Putnam Investments

Q1 | 2008 Investing Fact Book A guide to investing for your financial goals Founded in 1937, Putnam Investments began with a simple concept: A balance between risk and reward is the mark of a well-rounded financial program. What makes Putnam different? A time-honored tradition in money management. In 1830, at a time when sea captains away on long voyages often entrusted their money to others, Massachusetts Supreme Judicial Court Justice Samuel Putnam sought to guide the practices of professional money managers. His Prudent Man Rule established a legal foundation for responsible money management. In 1937, his great-great-grandson founded Putnam Investments with a Justice Samuel Putnam’s Prudent Man Rule All that can be required of a trustee to invest is that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how men of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested. single fund and a belief in the values set down by the judge’s rule. GEORGE PUTNAM, FOUNDER PUTNAM INVESTMENTS A prudent approach to investing. Although there is no guarantee we will achieve our objectives, every Putnam fund seeks consistent, dependable, superior performance over time. Consistent means beating the average performance of similar funds year after year. Dependable means always outperforming at least one quarter of similar funds, even over short time periods. Superior means delivering performance over longer time periods that is above the performance of at least two thirds of similar funds. As determined by Lipper, which rates funds based on total return relative to other funds with similar investment styles or objectives. Funds for every investment goal. Putnam offers over 80 mutual funds, many with a long history of performance. These flagship funds are the oldest in their categories. Putnam Investors Fund F O U N D E D A commitment to doing what’s right for investors. With a focus on investment performance, below-average expenses, and in-depth information about our funds, we put the interests of investors first and seek to set the standard for integrity and service. 1925 F O U N D E D One of America’s first mutual funds, this blend fund seeks long-term growth of capital and any resulting income by investing in a broad range of largecompany stocks. The George Putnam Fund of Boston 1937 F O U N D E D One of the first funds to offer a balance of stocks and bonds in a single diversified portfolio, the fund seeks capital growth and current income by investing in value stocks and high-quality bonds. Industry-leading service. Putnam is a nine-time winner of the DALBAR triple crown award for service excellence, and we are committed to providing industryleading service to our nearly 9 million shareholders. D ALBAR Putnam Income Fund 1954 F O U N D E D Offering investors a mix of different types of mostly high-quality bonds, the fund seeks high current income consistent with a prudent level of risk. Putnam Vista Fund 1968 F O U N D E D For nearly 40 years, the fund has sought capital appreciation for investors, targeting leading midsize companies to find attractive growth stocks. Putnam Asset Allocation Funds 1994 For investors who want to diversify with a single fund, Putnam Asset Allocation Funds combine several asset classes in one portfolio. 1 Investing for the long term can help turn the money you have into the money you’ll need. Many of the milestones we hope to achieve in life are paired with a major financial expense, whether it’s buying a home, sending the kids to college, or paying for retirement. This example shows what happened when two investors chose different ways to invest in The George Putnam Fund of Boston. The Planner Invests $300 each month for 30 years. The Procrastinator Waits 10 years and then must invest $450 a month for 20 years to try to catch up. Total contribution: $108,000 Ending value: $240,907 Total contribution: $108,000 Ending value: $586,651 ANNUALIZED TOTAL RETURN PERFORMANCE as of 3/31/08 Class A shares inception 11/5/37 Before sales charge After sales charge 1 year 3 years 5 years 10 years Life of fund EXPENSE RATIOS -7.34% 3.36 7.55 3.70 9.15 -12.66% 1.34 6.29 3.08 9.06 This hypothetical example of The George Putnam Fund of Boston is based on purchases of class A shares at net asset value made between 3/31/78 and 3/31/08. Had sales charges been reflected, returns would be lower. Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary, and you may have a gain or a loss when you sell your shares. Performance of class A shares before sales charge assumes reinvestment of distributions and does not account for taxes. After sales charge returns reflect a maximum 5.75% load. For a portion of the periods, this fund may have limited expenses, without which returns would have been lower. A 1% short-term trading fee may apply. To obtain the most recent month-end performance, visit www.putnam.com. Fund’s total expense ratio Lipper peer group average expense ratio 2 0.98% 1.23% How much will you need? Home The Planner Median single-family home sale prices $586,651 as of 3/31/08 Northeast By starting early and investing regularly, you put time on your side and make the most of the market’s ups and downs. $280,300 Midwest $164,800 South $183,700 West $350,500 Source: National Association of Realtors, 2007. College Cost of sending two children to 4-year public universities Today $108,712 $261,628 18 years from now Source: The College Board, Trends in College Pricing, 2007. College costs inflated at 5% annually. The Procrastinator $240,907 as of 3/31/08 Retirement Average household income before retirement Investing more money or earning a higher rate of return won’t necessarily make up for the benefits of a longer time horizon. $64,425 Average Social Security income in retirement $20,804 Average amount needed from savings to make up the difference for 20 years in retirement $886,820 Source: U.S. Department of Labor, 2007 Consumer Expenditure Survey Report (based on 2006 data). Average income data for households age 55–64. Average Social Security income for households age 65 and older. Putnam is committed to keeping fund expenses below the Lipper peer group average expense ratio and will limit our fund expenses if they exceed the Lipper average. The Lipper average is a simple average of front-end load funds in the peer group that excludes 12b-1 fees as well as any expense offset and brokerage service arrangements that may reduce fund expenses. To facilitate the comparison in this presentation, Putnam has adjusted the Lipper average to reflect 12b-1 fees. Investors should note that the other funds in the peer group may be significantly smaller or larger than the fund, and that an asset-weighted average would likely be lower than the simple average. Also, the fund and Lipper report expense data at different times; the fund’s expense ratio is taken from its most recent prospectus, usually updated only annually, while Lipper reports expense averages quarterly based on the most recent information available. What you should consider before investing: Value investing seeks underpriced stocks, but there is no guarantee that a stock’s price will rise. Mutual funds that invest in bonds are subject to certain risks, including interestrate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses. These risks apply to any fund with a significant portion of its assets in bonds. The fund may invest a portion of its assets in small and/or midsize companies. Such investments increase the risk of greater price fluctuations. The use of derivatives involves special risks and may result in losses. 3 Diversification may help your portfolio grow with less volatility. Markets are unpredictable Changing economic and market conditions affect different types of investments in ways that are impossible to predict, producing sharp changes in performance from year to year. These changes in performance, or volatility, reduce long-term results compared with a more consistent performer, even if the average of their returns is the same over time. A more consistent investment outperforms a more volatile investment. 8% every year compared with an average of 8% over 10 years $100,000 initial investment +18% +38% +8% -20% 0% -2% -8% +28% +23% Consistent performance $215,892 average of yearly returns 8.0% -5% Volatile performance $189,726 average of yearly returns Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 8.0% Source: Putnam Research. In this hypothetical example, each investment starts with $100,000. The consistent performer grows 8% every year. The volatile performer achieves random results each year, the average of which is 8%. Due to losses, any gains in the volatile performer start from a reduced base, preventing the volatile performer from keeping pace. The example is for illustrative purposes only and does not reflect average annualized returns or the performance of any Putnam fund, which will fluctuate. Mutual funds are managed according to different investment styles. Growth funds give investors the opportunity to build wealth over time by investing in companies with above-average earnings and growth rates but may be subject to price volatility if earnings expectations are not met. Value funds invest in stocks whose prices are low relative to the company’s earnings, dividends, and growth potential. Although value investing targets stocks believed to be priced too low, there is no guarantee they will appreciate. 4 Blend funds have the flexibility to invest in both growth stocks and value stocks, targeting companies believed to be worth more than their current stock prices indicate. Blend investing involves the risk that the stock prices of the companies in the 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. A diversified portfolio can reduce the ups and downs A diversified portfolio that includes exposure to many different types of investments can temper market extremes and still build wealth over time. While diversification can help protect returns from excessive volatility, it cannot ensure protection against market loss. The table shows yearly returns for each type of investment. The best-performing investment of each year is highlighted. Average return 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Growth stocks 10.48% 12.00% 34.68 -1.31 41.66 5.22 3.69 2.20 36.57 21.88 28.74 35.02 33.83 -22.42 -19.63 -28.03 30.97 6.93 5.17 9.46 11.40 Value stocks 12.79% 23.63% 24.22 -8.85 25.41 14.90 18.65 -1.95 37.03 21.59 34.83 13.50 6.65 8.04 -4.33 -15.18 31.14 16.94 6.85 22.34 -1.01 Blend stocks 11.88% 17.83% 29.31 -5.11 33.68 9.59 10.88 0.19 36.80 21.82 31.78 24.14 20.90 -7.46 -11.46 -21.54 31.06 11.95 6.12 15.72 5.14 International stocks 7.45% 28.27% 10.54 -23.45 12.13 -12.17 32.56 7.78 11.21 6.05 1.78 20.00 26.96 -14.17 -21.44 -15.94 38.59 20.25 13.54 26.34 11.17 Bonds 7.56% 7.89% 14.53 8.96 16.00 7.40 9.75 -2.92 18.47 3.63 9.65 8.69 -0.82 11.63 8.44 10.25 4.10 4.34 2.43 4.33 6.97 Diversified portfolio 10.46% 17.92% 22.66 -5.95 25.78 4.99 15.11 1.06 28.02 14.99 21.36 20.27 17.50 -4.88 -9.68 -14.09 27.17 12.08 6.82 15.64 6.73 This diversified portfolio comprises equal parts of the categories to the left. Data is historical. Past performance is not a guarantee of future results. The chart above shows performance of the Russell 3000 Growth Index, the Russell 3000 Value Index, the Russell 3000 Index, the Morgan Stanley Capital International (MSCI) EAFE Index, and the Lehman Aggregate Bond Index. The diversified portfolio includes 20% weightings in each index. These are unmanaged indexes that assume reinvestment of distributions and do not have sales charges. You cannot invest directly in an index. Fund holdings and performance will differ. International funds invest in some of the biggest and most successful companies in the world and may perform well when U.S. companies do not. However, international investing involves certain risks such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. Income funds invest in interest-paying bonds and other debt instruments and, to a limited extent, dividend-paying stocks. Tax-free income funds invest in municipal bonds. Income funds are designed for investors who are seeking a regular stream of income. Mutual funds that invest in bonds are subject to certain risks including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Longterm bonds have more exposure to interest-rate risk than short-term bonds. Lower-rated bonds may offer higher yields in return for more risk. Unlike bonds, bond funds have ongoing fees and expenses. 5 Staying invested helps you make the most of the market’s long-term potential. There have always been reasons not to invest. Over the past several decades, the financial markets have faced one hurdle after another, from the Great Depression in the 1930s to world wars and runaway inflation. But if you had invested $10,000 in The George Putnam Fund of Boston when it began in 1937, your investment would have doubled 8 times and would be worth nearly $5 million today. This chart, showing 70 years of performance, illustrates how a $10,000 investment in class A shares of The George Putnam Fund of Boston would have grown. $10,000 1937-1938 Final downturn of Great Depression 1941 1941 U.S. enters WWII U.S. enters WWII 1947 1947 Cold War begins Cold War begins 1950 1950 Korean War begins Korean War begins 1955 1955 Soviet Union tests Soviet Union tests hydrogen bomb hydrogen bomb 1959 1959 Fidel Castro seizes Fidel Castro seizes power in Cuba power in Cuba ’37 $9,966 $9,917 $48 — ’38 10,932 10,658 201 9.70% ’39 10,899 10,280 331 -0.31% ’40 10,096 9,135 383 -7.37% ’41 9,617 8,289 427 -4.74% ’42 10,495 8,653 354 9.13% ’43 12,810 10,189 362 22.06% ’44 15,271 11,719 399 19.21% ’45 18,290 13,658 351 19.77% ’46 17,836 12,891 431 -2.48% ’47 17,691 12,258 521 -0.81% ’48 17,999 11,941 535 1.74% ’49 20,985 13,279 583 16.59% ’50 24,938 15,045 672 18.84% ’51 27,973 16,201 642 12.17% ’52 31,018 17,272 660 10.88% ’53 31,302 16,725 678 0.92% ’54 43,567 22,470 696 39.19% ’55 50,370 25,177 763 15.61% ’56 53,034 25,636 853 5.29% ’57 49,416 23,047 889 -6.82% ’58 66,390 29,932 892 34.35% ’59 74,322 32,546 922 11.95% ’60 81,060 34,457 979 9.07% TOTAL VALUE OF INVESTMENT WITH CAPITAL GAINS AND DIVIDENDS REINVESTED TOTAL VALUE OF INVESTMENT WITH CAPITAL GAINS REINVESTED AND DIVIDENDS TAKEN IN CASH ANNUAL DIVIDENDS TAKEN IN CASH ANNUAL TOTAL RETURN As of 3/31/08. Data is historical. The fund’s inception date was 11/5/37. Past performance is not a guarantee of future results. More recent returns may be more or less than those shown. Performance does not reflect a 5.75% sales charge; had it, returns would have been lower. Investment return and principal value will fluctuate, and shares when redeemed may be worth more or less than their original cost. For the most recent month-end performance, visit www.putnam.com. 6 The market doesn’t have to go up for you to make money. December 31, 1965 $100,000 invested in The George Putnam Fund of Boston Dow Jones Industrial Average is 969.26 At times, the stock market stagnates. In fact, from 1966 to 1982, the Dow Jones Industrial Average started at about 1000 and never rose much above that. But during that 16-year period, an investment in The George Putnam Fund of Boston more than tripled, earning an average annual return of 7.92%. How does the fund make money in a flat market? Many of the stocks in the portfolio have the potential to pay dividends, which, combined with the income from the fund’s bond holdings, can reward shareholders even when stock prices are not changing. Company General Electric Bank of America AT&T JPMorgan Chase Citigroup Hewlett-Packard Wachovia Morgan Stanley Boeing Paying dividends since 1899 1903 1893 1827 1986 1965 1914 1924 1937 1961 1961 Berlin Wall Berlin Wall is built is built 1963 1963 President Kennedy President Kennedy is assassinated is assassinated 1968 1968 Tet Offensive escalates Tet Offensive escalates Vietnam War Vietnam War 1974 1974 President Nixon resigns; steepest President Nixon resigns; steepest market decline in 40 years market decline in 40 years 1980 1980 Iranian Revolution; Iranian Revolution; oil prices skyrocket oil prices skyrocket 1984 1984 First Savings & Loan First Savings & Loan bank collapses bank collapses ’61 100,779 41,769 1,017 ’62 88,809 35,745 1,062 ’63 100,116 39,157 1,104 12.73% ’64 111,636 42,447 1,183 11.51% ’65 126,303 46,687 1,278 13.14% ’66 121,567 43,568 1,364 -3.75% ’67 144,408 50,250 1,423 18.79% ’68 159,697 53,974 1,520 10.59% ’69 149,207 48,827 1,647 -6.57% ’70 153,391 48,328 1,710 2.80% ’71 181,438 55,270 1,775 18.28% ’72 217,835 64,434 1,804 20.06% ’73 193,936 55,460 1,969 ’74 148,175 40,463 2,096 ’75 186,860 48,758 2,135 26.11% ’76 232,112 58,112 2,318 24.22% ’77 223,721 53,366 2,628 -3.61% ’78 237,185 53,792 2,794 6.02% ’79 272,491 58,396 3,263 14.89% ’80 319,315 63,757 4,312 17.18% ’81 339,645 62,831 4,859 6.37% ’82 461,221 78,028 6,030 35.80% ’83 530,211 83,814 5,729 14.96% ’84 ’85 518,431 673,111 75,267 6,324 -2.22% 90,251 6,599 24.33% -11.88% -10.97% -23.60% 29.84% Except where noted, performance assumes reinvestment of distributions and does not account for taxes. Returns for other classes of shares may vary. A 1% short-term trading fee may apply. The period illustrated is longer than the investment time horizon of many investors. 7 December 31, 1982 Value of investment in The George Putnam Fund of Boston $365,174 7.92% average annual return 4.60% average annual yield Dow Jones Industrial Average is 1046.54 $4,749,657 with capital gains and dividends reinvested The fund has rewarded investors despite 12 economic downturns since 1937. 9.15% annualized return $267,859 with only capital gains reinvested $231,735 dividends taken in cash 2003 2003 U.S. invades U.S. invades Iraq Iraq 1987 1987 Stock market Stock market crashes crashes 1991 1991 Persian Gulf War Persian Gulf War 1995 1995 Congress shuts down Congress shuts down federal government federal government 1999 1999 Y2K computer Y2K computer glitch feared glitch feared 2001 2001 Terrorists attack New York Terrorists attack New York and Washington, DC and Washington, DC ’86 799,938 101,571 5,532 18.84% ’87 829,690 99,653 6,055 3.72% ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 3/31/08 930,072 1,149,606 1,139,056 1,398,715 1,510,024 1,674,548 1,668,243 2,170,693 2,523,553 3,054,045 3,377,734 3,381,759 3,695,702 3,714,721 3,401,952 3,993,733 4,325,816 4,500,568 5,052,006 5,098,439 4,749,657 105,460 6,024 12.10% 122,905 6,934 23.60% 115,427 6,209 -0.92% 134,717 6,487 22.80% 138,484 6,662 7.96% 146,879 6,396 10.90% 140,254 6,040 -0.38% 175,418 6,269 30.12% 195,979 7,435 16.26% 229,556 7,051 21.02% 245,906 7,660 10.60% 238,285 8,179 0.12% 251,312 8,343 9.28% 248,267 4,345 0.51% 219,496 8,216 -8.42% 251,827 5,220 17.40% 267,844 4,627 8.32% 271,434 7,104 4.04% 296,772 7,452 12.25% 289,880 9,706 267,859 2,274 % 0.92% -6.84% YTD Putnam’s equity funds have different strategies, risks, and expenses. The information for The George Putnam Fund of Boston does not indicate the performance of any other Putnam equity fund, which will differ. 8 A T I M E -T E S T E D A P P ROAC H TOP 50 EQUITY HOLDINGS as of 3/31/08 General Electric Bank of America AT&T JPMorgan Chase Citigroup Pfizer Verizon Communications Hewlett-Packard Wells Fargo Wachovia Procter & Gamble Chevron IBM Intel Morgan Stanley Caterpillar Accenture Valero Energy Philip Morris International Merck Northrop Grumman Honeywell International ConocoPhillips McKesson Boeing Freddie Mac Freeport-McMoRan Copper & Gold General Mills Edison International Applied Materials Thermo Fisher Scientific Pepsi Bottling Regal Entertainment Group Merrill Lynch PPG Industries Nucor Goldman Sachs PG&E WellPoint Covidien Raytheon RenaissanceRe Holdings AmerisourceBergen Terra Industries AXIS Capital Holdings Whirlpool CenturyTel KeyCorp L-3 Communications Holdings Hess Holdings represent 31.42% of the portfolio and will vary over time. This is not an offer to sell or a recommendation to buy any individual security. The George Putnam Fund of Boston The George Putnam Fund of Boston was introduced in 1937 when George Putnam, a Boston mutual fund manager, decided to start a fund with an innovative approach — a balance of holdings in value stocks, to seek capital appreciation, and in bonds, to provide current income. Through it all, the fund has maintained its commitment to a prudent, balanced approach in an effort to provide income and build wealth for its shareholders. 15.48% Despite wars, recessions, and periods of inflation, investors who held fund shares for at least 10 years have always received a positive return. 10.00% 2.87% AVERAGE ANNUALIZED 10-YEAR RETURN HIGHEST ANNUALIZED 10-YEAR RETURN LOWEST ANNUALIZED 10-YEAR RETURN (12/31/37–12/31/07) (12/31/79–12/31/89) (12/31/64–12/31/74) ANNUALIZED TOTAL RETURN PERFORMANCE as of 3/31/08 Class A shares inception 11/5/37 Before sales charge After sales charge 1 year 3 years 5 years 10 years Life of fund -7.34% 3.36 7.55 3.70 9.15 -12.66% 1.34 6.29 3.08 9.06 Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary, and you may have a gain or a loss when you sell your shares. Performance of class A shares before sales charge assumes reinvestment of distributions and does not account for taxes. After sales charge returns reflect a maximum 5.75% load. For a portion of the periods, this fund may have limited expenses, without which returns would have been lower. A 1% short-term trading fee may apply. To obtain the most recent month-end performance, visit www.putnam.com. 9 Investors can pursue three goals with one portfolio. Goal 1: Income The Saver gets unpredictable income from CDs. The Investor gets steady and rising income each year from the portfolio. Even during the 2000–2003 bear market, income from the Putnam All-Weather Portfolio continued to rise, while income from CDs fell dramatically. $10,000 Putnam All-Weather Portfolio total withdrawals $92,995 $5,000 CDs total withdrawals $65,410 $0 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 SYSTEMATIC ANNUAL WITHDRAWALS OF $5,000 FROM THE PUTNAM ALL-WEATHER PORTFOLIO, + 3% OF THE PREVIOUS YEAR’S TOTAL WITHDRAWAL $5,000 $5,150 $5,305 $5,464 $5,628 $5,796 $5,970 $6,149 $6,334 $6,524 $6,720 $6,921 $7,129 $7,343 $7,563 ANNUAL WITHDRAWALS OF ALL EARNINGS FROM A CD $3,820 $3,340 $5,050 $6,160 $5,610 $5,870 $5,580 $5,590 $6,790 $3,690 $1,810 $1,230 $1,750 $3,790 $5,330 The above illustrations are based on an initial investment of $100,000 with no further investments in a Putnam All-Weather Portfolio from 12/31/92 to 3/31/08. The Putnam portfolio includes 35% in Putnam Equity Income Fund, 25% in Putnam International Equity Fund, 20% in Putnam Diversified Income Trust, and 20% in Putnam Income Fund. This illustration is based upon a maximum sales charge of 5.75% for equity funds and 4.00% for income funds. Returns for other classes of shares will vary. This purchase would qualify for a breakpoint sales charge and actual returns would have been higher. Please see a prospectus for details. Withdrawals represent the return of a portion of the principal value of the portfolio, and returns are shown after sales charge 10 The story of the Saver and the Investor A saver and an investor each accumulated a nest egg of $100,000. The Saver puts the money in a CD, which has no sales charge and offers a fixed rate of return, insured by the FDIC up to $100,000. The Investor makes an investment in the Putnam All-Weather Portfolio. Here are the results. Goal 2: Growth The Saver gets guaranteed results but no growth after taking the annual income from CDs. The Investor gets three times the growth of CDs, even after taking annual withdrawals. Putnam All-Weather Portfolio account value after withdrawals $209,675 cash withdrawn $92,995 annualized return including withdrawals 7.53% CDs account value after withdrawals $100,000 $100,000 cash withdrawn $65,410 2000–2003 bear market annualized return including withdrawals 3.36% 12/31/92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 3/31/08 and assume reinvestment of distributions at NAV. For a portion of the period, Putnam Income Fund limited expenses, without which returns would have been lower. Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary, and you may have a gain or a loss when you sell your shares. For a portion of the periods, this portfolio may have limited expenses, without which returns would have been lower. A 1% short-term trading fee may apply. To obtain the most recent month-end performance, visit www.putnam.com. CDs are insured and offer a fixed rate of return whereas the principal and yield of investment securities will fluctuate with changes in market conditions. 11 Goal 3: Protection in down markets The Saver experienced no losses during the down market, but also no growth. $180,000 The Investor rode out the down market, beating major stock market indexes and ending with a positive return. Putnam All-Weather Portfolio $160,000 $146,173 annualized return 4.71% $140,000 $120,000 Dow Jones $126,373 annualized return $100,000 2.88% S&P 500 $80,000 $103,315 annualized return 0.40% $60,000 NASDAQ $56,007 $40,000 annualized return -6.79% $20,000 2000–2003 bear market 12/31/99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 3/31/08 Past performance is not a guarantee of future results. Indexes are used as broad measures of market performance. All indexes are unmanaged. You cannot invest directly in an index. Indexes are shown against a Putnam All-Weather Portfolio. Securities in a fund and an index will differ. Individual indexes are more volatile than the portfolio. The S&P 500 Index is an unmanaged index of common stock performance. The Dow Jones Industrial Average is an unmanaged price-weighted index of 30 blue-chip stocks used as a general measure of U.S. stock market performance. The NASDAQ Composite Index is an unmanaged capitalization-weighted index of all common stock listed on the NASDAQ electronic stock market. Since this index includes many companies in the technology sector, where market trends change quickly, this index can be volatile. Due to market conditions during this period, a portfolio consisting solely of fixed-income investments may have outperformed the Putnam portfolio. For a portion of the period, Putnam Income Fund limited expenses, without which returns would have been lower. 12 W E AT H E R A N Y M A R K E T Putnam All-Weather Portfolio As an investor, you may be looking to meet many different goals. You may want to generate a stream of income, taking regular withdrawals from your investment. But you may also want the value of your original investment to grow over time. This portfolio may be appropriate for investors who want a mix of stocks and bonds in order to pursue income and growth. Check with your financial representative to determine if this portfolio may be suitable for you. Putnam All-Weather Portfolio Annualized total return performance as of 3/31/08 Class A shares Before sales charge After sales charge* 1 year 3 years 5 years 10 years -3.69% 6.65 10.88 6.01 -8.55% 4.82 9.74 5.46 * Assumes a blended sales charge of 5.05% (60% at 5.75% and 40% at 4.00%). See funds’ standardized performance and disclosure below. 35% Putnam Equity Income Fund inception (6/15/77) 25% Putnam International Equity Fund inception (2/28/91) 20% Putnam Diversified Income Trust inception (10/3/88) 20% Putnam Income Fund inception (11/1/54) ANNUALIZED TOTAL RETURN PERFORMANCE as of 3/31/08 Class A shares Before sales charge After sales charge Before sales charge After sales charge Before sales charge After sales charge Before sales charge After sales charge 1 year 3 years 5 years 10 years Life of fund -6.78% 5.93 12.36 5.36 10.50 -12.14% 3.86 11.04 4.74 10.28 -5.50% 12.52 18.22 7.63 10.42 -10.93% 10.32 16.83 6.99 10.03 -2.68% 3.03 6.29 4.33 7.02 -6.59% 1.65 5.43 3.91 6.79 2.94% 3.67 3.65 4.33 7.84 -1.16% 2.28 2.80 3.90 7.76 EXPENSE RATIOS Fund’s total expense ratio What you pay Lipper peer group average 1.11% 1.11% 1.23% 1.25% 1.25% 1.49% 0.98% 0.98% 1.07% 1.07% 1.00%* 0.99% Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary, and you may have a gain or a loss when you sell your shares. Performance of class A shares before sales charge assumes reinvestment of distributions and does not account for taxes. After sales charge returns reflect a maximum 5.75% load for equity funds and 4.00% for income funds. For a portion of the periods, this fund may have limited expenses, without which returns would have been lower. A 1% short-term trading fee may apply. To obtain the most recent month-end performance, visit www.putnam.com. * For Putnam Income Fund, “What you pay” reflects Putnam Management’s decision to contractually limit expenses through the fund’s fiscal year-end 10/31/08. Putnam is committed to keeping fund expenses below the Lipper peer group average expense ratio and will limit our fund expenses if they exceed the Lipper average. The Lipper average is a simple average of front-end load funds in the peer group that excludes 12b-1 fees as well as any expense offset and brokerage service arrangements that may reduce fund expenses. To facilitate the comparison in this presentation, Putnam has adjusted the Lipper average to reflect 12b-1 fees. Investors should note that the other funds in the peer group may be significantly smaller or larger than the portfolio’s funds, and that an asset-weighted average would likely be lower than the simple average. Also, the funds and Lipper report expense data at different times; the funds’ expense ratios are taken from their most recent prospectuses, usually updated only annually, while Lipper reports expense averages quarterly based on the most recent information available. See the prospectus for expense information for other share classes. International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. Lower-rated bonds may offer higher yields in return for more risk. Funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. The use of derivatives involves special risks and may result in losses. Funds that invest in bonds are subject to certain risks including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses. Putnam Equity Income Fund and Putnam International Equity Fund may invest a portion of their assets in small and/or midsize companies. Such investments increase the risk of greater price fluctuations. Value investing seeks underpriced stocks, but there is no guarantee that a stock’s price will rise. 13 Build a portfolio of Putnam funds. Work with your financial representative to determine which funds are right for you. Tax-free income funds PUTNAM INCOME STYLE BOX HIGH SHORT MED SHORT LOW SHORT HIGH INT MED INT LOW INT HIGH LONG MED LONG LOW LONG LONG QUALITY LOW MED AZ Tax Exempt Income PA Tax Exempt Income OH Tax Exempt Income HIGH CA Tax Exempt Income Tax-Free High Yield HIGHER RISK / HIGHER POTENTIAL REWARD INT SHORT DURATION Tax Exempt Money Market MN Tax Exempt Income NJ Tax Exempt Income NY Tax Exempt Income MA Tax Exempt Income Tax Exempt Income LOWER RISK / LOWER POTENTIAL REWARD AMT-Free Insured Municipal MI Tax Exempt Income Global Income High Yield Advantage HIGHER RISK / HIGHER POTENTIAL REWARD Taxable income funds Income ▲ Money Market ▲ American Government Income ▲ U.S. Government Income Diversified Income ▲ High Yield ▲ Floating Rate Income * LOWER RISK / LOWER POTENTIAL REWARD Funds other than money market funds are ranked according to Morningstar Risk as of March 31, 2008. The rankings on these ribbons are not shown to scale, are only relative to the listed funds, and should not be compared to the rankings of other investments. Morningstar Risk is an assessment of volatility in a fund’s returns; if other risk factors were considered, rankings on the ribbons would vary. Tax-free funds are ranked first by the average credit ratings of the portfolio and then by the Morningstar risk rating. ▲ Subaccounts managed in a style similar to these funds are also available for investment in variable annuity and variable life products. Subaccounts may not be available in all states. Subaccount names may be different from mutual fund names. There are substantial differences between variable annuities and mutual funds, such as insurance-related fees, charges, and tax considerations. * Putnam Floating Rate Income Fund is not a money market fund and does not seek to maintain a stable net asset value. Although floating rate instruments may reduce risk related to changes in interest rates, they do not eliminate it. In addition, the fund is Money market funds are not insured or guaranteed by the Federal Deposit Insurance subject to other significant risks associated with below-investment-grade securities, Corporation (FDIC) or any other governmental agency. Although the fund seeks to such as the risk of default in payment on the instruments. Accordingly, the share preserve the value of your investment at $1.00 per share, it is possible to lose money by price of Putnam Floating Rate Income Fund will fluctuate with market conditions. investing in this fund. 14 Value funds PUTNAM EQUITY STYLE BOX LARGE LARGE VALUE MID VALUE SMALL VALUE VALUE LARGE BLEND MID BLEND SMALL BLEND BLEND LARGE GROWTH MID GROWTH SMALL GROWTH GROWTH Mid Cap Value ▲ New Value ▲ Small Cap Value ▲ COMPANY SIZE SMALL MID HIGHER RISK / HIGHER POTENTIAL REWARD INVESTMENT STYLE Equity Income ▲ The George Putnam Fund of Boston ▲ The Putnam Fund for Growth and Income ▲ Convertible Income-Growth International Growth and Income ▲ Classic Equity LOWER RISK / LOWER POTENTIAL REWARD Blend funds PUTNAM EQUITY STYLE BOX LARGE LARGE VALUE MID VALUE SMALL VALUE VALUE LARGE BLEND MID BLEND SMALL BLEND BLEND LARGE GROWTH MID GROWTH SMALL GROWTH GROWTH Capital Opportunities ▲ International Equity ▲ Capital Appreciation ▲ Tax Smart Equity® Global Natural Resources HIGHER RISK / HIGHER POTENTIAL REWARD COMPANY SIZE SMALL MID International Capital Opportunities Global Equity ▲ INVESTMENT STYLE Research ▲ Europe Equity LOWER RISK / LOWER POTENTIAL REWARD Investors ▲ Utilities Growth and Income ▲ Also available: Putnam Asset Allocation: Conservative, Balanced, and Growth Portfolios; Putnam Income Strategies Fund Growth funds PUTNAM EQUITY STYLE BOX LARGE VALUE MID VALUE SMALL VALUE VALUE LARGE BLEND MID BLEND SMALL BLEND BLEND LARGE GROWTH MID GROWTH SMALL GROWTH GROWTH LARGE Vista ▲ Small Cap Growth HIGHER RISK / HIGHER POTENTIAL REWARD COMPANY SIZE SMALL MID Discovery Growth ▲ OTC & Emerging Growth ▲ International New Opportunities ▲ Voyager ▲ INVESTMENT STYLE Health Sciences ▲ New Opportunities ▲ Growth Opportunities ▲ LOWER RISK / LOWER POTENTIAL REWARD 15 Putnam has your financial goals in mind. We have funds for every investment goal We offer a wide selection of funds managed in a range of asset classes and investment styles so you and your financial representative can build a diversified portfolio that is right for you. We also offer asset allocation funds that provide complete diversification in a single step. Quarterly Performance Summary as of March 31, 2008 Class A share open-end mutual fund total returns are shown after sales charge, in percent, with all distributions reinvested. As part of Putnam’s commitment to investors, every Putnam mutual fund has ongoing expenses that are below the average of its Lipper peer group. Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. After sales charge returns reflect a maximum 5.75% load for equity funds and 4.00% for income funds. The maximum sales charge for class A shares of Putnam Floating Rate Income Fund is 3.25%. Putnam money market funds have no initial sales charge. For a portion of the periods, funds may have limited expenses, without which returns would have been lower. A 1% short-term trading fee may apply. Please see a prospectus for details. To obtain the most recent month-end performance, visit www.putnam.com. Putnam Asset Allocation: Growth Portfolio, Balanced Portfolio, and Conservative Portfolio are series of Putnam Asset Allocation Funds, a registered investment company. * Money market yields more closely reflect current performance than total return. Money market funds are not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other governmental agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in this fund. We focus on consistent results Our 70 years of investment experience have taught us that the best way to pursue superior investment results over the long term is by focusing on consistent results year after year. While there is no guarantee that a fund will meet its objectives, our goal is to deliver consistent, dependable, and superior investment results over time. We have below-average expenses Every Putnam mutual fund has ongoing expenses that are below the average of its peer group, as measured by fund researcher Lipper. Lower expenses mean more of your money goes to work for you. “ At Putnam, we want you to achieve your financial goals. That’s why our prudent approach to investing begins with a profound sense of responsibility for the money entrusted to us. † The 7-day yield of Putnam Tax Exempt Money Market Fund without subsidy was 1.65%; its 7-day yield with subsidy was 1.81%. ‡ The 7-day yield of Putnam Money Market Fund was 2.78%. § For a portion of these periods, the fund was offered on a limited basis and had limited assets. ** The class A shares’ inception date is 9/20/93. The performance of the fund’s class A shares for the period prior to 9/20/93 is based upon the performance of the fund’s class B shares, adjusted for the applicable sales charge or contingent deferred sales charge. 1 “What you pay” reflects Putnam Management’s decision to contractually limit expenses through the fund’s fiscal year end: (a) 2/28/09; (b) 4/30/08; (c) 5/31/08; (d) 6/30/08; (e) 7/31/08; (f) 8/31/08; (g) 9/30/08; (h) 10/31/08; (i) 11/30/08; (j) 12/31/08. ED HALDEMAN ” PRESIDENT AND CHIEF EXECUTIVE OFFICER 16 ANNUALIZED TOTAL RETURN PERFORMANCE as of 3/31/08 Quotron symbol 3 years annualized 5 years annualized 10 years annualized Life of fund annualized EXPENSE RATIO Fund’s total expense ratio Start date 1 year What you pay Tax-free Income AMT-Free Insured Municipal Fund ** Tax Exempt Income Fund Tax-Free High Yield Fund ** AZ Tax Exempt Income Fund CA Tax Exempt Income Fund MA Tax Exempt Income Fund MI Tax Exempt Income Fund MN Tax Exempt Income Fund NJ Tax Exempt Income Fund NY Tax Exempt Income Fund OH Tax Exempt Income Fund PA Tax Exempt Income Fund Tax Exempt Money Market Fund *† Taxable Income American Government Income Fund Diversified Income Trust Floating Rate Income Fund § Global Income Trust High Yield Advantage Fund High Yield Trust Income Fund U.S.Government Income Trust Money Market Fund *‡ Value Classic Equity Fund Convertible Income-Growth Trust Equity Income Fund The Putnam Fund for Growth and Income The George Putnam Fund of Boston International Growth and Income Fund § Mid Cap Value Fund New Value Fund Small Cap Value Fund Blend Capital Appreciation Fund Capital Opportunities Fund Europe Equity Fund Global Equity Trust Global Natural Resources Fund International Capital Opportunities Fund § International Equity Fund Investors Fund Research Fund § Tax Smart Equity® § Utilities Growth and Income Fund Growth Discovery Growth Fund Growth Opportunities Fund § Health Sciences Trust International New Opportunities Fund New Opportunities Fund OTC & Emerging Growth Fund Small Cap Growth Fund § Vista Fund Voyager Fund Asset Allocation Asset Allocation: Growth Portfolio Asset Allocation: Balanced Portfolio Asset Allocation: Conservative Portfolio Income Strategies Fund § RetirementReady® Funds PPNAX PTAEX PTHAX PTAZX PCTEX PXMAX PXMIX PXMNX PTNJX PTEIX PXOHX PTEPX PTXXX PAGVX PDINX PFLRX PGGIX PHYIX PHIGX PINCX PGSIX PDDXX PXGIX PCONX PEYAX PGRWX PGEOX PNGAX PMVAX PANVX PSLAX PCAPX PCOAX PEUGX PEQUX EBERX PNVAX POVSX PINVX PNRAX PATSX PUGIX PVIIX POGAX PHSTX PINOX PNOPX POEGX PNSAX PVISX PVOYX PAEAX PABAX PACAX PISFX Pending 9/20/93 12/31/76 9/20/93 1/30/91 4/29/83 10/23/89 10/23/89 10/23/89 2/20/90 9/2/83 10/23/89 7/21/89 10/26/87 3/1/85 10/3/88 8/4/04 6/1/87 3/25/86 2/14/78 11/1/54 2/8/84 10/1/76 1/5/95 6/29/72 6/15/77 11/6/57 11/5/37 8/1/96 11/1/99 1/3/95 4/13/99 8/5/93 6/1/98 9/7/90 7/1/94 7/24/80 12/28/95 2/28/91 12/1/25 10/2/95 7/1/99 11/19/90 4/14/93 10/2/95 5/28/82 1/3/95 8/31/90 11/1/82 12/31/97 6/3/68 4/1/69 2/8/94 2/7/94 2/7/94 9/13/04 11/1/04 -2.58% -3.15 -6.91 -2.92 -4.65 -2.00 -1.92 -2.66 -2.36 -2.80 -2.33 -2.11 2.91 6.10% -6.59 -8.21 7.63 -6.85 -7.21 -1.16 3.62 4.68 -26.00% -8.68 -12.14 -22.77 -12.66 -11.92 -17.93 -25.18 -28.92 -23.02% -23.80 -11.99 -12.39 10.29 -10.21 -10.93 -22.91 -18.94 -5.70 -13.72% -11.60 -13.10 -9.48 -14.06 -13.99 -20.75 -17.61 -12.69 -12.43% -11.54 -7.65 -6.90 1.69% 1.62 1.48 1.61 1.26 2.03 1.89 1.50 2.03 1.77 1.75 1.87 2.72 4.07% 1.65 0.70 3.76 4.40 3.42 2.28 3.66 4.31 -3.03% 4.66 3.86 -1.48 1.34 10.35 3.72 -2.21 -2.02 -1.11% 1.36 10.64 6.91 18.70 13.43 10.32 -1.30 -0.79 11.70 2.78% 1.70 1.50 11.62 2.29 4.34 -0.59 0.07 0.28 4.70% 2.70 1.93 2.90 2.32% 2.99 3.63 2.46 2.37 2.83 2.50 2.46 2.76 2.63 2.58 2.80 1.88 3.01% 5.43 — 6.16 8.41 7.67 2.80 3.14 2.95 5.52% 9.75 11.04 7.16 6.29 19.14 12.68 8.88 12.98 7.38% 11.42 18.21 13.57 25.55 24.73 16.83 7.28 6.41 17.03 8.88% 4.54 5.31 18.22 9.09 10.61 11.70 9.92 5.04 11.51% 7.82 5.26 — 3.79% 3.66 3.16 3.69 3.69 3.98 3.48 3.57 3.72 3.87 3.68 3.67 2.13 4.55% 3.91 — 5.13 3.11 3.05 3.90 4.65 3.53 -0.18% 3.90 4.74 1.37 3.08 6.27 — 4.11 — -0.48% — 4.59 5.24 11.98 11.86 6.99 -0.41 1.46 4.59 -0.32% -1.76 2.14 5.44 0.00 -4.70 9.81 1.28 0.09 4.00% 3.26 3.51 — 6.19% 6.87 6.16 5.18 6.69 5.92 5.29 5.14 5.47 7.00 5.34 5.61 2.90 6.47% 6.79 1.18 7.20 7.26 8.61 7.76 6.96 6.19 6.13% 10.30 10.28 11.46 9.06 9.13 10.31 8.99 10.25 8.07% 5.84 10.12 9.71 9.23 14.24 10.03 9.20 7.05 8.71 6.91% 4.42 11.85 8.17 11.98 9.85 11.92 9.05 10.63 7.73% 6.72 5.67 3.87 0.85% 0.79 0.82 0.96 0.76 0.85 0.94 0.97 0.89 0.80 0.90 0.91 0.74 1.13% 0.98 1.06 1.50 1.09 1.03 1.07 1.00 0.54 1.21% 1.04 1.11 0.92 0.98 1.35 1.23 1.14 1.39 1.34% 1.23 1.48 1.25 1.23 1.49 1.25 1.08 1.25 1.18 1.57% 1.53 1.17 1.66 1.17 1.48 1.68 1.11 1.14 1.16% 1.09 1.18 3.73 0.85% 0.79 0.82 0.81 1(c) 0.76 0.85 0.91 1(c) 0.89 1(c) 0.89 0.80 0.89 1(c) 0.91 0.59 1(g) 1.03% 1(g) 0.98 1.05 1(a) 1.17 1(h) 1.09 1.03 1.00 1(h) 0.99 1(g) 0.54 1.16% 1(i) 1.04 1.11 0.92 0.98 1.34 1(d) 1.23 1.14 1.39 1.34% 1.23 1.48 1.25 1.23 1.49 1.25 1.08 1.25 1.18 1.52% 1(j) 1.32 1(e) 1.17 1.55 1(g) 1.17 1.42 1(e) 1.55 1(d) 1.11 1.14 1.16% 1.09 1.18 0.79 1(a) Visit www.putnam.com for after-tax performance and expense ratio information. Visit www.putnam.com for performance and expense ratio information. Celebrating 70 years of helping investors While much has changed since George Putnam introduced his innovative balanced fund in 1937, our guiding principles have not. Putnam’s acquisition by Great-West Lifeco, a subsidiary of Power Financial Corporation, marks the start of a new chapter for Putnam and our clients. We look forward to continuing our 70-year tradition of prudently managing the money entrusted to us and to helping investors, along with their financial representatives, pursue life’s most important financial goals. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund before investing. For a prospectus containing this and other information for any Putnam fund or product, call your financial representative or call Putnam at 1-800-225-1581. Please read the prospectus carefully before investing. One Post Office Square Boston, Massachusetts 02109 1-800-225-1581 Putnam Retail Management www.putnam.com FB506 250675 4/08