------------------------------------ Net asset value, end of period $20.23 - ------------------------------------------------------------------------------------ Ratios and supplemental data Total return at net asset value (%)a (1.87)* Net assets, end of period (in thousands) $661 - ------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)b .47* Ratio of net investment income to average net assets (%) 1.12* Portfolio turnover (%) 54.74 - ------------------------------------------------------------------------------------ + Commencement of operations. * Not annualized. a Total return assumes dividend reinvestment and does not reflect the effect of sales charges. b Includes amounts paid through expense offset and brokerage service arrangements. c Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
FINANCIAL HIGHLIGHTS CLASS M (For a share outstanding throughout the period) For the period March 13, 1995+ Year ended October 31 to Oct. 31, ------------------------------------------------------- 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------- Net asset value, beginning of period $19.92 $23.08 $21.14 $19.37 $17.79 - --------------------------------------------------------------------------------- Investment operations Net investment income .65c .65c .67c .73c .64 Net realized and unrealized gain (loss) on investments 2.28 (1.00) 3.67 2.65 1.64 - --------------------------------------------------------------------------------- Total from investment operations 2.93 (.35) 4.34 3.38 2.28 - --------------------------------------------------------------------------------- Less distributions: From net investment income (.65) (.66) (.78) (.90) (.70) In excess of net investment income (.05) (.02) (.05) -- -- From net realized gain on investments (2.02) (2.13) (1.57) (.71) -- - --------------------------------------------------------------------------------- Total distributions (2.72) (2.81) (2.40) (1.61) (.70) - --------------------------------------------------------------------------------- Net asset value, end of period $20.13 $19.92 $23.08 $21.14 $19.37 - --------------------------------------------------------------------------------- Ratios and supplemental data Total return at net asset value (%)a 15.87 (1.75) 22.24 18.30 12.99* Net assets, end of period (in thousands) $16,338 $18,081 $14,719 $7,128 $1,753 - --------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)b 1.48 1.47 1.53 1.54 1.04* Ratio of net investment income to average net assets (%) 3.23 2.99 3.04 3.55 2.89* Portfolio turnover (%) 54.74 92.76 70.74 61.43 69.52 - --------------------------------------------------------------------------------- + Commencement of operations. * Not annualized. a Total return assumes dividend reinvestment and does not reflect the effect of sales charges. b Includes amounts paid through expense offset and brokerage service arrangements. c Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
Make the most of your Putnam privileges As a Putnam mutual fund shareholder, you have access to a number of services that can help you build a more effective and flexible financial program. Here are some of the ways you can use these privileges to make the most of your Putnam mutual fund investment. SYSTEMATIC INVESTMENT PLAN Invest as much as you wish ($25 or more) on any business day of the month except for the 29th, 30th, or 31st. The amount you choose will be automatically transferred each month from your checking or savings account. SYSTEMATIC WITHDRAWAL Make regular withdrawals of $50 or more monthly, quarterly, or semiannually from your Putnam mutual fund account valued at $10,000 or more. Your automatic withdrawal may be made on any business day of the month except for the 29th, 30th, or 31st. SYSTEMATIC EXCHANGE Transfer assets automatically from one Putnam account to another on a regular, prearranged basis. There is no additional charge for this service. FREE EXCHANGE PRIVILEGE Exchange money between Putnam funds in the same class of shares without charge. The exchange privilege allows you to adjust your investments as your objectives change. A signature guarantee is required for exchanges of more than $500,000 and shares of all Putnam funds may not be available to all investors. DIVIDENDS PLUS Diversify your portfolio by investing dividends and other distributions from one Putnam fund automatically into another at net asset value. STATEMENT OF INTENTION To reduce a front-end sales charge, you may agree to invest a minimum dollar amount over 13 months. Depending on your fund, the minimum is $25,000, $50,000, or $100,000. Whenever you make an investment under this arrangement, you or your investment advisor should notify Putnam Mutual Funds that a Statement of Intention is in effect. Investors may not maintain, within the same fund, simultaneous plans for systematic investment or exchange (into the fund) and system atic withdrawal or exchange (out of the fund). These privileges are subject to change or termination. For more information about any of these services and privileges, call your investment advisor or a Putnam customer service representative toll free at 1-800-225-1581. For more information about Putnam Convertible Income-Growth Trust The fund's statement of additional information (SAI) and annual and semi-annual reports to shareholders include additional information about the fund. The SAI, and the independent accountants' reports and financial statements included in the fund's two most recent annual reports to its shareholders, are incorporated by reference into this prospectus, which means they are part of this prospectus for legal purposes. The fund's annual report discusses the market conditions and investment strategies that significantly affected the fund's performance during its last fiscal year. You may get free copies of these materials, request other information about the fund and other Putnam funds, or make shareholder inquiries, by contacting your financial advisor, by visiting Putnam's Web site, or by calling Putnam toll-free at 1-800-225-1581. You may review and copy information about the fund, including its SAI, at the Securities and Exchange Commission's public reference room in Washington, D.C. You may call the Commission at 1-800-SEC-0330 for information about the operation of the public reference room. You may also access reports and other information about the fund on the Commission's Internet site at http://www.sec.gov. You may get copies of this information, with payment of a duplication fee, by writing the Public Reference Section of the Commission, Washington, D.C. 20549-6009. You may need to refer to the fund's file number. P U T N A M I N V E S T M E N T S One Post Office Square Boston, Massachusetts 02109 1-800-225-1581 Address correspondence to Putnam Investor Services P.O. Box 989 Boston, Massachusetts 02103 www.putnaminv.com File No. 811-2280 NP019 58899 2/00 Prospectus February 29, 2000 Putnam Convertible Income-Growth Trust Class A shares -- for eligible retirement plans Investment Category: Growth and Income This prospectus explains what you should know about this mutual fund before you invest. Please read it carefully. This prospectus only offers class A shares of the fund without a sales charge to eligible retirement plans. Putnam Investment Management, Inc. (Putnam Management), which has managed mutual funds since 1937, manages the fund. These securities have not been approved or disapproved by the Securities and Exchange Commission nor has the Commission passed upon the accuracy or adequacy of this prospectus. Any statement to the contrary is a crime. CONTENTS 2 Fund summary 2 Goal 2 Main investment strategies 2 Main risks 3 Performance information 3 Fees and expenses 4 What are the fund's main investment strategies and related risks? 8 Who manages the fund? 8 How does the fund price its shares? 9 How do I buy fund shares? 10 How do I sell fund shares? 10 How do I exchange fund shares? 11 Fund distributions and taxes 12 Financial highlights [LOGO: BOSTON * LONDON * TOKYO] Fund summary GOAL The fund seeks, with equal emphasis, current income and capital appreciation. Its secondary objective is conservation of capital. MAIN INVESTMENT STRATEGIES -- CONVERTIBLE SECURITIES We invest mainly in U.S. convertible securities. Convertible securities typically are bonds, preferred stocks or warrants that can be converted into or exchanged for common stock. Most of the convertible securities we buy for the fund are convertible into value stocks. Value stocks are those we believe are currently undervalued by the market. If we are correct and other investors recognize the value of the company, the price of the stock may rise. The price of a convertible security normally varies with the price of the underlying stock. A convertible security tends to provide a higher yield than the underlying stock, which may cushion it against declines in the price of that stock. The convertible bonds we buy usually have intermediate- to long-term maturities (three years or longer). We invest mainly in midsized and large companies. MAIN RISKS The main risks that could adversely affect the value of the fund's shares and the total return on your investment include: * The risk that the stock price of one or more of the companies in the fund's portfolio will fall, or will fail to rise. Many factors can adversely affect a stock's performance, including both general financial market conditions and factors related to a specific company or industry. This risk is generally greater for small and midsized companies, which tend to be more vulnerable to adverse developments. * The risk that movements in financial markets will adversely affect the price of the fund's investments, regardless of how well the companies in which we invest perform. The market as a whole may not favor the types of investments we make. * The risk that prices of bonds we buy will fall if interest rates rise. Interest rate risk is generally higher for investments with longer maturities. * The risk that issuers of the bonds we buy will not make timely payments of interest and principal. This credit risk is generally higher for debt that is below investment-grade in quality. Because the fund invests significantly in junk bonds and below investment-grade preferred stocks, this risk is heightened for the fund. Investors should carefully consider the risks associated with an investment in the fund. You can lose money by investing in the fund. The fund may not achieve its goal, and is not intended as a complete investment program. An investment in the fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. PERFORMANCE INFORMATION The following information provides some indication of the fund's risks. The chart shows year-to-year changes in the performance of the fund's class A shares. The table following the chart compares the fund's performance to that of two broad measures of market performance. Of course, a fund's past performance is not an indication of future performance. [GRAPHIC OMITTED: vertical bar chart] CALENDAR YEAR TOTAL RETURNS FOR CLASS A SHARES Plot points 1990 -10.02% 1991 29.40% 1992 21.09% 1993 17.03% 1994 -1.92% 1995 23.81% 1996 17.82% 1997 19.64% 1998 4.85% 1999 17.49% During the periods shown in the bar chart, the highest return for a quarter was 14.90% (quarter ending 3/31/91) and the lowest return for a quarter was - -12.74% (quarter ending 9/30/90). Average Annual Total Returns (for periods ending 12/31/99) - ------------------------------------------------------------------------- Past Past Past 1 year 5 years 10 years - ------------------------------------------------------------------------- Class A 17.49% 16.54% 13.28% S&P 500 Index 21.04% 28.56% 18.21% Lehman Bros. Corporate Bond Index -1.95% 8.19% 8.22% - ------------------------------------------------------------------------- Class A share performance reflects the waiver of sales charges for purchases through eligible retirement plans. The fund's performance is compared to the Standard & Poor's 500 Index, an unmanaged index of common stocks frequently used as a general measure of U.S. stock market performance, and the Lehman Brothers Corporate Bond Index, an unmanaged index of corporate bonds. FEES AND EXPENSES This table summarizes the fees and expenses you may pay if you invest in class A shares of the fund. Expenses are based on the fund's last fiscal year. Shareholder Fees (fees paid directly from your investment) - ------------------------------------------------------------------------- Maximum Sales Charge (Load) NONE Maximum Deferred Sales Charge (Load) 0.75%* - ------------------------------------------------------------------------- Annual Fund Operating Expenses (expenses that are deducted from fund assets) - ------------------------------------------------------------------------------ Total Annual Management Distribution Other Fund Operating Fees (12b-1) Fees Expenses Expenses - ------------------------------------------------------------------------------ Class A 0.57% 0.25% 0.16% 0.98% - ------------------------------------------------------------------------------ * The deferred sales charge is applicable only to a plan that redeems 90% or more of its cumulative purchases within two years of its initial purchase, and only if Putnam Mutual Funds paid a commission on the plan's purchases. EXAMPLE The example translates the expenses shown in the preceding table into dollar amounts. By doing this, you can more easily compare the cost of investing in the fund to the cost of investing in other mutual funds. The example makes certain assumptions. It assumes that you invest $10,000 in the fund for the time periods shown and then redeem all your shares at the end of those periods. It also assumes a 5% return on your investment each year and that the fund's operating expenses remain the same. The example is hypothetical; your actual costs and returns may be higher or lower. - ------------------------------------------------------------------------ 1 year 3 years 5 years 10 years - ------------------------------------------------------------------------ Class A $175 $312 $542 $1,201 - ------------------------------------------------------------------------ What are the fund's main investment strategies and related risks? Any investment carries with it some level of risk that generally reflects its potential for reward. We pursue the fund's goal by investing mainly in convertible securities and value stocks. We will consider, among other things, a company's financial strength, competitive position in its industry, projected future earnings, cash flows and dividends when deciding whether to buy or sell investments. A description of the risks associated with the fund's main investment strategies follows. * Interest rate risk. The values of bonds and other debt usually rise and fall in response to changes in interest rates. Declining interest rates generally increase the values of existing debt instruments, and rising interest rates generally decrease them. Changes in a debt instrument's value usually will not affect the amount of income the fund receives from it, but will affect the value of the fund's shares. Interest rate risk is generally greater for investments with longer maturities. Some securities give the issuers the option to "call," or redeem, them before their maturity date. If an issuer "calls" its securities during a time of declining interest rates, we might have to reinvest the proceeds in an investment offering a lower yield, and therefore might not benefit from any increase in value as a result of declining interest rates. "Premium" investments offer interest rates higher than prevailing market rates. However, they involve a greater risk of loss, because their values tend to decline over time. You may find it useful to compare the fund's yield, which factors out the effect of premium investments, with its current dividend rate, which does not factor out that effect. * Credit risk. Investors normally expect to be compensated in proportion to the risk they are assuming. Thus, debt of issuers with poor credit prospects usually offers higher yields than debt of issuers with more secure credit. Higher-rated investments generally offer lower credit risk. A company's convertible securities generally receive payments only after the company has paid the holders of its non-convertible debt; for this reason, the credit risk of a company's convertible securities is generally greater than that of its non-convertible debt. We invest mostly in non investment-grade convertible securities. These are rated below BBB or its equivalent at the time of purchase by a nationally recognized securities rating agency, or are unrated investments that we believe are of comparable quality. We may invest up to 10% of the fund's net assets in convertible securities rated CC or C or their equivalent at the time of purchase by each rating agency rating the investment, and unrated investments we believe are of comparable quality. We will not invest in non-convertible securities rated below CCC or its equivalent at the time of purchase by each rating agency rating the investment or unrated securities that we think are of comparable quality. We will not necessarily sell an investment if its rating is reduced after we buy it. Investments rated below BBB or its equivalent are known as "junk bonds." This rating reflects a greater possibility that the issuers may be unable to make timely payments of interest and principal and thus default. If this happens, or is perceived as likely to happen, the values of those investments are likely to fall. A default or expected default could also make it difficult for us to sell the investments at prices approximating the values we had previously placed on them. Credit risk is generally greater for investments that are issued at less than their face value and that require payments of interest only at maturity rather than at intervals during the life of the investment. Credit ratings are based largely on the issuer's historical financial condition and the rating agencies' investment analysis at the time of rating. The rating assigned to any particular investment does not necessarily reflect the issuer's current financial condition, and does not reflect an assessment of the investment's volatility or liquidity. Although we consider credit ratings in making investment decisions, we perform our own investment analysis and do not rely only on ratings assigned by the rating agencies. The fund depends more on our ability when we buy lower-rated debt than it does when we buy investment-grade debt. We may have to participate in legal proceedings or take possession of and manage assets that secure the issuer's obligations. This could increase the fund's operating expenses and decrease its net asset value. Although investment-grade investments generally have lower credit risk, they may share some of the risks of non investment-grade investments. * Common stocks. Common stock represents an ownership interest in a company. The value of a company's stock may fall as a result of factors relating directly to that company, such as decisions made by its management or lower demand for the company's products or services. A stock's value may also fall because of factors affecting not just the company, but also companies in the same industry or in a number of different industries, such as increases in production costs. The value of a company's stock may also be affected by changes in financial markets that are relatively unrelated to the company or its industry, such as changes in interest rates or currency exchange rates. In addition, a company's stock generally pays dividends only after the company invests in its own business and makes required payments to holders of its bonds and other debt. For this reason, the value of a company's stock will usually react more strongly than its bonds and other debt to actual or perceived changes in the company's financial condition or prospects. Stocks of smaller companies may be more vulnerable to adverse developments than those of larger companies. Companies whose stock we believe is undervalued by the market may have experienced adverse business developments or may be subject to special risks that have caused their stocks to be out of favor. If our assessment of a company's prospects is wrong, or if other investors do not similarly recognize the value of the company, then the price of the company's stock may fall or may not approach the value we have placed on it. * Foreign investments. We may invest in securities of foreign issuers. Foreign investments involve certain special risks. For example, their values may decline in response to changes in currency exchange rates, unfavorable political and legal developments, unreliable or untimely information, and economic and financial instability. In addition, the liquidity of these investments may be more limited than for U.S. investments, which means we may at times be unable to sell them at desirable prices. Foreign settlement procedures may also involve additional risks. These risks are generally greater in the case of developing (also known as emerging) markets with less developed legal and financial systems. Certain of these risks may also apply to U.S. investments that are denominated in foreign currencies or that are traded in foreign markets, or to securities of U.S. companies that have significant foreign operations. * Smaller companies. We may invest in smaller and midsized companies. Smaller companies, which may have a market capitalization of less than $1 billion, are more likely than larger companies to have limited product lines, markets or financial resources, or to depend on a small, inexperienced management group. Stocks of these companies often trade less frequently and in limited volume, and their prices may fluctuate more than stocks of larger companies. Stocks of smaller and midsized companies may therefore be more vulnerable to adverse developments than those of larger companies. * Other investments. In addition to the main investment strategies described above, the fund may also make other investments, such as investments in common stocks, non-convertible preferred stocks, asset-backed securities and derivatives, which may be subject to other risks, as described in the fund's statement of additional information (SAI). * Alternative strategies. At times we may judge that market conditions make pursuing the fund's usual investment strategies inconsistent with the best interests of its shareholders. We then may temporarily use alternative strategies that are mainly designed to limit the fund's losses. However, we may choose not to use these strategies for a variety of reasons, even in very volatile market conditions. These strategies may cause the fund to miss out on investment opportunities, and may prevent the fund from achieving its goal. * Changes in policies. The fund's Trustees may change the fund's goal, investment strategies and other policies described above without shareholder approval, except as otherwise indicated. Who manages the fund? The fund's Trustees oversee the general conduct of the fund's business. The Trustees have retained Putnam Management to be the fund's investment manager, responsible for making investment decisions for the fund and managing the fund's other affairs and business. The fund pays Putnam Management a quarterly management fee for these services based on the fund's average net assets. The fund paid Putnam Management a management fee of 0.57% of average net assets for the fund's last fiscal year. Putnam Management's address is One Post Office Square, Boston, MA 02109. The following officers of Putnam Management have had primary responsibility for the day-to-day management of the fund's portfolio since the years shown below. Their experience as portfolio managers or investment analysts over at least the last five years is also shown. - ----------------------------------------------------------------------------- Manager Since Experience - ----------------------------------------------------------------------------- Forrest N. Fontana 1998 1993-Present Putnam Management Senior Vice President - ----------------------------------------------------------------------------- Charles G. Pohl 1992 1983-Present Putnam Management Senior Vice President - ----------------------------------------------------------------------------- * Year 2000 issues. The fund could be adversely affected if the computer systems that we and the fund's other service providers use do not properly process and calculate date-related information relating to the year 2000. While year 2000-related computer problems could have a negative effect on the fund, both in its operations and in its investments, we are working to avoid such problems and to obtain assurances from service providers that they are taking similar steps. No assurances, though, can be provided that the fund will not be adversely impacted by these matters. How does the fund price its shares? The price of the fund's shares is based on its net asset value (NAV). The NAV per share of each class equals the total value of its assets, less its liabilities, divided by the number of its outstanding shares. Shares are only valued as of the close of regular trading on the New York Stock Exchange each day the exchange is open. The fund values its investments for which market quotations are readily available at market value. It values short-term investments that will mature within 60 days at amortized cost, which approximates market value. It values all other investments and assets at their fair value. The fund translates prices for its investments quoted in foreign currencies into U.S. dollars at current exchange rates. As a result, changes in the value of those currencies in relation to the U.S. dollar may affect the fund's NAV. Because foreign markets may be open at different times than the New York Stock Exchange, the value of the fund's shares may change on days when shareholders are not able to buy or sell them. If events materially affecting the values of the fund's foreign investments occur between the close of foreign markets and the close of regular trading on the New York Stock Exchange, these investments will be valued at their fair value. How do I buy fund shares? All orders to purchase shares must be made through your employer's retirement plan. For more information about how to purchase shares of the fund through your employer's plan or limitations on the amount that may be purchased, please consult your employer. Putnam Mutual Funds Corp. (Putnam Mutual Funds) generally must receive your plan's completed buy order before the close of regular trading on the New York Stock Exchange for shares to be bought at that day's offering price. To eliminate the need for safekeeping, the fund will not issue certificates for shares. The fund may periodically close to new purchases of shares or refuse any order to buy shares if Putnam Management determines that doing so would be in the best interests of the fund and its shareholders. * Distribution (12b-1) plan. The fund has adopted a distribution plan to pay for the marketing of class A shares and for services provided to shareholders. The plan provides for payments at an annual rate (based on average net assets) of up to 0.35%. The Trustees currently limit payments on class A shares to 0.25% of average net assets. Because the fees are paid out of the fund's assets on an ongoing basis, they will increase the cost of your investment. * Eligible retirement plans. An employer-sponsored retirement plan is eligible to purchase class A shares without an initial sales charge through this prospectus if it invests at least $1 million in class A shares. A deferred sales charge of up to 0.75% will apply if the plan redeems 90% or more of its cumulative purchases within two years of the plan's initial purchase of class A shares, and only if Putnam Mutual Funds paid a commission on the plan's purchase. Employer-sponsored plans may make additional investments of any amount at any time. How do I sell fund shares? Subject to any restrictions imposed by your employer's plan, you can sell your shares through the plan back to the fund any day the New York Stock Exchange is open. For more information about how to sell shares of the fund through your employer's plan, including any charges that the plan may impose, please consult your employer. Your plan administrator must send a signed letter of instruction to Putnam Investor Services. The price you will receive is the next NAV per share calculated after the fund receives the instruction in proper form. In order to receive that day's NAV, Putnam Investor Services must receive the instruction before the close of regular trading on the New York Stock Exchange. The fund generally sends payment for your shares the business day after your request is received. Under unusual circumstances, the fund may suspend redemptions, or postpone payment for more than seven days, as permitted by federal securities law. How do I exchange fund shares? Subject to any restrictions your plan imposes, you can exchange your fund shares for shares of other Putnam funds offered through your employer's plan without a sales charge. Contact your plan administrator or Putnam Investor Services for more information. The exchange privilege is not intended as a vehicle for short-term trading. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. In order to limit excessive exchange activity and otherwise to promote the best interests of the fund, the fund reserves the right to revise or terminate the exchange privilege, limit the amount or number of exchanges or reject any exchange. The fund into which you would like to exchange may also reject your exchange. These actions may apply to all shareholders or only to those shareholders whose exchanges Putnam Management determines are likely to have a negative effect on the fund or other Putnam funds. Fund distributions and taxes The fund normally distributes any net investment income quarterly and any net realized capital gains annually. The terms of your employer's plan will govern how your employer's plan may receive distributions from the fund. Generally, periodic distributions from the fund to your employer's plan are reinvested in additional fund shares, although your employer's plan may permit you to receive fund distributions from net investment income in cash while reinvesting capital gains distributions in additional shares or to receive all fund distributions in cash. If another option is not selected, all distributions will be reinvested in additional fund shares. Generally, for federal income tax purposes, fund distributions are taxable as ordinary income, except that any distributions of long-term capital gains will be taxed as such regardless of how long you have held your shares. However, distributions by the fund to retirement plans that qualify for tax-exempt treatment under federal income tax laws will not be taxable. Special tax rules apply to investments through such plans. You should consult your tax advisor to determine the suitability of the fund as an investment through such a plan and the tax treatment of distributions (including distributions of amounts attributable to an investment in the fund) from such a plan. The fund's investments in foreign securities may be subject to foreign withholding taxes. In that case, the fund's return on those investments would be decreased. The fund's investments in certain debt obligations may cause the fund to recognize taxable income in excess of the cash generated by such obligations. Thus, the fund could be required at times to liquidate other investments in order to satisfy its distribution requirements. You should consult your tax advisor for more information on your own tax situation, including possible foreign, state and local taxes. Financial highlights The financial highlights table is intended to help you understand the fund's recent financial performance. Certain information reflects financial results for a single fund share. The total returns represent the rate that an investor would have earned or lost on an investment in the fund, assuming reinvestment of all dividends and distributions. This information for the year ended October 31, 1999 has been derived from the fund's financial statements, which have been audited by KPMG LLP. Its report and the fund's financial statements are included in the fund's annual report to shareholders, which is available upon request. The information for all periods prior to the year ended October 31, 1999 has been derived from the fund's financial statements which have been audited by the fund's previous independent accountants.
FINANCIAL HIGHLIGHTS CLASS A (For a share outstanding throughout the period) Year ended October 31 ---------------------------------------------------- 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------- Net asset value, beginning of period $20.04 $23.22 $21.24 $19.42 $19.09 - -------------------------------------------------------------------------------------- Investment operations Net investment income .75c .76c .78c .81c .85 Net realized and unrealized gain (loss) on investments 2.30 (1.02) 3.70 2.70 1.60 - -------------------------------------------------------------------------------------- Total from investment operations 3.05 (.26) 4.48 3.51 2.45 - -------------------------------------------------------------------------------------- Less distributions: From net investment income (.75) (.76) (.87) (.98) (.96) In excess of net investment income (.06) (.03) (.06) -- -- From net realized gain on investments (2.02) (2.13) (1.57) (.71) (1.16) - -------------------------------------------------------------------------------------- Total distributions (2.83) (2.92) (2.50) (1.69) (2.12) - -------------------------------------------------------------------------------------- Net asset value, end of period $20.26 $20.04 $23.22 $21.24 $19.42 - -------------------------------------------------------------------------------------- Ratios and supplemental data Total return at net asset value (%)a 16.42 (1.37) 22.86 18.99 14.38 Net assets, end of period (in thousands) $982,956 $1,056,693 $1,168,470 $898,486 $756,645 - -------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)b .98 .97 1.03 1.06 1.16 Ratio of net investment income to average net assets (%) 3.73 3.50 3.56 3.99 4.64 Portfolio turnover (%) 54.74 92.76 70.74 61.43 69.52 - -------------------------------------------------------------------------------------- a Total return assumes dividend reinvestment and does not reflect the effect of sales charges. b Includes amounts paid through brokerage service and expense offset arrangements. c Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
[This page left intentionally blank] [This page left intentionally blank] For more information about Putnam Convertible Income-Growth Trust The fund's statement of additional information (SAI) and annual and semi-annual reports to shareholders include additional information about the fund. The SAI, and the independent accountants' reports and financial statements included in the fund's two most recent annual reports to its shareholders, are incorporated by reference into this prospectus, which means they are part of this prospectus for legal purposes. The fund's annual report discusses the market conditions and investment strategies that significantly affected the fund's performance during its last fiscal year. You may get free copies of these materials, request other information about the fund and other Putnam funds, or make shareholder inquiries, by calling Putnam toll-free at 1-800-752-9894. You may review and copy information about the fund, including its SAI, at the Securities and Exchange Commission's public reference room in Washington, D.C. You may call the Commission at 1-800-SEC-0330 for information about the operation of the public reference room. You may also access reports and other information about the fund on the Commission's Internet site at http://www.sec.gov. You may get copies of this information, with payment of a duplication fee, by writing the Public Reference Section of the Commission, Washington, D.C. 20549-6009. You may need to refer to the fund's file number. P U T N A M I N V E S T M E N T S Putnam Defined Contribution Plans One Post Office Square Boston, Massachusetts 02109 1-800-752-9894 Address correspondence to Putnam Investor Services P.O. Box 989 Boston, Massachusetts 02103 www.putnaminv.com 59487 2/00 File No. 811-2280 Prospectus February 29, 2000 Putnam Convertible Income-Growth Trust Class Y shares Investment Category: Growth and Income This prospectus explains what you should know about this mutual fund before you invest. Please read it carefully. Putnam Investment Management, Inc. (Putnam Management), which has managed mutual funds since 1937, manages the fund. These securities have not been approved or disapproved by the Securities and Exchange Commission nor has the Commission passed upon the accuracy or adequacy of this prospectus. Any statement to the contrary is a crime. CONTENTS 2 Fund summary 2 Goal 2 Main investment strategies 2 Main risks 3 Performance information 4 Fees and expenses 4 What are the fund's main investment strategies and related risks? 8 Who manages the fund? 8 How does the fund price its shares? 9 How do I buy fund shares? 10 How do I sell fund shares? 10 How do I exchange fund shares? 10 Fund distributions and taxes 11 Financial highlights Putnam Defined Contribution Plans [LOGO: BOSTON * LONDON * TOKYO] Fund summary GOAL The fund seeks, with equal emphasis, current income and capital appreciation. Its secondary objective is conservation of capital. MAIN INVESTMENT STRATEGIES -- CONVERTIBLE SECURITIES We invest mainly in U.S. convertible securities. Convertible securities typically are bonds, preferred stocks or warrants that can be converted into or exchanged for common stock. Most of the convertible securities we buy for the fund are convertible into value stocks. Value stocks are those we believe are currently undervalued by the market. If we are correct and other investors recognize the value of the company, the price of the stock may rise. The price of a convertible security normally varies with the price of the underlying stock. A convertible security tends to provide a higher yield than the underlying stock, which may cushion it against declines in the price of that stock. The convertible bonds we buy usually have intermediate- to long-term maturities (three years or longer). We invest mainly in midsized and large companies. MAIN RISKS The main risks that could adversely affect the value of the fund's shares and the total return on your investment include: * The risk that the stock price of one or more of the companies in the fund's portfolio will fall, or will fail to rise. Many factors can adversely affect a stock's performance, including both general financial market conditions and factors related to a specific company or industry. This risk is generally greater for small and midsized companies, which tend to be more vulnerable to adverse developments. * The risk that movements in financial markets will adversely affect the price of the fund's investments, regardless of how well the companies in which we invest perform. The market as a whole may not favor the types of investments we make. * The risk that prices of bonds we buy will fall if interest rates rise. Interest rate risk is generally higher for investments with longer maturities. * The risk that issuers of the bonds we buy will not make timely payments of interest and principal. This credit risk is generally higher for debt that is below investment-grade in quality. Because the fund invests significantly in junk bonds and below investment-grade preferred stocks, this risk is heightened for the fund. Investors should carefully consider the risks associated with an investment in the fund. You can lose money by investing in the fund. The fund may not achieve its goal, and is not intended as a complete investment program. An investment in the fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. PERFORMANCE INFORMATION The following information provides some indication of the fund's risks. The chart shows year-to-year changes in the performance of the fund's class Y shares. The table following the chart compares the fund's performance to that of two broad measures of market performance. Of course, a fund's past performance is not an indication of future performance. [GRAPHIC OMITTED: vertical bar chart] CALENDAR YEAR TOTAL RETURNS Plot points 1990 -10.02% 1991 29.40% 1992 21.09% 1993 17.03% 1994 -1.92% 1995 23.81% 1996 17.82% 1997 19.64% 1998 4.85% 1999 17.79% During the periods shown in the bar chart, the highest return for a quarter was 14.90% (quarter ending 3/31/91) and the lowest return for a quarter was - -12.74% (quarter ending 9/30/90). Performance of class Y shares in the bar chart and the table following the chart, for periods prior to their inception on 12/30/98, is derived from the historical performance of class A shares (not offered by this prospectus). Performance of class Y shares prior to their inception does not reflect the initial sales charge currently applicable to class A shares or differences in operating expenses which, for class Y shares, are lower than the operating expenses applicable to class A shares. Average Annual Total Returns (for periods ending 12/31/99) - ------------------------------------------------------------------------- Past Past Past 1 year 5 years 10 years - ------------------------------------------------------------------------- Class Y 17.79% 16.60% 13.31% S&P 500 Index 21.04% 28.56% 18.21% Lehman Bros. Corporate Bond Index -1.95% 8.19% 8.22% - ------------------------------------------------------------------------- The fund's performance is compared to the Standard & Poor's 500 Index, an unmanaged index of common stocks frequently used as a general measure of U.S. stock market performance, and the Lehman Brothers Corporate Bond Index, an unmanaged index of corporate bonds. FEES AND EXPENSES This table summarizes the fees and expenses you may pay if you invest in class Y shares of the fund. Expenses are based on the fund's last fiscal year. - ---------------------------------------------------------------- Annual Fund Operating Expenses (expenses that are deducted from fund assets) - ---------------------------------------------------------------- Total Annual Management Other Fund Operating Fees Expenses Expenses - ---------------------------------------------------------------- Class Y 0.57% 0.16% 0.73% - ---------------------------------------------------------------- EXAMPLE The example translates the expenses shown in the preceding table into dollar amounts. By doing this, you can more easily compare the cost of investing in the fund to the cost of investing in other mutual funds. The example makes certain assumptions. It assumes that you invest $10,000 in the fund for the time periods shown and then redeem all your shares at the end of those periods. It also assumes a 5% return on your investment each year and that the fund's operating expenses remain the same. The example is hypothetical; your actual costs and returns may be higher or lower. - ------------------------------------------------------------------------ 1 year 3 years 5 years 10 years - ------------------------------------------------------------------------ Class Y $75 $233 $406 $906 - ------------------------------------------------------------------------ What are the fund's main investment strategies and related risks? Any investment carries with it some level of risk that generally reflects its potential for reward. We pursue the fund's goal by investing mainly in convertible securities and value stocks. We will consider, among other things, a company's financial strength, competitive position in its industry, projected future earnings, cash flows and dividends when deciding whether to buy or sell investments. A description of the risks associated with the fund's main investment strategies follows. * Interest rate risk. The values of bonds and other debt usually rise and fall in response to changes in interest rates. Declining interest rates generally increase the values of existing debt instruments, and rising interest rates generally decrease them. Changes in a debt instrument's value usually will not affect the amount of income the fund receives from it, but will affect the value of the fund's shares. Interest rate risk is generally greater for investments with longer maturities. Some securities give the issuers the option to "call," or redeem, them before their maturity date. If an issuer "calls" its securities during a time of declining interest rates, we might have to reinvest the proceeds in an investment offering a lower yield, and therefore might not benefit from any increase in value as a result of declining interest rates. "Premium" investments offer interest rates higher than prevailing market rates. However, they involve a greater risk of loss, because their values tend to decline over time. You may find it useful to compare the fund's yield, which factors out the effect of premium investments, with its current dividend rate, which does not factor out that effect. * Credit risk. Investors normally expect to be compensated in proportion to the risk they are assuming. Thus, debt of issuers with poor credit prospects usually offers higher yields than debt of issuers with more secure credit. Higher-rated investments generally offer lower credit risk. A company's convertible securities generally receive payments only after the company has paid the holders of its non-convertible debt; for this reason, the credit risk of a company's convertible securities is generally greater than that of its non-convertible debt. We invest mostly in non investment-grade convertible securities. These are rated below BBB or its equivalent at the time of purchase by a nationally recognized securities rating agency, or are unrated investments that we believe are of comparable quality. We may invest up to 10% of the fund's net assets in convertible securities rated CC or C or their equivalent at the time of purchase by each rating agency rating the investment, and unrated investments we believe are of comparable quality. We will not invest in non-convertible securities rated below CCC or its equivalent at the time of purchase by each rating agency rating the investment or unrated securities that we think are of comparable quality. We will not necessarily sell an investment if its rating is reduced after we buy it. Investments rated below BBB or its equivalent are known as "junk bonds." This rating reflects a greater possibility that the issuers may be unable to make timely payments of interest and principal and thus default. If this happens, or is perceived as likely to happen, the values of those investments are likely to fall. A default or expected default could also make it difficult for us to sell the investments at prices approximating the values we had previously placed on them. Credit risk is generally greater for investments that are issued at less than their face value and that require payments of interest only at maturity rather than at intervals during the life of the investment. Credit ratings are based largely on the issuer's historical financial condition and the rating agencies' investment analysis at the time of rating. The rating assigned to any particular investment does not necessarily reflect the issuer's current financial condition, and does not reflect an assessment of the investment's volatility or liquidity. Although we consider credit ratings in making investment decisions, we perform our own investment analysis and do not rely only on ratings assigned by other rating agencies. The fund depends more on our ability when we buy lower-rated debt than it does when we buy investment grade debt. We may have to participate in legal proceedings or take possession of and manage assets that secure the issuer's obligations. This could increase the fund's operating expenses and decrease its net asset value. Although investment-grade investments generally have lower credit risk, they may share some of the risks of non investment-grade investments. * Common stocks. Common stock represents an ownership interest in a company. The value of a company's stock may fall as a result of factors relating directly to that company, such as decisions made by its management or lower demand for the company's products or services. A stock's value may also fall because of factors affecting not just the company, but also companies in the same industry or in a number of different industries, such as increases in production costs. The value of a company's stock may also be affected by changes in financial markets that are relatively unrelated to the company or its industry, such as changes in interest rates or currency exchange rates. In addition, a company's stock generally pays dividends only after the company invests in its own business and makes required payments to holders of its bonds and other debt. For this reason, the value of a company's stock will usually react more strongly than its bonds and other debt to actual or perceived changes in the company's financial condition or prospects. Stocks of smaller companies may be more vulnerable to adverse developments than those of larger companies. Companies whose stock we believe is under valued by the market may have experienced adverse business developments or may be subject to special risks that have caused their stocks to be out of favor. If our assessment of a company's prospects is wrong, or if other investors do not similarly recognize the value of the company, then the price of the company's stock may fall or may not approach the value we have placed on it. * Foreign investments. We may invest in securities of foreign issuers. Foreign investments involve certain special risks. For example, their values may decline in response to changes in currency exchange rates, unfavorable political and legal developments, unreliable or untimely information, and economic and financial instability. In addition, the liquidity of these investments may be more limited than for U.S. investments, which means we may at times be unable to sell them at desirable prices. Foreign settlement procedures may also involve additional risks. These risks are generally greater in the case of developing (also known as emerging) markets with less developed legal and financial systems. Certain of these risks may also apply to U.S. investments that are denominated in foreign currencies or that are traded in foreign markets, or to securities of U.S. companies that have significant foreign operations. * Smaller companies. We may invest in smaller and midsized companies. Smaller companies, which may have a market capitalization of less than $1 billion, are more likely than larger companies to have limited product lines, markets or financial resources, or to depend on a small, inexperienced management group. Stocks of these companies often trade less frequently and in limited volume, and their prices may fluctuate more than stocks of larger companies. Stocks of smaller and midsized companies may therefore be more vulnerable to adverse developments than those of larger companies. * Other investments. In addition to the main investment strategies described above, the fund may also make other investments, such as investments in common stocks, non-convertible preferred stocks, asset-backed securities and derivatives, which may be subject to other risks, as described in the fund's statement of additional information (SAI). * Alternative strategies. At times we may judge that market conditions make pursuing the fund's usual investment strategies inconsistent with the best interests of its shareholders. We then may temporarily use alternative strategies that are mainly designed to limit losses. However, we may choose not to use these strategies for a variety of reasons, even in very volatile market conditions. These strategies may cause the fund to miss out on investment opportunities, and may prevent the fund from achieving its goal. * Changes in policies. The fund's Trustees may change the fund's goal, investment strategies and other policies described above without shareholder approval, except as otherwise indicated. Who manages the fund? The fund's Trustees oversee the general conduct of the fund's business. The Trustees have retained Putnam Management to be the fund's investment manager, responsible for making investment decisions for the fund and managing the fund's other affairs and business. The fund pays Putnam Management a quarterly management fee for these services based on the fund's average net assets. The fund paid Putnam Management a management fee of 0.57% of average net assets for the fund's last fiscal year. Putnam Management's address is One Post Office Square, Boston, MA 02109. The following officers of Putnam Management have had primary responsibility for the day-to-day management of the fund's portfolio since the years shown below. Their experience as portfolio managers or investment analysts over at least the last five years is also shown. - ------------------------------------------------------------------------- Manager Since Experience - ------------------------------------------------------------------------- Forrest N. Fontana 1998 1993 - Present Putnam Management Senior Vice President - ------------------------------------------------------------------------- Charles G. Pohl 1992 1983 - Present Putnam Management Senior Vice President - ------------------------------------------------------------------------- * Year 2000 issues. The fund could be adversely affected if the computer systems that we and the fund's other service providers use do not properly process and calculate date-related information relating to the year 2000. While year 2000-related computer problems could have a negative effect on the fund, both in its operations and in its investments, we are working to avoid such problems and to obtain assurances from service providers that they are taking similar steps. No assurances, though, can be provided that the fund will not be adversely impacted by these matters. How does the fund price its shares? The price of the fund's shares is based on its net asset value (NAV). The NAV per share of each class equals the total value of its assets, less its liabilities, divided by the number of its outstanding shares. Shares are only valued as of the close of regular trading on the New York Stock Exchange each day the exchange is open. The fund values its investments for which market quotations are readily available at market value. It values short-term investments that will mature within 60 days at amortized cost, which approximates market value. It values all other investments and assets at their fair value. The fund translates prices for its investments quoted in foreign currencies into U.S. dollars at current exchange rates. As a result, changes in the value of those currencies in relation to the U.S. dollar may affect the fund's NAV. Because foreign markets may be open at different times than the New York Stock Exchange, the value of the fund's shares may change on days when shareholders are not able to buy or sell them. If events materially affecting the values of the fund's foreign investments occur between the close of foreign markets and the close of regular trading on the New York Stock Exchange, these investments will be valued at their fair value. How do I buy fund shares? All orders to purchase shares must be made through your employer's retirement plan. For more information about how to purchase shares of the fund through your employer's plan or limitations on the amount that may be purchased, please consult your employer. Putnam Mutual Funds Corp. (Putnam Mutual Funds) generally must receive your plan's completed buy order before the close of regular trading on the New York Stock Exchange for shares to be bought at that day's offering price. To eliminate the need for safekeeping, the fund will not issue certificates for shares. The fund may periodically close to new purchases of shares or refuse any order to buy shares if Putnam Management determines that doing so would be in the best interests of the fund and its shareholders. * Eligible purchasers. A defined contribution plan (including a corporate IRA) is eligible to purchase class Y shares if * the plan, its sponsor and other employee benefit plans of the sponsor invest at least $150 million in Putnam funds and other investments managed by Putnam Management or its affiliates, or * the plan's sponsor confirms a good faith expectation that investments in Putnam-managed assets by the sponsor and its employee benefit plans will attain $150 million (using the higher of purchase price or current market value) within one year of initial purchase, and agrees that class Y shares may be redeemed and class A shares purchased if that level is not attained. How do I sell fund shares? Subject to any restrictions imposed by your employer's plan, you can sell your shares through the plan back to the fund any day the New York Stock Exchange is open. For more information about how to sell shares of the fund through your employer's plan, including any charges that the plan may impose, please consult your employer. Your plan administrator must send a signed letter of instruction to Putnam Investor Services. The price you will receive is the next NAV per share calculated after the fund receives the instruction in proper form. In order to receive that day's NAV, Putnam Investor Services must receive the instruction before the close of regular trading on the New York Stock Exchange. The fund generally sends payment for your shares the business day after your request is received. Under unusual circumstances, the fund may suspend redemptions, or postpone payment for more than seven days, as permitted by federal securities law. How do I exchange fund shares? Subject to any restrictions your plan imposes, you can exchange your fund shares for shares of other Putnam funds offered through your employer's plan without a sales charge. Contact your plan administrator or Putnam Investor Services for more information. The exchange privilege is not intended as a vehicle for short-term trading. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. In order to limit excessive exchange activity and otherwise to promote the best interests of the fund, the fund reserves the right to revise or terminate the exchange privilege, limit the amount or number of exchanges or reject any exchange. The fund into which you would like to exchange may also reject your exchange. These actions may apply to all shareholders or only to those shareholders whose exchanges Putnam Management determines are likely to have a negative effect on the fund or other Putnam funds. Fund distributions and taxes The fund normally distributes any net investment income quarterly and any net realized capital gains annually. The terms of your employer's plan will govern how your employer's plan may receive distributions from the fund. Generally, periodic distributions from the fund to your employer's plan are reinvested in additional fund shares, although your employer's plan may permit you to receive fund distributions from net investment income in cash while reinvesting capital gains distributions in additional shares or to receive all fund distributions in cash. If another option is not selected, all distributions will be reinvested in additional fund shares. Generally, for federal income tax purposes, fund distributions are taxable as ordinary income, except that any distributions of long-term capital gains will be taxed as such regardless of how long you have held your shares. However, distributions by the fund to retirement plans that qualify for tax-exempt treatment under federal income tax laws will not be taxable. Special tax rules apply to investments through such plans. You should consult your tax advisor to determine the suitability of the fund as an investment through such a plan and the tax treatment of distributions (including distributions of amounts attributable to an investment in the fund) from such a plan. The fund's investments in foreign securities may be subject to foreign withholding taxes. In that case, the fund's return on those investments would be decreased. The fund's investments in certain debt obligations may cause the fund to recognize taxable income in excess of the cash generated by such obligations. Thus, the fund could be required at times to liquidate other investments in order to satisfy its distribution requirements. You should consult your tax advisor for more information on your own tax situation, including possible foreign, state and local taxes. Financial highlights The financial highlights table is intended to help you understand the fund's recent financial performance. Certain information reflects financial results for a single fund share. The total returns represent the rate that an investor would have earned or lost on an investment in the fund, assuming reinvestment of all dividends and distributions. This information for the period ended October 31, 1999 has been derived from the fund's financial statements, which have been audited by KPMG LLP. Its report and the fund's financial statements are included in the fund's annual report to shareholders, which is available upon request.
FINANCIAL HIGHLIGHTS CLASS Y (For a share outstanding throughout the period) For the period Dec. 30, 1998+ to October 31, --------------- 1999 - ------------------------------------------------------------------------------ Net asset value, beginning of period $19.32 - ------------------------------------------------------------------------------ Investment operations Net investment income .72c Net realized and unrealized gain (loss) on investments .98 - ------------------------------------------------------------------------------ Total from investment operations 1.70 - ------------------------------------------------------------------------------ Less distributions: From net investment income (.72) In excess of net investment income (.04) From net realized gain on investments -- - ------------------------------------------------------------------------------ Total distributions (.76) - ------------------------------------------------------------------------------ Net asset value, end of period $20.26 - ------------------------------------------------------------------------------ Ratios and supplemental data Total return at net asset value (%)a 8.87* Net assets, end of period (in thousands) $63,425 - ------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)b .61* Ratio of net investment income to average net assets (%) 3.43* Portfolio turnover (%) 54.74 - ------------------------------------------------------------------------------ + Commencement of operations. * Not annualized. a Total return assumes dividend reinvestment and does not reflect the effect of sales charges. b Includes amounts paid through brokerage service and expense offset arrangements. c Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
[This page left intentionally blank] [This page left intentionally blank] [This page left intentionally blank] For more information about Putnam Convertible Income-Growth Trust The fund's statement of additional information (SAI) and annual and semi-annual reports to shareholders include additional information about the fund. The SAI, and the independent accountants' reports and financial statements included in the fund's two most recent annual report to its shareholders, are incorporated by reference into this prospectus, which means they are part of this prospectus for legal purposes. The fund's annual report discusses the market conditions and investment strategies that significantly affected the fund's performance during its last fiscal year. You may get free copies of these materials, request other information about the fund, or make shareholder inquiries, by calling Putnam toll-free at 1-800-752-9894. You may review and copy information about the fund, including its SAI, at the Securities and Exchange Commission's public reference room in Washington, D.C. You may call the Commission at 1-800-SEC-0330 for information about the operation of the public reference room. You may also access reports and other information about the fund on the Commission's Internet site at http://www.sec.gov. You may get copies of this information, with payment of a duplication fee, by writing the Public Reference Section of the Commission, Washington, D.C. 20549-6009. You may need to refer to the fund's file number. P U T N A M I N V E S T M E N T S Putnam Defined Contribution Plans One Post Office Square Boston, Massachusetts 02109 1-800-752-9894 Address correspondence to Putnam Investor Services P.O. Box 989 Boston, Massachusetts 02103 www.putnaminv.com 59488 2/00 File No. 811-2280 PUTNAM CONVERTIBLE INCOME-GROWTH TRUST FORM N-1A PART B STATEMENT OF ADDITIONAL INFORMATION ("SAI") February 29, 2000 This SAI is not a prospectus and is only authorized for distribution when accompanied or preceded by the prospectus of the fund dated February 29, 2000, as revised from time to time. This SAI contains information that may be useful to investors but that is not included in the prospectus. If the fund has more than one form of current prospectus, each reference to the prospectus in this SAI shall include all of the fund's prospectuses, unless otherwise noted. The SAI should be read together with the applicable prospectus. Certain disclosure has been incorporated by reference from the fund's annual report. For a free copy of the fund's annual report or prospectus, call Putnam Investor Services at 1-800-225-1581 or write Putnam Investor Services, Mailing address: P.O. Box 41203, Providence, RI 02940-1203. Part I of this SAI contains specific information about the fund. Part II includes information about the fund and the other Putnam funds. Table of Contents PART I FUND ORGANIZATION AND CLASSIFICATION I-3 INVESTMENT RESTRICTIONS I-4 CHARGES AND EXPENSES I-5 INVESTMENT PERFORMANCE I-13 ADDITIONAL OFFICERS I-14 INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS I-15 Part II MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS II-1 TAXES II-25 MANAGEMENT II-28 DETERMINATION OF NET ASSET VALUE II-36 HOW TO BUY SHARES II-37 DISTRIBUTION PLANS II-47 INVESTOR SERVICES II-51 SIGNATURE GUARANTEES II-55 SUSPENSION OF REDEMPTIONS II-55 SHAREHOLDER LIABILITY II-56 STANDARD PERFORMANCE MEASURES II-56 COMPARISON OF PORTFOLIO PERFORMANCE II-57 SECURITIES RATINGS II-60 DEFINITIONS II-65 SAI PART I FUND ORGANIZATION AND CLASSIFICATION Putnam Convertible Income-Growth Trust is a Massachusetts business trust organized on August 13, 1982 as the successor to Putnam Convertible Fund, Inc., a Massachusetts corporation organized on March 8, 1972. A copy of the Agreement and Declaration of Trust, which is governed by Massachusetts law, is on file with the Secretary of State of The Commonwealth of Massachusetts. The fund is an open-end management investment company with an unlimited number of authorized shares of beneficial interest, which may be divided without shareholder approval into two or more classes of shares having such preferences and special or relative rights and privileges as the Trustees determine. The fund offers classes of shares with different sales charges and expenses. Because of these different sales charges and expenses, the investment performance of the classes will vary. For more information, including your eligibility to purchase certain classes of shares, contact your investment dealer or Putnam Mutual Funds (at 1-800-225-1581). Each share has one vote, with fractional shares voting proportionally. Shares of all classes will vote together as a single class except when otherwise required by law or as determined by the Trustees. Shares are freely transferable, are entitled to dividends as declared by the Trustees, and, if the fund were liquidated, would receive the net assets of the fund. The fund may suspend the sale of shares at any time and may refuse any order to purchase shares. Although the fund is not required to hold annual meetings of its shareholders, shareholders holding at least 10% of the outstanding shares entitled to vote have the right to call a meeting to elect or remove Trustees, or to take other actions as provided in the Agreement and Declaration of Trust. The fund is a "diversified" investment company under the Investment Company Act of 1940. This means that with respect to 75% of its total assets, the fund may not invest more than 5% of its total assets in the securities of any one issuer (except U.S. government securities). The remaining 25% of its total assets is not subject to this restriction. To the extent the fund invests a significant portion of its assets in the securities of a particular issuer, it will be subject to an increased risk of loss if the market value of such issuer's securities declines. INVESTMENT RESTRICTIONS As fundamental investment restrictions, which may not be changed without a vote of a majority of the outstanding voting securities, the fund may not and will not: (1) With respect to 75% of its total assets, invest in the securities of any issuer if, immediately after such investment, more than 5% of the total assets of the fund (taken at current value) would be invested in the securities of such issuer; provided that this limitation does not apply to obligations issued or guaranteed as to interest or principal by the U.S. government or its agencies or instrumentalities. (2) With respect to 75% of its total assets, acquire more than 10% of the outstanding voting securities of any issuer. (3) Borrow money in excess of 5% of its net assets (taken at the lower of cost or current value) and then only from banks as a temporary measure for extraordinary or emergency reasons and not for investment purposes. (4) Make loans, except by purchase of debt obligations in which the fund may invest consistent with its investment policies, by entering into repurchase agreements, or by lending its portfolio securities. (5) 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. (6) Purchase securities (other than securities of the U.S. government, its agencies or instrumentalities) if, as a result of such purchase, more than 25% of the fund's total assets would be invested in any one industry. (7) Purchase or sell commodities or commodity contracts, except that the fund may purchase and sell financial futures contracts and options and may enter into foreign exchange contracts and other financial transactions not involving physical commodities. (8) 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. The Investment Company Act of 1940 provides that a "vote of a majority of the outstanding voting securities" of the fund means the affirmative vote of the lesser of (1) more than 50% of the outstanding shares of the fund, or (2) 67% or more of the shares present at a meeting if more than 50% of the outstanding shares of the fund are represented at the meeting in person or by proxy. The following non-fundamental investment policies may be changed without shareholder approval: (1) The fund may not invest in (a) securities which are not readily marketable, (b) securities restricted as to resale (excluding securities determined by the Trustees of the fund (or the person designated by the Trustees of the fund to make such determinations) to be readily marketable) and (c) repurchase agreements maturing in more than seven days, if, as a result, more than 15% of the fund's net assets (taken at current value) would be invested in securities described in (a), (b) and (c) above. (2) The fund generally invests at least 65% of its total assets in convertible securities. These include corporate bonds, debentures, notes or preferred stocks that can be converted into (that is, exchanged for) common stock or other equity securities of the same or different issuer, and other securities, such as warrants, that also provide an opportunity for equity participation. --------------------------------- All percentage limitations on investments (other than pursuant to the non-fundamental restriction (1) above) will apply at the time of the making of an investment and shall not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of such investment. --------------------------------- CHARGES AND EXPENSES Management fees Under a Management Contract dated February 20, 1997, the fund pays a quarterly fee to Putnam Management based on the average net assets of the fund, as determined at the close of each business day during the quarter, at the annual rate of 0.65% of the first $500 million of average net assets, 0.55% of the next $500 million, 0.50% of the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion and 0.38% thereafter. For the past three fiscal years, pursuant to the Management Contract (and a management contract in effect prior to February 20, 1997, under which the management fee payable to Putnam Management was paid at the annual rate of 0.65% of the first $500 million of average net assets, 0.55% of the next $500 million, 0.50% of the next $500 million and 0.45% of any amount over $1.5 billion), the fund incurred the following fees: Fiscal Management year fee paid 1999 $7,951,230 1998 $8,280,168 1997 $7,310,176 Brokerage commissions The following table shows brokerage commissions paid during the fiscal periods indicated: Fiscal Brokerage year commissions 1999 $1,151,004 1998 $1,418,931 1997 $ 703,872 The following table shows transactions placed with brokers and dealers during the most recent fiscal year to recognize research, statistical and quotation services received by Putnam Management and its affiliates: Dollar value Percent of of these total Amount of transactions transactions commissions $430,582,600 33.27% $454,171 Administrative expense reimbursement The fund reimbursed Putnam Management for administrative services during fiscal 1999, including compensation of certain fund officers and contributions to the Putnam Investments, Inc. Profit Sharing Retirement Plan for their benefit, as follows: Portion of total reimbursement for Total compensation and reimbursement contributions $18,621 $15,146 Trustee responsibilities and fees The Trustees are responsible for generally overseeing the conduct of fund business. Subject to such policies as the Trustees may determine, Putnam Management furnishes a continuing investment program for the fund and makes investment decisions on its behalf. Subject to the control of the Trustees, Putnam Management also manages the fund's other affairs and business. Each Trustee receives a fee for his or her services. Each Trustee also receives fees for serving as Trustee of other Putnam funds. The Trustees periodically review their fees to assure that such fees continue to be appropriate in light of their responsibilities as well as in relation to fees paid to trustees of other mutual fund complexes. The Trustees meet monthly over a two-day period, except in August. The Board Policy Committee, which consists solely of Trustees not affiliated with Putnam Management and is responsible for recommending Trustee compensation, estimates that Committee and Trustee meeting time together with the appropriate preparation requires the equivalent of at least three business days per Trustee meeting. The following table shows the year each Trustee was first elected a Trustee of the Putnam funds, the fees paid to each Trustee by the fund for fiscal 1999 and the fees paid to each Trustee by all of the Putnam funds during calendar year 1999:
COMPENSATION TABLE Pension or retirement benefits accrued Estimated Total Aggregate from all annual benefits compensation compensation as part of from all from all from the fund Putnam funds Putnam Trustees/Year fund(1) expenses upon retirement(2) funds(3) - ----------------------------------------------------------------------------------- Jameson A. Baxter/ 1994(4) $1,530 $297 $95,000 $191,000 Hans H. Estin/ 1972 1,520 680 95,000 190,000 John A. Hill/ 1985(4)(5) 1,844 324 115,000 239,750 Ronald J. Jackson/ 1996(4) 1,547 298 95,000 193,500 Paul L. Joskow/ 1997(4) 1,520 90 95,000 191,000 Elizabeth T. Kennan/ 1992 1,520 412 95,000 190,000 Lawrence J. Lasser/ 1992 1,510 313 95,000 189,000 John H. Mullin, III/ 1997(4) 1,567 135 95,000 196,000 Robert E. Patterson/ 1984 1,525 223 95,000 190,250 William F. Pounds/ 1971(5) 1,786 758 115,000 231,000 George Putnam/ 1957 1,520 709 95,000 190,000 George Putnam, III/ 1984 1,520 150 95,000 190,000 A.J.C. Smith/ 1986 1,500 480 95,000 188,000 W. Thomas Stephens/ 1997(4) 1,500 126 95,000 188,000 W. Nicholas Thorndike/ 1992 1,520 580 95,000 190,000
(1) Includes an annual retainer and an attendance fee for each meeting attended. (2) Assumes that each Trustee retires at the normal retirement date. Estimated benefits for each Trustee are based on Trustee fee rates in effect during calendar 1999. (3) As of December 31, 1999, there were 114 funds in the Putnam family. (4) Includes compensation deferred pursuant to a Trustee Compensation Deferral Plan. The total amounts of deferred compensation payable by the fund to Ms. Baxter, Messrs. Hill, Jackson, Joskow, Mullin and Stephens as of October 31, 1999 were, respectively, $7,543; $8,949; $6,471; $2,928; $2,967 and $3,432, including income earned on such amounts. (5) Includes additional compensation for service as Vice Chairman of the Putnam funds. Under a Retirement Plan for Trustees of the Putnam funds (the "Plan"), each Trustee who retires with at least five years of service as a Trustee of the funds is entitled to receive an annual retirement benefit equal to one-half of the average annual compensation paid to such Trustee for the last three years of service prior to retirement. This retirement benefit is payable during a Trustee's lifetime, beginning the year following retirement, for a number of years equal to such Trustee's years of service. A death benefit, also available under the Plan, assures that the Trustee and his or her beneficiaries will receive benefit payments for the lesser of an aggregate period of (i) ten years or (ii) such Trustee's total years of service. The Plan Administrator (a committee comprised of Trustees that are not "interested persons" of the fund, as defined in the Investment Company Act of 1940) may terminate or amend the Plan at any time, but no termination or amendment will result in a reduction in the amount of benefits (i) currently being paid to a Trustee at the time of such termination or amendment, or (ii) to which a current Trustee would have been entitled had he or she retired immediately prior to such termination or amendment. For additional information concerning the Trustees, see "Management" in Part II of this SAI. Share ownership At January 31, 2000, the officers and Trustees of the fund as a group owned less than 1% of the outstanding shares of each class of the fund, and, except as noted below, to the knowledge of the fund, no person owned of record or beneficially 5% or more of any class of shares of the fund. Shareholder name Percentage Class and address owned B Merrill Lynch 9.00% 4800 Deer Lake Drive E Jacksonville, FL 32246 C Merrill Lynch 9.80% 4800 Deer Lake Drive E Jacksonville, FL 32246 C Donaldson, Lufkin, Jenrette 8.00% P.O. Box 2052 Jersey City, NJ 07303 C First Trust Corp. 6.30% 717 17th Street Ste. 2600 Denver, CO 80202 C Alice J. Krelle TTEE 5.30% P.O. Box 4515 Incline Village, NV 89450 M Merrill Lynch 6.10% 4800 Deer Lake Drive E Jacksonville, FL 32246 M Edward D. Jones & Co. 9.70% P.O. Box 2500 Maryland Heights, MO 63043 Y* Potlach Corporation Savings Plan 46.09% Y* IT Corp. 10.77% *The address for the names listed is: c/o Putnam Fiduciary Trust Company, as trustee or agent, 859 Willard Street, Quincy, MA 02269. Distribution fees During fiscal 1999, the fund paid the following 12b-1 fees to Putnam Mutual Funds: Class A Class B Class C Class M $2,584,777 $2,978,033 $763 $130,967 Class A sales charges and contingent deferred sales charges Putnam Mutual Funds received sales charges with respect to class A shares in the following amounts during the periods indicated: Sales charges retained by Putnam Contingent Total Mutual Funds deferred front-end after sales Fiscal year sales charges dealer concessions charges 1999 $ 747,121 $134,006 $ 8,041 1998 $1,981,391 $328,284 $14,672 1997 $2,031,348 $334,044 $12,459 Class B contingent deferred sales charges Putnam Mutual Funds received contingent deferred sales charges upon redemptions of class B shares in the following amounts during the periods indicated: Contingent deferred Fiscal year sales charges 1999 $645,251 1998 $421,192 1997 $209,400 Class C contingent deferred sales charges Putnam Mutual Funds received no contingent deferred sales charges upon redemptions of class C shares since inception. Class M sales charges Putnam Mutual Funds received sales charges with respect to class M shares in the following amounts during the periods indicated: Sales charges retained by Putnam Mutual Funds Total after Fiscal year sales charges dealer concessions 1999 $ 39,239 $ 7,112 1998 $132,149 $21,844 1997 $ 98,861 $14,946 Investor servicing and custody fees and expenses During the 1999 fiscal year, the fund incurred $1,659,844 in fees and out-of-pocket expenses for investor servicing and custody services provided by Putnam Fiduciary Trust Company. INVESTMENT PERFORMANCE Standard performance measures (for periods ended October 31, 1999) Class A Class B Class C Class M Class Y Inception Date 6/29/72 7/15/93 7/26/99 3/13/95 12/30/98 Average annual total return 1 year 9.74% 10.58% 14.53% 11.83% 16.64% 5 years 12.60% 12.85% 13.08% 12.57% 13.98% 10 years 11.90% 11.71% 11.72% 11.60% 12.59% Yield 30-day yield 3.52% 3.04% 3.05% 3.16% 4.00% Returns for class A and class M shares reflect the deduction of the current maximum initial sales charges of 5.75% for class A shares and 3.50% for class M shares. Returns for class B and class C shares reflect the deduction of the applicable contingent deferred sales charge ("CDSC"), which for class B is 5% in the first year, declining to 1% in the sixth year, and eliminated thereafter, and for class C is 1% in the first year and eliminated thereafter. Returns shown for class B, class C, class M and class Y shares for periods prior to their inception are derived from the historical performance of class A shares, adjusted to reflect both the deduction of the initial sales charge or CDSC, if any, currently applicable to each class and, in the case of class B, class C and class M shares, the higher operating expenses applicable to such shares. Returns shown for class A shares have not been adjusted to reflect payments under the class A distribution plan prior to its implementation. All returns assume reinvestment of distributions at net asset value and represent past performance; they do not guarantee future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. See "Standard performance measures" in Part II of this SAI for information on how performance is calculated. ADDITIONAL OFFICERS In addition to the persons listed as fund officers in Part II of this SAI, each of the following persons is also a Vice President of the fund and certain of the other Putnam funds, the total number of which is noted parenthetically. Officers of Putnam Management hold the same offices in Putnam Management's parent company, Putnam Investments, Inc. Officer Name (Age) (Number of funds) Thomas V. Reilly (age 53) (17 funds). Managing Director of Putnam Management. Edward T. Shadek Jr. (age 39) (5 funds). Managing Director of Putnam Management. Prior to March 1997, Mr. Shadek was a Portfolio Manager at Newbold's Asset Management Co. Forrest N. Fontana (age 34) (2 funds). Senior Vice President of Putnam Management. Charles G. Pohl (age 39) (3 funds). Senior Vice President of Putnam Management. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS KPMG LLP, 99 High Street, Boston, Massachusetts 02110, are the fund's independent accountants, providing audit services, tax return review and other tax consulting services and assistance and consultation in connection with the review of various Securities and Exchange Commission filings. The Report of Independent Accountants, financial highlights and financial statements included in the fund's Annual Report for the fiscal year ended October 31, 1999, filed electronically on December 17, 1999 (File No. 811-2280), are incorporated by reference into this SAI. The financial highlights included in the prospectus and incorporated by reference into this SAI and the financial statements incorporated by reference into the prospectus and this SAI have been so included and incorporated in reliance upon the reports of the independent accountants and, for all periods prior to the year ended October 31, 1999, the previous independent accountants, PricewaterhouseCoopers, LLP given on their authority as experts in auditing and accounting. II-102 Oct/28/99 TABLE OF CONTENTS MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS II-1 TAXES.. II-25 MANAGEMENT II-28 DETERMINATION OF NET ASSET VALUE II-36 HOW TO BUY SHARES II-37 DISTRIBUTION PLANS II-47 INVESTOR SERVICES II-51 SIGNATURE GUARANTEES II-55 SUSPENSION OF REDEMPTIONS II-55 SHAREHOLDER LIABILITY II-56 STANDARD PERFORMANCE MEASURES II-56 COMPARISON OF PORTFOLIO PERFORMANCE II-57 SECURITIES RATINGS II-60 DEFINITIONS II-65 THE PUTNAM FUNDS STATEMENT OF ADDITIONAL INFORMATION ("SAI") PART II As noted in the prospectus, in addition to the principal investment strategies and the principal risks described in the prospectus, the fund may employ other investment practices and may be subject to other risks, which are described below. Because the following is a combined description of investment strategies of all of the Putnam funds, certain matters described herein may not apply to your fund. Unless a strategy or policy described below is specifically prohibited by the investment restrictions explained in a fund's prospectus or part I of this SAI, or by applicable law, the fund may engage in each of the practices described below. Shareholders who purchase shares at net asset value through employer-sponsored defined contribution plans should also consult their employer for information about the extent to which the matters described below apply to them. MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS FOREIGN INVESTMENTS The fund may invest in securities of foreign issuers. These foreign investments involve certain special risks described below. Foreign securities are normally denominated and traded in foreign currencies. As a result, the value of the fund's foreign investments and the value of its shares may be affected favorably or unfavorably by changes in currency exchange rates relative to the U.S. dollar. There may be less information publicly available about a foreign issuer than about a U.S. issuer, and foreign issuers are not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. The securities of some foreign issuers are less liquid and at times more volatile than securities of comparable U.S. issuers. Foreign brokerage commissions and other fees are also generally higher than in the United States. Foreign settlement procedures and trade regulations may involve certain risks (such as delay in payment or delivery of securities or in the recovery of the fund's assets held abroad) and expenses not present in the settlement of investments in U.S. markets. In addition, the fund's investments in foreign securities may be subject to the risk of nationalization or expropriation of assets, imposition of currency exchange controls, foreign withholding taxes or restrictions on the repatriation of foreign currency, confiscatory taxation, political or financial instability and diplomatic developments which could affect the value of the fund's investments in certain foreign countries. Dividends or interest on, or proceeds from the sale of, foreign securities may be subject to foreign withholding taxes, and special U.S. tax considerations may apply. Legal remedies available to investors in certain foreign countries may be more limited than those available with respect to investments in the United States or in other foreign countries. The laws of some foreign countries may limit the fund's ability to invest in securities of certain issuers organized under the laws of those foreign countries. The risks described above, including the risks of nationalization or expropriation of assets, are typically increased in connection with investments in "emerging markets." For example, political and economic structures in these countries may be in their infancy and developing rapidly, and such countries may lack the social, political and economic stability characteristic of more developed countries. Certain of these countries have in the past failed to recognize private property rights and have at times nationalized and expropriated the assets of private companies. High rates of inflation or currency devaluations may adversely affect the economies and securities markets of such countries. Investments in emerging markets may be considered speculative. The currencies of certain emerging market countries have experienced a steady devaluation relative to the U.S. dollar, and continued devaluations may adversely affect the value of a fund's assets denominated in such currencies. Many emerging market companies have experienced substantial, and in some periods extremely high, rates of inflation or deflation for many years, and continued inflation may adversely affect the economies and securities markets of such countries. In addition, unanticipated political or social developments may affect the value of the fund's investments in emerging markets and the availability to the fund of additional investments in these markets. The small size, limited trading volume and relative inexperience of the securities markets in these countries may make the fund's investments in securities traded in emerging markets illiquid and more volatile than investments in securities traded in more developed countries, and the fund may be required to establish special custodial or other arrangements before making investments in securities traded in emerging markets. There may be little financial or accounting information available with respect to issuers of emerging market securities, and it may be difficult as a result to assess the value of prospects of an investment in such securities. Certain of the foregoing risks may also apply to some extent to securities of U.S. issuers that are denominated in foreign currencies or that are traded in foreign markets, or securities of U.S. issuers having significant foreign operations. FOREIGN CURRENCY TRANSACTIONS The fund may engage without limit in currency exchange transactions, including purchasing and selling foreign currency, foreign currency options, foreign currency forward contracts and foreign currency futures contracts and related options, to manage its exposure to foreign currencies. In addition, the fund may write covered call and put options on foreign currencies for the purpose of increasing its current return. Generally, the fund may engage in both "transaction hedging" and "position hedging." The fund may also engage in foreign currency transactions for non-hedging purposes, subject to applicable law. When it engages in transaction hedging, the fund enters into foreign currency transactions with respect to specific receivables or payables, generally arising in connection with the purchase or sale of portfolio securities. The fund will engage in transaction hedging when it desires to "lock in" the U.S. dollar price of a security it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or interest payment in a foreign currency. By transaction hedging the fund will attempt to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the applicable foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payment is earned, and the date on which such payments are made or received. The fund may purchase or sell a foreign currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. If conditions warrant, for transaction hedging purposes the fund may also enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts") and purchase and sell foreign currency futures contracts. A foreign currency forward contract is a negotiated agreement to exchange currency at a future time at a rate or rates that may be higher or lower than the spot rate. Foreign currency futures contracts are standardized exchange-traded contracts and have margin requirements. In addition, for transaction hedging purposes the fund may also purchase or sell exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. The fund may also enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts") and purchase and sell foreign currency futures contracts. For transaction hedging purposes the fund may also purchase exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. A put option on a futures contract gives the fund the right to assume a short position in the futures contract until the expiration of the option. A put option on a currency gives the fund the right to sell the currency at an exercise price until the expiration of the option. A call option on a futures contract gives the fund the right to assume a long position in the futures contract until the expiration of the option. A call option on a currency gives the fund the right to purchase the currency at the exercise price until the expiration of the option. The fund may engage in position hedging to protect against a decline in the value relative to the U.S. dollar of the currencies in which its portfolio securities are denominated or quoted (or an increase in the value of the currency in which the securities the fund intends to buy are denominated, when the fund holds cash or short-term investments). For position hedging purposes, the fund may purchase or sell, on exchanges or in over- the-counter markets, foreign currency futures contracts, foreign currency forward contracts and options on foreign currency futures contracts and on foreign currencies. In connection with position hedging, the fund may also purchase or sell foreign currency on a spot basis. It is impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for the fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the fund is obligated to deliver and a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the fund is obligated to deliver. Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities which the fund owns or intends to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in value of such currency. See "Risk factors in options transactions." The fund may seek to increase its current return or to offset some of the costs of hedging against fluctuations in current exchange rates by writing covered call options and covered put options on foreign currencies. The fund receives a premium from writing a call or put option, which increases the fund's current return if the option expires unexercised or is closed out at a net profit. The fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an option having the same terms as the option written. The fund's currency hedging transactions may call for the delivery of one foreign currency in exchange for another foreign currency and may at times not involve currencies in which its portfolio securities are then denominated. Putnam Management will engage in such "cross hedging" activities when it believes that such transactions provide significant hedging opportunities for the fund. Cross hedging transactions by the fund involve the risk of imperfect correlation between changes in the values of the currencies to which such transactions relate and changes in the value of the currency or other asset or liability which is the subject of the hedge. The fund may also engage in non-hedging currency transactions. For example, Putnam Management may believe that exposure to a currency is in the fund's best interest but that securities denominated in that currency are unattractive. In that case the fund may purchase a currency forward contract or option in order to increase its exposure to the currency. In accordance with SEC regulations, the fund will segregate liquid assets in its portfolio to cover forward contracts used for non-hedging purposes. The value of any currency, including U.S. dollars and foreign currencies, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of foreign currencies (and therefore the values of foreign currency options, forward contracts and futures contracts) may be affected significantly, fixed, or supported directly or indirectly by U.S. and foreign government actions. Government intervention may increase risks involved in purchasing or selling foreign currency options, forward contracts and futures contracts, since exchange rates may not be free to fluctuate in response to other market forces. The value of a foreign currency option, forward contract or futures contract reflects the value of an exchange rate, which in turn reflects relative values of two currencies, the U.S. dollar and the foreign currency in question. Because foreign currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the exercise of foreign currency options, forward contracts and futures contracts, investors may be disadvantaged by having to deal in an odd-lot market for the underlying foreign currencies in connection with options at prices that are less favorable than for round lots. Foreign governmental restrictions or taxes could result in adverse changes in the cost of acquiring or disposing of foreign currencies. There is no systematic reporting of last sale information for foreign currencies and there is no regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative of very large round-lot transactions in the interbank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable. The interbank market in foreign currencies is a global, around-the-clock market. To the extent that options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the options markets. The decision as to whether and to what extent the fund will engage in foreign currency exchange transactions will depend on a number of factors, including prevailing market conditions, the composition of the fund's portfolio and the availability of suitable transactions. Accordingly, there can be no assurance that the fund will engage in foreign currency exchange transactions at any given time or from time to time. CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract as agreed by the parties, at a price set at the time of the contract. In the case of a cancelable forward contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. The contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A forward contract generally has no deposit requirement, and no commissions are charged at any stage for trades. A foreign currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a price set at the time of the contract. Foreign currency futures contracts traded in the United States are designed by and traded on exchanges regulated by the CFTC, such as the New York Mercantile Exchange. Forward foreign currency exchange contracts differ from foreign currency futures contracts in certain respects. For example, the maturity date of a forward contract may be any fixed number of days from the date of the contract agreed upon by the parties, rather than a predetermined date in a given month. Forward contracts may be in any amount agreed upon by the parties rather than predetermined amounts. Also, forward foreign exchange contracts are traded directly between currency traders so that no intermediary is required. A forward contract generally requires no margin or other deposit. At the maturity of a forward or futures contract, the fund either may accept or make delivery of the currency specified in the contract, or at or prior to maturity enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. Closing transactions with respect to futures contracts are effected on a commodities exchange; a clearing corporation associated with the exchange assumes responsibility for closing out such contracts. Positions in the foreign currency futures contracts may be closed out only on an exchange or board of trade which provides a secondary market in such contracts. Although the fund intends to purchase or sell foreign currency futures contracts only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a secondary market on an exchange or board of trade will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures position and, in the event of adverse price movements, the fund would continue to be required to make daily cash payments of variation margin. FOREIGN CURRENCY OPTIONS. In general, options on foreign currencies operate similarly to options on securities and are subject to many of the risks described above. Foreign currency options are traded primarily in the over-the-counter market, although options on foreign currencies are also listed on several exchanges. Options are traded not only on the currencies of individual nations, but also on the euro, the joint currency of most countries in the European Union. The fund will only purchase or write foreign currency options when Putnam Management believes that a liquid secondary market exists for such options. There can be no assurance that a liquid secondary market will exist for a particular option at any specific time. Options on foreign currencies are affected by all of those factors which influence foreign exchange rates and investments generally. SETTLEMENT PROCEDURES. Settlement procedures relating to the fund's investments in foreign securities and to the fund's foreign currency exchange transactions may be more complex than settlements with respect to investments in debt or equity securities of U.S. issuers, and may involve certain risks not present in the fund's domestic investments. For example, settlement of transactions involving foreign securities or foreign currencies may occur within a foreign country, and the fund may be required to accept or make delivery of the underlying securities or currency in conformity with any applicable U.S. or foreign restrictions or regulations, and may be required to pay any fees, taxes or charges associated with such delivery. Such investments may also involve the risk that an entity involved in the settlement may not meet its obligations. FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a fee for currency conversion, they do realize a profit based on the difference (the "spread") between prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the fund at one rate, while offering a lesser rate of exchange should the fund desire to resell that currency to the dealer. OPTIONS ON SECURITIES WRITING COVERED OPTIONS. The fund may write covered call options and covered put options on optionable securities held in its portfolio, when in the opinion of Putnam Management such transactions are consistent with the fund's investment objective(s) and policies. Call options written by the fund give the purchaser the right to buy the underlying securities from the fund at a stated exercise price; put options give the purchaser the right to sell the underlying securities to the fund at a stated price. The fund may write only covered options, which means that, so long as the fund is obligated as the writer of a call option, it will own the underlying securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). In the case of put options, the fund will hold cash and/or high-grade short-term debt obligations equal to the price to be paid if the option is exercised. In addition, the fund will be considered to have covered a put or call option if and to the extent that it holds an option that offsets some or all of the risk of the option it has written. The fund may write combinations of covered puts and calls on the same underlying security. The fund will receive a premium from writing a put or call option, which increases the fund's return on the underlying security in the event the option expires unexercised or is closed out at a profit. The amount of the premium reflects, among other things, the relationship between the exercise price and the current market value of the underlying security, the volatility of the underlying security, the amount of time remaining until expiration, current interest rates, and the effect of supply and demand in the options market and in the market for the underlying security. By writing a call option, the fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option but continues to bear the risk of a decline in the value of the underlying security. By writing a put option, the fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market value, resulting in a potential capital loss unless the security subsequently appreciates in value. The fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction, in which it purchases an offsetting option. The fund realizes a profit or loss from a closing transaction if the cost of the transaction (option premium plus transaction costs) is less or more than the premium received from writing the option. If the fund writes a call option but does not own the underlying security, and when it writes a put option, the fund may be required to deposit cash or securities with its broker as "margin," or collateral, for its obligation to buy or sell the underlying security. As the value of the underlying security varies, the fund may have to deposit additional margin with the broker. Margin requirements are complex and are fixed by individual brokers, subject to minimum requirements currently imposed by the Federal Reserve Board and by stock exchanges and other self-regulatory organizations. PURCHASING PUT OPTIONS. The fund may purchase put options to protect its portfolio holdings in an underlying security against a decline in market value. Such protection is provided during the life of the put option since the fund, as holder of the option, is able to sell the underlying security at the put exercise price regardless of any decline in the underlying security's market price. In order for a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs. By using put options in this manner, the fund will reduce any profit it might otherwise have realized from appreciation of the underlying security by the premium paid for the put option and by transaction costs. PURCHASING CALL OPTIONS. The fund may purchase call options to hedge against an increase in the price of securities that the fund wants ultimately to buy. Such hedge protection is provided during the life of the call option since the fund, as holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs. RISK FACTORS IN OPTIONS TRANSACTIONS The successful use of the fund's options strategies depends on the ability of Putnam Management to forecast correctly interest rate and market movements. For example, if the fund were to write a call option based on Putnam Management's expectation that the price of the underlying security would fall, but the price were to rise instead, the fund could be required to sell the security upon exercise at a price below the current market price. Similarly, if the fund were to write a put option based on Putnam Management's expectation that the price of the underlying security would rise, but the price were to fall instead, the fund could be required to purchase the security upon exercise at a price higher than the current market price. When the fund purchases an option, it runs the risk that it will lose its entire investment in the option in a relatively short period of time, unless the fund exercises the option or enters into a closing sale transaction before the option's expiration. If the price of the underlying security does not rise (in the case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the fund will lose part or all of its investment in the option. This contrasts with an investment by the fund in the underlying security, since the fund will not realize a loss if the security's price does not change. The effective use of options also depends on the fund's ability to terminate option positions at times when Putnam Management deems it desirable to do so. There is no assurance that the fund will be able to effect closing transactions at any particular time or at an acceptable price. If a secondary market in options were to become unavailable, the fund could no longer engage in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options or series of options. A market may discontinue trading of a particular option or options generally. In addition, a market could become temporarily unavailable if unusual events -- such as volume in excess of trading or clearing capability -- were to interrupt its normal operations. A market may at times find it necessary to impose restrictions on particular types of options transactions, such as opening transactions. For example, if an underlying security ceases to meet qualifications imposed by the market or the Options Clearing Corporation, new series of options on that security will no longer be opened to replace expiring series, and opening transactions in existing series may be prohibited. If an options market were to become unavailable, the fund as a holder of an option would be able to realize profits or limit losses only by exercising the option, and the fund, as option writer, would remain obligated under the option until expiration or exercise. Disruptions in the markets for the securities underlying options purchased or sold by the fund could result in losses on the options. If trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, the fund as purchaser or writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with considerable losses if trading in the security reopens at a substantially different price. In addition, the Options Clearing Corporation or other options markets may impose exercise restrictions. If a prohibition on exercise is imposed at the time when trading in the option has also been halted, the fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has been lifted. If the Options Clearing Corporation were to determine that the available supply of an underlying security appears insufficient to permit delivery by the writers of all outstanding calls in the event of exercise, it may prohibit indefinitely the exercise of put options. The fund, as holder of such a put option, could lose its entire investment if the prohibition remained in effect until the put option's expiration. Foreign-traded options are subject to many of the same risks presented by internationally-traded securities. In addition, because of time differences between the United States and various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed. As a result, option premiums may not reflect the current prices of the underlying interest in the United States. Over-the-counter ("OTC") options purchased by the fund and assets held to cover OTC options written by the fund may, under certain circumstances, be considered illiquid securities for purposes of any limitation on the fund's ability to invest in illiquid securities. INVESTMENTS IN MISCELLANEOUS FIXED-INCOME SECURITIES If the fund may invest in inverse floating obligations, premium securities, or interest-only or principal-only classes of mortgage-backed securities (IOs and POs), it may do so without limit. The fund, however, currently does not intend to invest more than 15% of its assets in inverse floating obligations or more than 35% of its assets in IOs and POs under normal market conditions. LOWER-RATED SECURITIES The fund may invest in lower-rated fixed-income securities (commonly known as "junk bonds"). The lower ratings of certain securities held by the fund reflect a greater possibility that adverse changes in the financial condition of the issuer or in general economic conditions, or both, or an unanticipated rise in interest rates, may impair the ability of the issuer to make payments of interest and principal. The inability (or perceived inability) of issuers to make timely payment of interest and principal would likely make the values of securities held by the fund more volatile and could limit the fund's ability to sell its securities at prices approximating the values the fund had placed on such securities. In the absence of a liquid trading market for securities held by it, the fund at times may be unable to establish the fair value of such securities. Securities ratings are based largely on the issuer's historical financial condition and the rating agencies' analysis at the time of rating. Consequently, the rating assigned to any particular security is not necessarily a reflection of the issuer's current financial condition, which may be better or worse than the rating would indicate. In addition, the rating assigned to a security by Moody's Investors Service, Inc. or Standard & Poor's (or by any other nationally recognized securities rating agency) does not reflect an assessment of the volatility of the security's market value or the liquidity of an investment in the security. See "Securities ratings." Like those of other fixed-income securities, the values of lower- rated securities fluctuate in response to changes in interest rates. A decrease in interest rates will generally result in an increase in the value of the fund's assets. Conversely, during periods of rising interest rates, the value of the fund's assets will generally decline. The values of lower-rated securities may often be affected to a greater extent by changes in general economic conditions and business conditions affecting the issuers of such securities and their industries. Negative publicity or investor perceptions may also adversely affect the values of lower-rated securities. Changes by nationally recognized securities rating agencies in their ratings of any fixed-income security and changes in the ability of an issuer to make payments of interest and principal may also affect the value of these investments. Changes in the value of portfolio securities generally will not affect income derived from these securities, but will affect the fund's net asset value. The fund will not necessarily dispose of a security when its rating is reduced below its rating at the time of purchase. However, Putnam Management will monitor the investment to determine whether its retention will assist in meeting the fund's investment objective(s). Issuers of lower-rated securities are often highly leveraged, so that their ability to service their debt obligations during an economic downturn or during sustained periods of rising interest rates may be impaired. Such issuers may not have more traditional methods of financing available to them and may be unable to repay outstanding obligations at maturity by refinancing. The risk of loss due to default in payment of interest or repayment of principal by such issuers is significantly greater because such securities frequently are unsecured and subordinated to the prior payment of senior indebtedness. At times, a substantial portion of the fund's assets may be invested in securities of which the fund, by itself or together with other funds and accounts managed by Putnam Management or its affiliates, holds all or a major portion. Although Putnam Management generally considers such securities to be liquid because of the availability of an institutional market for such securities, it is possible that, under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, the fund could find it more difficult to sell these securities when Putnam Management believes it advisable to do so or may be able to sell the securities only at prices lower than if they were more widely held. Under these circumstances, it may also be more difficult to determine the fair value of such securities for purposes of computing the fund's net asset value. In order to enforce its rights in the event of a default of such securities, the fund may be required to participate in various legal proceedings or take possession of and manage assets securing the issuer's obligations on such securities. This could increase the fund's operating expenses and adversely affect the fund's net asset value. In the case of tax-exempt funds, any income derived from the fund's ownership or operation of such assets would not be tax-exempt. The ability of a holder of a tax-exempt security to enforce the terms of that security in a bankruptcy proceeding may be more limited than would be the case with respect to securities of private issuers. In addition, the fund's intention to qualify as a "regulated investment company" under the Internal Revenue Code may limit the extent to which the fund may exercise its rights by taking possession of such assets. Certain securities held by the fund may permit the issuer at its option to "call," or redeem, its securities. If an issuer were to redeem securities held by the fund during a time of declining interest rates, the fund may not be able to reinvest the proceeds in securities providing the same investment return as the securities redeemed. The fund may invest without limit in so-called "zero-coupon" bonds and "payment-in-kind" bonds. Zero-coupon bonds are issued at a significant discount from their principal amount in lieu of paying interest periodically. Payment-in-kind bonds allow the issuer, at its option, to make current interest payments on the bonds either in cash or in additional bonds. Because zero-coupon and payment-in-kind bonds do not pay current interest in cash, their value is subject to greater fluctuation in response to changes in market interest rates than bonds that pay interest currently. Both zero-coupon and payment-in-kind bonds allow an issuer to avoid the need to generate cash to meet current interest payments. Accordingly, such bonds may involve greater credit risks than bonds paying interest currently in cash. The fund is required to accrue interest income on such investments and to distribute such amounts at least annually to shareholders even though such bonds do not pay current interest in cash. Thus, it may be necessary at times for the fund to liquidate investments in order to satisfy its dividend requirements. To the extent the fund invests in securities in the lower rating categories, the achievement of the fund's goals is more dependent on Putnam Management's investment analysis than would be the case if the fund were investing in securities in the higher rating categories. This may be particularly true with respect to tax- exempt securities, as the amount of information about the financial condition of an issuer of tax-exempt securities may not be as extensive as that which is made available by corporations whose securities are publicly traded. LOAN PARTICIPATIONS The fund may invest in "loan participations." By purchasing a loan participation, the fund acquires some or all of the interest of a bank or other lending institution in a loan to a particular borrower. Many such loans are secured, and most impose restrictive covenants which must be met by the borrower. The loans in which the fund may invest are typically made by a syndicate of banks, represented by an agent bank which has negotiated and structured the loan and which is responsible generally for collecting interest, principal, and other amounts from the borrower on its own behalf and on behalf of the other lending institutions in the syndicate and for enforcing its and their other rights against the borrower. Each of the lending institutions, including the agent bank, lends to the borrower a portion of the total amount of the loan, and retains the corresponding interest in the loan. The fund's ability to receive payments of principal and interest and other amounts in connection with loan participations held by it will depend primarily on the financial condition of the borrower. The failure by the fund to receive scheduled interest or principal payments on a loan participation would adversely affect the income of the fund and would likely reduce the value of its assets, which would be reflected in a reduction in the fund's net asset value. Banks and other lending institutions generally perform a credit analysis of the borrower before originating a loan or participating in a lending syndicate. In selecting the loan participations in which the fund will invest, however, Putnam Management will not rely solely on that credit analysis, but will perform its own investment analysis of the borrowers. Putnam Management's analysis may include consideration of the borrower's financial strength and managerial experience, debt coverage, additional borrowing requirements or debt maturity schedules, changing financial conditions, and responsiveness to changes in business conditions and interest rates. Because loan participations in which the fund may invest are not generally rated by independent credit rating agencies, a decision by the fund to invest in a particular loan participation will depend almost exclusively on Putnam Management's, and the original lending institution's, credit analysis of the borrower. Loan participations may be structured in different forms, including novations, assignments, and participating interests. In a novation, the fund assumes all of the rights of a lending institution in a loan, including the right to receive payments of principal and interest and other amounts directly from the borrower and to enforce its rights as a lender directly against the borrower. The fund assumes the position of a co-lender with other syndicate members. As an alternative, the fund may purchase an assignment of a portion of a lender's interest in a loan. In this case, the fund may be required generally to rely upon the assigning bank to demand payment and enforce its rights against the borrower, but would otherwise be entitled to all of such bank's rights in the loan. The fund may also purchase a participating interest in a portion of the rights of a lending institution in a loan. In such case, it will be entitled to receive payments of principal, interest, and premium, if any, but will not generally be entitled to enforce its rights directly against the agent bank or the borrower, but must rely for that purpose on the lending institution. The fund may also acquire a loan participation directly by acting as a member of the original lending syndicate. The fund will in many cases be required to rely upon the lending institution from which it purchases the loan participation to collect and pass on to the fund such payments and to enforce the fund's rights under the loan. As a result, an insolvency, bankruptcy, or reorganization of the lending institution may delay or prevent the fund from receiving principal, interest, and other amounts with respect to the underlying loan. When the fund is required to rely upon a lending institution to pay to the fund principal, interest, and other amounts received by it, Putnam Management will also evaluate the creditworthiness of the lending institution. The borrower of a loan in which the fund holds a participation interest may, either at its own election or pursuant to terms of the loan documentation, prepay amounts of the loan from time to time. There is no assurance that the fund will be able to reinvest the proceeds of any loan prepayment at the same interest rate or on the same terms as those of the original loan participation. Corporate loans in which the fund may purchase a loan participation are made generally to finance internal growth, mergers, acquisitions, stock repurchases, leveraged buy-outs, and other corporate activities. Under current market conditions, most of the corporate loan participations purchased by the fund will represent interests in loans made to finance highly leveraged corporate acquisitions, known as "leveraged buy-out" transactions. The highly leveraged capital structure of the borrowers in such transactions may make such loans especially vulnerable to adverse changes in economic or market conditions. In addition, loan participations generally are subject to restrictions on transfer, and only limited opportunities may exist to sell such participations in secondary markets. As a result, the fund may be unable to sell loan participations at a time when it may otherwise be desirable to do so or may be able to sell them only at a price that is less than their fair market value. Certain of the loan participations acquired by the fund may involve revolving credit facilities under which a borrower may from time to time borrow and repay amounts up to the maximum amount of the facility. In such cases, the fund would have an obligation to advance its portion of such additional borrowings upon the terms specified in the loan participation. To the extent that the fund is committed to make additional loans under such a participation, it will at all times hold and maintain in a segregated account liquid assets in an amount sufficient to meet such commitments. Certain of the loan participations acquired by the fund may also involve loans made in foreign currencies. The fund's investment in such participations would involve the risks of currency fluctuations described above with respect to investments in the foreign securities. FLOATING RATE AND VARIABLE RATE DEMAND NOTES Certain funds may purchase floating rate and variable rate demand notes and bonds. These securities may have a stated maturity in excess of one year, but permit a holder to demand payment of principal plus accrued interest upon a specified number of days notice. Frequently, such obligations are secured by letters of credit or other credit support arrangements provided by banks. The issuer has a corresponding right, after a given period, to prepay in its discretion the outstanding principal of the obligation plus accrued interest upon a specific number of days notice to the holders. The interest rate of a floating rate instrument may be based on a known lending rate, such as a bank's prime rate, and is reset whenever such rate is adjusted. The interest rate on a variable rate demand note is reset at specified intervals at a market rate. MORTGAGE RELATED AND ASSET-BACKED SECURITIES The fund may invest in mortgage-backed securities, including collateralized mortgage obligations ("CMOs") and certain stripped mortgage-backed securities. CMOs and other mortgage-backed securities represent a participation in, or are secured by, mortgage loans. The fund may also invest in asset-backed securities. Asset-backed securities are structured like mortgage-backed securities, but instead of mortgage loans or interests in mortgage loans, the underlying assets may include such items as motor vehicle installment sales or installment loan contracts, leases of various types of real and personal property, and receivables from credit card agreements. The ability of an issuer of asset-backed securities to enforce its security interest in the underlying assets may be limited. Mortgage-backed securities have yield and maturity characteristics corresponding to the underlying assets. Unlike traditional debt securities, which may pay a fixed rate of interest until maturity, when the entire principal amount comes due, payments on certain mortgage-backed securities include both interest and a partial repayment of principal. Besides the scheduled repayment of principal, repayments of principal may result from the voluntary prepayment, refinancing, or foreclosure of the underlying mortgage loans. If property owners make unscheduled prepayments of their mortgage loans, these prepayments will result in early payment of the applicable mortgage-related securities. In that event the fund may be unable to invest the proceeds from the early payment of the mortgage-related securities in an investment that provides as high a yield as the mortgage-related securities. Consequently, early payment associated with mortgage-related securities may cause these securities to experience significantly greater price and yield volatility than that experienced by traditional fixed- income securities. The occurrence of mortgage prepayments is affected by factors including the level of interest rates, general economic conditions, the location and age of the mortgage and other social and demographic conditions. During periods of falling interest rates, the rate of mortgage prepayments tends to increase, thereby tending to decrease the life of mortgage- related securities. During periods of rising interest rates, the rate of mortgage prepayments usually decreases, thereby tending to increase the life of mortgage-related securities. If the life of a mortgage-related security is inaccurately predicted, the fund may not be able to realize the rate of return it expected. Mortgage-backed and asset-backed securities are less effective than other types of securities as a means of "locking in" attractive long-term interest rates. One reason is the need to reinvest prepayments of principal; another is the possibility of significant unscheduled prepayments resulting from declines in interest rates. These prepayments would have to be reinvested at lower rates. As a result, these securities may have less potential for capital appreciation during periods of declining interest rates than other securities of comparable maturities, although they may have a similar risk of decline in market value during periods of rising interest rates. Prepayments may also significantly shorten the effective maturities of these securities, especially during periods of declining interest rates. Conversely, during periods of rising interest rates, a reduction in prepayments may increase the effective maturities of these securities, subjecting them to a greater risk of decline in market value in response to rising interest rates than traditional debt securities, and, therefore, potentially increasing the volatility of the fund. Prepayments may cause losses on securities purchased at a premium. At times, some of the mortgage-backed and asset-backed securities in which the fund may invest will have higher than market interest rates and therefore will be purchased at a premium above their par value. Unscheduled prepayments, which are made at par, will cause the fund to experience a loss equal to any unamortized premium. CMOs may be issued by a U.S. government agency or instrumentality or by a private issuer. Although payment of the principal of, and interest on, the underlying collateral securing privately issued CMOs may be guaranteed by the U.S. government or its agencies or instrumentalities, these CMOs represent obligations solely of the private issuer and are not insured or guaranteed by the U.S. government, its agencies or instrumentalities or any other person or entity. Prepayments could cause early retirement of CMOs. CMOs are designed to reduce the risk of prepayment for investors by issuing multiple classes of securities, each having different maturities, interest rates and payment schedules, and with the principal and interest on the underlying mortgages allocated among the several classes in various ways. Payment of interest or principal on some classes or series of CMOs may be subject to contingencies or some classes or series may bear some or all of the risk of default on the underlying mortgages. CMOS of different classes or series are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. If enough mortgages are repaid ahead of schedule, the classes or series of a CMO with the earliest maturities generally will be retired prior to their maturities. Thus, the early retirement of particular classes or series of a CMO held by the fund would have the same effect as the prepayment of mortgages underlying other mortgage-backed securities. Conversely, slower than anticipated prepayments can extend the effective maturities of CMOs, subjecting them to a greater risk of decline in market value in response to rising interest rates than traditional debt securities, and, therefore, potentially increasing the volatility of the fund. Prepayments could result in losses on stripped mortgage-backed securities. Stripped mortgage-backed securities are usually structured with two classes that receive different portions of the interest and principal distributions on a pool of mortgage loans. The fund may invest in both the interest-only or "IO" class and the principal-only or "PO" class. The yield to maturity on an IO class of stripped mortgage-backed securities is extremely sensitive not only to changes in prevailing interest rates but also to the rate of principal payments (including prepayments) on the underlying assets. A rapid rate of principal prepayments may have a measurable adverse effect on the fund's yield to maturity to the extent it invests in IOs. If the assets underlying the IO experience greater than anticipated prepayments of principal, the fund may fail to recoup fully its initial investment in these securities. Conversely, POs tend to increase in value if prepayments are greater than anticipated and decline if prepayments are slower than anticipated. The secondary market for stripped mortgage-backed securities may be more volatile and less liquid than that for other mortgage- backed securities, potentially limiting the fund's ability to buy or sell those securities at any particular time. STRUCTURED NOTES A fund may be able to invest in so-called structured notes. These securities are generally derivative instruments whose value is tied to an underlying index or other security or asset class. Such structured notes may include, for example, notes that allow a fund to invest indirectly in certain foreign investments which the fund would otherwise would not be able to directly invest often because of restrictions imposed by local laws. TAX-EXEMPT SECURITIES GENERAL DESCRIPTION. As used in this SAI, the term "Tax-exempt securities" includes debt obligations issued by a state, its political subdivisions (for example, counties, cities, towns, villages, districts and authorities) and their agencies, instrumentalities or other governmental units, the interest from which is, in the opinion of bond counsel, exempt from federal income tax and the appropriate state's personal income tax. Such obligations are issued to obtain funds for various public purposes, including the construction of a wide range of public facilities, such as airports, bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works. Other public purposes for which Tax-exempt securities may be issued include the refunding of outstanding obligations or the payment of general operating expenses. Short-term Tax-exempt securities are generally issued by state and local governments and public authorities as interim financing in anticipation of tax collections, revenue receipts, or bond sales to finance such public purposes. In addition, certain types of "private activity" bonds may be issued by public authorities to finance projects such as privately operated housing facilities; certain local facilities for supplying water, gas or electricity; sewage or solid waste disposal facilities; student loans; or public or private institutions for the construction of educational, hospital, housing and other facilities. Such obligations are included within the term Tax-exempt securities if the interest paid thereon is, in the opinion of bond counsel, exempt from federal income tax and state personal income tax (such interest may, however, be subject to federal alternative minimum tax). Other types of private activity bonds, the proceeds of which are used for the construction, repair or improvement of, or to obtain equipment for, privately operated industrial or commercial facilities, may also constitute Tax-exempt securities, although the current federal tax laws place substantial limitations on the size of such issues. PARTICIPATION INTERESTS (MONEY MARKET FUNDS ONLY). The Money Market Fund may invest in Tax-exempt securities either by purchasing them directly or by purchasing certificates of accrual or similar instruments evidencing direct ownership of interest payments or principal payments, or both, on Tax-exempt securities, provided that, in the opinion of counsel to the initial seller of each such certificate or instrument, any discount accruing on a certificate or instrument that is purchased at a yield not greater than the coupon rate of interest on the related Tax-exempt securities will be exempt from federal income tax to the same extent as interest on the Tax-exempt securities. The Money Market Fund may also invest in Tax-exempt securities by purchasing from banks participation interests in all or part of specific holdings of Tax-exempt securities. These participations may be backed in whole or in part by an irrevocable letter of credit or guarantee of the selling bank. The selling bank may receive a fee from the Money Market Fund in connection with the arrangement. The Money Market Fund will not purchase such participation interests unless it receives an opinion of counsel or a ruling of the Internal Revenue Service that interest earned by it on Tax-exempt securities in which it holds such participation interests is exempt from federal income tax. The Money Market Fund does not expect to invest more than 5% of its assets in participation interests. STAND-BY COMMITMENTS. When the fund purchases Tax-exempt securities, it has the authority to acquire stand-by commitments from banks and broker-dealers with respect to those Tax-exempt securities. A stand-by commitment may be considered a security independent of the Tax-exempt security to which it relates. The amount payable by a bank or dealer during the time a stand-by commitment is exercisable, absent unusual circumstances, would be substantially the same as the market value of the underlying Tax- exempt security to a third party at any time. The fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. The fund does not expect to assign any value to stand-by commitments. YIELDS. The yields on Tax-exempt securities depend on a variety of factors, including general money market conditions, effective marginal tax rates, the financial condition of the issuer, general conditions of the Tax-exempt security market, the size of a particular offering, the maturity of the obligation and the rating of the issue. The ratings of nationally recognized securities rating agencies represent their opinions as to the credit quality of the Tax-exempt securities which they undertake to rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, Tax-exempt securities with the same maturity and interest rate but with different ratings may have the same yield. Yield disparities may occur for reasons not directly related to the investment quality of particular issues or the general movement of interest rates and may be due to such factors as changes in the overall demand or supply of various types of Tax-exempt securities or changes in the investment objectives of investors. Subsequent to purchase by the fund, an issue of Tax-exempt securities or other investments may cease to be rated, or its rating may be reduced below the minimum rating required for purchase by the fund. Neither event will require the elimination of an investment from the fund's portfolio, but Putnam Management will consider such an event in its determination of whether the fund should continue to hold an investment in its portfolio. "MORAL OBLIGATION" BONDS. The fund does not currently intend to invest in so-called "moral obligation" bonds, where repayment is backed by a moral commitment of an entity other than the issuer, unless the credit of the issuer itself, without regard to the "moral obligation," meets the investment criteria established for investments by the fund. MUNICIPAL LEASES. The fund may acquire participations in lease obligations or installment purchase contract obligations (collectively, "lease obligations") of municipal authorities or entities. Lease obligations do not constitute general obligations of the municipality for which the municipality's taxing power is pledged. Certain of these lease obligations contain "non- appropriation" clauses, which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. In addition to the "non-appropriation" risk, these securities represent a relatively new type of financing that has not yet developed the depth of marketability associated with more conventional bonds. In the case of a "non-appropriation" lease, the fund's ability to recover under the lease in the event of non- appropriation or default will be limited solely to the repossession of the leased property, and in any event, foreclosure of that property might prove difficult. ADDITIONAL RISKS. Securities in which the fund may invest, including Tax-exempt securities, are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the federal Bankruptcy Code (including special provisions related to municipalities and other public entities), and laws, if any, that may be enacted by Congress or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations. There is also the possibility that, as a result of litigation or other conditions, the power, ability or willingness of issuers to meet their obligations for the payment of interest and principal on their Tax-exempt securities may be materially affected. From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on debt obligations issued by states and their political subdivisions. Federal tax laws limit the types and amounts of tax-exempt bonds issuable for certain purposes, especially industrial development bonds and private activity bonds. Such limits may affect the future supply and yields of these types of Tax-exempt securities. Further proposals limiting the issuance of tax-exempt bonds may well be introduced in the future. If it appeared that the availability of Tax-exempt securities for investment by the fund and the value of the fund's portfolio could be materially affected by such changes in law, the Trustees of the fund would reevaluate its investment objective and policies and consider changes in the structure of the fund or its dissolution. CONVERTIBLE SECURITIES Convertible securities include bonds, debentures, notes, preferred stocks and other securities that may be converted into or exchanged for, at a specific price or formula within a particular period of time, a prescribed amount of common stock or other equity securities of the same or a different issuer. Convertible securities entitle the holder to receive interest paid or accrued on debt or dividends paid or accrued on preferred stock until the security matures or is redeemed, converted or exchanged. The market value of a convertible security is a function of its "investment value" and its "conversion value." A security's "investment value" represents the value of the security without its conversion feature (i.e., a nonconvertible fixed income security). The investment value may be determined by reference to its credit quality and the current value of its yield to maturity or probable call date. At any given time, investment value is dependent upon such factors as the general level of interest rates, the yield of similar nonconvertible securities, the financial strength of the issuer and the seniority of the security in the issuer's capital structure. A security's "conversion value" is determined by multiplying the number of shares the holder is entitled to receive upon conversion or exchange by the current price of the underlying security. If the conversion value of a convertible security is significantly below its investment value, the convertible security will trade like nonconvertible debt or preferred stock and its market value will not be influenced greatly by fluctuations in the market price of the underlying security. Conversely, if the conversion value of a convertible security is near or above its investment value, the market value of the convertible security will be more heavily influenced by fluctuations in the market price of the underlying security. The fund's investments in convertible securities may at times include securities that have a mandatory conversion feature, pursuant to which the securities convert automatically into common stock or other equity securities at a specified date and a specified conversion ratio, or that are convertible at the option of the issuer. Because conversion of the security is not at the option of the holder, the fund may be required to convert the security into the underlying common stock even at times when the value of the underlying common stock or other equity security has declined substantially. The fund's investments in convertible securities, particularly securities that are convertible into securities of an issuer other than the issuer of the convertible security, may be illiquid. The fund may not be able to dispose of such securities in a timely fashion or for a fair price, which could result in losses to the fund. PRIVATE PLACEMENTS The fund may invest in securities that are purchased in private placements and, accordingly, are subject to restrictions on resale as a matter of contract or under federal securities laws. Because there may be relatively few potential purchasers for such investments, especially under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, the fund could find it more difficult to sell such securities when Putnam Management believes it advisable to do so or may be able to sell such securities only at prices lower than if such securities were more widely held. At times, it may also be more difficult to determine the fair value of such securities for purposes of computing the fund's net asset value. While such private placements may often offer attractive opportunities for investment not otherwise available on the open market, the securities so purchased are often "restricted securities," i.e., securities which cannot be sold to the public without registration under the Securities Act of 1933 or the availability of an exemption from registration (such as Rules 144 or 144A), or which are "not readily marketable" because they are subject to other legal or contractual delays in or restrictions on resale. The absence of a trading market can make it difficult to ascertain a market value for illiquid investments. Disposing of illiquid investments may involve time-consuming negotiation and legal expenses, and it may be difficult or impossible for the fund to sell them promptly at an acceptable price. The fund may have to bear the extra expense of registering such securities for resale and the risk of substantial delay in effecting such registration. Also market quotations are less readily available. The judgment of Putnam Management may at times play a greater role in valuing these securities than in the case of unrestricted securities. Generally speaking, restricted securities may be sold only to qualified institutional buyers, or in a privately negotiated transaction to a limited number of purchasers, or in limited quantities after they have been held for a specified period of time and other conditions are met pursuant to an exemption from registration, or in a public offering for which a registration statement is in effect under the Securities Act of 1933. The funds may be deemed to be an "underwriter" for purposes of the Securities Act of 1933 when selling restricted securities to the public, and in such event the fund may be liable to purchasers of such securities if the registration statement prepared by the issuer, or the prospectus forming a part of it, is materially inaccurate or misleading. FUTURES CONTRACTS AND RELATED OPTIONS Subject to applicable law the fund may invest without limit in futures contracts and related options for hedging and non-hedging purposes, such as to manage the effective duration of the fund's portfolio or as a substitute for direct investment. A financial futures contract sale creates an obligation by the seller to deliver the type of financial instrument called for in the contract in a specified delivery month for a stated price. A financial futures contract purchase creates an obligation by the purchaser to take delivery of the type of financial instrument called for in the contract in a specified delivery month at a stated price. The specific instruments delivered or taken, respectively, at settlement date are not determined until on or near that date. The determination is made in accordance with the rules of the exchange on which the futures contract sale or purchase was made. Futures contracts are traded in the United States only on commodity exchanges or boards of trade -- known as "contract markets" -- approved for such trading by the Commodity Futures Trading Commission (the "CFTC"), and must be executed through a futures commission merchant or brokerage firm which is a member of the relevant contract market. Although futures contracts (other than index futures) by their terms call for actual delivery or acceptance of commodities or securities, in most cases the contracts are closed out before the settlement date without the making or taking of delivery. Closing out a futures contract sale is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity with the same delivery date. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the seller realizes a loss. If the fund is unable to enter into a closing transaction, the amount of the fund's potential loss is unlimited. The closing out of a futures contract purchase is effected by the purchaser's entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain, and if the purchase price exceeds the offsetting sale price, he realizes a loss. In general, 40% of the gain or loss arising from the closing out of a futures contract traded on an exchange approved by the CFTC is treated as short-term gain or loss, and 60% is treated as long-term gain or loss. Unlike when the fund purchases or sells a security, no price is paid or received by the fund upon the purchase or sale of a futures contract. Upon entering into a contract, the fund is required to deposit with its custodian in a segregated account in the name of the futures broker an amount of liquid assets. This amount is known as "initial margin." The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures contract margin does not involve the borrowing of funds to finance the transactions. Rather, initial margin is similar to a performance bond or good faith deposit which is returned to the fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Futures contracts also involve brokerage costs. Subsequent payments, called "variation margin" or "maintenance margin," to and from the broker (or the custodian) are made on a daily basis as the price of the underlying security or commodity fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking to the market." For example, when the fund has purchased a futures contract on a security and the price of the underlying security has risen, that position will have increased in value and the fund will receive from the broker a variation margin payment based on that increase in value. Conversely, when the fund has purchased a security futures contract and the price of the underlying security has declined, the position would be less valuable and the fund would be required to make a variation margin payment to the broker. The fund may elect to close some or all of its futures positions at any time prior to their expiration in order to reduce or eliminate a hedge position then currently held by the fund. The fund may close its positions by taking opposite positions which will operate to terminate the fund's position in the futures contracts. Final determinations of variation margin are then made, additional cash is required to be paid by or released to the fund, and the fund realizes a loss or a gain. Such closing transactions involve additional commission costs. The fund does not intend to purchase or sell futures or related options for other than hedging purposes, if, as a result, the sum of the initial margin deposits on the fund's existing futures and related options positions and premiums paid for outstanding options on futures contracts would exceed 5% of the fund's net assets. OPTIONS ON FUTURES CONTRACTS. The fund may purchase and write call and put options on futures contracts it may buy or sell and enter into closing transactions with respect to such options to terminate existing positions. In return for the premium paid, options on futures contracts give the purchaser the right to assume a position in a futures contract at the specified option exercise price at any time during the period of the option. The fund may use options on futures contracts in lieu of writing or buying options directly on the underlying securities or purchasing and selling the underlying futures contracts. For example, to hedge against a possible decrease in the value of its portfolio securities, the fund may purchase put options or write call options on futures contracts rather than selling futures contracts. Similarly, the fund may purchase call options or write put options on futures contracts as a substitute for the purchase of futures contracts to hedge against a possible increase in the price of securities which the fund expects to purchase. Such options generally operate in the same manner as options purchased or written directly on the underlying investments. As with options on securities, the holder or writer of an option may terminate his position by selling or purchasing an offsetting option. There is no guarantee that such closing transactions can be effected. The fund will be required to deposit initial margin and maintenance margin with respect to put and call options on futures contracts written by it pursuant to brokers' requirements similar to those described above in connection with the discussion of futures contracts. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use of futures contracts by the fund is subject to Putnam Management's ability to predict movements in various factors affecting securities markets, including interest rates. Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts involves less potential risk to the fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss to the fund when the purchase or sale of a futures contract would not, such as when there is no movement in the prices of the hedged investments. The writing of an option on a futures contract involves risks similar to those risks relating to the sale of futures contracts. The use of options and futures strategies also involves the risk of imperfect correlation among movements in the prices of the securities underlying the futures and options purchased and sold by the fund, of the options and futures contracts themselves, and, in the case of hedging transactions, of the securities which are the subject of a hedge. The successful use of these strategies further depends on the ability of Putnam Management to forecast interest rates and market movements correctly. There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain market clearing facilities inadequate, and thereby result in the institution by exchanges of special procedures which may interfere with the timely execution of customer orders. To reduce or eliminate a position held by the fund, the fund may seek to close out such position. The ability to establish and close out positions will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop or continue to exist for a particular futures contract or option. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain contracts or options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of contracts or options, or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts or options (or a particular class or series of contracts or options), in which event the secondary market on that exchange for such contracts or options (or in the class or series of contracts or options) would cease to exist, although outstanding contracts or options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. U.S. Treasury security futures contracts require the seller to deliver, or the purchaser to take delivery of, the type of U.S. Treasury security called for in the contract at a specified date and price. Options on U.S. Treasury security futures contracts give the purchaser the right in return for the premium paid to assume a position in a U.S. Treasury security futures contract at the specified option exercise price at any time during the period of the option. Successful use of U.S. Treasury security futures contracts by the fund is subject to Putnam Management's ability to predict movements in the direction of interest rates and other factors affecting markets for debt securities. For example, if the fund has sold U.S. Treasury security futures contracts in order to hedge against the possibility of an increase in interest rates which would adversely affect securities held in its portfolio, and the prices of the fund's securities increase instead as a result of a decline in interest rates, the fund will lose part or all of the benefit of the increased value of its securities which it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the fund has insufficient cash, it may have to sell securities to meet daily maintenance margin requirements at a time when it may be disadvantageous to do so. There is also a risk that price movements in U.S. Treasury security futures contracts and related options will not correlate closely with price movements in markets for particular securities. For example, if the fund has hedged against a decline in the values of tax-exempt securities held by it by selling Treasury security futures and the values of Treasury securities subsequently increase while the values of its tax- exempt securities decrease, the fund would incur losses on both the Treasury security futures contracts written by it and the tax- exempt securities held in its portfolio. INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as buying or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. A unit is the current value of the index. The fund may enter into stock index futures contracts, debt index futures contracts, or other index futures contracts appropriate to its objective(s). The fund may also purchase and sell options on index futures contracts. For example, the Standard & Poor's 500 Composite Stock Price Index ("S&P 500") is composed of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The S&P 500 assigns relative weightings to the common stocks included in the Index, and the value fluctuates with changes in the market values of those common stocks. In the case of the S&P 500, contracts are to buy or sell 500 units. Thus, if the value of the S&P 500 were $150, one contract would be worth $75,000 (500 units x $150). The stock index futures contract specifies that no delivery of the actual stocks making up the index will take place. Instead, settlement in cash must occur upon the termination of the contract, with the settlement being the difference between the contract price and the actual level of the stock index at the expiration of the contract. For example, if the fund enters into a futures contract to buy 500 units of the S&P 500 at a specified future date at a contract price of $150 and the S&P 500 is at $154 on that future date, the fund will gain $2,000 (500 units x gain of $4). If the fund enters into a futures contract to sell 500 units of the stock index at a specified future date at a contract price of $150 and the S&P 500 is at $152 on that future date, the fund will lose $1,000 (500 units x loss of $2). There are several risks in connection with the use by the fund of index futures. One risk arises because of the imperfect correlation between movements in the prices of the index futures and movements in the prices of securities which are the subject of the hedge. Putnam Management will, however, attempt to reduce this risk by buying or selling, to the extent possible, futures on indices the movements of which will, in its judgment, have a significant correlation with movements in the prices of the securities sought to be hedged. Successful use of index futures by the fund is also subject to Putnam Management's ability to predict movements in the direction of the market. For example, it is possible that, where the fund has sold futures to hedge its portfolio against a decline in the market, the index on which the futures are written may advance and the value of securities held in the fund's portfolio may decline. If this occurred, the fund would lose money on the futures and also experience a decline in value in its portfolio securities. It is also possible that, if the fund has hedged against the possibility of a decline in the market adversely affecting securities held in its portfolio and securities prices increase instead, the fund will lose part or all of the benefit of the increased value of those securities it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements at a time when it is disadvantageous to do so. In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between movements in the index futures and the portion of the portfolio being hedged, the prices of index futures may not correlate perfectly with movements in the underlying index due to certain market distortions. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which could distort the normal relationship between the index and futures markets. Second, margin requirements in the futures market are less onerous than margin requirements in the securities market, and as a result the futures market may attract more speculators than the securities market does. Increased participation by speculators in the futures market may also cause temporary price distortions. Due to the possibility of price distortions in the futures market and also because of the imperfect correlation between movements in the index and movements in the prices of index futures, even a correct forecast of general market trends by Putnam Management may still not result in a profitable position over a short time period. OPTIONS ON STOCK INDEX FUTURES. Options on index futures are similar to options on securities except that options on index futures give the purchaser the right, in return for the premium paid, to assume a position in an index futures contract (a long position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the index futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the index future. If an option is exercised on the last trading day prior to its expiration date, the settlement will be made entirely in cash equal to the difference between the exercise price of the option and the closing level of the index on which the future is based on the expiration date. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid. OPTIONS ON INDICES As an alternative to purchasing call and put options on index futures, the fund may purchase and sell call and put options on the underlying indices themselves. Such options would be used in a manner identical to the use of options on index futures. INDEX WARRANTS The fund may purchase put warrants and call warrants whose values vary depending on the change in the value of one or more specified securities indices ("index warrants"). Index warrants are generally issued by banks or other financial institutions and give the holder the right, at any time during the term of the warrant, to receive upon exercise of the warrant a cash payment from the issuer based on the value of the underlying index at the time of exercise. In general, if the value of the underlying index rises above the exercise price of the index warrant, the holder of a call warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the value of the index and the exercise price of the warrant; if the value of the underlying index falls, the holder of a put warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the exercise price of the warrant and the value of the index. The holder of a warrant would not be entitled to any payments from the issuer at any time when, in the case of a call warrant, the exercise price is greater than the value of the underlying index, or, in the case of a put warrant, the exercise price is less than the value of the underlying index. If the fund were not to exercise an index warrant prior to its expiration, then the fund would lose the amount of the purchase price paid by it for the warrant. The fund will normally use index warrants in a manner similar to its use of options on securities indices. The risks of the fund's use of index warrants are generally similar to those relating to its use of index options. Unlike most index options, however, index warrants are issued in limited amounts and are not obligations of a regulated clearing agency, but are backed only by the credit of the bank or other institution which issues the warrant. Also, index warrants generally have longer terms than index options. Although the fund will normally invest only in exchange-listed warrants, index warrants are not likely to be as liquid as certain index options backed by a recognized clearing agency. In addition, the terms of index warrants may limit the fund's ability to exercise the warrants at such time, or in such quantities, as the fund would otherwise wish to do. SHORT-TERM TRADING In seeking the fund's objective(s), Putnam Management will buy or sell portfolio securities whenever Putnam Management believes it appropriate to do so. In deciding whether to sell a portfolio security, Putnam Management does not consider how long the fund has owned the security. From time to time the fund will buy securities intending to seek short-term trading profits. A change in the securities held by the fund is known as "portfolio turnover" and generally involves some expense to the fund. This expense may include brokerage commissions or dealer markups and other transaction costs on both the sale of securities and the reinvestment of the proceeds in other securities. If sales of portfolio securities cause the fund to realize net short-term capital gains, such gains will be taxable as ordinary income. As a result of the fund's investment policies, under certain market conditions the fund's portfolio turnover rate may be higher than that of other mutual funds. Portfolio turnover rate for a fiscal year is the ratio of the lesser of purchases or sales of portfolio securities to the monthly average of the value of portfolio securities -- excluding securities whose maturities at acquisition were one year or less. The fund's portfolio turnover rate is not a limiting factor when Putnam Management considers a change in the fund's portfolio. SECURITIES LOANS The fund may make secured loans of its portfolio securities, on either a short-term or long-term basis, amounting to not more than 25% of its total assets, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. As a matter of policy, securities loans are made to broker-dealers pursuant to agreements requiring that the loans be continuously secured by collateral consisting of cash or short-term debt obligations at least equal at all times to the value of the securities on loan, "marked-to-market" daily. The borrower pays to the fund an amount equal to any dividends or interest received on securities lent. The fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. Although voting rights, or rights to consent, with respect to the loaned securities may pass to the borrower, the fund retains the right to call the loans at any time on reasonable notice, and it will do so to enable the fund to exercise voting rights on any matters materially affecting the investment. The fund may also call such loans in order to sell the securities. REPURCHASE AGREEMENTS The fund (except for Putnam Money Market Fund) may enter into repurchase agreements, amounting to not more than 25% of its total assets. A repurchase agreement is a contract under which the fund acquires a security for a relatively short period (usually not more than one week) subject to the obligation of the seller to repurchase and the fund to resell such security at a fixed time and price (representing the fund's cost plus interest). It is the fund's present intention to enter into repurchase agreements only with commercial banks and registered broker-dealers and only with respect to obligations of the U.S. government or its agencies or instrumentalities. Repurchase agreements may also be viewed as loans made by the fund which are collateralized by the securities subject to repurchase. Putnam Management will monitor such transactions to ensure that the value of the underlying securities will be at least equal at all times to the total amount of the repurchase obligation, including the interest factor. If the seller defaults, the fund could realize a loss on the sale of the underlying security to the extent that the proceeds of the sale including accrued interest are less than the resale price provided in the agreement including interest. In addition, if the seller should be involved in bankruptcy or insolvency proceedings, the fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the fund is treated as an unsecured creditor and required to return the underlying collateral to the seller's estate. Pursuant to an exemptive order issued by the Securities and Exchange Commission, the fund may transfer uninvested cash balances into a joint account, along with cash of other Putnam funds and certain other accounts. These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. RESTRICTED SECURITIES The SEC Staff currently takes the view that any delegation by the Trustees of the authority to determine that a restricted security is readily marketable (as described in the investment restrictions of the funds) must be pursuant to written procedures established by the Trustees. It is the present intention of the funds' Trustees that, if the Trustees decide to delegate such determinations to Putnam Management or another person, they would do so pursuant to written procedures, consistent with the Staff's position. Should the Staff modify its position in the future, the Trustees would consider what action would be appropriate in light of the Staff's position at that time. FORWARD COMMITMENTS The fund may enter into contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments") if the fund sets aside, on the books and records of its custodian, liquid assets in an amount sufficient to meet the purchase price, or if the fund enters into offsetting contracts for the forward sale of other securities it owns. In the case of to-be-announced ("TBA") purchase commitments, the unit price and the estimated principal amount are established when the fund enters into a contract, with the actual principal amount being within a specified range of the estimate. Forward commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the fund's other assets. Where such purchases are made through dealers, the fund relies on the dealer to consummate the sale. The dealer's failure to do so may result in the loss to the fund of an advantageous yield or price. Although the fund will generally enter into forward commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the fund may dispose of a commitment prior to settlement if Putnam Management deems it appropriate to do so. The fund may realize short-term profits or losses upon the sale of forward commitments. The fund may enter into TBA sale commitments to hedge its portfolio positions or to sell securities it owns under delayed delivery arrangements. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, equivalent deliverable securities, or an offsetting TBA purchase commitment deliverable on or before the sale commitment date, are held as "cover" for the transaction. Unsettled TBA sale commitments are valued at current market value of the underlying securities. If the TBA sale commitment is closed through the acquisition of an offsetting purchase commitment, the fund realizes a gain or loss on the commitment without regard to any unrealized gain or loss on the underlying security. If the fund delivers securities under the commitment, the fund realizes a gain or loss from the sale of the securities based upon the unit price established at the date the commitment was entered into. SWAP AGREEMENTS The fund may enter into swap agreements and other types of over- the-counter transactions with broker-dealers or other financial institutions . Depending on their structures, swap agreements may increase or decrease a fund's exposure to long-or short-term interest rates (in the United States or abroad), foreign currency values, mortgage securities, corporate borrowing rates, or other factors such as security prices or inflation rates. The value of a fund's swap positions would increase or decrease depending on the changes in value of the underlying rates, currency values, or other indices or measures. A fund's ability to engage in certain swap transactions may be limited by tax considerations. The fund's ability to realize a profit from such transactions will depend on the ability of the financial institutions with which it enters into the transactions to meet their obligations to the fund. Under certain circumstances, suitable transactions may not be available to the fund, or the fund may be unable to close out its position under such transactions at the same time, or at the same price, as if it had purchased comparable publicly traded securities. DERIVATIVES Certain of the instruments in which the fund may invest, such as futures contracts, options and forward contracts, are considered to be "derivatives." Derivatives are financial instruments whose value depends upon, or is derived from, the value of an underlying asset, such as a security or an index. Further information about these instruments and the risks involved in their use is included elsewhere in the prospectus or in this SAI. The fund's use of derivatives may cause the fund to recognize higher amounts of short-term capital gains, generally taxed to shareholders at ordinary income tax rates. YEAR 2000 Like other financial and business organizations, the funds depend on the proper function of their service providers' computer systems. To the extent that the systems used by the funds or their service providers cannot distinguish between the year 1900 and the year 2000 or have other operating difficulties as a result of the year 2000, the operations of and services provided to the funds and their shareholders could be adversely impacted. Putnam Management and its affiliates have reported that each expects to modify its systems, as necessary, to address this so- called "year 2000 problem," and will, on behalf of the funds, inquire as to the year 2000 compliance of the funds' other major service providers. However, there can be no assurance that the operations of and services provided to the funds and their shareholders will not be adversely affected. Similarly, companies in which the funds invest may also experience "year 2000 problems," which could ultimately result in losses to a fund to the extent that the securities of any such company decline in value as a result of a "year 2000 problem." EURO CONVERSION Eleven member countries of the European Economic and Monetary Union (the "EMU") have qualified for conversion of their national currencies to the euro on January 1, 1999. The euro is a common currency that is expected to eventually be used as the sole currency for these countries and other EMU members that wish to convert to the euro. National currencies will remain for the converting countries through at least July of 2002 while the full transition to the euro in the countries involved in the conversion occurs. Possible consequences to funds that invest in securities denominated in any of the national currencies affected include the risks that: (i) the unification of economic and monetary policies underpinning the currency unification may increase the potential for similarities in the movements of markets in the European countries converting to the euro, (ii) contracts (including contracts regarding currency transactions) denominated in (or tied to) those currencies may become more difficult to enforce, and that (iii) companies in which the funds invest may be adversely affected by their failure (or the failure of other companies with which they do business) to adequately address the operational aspects of the conversion. Like other financial and business organizations, the funds depend on the proper function of their service providers' computer and other systems. The funds could be adversely affected if the computer or other systems used by Putnam Management and the funds' other service providers cannot appropriately account for the conversion to the euro. Putnam Management and its affiliates expect that their systems will be able to address this issue without any material interruption of service. However, there can be no assurance that the operations of and services provided to the funds and their shareholders will not be adversely affected. Similarly, companies in which the funds invest may also experience similar problems in dealing with the conversion to the euro, which could result in losses to the funds. TAXES TAXATION OF THE FUND. The fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). In order to qualify for the special tax treatment accorded regulated investment companies and their shareholders, the fund must, among other things: (a) Derive at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, and gains from the sale of stock, securities and foreign currencies, or other income (including but not limited to gains from options, futures, or forward contracts) derived with respect to its business of investing in such stock, securities, or currencies; (b) distribute with respect to each taxable year at least 90% of the sum of its taxable net investment income, its net tax-exempt income, and the excess, if any, of net short-term capital gains over net long-term capital losses for such year; and (c) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the fund's assets is represented by cash and cash items, U.S. government securities, securities of other regulated investment companies, and other securities limited in respect of any one issuer to a value not greater than 5% of the value of the fund's total assets and to not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its assets is invested in the securities (other than those of the U.S. Government or other regulated investment companies) of any one issuer or of two or more issuers which the fund controls and which are engaged in the same, similar, or related trades or businesses. If the fund qualifies as a regulated investment company that is accorded special tax treatment, the fund will not be subject to federal income tax on income paid to its shareholders in the form of dividends (including capital gain dividends). If the fund failed to qualify as a regulated investment company accorded special tax treatment in any taxable year, the fund would be subject to tax on its taxable income at corporate rates, and all distributions from earnings and profits, including any distributions of net tax-exempt income and net long-term capital gains, would be taxable to shareholders as ordinary income. In addition, the fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying as a regulated investment company that is accorded special tax treatment. If the fund fails to distribute in a calendar year substantially all of its ordinary income for such year and substantially all of its capital gain net income for the one-year period ending October 31 (or later if the fund is permitted so to elect and so elects), plus any retained amount from the prior year, the fund will be subject to a 4% excise tax on the undistributed amounts. A dividend paid to shareholders by the fund in January of a year generally is deemed to have been paid by the fund on December 31 of the preceding year, if the dividend was declared and payable to shareholders of record on a date in October, November or December of that preceding year. The fund intends generally to make distributions sufficient to avoid imposition of the 4% excise tax. FUND DISTRIBUTIONS. Distributions from the fund (other than exempt-interest dividends, as discussed below) will be taxable to shareholders as ordinary income to the extent derived from the fund's investment income and net short-term gains. Distributions of net capital gains (that is, the excess of net gains from capital assets held more than one year over net losses from capital assets held for not more than one year) will be taxable to shareholders as such, regardless of how long a shareholder has held the shares in the fund. EXEMPT-INTEREST DIVIDENDS. The fund will be qualified to pay exempt-interest dividends to its shareholders only if, at the close of each quarter of the fund's taxable year, at least 50% of the total value of the fund's assets consists of obligations the interest on which is exempt from federal income tax. Distributions that the fund properly designates as exempt- interest dividends are treated as interest excludable from shareholders' gross income for federal income tax purposes but may be taxable for federal alternative minimum tax purposes and for state and local purposes. If the fund intends to be qualified to pay exempt-interest dividends, the fund may be limited in its ability to enter into taxable transactions involving forward commitments, repurchase agreements, financial futures and options contracts on financial futures, tax-exempt bond indices and other assets. Part or all of the interest on indebtedness, if any, incurred or continued by a shareholder to purchase or carry shares of a fund paying exempt-interest dividends is not deductible. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholder that are exempt-interest dividends. Under rules used by the Internal Revenue Service for determining when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares. In general, exempt-interest dividends, if any, attributable to interest received on certain private activity obligations and certain industrial development bonds will not be tax-exempt to any shareholders who are "substantial users" of the facilities financed by such obligations or bonds or who are "related persons" of such substantial users. A fund which is qualified to pay exempt-interest dividends will inform investors within 60 days of the fund's fiscal year-end of the percentage of its income distributions designated as tax- exempt. The percentage is applied uniformly to all distributions made during the year. The percentage of income designated as tax- exempt for any particular distribution may be substantially different from the percentage of the fund's income that was tax- exempt during the period covered by the distribution. HEDGING TRANSACTIONS. If the fund engages in hedging transactions, including hedging transactions in options, futures contracts, and straddles, or other similar transactions, it will be subject to special tax rules (including constructive sale, mark-to-market, straddle, wash sale, and short sale rules), the effect of which may be to accelerate income to the fund, defer losses to the fund, cause adjustments in the holding periods of the fund's securities, convert long-term capital gains into short- term capital gains or convert short-term capital losses into long- term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. The fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of the fund. Certain of the fund's hedging activities (including its transactions, if any, in foreign currencies or foreign currency- denominated instruments) are likely to produce a difference between its book income and its taxable income. If the fund's book income exceeds its taxable income, the distribution (if any) of such excess will be treated as (i) a dividend to the extent of the fund's remaining earnings and profits (including earnings and profits arising from tax-exempt income), (ii) thereafter as a return of capital to the extent of the recipient's basis in the shares, and (iii) thereafter as gain from the sale or exchange of a capital asset. If the fund's book income is less than its taxable income, the fund could be required to make distributions exceeding book income to qualify as a regulated investment company that is accorded special tax treatment. RETURN OF CAPITAL DISTRIBUTIONS. If the fund makes a distribution to you in excess of its current and accumulated "earnings and profits" in any taxable year, the excess distribution will be treated as a return of capital to the extent of your tax basis in your shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces your tax basis in your shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition by you of your shares. Dividends and distributions on a fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the fund's realized income and gains, even though such dividends and distributions may economically represent a return of a particular shareholder's investment. Such distributions are likely to occur in respect of shares purchased at a time when the fund's net asset value reflects gains that are either unrealized, or realized but not distributed. SECURITIES ISSUED OR PURCHASED AT A DISCOUNT. The fund's investment in securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the fund to accrue and distribute income not yet received. In order to generate sufficient cash to make the requisite distributions, the fund may be required to sell securities in its portfolio that it otherwise would have continued to hold. CAPITAL LOSS CARRYOVER. Distributions from capital gains are generally made after applying any available capital loss carryovers. The amounts and expiration dates of any capital loss carryovers available to the fund are shown in Note 1 (Federal income taxes) to the financial statements included in Part I of this SAI or incorporated by reference into this SAI. FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING TRANSACTIONS. The fund's transactions in foreign currencies, foreign currency-denominated debt securities and certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. If more than 50% of the fund's assets at year end consists of the securities of foreign corporations, the fund may elect to permit shareholders to claim a credit or deduction on their income tax returns for their pro rata portion of qualified taxes paid by the fund to foreign countries in respect of foreign securities the fund has held for at least the minimum period specified in the Code. In such a case, shareholders will include in gross income from foreign sources their pro rata shares of such taxes. A shareholder's ability to claim a foreign tax credit or deduction in respect of foreign taxes paid by the fund may be subject to certain limitations imposed by the Code, as a result of which a shareholder may not get a full credit or deduction for the amount of such taxes. In particular, shareholders must hold their fund shares (without protection from risk of loss) on the ex-dividend date and for at least 15 additional days during the 30-day period surrounding the ex-dividend date to be eligible to claim a foreign tax credit with respect to a given dividend. Shareholders who do not itemize on their federal income tax returns may claim a credit (but no deduction) for such foreign taxes. Investment by the fund in "passive foreign investment companies" could subject the fund to a U.S. federal income tax or other charge on the proceeds from the sale of its investment in such a company; however, this tax can be avoided by making an election to mark such investments to market annually or to treat the passive foreign investment company as a "qualified electing fund." A "passive foreign investment company" is any foreign corporation: (i) 75 percent or more of the income of which for the taxable year is passive income, or (ii) the average percentage of the assets of which (generally by value, but by adjusted tax basis in certain cases) that produce or are held for the production of passive income is at least 50 percent. Generally, passive income for this purpose means dividends, interest (including income equivalent to interest), royalties, rents, annuities, the excess of gains over losses from certain property transactions and commodities transactions, and foreign currency gains. Passive income for this purpose does not include rents and royalties received by the foreign corporation from active business and certain income received from related persons. SALE OR REDEMPTION OF SHARES. The sale, exchange or redemption of fund shares may give rise to a gain or loss. In general, any gain or loss realized upon a taxable disposition of shares will be treated as long-term capital gain or loss if the shares have been held for more than 12 months. Otherwise the gain or loss on the sale, exchange or redemption of fund shares will be treated as short-term capital gain or loss. However, if a shareholder sells shares at a loss within six months of purchase, any loss will be disallowed for Federal income tax purposes to the extent of any exempt-interest dividends received on such shares. In addition, any loss (not already disallowed as provided in the preceding sentence) realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, to the extent of any long-term capital gain distributions received by the shareholder with respect to the shares. All or a portion of any loss realized upon a taxable disposition of fund shares will be disallowed if other shares of the same fund are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss. SHARES PURCHASED THROUGH TAX-QUALIFIED PLANS. Special tax rules apply to investments though defined contribution plans and other tax-qualified plans. Shareholders should consult their tax adviser to determine the suitability of shares of a fund as an investment through such plans and the precise effect of an investment on their particular tax situation. BACKUP WITHHOLDING. The fund generally is required to withhold and remit to the U.S. Treasury 31% of the taxable dividends and other distributions paid to any individual shareholder who fails to furnish the fund with a correct taxpayer identification number (TIN), who has under-reported dividends or interest income, or who fails to certify to the fund that he or she is not subject to such withholding. The Internal Revenue Service recently revised its regulations affecting the application to foreign investors of the back-up withholding and withholding tax rules described above. The new regulations will generally be effective for payments made after December 31, 1999 (although transition rules will apply). In some circumstances, the new rules will increase the certification and filing requirements imposed on foreign investors in order to qualify for exemption from the 31% back-up withholding tax rates under income tax treaties. Foreign investors in a fund should consult their tax advisors with respect to the potential application of these new regulations. MANAGEMENT TRUSTEES NAME (AGE) *+GEORGE PUTNAM (72), Chairman and President. Chairman and Director of Putnam Management and Putnam Mutual Funds. Director, Freeport Copper and Gold, Inc. (a mining and natural resource company), Houghton Mifflin Company (a major publishing company) and Marsh & McLennan Companies, Inc. JOHN A. HILL (57), Vice Chairman. Chairman and Managing Director, First Reserve Corporation (a registered investment adviser investing in companies in the world-wide energy industry on behalf of institutional investors). Director of Snyder Oil Corporation, TransMontaigne Oil Company and various private companies owned by First Reserve Corporation, such as James River Coal and Anker Coal Corporation. +WILLIAM F. POUNDS (70), Vice Chairman. Professor Emeritus of Management, Alfred P. Sloan School of Management, Massachusetts Institute of Technology. Director of IDEXX Laboratories, Inc. (a provider of diagnostic products and services for the animal health and food and environmental industries), Management Sciences for Health, Inc. (a non-profit organization), and Sun Company, Inc. (a petroleum refining and marketing company). JAMESON A. BAXTER (55), Trustee. President, Baxter Associates, Inc. (a management consulting and private investments firm). Director of MB Financial, Inc., ASHTA Chemicals, Inc., Banta Corporation (printing and digital imaging), and Ryerson Tull, Inc. (America's largest steel service corporation). Chairman Emeritus of the Board of Trustees, Mount Holyoke College. +HANS H. ESTIN (70), Trustee. Chartered Financial Analyst and Vice Chairman, North American Management Corp. (a registered investment adviser). RONALD J. JACKSON (55), Trustee. Former Chairman, President and Chief Executive Officer of Fisher-Price, Inc. (a major toy manufacturer). *PAUL L. JOSKOW (51), Trustee. Professor Emeritus of Economics and Management and Director of the Center for Energy and Environmental Policy Research, Massachusetts Institute of Technology. Director, New England Electric System (a public utility holding company), State Farm Indemnity Company (an automobile insurance company) and the Whitehead Institute for Biomedical Research (a non-profit research institution). ELIZABETH T. KENNAN (61), Trustee. President Emeritus and Professor, Mount Holyoke College. Director, Bell Atlantic (a telecommunications company), the Kentucky Home Life Insurance Companies, Bell Atlantic, Northeast Utilities and Talbots (a distributor of women's apparel). *LAWRENCE J. LASSER (56), Trustee and Vice President. President, Chief Executive Officer and Director of Putnam Investments, Inc. and Putnam Investment Management, Inc. Director of Marsh & McLennan Companies, Inc. and the United Way of Massachusetts Bay. JOHN H. MULLIN, III (57), Trustee. Chairman and CEO of Ridgeway Farm, Director of ACX Technologies, Inc. (a company engaged in the manufacture of industrial ceramics and packaging products), Alex. Brown Realty, Inc. and The Liberty Corporation (a company engaged in the life insurance and broadcasting industries). +ROBERT E. PATTERSON (53), Trustee. President and Trustee of Cabot Industrial Trust (a publicly traded real estate investment trust). Director of Brandywine Trust Company. *GEORGE PUTNAM III (47), Trustee. President, New Generation Research, Inc. (a publisher of financial advisory and other research services relating to bankrupt and distressed companies) and New Generation Advisers, Inc. (a registered investment adviser). Director, Massachusetts Audubon Society and The Boston Family Office, L.L.C. (a registered investment advisor). *A.J.C. SMITH (64), Trustee. Chairman and Chief Executive Officer, Marsh & McLennan Companies, Inc. Director, Trident Partnership (a $667 million 10-year limited partnership with over 30 institutional investors). W. THOMAS STEPHENS (56), Trustee. President and Chief Executive Officer of MacMillan Bloedel Ltd. (a major forest products company). Director, Qwest Communications (a fiber optics manufacturer) and New Century Energies (a public utility company). W. NICHOLAS THORNDIKE (65), Trustee. Director of various corporations and charitable organizations, including Courier Corporation (a book manufacturer), Data General Corporation (a provider of customized computer solutions), Bradley Real Estate, Inc., and Providence Journal Co. OFFICERS NAME (AGE) CHARLES E. PORTER (60), Executive Vice President. Managing Director of Putnam Investments, Inc. and Putnam Management. PATRICIA C. FLAHERTY (52), Vice President. Senior Vice President of Putnam Investments, Inc. and Putnam Management. GORDON H. SILVER (51), Vice President. Director and Senior Managing Director of Putnam Investments, Inc. and Putnam Management. BRETT C. BROWCHUK (36), Vice President. Managing Director of Putnam Management. IAN C. FERGUSON (41), Vice President. Senior Managing Director of Putnam Investments, Inc. and Putnam Management. RICHARD A. MONAGHAN (44), Vice President. Managing Director of Putnam Investments, Inc., Putnam Management and Putnam Mutual Funds. JOHN R. VERANI (59), Vice President. Senior Vice President of Putnam Investments, Inc. and Putnam Management. JOHN D. HUGHES (64), Senior Vice President and Treasurer. *Trustees who are or may be deemed to be "interested persons" (as defined in the Investment Company Act of 1940) of the fund, Putnam Management or Putnam Mutual Funds. Messrs. Putnam, Lasser and Smith are deemed "interested persons" by virtue of their positions as officers or shareholders of the fund, or directors of Putnam Management, Putnam Mutual Funds, or Marsh & McLennan Companies, Inc., the parent company of Putnam Management and Putnam Mutual Funds. Mr. George Putnam, III, Mr. Putnam's son, is also an "interested person" of the fund, Putnam Management, and Putnam Mutual Funds. Mr. Joskow is not currently an "interested person" of the fund but could be deemed by the Securities and Exchange Commission to be an "interested person" on account of his prior consulting relationship with National Economic Research Associates, Inc., a wholly-owned subsidiary of Marsh & McLennan Companies, Inc., which was terminated as of August 31, 1998. The balance of the Trustees are not "interested persons." +Members of the Executive Committee of the Trustees. The Executive Committee meets between regular meetings of the Trustees as may be required to review investment matters and other affairs of the fund and may exercise all of the powers of the Trustees. ----------------- Certain other officers of Putnam Management are officers of the fund. SEE "ADDITIONAL OFFICERS" IN PART I OF THIS SAI. The mailing address of each of the officers and Trustees is One Post Office Square, Boston, Massachusetts 02109. Except as stated below, the principal occupations of the officers and Trustees for the last five years have been with the employers as shown above, although in some cases they have held different positions with such employers. Prior to July, 1998, Mr. Joskow was Chairman of the Department of Economics, Massachusetts Institute of Technology, and, prior to September, 1998, he was a consultant to National Economic Research Associates. Prior to June, 1995, Dr. Kennan was President of Mount Holyoke College. Prior to 1996, Mr. Stephens was Chairman of the Board of Directors, President and Chief Executive Officer of Johns Manville Corporation. Prior to April, 1996, Mr. Ferguson was CEO at Hong Kong Shanghai Banking Corporation. Prior to February, 1998, Mr. Patterson was Executive Vice President and Director of Acquisitions of Cabot Partners Limited Partnership. Prior to November, 1998, Mr. Monaghan was Managing Director at Merrill Lynch. Each Trustee of the fund receives an annual fee and an additional fee for each Trustees' meeting attended. Trustees who are not interested persons of Putnam Management and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings and for special services rendered in that connection. All of the Trustees are Trustees of all the Putnam funds and each receives fees for his or her services. FOR DETAILS OF TRUSTEES' FEES PAID BY THE FUND AND INFORMATION CONCERNING RETIREMENT GUIDELINES FOR THE TRUSTEES, SEE "CHARGES AND EXPENSES" IN PART I OF THIS SAI. The Agreement and Declaration of Trust of the fund provides that the fund will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the fund, except if it is determined in the manner specified in the Agreement and Declaration of Trust that they have not acted in good faith in the reasonable belief that their actions were in the best interests of the fund or that such indemnification would relieve any officer or Trustee of any liability to the fund or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The fund, at its expense, provides liability insurance for the benefit of its Trustees and officers. PUTNAM MANAGEMENT AND ITS AFFILIATES Putnam Management is one of America's oldest and largest money management firms. Putnam Management's staff of experienced portfolio managers and research analysts selects securities and constantly supervises the fund's portfolio. By pooling an investor's money with that of other investors, a greater variety of securities can be purchased than would be the case individually; the resulting diversification helps reduce investment risk. Putnam Management has been managing mutual funds since 1937. Today, the firm serves as the investment manager for the funds in the Putnam Family, with nearly $222 billion in assets in nearly 11 million shareholder accounts at December 31, 1998. An affiliate, The Putnam Advisory Company, Inc., manages domestic and foreign institutional accounts and mutual funds, including the accounts of many Fortune 500 companies. Another affiliate, Putnam Fiduciary Trust Company, provides investment advice to institutional clients under its banking and fiduciary powers. At December 31, 1998, Putnam Management and its affiliates managed over $294 billion in assets, including over $20 billion in tax-exempt securities and over $71 billion in retirement plan assets. Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust Company are subsidiaries of Putnam Investments, Inc., a holding company which in turn is, except for a minority stake owned by employees, owned by Marsh & McLennan Companies, Inc., a publicly- owned holding company whose principal businesses are international insurance and reinsurance brokerage, employee benefit consulting and investment management. Trustees and officers of the fund who are also officers of Putnam Management or its affiliates or who are stockholders of Marsh & McLennan Companies, Inc. will benefit from the advisory fees, sales commissions, distribution fees, custodian fees and transfer agency fees paid or allowed by the fund. THE MANAGEMENT CONTRACT Under a Management Contract between the fund and Putnam Management, subject to such policies as the Trustees may determine, Putnam Management, at its expense, furnishes continuously an investment program for the fund and makes investment decisions on behalf of the fund. Subject to the control of the Trustees, Putnam Management also manages, supervises and conducts the other affairs and business of the fund, furnishes office space and equipment, provides bookkeeping and clerical services (including determination of the fund's net asset value, but excluding shareholder accounting services) and places all orders for the purchase and sale of the fund's portfolio securities. Putnam Management may place fund portfolio transactions with broker-dealers which furnish Putnam Management, without cost to it, certain research, statistical and quotation services of value to Putnam Management and its affiliates in advising the fund and other clients. In so doing, Putnam Management may cause the fund to pay greater brokerage commissions than it might otherwise pay. FOR DETAILS OF PUTNAM MANAGEMENT'S COMPENSATION UNDER THE MANAGEMENT CONTRACT, SEE "CHARGES AND EXPENSES" IN PART I OF THIS SAI. Putnam Management's compensation under the Management Contract may be reduced in any year if the fund's expenses exceed the limits on investment company expenses imposed by any statute or regulatory authority of any jurisdiction in which shares of the fund are qualified for offer or sale. The term "expenses" is defined in the statutes or regulations of such jurisdictions, and generally excludes brokerage commissions, taxes, interest, extraordinary expenses and, if the fund has a distribution plan, payments made under such plan. Under the Management Contract, Putnam Management may reduce its compensation to the extent that the fund's expenses exceed such lower expense limitation as Putnam Management may, by notice to the fund, declare to be effective. The expenses subject to this limitation are exclusive of brokerage commissions, interest, taxes, deferred organizational and extraordinary expenses and, if the fund has a distribution plan, payments required under such plan. For the purpose of determining any such limitation on Putnam Management's compensation, expenses of the fund shall not reflect the application of commissions or cash management credits that may reduce designated fund expenses. THE TERMS OF ANY EXPENSE LIMITATION FROM TIME TO TIME IN EFFECT ARE DESCRIBED IN THE PROSPECTUS AND/OR PART I OF THIS SAI. In addition to the fee paid to Putnam Management, the fund reimburses Putnam Management for the compensation and related expenses of certain officers of the fund and their assistants who provide certain administrative services for the fund and the other Putnam funds, each of which bears an allocated share of the foregoing costs. The aggregate amount of all such payments and reimbursements is determined annually by the Trustees. THE AMOUNT OF THIS REIMBURSEMENT FOR THE FUND'S MOST RECENT FISCAL YEAR IS INCLUDED IN "CHARGES AND EXPENSES" IN PART I OF THIS SAI. Putnam Management pays all other salaries of officers of the fund. The fund pays all expenses not assumed by Putnam Management including, without limitation, auditing, legal, custodial, investor servicing and shareholder reporting expenses. The fund pays the cost of typesetting for its prospectuses and the cost of printing and mailing any prospectuses sent to its shareholders. Putnam Mutual Funds pays the cost of printing and distributing all other prospectuses. The Management Contract provides that Putnam Management shall not be subject to any liability to the fund or to any shareholder of the fund for any act or omission in the course of or connected with rendering services to the fund in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its duties on the part of Putnam Management. The Management Contract may be terminated without penalty by vote of the Trustees or the shareholders of the fund, or by Putnam Management, on 30 days' written notice. It may be amended only by a vote of the shareholders of the fund. The Management Contract also terminates without payment of any penalty in the event of its assignment. The Management Contract provides that it will continue in effect only so long as such continuance is approved at least annually by vote of either the Trustees or the shareholders, and, in either case, by a majority of the Trustees who are not "interested persons" of Putnam Management or the fund. In each of the foregoing cases, the vote of the shareholders is the affirmative vote of a "majority of the outstanding voting securities" as defined in the Investment Company Act of 1940. PERSONAL INVESTMENTS BY EMPLOYEES OF PUTNAM MANAGEMENT Employees of Putnam Management are permitted to engage in personal securities transactions, subject to requirements and restrictions set forth in Putnam Management's Code of Ethics. The Code of Ethics contains provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of investment advisory clients such as the funds. Among other things, the Code of Ethics, consistent with standards recommended by the Investment Company Institute's Advisory Group on Personal Investing, prohibits certain types of transactions absent prior approval, imposes time periods during which personal transactions may not be made in certain securities, and requires the submission of duplicate broker confirmations and quarterly reporting of securities transactions. Additional restrictions apply to portfolio managers, traders, research analysts and others involved in the investment advisory process. Exceptions to these and other provisions of the Code of Ethics may be granted in particular circumstances after review by appropriate personnel. PORTFOLIO TRANSACTIONS INVESTMENT DECISIONS. Investment decisions for the fund and for the other investment advisory clients of Putnam Management and its affiliates are made with a view to achieving their respective investment objectives. Investment decisions are the product of many factors in addition to basic suitability for the particular client involved. Thus, a particular security may be bought or sold for certain clients even though it could have been bought or sold for other clients at the same time. Likewise, a particular security may be bought for one or more clients when one or more other clients are selling the security. In some instances, one client may sell a particular security to another client. It also sometimes happens that two or more clients simultaneously purchase or sell the same security, in which event each day's transactions in such security are, insofar as possible, averaged as to price and allocated between such clients in a manner which in Putnam Management's opinion is equitable to each and in accordance with the amount being purchased or sold by each. There may be circumstances when purchases or sales of portfolio securities for one or more clients will have an adverse effect on other clients. BROKERAGE AND RESEARCH SERVICES. Transactions on U.S. stock exchanges, commodities markets and futures markets and other agency transactions involve the payment by the fund of negotiated brokerage commissions. Such commissions vary among different brokers. A particular broker may charge different commissions according to such factors as the difficulty and size of the transaction. Transactions in foreign investments often involve the payment of fixed brokerage commissions, which may be higher than those in the United States. There is generally no stated commission in the case of securities traded in the over-the- counter markets, but the price paid by the fund usually includes an undisclosed dealer commission or mark-up. In underwritten offerings, the price paid by the fund includes a disclosed, fixed commission or discount retained by the underwriter or dealer. It is anticipated that most purchases and sales of securities by funds investing primarily in tax-exempt securities and certain other fixed-income securities will be with the issuer or with underwriters of or dealers in those securities, acting as principal. Accordingly, those funds would not ordinarily pay significant brokerage commissions with respect to securities transactions. SEE "CHARGES AND EXPENSES" IN PART I OF THIS SAI FOR INFORMATION CONCERNING COMMISSIONS PAID BY THE FUND. It has for many years been a common practice in the investment advisory business for advisers of investment companies and other institutional investors to receive brokerage and research services (as defined in the Securities Exchange Act of 1934, as amended (the "1934 Act")) from broker-dealers that execute portfolio transactions for the clients of such advisers and from third parties with which such broker-dealers have arrangements. Consistent with this practice, Putnam Management receives brokerage and research services and other similar services from many broker-dealers with which Putnam Management places the fund's portfolio transactions and from third parties with which these broker-dealers have arrangements. These services include such matters as general economic and market reviews, industry and company reviews, evaluations of investments, recommendations as to the purchase and sale of investments, newspapers, magazines, pricing services, quotation services, news services and personal computers utilized by Putnam Management's managers and analysts. Where the services referred to above are not used exclusively by Putnam Management for research purposes, Putnam Management, based upon its own allocations of expected use, bears that portion of the cost of these services which directly relates to their non- research use. Some of these services are of value to Putnam Management and its affiliates in advising various of their clients (including the fund), although not all of these services are necessarily useful and of value in managing the fund. The management fee paid by the fund is not reduced because Putnam Management and its affiliates receive these services even though Putnam Management might otherwise be required to purchase some of these services for cash. Putnam Management places all orders for the purchase and sale of portfolio investments for the fund and buys and sells investments for the fund through a substantial number of brokers and dealers. In so doing, Putnam Management uses its best efforts to obtain for the fund the most favorable price and execution available, except to the extent it may be permitted to pay higher brokerage commissions as described below. In seeking the most favorable price and execution, Putnam Management, having in mind the fund's best interests, considers all factors it deems relevant, including, by way of illustration, price, the size of the transaction, the nature of the market for the security or other investment, the amount of the commission, the timing of the transaction taking into account market prices and trends, the reputation, experience and financial stability of the broker- dealer involved and the quality of service rendered by the broker- dealer in other transactions. As permitted by Section 28(e) of the 1934 Act, and by the Management Contract, Putnam Management may cause the fund to pay a broker-dealer which provides "brokerage and research services" (as defined in the 1934 Act) to Putnam Management an amount of disclosed commission for effecting securities transactions on stock exchanges and other transactions for the fund on an agency basis in excess of the commission which another broker-dealer would have charged for effecting that transaction. Putnam Management's authority to cause the fund to pay any such greater commissions is also subject to such policies as the Trustees may adopt from time to time. Putnam Management does not currently intend to cause the fund to make such payments. It is the position of the staff of the Securities and Exchange Commission that Section 28(e) does not apply to the payment of such greater commissions in "principal" transactions. Accordingly Putnam Management will use its best effort to obtain the most favorable price and execution available with respect to such transactions, as described above. The Management Contract provides that commissions, fees, brokerage or similar payments received by Putnam Management or an affiliate in connection with the purchase and sale of portfolio investments of the fund, less any direct expenses approved by the Trustees, shall be recaptured by the fund through a reduction of the fee payable by the fund under the Management Contract. Putnam Management seeks to recapture for the fund soliciting dealer fees on the tender of the fund's portfolio securities in tender or exchange offers. Any such fees which may be recaptured are likely to be minor in amount. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc. and subject to seeking the most favorable price and execution available and such other policies as the Trustees may determine, Putnam Management may consider sales of shares of the fund (and, if permitted by law, of the other Putnam funds) as a factor in the selection of broker- dealers to execute portfolio transactions for the fund. PRINCIPAL UNDERWRITER Putnam Mutual Funds is the principal underwriter of shares of the fund and the other continuously offered Putnam funds. Putnam Mutual Funds is not obligated to sell any specific amount of shares of the fund and will purchase shares for resale only against orders for shares. SEE "CHARGES AND EXPENSES" IN PART I OF THIS SAI FOR INFORMATION ON SALES CHARGES AND OTHER PAYMENTS RECEIVED BY PUTNAM MUTUAL FUNDS. INVESTOR SERVICING AGENT AND CUSTODIAN Putnam Investor Services, a division of Putnam Fiduciary Trust Company ("PFTC"), is the fund's investor servicing agent (transfer, plan and dividend disbursing agent), for which it receives fees which are paid monthly by the fund as an expense of all its shareholders. The fee paid to Putnam Investor Services is determined on the basis of the number of shareholder accounts, the number of transactions and the assets of the fund. Putnam Investor Services has won the DALBAR Service Award eight times in the past nine years. In 1997 and 1998, Putnam was the only company to win all three DALBAR Awards: for service to investors, to financial advisors, and to variable annuity contract holders. DALBAR, Inc. an independent research firm, presents the awards to financial services firms that provide consistently excellent service. PFTC is the custodian of the fund's assets. In carrying out its duties under its custodian contract, PFTC may employ one or more subcustodians whose responsibilities include safeguarding and controlling the fund's cash and securities, handling the receipt and delivery of securities and collecting interest and dividends on the fund's investments. PFTC and any subcustodians employed by it have a lien on the securities of the fund (to the extent permitted by the fund's investment restrictions) to secure charges and any advances made by such subcustodians at the end of any day for the purpose of paying for securities purchased by the fund. The fund expects that such advances will exist only in unusual circumstances. Neither PFTC nor any subcustodian determines the investment policies of the fund or decides which securities the fund will buy or sell. PFTC pays the fees and other charges of any subcustodians employed by it. The fund may from time to time pay custodial expenses in full or in part through the placement by Putnam Management of the fund's portfolio transactions with the subcustodians or with a third- party broker having an agreement with the subcustodians. The fund pays PFTC an annual fee based on the fund's assets, securities transactions and securities holdings and reimburses PFTC for certain out-of-pocket expenses incurred by it or any subcustodian employed by it in performing custodial services. SEE "CHARGES AND EXPENSES" IN PART I OF THIS SAI FOR INFORMATION ON FEES AND REIMBURSEMENTS FOR INVESTOR SERVICING AND CUSTODY RECEIVED BY PFTC. THE FEES MAY BE REDUCED BY CREDITS ALLOWED BY PFTC. DETERMINATION OF NET ASSET VALUE The fund determines the net asset value per share of each class of shares once each day the New York Stock Exchange (the "Exchange") is open. Currently, the Exchange is closed Saturdays, Sundays and the following holidays: New Year's Day, Rev. Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July, Labor Day, Thanksgiving and Christmas. The fund determines net asset value as of the close of regular trading on the Exchange, currently 4:00 p.m. However, equity options held by the fund are priced as of the close of trading at 4:10 p.m., and futures contracts on U.S. government and other fixed-income securities and index options held by the fund are priced as of their close of trading at 4:15 p.m. Securities for which market quotations are readily available are valued at prices which, in the opinion of Putnam Management, most nearly represent the market values of such securities. Currently, such prices are determined using the last reported sale price or, if no sales are reported (as in the case of some securities traded over-the-counter), the last reported bid price, except that certain securities are valued at the mean between the last reported bid and asked prices. Short-term investments having remaining maturities of 60 days or less are valued at amortized cost, which approximates market value. All other securities and assets are valued at their fair value following procedures approved by the Trustees. Liabilities are deducted from the total, and the resulting amount is divided by the number of shares of the class outstanding. Reliable market quotations are not considered to be readily available for long-term corporate bonds and notes, certain preferred stocks, tax-exempt securities, and certain foreign securities. These investments are valued at fair value on the basis of valuations furnished by pricing services, which determine valuations for normal, institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. If any securities held by the fund are restricted as to resale, Putnam Management determines their fair value following procedures approved by the Trustees. The fair value of such securities is generally determined as the amount which the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. The valuation procedures applied in any specific instance are likely to vary from case to case. However, consideration is generally given to the financial position of the issuer and other fundamental analytical data relating to the investment and to the nature of the restrictions on disposition of the securities (including any registration expenses that might be borne by the fund in connection with such disposition). In addition, specific factors are also generally considered, such as the cost of the investment, the market value of any unrestricted securities of the same class, the size of the holding, the prices of any recent transactions or offers with respect to such securities and any available analysts' reports regarding the issuer. Generally, trading in certain securities (such as foreign securities) is substantially completed each day at various times prior to the close of the Exchange. The values of these securities used in determining the net asset value of the fund's shares are computed as of such times. Also, because of the amount of time required to collect and process trading information as to large numbers of securities issues, the values of certain securities (such as convertible bonds, U.S. government securities, and tax-exempt securities) are determined based on market quotations collected earlier in the day at the latest practicable time prior to the close of the Exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange which will not be reflected in the computation of the fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value following procedures approved by the Trustees. In addition, securities held by some of the funds may be traded in foreign markets that are open for business on days that a fund is not, and the trading of such securities on those days may have an impact on the value of a shareholder's investment at a time when the shareholder cannot buy and sell shares of the fund. Money market funds generally value their portfolio securities at amortized cost according to Rule 2a-7 under the Investment Company Act of 1940. HOW TO BUY SHARES GENERAL The prospectus contains a general description of how investors may buy shares of the fund and states whether the fund offers more than one class of shares. This SAI contains additional information which may be of interest to investors. Class A shares and class M shares are generally sold with a sales charge payable at the time of purchase (except for class A shares and class M shares of money market funds). As used in this SAI and unless the context requires otherwise, the term "class A shares" includes shares of funds that offer only one class of shares. The prospectus contains a table of applicable sales charges. For information about how to purchase class A or class M shares of a Putnam fund at net asset value through an employer- sponsored retirement plan, please consult your employer. Certain purchases of class A shares and class M shares may be exempt from a sales charge or, in the case of class A shares, may be subject to a contingent deferred sales charge ("CDSC"). See "General-- Sales without sales charges or contingent deferred sales charges," "Additional Information About Class A and Class M shares," and "Contingent Deferred Sales Charges--Class A shares." Class B shares and class C shares are sold subject to a CDSC payable upon redemption within a specified period after purchase. The prospectus contains a table of applicable CDSCs. Class B shares will automatically convert into class A shares no later than the end of the month eight years after the purchase date, and may, in the discretion of the Trustees, convert to class A shares earlier. Class B shares acquired by exchanging class B shares of another Putnam fund will convert into class A shares based on the time of the initial purchase. Class B shares acquired through reinvestment of distributions will convert into Class A shares based on the date of the initial purchase to which such shares relate. For this purpose, class B shares acquired through reinvestment of distributions will be attributed to particular purchases of class B shares in accordance with such procedures as the Trustees may determine from time to time. The conversion of class B shares to class A shares is subject to the condition that such conversions will not constitute taxable events for Federal tax purposes. Class Y shares, which are not subject to sales charges or a CDSC, are available only to certain defined contribution plans. See the prospectus that offers class Y shares for more information. Certain purchase programs described below are not available to defined contribution plans. Consult your employer for information on how to purchase shares through your plan. The fund is currently making a continuous offering of its shares. The fund receives the entire net asset value of shares sold. The fund will accept unconditional orders for shares to be executed at the public offering price based on the net asset value per share next determined after the order is placed. In the case of class A shares and class M shares, the public offering price is the net asset value plus the applicable sales charge, if any. No sales charge is included in the public offering price of other classes of shares. In the case of orders for purchase of shares placed through dealers, the public offering price will be based on the net asset value determined on the day the order is placed, but only if the dealer receives the order before the close of regular trading on the Exchange. If the dealer receives the order after the close of the Exchange, the price will be based on the net asset value next determined. If funds for the purchase of shares are sent directly to Putnam Investor Services, they will be invested at the public offering price based on the net asset value next determined after receipt. Payment for shares of the fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank. Initial and subsequent purchases must satisfy the minimums stated in the prospectus, except that (i) individual investments under certain employee benefit plans or Tax Qualified Retirement Plans may be lower, (ii) persons who are already shareholders may make additional purchases of $50 or more by sending funds directly to Putnam Investor Services (see "Your investing account" below), and (iii) for investors participating in systematic investment plans and military allotment plans, the initial and subsequent purchases must be $25 or more. Information about these plans is available from investment dealers or from Putnam Mutual Funds. As a convenience to investors, shares may be purchased through a systematic investment plan. Pre-authorized monthly bank drafts for a fixed amount (at least $25) are used to purchase fund shares at the applicable public offering price next determined after Putnam Mutual Funds receives the proceeds from the draft. A shareholder may choose any day of the month and, if a given month (for example, February) does not contain that particular date, or if the date falls on a weekend or holiday, the draft will be processed on the next business day. Further information and application forms are available from investment dealers or from Putnam Mutual Funds. Except for funds that declare a distribution daily, distributions to be reinvested are reinvested without a sales charge in shares of the same class as of the ex-dividend date using the net asset value determined on that date, and are credited to a shareholder's account on the payment date. Dividends for Putnam money market funds are credited to a shareholder's account on the payment date. Distributions for all other funds that declare a distribution daily are reinvested without a sales charge as of the last day of the period for which distributions are paid using the net asset value determined on that date, and are credited to a shareholder's account on the payment date. PAYMENT IN SECURITIES. In addition to cash, the fund may accept securities as payment for fund shares at the applicable net asset value. Generally, the fund will only consider accepting securities to increase its holdings in a portfolio security, or if Putnam Management determines that the offered securities are a suitable investment for the fund and in a sufficient amount for efficient management. While no minimum has been established, it is expected that the fund would not accept securities with a value of less than $100,000 per issue as payment for shares. The fund may reject in whole or in part any or all offers to pay for purchases of fund shares with securities, may require partial payment in cash for such purchases to provide funds for applicable sales charges, and may discontinue accepting securities as payment for fund shares at any time without notice. The fund will value accepted securities in the manner described in the section "Determination of Net Asset Value" for valuing shares of the fund. The fund will only accept securities which are delivered in proper form. The fund will not accept options or restricted securities as payment for shares. The acceptance of securities by certain funds in exchange for fund shares is subject to additional requirements. For federal income tax purposes, a purchase of fund shares with securities will be treated as a sale or exchange of such securities on which the investor will generally realize a taxable gain or loss. The processing of a purchase of fund shares with securities involves certain delays while the fund considers the suitability of such securities and while other requirements are satisfied. For information regarding procedures for payment in securities, contact Putnam Mutual Funds. Investors should not send securities to the fund except when authorized to do so and in accordance with specific instructions received from Putnam Mutual Funds. SALES WITHOUT SALES CHARGES OR CONTINGENT DEFERRED SALES CHARGES. The fund may sell shares without a sales charge or CDSC to: (i) current and retired Trustees of the fund; officers of the fund; directors and current and retired U.S. full-time employees of Putnam Management, Putnam Mutual Funds, their parent corporations and certain corporate affiliates; family members of and employee benefit plans for the foregoing; and partnerships, trusts or other entities in which any of the foregoing has a substantial interest; (ii) employer-sponsored retirement plans, for the repurchase of shares in connection with repayment of plan loans made to plan participants (if the sum loaned was obtained by redeeming shares of a Putnam fund sold with a sales charge) (not offered by tax-exempt funds); (iii) clients of administrators of tax-qualified employer- sponsored retirement plans which have entered into agreements with Putnam Mutual Funds (not offered by tax-exempt funds); (iv) registered representatives and other employees of broker- dealers having sales agreements with Putnam Mutual Funds; employees of financial institutions having sales agreements with Putnam Mutual Funds or otherwise having an arrangement with any such broker-dealer or financial institution with respect to sales of fund shares; and their spouses and children under age 21 (Putnam Mutual Funds is regarded as the dealer of record for all such accounts); (v) investors meeting certain requirements who sold shares of certain Putnam closed-end funds pursuant to a tender offer by such closed-end fund; (vi) a trust department of any financial institution purchasing shares of the fund in its capacity as trustee of any trust (other than a tax-qualified retirement plan trust), through an arrangement approved by Putnam Mutual Funds, if the value of the shares of the fund and other Putnam funds purchased or held by all such trusts exceeds $1 million in the aggregate; and (vii) "wrap accounts" maintained for clients of broker- dealers, financial institutions or financial intermediaries who have entered into agreements with Putnam Mutual Funds with respect to such accounts, which in all cases shall be subject to a wrap fee economically comparable to a sales charge. Fund shares offered pursuant to this waiver may not be advertised as "no load," or otherwise offered for sale at NAV without a wrap fee. In addition, each of the Putnam funds may issue its shares at net asset value without an initial sales charge or a CDSC in connection with the acquisition of substantially all of the securities owned by other investment companies or personal holding companies, and the CDSC will be waived on redemptions of shares arising out of death or post-purchase disability of a shareholder or settlor of a living trust account and on redemptions in connection with certain withdrawals from IRA or other retirement plans and on redemptions to pay premiums for insurance under Putnam's insured investor program. Up to 12% of the value of shares subject to a systematic withdrawal plan may also be redeemed each year without a CDSC. The fund may sell class A or class M shares at net asset value to members of qualified groups. See "Group purchases of class A and class M shares" below. Class A and class M shares are available without an initial sales charge to "class A qualified benefit plans" and "class M qualified benefit plans," respectively, as described below. See "Qualified benefit plans; Individual account plans" below. PAYMENTS TO DEALERS. Putnam Mutual Funds may, at its expense, pay concessions in addition to the payments disclosed in the prospectus to dealers which satisfy certain criteria established from time to time by Putnam Mutual Funds relating to increasing net sales of shares of the Putnam funds over prior periods, and certain other factors. ADDITIONAL INFORMATION ABOUT CLASS A AND CLASS M SHARES The underwriter's commission is the sales charge shown in the prospectus less any applicable dealer discount. Putnam Mutual Funds will give dealers ten days' notice of any changes in the dealer discount. Putnam Mutual Funds retains the entire sales charge on any retail sales made by it. Putnam Mutual Funds offers several plans by which an investor may obtain reduced sales charges on purchases of class A shares and class M shares. The variations in sales charges reflect the varying efforts required to sell shares to separate categories of purchasers. These plans may be altered or discontinued at any time. The public offering price of class A and class M shares is the net asset value plus a sales charge that varies depending on the size of your purchase. The fund receives the net asset value. The sales charge is allocated between your investment dealer and Putnam Mutual Funds as shown in the following table, except when Putnam Mutual Funds, in its discretion, allocates the entire amount to your investment dealer. For Growth Funds, Growth and Income Funds and Asset Allocation Funds only: CLASS A CLASS M AMOUNT OF AMOUNT OF SALES CHARGE SALES CHARGE SALES CHARGE SALES CHARGE AS A REALLOWED TO AS A REALLOWED TO PERCENTAGE DEALERS AS A PERCENTAGE DEALERS AS A AMOUNT OF TRANSACTION OF OFFERING PERCENTAGE OF OF OFFERING PERCENTAGE OF AT OFFERING PRICE ($) PRICE OFFERING PRICE PRICE OFFERING PRICE - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ---- Under 50,000 5.75% 5.00% 3.50% 3.00% 50,000 but under 100,000 4.50 3.75 2.50 2.00 100,000 but under 250,000 3.50 2.75 1.50 1.00 250,000 but under 500,000 2.50 2.00 1.00 1.00 500,000 but under 1,000,000 2.00 1.75 NONE NONE 1,000,000 and above NONE NONE NONE NONE - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ---- For Income Funds only (except for Putnam Intermediate U.S. Government Income Fund and Putnam Preferred Income Fund): CLASS A CLASS M AMOUNT OF AMOUNT OF SALES CHARGE SALES CHARGE SALES CHARGE SALES CHARGE AS A REALLOWED TO AS A REALLOWED TO PERCENTAGE DEALERS AS A PERCENTAGE DEALERS AS A AMOUNT OF TRANSACTION OF OFFERING PERCENTAGE OF OF OFFERING PERCENTAGE OF AT OFFERING PRICE ($) PRICE OFFERING PRICE PRICE OFFERING PRICE - ----------------------------------------------------------------- - ----------------------------------------------------------------- - --- Under 50,000 4.75% 4.25% 3.25% 3.00% 50,000 but under 100,000 4.50 4.00 2.25 2.00 100,000 but under 250,000 3.50 3.00 1.50 1.25 250,000 but under 500,000 2.50 2.25 1.00 1.00 500,000 but under 1,000,000 2.00 1.75 NONE NONE 1,000,000 and above NONE NONE NONE NONE - ----------------------------------------------------------------- - ----------------------------------------------------------------- - --- For Putnam Intermediate U.S. Government Income Fund and Putnam Preferred Income Fund only: CLASS A CLASS M AMOUNT OF AMOUNT OF SALES CHARGE SALES CHARGE SALES CHARGE SALES CHARGE AS A REALLOWED TO AS A REALLOWED TO PERCENTAGE DEALERS AS A PERCENTAGE DEALERS AS A AMOUNT OF TRANSACTION OF OFFERING PERCENTAGE OF OF OFFERING PERCENTAGE OF AT OFFERING PRICE ($) PRICE OFFERING PRICE PRICE OFFERING PRICE - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ---- Under 100,000 3.25% 3.00% 2.00% 1.80% 100,000 but under 250,000 2.50 2.25 1.50 1.30 250,000 but under 500,000 2.00 1.75 1.00 1.00 500,000 but under 1,000,000 1.50 1.25 NONE NONE 1,000,000 and above NONE NONE NONE NONE - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ---- For Tax Free Funds only: CLASS A CLASS M AMOUNT OF AMOUNT OF SALES CHARGE SALES CHARGE SALES CHARGE SALES CHARGE AS A REALLOWED TO AS A REALLOWED TO PERCENTAGE DEALERS AS A PERCENTAGE DEALERS AS A AMOUNT OF TRANSACTION OF OFFERING PERCENTAGE OF OF OFFERING PERCENTAGE OF AT OFFERING PRICE ($) PRICE OFFERING PRICE PRICE OFFERING PRICE - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ---- Under 25,000 4.75% 4.50% 3.25% 3.00% 25,000 but under 50,000 4.50 4.25 3.25 3.00 50,000 but under 100,000 4.50 4.25 2.25 2.00 100,000 but under 250,000 3.75 3.50 1.50 1.25 250,000 but under 500,000 3.00 2.75 1.00 1.00 500,000 but under 1,000,000 2.00 1.85 NONE NONE 1,000,000 and above NONE NONE NONE NONE - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ---- COMBINED PURCHASE PRIVILEGE. The following persons may qualify for the sales charge reductions or eliminations shown in the prospectus by combining into a single transaction the purchase of class A shares or class M shares with other purchases of any class of shares: (i) an individual, or a "company" as defined in Section 2(a)(8) of the Investment Company Act of 1940 (which includes corporations which are corporate affiliates of each other); (ii) an individual, his or her spouse and their children under twenty-one, purchasing for his, her or their own account; (iii) a trustee or other fiduciary purchasing for a single trust estate or single fiduciary account (including a pension, profit-sharing, or other employee benefit trust created pursuant to a plan qualified under Section 401 of the Internal Revenue Code of 1986, as amended (the "Code")); (iv) tax-exempt organizations qualifying under Section 501(c)(3) of the Internal Revenue Code (not including tax- exempt organizations qualifying under Section 403(b)(7) (a "403(b) plan") of the Code; and (v) employee benefit plans of a single employer or of affiliated employers, other than 403(b) plans. A combined purchase currently may also include shares of any class of other continuously offered Putnam funds (other than money market funds) purchased at the same time through a single investment dealer, if the dealer places the order for such shares directly with Putnam Mutual Funds. CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). A purchaser of class A shares or class M shares may qualify for a cumulative quantity discount by combining a current purchase (or combined purchases as described above) with certain other shares of any class of Putnam funds already owned. The applicable sales charge is based on the total of: (i) the investor's current purchase; and (ii) the maximum public offering price (at the close of business on the previous day) of: (a) all shares held by the investor in all of the Putnam funds (except money market funds); and (b) any shares of money market funds acquired by exchange from other Putnam funds; and (iii) the maximum public offering price of all shares described in paragraph (ii) owned by another shareholder eligible to participate with the investor in a "combined purchase" (see above). To qualify for the combined purchase privilege or to obtain the cumulative quantity discount on a purchase through an investment dealer, when each purchase is made the investor or dealer must provide Putnam Mutual Funds with sufficient information to verify that the purchase qualifies for the privilege or discount. The shareholder must furnish this information to Putnam Investor Services when making direct cash investments. STATEMENT OF INTENTION. Investors may also obtain the reduced sales charges for class A shares or class M shares shown in the prospectus for investments of a particular amount by means of a written Statement of Intention, which expresses the investor's intention to invest that amount (including certain "credits," as described below) within a period of 13 months in shares of any class of the fund or any other continuously offered Putnam fund (excluding money market funds). Each purchase of class A shares or class M shares under a Statement of Intention will be made at the public offering price applicable at the time of such purchase to a single transaction of the total dollar amount indicated in the Statement of Intention. A Statement of Intention may include purchases of shares made not more than 90 days prior to the date that an investor signs a Statement; however, the 13-month period during which the Statement of Intention is in effect will begin on the date of the earliest purchase to be included. An investor may receive a credit toward the amount indicated in the Statement of Intention equal to the maximum public offering price as of the close of business on the previous day of all shares he or she owns on the date of the Statement of Intention which are eligible for purchase under a Statement of Intention (plus any shares of money market funds acquired by exchange of such eligible shares). Investors do not receive credit for shares purchased by the reinvestment of distributions. Investors qualifying for the "combined purchase privilege" (see above) may purchase shares under a single Statement of Intention. The Statement of Intention is not a binding obligation upon the investor to purchase the full amount indicated. The minimum initial investment under a Statement of Intention is 5% of such amount, and must be invested immediately. Class A shares or class M shares purchased with the first 5% of such amount will be held in escrow to secure payment of the higher sales charge applicable to the shares actually purchased if the full amount indicated is not purchased. When the full amount indicated has been purchased, the escrow will be released. If an investor desires to redeem escrowed shares before the full amount has been purchased, the shares will be released from escrow only if the investor pays the sales charge that, without regard to the Statement of Intention, would apply to the total investment made to date. To the extent that an investor purchases more than the dollar amount indicated on the Statement of Intention and qualifies for a further reduced sales charge, the sales charge will be adjusted for the entire amount purchased at the end of the 13-month period, upon recovery from the investor's dealer of its portion of the sales charge adjustment. Once received from the dealer, which may take a period of time or may never occur, the sales charge adjustment will be used to purchase additional shares at the then current offering price applicable to the actual amount of the aggregate purchases. These additional shares will not be considered as part of the total investment for the purpose of determining the applicable sales charge pursuant to the Statement of Intention. No sales charge adjustment will be made unless and until the investor's dealer returns any excess commissions previously received. To the extent that an investor purchases less than the dollar amount indicated on the Statement of Intention within the 13- month period, the sales charge will be adjusted upward for the entire amount purchased at the end of the 13-month period. This adjustment will be made by redeeming shares from the account to cover the additional sales charge, the proceeds of which will be paid to the investor's dealer and Putnam Mutual Funds in accordance with the prospectus. If the account exceeds an amount that would otherwise qualify for a reduced sales charge, that reduced sales charge will be applied. Statements of Intention are not available for certain employee benefit plans. Statement of Intention forms may be obtained from Putnam Mutual Funds or from investment dealers. Interested investors should read the Statement of Intention carefully. GROUP PURCHASES OF CLASS A AND CLASS M SHARES. Members of qualified groups may purchase class A shares of the fund at a group sales charge rate of 4.50% of the public offering price (4.71% of the net amount invested). The dealer discount on such sales is 3.75% of the offering price. Members of qualified groups may also purchase class M shares at net asset value. To receive the class A or class M group rate, group members must purchase shares through a single investment dealer designated by the group. The designated dealer must transmit each member's initial purchase to Putnam Mutual Funds, together with payment and completed application forms. After the initial purchase, a member may send funds for the purchase of shares directly to Putnam Investor Services. Purchases of shares are made at the public offering price based on the net asset value next determined after Putnam Mutual Funds or Putnam Investor Services receives payment for the shares. The minimum investment requirements described above apply to purchases by any group member. Only shares purchased under the class A group discount are included in calculating the purchased amount for the purposes of these requirements. Qualified groups include the employees of a corporation or a sole proprietorship, members and employees of a partnership or association, or other organized groups of persons (the members of which may include other qualified groups) provided that: (i) the group has at least 25 members of which, with respect to the class A discount only, at least 10 members participate in the initial purchase; (ii) the group has been in existence for at least six months; (iii) the group has some purpose in addition to the purchase of investment company shares at a reduced sales charge; (iv) the group's sole organizational nexus or connection is not that the members are credit card holders of a company, policy holders of an insurance company, customers of a bank or broker- dealer, clients of an investment adviser or security holders of a company; (v) with respect to the class A discount only, the group agrees to provide its designated investment dealer access to the group's membership by means of written communication or direct presentation to the membership at a meeting on not less frequently than an annual basis; (vi) the group or its investment dealer will provide annual certification in form satisfactory to Putnam Investor Services that the group then has at least 25 members and, with respect to the class A discount only, that at least ten members participated in group purchases during the immediately preceding 12 calendar months; and (vii) the group or its investment dealer will provide periodic certification in form satisfactory to Putnam Investor Services as to the eligibility of the purchasing members of the group. Members of a qualified group include: (i) any group which meets the requirements stated above and which is a constituent member of a qualified group; (ii) any individual purchasing for his or her own account who is carried on the records of the group or on the records of any constituent member of the group as being a good standing employee, partner, member or person of like status of the group or constituent member; or (iii) any fiduciary purchasing shares for the account of a member of a qualified group or a member's beneficiary. For example, a qualified group could consist of a trade association which would have as its members individuals, sole proprietors, partnerships and corporations. The members of the group would then consist of the individuals, the sole proprietors and their employees, the members of the partnerships and their employees, and the corporations and their employees, as well as the trustees of employee benefit trusts acquiring class A shares for the benefit of any of the foregoing. A member of a qualified group may, depending upon the value of class A shares of the fund owned or proposed to be purchased by the member, be entitled to purchase class A shares of the fund at non-group sales charge rates shown in the prospectus which may be lower than the group sales charge rate, if the member qualifies as a person entitled to reduced non-group sales charges. Such a group member will be entitled to purchase at the lower rate if, at the time of purchase, the member or his or her investment dealer furnishes sufficient information for Putnam Mutual Funds or Putnam Investor Services to verify that the purchase qualifies for the lower rate. Interested groups should contact their investment dealer or Putnam Mutual Funds. The fund reserves the right to revise the terms of or to suspend or discontinue group sales at any time. QUALIFIED BENEFIT PLANS; INDIVIDUAL ACCOUNT PLANS. The terms "class A qualified benefit plan" and "class M qualified benefit plan" mean any employer-sponsored plan or arrangement, whether or not tax-qualified and whether or not Putnam Fiduciary Trust Company or its affiliates provide recordkeeping or other services, that initially invest at least $1 million or $500,000, respectively, in class A shares or class M shares of the fund and other Putnam funds. The fund may sell class A shares at net asset value to class A qualified benefit plans and may sell class M shares at net asset value to class M qualified benefit plans. The table of sales charges in the prospectus applies to sales to employer-sponsored retirement plans that choose not to be treated as class A qualified benefit plans, except that the fund may sell class A shares at net asset value to employee benefit plans, including plans with respect to which separate accounts are maintained for each participant, of employers or of affiliated (as defined in Section 2(a)(3)(C) of the Investment Company Act of 1940) employers which have at least $1 million in assets to whom such plan is made available, in connection with a payroll deduction system of plan funding (or other system acceptable to Putnam Investor Services) by which contributions or account information for plan participation are transmitted to Putnam Investor Services by methods acceptable to Putnam Investor Services. Additional information about qualified benefit plans is available from investment dealers or from Putnam Mutual Funds. CONTINGENT DEFERRED SALES CHARGES; COMMISSIONS CLASS A SHARES. Except as described below, a CDSC of 0.50% (0.75% in the case of plans with less than $5 million in Putnam funds and other investments managed by Putnam Management or its affiliates) of the total amount redeemed is imposed on redemptions of shares purchased by class A qualified benefit plans if, within two years of a plan's initial purchase of class A shares, it redeems 90% or more of its cumulative purchases. Thereafter, such plan is no longer liable for any CDSC. Class A qualified benefit plans whose dealer of record has, with Putnam Mutual Funds' approval, waived its commission or agreed to refund its commission to Putnam Mutual Funds in the event a CDSC would otherwise be applicable, are not subject to any CDSC. Similarly, class A shares purchased at net asset value by any investor other than a class A qualified benefit plan, including purchases pursuant to any Combined Purchase Privilege, Right of Accumulation or Statement of Intention, are subject to a CDSC of 1.00% or 0.50%, respectively, if redeemed within the first or second year after purchase, unless the dealer of record waived its commission with Putnam Mutual Funds' approval. The class A CDSC is imposed on the lower of the cost and the current net asset value of the shares redeemed. Except as described below for sales to class A qualified benefit plans, Putnam Mutual Funds pays investment dealers of record commissions on sales of class A shares of $1 million or more, including purchases pursuant to any Combined Purchase Privilege, Right of Accumulation or Statement of Intention, during the one- year period beginning with the date of the initial purchase at net asset value. Each subsequent one-year measuring period for these purposes will begin with the first net asset value purchase following the end of the prior period. Such commissions are paid at the rate of 1.00% of the amount under $3 million, 0.50% of the next $47 million and 0.25% thereafter. On sales at net asset value to a class A qualified benefit plan, Putnam Mutual Funds pays commissions to the dealer of record at the time of the sale on net monthly purchases up to the following rates: 1.00% of the first $1 million, 0.75% of the next $1 million and 0.50% thereafter. Different CDSC and commission rates may apply to shares purchased prior to April 15, 1997 and to shares purchased by investment- only plans prior to August 1, 1999. ALL SHARES. Investors who set up an Automatic Cash Withdrawal Plan ("ACWP") for a share account (see "Plans available to shareholders -- Automatic Cash Withdrawal Plan") may withdraw through the ACWP up to 12% of the net asset value of the account (calculated as set forth below) each year without incurring any CDSC. Shares not subject to a CDSC (such as shares representing reinvestment of distributions) will be redeemed first and will count toward the 12% limitation. If there are insufficient shares not subject to a CDSC, shares subject to the lowest CDSC liability will be redeemed next until the 12% limit is reached. The 12% figure is calculated on a pro rata basis at the time of the first payment made pursuant to an ACWP and recalculated thereafter on a pro rata basis at the time of each ACWP payment. Therefore, shareholders who have chosen an ACWP based on a percentage of the net asset value of their account of up to 12% will be able to receive ACWP payments without incurring a CDSC. However, shareholders who have chosen a specific dollar amount (for example, $100 per month from a fund that pays income distributions monthly) for their periodic ACWP payment should be aware that the amount of that payment not subject to a CDSC may vary over time depending on the net asset value of their account. For example, if the net asset value of the account is $10,000 at the time of payment, the shareholder will receive $100 free of the CDSC (12% of $10,000 divided by 12 monthly payments). However, if at the time of the next payment the net asset value of the account has fallen to $9,400, the shareholder will receive $94 free of any CDSC (12% of $9,400 divided by 12 monthly payments) and $6 subject to the lowest applicable CDSC. This ACWP privilege may be revised or terminated at any time. No CDSC is imposed on the redemption of shares of any class subject to a CDSC to the extent that the shares redeemed (i) are no longer subject to the holding period therefor, (ii) resulted from reinvestment of distributions, or (iii) were exchanged for shares of another Putnam fund, provided that the shares acquired in such exchange or subsequent exchanges (including shares of a Putnam money market fund) will continue to remain subject to the CDSC, if applicable, until the applicable holding period expires. In determining whether the CDSC applies to each redemption, shares not subject to a CDSC are redeemed first. The fund will waive any CDSC on redemptions, in the case of individual, joint or Uniform Transfers to Minors Act accounts, in the event of death or post-purchase disability of a shareholder, for the purpose of paying benefits pursuant to tax-qualified retirement plans ("Benefit Payments"), or, in the case of living trust accounts, in the event of the death or post-purchase disability of the settlor of the trust. Benefit Payments currently include, without limitation, (1) distributions from an IRA due to death or disability, (2) a return of excess contributions to an IRA or 401(k) plan, and (3) distributions from retirement plans qualified under Section 401(a) of the Code or from a 403(b) plan due to death, disability, retirement or separation from service. These waivers may be changed at any time. Additional waivers may apply to IRA accounts opened prior to February 1, 1994. ADDITIONAL INFORMATION ABOUT CLASS B SHARES Except as noted below, Putnam Mutual Funds will pay a 4% commission on sales of class B shares of a fund only to those financial intermediaries who have entered into service agreements with Putnam Mutual Funds. For tax-exempt funds, this commission includes a 0.20% pre-paid service fee (except for Putnam Municipal Income Fund, which has a 0.25% pre-paid service fee). For Putnam Intermediate U.S. Government Income Fund, Putnam Mutual Funds will pay a 2.75% commission to financial intermediaries selling class B shares of the fund. For money market funds, class B shares may only be purchased as part of an exchange to class B shares of another Putnam fund or from class B shares of another Putnam fund. Class B share purchases for money market funds are not subject to a separate CDSC, but a if a shareholder exchanges class B shares from a non-money market fund to a money market fund and then redeems the class B shares of the money market fund, that redemption will be subject to the CDSC applicable to the class B shares of the non-money market fund. Therefore no up-front commission is paid on sales of class B shares for money market funds. Putnam Mutual Funds will retain any contingent deferred sales charges imposed on redemptions of class B shares to compensate it for the cost of paying the up- front commissions paid to financial intermediaries for class B share sales. DISTRIBUTION PLANS If the fund or a class of shares of the fund has adopted a distribution plan, the prospectus describes the principal features of the plan. This SAI contains additional information which may be of interest to investors. Continuance of a plan is subject to annual approval by a vote of the Trustees, including a majority of the Trustees who are not interested persons of the fund and who have no direct or indirect interest in the plan or related arrangements (the "Qualified Trustees"), cast in person at a meeting called for that purpose. All material amendments to a plan must be likewise approved by the Trustees and the Qualified Trustees. No plan may be amended in order to increase materially the costs which the fund may bear for distribution pursuant to such plan without also being approved by a majority of the outstanding voting securities of the fund or the relevant class of the fund, as the case may be. A plan terminates automatically in the event of its assignment and may be terminated without penalty, at any time, by a vote of a majority of the Qualified Trustees or by a vote of a majority of the outstanding voting securities of the fund or the relevant class of the fund, as the case may be. Putnam Mutual Funds compensates qualifying dealers (including, for this purpose, certain financial institutions) for sales of shares and the maintenance of shareholder accounts. Putnam Mutual Funds may suspend or modify its payments to dealers. The payments are also subject to the continuation of the relevant distribution plan, the terms of the service agreements between the dealers and Putnam Mutual Funds and any applicable limits imposed by the National Association of Securities Dealers, Inc. Financial institutions receiving payments from Putnam Mutual Funds as described above may be required to comply with various state and federal regulatory requirements, including among others those regulating the activities of securities brokers or dealers. Except as otherwise agreed between Putnam Mutual Funds and a dealer, for purposes of determining the amounts payable to dealers for shareholder accounts for which such dealers are designated as the dealer of record, "average net asset value" means the product of (i) the average daily share balance in such account(s) and (ii) the average daily net asset value of the relevant class of shares over the quarter. CLASS A SHARES: Putnam Mutual Funds makes quarterly payments to dealers at the annual rates set forth below (as a percentage of the average net asset value of class A shares for which such dealers are designated the dealer of record) except that payments to dealers for shares held by class A qualified benefit plans may be made at other rates, as described below. No payments are made during the first year after purchase on shares purchased at net asset value by shareholders that invest at least $1 million or that are class A qualified benefit plans, unless the shareholder has made arrangements with Putnam Mutual Funds and the dealer of record has waived the sales commission. Rate Fund 0.25% All funds currently making payments under a class A distribution plan, except for those listed below 0.50% for shares purchased on Putnam Diversified Equity Trust or before 7/1/95; 0.25% for shares purchased after 7/1/95 0.20% Putnam Tax-Free High Yield Fund Putnam Tax-Free Insured Fund 0.20% for shares purchased on Putnam Balanced Retirement Fund or before 12/31/89; 0.25% for Putnam Convertible Income- Growth Trust shares purchased after 12/31/89 The George Putnam Fund of Boston Putnam Global Growth Fund Putnam Global Natural Resources Fund Putnam Health Sciences Trust The Putnam Fund for Growth and Income Putnam Investors Fund Putnam Vista Fund Putnam Voyager Fund 0.20% for shares purchased on Putnam High Yield Trust or before 3/31/90; 0.25% for Putnam U.S. Government Income Trust shares purchased after 3/31/90 0.20% for shares purchased on Putnam Income Fund or before 3/31/91; 0.25% for shares purchased after 3/31/91 0.20% for shares purchased on Putnam Municipal Income Fund or before 5/7/92; 0.25% for shares purchased after 5/7/92 0.15% for shares purchased on Putnam Michigan Tax Exempt Income Fund or before 3/9/92; 0.20% for Putnam Minnesota Tax Exempt Income Fund shares purchased after 3/9/92 Putnam Ohio Tax Exempt Income Fund 0.15% for shares purchased on Putnam Massachusetts Tax Exempt Income Fund or before 5/11/92; 0.20% for shares purchased after 5/11/92 0.15% for shares purchased on Putnam New York Tax Exempt Opportunities Fund or before 7/13/92; 0.20% for shares purchased after 7/13/92 0.15% for shares purchased on Putnam California Tax Exempt Income Fund or before 12/31/92; 0.20% for Putnam New Jersey Tax Exempt Income Fund shares purchased after 12/31/92 Putnam New York Tax Exempt Income Fund Putnam Tax Exempt Income Fund 0.15% for res purchased on Putnam Arizona Tax Exempt Income Fund or before 3/5/93; 0.20% for shares purchased after 3/5/93 0.15% for shares purchased on Putnam Florida Tax Exempt Income Fund or before 7/8/93; 0.20% for Putnam Pennsylvania Tax Exempt Income Fund shares purchased after 7/8/93 0.00% Putnam California Money Market Fund Putnam Money Market Fund Putnam New York Money Market Fund Putnam Preferred Income Fund Putnam Tax Exempt Money Market Fund Putnam Mutual Funds pays service fees to the dealer of record for plans at the rate of up to 0.25% of average net assets, depending on the level of service provided by Putnam Fiduciary Trust Company or its affiliates, by the dealer of record, and by third parties. Service fees are paid quarterly to the dealer of record for that quarter. CLASS B SHARES: Putnam Mutual Funds makes quarterly payments to dealers at the annual rates set forth below (as a percentage of the average net asset value of class B shares for which such dealers are designated the dealer of record). Rate Fund 0.25% All funds currently making payments under a class B distribution plan, except for those listed below 0.25%, except that the first Putnam Municipal Income Fund year's service fees of 0.25% are prepaid at time of sale 0.25%, except that the first Putnam Arizona Tax Exempt Income Fund year's service fees of 0.20% Putnam California Tax Exempt Income Fund are prepaid at time of sale Putnam Florida Tax Exempt Income Fund Putnam Massachusetts Tax Exempt Income Fund Putnam Michigan Tax Exempt Income Fund Putnam Minnesota Tax Exempt Income Fund Putnam New Jersey Tax Exempt Income Fund Putnam New York Tax Exempt Income Fund Putnam New York Tax Exempt Opportunities Fund Putnam Ohio Tax Exempt Income Fund Putnam Pennsylvania Tax Exempt Income Fund Putnam Tax Exempt Income Fund 0.20% for shares purchased on Putnam Tax-Free Insured Fund or before 3/31/90; 0.25% for Putnam Tax-Free High Yield shares purchased after 3/31/90; first year's service fees are prepaid at time of sale 0.00% Putnam Money Market Fund CLASS C SHARES: Putnam Mutual Funds makes quarterly payments to dealers at the annual rates set forth below (as a percentage of the average net asset value of class C shares for which such dealers are designated the dealer of record). Rate Fund 1.00% All funds currently making payments under a class C distribution plan, except the fund listed below 0.50% Putnam Money Market Fund CLASS M SHARES: Putnam Mutual Funds makes quarterly payments to dealers at the annual rates set forth below (as a percentage of the average net asset value of class M shares for which such dealers are designated the dealer of record). Rate Fund 0.65% All growth and growth and income funds currently making payments under a class M distribution plan 0.45% Putnam Diversified Income Trust 0.40% All income and money market funds currently making payments under a class M distribution plan (except for Putnam Diversified Income Trust, Putnam Preferred Income Fund and Putnam Money Market Fund) 0.25% Putnam Preferred Income Fund 0.15% Putnam Money Market Fund INVESTOR SERVICES SHAREHOLDER INFORMATION Each time shareholders buy or sell shares, they will receive a statement confirming the transaction and listing their current share balance. (Under certain investment plans, a statement may only be sent quarterly.) Shareholders will receive a statement confirming reinvestment of distributions in additional fund shares (or in shares of other Putnam funds for Dividends Plus accounts) promptly following the quarter in which the reinvestment occurs. To help shareholders take full advantage of their Putnam investment, they will receive a Welcome Kit and a periodic publication covering many topics of interest to investors. The fund also sends annual and semiannual reports that keep shareholders informed about its portfolio and performance, and year-end tax information to simplify their recordkeeping. Easy-to-read, free booklets on special subjects such as the Exchange Privilege and IRAs are available from Putnam Investor Services. Shareholders may call Putnam Investor Services toll-free weekdays at 1-800-225-1581 between 8:30 a.m. and 7:00 p.m. Boston time for more information, including account balances. YOUR INVESTING ACCOUNT The following information provides more detail concerning the operation of a Putnam Investing Account. For further information or assistance, investors should consult Putnam Investor Services. Shareholders who purchase shares through a defined contribution plan should note that not all of the services or features described below may be available to them, and they should contact their employer for details. A shareholder may reinvest a cash distribution without a front- end sales charge or without the reinvested shares being subject to a CDSC, as the case may be, by delivering to Putnam Investor Services the uncashed distribution check, endorsed to the order of the fund. Putnam Investor Services must receive the properly endorsed check within 1 year after the date of the check. The Investing Account also provides a way to accumulate shares of the fund. In most cases, after an initial investment of $500, a shareholder may send checks to Putnam Investor Services for $50 or more, made payable to the fund, to purchase additional shares at the applicable public offering price next determined after Putnam Investor Services receives the check. Checks must be drawn on a U.S. bank and must be payable in U.S. dollars. Putnam Investor Services acts as the shareholder's agent whenever it receives instructions to carry out a transaction on the shareholder's account. Upon receipt of instructions that shares are to be purchased for a shareholder's account, shares will be purchased through the investment dealer designated by the shareholder. Shareholders may change investment dealers at any time by written notice to Putnam Investor Services, provided the new dealer has a sales agreement with Putnam Mutual Funds. Shares credited to an account are transferable upon written instructions in good order to Putnam Investor Services and may be sold to the fund as described under "How do I sell fund shares?" in the prospectus. Money market funds and certain other funds will not issue share certificates. A shareholder may send to Putnam Investor Services any certificates which have been previously issued for safekeeping at no charge to the shareholder. Putnam Mutual Funds, at its expense, may provide certain additional reports and administrative material to qualifying institutional investors with fiduciary responsibilities to assist these investors in discharging their responsibilities. Institutions seeking further information about this service should contact Putnam Mutual Funds, which may modify or terminate this service at any time. Putnam Investor Services may make special services available to shareholders with investments exceeding $1,000,000. Contact Putnam Investor Services for details. The fund pays Putnam Investor Services' fees for maintaining Investing Accounts. REINSTATEMENT PRIVILEGE An investor who has redeemed shares of the fund may reinvest (within 1 year) the proceeds of such sale in shares of the same class of the fund, or may be able to reinvest (within 1 year) the proceeds in shares of the same class of one of the other continuously offered Putnam funds (through the exchange privilege described in the prospectus), including, in the case of shares subject to a CDSC, the amount of CDSC charged on the redemption. Any such reinvestment would be at the net asset value of the shares of the fund(s) the investor selects, next determined after Putnam Mutual Funds receives a Reinstatement Authorization. The time that the previous investment was held will be included in determining any applicable CDSC due upon redemptions and, in the case of class B shares, the eight-year period for conversion to class A shares. Shareholders will receive from Putnam Mutual Funds the amount of any CDSC paid at the time of redemption as part of the reinstated investment, which may be treated as capital gains to the shareholder for tax purposes. Exercise of the Reinstatement Privilege does not alter the federal income tax treatment of any capital gains realized on a sale of fund shares, but to the extent that any shares are sold at a loss and the proceeds are reinvested in shares of the fund, some or all of the loss may be disallowed as a deduction. Consult your tax adviser. Investors who desire to exercise the Reinstatement Privilege should contact their investment dealer or Putnam Investor Services. EXCHANGE PRIVILEGE Except as otherwise set forth in this section, by calling Putnam Investor Services, investors may exchange shares valued up to $500,000 between accounts with identical registrations, provided that no certificates are outstanding for such shares and no address change has been made within the preceding 15 days. During periods of unusual market changes and shareholder activity, shareholders may experience delays in contacting Putnam Investor Services by telephone to exercise the Telephone Exchange Privilege. Putnam Investor Services also makes exchanges promptly after receiving a properly completed Exchange Authorization Form and, if issued, share certificates. If the shareholder is a corporation, partnership, agent, or surviving joint owner, Putnam Investor Services will require additional documentation of a customary nature. Because an exchange of shares involves the redemption of fund shares and reinvestment of the proceeds in shares of another Putnam fund, completion of an exchange may be delayed under unusual circumstances if the fund were to suspend redemptions or postpone payment for the fund shares being exchanged, in accordance with federal securities laws. Exchange Authorization Forms and prospectuses of the other Putnam funds are available from Putnam Mutual Funds or investment dealers having sales contracts with Putnam Mutual Funds. The prospectus of each fund describes its investment objective(s) and policies, and shareholders should obtain a prospectus and consider these objectives and policies carefully before requesting an exchange. Shares of certain Putnam funds are not available to residents of all states. The fund reserves the right to change or suspend the Exchange Privilege at any time. Shareholders would be notified of any change or suspension. Additional information is available from Putnam Investor Services. Shareholders of other Putnam funds may also exchange their shares at net asset value for shares of the fund, as set forth in the current prospectus of each fund. For federal income tax purposes, an exchange is a sale on which the investor generally will realize a capital gain or loss depending on whether the net asset value at the time of the exchange is more or less than the investor's basis. The Exchange Privilege may be revised or terminated at any time. Shareholders would be notified of any such change or suspension. DIVIDENDS PLUS Shareholders may invest the fund's distributions of net investment income or distributions combining net investment income and short-term capital gains in shares of the same class of another continuously offered Putnam fund (the "receiving fund") using the net asset value per share of the receiving fund determined on the date the fund's distribution is payable. No sales charge or CDSC will apply to the purchased shares unless the fund paying the distribution is a money market fund. The prospectus of each fund describes its investment objective(s) and policies, and shareholders should obtain a prospectus and consider these objective(s) and policies carefully before investing their distributions in the receiving fund. Shares of certain Putnam funds are not available to residents of all states. The minimum account size requirement for the receiving fund will not apply if the current value of your account in the fund paying the distribution is more than $5,000. Shareholders of other Putnam funds (except for money market funds, whose shareholders must pay a sales charge or become subject to a CDSC) may also use their distributions to purchase shares of the fund at net asset value. For federal tax purposes, distributions from the fund which are reinvested in another fund are treated as paid by the fund to the shareholder and invested by the shareholder in the receiving fund and thus, to the extent comprised of taxable income and deemed paid to a taxable shareholder, are taxable. The Dividends PLUS program may be revised or terminated at any time. PLANS AVAILABLE TO SHAREHOLDERS The plans described below are fully voluntary and may be terminated at any time without the imposition by the fund or Putnam Investor Services of any penalty. All plans provide for automatic reinvestment of all distributions in additional shares of the fund at net asset value. The fund, Putnam Mutual Funds or Putnam Investor Services may modify or cease offering these plans at any time. AUTOMATIC CASH WITHDRAWAL PLAN ("ACWP"). An investor who owns or buys shares of the fund valued at $10,000 or more at the current public offering price may open an ACWP plan and have a designated sum of money ($50 or more) paid monthly, quarterly, semi-annually or annually to the investor or another person. (Payments from the fund can be combined with payments from other Putnam funds into a single check through a designated payment plan.) Shares are deposited in a plan account, and all distributions are reinvested in additional shares of the fund at net asset value (except where the plan is utilized in connection with a charitable remainder trust). Shares in a plan account are then redeemed at net asset value to make each withdrawal payment. Payment will be made to any person the investor designates; however, if shares are registered in the name of a trustee or other fiduciary, payment will be made only to the fiduciary, except in the case of a profit-sharing or pension plan where payment will be made to a designee. As withdrawal payments may include a return of principal, they cannot be considered a guaranteed annuity or actual yield of income to the investor. The redemption of shares in connection with a plan generally will result in a gain or loss for tax purposes. Some or all of the losses realized upon redemption may be disallowed pursuant to the so-called wash sale rules if shares of the same fund from which shares were redeemed are purchased (including through the reinvestment of fund distributions) within a period beginning 30 days before, and ending 30 days after, such redemption. In such a case, the basis of the replacement shares will be increased to reflect the disallowed loss. Continued withdrawals in excess of income will reduce and possibly exhaust invested principal, especially in the event of a market decline. The maintenance of a plan concurrently with purchases of additional shares of the fund would be disadvantageous to the investor because of the sales charge payable on such purchases. For this reason, the minimum investment accepted while a plan is in effect is $1,000, and an investor may not maintain a plan for the accumulation of shares of the fund (other than through reinvestment of distributions) and a plan at the same time. The cost of administering these plans for the benefit of those shareholders participating in them is borne by the fund as an expense of all shareholders. The fund, Putnam Mutual Funds or Putnam Investor Services may terminate or change the terms of the plan at any time. A plan will be terminated if communications mailed to the shareholder are returned as undeliverable. Investors should consider carefully with their own financial advisers whether the plan and the specified amounts to be withdrawn are appropriate in their circumstances. The fund and Putnam Investor Services make no recommendations or representations in this regard. TAX QUALIFIED RETIREMENT PLANS; 403(B) AND SEP PLANS. (NOT OFFERED BY FUNDS INVESTING PRIMARILY IN TAX-EXEMPT SECURITIES.) Investors may purchase shares of the fund through the following Tax Qualified Retirement Plans, available to qualified individuals or organizations: Standard and variable profit-sharing (including 401(k)) and money purchase pension plans; and Individual Retirement Account Plans (IRAs). Each of these Plans has been qualified as a prototype plan by the Internal Revenue Service. Putnam Investor Services will furnish services under each plan at a specified annual cost. Putnam Fiduciary Trust Company serves as trustee under each of these Plans. Forms and further information on these Plans are available from investment dealers or from Putnam Mutual Funds. In addition, specialized professional plan administration services are available on an optional basis; contact Putnam Defined Contribution Plan Services at 1-800-225-2465, extension 8600. A 403(b) Retirement Plan is available for employees of public school systems and organizations which meet the requirements of Section 501(c)(3) of the Internal Revenue Code. Forms and further information on the 403(b) Plan are also available from investment dealers or from Putnam Mutual Funds. Shares of the fund may also be used in simplified employee pension (SEP) plans. For further information on the Putnam prototype SEP plan, contact an investment dealer or Putnam Mutual Funds. Consultation with a competent financial and tax adviser regarding these Plans and consideration of the suitability of fund shares as an investment under the Employee Retirement Income Security Act of 1974, or otherwise, is recommended. SIGNATURE GUARANTEES Redemption requests for shares having a net asset value of $100,000 or more must be signed by the registered owners or their legal representatives and must be guaranteed by a bank, broker/dealer, municipal securities dealer or broker, government securities dealer or broker, credit union, national securities exchange, registered securities association, clearing agency, savings association or trust company, provided such institution is acceptable under and conforms with Putnam Fiduciary Trust Company's signature guarantee procedures. A copy of such procedures is available upon request. If you want your redemption proceeds sent to an address other than your address as it appears on Putnam's records, you must provide a signature guarantee. Putnam Investor Services usually requires additional documentation for the sale of shares by a corporation, partnership, agent or fiduciary, or a surviving joint owner. Contact Putnam Investor Services for details. SUSPENSION OF REDEMPTIONS The fund may not suspend shareholders' right of redemption, or postpone payment for more than seven days, unless the Exchange is closed for other than customary weekends or holidays, or if permitted by the rules of the Securities and Exchange Commission during periods when trading on the Exchange is restricted or during any emergency which makes it impracticable for the fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by order of the Commission for protection of investors. SHAREHOLDER LIABILITY Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the fund. However, the Agreement and Declaration of Trust disclaims shareholder liability for acts or obligations of the fund and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the fund or the Trustees. The Agreement and Declaration of Trust provides for indemnification out of fund property for all loss and expense of any shareholder held personally liable for the obligations of the fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the fund would be unable to meet its obligations. The likelihood of such circumstances is remote. STANDARD PERFORMANCE MEASURES Yield and total return data for the fund may from time to time be presented in Part I of this SAI and in advertisements. In the case of funds with more than one class of shares, all performance information is calculated separately for each class. The data is calculated as follows. Total return for one-, five- and ten-year periods (or for such shorter periods as the fund has been in operation or shares of the relevant class have been outstanding) is determined by calculating the actual dollar amount of investment return on a $1,000 investment in the fund made at the beginning of the period, at the maximum public offering price for class A shares and class M shares and net asset value for other classes of shares, and then calculating the annual compounded rate of return which would produce that amount. Total return for a period of one year is equal to the actual return of the fund during that period. Total return calculations assume deduction of the fund's maximum sales charge or CDSC, if applicable, and reinvestment of all fund distributions at net asset value on their respective reinvestment dates. The fund's yield is presented for a specified thirty-day period (the "base period"). Yield is based on the amount determined by (i) calculating the aggregate amount of dividends and interest earned by the fund during the base period less expenses for that period, and (ii) dividing that amount by the product of (A) the average daily number of shares of the fund outstanding during the base period and entitled to receive dividends and (B) the per share maximum public offering price for class A shares or class M shares, as appropriate, and net asset value for other classes of shares on the last day of the base period. The result is annualized on a compounding basis to determine the yield. For this calculation, interest earned on debt obligations held by the fund is generally calculated using the yield to maturity (or first expected call date) of such obligations based on their market values (or, in the case of receivables-backed securities such as the Government National Mortgage Association ("GNMAs"), based on cost). Dividends on equity securities are accrued daily at their stated dividend rates. The amount of expenses used in determining the fund's yield includes, in addition to expenses actually accrued by the fund, an estimate of the amount of expenses that the fund would have incurred if brokerage commissions had not been used to reduce such expenses. If the fund is a money market fund, yield is computed by determining the percentage net change, excluding capital changes, in the value of an investment in one share over the seven-day period for which yield is presented (the "base period"), and multiplying the net change by 365/7 (or approximately 52 weeks). Effective yield represents a compounding of the yield by adding 1 to the number representing the percentage change in value of the investment during the base period, raising that sum to a power equal to 365/7, and subtracting 1 from the result. If the fund is a tax-exempt fund, the tax-equivalent yield during the base period may be presented for shareholders in one or more stated tax brackets. Tax-equivalent yield is calculated by adjusting the tax-exempt yield by a factor designed to show the approximate yield that a taxable investment would have to earn to produce an after-tax yield equal, for that shareholder, to the tax-exempt yield. The tax-equivalent yield will differ for shareholders in other tax brackets. At times, Putnam Management may reduce its compensation or assume expenses of the fund in order to reduce the fund's expenses. The per share amount of any such fee reduction or assumption of expenses during the fund's past five fiscal years (or for the life of the fund, if shorter) is set forth in the footnotes to the table in the section entitled "Financial highlights" in the prospectus. Any such fee reduction or assumption of expenses would increase the fund's yield and total return for periods including the period of the fee reduction or assumption of expenses. All data are based on past performance and do not predict future results. COMPARISON OF PORTFOLIO PERFORMANCE Independent statistical agencies measure the fund's investment performance and publish comparative information showing how the fund, and other investment companies, performed in specified time periods. Three agencies whose reports are commonly used for such comparisons are set forth below. From time to time, the fund may distribute these comparisons to its shareholders or to potential investors. THE AGENCIES LISTED BELOW MEASURE PERFORMANCE BASED ON THEIR OWN CRITERIA RATHER THAN ON THE STANDARDIZED PERFORMANCE MEASURES DESCRIBED IN THE PRECEDING SECTION. LIPPER ANALYTICAL SERVICES, INC. distributes mutual fund rankings monthly. The rankings are based on total return performance calculated by Lipper, generally reflecting changes in net asset value adjusted for reinvestment of capital gains and income dividends. They do not reflect deduction of any sales charges. Lipper rankings cover a variety of performance periods, including year-to-date, 1- year, 5-year, and 10-year performance. Lipper classifies mutual funds by investment objective and asset category. MORNINGSTAR, INC. distributes mutual fund ratings twice a month. The ratings are divided into five groups: highest, above average, neutral, below average and lowest. They represent a fund's historical risk/reward ratio relative to other funds in its broad investment class as determined by Morningstar, Inc. Morningstar ratings cover a variety of performance periods, including 1-year, 3- year, 5-year, 10-year and overall performance. The performance factor for the overall rating is a weighted- average assessment of the fund's 1-year, 3-year, 5-year, and 10-year total return performance (if available) reflecting deduction of expenses and sales charges. Performance is adjusted using quantitative techniques to reflect the risk profile of the fund. The ratings are derived from a purely quantitative system that does not utilize the subjective criteria customarily employed by rating agencies such as Standard & Poor's and Moody's Investor Service, Inc. CDA/WIESENBERGER'S MANAGEMENT RESULTS publishes mutual fund rankings and is distributed monthly. The rankings are based entirely on total return calculated by Weisenberger for periods such as year-to-date, 1-year, 3- year, 5-year and 10-year. Mutual funds are ranked in general categories (e.g., international bond, international equity, municipal bond, and maximum capital gain). Weisenberger rankings do not reflect deduction of sales charges or fees. Independent publications may also evaluate the fund's performance. The fund may from time to time refer to results published in various periodicals, including Barrons, Financial World, Forbes, Fortune, Investor's Business Daily, Kiplinger's Personal Finance Magazine, Money, U.S. News and World Report and The Wall Street Journal. Independent, unmanaged indexes, such as those listed below, may be used to present a comparative benchmark of fund performance. The performance figures of an index reflect changes in market prices, reinvestment of all dividend and interest payments and, where applicable, deduction of foreign withholding taxes, and do not take into account brokerage commissions or other costs. Because the fund is a managed portfolio, the securities it owns will not match those in an index. Securities in an index may change from time to time. THE CONSUMER PRICE INDEX, prepared by the U.S. Bureau of Labor Statistics, is a commonly used measure of the rate of inflation. The index shows the average change in the cost of selected consumer goods and services and does not represent a return on an investment vehicle. THE DOW JONES INDUSTRIAL AVERAGE is an index of 30 common stocks frequently used as a general measure of stock market performance. THE DOW JONES UTILITIES AVERAGE is an index of 15 utility stocks frequently used as a general measure of stock market performance. CS FIRST BOSTON HIGH YIELD INDEX is a market-weighted index including publicly traded bonds having a rating below BBB by Standard & Poor's and Baa by Moody's. THE LEHMAN BROTHERS AGGREGATE BOND INDEX is an index composed of securities from The Lehman Brothers Government/Corporate Bond Index, The Lehman Brothers Mortgage-Backed Securities Index and The Lehman Brothers Asset-Backed Securities Index and is frequently used as a broad market measure for fixed-income securities. THE LEHMAN BROTHERS ASSET-BACKED SECURITIES INDEX is an index composed of credit card, auto, and home equity loans. Included in the index are pass-through, bullet (noncallable), and controlled amortization structured debt securities; no subordinated debt is included. All securities have an average life of at least one year. THE LEHMAN BROTHERS CORPORATE BOND INDEX is an index of publicly issued, fixed-rate, non-convertible investment- grade domestic corporate debt securities frequently used as a general measure of the performance of fixed-income securities. THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX is an index of publicly issued U.S. Treasury obligations, debt obligations of U.S. government agencies (excluding mortgage-backed securities), fixed-rate, non-convertible, investment-grade corporate debt securities and U.S. dollar- denominated, SEC-registered non-convertible debt issued by foreign governmental entities or international agencies used as a general measure of the performance of fixed- income securities. THE LEHMAN BROTHERS INTERMEDIATE TREASURY BOND INDEX is an index of publicly issued U.S. Treasury obligations with maturities of up to ten years and is used as a general gauge of the market for intermediate-term fixed-income securities. THE LEHMAN BROTHERS LONG-TERM TREASURY BOND INDEX is an index of publicly issued U.S. Treasury obligations (excluding flower bonds and foreign-targeted issues) that are U.S. dollar-denominated and have maturities of 10 years or greater. THE LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX includes 15- and 30-year fixed rate securities backed by mortgage pools of the Government National Mortgage Association, Federal Home Loan Mortgage Corporation, and Federal National Mortgage Association. THE LEHMAN BROTHERS MUNICIPAL BOND INDEX is an index of approximately 20,000 investment-grade, fixed-rate tax- exempt bonds. THE LEHMAN BROTHERS TREASURY BOND INDEX is an index of publicly issued U.S. Treasury obligations (excluding flower bonds and foreign-targeted issues) that are U.S. dollar denominated, have a minimum of one year to maturity, and are issued in amounts over $100 million. THE MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX is an index of approximately 1,482 equity securities listed on the stock exchanges of the United States, Europe, Canada, Australia, New Zealand and the Far East, with all values expressed in U.S. dollars. THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS INDEX is an index of approximately 1,100 securities representing 20 emerging markets, with all values expressed in U.S. dollars. THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS FREE INDEX is an index of approximately 1,003 securities available to non-domestic investors representing 26 emerging markets, with all values expressed in U.S. dollars. THE MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX is an index of approximately 1,045 equity securities issued by companies located in 18 countries and listed on the stock exchanges of Europe, Australia, and the Far East. All values are expressed in U.S. dollars. THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE INDEX is an index of approximately 627 equity securities issued by companies located in one of 13 European countries, with all values expressed in U.S. dollars. THE MORGAN STANLEY CAPITAL INTERNATIONAL PACIFIC INDEX is an index of approximately 418 equity securities issued by companies located in 5 countries and listed on the exchanges of Australia, New Zealand, Japan, Hong Kong, Singapore/Malaysia. All values are expressed in U.S. dollars. THE NASDAQ INDUSTRIAL AVERAGE is an index of stocks traded in The Nasdaq Stock Market, Inc. National Market System. THE RUSSELL 1000 INDEX is composed of the 1,000 largest companies in the Russell 3000 Index, representing approximately 89% of the Russell 3000 total market capitalization. The Russell 3000 Index is composed of the 3,000 largest U.S. companies ranked by total market capitalization, representing approximately 98% of the U.S. investable equity market. THE RUSSELL 2000 INDEX is composed of the 2,000 smallest companies in the Russell 3000 Index, representing approximately 11% of the Russell 3000 total market capitalization. THE RUSSELL 2000 GROWTH INDEX is composed of securities with greater-than-average growth orientation within the Russell 2000 Index. Each security's growth orientation is determined by a composite score of the security's price-to- book ratio and forecasted growth rate. Growth stocks tend to have higher price-to-book ratios and forecasted growth rates than value stocks. This index is composed of approximately 1,310 companies from the Russell 2000 Index, representing approximately 50% of the total market capitalization of the Russell 2000 Index. THE RUSSELL MIDCAP INDEX is composed of the 800 smallest companies in the Russell 1000 Index, representing approximately 35% of the Russell 1000 total market capitalization. THE RUSSELL MIDCAP GROWTH INDEX is composed of securities with greater-than-average growth orientation within the Russell Midcap Index. Each security's growth orientation is determined by a composite score of the security's price- to-book ratio and forecasted growth rate. Growth stocks tend to have higher price-to-book ratios and forecasted growth rates than value stocks. This index is composed of approximately 450 companies from the Russell 1000 Growth Index, representing 20% of the total market capitalization of the Russell 1000 Growth Index. THE SALOMON BROTHERS LONG-TERM HIGH-GRADE CORPORATE BOND INDEX is an index of publicly traded corporate bonds having a rating of at least AA by Standard & Poor's or Aa by Moody's and is frequently used as a general measure of the performance of fixed-income securities. THE SALOMON BROTHERS LONG-TERM TREASURY INDEX is an index of U.S. government securities with maturities greater than 10 years. THE SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX is an index that tracks the performance of the 14 government bond markets of Australia, Austria, Belgium Canada, Denmark, France, Germany, Italy, Japan, Netherlands, Spain, Sweden, United Kingdom and the United States. Country eligibility is determined by market capitalization and investability criteria. THE SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX (non $U.S.) is an index of foreign government bonds calculated to provide a measure of performance in the government bond markets outside of the United States. STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX is an index of common stocks frequently used as a general measure of stock market performance. STANDARD & POOR'S 40 UTILITIES INDEX is an index of 40 utility stocks. STANDARD & POOR'S/BARRA VALUE INDEX is an index constructed by ranking the securities in the Standard & Poor's 500 Composite Stock Price Index by price-to-book ratio and including the securities with the lowest price- to-book ratios that represent approximately half of the market capitalization of the Standard & Poor's 500 Composite Stock Price Index. In addition, Putnam Mutual Funds may distribute to shareholders or prospective investors illustrations of the benefits of reinvesting tax-exempt or tax-deferred distributions over specified time periods, which may include comparisons to fully taxable distributions. These illustrations use hypothetical rates of tax-advantaged and taxable returns and are not intended to indicate the past or future performance of any fund. SECURITIES RATINGS The ratings of securities in which the fund may invest will be measured at the time of purchase and, to the extent a security is assigned a different rating by one or more of the various rating agencies, Putnam Management will use the highest rating assigned by any agency. Putnam Management will not necessarily sell an investment if its rating is reduced. The following rating services describe rated securities as follows: MOODY'S INVESTORS SERVICE, INC. BONDS AAA -- Bonds which are rated AAA are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA -- Bonds which are rated AA are judged to be of high quality by all standards. Together with the AAA group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in AAA securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than the AAA securities. A -- Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. BAA -- Bonds which are rated BAA are considered as medium grade obligations, (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. BA -- Bonds which are rated BA are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B -- Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. CAA -- Bonds which are rated CAA are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. CA -- Bonds which are rated CA represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C -- Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. NOTES (FOR MONEY MARKET FUNDS ONLY) MIG 1/VMIG 1 -- This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. MIG 2/VMIG 2 -- This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. COMMERCIAL PAPER (FOR MONEY MARKET FUNDS ONLY) Issuers rated PRIME-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by the following characteristics: - -- Leading market positions in well established industries. - -- High rates of return on funds employed. - -- Conservative capitalization structure with moderate reliance on debt and ample asset protection. - -- Broad margins in earnings coverage of fixed financial charges and high internal cash generation. - -- Well established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated PRIME-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. STANDARD & POOR'S BONDS AAA -- An obligation rated AAA has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA -- An obligation rated AA differs from the highest-rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A -- An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. BBB -- An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. Obligations rated BB, B, CCC, CC and C are regarded as having significant speculative characteristics. BB indicates the lowest degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions. BB -- An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. B -- An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligations. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. CCC -- An obligation rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. CC -- An obligation rated CC is currently highly vulnerable to nonpayment. C -- The C rating may be used to cover a situation where a bankruptcy petition has been filed, or similar action has been taken, but payments on this obligation are being continued. D -- An obligation rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition, or the taking of a similar action if payments on an obligation are jeopardized. NOTES (FOR MONEY MARKET FUNDS ONLY) SP-1 -- Strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are given a plus (+) designation. SP-2 -- Satisfactory capacity to pay principal and interest. SP-3 -- Speculative capacity to pay principal and interest. COMMERCIAL PAPER (FOR MONEY MARKET FUNDS ONLY) A-1 -- This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 -- Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated `A-1'. A-3 -- Issues carrying this designation have adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. DUFF & PHELPS CORPORATION LONG-TERM DEBT AAA -- Highest credit quality. The risk factors are negligible, being only slightly more than for risk-free U.S. Treasury debt. AA+, AA, AA- -- High credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. A+, A, A- -- Protection factors are average but adequate. However, risk factors are more variable and greater in periods of economic stress. BBB+, BBB, BBB- -- Below-average protection factors but still considered sufficient for prudent investment. Considerable variability in risk during economic cycles. BB+, BB, BB- -- Below investment grade but deemed likely to meet obligations when due. Present or prospective financial protection factors fluctuate according to industry conditions or company fortunes. Overall quality may move up or down frequently within this category. B+, B, B- -- Below investment grade and possessing risk that obligations will not be met when due. Financial protection factors will fluctuate widely according to economic cycles, industry conditions and/or company fortunes. Potential exists for frequent changes in the rating within this category or into a higher or lower rating grade. CCC -- Well below investment-grade securities. Considerable uncertainty exists as to timely payment of principal, interest or preferred dividends. Protection factors are narrow and risk can be substantial with unfavorable economic/industry conditions, and/or with unfavorable company developments. DD -- Defaulted debt obligations. Issuer failed to meet scheduled principal and/or interest payments. FITCH INVESTORS SERVICE, INC. AAA -- Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA -- Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated AAA. A -- Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB -- Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. BB -- Bonds considered to be speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. B -- Bonds are considered highly speculative. Bonds in this class are lightly protected as to the obligor's ability to pay interest over the life of the issue and repay principal when due. CCC -- Bonds have certain characteristics which, with passing of time, could lead to the possibility of default on either principal or interest payments. CC -- Bonds are minimally protected. Default in payment of interest and/or principal seems probable. C -- Bonds are in actual or imminent default in payment of interest or principal. DDD -- Bonds are in default and in arrears in interest and/or principal payments. Such bonds are extremely speculative and should be valued only on the basis of their value in liquidation or reorganization of the obligor. DEFINITIONS "Putnam Management" -- Putnam Investment Management, Inc., the fund's investment manager. "Putnam Mutual Funds" -- Putnam Mutual Funds Corp., the fund's principal underwriter. "Putnam Fiduciary Trust -- Putnam Fiduciary Trust Company, Company" the fund's custodian. "Putnam Investor Services" -- Putnam Investor Services, a division of Putnam Fiduciary Trust Company, the fund's investor servicing agent. PUTNAM CONVERTIBLE INCOME-GROWTH TRUST FORM N-1A PART C OTHER INFORMATION Item 23. Exhibits 1. Agreement and Declaration of Trust, as amended November 9, 1992 -- Incorporated by reference to Post-Effective Amendment No. 30 to the Registrant's Registration Statement. 2. By-Laws, as amended through February 1, 1994 -- Incorporated by reference to Post-Effective Amendment No. 32 to the Registrant's Registration Statement. 3a. Portions of Agreement and Declaration of Trust Relating to Shareholders' Rights -- Incorporated by reference to Post-Effective Amendment No. 31 to the Registrant's Registration Statement. 3b. Portions of By-Laws Relating to Shareholders' Rights -- Incorporated by reference to Post-Effective Amendment No. 32 to the Registrant's Registration Statement. 4. Management Contract dated February 20, 1997 -- Incorporated by reference to Post-Effective Amendment No. 34 to the Registrant's Registration Statement. 5a. Distributors' Contract dated May 6, 1994 -- Incorporated by reference to Post-Effective Amendment No. 32 to the Registrant's Registration Statement. 5b. Specimen Dealer Sales Contract -- Incorporated by reference to Post-Effective Amendment No. 29 to the Registrant's Registration Statement. 5c. Specimen Financial Institution Sales Contract -- Incorporated by reference to Post-Effective Amendment No. 29 to the Registrant's Registration Statement. 6. Trustee Retirement Plan dated October 4, 1996 -- Incorporated by reference to Post-Effective Amendment No. 34 to the Registrant's Registration Statement. 7. Custodian Agreement with Putnam Fiduciary Trust Company dated May 3, 1991, as amended July 13, 1992 -- Incorporated by reference to Post-Effective Amendment No. 31 to the Registrant's Registration Statement. 8. Investor Servicing Agreement dated June 3, 1991 with Putnam Fiduciary Trust Company -- Incorporated by reference to Post-Effective Amendment No. 29 to the Registrant's Registration Statement. 9. Opinion of Ropes & Gray, including consent -- Incorporated by reference to Post-Effective Amendment No. 34 to the Registrant's Registration Statement. 10. Not applicable. 11. Not applicable. 12. Investment Letter from Putnam Investments, Inc. to the Registrant for Class A shares -- Incorporated by reference to Pre-Effective Amendment No. 1 to the Registrant's Registration Statement. 13a. Form of Class A Distribution Plan and Agreement -- Incorporated by reference to Post-Effective Amendment No. 28 to the Registrant's Registration Statement. 13b. Class B Distribution Plan and Agreement -- Incorporated by reference to Post-Effective Amendment No. 31 to the Registrant's Registration Statement. 13c. Class C Distribution Plan and Agreement, dated July 16, 1999 - Exhibit 1. 13d. Class M Distribution Plan and Agreement -- Incorporated by reference to Post-Effective Amendment No. 32 to the Registrant's Registration Statement. 13e. Form of Specimen Dealer Service Agreement -- Incorporated by reference to Post-Effective Amendment No. 35 to the Registrant's Registration Statement. 13f. Form of Specimen Financial Institution Service Agreement -- Incorporated by reference to Post-Effective Amendment No. 35 to the Registrant's Registration Statement. 14. Rule 18f-3(d) Plan, November 1, 1999 - Exhibit 2. Item 24. Persons Controlled by or under Common Control with Registrant None. Item 25. Indemnification The information required by this item is incorporated herein by reference to Post-Effective Amendment No. 35 from the Registrant's Registration Statement on Form N-1A under the Investment Company Act of 1940 (File No. 811-2280). Item 26. Business and Other Connections of Investment Adviser Except as set forth below, the directors and officers of the Registrant's investment adviser have been engaged during the past two fiscal years in no business, vocation or employment of a substantial nature other than as directors or officers of the investment adviser or certain of its corporate affiliates. Certain officers of the investment adviser serve as officers of some or all of the Putnam funds. The address of the investment adviser, its corporate affiliates and the Putnam Funds is one Post Office Square, Boston, Massachusetts 02109.
Name Non-Putnam business and other connections - ---- ----------------------------------------- Pankaj Agrrawal Prior to April 1998, Quantitative Analyst, Vestek Vice President Systems, 388 Market St., Suite 700, San Francisco, CA 94111 Lauren Allansmith Prior to August 1999, Analyst, Loomis Sayles, Senior Vice President One Financial Center, Boston, MA 02111 Blake Anderson Trustee, Salem Female Charitable Society, Managing Director Salem MA 01970 Paul A. Aston Prior to June, 1999, Senior Quantitative Vice President Strategist, Santander Global Advisors, 28 State Street, Boston, MA 02109 Jane N. Barlow Prior to January 2000, Office Management, Assistant Vice President Distinction Resourcing Limited, 2/4 Great Eastern Street, London, EC2A 3NT; Prior to January 1999, Office Manager, D.E. Shaw Securities International, Finsbury Dials, 20 Finsbury Street, London, EC3M Robert R. Beck Director, Charles Bridge Publishing, 85 Main St., Senior Vice President Watertown, MA 02172; Board of Overseers, Beth Israel Deaconess Medical Center, 330 Brookline Ave., Boston, MA 02215 Kirsten A. Bjerklie Prior to June 1998, Assistant Vice President, Assistant Vice President Scudder, Stevens & Clark, Two International Place, Boston, MA 02110 Richard L. Block Prior to June 1998, Principal, Head International Senior Vice President Equity Trader, Morgan Stanley Asset Management, 1221 Avenue of the Americas, New York, NY 10036 Rob A. Bloemker Prior to September 1999, Managing Director, Senior Vice President Lehman Brothers, 555 California St., 30th floor, San Francisco, CA 94104 Claudio Brocado Prior to August 1999, independent consultant by Vice President Stires, O'Donnell & Co. 12 East 44th St., New York, NY 10017; Prior to January 1999, independent consultant by Coast Partners, 601 California St., San Francisco, CA 94108; Prior to November 1997, Head of Latin America Business Development, Dresdner RCM Global Investors, Four Embarcadero Center, San Francisco, CA 94111 Anna Bulkovshteyn Prior to July 1999, Quantitative Analyst, Sun Life Assistant Vice President Investment Management, 200 King Street West, Toronto, Ontario M5H 3T4 Canada David N. Burnham Prior to July 1998, Director - Finance, Fidelity Vice President Investments, 82 Devonshire Street, Boston, MA 02109 Richard P. Cervone Prior to August 1998, Equity Analyst, Loomis, Vice President Sayles & Co., One Financial Center, Boston, MA, 02216. Christopher Ceruolo Prior to July 1998, Associate, Ropes & Gray, Assistant Vice President One International Place, Boston, MA 02110 Mark Chameih Prior to May 1999, Vice President, Chase Manhattan, Vice President 125 London Wall, London, UK Bihua Chen Prior to July 1998, Research Associate, ProNeuron, Assistant Vice President Inc., 1531 E. Jefferson St., Rockville, MD 20847 C. Beth Cotner Director, The Lyric Stage Theater, 140 Clarendon St., Senior Vice President Boston, MA 02116 Stephen P. Cotto Prior to March 1998, Facilities Supervisor, Assistant Vice President Unicco Service Co., 4 Copley Place, Boston, MA 02116 Lindsey L. Curley Prior to June 1999, Portfolio Analyst, Standish, Assistant Vice President Ayer & Wood, Inc., One Financial Center, Boston, MA 02110. Prior to March, 1998,. Fixed-Income Research Assistant, Invesco Management & Research, Inc., 101 Federal St., Boston, MA 02110 Joseph F. Cushing Prior to June 1998, Investment Analyst - Fixed Assistant Vice President Income, Metropolitan Life Insurance Company, 334 Madison Avenue, Convent Station, NJ 07961 John R.S. Cutler Member, Burst Media, L.L.C., 10 New England Vice President Executive Park, Burlington, MA 01803 Kenneth Daly President, Andover River Rd. TMA, River Road Managing Director Transportation Management Association, 7 Shattuck Rd., Andover, MA 01810 Donna M. Daylor Prior to April 1998, Director of Training, Vice President UniCare Life & Health Ins. Co., 1350 Main St., Springfield, MA John C. Delano Prior to July 1998, Senior Foreign Exchange Assistant Vice President Trader, Nationsbank, 233 So. Wacker Drive, Chicago, IL 60606 Ralph C. Derbyshire Board Member, MSPCC, 399 Boylston St., Senior Vice President Boston, MA; Board Member, Winchester After School Program, Skillings Rd., Winchester, MA Stephen P. Dexter Prior to June 1999, Senior Vice President and Senior Vice President Senior Portfolio Manger, Scudder Kemper, Inc. One International Place, Boston, MA Michael G. Dolan Chairman-Finance Council, St. Mary's Parish, Assistant Vice President 44 Myrtle St., Melrose, MA 02176; Member, School Advisory Board, St. Mary's School, 44 Myrtle St., Melrose, MA 02176 Edward Driscoll Prior to September 1999, Equity Trader, Fidelity Vice President Research and Management, 82 Devonshire St., Boston, MA 02109 Douglas Dunn Prior to November 1999, Director of Research, Vice President Brandywine Asset Management, 381 Brinton Lake Road, Thornton, PA 19317; Prior to May 1998, Quantitative Analyst, Westpeak Investment Advisors, 1011 Walnut St., Suite 400, Boulder, CO 80303 Emily Durbin Board of Directors, Family Service, Inc., Vice President Lawrence, MA 01840 Karnig H. Durgarian Board Member, EBRI, Suite 600, 2121 K St., Managing Director N.W., Washington, DC 20037-1896. Trustee, American Assembly, 122 C. St., N.W., Suite 350, Washington, DC 20001 Christine Durkee Prior to June 1998, Project Manager, Foundation Assistant Vice President Technologies, Inc., 78 4th Ave., Waltham, MA 02451 Nathan Eigerman Trustee, Flower Hill Trust, 298 Marlborough St., Senior Vice President #4, Boston, MA 02116 Tony H. Elavia Prior to September 1999, Executive Vice President, Senior Vice President Voyageur Asset Management, 90 S. 7th Street, Minneapolis, MN 55402 Lisa V. Emerick Prior to September 1998, Asian Sales Trader, Vice President BWZ Securities Asia, Inc., Citibank Tower, 3 Garden Road, Hong Kong Irene M. Esteves Board of Director Member, American Management Managing Director Association Finance council, 1601 Broadway, New York, NY; Board of Director Member, First Night Boston, 20 Park Plaza, Suite 927, Boston, MA; Board of Director Member, SC Johnson Commercialmarkets, 8310 16th St., Stutevant, WI 53177; Board of Director Member, Massachusetts Taxpayers Foundation, 24 Province St., Boston, MA; Board of Director Member, Mrs. Bairds Bakeries, 515 Jones St., Suite 200, Fort Worth, Texas 76102 Ian Ferguson Trustee, Park School, 171 Goddard Avenue, Brookline, Senior Managing Director MA 02146 John Ferry Prior to September 1998, Vice President, Vice President Scudder Kemper Investments, 101 California St., San Francisco, CA 94111. Peter M. Fleisher Prior to July 1999, Senior Vice President, Fleet Senior Vice President National Bank, 75 State Street, Boston, MA 02109 Henrietta Fraser Prior to October, 1998, Manager, Fleming Investment Vice President Management, 25 Copthall Ave., London EC2R 7DR Matthew R. Gage Prior to December, 1999, Audit Manager, Ernst Assistant Vice President & Young LLP, 200 Clarendon St., Boston, MA 02116 Stephen C. Gibbs Prior to June 1998, Senior Financial Analyst, Vice President Fidelity Investments, 82 Devonshire St., Boston, MA 02109 Ken S. Gordon Prior to July, 1998, Vice President, Union Bank Vice President of Switzerland, 2-2-2 Otemachi, Chiyoda-Ku, Tokyo, Japan Andrew Graham Prior to October 1999, Fund Manager, Scottish Senior Vice President Widows Investment Management, Port Hamilton, 67 Morrison St., Edinburgh Scotland J. Peter Grant Trustee, The Dover Church, Dover, MA 02030 Senior Vice President Patrice Graviere Prior to March 1998, Regional Director for Latin Senior Vice President America, MFS International, LTD, Buenos Aires, Brazil Paul E. Haagensen Director, Haagensen Research Foundation, 630 Senior Vice President West 168th St., New York, NY 10032 Andrew J. Hachey Prior to July 1998. Associate, Skadden, Arps, Assistant Vice President Slate, Meagher & Flom, LLP, One Beacon Street, Boston, MA 02108 David E. Hamlin Prior to August 1998, Principal, The Vanguard Group, Senior Vice President 100 Vanguard Blvd., Valley Forge, PA 19355 Deborah R. Healey Corporator, New England Baptist Hospital, 125 Senior Vice President Parker Hill Ave., Boston, MA 02120; Director, NEB Enterprises, 125 Parket Hill Ave., Boston, MA 02120 Kim Heller Prior to April 1998, Senior Human Resources Assistant Vice President Specialist, Fidelity Investments, 82 Devonshire St., Boston, MA 02109 Jonathan S. Horwitz Prior to August 1998, Vice President - Corporate Senior Vice President Planning, Keystone Group, 200 Berkely St., Boston, MA 02116 Ronald Hua Prior to August 1999, Quantitative Analyst, Vice President Fidelity Investments, 82 Devonshire St., Boston, MA 02109 Amrit Kanwal Prior to August 1999, Vice President, Corporate Managing Director Development and Strategy, Sequa Corporation, 200 Park Avenue, New York, NY 10166 Jeffrey Kaufman Prior to July 1998, Vice President and Portfolio Senior Vice President Manager, MFS Investment Management, 500 Boylston St., Boston, MA 02116 Ira C. Kalus-Bystricky Prior to March 1998, Consultant, Arthur D. Little, Vice President 25 Acorn Park, Cambridge, MA 02114 Hiroshi Kato Prior to August 1998, Manager, Senior Analyst, Vice President Daiwa Institute of Research, 15-6 Fuyuki, Koutou-ku, Tokyo, 135-8460 Kevin J. Keleher Prior to August 1998, Support Manager, Digital Assistant Vice President Equipment Co., 111 Powder Mill Rd., Maynard, MA 01754 Richard T. Kircher Prior to April 1998, Assistant Vice President and Assistant Vice President Compliance Manager, T. Rowe Price Associates, Inc., 100 E. Pratt Street, Baltimore, MD 21202 Deborah F. Kuenstner Director, Board of Pensions, Presbyterian Church, Managing Director 1001 Market St., Philadelphia, PA Lawrence J. Lasser Director, Marsh & McLennan Companies, Inc., 1221 Avenue President, Director and Chief Executive of the Americas, New York, NY 10020; Board of Governors and Executive Committee, Investment Company Institute, 1401 H. St., N.W. Suite 1200, Washington, DC 20005; Board of Overseers, Museum of Fine Arts, 465 Huntington, Ave., Boston, MA 02115; Trustee, Beth Israel Deaconess Medical Center, 330 Brookline Ave., Boston, MA; Member of the Council on Foreign Relations, 58 East 68th St., New York, NY 10021; Member of the Board of Directors of the United Way of Massachusetts Bay, 245 Summer St., Suite 1401, Boston, MA 02110; Trustee of the Vineyard Open Land Foundation, RFD Box 319X, Vineyard Haven, MA 02568 Gordon R. Lawrence Prior to July 1999, summer associate, J.P. Morgan Investment Assistant Vice President Management, 522 Fifth Ave., New York, NY 10009, Prior to July, 1997, Associate Lehman Brothers, 3 World Financial Center, New York, NY 10285 Maura W. Leddy Prior to October 1998, Bookkeeper, Davol/Taunton Printing, Vice President 330 Winthrop Street Taunton, MA 02780. Richard Leibovitch Prior to February 1999, Managing Director, J.P. Morgan, Managing Director 60 Wall St., New York, NY 10260 Mark G. Lohr Prior to March 1998, Senior Vice President, Fidelity Managing Director Investmetns, 82 Devonshire St., Boston, MA 02109 Noboru Machida Prior to October 1998, Senior Analyst, The Nikko Vice President Research Center Ltd., Nihonbashi Kayabacho, Chuou-ku Tokyo, Japan 103 Kevin Maloney Institutional Director, Financial Management Association, Managing Director University of South Florida, College of Business Administration, Suite 3331, Tampa, FL 33620 Sarah Marshall Prior to August 1999, Associate, McKinsey & Company, Vice President Inc., 55 E. 52nd St., New York, NY 10010 Paul McHugh Prior to June, 1998, Principal, Robertson Stephens & Vice President Company, One International Place, Boston, MA 02110 Nicholas J. Melhuish Prior to August 1999, Assistant Director of Schroder Vice President Investment Management, 31 Gresham St., London,England ECZV8AQ Krishna Memani Prior to September 1998, Principal, Morgan Stanley & Co., Managing Director 1585 Broadway, New York, NY 10039 Peter V. Meyer Prior to July 1999, Conseco Capital Management, Vice President 11825 N. Pennsylvania Ave., Carmel, IN 46032 Stacy M. Mills Prior to April 1999, Vice President, Manager-Financial Vice President Accounting and Internal Reporting, State Street Corporation, 225 Franklin Street, Boston, MA 02110 Reena Mithal Prior to July 1999, Vice President, Deutsche Bank Vice President Securities, 31 W. 52nd Street., New York, NY 10019 Jeanne L. Mockard Trustee, The Bryn Mawr School, 109, W. Melrose Senior Vice President Avenue, Baltimore, MA 21210 Dirk Morris Prior to October 1999, Vice President-Global Strategist, Managing Director Bankers Trust, Chifley Tower, Sydney NSW 2000 Australia Donald E. Mullin Corporate Representative and Board Member, Delta Dental Senior Vice President Plan of Massachusetts, 10 Presidents Landing, P.O. Box 94104, Medford, MA 02155 Jennifer P. Murphy Prior to September 1999, Managing Director, Morgan Managing Director Stanley, 1585 Broadway, New York, NY 10036 Kenneth W. Murphy, Jr. Prior to May 1998, Senior Financial Analyst, Merck & Assistant Vice President Co., Inc., One Merck Drive, Whitehouse Station, NJ 08889 Philip M. Murphy Prior to June 1999, Marketing and Client Relations Assistant Vice President Association, GE Investments, 3003 Summer Street, Stamford, CT 06904. Prior to March 1998, Analyst, McLagan Partners, Inc., Four Stamford Plaza, Suite 400, 107 Elm Street, Stamford, CT 06902 Toshio Nagashima Prior to July 1999, General Manager, Product Dept., Managing Director Investment Trust Preparation, Sumitomo Bank, 1-3-2- Marunouchi, Chiyoda-ku, Tokyo 100-0005 Japan Maria Julia Nisbet Prior to May 1999, Project Manager, Cisalpina Assistant Vice President Gestioni, Via Boito, 10, Milan, Italy 20121 Nancy O'Brien Prior to September 1999, Manager Corporate Disbursements, Assistant Vice President Fidelity Investments, 82 Devonshire St., Boston, MA 02129 Teresa O'Day Prior to April 1999, Operations Manager, Compaq Computer Vice President Corp., 334 South Street, Shrewsbury, MA 01545 Stephen M. Oristaglio Prior to July 1998, Managing Director Global Head Senior Managing Director of Fixed Income, Swiss Bank Corp/UBS Organization, 222 Broadway, New York, NY 10022 Carlos Pampliega Prior to March 1998, Regional Manager, Massachusetts Vice President Financial Services, 500 Boylston St., Boston, MA 02116 Jeffrey F. Peters Prior to June 1999, Principal, McKinsey & Company, Managing Director 75 Park Plaza, Boston, MA 02116 Joseph P. Petitti Prior to May 1998, Senior Treasury Analyst, Liberty Vice President Mutual Insurance Co., 175 Berkely St., Boston, MA 02122 Randolph Petralia Prior to May 1998, First Vice President, Lehman Senior Vice President Brothers, 3 World Financial Center, New York, NY 10285 Keith Plapinger Chairman and Trustee, Advent School, 17 Brimmer St., Vice President Boston, MA 02108 Lisa M. Platia Prior toDecember 1999, Vice President, Windham Assistant Vice President Capital Management, 5 Revere St., Cambridge MA 02138 James A. Polk Prior to June 1998, Investment Officer, Massachusetts Vice President Financial Services, 500 Boylston St., Boston, MA 02116 Charles E. Porter Trustee, Anatolia College, 130 Bowdoin St., Suite 1201, Executive Vice President Boston, MA 02108; Governor, Handel & Hayden Society, Horticulture Hall, 300 Massachusetts Ave., Boston, MA 02115 Quintin R.S. Price Prior to December 1998, Corporate Development Director, Managing Director The Boots Company PLC, Group Headquarters, Nottingham NG2 3AA England; Prior to June 1998, Managing Director of Pan European Equities and Global Head of Research, HSBC Investment Bank PLC, Thames Exchange, 10 Queen St Place, London, EC4R 1BL George Putnam Chairman and Director, Putnam Mutual Funds Corp.; Chairman and Director 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; Trustee, Massachusetts General Hospital, Fruit Street, Boston, Ma 02114; McLean Hospital 115 Mill St., Belmont, MA 02178; The Colonial Williamsburg Foundation, Post Office Box 1776, Williamsburg, VA 23187; The Museum of Fine Arts, 465 Huntington Avenue, Boston, MA 02115; WGBH Foundation, 125 Western Avenue, Boston, MA 02134; The Nature Conservancy, Post Office Square Building, 79 Milk St., Suite 300, Boston, MA 02109; Trustee, The Jackson Laboratory, 600 Main St., Bar Harbor, ME Nadine McQueen-Reed Prior to March, 1999, Key Account Executive, Fidelity Assistant Vice President Investments, 130 Tonbridge Road, Hildenborough, Kent, England, TN11 9DZ Thomas V. Reilly Trustee, Knox College, 2 East South St., Galesburg, Managing Director IL 61401 Kevin J. Rogers Prior to September 1998, Managing Director-Portfolio Senior Vice President Manager, Invesco, NY Organization, 1066 Avenue of the Americas, New York, NY 10036 Jeff B. Sacknowitz Investment Associate, Independence Investment Associates, Vice President 53 State St., Boston, MA 02109 Paul D. Scanlon Prior to October 1999, Senior Vice President, Olympus Vice President Healthcare Group, 775 Trapelo Road, Waltham, MA 02452 Saied Simozar Prior to March 1998, Manager, Portfolio Analytics, Senior Vice President DuPont Pension fund Investment, One Righter Parkway, Suite 3200, Wilmington, DE 198903 Justin M. Scott Director, DSI Proprieties (Neja) Ltd., Epping Rd., Managing Director Reydon, Essex CM19 5RD Denise D. Selden Prior to June 1998, Managing Director, Lehman Brothers, Senior Vice President 260 Franklin St., Boston, MA 02110 Jean I. Sievert Prior to October 1998, Vice President, Salomon Smith Senior Vice President Barney, Seven World Trade Center, New York, NY 10048 Gordon H. Silver Trustee, Wang Center for the Performing Arts, 270 Managing Director Tremont St., Boston, MA 02116 David M. Silk Member of Board of Directors, Jobs for Bay State Senior Vice President Graduates, 451 Andover St., Suite 305, North Andover, MA 01845 Steven Spiegel Director, Ultra Diamond and Gold Outlet, 29 East Senior Managing Director Madison St., Suite 1800, Chicago, IL 60602; Director, FACES New York University Medical Center, 550 First Avenue, New York, NY 10016; Trustee, Babson College, One College Drive, Wellesley, MA 02157 Raman Srivastava Prior to July 1999, Market Risk Analyst, Bank of Assistant Vice President Nova Scotia, 20 King St., W., Toronto, ON James St. John Prior to July 1998, Investment Analyst, University of Assistant Vice President Rochester, Rochester, NY 14627 Toshifumi Sugimoto Prior to October 1998, Portfolio Manager, Deputy Senior Vice President General Manager, Nikko Securities Investment Trust & Management, Fixed Income Department, 4-3 Nihonbashi, Hakozakicho, Chuou-ku, Tokyo, Japan, 103-0015 William J. Sullivan Prior to June 1999, Executive Director, SBC Warburg Senior Vice President Dillion Read, 677 Washington Blvd, Stamford, CT, 06901 John C. Talanian Member of Board of Directors, the Japan Society of Managing Director Boston, One Milk Street, Boston, MA 02109 Nicole J. Thorpe Prior to February 1999, President/Owner, Thorpe Assistant Vice President Resources, P.O. Box 1895, Brockton, MA 02301 Robert J. Ullman Prior to September, 1998, Assistant Vice President, Assistant Vice President State Street Bank, Two International Place, Boston, MA 02109 Vincent Vliebergh Prior to May 1998, Senior Consultant, Garnett Consulting, Vice President 30 Monument Square, Concord, MA 01742 Christopher C. Watt Prior to July 1999, Finance Manager, Procter & Vice President Gamble, 1 Procter & Gamble Plaza, Cincinnati, OH 45202 Eric Wetlaufer President and Member of Board of Directors, The Boston Managing Director Security Analysts Society, Inc., 100 Boylston St., Suite 1050, Boston, MA 02110 Edward F. Whalen Member of the Board of Directors, Hockomock Area YMCA, Senior Vice President 300 Elmwood St., North Attleboro, MA 02760 Kelly A. Woolbert Prior to November 1999, Investment Analyst, MetLife Assistant Vice President Investment Services, 99 High Street, Boston, MA 02110 Edmund F. Wright Jr. Prior to July 1998, Controller, CBE Technologies, Assistant Vice President Inc., 50 Redfield St., Boston, MA 02122 Richard P. Wyke Director, Salem YMCA, One Sewall St., Salem, MA 01970 Senior Vice President
Item 27. Principal Underwriter (a) Putnam Mutual Funds Corp. is the principal underwriter for each of the following investment companies, including the Registrant: Putnam American Government Income Fund, Putnam Arizona Tax Exempt Income Fund, Putnam Asia Pacific Growth Fund, Putnam Asset Allocation Funds, Putnam Balanced Retirement Fund, Putnam California Tax Exempt Income Fund, Putnam California Tax Exempt Money Market Fund, Putnam Capital Appreciation Fund, Putnam Convertible Income-Growth Trust, Putnam Diversified Income Trust, Putnam Equity Income Fund, Putnam Europe Growth Fund, Putnam Florida Tax Exempt Income Fund, Putnam Funds Trust, The George Putnam Fund of Boston, Putnam Global Equity Fund, Putnam Global Governmental Income Trust, Putnam Global Growth Fund, Putnam Global Natural Resources Fund, The Putnam Fund for Growth and Income, Putnam Growth and Income Fund II, Putnam Health Sciences Trust, Putnam High Yield Trust, Putnam High Yield Advantage Fund, Putnam Income Fund, Putnam Intermediate U.S. Government Income Fund, Putnam International Growth Fund, Putnam Investment Funds, Putnam Investors Fund, Putnam Massachusetts Tax Exempt Income Fund, Putnam Michigan Tax Exempt Income Fund, Putnam Minnesota Tax Exempt Income Fund, Putnam Money Market Fund, Putnam Municipal Income Fund, Putnam New Jersey Tax Exempt Income Fund, Putnam New Opportunities Fund, Putnam New York Tax Exempt Income Fund, Putnam New York Tax Exempt Money Market Fund, Putnam New York Tax Exempt Opportunities Fund, Putnam Ohio Tax Exempt Income Fund, Putnam OTC & Emerging Growth Fund, Putnam Pennsylvania Tax Exempt Income Fund, Putnam Preferred Income Fund, Putnam Strategic Income Fund, Putnam Tax Exempt Income Fund, Putnam Tax Exempt Money Market Fund, Putnam Tax-Free Income Trust, Putnam Tax Smart Funds Trust, Putnam U.S. Government Income Trust, Putnam Utilities Growth and Income Fund, Putnam Variable Trust, Putnam Vista Fund, Putnam Voyager Fund, Putnam Voyager Fund II. (b) The directors and officers of the Registrant's principal underwriter are listed below. None of the officers are officers of the Registrant except: Name Position and Offices with Registrant Richard Monaghan Vice President George Putnam Chairman and President Gordon Silver Vice President The principal business address of each person is One Post Office Square, Boston, MA 02109: Name Position and Offices with Underwriter - ----------------------------------------------------------------------------- Adduci,John V. Vice President Alberts,Richard W. Asst. Vice President Alden,Donald F. Vice President Alexander,Michael R. Vice President Alpaugh,Christopher S. Vice President Altomare,Mario P. Vice President Amisano,Paulette C. Vice President Arends,Michael K. Senior Vice President Armon,Lori E. Asst. Vice President Asher,Steven E. Senior Vice President Avery,Scott A. Senior Vice President Aymond,Christian E. Senior Vice President Aymond,Colin C. Vice President Babcock III,Warren W. Senior Vice President Baltimore,Mark H.W. Asst. Vice President Barlow,Jane Asst. Vice President Barnett,William E. Asst. Vice President Barrett,Thomas Vice President Battit,Suzanne J Vice President Beatty,Steven M. Senior Vice President Bent,John J. Senior Vice President Beringer,Thomas C. Vice President Boester,Eric C. Asst. Vice President Boneparth,John F. Managing Director Bouchard,Keith R. Senior Vice President Boudreau,Stephen T. Asst. Vice President Bradford Jr.,Linwood E. Senior Vice President Bresnahan,Leslee R. Managing Director Brockelman,James D. Senior Vice President Brookman,Joel S. Vice President Brown,Timothy K. Senior Vice President Buckner,Gail D. Senior Vice President Burnham,David N. Vice President Burrill,Gregory J. Vice President Buzzell,Paul F. Asst. Vice President Cabana,Susan D. Vice President Cartwright,Patricia A. Asst. Vice President Casey,David M. Vice President Castle Jr.,James R. Senior Vice President Chamieh,Mark Vice President Chapman,Frederick Vice President Chapman,Thomas E. Vice President Chase,Mary Claire Senior Vice President Chrostowski,Louis F. Senior Vice President Church,Daniel J. Vice President Clark,Richard B. Senior Vice President Clermont,Mary Vice President Clinton,John C. Asst. Vice President Cohen,Jeff M. Asst. Vice President Collman,Kathleen M. Sr Managing Director Commane,Karen L. Asst. Vice President Coneeny,Mark L. Senior Vice President Connelly,Donald A. Senior Vice President Connolly,William T. Managing Director Cooper,John S. Vice President Corbett,Dennis Vice President Corvinus,F. Nicholas Senior Vice President Cote,Marie C. Asst. Vice President Cotto,Stephen P Asst. Vice President Cotton,Rick Vice President Crane III,George H. Senior Vice President Cristo,Chad H. Vice President Critchell Jr.,D.Alan Asst. Vice President Curran,Peter J. Senior Vice President Dahill,Jessica E. Vice President Daly,Kenneth L. Managing Director Daylor,Donna M. Vice President Days,Nancy M. Asst. Vice President Deluse,Laura R. Asst. Vice President deMont,Lisa M. Vice President Diaz,Roger Vice President Dirstine,Michael T. Vice President DiStasio,Karen E. Vice President Divney,Kevin M. Senior Vice President Dolan,Michael G. Vice President Donaldson,Scott M. Vice President Dougherty,Thomas Vice President Durbin,Emily J. Vice President Durkee,Christine Asst. Vice President Edlin,David B. Managing Director Eidelberg,Kathleen E. Asst. Vice President Elder,Michael D. Vice President Emhof,Joseph R. Vice President English,James M. Senior Vice President Esposito,Vincent Managing Director Favaloro,Beth A. Vice President Feldman,Susan H. Senior Vice President Fisher,C. Nancy Managing Director Fishman,Mitchell B. Senior Vice President Fiumara,Joseph C. Vice President Flaherty,Patricia C. Senior Vice President Fleisher,Kate Vice President Fleming,Ellen E. Asst. Vice President Foley,Timothy P. Vice President Foran,Carey L. Vice President Frost,Karen T. Senior Vice President Gage,Matthew R. Asst. Vice President Gaudette,Marjorie B. Vice President Gibbs,Stephen C. Vice President Gindel,Caroline E. Asst. Vice President Goodfellow,Mark D. Vice President Goodman,Robert Managing Director Gould,Carol J. Asst. Vice President Grace,Linda K. Vice President Grant,Mitchell T. Managing Director Graviere,Patrice Senior Vice President Grey,Eric M. Vice President Grossberg,Jill Asst. Vice President Grove,Denise Vice President Guerin,Donnalee Vice President Hachey,Andrew J Asst. Vice President Hadley,Christopher Asst. Vice President Halloran,James E. Vice President Halloran,Thomas W. Senior Vice President Hansen,Christine M. Asst. Vice President Harring,Linda Senior Vice President Harrington,Shannon W. Vice President Hartig,Robert Vice President Hartigan,Craig W. Vice President Hartley,Deborah M. Asst. Vice President Hayes-Castro,Deanna R. Vice President Hedstrom,Gayle A. Asst. Vice President Heller,Kim G. Asst. Vice President Holmes,Maureen A. Vice President Hooley Jr.,Daniel F. Vice President Horwitz,Jonathan S. Senior Vice President Hotchkiss,Michael F. Senior Vice President Howes,Douglas E. Asst. Vice President Hoyt,Paula J. Asst. Vice President Hurley,William J. Managing Director & CFO Hutcherson,Eric A. Asst. Vice President Hutchins,Robert B. Vice President Iino,Yoshiro Vice President Jacobsen,Dwight D. Managing Director Kaminsky,Gregory C. Vice President Kanwal,Amrit Managing Director Kapinos,Peter J. Vice President Keleher,Kevin J. Asst. Vice President Kelley,Brian J. Vice President Kelly,David Vice President Kennedy,Alicia C. Asst. Vice President Kinsman,Anne Senior Vice President Kircher,Richard T. Asst. Vice President Kirk,Deborah H. Senior Vice President Koontz,Jill A. Senior Vice President Kringdon,Joseph D. Senior Vice President Landers,Bruce M. Vice President Lane,Linda L. Asst. Vice President LaPierre,Christopher W Asst. Vice President Lathrop,James D. Senior Vice President Lawlor,Stephanie T. Asst. Vice President Leary,Joan M. Vice President Ledbetter,Charles C. Vice President Leddy,Maura W. Vice President Leipsitz,Margaret Asst. Vice President Lemire,Kevin Vice President Levy,Eric S. Senior Vice President Levy,Norman S. Vice President Lewandowski Jr.,Edward V. Vice President Lewandowski,Edward V. Senior Vice President Lewis,Paul Asst. Vice President Li,Mei Asst. Vice President Lieberman,Samuel L. Senior Vice President Lifsitz,David M. Vice President Lilien,David R. Vice President Link,Christopher H. Asst. Vice President Linquata,Louis K. Asst. Vice President Litant,Lisa M. Vice President Lockwood,Maura A. Senior Vice President Loew,Christopher R. Asst. Vice President Lohmeier,Andrew Asst. Vice President Lohr,Mark G. Managing Director Lomba,Rufino R. Senior Vice President Lord,Caroline F. Asst. Vice President Lucey,Robert F. Director Lucey,Thomas J. Director Luskin,James M. Asst. Vice President Lyons,Robert F. Asst. Vice President MacDonald,Richard A. Senior Vice President Maloof,Renee L. Asst. Vice President Mancini,Dana Asst. Vice President Mancini,Jane M. Managing Director Manthorne,Heather M. Asst. Vice President Maravel,Alexi A. Asst. Vice President Martens,Erwin W. Managing Director Maxwell,Scott M. Managing Director McAvoy,Bridget Vice President McCafferty,Karen A. Vice President McCarthy,Anne B. Asst. Vice President McConville,Paul D. Senior Vice President McCracken,Brian Asst. Vice President McCutcheon,Bruce A Senior Vice President McDermott,Robert J. Vice President McKenna,Mark J. Senior Vice President McNamara,Laura Vice President McNamee,Mary G. Vice President Meagher,Dorothy B. Vice President Mehta,Ashok Vice President Metelmann,Claye A. Vice President Michejda,Marek A. Vice President Miller,Bart D. Senior Vice President Miller,Gregory T. Vice President Miller,Jeffrey M. Managing Director Mills,Ronald K. Vice President Mills,Stacy M. Vice President Minsk,Judith Asst. Vice President Monaghan,Richard A. Director Monahan,Kimberly A. Vice President Moody,Paul R. Vice President Moret,Mitchell L. Senior Vice President Morey,John P. Senior Vice President Mosher,Barry L. Vice President Mullen,Donald E. Senior Vice President Munson,Brian D. Vice President Murphy Jr.,Kenneth W. Asst. Vice President Murray,Brendan R. Senior Vice President Nadherny,Robert Senior Vice President Nagashima,Toshio Managing Director Natale,Lisa A. Asst. Vice President Nauen,Kimberly Page Vice President Neary,Ellen R. Vice President Neher,Stacey P. Asst. Vice President Nelson,Andrew E. Vice President Newell,Amy Jane Vice President Nickodemus,John P. Senior Vice President Nickse,Gail A. Asst. Vice President Nicolazzo,Jon C. Vice President Nisbet,M. Julia Asst. Vice President O'Brien,Lois C. Vice President O'Brien,Nancy M. Asst. Vice President O'Connell,Gayle M. Vice President O'Connor,Brian P. Vice President O'Connor,Matthew P. Asst. Vice President O'Day,Teresa S. Vice President Orr,Kevin Vice President Palmer,Patrick J. Vice President Pampliega,Carlos Vice President Panek,Raymond S. Asst. Vice President Parker,Michael T. Asst. Vice President Parr,Cynthia O. Senior Vice President Patton,Robert J. Vice President Perkins,Erin M. Asst. Vice President Peters,Jeffrey F. Managing Director Petitti,Joseph P. Vice President Petralia,Randolph S. Senior Vice President Phoenix,John G. Senior Vice President Phoenix,Joseph Senior Vice President Pilibosian,George J. Vice President Plapinger,Keith Senior Vice President Powers,Brian S. Asst. Vice President Present,Howard B. Senior Vice President Puddle,David G. Senior Vice President Pulkrabek,Scott M. Vice President Putnam,George Director Quinn,Lisa F. Asst. Vice President Reed,Nadine McQueen Asst. Vice President Rider,Wendy A. Vice President Riley,Megan G. Asst. Vice President Rodammer,Kris Senior Vice President Rodts,Jennifer M. Asst. Vice President Rogers,Deborah A. Vice President Rowe,Robert B. Vice President Ryan,Carolyn M. Asst. Vice President Ryan,Deborah A. Vice President Ryan,William M. Vice President Saccocia,Cynthia M Asst. Vice President Saunders,Catherine A. Senior Vice President Saur,Karl W. Vice President Scanlon,Michael M. Vice President Schlosberg,Alan R. Asst. Vice President Schofield,Shannon D. Senior Vice President Schultz,Mitchell D. Managing Director Scordato,Christine A. Senior Vice President Segers,Elizabeth R. Senior Vice President Selden,Denise D. Senior Vice President Shamburg,John B. Vice President Shanahan,Christopher W. Vice President Sharpless,Kathy G. Managing Director Shelby,Robert Vice President Short,Jonathan D. Senior Vice President Siebold,Mark J. Asst. Vice President Siemon Jr.,Frank E. Asst. Vice President Silva,J. Paul Vice President Silver,Gordon H. Sr Managing Director Skistimas Jr,John J. Vice President Smeglin,Maryann C. Asst. Vice President Solan,Meenakshi S. Asst. Vice President Soule,Scott W. Asst. Vice President Spiegel,Steven Sr Managing Director Sprague,David L. Vice President Starishevsky,Daniel Vice President Starr,Loren M. Managing Director Statuta,Jason M. Vice President Steinberg,Lauren B. Asst. Vice President Stern,Derek A. Asst. Vice President Stickney,Paul R. Senior Vice President Strumpf,Casey Senior Vice President Sugimoto,Toshifumi Senior Vice President Sullivan,Brian L. Senior Vice President Sullivan,Donna G Vice President Sullivan,Elaine M. Senior Vice President Sullivan,Maryann Asst. Vice President Suzuki,Toshimi Senior Vice President Sweeney,Janet C. Senior Vice President Talanian,John C. Managing Director Tanner,B Iris Vice President Tavares,April M. Asst. Vice President Telling,John R. Senior Vice President Tibbetts,Richard B. Managing Director Tirado,Patrice M. Vice President Troped Blacker,Bonnie Senior Vice President Upham,Scott E. Vice President Veale,David B. Asst. Vice President Wallack,William F. Asst. Vice President Walsh,Stephen M. Vice President Warde,Elizabeth A. Asst. Vice President Washburn,Andrew O. Vice President Waters,Mitchell J. Vice President Watt,Christopher C. Vice President Welch III,William A. Asst. Vice President Whalen,Brian Vice President Whalen,Edward F. Senior Vice President Whitaker,J. Greg Vice President White,Patrick J. Asst. Vice President Wolfson,Jane Senior Vice President Woodlock,Ronald J. Asst. Vice President Woolbert,Kelly A. Asst. Vice President Woolverton,William H. Managing Director Wright Jr.,Edmund F. Asst. Vice President Yan,Yanfang Vice President Young,Jason P. Vice President Zografos,Laura J. Senior Vice President Zukowski,Virginia A. Senior Vice President Item 28. Location of Accounts and Records Persons maintaining physical possession of accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder are Registrant's Associate Clerk, Judith Cohen; Registrant's investment advisor, Putnam Investment Management, Inc.; Registrant's principal underwriter, Putnam Mutual Funds Corp.; Registrant's custodian, Putnam Fiduciary Trust Company ("PFTC"); and Registrant's transfer and dividend disbursing agent, Putnam Investor Services, a division of PFTC. The address of the Associate Clerk, investment advisor, principal underwriter, custodian and transfer and dividend disbursing agent is One Post Office Square, Boston, Massachusetts 02109. Item 29. Management Services None. Item 30. Undertakings None. CONSENT OF INDEPENDENT ACCOUNTANTS The Board of Trustees and Shareholders Putnam Convertible Income-Growth Trust: We consent to the use of our report dated December 7, 1999, incorporated in this Registration Statement by reference, for the Putnam Convertible Income-Growth Trust and to the references to our firm under the captions "Financial Highlights" in the prospectuses and "INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS" in the Statement of Additional Information. KPMG LLP Boston, Massachusetts February 23, 2000 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Prospectuses and Statement of Additional Information constituting parts of Post-Effective Amendment No. 37 to the Registration Statement of Putnam Convertible Income-Growth Trust on Form N-1A (File No. 2-43384) of our report dated December 11, 1998, on our audit of the financial statements and financial highlights of the Fund, which report is included in the Annual Report for Putnam Convertible Income-Growth Trust for the year ended October 31, 1998, which is incorporated by reference in the Registration Statement. We also consent to the references to our firm under the caption "Independent Accountants and Financial Statements" in the Statement of Additional Information and under the heading "Financial highlights" in such Prospectuses. PricewaterhouseCoopers LLP Boston, Massachusetts February 23, 2000 NOTICE A copy of the Agreement and Declaration of Trust of Putnam Convertible Income-Growth Trust is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the Registrant. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the fund certifies that it meets all of the requirements for effectiveness of this Registration Statement under Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Boston, and The Commonwealth of Massachusetts, on the 25th day of February, 2000. Putnam Convertible Income-Growth Trust By: Gordon H. Silver, Vice President Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement of Putnam Convertible Income-Growth Trust has been signed below by the following persons in the capacities and on the dates indicated: Signature Title George Putnam President and Chairman of the Board; Principal Executive Officer; Trustee John D. Hughes Senior Vice President; Treasurer and Principal Financial Officer Paul G. Bucuvalas Assistant Treasurer and Principal Accounting Officer Jameson A. Baxter Trustee Hans H. Estin Trustee John A. Hill Trustee Ronald J. Jackson Trustee Paul L. Joskow Trustee Elizabeth T. Kennan Trustee Lawrence J. Lasser Trustee John H. Mullin, III Trustee Robert E. Patterson Trustee William F. Pounds Trustee George Putnam, III Trustee A.J.C. Smith Trustee W. Thomas Stephens Trustee W. Nicholas Thorndike Trustee By: Gordon H. Silver, as Attorney-in-Fact February 25, 2000 Exhibit Index Exhibit 1. Class C Distribution Plan and Agreement, dated July 16, 1999. Exhibit 2. Rule 18f-3(d) Plan, dated November 1, 1999. EX-99.M12B-1PLAN 2 PUTNAM CONVERTIBLE INCOME-GROWTH FUND CLASS C DISTRIBUTION PLAN AND AGREEMENT This Plan and Agreement (the "Plan") constitutes the Distribution Plan for the Class C shares of Putnam Convertible Income-Growth Fund, a Massachusetts business trust (the "Trust"), adopted pursuant to the provisions of Rule 12b-1 under the Investment Company Act of 1940 (the "Act") and the related agreement between the Trust and Putnam Mutual Funds Corp. ("PMF"). During the effective term of this Plan, the Trust may incur expenses primarily intended to result in the sale of its Class C shares upon the terms and conditions hereinafter set forth: Section 1. The Trust shall pay to PMF a monthly fee at the annual rate of 1.00% of the average net asset value of the Class C shares of the Trust, as determined at the close of each business day during the month, to compensate PMF for services provided and expenses incurred by it in connection with the offering of the Trust's Class C shares, which may include, without limitation, the payment by PMF to investment dealers of commissions on the sale of Class C shares, as set forth in the then current Prospectus or Statement of Additional Information of the Trust and the payment of a service fee of up to 0.25% of such net asset value for the purposes of maintaining or improving services provided to shareholders by PMF and investment dealers. Such fees shall be payable for each month within 15 days after the close of such month. A majority of the Qualified Trustees, as defined below, may, from time to time, reduce the amount of such payments, or may suspend the operation of the Plan for such period or periods of time as they may determine. Section 2. This Plan shall not take effect until: (a) it has been approved by a vote of a majority of the outstanding Class C shares of the Fund, but only if the Plan is adopted after the commencement of any public offering of the Fund's Class C shares or the sale of the Fund's Class C shares to persons who are not affiliated persons of the Fund, affiliated persons of such persons, promoters of the Fund or affiliated persons of such promoters; (b) it has been approved, together with any related agreements, by votes of the majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Act or the rules and regulations thereunder) of both (i) the Trustees of the Trust, and (ii) the Qualified Trustees of the Trust, cast in person at a meeting called for the purpose of voting on this Plan or such agreement; and (c) the Trust has received the proceeds of the initial public offering of its Class C shares. Section 3. This Plan shall continue in effect for a period of more than one year after it takes effect only so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in Section 2(b). Section 4. PMF shall provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. Section 5. This Plan may be terminated at any time by vote of a majority of the Qualified Trustees or by vote of the majority of the outstanding Class C shares of the Trust. Section 6. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide: (a) that such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Qualified Trustees or by vote of a majority of the outstanding Class C shares of the Trust, on not more than 60 days' written notice to any other party to the agreement; and (b) that such agreement shall terminate automatically in the event of its assignment. Section 7. This Plan may not be amended to increase materially the amount of distribution expenses permitted pursuant to Section 1 hereof without the approval of a majority of the outstanding Class C shares of the Trust and all material amendments to this Plan shall be approved in the manner provided for approval of this Plan in Section 2(b). Section 8. As used in this Plan, (a) the term "Qualified Trustees" shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the term "majority of the outstanding Class C shares of the Trust" means the affirmative vote, at a duly called and held meeting of Class C shareholders of the Trust, (i) of the holders of 67% or more of the Class C shares of the Trust present (in person or by proxy) and entitled to vote at such meeting, if the holders of more than 50% of the outstanding Class C shares of the Trust entitled to vote at such meeting are present in person or by proxy, or (ii) of the holders of more than 50% of the outstanding Class C shares of the Trust entitled to vote at such meeting, whichever is less, and (c) the terms "assignment" and "interested person" shall have the respective meanings specified in the Act and the rules and regulations thereunder, subject to such exemptions as may be granted by the Securities and Exchange Commission. Section 9. A copy of the Agreement and Declaration of Trust of the 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 Trustees of the Trust as Trustees 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 Trust. Executed as of July 16, 1999. PUTNAM MUTUAL FUNDS CORP. PUTNAM CONVERTIBLE INCOME-GROWTH FUND /s/ Richard A. Monaghan /s/ Charles E. Porter By: ----------------------- By: ----------------------- Richard A. Monaghan Charles E. Porter Managing Director and Executive Vice President Chief of Mutual Fund Business EX-99.N18F-3PLAN 3 PUTNAM FUNDS PLAN PURSUANT TO RULE 18F-3(D) UNDER THE INVESTMENT COMPANY ACT OF 1940 EFFECTIVE NOVEMBER 1, 1999 Each of the open-end investment companies managed by Putnam Investment Management, Inc. (each a "Fund" and, together, the "Funds") may from time to time issue one or more of the following classes of shares: Class A shares, Class B shares, Class C shares, Class M shares and Class Y shares. Each class is subject to such investment minimums and other conditions of eligibility as are set forth in the Funds' registration statements as from time to time in effect. The differences in expenses among these classes of shares, and the conversion and exchange features of each class of shares, are set forth below in this Plan. Except as noted below, expenses are allocated among the classes of shares of each Fund based upon the net assets of each Fund attributable to shares of each class. This Plan is subject to change, to the extent permitted by law and by the Agreement and Declaration of Trust and By-laws of each Fund, by action of the Trustees of each Fund. CLASS A SHARES DISTRIBUTION AND SERVICE FEES Class A shares pay distribution and service fees pursuant to plans (the "Class A Plans") adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"). Class A shares also bear any costs associated with obtaining shareholder approval of the Class A Plans (or an amendment to a Class A Plan). Pursuant to the Class A Plans, Class A shares may pay up to 0.35% of the relevant Fund's average net assets attributable to the Class A shares* (which percentage may be less for certain Funds, as described in the Funds' registration statements as from time to time in effect). Amounts payable under the Class A Plans are subject to such further limitations as the Trustees may from time to time determine and as set forth in the registration statement of each Fund as from time to time in effect. - --------------------------- *Class A shares of Putnam Global Equity Fund may pay up to 0.65% of average net assets attributable to Class A shares. CONVERSION FEATURES Class A shares do not convert to any other class of shares. EXCHANGE FEATURES Class A shares of any Fund may be exchanged, at the holder's option, for Class A shares of any other Fund that offers Class A shares without the payment of a sales charge beginning 15 days after purchase, provided that Class A shares of such other Fund are available to residents of the relevant state. The holding period for determining any contingent deferred sales charge (a "CDSC") will include the holding period of the shares exchanged, and will be calculated using the schedule of any Fund into or from which shares have been exchanged that would result in the highest CDSC applicable to such Class A shares. INITIAL SALES CHARGE Class A shares are offered at a public offering price that is equal to their net asset value ("NAV") plus a sales charge of up to 5.75% of the public offering price (which maximum may be less for certain Funds, as described in each Fund's registration statement as from time to time in effect). The sales charges on Class A shares are subject to reduction or waiver as permitted by Rule 22d-1 under the 1940 Act and as described in the Funds' registration statements as from time to time in effect. CONTINGENT DEFERRED SALES CHARGE Purchases of Class A shares of $1 million or more that are redeemed within two years of purchase are subject to a CDSC of up to 1.00% of either the purchase price or the NAV of the shares redeemed, whichever is less. Class A shares are not otherwise subject to a CDSC. The CDSC on Class A shares is subject to reduction or waiver in certain circumstances, as permitted by Rule 6c-10 under the 1940 Act and as described in the Funds' registration statements as from time to time in effect. CLASS B SHARES DISTRIBUTION AND SERVICE FEES Class B shares pay distribution and service fees pursuant to plans adopted pursuant to Rule 12b-1 under the 1940 Act (the "Class B Plans"). Class B shares also bear any costs associated with obtaining shareholder approval of the Class B Plans (or an amendment to a Class B Plan). Pursuant to the Class B Plans, Class B shares may pay up to 1.00% of the relevant Fund's average net assets attributable to Class B shares (which percentage may be less for certain Funds, as described in the Funds' registration statements as from time to time in effect). Amounts payable under the Class B Plans are subject to such further limitations as the Trustees may from time to time determine and as set forth in the registration statement of each Fund as from time to time in effect. CONVERSION FEATURES Class B shares automatically convert to Class A shares of the same Fund at the end of the month eight years after purchase (or such earlier date as the Trustees of a Fund may authorize), except that Class B shares purchased through the reinvestment of dividends and other distributions on Class B shares convert to Class A shares at the same time as the shares with respect to which they were purchased are converted and Class B shares acquired by the exchange of Class B shares of another Fund will convert to Class A shares based on the time of the initial purchase. EXCHANGE FEATURES Class B shares of any Fund may be exchanged, at the holder's option, for Class B shares of any other Fund that offers Class B shares without the payment of a sales charge beginning 15 days after purchase, provided that Class B shares of such other Fund are available to residents of the relevant state. The holding period for determining any CDSC will include the holding period of the shares exchanged, and will be calculated using the schedule of any Fund into or from which shares have been exchanged that would result in the highest CDSC applicable to such Class B shares. INITIAL SALES CHARGE Class B shares are offered at their NAV, without an initial sales charge. CONTINGENT DEFERRED SALES CHARGE Class B shares that are redeemed within 6 years of purchase are subject to a CDSC of up to 5.00% of either the purchase price or the NAV of the shares redeemed, whichever is less (which period may be shorter and which percentage may be less for certain Funds, as described in the Funds' registration statements as from time to time in effect); such percentage declines the longer the shares are held, as described in the Funds' registration statements as from time to time in effect. Class B shares purchased with reinvested dividends or capital gains are not subject to a CDSC. The CDSC on Class B shares is subject to reduction or waiver in certain circumstances, as permitted by Rule 6c-10 under the 1940 Act and as described in the Funds' registration statements as from time to time in effect. CLASS C SHARES DISTRIBUTION AND SERVICE FEES Class C shares pay distribution and service fees pursuant to plans adopted pursuant to Rule 12b-1 under the 1940 Act (the "Class C Plans"). Class C shares also bear any costs associated with obtaining shareholder approval of the Class C Plans (or an amendment to a Class C Plan). Pursuant to the Class C Plans, Class C shares may pay up to 1.00% of the relevant Fund's average net assets attributable to the Class C shares (which percentage may be less for certain Funds, as described in the Funds' registration statements as from time to time in effect). Amounts payable under the Class C Plans are subject to such further limitations as the Trustees may from time to time determine and as set forth in the registration statement of each Fund as from time to time in effect. CONVERSION FEATURES Class C shares do not convert to any other class of shares. EXCHANGE FEATURES Class C shares of any Fund may be exchanged, at the holder's option, for Class C shares of any other Fund that offers Class C shares without the payment of a sales charge beginning 15 days after purchase, provided that Class C shares of such other Fund are available to residents of the relevant state. The holding period for determining any CDSC will include the holding period of the shares exchanged, and will be calculated using the schedule of any Fund into or from which shares have been exchanged that would result in the highest CDSC applicable to such Class C shares. INITIAL SALES CHARGE Class C shares are offered at their NAV, without an initial sales charge. CONTINGENT DEFERRED SALES CHARGE Class C shares are subject to a 1.00% CDSC if the shares are redeemed within one year of purchase. The CDSC on Class C shares is subject to reduction or waiver in certain circumstances, as permitted by Rule 6c-10 under the 1940 Act and as described in the Funds' registration statements as from time to time in effect. CLASS M SHARES DISTRIBUTION AND SERVICE FEES Class M shares pay distribution and service fees pursuant to plans adopted pursuant to Rule 12b-1 under the 1940 Act (the "Class M Plans"). Class M shares also bear any costs associated with obtaining shareholder approval of the Class M Plans (or an amendment to a Class M Plan). Pursuant to the Class M Plans, Class M shares may pay up to 1.00% of the relevant Fund's average net assets attributable to Class M shares (which percentage may be less for certain Funds, as described in the Funds' registration statements as from time to time in effect). Amounts payable under the Class M Plans are subject to such further limitations as the Trustees may from time to time determine and as set forth in the registration statement of each Fund as from time to time in effect. CONVERSION FEATURES Class M shares do not convert to any other class of shares. EXCHANGE FEATURES Class M shares of any Fund may be exchanged, at the holder's option, for Class M shares of any other Fund that offers Class M shares without the payment of a sales charge beginning 15 days after purchase, provided that Class M shares of such other Fund are available to residents of the relevant state. INITIAL SALES CHARGE Class M shares are offered at a public offering price that is equal to their NAV plus a sales charge of up to 3.50% of the public offering price (which maximum may be less for certain Funds, as described in each Fund's registration statement as from time to time in effect). The sales charges on Class M shares are subject to reduction or waiver as permitted by Rule 22d-1 under the 1940 Act and as described in the Funds' registration statements as from time to time in effect. CONTINGENT DEFERRED SALES CHARGE Class M shares are not subject to any CDSC. CLASS Y SHARES DISTRIBUTION AND SERVICE FEES Class Y shares do not pay a distribution fee. CONVERSION FEATURES Class Y shares do not convert to any other class of shares. EXCHANGE FEATURES Class Y shares of any Fund may be exchanged, at the holder's option, for Class Y shares of any other Fund that offers Class Y shares without the payment of a sales charge beginning 15 days after purchase, provided that Class Y shares of such other Fund are available to residents of the relevant state, and further provided that shares of such other Fund are available through the relevant employer's plan. INITIAL SALES CHARGE Class Y shares are offered at their NAV, without an initial sales charge. CONTINGENT DEFERRED SALES CHARGE Class Y shares are not subject to any CDSC. -----END PRIVACY-ENHANCED MESSAGE-----