Document/Exhibit Description Pages Size
1: 485BPOS Putnam Convertible Income-Growth Trust 214± 846K
3: EX-99.F BONUS PROFIT Miscellaneous Exhibit 5± 21K
4: EX-99.H OTH MAT CONT Miscellaneous Exhibit 3± 13K
5: EX-99.H OTH MAT CONT Miscellaneous Exhibit 3± 16K
2: EX-99.J OTH MAT CONT Miscellaneous Exhibit 1 6K
6: EX-99.P CODE ETH Miscellaneous Exhibit 5± 22K
7: EX-99.P CODE ETH Miscellaneous Exhibit 62± 215K
8: EX-99.P CODE ETH Miscellaneous Exhibit 3± 13K
As filed with the Securities and Exchange Commission on
February 25, 2005
Registration No. 2-43384
811-02280
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
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Pre-Effective Amendment No. / /
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Post-Effective Amendment No. 42 / X /
and/or ----
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X /
ACT OF 1940 ----
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Amendment No. 34 / X /
(Check appropriate box or boxes) ----
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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
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It is proposed that this filing will become effective
(check appropriate box)
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/ / immediately upon filing pursuant to paragraph (b)
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/ X / on February 28, 2005 pursuant to paragraph (b)
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/ / 60 days after filing pursuant to paragraph (a)(1)
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/ / on (date) pursuant to paragraph (a)(1)
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/ / 75 days after filing pursuant to paragraph (a)(2)
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/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
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If appropriate, check the following box:
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/ / this post-effective amendment designates a new
---- effective date for a previously filed post-effective amendment.
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BETH S. MAZOR, Vice President
PUTNAM CONVERTIBLE INCOME-GROWTH TRUST
One Post Office Square
Boston, Massachusetts 02109
(Name and address of agent for service)
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Copy to:
JOHN W. GERSTMAYR, Esquire
ROPES & GRAY LLP
One International Place
Boston, Massachusetts 02110
Prospectus
February 28, 2005
Putnam Convertible Income-Growth Trust
Class A, B, C, M and R shares
Investment Category: Value
This prospectus explains what you should know about this mutual fund
before you invest. Please read it carefully.
Putnam Investment Management, LLC (Putnam Management), which has managed
mutual funds since 1937, manages the fund.
These securities have not been approved or disapproved by the Securities
and Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this prospectus. Any statement to the contrary is a crime.
You may qualify for sales charge discounts on class A or class M shares.
Please notify your financial advisor of other accounts that may help you
obtain a sales charge discount. See "How do I buy fund shares?" for
details.
CONTENTS
2 Fund summary
2 Goal
2 Main investment strategies
2 Main risks
3 Performance information
5 Fees and expenses
6 What are the fund's main investment strategies and related risks?
12 Who manages the fund?
15 How does the fund price its shares?
16 How do I buy fund shares?
23 How do I sell fund shares?
25 How do I exchange fund shares?
26 Policy on excessive short-term trading
29 Fund distributions and taxes
30 Financial highlights
[SCALE LOGO OMITTED]
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. Under normal
circumstances, we invest at least 80% of the fund's net assets in
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 are convertible
into value stocks and a significant portion are below investment-grade.
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 the prices of the fixed-income investments we buy will
fall if interest rates rise. Interest rate risk is generally higher for
investments with longer maturities.
* The risk that the issuers of the fund's investments 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]
CALENDAR YEAR TOTAL RETURNS FOR CLASS A SHARES
1995 23.81%
1996 17.82%
1997 19.64%
1998 4.84%
1999 17.49%
2000 -8.44%
2001 -8.12%
2002 -5.48%
2003 31.77%
2004 11.36%
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 12.63%
(quarter ending 6/30/03) and the lowest return for a quarter was -12.95%
(quarter ending 9/30/01).
------------------------------------------------------------------------------
Average Annual Total Returns (for periods ending 12/31/04)
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Past Past Past
1 year 5 years 10 years
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Class A before taxes 5.48% 2.03% 9.04%
Class A after taxes on distributions 4.37% 0.24% 5.96%
Class A after taxes on distributions
and sale of fund shares 3.52% 0.64% 6.01%
Class B before taxes 5.47% 2.04% 8.82%
Class C before taxes 9.54% 2.36% 8.81%
Class M before taxes 6.86% 1.89% 8.70%
Class R before taxes 11.07% 2.88% 9.36%
Goldman Sachs Convertible 100 Index
(no deduction for fees, expenses or taxes) 7.95% 2.58% 9.84%
S&P 500 Index (no deduction
for fees, expenses or taxes) 10.88% -2.30% 12.07%
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Unlike the bar chart, this performance information reflects the impact of
sales charges. Class A and class M share performance reflects the current
maximum initial sales charges (which for class A shares reflects a
reduction that took effect after 12/31/03); class B and class C share
performance reflects the maximum applicable deferred sales charge if shares
had been redeemed on 12/31/04 and, for class B shares, does not assume
conversion to class A shares after eight years. For periods before the
inception of class C shares (7/26/99), class M shares (3/13/95) and class R
shares (12/01/03), performance shown for these classes in the table is
based on the performance of the fund's class A shares, adjusted to reflect
the appropriate sales charge and the higher 12b-1 fees paid by the class B,
class C, class M and class R shares.
The fund's performance is compared to the Goldman Sachs Convertible 100
Index, an unmanaged index with a target of 100 securities, including
convertible bonds, preferred stocks, and mandatory convertible securities,
and includes reinvested dividends. The fund's performance is also compared
to the S&P 500 Index, an unmanaged index of common stocks frequently used
as a general measure of U.S. stock performance. After-tax returns reflect
the highest individual federal income tax rates and do not reflect state
and local taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown. After-tax returns are shown for
class A shares only and will vary for other classes. After-tax returns are
not relevant to those investing through 401(k) plans, IRAs or other
tax-deferred arrangements.
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)*
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Class A Class B Class C Class M Class R
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Maximum Sales
Charge (Load)
Imposed on
Purchases (as a
percentage of the
offering price) 5.25% NONE NONE 3.50% NONE
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** NONE
Maximum
Redemption Fee***
(as a percentage
of total redemption
proceeds) 2.00% 2.00% 2.00% 2.00% 2.00%
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Annual Fund Operating Expenses+
(expenses that are deducted from fund assets)
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Total Annual
Management Distribution Other Fund Operating
Fees (12b-1) Fees Expenses Expenses
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Class A 0.62% 0.25% 0.22% 1.09%
Class B 0.62% 1.00% 0.22% 1.84%
Class C 0.62% 1.00% 0.22% 1.84%
Class M 0.62% 0.75% 0.22% 1.59%
Class R 0.62% 0.50% 0.22%++ 1.34%
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* Certain investments in class A and class M shares may qualify for
discounts on applicable sales charges. See "How do I buy fund shares?" for
details.
** A deferred sales charge of up to 1.00% on class A shares and of 0.65%
on class M shares may be imposed on certain redemptions of shares bought
without an initial sales charge.
*** A 2.00% redemption fee (also referred to as a "short-term trading
fee") may apply to any shares that are redeemed (either by selling or
exchanging into another fund) within 5 days of purchase.
+ See the section "Who manages the fund?" for a discussion of regulatory
matters and litigation.
++ Other expenses shown for class R shares have been annualized.
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
shares and class C shares, redeem all your shares at the end of those
periods. It also assumes a 5.00% 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
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Class A $630 $853 $1,094 $1,784
Class B $687 $879 $1,195 $1,962*
Class B
(no redemption) $187 $579 $995 $1,962*
Class C $287 $579 $995 $2,159
Class C
(no redemption) $187 $579 $995 $2,159
Class M $506 $834 $1,185 $2,173
Class R $136 $425 $734 $1,613
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* Reflects conversion of class B shares to class A shares, which pay lower
12b-1 fees. Conversion occurs 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. We will consider, among other factors, a company's
financial strength, competitive position in its industry, projected future
earnings, cash flows and dividends when deciding whether to buy or sell
investments. A description of the risks associated with the fund's main
investment strategies follows.
* Interest rate risk. The values of bonds and other debt instruments
usually rise and fall in response to changes in interest rates. Declining
interest rates generally increase the value of existing debt instruments,
and rising interest rates generally decrease the value of existing debt
instruments. Changes in a debt instrument's value usually will not affect
the amount of interest income paid to the fund, but will affect the value
of the fund's shares. Interest rate risk is generally greater for
investments with longer maturities.
Some investments give the issuer the option to call or redeem an investment
before its maturity date. If an issuer calls or redeems an investment
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 coupon rates higher than prevailing market
rates. However, they involve a greater risk of loss, because their values
tend to decline over time.
* Credit risk. Investors normally expect to be compensated in proportion
to the risk they are assuming. Thus, debt of issuers with poor credit
prospects usually offers higher yields than debt of issuers with more
secure credit. Higher-rated investments generally have lower credit risk.
We invest significantly in below 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 a 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 are unrated securities that we believe are of comparable
quality. We will not necessarily sell an investment if its rating is
reduced after we buy it.
Investments rated below BBB or its equivalent are known as "junk bonds."
This rating reflects a greater possibility that the issuers may be unable
to make timely payments of interest and principal and thus default. If this
happens, or is perceived as likely to happen, the values of those
investments will usually be more volatile and are likely to fall. A default
or expected default could also make it difficult for us to sell the
investments at prices approximating the values we had placed on them.
Lower-rated debt usually has a more limited market than higher-rated debt,
which may at times make it difficult for us to buy or sell certain debt
instruments or to establish their fair value. Credit risk is generally
greater for investments that are issued at less than their face value and
that are required to make interest payments only at maturity rather than at
intervals during the life of the investment. Although investment-grade
investments generally have lower credit risk, they may share some of the
risks of lower-rated investments.
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 in buying lower-rated
debt than it does in buying 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.
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.
* Common stocks. Common stock represents an ownership interest in a
company. The value of a company's stock may fall as a result of factors
directly relating to that company, such as decisions made by its
management or lower demand for the company's products or services. A
stock's value may also fall because of factors affecting not just the
company, but also companies in the same industry or in a number of
different industries, such as increases in production costs. The value of
a company's stock may also be affected by changes in financial markets
that are relatively unrelated to the company or its industry, such as
changes in interest rates or currency exchange rates. In addition, a
company's stock generally pays dividends only after the company invests in
its own business and makes required payments to holders of its bonds and
other debt. For this reason, the value of a company's stock will usually
react more strongly than its bonds and other debt to actual or perceived
changes in the company's financial condition or prospects. Stocks of
smaller companies may be more vulnerable to adverse developments than
those of larger companies.
Companies we believe are undergoing positive change and whose stock we
believe is undervalued by the market may have experienced adverse business
developments or may be subject to special risks that have caused their
stocks to be out of favor. If our assessment of a company's prospects is
wrong, or if other investors do not similarly recognize the value of the
company, then the price of the company's stock may fall or may not approach
the value that we have placed on it.
* Foreign investments. We may invest in foreign investments. Foreign
investments involve certain special risks. For example, their values may
decline in response to changes in currency exchange rates, unfavorable
political and legal developments, unreliable or untimely information, and
economic and financial instability. In addition, the liquidity of these
investments may be more limited than for most U.S. investments, which
means we may at times be unable to sell them at desirable prices. Foreign
settlement procedures may also involve additional risks. These risks are
generally greater in the case of developing (also known as emerging)
markets with less developed legal and financial systems.
Certain of these risks may also apply to some extent to U.S.-traded
investments that are denominated in foreign currencies, investments in U.S.
companies that are traded in foreign markets or investments in U.S.
companies that have significant foreign operations. Special U.S. tax
considerations may apply to the fund's foreign investments.
* Small and midsized companies. These companies, some of which may have a
market capitalization of less than $1 billion, are more likely than larger
companies to have limited product lines, markets or financial resources,
or to depend on a small, inexperienced management group. Stocks of these
companies often trade less frequently and in limited volume, and their
prices may fluctuate more than stocks of larger companies. Stocks of small
and midsized companies may therefore be more vulnerable to adverse
developments than those of larger companies.
* Derivatives. We may engage in a variety of transactions involving
derivatives, such as futures, options, warrants and swap contracts.
Derivatives are financial instruments whose value depends upon, or is
derived from, the value of something else, such as one or more underlying
investments, pools of investments, indexes or currencies. We may use
derivatives both for hedging and non-hedging purposes. However, we may
also choose not to use derivatives, based on our evaluation of market
conditions or the availability of suitable derivatives. Investments in
derivatives may be applied toward meeting a requirement to invest in a
particular kind of investment if the derivatives have economic
characteristics similar to that investment.
Derivatives involve special risks and may result in losses. The successful
use of derivatives depends on our ability to manage these sophisticated
instruments. The prices of derivatives may move in unexpected ways due to
the use of leverage or other factors, especially in unusual market
conditions, and may result in increased volatility. The use of derivatives
may also increase the amount of taxes payable by shareholders.
Other risks arise from our potential inability to terminate or sell
derivatives positions. A liquid secondary market may not always exist for
the fund's derivatives positions at any time. In fact, many
over-the-counter instruments (investments not traded on an exchange) will
not be liquid. Over-the-counter instruments also involve the risk that the
other party to the derivative transaction will not meet its obligations.
For further information about the risks of derivatives, see the statement
of additional information (SAI).
* Other investments. In addition to the main investment strategies
described above, we may make other types of investments, such as
investments in non-convertible preferred stocks and asset-backed
securities, which may be subject to other risks, as described in the SAI.
* Alternative strategies. Under normal market conditions, we keep the
fund's portfolio fully invested, with minimal cash holdings. However, at
times we may judge that market conditions make pursuing the fund's usual
investment strategies inconsistent with the best interests of its
shareholders. We then may temporarily use alternative strategies that are
mainly designed to limit losses. However, we may choose not to use these
strategies for a variety of reasons, even in very volatile market
conditions. These strategies may cause the fund to miss out on investment
opportunities, and may prevent the fund from achieving its goal.
* Changes in policies. The Trustees may change the fund's goal, investment
strategies and other policies without shareholder approval, except as
otherwise indicated.
* Portfolio transactions and portfolio turnover rate. Transactions on
stock exchanges, commodities markets and futures markets involve the
payment by the fund of brokerage commissions. The fund paid $358,946 in
brokerage commissions during the last fiscal year, representing 0.05% of
the fund's average net assets. Of this amount, $31,370, representing less
than 0.01% of the fund's average net assets, was paid to brokers who also
provided research services. Additional information regarding Putnam's
brokerage selection procedures is included in the SAI.
Although brokerage commissions and other portfolio transaction costs are
not reflected in the fund's Total Annual Fund Operating Expenses ratio (as
shown in the Annual Fund Operating Expenses table in the section "Fees and
expenses"), they are reflected in the fund's total return. Combining the
brokerage commissions paid by the fund during the last fiscal year (as a
percentage of the fund's average net assets) with the fund's Total Annual
Fund Operating Expenses ratio for class A shares results in a "combined
cost ratio" of 1.14% of the fund's average net assets for class A shares
for the last fiscal year.
Investors should exercise caution in comparing brokerage commissions and
combined cost ratios for different types of funds. For example, while
brokerage commissions represent one component of the fund's transaction
costs, they do not reflect any undisclosed amount of profit or "mark-up"
included in the price paid by the fund for principal transactions
(transactions made directly with a dealer or other counterparty), including
most fixed income securities and certain derivatives. In addition,
brokerage commissions do not reflect other elements of transaction costs,
including the extent to which the fund's purchase and sale transactions may
change the market price for an investment (the "market impact").
Another factor in transaction costs is the fund's portfolio turnover rate,
which measures how frequently the fund buys and sells investments. During
the past five years, the fund's fiscal year portfolio turnover rate and the
average turnover rate for the fund's Lipper category were as follows.
Turnover Comparison
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2004 2003 2002 2001 2000
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Putnam Convertible
Income-Growth Trust 53% 94% 116% 208% 177%
Lipper Convertible
Securities Funds Average* 104% 97% 108% 130% 145%
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* Average portfolio turnover rate of funds viewed by Lipper Inc. as having
the same investment classification or objective as the fund. The Lipper
category average portfolio turnover rate is calculated using the portfolio
turnover rate for the fiscal year end of each fund in the Lipper category.
Fiscal years may vary across funds in the Lipper category, which may limit
the comparability of the fund's portfolio turnover rate to the Lipper
average. Comparative data for the last fiscal year is based on information
available as of December 31, 2004.
Both the fund's portfolio turnover rate and the amount of brokerage
commissions it pays will vary over time based on market conditions. High
turnover may lead to increased costs and shareholder taxes and decreased
performance.
Putnam Management is not permitted to consider sales of shares of the fund
(or of the other Putnam funds) as a factor in the selection of
broker-dealers to execute portfolio transactions for the fund.
* Portfolio holdings. The SAI includes a description of the fund's
policies with respect to the disclosure of its portfolio holdings. For
information on the fund's portfolio, you may visit the Putnam Investments
Web site, www.putnaminvestments.com/individual, where the fund's top 10
holdings and related portfolio information may be viewed monthly beginning
10 business days after the end of each month, and full portfolio holdings
may be viewed beginning on the last business day of the month after the
end of each calendar quarter. This information will remain available on
the Web site until the fund files a Form N-CSR or N-Q with the Securities
and Exchange Commission (SEC) for the period that includes the date of the
information.
Who manages the fund?
The fund's Trustees oversee the general conduct of the fund's business. The
Trustees have retained Putnam Management to be the fund's investment
manager, responsible for making investment decisions for the fund and
managing the fund's other affairs and business. The fund pays Putnam
Management a quarterly management fee for these services based on the
fund's average net assets. The fund paid Putnam Management a management fee
of 0.62% of average net assets for the fund's last fiscal year. Putnam
Management's address is One Post Office Square, Boston, MA 02109.
* Investment management teams. Putnam Management's investment
professionals are organized into investment management teams, with a
particular team dedicated to a specific asset class. The members of the
Large Cap Value Team are responsible for the day-to-day management of the
fund. The names of all team members can be found at
www.putnaminvestments.com.
The following team member coordinates the team's management of the fund's
portfolio. His experience as an investment professional over at least the
last five years is shown.
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Positions Over Past
Portfolio Leader Since Employer Five Years
------------------------------------------------------------------------------
David L. King 2002 Putnam Senior Portfolio Manager
Management
1983 - Present
------------------------------------------------------------------------------
* Fund ownership. The table below shows the dollar range of shares of the
fund owned by the professional listed above on November 30, 2004 and
November 30, 2003, including investments by his immediate family members
and amounts invested through retirement and deferred compensation plans.
[Enlarge/Download Table]
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Fund Portfolio Leader
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$1 - $10,001 - $50,001 - $100,001 - $500,001 - $1,000,001
Year $0 $10,000 $50,000 $100,000 $500,000 $1,000,000 and over
-------------------------------------------------------------------------------------------------------------
David L. King 2004 *
-------------------------------------------------------------------------------------------------------------
Portfolio Leader 2003 *
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* Other funds managed by the Portfolio Leader. As of the fund's fiscal
year-end, David L. King was also a Portfolio Leader of Putnam High Income
Bond Fund, Putnam High Income Opportunities Trust, and Putnam New Value
Fund. David L. King was also a Portfolio Member of The Putnam Fund for
Growth and Income.
David L. King may also manage other accounts managed by Putnam Management
or an affiliate.
* Changes in the fund's Portfolio Leader and Portfolio Member. After the
fund's fiscal year ended October 31, 2004, Portfolio Member George Maris
left the fund's management team. David L. King has served as Portfolio
Leader of the fund since May 2002, when Putnam Management introduced this
designation.
* Investment in the fund by Putnam employees and the Trustees. As of
November 30, 2004, all of the 13 Trustees of the Putnam funds owned fund
shares. The table shows the approximate value of investments in the fund
and all Putnam funds as of that date by Putnam employees and the fund's
Trustees, including in each case investments by their immediate family
members and amounts invested through retirement and deferred compensation
plans.
------------------------------------------------------------------------------
Fund All Putnam funds
------------------------------------------------------------------------------
Putnam employees $3,522,000 $463,815,000
------------------------------------------------------------------------------
Trustees $645,000 $47,311,000
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* Compensation of investment professionals. Putnam Management believes
that its investment management teams should be compensated primarily based
on their success in helping investors achieve their goals. The portion of
Putnam Investments' total incentive compensation pool that is available to
Putnam Management's Investment Division is based primarily on its
delivery, across all of the portfolios it manages, of consistent,
dependable and superior performance over time. The peer group for the
fund, Convertible Securities Funds, is its broad investment category as
determined by Lipper Inc. The portion of the incentive compensation pool
available to your investment management team is also based primarily on
its delivery, across all of the portfolios it manages, of consistent,
dependable and superior performance over time.
* Consistent performance means being above median over one year.
* Dependable performance means not being in the 4th quartile of the peer
group over one, three or five years.
* Superior performance (which is the largest component of Putnam
Management's incentive compensation program) means being in the top third
of the peer group over three and five years.
In determining an investment management team's portion of the incentive
compensation pool and allocating that portion to individual team members,
Putnam Management retains discretion to reward or penalize teams or
individuals as it deems appropriate, based on other factors.
The size of the overall incentive compensation pool each year is determined
by Putnam Management's parent company, Marsh & McLennan Companies, Inc.,
and depends in large part on Putnam's profitability for the year. Incentive
compensation generally represents at least 70% of the total compensation
paid to investment team members.
* Regulatory matters and litigation. On April 8, 2004, Putnam Management
entered into agreements with the Securities and Exchange Commission and
the Massachusetts Securities Division representing a final settlement of
all charges brought against Putnam Management by those agencies on October
28, 2003 in connection with excessive short-term trading by Putnam
employees and, in the case of the charges brought by the Massachusetts
Securities Division, by participants in some Putnam-administered 401(k)
plans. The settlement with the SEC requires Putnam Management to pay $5
million in disgorgement plus a civil monetary penalty of $50 million, and
the settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine of
$50 million. The settlements also leave intact the process established
under an earlier partial settlement with the SEC under which Putnam
Management agreed to pay the amount of restitution determined by an
independent consultant, which may exceed the disgorgement and restitution
amounts specified above, pursuant to a plan to be developed by the
independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear all
costs, including restitution, civil penalties and associated legal fees
stemming from both of these proceedings. The SEC's and Massachusetts
Securities Division's allegations and related matters also serve as the
general basis for numerous lawsuits, including purported class action
lawsuits filed against Putnam Management and certain related parties,
including certain Putnam funds. Putnam Management has agreed to bear any
costs incurred by Putnam funds in connection with these lawsuits. Based on
currently available information, Putnam Management believes that the
likelihood that the pending private lawsuits and purported class action
lawsuits will have a material adverse financial impact on the fund is
remote, and the pending actions are not likely to materially affect its
ability to provide investment management services to its clients, including
the Putnam funds.
The fund may experience increased redemptions as a result of these matters,
which could result in increased transaction costs and operating expenses.
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 (NYSE) 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. For
example, the fund may value a stock traded on a U.S. exchange at its fair
value when the exchange closes early or trading in the stock is suspended.
It may also value a stock at fair value if recent transactions in the stock
have been very limited or material information about the issuer becomes
available after the close of the relevant market. The value determined for
an investment using the fund's fair value pricing procedures may differ
from recent market prices for the investment.
The fund translates prices for its investments quoted in foreign currencies
into U.S. dollars at current exchange rates, which are generally determined
as of 11:00 a.m. Eastern time each day the NYSE is open. As a result,
changes in the value of those currencies in relation to the U.S. dollar may
affect the fund's NAV. If there has been a movement in the U.S. currency
market that exceeds a specified threshold that may change from time to
time, the fund will generally use exchange rates determined as of 3:00 p.m.
Eastern time. Because foreign markets may be open at different times than
the NYSE, the value of the fund's shares may change on days when
shareholders are not able to buy or sell them. Many securities markets and
exchanges outside the U.S. close prior to the close of the NYSE and
therefore the closing prices for securities in such markets or on such
exchanges may not fully reflect events that occur after such close but
before the close of the NYSE. As a result, the fund has adopted fair value
pricing procedures, which, among other things, require the fund to fair
value foreign equity securities if there has been a movement in the U.S.
market that exceeds a specified threshold that may change from time to
time. As noted above, the value determined for an investment using the
fund's fair value pricing procedures may differ from recent market prices
for the investment.
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 NYSE 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 weekly, semi-monthly or monthly 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.
* Subsequent investments via the Internet. If you have an existing Putnam
fund account and you have completed and returned an Electronic Investment
Authorization Form, you can buy additional shares online at
www.putnaminvestments.com. For more information, contact your advisor or
Putnam Investor Services at 1-800-225-1581.
You may also complete an order form and write a check for the amount you
wish to invest, payable to the fund. Return the check and completed form to
Putnam Investor Services.
Mutual funds must obtain and verify information that identifies investors
opening new accounts. If the fund is unable to collect the required
information, Putnam Investor Services may not be able to open your fund
account. Investors must provide their full name, residential or business
address, Social Security or tax identification number, and date of birth.
Entities, such as trusts, estates, corporations and partnerships, must also
provide other identifying information. Putnam Investor Services may share
identifying information with third parties for the purpose of verification.
If Putnam Investor Services cannot verify identifying information after
opening your account, the fund reserves the right to close your account.
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. Qualified employee-benefit plans may also choose class R shares.
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. Please consult your financial advisor as to
which share class is most appropriate for you. Here is a summary of the
differences among the classes of shares:
Class A shares
* Initial sales charge of up to 5.25%
* Lower sales charges available 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 fees
Class B shares
* No initial sales charge; your entire investment goes to work immediately
* Deferred sales charge of up to 5.00% if shares are sold within six years
of purchase
* Higher annual expenses, and lower dividends, than class A or M shares
because of higher 12b-1 fees
* Convert automatically to class A shares after eight years, thereby
reducing the future 12b-1 fees
* Orders for class B shares of one or more Putnam funds will be refused
when the total value of the purchase, plus existing account balances that
are eligible to be linked under a right of accumulation for purchases of
class A shares (as described below), is $100,000 or more. Investors
considering cumulative purchases of $100,000 or more should consider
whether class A shares would be more advantageous and consult their
financial advisor.
Class C shares
* No initial sales charge; your entire investment goes to work immediately
* Deferred sales charge of 1.00% if shares are sold within one year of
purchase
* Higher annual expenses, and lower dividends, than class A or M shares
because of higher 12b-1 fees
* No conversion to class A shares, so future 12b-1 fees do not decline
over time
* Orders for class C shares of one or more Putnam funds will be refused
when the total value of the purchase, plus existing account balances that
are eligible to be linked under a right of accumulation for purchases of
class A shares (as described below), is $1,000,000 or more. Investors
considering cumulative purchases of $1,000,000 or more should consider
whether class A shares would be more advantageous and consult their
financial advisor.
Class M shares
* Initial sales charge of up to 3.50%
* Lower sales charges available for investments of $50,000 or more
* No deferred sales charge (except on certain redemptions of shares bought
without an initial sales charge)
* Lower annual expenses, and higher dividends, than class B or C shares
because of lower 12b-1 fees
* Higher annual expenses, and lower dividends, than class A shares because
of higher 12b-1 fees
* No conversion to class A shares, so future 12b-1 fees do not decline
over time
Class R shares (available to qualified plans only)
* No initial sales charge; your entire investment goes to work immediately
* No deferred sales charge
* Lower annual expenses, and higher dividends, than class B, C or M shares
because of lower 12b-1 fees
* Higher annual expenses, and lower dividends, than class A shares because
of higher 12b-1 fees
* No conversion to class A shares, so future 12b-1 fees do not decline
over time
Initial sales charges for class A and M shares
------------------------------------------------------------------------------
Class A sales charge Class M sales charge
as a percentage of*: as a percentage of*:
------------------------------------------------------------------------------
Amount of purchase Net amount Offering Net amount Offering
at offering price ($) invested price** invested price**
------------------------------------------------------------------------------
Under 50,000 5.54% 5.25% 3.63% 3.50%
50,000 but under
100,000 4.17 4.00 2.56 2.50
100,000 but under
250,000 3.09 3.00 1.52 1.50
250,000 but under
500,000 2.30 2.25 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
------------------------------------------------------------------------------
* Because of rounding in the calculation of offering price and the number
of shares purchased, actual sales charges you pay may be more or less than
these percentages.
** Offering price includes sales charge.
The fund offers two principal ways for you to qualify for discounts on
initial sales charges on class A and class M shares, often referred to as
"breakpoint discounts:"
* Right of accumulation. You can add the amount of your current purchases
of class A or class M shares of the fund and other Putnam funds to the
value of your existing accounts in the fund and other Putnam funds.
Individuals can also include purchases by, and accounts owned by, their
spouse and minor children, including accounts established through
different financial advisors. For your current purchases, you will pay the
initial sales charge applicable to the total value of the linked accounts
and purchases, which may be lower than the sales charge otherwise
applicable to each of your current purchases. Shares of Putnam money
market funds, other than money market fund shares acquired by exchange
from other Putnam funds, are not included for purposes of the right of
accumulation.
To calculate the total value of your existing accounts and any linked
accounts, the fund will use the current maximum public offering price of
those shares.
* Statement of intention. A statement of intention is a document in which
you agree to make purchases of class A or class M shares in a specified
amount within a period of 13 months. For each purchase you make under the
statement of intention you will pay the initial sales charge applicable to
the total amount you have agreed to purchase. While a statement of
intention is not a binding obligation on you, if you do not purchase the
full amount of shares within 13 months, the fund will redeem shares from
your account in an amount equal to the higher initial sales charge you
would have paid in the absence of the statement of intention.
Account types that may be linked with each other to obtain breakpoint
discounts using the methods described above include:
* Individual accounts
* Joint accounts
* Accounts established as part of a retirement plan and IRA accounts (some
restrictions may apply)
* Shares of Putnam funds owned through accounts in the name of your dealer
or other financial intermediary (with documentation identifying beneficial
ownership of shares)
* Accounts held as part of a Section 529 college savings plan managed by
Putnam Management (some restrictions may apply)
In order to obtain a breakpoint discount, you should inform your financial
advisor at the time you purchase shares of the existence of other accounts
or purchases that are eligible to be linked for the purpose of calculating
the initial sales charge. The fund or your financial advisor may ask you
for records or other information about other shares held in your accounts
and linked accounts, including accounts opened with a different financial
advisor. Restrictions may apply to certain accounts and transactions.
Further details about breakpoint discounts can be found on Putnam
Management's website at www.putnaminvestments.com/individual by selecting
"Mutual Funds," and in the SAI.
Deferred sales charges for class B, class C and certain class A and class M
shares
If you sell (redeem) class B shares within six years of purchase, you will
generally pay a deferred sales charge according to the following schedule.
Year after purchase 1 2 3 4 5 6 7+
------------------------------------------------------------------------------
Charge 5% 4% 3% 3% 2% 1% 0%
A deferred sales charge of 1.00% will apply to class C shares if redeemed
within one year of purchase. Unless otherwise agreed with Putnam Retail
Management, class A shares that are part of a purchase of $1 million or
more (other than by a qualified retirement plan) will be subject to a 1.00%
deferred sales charge if redeemed within one year of purchase and a 0.50%
deferred sales charge if redeemed in the second year after purchase. A
deferred sales charge of 0.65% may apply to class M shares purchased
without a sales charge for certain rollover IRA accounts if redeemed within
one year 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. In
addition to the breakpoint discount methods described above, sales charges
may be reduced or waived under certain circumstances and for certain
groups. Information about reductions and waivers of sales charges,
including deferred sales charges, is included in the SAI. You may consult
your financial advisor or Putnam Retail Management for assistance.
* Distribution (12b-1) plans. The fund has adopted distribution plans to
pay for the marketing of fund shares and for services provided to
shareholders. The plans provide for payments at annual rates (based on
average net assets) of up to 0.35% on class A shares and 1.00% on class B,
class C, class M and class R shares. The Trustees currently limit payments
on class A, class M and class R shares to 0.25%, 0.75% and 0.50% of
average net assets, respectively. Because these fees are paid out of the
fund's assets on an ongoing basis, they will increase the cost of your
investment. The higher fees for class B, class C, class M and class R
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. Class R shares will generally be less
expensive than class B shares for shareholders who are eligible to
purchase either class.
* Payments to dealers. If you purchase your shares through a dealer (the
term "dealer" includes any broker, dealer, bank, bank trust department,
registered investment advisor, financial planner, retirement plan
administrator and any other institution having a selling, services or any
similar agreement with Putnam Retail Management or one of its affiliates),
your dealer generally receives payments from Putnam Retail Management
representing some or all of the sales charges and distribution (12b-1)
fees shown in the tables under the heading "Fees and Expenses" at the
front of this prospectus.
Putnam Retail Management and its affiliates also pay additional
compensation to selected dealers in recognition of their marketing support
and/or program servicing (each of which is described in more detail below).
These payments may create an incentive for a dealer firm or its
representatives to recommend or offer shares of the fund or other Putnam
funds to its customers. These additional payments are made by Putnam Retail
Management and its affiliates and do not increase the amount paid by you or
the fund as shown under the heading "Fees and Expenses."
The additional payments to dealers by Putnam Retail Management and its
affiliates are generally based on one or more of the following factors:
average net assets of a fund attributable to that dealer, sales of a fund
attributable to that dealer, or reimbursement of ticket charges (fees that
a dealer firm charges its representatives for effecting transactions in
fund shares), or on the basis of a negotiated lump sum payment for services
provided.
Marketing support payments, which are generally available to most dealers
engaging in significant sales of Putnam fund shares, are not expected, with
certain limited exceptions, to exceed 0.085% of the average net assets of
Putnam's retail mutual funds attributable to that dealer on an annual
basis.
Program servicing payments, which are paid in some instances to third
parties in connection with investments in the fund by retirement plans and
other investment programs, are not expected, with certain limited
exceptions, to exceed 0.15% of the total assets in the program on an
annual basis.
Putnam Retail Management and its affiliates may make other payments or
allow other promotional incentives to dealers to the extent permitted by
SEC and NASD rules and by other applicable laws and regulations. Certain
dealers also receive payments in recognition of subaccounting or other
services they provide to shareholders or plan participants who invest in
the fund or other Putnam funds through their retirement plan. See the
discussion in the SAI under the heading "Management -- Investor Servicing
Agent and Custodian" for more details.
You can find more details in the SAI about the payments made by Putnam
Retail Management and its affiliates and the services provided by your
dealer. Your dealer may charge you fees or commissions in addition to those
disclosed in this prospectus. You can also ask your dealer about any
payments it receives from Putnam Retail Management and its affiliates and
any services your dealer provides, as well as about fees and/or
commissions it charges.
How do I sell fund shares?
You can sell your shares back to the fund any day the NYSE is open, either
through your financial advisor or directly to the fund. Payment for
redemption may be delayed until the fund collects the purchase price of
shares, which may be up to 10 calendar days after the purchase date.
The fund will impose a short-term trading fee of 2.00% of the total
redemption amount (calculated at market value) if you sell or exchange
your shares after holding them for 5 days or less (including if you
purchased the shares by exchange). The short-term trading fee is paid
directly to the fund and is designed to offset brokerage commissions,
market impact and other costs associated with short-term trading. The
short-term trading fee will not apply in certain circumstances, such as
redemptions in the event of shareholder death or post-purchase disability,
redemptions from accounts established as part of a Section 529 college
savings plan, redemptions from certain omnibus accounts, redemptions made
as part of a systematic withdrawal plan, and redemptions in connection
with periodic portfolio rebalancings of certain wrap accounts or automatic
rebalancing arrangements. In addition, for investors in defined
contribution plans administered by Putnam or a Putnam affiliate, the
short-term trading fee will not apply to redemptions to pay distributions
or loans from such plans, redemptions of shares purchased directly with
contributions by a plan participant or sponsor and redemptions of shares
purchased in connection with loan repayments. These exceptions may also
apply to defined contribution plans administered by third parties that
assess the fund's short-term trading fee. For purposes of determining
whether the short-term trading fee applies, the shares that were held the
longest will be redeemed first. Some financial intermediaries, retirement
plan sponsors or recordkeepers that hold omnibus accounts with the fund
are currently unable or unwilling to assess the fund's short-term trading
fee. Some of these firms use different systems or criteria to assess fees
that are currently higher than, and in some cases in addition to, the
fund's short-term trading fee.
* Selling shares through your financial advisor. Your advisor must receive
your request in proper form before the close of regular trading on the
NYSE for you to receive that day's NAV, less any applicable deferred sales
charge and short-term trading fee. 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 NYSE in order to receive that day's NAV, less any applicable sales
charge and short-term trading fee.
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.
* Payment information. 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. To the extent permitted
by applicable law, the fund may also redeem shares if you own more than a
maximum amount set by the Trustees. There is presently no maximum, but the
Trustees could set a maximum that would apply to both present and future
shareholders.
How do I exchange fund shares?
If you want to switch your investment from one Putnam fund to another, you
can exchange your fund shares for shares of the same class of another
Putnam fund at NAV. Not all Putnam funds offer all classes of shares or are
open to new investors. If you exchange shares subject to a deferred sales
charge, the transaction will not be subject to the deferred sales charge.
When you redeem the shares acquired through the exchange, the redemption
may be subject to the deferred sales charge, depending upon when you
originally purchased the shares. The deferred sales charge will be computed
using the schedule of any fund into or from which you have exchanged your
shares that would result in your paying the highest deferred sales charge
applicable to your class of shares. For purposes of computing the deferred
sales charge, the length of time you have owned your shares will be
measured from the date of original purchase and will not be affected by any
subsequent exchanges among funds.
To exchange your shares, complete and return an Exchange Authorization
Form, which 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. You may also exchange shares via the Internet
at www.putnaminvestments.com. 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.
In order to discourage excessive exchange activity and otherwise to promote
the best interests of the fund, the fund will impose a short-term trading
fee of 2.00% of the total exchange amount (calculated at market value) on
exchanges of shares held for 5 days or less (including shares purchased by
exchange). In the case of defined contribution plans administered by Putnam
or a Putnam affiliate, the 2.00% short-term trading fee will apply to
exchanges of shares purchased by exchange that are held in a plan
participant's account for 5 days or less. The short-term trading fee will
not apply in certain circumstances, such as exchanges in connection with
periodic portfolio rebalancings of certain wrap accounts or automatic
rebalancing arrangements. Some financial intermediaries, retirement plan
sponsors or recordkeepers that hold omnibus accounts with the fund are
currently unable or unwilling to assess the fund's short-term trading fee.
Some of these firms use different systems or criteria to assess fees that
are currently higher than, and in some cases in addition to, the fund's
short-term trading fee.
The fund also 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.
Policy on excessive short-term trading
* Risks of excessive short-term trading. Excessive short-term trading
activity may reduce the fund's performance and harm all fund shareholders
by interfering with portfolio management, increasing the fund's expenses
and diluting the fund's net asset value. Depending on the size and
frequency of short-term trades in the fund's shares, the fund may
experience increased cash volatility, which could require the fund to
maintain undesirably large cash positions or buy or sell portfolio
securities it would not have bought or sold. The need to execute
additional portfolio transactions due to these cash flows may also
increase the fund's brokerage and administrative costs and taxable
distributions to shareholders.
When the fund invests in foreign securities, its performance may be
adversely impacted and the interests of longer-term shareholders may be
diluted as a result of time-zone arbitrage, a short-term trading practice
that seeks to exploit changes in the value of the fund's investments that
result from events occurring after the close of the foreign markets on
which the investments trade, but prior to the later close of trading on the
NYSE, the time as of which the fund determines its net asset value. If an
arbitrageur is successful, he or she may dilute the interests of other
shareholders by trading shares at prices that do not fully reflect their
fair value.
Because the fund invests in securities that may trade infrequently or may
be more difficult to value, such as securities of smaller companies, it may
be susceptible to trading by short-term traders who seek to exploit
perceived price inefficiencies in the fund's investments. In addition, the
market for securities of smaller companies may at times show "market
momentum," in which positive or negative performance may continue from one
day to the next for reasons unrelated to the fundamentals of the issuer.
Short-term traders may seek to capture this momentum by trading frequently
in the fund's shares, which may reduce the fund's performance and dilute
the interests of other shareholders. Because securities of smaller
companies may be less liquid than securities of larger companies, the fund
may also be unable to buy or sell these securities at desirable prices in
response to volatile cash flows caused by short-term trading. Similar risks
may apply if the fund holds other types of less liquid securities,
including below investment grade bonds.
* Fund policies. In order to protect the interests of long-term
shareholders of the fund, Putnam Management and the fund's Trustees have
adopted policies and procedures intended to discourage excessive
short-term trading. The fund seeks to discourage excessive short-term
trading by imposing short-term trading fees and using fair value pricing
procedures to value investments under some circumstances. In addition,
Putnam Management monitors activity in shareholder accounts about which it
possesses the necessary information in order to detect excessive
short-term trading patterns and takes steps to deter excessive short-term
traders.
Putnam Management's Compliance Department currently uses multiple reporting
tools to monitor activity in retail customer accounts for which Putnam
Investor Services maintains records. This review is based on the fund's
internal parameters for detecting excessive short-term trading, which
consider the number of "round trip" transactions above a specified dollar
amount within a specified period of time. These parameters may change from
time to time. If a monitored account engages in short-term trading that
Putnam Management or the fund considers to be excessive or inappropriate,
Putnam Management will issue the investor and the financial intermediary
involved in the activity, if any, a written warning. Continued excessive
short-term trading activity by an investor or intermediary that has
received a warning may lead to the termination of the exchange privilege.
The fund also reserves the right to terminate the exchange privilege
without a warning. In addition, Putnam Management will also communicate
instances of excessive short-term trading to the compliance staff of an
investor's broker, if one is identified.
In addition to enforcing these exchange parameters, Putnam Management and
the fund reserve the right to reject or restrict purchases or exchanges for
any reason. Putnam Management or the fund may determine that an investor's
trading activity is excessive or otherwise potentially harmful based on
various factors, including an investor's or financial intermediary's
trading history in the fund, other Putnam funds or other investment
products, and may aggregate activity in multiple accounts under common
ownership or control. If the fund identifies an investor or intermediary as
a potential excessive trader, it may, among other things, require further
trades to be submitted by mail rather than by phone or over the Internet,
impose limitations on the amount, number, or frequency of future purchases
or exchanges, or temporarily or permanently bar the investor or
intermediary from investing in the fund or other Putnam funds. The fund may
take these steps in its discretion even if the investor's activity may not
have been detected by the fund's current monitoring parameters.
* Limitations on the fund's policies. There is no guarantee that the fund
will be able to detect excessive short-term trading in all accounts. For
example, Putnam Management currently does not have access to sufficient
information to identify each investor's trading history, and in certain
circumstances there are operational or technological constraints on its
ability to enforce the fund's policies. In addition, even when Putnam
Management has sufficient information, its detection methods may not
capture all excessive short-term trading.
In particular, many purchase, redemption and exchange orders are received
from financial intermediaries that hold omnibus accounts with the fund.
Omnibus accounts, in which shares are held in the name of an intermediary
on behalf of multiple beneficial owners, are a common form of holding
shares among retirement plans and financial intermediaries such as brokers,
advisers and third-party administrators. The fund is generally not able to
identify trading by a particular beneficial owner within an omnibus
account, which makes it difficult or impossible to determine if a
particular shareholder is engaging in excessive short-term trading. Putnam
Management monitors aggregate cash flows in omnibus accounts on an ongoing
basis. If high cash flows or other information indicate that excessive
short-term trading may be taking place, Putnam Management will contact the
financial intermediary, plan sponsor or recordkeeper that maintains
accounts for the underlying beneficial owner and attempt to identify and
remedy any excessive trading. However, the fund's ability to monitor and
deter excessive short-term traders in omnibus accounts ultimately depends
on the capabilities and cooperation of these third-party financial firms.
The fund's policies on exchanges may also be modified for accounts held by
certain retirement plans to conform to plan exchange limits or Department
of Labor requirements. A financial intermediary or plan sponsor may impose
different or additional limits on short-term trading.
* Blackout periods for Putnam employees. Putnam Investments imposes
blackout periods on investments in the Putnam funds (other than money
market funds) by its employees and certain family members. Employees of
Putnam Investments and covered family members may not make a purchase
followed by a sale, or a sale followed by a purchase, in any non-money
market Putnam fund within any 90-calendar day period. Members of Putnam
Management's Investment Division, certain senior executives, and certain
other employees with access to investment information, as well as their
covered family members, are subject to a blackout period of one year.
These blackout periods are subject to limited exceptions.
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 are taxable as capital gains. Distributions of gains from
investments that the fund owned for one year or less and gains on the sale
of bonds characterized as market discount are taxable as ordinary income.
Distributions are taxable whether you receive them in cash or reinvest them
in additional shares.
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 certain debt obligations may cause the fund to
recognize taxable income in excess of the cash generated by such
obligations. Thus, the fund could be required at times to liquidate other
investments in order to satisfy its distribution requirements.
The fund's investments in foreign securities may be subject to foreign
withholding taxes. In that case, the fund's return on those investments
would be decreased. Shareholders will not be entitled to claim a credit or
deduction with respect to foreign taxes. In addition, the fund's investment
in foreign securities or foreign currencies may increase or accelerate the
fund's recognition of ordinary income and may affect the timing or amount
of the fund's distributions.
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 tables are intended to help you understand the
fund's recent financial performance. Certain information reflects financial
results for a single fund share. The total returns represent the rate that
an investor would have earned or lost on an investment in the fund,
assuming reinvestment of all dividends and distributions. This information
has been derived from the fund's financial statements, which have been
audited by 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.
[Enlarge/Download Table]
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS A
------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
------------------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.46 $12.32 $13.32 $18.62 $20.26
------------------------------------------------------------------------------------------------------------
Investment operations:
------------------------------------------------------------------------------------------------------------
Net investment income (a) .51 (d) .58 .63 (f) .75 .76
------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.17 3.14 (1.01)(f) (4.27) .30
------------------------------------------------------------------------------------------------------------
Total from investment operations 1.68 3.72 (.38) (3.52) 1.06
------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------
From net investment income (.54) (.58) (.62) (.62) (.77)
------------------------------------------------------------------------------------------------------------
From net realized
gain on investments -- -- -- (1.16) (1.93)
------------------------------------------------------------------------------------------------------------
Total distributions (.54) (.58) (.62) (1.78) (2.70)
------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.60 $15.46 $12.32 $13.32 $18.62
------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 10.92 30.79 (3.20) (19.85) 5.16
------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $592,537 $645,260 $542,156 $657,937 $933,703
------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.09 (d) 1.07 1.08 1.01 .97
------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.09 (d) 4.20 4.63 (f) 4.86 3.86
------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 52.98 93.66 116.36 207.64 176.66
------------------------------------------------------------------------------------------------------------
(a) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service arrangements.
(d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money
Market Fund during the period. As a result of such waivers, the expenses of the fund for the period
ended October 31, 2004 reflect a reduction of less than 0.01% of average net assets for class A shares.
(e) Amount represents less than $0.01 per share.
(f) As required, effective November 1, 2001, the fund adopted the provisions of the AICPA Audit and
Accounting Guide, Audits of Investment Companies, and began amortizing premium on its fixed-income
securities. The effects from this change for the year ended October 31, 2002 were a decrease to net
investment income per share of $0.02, a decrease to net realized and unrealized losses per share of
$0.02 and a decrease to the ratio of net investment income to average net assets of 0.13%. The above per
share information, ratios, and supplemental data for the periods prior to November 1, 2001 have not been
restated to reflect this change in presentation.
[Enlarge/Download Table]
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS B
------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
------------------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.22 $12.14 $13.13 $18.37 $20.02
------------------------------------------------------------------------------------------------------------
Investment operations:
------------------------------------------------------------------------------------------------------------
Net investment income (a) .38 (d) .47 .52 (f) .63 .61
------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.15 3.09 (.99)(f) (4.21) .29
------------------------------------------------------------------------------------------------------------
Total from investment operations 1.53 3.56 (.47) (3.58) .90
------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------
From net investment income (.41) (.48) (.52) (.50) (.62)
------------------------------------------------------------------------------------------------------------
From net realized
gain on investments -- -- -- (1.16) (1.93)
------------------------------------------------------------------------------------------------------------
Total distributions (.41) (.48) (.52) (1.66) (2.55)
------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.34 $15.22 $12.14 $13.13 $18.37
------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 10.10 29.82 (3.91) (20.46) 4.38
------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $99,042 $129,317 $106,343 $143,286 $235,897
------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.84 (d) 1.82 1.83 1.76 1.72
------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.34 (d) 3.45 3.88 (f) 4.09 3.11
------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 52.98 93.66 116.36 207.64 176.66
------------------------------------------------------------------------------------------------------------
(a) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service arrangements.
(d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market
Fund during the period. As a result of such waivers, the expenses of the fund for the period ended
October 31, 2004 reflect a reduction of less than 0.01% of average net assets for class B shares.
(e) Amount represents less than $0.01 per share.
(f) As required, effective November 1, 2001, the fund adopted the provisions of the AICPA Audit and
Accounting Guide, Audits of Investment Companies, and began amortizing premium on its fixed-income
securities. The effects from this change for the year ended October 31, 2002 were a decrease to net
investment income per share of $0.02, a decrease to net realized and unrealized losses per share of
$0.02 and a decrease to the ratio of net investment income to average net assets of 0.13%. The above
per share information, ratios, and supplemental data for the periods prior to November 1, 2001 have
not been restated to reflect this change in presentation.
[Enlarge/Download Table]
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS C
------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
------------------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.38 $12.27 $13.26 $18.55 $20.23
------------------------------------------------------------------------------------------------------------
Investment operations:
------------------------------------------------------------------------------------------------------------
Net investment income (a) .38 (d) .47 .52 (f) .64 .61
------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.16 3.13 (.99)(f) (4.27) .31
------------------------------------------------------------------------------------------------------------
Total from investment operations 1.54 3.60 (.47) (3.63) .92
------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------
From net investment income (.42) (.49) (.52) (.50) (.67)
------------------------------------------------------------------------------------------------------------
From net realized
gain on investments -- -- -- (1.16) (1.93)
------------------------------------------------------------------------------------------------------------
Total distributions (.42) (.49) (.52) (1.66) (2.60)
------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.50 $15.38 $12.27 $13.26 $18.55
------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 10.09 29.79 (3.87) (20.51) 4.45
------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $11,587 $7,178 $3,999 $4,825 $5,545
------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.84 (d) 1.82 1.83 1.76 1.72
------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.32 (d) 3.34 3.87 (f) 4.12 3.17
------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 52.98 93.66 116.36 207.64 176.66
------------------------------------------------------------------------------------------------------------
(a) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service arrangements.
(d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money
Market Fund during the period. As a result of such waivers, the expenses of the fund for the period
ended October 31, 2004 reflect a reduction of less than 0.01% of average net assets for class C shares.
(e) Amount represents less than $0.01 per share.
(f) As required, effective November 1, 2001, the fund adopted the provisions of the AICPA Audit and
Accounting Guide, Audits of Investment Companies, and began amortizing premium on its fixed-income
securities. The effects from this change for the year ended October 31, 2002 were a decrease to net
investment income per share of $0.02, a decrease to net realized and unrealized losses per share of
$0.02 and a decrease to the ratio of net investment income to average net assets of 0.13%. The above
per share information, ratios, and supplemental data for the periods prior to November 1, 2001 have not
been restated to reflect this change in presentation.
[Enlarge/Download Table]
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS M
------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
------------------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.35 $12.24 $13.23 $18.50 $20.13
------------------------------------------------------------------------------------------------------------
Investment operations:
------------------------------------------------------------------------------------------------------------
Net investment income (a) .42 (d) .51 .56 (f) .67 .66
------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.16 3.12 (1.00)(f) (4.24) .31
------------------------------------------------------------------------------------------------------------
Total from investment operations 1.58 3.63 (.44) (3.57) .97
------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------
From net investment income (.45) (.52) (.55) (.54) (.67)
------------------------------------------------------------------------------------------------------------
From net realized
gain on investments -- -- -- (1.16) (1.93)
------------------------------------------------------------------------------------------------------------
Total distributions (.45) (.52) (.55) (1.70) (2.60)
------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.48 $15.35 $12.24 $13.23 $18.50
------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 10.36 30.14 (3.65) (20.27) 4.73
------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $6,790 $9,248 $6,861 $9,345 $15,370
------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.59 (d) 1.57 1.58 1.51 1.47
------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.59 (d) 3.65 4.13 (f) 4.34 3.36
------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 52.98 93.66 116.36 207.64 176.66
------------------------------------------------------------------------------------------------------------
(a) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service arrangements.
(d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money
Market Fund during the period. As a result of such waivers, the expenses of the fund for the period
ended October 31, 2004 reflect a reduction of less than 0.01% of average net assets for class M shares.
(e) Amount represents less than $0.01 per share.
(f) As required, effective November 1, 2001, the fund adopted the provisions of the AICPA Audit and
Accounting Guide, Audits of Investment Companies, and began amortizing premium on its fixed-income
securities. The effects from this change for the year ended October 31, 2002 were a decrease to net
investment income per share of $0.02, a decrease to net realized and unrealized losses per share of
$0.02 and a decrease to the ratio of net investment income to average net assets of 0.13%. The above
per share information, ratios, and supplemental data for the periods prior to November 1, 2001 have
not been restated to reflect this change in presentation.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS R
------------------------------------------------------------------------------
For the
period
December 1,
Per-share 2003+ to
operating performance October 31,
------------------------------------------------------------------------------
2004
------------------------------------------------------------------------------
Net asset value,
beginning of period $15.79
------------------------------------------------------------------------------
Investment operations:
------------------------------------------------------------------------------
Net investment income (a) (b) .43
------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .89
------------------------------------------------------------------------------
Total from investment operations 1.32
------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------
From net investment income (.51)
------------------------------------------------------------------------------
Total distributions (.51)
------------------------------------------------------------------------------
Net asset value, end of period $16.60
------------------------------------------------------------------------------
Total return at
net asset value (%)(c) 8.43*
------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $47
------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) (d) 1.23*
------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 2.60*
------------------------------------------------------------------------------
Portfolio turnover (%) 52.98
------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Reflects waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
October 31, 2004 reflect a reduction of less than 0.01% of average net
assets for class R shares.
(c) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(d) Includes amounts paid through expense offset and brokerage service
arrangements.
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). The amount you choose will be
automatically transferred weekly, semi-monthly or monthly from your
checking or savings account.
* SYSTEMATIC WITHDRAWAL
Make regular withdrawals of $50 or more monthly, quarterly,
semiannually, or annually from your Putnam mutual fund account valued at
$5,000 or more.
* SYSTEMATIC EXCHANGE
Transfer assets automatically from one Putnam account to another on a
regular, prearranged basis.
* EXCHANGE PRIVILEGE
Exchange money between Putnam funds in the same class of shares. 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.
A 2.00% short-term trading fee will apply to exchanges of shares from
Putnam funds (other than money market funds) held for 5 days or less. A
separate 1.00% short-term trading fee may apply to exchanges of shares of
certain Putnam funds that occur within 6 to 90 days of purchase. Please
read the prospectus of the applicable fund for more details.
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.
* 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 financial advisor should notify Putnam Investor
Services that a Statement of Intention is in effect.
Many of these services can be accessed online at
www.putnaminvestments.com.
For more information about any of these services and privileges, call your
financial advisor or a Putnam customer service representative toll free at
1-800-225-1581.
Putnam Family of Funds a
The following is a complete list of Putnam's open-end mutual funds offered
to the public. Please call your financial advisor or Putnam at
1-800-225-1581 to obtain a prospectus for any Putnam fund. It contains
more complete information, including charges and expenses. Please read it
carefully before you invest or send money.
PUTNAM GROWTH FUNDS
Putnam Discovery Growth Fund
Putnam Growth Opportunities Fund
Putnam Health Sciences Trust
Putnam International New Opportunities Fund
Putnam New Opportunities Fund
Putnam OTC & Emerging Growth Fund
Putnam Small Cap Growth Fund
Putnam Vista Fund
Putnam Voyager Fund
PUTNAM BLEND FUNDS
Putnam Capital Appreciation Fund
Putnam Capital Opportunities Fund
Putnam Europe Equity Fund
Putnam Global Equity Fund
Putnam Global Natural Resources Fund
Putnam International Capital Opportunities Fund
Putnam International Equity Fund
Putnam Investors Fund
Putnam Research Fund
Putnam Tax Smart Equity Fund
Putnam Utilities Growth and Income Fund
PUTNAM VALUE FUNDS
Putnam Classic Equity Fund
Putnam Convertible Income-Growth Trust
Putnam Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Putnam International Growth and Income Fund
Putnam Mid Cap Value Fund
Putnam New Value Fund
Putnam Small Cap Value Fund b
PUTNAM INCOME FUNDS
Putnam American Government Income Fund
Putnam Diversified Income Trust
Putnam Floating Rate Income Fund
Putnam Global Income Trust
Putnam High Yield Advantage Fund b
Putnam High Yield Trust
Putnam Income Fund
Putnam Limited Duration Government Income Fund c
Putnam Money Market Fund d
Putnam Prime Money Market Fund d
Putnam U.S. Government Income Trust
PUTNAM TAX-FREE INCOME FUNDS
Putnam AMT-Free Insured Municipal Fund e
Putnam Municipal Income Fund b
Putnam Tax Exempt Income Fund
Putnam Tax Exempt Money Market Fund d
Putnam Tax-Free High Yield Fund
Putnam State Tax-Free Income Funds f
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
PUTNAM ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
PUTNAM RETIREMENTREADY[REGISTRATION MARK] FUNDS
Putnam RetirementReady Funds -- nine investment portfolios that offer
diversification among stocks, bonds and money market instruments and
adjust to become more conservative over time based on a target date for
withdrawing assets.
Putnam RetirementReady 2045 Fund
Putnam RetirementReady 2040 Fund
Putnam RetirementReady 2035 Fund
Putnam RetirementReady 2030 Fund
Putnam RetirementReady 2025 Fund
Putnam RetirementReady 2020 Fund
Putnam RetirementReady 2015 Fund
Putnam RetirementReady 2010 Fund
Putnam RetirementReady Maturity Fund
a As of 12/31/04.
b Closed to new investors.
c Prior to 11/30/04, Putnam Intermediate U.S. Government Income Fund.
d An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although these funds seek to preserve your investment at $1.00 per share,
it is possible to lose money by investing in such funds.
e Prior to 11/30/04, Putnam Tax-Free Insured Fund.
f Not available in all states.
For more information
about Putnam Convertible
Income-Growth Trust
The fund's SAI and annual and semi-annual reports to shareholders include
additional information about the fund. The SAI, and the independent
registered public accounting firm's report and the financial statements
included in the fund's most recent annual report to its shareholders, are
incorporated by reference into this prospectus, which means they are part
of this prospectus for legal purposes. The fund's annual report discusses
the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year. You may get
free copies of these materials, request other information about any Putnam
fund, or make shareholder inquiries, by contacting your financial advisor,
by visiting Putnam's Internet site, or by calling Putnam toll-free at
1-800-225-1581.
You may review and copy information about a fund, including its SAI, at
the Securities and Exchange Commission's Public Reference Room in
Washington, D.C. You may call the Commission at 1-202-942-8090 for
information about the operation of the Public Reference Room. You may also
access reports and other information about the fund on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. You may get
copies of this information, with payment of a duplication fee, by
electronic request at the following E-mail address: publicinfo@sec.gov, or
by writing the Commission's Public Reference Section, Washington, D.C.
20549-0102. You may need to refer to the fund's file number.
PUTNAM INVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
1-800-225-1581
Address correspondence to
Putnam Investor Services
P.O. Box 41203
Providence, Rhode Island 02940-1203
www.putnaminvestments.com
File No. 811-02280 NP019 221624 2/05
Prospectus
February 28, 2005
Putnam Convertible Income-Growth Trust
Class A shares -- for eligible retirement plans
Investment Category: Value
This prospectus explains what you should know about this mutual fund
before you invest. Please read it carefully. This prospectus only offers
class A shares of the fund without a sales charge to eligible retirement
plans.
Putnam Investment Management, LLC (Putnam Management), which has managed
mutual funds since 1937, manages the fund.
These securities have not been approved or disapproved by the Securities
and Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this prospectus. Any statement to the contrary is a crime.
CONTENTS
2 Fund summary
2 Goal
2 Main investment strategies
2 Main risks
3 Performance information
4 Fees and expenses
4 What are the fund's main investment strategies and related risks?
10 Who manages the fund?
12 How does the fund price its shares?
13 How do I buy fund shares?
15 How do I sell fund shares?
16 How do I exchange fund shares?
17 Policy on excessive short-term trading
19 Fund distributions and taxes
20 Financial highlights
[SCALE LOGO OMITTED]
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. Under normal
circumstances, we invest at least 80% of the fund's net assets in
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 are convertible
into value stocks and a significant portion are below investment-grade.
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 the prices of the fixed-income investments we buy will
fall if interest rates rise. Interest rate risk is generally higher for
investments with longer maturities.
* The risk that the issuers of the fund's investments 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]
CALENDAR YEAR TOTAL RETURNS
1995 23.81%
1996 17.82%
1997 19.64%
1998 4.84%
1999 17.49%
2000 -8.44%
2001 -8.12%
2002 -5.48%
2003 31.77%
2004 11.36%
During the periods shown in the bar chart, the highest return for a quarter
was 12.63% (quarter ending 6/30/03) and the lowest return for a quarter was
-12.95% (quarter ending 9/30/01).
Average Annual Total Returns (for periods ending 12/31/04)
------------------------------------------------------------------------------
Past Past Past
1 year 5 years 10 years
------------------------------------------------------------------------------
Class A 11.36% 3.13% 9.63%
Goldman Sachs
Convertible 100 Index 7.95% 2.58% 9.84%
S&P 500 Index 10.88% -2.30% 12.07%
------------------------------------------------------------------------------
Class A share performance reflects the waiver of sales charges for
purchases through eligible retirement plans.
The fund's performance is compared to the Goldman Sachs Convertible 100
Index, an unmanaged index with a target of 100 securities, including
convertible bonds, preferred stocks, and mandatory convertible securities,
and includes reinvested dividends. The fund's performance is also compared
to the S&P 500 Index, an unmanaged index of common stocks frequently used
as a general measure of U.S. stock performance.
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) NONE
Maximum Redemption Fee*
(as a percentage of total redemption proceeds) 2.00%
------------------------------------------------------------------------------
Annual Fund Operating Expenses+
(expenses that are deducted from fund assets)
------------------------------------------------------------------------------
Distribution Total Annual
Management (12b-1) Other Fund Operating
Fees Fees Expenses Expenses
------------------------------------------------------------------------------
Class A 0.62% 0.25% 0.22% 1.09%
------------------------------------------------------------------------------
* A 2.00% redemption fee (also referred to as a "short-term trading fee")
may apply to any shares that are redeemed (either by selling or exchanging
into another fund) within 5 days of purchase.
+ See the section "Who manages the fund?" for a discussion of regulatory
matters and litigation.
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 5.00% 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 $111 $347 $601 $1,329
------------------------------------------------------------------------------
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. We will consider, among other factors, a company's
financial strength, competitive position in its industry, projected future
earnings, cash flows and dividends when deciding whether to buy or sell
investments. A description of the risks associated with the fund's main
investment strategies follows.
* Interest rate risk. The values of bonds and other debt instruments usually
rise and fall in response to changes in interest rates. Declining interest
rates generally increase the value of existing debt instruments, and rising
interest rates generally decrease the value of existing debt instruments.
Changes in a debt instrument's value usually will not affect the amount of
interest income paid to the fund, but will affect the value of the fund's
shares. Interest rate risk is generally greater for investments with longer
maturities.
Some investments give the issuer the option to call or redeem an investment
before its maturity date. If an issuer calls or redeems an investment
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 coupon rates higher than prevailing market
rates. However, they involve a greater risk of loss, because their values
tend to decline over time.
* Credit risk. Investors normally expect to be compensated in proportion to
the risk they are assuming. Thus, debt of issuers with poor credit prospects
usually offers higher yields than debt of issuers with more secure credit.
Higher-rated investments generally have lower credit risk.
We invest significantly in below 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 a 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 are unrated securities that we believe are of comparable
quality. We will not necessarily sell an investment if its rating is
reduced after we buy it.
Investments rated below BBB or its equivalent are known as "junk bonds."
This rating reflects a greater possibility that the issuers may be unable to
make timely payments of interest and principal and thus default. If this
happens, or is perceived as likely to happen, the values of those
investments will usually be more volatile and are likely to fall. A default
or expected default could also make it difficult for us to sell the
investments at prices approximating the values we had placed on them.
Lower-rated debt usually has a more limited market than higher-rated debt,
which may at times make it difficult for us to buy or sell certain debt
instruments or to establish their fair value. Credit risk is generally
greater for investments that are issued at less than their face value and
that are required to make interest payments only at maturity rather than at
intervals during the life of the investment. Although investment-grade
investments generally have lower credit risk, they may share some of the
risks of lower-rated investments.
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 in buying lower-rated
debt than it does in buying 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.
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.
* Common stocks. Common stock represents an ownership interest in a company.
The value of a company's stock may fall as a result of factors directly
relating to that company, such as decisions made by its management or lower
demand for the company's products or services. A stock's value may also fall
because of factors affecting not just the company, but also companies in the
same industry or in a number of different industries, such as increases in
production costs. The value of a company's stock may also be affected by
changes in financial markets that are relatively unrelated to the company or
its industry, such as changes in interest rates or currency exchange rates.
In addition, a company's stock generally pays dividends only after the
company invests in its own business and makes required payments to holders
of its bonds and other debt. For this reason, the value of a company's stock
will usually react more strongly than its bonds and other debt to actual or
perceived changes in the company's financial condition or prospects. Stocks
of smaller companies may be more vulnerable to adverse developments than
those of larger companies.
Companies we believe are undergoing positive change and whose stock we
believe is undervalued by the market may have experienced adverse business
developments or may be subject to special risks that have caused their
stocks to be out of favor. If our assessment of a company's prospects is
wrong, or if other investors do not similarly recognize the value of the
company, then the price of the company's stock may fall or may not approach
the value that we have placed on it.
* Foreign investments. We may invest in foreign investments. Foreign
investments involve certain special risks. For example, their values may
decline in response to changes in currency exchange rates, unfavorable
political and legal developments, unreliable or untimely information, and
economic and financial instability. In addition, the liquidity of these
investments may be more limited than for most U.S. investments, which means
we may at times be unable to sell them at desirable prices. Foreign
settlement procedures may also involve additional risks. These risks are
generally greater in the case of developing (also known as emerging) markets
with less developed legal and financial systems.
Certain of these risks may also apply to some extent to U.S.-traded
investments that are denominated in foreign currencies, investments in U.S.
companies that are traded in foreign markets or investments in U.S.
companies that have significant foreign operations.
* Small and midsized companies. These companies, some of which may have a
market capitalization of less than $1 billion, are more likely than larger
companies to have limited product lines, markets or financial resources, or
to depend on a small, inexperienced management group. Stocks of these
companies often trade less frequently and in limited volume, and their
prices may fluctuate more than stocks of larger companies. Stocks of small
and midsized companies may therefore be more vulnerable to adverse
developments than those of larger companies.
* Derivatives. We may engage in a variety of transactions involving
derivatives, such as futures, options, warrants and swap contracts.
Derivatives are financial instruments whose value depends upon, or is
derived from, the value of something else, such as one or more underlying
investments, pools of investments, indexes or currencies. We may use
derivatives both for hedging and non-hedging purposes. However, we may also
choose not to use derivatives, based on our evaluation of market conditions
or the availability of suitable derivatives. Investments in derivatives may
be applied toward meeting a requirement to invest in a particular kind of
investment if the derivatives have economic characteristics similar to that
investment.
Derivatives involve special risks and may result in losses. The successful
use of derivatives depends on our ability to manage these sophisticated
instruments. The prices of derivatives may move in unexpected ways due to
the use of leverage or other factors, especially in unusual market
conditions, and may result in increased volatility.
Other risks arise from our potential inability to terminate or sell
derivatives positions. A liquid secondary market may not always exist for
the fund's derivatives positions at any time. In fact, many
over-the-counter instruments (investments not traded on an exchange) will
not be liquid. Over-the-counter instruments also involve the risk that the
other party to the derivative transaction will not meet its obligations.
For further information about the risks of derivatives, see the statement
of additional information (SAI).
* Other investments. In addition to the main investment strategies described
above, we may make other types of investments, such as investments in
non-convertible preferred stocks and asset-backed securities, which may be
subject to other risks, as described in the SAI.
* Alternative strategies. Under normal market conditions, we keep the fund's
portfolio fully invested, with minimal cash holdings. However, at times we
may judge that market conditions make pursuing the fund's usual investment
strategies inconsistent with the best interests of its shareholders. We then
may temporarily use alternative strategies that are mainly designed to limit
losses. However, we may choose not to use these strategies for a variety of
reasons, even in very volatile market conditions. These strategies may cause
the fund to miss out on investment opportunities, and may prevent the fund
from achieving its goal.
* Changes in policies. The Trustees may change the fund's goal, investment
strategies and other policies without shareholder approval, except as
otherwise indicated.
* Portfolio transactions and portfolio turnover rate. Transactions on stock
exchanges, commodities markets and futures markets involve the payment by
the fund of brokerage commissions. The fund paid $358,946 in brokerage
commissions during the last fiscal year, representing 0.05% of the fund's
average net assets. Of this amount, $31,370, representing less than 0.01% of
the fund's average net assets, was paid to brokers who also provided
research services. Additional information regarding Putnam's brokerage
selection procedures is included in the SAI.
Although brokerage commissions and other portfolio transaction costs are
not reflected in the fund's Total Annual Fund Operating Expenses ratio (as
shown in the Annual Fund Operating Expenses table in the section "Fees and
expenses"), they are reflected in the fund's total return. Combining the
brokerage commissions paid by the fund during the last fiscal year (as a
percentage of the fund's average net assets) with the fund's Total Annual
Fund Operating Expenses ratio for class A shares results in a "combined
cost ratio" of 1.14% of the fund's average net assets for class A shares
for the last fiscal year.
Investors should exercise caution in comparing brokerage commissions and
combined cost ratios for different types of funds. For example, while
brokerage commissions represent one component of the fund's transaction
costs, they do not reflect any undisclosed amount of profit or "mark-up"
included in the price paid by the fund for principal transactions
(transactions made directly with a dealer or other counterparty), including
most fixed income securities and certain derivatives. In addition,
brokerage commissions do not reflect other elements of transaction costs,
including the extent to which the fund's purchase and sale transactions may
change the market price for an investment (the "market impact").
Another factor in transaction costs is the fund's portfolio turnover rate,
which measures how frequently the fund buys and sells investments. During
the past five years, the fund's fiscal year portfolio turnover rate and the
average turnover rate for the fund's Lipper
category were as follows.
Turnover Comparison
------------------------------------------------------------------------------
2004 2003 2002 2001 2000
------------------------------------------------------------------------------
Putnam Convertible
Income-Growth Trust 53% 94% 116% 208% 177%
Lipper Convertible
Securities Funds Average* 104% 97% 108% 130% 145%
------------------------------------------------------------------------------
* Average portfolio turnover rate of funds viewed by Lipper Inc. as having
the same investment classification or objective as the fund. The Lipper
category average portfolio turnover rate is calculated using the portfolio
turnover rate for the fiscal year end of each fund in the Lipper category.
Fiscal years may vary across funds in the Lipper category, which may limit
the comparability of the fund's portfolio turnover rate to the Lipper
average. Comparative data for the last fiscal year is based on information
available as of December 31, 2004.
Both the fund's portfolio turnover rate and the amount of brokerage
commissions it pays will vary over time based on market conditions. High
turnover may lead to increased costs and decreased performance.
Putnam Management is not permitted to consider sales of shares of the fund
(or of the other Putnam funds) as a factor in the selection of
broker-dealers to execute portfolio transactions for the fund.
* Portfolio holdings. The SAI includes a description of the fund's policies
with respect to the disclosure of its portfolio holdings. For information on
the fund's portfolio, you may visit the Putnam Investments Web site,
www.putnaminvestments.com/individual, where the fund's top equity holdings
and related portfolio information may be viewed monthly beginning 10
business days after the end of each month, and full portfolio holdings may
be viewed beginning on the last business day of the month after the end of
each calendar quarter. This information will remain available on the Web
site until the fund files a Form N-CSR or N-Q with the Securities and
Exchange Commission (SEC) for the period that includes the date of the
information.
Who manages the fund?
The fund's Trustees oversee the general conduct of the fund's business. The
Trustees have retained Putnam Management to be the fund's investment
manager, responsible for making investment decisions for the fund and
managing the fund's other affairs and business. The fund pays Putnam
Management a quarterly management fee for these services based on the
fund's average net assets. The fund paid Putnam Management a management fee
of 0.62% of average net assets for the fund's last fiscal year. Putnam
Management's address is One Post Office Square, Boston, MA 02109.
* Investment management teams. Putnam Management's investment professionals
are organized into investment management teams, with a particular team
dedicated to a specific asset class. The members of the Large Cap Value Team
are responsible for the day-to-day management of the fund. The names of all
team members can be found at www.putnaminvestments.com.
The following team member coordinates the team's management of the fund's
portfolio. His experience as an investment professional over at least the
last five years is shown.
------------------------------------------------------------------------------
Positions Over
Portfolio Leader Since Employer Past Five Years
------------------------------------------------------------------------------
David L. King 2002 Putnam Management Senior Portfolio Manager
1983 - Present
------------------------------------------------------------------------------
* Fund ownership. The table below shows the dollar range of shares of the
fund owned by the professional listed above on November 30, 2004 and
November 30, 2003, including investments by his immediate family members and
amounts invested through retirement and deferred compensation plans.
[Enlarge/Download Table]
Fund Portfolio Leader
-------------------------------------------------------------------------------------------------------------
$1 - $10,001 - $50,001 - $100,001 - $500,001 - $1,000,001
Year $0 $10,000 $50,000 $100,000 $500,000 $1,000,000 and over
-------------------------------------------------------------------------------------------------------------
David L. King 2004 *
-------------------------------------------------------------------------------------------------------------
Portfolio Leader 2003 *
-------------------------------------------------------------------------------------------------------------
* Other funds managed by the Portfolio Leader. As of the fund's fiscal
year-end, David L. King was also a Portfolio Leader of Putnam High Income
Bond Fund, Putnam High Income Opportunities Trust, and Putnam New Value
Fund. David L. King was also a Portfolio Member of The Putnam Fund for
Growth and Income.
David L. King may also manage other accounts managed by Putnam Management
or an affiliate.
* Changes in the fund's Portfolio Leader and Portfolio Member. After the
fund's fiscal year ended October 31, 2004, Portfolio Member George Maris
left the fund's management team. David L. King has served as Portfolio
Leader of the Fund since May 2002, when Putnam Management introduced this
designation.
* Investment in the fund by Putnam employees and the Trustees. As of
November 30, 2004, all of the 13 Trustees of the Putnam funds owned fund
shares. The table shows the approximate value of investments in the fund and
all Putnam funds as of that date by Putnam employees and the fund's
Trustees, including in each case investments by their immediate family
members and amounts invested through retirement and deferred compensation
plans.
------------------------------------------------------------------------------
Fund All Putnam funds
------------------------------------------------------------------------------
Putnam employees $3,522,000 $463,815,000
------------------------------------------------------------------------------
Trustees $645,000 $47,311,000
------------------------------------------------------------------------------
* Compensation of investment professionals. Putnam Management believes that
its investment management teams should be compensated primarily based on
their success in helping investors achieve their goals. The portion of
Putnam Investments' total incentive compensation pool that is available to
Putnam Management's Investment Division is based primarily on its delivery,
across all of the portfolios it manages, of consistent, dependable and
superior performance over time. The peer group for the fund, Convertible
Securities Funds, is its broad investment category as determined by Lipper
Inc. The portion of the incentive compensation pool available to your
investment management team is also based primarily on its delivery, across
all of the portfolios it manages, of consistent, dependable and superior
performance over time.
* Consistent performance means being above median over one year.
* Dependable performance means not being in the 4th quartile of the peer
group over one, three or five years.
* Superior performance (which is the largest component of Putnam
Management's incentive compensation program) means being in the top third of
the peer group over three and five years.
In determining an investment management team's portion of the incentive
compensation pool and allocating that portion to individual team members,
Putnam Management retains discretion to reward or penalize teams or
individuals as it deems appropriate, based on other factors. The size of
the overall incentive compensation pool each year is determined by Putnam
Management's parent company, Marsh & McLennan Companies, Inc., and depends
in large part on Putnam's profitability for the year. Incentive
compensation generally represents at least 70% of the total compensation
paid to investment team members.
* Regulatory matters and litigation. On April 8, 2004, Putnam Management
entered into agreements with the Securities and Exchange Commission and the
Massachusetts Securities Division representing a final settlement of all
charges brought against Putnam Management by those agencies on October 28,
2003 in connection with excessive short-term trading by Putnam employees
and, in the case of the charges brought by the Massachusetts Securities
Division, by participants in some Putnam-administered 401(k) plans. The
settlement with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, and the
settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine of
$50 million. The settlements also leave intact the process established under
an earlier partial settlement with the SEC under which Putnam Management
agreed to pay the amount of restitution determined by an independent
consultant, which may exceed the disgorgement and restitution amounts
specified above, pursuant to a plan to be developed by the independent
consultant.
Putnam Management, and not the investors in any Putnam fund, will bear all
costs, including restitution, civil penalties and associated legal fees
stemming from both of these proceedings. The SEC's and Massachusetts
Securities Division's allegations and related matters also serve as the
general basis for numerous lawsuits, including purported class action
lawsuits filed against Putnam Management and certain related parties,
including certain Putnam funds. Putnam Management has agreed to bear any
costs incurred by Putnam funds in connection with these lawsuits. Based on
currently available information, Putnam Management believes that the
likelihood that the pending private lawsuits and purported class action
lawsuits will have a material adverse financial impact on the fund is
remote, and the pending actions are not likely to materially affect its
ability to provide investment management services to its clients, including
the Putnam funds.
The fund may experience increased redemptions as a result of
these matters, which could result in increased transaction costs
and operating expenses.
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 (NYSE) 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. For
example, the fund may value a stock traded on a U.S. exchange at its fair
value when the exchange closes early or trading in the stock is suspended.
It may also value a stock at fair value if recent transactions in the stock
have been very limited or material information about the issuer becomes
available after the close of the relevant market. The value determined for
an investment using the fund's fair value pricing procedures may differ
from recent market prices for the investment.
The fund translates prices for its investments quoted in foreign currencies
into U.S. dollars at current exchange rates, which are generally determined
as of 11:00 a.m. Eastern time each day the NYSE is open. As a result,
changes in the value of those currencies in relation to the U.S. dollar may
affect the fund's NAV. If there has been a movement in the U.S. currency
market that exceeds a specified threshold that may change from time to
time, the fund will generally use exchange rates determined as of 3:00 p.m.
Eastern time. Because foreign markets may be open at different times than
the NYSE, the value of the fund's shares may change on days when
shareholders are not able to buy or sell them. Many securities markets and
exchanges outside the U.S. close prior to the close of the NYSE and
therefore the closing prices for securities in such markets or on such
exchanges may not fully reflect events that occur after such close but
before the close of the NYSE. As a result, the fund has adopted fair value
pricing procedures, which, among other things, require the fund to fair
value foreign equity securities if there has been a movement in the U.S.
market that exceeds a specified threshold that may change from time to
time. As noted above, the value determined for an investment using the
fund's fair value pricing procedures may differ from recent market prices
for the investment.
How do I buy fund shares?
All orders to purchase shares must be made through your employer's
retirement plan. For more information about how to purchase shares of the
fund through your employer's plan or limitations on the amount that may be
purchased, please consult your employer.
Putnam Retail Management generally must receive your plan's completed buy
order before the close of regular trading on the NYSE 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.
Mutual funds must obtain and verify information that identifies investors
opening new accounts. If the fund is unable to collect the required
information, Putnam Investor Services may not be able to open your fund
account. Investors must provide their full name, residential or business
address, Social Security or tax identification number, and date of birth.
Entities, such as trusts, estates, corporations and partnerships, must also
provide other identifying information. Putnam Investor Services may share
identifying information with third parties for the purpose of verification.
If Putnam Investor Services cannot verify identifying information after
opening your account, the fund reserves the right to close your account.
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.
* 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.
* Payments to dealers. If you purchase your shares through a dealer (the
term "dealer" includes any broker, dealer, bank, bank trust department,
registered investment advisor, financial planner, retirement plan
administrator and any other institution having a selling, services or any
similar agreement with Putnam Retail Management or one of its affiliates),
your dealer generally receives payments from Putnam Retail Management
representing some or all of the sales charges and distribution (12b-1) fees
shown in the tables under the heading "Fees and Expenses" at the front of
this prospectus.
Putnam Retail Management and its affiliates also pay additional
compensation to selected dealers in recognition of their marketing support
and/or program servicing (each of which is described in more detail below).
These payments may create an incentive for a dealer firm or its
representatives to recommend or offer shares of the fund or other Putnam
funds to its customers. These additional payments are made by Putnam Retail
Management and its affiliates and do not increase the amount paid by you or
the fund as shown under the heading "Fees and Expenses."
The additional payments to dealers by Putnam Retail Management and its
affiliates are generally based on one or more of the following factors:
average net assets of a fund attributable to that dealer, sales of a fund
attributable to that dealer, or reimbursement of ticket charges (fees that
a dealer firm charges its representatives for effecting transactions in
fund shares), or on the basis of a negotiated lump sum payment for services
provided.
Marketing support payments, which are generally available to most dealers
engaging in significant sales of Putnam fund shares, are not expected, with
certain limited exceptions, to exceed 0.085% of the average net assets of
Putnam's retail mutual funds attributable to that dealer on an annual
basis.
Program servicing payments, which are paid in some instances to third
parties in connection with investments in the fund by retirement plans and
other investment programs, are not expected, with certain limited
exceptions, to exceed 0.15% of the total assets in the program on an annual
basis.
Putnam Retail Management and its affiliates may make other payments or
allow other promotional incentives to dealers to the extent permitted by
SEC and NASD rules and by other applicable laws and regulations. Certain
dealers also receive payments in recognition of subaccounting or other
services they provide to shareholders or plan participants who invest in
the fund or other Putnam funds through their retirement plan. See the
discussion in the SAI under the heading "Management -- Investor Servicing
Agent and Custodian" for more details.
You can find more details in the SAI about the payments made by Putnam
Retail Management and its affiliates and the services provided by your
dealer. Your dealer may charge you fees or commissions in addition to those
disclosed in this prospectus. You can also ask your dealer about any
payments it receives from Putnam Retail Management and its affiliates and
any services your dealer provides, as well as about fees and/or commissions
it charges.
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 NYSE 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.
The fund will impose a short-term trading fee of 2.00% of the total
redemption amount (calculated at market value) if you sell or exchange your
shares after holding them for 5 days or less (including if you purchased
the shares by exchange). The short-term trading fee is paid directly to the
fund and is designed to offset brokerage commissions, market impact and
other costs associated with short-term trading. For investors in defined
contribution plans administered by Putnam or a Putnam affiliate, the
short-term trading fee will not apply in certain circumstances, such as
redemptions to pay distributions or loans from such plans, redemptions of
shares purchased directly with contributions by a plan participant or
sponsor, redemptions of shares purchased in connection with loan
repayments, redemptions in the event of shareholder death or post-purchase
disability, redemptions made as part of a systematic withdrawal plan and
redemptions from certain omnibus accounts. These exceptions may also apply
to defined contribution plans administered by third parties that assess the
fund's short-term trading fee. For purposes of determining whether the
short-term trading fee applies, the shares that were held the longest will
be redeemed first. Some financial intermediaries, retirement plan sponsors
or recordkeepers that hold omnibus accounts with the fund are currently
unable or unwilling to assess the fund's short-term trading fee. Some of
these firms use different systems or criteria to assess fees that are
currently higher than, and in some cases in addition to, the fund's
short-term trading fee.
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 NYSE.
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.
In order to discourage excessive exchange activity and otherwise to promote
the best interests of the fund, the fund will impose a short-term trading
fee of 2.00% of the total exchange amount (calculated at market value) on
exchanges of shares held for 5 days or less (including shares purchased by
exchange). In the case of defined contribution plans administered by Putnam
or a Putnam affiliate, the 2.00% short-term trading fee will apply to
exchanges of shares purchased by exchange that are held in a plan
participant's account for 5 days or less. Some financial intermediaries,
retirement plan sponsors or recordkeepers that hold omnibus accounts with
the fund are currently unable or unwilling to assess the fund's short-term
trading fee. Some of these firms use different systems or criteria to
assess fees that are currently higher than, and in some cases in addition
to, the fund's short-term trading fee.
The fund also 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.
Policy on excessive short-term trading
* Risks of excessive short-term trading. Excessive short-term trading
activity may reduce the fund's performance and harm all fund shareholders by
interfering with portfolio management, increasing the fund's expenses and
diluting the fund's net asset value. Depending on the size and frequency of
short-term trades in the fund's shares, the fund may experience increased
cash volatility, which could require the fund to maintain undesirably large
cash positions or buy or sell portfolio securities it would not have bought
or sold. The need to execute additional portfolio transactions due to these
cash flows may also increase the fund's brokerage and administrative costs.
When the fund invests in foreign securities, its performance may be
adversely impacted and the interests of longer-term shareholders may be
diluted as a result of time-zone arbitrage, a short-term trading practice
that seeks to exploit changes in the value of the fund's investments that
result from events occurring after the close of the foreign markets on
which the investments trade, but prior to the later close of trading on the
NYSE, the time as of which the fund determines its net asset value. If an
arbitrageur is successful, he or she may dilute the interests of other
shareholders by trading shares at prices that do not fully reflect their
fair value.
Because the fund invests in securities that may trade infrequently or may
be more difficult to value, such as securities of smaller companies, it may
be susceptible to trading by short-term traders who seek to exploit
perceived price inefficiencies in the fund's investments. In addition, the
market for securities of smaller companies may at times show "market
momentum," in which positive or negative performance may continue from one
day to the next for reasons unrelated to the fundamentals of the issuer.
Short-term traders may seek to capture this momentum by trading frequently
in the fund's shares, which may reduce the fund's performance and dilute
the interests of other shareholders. Because securities of smaller
companies may be less liquid than securities of larger companies, the fund
may also be unable to buy or sell these securities at desirable prices in
response to volatile cash flows caused by short-term trading. Similar risks
may apply if the fund holds other types of less liquid securities,
including below investment grade bonds.
* Fund policies. In order to protect the interests of long-term shareholders
of the fund, Putnam Management and the fund's Trustees have adopted policies
and procedures intended to discourage excessive short-term trading. The fund
seeks to discourage excessive short-term trading by imposing short-term
trading fees and using fair value pricing procedures to value investments
under some circumstances. In addition, Putnam Management monitors activity
in shareholder accounts about which it possesses the necessary information
in order to detect excessive short-term trading patterns and takes steps to
deter excessive short-term traders.
Putnam Management and the fund reserve the right to reject or restrict
purchases or exchanges for any reason. Putnam Management or the fund may
determine that an investor's trading activity is excessive or otherwise
potentially harmful based on various factors, including an investor's or
financial intermediary's trading history in the fund, other Putnam funds or
other investment products, and may aggregate activity in multiple accounts
under common ownership or control. If the fund identifies an investor or
intermediary as a potential excessive trader, it may, among other things,
impose limitations on the amount, number, manner, or frequency of future
purchases or exchanges or temporarily or permanently bar the investor or
intermediary from investing in the fund or other Putnam funds. The fund may
take these steps in its discretion even if the investor's activity may not
have been detected by the fund's current monitoring parameters.
* Limitations on the fund's policies. There is no guarantee that the fund
will be able to detect excessive short-term trading in all accounts. For
example, Putnam Management currently does not have access to sufficient
information to identify each investor's trading history, and in certain
circumstances there are operational or technological constraints on its
ability to enforce the fund's policies. In addition, even when Putnam
Management has sufficient information, its detection methods may not capture
all excessive short-term trading.
In particular, many purchase, redemption and exchange orders are received
from financial intermediaries that hold omnibus accounts with the fund.
Omnibus accounts, in which shares are held in the name of an intermediary
on behalf of multiple beneficial owners, are a common form of holding
shares among retirement plans and financial intermediaries such as brokers,
advisers and third-party administrators. The fund is generally not able to
identify trading by a particular beneficial owner within an omnibus
account, which makes it difficult or impossible to determine if a
particular shareholder is engaging in excessive short-term trading. Putnam
Management monitors aggregate cash flows in omnibus accounts on an ongoing
basis. If high cash flows or other information indicate that excessive
short-term trading may be taking place, Putnam Management will contact the
financial intermediary, plan sponsor or recordkeeper that maintains
accounts for the underlying beneficial owner and attempt to identify and
remedy any excessive trading. However, the fund's ability to monitor and
deter excessive short-term traders in omnibus accounts ultimately depends
on the capabilities and cooperation of these third-party financial firms.
The fund's policies on exchanges may also be modified for accounts held by
certain retirement plans to conform to plan exchange limits or Department
of Labor requirements. A financial intermediary or plan sponsor may impose
different or additional limits on short-term trading.
* Blackout periods for Putnam employees. Putnam Investments imposes blackout
periods on investments in the Putnam funds (other than money market funds)
by its employees and certain family members. Employees of Putnam Investments
and covered family members may not make a purchase followed by a sale, or a
sale followed by a purchase, in any non-money market Putnam fund within any
90-calendar day period. Members of Putnam Management's Investment Division,
certain senior executives, and certain other employees with access to
investment information, as well as their covered family members, are subject
to a blackout period of one year. These blackout periods are subject to
limited exceptions.
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 you do not select another option, all distributions will be
reinvested in additional fund shares.
Generally, for federal income tax purposes, fund distributions are taxable
as ordinary income, except that any distributions of long-term capital
gains will be taxed as such regardless of how long you have held your
shares. However, distributions by the fund to retirement plans that qualify
for tax-exempt treatment under federal income tax laws will not be taxable.
Special tax rules apply to investments through such plans. You should
consult your tax advisor to determine the suitability of the fund as an
investment through such a plan and the tax treatment of distributions
(including distributions of amounts attributable to an investment in the
fund) from such a plan.
The fund's investments in certain debt obligations may cause the fund to
recognize taxable income in excess of the cash generated by such
obligations. Thus, the fund could be required at times to liquidate other
investments in order to satisfy its distribution requirements.
The fund's investments in foreign securities may be subject to foreign
withholding taxes. In that case, the fund's return on those investments
would be decreased.
You should consult your tax advisor for more information on your own tax
situation, including possible foreign, state and local taxes.
Financial highlights
The financial highlights table is intended to help you understand the
fund's recent financial performance. Certain information reflects financial
results for a single fund share. The total returns represent the rate that
an investor would have earned or lost on an investment in the fund,
assuming reinvestment of all dividends and distributions. This information
has been derived from the fund's financial statements, which have been
audited by 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.
[Enlarge/Download Table]
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS A
------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
------------------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.46 $12.32 $13.32 $18.62 $20.26
------------------------------------------------------------------------------------------------------------
Investment operations:
------------------------------------------------------------------------------------------------------------
Net investment income (a) .51 (d) .58 .63 (f) .75 .76
------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.17 3.14 (1.01)(f) (4.27) .30
------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.68 3.72 (.38) (3.52) 1.06
------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------
From net
investment income (.54) (.58) (.62) (.62) (.77)
------------------------------------------------------------------------------------------------------------
From net realized
gain on investments -- -- -- (1.16) (1.93)
------------------------------------------------------------------------------------------------------------
Total distributions (.54) (.58) (.62) (1.78) (2.70)
------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.60 $15.46 $12.32 $13.32 $18.62
------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 10.92 30.79 (3.20) (19.85) 5.16
------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $592,537 $645,260 $542,156 $657,937 $933,703
------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.09 (d) 1.07 1.08 1.01 .97
------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.09 (d) 4.20 4.63 (f) 4.86 3.86
------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 52.98 93.66 116.36 207.64 176.66
------------------------------------------------------------------------------------------------------------
(a) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service arrangements.
(d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money
Market Fund during the period. As a result of such waivers, the expenses of the fund for the period
ended October 31, 2004 reflect a reduction of less than 0.01% of average net assets for class A
shares.
(e) Amount represents less than $0.01 per share.
(f) As required, effective November 1, 2001, the fund adopted the provisions of the AICPA Audit and
Accounting Guide, Audits of Investment Companies, and began amortizing premium on its fixed-income
securities. The effects from this change for the year ended October 31, 2002 were a decrease to
net investment income per share of $0.02, a decrease to net realized and unrealized losses per share
of $0.02 and a decrease to the ratio of net investment income to average net assets of 0.13%. The above
per share information, ratios, and supplemental data for the periods prior to November 1, 2001 have not
been restated to reflect this change in presentation.
[This page left intentionally blank]
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For more information
about Putnam Convertible
Income-Growth Trust
The fund's SAI and annual and semi-annual reports to shareholders include
additional information about the fund. The SAI, and the independent
registered public accounting firm's report and the financial statements
included in the fund's most recent annual report to its shareholders, are
incorporated by reference into this prospectus, which means they are part
of this prospectus for legal purposes. The fund's annual report discusses
the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year. You may get
free copies of these materials, request other information about any Putnam
fund, or make shareholder inquiries, by calling Putnam toll-free at
1-800-752-9894.
You may review and copy information about a fund, including its SAI, at
the Securities and Exchange Commission's Public Reference Room in
Washington, D.C. You may call the Commission at 1-202-942-8090 for
information about the operation of the Public Reference Room. You may also
access reports and other information about the fund on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. You may get
copies of this information, with payment of a duplication fee, by
electronic request at the following E-mail address: publicinfo@sec.gov,
or by writing the Commission's Public Reference Section, Washington, D.C.
20549-0102. You may need to refer to the fund's file number.
PUTNAM INVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
1-800-752-9894
Address correspondence to
Putnam Investor Services
P.O. Box 9740
Providence, Rhode Island 02940-9740
www.putnaminvestments.com
DA019 222304 2/05 File No. 811-02280
Prospectus
February 28, 2005
Putnam Convertible Income-Growth Trust
Class Y shares Investment
Category: Value
This prospectus explains what you should know about this mutual fund
before you invest. Please read it carefully.
Putnam Investment Management, LLC (Putnam Management), which has managed
mutual funds since 1937, manages the fund.
These securities have not been approved or disapproved by the Securities
and Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this prospectus. Any statement to the contrary is a crime.
CONTENTS
2 Fund summary
2 Goal
2 Main investment strategies
2 Main risks
3 Performance information
4 Fees and expenses
4 What are the fund's main investment strategies and related risks?
10 Who manages the fund?
12 How does the fund price its shares?
13 How do I buy fund shares?
16 How do I sell fund shares?
17 How do I exchange fund shares?
17 Policy on excessive short-term trading
20 Fund distributions and taxes
20 Financial highlights
[SCALE LOGO OMITTED]
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. Under normal
circumstances, we invest at least 80% of the fund's net assets in
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 are convertible
into value stocks and a significant portion are below investment-grade.
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 the prices of the fixed-income investments we buy will
fall if interest rates rise. Interest rate risk is generally higher for
investments with longer maturities.
* The risk that the issuers of the fund's investments 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]
CALENDAR YEAR TOTAL RETURNS
1995 23.81%
1996 17.82%
1997 19.64%
1998 4.84%
1999 17.79%
2000 -8.21%
2001 -7.88%
2002 -5.24%
2003 32.10%
2004 11.64%
During the periods shown in the bar chart, the highest return for a quarter
was 12.70% (quarter ending 6/30/03) and the lowest return for a quarter was
-12.89% (quarter ending 9/30/01).
Average Annual Total Returns (for periods ending 12/31/04)
------------------------------------------------------------------------------
Past Past Past
1 year 5 years 10 years
------------------------------------------------------------------------------
Class Y 11.64% 3.40% 9.80%
Goldman Sachs Convertible 100 Index 7.95% 2.58% 9.84%
S&P 500 Index 10.88% -2.30% 12.07%
------------------------------------------------------------------------------
Performance information shown in the bar chart and table above, for periods
prior to the inception of class Y shares on 12/30/98, is derived from the
historical performance of the fund's class A shares (not offered by this
prospectus). Class Y share performance 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.
The fund's performance is compared to the Goldman Sachs Convertible 100
Index, an unmanaged index with a target of 100 securities, including
convertible bonds, preferred stocks, and mandatory convertible securities,
and includes reinvested dividends. The fund's performance is also compared
to the S&P 500 Index, an unmanaged index of common stocks frequently used
as a general measure of U.S. stock performance.
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.
Shareholder Fees (fees paid directly from your investment)
------------------------------------------------------------------------------
Maximum Sales Charge (Load) NONE
Maximum Deferred Sales Charge (Load) NONE
Maximum Redemption Fee*
(as a percentage of total redemption proceeds) 2.00%
------------------------------------------------------------------------------
Annual Fund Operating Expenses+
(expenses that are deducted from fund assets)
------------------------------------------------------------------------------
Total Annual
Management Other Fund Operating
Fees Expenses Expenses
------------------------------------------------------------------------------
Class Y 0.62% 0.22% 0.84%
------------------------------------------------------------------------------
* A 2.00% redemption fee (also referred to as a "short-term trading fee")
may apply to any shares that are redeemed (either by selling or exchanging
into another fund) within 5 days of purchase.
+ See the section "Who manages the fund?" for a discussion of regulatory
matters and litigation.
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 5.00% 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 $86 $268 $466 $1,037
------------------------------------------------------------------------------
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. We will consider, among other factors, a company's
financial strength, competitive position in its industry, projected future
earnings, cash flows and dividends when deciding whether to buy or sell
investments. A description of the risks associated with the fund's main
investment strategies follows.
* Interest rate risk. The values of bonds and other debt instruments
usually rise and fall in response to changes in interest rates. Declining
interest rates generally increase the value of existing debt instruments,
and rising interest rates generally decrease the value of existing debt
instruments. Changes in a debt instrument's value usually will not affect
the amount of interest income paid to the fund, but will affect the value
of the fund's shares. Interest rate risk is generally greater for
investments with longer maturities.
Some investments give the issuer the option to call or redeem an investment
before its maturity date. If an issuer calls or redeems an investment
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 coupon rates higher than prevailing market
rates. However, they involve a greater risk of loss, because their values
tend to decline over time.
* Credit risk. Investors normally expect to be compensated in proportion
to the risk they are assuming. Thus, debt of issuers with poor credit
prospects usually offers higher yields than debt of issuers with more
secure credit. Higher-rated investments generally have lower credit risk.
We invest significantly in below 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 a 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 are unrated securities that we believe are of comparable
quality. We will not necessarily sell an investment if its rating is
reduced after we buy it.
Investments rated below BBB or its equivalent are known as "junk bonds."
This rating reflects a greater possibility that the issuers may be unable
to make timely payments of interest and principal and thus default. If this
happens, or is perceived as likely to happen, the values of those
investments will usually be more volatile and are likely to fall. A default
or expected default could also make it difficult for us to sell the
investments at prices approximating the values we had placed on them.
Lower-rated debt usually has a more limited market than higher-rated debt,
which may at times make it difficult for us to buy or sell certain debt
instruments or to establish their fair value. Credit risk is generally
greater for investments that are issued at less than their face value and
that are required to make interest payments only at maturity rather than at
intervals during the life of the investment. Although investment-grade
investments generally have lower credit risk, they may share some of the
risks of lower-rated investments.
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 in buying lower-rated
debt than it does in buying 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.
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.
* Common stocks. Common stock represents an ownership interest in a
company. The value of a company's stock may fall as a result of factors
directly relating to that company, such as decisions made by its
management or lower demand for the company's products or services. A
stock's value may also fall because of factors affecting not just the
company, but also companies in the same industry or in a number of
different industries, such as increases in production costs. The value of
a company's stock may also be affected by changes in financial markets
that are relatively unrelated to the company or its industry, such as
changes in interest rates or currency exchange rates. In addition, a
company's stock generally pays dividends only after the company invests in
its own business and makes required payments to holders of its bonds and
other debt. For this reason, the value of a company's stock will usually
react more strongly than its bonds and other debt to actual or perceived
changes in the company's financial condition or prospects. Stocks of
smaller companies may be more vulnerable to adverse developments than
those of larger companies.
Companies we believe are undergoing positive change and whose stock we
believe is undervalued by the market may have experienced adverse business
developments or may be subject to special risks that have caused their
stocks to be out of favor. If our assessment of a company's prospects is
wrong, or if other investors do not similarly recognize the value of the
company, then the price of the company's stock may fall or may not approach
the value that we have placed on it.
* Foreign investments. We may invest in foreign investments. Foreign
investments involve certain special risks. For example, their values may
decline in response to changes in currency exchange rates, unfavorable
political and legal developments, unreliable or untimely information, and
economic and financial instability. In addition, the liquidity of these
investments may be more limited than for most U.S. investments, which
means we may at times be unable to sell them at desirable prices. Foreign
settlement procedures may also involve additional risks. These risks are
generally greater in the case of developing (also known as emerging)
markets with less developed legal and financial systems.
Certain of these risks may also apply to some extent to U.S.-traded
investments that are denominated in foreign currencies, investments in U.S.
companies that are traded in foreign markets or investments in U.S.
companies that have significant foreign operations.
* Small and midsized companies. These companies, some of which may have a
market capitalization of less than $1 billion, are more likely than larger
companies to have limited product lines, markets or financial resources,
or to depend on a small, inexperienced management group. Stocks of these
companies often trade less frequently and in limited volume, and their
prices may fluctuate more than stocks of larger companies. Stocks of small
and midsized companies may therefore be more vulnerable to adverse
developments than those of larger companies.
* Derivatives. We may engage in a variety of transactions involving
derivatives, such as futures, options, warrants and swap contracts.
Derivatives are financial instruments whose value depends upon, or is
derived from, the value of something else, such as one or more underlying
investments, pools of investments, indexes or currencies. We may use
derivatives both for hedging and non-hedging purposes. However, we may
also choose not to use derivatives, based on our evaluation of market
conditions or the availability of suitable derivatives. Investments in
derivatives may be applied toward meeting a requirement to invest in a
particular kind of investment if the derivatives have economic
characteristics similar to that investment.
Derivatives involve special risks and may result in losses. The successful
use of derivatives depends on our ability to manage these sophisticated
instruments. The prices of derivatives may move in unexpected ways due to
the use of leverage or other factors, especially in unusual market
conditions, and may result in increased volatility.
Other risks arise from our potential inability to terminate or sell
derivatives positions. A liquid secondary market may not always exist for
the fund's derivatives positions at any time. In fact, many
over-the-counter instruments (investments not traded on an exchange) will
not be liquid. Over-the-counter instruments also involve the risk that the
other party to the derivative transaction will not meet its obligations.
For further information about the risks of derivatives, see the statement
of additional information (SAI).
* Other investments. In addition to the main investment strategies
described above, we may make other types of investments, such as
investments in non-convertible preferred stocks and asset-backed
securities, which may be subject to other risks, as described in the SAI.
* Alternative strategies. Under normal market conditions, we keep the
fund's portfolio fully invested, with minimal cash holdings. However, at
times we may judge that market conditions make pursuing the fund's usual
investment strategies inconsistent with the best interests of its
shareholders. We then may temporarily use alternative strategies that are
mainly designed to limit losses. However, we may choose not to use these
strategies for a variety of reasons, even in very volatile market
conditions. These strategies may cause the fund to miss out on investment
opportunities, and may prevent the fund from achieving its goal.
* Changes in policies. The Trustees may change the fund's goal, investment
strategies and other policies without shareholder approval, except as
otherwise indicated.
* Portfolio transactions and portfolio turnover rate. Transactions on
stock exchanges, commodities markets and futures markets involve the
payment by the fund of brokerage commissions. The fund paid $358,946 in
brokerage commissions during the last fiscal year, representing 0.05% of
the fund's average net assets. Of this amount, $31,370, representing less
than 0.01% of the fund's average net assets, was paid to brokers who also
provided research services. Additional information regarding Putnam's
brokerage selection procedures is included in the SAI.
Although brokerage commissions and other portfolio transaction costs are
not reflected in the fund's Total Annual Fund Operating Expenses ratio (as
shown in the Annual Fund Operating Expenses table in the section "Fees and
expenses"), they are reflected in the fund's total return. Combining the
brokerage commissions paid by the fund during the last fiscal year (as a
percentage of the fund's average net assets) with the fund's Total Annual
Fund Operating Expenses ratio for class Y shares results in a "combined
cost ratio" of 0.89% of the fund's average net assets for class Y shares
for the last fiscal year.
Investors should exercise caution in comparing brokerage commissions and
combined cost ratios for different types of funds. For example, while
brokerage commissions represent one component of the fund's transaction
costs, they do not reflect any undisclosed amount of profit or "mark-up"
included in the price paid by the fund for principal transactions
(transactions made directly with a dealer or other counterparty), including
most fixed income securities and certain derivatives. In addition,
brokerage commissions do not reflect other elements of transaction costs,
including the extent to which the fund's purchase and sale transactions may
change the market price for an investment (the "market impact").
Another factor in transaction costs is the fund's portfolio turnover rate,
which measures how frequently the fund buys and sells investments. During
the past five years, the fund's fiscal year portfolio turnover rate and the
average turnover rate for the fund's Lipper category were as follows.
Turnover Comparison
------------------------------------------------------------------------------
2004 2003 2002 2001 2000
------------------------------------------------------------------------------
Putnam Convertible
Income-Growth Trust 53% 94% 116% 208% 177%
Lipper Convertible
Securities Funds Average* 104% 97% 108% 130% 145%
------------------------------------------------------------------------------
* Average portfolio turnover rate of funds viewed by Lipper Inc. as having
the same investment classification or objective as the fund. The Lipper
category average portfolio turnover rate is calculated using the portfolio
turnover rate for the fiscal year end of each fund in the Lipper category.
Fiscal years may vary across funds in the Lipper category, which may limit
the comparability of the fund's portfolio turnover rate to the Lipper
average. Comparative data for the last fiscal year is based on information
available as of December 31, 2004.
Both the fund's portfolio turnover rate and the amount of brokerage
commissions it pays will vary over time based on market conditions. High
turnover may lead to increased costs and decreased performance.
Putnam Management is not permitted to consider sales of shares of the fund
(or of the other Putnam funds) as a factor in the selection of
broker-dealers to execute portfolio transactions for the fund.
* Portfolio holdings. The SAI includes a description of the fund's
policies with respect to the disclosure of its portfolio holdings. For
information on the fund's portfolio, you may visit the Putnam Investments
Web site, www.putnaminvestments.com/individual, where the fund's top 10
holdings and related portfolio information may be viewed monthly beginning
10 business days after the end of each month, and full portfolio holdings
may be viewed beginning on the last business day of the month after the
end of each calendar quarter. This information will remain available on
the Web site until the fund files a Form N-CSR or N-Q with the Securities
and Exchange Commission (SEC) for the period that includes the date of the
information.
Who manages the fund?
The fund's Trustees oversee the general conduct of the fund's business. The
Trustees have retained Putnam Management to be the fund's investment
manager, responsible for making investment decisions for the fund and
managing the fund's other affairs and business. The fund pays Putnam
Management a quarterly management fee for these services based on the
fund's average net assets. The fund paid Putnam Management a management fee
of 0.62% of average net assets for the fund's last fiscal year. Putnam
Management's address is One Post Office Square, Boston, MA 02109.
* Investment management teams. Putnam Management's investment
professionals are organized into investment management teams, with a
particular team dedicated to a specific asset class. The members of the
Large Cap Value Team are responsible for the day-to-day management of the
fund. The names of all team members can be found at
www.putnaminvestments.com.
The following team member coordinates the team's management of the fund's
portfolio. His experience as an investment professional over at least the
last five years is shown.
------------------------------------------------------------------------------
Positions Over
Portfolio Leader Since Employer Past Five Years
------------------------------------------------------------------------------
David L. King 2002 Putnam Management Senior Portfolio Manager
1983 - Present
------------------------------------------------------------------------------
* Fund ownership. The table below shows the dollar range of shares of the
fund owned by the professional listed above on November 30, 2004 and
November 30, 2003, including investments by his immediate family members
and amounts invested through retirement and deferred compensation plans.
[Enlarge/Download Table]
Fund Portfolio Leader
-------------------------------------------------------------------------------------------------------------
$1 - $10,001 - $50,001 - $100,001 - $500,001 - $1,000,001
Year $0 $10,000 $50,000 $100,000 $500,000 $1,000,000 and over
-------------------------------------------------------------------------------------------------------------
David L. King 2004 *
-------------------------------------------------------------------------------------------------------------
Portfolio Leader 2003 *
-------------------------------------------------------------------------------------------------------------
* Other funds managed by the Portfolio Leader. As of the fund's fiscal
year-end, David L. King was also a Portfolio Leader of Putnam High Income
Bond Fund, Putnam High Income Opportunities Trust, and Putnam New Value
Fund. David L. King was also a Portfolio Member of The Putnam Fund for
Growth and Income.
David L. King may also manage other accounts managed by Putnam Management
or an affiliate.
* Changes in the fund's Portfolio Leader and Portfolio Member. After the
fund's fiscal year ended October 31, 2004, Portfolio Member George Maris
left the fund's management team. David L. King has served as Portfolio
Leader of the fund since May 2002, when Putnam Management introduced this
designation.
* Investment in the fund by Putnam employees and the Trustees. As of
November 30, 2004, all of the 13 Trustees of the Putnam funds owned fund
shares. The table shows the approximate value of investments in the fund
and all Putnam funds as of that date by Putnam employees and the fund's
Trustees, including in each case investments by their immediate family
members and amounts invested through retirement and deferred compensation
plans.
------------------------------------------------------------------------------
Fund All Putnam funds
------------------------------------------------------------------------------
Putnam employees $3,522,000 $463,815,000
------------------------------------------------------------------------------
Trustees $645,000 $47,311,000
------------------------------------------------------------------------------
* Compensation of investment professionals. Putnam Management believes
that its investment management teams should be compensated primarily based
on their success in helping investors achieve their goals. The portion of
Putnam Investments' total incentive compensation pool that is available to
Putnam Management's Investment Division is based primarily on its
delivery, across all of the portfolios it manages, of consistent,
dependable and superior performance over time. The peer group for the
fund, Convertible Securities Funds, is its broad investment category as
determined by Lipper Inc. The portion of the incentive compensation pool
available to your investment management team is also based primarily on
its delivery, across all of the portfolios it manages, of consistent,
dependable and superior performance over time.
* Consistent performance means being above median over one year.
* Dependable performance means not being in the 4th quartile of the peer
group over one, three or five years.
* Superior performance (which is the largest component of Putnam
Management's incentive compensation program) means being in the top third
of the peer group over three and five years.
In determining an investment management team's portion of the incentive
compensation pool and allocating that portion to individual team members,
Putnam Management retains discretion to reward or penalize teams or
individuals as it deems appropriate, based on other factors. The size of
the overall incentive compensation pool each year is determined by Putnam
Management's parent company, Marsh & McLennan Companies, Inc., and depends
in large part on Putnam's profitability for the year. Incentive
compensation generally represents at least 70% of the total compensation
paid to investment team members.
* Regulatory matters and litigation. On April 8, 2004, Putnam Management
entered into agreements with the Securities and Exchange Commission and
the Massachusetts Securities Division representing a final settlement of
all charges brought against Putnam Management by those agencies on October
28, 2003 in connection with excessive short-term trading by Putnam
employees and, in the case of the charges brought by the Massachusetts
Securities Division, by participants in some Putnam-administered 401(k)
plans. The settlement with the SEC requires Putnam Management to pay $5
million in disgorgement plus a civil monetary penalty of $50 million, and
the settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine of
$50 million. The settlements also leave intact the process established
under an earlier partial settlement with the SEC under which Putnam
Management agreed to pay the amount of restitution determined by an
independent consultant, which may exceed the disgorgement and restitution
amounts specified above, pursuant to a plan to be developed by the
independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear all
costs, including restitution, civil penalties and associ ated legal fees
stemming from both of these proceedings. The SEC's and Massachusetts
Securities Division's allegations and related matters also serve as the
general basis for numerous lawsuits, including purported class action
lawsuits filed against Putnam Management and certain related parties,
including certain Putnam funds. Putnam Management has agreed to bear any
costs incurred by Putnam funds in connection with these lawsuits. Based on
currently available information, Putnam Management believes that the
likelihood that the pending private lawsuits and purported class action
lawsuits will have a material adverse financial impact on the fund is
remote, and the pending actions are not likely to materially affect its
ability to provide investment management services to its clients, including
the Putnam funds.
The fund may experience increased redemptions as a result of
these matters, which could result in increased transaction costs
and operating expenses.
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 (NYSE) 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. For
example, the fund may value a stock traded on a U.S. exchange at its fair
value when the exchange closes early or trading in the stock is suspended.
It may also value a stock at fair value if recent transactions in the stock
have been very limited or material information about the issuer becomes
available after the close of the relevant market. The value determined for
an investment using the fund's fair value pricing procedures may differ
from recent market prices for the investment.
The fund translates prices for its investments quoted in foreign currencies
into U.S. dollars at current exchange rates, which are generally determined
as of 11:00 a.m. Eastern time each day the NYSE is open. As a result,
changes in the value of those currencies in relation to the U.S. dollar may
affect the fund's NAV. If there has been a movement in the U.S. currency
market that exceeds a specified threshold that may change from time to
time, the fund will generally use exchange rates determined as of 3:00 p.m.
Eastern time. Because foreign markets may be open at different times than
the NYSE, the value of the fund's shares may change on days when
shareholders are not able to buy or sell them. Many securities markets and
exchanges outside the U.S. close prior to the close of the NYSE and
therefore the closing prices for securities in such markets or on such
exchanges may not fully reflect events that occur after such close but
before the close of the NYSE. As a result, the fund has adopted fair value
pricing procedures, which, among other things, require the fund to fair
value foreign equity securities if there has been a movement in the U.S.
market that exceeds a specified threshold that may change from time to
time. As noted above, the value determined for an investment using the
fund's fair value pricing procedures may differ from recent market prices
for the investment.
How do I buy fund shares?
All orders to purchase shares must be made through your employer's
retirement plan. For more information about how to purchase shares of the
fund through your employer's plan or limitations on the amount that may be
purchased, please consult your employer.
Putnam Retail Management generally must receive your plan's completed buy
order before the close of regular trading on the NYSE 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.
Mutual funds must obtain and verify information that identifies investors
opening new accounts. If the fund is unable to collect the required
information, Putnam Investor Services may not be able to open your fund
account. Investors must provide their full name, residential or business
address, Social Security or tax identification number, and date of birth.
Entities, such as trusts, estates, corporations and partnerships, must also
provide other identifying information. Putnam Investor Services may share
identifying information with third parties for the purpose of verification.
If Putnam Investor Services cannot verify identifying information after
opening your account, the fund reserves the right to close your account.
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.
* Eligible purchasers. A defined contribution plan (including a corporate
IRA) is eligible to purchase class Y shares if approved by Putnam and 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 average investment in
Putnam-managed assets of accounts in the plan is at least $30,000; or
* the plan's sponsor confirms a good faith expectation that, within such
period after initial purchase as is agreed by the sponsor and Putnam,
investments in Putnam-managed assets will attain the level or average
account size specified above, using the higher of purchase price or
current market value, and agrees that class Y shares may be redeemed and
class A shares purchased if that level is not attained.
College savings plans that qualify for tax-exempt treatment under Section
529 of the Internal Revenue Code, bank trust departments and trust
companies, other defined contribution plans, and other Putnam funds and
Putnam investment products, if approved by Putnam, are also eligible to
purchase class Y shares.
* Payments to dealers. If you purchase your shares through a dealer (the
term "dealer" includes any broker, dealer, bank, bank trust department,
registered investment advisor, financial planner, retirement plan
administrator and any other institution having a selling, services or any
similar agreement with Putnam Retail Management or one of its affiliates),
your dealer generally receives payments from Putnam Retail Management
representing some or all of the sales charges and distribution (12b-1)
fees shown in the tables under the heading "Fees and Expenses" at the
front of this prospectus.
Putnam Retail Management and its affiliates also pay additional
compensation to selected dealers in recognition of their marketing support
and/or program servicing (each of which is described in more detail below).
These payments may create an incentive for a dealer firm or its
representatives to recommend or offer shares of the fund or other Putnam
funds to its customers. These additional payments are made by Putnam Retail
Management and its affiliates and do not increase the amount paid by you or
the fund as shown under the heading "Fees and Expenses."
The additional payments to dealers by Putnam Retail Management and its
affiliates are generally based on one or more of the following factors:
average net assets of a fund attributable to that dealer, sales of a fund
attributable to that dealer, or reimbursement of ticket charges (fees that
a dealer firm charges its representatives for effecting transactions in
fund shares), or on the basis of a negotiated lump sum payment for services
provided.
Marketing support payments, which are generally available to most dealers
engaging in significant sales of Putnam fund shares, are not expected, with
certain limited exceptions, to exceed 0.085% of the average net assets of
Putnam's retail mutual funds attributable to that dealer on an annual
basis.
Program servicing payments, which are paid in some instances to third
parties in connection with investments in the fund by retirement plans and
other investment programs, are not expected, with certain limited
exceptions, to exceed 0.15% of the total assets in the program on an annual
basis.
Putnam Retail Management and its affiliates may make other payments or
allow other promotional incentives to dealers to the extent permitted by
SEC and NASD rules and by other applicable laws and regulations. Certain
dealers also receive payments in recognition of subaccounting or other
services they provide to shareholders or plan participants who invest in
the fund or other Putnam funds through their retirement plan. See the
discussion in the SAI under the heading "Management -- Investor Servicing
Agent and Custodian" for more details.
You can find more details in the SAI about the payments made by Putnam
Retail Management and its affiliates and the services provided by your
dealer. Your dealer may charge you fees or commissions in addition to those
disclosed in this prospectus. You can also ask your dealer about any
payments it receives from Putnam Retail Management and its affiliates and
any services your dealer provides, as well as about fees and/or commissions
it charges.
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 NYSE 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.
The fund will impose a short-term trading fee of 2.00% of the total
redemption amount (calculated at market value) if you sell or exchange your
shares after holding them for 5 days or less (including if you purchased
the shares by exchange). The short-term trading fee is paid directly to the
fund and is designed to offset brokerage commissions, market impact and
other costs associated with short-term trading. For investors in defined
contribution plans administered by Putnam or a Putnam affiliate, the
short-term trading fee will not apply in certain circumstances, such as
redemptions to pay distributions or loans from such plans, redemptions of
shares purchased directly with contributions by a plan participant or
sponsor, redemptions of shares purchased in connection with loan
repayments, redemptions in the event of shareholder death or post-purchase
disability, redemptions made as part of a systematic withdrawal plan and
redemptions from certain omnibus accounts. These exceptions may also apply
to defined contribution plans administered by third parties that assess the
fund's short-term trading fee. For purposes of determining whether the
short-term trading fee applies, the shares that were held the longest will
be redeemed first. Some financial intermediaries, retirement plan sponsors
or recordkeepers that hold omnibus accounts with the fund are currently
unable or unwilling to assess the fund's short-term trading fee. Some of
these firms use different systems or criteria to assess fees that are
currently higher than, and in some cases in addition to, the fund's
short-term trading fee.
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 NYSE.
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.
In order to discourage excessive exchange activity and otherwise to promote
the best interests of the fund, the fund will impose a short-term trading
fee of 2.00% of the total exchange amount (calculated at market value) on
exchanges of shares held for 5 days or less (including shares purchased by
exchange). In the case of defined contribution plans administered by Putnam
or a Putnam affiliate, the 2.00% short-term trading fee will apply to
exchanges of shares purchased by exchange that are held in a plan
participant's account for 5 days or less. Some financial intermediaries,
retirement plan sponsors or recordkeepers that hold omnibus accounts with
the fund are currently unable or unwilling to assess the fund's short-term
trading fee. Some of these firms use different systems or criteria to
assess fees that are currently higher than, and in some cases in addition
to, the fund's short-term trading fee.
The fund also 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.
Policy on excessive short-term trading
* Risks of excessive short-term trading. Excessive short-term trading
activity may reduce the fund's performance and harm all fund shareholders
by interfering with portfolio management, increasing the fund's expenses
and diluting the fund's net asset value. Depending on the size and
frequency of short-term trades in the fund's shares, the fund may
experience increased cash volatility, which could require the fund to
maintain undesirably large cash positions or buy or sell portfolio
securities it would not have bought or sold. The need to execute
additional portfolio transactions due to these cash flows may also
increase the fund's brokerage and administrative costs.
When the fund invests in foreign securities, its performance may be
adversely impacted and the interests of longer-term shareholders may be
diluted as a result of time-zone arbitrage, a short-term trading practice
that seeks to exploit changes in the value of the fund's investments that
result from events occurring after the close of the foreign markets on
which the investments trade, but prior to the later close of trading on the
NYSE, the time as of which the fund determines its net asset value. If an
arbitrageur is successful, he or she may dilute the interests of other
shareholders by trading shares at prices that do not fully reflect their
fair value.
Because the fund invests in securities that may trade infrequently or may
be more difficult to value, such as securities of smaller companies, it may
be susceptible to trading by short-term traders who seek to exploit
perceived price inefficiencies in the fund's investments. In addition, the
market for securities of smaller companies may at times show "market
momentum," in which positive or negative performance may continue from one
day to the next for reasons unrelated to the fundamentals of the issuer.
Short-term traders may seek to capture this momentum by trading frequently
in the fund's shares, which may reduce the fund's performance and dilute
the interests of other shareholders. Because securities of smaller
companies may be less liquid than securities of larger companies, the fund
may also be unable to buy or sell these securities at desirable prices in
response to volatile cash flows caused by short-term trading. Similar risks
may apply if the fund holds other types of less liquid securities,
including below investment grade bonds.
* Fund policies. In order to protect the interests of long-term
shareholders of the fund, Putnam Management and the fund's Trustees have
adopted policies and procedures intended to discourage excessive
short-term trading. The fund seeks to discourage excessive short-term
trading by imposing short-term trading fees and using fair value pricing
procedures to value investments under some circumstances. In addition,
Putnam Management monitors activity in shareholder accounts about which it
possesses the necessary information in order to detect excessive
short-term trading patterns and takes steps to deter excessive short-term
traders.
Putnam Management and the fund reserve the right to reject or restrict
purchases or exchanges for any reason. Putnam Management or the fund may
determine that an investor's trading activity is excessive or otherwise
potentially harmful based on various factors, including an investor's or
financial intermediary's trading history in the fund, other Putnam funds or
other investment products, and may aggregate activity in multiple accounts
under common ownership or control. If the fund identifies an investor or
intermediary as a potential excessive trader, it may, among other things,
impose limitations on the amount, number, manner, or frequency of future
purchases or exchanges or temporarily or permanently bar the investor or
intermediary from investing in the fund or other Putnam funds. The fund may
take these steps in its discretion even if the investor's activity may not
have been detected by the fund's current monitoring parameters.
* Limitations on the fund's policies. There is no guarantee that the fund
will be able to detect excessive short-term trading in all accounts. For
example, Putnam Management currently does not have access to sufficient
information to identify each investor's trading history, and in certain
circumstances there are operational or technological constraints on its
ability to enforce the fund's policies. In addition, even when Putnam
Management has sufficient information, its detection methods may not
capture all excessive short-term trading.
In particular, many purchase, redemption and exchange orders are received
from financial intermediaries that hold omnibus accounts with the fund.
Omnibus accounts, in which shares are held in the name of an intermediary
on behalf of multiple beneficial owners, are a common form of holding
shares among retirement plans and financial intermediaries such as brokers,
advisers and third-party administrators. The fund is generally not able to
identify trading by a particular beneficial owner within an omnibus
account, which makes it difficult or impossible to determine if a
particular shareholder is engaging in excessive short-term trading. Putnam
Management monitors aggregate cash flows in omnibus accounts on an ongoing
basis. If high cash flows or other information indicate that excessive
short-term trading may be taking place, Putnam Management will contact the
financial intermediary, plan sponsor or recordkeeper that maintains
accounts for the underlying beneficial owner and attempt to identify and
remedy any excessive trading. However, the fund's ability to monitor and
deter excessive short-term traders in omnibus accounts ultimately depends
on the capabilities and cooperation of these third-party financial firms.
The fund's policies on exchanges may also be modified for accounts held by
certain retirement plans to conform to plan exchange limits or Department
of Labor requirements. A financial intermediary or plan sponsor may impose
different or additional limits on short-term trading.
* Blackout periods for Putnam employees. Putnam Investments imposes
blackout periods on investments in the Putnam funds (other than money
market funds) by its employees and certain family members. Employees of
Putnam Investments and covered family members may not make a purchase
followed by a sale, or a sale followed by a purchase, in any non-money
market Putnam fund within any 90-calendar day period. Members of Putnam
Management's Investment Division, certain senior executives, and certain
other employees with access to investment information, as well as their
covered family members, are subject to a blackout period of one year.
These blackout periods are subject to limited exceptions.
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 you do not select another option, all distributions will be
reinvested in additional fund shares.
Generally, for federal income tax purposes, fund distributions are taxable
as ordinary income, except that any distributions of long-term capital
gains will be taxed as such regardless of how long you have held your
shares. However, distributions by the fund to retirement plans that qualify
for tax-exempt treatment under federal income tax laws will not be taxable.
Special tax rules apply to investments through such plans. You should
consult your tax advisor to determine the suitability of the fund as an
investment through such a plan and the tax treatment of distributions
(including distributions of amounts attributable to an investment in the
fund) from such a plan.
The fund's investments in certain debt obligations may cause the fund to
recognize taxable income in excess of the cash generated by such
obligations. Thus, the fund could be required at times to liquidate other
investments in order to satisfy its distribution requirements.
The fund's investments in foreign securities may be subject to foreign
withholding taxes. In that case, the fund's return on those investments
would be decreased.
You should consult your tax advisor for more information on your own tax
situation, including possible foreign, state and local taxes.
Financial highlights
The financial highlights table is intended to help you understand the
fund's recent financial performance. Certain information reflects financial
results for a single fund share. The total returns represent the rate that
an investor would have earned or lost on an investment in the fund,
assuming reinvestment of all dividends and distributions. This information
has been derived from the fund's financial statements, which have been
audited by 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.
[Enlarge/Download Table]
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS Y
------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
------------------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.46 $12.32 $13.32 $18.63 $20.26
------------------------------------------------------------------------------------------------------------
Investment operations:
------------------------------------------------------------------------------------------------------------
Net investment income (a) .53 (d) .62 .66 (f) .79 .81
------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.19 3.13 (1.00)(f) (4.28) .31
------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.72 3.75 (.34) (3.49) 1.12
------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------
From net
investment income (.58) (.61) (.66) (.66) (.82)
------------------------------------------------------------------------------------------------------------
From net realized
gain on investments -- -- -- (1.16) (1.93)
------------------------------------------------------------------------------------------------------------
Total distributions (.58) (.61) (.66) (1.82) (2.75)
------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.60 $15.46 $12.32 $13.32 $18.63
------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 11.21 31.11 (2.96) (19.68) 5.49
------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $30,138 $40,883 $36,910 $45,561 $59,214
------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .84 (d) .82 .83 .76 .72
------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.35 (d) 4.46 4.87 (f) 5.12 4.11
------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 52.98 93.66 116.36 207.64 176.66
------------------------------------------------------------------------------------------------------------
(a) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service arrangements.
(d) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money
Market Fund during the period. As a result of such waivers, the expenses of the fund for the period
ended October 31, 2004 reflect a reduction of less than 0.01% of average net assets for class Y shares.
(e) Amount represents less than $0.01 per share.
(f) As required, effective November 1, 2001, the fund adopted the provisions of the AICPA Audit and
Accounting Guide, Audits of Investment Companies, and began amortizing premium on its fixed-income
securities. The effects from this change for the year ended October 31, 2002 were a decrease to net
investment income per share of $0.02, a decrease to net realized and unrealized losses per share of
$0.02 and a decrease to the ratio of net investment income to average net assets of 0.13%. The above
per share information, ratios, and supplemental data for the periods prior to November 1, 2001 have not
been restated to reflect this change in presentation.
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For more information
about Putnam Convertible
Income-Growth Trust
The fund's SAI and annual and semi-annual reports to shareholders include
additional information about the fund. The SAI, and the independent
registered public accounting firm's report and the financial statements
included in the fund's most recent annual report to its shareholders, are
incorporated by reference into this prospectus, which means they are part
of this prospectus for legal purposes. The fund's annual report discusses
the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year. You may get
free copies of these materials, request other information about any Putnam
fund, or make shareholder inquiries, by calling Putnam toll-free at
1-800-752-9894.
You may review and copy information about a fund, including its SAI, at
the Securities and Exchange Commission's Public Reference Room in
Washington, D.C. You may call the Commission at 1-202-942-8090 for
information about the operation of the Public Reference Room. You may also
access reports and other information about the fund on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov. You may get
copies of this information, with payment of a duplication fee, by
electronic request at the following E-mail address: publicinfo@sec.gov,
or by writing the Commission's Public Reference Section, Washington, D.C.
20549-0102. You may need to refer to the fund's file number.
PUTNAM INVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
1-800-752-9894
Address correspondence to
Putnam Investor Services
P.O. Box 9740
Providence, Rhode Island 02940-9740
www.putnaminvestments.com
DY019 222305 2/05 File No. 811-02280
Putnam Convertible Income-Growth Trust
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
February 28, 2005
This SAI is not a prospectus. If the fund has more than one form of current
prospectus, each reference to the prospectus in this SAI shall include all
of the fund's prospectuses, unless otherwise noted. The SAI should be read
together with the applicable prospectus. Certain disclosure has been
incorporated by reference from the fund's annual report. For a free copy of
the fund's annual report or a prospectus dated February 28, 2005, as
revised from time to time, call Putnam Investor Services at 1-800-225-1581
or write Putnam Investor Services, 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.
502098
Table of Contents
PART I
FUND ORGANIZATION AND CLASSIFICATION..................................... I-3
INVESTMENT RESTRICTIONS.................................................. I-4
CHARGES AND EXPENSES..................................................... I-5
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND FINANCIAL STATEMENTS... I-13
PART II
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS............... II-1
TAXES................................................................... II-26
MANAGEMENT.............................................................. II-31
DETERMINATION OF NET ASSET VALUE........................................ II-45
HOW TO BUY SHARES....................................................... II-46
ADDITIONAL DEALER PAYMENTS.............................................. II-56
DISTRIBUTION PLANS...................................................... II-58
INVESTOR SERVICES....................................................... II-62
SIGNATURE GUARANTEES.................................................... II-65
SUSPENSION OF REDEMPTIONS............................................... II-66
SHAREHOLDER LIABILITY................................................... II-66
DISCLOSURE OF PORTFOLIO INFORMATION..................................... II-66
PROXY VOTING GUIDELINES AND PROCEDURES.................................. II-68
SECURITIES RATINGS...................................................... II-68
DEFINITIONS............................................................. II-72
APPENDIX A.............................................................. II-73
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 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.
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 has voluntarily undertaken to
hold a shareholder meeting at which the Board of Trustees would be elected
at least every five years beginning in 2004.
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 and securities issued by
other investment companies). 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 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 or to securities issued by
other investment companies.
(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 33 1/3% of the value of its total assets
(not including the amount borrowed) at the time the borrowing is made.
(4) Make loans, except by purchase of debt obligations in which the fund
may invest consistent with its investment policies (including without
limitation debt obligations issued by other Putnam funds), by entering into
repurchase agreements, or by 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 by the
Trustees without shareholder approval:
(1) The fund will not invest in (a) securities which are not readily
marketable, (b) securities restricted as to resale (excluding securities
determined by the Trustees of the fund (or the person designated by the
Trustees of the fund to make such determinations) to be readily
marketable), and (c) repurchase agreements maturing in more than seven
days, if, as a result, more than 15% of the fund's net assets (taken at
current value) would be invested in securities described in (a), (b) and
(c).
All percentage limitations on investments (other than pursuant to
non-fundamental restriction (1)) will apply at the time of the making of
an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
CHARGES AND EXPENSES
Management fees
Under a Management Contract dated 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 of average net assets;
0.50% of the next $500 million of average net assets;
0.45% of the next $5 billion of average net assets;
0.425% of the next $5 billion of average net assets;
0.405% of the next $5 billion of average net assets;
0.39% of the next $5 billion of average net assets; and
0.38% of any excess thereafter.
For the past three fiscal years, pursuant to the management contract, the
fund incurred the following fees:
Amount
management
fee would
have been
Amount of without
Management management expense
Fiscal year fee paid fee waived limitation
2004 $4,722,232 $6,143 $4,728,375
2003 $4,700,359 N/A N/A
2002 $5,054,321 N/A N/A
Expense limitation. The fund invests a portion of its assets in Putnam
Prime Money Market Fund. In connection with such investment, management
fees paid by the fund are reduced by an amount equal to the management fees
paid by Putnam Prime Money Market Fund with respect to assets invested by
the fund in Putnam Prime Money Market Fund. Net management fees paid for
fiscal 2004 reflect the waiver of $6,143 in management fees otherwise
payable by the fund to Putnam Management in respect of such investments.
Brokerage commissions
The following table shows brokerage commissions paid during the fiscal
periods indicated:
Brokerage
Fiscal year commissions
2004 $358,946
2003 $497,102
2002 $1,026,361
The portfolio turnover rate for the fund's 2004 fiscal year was lower than
the portfolio turnover rate for the fund's two prior fiscal years due to
decreases in trading volume.
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:
Percentage of
Dollar value of total Amount of
these transactions transactions commissions
$15,769,915 3.44% $31,370
At the end of fiscal 2004, the fund held securities valued at $3,753,872 of
Lehman Brothers Holdings, Inc., one of the fund's regular broker-dealers.
Administrative expense reimbursement
The fund reimbursed Putnam Management for administrative services during
fiscal 2004, including compensation of certain fund officers and
contributions to the Putnam Investments Profit Sharing Retirement Plan for
their benefit, as follows:
Portion of
total
reimbursement
for
compensation
and
Total reimbursement contributions
$14,308 $11,213
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.
The table below shows the value of each Trustee's holdings in the fund and
in all of the Putnam Funds as of December 31, 2004.
Aggregate
dollar range
Dollar range of shares
of Putnam held in all
Convertible of the Putnam
Income-Growth funds
Trust shares overseen by
Name of Trustee owned Trustee
Jameson A. Baxter $10,001-$50,000 over $100,000
Charles B. Curtis $1-$10,000 over $100,000
Myra R. Drucker $1-$10,000 over $100,000
John A. Hill over $100,000 over $100,000
Ronald J. Jackson $1-$10,000 over $100,000
Paul L. Joskow $10,001-$50,000 over $100,000
Elizabeth T. Kennan $10,001-$50,000 over $100,000
John H. Mullin, III $10,001-$50,000 over $100,000
Robert E. Patterson $10,001-$50,000 over $100,000
W. Thomas Stephens $1-$10,000 over $100,000
Richard B. Worley $1-$10,000 over $100,000
*Charles E. Haldeman, Jr. $10,001-$50,000 over $100,000
*George Putnam, III $10,001-$50,000 over $100,000
* 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,
Putnam Retail Management Limited Partnership ("Putnam Retail Management")
or Marsh & McLennan Companies, Inc., the parent company of Putnam
Investments and its affiliated companies. Messrs. Putnam, III and Haldeman
are deemed "interested persons" by virtue of their positions as officers
of the fund, Putnam Management or Putnam Retail Management, or
shareholders of Marsh & McLennan Companies, Inc. Mr. Haldeman is the
President and Chief Executive Officer of Putnam Investments. Mr. Putnam is
the President of the fund and each of the other Putnam funds. The
balance of the Trustees are not "interested persons."
Each independent Trustee of the fund receives an annual retainer fee and
an additional meeting fee for each Trustees' meeting attended. Independent
Trustees who serve on board committees receive additional fees for
attendance at certain committee meetings and for special services rendered
in that connection. All of the current independent Trustees of the fund are
Trustees of all the Putnam funds and receive fees for their services. Mr.
Putnam also receives the foregoing fees for his services as Trustee.
The Trustees periodically review their fees to ensure 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
Board Policy and Nominating Committee, which consists solely of
independent Trustees of the fund, 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
committees of the Board of Trustees, and the number of times each
committee met during your fund's fiscal year, are shown in the table
below:
Audit and Pricing Committee 24
Board Policy and Nominating Committee 9
Brokerage and Custody Committee 8
Communication, Service and Marketing Committee 11
Contract Committee 17
Distributions Committee 5
Executive Committee 1
Investment Oversight Committees 36
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
2004, and the fees paid to each Trustee by all of the Putnam funds during
calendar year 2004:
COMPENSATION TABLE
Pension or Estimated
retirement annual Total
Aggregate benefits benefits from compensation
compensation accrued as all Putnam from all
from the part of fund funds upon Putnam
Trustees/Year fund (1) expenses retirement (2) funds (3)(4)
-----------------------------------------------------------------------------
Jameson A. Baxter/
1994 (5) $1,524 $400 $100,000 $218,950
Charles B. Curtis/
2001 $1,675 $521 $100,000 $244,250
Myra R. Drucker/
2004 (6) N/A N/A N/A $33,780
Charles E. Haldeman, Jr./
2004 (6) N/A N/A N/A $0
John A. Hill/
1985 (5)(7) $2,986 $509 $200,000 $458,626
Ronald J. Jackson/
1996 (5) $1,562 $413 $100,000 $224,000
Paul L. Joskow/
1997 (5)(7) $2,101 $296 $100,000 $294,500
Elizabeth T. Kennan/
1992 $1,519 $524 $100,000 $221,500
Lawrence J. Lasser/
1992 (9) $0 $469 $93,333 $0
John H. Mullin, III/
1997 (5) $1,469 $452 $100,000 $216,200
Robert E. Patterson/
1984 $1,475 $283 $100,000 $217,750
George Putnam, III/
1984 (7) $1,836 $234 $125,000 $262,500
W. Thomas Stephens/
1997 (5) $1,609 $413 $100,000 $228,250
W. Nicholas Thorndike/
1992 (8) $886 $675 $105,783 $114,500
Richard B. Worley/
2004 (6) N/A N/A N/A $33,780
(1) Includes an annual retainer and an attendance fee for each meeting
attended.
(2) Assumes that each Trustee retires at the normal retirement date. For
Trustees who are not within three years of retirement, estimated benefits
for each Trustee are based on Trustee fee rates in effect during calendar
2004. For Mr. Thorndike, the annual benefits equal the actual benefits he
is currently receiving under the Retirement Plan for Trustees of the Putnam
funds.
(3) As of December 31, 2004, there were 110 funds in the Putnam family.
For Mr. Hill, amounts shown also include compensation for service as a
trustee of TH Lee, Putnam Emerging Opportunities Portfolio, a closed-end
fund advised by an affiliate of Putnam Management.
(4) Includes amounts (ranging from approximately $5,000 to $90,000 per
Trustee) for which the Putnam funds were reimbursed by Putnam Management
for special Board and committee meetings and additional time spent on
behalf of the Putnam funds in connection with certain regulatory and other
matters relating to alleged improper trading by certain Putnam Management
employees and participants in certain 401(k) plans administered by Putnam
Fiduciary Trust Company.
(5) Includes compensation deferred pursuant to a Trustee Compensation
Deferral Plan. As of October 31, 2004, the total amounts of deferred
compensation payable by the fund, including income earned on such amounts,
to certain Trustees were: Ms. Baxter-$7,068; Mr. Hill-$24,371; Mr.
Jackson-$12,565; Mr. Joskow-$8,334; Mr. Mullin-$8,048; and Mr.
Stephens-$2,388.
(6) Ms. Drucker and Messrs. Haldeman and Worley were elected to the Board
of Trustees on November 11, 2004.
(7) Includes additional compensation to Messrs. Hill, Putnam and Dr.
Joskow for service as Chairman of the Trustees, President of the Funds and
Chairman of the Audit and Pricing Committee, respectively.
(8) Mr. Thorndike retired from the Board of Trustees of the Putnam funds
on June 30, 2004.
(9) Mr. Lasser resigned from the Board of Trustees of the Putnam funds on
November 3, 2003. The estimated annual retirement benefits shown in this
table for Mr. Lasser reflect benefits earned under the fund's retirement
plan prior to July 1, 2000.
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, ensures 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 (currently the Board Policy and Nominating
Committee) 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. The
Trustees have terminated the Plan with respect to any Trustee first elected
to the board after 2003.
For additional information concerning the Trustees, see "Management" in
Part II of this SAI.
Share ownership
At January 31, 2005, the officers and Trustees of the fund as a group
owned 1.20% of the outstanding shares of each class of the fund, and ,
except as noted below, no person owned of record or to the knowledge of the
fund beneficially 5% or more of any class of shares of the fund.
Shareholder
name and Percentage
Class address owned
A Edward D. Jones & Co. 13.10%
201 Progress Parkway
Maryland Heights, MO 63043-3003
B Edward D. Jones & Co. 5.80%
201 Progress Parkway
Maryland Heights, MO 63043-3003
B Merrill, Lynch, Pierce, Fenner & Smith 6.40%
4800 Dear Lake Dr. East
Jacksonville, FL 32246-6484
B Citigroup Global Markets Inc. 5.10%
333 W 34th St. FL 3
New York, NY 10001-4202
C Merrill, Lynch, Pierce, Fenner & Smith 21.30%
4800 Dear Lake Dr. East
Jacksonville, FL 32246-6484
M Edward D. Jones & Co. 10.70%
201 Progress Parkway
Maryland Heights, MO 63043-3003
R MCB Trust Services Cust. FBO 96.70%
700 17th St. STE 300
Denver, CO 80202-3531
Y* Putnam Investments Profit Sharing Plan 14.53%
Y** Raymond James Financial, Inc. 12.90%
Y* Putnam Investments 6.20%
* The address for the name listed is: c/o Putnam Fiduciary Trust Company, as
trustee or agent, One Post Office Square, Boston, MA 02109.
** The address for the name listed is: c/o Mercer Trust Company, as trustee
or agent, Investors Way, Norwood, MA 02062.
Distribution fees
During fiscal 2004, the fund paid the following 12b-1 fees to Putnam
Retail Management:
Class A Class B Class C Class M Class R
$1,518,836 $1,131,730 $93,829 $56,715 $30
Class A sales charges and contingent deferred sales charges
Putnam Retail Management received sales charges with respect to class A
shares in the following amounts during the periods indicated:
Sales charges
retained by
Putnam Retail
Total Management Contingent
front-end after dealer deferred
Fiscal year sales charges concessions sales charges
2004 $296,443 $31,020 $780
2003 $455,153 $76,665 $2,825
2002 $265,171 $47,154 $776
Class B contingent deferred sales charges
Putnam Retail Management 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
2004 $219,208
2003 $139,245
2002 $244,507
Class C contingent deferred sales charges
Putnam Retail Management received contingent deferred sales charges upon
redemptions of class C shares in the following amounts during the periods
indicated:
Contingent
deferred
Fiscal year sales charges
2004 $2,102
2003 $832
2002 $510
Class M sales charges and contingent deferred sales charges
Putnam Retail Management received sales charges with respect to class M
shares in the following amounts during the periods indicated:
Sales charges
retained by
Putnam Retail
Total Management Contingent
front-end after dealer deferred
Fiscal year sales charges concessions sales charges
2004 $6,013 $919 $0
2003 $25,726 $4,610 $0
2002 $3,841 $650 $0
Investor servicing and custody fees and expenses
During the 2004 fiscal year, the fund incurred $1,154,289 in fees and
out-of-pocket expenses for investor servicing and custody services provided
by Putnam Fiduciary Trust Company.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND FINANCIAL STATEMENTS
KPMG LLP, 99 High Street, Boston, Massachusetts 02110, is the fund's
independent registered public accounting firm 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 Registered Public
Accounting Firm, financial highlights and financial statements included in
the fund's Annual Report for the fiscal year ended October 31, 2004, are
incorporated by reference into this SAI. The fund's Annual Report for the
fiscal year ended October 31, 2004 was filed electronically on December
29, 2004 (File No. 811-02280). 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 registered public accounting firm, given on their authority as
experts in auditing and accounting.
TABLE OF CONTENTS
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS II-1
TAXES II-26
MANAGEMENT II-31
DETERMINATION OF NET ASSET VALUE II-45
HOW TO BUY SHARES II-46
ADDITIONAL DEALER PAYMENTS II-56
DISTRIBUTION PLANS II-58
INVESTOR SERVICES II-62
SIGNATURE GUARANTEES II-65
SUSPENSION OF REDEMPTIONS II-66
SHAREHOLDER LIABILITY II-66
DISCLOSURE OF PORTFOLIO INFORMATION II-66
PROXY VOTING GUIDELINES AND PROCEDURES II-68
SECURITIES RATINGS II-68
DEFINITIONS II-72
APPENDIX A II-73
THE PUTNAM FUNDS
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
PART II
As noted in the prospectus, in addition to the principal investment
strategies and the principal risks described in the prospectus, the fund
may employ other investment practices and may be subject to other risks,
which are described below. Because the following is a combined
description of investment strategies of all of the Putnam funds, certain
matters described herein may not apply to your fund. Unless a strategy
or policy described below is specifically prohibited by the investment
restrictions explained in the fund's prospectus or Part I of this SAI,
or by applicable law, the fund may engage in each of the practices
described below. Shareholders who purchase shares at net asset value
through employer-sponsored defined contribution plans should also
consult their employer for information about the extent to which the
matters described below apply to them.
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS
Foreign Investments
Foreign securities are normally denominated and traded in foreign
currencies. As a result, the value of the fund's foreign investments
and the value of its shares may be affected favorably or unfavorably by
changes in currency exchange rates relative to the U.S. dollar. There
may be less information publicly available about a foreign issuer than
about a U.S. issuer, and foreign issuers may not be subject to
accounting, auditing and financial reporting standards and practices
comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than
securities of comparable U.S. issuers. Foreign brokerage commissions
and other fees are also generally higher than in the United States.
Foreign settlement procedures and trade regulations may involve certain
risks (such as delay in payment or delivery of securities or in the
recovery of the fund's assets held abroad) and expenses not present in
the settlement of investments in U.S. markets.
In addition, foreign securities may be subject to the risk of
nationalization or expropriation of assets, imposition of currency
exchange controls, foreign withholding taxes or restrictions on the
repatriation of foreign currency, confiscatory taxation, political or
financial instability and diplomatic developments which could affect the
value of the fund's investments in certain foreign countries. Dividends
or interest on, or proceeds from the sale of, foreign securities may be
subject to foreign withholding taxes, and special U.S. tax
considerations may apply.
Legal remedies available to investors in certain foreign countries may
be more limited than those available with respect to investments in the
United States or in other foreign countries. The laws of some foreign
countries may limit the fund's ability to invest in securities of
certain issuers organized under the laws of those foreign countries.
The risks described above, including the risks of nationalization or
expropriation of assets, typically are increased in connection with
investments in "emerging markets." For example, political and economic
structures in these countries may be in their infancy and developing
rapidly, and such countries may lack the social, political and economic
stability characteristic of more developed countries. Certain of these
countries have in the past failed to recognize private property rights
and have at times nationalized and expropriated the assets of private
companies. High rates of inflation or currency devaluations may
adversely affect the economies and securities markets of such countries.
Investments in emerging markets may be considered speculative.
The currencies of certain emerging market countries have experienced
devaluations relative to the U.S. dollar, and future devaluations may
adversely affect the value of assets denominated in such currencies.
Many emerging market countries have experienced substantial, and in some
periods extremely high, rates of inflation or deflation for many years,
and future inflation may adversely affect the economies and securities
markets of such countries.
In addition, unanticipated political or social developments may affect
the value of investments in emerging markets and the availability of
additional investments in these markets. The small size, limited
trading volume and relative inexperience of the securities markets in
these countries may make investments in securities traded in emerging
markets illiquid and more volatile than investments in securities traded
in more developed countries, and the fund may be required to establish
special custodial or other arrangements before making investments in
securities traded in emerging markets. There may be little financial or
accounting information available with respect to issuers of emerging
market securities, and it may be difficult as a result to assess the
value of prospects of an investment in such securities.
Certain of the foregoing risks may also apply to some extent to
securities of U.S. issuers that are denominated in foreign currencies or
that are traded in foreign markets, or securities of U.S. issuers having
significant foreign operations.
Foreign Currency Transactions
To manage its exposure to foreign currencies, the fund may engage in
foreign currency exchange transactions, including purchasing and selling
foreign currency, foreign currency options, foreign currency forward
contracts and foreign currency futures contracts and related options.
In addition, the fund may write covered call and put options on foreign
currencies for the purpose of increasing its current return.
Generally, the fund may engage in both "transaction hedging" and
"position hedging." The fund may also engage in foreign currency
transactions for non-hedging purposes, subject to applicable law. When
it engages in transaction hedging, the fund enters into foreign currency
transactions with respect to specific receivables or payables, generally
arising in connection with the purchase or sale of portfolio securities.
The fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or
sell, or the U.S. dollar equivalent of a dividend or interest payment in
a foreign currency. By transaction hedging the fund will attempt to
protect itself against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and the applicable foreign
currency during the period between the date on which the security is
purchased or sold, or on which the dividend or interest payment is
earned, and the date on which such payments are made or received.
The fund may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign
currency. If conditions warrant, for hedging or non-hedging purposes the
fund may also enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") and purchase and sell
foreign currency futures contracts. A foreign currency forward contract
is a negotiated agreement to exchange currency at a future time at a
rate or rates that may be higher or lower than the spot rate. Foreign
currency futures contracts are standardized exchange-traded contracts
and have margin requirements. In addition, for transaction hedging
purposes the fund may also purchase or sell exchange-listed and
over-the-counter call and put options on foreign currency futures
contracts and on foreign currencies.
For transaction hedging purposes the fund may also purchase
exchange-listed and over-the-counter call and put options on foreign
currency futures contracts and on foreign currencies. A put option on a
futures contract gives the fund the right to assume a short position in
the futures contract until the expiration of the option. A put option
on a currency gives the fund the right to sell the currency at an
exercise price until the expiration of the option. A call option on a
futures contract gives the fund the right to assume a long position in
the futures contract until the expiration of the option. A call option
on a currency gives the fund the right to purchase the currency at the
exercise price until the expiration of the option.
The fund may engage in position hedging to protect against a decline in
the value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of the currency in which the securities the fund intends to buy
are denominated, when the fund holds cash or short-term investments).
For position hedging purposes, the fund may purchase or sell, on
exchanges or in over-the-counter markets, foreign currency futures
contracts, foreign currency forward contracts and options on foreign
currency futures contracts and on foreign currencies. In connection
with position hedging, the fund may also purchase or sell foreign
currency on a spot basis.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward or
futures contract. Accordingly, it may be necessary for the fund to
purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security or
securities being hedged is less than the amount of foreign currency the
fund is obligated to deliver and a decision is made to sell the security
or securities and make delivery of the foreign currency. Conversely, it
may be necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of
foreign currency the fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that 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 or that
it has an absolute and immediate right to acquire without additional cash
consideration (or, if additional cash consideration is required, cash or
other assets determined to be liquid by Putnam in accordance with
procedures established by the Trustees, in such amount are segregated by
its custodian), 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) or have an
absolute and immediate right to acquire without additional cash
consideration (or, if additional cash consideration is required, cash or
other assets determined to be liquid by Putnam in accordance with
procedures established by the Trustees, in such amount are segregated by
its custodian). In the case of put options, the fund will segregate
assets determined to be liquid by Putnam in accordance with procedures
established by the Trustees 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, if the fund holds the security, the fund limits its
opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option but continues to
bear the risk of a decline in the value of the underlying security. If the
fund does not hold the underlying security, the fund bears the risk that,
if the market price exceeds the option strike price, the fund will suffer a
loss equal to the difference at the time of exercise. By writing a put
option, the fund assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then-current
market value, resulting in a potential capital loss unless the security
subsequently appreciates in value.
The fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction, in which it
purchases an offsetting option. The fund realizes a profit or loss from
a closing transaction if the cost of the transaction (option premium
plus transaction costs) is less or more than the premium received from
writing the option. If the fund writes a call option but does not own
the underlying security, and when it writes a put option, the fund may
be required to deposit cash or securities with its broker as "margin,"
or collateral, for its obligation to buy or sell the underlying
security. As the value of the underlying security varies, the fund may
have to deposit additional margin with the broker. Margin requirements
are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
Purchasing put options. The fund may purchase put options to protect
its portfolio holdings in an underlying security against a decline in
market value. Such protection is provided during the life of the put
option since the fund, as holder of the option, is able to sell the
underlying security at the put exercise price regardless of any decline
in the underlying security's market price. In order for a put option to
be profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and
transaction costs. By using put options in this manner, the fund will
reduce any profit it might otherwise have realized from appreciation of
the underlying security by the premium paid for the put option and by
transaction costs.
Purchasing call options. The fund may purchase call options to hedge
against an increase in the price of securities that the fund wants
ultimately to buy. Such hedge protection is provided during the life of
the call option since the fund, as holder of the call option, is able to
buy the underlying security at the exercise price regardless of any
increase in the underlying security's market price. In order for a call
option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs.
Risk Factors in Options Transactions
The successful use of the fund's options strategies depends on the
ability of Putnam Management to forecast correctly interest rate and
market movements. For example, if the fund were to write a call option
based on Putnam Management's expectation that the price of the
underlying security would fall, but the price were to rise instead, the
fund could be required to sell the security upon exercise at a price
below the current market price. Similarly, if the fund were to write a
put option based on Putnam Management's expectation that the price of
the underlying security would rise, but the price were to fall instead,
the fund could be required to purchase the security upon exercise at a
price higher than the current market price.
When the fund purchases an option, it runs the risk that it will lose
its entire investment in the option in a relatively short period of
time, unless the fund exercises the option or enters into a closing sale
transaction before the option's expiration. If the price of the
underlying security does not rise (in the case of a call) or fall (in
the case of a put) to an extent sufficient to cover the option premium
and transaction costs, the fund will lose part or all of its investment
in the option. This contrasts with an investment by the fund in the
underlying security, since the fund will not realize a loss if the
security's price does not change.
The effective use of options also depends on the fund's ability to
terminate option positions at times when Putnam Management deems it
desirable to do so. There is no assurance that the fund will be able to
effect closing transactions at any particular time or at an acceptable
price.
If a secondary market in options were to become unavailable, the fund
could no longer engage in closing transactions. Lack of investor
interest might adversely affect the liquidity of the market for
particular options or series of options. A market may discontinue
trading of a particular option or options generally. In addition, a
market could become temporarily unavailable if unusual events -- such as
volume in excess of trading or clearing capability -- were to interrupt
its normal operations.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening transactions.
For example, if an underlying security ceases to meet qualifications
imposed by the market or the Options Clearing Corporation, new series of
options on that security will no longer be opened to replace expiring
series, and opening transactions in existing series may be prohibited.
If an options market were to become unavailable, the fund as a holder of
an option would be able to realize profits or limit losses only by
exercising the option, and the fund, as option writer, would remain
obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying options
purchased or sold by the fund could result in losses on the options. If
trading is interrupted in an underlying security, the trading of options
on that security is normally halted as well. As a result, the fund as
purchaser or writer of an option will be unable to close out its
positions until options trading resumes, and it may be faced with
considerable losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing
Corporation or other options markets may impose exercise restrictions.
If a prohibition on exercise is imposed at the time when trading in the
option has also been halted, the fund as purchaser or writer of an
option will be locked into its position until one of the two
restrictions has been lifted. If the Options Clearing Corporation were
to determine that the available supply of an underlying security appears
insufficient to permit delivery by the writers of all outstanding calls
in the event of exercise, it may prohibit indefinitely the exercise of
put options. The fund, as holder of such a put option, could lose its
entire investment if the prohibition remained in effect until the put
option's expiration.
Foreign-traded options are subject to many of the same risks presented
by internationally-traded securities. In addition, because of time
differences between the United States and various foreign countries, and
because different holidays are observed in different countries, foreign
options markets may be open for trading during hours or on days when
U.S. markets are closed. As a result, option premiums may not reflect
the current prices of the underlying interest in the United States.
Over-the-counter ("OTC") options purchased by the fund and assets held
to cover OTC options written by the fund may, under certain
circumstances, be considered illiquid securities for purposes of any
limitation on the fund's ability to invest in illiquid securities.
Investments in Miscellaneous Fixed-Income Securities
If the fund may invest in inverse floating obligations, premium
securities, or interest-only or principal-only classes of
mortgage-backed securities (IOs and POs), it may do so without limit.
The fund, however, currently does not intend to invest more than 15% of
its assets in inverse floating obligations or more than 35% of its
assets in IOs and POs under normal market conditions.
Lower-rated Securities
The fund may invest in lower-rated fixed-income securities (commonly
known as "junk bonds"). The lower ratings of certain securities held by
the fund reflect a greater possibility that adverse changes in the
financial condition of the issuer or in general economic conditions, or
both, or an unanticipated rise in interest rates, may impair the ability
of the issuer to make payments of interest and principal. The inability
(or perceived inability) of issuers to make timely payment of interest
and principal would likely make the values of securities held by the
fund more volatile and could limit the fund's ability to sell its
securities at prices approximating the values the fund had placed on
such securities. In the absence of a liquid trading market for
securities held by it, the fund at times may be unable to establish the
fair value of such securities.
Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' analysis at the time of
rating. Consequently, the rating assigned to any particular security is
not necessarily a reflection of the issuer's current financial
condition, which may be better or worse than the rating would indicate.
In addition, the rating assigned to a security by Moody's Investors
Service, Inc. or Standard & Poor's (or by any other nationally
recognized securities rating agency) does not reflect an assessment of
the volatility of the security's market value or the liquidity of an
investment in the security. See "Securities ratings."
Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. A
decrease in interest rates will generally result in an increase in the
value of the fund's assets. Conversely, during periods of rising
interest rates, the value of the fund's assets will generally decline.
The values of lower-rated securities may often be affected to a greater
extent by changes in general economic conditions and business conditions
affecting the issuers of such securities and their industries. Negative
publicity or investor perceptions may also adversely affect the values
of lower-rated securities. Changes by nationally recognized securities
rating agencies in their ratings of any fixed-income security and
changes in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments. Changes in
the value of portfolio securities generally will not affect income
derived from these securities, but will affect the fund's net asset
value. The fund will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase. However,
Putnam Management will monitor the investment to determine whether its
retention will assist in meeting the fund's investment objective(s).
Issuers of lower-rated securities are often highly leveraged, so that
their ability to service their debt obligations during an economic
downturn or during sustained periods of rising interest rates may be
impaired. Such issuers may not have more traditional methods of
financing available to them and may be unable to repay outstanding
obligations at maturity by refinancing. The risk of loss due to default
in payment of interest or repayment of principal by such issuers is
significantly greater because such securities frequently are unsecured
and subordinated to the prior payment of senior indebtedness.
At times, a substantial portion of the fund's assets may be invested in
an issue of which the fund, by itself or together with other funds and
accounts managed by Putnam Management or its affiliates, holds all or a
major portion. Although Putnam Management generally considers such
securities to be liquid because of the availability of an institutional
market for such securities, it is possible that, under adverse market or
economic conditions or in the event of adverse changes in the financial
condition of the issuer, the fund could find it more difficult to sell
these securities when Putnam Management believes it advisable to do so
or may be able to sell the securities only at prices lower than if they
were more widely held. Under these circumstances, it may also be more
difficult to determine the fair value of such securities for purposes of
computing the fund's net asset value. In order to enforce its rights in
the event of a default, the fund may be required to participate in
various legal proceedings or take possession of and manage assets
securing the issuer's obligations on such securities. This could
increase the fund's operating expenses and adversely affect the fund's
net asset value. In the case of tax-exempt funds, any income derived
from the fund's ownership or operation of such assets would not be
tax-exempt. The ability of a holder of a tax-exempt security to enforce
the terms of that security in a bankruptcy proceeding may be more
limited than would be the case with respect to securities of private
issuers. In addition, the fund's intention to qualify as a "regulated
investment company" under the Internal Revenue Code may limit the extent
to which the fund may exercise its rights by taking possession of such
assets.
Certain securities held by the fund may permit the issuer at its option
to "call," or redeem, its securities. If an issuer were to redeem
securities held by the fund during a time of declining interest rates,
the fund may not be able to reinvest the proceeds in securities
providing the same investment return as the securities redeemed.
The fund may invest without limit in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer, at its option, to
make current interest payments on the bonds either in cash or in
additional bonds. Because zero-coupon and payment-in-kind bonds do not
pay current interest in cash, their value is subject to greater
fluctuation in response to changes in market interest rates than bonds
that pay interest currently. Both zero-coupon and payment-in-kind bonds
allow an issuer to avoid the need to generate cash to meet current
interest payments. Accordingly, such bonds may involve greater credit
risks than bonds paying interest currently in cash. The fund is
required to accrue interest income on such investments and to distribute
such amounts at least annually to shareholders even though such bonds do
not pay current interest in cash. Thus, it may be necessary at times
for the fund to liquidate investments in order to satisfy its dividend
requirements.
To the extent the fund invests in securities in the lower rating
categories, the achievement of the fund's goals is more dependent on
Putnam Management's investment analysis than would be the case if the
fund were investing in securities in the higher rating categories. This
also may be true with respect to tax-exempt securities, as the amount of
information about the financial condition of an issuer of tax-exempt
securities may not be as extensive as that which is made available by
corporations whose securities are publicly traded.
Loan Participations and Other Floating Rate Loans.
The fund may invest in "loan participations." By purchasing a loan
participation, the fund acquires some or all of the interest of a bank
or other lending institution in a loan to a particular borrower. Many
such loans are secured, and most impose restrictive covenants which must
be met by the borrower. These loans are typically made by a syndicate
of banks, represented by an agent bank which has negotiated and
structured the loan and which is responsible generally for collecting
interest, principal, and other amounts from the borrower on its own
behalf and on behalf of the other lending institutions in the syndicate,
and for enforcing its and their other rights against the borrower. Each
of the lending institutions, including the agent bank, lends to the
borrower a portion of the total amount of the loan, and retains the
corresponding interest in the loan.
The fund's ability to receive payments of principal and interest and
other amounts in connection with loan participations held by it will
depend primarily on the financial condition of the borrower. The
failure by the fund to receive scheduled interest or principal payments
on a loan participation would adversely affect the income of the fund
and would likely reduce the value of its assets, which would be
reflected in a reduction in the fund's net asset value. Banks and other
lending institutions generally perform a credit analysis of the borrower
before originating a loan or participating in a lending syndicate. In
selecting the loan participations in which the fund will invest,
however, Putnam Management will not rely solely on that credit analysis,
but will perform its own investment analysis of the borrowers. Putnam
Management's analysis may include consideration of the borrower's
financial strength and managerial experience, debt coverage, additional
borrowing requirements or debt maturity schedules, changing financial
conditions, and responsiveness to changes in business conditions and
interest rates. Putnam Management will be unable to access non-public
information to which other investors in syndicated loans may have
access. Because loan participations in which the fund may invest are
not generally rated by independent credit rating agencies, a decision by
the fund to invest in a particular loan participation will depend almost
exclusively on Putnam Management's, and the original lending
institution's, credit analysis of the borrower. Investments in loan
participations may be of any quality, including "distressed" loans, and
will be subject to the fund's credit quality policy.
Loan participations may be structured in different forms, including
novations, assignments and participating interests. In a novation, the
fund assumes all of the rights of a lending institution in a loan,
including the right to receive payments of principal and interest and
other amounts directly from the borrower and to enforce its rights as a
lender directly against the borrower. The fund assumes the position of
a co-lender with other syndicate members. As an alternative, the fund
may purchase an assignment of a portion of a lender's interest in a
loan. In this case, the fund may be required generally to rely upon the
assigning bank to demand payment and enforce its rights against the
borrower, but would otherwise be entitled to all of such bank's rights
in the loan. The fund may also purchase a participating interest in a
portion of the rights of a lending institution in a loan. In such case,
it will be entitled to receive payments of principal, interest and
premium, if any, but will not generally be entitled to enforce its
rights directly against the agent bank or the borrower, and must rely
for that purpose on the lending institution. The fund may also acquire
a loan participation directly by acting as a member of the original
lending syndicate.
The fund will in many cases be required to rely upon the lending
institution from which it purchases the loan participation to collect
and pass on to the fund such payments and to enforce the fund's rights
under the loan. As a result, an insolvency, bankruptcy or
reorganization of the lending institution may delay or prevent the fund
from receiving principal, interest and other amounts with respect to the
underlying loan. When the fund is required to rely upon a lending
institution to pay to the fund principal, interest and other amounts
received by it, Putnam Management will also evaluate the
creditworthiness of the lending institution.
The borrower of a loan in which the fund holds a participation interest
may, either at its own election or pursuant to terms of the loan
documentation, prepay amounts of the loan from time to time. There is
no assurance that the fund will be able to reinvest the proceeds of any
loan prepayment at the same interest rate or on the same terms as those
of the original loan participation.
Corporate loans in which the fund may purchase a loan participation are
made generally to finance internal growth, mergers, acquisitions, stock
repurchases, leveraged buy-outs and other corporate activities. Under
current market conditions, most of the corporate loan participations
purchased by the fund will represent interests in loans made to finance
highly leveraged corporate acquisitions, known as "leveraged buy-out"
transactions. The highly leveraged capital structure of the borrowers
in such transactions may make such loans especially vulnerable to
adverse changes in economic or market conditions. In addition, loan
participations generally are subject to restrictions on transfer, and
only limited opportunities may exist to sell such participations in
secondary markets. As a result, the fund may be unable to sell loan
participations at a time when it may otherwise be desirable to do so or
may be able to sell them only at a price that is less than their fair
market value.
Certain of the loan participations acquired by the fund may involve
revolving credit facilities under which a borrower may from time to time
borrow and repay amounts up to the maximum amount of the facility. In
such cases, the fund would have an obligation to advance its portion of
such additional borrowings upon the terms specified in the loan
participation. To the extent that the fund is committed to make
additional loans under such a participation, it will at all times hold
and maintain in a segregated account liquid assets in an amount
sufficient to meet such commitments. Certain of the loan participations
acquired by the fund may also involve loans made in foreign currencies.
The fund's investment in such participations would involve the risks of
currency fluctuations described above with respect to investments in the
foreign securities.
With respect to its management of investments in floating rate loans,
Putnam will normally seek to avoid receiving material, non-public
information ("Confidential Information") about the issuers of floating
rate loans being considered for acquisition by the fund or held in the
fund's portfolio. In many instances, issuers may offer to furnish
Confidential Information to prospective purchasers, and to holders, of
the issuer's floating rate loans. Putnam's decision not to receive
Confidential Information may place Putnam at a disadvantage relative to
other investors in floating rate loans (which could have an adverse
effect on the price the fund pays or receives when buying or selling
loans). Also, in instances where holders of floating rate loans are
asked to grant amendments, waivers or consent, Putnam's ability to
assess their significance or desirability may be adversely affected.
For these and other reasons, it is possible that Putnam's decision not
to receive Confidential Information under normal circumstances could
adversely affect the fund's investment performance.
Notwithstanding its intention generally not to receive material,
non-public information with respect to its management of investments in
floating rate loans, Putnam may from time to time come into possession
of material, non-public information about the issuers of loans that may
be held in the fund's portfolio. Possession of such information may in
some instances occur despite Putnam's efforts to avoid such possession,
but in other instances Putnam may choose to receive such information
(for example, in connection with participation in a creditors' committee
with respect to a financially distressed issuer). As, and to the
extent, required by applicable law, Putnam's ability to trade in these
loans for the account of the fund could potentially be limited by its
possession of such information. Such limitations on Putnam's ability to
trade could have an adverse effect on the fund by, for example,
preventing the fund from selling a loan that is experiencing a material
decline in value. In some instances, these trading restrictions could
continue in effect for a substantial period of time.
In some instances, other accounts managed by Putnam may hold other
securities issued by borrowers whose floating rate loans may be held in
the fund's portfolio. These other securities may include, for example,
debt securities that are subordinate to the floating rate loans held in
the fund's portfolio, convertible debt or common or preferred equity
securities. In certain circumstances, such as if the credit quality of
the issuer deteriorates, the interests of holders of these other
securities may conflict with the interests of the holders of the
issuer's floating rate loans. In such cases, Putnam may owe conflicting
fiduciary duties to the fund and other client accounts. Putnam will
endeavor to carry out its obligations to all of its clients to the
fullest extent possible, recognizing that in some cases certain clients
may achieve a lower economic return, as a result of these conflicting
client interests, than if Putnam's client accounts collectively held
only a single category of the issuer's securities.
Floating Rate and Variable Rate Demand Notes
Floating rate and variable rate demand notes and bonds may have a stated
maturity in excess of one year, but may have features that permit a
holder to demand payment of principal plus accrued interest upon a
specified number of days notice. Frequently, such obligations are
secured by letters of credit or other credit support arrangements
provided by banks. The issuer has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal of the
obligation plus accrued interest upon a specific number of days notice
to the holders. The interest rate of a floating rate instrument may be
based on a known lending rate, such as a bank's prime rate, and is reset
whenever such rate is adjusted. The interest rate on a variable rate
demand note is reset at specified intervals at a market rate.
Mortgage Related and Asset-backed Securities
Mortgage-backed securities, including collateralized mortgage
obligations ("CMOs") and certain stripped mortgage-backed securities
represent a participation in, or are secured by, mortgage loans.
Asset-backed securities are structured like mortgage-backed securities,
but instead of mortgage loans or interests in mortgage loans, the
underlying assets may include such items as motor vehicle installment
sales or installment loan contracts, leases of various types of real and
personal property and receivables from credit card agreements. The
ability of an issuer of asset-backed securities to enforce its security
interest in the underlying assets may be limited.
Mortgage-backed securities have yield and maturity characteristics
corresponding to the underlying assets. Unlike traditional debt
securities, which may pay a fixed rate of interest until maturity, when
the entire principal amount comes due, payments on certain
mortgage-backed securities include both interest and a partial repayment
of principal. Besides the scheduled repayment of principal, repayments
of principal may result from the voluntary prepayment, refinancing or
foreclosure of the underlying mortgage loans. If property owners make
unscheduled prepayments of their mortgage loans, these prepayments will
result in early payment of the applicable mortgage-related securities.
In that event the fund may be unable to invest the proceeds from the
early payment of the mortgage-related securities in an investment that
provides as high a yield as the mortgage-related securities.
Consequently, early payment associated with mortgage-related securities
may cause these securities to experience significantly greater price and
yield volatility than that experienced by traditional fixed-income
securities. The occurrence of mortgage prepayments is affected by
factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. During periods of falling interest rates, the
rate of mortgage prepayments tends to increase, thereby tending to
decrease the life of mortgage-related securities. During periods of
rising interest rates, the rate of mortgage prepayments usually
decreases, thereby tending to increase the life of mortgage-related
securities. If the life of a mortgage-related security is inaccurately
predicted, the fund may not be able to realize the rate of return it
expected.
Mortgage-backed and asset-backed securities are less effective than
other types of securities as a means of "locking in" attractive
long-term interest rates. One reason is the need to reinvest
prepayments of principal; another is the possibility of significant
unscheduled prepayments resulting from declines in interest rates.
These prepayments would have to be reinvested at lower rates. As a
result, these securities may have less potential for capital
appreciation during periods of declining interest rates than other
securities of comparable maturities, although they may have a similar
risk of decline in market value during periods of rising interest rates.
Prepayments may also significantly shorten the effective maturities of
these securities, especially during periods of declining interest rates.
Conversely, during periods of rising interest rates, a reduction in
prepayments may increase the effective maturities of these securities,
subjecting them to a greater risk of decline in market value in response
to rising interest rates than traditional debt securities, and,
therefore, potentially increasing the volatility of the fund.
Prepayments may cause losses on securities purchased at a premium. At
times, some mortgage-backed and asset-backed securities will have higher
than market interest rates and therefore will be purchased at a premium
above their par value.
CMOs may be issued by a U.S. government agency or instrumentality or by
a private issuer. Although payment of the principal of, and interest
on, the underlying collateral securing privately issued CMOs may be
guaranteed by the U.S. government or its agencies or instrumentalities,
these CMOs represent obligations solely of the private issuer and are
not insured or guaranteed by the U.S. government, its agencies or
instrumentalities or any other person or entity.
Prepayments could cause early retirement of CMOs. CMOs are designed to
reduce the risk of prepayment for investors by issuing multiple classes
of securities, each having different maturities, interest rates and
payment schedules, and with the principal and interest on the underlying
mortgages allocated among the several classes in various ways. Payment
of interest or principal on some classes or series of CMOs may be
subject to contingencies or some classes or series may bear some or all
of the risk of default on the underlying mortgages. CMOs of different
classes or series are generally retired in sequence as the underlying
mortgage loans in the mortgage pool are repaid. If enough mortgages are
repaid ahead of schedule, the classes or series of a CMO with the
earliest maturities generally will be retired prior to their maturities.
Thus, the early retirement of particular classes or series of a CMO
would have the same effect as the prepayment of mortgages underlying
other mortgage-backed securities. Conversely, slower than anticipated
prepayments can extend the effective maturities of CMOs, subjecting them
to a greater risk of decline in market value in response to rising
interest rates than traditional debt securities, and, therefore,
potentially increasing their volatility.
Prepayments could result in losses on stripped mortgage-backed
securities. Stripped mortgage-backed securities are usually structured
with two classes that receive different portions of the interest and
principal distributions on a pool of mortgage loans. The yield to
maturity on an interest only or "IO" class of stripped mortgage-backed
securities is extremely sensitive not only to changes in prevailing
interest rates but also to the rate of principal payments (including
prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurable adverse effect on the fund's yield to
maturity to the extent it invests in IOs. If the assets underlying the
IO experience greater than anticipated prepayments of principal, the
fund may fail to recoup fully its initial investment in these
securities. Conversely, principal only or "POs" tend to increase in
value if prepayments are greater than anticipated and decline if
prepayments are slower than anticipated.
The secondary market for stripped mortgage-backed securities may be more
volatile and less liquid than that for other mortgage-backed securities,
potentially limiting the fund's ability to buy or sell those securities
at any particular time.
Hybrid Instruments
These instruments are generally considered derivatives and include
indexed or structured securities, and combine the elements of futures
contracts or options with those of debt, preferred equity or a
depository instrument. A hybrid instrument may be a debt security,
preferred stock, warrant, convertible security, certificate of deposit
or other evidence of indebtedness on which a portion of or all interest
payments, and/or the principal or stated amount payable at maturity,
redemption or retirement, is determined by reference to prices, changes
in prices, or differences between prices, of securities, currencies,
intangibles, goods, articles or commodities (collectively, "underlying
assets"), or by another objective index, economic factor or other
measure, including interest rates, currency exchange rates, or
commodities or securities indices (collectively, "benchmarks"). Hybrid
instruments may take a number of forms, including, but not limited to,
debt instruments with interest or principal payments or redemption terms
determined by reference to the value of an index at a future time,
preferred stock with dividend rates determined by reference to the value
of a currency, or convertible securities with the conversion terms
related to a particular commodity.
The risks of investing in hybrid instruments reflect a combination of
the risks of investing in securities, options, futures and currencies.
An investment in a hybrid instrument may entail significant risks that
are not associated with a similar investment in a traditional debt
instrument that has a fixed principal amount, is denominated in U.S.
dollars or bears interest either at a fixed rate or a floating rate
determined by reference to a common, nationally published benchmark.
The risks of a particular hybrid instrument will depend upon the terms
of the instrument, but may include the possibility of significant
changes in the benchmark(s) or the prices of the underlying assets to
which the instrument is linked. Such risks generally depend upon
factors unrelated to the operations or credit quality of the issuer of
the hybrid instrument, which may not be foreseen by the purchaser, such
as economic and political events, the supply and demand of the
underlying assets and interest rate movements. Hybrid instruments may
be highly volatile and their use by a fund may not be successful.
Hybrid instruments may bear interest or pay preferred dividends at below
market (or even relatively nominal) rates. Alternatively, hybrid
instruments may bear interest at above market rates but bear an
increased risk of principal loss (or gain). The latter scenario may
result if "leverage" is used to structure the hybrid instrument.
Leverage risk occurs when the hybrid instrument is structured so that a
given change in a benchmark or underlying asset is multiplied to produce
a greater value change in the hybrid instrument, thereby magnifying the
risk of loss as well as the potential for gain.
Hybrid instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of
enhancing total return. For example, a fund may wish to take advantage
of expected declines in interest rates in several European countries,
but avoid the transaction costs associated with buying and
currency-hedging the foreign bond positions. One solution would be to
purchase a U.S. dollar-denominated hybrid instrument whose redemption
price is linked to the average three year interest rate in a designated
group of countries. The redemption price formula would provide for
payoffs of less than par if rates were above the specified level.
Furthermore, a fund could limit the downside risk of the security by
establishing a minimum redemption price so that the principal paid at
maturity could not be below a predetermined minimum level if interest
rates were to rise significantly. The purpose of this arrangement,
known as a structured security with an embedded put option, would be to
give the fund the desired European bond exposure while avoiding currency
risk, limiting downside market risk, and lowering transaction costs. Of
course, there is no guarantee that the strategy will be successful and a
fund could lose money if, for example, interest rates do not move as
anticipated or credit problems develop with the issuer of the hybrid
instrument.
Hybrid instruments are potentially more volatile and carry greater
market risks than traditional debt instruments. Depending on the
structure of the particular hybrid instrument, changes in a benchmark
may be magnified by the terms of the hybrid instrument and have an even
more dramatic and substantial effect upon the value of the hybrid
instrument. Also, the prices of the hybrid instrument and the benchmark
or underlying asset may not move in the same direction or at the same
time.
Hybrid instruments may also carry liquidity risk since the instruments
are often "customized" to meet the portfolio needs of a particular
investor, and therefore, the number of investors that are willing and
able to buy such instruments in the secondary market may be smaller than
that for more traditional debt securities. Under certain conditions,
the redemption value of such an investment could be zero. In addition,
because the purchase and sale of hybrid investments could take place in
an over-the-counter market without the guarantee of a central clearing
organization, or in a transaction between the fund and the issuer of the
hybrid instrument, the creditworthiness of the counterparty of the
issuer of the hybrid instrument would be an additional risk factor the
fund would have to consider and monitor. Hybrid instruments also may
not be subject to regulation by the CFTC, which generally regulates the
trading of commodity futures by U.S. persons, the SEC, which regulates
the offer and sale of securities by and to U.S. persons, or any other
governmental regulatory authority.
Structured investments. A structured investment is a security having a
return tied to an underlying index or other security or asset class.
Structured investments generally are individually negotiated agreements
and may be traded over-the-counter. Structured investments are
organized and operated to restructure the investment characteristics of
the underlying security. This restructuring involves the deposit with
or purchase by an entity, such as a corporation or trust, or specified
instruments (such as commercial bank loans) and the issuance by that
entity or one or more classes of securities ("structured securities")
backed by, or representing interests in, the underlying instruments.
The cash flow on the underlying instruments may be apportioned among the
newly issued structured securities to create securities with different
investment characteristics, such as varying maturities, payment
priorities and interest rate provisions, and the extent of such payments
made with respect to structured securities is dependent on the extent of
the cash flow on the underlying instruments. Because structured
securities typically involve no credit enhancement, their credit risk
generally will be equivalent to that of the underlying instruments.
Investments in structured securities are generally of a class of
structured securities that is either subordinated or unsubordinated to
the right of payment of another class. Subordinated structured
securities typically have higher yields and present greater risks than
unsubordinated structured securities. Structured securities are
typically sold in private placement transactions, and there currently is
no active trading market for structured securities. Investments in
government and government-related and restructured debt instruments are
subject to special risks, including the inability or unwillingness to
repay principal and interest, requests to reschedule or restructure
outstanding debt and requests to extend additional loan amounts.
Securities of Other Investment Companies. Securities of other investment
companies, including shares of open- and closed-end investment companies
and unit investment trusts (which may include exchange-traded funds
("ETFs")), represent interests in collective investment portfolios that, in
turn, invest directly in underlying instruments. The fund may invest in
other investment companies when it has more uninvested cash than Putnam
Management believes is advisable, when it receives cash collateral from
securities lending arrangements, when there is a shortage of direct
investments available, or when Putnam Management believes that investment
companies offer attractive values.
Investment companies may be structured to perform in a similar fashion to a
broad-based securities index or may focus on a particular strategy or class
of assets. ETFs typically seek to track the performance or dividend yield
of specific indexes or companies in related industries. These indexes may
be broad-based, sector-based or international. Investing in investment
companies involves substantially the same risks as investing directly in
the underlying instruments, but also involves expenses at the investment
company-level, such as portfolio management fees and operating expenses.
These expenses are in addition to the fees and expenses of the fund itself,
which may lead to duplication of expenses while the fund owns another
investment company's shares. In addition, investing in investment companies
involves the risk that they will not perform in exactly the same fashion,
or in response to the same factors, as the underlying instruments or index.
To the extent the fund invests in other investment companies that are
professionally managed, its performance will also depend on the investment
and research abilities of investment managers other than Putnam Management.
Open-end investment companies typically offer their shares continuously at
net asset value plus any applicable sales charge and stand ready to redeem
shares upon shareholder request. The shares of certain other types of
investment companies, such as ETFs and closed-end investment companies,
typically trade on a stock exchange or over-the-counter at a premium or a
discount to their net asset value. In the case of closed-end investment
companies, the number of shares is typically fixed. The securities of
closed-end investment companies and ETFs carry the risk that the price the
fund pays or receives may be higher or lower than the investment company's
net asset value. ETFs and closed-end investment companies are also subject
to certain additional risks, including the risks of illiquidity and of
possible trading halts due to market conditions or other reasons, based on
the policies of the relevant exchange. The shares of investment companies,
particularly closed-end investment companies, may also be leveraged, which
would increase the volatility of the fund's net asset value.
The extent to which the fund can invest in securities of other investment
companies, including ETFs, is generally limited by federal securities laws.
Tax-exempt Securities
General description. As used in this SAI, the term "Tax-exempt
securities" includes debt obligations issued by a state, its political
subdivisions (for example, counties, cities, towns, villages, districts
and authorities) and their agencies, instrumentalities or other
governmental units, the interest from which is, in the opinion of bond
counsel, exempt from federal income tax and the corresponding state's
personal income tax. Such obligations are issued to obtain funds for
various public purposes, including the construction of a wide range of
public facilities, such as airports, bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer
works. Other public purposes for which Tax-exempt securities may be
issued include the refunding of outstanding obligations or the payment
of general operating expenses.
Short-term Tax-exempt securities are generally issued by state and local
governments and public authorities as interim financing in anticipation
of tax collections, revenue receipts or bond sales to finance such
public purposes.
In addition, certain types of "private activity" bonds may be issued by
public authorities to finance projects such as privately operated
housing facilities; certain local facilities for supplying water, gas or
electricity; sewage or solid waste disposal facilities; student loans;
or public or private institutions for the construction of educational,
hospital, housing and other facilities. Such obligations are included
within the term Tax-exempt securities if the interest paid thereon is,
in the opinion of bond counsel, exempt from federal income tax and state
personal income tax (such interest may, however, be subject to federal
alternative minimum tax). Other types of private activity bonds, the
proceeds of which are used for the construction, repair or improvement
of, or to obtain equipment for, privately operated industrial or
commercial facilities, may also constitute Tax-exempt securities,
although the current federal tax laws place substantial limitations on
the size of such issues.
Participation interests (Money Market Funds only). The money market
funds may invest in Tax-exempt securities either by purchasing them
directly or by purchasing certificates of accrual or similar instruments
evidencing direct ownership of interest payments or principal payments,
or both, on Tax-exempt securities, provided that, in the opinion of
counsel, any discount accruing on a certificate or instrument that is
purchased at a yield not greater than the coupon rate of interest on the
related Tax-exempt securities will be exempt from federal income tax to
the same extent as interest on the Tax-exempt securities. The money
market funds may also invest in Tax-exempt securities by purchasing from
banks participation interests in all or part of specific holdings of
Tax-exempt securities. These participations may be backed in whole or
in part by an irrevocable letter of credit or guarantee of the selling
bank. The selling bank may receive a fee from the money market funds in
connection with the arrangement. The money market funds will not
purchase such participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service that interest earned
by it on Tax-exempt securities in which it holds such participation
interests is exempt from federal income tax. No money market fund
expects to invest more than 5% of its assets in participation interests.
Stand-by commitments. When the fund purchases Tax-exempt securities, it
has the authority to acquire stand-by commitments from banks and
broker-dealers with respect to those Tax-exempt securities. A stand-by
commitment may be considered a security independent of the Tax-exempt
security to which it relates. The amount payable by a bank or dealer
during the time a stand-by commitment is exercisable, absent unusual
circumstances, would be substantially the same as the market value of
the underlying Tax-exempt security to a third party at any time. The
fund expects that stand-by commitments generally will be available
without the payment of direct or indirect consideration. The fund does
not expect to assign any value to stand-by commitments.
Yields. The yields on Tax-exempt securities depend on a variety of
factors, including general money market conditions, effective marginal
tax rates, the financial condition of the issuer, general conditions of
the Tax-exempt security market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings of
nationally recognized securities rating agencies represent their
opinions as to the credit quality of the Tax-exempt securities which
they undertake to rate. It should be emphasized, however, that ratings
are general and are not absolute standards of quality. Consequently,
Tax-exempt securities with the same maturity and interest rate but with
different ratings may have the same yield. Yield disparities may occur
for reasons not directly related to the investment quality of particular
issues or the general movement of interest rates and may be due to such
factors as changes in the overall demand or supply of various types of
Tax-exempt securities or changes in the investment objectives of
investors. Subsequent to purchase by the fund, an issue of Tax-exempt
securities or other investments may cease to be rated, or its rating may
be reduced below the minimum rating required for purchase by the fund.
Neither event will require the elimination of an investment from the
fund's portfolio, but Putnam Management will consider such an event in
its determination of whether the fund should continue to hold an
investment in its portfolio.
"Moral obligation" bonds. The fund does not currently intend to invest
in so-called "moral obligation" bonds, where repayment is backed by a
moral commitment of an entity other than the issuer, unless the credit
of the issuer itself, without regard to the "moral obligation," meets
the investment criteria established for investments by the fund.
Municipal leases. The fund may acquire participations in lease
obligations or installment purchase contract obligations (collectively,
"lease obligations") of municipal authorities or entities. Lease
obligations do not constitute general obligations of the municipality
for which the municipality's taxing power is pledged. Certain of these
lease obligations contain "non-appropriation" clauses, which provide
that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such
purpose on a yearly basis. In the case of a "non-appropriation" lease,
the fund's ability to recover under the lease in the event of
non-appropriation or default will be limited solely to the repossession
of the leased property, and in any event, foreclosure of that property
might prove difficult.
Inverse Floaters have variable interest rates that typically move in the
opposite direction from movements in prevailing short-term interest rate
levels - rising when prevailing short-term interest rate fall, and vice
versa. The prices of inverse floaters can be considerably more volatile
than the prices of bonds with comparable maturities.
Additional risks. Securities in which the fund may invest, including
Tax-exempt securities, are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of
creditors, such as the federal Bankruptcy Code (including special
provisions related to municipalities and other public entities), and
laws, if any, that may be enacted by Congress or state legislatures
extending the time for payment of principal or interest, or both, or
imposing other constraints upon enforcement of such obligations. There
is also the possibility that, as a result of litigation or other
conditions, the power, ability or willingness of issuers to meet their
obligations for the payment of interest and principal on their
Tax-exempt securities may be materially affected.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax
exemption for interest on debt obligations issued by states and their
political subdivisions. Federal tax laws limit the types and amounts of
tax-exempt bonds issuable for certain purposes, especially industrial
development bonds and private activity bonds. Such limits may affect
the future supply and yields of these types of Tax-exempt securities.
Further proposals limiting the issuance of Tax-exempt securities may
well be introduced in the future. If it appeared that the availability
of Tax-exempt securities for investment by the fund and the value of the
fund's portfolio could be materially affected by such changes in law,
the Trustees of the fund would reevaluate its investment objective and
policies and consider changes in the structure of the fund or its
dissolution.
Convertible Securities
Convertible securities include bonds, debentures, notes, preferred
stocks and other securities that may be converted into or exchanged for,
at a specific price or formula within a particular period of time, a
prescribed amount of common stock or other equity securities of the same
or a different issuer. Convertible securities entitle the holder to
receive interest paid or accrued on debt or dividends paid or accrued on
preferred stock until the security matures or is redeemed, converted or
exchanged.
The market value of a convertible security is a function of its
"investment value" and its "conversion value." A security's "investment
value" represents the value of the security without its conversion
feature (i.e., a nonconvertible fixed income security). The investment
value may be determined by reference to its credit quality and the
current value of its yield to maturity or probable call date. At any
given time, investment value is dependent upon such factors as the
general level of interest rates, the yield of similar nonconvertible
securities, the financial strength of the issuer and the seniority of
the security in the issuer's capital structure. A security's "conversion
value" is determined by multiplying the number of shares the holder is
entitled to receive upon conversion or exchange by the current price of
the underlying security.
If the conversion value of a convertible security is significantly below
its investment value, the convertible security will trade like
nonconvertible debt or preferred stock and its market value will not be
influenced greatly by fluctuations in the market price of the underlying
security. Conversely, if the conversion value of a convertible security
is near or above its investment value, the market value of the
convertible security will be more heavily influenced by fluctuations in
the market price of the underlying security.
The fund's investments in convertible securities may at times include
securities that have a mandatory conversion feature, pursuant to which
the securities convert automatically into common stock or other equity
securities at a specified date and a specified conversion ratio, or that
are convertible at the option of the issuer. Because conversion of the
security is not at the option of the holder, the fund may be required to
convert the security into the underlying common stock even at times when
the value of the underlying common stock or other equity security has
declined substantially.
The fund's investments in convertible securities, particularly
securities that are convertible into securities of an issuer other than
the issuer of the convertible security, may be illiquid. The fund may
not be able to dispose of such securities in a timely fashion or for a
fair price, which could result in losses to the fund.
Alternative Investment Strategies
Under normal market conditions, each fund seeks to remain fully invested
and to minimize its cash holdings. However, at times Putnam Management
may judge that market conditions make pursuing a fund's investment
strategies inconsistent with the best interests of its shareholders.
Putnam Management then may temporarily use alternative strategies that
are mainly designed to limit the fund's losses. In implementing these
strategies, the funds may invest primarily in debt securities, preferred
stocks, U.S. Government and agency obligations, cash or money market
instruments, or any other securities Putnam Management considers
consistent with such defensive strategies.
Money market instruments, or short-term debt instruments, consist of
obligations such as commercial paper, bank obligations (i.e.,
certificates of deposit and bankers' acceptances), repurchase agreements
and various government obligations, such as Treasury bills. These
instruments have a remaining maturity of one year or less and are
generally of high credit quality. Money market instruments may be
structured to be, or may employ a trust or other form so that they are,
eligible investments for money market funds. For example, put features
can be used to modify the maturity of a security or interest rate
adjustment features can be used to enhance price stability. If a
structure fails to function as intended, adverse tax or investment
consequences may result. Neither the Internal Revenue Service (IRS) nor
any other regulatory authority has ruled definitively on certain legal
issues presented by certain structured securities. Future tax or other
regulatory determinations could adversely affect the value, liquidity,
or tax treatment of the income received from these securities or the
nature and timing of distributions made by the funds.
Private Placements and Restricted Securities
The fund may invest in securities that are purchased in private
placements and, accordingly, are subject to restrictions on resale as a
matter of contract or under federal securities laws. Because there may
be relatively few potential purchasers for such investments, especially
under adverse market or economic conditions or in the event of adverse
changes in the financial condition of the issuer, the fund could find it
more difficult to sell such securities when Putnam Management believes
it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. At times,
it may also be more difficult to determine the fair value of such
securities for purposes of computing the fund's net asset value.
While such private placements may often offer attractive opportunities
for investment not otherwise available on the open market, the
securities so purchased are often "restricted securities," i.e.,
securities which cannot be sold to the public without registration
under the Securities Act of 1933 or the availability of an exemption
from registration (such as Rules 144 or 144A), or which are "not readily
marketable" because they are subject to other legal or contractual
delays in or restrictions on resale.
The absence of a trading market can make it difficult to ascertain a
market value for illiquid investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for the fund to sell them promptly
at an acceptable price. The fund may have to bear the extra expense of
registering such securities for resale and the risk of substantial delay
in effecting such registration. Also market quotations are less readily
available. The judgment of Putnam Management may at times play a greater
role in valuing these securities than in the case of publicly traded
securities.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a
limited number of purchasers, or in limited quantities after they have
been held for a specified period of time and other conditions are met
pursuant to an exemption from registration, or in a public offering for
which a registration statement is in effect under the Securities Act of
1933. The fund may be deemed to be an "underwriter" for purposes of the
Securities Act of 1933 when selling restricted securities to the public,
and in such event the fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.
The SEC Staff currently takes the view that any delegation by the
Trustees of the authority to determine that a restricted security is
readily marketable (as described in the investment restrictions of the
funds) must be pursuant to written procedures established by the
Trustees and the Trustees have delegated such authority to Putnam
Management.
Futures Contracts and Related Options
Subject to applicable law the fund may invest without limit in futures
contracts and related options for hedging and non-hedging purposes, such
as to manage the effective duration of the fund's portfolio or as a
substitute for direct investment. A financial futures contract sale
creates an obligation by the seller to deliver the type of financial
instrument called for in the contract in a specified delivery month for
a stated price. A financial futures contract purchase creates an
obligation by the purchaser to take delivery of the type of financial
instrument called for in the contract in a specified delivery month at a
stated price. The specific instruments delivered or taken,
respectively, at settlement date are not determined until on or near
that date. The determination is made in accordance with the rules of
the exchange on which the futures contract sale or purchase was made.
Futures contracts are traded in the United States only on commodity
exchanges or boards of trade -- known as "contract markets" -- approved
for such trading by the Commodity Futures Trading Commission (the
"CFTC"), and must be executed through a futures commission merchant or
brokerage firm which is a member of the relevant contract market.
Although futures contracts (other than index futures and futures based on
the volatility or variance experienced by an index) 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. Index futures and futures based on the volatility
or variance experienced by an index do not call for actual delivery or
acceptance of commodities or securities, but instead require cash
settlement of the futures contract on the settlement date specified in the
contract. Such contracts may also be closed out before the settlement
date. 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.
The fund has claimed an exclusion from the definition of the term
"commodity pool operator" under the Commodity Exchange Act (the "CEA"), and
therefore, is not subject to registration or regulation as a pool operator
under the CEA.
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, and, in the case of index futures and
futures based on the volatility or variance experienced by an index, Putnam
Management's ability to predict the future level of the index or the future
volatility or variance experienced by an index. 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, and,
in the case of futures contracts based on the volatility or variance
experienced by an index, the ability of Putnam Management to forecast
volatility or variance experienced by an index correctly.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain market
clearing facilities inadequate, and thereby result in the institution by
exchanges of special procedures which may interfere with the timely
execution of customer orders.
To reduce or eliminate a position held by the fund, the fund may seek to
close out such position. The ability to establish and close out
positions will be subject to the development and maintenance of a liquid
secondary market. It is not certain that this market will develop or
continue to exist for a particular futures contract or option. Reasons
for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain
contracts or options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of contracts or options, or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt
normal operations on an exchange; (v) the facilities of an exchange or a
clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue
the trading of contracts or options (or a particular class or series of
contracts or options), in which event the secondary market on that
exchange for such contracts or options (or in the class or series of
contracts or options) would cease to exist, although outstanding
contracts or options on the exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
U.S. Treasury security futures contracts and options. U.S. Treasury
security futures contracts require the seller to deliver, or the
purchaser to take delivery of, the type of U.S. Treasury security called
for in the contract at a specified date and price. Options on U.S.
Treasury security futures contracts give the purchaser the right in
return for the premium paid to assume a position in a U.S. Treasury
security futures contract at the specified option exercise price at any
time during the period of the option.
Successful use of U.S. Treasury security futures contracts by the fund
is subject to Putnam Management's ability to predict movements in the
direction of interest rates and other factors affecting markets for debt
securities. For example, if the fund has sold U.S. Treasury security
futures contracts in order to hedge against the possibility of an
increase in interest rates which would adversely affect securities held
in its portfolio, and the prices of the fund's securities increase
instead as a result of a decline in interest rates, the fund will lose
part or all of the benefit of the increased value of its securities
which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the fund has
insufficient cash, it may have to sell securities to meet daily
maintenance margin requirements at a time when it may be disadvantageous
to do so.
There is also a risk that price movements in U.S. Treasury security
futures contracts and related options will not correlate closely with
price movements in markets for particular securities. For example, if
the fund has hedged against a decline in the values of tax-exempt
securities held by it by selling Treasury security futures and the
values of Treasury securities subsequently increase while the values of
its tax-exempt securities decrease, the fund would incur losses on both
the Treasury security futures contracts written by it and the tax-exempt
securities held in its portfolio.
Index futures contracts. An index futures contract is a contract to buy
or sell units of an index at a specified future date at a price agreed
upon when the contract is made. Entering into a contract to buy units
of an index is commonly referred to as buying or purchasing a contract
or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or
holding a short position. A unit is the current value of the index.
The fund may enter into stock index futures contracts, debt index
futures contracts, or other index futures contracts appropriate to its
objective(s). The fund may also purchase and sell options on index
futures contracts.
For example, the Standard & Poor's 500 Composite Stock Price Index ("S&P
500") is composed of 500 selected common stocks, most of which are
listed on the New York Stock Exchange. The S&P 500 assigns relative
weightings to the common stocks included in the Index, and the value
fluctuates with changes in the market values of those common stocks. In
the case of the S&P 500, contracts are to buy or sell 500 units. Thus,
if the value of the S&P 500 were $150, one contract would be worth
$75,000 (500 units x $150). The stock index futures contract specifies
that no delivery of the actual stocks making up the index will take
place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the
contract price and the actual level of the stock index at the expiration
of the contract. For example, if the fund enters into a futures
contract to buy 500 units of the S&P 500 at a specified future date at a
contract price of $150 and the S&P 500 is at $154 on that future date,
the fund will gain $2,000 (500 units x gain of $4). If the fund enters
into a futures contract to sell 500 units of the stock index at a
specified future date at a contract price of $150 and the S&P 500 is at
$152 on that future date, the fund will lose $1,000 (500 units x loss of
$2).
There are several risks in connection with the use by the fund of index
futures. One risk arises because of the imperfect correlation between
movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. Putnam Management
will, however, attempt to reduce this risk by buying or selling, to the
extent possible, futures on indices the movements of which will, in its
judgment, have a significant correlation with movements in the prices of
the securities sought to be hedged.
Successful use of index futures by the fund is also subject to Putnam
Management's ability to predict movements in the direction of the
market. For example, it is possible that, where the fund has sold
futures to hedge its portfolio against a decline in the market, the
index on which the futures are written may advance and the value of
securities held in the fund's portfolio may decline. If this occurred,
the fund would lose money on the futures and also experience a decline
in value in its portfolio securities. It is also possible that, if the
fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities
prices increase instead, the fund will lose part or all of the benefit
of the increased value of those securities it has hedged because it will
have offsetting losses in its futures positions. In addition, in such
situations, if the fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements at a time when it
is disadvantageous to do so.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the index
futures and the portion of the portfolio being hedged, the prices of
index futures may not correlate perfectly with movements in the
underlying index due to certain market distortions. First, all
participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures
market are less onerous than margin requirements in the securities
market, and as a result the futures market may attract more speculators
than the securities market does. Increased participation by speculators
in the futures market may also cause temporary price distortions. Due
to the possibility of price distortions in the futures market and also
because of the imperfect correlation between movements in the index and
movements in the prices of index futures, even a correct forecast of
general market trends by Putnam Management may still not result in a
profitable position over a short time period.
Options on stock index futures. Options on index futures are similar to
options on securities except that options on index futures give the
purchaser the right, in return for the premium paid, to assume a
position in an index futures contract (a long position if the option is
a call and a short position if the option is a put) at a specified
exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin
account which represents the amount by which the market price of the
index futures contract, at exercise, exceeds (in the case of a call) or
is less than (in the case of a put) the exercise price of the option on
the index future. If an option is exercised on the last trading day
prior to its expiration date, the settlement will be made entirely in
cash equal to the difference between the exercise price of the option
and the closing level of the index on which the future is based on the
expiration date. Purchasers of options who fail to exercise their
options prior to the exercise date suffer a loss of the premium paid.
Options on Indices
As an alternative to purchasing call and put options on index futures,
the fund may purchase and sell call and put options on the underlying
indices themselves. Such options would be used in a manner identical to
the use of options on index futures.
Index Warrants
The fund may purchase put warrants and call warrants whose values vary
depending on the change in the value of one or more specified securities
indices ("index warrants"). Index warrants are generally issued by
banks or other financial institutions and give the holder the right, at
any time during the term of the warrant, to receive upon exercise of the
warrant a cash payment from the issuer based on the value of the
underlying index at the time of exercise. In general, if the value of
the underlying index rises above the exercise price of the index
warrant, the holder of a call warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference between
the value of the index and the exercise price of the warrant; if the
value of the underlying index falls, the holder of a put warrant will be
entitled to receive a cash payment from the issuer upon exercise based
on the difference between the exercise price of the warrant and the
value of the index. The holder of a warrant would not be entitled to
any payments from the issuer at any time when, in the case of a call
warrant, the exercise price is greater than the value of the underlying
index, or, in the case of a put warrant, the exercise price is less than
the value of the underlying index. If the fund were not to exercise an
index warrant prior to its expiration, then the fund would lose the
amount of the purchase price paid by it for the warrant.
The fund will normally use index warrants in a manner similar to its use
of options on securities indices. The risks of the fund's use of index
warrants are generally similar to those relating to its use of index
options. Unlike most index options, however, index warrants are issued
in limited amounts and are not obligations of a regulated clearing
agency, but are backed only by the credit of the bank or other
institution which issues the warrant. Also, index warrants generally
have longer terms than index options. Although the fund will normally
invest only in exchange-listed warrants, index warrants are not likely
to be as liquid as certain index options backed by a recognized clearing
agency. In addition, the terms of index warrants may limit the fund's
ability to exercise the warrants at such time, or in such quantities, as
the fund would otherwise wish to do.
Short-term Trading
In seeking the fund's objective(s), Putnam Management will buy or sell
portfolio securities whenever Putnam Management believes it appropriate
to do so. From time to time the fund will buy securities intending to
seek short-term trading profits. A change in the securities held by the
fund is known as "portfolio turnover" and generally involves some
expense to the fund. This expense may include brokerage commissions or
dealer markups and other transaction costs on both the sale of
securities and the reinvestment of the proceeds in other securities. If
sales of portfolio securities cause the fund to realize net short-term
capital gains, such gains will be taxable as ordinary income. As a
result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than that of
other mutual funds. Portfolio turnover rate for a fiscal year is the
ratio of the lesser of purchases or sales of portfolio securities to the
monthly average of the value of portfolio securities -- excluding
securities whose maturities at acquisition were one year or less. The
fund's portfolio turnover rate is not a limiting factor when Putnam
Management considers a change in the fund's portfolio.
Securities Loans
The fund may make secured loans of its portfolio securities, on either a
short-term or long-term basis, amounting to not more than 25% of its
total assets, thereby realizing additional income. The risks in lending
portfolio securities, as with other extensions of credit, consist of
possible delay in recovery of the securities or possible loss of rights
in the collateral should the borrower fail financially. As a matter of
policy, securities loans are made to broker-dealers pursuant to
agreements requiring that the loans be continuously secured by
collateral consisting of cash or short-term debt obligations at least
equal at all times to the value of the securities on loan,
"marked-to-market" daily. The borrower pays to the fund an amount equal
to any dividends or interest received on securities lent. The fund
retains all or a portion of the interest received on investment of the
cash collateral or receives a fee from the borrower. Although voting
rights, or rights to consent, with respect to the loaned securities may
pass to the borrower, the fund retains the right to call the loans at
any time on reasonable notice, and it will do so to enable the fund to
exercise voting rights on any matters materially affecting the
investment. The fund may also call such loans in order to sell the
securities.
Repurchase Agreements
The fund, unless it is a money market fund, may enter into repurchase
agreements, amounting to not more than 25% of its total assets. Money
market funds may invest without limit in repurchase agreements. A
repurchase agreement is a contract under which the fund acquires a
security for a relatively short period (usually not more than one week)
subject to the obligation of the seller to repurchase and the fund to
resell such security at a fixed time and price (representing the fund's
cost plus interest). It is the fund's present intention to enter into
repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the U.S.
government or its agencies or instrumentalities. Repurchase agreements
may also be viewed as loans made by the fund which are collateralized by
the securities subject to repurchase. Putnam Management will monitor
such transactions to ensure that the value of the underlying securities
will be at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. If the seller
defaults, the fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of the sale including accrued
interest are less than the resale price provided in the agreement
including interest. In addition, if the seller should be involved in
bankruptcy or insolvency proceedings, the fund may incur delay and costs
in selling the underlying security or may suffer a loss of principal and
interest if the fund is treated as an unsecured creditor and required to
return the underlying collateral to the seller's estate.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the fund may transfer uninvested cash balances into a joint
account, along with cash of other Putnam funds and certain other
accounts. These balances may be invested in one or more repurchase
agreements and/or short-term money market instruments.
Forward Commitments
The fund may enter into contracts to purchase securities for a fixed
price at a future date beyond customary settlement time ("forward
commitments") if the fund sets aside, on the books and records of its
custodian, liquid assets in an amount sufficient to meet the purchase
price, or if the fund enters into offsetting contracts for the forward
sale of other securities it owns. In the case of to-be-announced
("TBA") purchase commitments, the unit price and the estimated principal
amount are established when the fund enters into a contract, with the
actual principal amount being within a specified range of the estimate.
Forward commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the
risk of decline in the value of the fund's other assets. Where such
purchases are made through dealers, the fund relies on the dealer to
consummate the sale. The dealer's failure to do so may result in the
loss to the fund of an advantageous yield or price. Although the fund
will generally enter into forward commitments with the intention of
acquiring securities for its portfolio or for delivery pursuant to
options contracts it has entered into, the fund may dispose of a
commitment prior to settlement if Putnam Management deems it appropriate
to do so. The fund may realize short-term profits or losses upon the
sale of forward commitments.
The fund may enter into TBA sale commitments to hedge its portfolio
positions or to sell securities it owns under delayed delivery
arrangements. Proceeds of TBA sale commitments are not received until
the contractual settlement date. During the time a TBA sale commitment
is outstanding, equivalent deliverable securities, or an offsetting TBA
purchase commitment deliverable on or before the sale commitment date,
are held as "cover" for the transaction. Unsettled TBA sale commitments
are valued at current market value of the underlying securities. If the
TBA sale commitment is closed through the acquisition of an offsetting
purchase commitment, the fund realizes a gain or loss on the commitment
without regard to any unrealized gain or loss on the underlying
security. If the fund delivers securities under the commitment, the
fund realizes a gain or loss from the sale of the securities based upon
the unit price established at the date the commitment was entered into.
Swap Agreements
The fund may enter into swap agreements and other types of over-the-counter
transactions with broker-dealers or other financial institutions. Swap
agreements can be individually negotiated and structured to include
exposure to a variety of different types of investments or market factors.
Depending on their structures, swap agreements may increase or decrease the
fund's exposure to long-or short-term interest rates (in the United States
or abroad), foreign currency values, mortgage securities, corporate
borrowing rates, or other factors such as security prices, inflation rates
or the volatility of an index or one or more securities. The value of
the fund's swap positions would increase or decrease depending on the
changes in value of the underlying rates, currency values, volatility or
other indices or measures. Depending on how they are used, swap agreements
may increase or decrease the overall volatility of a fund's investments and
its share price. The fund's ability to engage in certain swap transactions
may be limited by tax considerations.
The fund's ability to realize a profit from such transactions will depend
on the ability of the financial institutions with which it enters into the
transactions to meet their obligations to the fund. Under certain
circumstances, suitable transactions may not be available to the fund, or
the fund may be unable to close out its position under such transactions at
the same time, or at the same price, as if it had purchased comparable
publicly traded securities.
Derivatives
Certain of the instruments in which the fund may invest, such as futures
contracts, options and forward contracts, are considered to be
"derivatives." Derivatives are financial instruments whose value depends
upon, or is derived from, the value or other attributes 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. Investments in
derivatives may be applied toward meeting a requirement to invest in a
particular kind of investment if the derivatives have economic
characteristics similar to that investment.
Industry and sector groups
Putnam uses a customized set of industry and sector groups for classifying
securities ("Putnam Industry Codes"). The Putnam Industry Codes are based
on an expanded Standard & Poor's industry classification model, modified to
be more representative of global investing and more applicable to both
large and small capitalization securities. For presentation purposes, the
fund may apply the Putnam Industry Codes differently in reporting industry
groups in the fund's shareholder reports or other communications.
TAXES
The following discussion of U.S. Federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code"),
existing U.S. Treasury regulations, and other applicable authority, as
of the date of this SAI. These authorities are subject to change by
legislative or administrative action, possibly with retroactive effect.
The following discussion is only a summary of some of the important U.S.
Federal tax considerations generally applicable to investments in the
fund. There may be other tax considerations applicable to particular
shareholders. Shareholders should consult their own tax advisers
regarding their particular situation and the possible application of
foreign, state and local tax laws.
Taxation of the fund. The fund intends to qualify each year as a
regulated investment company under Subchapter M of 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 investment company taxable income (as that term is defined in the
Code without regard to the deduction for dividends paid--generally, taxable
ordinary income and the excess, if any, of net short-term capital gains
over net long-term capital losses) and net tax-exempt interest income, for
such year; and
(c) diversify its holdings so that, at the end of each quarter of the
fund's taxable year, (i) at least 50% of the market value of the fund's
total 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 not more than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of the fund's total assets is invested (x) 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, or (y) in the securities of one or more qualified publicly
traded partnerships (as defined below). In the case of the fund's
investments in loan participations, the fund shall treat a financial
intermediary as an issuer for the purposes of meeting this diversification
requirement.
In general, for purposes of the 90% gross income requirement described in
paragraph (a) above, income derived from a partnership will be treated as
qualifying income only to the extent such income is attributable to items
of income of the partnership which would be qualifying income if realized
by the regulated investment company. However, the American Jobs Creation
Act of 2004 (the "2004 Act"), provides that for taxable years of a
regulated investment company beginning after October 22, 2004, 100% of the
net income derived from an interest in a "qualified publicly traded
partnership" (defined as a partnership (i) interests in which are traded on
an established securities market or readily tradable on a secondary market
or the substantial equivalent thereof and (ii) that derives less than 90%
of its income from the qualifying income described in paragraph (a) above)
will be treated as qualifying income. In addition, although in general the
passive loss rules of the Code do not apply to regulated investment
companies, such rules do apply to a regulated investment company with
respect to items attributable to an interest in a qualified publicly traded
partnership. Finally, for purposes of paragraph (c) above, the term
"outstanding voting securities of such issuer" will include the equity
securities of a qualified publicly traded partnership.
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 distributed in a timely manner, to its shareholders in the
form of dividends (including Capital Gain Dividends, as defined below).
If the fund were to fail 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 capital gains. Properly designated
distributions of net capital gains (that is, the excess of net gains from
the sale of capital assets held more than one year over net losses from the
sale of capital assets held for not more than one year) ("Capital Gain
Dividends") will be taxable to shareholders as such, regardless of how long
a shareholder has held the shares in the fund.
For taxable years beginning on or before December 31, 2008, "qualified
dividend income" received by an individual will be taxed at the rates
applicable to long-term capital gain. In order for some portion of the
dividends received by a fund shareholder to be qualified dividend income,
the fund must meet holding period and other requirements with respect to
some portion of the dividend -paying stocks in its portfolio and the
shareholder must meet holding period and other requirements with respect to
the fund's shares. A dividend will not be treated as qualified dividend
income (at either the fund or shareholder level) (1) if the dividend is
received with respect to any share of stock held for fewer than 61 days
during the 121-day period beginning on the date which is 60 days before
the date on which such share becomes ex-dividend with respect to such
dividend (or, on the case of certain preferred stock, 91 days during the
181-day period beginning 90 days before such date), (2) to the extent that
the recipient is under an obligation (whether pursuant to a short sale or
otherwise) to make related payments with respect to positions in
substantially similar or related property, (3) if the recipient elects to
have the dividend income treated as investment interest, or (4) if the
dividend is received from a foreign corporation that is (a) not eligible
for the benefits of a comprehensive income tax treaty with the United
States (with the exception of dividends paid on stock of such a foreign
corporation readily tradable on an established securities market in the
United States) or (b) treated as a passive foreign investment company.
In general, distributions of investment income designated by a fund as
derived from qualified dividend income will be treated as qualified
dividend income by a shareholder taxed as an individual provided the
shareholder meets the holding period and other requirements described above
with respect to such fund's shares. In any event, if the aggregate
qualified dividends received by a fund during any taxable year are 95% or
more of its gross income, then 100% of the fund's dividends (other than
properly designated Capital Gain Dividends) will be eligible to be treated
as qualified dividend income. For this purpose, the only gain included in
the term "gross income" is the excess of net short-term capital gain over
net long-term capital loss.
Long-term capital gain rates applicable to individuals have been
temporarily reduced--in general, to 15% with lower rates applying to
taxpayers in the 10% and 15% rate brackets--for taxable years beginning
on or before December 31, 2008.
Exempt-interest dividends. The fund will be qualified to pay
exempt-interest dividends to its shareholders only if, at the close of
each quarter of the fund's taxable year, at least 50% of the total value
of the fund's assets consists of obligations the interest on which is
exempt from federal income tax. Distributions that the fund properly
designates as exempt-interest dividends are treated as interest
excludable from shareholders' gross income for federal income tax
purposes but may be taxable for federal alternative minimum tax purposes
and for state and local purposes. If the fund intends to be qualified
to pay exempt-interest dividends, the fund may be limited in its ability
to enter into taxable transactions involving forward commitments,
repurchase agreements, financial futures and options contracts on
financial futures, tax-exempt bond indices and other assets.
Part or all of the interest on indebtedness, if any, incurred or
continued by a shareholder to purchase or carry shares of the fund
paying exempt-interest dividends is not deductible. The portion of
interest that is not deductible is equal to the total interest paid or
accrued on the indebtedness, multiplied by the percentage of the fund's
total distributions (not including distributions from net long-term
capital gains) paid to the shareholder that are exempt-interest
dividends. Under rules used by the Internal Revenue Service to
determine when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares may be
considered to have been made with borrowed funds even though such funds
are not directly traceable to the purchase of shares.
In general, exempt-interest dividends, if any, attributable to interest
received on certain private activity obligations and certain industrial
development bonds will not be tax-exempt to any shareholders who are
"substantial users" of the facilities financed by such obligations or
bonds or who are "related persons" of such substantial users.
A fund that 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, (or, for tax-exempt
funds, the sum of its net tax-exempt and taxable income), the fund could be
required to make distributions exceeding book income to qualify as a
regulated investment company that is accorded special tax treatment.
Return of capital distributions. If the fund makes a distribution to
you in excess of its current and accumulated "earnings and profits" in
any taxable year, the excess distribution will be treated as a return of
capital to the extent of your tax basis in your shares, and thereafter
as capital gain. A return of capital is not taxable, but it reduces
your tax basis in your shares, thus reducing any loss or increasing any
gain on a subsequent taxable disposition by you of your shares.
Dividends and distributions on the fund's shares are generally subject
to federal income tax as described herein to the extent they do not
exceed the fund's realized income and gains, even though such dividends
and distributions may economically represent a return of a particular
shareholder's investment. Such distributions are likely to occur in
respect of shares purchased at a time when the fund's net asset value
reflects gains that are either unrealized, or realized but not
distributed. Distributions are taxable to a shareholder even if they
are paid from income or gains earned by the fund prior to the
shareholder's investment (and thus included in the price paid by the
shareholder).
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 Capital
Gain Dividends 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 advisers 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 a percentage 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 back-up withholding tax rate is 28% for amounts paid through 2010.
This legislation will expire and the back-up withholding rate will be
31% for amounts paid after December 31, 2010, unless Congress enacts tax
legislation providing otherwise.
In order for a foreign investor to qualify for exemption from the
back-up withholding tax rates and for reduced withholding tax rates
under income tax treaties, the foreign investor must comply with special
certification and filing requirements. Foreign investors in a fund
should consult their tax advisers in this regard.
Tax shelter reporting regulations. Under U.S. Treasury regulations
issued on February 28, 2003, if a shareholder realizes a loss on
disposition of fund shares of $2 million or more for an individual
shareholder or $10 million or more for a corporate shareholder, the
shareholder must file with the Internal Revenue Service a disclosure
statement on Form 8886. Direct shareholders of portfolio securities are
in many cases excepted from this reporting requirement, but under
current guidance, shareholders of a regulated investment company are not
excepted. Future guidance may extend the current exception from this
reporting requirement to shareholders of most or all regulated
investment companies.
Non-U.S. Shareholders. In general, dividends (other than Capital Gain
Dividends) paid by the fund to a shareholder that is not a "U.S. person"
within the meaning of the Code (a "foreign person") are subject to
withholding of U.S. federal income tax at a rate of 30% (or lower
applicable treaty rate) even if they are funded by income or gains (such as
portfolio interest, short-term capital gains, or foreign-source dividend
and interest income) that, if paid to a foreign person directly, would not
be subject to withholding. However, under the 2004 Act, effective for
taxable years of the fund beginning after December 31, 2004 and before
January 1, 2008, the fund will not be required to withhold any amounts (i)
with respect to distributions (other than distributions to a foreign person
(w) that has not provided a satisfactory statement that the beneficial
owner is not a U.S. person, (x) to the extent that the dividend is
attributable to certain interest on an obligation if the foreign person is
the issuer or is a 10% shareholder of the issuer, (y) that is within
certain foreign countries that have inadequate information exchange with
the United States, or (z) to the extent the dividend is attributable to
interest paid by a person that is a related person of the foreign person
and the foreign person is a controlled foreign corporation) from
U.S.-source interest income that would not be subject to U.S. federal
income tax if earned directly by an individual foreign person, to the
extent such distributions are properly designated by the fund (an
"interest-related dividend"), and (ii) with respect to distributions (other
than distributions to an individual foreign person who is present in the
United States for a period or periods aggregating 183 days or more during
the year of the distribution) of net short-term capital gains in excess of
net long-term capital losses, to the extent such distributions are properly
designated by the fund (a "short-term capital gain dividend"). In
addition, as indicated above, Capital Gain Dividends will not be subject
to withholding of U.S. federal income tax.
If a beneficial holder who is a foreign person has a trade or business in
the United States, and the dividends are effectively connected with the
conduct by the beneficial holder of a trade or business in the United
States, the dividend will be subject to U.S. federal net income taxation at
regular income tax rates.
The 2004 Act modifies the tax treatment of distributions from a fund that
are paid to a foreign person and are attributable to gain from "U.S. real
property interests" ("USRPIs"), which the Code defines to include direct
holdings of U.S. real property and interests (other than solely as a
creditor) in "U.S. real property holding corporations" such as REITs. The
Code deems any corporation that holds (or held during the previous
five-year period) USRPIs with a fair market value equal to 50% or more of
the fair market value of the corporation's U.S. and foreign real property
assets and other assets used or held for use in a trade or business to be a
U.S. real property holding corporation; however, if any class of stock of a
corporation is traded on an established securities market, stock of such
class shall be treated as a USRPI only in the case of a person who holds
more than 5% of such class of stock at any time during the previous
five-year period. Under the 2004 Act, which is generally effective for
taxable years of RICs beginning after December 31, 2004 and which applies
to dividends paid or deemed paid on or before December 31, 2007,
distributions to foreign persons attributable to gains from the sale or
exchange of USRPIs will give rise to an obligation for those foreign
persons to file a U.S. tax return and pay tax, and may well be subject to
withholding under future regulations.
Under U.S. federal tax law, a beneficial holder of shares who is a foreign
person is not, in general, subject to U.S. federal income tax on gains (and
is not allowed a deduction for losses) realized on the sale of shares of
the fund or on Capital Gain Dividends unless (i) such gain or Capital
Gain Dividend is effectively connected with the conduct of a trade or
business carried on by such holder within the United States, (ii) in the
case of an individual holder, the holder is present in the United States
for a period or periods aggregating 183 days or more during the year of the
sale or Capital Gain Dividend and certain other conditions are met, or
(iii) the shares constitute USRPIs or (effective for taxable years of the
fund beginning after December 31, 2004) the Capital Gain Dividends are
paid or deemed paid on or before December 31, 2007 and are attributable to
gains from the sale or exchange of USRPIs.
[Enlarge/Download Table]
MANAGEMENT
Trustees
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Name, Address 1, Date of
Birth, Position(s) Held
with Fund and Length of Principal
Service as a Putnam Fund Occupation(s) During Other Directorships
Trustee 2 Past 5 Years Held by Trustee
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Jameson A. Baxter President of Baxter Director of ASHTA Chemicals, Inc., Banta
(9/6/43), Trustee since 1994 Associates, Inc., Corporation (a printing and digital
a private investment firm imaging firm), Ryerson Tull, Inc.
that she founded in 1986. (a steel service corporation),
Advocate Health Care and BoardSource
(formerly the National Center for Nonprofit
Boards). She is Chairman Emeritus of the
Board of Trustees, Mount Holyoke College,
having served as Chairman for five years and
as a board member for thirteen years. Until
2002, Ms. Baxter was a Director of Intermatic
Corporation (a manufacturer of energy control
products).
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Charles B. Curtis President and Chief Member of the Council on Foreign
(4/27/40), Trustee since 2001 Operating Officer, Relations and the Trustee Advisory Council
Nuclear Threat Initiative of the Applied Physics Laboratory, Johns
(a private foundation Hopkins University. Until 2003, Mr. Curtis was
dealing with national a Member of the Electric Power Research
security issues) and Institute Advisory Council and the University
serves as Senior Advisor of Chicago Board of Governors for Argonne
to the Untited Nations National Laboratory. Prior to 2002, Mr. Curtis
Foundation. was a Member of the Board of Directors of the
Gas Technology Institute and the Board of
Directors of the Environment and Natural
Resources Program Steering Committee, John F.
Kennedy School of Government, Harvard
University. Until 2001, Mr. Curtis was a Member
of the Department of Defense Policy Board and
Director of EG&G Technical Services, Inc.
(a fossil energy research and development
support company).
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Myra R. Drucker Until August 31, 2004, Vice Chair of the Board of Trustees of Sarah
(1/16/48), Trustee since 2004 Ms. Drucker was Managing Lawrence College. She is a Trustee of
Director and a member of Commonfund (a not-for-profit firm specializing
the Board of Directors in asset management for educational endowments
of General Motors Asset and foundations) and a member of the Investment
Management and Chief Committee of the Kresge Foundation (a
Investment Officer of charitable trust). She is an ex-officio member
General Motors Trust of the New York Stock Exchange (NYSE) Pension
Bank. Prior to 2001, Managers Advisory Committee, having served
she served as Chief as Chair for seven years, and a member of the
Investment Officer of Executive Committee of the Committee on
Xerox Corporation (a Investment of Employee Benefit Assets. She is
technology and service Chair of the Advisory Board of Hamilton Lane
company in the document Advisors (an investment management firm) and a
industry). member of the Advisory Board of RCM (an
investment management firm). Until August
2001, Ms. Drucker served as a member of the
NYSE Corporate Accountability and Listing
Standards Committee and the NYSE/NASD IPO
Advisory Committee.
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John A. Hill Vice Chairman, First Director of Devon Energy Corporation,
(1/31/42), Reserve Corporation (a TransMontaigne Oil Company, Continuum
Trustee since 1985 and private equity buyout Health Partners of New York and various
Chairman since 2000 firm that specializes private companies controlled by First
in energy investments Reserve Corporation, as well as a Trustee
in the diversified of TH Lee Putnam Investment Trust (a
world-wide energy closed-end investment company advised by an
industry). affiliate of Putnam Management). He is also
a Trustee of Sarah Lawrence College.
-----------------------------------------------------------------------------------------------------------
Ronald J. Jackson Private investor. President of the Kathleen and Ronald J. Jackson
(12/17/43), Foundation (a charitable trust). He is also
Trustee since 1996 a Member of the Board of Overseers of WGBH (a
public television and radio station).
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Paul L. Joskow (6/30/47), Elizabeth and James Director of National Grid Transco (a UK-based
Trustee since 1997 Killian Professor of holding company with interests in electric and
Economics and Management, gas transmission and distribution and
and Director of the telecommunications infrastructure) and
Center for Energy and TransCanada Corporation (an energy company
Environmental Policy focused on natural gas transmission and power
Research at the services). He has also been President of the
Massachusetts Institute Yale University Council since 1993. Prior to
of Technology. February 2005, he served on the board of the
Whitehead Institute for Biomedical Research
(a non-profit research institution). Prior to
February 2002, he was a Director of State Farm
Indemnity Company (an automobile insurance
company), and prior to March 2000, he was a
Director of New England Electric System
(a public utility holding company).
-----------------------------------------------------------------------------------------------------------
Elizabeth T. Kennan Partner in Cambus-Kenneth Lead Director of Northeast Utilities and is a
(2/25/38), Trustee Farm (thoroughbred horse Director of Talbots, Inc. (a distributor of
since 1992 and catlle breeding). women's apparel). She is a Trustee of National
She is President Emeritus Trust for Historic Preservation, of Centre
of Mount Holyoke College. College and of Midway College (in Midway,
Kentucky).She is also a Member of The Trustees
of Reservations. Prior to 2001, Dr. Kennan
served on the oversight committee of the Folger
Shakespeare Library. Prior to September 2000,
she was a Director of Chastain Real Estate;
prior to June 2000, she was a Director of Bell
Atlantic Corp.
-----------------------------------------------------------------------------------------------------------
John H. Mullin, III Chairman and CEO of Director of The Liberty Corporation (a
(6/15/41), Trustee Ridgeway Farm (a limited broadcasting company), Progress Energy, Inc. (a
since 1997 liability company engaged utility company, formerly known as Carolina
in timber and farming). Power & Light) and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee
Emeritus of The National Humanities Center and
Washington & Lee University, where he served as
Chairman of the Investment Committee. Until
February 2004 and May 2001, he was a Director
of Alex Brown Realty, Inc. and Graphic
Packaging International Corp., respectively.
-----------------------------------------------------------------------------------------------------------
Robert E. Patterson Senior Partner of Cabot Chairman Emeritus and Trustee of the Joslin
(3/15/45), Trustee Properties, L.P. and Diabetes Center and a Director of Brandywine
since 1984 Chairman of Cabot Trust Group, LLC. Prior to December 2001 and
Properties, Inc. (a June 2003, Mr. Patterson served as a Trustee of
private equity firm Cabot Industrial Trust and Sea Education
investing in commercial Association, respectively.
real estate). Prior to
December 2001, he was
President of Cabot
Industrial Trust (a
publicly traded real
estate investment
trust).
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W. Thomas Stephens Chairman and Chief Director of TransCanada Pipelines Limited. Until
(9/2/42), Trustee Executive Officer of 2004, Mr. Stephens was a Director of Xcel Energy
since 1997 Boise Cascade, L.L.C. Incorporated (a public utility company), Qwest
(a paper, forest product Communications and Norske Canada, Inc. (a paper
and timberland assets manufacturer). Until 2003, Mr. Stephens was a
company). Director of Mail-Well, Inc. (a diversified
printing company). Prior to July 2001, Mr.
Stephens was Chairman of Mail-Well.
-----------------------------------------------------------------------------------------------------------
Richard B. Worley Managing Partner of Serves on the Executive Committee of the
(11/15/45), Trustee since 2004 Permit Capital LLC (an University of Pennsylvania Medical Center. He
investment management is a Trustee of The Robert Wood Johnson
firm). Prior to 2002, he Foundation (a philanthropic organization devoted
served as Chief Strategic to health care issues) and Director of The
Officer of Morgan Stanley Colonial Williamsburg Foundation (a historical
Investment Management. He preservation organization). Mr. Worley also
previously served as serves on the investment committees of Mount
President, Chief Holyoke College and World Wildlife Fund (a
Executive Officer and wildlife conservation organization).
Chief Investment Officer
of Morgan Stanley Dean
Witter Investment
Management and as a
Managing Director of
Morgan Stanley (a
financial services firm).
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Interested Trustees
-----------------------------------------------------------------------------------------------------------
*Charles E. Haldeman, Jr. President and Chief Trustee of Dartmouth College and Emeritus
(10/29/48), Trustee since 2004 Executive Officer of Trustee of Abington Memorial Hospital.
Putnam, LLC ("Putnam
Investments"). Member of
Putnam Investments'
Executive Board of
Directors and Advisory
Council. Prior to
November 2003, Mr.
Haldeman served as Co-Head
of Putnam Investments'
Investment Division. Prior
to joining Putnam
Investments in 2002, he
served as Chief Executive
Officer of Delaware
Investments and President
and Chief Operating
Officer of United Asset
Management.
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*George Putnam III President of New Director of The Boston Family Office, L.L.C.
(8/10/51), Trustee Generation Research, Inc. (a registered investment advisor), and a Trustee
since 1984 and (a publisher of financial of St. Mark's School and Shore Country Day School.
President since advisory and other Until 2002, Mr. Putnam was a Trustee of the Sea
2000 research services) and Education Association.
of New Generation
Advisers, Inc. (a
registered investment
adviser to private funds).
Both firms he founded
in 1986.
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1 The address of each Trustee is One Post Office Square, Boston, MA
02109. As of December 31, 2004, there were 110 Putnam Funds.
2 Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death or removal.
* 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,
Putnam Retail Management Limited Partnership ("Putnam Retail Management")
or Marsh & McLennan Companies, Inc., the parent company of Putnam
Investments and its affiliated companies. Messrs. Putnam, III and Haldeman
are deemed "interested persons" by virtue of their positions as officers of
the fund or Putnam Management or Putnam Retail Management and as
shareholders of Marsh & McLennan Companies, Inc. Charles E. Haldeman, Jr.
is President and Chief Executive Officer of Putnam Investments. George
Putnam, III is the President of your Fund and each of the other Putnam
Funds.
[Enlarge/Download Table]
Officers
In addition to George Putnam III, the other officers of the fund are shown below:
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Name, Address 1, Date of
Birth, Position(s) Held Length of Service with Principal Occupation(s)
with Fund the Putnam Funds During Past 5 Years
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Charles E. Porter Since 1989 Managing Director, Putnam Investments, Putnam
(7/26/38), Executive Advisory Company, Putnam Investor Services and
Vice President, Associate Putnam Management.
Treasurer and Principal
Executive Officer
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Jonathan S. Horwitz Since 2004 Managing Director, Putnam Investments.
(6/4/55), Senior Vice
President and Treasurer
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Steven D. Krichmar Since 2002 Managing Director, Putnam Investments and Putnam
(6/27/58), Vice President Investor Services. Prior to 2001, Partner,
and Principal Financial PricewaterhouseCoopers LLP.
Officer
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Michael T. Healy Since 2000 Managing Director, Putnam Investments and Putnam
(1/24/58), Assistant Investor Services.
Treasurer and Principal
Accounting Officer
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Beth S. Mazor Since 2002 Senior Vice President, Putnam Investments and
(4/6/58), Vice President Putnam Investor Services.
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Daniel T. Gallagher Since 2004 Vice President, Putnam Investments. Prior to 2004,
(2/27/62), Vice President Mr. Gallagher was an attorney for Ropes & Gray
and Legal and Compliance LLP; prior to 2000, he was a law clerk for the
Liaison Officer Massachusetts Supreme Judicial Court.
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Mark C. Trenchard Since 2002 Senior Vice President, Putnam Investments.
(6/5/62), Vice President
and BSA Compliance Officer
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Francis J. McNamara, III Since 2004 Senior Managing Director, Putnam Investments,
(8/19/55), Vice President Putnam Management and Putnam Retail Management.
and Chief Legal Officer Prior to 2004, Mr. McNamara was General Counsel
of State Street Research & Management Company.
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Charles A. Ruys de Perez Since 2004 Managing Director, Putnam Investments, Putnam
(10/17/57), Vice President Advisory Company, Putnam Investor Services,
and Chief Compliance Officer Putnam Management and Putnam Retail Management.
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James P. Pappas Since 2004 Managing Director, Putnam Investments and Putnam
(2/24/53), Vice President Management. During 2002, Mr. Pappas was Chief
Operating Officer of Atalanta/Sosnoff Management
Corporation. Prior to 2001, he was President and
Chief Executive Officer of UAM Investment
Services, Inc.
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Richard S. Robie, III Since 2004 Senior Managing Director, Putnam Investments,
(3/30/60), Vice President Putnam Management and Putnam Advisory Company.
Prior to 2003, Mr. Robie was Senior Vice President
of United Asset Management Corporation.
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Judith Cohen Since 1993 Clerk and Assistant Treasurer, The Putnam Funds.
(6/7/45), Clerk and
Assistant Treasurer
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1 The address of each Officer is One Post Office Square, Boston, MA 02109.
Except as stated above, 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.
Committees of the Board of Trustees
Audit and Pricing Committee. The Audit and Pricing Committee provides
oversight on matters relating to the preparation of the funds' financial
statements, compliance matters and Code of Ethics issues. This oversight is
discharged by regularly meeting with management and the funds' independent
auditors and keeping current on industry developments. Duties of this
Committee also include the review and evaluation of all matters and
relationships pertaining to the funds' independent auditors, including
their independence. The members of the Committee include only Trustees who
are not "interested persons" of the fund or Putnam Management. Each member
of the Committee is "independent" as defined in Sections 303.01(B)(2)(a)
and (3) of the listing standards of the New York Stock Exchange and as
defined in Section 121(A) of the listing standards of the American Stock
Exchange. The Trustees have adopted a written charter for the Committee.
The Committee also reviews the funds' policies and procedures for achieving
accurate and timely pricing of the funds' shares, including oversight of
fair value determinations of individual securities made by Putnam
Management or other designated agents of the funds. The Committee oversees
compliance by money market funds with Rule 2a-7, interfund transactions
pursuant to Rule 17a-7, and the correction of occasional pricing errors.
The Committee also receives reports regarding the liquidity of portfolio
securities. The Audit and Pricing Committee currently consists of Dr.
Joskow (Chairperson), Ms. Drucker and Messrs. Patterson, Stephens and
Worley.
Board Policy and Nominating Committee. The Board Policy and Nominating
Committee reviews matters pertaining to the operations of the Board of
Trustees and its Committees, the compensation of the Trustees and their
staff, and the conduct of legal affairs for the funds. The Committee
evaluates and recommends all candidates for election as Trustees and
recommends the appointment of members and chairs of each board
committee. The Committee also reviews policy matters affecting the
operation of the Board and its independent staff and makes
recommendations to the Board as appropriate. The Committee consists
only of Trustees who are not "interested persons" of your fund or Putnam
Management. The Committee also oversees the voting of proxies associated
with portfolio investments of The Putnam Funds with the goal of ensuring
that these proxies are voted in the best interest of the Funds'
shareholders. The Board Policy and Nominating Committee currently
consists of Dr. Kennan (Chairperson), Ms. Baxter and Messrs. Hill,
Mullin and Patterson. The Board Policy and Nominating Committee will
consider nominees for trustee recommended by shareholders of a fund
provided shareholders submit their recommendations by the date disclosed
in the fund's proxy statement and provided the shareholders'
recommendations otherwise comply with applicable securities laws,
including Rule 14a-8 under the Securities Exchange Act of 1934.
Brokerage and Custody Committee. The Brokerage and Custody Committee
reviews the policies and procedures of the Funds regarding the execution
of portfolio transactions for the Funds, including policies regarding
the allocation of brokerage commissions and soft dollar credits. The
Committee reviews periodic reports regarding the Funds' activities
involving derivative securities. The Committee also reviews and
evaluates matters relating to the Funds' custody arrangements. The
Committee currently consists of Messrs. Jackson (Chairperson), Curtis
and Mullin, Ms. Baxter and Dr. Kennan.
Communication, Service, and Marketing Committee. This Committee
examines the quality, cost and levels of services provided to the
shareholders of The Putnam Funds. The Committee also reviews
communications sent from the Funds to their shareholders, including
shareholder reports, prospectuses, newsletters and other materials. In
addition, this Committee oversees marketing and sales communications of
the Funds' distributor. The Committee currently consists of Messrs.
Putnam (Chairperson), and Stephens and Dr. Joskow.
Contract Committee. The Contract Committee reviews and evaluates at
least annually all arrangements pertaining to (i) the engagement of
Putnam Investment Management and its affiliates to provide services to
the Funds, (ii) the expenditure of the Funds' assets for distribution
purposes pursuant to the Distribution Plans of the Funds, and (iii) the
engagement of other persons to provide material services to the Funds,
including in particular those instances where the cost of services is
shared between the Funds and Putnam Investment Management and its
affiliates or where Putnam Investment Management or its affiliates have
a material interest. The Committee recommends to the Trustees such
changes in arrangements that it deems appropriate. The Committee also
reviews the conversion of Class B shares into Class A shares of the
Funds in accordance with procedures approved by the Trustees. After
review and evaluation, the Committee recommends to the Trustees the
proposed organization of new Fund products, and proposed structural
changes to existing Funds. The Committee is comprised exclusively of
Independent Trustees. The Committee currently consists of Ms. Baxter
(Chairperson), Messrs. Curtis, Jackson, and Mullin and Dr. Kennan.
Distributions Committee. This Committee oversees all Fund distributions
and the management of the Closed-End Funds. In regard to distributions, the
Committee approves the amount and timing of distributions paid by all the
Funds to the shareholders when the Trustees are not in session. This
Committee also meets regularly with representatives of Putnam Investments
to review distribution levels and the Funds' distribution policies. Its
oversight of the Closed-End Funds includes (i) investment performance, (ii)
trading activity, (iii) determinations with respect to sunroof provisions,
(iv) disclosure practices, and (v) the use of leverage. The Committee
currently consists of Messrs. Patterson (Chairperson) and Jackson and Dr.
Joskow.
Executive Committee. The functions of the Executive Committee are
twofold. The first is to ensure that the Funds' business may be
conducted at times when it is not feasible to convene a meeting of the
Trustees or for the Trustees to act by written consent. The Committee
may exercise any or all of the power and authority of the Trustees when
the Trustees are not in session. The second is to establish annual and
ongoing goals, objectives and priorities for the Board of Trustees and
to insure coordination of all efforts between the Trustees and Putnam
Investments on behalf of the shareholders of the Putnam Funds. The
Committee currently consists of Messrs. Hill (Chairman),
Jackson, and Putnam, Dr. Joskow and Ms. Baxter.
Investment Oversight Committees. These Committees regularly meet with
investment personnel of Putnam Investment Management to review the
investment performance and strategies of the Putnam Funds in light of their
stated investment objectives and policies. Investment Oversight Committee
A currently consists of Mses. Drucker (Chairperson) and Baxter.
Investment Oversight Committee B currently consists of Messrs. Curtis
(Chairperson), Hill and Stephens. Investment Committee C currently
consists of Messrs. Mullin (Chairperson), Putnam and Patterson, and Dr.
Kennan. Investment Oversight Committee D currently consists of Messrs.
Worley (Chairperson) and Jackson and Dr. Joskow.
Each Trustee of the fund receives an annual retainer fee and an additional
meeting 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 who are not "interested persons" of Putnam Management are Trustees
of all the Putnam funds and each receives fees for their 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.
Putnam Management is a subsidiary of Putnam, LLC, which is also the parent
company of Putnam Retail Management, The Putnam Advisory Company, LLC (a
wholly-owned subsidiary of Putnam Advisory Company, Limited Partnership),
Putnam Investments Limited (a wholly-owned subsidiary of The Putnam
Advisory Company, LLC) and Putnam Fiduciary Trust Company. Putnam, LLC,
which generally conducts business under the name Putnam Investments, is a
wholly-owned subsidiary of Putnam Investments Trust, a holding company
that, except for a minority stake owned by employees, is owned by Marsh &
McLennan Companies, Inc., a publicly-owned holding company whose principal
businesses are international insurance and reinsurance brokerage, employee
benefit consulting and investment management.
Trustees and officers of the fund who are also officers of Putnam
Management or its affiliates or who are stockholders of Marsh & McLennan
Companies, Inc. will benefit from the advisory fees, sales commissions,
distribution fees, custodian fees and transfer agency fees paid or
allowed by the fund.
The Management Contract
Under a Management Contract between the fund and Putnam Management,
subject to such policies as the Trustees may determine, Putnam
Management, at its expense, furnishes continuously an investment program
for the fund and makes investment decisions on behalf of the fund.
Subject to the control of the Trustees, Putnam Management also manages,
supervises and conducts the other affairs and business of the fund,
furnishes office space and equipment, provides bookkeeping and clerical
services (including determination of the fund's net asset value, but
excluding shareholder accounting services) and places all orders for the
purchase and sale of the fund's portfolio securities. Putnam Management
may place fund portfolio transactions with broker-dealers that furnish
Putnam Management, without cost to it, certain research, statistical and
quotation services of value to Putnam Management and its affiliates in
advising the fund and other clients. In so doing, Putnam Management may
cause the fund to pay greater brokerage commissions than it might
otherwise pay.
For details of Putnam Management's compensation under the Management
Contract, see "Charges and expenses" in Part I of this SAI. Putnam
Management's compensation under the Management Contract may be reduced
in any year if the fund's expenses exceed the limits on investment
company expenses imposed by any statute or regulatory authority of any
jurisdiction in which shares of the fund are qualified for offer or
sale. The term "expenses" is defined in the statutes or regulations of
such jurisdictions, and generally excludes brokerage commissions, taxes,
interest, extraordinary expenses and, if the fund has a distribution
plan, payments made under such plan.
Under the Management Contract, Putnam Management may reduce its
compensation to the extent that the fund's expenses exceed such lower
expense limitation as Putnam Management may, by notice to the fund, declare
to be effective. 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, through the end of the fund's fiscal year ending in 2005,
Putnam Management has agreed to waive fees and reimburse expenses of the
fund to the extent necessary to ensure that the fund pays total fund
operating expenses at an annual rate that does not exceed the average
expenses of the front-end load funds viewed by Lipper Inc. as having the
same investment classification or objective as the fund (expressed in each
case as a percentage of average net assets). For these purposes, total
fund operating expenses of both the fund and the Lipper category average
will be caluculated without giving effect to 12b-1 fees or an expense
offset and brokerage servise arrangements that may reduce fund expenses.
The Lipper category average will be calculated by Lipper each calendar
quarter based on expense information for the most recent fiscal year of
each fund included in that category, and the expense limitation will be
updated as of the first business day after Lipper publishes the category
average (generally shortly after the end of each calendar quarter).
In addition to the fee paid to Putnam Management, the fund reimburses
Putnam Management for the compensation and related expenses of certain
officers of the fund and their assistants who provide certain
administrative services for the fund and the other Putnam funds, each of
which bears an allocated share of the foregoing costs. The aggregate
amount of all such payments and reimbursements is determined annually by
the Trustees.
The amount of this reimbursement for the fund's most recent fiscal year
is included in "Charges and Expenses" in Part I of this SAI. Putnam
Management pays all other salaries of officers of the fund. The fund
pays all expenses not assumed by Putnam Management including, without
limitation, auditing, legal, custodial, investor servicing and
shareholder reporting expenses. The fund pays the cost of typesetting
for its prospectuses and the cost of printing and mailing any
prospectuses sent to its shareholders. Putnam Retail Management pays
the cost of printing and distributing all other prospectuses.
The Management Contract provides that Putnam Management shall not be
subject to any liability to the fund or to any shareholder of the fund
for any act or omission in the course of or connected with rendering
services to the fund in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties on the part of
Putnam Management.
The Management Contract may be terminated without penalty by vote of the
Trustees or the shareholders of the fund, or by Putnam Management, on 30
days' written notice. It may be amended only by a vote of the
shareholders of the fund. The Management Contract also terminates
without payment of any penalty in the event of its assignment. The
Management Contract provides that it will continue in effect only so
long as such continuance is approved at least annually by vote of either
the Trustees or the shareholders, and, in either case, by a majority of
the Trustees who are not "interested persons" of Putnam Management or
the fund. In each of the foregoing cases, the vote of the shareholders
is the affirmative vote of a "majority of the outstanding voting
securities" as defined in the Investment Company Act of 1940.
In considering the Management Contract, the Trustees consider numerous
factors they believe to be relevant, including the advisor's research
and decision-making processes, the methods adopted to assure compliance
with the fund's investment objectives, policies and restrictions; the
level of research required to select the securities appropriate for
investment by the fund; the education, experience and number of advisory
personnel; the level of skill and effort required to manage the fund;
the value of services provided by the advisor; the economies and
diseconomies of scale reflected in the management fee; the advisor's
profitability; the financial condition and stability of the advisor; the
advisor's trade allocation methods; the standards and performance in
seeking best execution; allocation for brokerage and research and use of
soft dollars; the fund's total return performance compared with its
peers. Putnam has established several management fee categories to fit
the particular characteristics of different types of funds.
The nature and complexity of international and global funds generally
makes these funds more research intensive than funds that invest mainly
in U.S. companies, due to the greater difficulty of obtaining
information regarding the companies in which the fund invests, and the
governmental, economic and market conditions of the various countries
outside of the U.S. In addition, trade execution and settlement may be
more costly than in the U.S.
Conversely, the research intensity for a U.S. money market or bond fund
is typically less than for a international or global fund or a U.S.
equity fund due to the more ready availability of information regarding
the issuer, the security, the accessibility of the trading market and
the typically lower trading and execution costs. See "Portfolio
Transactions - Brokerage and Research Services."
The Sub-Manager
Putnam Investments Limited ("PIL"), a wholly-owned subsidiary of The Putnam
Advisory Company, LLC and an affiliate of Putnam Management, has been
retained as the sub-manager for a portion of the assets of certain funds as
determined by Putnam Management from time to time. PIL is currently
authorized to serve as the sub-manager, to the extent determined by Putnam
Management from time to time, for the following funds: Putnam Diversified
Income Trust, Putnam Global Income Trust, Putnam High Yield Advantage Fund,
Putnam High Yield Trust, Putnam Global Equity Fund, Putnam Europe Equity
Fund and Putnam International Equity Fund. PIL may serve as sub-manager
pursuant to the terms of a sub-management agreement between Putnam
Management and PIL. PIL's address is Cassini House, 57-59 St James's
Street, London, England, SW1A 1LD.
Under the terms of the sub-management contract, PIL, at its own expense,
furnishes continuously an investment program for that portion of each such
fund that is allocated to PIL from time to time by Putnam Management and
makes investment decisions on behalf of such portion of the fund, subject
to the supervision of Putnam Management. Putnam Management may also, at
its discretion, request PIL to provide assistance with purchasing and
selling securities for the fund, including placement of orders with certain
broker-dealers. PIL, at its expense, furnishes all necessary investment
and management facilities, including salaries of personnel, required for it
to execute its duties.
The sub-management contract provides that PIL shall not be subject to any
liability to Putnam Management, the fund or 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 obligations and duties on the part
of PIL.
The sub-management contract may be terminated with respect to a fund
without penalty by vote of the Trustees or the shareholders of the fund, or
by PIL or Putnam Management, on 30 days' written notice. The
sub-management contract also terminates without payment of any penalty in
the event of its assignment. Subject to applicable law, it may be amended
by a majority of the Trustees who are not "interested persons" of Putnam
Management or the fund. The sub-management contract provides that it will
continue in effect only so long as such continuance is approved at least
annually by vote of either the Trustees or the shareholders, and, in either
case, by a majority of the Trustees who are not "interested persons" of
Putnam Management or the fund. In each of the foregoing cases, the vote of
the shareholders is the affirmative vote of a "majority of the outstanding
voting securities" as defined in the Investment Company Act of 1940.
Portfolio Transactions
Investment decisions. Investment decisions for the fund and for the
other investment advisory clients of Putnam Management and its
affiliates are made with a view to achieving their respective investment
objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved. Thus,
a particular security may be bought or sold for certain clients even
though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling the security. In
some instances, one client may sell a particular security to another
client. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security, in which event each
day's transactions in such security are, insofar as possible, averaged
as to price and allocated between such clients in a manner which in
Putnam Management's opinion is equitable to each and in accordance with
the amount being purchased or sold by each. There may be circumstances
when purchases or sales of portfolio securities for one or more clients
will have an adverse effect on other clients.
Brokerage and research services. Transactions on 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. The fund pays commissions on certain
securities traded in the over-the-counter markets. In underwritten
offerings, the price paid by the fund includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. It is
anticipated that most purchases and sales of securities by funds
investing primarily in tax-exempt securities and certain other
fixed-income securities will be with the issuer or with underwriters of
or dealers in those securities, acting as principal. Accordingly, those
funds would not ordinarily pay significant brokerage commissions with
respect to securities transactions. See "Charges and expenses" in Part
I of this SAI for information concerning commissions paid by the fund.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional
investors to receive brokerage and research services (as defined in the
Securities Exchange Act of 1934, as amended (the "1934 Act")) from
broker-dealers that execute portfolio transactions for the clients of
such advisers and from third parties with which such broker-dealers have
arrangements. Consistent with this practice, Putnam Management receives
brokerage and research services and other similar services from many
broker-dealers with which Putnam Management places the fund's portfolio
transactions and from third parties with which these broker-dealers have
arrangements. These services include such matters as economic analysis,
investment research and database services, industry and company reviews,
evaluations of investments, recommendations as to the purchase and sale
of investments, performance measurement services, subscriptions, pricing
services, quotation services, news services and computer equipment
(investment-related hardware and software) utilized by Putnam
Management's managers and analysts. Where the services referred to
above are used by Putnam Management not exclusively for research
purposes, Putnam Management, based upon its own allocations of expected
use, bears that portion of the cost of these services which directly
relates to their non-research use. Some of these services are of value
to Putnam Management and its affiliates in advising various of their
clients (including the fund), although not all of these services are
necessarily useful and of value in managing the fund. The management
fee paid by the fund is not reduced because Putnam Management and its
affiliates receive these services even though Putnam Management might
otherwise be required to purchase some of these services for cash.
Putnam Management places all orders for the purchase and sale of
portfolio investments for the fund and buys and sells investments for
the fund through a substantial number of brokers and dealers. In so
doing, Putnam Management uses its best efforts to obtain for the fund
the most favorable price and execution available, except to the extent
it may be permitted to pay higher brokerage commissions as described
below. In seeking the most favorable price and execution, Putnam
Management, having in mind the fund's best interests, considers all
factors it deems relevant, including, by way of illustration, price, the
size of the transaction, the nature of the market for the security or
other investment, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker-dealer
involved and the quality of service rendered by the broker-dealer in
other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the Management
Contract, Putnam Management may cause the fund to pay a broker-dealer
which provides "brokerage and research services" (as defined in the 1934
Act) to Putnam Management an amount of disclosed commission for
effecting securities transactions on stock exchanges and other
transactions for the fund on an agency basis in excess of the commission
which another broker-dealer would have charged for effecting that
transaction. Putnam Management's authority to cause the fund to pay any
such greater commissions is subject to such policies as the Trustees may
adopt from time to time. Putnam Management does not currently intend to
cause the fund to make such payments. It is the position of the staff of
the Securities and Exchange Commission that Section 28(e) does not apply
to the payment of such greater commissions in "principal" transactions.
Accordingly Putnam Management will use its best effort to obtain the
most favorable price and execution available with respect to such
transactions, as described above.
The Management Contract provides that commissions, fees, brokerage or
similar payments received by Putnam Management or an affiliate in
connection with the purchase and sale of portfolio investments of the
fund, less any direct expenses approved by the Trustees, shall be
recaptured by the fund through a reduction of the fee payable by the
fund under the Management Contract. Putnam Management seeks to
recapture for the fund soliciting dealer fees on the tender of the
fund's portfolio securities in tender or exchange offers. Any such fees
which may be recaptured are likely to be minor in amount.
Principal Underwriter
Putnam Retail Management is the principal underwriter of shares of the
fund and the other continuously offered Putnam funds. Putnam Retail
Management is not obligated to sell any specific amount of shares of the
fund and will purchase shares for resale only against orders for shares.
See "Charges and expenses" in Part I of this SAI for information on
sales charges and other payments received by Putnam Retail Management.
Personal Investments by Employees of Putnam Management and Putnam Retail
Management and Officers and Trustees of the Fund
Employees of Putnam Management and Putnam Retail Management and officers
and Trustees of the fund are subject to significant restrictions on
engaging in personal securities transactions. These restrictions are set
forth in the Codes of Ethics adopted by Putnam Management and Putnam
Retail Management (The Putnam Investments' Code of Ethics) and by the
fund (the Putnam Funds' Code of Ethics). The Putnam Investments' Code of
Ethics and the Putnam Funds' Code of Ethics, in accordance with Rule
17j-1 of the Investment Company Act of 1940, as amended, contain
provisions and requirements designed to identify and address certain
conflicts of interest between personal investment activities and the
interests of the fund.
The Putnam Investments' Code of Ethics does not prohibit personnel from
investing in securities that may be purchased or held by the fund.
However, the Putnam Investments' Code, consistent with standards
recommended by the Investment Company Institute's Advisory Group on
Personal Investing and requirements established by Rule 17j-1, among
other things, prohibits personal securities investments without
pre-clearance, imposes time periods during which personal transactions
may not be made in certain securities by employees with access to
investment information, and requires the timely submission of broker
confirmations and quarterly reporting of personal securities
transactions. Additional restrictions apply to portfolio managers,
traders, research analysts and others involved in the investment
advisory process.
The Putnam Funds' Code of Ethics incorporates and applies the
restrictions of Putnam Investments' Code of Ethics to officers and
Trustees of the fund who are affiliated with Putnam Investments. The
Putnam Funds' Code does not prohibit unaffiliated officers and Trustees
from investing in securities that may be held by the fund; however, the
Putnam Funds' Code regulates the personal securities transactions of
unaffiliated Trustees of the fund, including limiting the time periods
during which they may personally buy and sell certain securities and
requiring them to submit reports of personal securities transactions
under certain circumstances.
The fund's Trustees, in compliance with Rule 17j-1, approved Putnam
Investments' and the Putnam Funds' Codes of Ethics and are required to
approve any material changes to these Codes. The Trustees also provide
continued oversight of personal investment policies and annually
evaluate the implementation and effectiveness of the Codes of Ethics.
Investor Servicing Agent and Custodian
Putnam Investor Services, a division of Putnam Fiduciary Trust Company
("PFTC"), is the fund's investor servicing agent (transfer, plan and
dividend disbursing agent), for which it receives fees that are paid
monthly by the fund as an expense of all its shareholders. The fee paid to
Putnam Investor Services is determined on the basis of the number of
shareholder accounts and the assets of the fund. For Putnam Prime Money
Market Fund the fee paid to Putnam Investor Services is 0.01% per annum.
Certain dealers that are not affiliated with PFTC also receive payments
from PFTC in recognition of services they provide to shareholders or
retirement plan participants that invest in the fund or other Putnam funds
through their retirement plans. These services include subaccounting and
similar recordkeeping services. For purposes of this section the term
"dealers" includes any broker, dealer, bank, bank trust department,
registered investment advisor, financial planner, retirement plan
administrator and any other institution having a selling, services or any
similar agreement with Putnam Retail Management or one of its affiliates.
Payments by PFTC to dealers for subaccounting services provided to
retirement plan participants who invest in the funds are not expected to
exceed 0.10% of the total assets in the plans invested in the funds on an
annual basis. Payments to dealers for subaccounting services provided to
shareholders who invest in the funds through an omnibus account may be
determined on the basis of the number of shareholders in such omnibus
accounts or the assets held in such account and are not expected to exceed
$16 or $19 (depending on whether the shares in which the shareholder
invests are subject to a contingent deferred sales charge) for those
payments determined on the basis of the number of shareholders in such
account or 0.10% or 0.13% (depending on whether the shares in which the
shareholder invests are subject to a contingent deferred sales charge) of
the total assets in such account invested in the funds on an annual basis
for those payments determined on the basis of the assets held in such
account. PFTC also makes payments to dealers that charge networking fees
for certain services provided in connection with the maintenance of
shareholder accounts.
PFTC and its affiliates transferred their defined contribution plan
administration business to Mercer HR Outsourcing, LLC ("MHRO"), an
affiliate of PFTC, effective January 1, 2005. In connection with that
transfer, PFTC has agreed to pay MHRO 0.386% of the average value of the
assets in MHRO-administered plans invested in the funds on an annual basis
in consideration of recordkeeping, retirement plan administration and other
services being provided to participants in MHRO-administered retirement
plans with respect to their investments in the funds. These services were
previously provided to such participants by PFTC. Putnam Retail
Management has also agreed to make additional transitional payments to MHRO
(or one of MHRO's affiliates) (i) during 2005 of 0.154% on an annual basis
of the average value of the assets invested in the funds by clients whose
plans were administered by PFTC prior to the transfer of the business and
(ii) during 2006 of 0.077% on an annual basis of the average value of the
assets invested in the funds by clients whose plans were administered by
PFTC prior to the transfer of the business. Such additional transitional
payments are expected to cease after 2006.
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 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.
The fund may from time to time pay custodial or investor servicing agent
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. 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.
Counsel to the Fund and the Independent Trustees
Ropes & Gray LLP serves as counsel to the fund and the independent
Trustees, and is located at One International Place, Boston,
Massachusetts 02110.
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, normally 4:00
p.m except that Putnam Prime Money Market Fund normally determines
net asset value as of 5:00 p.m. Eastern time. 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 official closing
price for certain markets) 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 ask 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. Currency exchange rates are normally determined at the close of
trading in London, England (11:00 a.m., New York time). If there has been
a movement in the U.S. currency market that exceeds a specified threshold
that may change from time to time, the fund will generally use exchange
rates determined as of 3:00 p.m. Eastern time. The closing prices for
securities in markets or on exchanges outside the U.S. that close prior to
the close of the Exchange may not fully reflect events that occur after
such close but before the close of the Exchange. As a result, the fund has
adopted fair value pricing procedures, which, among other things, require
the fund to fair value such securities if there has been a movement in the
U.S. market that exceeds a specified threshold. Although the threshold may
be revised from time to time and the number of days on which fair value
prices will be used will depend on market activity, it is possible that
fair value prices will be used by the fund to a significant extent. In
addition, securities held by some of the funds may be traded in foreign
markets that are open for business on days that the fund is not, and the
trading of such securities on those days may have an impact on the value of
a shareholder's investment at a time when the shareholder cannot buy and
sell shares of the fund.
In addition, 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 prior to the close of the Exchange. Occasionally, events
affecting the value of such securities may occur between the time of the
determination of value and the close of the Exchange which will not be
reflected in the computation of the fund's net asset value. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at their fair value following
procedures approved by the Trustees.
The funds may also value their assets at fair value under other
circumstances pursuant to procedures approved by the Trustees.
Money Market Funds
Money market funds generally value their portfolio securities at
amortized cost according to Rule 2a-7 under the Investment Company Act
of 1940.
Since the net income of a money market fund is declared as a dividend
each time it is determined, the net asset value per share of a money
market fund remains at $1.00 per share immediately after such
determination and dividend declaration. Any increase in the value of a
shareholder's investment in a money market fund representing the
reinvestment of dividend income is reflected by an increase in the
number of shares of that fund in the shareholder's account on the last
business day of each month. It is expected that a money market fund's
net income will normally be positive each time it is determined.
However, if because of realized losses on sales of portfolio
investments, a sudden rise in interest rates, or for any other reason
the net income of a fund determined at any time is a negative amount, a
money market fund may offset such amount allocable to each then
shareholder's account from dividends accrued during the month with
respect to such account. If, at the time of payment of a dividend, such
negative amount exceeds a shareholder's accrued dividends, a money
market fund may reduce the number of outstanding shares by treating the
shareholder as having contributed to the capital of the fund that number
of full and fractional shares which represent the amount of the excess.
Each shareholder is deemed to have agreed to such contribution in these
circumstances by his or her investment in a money market fund.
HOW TO BUY SHARES
Each prospectus describes briefly how investors may buy shares of the
fund and identifies the share classes offered by that prospectus.
Because of these different sales charges and expenses, the investment
performance of the classes will vary. For more information, including
your eligibility to purchase certain classes of shares, contact your
investment dealer or Putnam Investor Services (at 1-800-225-1581).
This section of the SAI contains more information on how to buy shares
and the features of all share classes offered by Putnam funds. These
features include the sales charges and contingent deferred sales charges
(CDSCs) payable by investors, the conditions under which those charges
may be reduced, and the sales charges, commissions and other amounts
payable by Putnam Retail Management to investment dealers. As set forth
under the following sub-headings of this section, some features apply to
all classes, while others apply only to certain classes:
* General Information describes how to buy shares, identifies the
classes, describes ways of reducing sales charges that apply to all
classes and describes certain payments to investment dealers.
* Additional Information about Class A and Class M Shares describes the
allocation of initial sales charges between Putnam Retail Management and
investment dealers, ways of reducing those sales charges, the CDSC
payable by purchasers of $1 million or more of class A shares and the
commissions on those purchases payable by Putnam Retail Management to
investment dealers.
* Additional Information about Class B, Class C and Class R Shares
describes the commissions payable by Putnam Retail Management to
investment dealers.
* Putnam Prime Money Market Fund describes the special procedures
applicable to that fund. Information in the other sections listed
above is not applicable to that fund.
General Information
The fund is currently making a continuous offering of its shares. The fund
receives the entire net asset value of shares sold. The fund will accept
unconditional orders for shares to be executed at the public offering price
based on the net asset value per share next determined after the order is
placed. In the case of class A shares and class M shares, the public
offering price is the net asset value plus the applicable sales charge, if
any. (The public offering price is thus calculable by dividing the net
asset value by 100% minus the sales charge, expressed as a percentage.) 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 or a
registered transfer agent or registered clearing agent receives the order,
together with all required identifying information, before the close of
regular trading on the Exchange. If the dealer or registered transfer
agent or registered clearing agent 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 all required
identifying information has been collected. 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 Investor Services.
As a convenience to investors, shares may be purchased through a
systematic investment plan. Pre-authorized monthly, semimonthly or
weekly bank drafts for a fixed amount (at least $25) are used to
purchase fund shares at the applicable public offering price next
determined after Putnam Retail Management receives the proceeds from the
draft. A shareholder may choose any day of the month or week for
these drafts, but if the date falls on a weekend or holiday, the draft
will be processed on the next business day. Further information and
application forms are available from investment dealers or from Putnam
Retail Management.
Distributions to be reinvested are reinvested without a sales charge in
shares of the same class as of the ex-dividend date using the net asset
value determined on that date, and are credited to a shareholder's account
on the payment date. Dividends for Putnam money market funds are credited
to a shareholder's account on the payment date. Distributions for all
other funds that declare a distribution daily are reinvested without a
sales charge as of the last day of the period for which distributions are
paid using the net asset value determined on that date, and are credited to
a shareholder's account on the payment date.
Payment in securities. In addition to cash, the fund may accept
securities as payment for fund shares at the applicable net asset value.
Generally, the fund will only consider accepting securities to increase
its holdings in a portfolio security, or if Putnam Management determines
that the offered securities are a suitable investment for the fund and
in a sufficient amount for efficient management.
While no minimum has been established, it is expected that the fund
would not accept securities with a value of less than $100,000 per issue
as payment for shares. The fund may reject in whole or in part any or
all offers to pay for purchases of fund shares with securities, may
require partial payment in cash for such purchases to provide funds for
applicable sales charges, and may discontinue accepting securities as
payment for fund shares at any time without notice. The fund will value
accepted securities in the manner described in the section
"Determination of Net Asset Value" for valuing shares of the fund. The
fund will only accept securities which are delivered in proper form.
The fund will not accept options or restricted securities as payment for
shares. The acceptance of securities by certain funds in exchange for
fund shares is subject to additional requirements. For federal income
tax purposes, a purchase of fund shares with securities will be treated
as a sale or exchange of such securities on which the investor will
generally realize a taxable gain or loss. The processing of a purchase
of fund shares with securities involves certain delays while the fund
considers the suitability of such securities and while other
requirements are satisfied. For information regarding procedures for
payment in securities, contact Putnam Retail Management. Investors
should not send securities to the fund except when authorized to do so
and in accordance with specific instructions received from Putnam Retail
Management.
Class A shares and class M shares are generally sold with a sales charge
payable at the time of purchase (except for class A shares and class M
shares of money market funds). As used in this SAI and unless the
context requires otherwise, the term "class A shares" includes shares of
funds that offer only one class of shares. The prospectus contains a
table of applicable sales charges.
Class B shares and class C shares are generally sold subject to a CDSC
payable upon redemption within a specified period after purchase. The
prospectus contains a table of applicable CDSCs. CDSCs on shares sold
outside the United States may differ.
Class B shares will automatically convert into class A shares at the
end of the month eight years after the purchase date. Class B shares
acquired by exchanging class B shares of another Putnam fund will
convert into class A shares based on the time of the initial purchase.
Class B shares acquired through reinvestment of distributions will
convert into Class A shares based on the date of the initial purchase to
which such shares relate. For this purpose, class B shares acquired
through reinvestment of distributions will be attributed to particular
purchases of class B shares in accordance with such procedures as the
Trustees may determine from time to time. The conversion of class B
shares to class A shares is subject to the condition that such
conversions will not constitute taxable events for Federal tax purposes.
Class T shares are sold at net asset value without a sales charge or
CDSC. See the prospectus that offers class T shares for more
information.
Class R shares, which are not subject to sales charges or a CDSC, are
available only to certain defined contribution plans.
Class Y shares, which are not subject to sales charges or a CDSC, are
available only to certain defined contribution plans, college savings
plans, bank trust departments, trust companies and Putnam funds and
investment products. See the prospectus that offers class Y shares for
more information.
Sales without sales charges, contingent deferred sales charges or
short-term trading fees. The fund may sell shares without a sales charge or
CDSC to:
(i) current and former Trustees of the fund, their family members,
business and personal associates; current and former employees of Putnam
Management and certain corporate affiliates, their family members,
business and personal associates; 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 or other service providers of tax-qualified
employer-sponsored retirement plans which have entered into agreements with
Putnam Retail Management (not offered by tax-exempt funds);
(iv) registered representatives and other employees of broker-dealers
having sales agreements with Putnam Retail Management; employees of
financial institutions having sales agreements with Putnam Retail
Management or otherwise having an arrangement with any such
broker-dealer or financial institution with respect to sales of fund
shares; and their family members (Putnam Retail Management is regarded
as the dealer of record for all such accounts);
(v) investors meeting certain requirements who sold shares of certain
Putnam closed-end funds pursuant to a tender offer by such closed-end
fund;
(vi) a trust department of any financial institution purchasing shares
of the fund in its capacity as trustee of any trust (other than a
tax-qualified retirement plan trust), through an arrangement approved by
Putnam Retail Management, if the value of the shares of the fund and
other Putnam funds purchased or held by all such trusts exceeds $1
million in the aggregate; and
(vii) "wrap accounts" maintained for clients of broker-dealers,
financial institutions or financial intermediaries who have entered into
agreements with Putnam Retail Management with respect to such accounts,
which in all cases shall be subject to a wrap fee economically
comparable to a sales charge. Fund shares offered pursuant to this
waiver may not be advertised as "no load," or otherwise offered for sale
at net asset value without a wrap fee.
The fund may issue its shares at net asset value without an initial
sales charge or a CDSC in connection with the acquisition of
substantially all of the securities owned by other investment companies
or personal holding companies. The CDSC will be waived on redemptions
to pay premiums for insurance under Putnam's insured investor program.
Investors who set up an Systematic Withdrawal Plan ("SWP") for a share
account (see "Plans available to shareholders -- Systematic Withdrawal
Plan") may withdraw through the SWP up to 12% of the net asset value of
the account (calculated as set forth below) each year without incurring
any CDSC. Shares not subject to a CDSC (such as shares representing
reinvestment of distributions) will be redeemed first and will count
toward the 12% limitation. If there are insufficient shares not subject
to a CDSC, shares subject to the lowest CDSC liability will be redeemed
next until the 12% limit is reached. The 12% figure is calculated on a
pro rata basis at the time of the first payment made pursuant to an SWP
and recalculated thereafter on a pro rata basis at the time of each SWP
payment. Therefore, shareholders who have chosen an SWP based on a
percentage of the net asset value of their account of up to 12% will be
able to receive SWP payments without incurring a CDSC. However,
shareholders who have chosen a specific dollar amount (for example, $100
per month from the fund that pays income distributions monthly) for
their periodic SWP payment should be aware that the amount of that
payment not subject to a CDSC may vary over time depending on the net
asset value of their account. For example, if the net asset value of
the account is $10,000 at the time of payment, the shareholder will
receive $100 free of the CDSC (12% of $10,000 divided by 12 monthly
payments). However, if at the time of the next payment the net asset
value of the account has fallen to $9,400, the shareholder will receive
$94 free of any CDSC (12% of $9,400 divided by 12 monthly payments) and
$6 subject to the lowest applicable CDSC. This SWP privilege may be
revised or terminated at any time.
No CDSC is imposed on the redemption of shares of any class subject to a
CDSC to the extent that the shares redeemed (i) are no longer subject to
the holding period therefor, (ii) resulted from reinvestment of
distributions, or (iii) were exchanged for shares of another Putnam
fund, provided that the shares acquired in such exchange or subsequent
exchanges (including shares of a Putnam money market fund) will continue
to remain subject to the CDSC, if applicable, until the applicable
holding period expires. In determining whether the CDSC applies to each
redemption, shares not subject to a CDSC are redeemed first.
The fund will waive any CDSC on redemptions, in the case of individual,
joint or Uniform Transfers to Minors Act accounts, in the event of death or
post-purchase disability of a shareholder, for the purpose of paying
benefits pursuant to tax-qualified retirement plans ("Benefit Payments"),
or, in the case of living trust accounts, in the event of the death or
post-purchase disability of the settlor of the trust. Benefit Payments
currently include, without limitation, (1) distributions from an IRA due to
death or post-purchase 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.
The short-term trading fee will not apply to automatic rebalancing
arrangements entered into by Putnam Retail Management and dealers and also
will not be imposed in cases of shareholder death or post-purchase
disability or other circumstances in which a CDSC would be waived as stated
above.
Additional Information About Class A and Class M Shares
The underwriter's commission is the sales charge shown in the prospectus
less any applicable dealer discount. Putnam Retail Management will give
dealers ten days' notice of any changes in the dealer discount. Putnam
Retail Management retains the entire sales charge on any retail sales
made by it.
Putnam Retail Management offers several plans by which an investor may
obtain reduced sales charges on purchases of class A shares and class M
shares. The variations in sales charges reflect the varying efforts
required to sell shares to separate categories of purchasers. These
plans may be altered or discontinued at any time.
The public offering price of class A and class M shares is the net asset
value plus a sales charge that varies depending on the size of your
purchase (calculable as described above). The fund receives the net asset
value. The sales charge is allocated between your investment dealer and
Putnam Retail Management as shown in the following table, except when
Putnam Retail Management, in its discretion, allocates the entire amount to
your investment dealer.
For Growth Funds, Blend Funds, Value Funds and Asset Allocation Funds
only:
[Enlarge/Download Table]
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 5.25% 5.00% 3.50% 3.00%
50,000 but under 100,000 4.00 2.75 2.50 2.00
100,000 but under 250,000 3.00 2.75 1.50 1.00
250,000 but under 500,000 2.25 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
-------------------------------------------------------------------------------------
[Enlarge/Download Table]
For Income Funds only (except for Putnam Floating Rate Income Fund and Putnam
Limited Duration Government 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 ($) price offering price price offering price
-------------------------------------------------------------------------------------
Under 50,000 4.50% 4.25% 3.25% 3.00%
50,000 but under 100,000 4.25 4.00 2.25 2.00
100,000 but under 250,000 3.25 3.00 1.50 1.25
250,000 but under 500,000 2.50 2.25 1.00 1.00
500,000 but under 1,000,000 2.00 1.75 NONE NONE
1,000,000 and above NONE NONE NONE NONE
-------------------------------------------------------------------------------------
[Enlarge/Download Table]
For Putnam Floating Rate Income Fund and Putnam Limited Duration Government
Income Fund only:
CLASS A CLASS M
Amount of Amount of
Sales charge sales charge Sales charge sales charge
as a reallowed to as a reallowed to
percentage dealers as a percentage dealers as a
Amount of transaction of offering percentage of of offering percentage of
at offering price ($) 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
-------------------------------------------------------------------------------------
[Enlarge/Download Table]
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 4.50% 4.50% 3.25% 3.00%
25,000 but under 50,000 4.25 4.25 3.25 3.00
50,000 but under 100,000 4.25 4.25 2.25 2.00
100,000 but under 250,000 3.50 3.50 1.50 1.25
250,000 but under 500,000 2.75 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 by such persons:
(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, if the dealer places the order for such shares directly
with Putnam Retail Management.
Right of accumulation. A purchaser of class A shares or class M shares
may qualify for a right of accumulation discount by combining all
current purchases by such person with the value of certain other shares
of any class of Putnam funds already owned. In the case of an
individual purchaser, all current purchases made or already owned by the
individual's spouse and children under the age of 21 may be combined
with the individual's current purchases. The applicable sales charge is
based on the total of:
(i) the investor's current purchase(s); and
(ii) the maximum public offering price (at the close of business on the
previous day) of:
(a) all shares held in accounts registered to the investor and other
accounts eligible to be linked to the investor's accounts (as described
below) in all of the Putnam funds (except closed-end and money market
funds, unless acquired as described in (b) below); and
(b) any shares of money market funds acquired by exchange from other
Putnam funds
Account types eligible to be linked for the purpose of qualifying for a
right of accumulation discount include the following (in each case as
registered to the investor, his or her spouse and his or her children
under the age of 21):
(i) individual accounts;
(ii) joint accounts;
(iii) accounts established as part of a plan established pursuant to
Section 403(b) of the Internal Revenue Code of 1986, as amended ("403(b)
plans") or an IRA other than a Simple IRA, SARSEP or SEP IRA;
(iv) shares owned through accounts in the name of the investor's (or
spouse's or minor child's) dealer or other financial intermediary (with
documentation identifying to the satisfaction of Putnam Investor
Services the beneficial ownership of such shares); and
(v) accounts established as part of a Section 529 college savings plan
managed by Putnam Management
Putnam Investor Services automatically links accounts the registrations of
which are under the same last name and address. Shares owned by a plan
participant as part of an employee benefit plan of a single employer or of
affiliated employers (other than 403(b) plans) or a single fiduciary
account opened by a trustee or other fiduciary (including a pension,
profit-sharing, or other employee benefit trust created pursuant to a plan
qualified under Section 401 of the Internal Revenue Code) are not eligible
for linking to other accounts attributable to such person to qualify for
the right of accumulation discount, although all current purchases made by
each such plan may be combined with existing aggregate balances of such
plan in Putnam funds for purposes of determining the sales charge
applicable to shares purchased at such time by the plan.
To obtain the right of accumulation discount on a purchase through an
investment dealer, when each purchase is made the investor or dealer
must provide Putnam Retail Management with sufficient information to
verify that the purchase qualifies for the privilege or discount. The
shareholder must furnish this information to Putnam Investor Services
when making direct cash investments. Sales charge discounts under a
right of accumulation apply only to current purchases. No credit is
given for any higher sales charge paid with respect to previous
purchases for the investor's account or any linked accounts.
Statement of Intention. Investors may also obtain the reduced sales
charges for class A shares or class M shares shown in the prospectus for
investments of a particular amount by means of a written Statement of
Intention, which expresses the investor's intention to invest that
amount (including certain "credits," as described below) within a period
of 13 months in shares of any class of the fund or any other
continuously offered Putnam fund (excluding money market funds). Each
purchase of class A shares or class M shares under a Statement of
Intention will be made at the public offering price applicable at the
time of such purchase to a single transaction of the total dollar amount
indicated in the Statement of Intention. A Statement of Intention may
include purchases of shares made not more than 90 days prior to the date
that an investor signs a Statement; however, the 13-month period during
which the Statement of Intention is in effect will begin on the date of
the earliest purchase to be included.
An investor may receive a credit toward the amount indicated in the
Statement of Intention equal to the maximum public offering price as of
the close of business on the previous day of all shares he or she owns
on the date of the Statement of Intention which are eligible for
purchase under a Statement of Intention (plus any shares of money market
funds acquired by exchange of such eligible shares). Investors do not
receive credit for shares purchased by the reinvestment of
distributions. Investors qualifying for the "combined purchase
privilege" (see above) may purchase shares under a single Statement of
Intention.
The Statement of Intention is not a binding obligation upon the investor
to purchase the full amount indicated. The minimum initial investment
under a Statement of Intention is 5% of such amount, and must be
invested immediately. Class A shares or class M shares purchased with
the first 5% of such amount will be held in escrow to secure payment of
the higher sales charge applicable to the shares actually purchased if
the full amount indicated is not purchased. When the full amount
indicated has been purchased, the escrow will be released. If an
investor desires to redeem escrowed shares before the full amount has
been purchased, the shares will be released from escrow only if the
investor pays the sales charge that, without regard to the Statement of
Intention, would apply to the total investment made to date.
To the extent that an investor purchases more than the dollar amount
indicated on the Statement of Intention and qualifies for a further
reduced sales charge, the sales charge will be adjusted for the entire
amount purchased at the end of the 13-month period, upon recovery from
the investor's dealer of its portion of the sales charge adjustment.
Once received from the dealer, which may take a period of time or may
never occur, the sales charge adjustment will be used to purchase
additional shares at the then current offering price applicable to the
actual amount of the aggregate purchases. These additional shares will
not be considered as part of the total investment for the purpose of
determining the applicable sales charge pursuant to the Statement of
Intention. No sales charge adjustment will be made unless and until the
investor's dealer returns any excess commissions previously received.
To the extent that an investor purchases less than the dollar amount
indicated on the Statement of Intention within the 13-month period, the
sales charge will be adjusted upward for the entire amount purchased at the
end of the 13-month period. This adjustment will be made by redeeming
shares from the account to cover the additional sales charge, the proceeds
of which will be paid to the investor's dealer and Putnam Retail Management
in accordance with the prospectus. Putnam Retail Management will make a
corresponding downward adjustment to the amount of the reallowance payable
to the dealer with respect to purchases made prior to the investor's
failure to fulfill the conditions of the Statement of Intention. If the
account exceeds an amount that would otherwise qualify for a reduced sales
charge, that reduced sales charge will be applied. Adjustments to sales
charges and dealer reallowances will not be made in the case of the
shareholder's death prior to the expiration of the 13-month period.
Statements of Intention are not available for certain employee benefit
plans.
Statement of Intention forms may be obtained from Putnam Retail Management
or from investment dealers. In addition, shareholders may complete the
applicable portion of the fund's standard account application. Interested
investors should read the Statement of Intention carefully.
Group purchases of class A and class M shares. Members of qualified
groups may purchase class A shares of the fund at a group sales charge
rate of 4.50% of the public offering price (4.71% of the net amount
invested). The dealer discount on such sales is 3.75% of the offering
price. Members of qualified groups may also purchase class M shares at
net asset value.
To receive the class A or class M group rate, group members must
purchase shares through a single investment dealer designated by the
group. The designated dealer must transmit each member's initial
purchase to Putnam Retail Management, together with payment and
completed application forms. After the initial purchase, a member may
send funds for the purchase of shares directly to Putnam Investor
Services. Purchases of shares are made at the public offering price
based on the net asset value next determined after Putnam Retail
Management or Putnam Investor Services receives payment for the shares.
The minimum investment requirements described above apply to purchases
by any group member. Only shares purchased under the class A group
discount are included in calculating the purchased amount for the
purposes of these requirements.
Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or association,
or other organized groups of persons (the members of which may include
other qualified groups) provided that: (i) the group has at least 25
members of which, with respect to the class A discount only, at least 10
members participate in the initial purchase; (ii) the group has been in
existence for at least six months; (iii) the group has some purpose in
addition to the purchase of investment company shares at a reduced sales
charge; (iv) the group's sole organizational nexus or connection is not
that the members are credit card holders of a company, policy holders of
an insurance company, customers of a bank or broker-dealer, clients of
an investment adviser or security holders of a company; (v) with respect
to the class A discount only, the group agrees to provide its designated
investment dealer access to the group's membership by means of written
communication or direct presentation to the membership at a meeting on
not less frequently than an annual basis; (vi) the group or its
investment dealer will provide annual certification in form satisfactory
to Putnam Investor Services that the group then has at least 25 members
and, with respect to the class A discount only, that at least ten
members participated in group purchases during the immediately preceding
12 calendar months; and (vii) the group or its investment dealer will
provide periodic certification in form satisfactory to Putnam Investor
Services as to the eligibility of the purchasing members of the group.
Members of a qualified group include: (i) any group which meets the
requirements stated above and which is a constituent member of a
qualified group; (ii) any individual purchasing for his or her own
account who is carried on the records of the group or on the records of
any constituent member of the group as being a good standing employee,
partner, member or person of like status of the group or constituent
member; or (iii) any fiduciary purchasing shares for the account of a
member of a qualified group or a member's beneficiary. For example, a
qualified group could consist of a trade association which would have as
its members individuals, sole proprietors, partnerships and
corporations. The members of the group would then consist of the
individuals, the sole proprietors and their employees, the members of
the partnerships and their employees, and the corporations and their
employees, as well as the trustees of employee benefit trusts acquiring
class A shares for the benefit of any of the foregoing.
A member of a qualified group may, depending upon the value of class A
shares of the fund owned or proposed to be purchased by the member, be
entitled to purchase class A shares of the fund at non-group sales
charge rates shown in the prospectus which may be lower than the group
sales charge rate, if the member qualifies as a person entitled to
reduced non-group sales charges. Such a group member will be entitled
to purchase at the lower rate if, at the time of purchase, the member or
his or her investment dealer furnishes sufficient information for Putnam
Retail Management or Putnam Investor Services to verify that the
purchase qualifies for the lower rate.
Interested groups should contact their investment dealer or Putnam
Retail Management. The fund reserves the right to revise the terms of
or to suspend or discontinue group sales at any time.
Purchases of $1 million or more of Class A shares. Purchases of class A
shares of one or more Putnam funds of $1 million or more are not subject to
an initial sales charge, but shares purchased by investors other than
qualified benefit plans are subject to a CDSC of 1.00% or 0.50% if redeemed
before the first or second anniversary, respectively, of purchase, unless
the dealer of record has, with Putnam Retail Management's approval, waived
its commission or agreed to refund its commission to Putnam Retail
Management if a CDSC would otherwise apply.
On sales of class A shares at net asset value to a qualified benefit plan,
Putnam Retail Management pays commissions monthly to the dealer of record
at the time of the sale on net monthly purchases up to the following rates:
1.00% of the first $1 million, 0.75% of the next $1 million and 0.50%
thereafter.
On sales at net asset value to other investors, Putnam Retail Management
pays commissions on sales during the one-year period beginning with the
date of the initial purchase at net asset value. Each subsequent
one-year measuring period for these purposes begins with the first net
asset value purchase following the end of the prior period. These
commissions are paid at the rate of 1.00% of the amount under $3
million, 0.50% of the next $47 million and 0.25% thereafter.
Purchases of less than $1 million of Class A shares for rollover IRAs.
Purchases of class A shares for a Putnam Rollover IRA, including Putnam
Rollover IRAs for which Putnam Retail Management or an affiliate is the
dealer of record, with less than $1 million in proceeds from a retirement
plan for which a Putnam fund is an investment option are not subject to an
initial sales charge or CDSC. Putnam Retail Management or Putnam Investor
services may pay commissions or finders' fees of up to 1.00% of the
proceeds for such Putnam Rollover IRA purchases to the dealer of record.
Purchases of Class M shares for rollover IRAs. Purchases of class M
shares for a Putnam Rollover IRA with proceeds in any amount from a
retirement plan for which a Putnam fund is an investment option are not
subject to an initial sales charge but may be subject to a CDSC on
shares redeemed within one year of purchase at the rates set forth
below, which are equal to commissions Putnam Retail Management pays to
the dealer of record at the time of the sale of class M shares. These
purchases will not be subject to a CDSC if the dealer of record has,
with Putnam Retail Management's approval, waived its commission or
agreed to refund its commission to Putnam Retail Management if a CDSC
would otherwise apply.
Class M CDSC and dealer commission
----------------------------------
All growth, blend, value and asset
allocation funds: 0.65%
All income funds (except Putnam Money
Market Fund): 0.40%
Putnam Money Market Fund 0.15%
Additional Information About Class B, Class C and Class R Shares
Except as noted below, Putnam Retail Management will pay a 4% commission on
sales of class B shares of the fund only to those financial intermediaries
who have entered into service agreements with Putnam Retail Management.
For tax-exempt funds, this commission includes a 0.20% pre-paid service fee
(except for Putnam Municipal Income Fund, Putnam Tax-Free High Yield Fund
and Putnam AMT-Free Insured Municipal Fund, each of which has a 0.25%
pre-paid service fee). For Putnam Floating Rate Income Fund and Putnam
Limited Duration Government Income Fund, Putnam Retail Management will
pay a 2.75% commission to financial intermediaries selling class B shares
of the fund. Putnam Retail Management pays financial intermediaries a
1.00% commission on sales of class C shares of a fund, and may, at its
discretion, pay financial intermediaries up to a 1.00% commission on sales
of class R shares of a fund. Putnam Retail Management will retain any CDSC
imposed on redemptions of class B and class C shares to compensate it for
the cost of paying the up-front commissions paid to financial
intermediaries for class B or class C share sales. Purchases of class C
shares may be made without a CDSC if the dealer of record has, with Putnam
Retail Management's approval, waived its commission or agreed to refund its
commission to Putnam Retail Management. Commissions may vary on sales
outside the United States.
Putnam Prime Money Market Fund
The fund makes a continuous offering of its shares. Shares of the fund
are sold at the net asset value per share next determined after
confirmation of a completed purchase order by Putnam Investor
Services. As the fund is designed for institutional investors, the
share classes offered and the terms and conditions of buying them vary
from other Putnam funds. The fund's prospectus contains detailed
information on these terms and conditions. Payment for shares must be
in federal funds or other immediately available funds.
No initial or contingent deferred sales charges apply to shares of the
fund.
ADDITIONAL DEALER PAYMENTS
As described above and in the section "Distribution Plans," dealers may
receive different commissions, sales charge reallowances and other payments
with respect to sales of different classes of shares of the funds. These
payments may include servicing payments to retirement plan administrators
and other institutions up to the same levels as described below under
"Distribution Plans." For purposes of this section the term "dealer"
includes any broker, dealer, bank, bank trust department, registered
investment advisor, financial planner, retirement plan administrator and
any other institution having a selling, services or any similar agreement
with Putnam Retail Management or one of its affiliates.
Putnam Retail Management and its affiliates pay additional compensation to
selected dealers under the categories described below. These categories
are not mutually exclusive, and a single dealer may receive payments under
all categories. These payments may create an incentive for a dealer firm
or its representatives to recommend or offer shares of the fund or other
Putnam funds to its customers. These additional payments are made pursuant
to agreements with dealers and do not change the price paid by investors
for the purchase of a share or the amount a fund will receive as proceeds
from such sales or the distribution (12b-1) fees and the expenses paid by
the fund as shown under the heading "Fees and Expenses" in the prospectus.
Marketing Support Payments
Putnam Retail Management and its affiliates will make payments to certain
dealers for marketing support services, including business planning
assistance, educating dealer personnel about the Putnam funds and
shareholder financial planning needs, placement on the dealer's preferred
or recommended fund company list, and access to sales meetings, sales
representatives and management representatives of the dealer. These
payments are made to dealers that are registered as holders of record or
dealers of record for accounts in the fund. These payments are generally
based on one or more of the following factors: average net assets of
Putnam's retail mutual funds attributable to that dealer, gross or net
sales of Putnam's retail mutual funds attributable to that dealer,
reimbursement of ticket charges (fees that a dealer firm charges its
representatives for effecting transactions in fund shares) or a negotiated
lump sum payment for services rendered.
Putnam Retail Management and its affiliates compensate dealers differently
depending upon, among other factors, the level and/or type of marketing
support provided by the dealer. In addition, payments typically apply to
retail sales and assets, but may not, in certain situations, apply to other
specific types of sales or assets, such as to retirement plans or fee-based
advisory programs.
Marketing support payments to any one dealer are not expected, with certain
limited exceptions, to exceed 0.085% of the average net assets of Putnam's
retail mutual funds attributable to that dealer on an annual basis.
Program Servicing Payments
Putnam Retail Management and its affiliates will also make payments to
certain dealers that sell Putnam fund shares through retirement plans and
other investment programs to compensate dealers for a variety of services
they provide to such programs. A dealer may perform program services
itself or may arrange with a third party to perform program services. In
addition to participant recordkeeping, reporting, or transaction
processing, program services may include services rendered in connection
with fund/investment selection and monitoring, employee enrollment and
education, plan balance rollover or separation, or other similar services.
Payments by Putnam Retail Management and its affiliates for program
servicing support to any one dealer are not expected, with certain limited
exceptions, to exceed 0.15% of the total assets in the program on an annual
basis. In addition, Putnam Retail Management and its affiliates will make
one-time or annual payments to selected dealers receiving program servicing
payments in reimbursement of printing costs for literature for
participants, account maintenance fees or fees for establishment of Putnam
funds on the dealer's system. The amounts of these payments may, but will
not normally (except in cases where the aggregate assets in the program are
small), cause the aggregate amount of the program servicing payments to
such dealer on an annual basis to exceed the amounts set forth above.
Other Payments
From time to time, Putnam Retail Management, at its expense, may provide
additional compensation to dealers which sell or arrange for the sale of
shares of the fund to the extent not prohibited by laws or the rules of any
self-regulatory agency, such as the NASD. Such compensation provided by
Putnam Retail Management may include financial assistance to dealers that
enable Putnam Retail Management to participate in and/or present at
dealer-sponsored conferences or seminars, sales or training programs for
invited registered representatives and other dealer employees, dealer
entertainment, and other dealer-sponsored events, and travel expenses,
including lodging incurred by registered representatives and other
employees in connection with prospecting, retention and due diligence
trips. Putnam Retail Management makes payments for entertainment events it
deems appropriate, subject to Putnam Retail Management's internal
guidelines and applicable law. These payments may vary upon the nature of
the event.
Certain dealers also receive payments in recognition of subaccounting or
other services they provide to shareholders or plan participants who invest
in the fund or other Putnam funds through their retirement plan. See the
discussion under the heading "Management - Investor Servicing Agent and
Custodian" for more details.
You can ask your dealer for information about payments it receives from
Putnam Retail Management or its affiliates and the services it provides for
those payments.
In addition to payments to dealers described above, PFTC or Putnam Retail
Management may, at the direction of a retirement plan's sponsor, reimburse
or pay direct expenses of the plan that would otherwise be payable by the
plan.
DISTRIBUTION PLANS
If the fund or a class of shares of the fund has adopted a distribution
plan, the prospectus describes the principal features of the plan. This
SAI contains additional information which may be of interest to
investors.
Continuance of a plan is subject to annual approval by a vote of the
Trustees, including a majority of the Trustees who are not interested
persons of the fund and who have no direct or indirect interest in the
plan or related arrangements (the "Qualified Trustees"), cast in person
at a meeting called for that purpose. All material amendments to a plan
must be likewise approved by the Trustees and the Qualified Trustees.
No plan may be amended in order to increase materially the costs which
the fund may bear for distribution pursuant to such plan without also
being approved by a majority of the outstanding voting securities of the
fund or the relevant class of the fund, as the case may be. A plan
terminates automatically in the event of its assignment and may be
terminated without penalty, at any time, by a vote of a majority of the
Qualified Trustees or by a vote of a majority of the outstanding voting
securities of the fund or the relevant class of the fund, as the case
may be.
Putnam Retail Management compensates qualifying dealers (including, for
this purpose, certain financial institutions) for sales of shares and
the maintenance of shareholder accounts.
Putnam Retail Management may suspend or modify its payments to dealers.
The payments are also subject to the continuation of the relevant
distribution plan, the terms of the service agreements between the
dealers and Putnam Retail Management and any applicable limits imposed
by the National Association of Securities Dealers, Inc.
Financial institutions receiving payments from Putnam Retail Management
as described above may be required to comply with various state and
federal regulatory requirements, including among others those regulating
the activities of securities brokers or dealers.
Except as otherwise agreed between Putnam Retail Management and a
dealer, for purposes of determining the amounts payable to dealers for
shareholder accounts for which such dealers are designated as the dealer
of record, "average net asset value" means the product of (i) the
average daily share balance in such account(s) and (ii) the average
daily net asset value of the relevant class of shares over the quarter.
Class A shares:
Putnam Retail Management makes quarterly (or in certain cases monthly)
payments to dealers at up to 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 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, unless
the dealer of record has waived the sales commission, or, in the case of
dealers of record for a qualified benefit plan investing at least $1
million, where such dealer has agreed to a reduced sales commission.
[Enlarge/Download Table]
Rate Fund
---- ----
0.25% All funds currently making payments under a class A
distribution plan, except for those listed below
0.20% Putnam Tax-Free High Yield Fund
Putnam AMT-Free Insured Municipal Fund
0.20% for shares purchased
on or before 12/31/89; Putnam Convertible Income-Growth Trust
0.25% for shares
purchased after 12/31/89 The George Putnam Fund of Boston
Putnam Global Equity Fund (formerly 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 or before 3/31/90; Putnam High Yield Trust
0.25% for shares
purchased after 3/31/90 Putnam U.S. Government Income Trust
0.20% for shares purchased
on or before 1/1/90; Putnam Equity Income Fund
0.25% for shares purchased
after 1/1/90
0.20% for shares purchased
on or before 3/31/91; Putnam Income Fund
0.25% for shares
purchased after 3/31/91
0.20% for shares purchased
on or before 5/7/92; Putnam Municipal Income Fund
0.25% for shares
purchased after 5/7/92
0.15% for shares purchased
on or before 3/6/92; Putnam Michigan Tax Exempt Income Fund
0.20% for shares
purchased after 3/6/92 Putnam Minnesota Tax Exempt Income Fund
Putnam Ohio Tax Exempt Income Fund
0.15% for shares purchased
on or before 5/11/92; Putnam Massachusetts Tax Exempt Income Fund
0.20% for shares
purchased after 5/11/92
0.15% for shares purchased
on or before 12/31/92; Putnam California Tax Exempt Income Fund
0.20% for shares
purchased after 12/31/92 Putnam New Jersey Tax Exempt Income Fund
Putnam New York Tax Exempt Income Fund
Putnam Tax Exempt Income Fund
0.15% for shares purchased
on or before 3/5/93; Putnam Arizona Tax Exempt Income Fund
0.20% for shares
purchased after 3/5/93
0.15% for shares purchased
on or before 7/8/93; Putnam Florida Tax Exempt Income Fund
0.20% for shares
purchased after 7/8/93 Putnam Pennsylvania Tax Exempt Income Fund
0.00% Putnam Money Market Fund
Putnam Tax Exempt Money Market Fund
Class B shares:
Putnam Retail Management makes quarterly (or in certain cases monthly)
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).
[Download Table]
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% Putnam AMT-Free Insured Municipal Fund
are prepaid at time of sale Putnam Tax-Free High Yield Fund
0.20% , 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 Ohio Tax Exempt Income Fund
Putnam Pennsylvania Tax Exempt Income Fund
Putnam Tax Exempt Income Fund
0.00% Putnam Money Market Fund
Class C shares:
Putnam Retail Management makes quarterly (or in certain cases monthly)
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). No payments are made during the
first year after purchase unless the shareholder has made arrangements
with Putnam Retail Management and the dealer of record has waived the
sales commission.
[Download Table]
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
Different rates may apply to shares sold outside the United States.
Class M shares:
Putnam Retail Management makes quarterly (or in certain cases monthly)
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), except as follows. No payments
are made during the first year after purchase on shares purchased at net
asset value for Putnam Rollover IRAs, unless the dealer of record has
waived the sales commission.
[Download Table]
Rate Fund
---- ----
0.65% All growth, blend, value and asset allocation funds currently
making payments under a class M distribution plan
0.40% All income funds currently making payments under a class M
distribution plan (except for Putnam Money Market Fund)
0.15% Putnam Money Market Fund
Class R shares:
Putnam Retail Management makes quarterly (or in certain cases monthly)
payments to dealers at the annual rates set forth below (as a percentage
of the average net asset value of class R shares for which such dealers
are designated the dealer of record).
[Download Table]
Rate Fund
---- ----
0.50% All funds currently making payments under a class R
distribution plan
A portion of the Class R distribution fee payable to dealers may be paid to
third parties who provide services to plans investing in Class R shares and
participants in such plans.
Class T shares:
Putnam Retail Management makes quarterly (or in certain cases monthly)
payments to dealers at the annual rates set forth below (as a percentage
of the average net asset value of class T shares for which such dealers
are designated the dealer of record).
Rate Fund
---- ----
0.25% Putnam Money Market Fund
Class S Shares
Putnam Retail Management makes quarterly (or in certain cases monthly)
payments to dealers at the annual rates set forth below (as a percentage
of the average net asset value of class S shares for which such dealers
are designated the dealer of record).
Rate Fund
---- ----
0.10% Putnam Prime Money Market Fund
INVESTOR SERVICES
Shareholder Information
Each time shareholders buy or sell shares, they will receive a statement
confirming the transaction and listing their current share balance. (Under
certain investment plans, a statement may only be sent quarterly.)
Shareholders will receive a statement confirming reinvestment of
distributions in additional fund shares (or in shares of other Putnam funds
for Dividends Plus accounts) promptly following the quarter in which the
reinvestment occurs. To help shareholders take full advantage of their
Putnam investment, they will receive a Welcome Kit and a periodic
publication covering many topics of interest to investors. The fund also
sends annual and semiannual reports that keep shareholders informed about
its portfolio and performance, and year-end tax information to simplify
their recordkeeping. Easy-to-read, free booklets on special subjects such
as the Exchange Privilege and IRAs are available from Putnam Investor
Services. Shareholders may call Putnam Investor Services toll-free
weekdays at 1-800-225-1581 between 8:30 a.m. and 8:00 p.m., and Saturdays
from 9:00 a.m. to 5:00 p.m., Boston time for more information, including
account balances. Shareholders can also visit the Putnam web site at
http://www.putnaminvestments.com.
Your Investing Account
The following information provides more detail concerning the operation
of a Putnam Investing Account. For further information or assistance,
investors should consult Putnam Investor Services. Shareholders who
purchase shares through a defined contribution plan should note that not
all of the services or features described below may be available to
them, and they should contact their employer for details.
A shareholder may reinvest a cash distribution without a front-end sales
charge or without the reinvested shares being subject to a CDSC, as the
case may be, by delivering to Putnam Investor Services the uncashed
distribution check, endorsed to the order of the fund. Putnam Investor
Services must receive the properly endorsed check within 1 year after
the date of the check.
The Investing Account also provides a way to accumulate shares of the
fund. In most cases, after an initial investment of $500, a shareholder
may send checks to Putnam Investor Services for $50 or more, made
payable to the fund, to purchase additional shares at the applicable
public offering price next determined after Putnam Investor Services
receives the check. Checks must be drawn on a U.S. bank and must be
payable in U.S. dollars.
Putnam Investor Services acts as the shareholder's agent whenever it
receives instructions to carry out a transaction on the shareholder's
account. Upon receipt of instructions that shares are to be purchased
for a shareholder's account, shares will be purchased through the
investment dealer designated by the shareholder. Shareholders may
change investment dealers at any time by written notice to Putnam
Investor Services, provided the new dealer has a sales agreement with
Putnam Retail Management.
Shares credited to an account are transferable upon written instructions
in good order to Putnam Investor Services and may be sold to the fund as
described under "How do I sell fund shares?" in the prospectus. Money
market funds and certain other funds will not issue share certificates.
A shareholder may send to Putnam Investor Services any certificates
which have been previously issued for safekeeping at no charge to the
shareholder.
Putnam Retail Management, at its expense, may provide certain additional
reports and administrative material to qualifying institutional
investors with fiduciary responsibilities to assist these investors in
discharging their responsibilities. Institutions seeking further
information about this service should contact Putnam Retail Management,
which may modify or terminate this service at any time.
Putnam Investor Services may make special services available to
shareholders with investments exceeding $1,000,000. Contact Putnam
Investor Services for details.
The fund pays Putnam Investor Services' fees for maintaining Investing
Accounts.
Reinstatement Privilege
An investor who has redeemed shares of the fund may reinvest (within 1
year) the proceeds of such sale in shares of the same class of the fund, or
may be able to reinvest (within 1 year) the proceeds in shares of the same
class of one of the other continuously offered Putnam funds (through the
exchange privilege described in the prospectus), including, in the case of
shares subject to a CDSC, the amount of CDSC charged on the redemption.
Any such reinvestment would be at the net asset value of the shares of the
fund(s) the investor selects, next determined after Putnam Retail
Management receives a Reinstatement Authorization. The time that the
previous investment was held will be included in determining any applicable
CDSC due upon redemptions and, in the case of class B shares, the
eight-year period for conversion to class A shares. Reinstatements into
class B or class C shares may be permitted even if the resulting purchase
would otherwise be rejected for causing a shareholder's investments in such
class to exceed the applicable investment maximum. Shareholders will
receive from Putnam Retail Management the amount of any CDSC paid at the
time of redemption as part of the reinstated investment, which may be
treated as capital gains to the shareholder for tax purposes. Exercise of
the Reinstatement Privilege does not alter the federal income tax treatment
of any capital gains realized on a sale of fund shares, but to the extent
that any shares are sold at a loss and the proceeds are reinvested in
shares of the fund, some or all of the loss may be disallowed as a
deduction. Consult your tax adviser. Investors who desire to exercise the
Reinstatement Privilege should contact their investment dealer or Putnam
Investor Services.
Exchange Privilege
Except as otherwise set forth in this section, by calling Putnam
Investor Services, investors may exchange shares valued up to $500,000
between accounts with identical registrations, provided that no
certificates are outstanding for such shares and no address change has
been made within the preceding 15 days. During periods of unusual
market changes and shareholder activity, shareholders may experience
delays in contacting Putnam Investor Services by telephone to exercise
the telephone exchange privilege. No exchanges are permitted into or
out of Putnam Prime Money Market Fund.
Putnam Investor Services also makes exchanges promptly after receiving a
properly completed Exchange Authorization Form and, if issued, share
certificates. If the shareholder is a corporation, partnership, agent,
or surviving joint owner, Putnam Investor Services will require
additional documentation of a customary nature. Because an exchange of
shares involves the redemption of fund shares and reinvestment of the
proceeds in shares of another Putnam fund, completion of an exchange may
be delayed under unusual circumstances if the fund were to suspend
redemptions or postpone payment for the fund shares being exchanged, in
accordance with federal securities laws. Exchange Authorization Forms
and prospectuses of the other Putnam funds are available from Putnam
Retail Management or investment dealers having sales contracts with
Putnam Retail Management. The prospectus of each fund describes its
investment objective(s) and policies, and shareholders should obtain a
prospectus and consider these objectives and policies carefully before
requesting an exchange. Shares of certain Putnam funds are not
available to residents of all states. The fund reserves the right to
change or suspend the exchange privilege at any time. Shareholders
would be notified of any change or suspension. Additional information
is available from Putnam Investor Services.
Shareholders of other Putnam funds may also exchange their shares at net
asset value for shares of the fund, as set forth in the current
prospectus of each fund.
For federal income tax purposes, an exchange is a sale on which the
investor generally will realize a capital gain or loss depending on
whether the net asset value at the time of the exchange is more or less
than the investor's basis.
All exchanges are subject to applicable short-term trading fees and
Putnam's policies on short-term trading, as set forth in the Fund's
Prospectus. In addition, trustees, sponsors and administrators of qualified
plans that invest in the Fund may impose short-term trading fees whose
terms may differ from those described in the Prospectus.
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 and
is not available for dividends paid by Putnam Prime Money Market Fund.
Shareholders in other Putnam funds cannot cross fund reinvest into the
Putnam Prime Money Market Fund.
Plans Available To Shareholders
The plans described below are fully voluntary and may be terminated at
any time without the imposition by the fund or Putnam Investor Services
of any penalty. All plans provide for automatic reinvestment of all
distributions in additional shares of the fund at net asset value. The
fund, Putnam Retail Management or Putnam Investor Services may modify or
cease offering these plans at any time.
Systematic Withdrawal Plan ("SWP"). An investor who owns or buys shares
of the fund valued at $5,000 or more at the current public offering
price may open a SWP plan and have a designated sum of money ($50 or
more) paid monthly, quarterly, semi-annually or annually to the investor
or another person. (Payments from the fund can be combined with
payments from other Putnam funds into a single check through a
designated payment plan.) Shares are deposited in a plan account, and
all distributions are reinvested in additional shares of the fund at net
asset value (except where the plan is utilized in connection with a
charitable remainder trust). Shares in a plan account are then redeemed
at net asset value to make each withdrawal payment. Payment will be
made to any person the investor designates; however, if shares are
registered in the name of a trustee or other fiduciary, payment will be
made only to the fiduciary, except in the case of a profit-sharing or
pension plan where payment will be made to a designee. As withdrawal
payments may include a return of principal, they cannot be considered a
guaranteed annuity or actual yield of income to the investor. The
redemption of shares in connection with a plan generally will result in
a gain or loss for tax purposes. Some or all of the losses realized
upon redemption may be disallowed pursuant to the so-called wash sale
rules if shares of the same fund from which shares were redeemed are
purchased (including through the reinvestment of fund distributions)
within a period beginning 30 days before, and ending 30 days after, such
redemption. In such a case, the basis of the replacement shares will be
increased to reflect the disallowed loss. Continued withdrawals in
excess of income will reduce and possibly exhaust invested principal,
especially in the event of a market decline. The maintenance of a plan
concurrently with purchases of additional shares of the fund would be
disadvantageous to the investor because of the sales charge payable on
such purchases. For this reason, the minimum investment accepted while
a plan is in effect is $1,000, and an investor may not maintain a plan
for the accumulation of shares of the fund (other than through
reinvestment of distributions) and a plan at the same time. The cost of
administering these plans for the benefit of those shareholders
participating in them is borne by the fund as an expense of all
shareholders. The fund, Putnam Retail Management or Putnam Investor
Services may terminate or change the terms of the plan at any time. A
plan will be terminated if communications mailed to the shareholder are
returned as undeliverable.
Investors should consider carefully with their own financial advisers
whether the plan and the specified amounts to be withdrawn are
appropriate in their circumstances. The fund and Putnam Investor
Services make no recommendations or representations in this regard.
Tax-favored 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), including
simple IRAs, Roth IRAs, SEP IRAs; and Coverdell Education savings plans.
Forms and further information on these Plans are available from investment
dealers or from Putnam Retail Management. In addition, specialized
professional plan administration services are available on an optional
basis; contact Putnam Investor Services at 1-866-207-7261.
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.
Automatic Rebalancing Arrangements. Putnam Retail Management or Putnam
Investor Services may enter into arrangements with certain dealers which
provide for automatic periodic rebalancing of shareholders' accounts in
Putnam funds. For more information about these arrangements, please
contact Putnam Retail Management or Putnam Investor Services.
SIGNATURE GUARANTEES
Requests to redeem shares having a net asset value of $100,000 or more,
or to transfer shares or make redemption proceeds payable to anyone
other than the registered account owners, must be signed by all
registered owners or their legal representatives and must be guaranteed
by a bank, broker/dealer, municipal securities dealer or broker, credit
union, national securities exchange, registered securities association,
clearing agency, savings association or trust company, provided such
institution is authorized and acceptable under and conforms with Putnam
Fiduciary Trust Company's signature guarantee procedures. A copy of
such procedures is available upon request. In certain situations, for
example, if you want your redemption proceeds sent to an address other
than your address as it appears on Putnam's records, you may also need
to provide a signature guarantee. Putnam Investor Services usually
requires additional documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or a surviving joint
owner. Contact Putnam Investor Services for more information on Putnam's
signature guarantee and documentation requirements.
SUSPENSION OF REDEMPTIONS
The fund may not suspend shareholders' right of redemption, or postpone
payment for more than seven days, unless the Exchange is closed for
other than customary weekends or holidays, or if permitted by the rules
of the Securities and Exchange Commission during periods when trading on
the Exchange is restricted or during any emergency which makes it
impracticable for the fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted
by order of the Commission for protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the
fund. However, the Agreement and Declaration of Trust disclaims
shareholder liability for acts or obligations of the fund and requires
that notice of such disclaimer be given in each agreement, obligation,
or instrument entered into or executed by the fund or the Trustees. The
Agreement and Declaration of Trust provides for indemnification out of
fund property for all loss and expense of any shareholder held
personally liable for the obligations of the fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the fund would be unable to meet
its obligations. The likelihood of such circumstances is remote.
DISCLOSURE OF PORTFOLIO INFORMATION
The Trustees of the Putnam funds have adopted policies with respect to the
disclosure of the fund's portfolio holdings by the fund, Putnam Management,
or their affiliates. These policies provide that information about the
fund's portfolio generally may not be released to any party prior to (i)
the posting of such information on the Putnam Investments Web site, (ii)
the filing of the information with the SEC in a required filing, or (iii)
the dissemination of such information to all shareholders simultaneously.
Certain limited exceptions pursuant to the fund's policies are described
below. The Trustees will periodically receive reports from the fund's
Chief Compliance Officer regarding the operation of these policies and
procedures, including any arrangements to make non-public disclosures of
the fund's portfolio information to third parties. Putnam Management and
its affiliates are not permitted to receive compensation or other
consideration in connection with disclosing information about the fund's
portfolio holdings to third parties.
Public Disclosures
The fund's portfolio holdings are currently disclosed to the public through
required filings with the SEC and on the Putnam Investments Web site. The
fund files its portfolio holdings with the SEC for each fiscal quarter on
Form N-CSR (with respect to each annual period and semi-annual period) and
Form N-Q (with respect to the first and third quarters of the fund's fiscal
year). Shareholders may obtain the fund's Form N-CSR and N-Q filings on
the SEC's Web site at http://www.sec.gov. In addition, the fund's Form
N-CSR and N-Q filings may be reviewed and copied at the SEC's public
reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330
for information about the SEC's Web site or the operation of the public
reference room.
Putnam Management also currently makes the fund's portfolio information
publicly available on the Putnam Investments Web site,
www.putnaminvestments.com, as disclosed in the following table:
Information Frequency of Disclosure Date of Web Posting
------------------------------------------------------------------------------
Full Portfolio Holdings(1) Quarterly Last business day of the month
following the end of each
calendar quarter
------------------------------------------------------------------------------
Top 10 Portfolio Holdings Monthly 10 business days after the end
and other portfolio statistics(2) of each month
------------------------------------------------------------------------------
(1) Money market funds do not currently make full quarterly holdings
available on the Putnam Investments website. It is currently expected
that full portfolio holdings for money market funds will be posted on
the Putnam Investments website indicated in the prospectus on the same
schedule as the other Putnam funds effective with March 31, 2005
quarterly holdings. Putnam RetirementReady[R] Funds do not post
portfolio holdings on the Web. For information about these funds'
investments, which consist of six other Putnam funds, please see the
funds' prospectus.
(2) As noted above, Putnam RetirementReady[R] Funds do not post portfolio
holdings on the Web.
The scope of the information relating to the fund's portfolio that is made
available on the Web site may change from time to time without notice. In
addition, the posting of fund holdings may be delayed in some instances for
technical reasons.
Putnam Management or its affiliates may include fund portfolio information
that has already been made public through a Web posting or SEC filing in
marketing literature and other communications to shareholders, advisors or
other parties, provided that, in the case of information made public
through the Web, the information is disclosed no earlier than the day after
the date of posting to the Web site.
Other Disclosures
The fund's policies require that non-public disclosures of information
regarding the fund's portfolio may be made only if there is a legitimate
business purpose consistent with fiduciary duties to all shareholders of
the fund. In addition, the party receiving the non-public information must
sign a non-disclosure agreement unless otherwise approved by Putnam
Management's Compliance Department. Arrangements to make non-public
disclosures of the fund's portfolio information must be approved by the
Chief Compliance Officer of the fund. The Chief Compliance Officer will
report on an ongoing basis to a committee of the fund's Board of Trustees
consisting only of Trustees who are not "interested persons" of the fund or
Putnam Management regarding any such arrangement that the fund may enter
into with third parties other than service providers to the fund.
The fund periodically discloses its portfolio information on a confidential
basis to various service providers that require such information in order
to assist the fund with its day-to-day business affairs. In addition to
Putnam Management and its affiliates, including PFTC and PRM, these service
providers include the fund's sub-custodians, which currently include Mellon
Bank N.A., State Street Bank and Trust Company, Brown Brothers Harriman &
Co., UMB Bank, N.A., JPMorgan Chase Bank, and Citibank N.A., the fund's
independent registered public accounting firm, legal counsel, and financial
printer (McMunn Associates, Inc.), and the fund's proxy voting service,
currently Investor Responsibility Research Center, Inc. These service
providers are required to keep such information confidential, and are
prohibited from trading based on the information or otherwise using the
information except as necessary in providing services to the fund.
The fund may also periodically provide non-public information about its
portfolio holdings to rating and ranking organizations, such as Lipper Inc.
and Morningstar Inc., in connection with those firms' research on and
classification of the fund and in order to gather information about how the
fund's attributes (such as volatility, turnover, and expenses) compare with
those of peer funds. Any such firm would be required to keep the fund's
portfolio information confidential and would be prohibited from trading
based on the information or otherwise using the information except as
necessary in providing services to the fund.
PROXY VOTING GUIDELINES AND PROCEDURES
The Trustees of the Putnam funds have established proxy voting guidelines
and procedures that govern the voting of proxies for the securities held in
the funds' portfolios. The proxy voting guidelines summarize the funds'
positions on various issues of concern to investors, and provide direction
to the proxy voting service used by the funds as to how fund portfolio
securities should be voted on proposals dealing with particular issues. The
proxy voting procedures explain the role of the Trustees, Putnam
Management, the proxy voting service and the funds' proxy coordinator in
the proxy voting process, describe the procedures for referring matters
involving investment considerations to the investment personnel of Putnam
Management and describe the procedures for handling potential conflicts of
interest. The Putnam funds' proxy voting guidelines and procedures are
included in this SAI as Appendix A. Information regarding how the funds
voted proxies relating to portfolio securities during the 12-month period
ended June 30, 2004 is available on the Putnam Individual Investor Web
site, www.putnam.com/individual, and on the SEC's Web site at www.sec.gov.
If you have questions about finding forms on the SEC's Web site, you may
call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds' proxy
voting guidelines and procedures by calling Putnam's Shareholder Services
at 1-800-225-1581.
SECURITIES RATINGS
The ratings of securities in which the fund may invest will be measured
at the time of purchase and, to the extent a security is assigned a
different rating by one or more of the various rating agencies, Putnam
Management will use the highest rating assigned by any agency. Putnam
Management will not necessarily sell an investment if its rating is
reduced. The following rating services describe rated securities as
follows:
Moody's Investors Service, Inc.
Bonds
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risk appear
somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate, and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Notes
MIG 1/VMIG 1 -- This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2 -- This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
Commercial paper
Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
-- Well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Standard & Poor's
Bonds
AAA -- An obligation rated AAA has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
AA -- An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A -- An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still strong.
BBB -- An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
Obligations rated BB, B, CCC, CC and C are regarded as having
significant speculative characteristics. BB indicates the lowest degree
of speculation and C the highest. While such obligations will likely
have some quality and protective characteristics, these are outweighed
by large uncertainties or major exposures to adverse conditions.
BB -- An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B -- An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet
its financial commitment on the obligations. Adverse business,
financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the
obligation.
CCC -- An obligation rated CCC is currently vulnerable to nonpayment,
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation. In the event of adverse business, financial, or economic
conditions, the obligor is not likely to have the capacity to meet its
financial commitment on the obligation.
CC -- An obligation rated CC is currently highly vulnerable to
nonpayment.
C -- The C rating may be used to cover a situation where a bankruptcy
petition has been filed, or similar action has been taken, but payments
on this obligation are being continued.
D -- An obligation rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition, or the taking of a similar action if payments on an
obligation are jeopardized.
Notes
SP-1 -- Strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given a
plus (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
SP-3 -- Speculative capacity to pay principal and interest.
Commercial paper
A-1 -- This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated 'A-1'.
A-3 -- Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
Duff & Phelps Corporation
Long-Term Debt
AAA -- Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- -- High credit quality. Protection factors are strong.
Risk is modest but may vary slightly from time to time because of
economic conditions.
A+, A, A- -- Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- -- Below-average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk
during economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection
factors fluctuate according to industry conditions or company fortunes.
Overall quality may move up or down frequently within this category.
B+, B, B- -- Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will fluctuate
widely according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC -- Well below investment-grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD -- Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
Fitch Investors Service, Inc.
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
BB -- Bonds considered to be speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B -- Bonds are considered highly speculative. Bonds in this class are
lightly protected as to the obligor's ability to pay interest over the
life of the issue and repay principal when due.
CCC -- Bonds have certain characteristics which, with passing of time,
could lead to the possibility of default on either principal or interest
payments.
CC -- Bonds are minimally protected. Default in payment of interest and/
or principal seems probable.
C -- Bonds are in actual or imminent default in payment of interest or
principal.
DDD -- Bonds are in default and in arrears in interest and/or principal
payments. Such bonds are extremely speculative and should be valued only
on the basis of their value in liquidation or reorganization of the
obligor.
DEFINITIONS
"Putnam Management" -- Putnam Investment Management, LLC, the
fund's investment manager.
"Putnam Retail Management" -- Putnam Retail Management Limited
Partnership, 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 Investments" -- The name under which Putnam LLC, the
parent company of Putnam Management and its
affiliates, generally conducts business.
Appendix A
Proxy voting guidelines of the Putnam funds
The proxy voting guidelines below summarize the funds' positions on
various issues of concern to investors, and give a general indication of
how fund portfolio securities will be voted on proposals dealing with
particular issues. The funds' proxy voting service is instructed to
vote all proxies relating to fund portfolio securities in accordance
with these guidelines, except as otherwise instructed by the Proxy
Coordinator, a member of the Office of the Trustees who is appointed to
assist in the coordination and voting of the funds' proxies.
The proxy voting guidelines are just that - guidelines. The guidelines
are not exhaustive and do not include all potential voting issues.
Because proxy issues and the circumstances of individual companies are
so varied, there may be instances when the funds may not vote in strict
adherence to these guidelines. For example, the proxy voting service is
expected to bring to the Proxy Coordinator's attention proxy questions
that are company-specific and of a non-routine nature and that, even if
covered by the guidelines, may be more appropriately handled on a
case-by-case basis.
Similarly, Putnam Management's investment professionals, as part of
their ongoing review and analysis of all fund portfolio holdings, are
responsible for monitoring significant corporate developments, including
proxy proposals submitted to shareholders, and notifying the Proxy
Coordinator of circumstances where the interests of fund shareholders
may warrant a vote contrary to these guidelines. In such instances, the
investment professionals will submit a written recommendation to the
Proxy Coordinator and the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
referral items pursuant to the funds' "Proxy Voting Procedures." The
Proxy Coordinator, in consultation with the funds' Senior Vice
President, Executive Vice President, and/or the Chair of the Board
Policy and Nominating Committee, as appropriate, will determine how the
funds' proxies will be voted. When indicated, the Chair of the Board
Policy and Nominating Committee may consult with other members of the
Committee or the full Board of Trustees.
The following guidelines are grouped according to the types of proposals
generally presented to shareholders. Part I deals with proposals that
have been put forth by management and approved and recommended by a
company's board of directors. Part II deals with proposals submitted by
shareholders for inclusion in proxy statements. Part III addresses
unique considerations pertaining to non-U.S. issuers.
The Putnam funds will disclose their proxy votes in accordance with the
timetable established by SEC rules (i.e., not later than August 31 of
each year for the most recent 12-month period ended June 30).
I. BOARD-APPROVED PROPOSALS
The vast majority of matters presented to shareholders for a vote
involve proposals made by a company itself (sometimes referred to as
"management proposals"), which have been approved and recommended by its
board of directors. In view of the enhanced corporate governance
practices currently being implemented in public companies and of the
funds' intent to hold corporate boards accountable for their actions in
promoting shareholder interests, the funds' proxies generally will be
voted for the decisions reached by majority independent boards of
directors, except as otherwise indicated in these guidelines.
Accordingly, the funds' proxies will be voted for board-approved
proposals, except as follows:
Matters relating to the Board of Directors
------------------------------------------
Uncontested Election of Directors
The funds' proxies will be voted for the election of a company's
nominees for the board of directors, except as follows:
* The funds will withhold votes for the entire board of directors if
* the board does not have a majority of independent directors,
* the board has not established independent nominating, audit, and
compensation committees,
* the board has more than 19 members or fewer than five members, absent
special circumstances,
* the board has not acted to implement a policy requested in a shareholder
proposal that received the support of a majority of the shares of the
company at its previous two annual meetings, or
* the board has adopted or renewed a shareholder rights plan (commonly
referred to as a "poison pill") without shareholder approval during the
current or prior calendar year.
* The funds will withhold votes for any nominee for director who:
* is considered an independent director by the company and who has
received compensation from the company other than for service as a
director (e.g., investment banking, consulting, legal, or financial
advisory fees),
* attends less than 75% of board and committee meetings without valid
reasons for the absences (e.g., illness, personal emergency, etc.),
* as a director of a public company (Company A), is employed as a senior
executive of another public company (Company B) if a director of Company
B serves as a senior executive of Company A (commonly referred to as an
"interlocking directorate"), or
* serves on more than five unaffiliated public company boards (for the
purpose of this guideline, boards of affiliated registered investment
companies will count as one board).
Commentary:
Board independence: Unless otherwise indicated, for the purposes of
determining whether a board has a majority of independent directors and
independent nominating, audit, and compensation committees, an "independent
director" is a director who (1) meets all requirements to serve as an
independent director of a company under the final NYSE Corporate Governance
Rules (e.g., no material business relationships with the company and no
present or recent employment relationship with the company (including
employment of an immediate family member as an executive officer)), and (2)
has not accepted directly or indirectly any consulting, advisory, or other
compensatory fee from the company other than in his or her capacity as a
member of the board of directors or any board committee. The funds'
Trustees believe that the receipt of compensation for services other than
service as a director raises significant independence issues.
Board size: The funds' Trustees believe that the size of the board of
directors can have a direct impact on the ability of the board to govern
effectively. Boards that have too many members can be unwieldy and
ultimately inhibit their ability to oversee management performance.
Boards that have too few members can stifle innovation and lead to
excessive influence by management.
Time commitment: Being a director of a company requires a significant
time commitment to adequately prepare for and attend the company's board
and committee meetings. Directors must be able to commit the time and
attention necessary to perform their fiduciary duties in proper fashion,
particularly in times of crisis. The funds' Trustees are concerned
about over-committed directors. In some cases, directors may serve on
too many boards to make a meaningful contribution. This may be
particularly true for senior executives of public companies (or other
directors with substantially full-time employment) who serve on more
than a few outside boards. The funds may withhold votes from such
directors on a case-by-case basis where it appears that they may be
unable to discharge their duties properly because of excessive
commitments.
Interlocking directorships: The funds' Trustees believe that
interlocking directorships are inconsistent with the degree of
independence required for outside directors of public companies.
Corporate governance practices: Board independence depends not only on
its members' individual relationships, but also on the board's overall
attitude toward management. Independent boards are committed to good
corporate governance practices and, by providing objective independent
judgment, enhancing shareholder value. The funds may withhold votes on
a case-by-case basis from some or all directors who, through their lack
of independence, have failed to observe good corporate governance
practices or, through specific corporate action, have demonstrated a
disregard for the interest of shareholders.
Contested Elections of Directors
* The funds will vote on a case-by-case basis in contested elections of
directors.
Classified Boards
* The funds will vote against proposals to classify a board, absent
special circumstances indicating that shareholder interests would be
better served by this structure.
Commentary: Under a typical classified board structure, the directors
are divided into three classes, with each class serving a three-year
term. The classified board structure results in directors serving
staggered terms, with usually only a third of the directors up for
re-election at any given annual meeting. The funds' Trustees generally
believe that it is appropriate for directors to stand for election each
year, but recognize that, in special circumstances, shareholder
interests may be better served under a classified board structure.
Other Board-Related Proposals
The funds will generally vote for board-approved proposals that have
been approved by a majority independent board, and on a case-by-case
basis on board-approved proposals where the board fails to meet the
guidelines' basic independence standards (i.e., majority of independent
directors and independent nominating, audit, and compensation
committees).
Executive Compensation
The funds generally favor compensation programs that relate executive
compensation to a company's long-term performance. The funds will vote
on a case-by-case basis on board-approved proposals relating to
executive compensation, except as follows:
* Except where the funds are otherwise withholding votes for the entire
board of directors, the funds will vote for stock option and restricted
stock plans that will result in an average annual dilution of 1.67% or less
(based on the disclosed term of the plan and including all equity-based
plans).
* The funds will vote against stock option and restricted stock plans that
will result in an average annual dilution of greater than 1.67% (based on
the disclosed term of the plan and including all equity-based plans).
* The funds will vote against any stock option or restricted stock plan
where the company's actual grants of stock options and restricted stock
under all equity-based compensation plans during the prior three (3) fiscal
years have resulted in an average annual dilution of greater than 1.67%.
* The funds will vote against stock option plans that permit the
replacing or repricing of underwater options (and against any proposal
to authorize such replacement or repricing of underwater options).
* The funds will vote against stock option plans that permit issuance of
options with an exercise price below the stock's current market price.
* Except where the funds are otherwise withholding votes for the entire
board of directors, the funds will vote for an employee stock purchase
plan that has the following features: (1) the shares purchased under
the plan are acquired for no less than 85% of their market value; (2)
the offering period under the plan is 27 months or less; and (3)
dilution is 10% or less.
Commentary: Companies should have compensation programs that are
reasonable and that align shareholder and management interests over the
longer term. Further, disclosure of compensation programs should
provide absolute transparency to shareholders regarding the sources and
amounts of, and the factors influencing, executive compensation.
Appropriately designed equity-based compensation plans can be an
effective way to align the interests of long-term shareholders with the
interests of management. The funds may vote against executive
compensation proposals on a case-by-case basis where compensation is
excessive by reasonable corporate standards, or where a company fails to
provide transparent disclosure of executive compensation. In voting on
a proposal relating to executive compensation, the funds will consider
whether the proposal has been approved by an independent compensation
committee of the board.
Capitalization
Many proxy proposals involve changes in a company's capitalization,
including the authorization of additional stock, the issuance of stock,
the repurchase of outstanding stock, or the approval of a stock split.
The management of a company's capital structure involves a number of
important issues, including cash flow, financing needs, and market
conditions that are unique to the circumstances of the company. As a
result, the funds will vote on a case-by-case basis on board-approved
proposals involving changes to a company's capitalization, except that
where the funds are not otherwise withholding votes from the entire
board of directors:
* The funds will vote for proposals relating to the authorization and
issuance of additional common stock (except where such proposals relate
to a specific transaction).
* The funds will vote for proposals to effect stock splits (excluding
reverse stock splits).
* The funds will vote for proposals authorizing share repurchase
programs.
Commentary: A company may decide to authorize additional shares of
common stock for reasons relating to executive compensation or for
routine business purposes. For the most part, these decisions are best
left to the board of directors and senior management. The funds will
vote on a case-by-case basis, however, on other proposals to change a
company's capitalization, including the authorization of common stock
with special voting rights, the authorization or issuance of common
stock in connection with a specific transaction (e.g., an acquisition,
merger or reorganization), or the authorization or issuance of preferred
stock. Actions such as these involve a number of considerations that
may affect a shareholder's investment and that warrant a case-by-case
determination.
Acquisitions, Mergers, Reincorporations, Reorganizations and Other
Transactions
Shareholders may be confronted with a number of different types of
transactions, including acquisitions, mergers, reorganizations involving
business combinations, liquidations, and the sale of all or
substantially all of a company's assets, which may require their
consent. Voting on such proposals involves considerations unique to
each transaction. As a result, the funds will vote on a case-by-case
basis on board-approved proposals to effect these types of transactions,
except as follows:
* The funds will vote for mergers and reorganizations involving business
combinations designed solely to reincorporate a company in Delaware.
Commentary: A company may reincorporate into another state through a
merger or reorganization by setting up a "shell" company in a different
state and then merging the company into the new company. While
reincorporation into states with extensive and established corporate
laws - notably Delaware - provides companies and shareholders with a
more well-defined legal framework, shareholders must carefully consider
the reasons for a reincorporation into another jurisdiction, including
especially an offshore jurisdiction.
Anti-Takeover Measures
Some proxy proposals involve efforts by management to make it more
difficult for an outside party to take control of the company without
the approval of the company's board of directors. These include the
adoption of a shareholder rights plan, requiring supermajority voting on
particular issues, the adoption of fair price provisions, the issuance
of blank check preferred stock, and the creation of a separate class of
stock with disparate voting rights. Such proposals may adversely affect
shareholder rights, lead to management entrenchment, or create conflicts
of interest. As a result, the funds will vote against board-approved
proposals to adopt such anti-takeover measures, except as follows:
* The funds will vote on a case-by-case basis on proposals to ratify or
approve shareholder rights plans; and
* The funds will vote on a case-by-case basis on proposals to adopt fair
price provisions.
Commentary: The funds' Trustees recognize that poison pills and fair
price provisions may enhance shareholder value under certain
circumstances. As a result, the funds will consider proposals to
approve such matters on a case-by-case basis.
Other Business Matters
Many proxies involve approval of routine business matters, such as
changing a company's name, ratifying the appointment of auditors, and
procedural matters relating to the shareholder meeting. For the most
part, these routine matters do not materially affect shareholder
interests and are best left to the board of directors and senior
management of the company. The funds will vote for board-approved
proposals approving such matters, except as follows:
* The funds will vote on a case-by-case basis on proposals to amend a
company's charter or bylaws (except for charter amendments necessary or
to effect stock splits to change a company's name or to authorize
additional shares of common stock).
* The funds will vote against authorization to transact other
unidentified, substantive business at the meeting.
* The funds will vote on a case-by-case basis on other business matters
where the funds are otherwise withholding votes for the entire board of
directors.
Commentary: Charter and bylaw amendments and the transaction of other
unidentified, substantive business at a shareholder meeting may directly
affect shareholder rights and have a significant impact on shareholder
value. As a result, the funds do not view such items as routine
business matters. Putnam Management's investment professionals and the
funds' proxy voting service may also bring to the Proxy Coordinator's
attention company-specific items that they believe to be non-routine and
warranting special consideration. Under these circumstances, the funds
will vote on a case-by-case basis.
II. SHAREHOLDER PROPOSALS
SEC regulations permit shareholders to submit proposals for inclusion in
a company's proxy statement. These proposals generally seek to change
some aspect of the company's corporate governance structure or to
change some aspect of its business operations. The funds generally will
vote in accordance with the recommendation of the company's board of
directors on all shareholder proposals, except as follows:
* The funds will vote for shareholder proposals to declassify a board,
absent special circumstances which would indicate that shareholder
interests are better served by a classified board structure.
* The funds will vote for shareholder proposals to require shareholder
approval of shareholder rights plans.
* The funds will vote for shareholder proposals that are consistent with
the funds' proxy voting guidelines for board-approved proposals.
* The funds will vote on a case-by-case basis on other shareholder
proposals where the funds are otherwise withholding votes for the entire
board of directors.
Commentary: In light of the substantial reforms in corporate governance
that are currently underway, the funds' Trustees believe that effective
corporate reforms should be promoted by holding boards of directors -
and in particular their independent directors - accountable for their
actions, rather than imposing additional legal restrictions on board
governance through piecemeal proposals. Generally speaking, shareholder
proposals relating to business operations are often motivated primarily
by political or social concerns, rather than the interests of
shareholders as investors in an economic enterprise. As stated above,
the funds' Trustees believe that boards of directors and management are
responsible for ensuring that their businesses are operating in
accordance with high legal and ethical standards and should be held
accountable for resulting corporate behavior. Accordingly, the funds
will generally support the recommendations of boards that meet the basic
independence and governance standards established in these guidelines.
Where boards fail to meet these standards, the funds will generally
evaluate shareholder proposals on a case-by-case basis.
III. VOTING SHARES OF NON-U.S. ISSUERS
Many of the Putnam funds invest on a global basis, and, as a result,
they may be required to vote shares held in non-U.S. issuers - i.e.,
issuers that are incorporated under the laws of foreign jurisdictions
and that are not listed on a U.S. securities exchange or the NASDAQ
stock market. Because non-U.S. issuers are incorporated under the laws
of countries and jurisdictions outside the U.S., protection for
shareholders may vary significantly from jurisdiction to jurisdiction.
Laws governing non-U.S. issuers may, in some cases, provide
substantially less protection for shareholders. As a result, the
foregoing guidelines, which are premised on the existence of a sound
corporate governance and disclosure framework, may not be appropriate
under some circumstances for non-U.S. issuers.
In many non-U.S. markets, shareholders who vote proxies of a non-U.S.
issuer are not able to trade in that company's stock on or around the
shareholder meeting date. This practice is known as "share blocking."
In countries where share blocking is practiced, the funds will vote
proxies only with direction from Putnam Management's investment
professionals.
In addition, some non-U.S. markets require that a company's shares be
re-registered out of the name of the local custodian or nominee into the
name of the shareholder for the meeting. This practice is known as
"share re-registration." As a result, shareholders, including the
funds, are not able to trade in that company's stock until the shares
are re-registered back in the name of the local custodian or nominee.
In countries where share re-registration is practiced, the funds will
generally not vote proxies.
The funds will vote proxies of non-U.S. issuers in accordance with the
foregoing guidelines where applicable, except as follows:
Uncontested Election of Directors
Japan
* For companies that have established a U.S.-style corporate structure,
the funds will withhold votes for the entire board of directors if
* the board does not have a majority of outside directors,
* the board has not established nominating and compensation committees
composed of a majority of outside directors, or
* the board has not established an audit committee composed of a
majority of independent directors.
* The funds will withhold votes for the appointment of members of a
company's board of statutory auditors if a majority of the members of
the board of statutory auditors is not independent.
Commentary:
Board structure: Recent amendments to the Japanese Commercial Code give
companies the option to adopt a U.S.-style corporate structure (i.e., a
board of directors and audit, nominating, and compensation committees).
The funds will vote for proposals to amend a company's articles of
incorporation to adopt the U.S.-style corporate structure.
Definition of outside director and independent director: Corporate
governance principles in Japan focus on the distinction between outside
directors and independent directors. Under these principles, an outside
director is a director who is not and has never been a director,
executive, or employee of the company or its parent company,
subsidiaries or affiliates. An outside director is "independent" if
that person can make decisions completely independent from the managers
of the company, its parent, subsidiaries, or affiliates and does not
have a material relationship with the company (i.e., major client,
trading partner, or other business relationship; familial relationship
with current director or executive; etc.). The guidelines have
incorporated these definitions in applying the board independence
standards above.
Korea
* The funds will withhold votes for the entire board of directors if
* the board does not have a majority of outside directors,
* the board has not established a nominating committee composed of at
least a majority of outside directors, or
* the board has not established an audit committee composed of at least
three members and in which at least two-thirds of its members are
outside directors.
Commentary: For purposes of these guideline, an "outside director" is
a director that is independent from the management or controlling
shareholders of the company, and holds no interests that might impair
performing his or her duties impartially from the company, management or
controlling shareholder. In determining whether a director is an
outside director, the funds will also apply the standards included in
Article 415-2(2) of the Korean Commercial Code (i.e., no employment
relationship with the company for a period of two years before serving
on the committee, no director or employment relationship with the
company's largest shareholder, etc.) and may consider other business
relationships that would affect the independence of an outside director.
United Kingdom
* The funds will withhold votes for the entire board of directors if
* the board does not have at least a majority of independent
non-executive directors,
* the board has not established nomination committees composed of a
majority of independent non-executive directors, or
* the board has not established compensation and audit committees
composed of (1) at least three directors (in the case of smaller
companies, two directors) and (2) solely of independent non-executive
directors.
* The funds will withhold votes for any nominee for director who is
considered an independent director by the company and who has received
compensation from the company other than for service as a director
(e.g., investment banking, consulting, legal, or financial advisory
fees).
Commentary:
Application of guidelines: Although the U.K.'s Combined Code on
Corporate Governance ("Combined Code") has adopted the "comply and
explain" approach to corporate governance, the funds' Trustees believe
that the guidelines discussed above with respect to board independence
standards are integral to the protection of investors in U.K. companies.
As a result, these guidelines will be applied in a prescriptive manner.
Definition of independence: For the purposes of these guidelines, a
non-executive director shall be considered independent if the director
meets the independence standards in section A.3.1 of the Combined Code
(i.e., no material business or employment relationships with the
company, no remuneration from the company for non-board services, no
close family ties with senior employees or directors of the company,
etc.), except that the funds do not view service on the board for more
than nine years as affecting a director's independence.
Smaller companies: A smaller company is one that is below the FTSE 350
throughout the year immediately prior to the reporting year.
Canada
In January 2004, Canadian securities regulators issued proposed policies
that would impose new corporate governance requirements on Canadian
public companies. The recommended practices contained in these new
corporate governance requirements mirror corporate governance reforms
that have been adopted by the NYSE and other U.S. national securities
exchanges and stock markets. As a result, the funds will vote on
matters relating to the board of directors of Canadian issuers in
accordance with the guidelines applicable to U.S. issuers.
Commentary: Like the U.K.'s Combined Code, the proposed policies on
corporate governance issued by Canadian securities regulators embody the
"comply and explain" approach to corporate governance. Because the
funds' Trustees believe that the board independence standards contained
in the proxy voting guidelines are integral to the protection of
investors in Canadian companies, these standards will be applied in a
prescriptive manner.
Other Matters
* The funds will vote for shareholder proposals calling for a majority
of a company's directors to be independent of management.
* The funds will vote for shareholder proposals seeking to increase the
independence of board nominating, audit, and compensation committees.
* The funds will vote for shareholder proposals that implement corporate
governance standards similar to those established under U.S. federal law
and the listing requirements of U.S. stock exchanges, and that do not
otherwise violate the laws of the jurisdiction under which the company
is incorporated.
* The funds will vote on a case-by-case basis on proposals relating to
(1) the issuance of common stock in excess of 20% of the company's
outstanding common stock where shareholders do not have preemptive
rights, or (2) the issuance of common stock in excess of 100% of the
company's outstanding common stock where shareholders have preemptive
rights.
As adopted December 10, 2004
Proxy voting procedures of the Putnam funds
The proxy voting procedures below explain the role of the funds' Trustees,
the proxy voting service and the Proxy Coordinator, as well as how the
process will work when a proxy question needs to be handled on a case by
case basis, or when there may be a conflict of interest.
The role of the funds' Trustees
The Trustees of the Putnam funds exercise control of the voting of proxies
through their Board Policy and Nominating Committee, which is composed
entirely of independent Trustees. The Board Policy and Nominating
Committee oversees the proxy voting process and participates, as needed, in
the resolution of issues that need to be handled on a case-by-case basis.
The Committee annually reviews and recommends, for Trustee approval,
guidelines governing the funds' proxy votes, including how the funds vote
on specific proposals and which matters are to be considered on a
case-by-case basis. The Trustees are assisted in this process by their
independent administrative staff ("Fund Administration"), independent legal
counsel, and an independent proxy voting service. The Trustees also
receive assistance from Putnam Investment Management, LLC ("Putnam
Management"), the funds' investment advisor, on matters involving
investment judgments. In all cases, the ultimate decision on voting
proxies rests with the Trustees, acting as fiduciaries on behalf of the
shareholders of the funds.
The role of the proxy voting service
The funds have engaged an independent proxy voting service to assist in the
voting of proxies. The proxy voting service is responsible for
coordinating with the funds' custodians to ensure that all proxy materials
received by the custodians relating to the funds' portfolio securities are
processed in a timely fashion. To the extent applicable, the proxy voting
service votes all proxies in accordance with the proxy voting guidelines
established by the Trustees. The proxy voting service will refer proxy
questions to the Proxy Coordinator (described below) for instructions under
circumstances where: (1) the application of the proxy voting guidelines is
unclear; (2) a particular proxy question is not covered by the guidelines;
or (3) the guidelines call for specific instructions on a case-by-case
basis. The proxy voting service is also requested to call to the Proxy
Coordinator's attention specific proxy questions that, while governed by a
guideline, appear to involve unusual or controversial issues. The funds
also utilize research services relating to proxy questions provided by the
proxy voting service and by other firms.
The role of the Proxy Coordinator
Each year, a member of Fund Administration is appointed Proxy Coordinator
to assist in the coordination and voting of the funds' proxies. The Proxy
Coordinator will deal directly with the proxy voting service and, in the
case of proxy questions referred by the proxy voting service, will solicit
voting recommendations and instructions from Fund Administration, the Chair
of the Board Policy and Nominating Committee, and Putnam Management's
investment professionals, as appropriate. The Proxy Coordinator is
responsible for ensuring that these questions and referrals are responded
to in a timely fashion and for transmitting appropriate voting instructions
to the proxy voting service.
Voting procedures for referral items
As discussed above, the proxy voting service will refer proxy questions to
the Proxy Coordinator under certain circumstances. When the application of
the proxy voting guidelines is unclear or a particular proxy question is
not covered by the guidelines (and does not involve investment
considerations), the Proxy Coordinator will assist in interpreting the
guidelines and, as appropriate, consult with the Senior Vice President of
Fund Administration, the Executive Vice President of Fund Administration,
and the Chair of the Board Policy and Nominating Committee on how the
funds' shares will be voted.
For proxy questions that require a case-by-case analysis pursuant to the
guidelines or that are not covered by the guidelines but involve investment
considerations, the Proxy Coordinator will refer such questions, through a
written request, to Putnam Management's investment professionals for a
voting recommendation. Such referrals will be made in cooperation with the
person or persons designated by Putnam Management's Legal and Compliance
Department to assist in processing such referral items. In connection with
each such referral item, the Legal and Compliance Department will conduct a
conflicts of interest review, as described below under "Conflicts of
Interest," and provide a conflicts of interest report (the "Conflicts
Report") to the Proxy Coordinator describing the results of such review.
After receiving a referral item from the Proxy Coordinator, Putnam
Management's investment professionals will provide a written recommendation
to the Proxy Coordinator and the person or persons designated by the Legal
and Compliance Department to assist in processing referral items. Such
recommendation will set forth (1) how the proxies should be voted; (2) the
basis and rationale for such recommendation; and (3) any contacts the
investment professionals have had with respect to the referral item with
non-investment personnel of Putnam Management or with outside parties
(except for routine communications from proxy solicitors). The Proxy
Coordinator will then review the investment professionals' recommendation
and the Conflicts Report with the Senior Vice President and/or Executive
Vice President in determining how to vote the funds' proxies. The Proxy
Coordinator will maintain a record of all proxy questions that have been
referred to Putnam Management's investment professionals, the voting
recommendation, and the Conflicts Report.
In some situations, the Proxy Coordinator, the Senior Vice President,
and/or the Executive Vice President may determine that a particular proxy
question raises policy issues requiring consultation with the Chair of the
Board Policy and Nominating Committee, who, in turn, may decide to bring
the particular proxy question to the Committee or the full Board of
Trustees for consideration.
Conflicts of interest
Occasions may arise where a person or organization involved in the proxy
voting process may have a conflict of interest. A conflict of interest may
exist, for example, if Putnam Management has a business relationship with
(or is actively soliciting business from) either the company soliciting the
proxy or a third party that has a material interest in the outcome of a
proxy vote or that is actively lobbying for a particular outcome of a proxy
vote. Any individual with knowledge of a personal conflict of interest
(e.g., familial relationship with company management) relating to a
particular referral item shall disclose that conflict to the Proxy
Coordinator and the Legal and Compliance Department and otherwise remove
himself or herself from the proxy voting process. The Legal and Compliance
Department will review each item referred to Putnam Management's investment
professionals to determine if a conflict of interest exists and will
provide the Proxy Coordinator with a Conflicts Report for each referral
item that (1) describes any conflict of interest; (2) discusses the
procedures used to address such conflict of interest; and (3) discloses any
contacts from parties outside Putnam Management (other than routine
communications from proxy solicitors) with respect to the referral item not
otherwise reported in an investment professional's recommendation. The
Conflicts Report will also include written confirmation that any
recommendation from an investment professional provided under circumstances
where a conflict of interest exists was made solely on the investment
merits and without regard to any other consideration.
As adopted March 14, 2003
PUTNAM CONVERTIBLE INCOME-GROWTH TRUST
FORM N-1A
PART C
OTHER INFORMATION
Item 23. Exhibits
(a) 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.
(b) By-Laws, as amended through July 21, 2000 -- Incorporated by reference
to Post-Effective Amendment No. 38 to the Registrant's Registration
Statement.
(c)(1) 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.
(c)(2) Portions of By-Laws Relating to Shareholders' Rights -- Incorporated
by reference to Post-Effective Amendment No. 32 to the Registrant's
Registration Statement.
(d) Management Contract dated February 20, 1997 -- Incorporated by reference
to Post-Effective Amendment No. 34 to the Registrant's Registration
Statement.
(e)(1) Distributor's Contract dated May 6, 1994 -- Incorporated by reference
to Post-Effective Amendment No. 32 to the Registrant's Registration
Statement.
(e)(2) Form of Dealer Sales Contract -- Incorporated by reference to
Post-Effective Amendment No. 29 to the Registrant's Registration Statement.
(e)(3) Form of Financial Institution Sales Contract -- Incorporated by
reference to Post-Effective Amendment No. 29 to the Registrant's
Registration Statement.
(f) Trustee Retirement Plan dated October 4, 1996, as amended July 21,
2000.
(g) Custodian Agreement with Putnam Fiduciary Trust Company dated May 3,
1991, as amended June 1, 2001 -- Incorporated by reference to Post-Effective
Amendment No. 39 to the Registrant's Registration Statement.
(h)(1) 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.
(h)(2) Letter of Indemnity dated December 18, 2003 with Putnam Investment
Management.
(h)(3) Liability Insurance Allocation Agreement.
(i) Opinion of Ropes & Gray LLP, including consent -- Incorporated by
reference to Post-Effective Amendment No. 34 to the Registrant's
Registration Statement.
(j) Consent of Independent Registered Public Accounting Firm.
(k) Not applicable.
(l) Investment Letter from Putnam Investments, LLC to the Registrant --
Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement.
(m)(1) Class A Distribution Plan and Agreement -- Incorporated by reference
to Post-Effective Amendment No. 28 to the Registrant's Registration
Statement.
(m)(2) Class B Distribution Plan and Agreement -- Incorporated by reference
to Post-Effective Amendment No. 31 to the Registrant's Registration
Statement.
(m)(3) Class C Distribution Plan and Agreement -- Incorporated by reference
to Post-Effective Amendment No. 31 to the Registrant's Registration
Statement.
(m)(4) Class M Distribution Plan and Agreement -- Incorporated by reference
to Post-Effective Amendment No. 32 to the Registrant's Registration
Statement.
(m)(5) Class R Distribution Plan and Agreement -- Incorporated by reference
to Post-Effective Amendment No. 41 to the Registrant's Registration
Statement.
(m)(6) Form of Dealer Service Agreement -- Incorporated by reference to
Post-Effective Amendment No. 35 to the Registrant's Registration Statement.
(m)(7) Form of Financial Institution Service Agreement -- Incorporated by
reference to Post-Effective Amendment No. 35 to the Registrant's
Registration Statement.
(n) Rule 18f-3 Plan -- Incorporated by reference to Post-Effective Amendment
No. 40 to the Registrant's Registration statement.
(p)(1) The Putnam Funds Code of Ethics.
(p)(2) Putnam Investments Code of Ethics.
(p)(3) Amendment to Putnam Investments Code of Ethics, dated December 15, 2004.
Item 24. Persons Controlled by or Under Common Control with the Fund
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.
811-02280).
Items 26 & 27.
Item 25. 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
---- -----------------------------------------
Zhikai Chen Prior to May 2004, Equity Research Analyst,
Vice President Citigroup Asset Management, 100 First Stamford
Place, Stamford, CT 06902
John W. Coffey Prior to April 2004, Managing Director,
Managing Director Citigroup Asset Management, 399 Park Avenue,
New York, NY 10022
Emily F. Cooper Prior to May 2004, Vice President, LNR Property
Vice President Corporation, 1601 Washington Avenue, Suite 700,
Miami Beach, FL 33139
John R.S. Cutler Member, Burst Media, L.L.C., 10 New England
Vice President Executive Park, Burlington, MA 01803
Gian D. Fabbri Partner, KF Style, LLC, 73 Charles St.,
Assistant Vice President Boston, MA 02114
Maria Garcia-Lomas Prior to July 2003, Research Analyst, J.P.
Vice President Morgan Securities Ltd., 125 London Wall,
London, England
Haralabos E. Gakidis Prior to October 2003, Head of Consulting and
Vice President Business Development, The RIS Consulting Group
LLC, 420 Boylston Street, Suite 302, Boston,
MA 02116
David Morgan Prior to June 2004, Director, Equity Analyst,
Senior Vice President Citigroup Asset Management. Citigroup Centre,
Canada Square, Canary Wharf, London, England
E14 5LB
Walton D. Pearson Prior to February 2003, Senior Vice President
Senior Vice President and Senior Portfolio Manager, Alliance Capital
Management L.P., 1345 Avenue of the Americas,
New York, NY 10105
Masroor Taale Siddiqui Prior to February 2004, Managing Director,
Senior Vice President Jefferies & Co., 520 Madison Avenue, New York,
NY 10022
Jeffrey M. Stought Prior to March 2004, Vice President, Goldman
Vice President Sachs International, 133 Fleet Street, London,
England EC4A 2BB
Item 26. Principal Underwriter
(a) Putnam Retail Management Limited Partnership 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 Asset Allocation Funds, Putnam California Tax Exempt Income
Fund, Putnam Capital Appreciation Fund, Putnam Classic Equity Fund, Putnam
Convertible Income-Growth Trust, Putnam Discovery Growth Fund, Putnam
Diversified Income Trust, Putnam Equity Income Fund, Putnam Europe Equity
Fund, Putnam Florida Tax Exempt Income Fund, Putnam Funds Trust, The George
Putnam Fund of Boston, Putnam Global Equity Fund, Putnam Global Income
Trust, Putnam Global Natural Resources Fund, The Putnam Fund for Growth and
Income, Putnam Health Sciences Trust, Putnam High Yield Trust, Putnam High
Yield Advantage Fund, Putnam Income Fund, Putnam International Equity Fund,
Putnam Investment Funds, Putnam Investors Fund, Putnam Limited Duration
Government Income Fund (formerly Intermediate U.S. Government Income Fund),
Putnam Massachusetts Tax Exempt Income Fund, Putnam Michigan Tax Exempt
Income Fund, Putnam Minnesota Tax Exempt Income Fund, Putnam Municipal
Income Fund, Putnam New Jersey Tax Exempt Income Fund, Putnam New
Opportunities Fund, Putnam New York Tax Exempt Income Fund, Putnam Ohio Tax
Exempt Income Fund, Putnam OTC & Emerging Growth Fund, Putnam Pennsylvania
Tax Exempt 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.
(b) The directors and officers of the Registrant's principal underwriter
are listed below.Except as noted below, none of the officers are
officers of the Registrant.
The principal business address of each person is One Post Office Square,
Boston, MA 02109:
Name Position and Office with the Underwriter
-----------------------------------------------------------------------
Aaron III, Jefferson F. Senior Vice President
Ahearn, Paul D. Assistant Vice President
Amisano, Paulette C. Vice President
Arends, Michael K. Senior Vice President
Ayala-Macey, Ann C. Assistant Vice President
Babcock III, Warren W. Senior Vice President
Baker, Christopher H. Vice President
Baker, Erin L. Assistant Vice President
Ballingall, Keith R. Assistant Vice President
Barnett, William E. Vice President
Barrett, Thomas Senior Vice President
Bartony, Paul A. Vice President
Bergeron, Christopher E. Vice President
Beringer, Thomas C. Senior Vice President
Bernaldo, Bryan L. Assistant Vice President
Borden, Richard S. Vice President
Bosinger, Paul C. Vice President
Bouchard, Keith R. Senior Vice President
Bradford Jr., Linwood E. Managing Director
Brady, Jeremy V. Assistant Vice President
Brandt, Sarah J. Vice President
Brennan, Sean M. Assistant Vice President
Brown, Michael D. Assistant Vice President
Bumpus, James F. Managing Director
Bunker, Christopher M. Senior Vice President
Burns, Robert T. Senior Vice President
Bush, Jessica Scoon Assistant Vice President
Cabana, Susan D. Senior Vice President
Call, Timothy W. Senior Vice President
Callinan, Richard E. Vice President
Campbell, Christopher F. Assistant Vice President
Caramazza, Pierre C. Senior Vice President
Card, Victoria R. Assistant Vice President
Carey, Christopher P. Vice President
Casey, David M. Senior Vice President
Cass, William D. Senior Vice President
Caswell, Kendra L. Vice President
Chang, America J. Assistant Vice President
Chapman, Frederick Vice President
Ciesluk, James D. Assistant Vice President
Clare, Michael J. Assistant Vice President
Clark, James F. Assistant Vice President
Colman, Donald M. Vice President
Condon, Meagan L. Vice President
Condron, Brett P. Senior Vice President
Coneeny, Mark L. Managing Director
Connelly, Donald A. Senior Vice President
Connolly, William T. Managing Director
Cooley, Jonathan A. Vice President
Corbett, Dennis T. Senior Vice President
Corvinus, F. Nicholas Managing Director
Corwin, Kathleen K. Senior Vice President
Cosentino, Joseph D. Assistant Vice President
Coveney, Anne M. Senior Vice President
Covington, Ryan R. Vice President
Crean, Jeremy P. Assistant Vice President
Cristo, Chad H. Senior Vice President
Croft, Ariane D. Assistant Vice President
Crotty, Kenneth Brian Assistant Vice President
Curry, John D. Senior Vice President
Dabney, Richard W. Senior Vice President
Dahill, Jessica E. Vice President
Damon, James G. Vice President
Davidian, Raymond A. Vice President
DeAngelis, Adam Vice President
DeGregorio Jr., Richard A. Assistant Vice President
DeNitto, James P. Vice President
Dempsey, Thomas F. Vice President
Dewey Jr., Paul S. Senior Vice President
DiBuono, Jeffrey P. Assistant Vice President
Donadio, Joyce M. Vice President
Dowie, Kevin T. Assistant Vice President
Doyle, Michelle Assistant Vice President
Economou, Stefan G. Assistant Vice President
Eidelberg, Kathleen E. Assistant Vice President
Elder, Michael D. Managing Director
Emhof, Joseph R. Senior Vice President
Ethington, Robert H. Assistant Vice President
Fanning, Virginia A. Senior Vice President
Favaloro, Beth A. Senior Vice President
Felan III, Catarino Vice President
Feldman, Susan H. Senior Vice President
Fiedler, Stephen J. Vice President
Fishman, Mitchell B. Managing Director
Fleming, Robert A. Assistant Vice President
Foley, Timothy P. Senior Vice President
Foresyth, Charles W. Vice President
Forrester, Gordon M. Managing Director
Foster, Laura G. Vice President
Fronc, Richard Joseph Assistant Vice President
Gambale, Kevin L. Vice President
Gaudette, Marjorie B. Vice President
Gebhard, Louis F. Assistant Vice President
Giessler, Todd C. Vice President
Gipson, Zachary A. Vice President
Girald, Kristin M. Assistant Vice President
Greenwood, Julie M. Assistant Vice President
Gundersen, Jan S. Senior Vice President
Hagan IV, J. Addison Vice President
Haines, James B. Vice President
Halloran, James E. Senior Vice President
Halloran, Thomas W. Managing Director
Hartigan, Craig W. Senior Vice President
Hartigan, Maureen A. Vice President
Hassinger, Aaron D. Assistant Vice President
Hazzard, Jessica L. Senior Vice President
Herold, Karen Assistant Vice President
Hershenow, Andrew B. Assistant Vice President
Hess Jr., William C. Vice President
Holland, Jeffrey K. Vice President
Holmes, Maureen A. Senior Vice President
Howe, Denise M. Assistant Vice President
Howley, Sean J. Senior Vice President
Hoyt, Paula J. Vice President
Hughes, Carolyn Senior Vice President
Hyland, John P. Vice President
Iglesias, Louis X. Senior Vice President
Iris, Stefan K. Assistant Vice President
Jean, Ellen F. Assistant Vice President
Jeans, Kathleen A. Assistant Vice President
Jones, Thomas A. Senior Vice President
Jordan, Stephen R. Assistant Vice President
Kapinos, Peter J. Senior Vice President
Kay, Karen R. Senior Vice President
Keith, Pamela J. Assistant Vice President
Kelley, Brian J. Senior Vice President
Kelly, A. Siobhan Senior Vice President
Kelly, David Managing Director
Kennedy, Daniel J. Vice President
Kerivan, John R. Senior Vice President
Kersten, Charles N. Vice President
King, Brian F. Vice President
Kinsman, Anne M. Senior Vice President
Kirk Kahn, Deborah H. Senior Vice President
Kokos, Casey T. Assistant Vice President
Komodromos, Costas G. Senior Vice President
Kotsiras, Steven Vice President
Kringdon, Joseph D. Managing Director
LaGreca, Jennifer J. Assistant Vice President
Lacascia, Charles M. Senior Vice President
Lacour, Jayme J. Assistant Vice President
Lampron, Michelle S. Assistant Vice President
Larson, John R. Vice President
Lecce, Vincent L. Vice President
Leveille, Robert R. Vice President
Levy, Norman S. Senior Vice President
Lieberman, Samuel L. Senior Vice President
Lighty, Brian C. Assistant Vice President
Link, Christopher H. Senior Vice President
Lohmeier, Andrew Vice President
Loomis, Marcy R. Assistant Vice President
Lukens, James W. Senior Vice President
Maglio, Nancy T. Assistant Vice President
Mahoney, Julie M. Vice President
Mansfield, Scott D. Vice President
Martin, David M. Vice President
Martin, Kevin J. Vice President
Massey, Shannon M. Assistant Vice President
McCafferty, Karen A. Senior Vice President
McCarran, Matthew P. Assistant Vice President
McCarthy, Anne B. Assistant Vice President
McCollough, Martha J. Assistant Vice President
McConville, Paul D. Senior Vice President
McCutcheon, Bruce A. Senior Vice President
McDermott, Robert J. Senior Vice President
McInis, Brian S. Vice President
McKenna, Mark J. Managing Director
Mee, Kellie F. Assistant Vice President
Mehta, Ashok Senior Vice President
Metelmann, Claye A. Senior Vice President
Michejda, Marek A. Senior Vice President
Miller Jr., Edward D. Vice President
Millette, Michelle T. Assistant Vice President
Minsk, Judith Vice President
Mintzer, Matthew P. Senior Vice President
Molesky, Kevin P. Vice President
Monaghan, Richard A. Director
Moody, Paul R. Senior Vice President
Moret, Mitchell L. Senior Vice President
Nadherny, Robert Charles Managing Director
Nakamura, Denise-Marie Senior Vice President
Nardone, Laura E. Assistant Vice President
Nelson, Brian W. Vice President
Nickodemus, John P. Managing Director
Nickolini, Michael A. Vice President
Nickse, Gail A. Assistant Vice President
Nicolazzo, Jon C. Senior Vice President
Noble, John D. Senior Vice President
Norcross, George H. Assistant Vice President
O'Connell Jr., Paul P. Senior Vice President
O'Connor, Brian P. Senior Vice President
O'Connor, Matthew P. Senior Vice President
O'Connor, Scott D. Assistant Vice President
O'Sullivan, Shawn M. Vice President
Olsen, Stephen Assistant Vice President
Ondek, David P. Assistant Vice President
Otsuka, Fumihiko Senior Vice President
Palmer, Patrick J. Senior Vice President
Patton, Robert J. Senior Vice President
Perkins, Erin M. Vice President
Phoenix, Joseph T. Managing Director
Piersol, Willow B. Vice President
Pitcher, Ciara L. Assistant Vice President
Platt, Thomas R. Senior Vice President
Pulkrabek, Scott M. Senior Vice President
Puzzangara, John C. Vice President
Quinn, Brian J. Vice President
Reid, Sandra L. Vice President
Rickson, Alexander Assistant Vice President
Ritter, Jesse D. Vice President
Rodammer, Kris Senior Vice President
Rose, Laura Assistant Vice President
Rosmarin, Adam L. Vice President
Rowe, Robert B. Senior Vice President
Ruys de Perez, Charles A.* Managing Director
Ryan, Deborah A. Vice President
Ryan, William M. Senior Vice President
Saunders, Catherine A. Managing Director
Sawyer, Matthew A. Senior Vice President
Schaub, Gerald D. Vice President
Schlafman, Jonathan E. Vice President
Schug, Mark R. Assistant Vice President
Schultz, Susan L. Assistant Vice President
Segers, Elizabeth R. Managing Director
Seward, Lindsay H. Vice President
Seydler, Bonnie S. Vice President
Sheridan, Michael F. Assistant Vice President
Short Jr., Harold P. Senior Vice President
Short, Jonathan D. Senior Vice President
Siebold, Mark J. Senior Vice President
Siemon Jr., Frank E. Senior Vice President
Sliney, Michael J. Vice President
Spigelmeyer III, Carl M. Vice President
Spooner, Andrew C. Assistant Vice President
Squires, Melissa H. Vice President
Stark, Kerri A. Vice President
Stathoulopoulos, Manny Assistant Vice President
Stickney, Paul R. Senior Vice President
Storkerson, John K. Senior Vice President
Stuart, James F. Vice President
Sullivan, Brian L. Senior Vice President
Sullivan, Elaine M. Senior Vice President
Sweeney, Brian S. Vice President
Sweeney, Janet C. Senior Vice President
Taber, Rene B. Vice President
Tanner, B. Iris Vice President
Tassinari, Michael J . Assistant Vice President
Tierney, Tracy L. Assistant Vice President
Totovian, James H. Assistant Vice President
Tucker, Jason A. Senior Vice President
Tyrie, David C. Managing Director
Urban, Elke R. Assistant Vice President
Valentin-Hess, Carmen Assistant Vice President
Wadera-Sandhu, Jyotsana Assistant Vice President
Wallace, Stephen Senior Vice President
Werths, Beth K. Vice President
Wilde, Michael R. Assistant Vice President
Williams, Christopher J. Assistant Vice President
Williams, Jason M. Vice President
Zannino, David J. Assistant Vice President
Zechello, Steven R. Vice President
Zografos-Preusser, Laura J. Senior Vice President
deMont, Lisa M. Senior Vice President
* Mr. Ruys de Perez is Vice President and Chief Compliance Officer of the
Registrant.
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
Clerk, Judith Cohen; Registrant's investment adviser, Putnam Investment
Management, LLC.; Registrant's principal underwriter, Putnam Retail
Management Limited Partnership; Registrant's custodian, Putnam Fiduciary
Trust Company ("PFTC"); and Registrant's transfer and dividend disbursing
agent, Putnam Investor Services, a division of PFTC. The address of the
Clerk, investment adviser, principal underwriter, custodian and transfer
and dividend disbursing agent is One Post Office Square, Boston,
Massachusetts 02109.
Item 29. Management Services
None.
Item 30. Undertakings
None.
NOTICE
A copy of the Agreement and Declaration of Trust of Putnam Convertible
Income-Growth Trust is on file with the Secretary 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.
POWER OF ATTORNEY
I, the undersigned Officer of each of the funds listed on Schedule A
hereto, hereby severally constitute and appoint John Hill, George Putnam
III, Patricia Flaherty, John W. Gerstmayr and Bryan Chegwidden, and each
of them singly, my true and lawful attorneys, with full power to them and
each of them, to sign for me, and in my name and in the capacities
indicated below, the Registration Statements on Form N-1A or Form N-14 of
each of the funds listed on Schedule A hereto and any and all amendments
(including post-effective amendments) to said Registration Statements and
to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto my said attorneys, and each of them acting alone, full power and
authority to do and perform each and every act and thing requisite or
necessary to be done in the premises, as fully to all intents and purposes
as he might or could do in person, and hereby ratify and confirm all that
said attorneys or any of them may lawfully do or cause to be done by virtue
thereof.
WITNESS my hand and seal on the date set forth below.
Signature Title Date
/s/ Charles E. Porter
---------------------------- Executive Vice President; March 19, 2004
Charles E. Porter Treasurer and Principal
Executive Officer
POWER OF ATTORNEY
We, the undersigned Trustees of each of the funds listed on Schedule A
hereto, hereby severally constitute and appoint John Hill, George Putnam
III, Charles E. Porter, Jonathan S. Horwitz, Daniel T. Gallagher, John W.
Gerstmayr and Bryan Chegwidden, and each of them singly, our true and
lawful attorneys, with full power to them and each of them, to sign for
us, and in our names and in the capacities indicated below, the
Registration Statements on Form N-1A of each of the funds listed on
Schedule A hereto and any and all amendments (including post-effective
amendments) to said Registration Statements and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto our said attorneys, and
each of them acting alone, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in the premises,
as fully to all intents and purposes as he might or could do in person,
and hereby ratify and confirm all that said attorneys or any of them may
lawfully do or cause to be done by virtue thereof.
WITNESS my hand and seal on the date set forth below.
Signature Title Date
/s/ Myra R. Drucker
---------------------------- Trustee November 11, 2004
Myra R. Drucker
/s/ Charles E. Haldeman, Jr.
---------------------------- Trustee November 11, 2004
Charles E. Haldeman, Jr.
/s/ Richard B. Worley
---------------------------- Trustee November 11, 2004
Richard B. Worley
Schedule A
Putnam American Government Income Fund
Putnam Arizona Tax Exempt Income Fund
Putnam Asset Allocation Funds
Putnam California Tax Exempt Income Fund
Putnam Capital Appreciation Fund
Putnam Classic Equity Fund
Putnam Convertible Income-Growth Trust
Putnam Diversified Income Trust
Putnam Discovery Growth Fund
Putnam Equity Income Fund
Putnam Europe Equity Fund
Putnam Florida Tax Exempt Income Fund
Putnam Funds Trust
The George Putnam Fund of Boston
Putnam Global Equity Fund
Putnam Global Income Trust
Putnam Global Natural Resources Fund
The Putnam Fund for Growth and Income
Putnam Health Sciences Trust
Putnam High Yield Advantage Fund
Putnam High Yield Trust
Putnam Income Fund
Putnam Intermediate U.S. Government Income Fund
Putnam International Equity 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 Ohio Tax Exempt Income Fund
Putnam OTC & Emerging Growth Fund
Putnam Pennsylvania Tax Exempt 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
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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, 2005.
Putnam Convertible Income-Growth Trust
By: /s/ Charles E. Porter, Executive Vice
President, Associate Treasurer and Principal
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
Signature Title
John A. Hill Chairman of the Board; Trustee
George Putnam, III President; Trustee
Charles E. Porter Executive Vice President, Associate Treasurer and
Principal Executive Officer
Steven D. Krichmar Vice President and Principal Financial Officer
Michael T. Healy Assistant Treasurer and Principal Accounting
Officer
Jameson A. Baxter Trustee
Charles B. Curtis Trustee
Myra R. Drucker Trustee
Charles E. Haldeman, Jr. Trustee
Ronald J. Jackson Trustee
Paul L. Joskow Trustee
Elizabeth T. Kennan Trustee
John H. Mullin, III Trustee
Robert E. Patterson Trustee
W. Thomas Stephens Trustee
Richard B. Worley Trustee
By: /s/ Charles E. Porter,
February 25, 2005
EXHIBIT INDEX
Item 23 Exhibit
(f) Trustee Retirement Plan dated October 4, 1996, as amended July 21,
2000.
(h)(2) Letter of Indemnity dated December 18, 2003 with Putnam Investment
Management.
(h)(3) Liability Insurance Allocation Agreement.
(j) Consent of Independent Registered Public Accounting Firm.
(p)(1) Putnam Funds Code of Ethics.
(p)(2) Putnam Investments Code of Ethics.
(p)(3) Amendment to Putnam Investments Code of Ethics, dated December 15,
2004.
Dates Referenced Herein and Documents Incorporated by Reference
5 Subsequent Filings that Reference this Filing
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