As filed with the Securities and Exchange Commission on
December 1, 1995
Registration
No. 2-98790
One Post Office Square, Boston, Massachusetts 02109
(Address of principal executive offices)
- ---- effective date for a previously filed
post-effective
amendment.
--------------
JOHN R. VERANI, Vice President
PUTNAM TAX-FREE INCOME TRUST
One Post Office Square
Boston, Massachusetts 02109
(Name and address of agent for service)
---------------
Copy to:
JOHN W. GERSTMAYR, Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
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The Registrant has registered an indefinite number or amount of securities under the Securities Act of 1933 pursuant to Rule 24f-2. A Rule 24f-2 notice for the fiscal year ended July 31, 1995 was filed on September , 1995 .
PUTNAM TAX-FREE INCOME TRUST
CROSS REFERENCE SHEET
(as required by Rule 481(a))
Part A
N-1A Item No. Location
1. Cover Page....................... Cover page
2. Synopsis......................... Expenses summary
3. Condensed Financial Information.. Financial highlights;
How performance is shown
4. General Description of
Registrant....................... Objective; How the
fund pursues its
objective ;
Organization and history
5. Management of the Fund.......... Expenses summary; How
the fund is
managed; About Putnam
Investments, Inc.
5A. Management's Discussion of Fund
Performance...................... (Contained in the
annual
report of the
Registrant)
6. Capital Stock and Other
Securities....................... Cover page ;
Organization and
history; How the fund
makes distributions
to shareholders ;
tax information
7. Purchase of Securities Being
Offered.......................... How to buy shares;
Distribution
plans ; How to
sell shares; How to
exchange shares; How the
fund values its
shares
8. Redemption or Repurchase......... How to buy shares; How
to sell shares; How to
exchange shares;
Organization and history
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9. Pending Legal Proceedings........ Not applicable
Part B
N-1A Item No. Location
10. Cover Page....................... Cover page
11. Table of Contents................ Cover page
12. General Information and History. Organization and history
(Part A)
13. Investment Objectives and
Policies......................... How the fund pursues
its objective is
pursued (Part A);
Investment
restrictions;
Miscellaneous
investment
practices
14. Management of the Registrant..... Management
(Trustees;
Officers); Additional
officers
15. Control Persons and Principal
Holders of Securities............ Management
(Trustees;
Officers);
Charges and expenses
(Share ownership)
16. Investment Advisory and Other
Services......................... Management
(Trustees;
Officers; The
management
contract; Principal
underwriter;
Investor servicing
agent and
custodian); Charges
and expenses;
Distribution
plans;
Independent
accountants and
financial statements
17. Brokerage Allocation............ Management
(Portfolio
transactions);
Charges and
expenses
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18. Capital Stock and Other
Securities....................... Organization and history
(Part A); How the
fund makes
distributions to
shareholders ; tax
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information (Part A); Suspension of redemptions
19. Purchase, Redemption and Pricing
of Securities Being Offered...... How to buy shares (Part
A); How to sell shares
(Part A); How to
exchange shares (Part
A); How to buy
shares;
Determination of net
asset value;
Suspension of
redemptions
20. Tax Status....................... How the fund
makes distributions
to shareholders ;
tax information (Part
A); Taxes
21. Underwriters..................... Management
(Principal
underwriter);
Charges and
expenses
22. Calculations of Performance Data. How performance is shown
(Part A); Investment
performance;
Standard performance
measures
23. Financial Statements............. Independent
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accountants and financial statements
Part C
Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C of the Registration Statement.
PROSPECTUS
DECEMBER 1,
1995
Putnam Tax-Free High Yield Fund
Class A, B and M shares
INVESTMENT STRATEGY: TAX-ADVANTAGED
This prospectus explains concisely what you should know before investing in Putnam Tax-Free High Yield Fund (the "fund") , a series of Putnam Tax-Free Income Trust (the "Trust"). Please read it carefully and keep it for future reference. You can find more detailed information in the December 1, 1995 statement of additional information (the "SAI") , as amended from time to time. For a free copy of the SAI or other information, call Putnam Investor Services at 1-800-225-1581. The SAI has been filed with the Securities and Exchange Commission and is incorporated into this prospectus by reference.
The fund invests primarily in lower-rated bonds, commonly known as "junk bonds." Investments of this type are subject to a greater risk of loss of principal and nonpayment of interest. Purchasers should carefully assess the risks associated with an investment in the fund. See page .
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED .
BOSTON * LONDON * TOKYO
ABOUT THE FUND
Expenses summary
This section describes the sales charges, management fees, and annual operating expenses that apply to the fund's various classes of shares. Use it to help you estimate the impact of transaction costs on your investment over time.
Financial highlights
Study this table to see, among other things, how the fund performed each year for the past 10 years or since it began investment operations if it has been in operation for less than 10 years.
Objective
Read this section to make sure the fund's objective is consistent with your own.
How the fund pursues its objective
This section explains in detail how the fund seeks its investment objective. Risk factors. All investments entail some risk. Read this section to make sure you understand certain risks that may be involved when investing in the fund.
How performance is shown
This section describes and defines the measures used to assess the fund's performance. All data are based on the fund's past investment results and do not predict future performance.
How the fund is managed
Consult this section for information about the fund's management, allocation of the fund's expenses, and how purchases and sales of securities are made for the fund.
Organization and history
In this section, you will learn when the fund was introduced, how it is organized, how it may offer shares, and who its Trustees are.
ABOUT YOUR INVESTMENT
Alternative sales arrangements
Read this section for descriptions of the classes of shares this prospectus offers and for points you should consider when making your choice.
How to buy shares
This section describes the ways you may purchase shares and tells you the minimum amounts required to open various types of accounts. It explains how sales charges are determined and how you may become eligible for reduced sales charges on each class of shares.
Distribution plans
This section tells you what distribution fees are charged against each class of shares .
How to sell shares
In this section you can learn how to sell shares of the fund, either directly to the fund or through an investment dealer.
How to exchange shares
Find out in this section how you may exchange shares of the fund for shares of other Putnam funds. The section also explains how exchanges can be made without sales charges and the conditions under which sales charges may be required.
How the fund values its shares
This section explains how the fund determines the value of its shares.
How the fund makes distributions to shareholders; tax information
This section describes the various options you have in choosing how to receive dividends from the fund. It also discusses the federal tax status of the payments and counsels shareholders to seek specific advice about their own situation.
ABOUT PUTNAM INVESTMENTS, INC.
Read this section to learn more about the companies that provide the marketing, investment management, and shareholder account services to Putnam funds and their shareholders.
APPENDIX
Securities ratings
About the fund
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing
. The following table summarizes your maximum transaction
costs from investing in the fund and expenses incurred by
the fund based on its most recent fiscal year. The
examples show the cumulative expenses attributable to a
hypothetical $1,000 investment over specified periods.
Class A Class B Class M
shares shares shares
Shareholder transaction
expenses
Maximum sales charge
imposed on purchases
(as a percentage of
offering price) 4.75% NONE* 3.25%*
Deferred sales charge 5.0% in the
first
(as a percentage year, declining
of the lower of to 1.0% in the
original purchase sixth year , and
price or redemption
eliminated
proceeds) NONE** thereafter NONE
Annual fund operating expenses
(as a percentage of average net assets)
Total fund
Management 12b-1
Other operating
fees fees expenses expenses
- ---------- ----- -------------------
Class A 0.54% 0.20% 0.13% 0.87%
Class B 0.54% 0.85% 0.12% 1.51%
Class M 0.54% 0.50% 0.13% 1.17%
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The table is provided to help you understand the expenses of investing in the fund and your share of the operating expenses which the fund incurs. The 12b-1 fees for class M shares reflect amounts currently payable under the class M distribution plan. For class M shares, management fees and "Other expenses" are based on the corresponding expenses for class A shares.
Examples
Your investment of $1,000 would incur the following expenses, assuming 5% annual return and , except where indicated, redemption at the end of each period:
1 3 5 10
year years years years
Class A $56 $74 $93 $150
Class B $65 $78
$102 $163 ***
Class B (no redemption) $15 $48 $82 $163
***
Class M $44 $68 $95
$170
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The examples do not represent past or future expense levels. Actual expenses may be greater or less than those shown. Federal regulations require the examples to assume a 5% annual return, but actual annual return varies .
* The higher 12b-1 fees borne by class B and class M shares may cause long-term shareholders to pay more than the economic equivalent of the maximum permitted front-end sales charge on class A shares.
** A deferred sales charge of up to 1.00% is assessed on certain redemptions of class A shares that were purchased without an initial sales charge as part of an investment of $1 million or more. See "How to buy shares -- Class A shares."
*** Reflects conversion of class B shares to class A shares (which pay lower ongoing expenses) approximately eight years after purchase. See "Alternative sales arrangements."
FINANCIAL HIGHLIGHTS
The following table presents per share financial information for class A, B and M shares. This information has been audited and reported on by the Trust's independent accountants. The " Report of independent accountants" and financial statements included in the fund's annual report to shareholders for the 1995 fiscal year are incorporated by reference into this prospectus. The fund's annual report , which contains additional unaudited performance information, is available without charge upon request.
Financial highlights (for a share outstanding throughout the
period)
TABLE
Putnam Tax-Free High Yield Fund
For the period
For the period
December 29, 1994
September 20, 1993
(commencement
(commencement
of operations) to Year ended
of operations) to
July 31 July 31
July 31
1995 1995
1994
Class M
Class A
Net asset value, beginning of period $13.43 $14.24
$15.34
Investment operations
Net investment income .58 .94
.83
Net realized and unrealized
gain (loss) on investments .70 (.10)
(.98)
Total from investment operations 1.28 .84
(.15)
Less distributions from:
Net investment income (.58) (.94)
(.83)
In excess of net investment income ---- (.02)
From net realized gain on investments ---- (.05)
In excess of net realized
gain on investments -- --
(.05)
Total distributions (.58) (.94)
(.95)
Net asset value, end of period $14.13 $14.14
$14.24
Total investment return
at net asset value (%)(b) 9.69(b) 6.24
(.99)(b)
Net assets, end of period (in thousands) $2,331 $474,984
$361,593
Ratio of expenses to average
net assets (%) .71(b) .87
.71(b)
Ratio of net investment income
to average net assets (%) 3.98(b) 6.73
5.58(b)
Portfolio turnover (%) 60.41 60.41
44.41
/TABLE
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Year ended July 31
1995 1994 1993 1992 1991
Class B
$14.24 $15.01 $14.64 $13.79 $13.87
.85 .86 .95 .99 .99
(.10) (.65) .41 .94 (.07)
.75 .21 1.36 1.93 .92
(.85) (.85) (.95) (.99) (1.00)
-- (.03) -- -- --
-- (.05) (.04) (.09) --
-- (.05) -- -- --
.85 (.98) (.99) (1.08) (1.00)
$14.14 $14.24 $15.01 $14.64 $13.79
5.54 1.36 9.68 14.60 6.98
$1,436,481 $1,522,955 $1,501,535
$1,015,866 $738,113
1.51 1.45 1.38 1.45 1.52
6.10 5.76 6.39 7.03 7.26
60.41 44.41 52.29 82.31 49.83
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For the period
September 9,
1985
(commencement
of operations)
Year ended July 31 to
July 31
1991 1990 1989 1988 1987 1986
Class B
$13.87 $14.30 $13.72 $13.77 $13.91 $12.57
.99 1.00 .98 .96 .98 .94(a)
(.07) (.43) .56 (.05) .04 1.41
.92 .57 1.54 .91 1.02 2.35
(1.00) (1.00) (.96) (.96) .98) (1.01)
-- -- -- -- -- --
-- -- -- -- (.18)
-- -- -- -- -- --
(1.00) (1.00) (.96) (.96) (1.16) (1.01)
$13.79 $13.87 $14.30 $13.72 $13.77 $13.91
6.98 4.20 11.71 6.96 7.48 19.24(c)
$738,113 $651,152 $635,899 $586,721 $582,023 $251,736
1.52 1.66 1.75 1.77 1.78 1.51(a)(c)
7.26 7.12 7.02 7.11 6.71 6.79(a)(c)
49.83 46.66 96.97 101.02 132.87 148.70
(a) Reflects a waiver of a portion of the distribution plan
payments during the period.
As a result of this waiver, expenses of the class B shares of the
fund for the period
ended July 31, 1986 reflect a reduction of $0.02 per share.
(b) Total investment return assumes dividend reinvestment and
does not reflect the effect
of sales charges.
(c) Not annualized.
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OBJECTIVE
Putnam Tax-Free High Yield Fund seeks high current income exempt from federal income tax. The fund is not intended to be a complete investment program, and there is no assurance it will achieve its objective.
HOW THE FUND PURSUES ITS OBJECTIVE
Basic investment strategy
Putnam Tax-Free High Yield Fund seeks its objective by following the fundamental investment policy of investing at least 80% of its net assets in a diversified portfolio of tax-exempt securities (which are described below), except when investing for defensive purposes during times of adverse market conditions. The fund may trade its portfolio investments seeking short-term profits, which may result in taxable income or capital gains and may involve special risks. See "Portfolio turnover," below.
The fund may also invest in taxable obligations, as described below, to the extent permitted by its investment policies, or hold its assets in money market instruments or in cash.
The fund invests primarily in high yielding, higher risk, lower-rated tax-exempt securities constituting a portfolio which Putnam Investment Management , Inc., the Trust's investment manager ("Putnam Management"), believes does not involve undue risk to income or principal. Differing yields on tax-exempt securities of the same maturity are a function of several factors, including the relative financial strength of the issuers. High yields are generally available from securities in the lower categories of recognized rating agencies (Baa or MIG-4 or lower by Moody's Investors Service, Inc. ("Moody's") and BBB or SP-3 or lower by Standard & Poor's ("S&P")) , or from unrated securities of comparable quality. The lowest rating category in which the fund will invest is Ca (Moody's) or CC (S&P), or in unrated securities judged by Putnam Management to be of comparable quality. Such securities are speculative in a high degree and may be in default. The characteristics of securities in the lower rating categories are described in the Appendix to this prospectus . There is no limit on the portion of the fund's assets which may be invested in any rating category.
Alternative minimum tax
Interest income from certain types of tax-exempt securities may be subject to federal alternative minimum tax for individuals and corporations.
In determining compliance with the 80% test described above, it is a fundamental policy of the fund to exclude from the definition of tax-exempt securities any securities the interest from which may be subject to the federal alternative minimum tax for individuals. An investment in the fund may subject corporate shareholders to the federal alternative minimum tax , because a portion of tax-exempt income is generally included in the alternative minimum taxable income of corporations.
Alternative investment strategies
At times Putnam Management may judge that conditions in the markets for tax-exempt securities make pursuing the fund's basic investment strategy inconsistent with the best interests of its shareholders. At such times Putnam Management may temporarily use alternative strategies primarily designed to reduce fluctuations in the value of the fund's assets.
In implementing these "defensive" strategies, the fund may invest without limit in taxable obligations, including obligations of the U.S. government, its agencies or instrumentalities, may place up to 25% of its assets in repurchase agreements with commercial banks and registered broker-dealers, or may invest in any other securities that Putnam Management considers consistent with such defensive strategies.
It is impossible to predict when, or for how long, the fund will use these alternative strategies.
Tax -exempt securities
Tax -exempt securities include obligations of a state (including the District of Columbia), a territory or a U.S. possession, or any of their political subdivisions, agencies, instrumentalities or other governmental units, the interest on which, in the opinion of bond counsel, is exempt from federal income tax.
These securities are issued to obtain funds for various public purposes, such as the construction of public facilities, the payment of general operating expenses or the refunding of outstanding debts.
They may also be issued to finance various private activities, including the lending of funds to public or private institutions for the construction of housing, educational or medical facilities, or to fund short-term cash requirements. They may also include certain types of industrial development bonds, private activity bonds or notes issued by public authorities to finance privately owned or operated facilities.
Short-term tax-exempt securities may be issued as interim financing in anticipation of tax collections, revenue receipts or bond sales to finance various public purposes.
The two principal classifications of tax-exempt securities are general obligation and special obligation (or special revenue obligation) securities.
General obligation securities involve a pledge of the credit of an issuer possessing taxing power and are payable from the issuer's general unrestricted revenues. Their payment may depend on an appropriation by the issuer's legislative body. The characteristics and methods of enforcement of general obligation securities vary according to the law applicable to the particular issuer.
Special obligation (or special revenue obligation) securities are payable only from the revenues derived from a particular facility or class of facilities, or a specific revenue source, and generally are not payable from the unrestricted revenues of the issuer. Industrial development bonds and private activity bonds are in most cases special obligation securities, whose credit quality is tied to the private user of the facilities.
Under current market conditions, it is anticipated that the fund will invest primarily in special obligation securities.
The fund may also invest in securities representing interests in tax-exempt securities , known as "inverse floating obligations" or "residual interest bonds ." These obligations pay interest rates that vary inversely to changes in the interest rates of specified short-term tax exempt securities or an index of short-term tax - exempt securities. The interest rates on inverse floating obligations or residual interest bonds will typically decline as short-term market interest rates increase and increase as short-term market rates decline.
These securities have the effect of providing a degree of investment leverage . They will generally respond to changes in market interest rates more rapidly than fixed-rate long-term securities (typically twice as fast) . As a result, the market values of inverse floating obligations and residual interest bonds will generally be more volatile than the market values of fixed-rate tax - exempt securities.
Risk factors
The values of tax-exempt 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 magnitude of these fluctuations generally is greater for securities with longer maturities. However, the yields on such securities are generally higher. In addition, the values of fixed-income securities are affected by changes in general economic conditions and business conditions affecting the specific industries of their issuers.
Changes by recognized rating services in their ratings of a 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 continued investment in the security will assist in meeting the fund's investment objective.
Investors should carefully consider their ability to assume the risks of owning shares of a mutual fund that invests primarily in lower-rated securities before making an investment in the fund .
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 payments 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.
The rating assigned to a security by Moody's or S&P does not reflect an assessment of the volatility of the security's market value or of the liquidity of an investment in the security.
The table below shows the percentages of fund assets
invested during fiscal 1995 in securities assigned to the
various rating categories by S&P , or, if unrated by
S&P, assigned to comparable rating categories by Moody's, and
in unrated securities determined by Putnam Management to be of
comparable quality:
Unrated securities
of comparable
Rated securities, quality,
as percentage of as percentage of
Rating net assets net assets
"AAA" 30.37 --
"AA" 1.30 --
"A" 4.03 1.06
"BBB" 22.00 4.60
"BB" 5.90 11.38
"B" 3.00 16.36
"CCC" -- --
"CC" -- --
"C" -- --
"D" -- --
------ ------
66.60% 33.40%
====== ======
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Putnam Management seeks to minimize the risks of investing in lower-rated securities through careful investment analysis. However, the amount of information available 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. When the fund invests in tax-exempt securities in the lower rating categories, the achievement of the fund's goals is more dependent on Putnam Management's ability than would be the case if the fund were investing in tax-exempt securities in the higher rating categories.
At times, a substantial portion of the fund's assets may be invested in securities as to which the fund , by itself or together with other funds and accounts managed by Putnam Management and its affiliates, holds all or a major portion . Under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, the fund could find it more difficult to sell these securities when Putnam Management believes it advisable to do so or may be able to sell the securities only at prices lower than if they were more widely held. Under these circumstances, it may also be more difficult to determine the fair value of such securities for purposes of computing the fund's net asset value.
In order to enforce its rights in the event of a default of these securities, the fund may be required to participate in various legal proceedings or take possession of and manage assets securing the issuer's obligations
on the securities . This could increase the fund's operating expenses and adversely affect the fund's net asset value. 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 a privately-issued security.
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 in so-called "zero-coupon" bonds whose values are subject to greater fluctuation in response to changes in market interest rates than bonds that pay interest currently. Zero-coupon bonds are issued at a significant discount from face value and pay interest only at maturity rather than at intervals during the life of the security.
Zero-coupon 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. The fund is required to accrue and distribute income from zero-coupon bonds on a current basis, even though it does not receive that income currently in cash. Thus the fund may have to sell other investments to obtain cash needed to make income distributions.
The secondary market for tax-exempt securities is generally less liquid than that for taxable fixed-income securities, particularly in the lower rating categories. Thus, it may be more difficult from time to time to value or buy and sell certain securities .
Certain investment grade securities in which the fund may invest share some of the risk factors discussed above with respect to loser -rated securities.
For additional information concerning the risks associated with investment by the fund in securities in the lower rating categories, see the SAI.
Putnam Management buys and sells securities for the fund's portfolio with a view to seeking as high a level of current income as Putnam Management believes does not pose undue risk to principal. As a result, the fund will not necessarily invest in the highest yielding tax-exempt securities permitted by its investment policies if Putnam Management determines that market risks or credit risks associated with such investments would subject the fund's portfolio to excessive risk. The potential for realization of capital gains resulting from possible changes in interest rates will not be a major consideration. Putnam Management will be free to take full advantage of the entire range of maturities offered by tax-exempt securities and may adjust the average maturity of the fund's portfolio from time to time, depending on its assessment of the relative yields available on securities of different maturities and its expectations of future changes in interest rates. However, it is anticipated that under normal market conditions the fund will invest primarily in long-term tax-exempt securities having maturities greater than ten years and that it will generally hold short-term tax-exempt securities only for liquidity purposes.
Concentration
The fund will not invest more than 25% of its total assets in any industry. Governmental issuers of tax-exempt securities are not considered part of any "industry". However, for this purpose tax-exempt securities backed only by the assets and revenues of nongovernmental users may be deemed to be issued by such nongovernmental users. Thus, the 25% limitation would apply to such obligations.
It is possible that the fund may invest more than 25% of its assets in a broader segment of the market for tax-exempt securities, such as revenue obligations of hospitals and other health care facilities, housing agency revenue obligations, or airport revenue obligations. This would be the case only if Putnam Management determined that the yields available from obligations in a particular segment of the market justified the additional risks associated with such concentration.
Although these obligations could be supported by the credit of governmental issuers or by the credit of nongovernmental issuers engaged in a number of industries, economic, business, political and other developments generally affecting the revenues of their issuers may have a general adverse effect on all tax-exempt securities in a market segment. (Examples would include proposed legislation or pending court decisions affecting the financing of such projects and market factors affecting the demand for their services or products.)
The fund reserves the right to invest more than 25% of its assets in industrial development and private activity bonds or in issuers located in the same state.
Investments in premium securities
During a period of declining interest rates, many of the fund's portfolio investments will likely bear coupon rates that are higher than current market rates, regardless of whether these securities were originally purchased at a premium. These securities would generally carry market values greater than the principal amounts payable on maturity, which would be reflected in the net asset value of the fund's shares.
The values of these "premium" securities tend to approach the principal amount as the securities approach maturity (or call price in the case of securities approaching their first call date). As a result, an investor who purchases shares of the fund during these periods would initially receive higher monthly distributions (derived from the higher coupon rates payable on the fund's investments) than might be available from alternative investments bearing current market interest rates. But the investor may face an increased risk of capital loss as these higher coupon securities approach maturity (or first call date). In evaluating the potential performance of an investment in the fund, investors may find it useful to compare the fund's current dividend rate with the fund's "yield," which is computed on a yield-to-maturity basis in accordance with SEC regulations and which reflects amortization of market premiums. See "How performance is shown."
Portfolio turnover
The length of time the fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by the fund is known as "portfolio turnover." As a result of the fund's investment policies, under certain market conditions the fund's portfolio turnover rate may be higher than that of other mutual funds.
Portfolio turnover generally involves some expense to the fund , including brokerage commissions or dealer markups and other transaction costs on the sale of securities and reinvestment in other securities. These transactions may result in realization of taxable capital gains. Portfolio turnover rates for the life of the fund are shown in the section , "Financial highlights."
Financial futures and options
The fund may purchase and sell financial futures contracts for hedging purposes.
Futures contracts on the Municipal Bond Index are traded on the Chicago Board of Trade. This index is intended to represent a numerical measure of market performance for long-term tax exempt bonds. An "index future" is a contract to buy or sell units of a particular securities index at an agreed price on a specified future date. Depending on the change in value of the index between the time when the fund enters into and terminates an index futures contract, the fund realizes a gain or loss. The fund may purchase and sell futures contracts on the index (or any other tax-exempt bond index approved for trading by the Commodity Futures Trading Commission) to hedge against general changes in market values of tax-exempt securities that the fund owns or expects to purchase. The fund may also purchase and sell put and call options on index futures or on the indexes directly, in addition to or as an alternative to purchasing and selling index futures.
For hedging purposes, the fund may also purchase and sell futures contracts and related options on U.S. Treasury securities, including U.S. Treasury bills, notes and bonds ("U.S. government securities"), and options directly on U.S. government securities. U.S. government securities futures and options would be used for purposes similar to index futures and options.
In addition, the fund may purchase put and call options on, or warrants to purchase, tax-exempt securities, either directly or though custodial arrangements in which the fund and other investors own an interest in one or more options on tax-exempt securities.
The use of futures and options involves certain special risks and may result in realization of taxable income or capital gains. Futures and options transactions involve costs and may result in losses.
Certain risks arise from the possibility of imperfect correlations between movements in the prices of financial futures and options and movements in the prices of the underlying bond index or U.S. government securities or of the tax- exempt securities that are the subject of the hedge. The successful use of futures and options further depends on Putnam Management's ability to forecast interest rate movements correctly.
Other risks arise from the potential inability to close out futures or options positions . There can be no assurance that a liquid secondary market will exist for any futures contract or option at a particular time. Certain provisions of the Internal Revenue Code and certain regulatory requirements may limit the use of futures and options transactions.
A more detailed explanation of financial futures and options transactions and the risks associated with them is included in the SAI .
Other investment practices
The fund may also engage in the following investment practices, each of which may result in taxable income or capital gains and involves certain special risks. The SAI contains more detailed information about these practices, including limitations designed to reduce these risks.
Repurchase agreements and forward commitments. When utilizing the alternative investment strategies described above, the fund may enter into repurchase agreements on up to 25% of its assets. These transactions must be fully collateralized at all times. The fund may also purchase securities for future delivery, which may increase its overall investment exposure and involves a risk of loss if the value of the securities declines prior to the settlement date. These transactions involve some risk to the fund if the other party should default on its obligation and the fund is delayed or prevented from recovering the collateral or completing the transaction.
Derivatives
Certain of the instruments in which the fund will invest, such as futures contracts, options and inverse floating obligations, are considered to be "derivatives." Derivatives are financial instruments whose value depends upon, or is derived from, the value of an underlying asset, such as a security or an index. Further information about these instruments and the risks involved in their use is included elsewhere in this prospectus and in the SAI.
Limiting investment risk
Specific investment restrictions help the fund limit investment risks for its shareholders. These restrictions prohibit the fund and the Trust from acquiring more than 10% of the voting securities of any one issuer.* They also prohibit the fund from investing more than:
(a) 5% of its total assets in securities of any one issuer (other than U.S. government obligations);*
(b) 5% of its net assets in securities of issuers (other than U.S. government obligations and tax-exempt securities backed by the credit of a governmental entity) that, together with any predecessors, controlling persons, general partners and guarantors, have been in operation less than three years;
(c) 15% of its net assets in securities restricted as to resale (excluding securities determined by the Trust's Trustees (or the person designated by them to make such determinations) to be readily marketable)*; or
(d) 15% of its net assets in any combination of securities that are not readily marketable, in securities restricted as to resale (excluding securities determined by the Trust's Trustees (or the person designated by them to make such determinations) to be readily marketable), and in repurchase agreements maturing in more than seven days.
Restrictions marked with an asterisk (*) above are summaries of fundamental investment policies. See the SAI for the full text of these policies and the Trust's other fundamental investment policies. Except for investment policies designated as fundamental in this prospectus or the SAI , the investment policies described in this prospectus and in the SAI are not fundamental policies. The Trustees may change any non-fundamental investment policies without shareholder approval. As a matter of policy, the Trustees would not materially change the fund's investment objective without shareholder approval.
HOW PERFORMANCE IS SHOWN
The fund's investment performance may from time to time be included in advertisements about the fund . "Yield" for each class of shares is calculated by dividing the annualized net investment income per share during a recent 30-day period by the maximum public offering price per share of the class on the last day of that period.
For purposes of calculating yield , net investment income is calculated in accordance with SEC regulations and may differ from net investment income as determined for financial reporting purposes. SEC regulations require that net investment income be calculated on a "yield-to-maturity" basis, which has the effect of amortizing any premiums or discounts in the current market value of fixed-income securities. The current dividend rate is based on net investment income as determined for tax purposes, which may not reflect amortization in the same manner. See "How the fund pursues its objective -- Investments in premium securities."
Yield is based on the price of the shares, including the maximum initial sales charge in the case of class A and class M shares, but does not reflect any contingent deferred sales charge in the case of class B shares. "Tax-equivalent" yield for each class of shares shows the effect on performance of the tax-exempt status of distributions received from the fund . It reflects the appropriate yield that a taxable investment must earn for shareholders at stated income levels to product an after- tax yield equivalent to a class's tax-exempt yield.
"Total return" for the one-, five- and ten-year periods (or for the life of a class, if shorter) through the most recent calendar quarter represents the average annual compounded rate of return on an investment of $1,000 in the fund invested at the maximum public offering price (in the case of class A and class M shares) or reflecting the deduction of any applicable contingent deferred sales charge (in the case of class B shares). Total return may also be presented for other periods or based on investment at reduced sales charge levels. Any quotation of investment performance not reflecting the maximum initial sales charge or contingent deferred sales charge would be reduced if the sales charge were used.
All data are based on past investment results and do not predict future performance.
Investment performance, which will vary, is based on many factors, including market conditions, the composition of the fund's portfolio, the fund's operating expenses and which class of shares the investor purchases . Investment performance also often reflects the risks associated with the fund's investment objective and policies. These factors should be considered when comparing the fund's investment results with those of other mutual funds and other investment vehicles.
Quotations of investment performance for any period when an expense limitation was in effect will be greater than if the limitation had not been in effect. The fund's performance may be compared to that of various indexes. See the SAI .
HOW THE FUND IS MANAGED
The Trustees of the Trust are responsible for generally overseeing the conduct of the fund's 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 fund pays Putnam Management a monthly fee for these services based on the fund's average net assets. See "Expenses summary" and the SAI.
The following officer of Putnam Management has had primary responsibility for the day-to-day management of the
fund's portfolio since the year stated below:
Business experience
Year (at least 5 years)
---- -----------------
Triet M. Nguyen Employed as an investment
Senior Vice President 1988 professional by Putnam
Management since 1985.
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The Trust pays all expenses not assumed by Putnam Management, including Trustees' fees, auditing, legal, custodial, investor servicing and shareholder reporting expenses, and payments under its distribution plans (which are in turn allocated to the relevant class of shares). Expenses of the Trust directly charged or attributable to the fund will be paid from the assets of the fund . General expenses of the Trust will be allocated among and charged to the assets of the fund and any other portfolio of the Trust on a basis that the Trustees deem fair and equitable, which may be based on the relative assets of the fund or the nature of the services performed and relative applicability to the fund . The Trust also reimburses Putnam Management for the compensation and related expenses of certain officers of the Trust and their staff who provide administrative services to the Trust. The total reimbursement is determined annually by the Trustees.
Putnam Management places all orders for purchases and sales of the fund's securities. In selecting broker-dealers, Putnam Management may consider research and brokerage services furnished to it and its affiliates. Subject to seeking the most favorable price and execution available, Putnam Management may consider sales of shares of the fund (and, if permitted by law, of the other Putnam funds) as a factor in the selection of broker-dealers.
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business Trust organized on June 28, 1985. A copy of the Agreement and Declaration of Trust, which is governed by Massachusetts law, is on file with the Secretary of State of The Commonwealth of Massachusetts.
The Trust is an open-end, diversified management investment company with an unlimited number of authorized shares of beneficial interest. Shares of the Trust may, without shareholder approval, be divided into two or more series of such shares and are currently divided into two series of shares: the fund and Putnam Tax-Free Insured Fund.
Any such series of shares may be further 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's shares are currently divided into three classes. Only the fund's class A, B and M shares are offered by this prospectus. The fund may also offer other classes of shares with different sales charges and expenses. Because of these different sales charges and expenses, the investment performance of the classes will vary. For more information, including your eligibility to purchase any other class of shares, contact your investment dealer or Putnam Mutual Funds (at 1-800-225-1581).
Each share has one vote, with fractional shares voting proportionally. Shares vote by individual series on all matters except (i) when required by the Investment Company Act of 1940, shares of all series shall be voted in the aggregate and (ii) when the Trustees have determined that the matter affects only the interests of one or more series, only shareholders of such series shall be entitled to vote. Shares of each class will vote together as a single class except when otherwise required by law or as determined by the Trustees. Shares of the fund are freely transferable, are entitled to dividends from the assets of the fund as declared by the Trustees, and, if the Trust were liquidated, would receive the net assets of the fund . The Trust may suspend the sale of shares of the fund at any time and may refuse any order to purchase shares. Although the Trust 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.
If you own fewer shares than a minimum amount set by the Trustees (presently 20 shares), the fund may choose to redeem your shares . You will receive at least 30 days' written notice before the fund redeems your shares, and you may purchase additional shares at any time to avoid a redemption. The fund may also redeem shares if you own shares above a maximum amount set by the Trustees. There is presently no maximum, but the Trustees may establish one at any time, which could apply to both present and future shareholders.
The Trust's Trustees: George Putnam,* Chairman. President of the Putnam funds. Chairman and Director of Putnam Management and Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director, Marsh & McLennan Companies, Inc.; William F. Pounds, Vice Chairman. Professor of Management, Alfred P. Sloan School of Management, Massachusetts Institute of Technology ; Jameson Adkins Baxter, President, Baxter Associates, Inc.; Hans H. Estin, Vice Chairman, North American Management Corp.; John A. Hill, Principal and Managing Director, First Reserve Corporation; Elizabeth T. Kennan, President Emeritus and Professor , Mount Holyoke College; Lawrence J. Lasser,* Vice President of the Putnam funds. President, Chief Executive Officer and Director of Putnam Investments, Inc. and Putnam Management. Director, Marsh & McLennan Companies, Inc.; Robert E. Patterson, Executive Vice President, Cabot Partners Limited Partnership; Donald S. Perkins, * Director of various corporations, including AT&T, Kmart Corporation and Time Warner Inc.; George Putnam, III,* President, New Generation Research, Inc. ; Eli Shapiro, Alfred P. Sloan Professor of Management, Emeritus, Alfred P. Sloan School of Management, Massachusetts Institute of Technology ; A.J.C. Smith,* Chairman, Chief Executive Officer and Director, Marsh & McLennan Companies, Inc.; and W. Nicholas Thorndike, Director of various corporations and charitable organizations, including Data General Corporation, Bradley Real Estate, Inc. and Providence Journal Co. Also, Trustee of Massachusetts General Hospital and Eastern Utilities Associates. The Trust's Trustees are also Trustees of the other Putnam funds. Those marked with an asterisk (*) are or may be deemed to be "interested persons" of the Trust, Putnam Management or Putnam Mutual Funds.
About Your Investment
ALTERNATIVE SALES ARRANGEMENTS
This prospectus offers investors three classes of shares that bear sales charges in different forms and amounts and that bear different levels of expenses:
Class A shares. An investor who purchases class A shares pays a sales charge at the time of purchase. As a result, class A shares are not subject to any charges when they are redeemed , except for certain sales at net asset value that are subject to a contingent deferred sales charge ("CDSC") . Certain purchases of class A shares qualify for reduced sales charges. Class A shares bear a lower 12b-1 fee than class B and class M shares. See "How to buy shares -- Class A shares " and "Distribution plans."
Class B shares. Class B shares are sold without an initial sales
charge, but are subject to a CDSC if redeemed within a
specified period after purchase . Class B shares also bear a
higher 12b-1 fee than class A and class M shares. Class B
shares automatically convert into class A shares,
based on relative net asset value, approximately eight years
after purchase. For more information about the conversion of
class B shares, see the SAI. This discussion will include
information about how shares acquired through reinvestment of
distributions are treated for conversion purposes. The
discussion will also note certain circumstances under which a
conversion may not occur. Class B shares provide an investor
the benefit of putting all of the investor's dollars to work from
the time the investment is made . Until conversion, class B
shares will have a higher expense ratio and pay lower
dividends than class A and class M shares
because of the higher 12b-1 fee. See "How to buy shares -
- - Class B shares " and "Distribution plans."
Class M shares. An investor who purchases class M shares
pays a sales charge at the time of purchase that is lower
than the sales charge applicable to class A shares.
Certain purchases of class M shares qualify for
reduced sales charges. Class M shares bear a 12b-1 fee
that is lower than class B shares but higher than class A
shares. Class M shares are not subject to any CDSC and do
not convert into any other class of shares. See "How to buy
shares -- Class M shares " and "Distribution plans."
Which arrangement is best for you? The decision as to which class of shares provides a more suitable investment for an investor depends on a number of factors, including the amount and intended length of the investment. Investors making investments that qualify for reduced sales charges might consider class A shares or class M shares. Investors who prefer not to pay an initial sales charge might consider class B shares. Orders for class B shares for $250,000 or more will be treated as orders for class A shares or declined. For more information about these sales arrangements, consult your investment dealer or Putnam Investor Services. Shares may only be exchanged for shares of the same class of another Putnam fund. See "How to exchange shares."
HOW TO BUY SHARES
You can open a fund account with as little as $500 and make additional investments at any time with as little as $50. You can buy fund shares three ways - through most investment dealers, through Putnam Mutual Funds (at 1-800-225- 1581), or through a systematic investment plan. If you do not have a dealer, Putnam Mutual Funds can refer you to one.
Buying shares through Putnam Mutual Funds. Complete an order form and write a check for the amount you wish to invest, payable to the fund. Return the completed form and check to Putnam Mutual Funds, which will act as your agent in purchasing shares through your designated investment dealer.
Buying shares through systematic investing. You can make regular investments of $25 or more per month through automatic deductions from your bank checking or savings account. Application forms are available from your investment dealer or through Putnam Investor Services.
Shares are sold at the public offering price based on the net asset value next determined after Putnam Investor Services receives your order. In most cases, in order to receive that day's public offering price, Putnam Investor Services must receive your order before the close of regular trading on the New York Stock Exchange. If you buy shares through your investment dealer, the dealer must receive your order before the close of regular trading on the New York Stock Exchange to receive that day's public offering price.
Class A shares The public offering price of class A shares is the net asset value plus a sales charge that varies depending on |
the size of your purchase . The fund receives the net asset value. The sales charge is allocated between your investment dealer and Putnam Mutual Funds as shown in the following table, except when Putnam Mutual Funds, in its discretion, allocates the entire amount to your investment dealer.
Sales charge Amount of
as a percentage of: sales charge
-------------------reallowed
to
Net dealers
as a
Amount of transaction amount Offering
percentage of
at offering price ($) invested price offering
price
- -----------------------------------------------------------------
Under 25,000 4.99% 4.75% 4.50%
25,000 but under 100,000 4.71 4.50 4.25
100,000 but under 250,000 3.90 3.75 3.50
250,000 but under 500,000 3.09 3.00 2.75
500,000 but under 1,000,000 2.04 2.00
1.85
- -----------------------------------------------------------------
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There is no initial sales charge on purchases of class A shares of $1 million or more. However, a CDSC of 1.00% or 0.50%, respectively, will be imposed if you redeem these shares within the first or second year after purchase, based on the lower of the shares' cost and current net asset value. Any shares acquired by reinvestment of distributions will be redeemed without a CDSC.
Shares purchased by certain investors investing $1 million or more who have made arrangements with Putnam Mutual Funds and whose dealer of record waived the commission as described below are not subject to the CDSC. In determining whether a CDSC is payable, the fund will first redeem shares not subject to any charge. Putnam Mutual Funds receives the entire amount of any CDSC you pay. See the SAI for more information about the CDSC.
Putnam Mutual Funds pays investment dealers of record commissions on sales of class A shares of $1 million or more based on an investor's cumulative purchases during the one- year period beginning with the date of the initial purchase at net asset value. Each subsequent one-year measuring period for these purposes will begin with the first net asset value purchase following the end of the prior period. Such commissions are paid at the rate of 1.00% of the amount under $3 million, 0.50% of the next $47 million and 0.25% thereafter.
Class B shares
Class B shares are sold without an initial sales charge, although a CDSC will be imposed if you redeem shares within a specified period after purchase , as shown in the table below . The following types of shares may be redeemed without charge at any time: (i) shares acquired by reinvestment of distributions and (ii) shares otherwise exempt from the CDSC, as described below in "How to buy shares- - General" below. For other shares, the amount of the charge is determined as a percentage of the lesser of the current market value or the cost of the shares being redeemed.
Charge 5% 4% 3% 3% 2% 1% 0%
In determining whether a CDSC is payable on any redemption, the fund will first redeem shares not subject to any charge, and then shares held longest during the CDSC period. For this purpose, the amount of any increase in a share's value above its initial purchase price is not regarded as a share exempt from the CDSC. Thus, when a share that has appreciated in value is redeemed during the CDSC period, a CDSC is assessed only on its initial purchase price. For information on how sales charges are calculated if you exchange your shares, see "How to exchange shares." Putnam Mutual Funds receives the entire amount of any CDSC you pay. The CDSC applicable to shares of the fund issued prior to August 23, 1993 is calculated in a different manner than the CDSC described above. For further information consult your dealer or Putnam Investor Services.
Class M shares The public offering price of class M shares is the net asset value plus a sales charge that varies depending on |
the size of your purchase . The fund receives the net asset value. The sales charge is allocated between your investment dealer and Putnam Mutual Funds as shown in the following table, except when Putnam Mutual Funds, at its discretion, allocates the entire amount to your investment dealer.
Sales charge Amount
of
as a percentage of: sales
charge
-------------------
reallowed
to
Net dealers
as a
Amount of transaction amount Offering
percentage
of
at offering price ($) invested price offering
price
- -----------------------------------------------------------------
Under 50,000 3.36% 3.25% 3.00%
50,000 but under 100,000 2.30
2.25 2.00
100,000 but under 250,000 1.52 1.50 1.25
250,000 but under 500,000 1.01 1.00 1.00
500,000 and above NONE NONENONE
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General
You may be eligible to buy class A shares and class M shares at reduced sales charges.
Consult your investment dealer or Putnam Mutual Funds for details about Putnam's combined purchase privilege, cumulative quantity discount, statement of intention, group sales plan, employee benefit plans, and other plans. Descriptions are also included in the order form and in the SAI.
Sales charges will not apply to class M shares
purchased with redemption proceeds received within the prior
90 days from non-Putnam mutual funds on which the investor
paid a front-end or a contingent deferred sales charge.
The fund may also sell class M shares at net asset
value to members of qualified groups.
The fund may sell class A, class B and class M shares at net asset value without an initial sales charge or a CDSC to the Trust's current and retired Trustees (and their families), current and retired employees (and their families) of Putnam Management and affiliates, registered representatives and other employees (and their families) of broker-dealers having sales agreements with Putnam Mutual Funds, employees (and their families) of financial institutions having sales agreements with Putnam Mutual Funds (or otherwise having an arrangement with a broker-dealer or financial institution with respect to sales of fund shares), financial institution trust departments investing an aggregate of $1 million or more in Putnam funds, clients of certain administrators of tax-qualified plans, employee benefit plans of companies with more than 750 employees, tax-qualified plans when proceeds from repayments of loans to participants are invested (or reinvested) in Putnam funds, "wrap accounts" for the benefit of clients of broker-dealers, financial institutions or financial planners adhering to certain standards established by Putnam Mutual Funds, and investors meeting certain requirements who sold shares of certain Putnam closed-end funds pursuant to a tender offer by the closed-end fund.
In addition, the fund may sell shares at net asset value without an initial sales charge or a CDSC in connection with the acquisition by the fund of assets of an investment company or personal holding company . The CDSC will be waived on redemptions of shares arising out of the death or post-purchase disability of a shareholder or settlor of a living trust account, and on redemptions in connection with certain withdrawals from IRA or other retirement plans. Up to 12% of the shares subject to a systematic withdrawal plan may also be redeemed each year without a CDSC. The SAI contains additional information about purchasing the fund's shares at reduced sales charges.
Shareholders of other Putnam funds may be entitled to exchange their shares for, or reinvest distributions from their funds in, shares of the fund at net asset value.
If you are considering redeeming or exchanging shares or transferring shares to another person shortly after purchase, you should pay for those shares with a certified check to avoid any delay in redemption, exchange or transfer. Otherwise the fund may delay payment until the purchase price of those shares has been collected or, if you redeem by telephone, until 15 calendar days after the purchase date. To eliminate the need for safekeeping, the fund will not issue certificates for your shares unless you request them.
Putnam Mutual Funds will from time to time , at its expense, provide additional promotional incentives or payments to dealers that sell shares of the Putnam funds. These incentives or payments may include payments for travel expenses, including lodging, incurred in connection with trips taken by invited registered representatives and their guests to locations within and outside the United States for meetings or seminars of a business nature. In some instances, these incentives or payments may be offered only to certain dealers who have sold or may sell significant amounts of shares. Certain dealers may not sell all classes of shares.
DISTRIBUTION PLANS
Class A distribution plan. The class A plan provides for payments by the fund to Putnam Mutual Funds at the annual rate of up to 0.35% of the fund's average net assets attributable to class A shares. The Trustees currently limit payments under the class A plan to the annual rate of 0.20% of such assets.
Putnam Mutual Funds makes quarterly payments to qualifying dealers (including, for this purpose, certain financial institutions) to compensate them for services provided in connection with sales of class A shares and the maintenance of shareholder accounts . The payments are based on the average net asset value of class A shares attributable to shareholders for whom the dealers are designated as the dealer of record.
This calculation excludes until one year after purchase shares purchased at net asset value , known as "NAV shares," by shareholders investing $1 million or more . NAV shares are not subject to the one-year exclusion provision in cases where certain shareholders who invested $1 million or more have made arrangements with Putnam Mutual Funds and the dealer of record waived the sales commission.
Putnam Mutual Funds makes quarterly payments at the annual rate of 0.20% of such average net asset value for class A shares.
Class B and class M distribution plans. The class B and class M plans provide for payments by the fund to Putnam Mutual Funds at the annual rate of up to 1.00% of the fund's average net assets attributable to class B shares and class M shares, as the case may be. The Trustees currently limit payments under the class B and class M plans to the annual rate of 0.85% and 0.50% of such assets , respectively.
Although class B shares are sold without an initial sales charge, Putnam Mutual Funds pays a sales commission equal to 4.00% of the amount invested (including a prepaid service fee of 0.25% of the amount invested) to dealers who sell class B shares. These commissions are not paid on exchanges from other Putnam funds or on sales to investors exempt from the CDSC.
The amount paid to dealers at the time of the sale of
class M shares is set forth above under "How to buy shares
- -- Class M shares." In addition, in order to further compensate
dealers (including qualifying financial institutions) for
services provided in connection with sales of class B
shares and class M shares and the maintenance of
shareholder accounts, Putnam Mutual Funds makes quarterly
payments to qualifying dealers .
The payments are based on the average net asset value of class B shares and class M shares which are attributable to shareholders for whom the dealers are designated as the dealer of record, except for the first year's service fees for class B shares , which are prepaid as described above. Putnam Mutual Funds makes the payments at an annual rate of 0.20% of such average net asset value for class B shares outstanding as of March 31, 1990, 0.25% of such average net asset value for class B shares acquired after that date and 0.25% of such average net asset value for class M shares (including shares acquired through reinvestment of dividends).
Putnam Mutual Funds also pays to dealers, as additional compensation with respect to the sale of class M shares, 0.15% of such average net asset value of class M shares. For class M shares, the total annual payment to dealers equals 0.40% of such average net asset value.
General. Payments under the plans are intended to compensate Putnam Mutual Funds for services provided and expenses incurred by it as principal underwriter of the fund's shares, including the payments to dealers mentioned above. Putnam Mutual Funds may suspend or modify the payments made to dealers .
The payments are also subject to the continuation of the relevant distribution plan , the terms of service agreements between dealers and Putnam Mutual Funds, and any applicable limits imposed by the National Association of Securities Dealers, Inc.
HOW TO SELL SHARES
You can sell your shares to the fund any day the New York Stock Exchange is open, either directly to the fund or through your investment dealer. The fund will only redeem shares for which it has received payment.
Selling shares directly to the fund . Send a signed letter of instruction or stock power form to Putnam Investor Services, along with any certificates that represent shares you want to sell. The price you will receive is the next net asset value calculated after the fund receives your request in proper form less any applicable CDSC. In order to receive that day's net asset value, Putnam Investor Services must receive your request before the close of regular trading on the New York Stock Exchange.
If you sell shares having a net asset value of $100,000 or more, the signatures of registered owners or their legal representatives must be guaranteed by a bank, broker-dealer or certain other financial institutions. See the SAI for more information about where to obtain a signature guarantee. Stock power forms are available from your investment dealer, Putnam Investor Services and many commercial banks.
If you want your redemption proceeds sent to an address other than your address as it appears on Putnam's records, a signature guarantee is required. Putnam Investor Services usually requires additional documentation for the sale of shares by a corporation, partnership, agent or fiduciary, or a surviving joint owner. Contact Putnam Investor Services for details.
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.
You may use Putnam's Telephone Redemption Privilege to redeem shares valued up to $100,000 from your account unless you have notified Putnam Investor Services of an address change within the preceding 15 days. Unless an investor indicates otherwise on the account application , Putnam Investor Services will be authorized to act upon redemption and transfer instructions received by telephone from a shareholder, or any person claiming to act as his or her representative, who can provide Putnam Investor Services with his or her account registration and address as it appears on Putnam Investor Services' records.
Putnam Investor Services will employ these and other reasonable procedures to confirm that instructions communicated by telephone are genuine; if it fails to employ reasonable procedures, Putnam Investor Services may be liable for any losses due to unauthorized or fraudulent instructions. For information, consult Putnam Investor Services.
During periods of unusual market changes and shareholder activity, you may experience delays in contacting Putnam Investor Services by telephone . In this event, you may wish to submit a written redemption request, as described above, or contact your investment dealer, as described below. The Telephone Redemption Privilege is not available if you were issued certificates for shares that remain outstanding. The Telephone Redemption Privilege may be modified or terminated without notice.
Selling shares through your investment dealer. Your dealer must receive your request before the close of regular trading on the New York Stock Exchange to receive that day's net asset value. Your dealer will be responsible for furnishing all necessary documentation to Putnam Investor Services, and may charge you for its services.
HOW TO EXCHANGE SHARES
You can exchange your shares for shares of the same class of certain other Putnam funds at net asset value beginning 15 days after purchase. Not all Putnam funds offer all classes of shares. If you exchange shares subject to a CDSC, the transaction will not be subject to the CDSC. However, when you redeem the shares acquired through the exchange, the redemption may be subject to the CDSC, depending upon when you originally purchased the shares . The CDSC 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 CDSC applicable to your class of shares. For purposes of computing the CDSC, 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 exchange.
To exchange your shares, simply complete an Exchange
Authorization Form and send it to Putnam Investor Services.
The form is available from Putnam Investor
Services. For federal income tax purposes, an exchange is
treated as a sale of shares and generally results in a capital
gain or loss. A Telephone Exchange Privilege is currently
available for amounts up to $500,000. Putnam Investor Services'
procedures for telephonic transactions are described above under
"How to sell shares." The Telephone Exchange Privilege is not
available if you were issued certificates for shares that
remain outstanding. Ask your investment dealer or Putnam
Investor Services for prospectuses of other Putnam funds. Shares
of certain Putnam funds are not available to residents of all
states.
The exchange privilege is not intended as a vehicle for short- term trading. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. In order to limit excessive exchange activity and in other circumstances where Putnam Management or the Trustees believe doing so would be in the best interests of the fund, the fund reserves the right to revise or terminate the exchange privilege, limit the amount or number of exchanges or reject any exchange. Shareholders would be notified of any such action to the extent required by law. Consult Putnam Investor Services before requesting an exchange. See the SAI to find out more about the exchange privilege.
HOW THE FUND VALUES ITS SHARES
The fund calculates the net asset value of a share of each class by dividing the total value of its assets, less liabilities, by the number of its shares outstanding. Shares are valued as of the close of regular trading on the New York Stock Exchange each day the Exchange is open.
Tax -exempt securities are valued on the basis of valuations provided by a pricing service approved by the Trustees, which uses information with respect to transactions in bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities in determining value. The fund believes that reliable market quotations generally are not readily available for purposes of valuing its portfolio securities. As a result, it is likely that most of the valuations provided by a pricing service will be based upon fair value determined on the basis of the factors listed above.
Non-tax-exempt securities for which market quotations are readily available are valued at market value. Short-term investments that will mature in 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.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS ;
TAX INFORMATION
The fund declares all of its net interest income as a distribution on each day it is open for business. Net interest income consists of interest accrued on portfolio investments, less accrued expenses, computed in each case since the most recent determination of net asset value. Normally, the fund pays distributions of net interest income monthly. The fund will distribute at least annually all net realized capital gains, if any, after applying any available capital loss carryovers. A capital loss carryover is currently available. Distributions paid on class A shares will generally be greater than those paid on class B and class M shares because expenses attributable to class B and class M shares will generally be higher.
You begin earning distributions on the business day after Putnam Mutual Funds receives payment for your shares. It is your responsibility to see that your dealer forwards payment promptly.
You can choose from three distribution options:
- Reinvest all distributions in additional shares without a sales charge;
- Receive distributions from net investment income in cash while reinvesting capital gains distribution in additional shares without a sales charge; or
- Receive all distributions in cash.
You can change your distribution option by notifying Putnam Investor Services in writing. If you do not select an option when you open your account, all distributions will be reinvested. All distributions not paid in cash will be reinvested in shares of the class on which the distributions are paid. You 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.
If a check representing a fund distribution is not cashed within a specified period, Putnam Investor Services will notify you that you have the option of requesting another check or reinvesting the distribution in the fund or in another Putnam fund. If Putnam Investor Services does not receive your election, the distribution will be reinvested in the fund .
Similarly, if correspondence sent by the fund or Putnam Investor Services is returned as "undeliverable," fund distributions will automatically be reinvested in the fund or in another Putnam fund. |
The fund intends to qualify as a "regulated investment company" for federal income tax purposes and to meet all other requirements that are necessary for it to be relieved of federal taxes on income and gains it distributes to shareholders. The fund will distribute substantially all of its ordinary income and capital gain net income on a current basis.
Fund distributions designated as "exempt-interest dividends" are not generally subject to federal income tax. However, if you receive social security or railroad retirement benefits, you should consult your tax adviser to determine what effect, if any, an investment in the fund may have on the taxation of your benefits. In addition, an investment in the fund may result in liability for federal alternative minimum tax and for state and local taxes, both for individual and corporate shareholders.
The fund may at times purchase tax-exempt securities at a discount from the price at which they were originally issued, especially during periods of rising interest rates. For federal income tax purposes, some or all of this market discount will be included in the fund's ordinary income and will be taxable to shareholders as such when it is distributed to them.
All fund distributions other than exempt-interest dividends will be taxable to you as ordinary income, except that any distributions of net long-term capital gains will be taxable as such, regardless of how long you have held the shares. Distributions will be taxable as described above whether received in cash or in shares through the reinvestment of distributions.
Early in each year Putnam Investor Services will notify you of the amount and tax status of distributions paid to you by the fund for the preceding year.
The foregoing is a summary of certain federal income tax consequences of investing in the fund . You should consult your tax adviser to determine the precise effect of an investment in the fund on your particular tax situation (including possible liability for federal alternative minimum tax and state and local taxes).
About Putnam Investments, Inc.
Putnam Management has been managing mutual funds since 1937. Putnam Mutual Funds is the principal underwriter of the fund and of other Putnam funds. Putnam Fiduciary Trust Company is the Trust's custodian. Putnam Investor Services, a division of Putnam Fiduciary Trust Company, is the Trust's investor servicing and transfer agent.
Putnam Management, Putnam Mutual Funds, and Putnam Fiduciary Trust Company are subsidiaries of Putnam Investments, Inc., which is wholly owned by Marsh & McLennan Companies, Inc., a publicly- owned holding company whose principal businesses are international insurance and reinsurance brokerage, employee benefit consulting and investment management.
Appendix
SECURITIES RATINGS
The following rating services describe rated securities as follows:
Moody's Investors Services , 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.
(The fund will invest principally in securities in the following rating categories:)
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 structures 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.
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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, will 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 -- Debt rated `AAA' has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated `AA' has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree.
A -- Debt rated `A' has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
(The fund will invest principally in securities in the following rating categories:)
BBB -- Debt rated `BBB' is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories.
BB-B-CCC-CC-C -- Debt rated `BB', `B', `CCC', `CC' and `C' is regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.
BB -- Debt rated `BB' has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The `BB' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied `BBB-' rating.
B -- Debt rated `B' has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The `B' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied `BB' or `BB-' rating.
CCC -- Debt rated `CCC' has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The `CCC' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied `B' or `B-' rating.
CC -- The rating `CC' typically is applied to debt subordinated to senior debt that is assigned an actual or implied `CCC'- rating.
C -- The rating `C' typically is applied to debt subordinated to senior debt which is assigned an actual or implied `CCC-' debt rating. The `C' rating may be used to cover a situation where bankruptcy petition has been filed, but debt service payments are continued.
D -- Bonds rated `D' are 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 on the filing of a bankruptcy petition if debt service payments are jeopardized.
Notes SP-1 -- Strong capacity to pay principal and interest. Issues determined to possess very strong characteristics are given a plus sign (+) designation . |
SP-2 -- Satisfactory capacity to pay principal and interest , with some vulnerability to adverse financial and economic changes over the term of the notes.
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' .
PUTNAM TAX-FREE HIGH YIELD FUND
One Post Office Square
Boston, MA 02109
FUND INFORMATION:
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
INVESTOR SERVICING AGENT
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
CUSTODIAN
Putnam Fiduciary Trust Company
One Post Office Square
Boston, MA 02109
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
PUTNAMINVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
PROSPECTUS
DECEMBER 1,
1995
Putnam Tax-Free Insured Fund
Class A, B and M shares
INVESTMENT STRATEGY: TAX-ADVANTAGED
This prospectus explains concisely what you should know before investing in Putnam Tax-Free Insured Fund (the "fund") , a series of Putnam Tax-Free Income Trust (the "Trust"). Please read it carefully and keep it for future reference. You can find more detailed information in the December 1, 1995 statement of additional information (the "SAI") , as amended from time to time. For a free copy of the SAI or other information, call Putnam Investor Services at 1-800-225-1581. The SAI has been filed with the Securities and Exchange Commission and is incorporated into this prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED .
BOSTON * LONDON * TOKYO
ABOUT THE FUND
Expenses summary
This section describes the sales charges, management fees, and annual operating expenses that apply to the fund's various classes of shares. Use it to help you estimate the impact of transaction costs on your investment over time.
Financial highlights
Study this table to see, among other things, how the fund performed each year for the past 10 years or since it began investment operations if it has been in operation for less than 10 years.
Objective
Read this section to make sure the fund's objective is consistent with your own.
How the fund pursues its objective
This section explains in detail how the fund seeks its investment objective. Risk factors. All investments entail some risk. Read this section to make sure you understand certain risks that may be involved when investing in the fund.
How performance is shown
This section describes and defines the measures used to assess the fund's performance. All data are based on the fund's past investment results and do not predict future performance.
How the fund is managed
Consult this section for information about the fund's management, allocation of the fund's expenses, and how purchases and sales of securities are made for the fund.
Organization and history
In this section, you will learn when the fund was introduced, how it is organized, how it may offer shares, and who its Trustees are.
ABOUT YOUR INVESTMENT
Alternative sales arrangements
Read this section for descriptions of the classes of shares this prospectus offers and for points you should consider when making your choice.
How to buy shares
This section describes the ways you may purchase shares and tells you the minimum amounts required to open various types of accounts. It explains how sales charges are determined and how you may become eligible for reduced sales charges on each class of shares.
Distribution plans
This section tells you what distribution fees are charged against each class of shares .
How to sell shares
In this section you can learn how to sell shares of the fund, either directly to the fund or through an investment dealer.
How to exchange shares
Find out in this section how you may exchange shares of the fund for shares of other Putnam funds. The section also explains how exchanges can be made without sales charges and the conditions under which sales charges may be required.
How the fund values its shares
This section explains how the fund determines the value of its shares.
How the fund makes distributions to shareholders; tax information
This section describes the various options you have in choosing how to receive dividends from the fund. It also discusses the federal tax status of the payments and counsels shareholders to seek specific advice about their own situation.
ABOUT PUTNAM INVESTMENTS, INC.
Read this section to learn more about the companies that provide the marketing, investment management, and shareholder account services to Putnam funds and their shareholders.
About the fund
Expenses are one of several factors to consider when investing
. The following table summarizes your maximum transaction
costs from investing in the fund and expenses incurred by
the fund based on its most recent fiscal year. The
examples show the cumulative expenses attributable to a
hypothetical $1,000 investment over specified periods.
Class A Class B Class M
shares shares shares
Shareholder transaction
expenses
Maximum sales charge
imposed on purchases
(as a percentage of
offering price) 4.75% NONE* 3.25%*
Deferred sales charge 5.0% in the
first
(as a percentage year, declining
of the lower of to 1.0% in the
original purchase sixth year, and
price or redemption eliminated
proceeds) NONE** thereafter NONE
Annual fund operating expenses
(as a percentage of average net assets)
Total fund
Management 12b-1
Other operating
fees fees expenses expenses
- ---------- ----- -------------------
Class A 0.59% 0.20% 0.10% 0.89%
Class B 0.59% 0.85% 0.10% 1.54%
Class M 0.59% 0.50% 0.10% 1.19%
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The table is provided to help you understand the expenses of investing in the fund and your share of the operating expenses which the fund incurs. The 12b-1 fees for class M shares reflect amounts currently payable under the class M plan. For class M shares, management fees and "Other expenses" are based on the corresponding expenses for class A shares.
Examples
Your investment of $1,000 would incur the following expenses, assuming 5% annual return and , except where indicated, redemption at the end of each period:
1 3 5 10
year years years years
Class A $56 $75 $94 $152
Class B $66 $79 $104 $166 ***
Class B (no redemption) $16 $49 $84 $166
Class M $44 $69 $96 $172
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The examples do not represent past or future expense levels. Actual expenses may be greater or less than those shown. Federal regulations require the examples to assume a 5% annual return, but actual annual return varies .
* The higher 12b-1 fees borne by class B and class M shares may cause long-term shareholders to pay more than the economic equivalent of the maximum permitted front-end sales charge on class A shares.
** A deferred sales charge of up to 1.00% is assessed on certain redemptions of class A shares that were purchased without an initial sales charge . See "How to buy shares -- Class A shares."
*** Reflects conversion of class B shares to class A shares (which pay lower ongoing expenses) approximately eight years after purchase. See "Alternative sales arrangements."
FINANCIAL HIGHLIGHTS
The following table presents per share financial
information for class A , B and M shares.
This information has been audited and reported on by the
Trust's independent accountants. The " Report of
independent accountants" and financial statements included
in the fund's annual report to shareholders for the
1995 fiscal year are incorporated by reference into this
prospectus. The fund's annual report , which contains
additional unaudited performance information, is available
without charge upon request.
Financial highlights
(For a share outstanding throughout the period)
Putnam Tax-Free Insured Fund
For the period
June 1, 1995
For the period
(commencement
September 20, 1993
of operations)
(commencement
to Year ended of
operations) to
July 31 July 31
July 31
1995 1995
1994
Class M
Class A
Net asset value, beginning of period $15.11 $14.67
$15.88
Investment operations
Net investment income .12 .83
.73
Net realized and unrealized
gain (loss) on investments (.25) .19
(1.12)
Total from investment operations (.13) 1.02
(.39)
Less distributions from:
Net investment income (.12) (.82)
(.72)
Net realized gain on investments -- --
--
In excess of net realized gain on
investments -- (.01)
(.10)
Total distributions (.12) (.83)
(.82)
Net asset value, end of period $14.86 $14.86
$14.67
Total investment return at net
asset value (%) (b) (0.87)(c) 7.21
(2.49)(c)
Net assets, end of
period (in thousands) $17 $184,241
$143,079
Ratio of expenses to
average net assets (%) .14(c) .89
.80(c)
Ratio of net investment
income to average net assets (%) .73(c) 5.68
4.73(c)
Portfolio turnover (%) 37.62 37.62
47.72
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Year ended July 31
1995 1994 1993 1992 1991
Class B
$14.68 $15.50 $15.42 $14.38 $14.25
.73 .74 .75 .76 .79
.20 (.73) .28 1.14 .14
.93 .01 1.03 1.90 .93
(.73) (.73) (.75) (.77) (.80)
-- -- (.20) (.09) --
(.01) (.10) -- -- --
(.74) (.83) (.95) (.86) (.80)
$14.87 $14.68 $15.50 $15.42 $14.38
6.53 0.00 7.00 13.63 6.79
$377,443 $432,895 $572,659 $466,135 $359,465
1.54 1.53 1.74 1.79 1.68
5.05 4.81 4.88 5.16 5.60
37.62 47.72 42.01 66.18 54.69
/TABLE
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For the period
September 9, 1985
(commencement
of operations) to
July 31
1990 1989 1988 1987 1986
Class B
$14.79 $13.85 $13.77 $13.91 $12.57
.83 .85 .85 .84 .73(a)
(.06) .93 .11 (.10) 1.41
.77 1.78 .96 .74 2.14
(.83) (.84) (.85) (.84) (.80)
(.48) (.03) (.04)
- - - - -
(1.31) (.84) (.88) (.88) (.80)
$14.25 $14.79 $13.85 $13.77 $13.91
5.49 13.31 7.24 5.31 17.33(c)
$309,050 $293,127 $268,004 $264,916 $195,386
1.63 1.61 1.58 1.61 1.42(a)(c)
5.81 6.01 6.20 5.83 5.26(a)(c)
86.29 201.21 197.29 85.49 125.36(c)
(a) Reflects a waiver of a portion of the distribution plan
payments during the period.
As a result of this waiver, expenses of the class B shares of the
fund for the period
ended July 31, 1986 reflect a reduction of $0.01 per share.
(b) Total investment return assumes dividend reinvestment and
does not reflect the effect
of sales charges.
(c) Not annualized.
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OBJECTIVE
Putnam Tax-Free Insured Fund seeks high current income exempt from federal income tax. The fund is not intended to be a complete investment program, and there is no assurance it will achieve its objective.
HOW THE FUND PURSUES ITS OBJECTIVE
Basic investment strategy
Putnam Tax-Free Insured Fund seeks its objective by following the fundamental investment policy of investing at least 80% of its net assets in a diversified portfolio of tax-exempt securities (which are described below), except when investing for defensive purposes during times of adverse market conditions.
The fund invests in tax-exempt securities which are insured, rated AAA or Aaa (SP-1, Prime-1, A-1+ or MIG-1 in the case of notes or commercial paper) , or backed by the U.S. government. Insurance guarantees payment of principal and interest, but not market value. The fund may trade its portfolio investments seeking short-term profits, which may result in taxable capital gains and may involve special risks. See "Portfolio turnover," below.
The fund may also invest in taxable obligations, as described below, to the extent permitted by its investment policies, or hold a portion of its assets in money market instruments or in cash. Putnam Investment Management, Inc., the fund's investment manager ("Putnam Management"), expects the fund will generally invest in tax-exempt securities of longer maturities (10 years or more), but the fund may invest in tax-exempt securities having a broad range of maturities.
The fund's investments in tax-exempt securities will be limited to securities rated at the time of purchase not lower than the four highest grades assigned by Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A or Baa) and Standard & Poor's ("S&P") (AAA, AA, A or BBB), or unrated securities which Putnam Management determines are of comparable quality. The rating services' descriptions of the four highest grades of debt securities are included in the SAI .
In addition, at the time of purchase and so long as a tax- exempt security is held by the fund , each such security must be covered by insurance guaranteeing the timely payment of principal and interest, except if a security at the time of purchase (i) is rated AAA or Aaa, in the case of a bond , or SP-1, MIG-1, Prime-1, or A-1+, in the case of a note or commercial paper , or (ii) is backed by the full faith and credit of the U.S. government. Under normal market conditions it is expected that at least 70% of the fund's tax- exempt securities will be protected by insurance. Such insurance may be provided (i) under a "new issue" insurance policy obtained by the issuer or underwriter of a security, (ii) under a "secondary market" policy purchased by the fund with respect to a security, or (iii) under a portfolio insurance policy maintained by the fund . In each case, such insurance policies guarantee only the timely payment of principal and interest on the insured tax-exempt securities . Market value, which may fluctuate due to changes in interest rates or factors affecting the credit of the issuer or the insurer, is not insured. These forms of insurance, which are more fully described below under "Insurance," are available from a number of insurance companies. The fund will only acquire insurance from, and purchase tax-exempt securities insured by, companies whose claims paying ability is rated AAA or Aaa at the time of purchase. Changes in the financial condition of an insurer could result in a subsequent reduction or withdrawal of such rating.
The fund will not necessarily dispose of a security when its rating is reduced below its rating at the time of purchase, although Putnam Management will monitor the investment to determine whether continued investment in the security will assist the fund in meeting its investment objective.
Alternative minimum tax
Interest income from certain types of tax-exempt securities may be subject to federal alternative minimum tax for individuals and corporations.
In determining compliance with the 80% test described above, it is a fundamental policy of the fund to exclude from the definition of tax-exempt securities any securities the interest from which may be subject to the federal alternative minimum tax for individuals. An investment in the fund may subject corporate shareholders to the federal alternative minimum tax , because a portion of tax-exempt income is generally included in the alternative minimum taxable income of corporations.
Alternative investment strategies
At times Putnam Management may judge that conditions in the markets for tax-exempt securities make pursuing the fund's basic investment strategy inconsistent with the best interests of its shareholders. At such times Putnam Management may temporarily use alternative strategies primarily designed to reduce fluctuations in the value of the fund's assets.
In implementing these "defensive" strategies, the fund may invest without limit in taxable obligations, including obligations of the U.S. government, its agencies or instrumentalities, may place up to 25% of its assets in repurchase agreements with commercial banks and registered broker-dealers, or may invest in any other securities that Putnam Management considers consistent with such defensive strategies.
It is impossible to predict when, or for how long, the fund will use these alternative strategies.
Tax-exempt securities
Tax-exempt securities include obligations of a state (including the District of Columbia), a territory or a U.S. possession, or any of their political subdivisions, agencies, instrumentalities or other governmental units, the interest on which, in the opinion of bond counsel, is exempt from federal income tax.
These securities are issued to obtain funds for various public purposes, such as the construction of public facilities, the payment of general operating expenses or the refunding of outstanding debts.
They may also be issued to finance various private activities, including the lending of funds to public or private institutions for the construction of housing, educational or medical facilities, or to fund short-term cash requirements. They may also include certain types of industrial development bonds, private activity bonds or notes issued by public authorities to finance privately owned or operated facilities.
Short-term tax-exempt securities may be issued as interim financing in anticipation of tax collections, revenue receipts or bond sales to finance various public purposes.
The two principal classifications of tax-exempt securities are general obligation and special obligation (or special revenue obligation) securities.
General obligation securities involve a pledge of the credit of an issuer possessing taxing power and are payable from the issuer's general unrestricted revenues. Their payment may depend on an appropriation by the issuer's legislative body. The characteristics and methods of enforcement of general obligation securities vary according to the law applicable to the particular issuer.
Special obligation (or special revenue obligation) securities are payable only from the revenues derived from a particular facility or class of facilities, or a specific revenue source, and generally are not payable from the unrestricted revenues of the issuer. Industrial development bonds and private activity bonds are in most cases special obligation securities, whose credit quality is tied to the private user of the facilities.
The fund may also invest in securities representing interests in tax-exempt securities , known as "inverse floating obligations" or "residual interest bonds ." These obligations pay interest rates that vary inversely to changes in the interest rates of specified short-term tax - exempt securities or an index of short-term tax - exempt securities. The interest rates on inverse floating obligations or residual interest bonds will typically decline as short-term market interest rates increase and increase as short-term market rates decline.
These securities have the effect of providing a degree of investment leverage . They will generally respond to changes in market interest rates more rapidly than fixed-rate long-term securities (typically twice as fast) . As a result, the market values of inverse floating obligations and residual interest bonds will generally be more volatile than the market values of fixed-rate tax - exempt securities.
Risk factors
The values of tax-exempt 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 magnitude of these fluctuations generally is greater for securities with longer maturities. However, the yields on such securities are generally higher. In addition, the values of fixed-income securities are affected by changes in general economic conditions and business conditions affecting the specific industries of their issuers.
Changes by recognized rating services in their ratings of tax- exempt securities , insurers' claims paying abilities and the ability of an issuer to make payments of interest and principal may also affect the value of these investments. The portfolio insurance covering tax-exempt securities purchased by the fund does not insure against changes in market value. Changes in the value of portfolio securities generally will not affect income derived from such securities, but will affect the fund's net asset value.
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 secondary market for tax-exempt securities is generally less liquid than that for taxable fixed-income securities, particularly in the lower rating categories. Thus, it may be more difficult to value or buy and sell certain securities from time to time.
Insurance
The three types of insurance are "new issue" insurance, portfolio insurance and "secondary market" insurance. The fund may obtain a portfolio insurance policy which would guarantee payment of principal and interest on eligible tax-exempt securities owned by the fund which are not otherwise insured by "new issue" insurance or "secondary market" insurance and which would require insurance coverage under the fund's investment policies. Under a portfolio insurance policy, the insurer may from time to time establish criteria for determining tax-exempt securities eligible for insurance. The fund will not purchase a tax-exempt security which is not eligible for coverage under a portfolio policy unless the security is otherwise insured or is exempt from the fund's insurance requirements.
Unlike tax-exempt securities covered by "new issue" insurance, which continues in force for the life of the security, a tax-exempt security will be entitled to the benefit of insurance under a portfolio policy only so long as the fund owns the security. If the fund sells the security, the insurance protection ends. As a result, the fund will generally not attribute any value to portfolio insurance in valuing its investments. However, if any tax- exempt security is in default or presents a material risk of default, the fund intends to continue to hold the security in its portfolio and to place a value on the insurance protection. Thus, Putnam Management's ability to manage the portfolio of the fund or to obtain portfolio insurance from other insurers may be limited to the extent that it holds defaulted securities. Portfolio insurance cannot be cancelled by the insurer with respect to any tax-exempt security already held by the fund except for non-payment of premiums. However, there is no assurance that portfolio insurance will be available at reasonable premium rates.
The fund may at times purchase "secondary market" insurance on tax-exempt securities which it holds or acquires. Like "new issue" insurance, this insurance continues in force for the life of the security for the benefit of any holder of the security. The purchase of secondary market insurance would be reflected in the market value of the security and, if available, may enable the fund to dispose of a defaulted security at a price similar to that of comparable, undefaulted securities.
Insurance premiums paid by the fund for portfolio insurance would be treated as an expense of the fund, reducing the fund's net investment income. While the amount of premiums depends on the composition of the fund's portfolio, Putnam Management estimates that, at current rates, the fund's annual premium expense for portfolio insurance, if purchased, would range from 0.1% to 0.5% of that portion of the fund's assets covered by such insurance. Premiums paid for secondary market insurance, however, would be treated as capital costs, increasing the fund's cost basis in its investments and reducing its effective yield. During fiscal 1995 the fund did not pay any insurance premiums.
Concentration
The fund will not generally invest more than 25% of its total assets in any industry. Governmental issuers of tax-exempt securities are not considered part of any "industry." However, for this purpose tax-exempt securities backed only by the assets and revenues of nongovernmental users may be deemed to be issued by such nongovernmental users. Thus, the 25% limitation would apply to such obligations.
It is possible that the fund may invest more than 25% of its assets in a broader segment of the market for tax-exempt securities, such as revenue obligations of hospitals and other health care facilities, housing agency revenue obligations, or airport revenue obligations. This would be the case only if Putnam Management determined that the yields available from obligations in a particular segment of the market justified the additional risks associated with such concentration.
Although these obligations could be supported by the credit of governmental issuers or by the credit of nongovernmental issuers engaged in a number of industries, economic, business, political and other developments generally affecting the revenues of their issuers may have a general adverse effect on all tax-exempt securities in a market segment. (Examples would include proposed legislation or pending court decisions affecting the financing of such projects and market factors affecting the demand for their services or products.)
The fund reserves the right to invest more than 25% of its assets in industrial development and private activity bonds or in issuers located in the same state.
Investments in premium securities
During a period of declining interest rates, many of the fund's portfolio investments will likely bear coupon rates that are higher than current market rates, regardless of whether these securities were originally purchased at a premium. These securities would generally carry market values greater than the principal amounts payable on maturity, which would be reflected in the net asset value of the fund's shares.
The values of these "premium" securities tend to approach the principal amount as the securities approach maturity (or call price in the case of securities approaching their first call date). As a result, an investor who purchases shares of the fund during these periods would initially receive higher monthly distributions (derived from the higher coupon rates payable on the fund's investments) than might be available from alternative investments bearing current market interest rates. But the investor may face an increased risk of capital loss as these higher coupon securities approach maturity (or first call date). In evaluating the potential performance of an investment in the fund, investors may find it useful to compare the fund's current dividend rate with the fund's "yield," which is computed on a yield-to-maturity basis in accordance with SEC regulations and which reflects amortization of market premiums. See "How performance is shown."
Portfolio turnover
The length of time the fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by the fund is known as "portfolio turnover." As a result of the fund's investment policies, under certain market conditions the fund's portfolio turnover rate may be higher than that of other mutual funds.
Portfolio turnover generally involves some expense to the fund, including brokerage commissions or dealer markups and other transaction costs on the sale of securities and reinvestment in other securities. These transactions may result in realization of taxable capital gains. Portfolio turnover rates for the life of the fund are shown in the section, "Financial highlights."
Financial futures and options
The fund may purchase and sell financial futures contracts for hedging purposes.
Futures contracts on the Municipal Bond Index are traded on the Chicago Board of Trade. This index is intended to represent a numerical measure of market performance for long-term tax exempt bonds. An "index future" is a contract to buy or sell units of a particular securities index at an agreed price on a specified future date. Depending on the change in value of the index between the time when the fund enters into and terminates an index futures contract, the fund realizes a gain or loss. The fund may purchase and sell futures contracts on the index (or any other tax-exempt bond index approved for trading by the Commodity Futures Trading Commission) to hedge against general changes in market values of tax-exempt securities that the fund owns or expects to purchase. The fund may also purchase and sell put and call options on index futures or on the indexes directly, in addition to or as an alternative to purchasing and selling index futures.
For hedging purposes, the fund may also purchase and sell futures contracts and related options on U.S. Treasury securities, including U.S. Treasury bills, notes and bonds ("U.S. government securities"), and options directly on U.S. government securities. U.S. government securities futures and options would be used for purposes similar to index futures and options.
In addition, the fund may purchase put and call options on, or warrants to purchase, tax-exempt securities , either directly or through custodial arrangements in which the fund and other investors own an interest in one or more options on tax-exempt securities .
The use of futures and options involves certain special risks and may result in realization of taxable income or capital gains. Futures and options transactions involve costs and may result in losses.
Certain risks arise from the possibility of imperfect correlations between movements in the prices of financial futures and options and movements in the prices of the underlying bond index or U.S. government securities or of the tax- exempt securities that are the subject of the hedge. The successful use of futures and options further depends on Putnam Management's ability to forecast interest rate movements correctly.
Other risks arise from the potential inability to close out futures or options positions . There can be no assurance that a liquid secondary market will exist for any futures contract or option at a particular time. Certain provisions of the Internal Revenue Code and certain regulatory requirements may limit the use of futures and options transactions.
A more detailed explanation of financial futures and options transactions and the risks associated with them is included in the SAI .
Other investment practices
The fund may also engage in the following investment practices, each of which may result in taxable income or capital gains and involves certain special risks. The SAI contains more detailed information about these practices, including limitations designed to reduce these risks.
Repurchase agreements and forward commitments. When utilizing the alternative investment strategies described above, the fund may enter into repurchase agreements on up to 25% of its assets. These transactions must be fully collateralized at all times. The fund may also purchase securities for future delivery, which may increase its overall investment exposure and involves a risk of loss if the value of the securities declines prior to the settlement date. These transactions involve some risk to the fund if the other party should default on its obligation and the fund is delayed or prevented from recovering the collateral or completing the transaction.
Derivatives
Certain of the instruments in which the fund will invest, such as futures contracts, options and inverse floating obligations, are considered to be "derivatives." Derivatives are financial instruments whose value depends upon, or is derived from, the value of an underlying asset, such as a security or an index. Further information about these instruments and the risks involved in their use is included elsewhere in this prospectus and in the SAI.
Limiting investment risk
Specific investment restrictions help the fund limit investment risks for its shareholders. These restrictions prohibit the fund and the Trust from acquiring more than 10% of the voting securities of any one issuer .* They also prohibit the fund from investing more than:
(a) 5% of its total assets in securities of any one issuer (other than U.S. government obligations) (insurance policies of which the fund is a beneficiary are not considered securities for purposes of this restriction);*
(b) 5% of its net assets in securities of issuers (other than U.S. government obligations and tax-exempt securities backed by the credit of a governmental entity) that, together with any predecessors, controlling persons, general partners and guarantors, have been in operation less than three years;
(c) 15% of its net assets in securities restricted as to resale (excluding securities determined by the Trust's Trustees (or the person designated by them to make such determinations) to be readily marketable)*; or
(d) 15% of its net assets in any combination of securities that are not readily marketable, in securities restricted as to resale (excluding securities determined by the Trust's Trustees (or the person designated by them to make such determinations) to be readily marketable), and in repurchase agreements maturing in more than seven days.
Restrictions marked with an asterisk (*) above are summaries of fundamental investment policies. See the SAI for the full text of these policies and the Trust's other fundamental investment policies. Except for investment policies designated as fundamental in this prospectus or the SAI , the investment policies described in this prospectus and in the SAI are not fundamental policies. The Trustees may change any non-fundamental investment policies without shareholder approval. As a matter of policy, the Trustees would not materially change the fund's investment objective without shareholder approval.
HOW PERFORMANCE IS SHOWN
The fund's investment performance may from time to time be included in advertisements about the fund . "Yield" for each class of shares is calculated by dividing the annualized net investment income per share during a recent 30-day period by the maximum public offering price per share of the class on the last day of that period.
For purposes of calculating yield , net investment income is calculated in accordance with SEC regulations and may differ from net investment income as determined for financial reporting purposes. SEC regulations require that net investment income be calculated on a "yield-to-maturity" basis, which has the effect of amortizing any premiums or discounts in the current market value of fixed-income securities. The current dividend rate is based on net investment income as determined for tax purposes, which may not reflect amortization in the same manner. See "How the fund pursues its objective -- Investments in premium securities."
Yield is based on the price of the shares, including the maximum initial sales charge in the case of class A and class M shares, but does not reflect any contingent deferred sales charge in the case of class B shares. "Tax-equivalent" yield for each class of shares shows the effect on performance of the tax-exempt status of distributions received from the fund . It reflects the approximate yield that a taxable investment must earn for shareholders at stated income levels to produce an after-tax yield equivalent to a class's tax-exempt yield.
"Total return" for the one-, five- and ten-year periods (or for the life of a class, if shorter) through the most recent calendar quarter represents the average annual compounded rate of return on an investment of $1,000 in the fund invested at the maximum public offering price (in the case of class A and class M shares) or reflecting the deduction of any applicable contingent deferred sales charge (in the case of class B shares). Total return may also be presented for other periods or based on investment at reduced sales charge levels. Any quotation of investment performance not reflecting the maximum initial sales charge or contingent deferred sales charge would be reduced if the sales charge were used.
All data are based on past investment results and do not predict future performance.
Investment performance, which will vary, is based on many factors, including market conditions, the composition of the fund's portfolio, the fund's operating expenses and which class of shares the investor purchases . Investment performance also often reflects the risks associated with the fund's investment objective and policies. These factors should be considered when comparing the fund's investment results with those of other mutual funds and other investment vehicles.
Quotations of investment performance for any period when an expense limitation was in effect will be greater than if the limitation had not been in effect. The fund's performance may be compared to that of various indexes. See the SAI .
HOW THE FUND IS MANAGED
The Trustees of the Trust are responsible for generally overseeing the conduct of the fund's 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 fund pays Putnam Management a monthly fee for these services based on the fund's average net assets. See "Expenses summary" and the SAI.
The following officer of Putnam Management has had primary responsibility for the day-to-day management of the fund's portfolio since the year stated below:
Richard P. Wyke 1988 Employed by Putnam
Management
Senior Vice President since 1987.
The Trust pays all expenses not assumed by Putnam Management, including Trustees' fees, auditing, legal, custodial, investor servicing and shareholder reporting expenses, and payments under its distribution plans (which are in turn allocated to the relevant class of shares). Expenses of the Trust directly charged or attributable to the fund will be paid from the assets of the fund . General expenses of the Trust will be allocated among and charged to the assets of the fund and any other portfolio of the Trust on a basis that the Trustees deem fair and equitable, which may be based on the relative assets of the fund or the nature of the services performed and relative applicability to the fund . The Trust also reimburses Putnam Management for the compensation and related expenses of certain officers of the Trust and their staff who provide administrative services to the Trust. The total reimbursement is determined annually by the Trustees.
Putnam Management places all orders for purchases and sales of the fund's securities. In selecting broker-dealers, Putnam Management may consider research and brokerage services furnished to it and its affiliates. Subject to seeking the most favorable price and execution available, Putnam Management may consider sales of shares of the fund (and, if permitted by law, of the other Putnam funds) as a factor in the selection of broker-dealers.
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business Trust organized on June 28, 1985. A copy of the Agreement and Declaration of Trust, which is governed by Massachusetts law, is on file with the Secretary of State of The Commonwealth of Massachusetts.
The Trust is an open-end, diversified management investment company with an unlimited number of authorized shares of beneficial interest. Shares of the Trust may, without shareholder approval, be divided into two or more series of such shares and are currently divided into two series of shares: the fund and Putnam Tax-Free High Yield Fund.
Any such series of shares may be further 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's shares are currently divided into three classes. Only the fund's class A, B and M shares are offered by this prospectus. The fund may also offer other classes of shares with different sales charges and expenses. Because of these different sales charges and expenses, the investment performance of the classes will vary. For more information, including your eligibility to purchase any other class of shares, contact your investment dealer or Putnam Mutual Funds (at 1-800-225-1581).
Each share has one vote, with fractional shares voting proportionally. Shares vote by individual series on all matters except (i) when required by the Investment Company Act of 1940, shares of all series shall be voted in the aggregate and (ii) when the Trustees have determined that the matter affects only the interests of one or more series, only shareholders of such series shall be entitled to vote. Shares of each class will vote together as a single class except when otherwise required by law or as determined by the Trustees. Shares of the fund are freely transferable, are entitled to dividends from the assets of the fund as declared by the Trustees, and, if the Trust were liquidated, would receive the net assets of the fund . The Trust may suspend the sale of shares of the fund at any time and may refuse any order to purchase shares. Although the Trust 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.
If you own fewer shares than a minimum amount set by the Trustees (presently 20 shares), the fund may choose to redeem your shares . You will receive at least 30 days' written notice before the fund redeems your shares, and you may purchase additional shares at any time to avoid a redemption. The fund may also redeem shares if you own shares above a maximum amount set by the Trustees. There is presently no maximum, but the Trustees may establish one at any time, which could apply to both present and future shareholders.
The Trust's Trustees: George Putnam,* Chairman. President of the Putnam funds. Chairman and Director of Putnam Management and Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director, Marsh & McLennan Companies, Inc.; William F. Pounds, Vice Chairman. Professor of Management, Alfred P. Sloan School of Management, Massachusetts Institute of Technology ; Jameson Adkins Baxter, President, Baxter Associates, Inc.; Hans H. Estin, Vice Chairman, North American Management Corp.; John A. Hill, Principal and Managing Director, First Reserve Corporation; Elizabeth T. Kennan, President Emeritus and Professor , Mount Holyoke College; Lawrence J. Lasser,* Vice President of the Putnam funds. President, Chief Executive Officer and Director of Putnam Investments, Inc. and Putnam Management. Director, Marsh & McLennan Companies, Inc.; Robert E. Patterson, Executive Vice President, Cabot Partners Limited Partnership; Donald S. Perkins,* Director of various corporations, including AT&T , Kmart Corporation and Time Warner Inc.; George Putnam, III,* President, New Generation Research, Inc.; Eli Shapiro, Alfred P. Sloan Professor of Management, Emeritus, Alfred P. Sloan School of Management, Massachusetts Institute of Technology ; A.J.C. Smith,* Chairman, Chief Executive Officer and Director, Marsh & McLennan Companies, Inc.; and W. Nicholas Thorndike, Director of various corporations and charitable organizations, including Data General Corporation, Bradley Real Estate, Inc. and Providence Journal Co. Also, Trustee of Massachusetts General Hospital and Eastern Utilities Associates. The Trust's Trustees are also Trustees of the other Putnam funds. Those marked with an asterisk (*) are or may be deemed to be "interested persons" of the Trust, Putnam Management or Putnam Mutual Funds.
About Your Investment
ALTERNATIVE SALES ARRANGEMENTS
This prospectus offers investors three classes of shares that bear sales charges in different forms and amounts and that bear different levels of expenses:
Class A shares. An investor who purchases class A shares pays a sales charge at the time of purchase. As a result, class A shares are not subject to any charges when they are redeemed , except for certain sales at net asset value that are subject to a contingent deferred sales charge ("CDSC") . Certain purchases of class A shares qualify for reduced sales charges. Class A shares bear a lower 12b-1 fee than class B and class M shares. See "How to buy shares -- Class A shares " and "Distribution plans."
Class B shares. Class B shares are sold without an initial sales
charge, but are subject to a CDSC if redeemed within a
specified period after purchase . Class B shares also bear a
higher 12b-1 fee than class A and class M shares. Class B
shares automatically convert into class A shares,
based on relative net asset value, approximately eight years
after purchase. For more information about the conversion of
class B shares, see the SAI. This discussion will include
information about how shares acquired through reinvestment of
distributions are treated for conversion purposes. The
discussion will also note certain circumstances under which a
conversion may not occur. Class B shares provide an investor
the benefit of putting all of the investor's dollars to work from
the time the investment is made . Until conversion, class B
shares will have a higher expense ratio and pay lower
dividends than class A and class M shares
because of the higher 12b-1 fee. See "How to buy shares -
- - Class B shares " and "Distribution plans."
Class M shares. An investor who purchases class M shares
pays a sales charge at the time of purchase that is lower
than the sales charge applicable to class A shares.
Certain purchases of class M shares qualify for
reduced sales charges. Class M shares bear a 12b-1 fee
that is lower than class B shares but higher than class A
shares. Class M shares are not subject to any CDSC and do
not convert into any other class of shares. See "How to buy
shares -- Class M shares " and "Distribution plans."
Which arrangement is best for you? The decision as to which class of shares provides a more suitable investment for an investor depends on a number of factors, including the amount and intended length of the investment. Investors making investments that qualify for reduced sales charges might consider class A shares or class M shares. Investors who prefer not to pay an initial sales charge might consider class B shares. Orders for class B shares for $250,000 or more will be treated as orders for class A shares or declined. For more information about these sales arrangements, consult your investment dealer or Putnam Investor Services. Shares may only be exchanged for shares of the same class of another Putnam fund. See "How to exchange shares."
HOW TO BUY SHARES
You can open a fund account with as little as $500 and make additional investments at any time with as little as $50. You can buy fund shares three ways - through most investment dealers, through Putnam Mutual Funds (at 1-800-225- 1581), or through a systematic investment plan. If you do not have a dealer, Putnam Mutual Funds can refer you to one.
Buying shares through Putnam Mutual Funds. Complete an order form and write a check for the amount you wish to invest, payable to the fund. Return the completed form and check to Putnam Mutual Funds, which will act as your agent in purchasing shares through your designated investment dealer.
Buying shares through systematic investing. You can make regular investments of $25 or more per month through automatic deductions from your bank checking or savings account. Application forms are available from your investment dealer or through Putnam Investor Services.
Shares are sold at the public offering price based on the net asset value next determined after Putnam Investor Services receives your order. In most cases, in order to receive that day's public offering price, Putnam Investor Services must receive your order before the close of regular trading on the New York Stock Exchange. If you buy shares through your investment dealer, the dealer must receive your order before the close of regular trading on the New York Stock Exchange to receive that day's public offering price.
Class A shares The public offering price of class A shares is the net asset value plus a sales charge that varies depending on |
the size of your purchase . The fund receives the net asset value. The sales charge is allocated between your investment dealer and Putnam Mutual Funds as shown in the following table, except when Putnam Mutual Funds, in its discretion, allocates the entire amount to your investment dealer.
Sales charge Amount of
as a percentage of: sales charge
-------------------reallowed
to
Net dealers
as a
Amount of transaction amount Offering
percentage of
at offering price ($) invested price offering
price
- -----------------------------------------------------------------
Under 25,000 4.99% 4.75% 4.50%
25,000 but under 100,000 4.71 4.50 4.25
100,000 but under 250,000 3.90 3.75 3.50
250,000 but under 500,000 3.09 3.00 2.75
500,000 but under 1,000,000 2.04 2.00
1.85
- -----------------------------------------------------------------
|
There is no initial sales charge on purchases of class A shares of $1 million or more. However, a CDSC of 1.00% or 0.50%, respectively, will be imposed if you redeem these shares within the first or second year after purchase, based on the lower of the shares' cost and current net asset value. Any shares acquired by reinvestment of distributions will be redeemed without a CDSC.
Shares purchased by certain investors investing $1 million or more who have made arrangements with Putnam Mutual Funds and whose dealer of record waived the commission as described below are not subject to the CDSC. In determining whether a CDSC is payable, the fund will first redeem shares not subject to any charge. Putnam Mutual Funds receives the entire amount of any CDSC you pay. See the SAI for more information about the CDSC.
Putnam Mutual Funds pays investment dealers of record commissions on sales of class A shares of $1 million or more based on an investor's cumulative purchases during the one- year period beginning with the date of the initial purchase at net asset value. Each subsequent one-year measuring period for these purposes will begin with the first net asset value purchase following the end of the prior period. Such commissions are paid at the rate of 1.00% of the amount under $3 million, 0.50% of the next $47 million and 0.25% thereafter.
Class B shares
Class B shares are sold without an initial sales charge, although a CDSC will be imposed if you redeem shares within a specified period after purchase , as shown in the table below . The following types of shares may be redeemed without charge at any time: (i) shares acquired by reinvestment of distributions and (ii) shares otherwise exempt from the CDSC, as described below in "How to buy shares - -General" below. For other shares, the amount of the charge is determined as a percentage of the lesser of the current market value or the cost of the shares being redeemed.
Charge 5% 4% 3% 3% 2% 1% 0%
In determining whether a CDSC is payable on any redemption, the fund will first redeem shares not subject to any charge, and then shares held longest during the CDSC period. For this purpose, the amount of any increase in a share's value above its initial purchase price is not regarded as a share exempt from the CDSC. Thus, when a share that has appreciated in value is redeemed during the CDSC period, a CDSC is assessed only on its initial purchase price. For information on how sales charges are calculated if you exchange your shares, see "How to exchange shares." Putnam Mutual Funds receives the entire amount of any CDSC you pay. The CDSC applicable to shares of the fund issued prior to August 23, 1993 is calculated in a different manner than the CDSC described above. For further information consult your dealer or Putnam Investor Services.
Class M shares The public offering price of class M shares is the net asset value plus a sales charge that varies depending on |
the size of your purchase . The fund receives the net asset value. The sales charge is allocated between your investment dealer and Putnam Mutual Funds as shown in the following table, except when Putnam Mutual Funds, at its discretion, allocates the entire amount to your investment dealer.
Sales charge Amount
of
as a percentage of: sales
charge
-------------------
reallowed
to
Net dealers
as a
Amount of transaction amount Offering
percentage of
at offering price ($) invested price offering
price
- -----------------------------------------------------------------
Under 50,000 3.36% 3.25% 3.00%
50,000 but under 100,000 2.30
2.25 2.00
100,000 but under 250,000 1.52 1.50 1.25
250,000 but under 500,000 1.01 1.00 1.00
500,000 and above NONE NONE NONE
General
You may be eligible to buy class A shares and class
|
M shares at reduced sales charges.
Consult your investment dealer or Putnam Mutual Funds for details about Putnam's combined purchase privilege, cumulative quantity discount, statement of intention, group sales plan, employee benefit plans, and other plans. Descriptions are also included in the order form and in the SAI.
Sales charges will not apply to class M shares
purchased with redemption proceeds received within the prior
90 days from non-Putnam mutual funds on which the investor
paid a front-end or a contingent deferred sales charge.
The fund may also sell class M shares at net asset value to
members of qualified groups. The SAI contains additional
information about purchasing the fund's shares at reduced sales
charges.
The fund may sell class A, class B and class M shares at net asset value without an initial sales charge or a CDSC to the Trust's current and retired Trustees (and their families), current and retired employees (and their families) of Putnam Management and affiliates, registered representatives and other employees (and their families) of broker-dealers having sales agreements with Putnam Mutual Funds, employees (and their families) of financial institutions having sales agreements with Putnam Mutual Funds (or otherwise having an arrangement with a broker-dealer or financial institution with respect to sales of fund shares), financial institution trust departments investing an aggregate of $1 million or more in Putnam funds, clients of certain administrators of tax-qualified plans, employee benefit plans of companies with more than 750 employees, tax-qualified plans when proceeds from repayments of loans to participants are invested (or reinvested) in Putnam funds, "wrap accounts" for the benefit of clients of broker-dealers, financial institutions or financial planners adhering to certain standards established by Putnam Mutual Funds, and investors meeting certain requirements who sold shares of certain Putnam closed-end funds pursuant to a tender offer by the closed-end fund.
In addition, the fund may sell shares at net asset value without an initial sales charge or a CDSC in connection with the acquisition by the fund of assets of an investment company or personal holding company . The CDSC will be waived on redemptions of shares arising out of the death or post-purchase disability of a shareholder or settlor of a living trust account, and on redemptions in connection with certain withdrawals from IRA or other retirement plans. Up to 12% of the shares subject to a systematic withdrawal plan may also be redeemed each year without a CDSC.
Shareholders of other Putnam funds may be entitled to exchange their shares for, or reinvest distributions from their funds in, shares of the fund at net asset value.
If you are considering redeeming or exchanging shares or transferring shares to another person shortly after purchase, you should pay for those shares with a certified check to avoid any delay in redemption, exchange or transfer. Otherwise the fund may delay payment until the purchase price of those shares has been collected or, if you redeem by telephone, until 15 calendar days after the purchase date.
To eliminate the need for safekeeping, the fund will not
issue certificates for your shares unless you request them.
Putnam Mutual Funds will from time to time , at its
expense , provide additional promotional incentives or
payments to dealers that sell shares of the Putnam funds.
These incentives or payments may include payments for
travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives and their
guests to locations within and outside the United States
for meetings or seminars of a business nature. In some
instances, these incentives or payments may be offered only to
certain dealers who have sold or may sell significant amounts of
shares. Certain dealers may not sell all classes of shares.
DISTRIBUTION PLANS
Class A distribution plan. The class A plan provides for payments by the fund to Putnam Mutual Funds at the annual rate of up to 0.35% of the fund's average net assets attributable to class A shares. The Trustees currently limit payments under the class A plan to the annual rate of 0.20% of such assets.
Putnam Mutual Funds makes quarterly payments to qualifying dealers (including, for this purpose, certain financial institutions) to compensate them for services provided in connection with sales of class A shares and the maintenance of shareholder accounts . The payments are based on the average net asset value of class A shares attributable to shareholders for whom the dealers are designated as the dealer of record.
This calculation excludes until one year after purchase shares purchased at net asset value , known as "NAV shares," by shareholders investing $1 million or more . NAV shares are not subject to the one-year exclusion provision in cases where certain shareholders who invested $1 million or more have made arrangements with Putnam Mutual Funds and the dealer of record waived the sales commission.
Putnam Mutual Funds makes quarterly payments at the annual rate of 0.20% of such average net asset value for class A shares.
Class B and class M distribution plans. The class B and class M plans provide for payments by the fund to Putnam Mutual Funds at the annual rate of up to 1.00% of the fund's average net assets attributable to class B shares and class M shares, as the case may be. The Trustees currently limit payments under the class B and class M plans to the annual rate of 0.85% and 050% of such assets , respectively.
Although class B shares are sold without an initial sales charge, Putnam Mutual Funds pays a sales commission equal to 4.00% of the amount invested (including a prepaid service fee of 0.25% of the amount invested) to dealers who sell class B shares. These commissions are not paid on exchanges from other Putnam funds or on sales to investors exempt from the CDSC.
The amount paid to dealers at the time of the sale of
class M shares is set forth above under "How to buy shares
- -- Class M shares." In addition, in order to further compensate
dealers (including qualifying financial institutions) for
services provided in connection with sales of class B
shares and class M shares and the maintenance of
shareholder accounts, Putnam Mutual Funds makes quarterly
payments to qualifying dealers .
The payments are based on the average net asset value of class B shares and class M shares which are attributable to shareholders for whom the dealers are designated as the dealer of record, except for the first year's service fees for class B shares, which are prepaid as described above. Putnam Mutual Funds makes the payments at an annual rate of 0.20% of such average net asset value for class B shares outstanding as of March 31, 1990 , 0.25% of such average net asset value for class B shares acquired after that date and 0.25% of such average net asset value for class M shares (including shares acquired through reinvestment of dividends).
Putnam Mutual Funds also pays to dealers, as additional compensation with respect to the sale of class M shares, 0.15% of such average net asset value of class M shares. For class M shares, the total annual payment to dealers equals 0.40% of such average net asset value.
General. Payments under the plans are intended to compensate Putnam Mutual Funds for services provided and expenses incurred by it as principal underwriter of the fund's shares, including the payments to dealers mentioned above. Putnam Mutual Funds may suspend or modify the payments made to dealers.
The payments are also subject to the continuation of the relevant distribution plan , the terms of service agreements between dealers and Putnam Mutual Funds, and any applicable limits imposed by the National Association of Securities Dealers, Inc.
HOW TO SELL SHARES
You can sell your shares to the fund any day the New York Stock Exchange is open, either directly to the fund or through your investment dealer. The fund will only redeem shares for which it has received payment.
Selling shares directly to the fund . Send a signed letter of instruction or stock power form to Putnam Investor Services, along with any certificates that represent shares you want to sell. The price you will receive is the next net asset value calculated after the fund receives your request in proper form less any applicable CDSC. In order to receive that day's net asset value, Putnam Investor Services must receive your request before the close of regular trading on the New York Stock Exchange.
If you sell shares having a net asset value of $100,000 or more, the signatures of registered owners or their legal representatives must be guaranteed by a bank, broker-dealer or certain other financial institutions. See the SAI for more information about where to obtain a signature guarantee. Stock power forms are available from your investment dealer, Putnam Investor Services and many commercial banks.
If you want your redemption proceeds sent to an address other than your address as it appears on Putnam's records, a signature guarantee is required. Putnam Investor Services usually requires additional documentation for the sale of shares by a corporation, partnership, agent or fiduciary, or a surviving joint owner. Contact Putnam Investor Services for details.
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.
You may use Putnam's Telephone Redemption Privilege to redeem shares valued up to $100,000 from your account unless you have notified Putnam Investor Services of an address change within the preceding 15 days. Unless an investor indicates otherwise on the account application , Putnam Investor Services will be authorized to act upon redemption and transfer instructions received by telephone from a shareholder, or any person claiming to act as his or her representative, who can provide Putnam Investor Services with his or her account registration and address as it appears on Putnam Investor Services' records.
Putnam Investor Services will employ these and other reasonable procedures to confirm that instructions communicated by telephone are genuine; if it fails to employ reasonable procedures, Putnam Investor Services may be liable for any losses due to unauthorized or fraudulent instructions. For information, consult Putnam Investor Services.
During periods of unusual market changes and shareholder activity, you may experience delays in contacting Putnam Investor Services by telephone . In this event, you may wish to submit a written redemption request, as described above, or contact your investment dealer, as described below. The Telephone Redemption Privilege is not available if you were issued certificates for shares that remain outstanding. The Telephone Redemption Privilege may be modified or terminated without notice.
Selling shares through your investment dealer. Your dealer must receive your request before the close of regular trading on the New York Stock Exchange to receive that day's net asset value. Your dealer will be responsible for furnishing all necessary documentation to Putnam Investor Services, and may charge you for its services.
HOW TO EXCHANGE SHARES
You can exchange your shares for shares of the same class of certain other Putnam funds at net asset value beginning 15 days after purchase. Not all Putnam funds offer all classes of shares. If you exchange shares subject to a CDSC, the transaction will not be subject to the CDSC. However, when you redeem the shares acquired through the exchange, the redemption may be subject to the CDSC, depending upon when you originally purchased the shares . The CDSC 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 CDSC applicable to your class of shares. For purposes of computing the CDSC, 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 exchange.
To exchange your shares, simply complete an Exchange
Authorization Form and send it to Putnam Investor Services.
The form is available from Putnam Investor
Services. For federal income tax purposes, an exchange is
treated as a sale of shares and generally results in a capital
gain or loss. A Telephone Exchange Privilege is currently
available for amounts up to $500,000. Putnam Investor Services'
procedures for telephonic transactions are described above under
"How to sell shares." The Telephone Exchange Privilege is not
available if you were issued certificates for shares that
remain outstanding. Ask your investment dealer or Putnam
Investor Services for prospectuses of other Putnam funds. Shares
of certain Putnam funds are not available to residents of all
states.
The exchange privilege is not intended as a vehicle for short- term trading. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. In order to limit excessive exchange activity and in other circumstances where Putnam Management or the Trustees believe doing so would be in the best interests of the fund, the fund reserves the right to revise or terminate the exchange privilege, limit the amount or number of exchanges or reject any exchange. Shareholders would be notified of any such action to the extent required by law. Consult Putnam Investor Services before requesting an exchange. See the SAI to find out more about the exchange privilege.
HOW THE FUND VALUES ITS SHARES
The fund calculates the net asset value of a share of each class by dividing the total value of its assets, less liabilities, by the number of its shares outstanding. Shares are valued as of the close of regular trading on the New York Stock Exchange each day the Exchange is open.
Tax -exempt securities are valued on the basis of valuations provided by a pricing service approved by the Trustees, which uses information with respect to transactions in bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities in determining value. The fund believes that reliable market quotations generally are not readily available for purposes of valuing its portfolio securities. As a result, it is likely that most of the valuations provided by a pricing service will be based upon fair value determined on the basis of the factors listed above.
Non-tax-exempt securities for which market quotations are readily available are valued at market value. Short-term investments that will mature in 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.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS ;
TAX INFORMATION
The fund declares all of its net interest income as a distribution on each day it is open for business. Net interest income consists of interest accrued on portfolio investments, less accrued expenses, computed in each case since the most recent determination of net asset value. Normally, the fund pays distributions of net interest income monthly. The fund will distribute at least annually all net realized capital gains, if any, after applying any available capital loss carryovers. A capital loss carryover is currently available. Distributions paid on class A shares will generally be greater than those paid on class B and class M shares because expenses attributable to class B and class M shares will generally be higher.
You begin earning distributions on the business day after Putnam Mutual Funds receives payment for your shares. It is your responsibility to see that your dealer forwards payment promptly.
You can choose from three distribution options:
- Reinvest all distributions in additional shares without a sales charge;
- Receive distributions from net investment income in cash while reinvesting capital gains distributions in additional shares without a sales charge; or
- Receive all distributions in cash.
You can change your distribution option by notifying Putnam Investor Services in writing. If you do not select an option when you open your account, all distributions will be reinvested. All distributions not paid in cash will be reinvested in shares of the class on which the distributions are paid. You 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.
If a check representing a fund distribution is not cashed within a specified period, Putnam Investor Services will notify you that you have the option of requesting another check or reinvesting the distribution in the fund or in another Putnam fund. If Putnam Investor Services does not receive your election, the distribution will be reinvested in the fund .
Similarly, if correspondence sent by the fund or Putnam Investor Services is returned as "undeliverable," fund distributions will automatically be reinvested in the fund or in another Putnam fund. |
The fund intends to qualify as a "regulated investment company" for federal income tax purposes and to meet all other requirements necessary for it to be relieved of federal taxes on income and gains it distributes to shareholders. The fund will distribute substantially all of its ordinary income and capital gain net income on a current basis.
Fund distributions designated as "exempt-interest dividends" are not generally subject to federal income tax. However, if you receive social security or railroad retirement benefits, you should consult your tax adviser to determine what effect, if any, an investment in the fund may have on the taxation of your benefits. In addition, an investment in the fund may result in liability for federal alternative minimum tax and for state and local taxes, both for individual and corporate shareholders.
The fund may at times purchase tax-exempt securities at a discount from the price at which they were originally issued, especially during periods of rising interest rates. For federal income tax purposes, some or all of this market discount will be included in the fund's ordinary income and will be taxable to shareholders as such when it is distributed to them.
All fund distributions other than exempt-interest dividends will be taxable to you as ordinary income, except that any distributions of net long-term capital gains will be taxable as such, regardless of how long you have held the shares. Distributions will be taxable as described above whether received in cash or in shares through the reinvestment of distributions.
Early in each year Putnam Investor Services will notify you of the amount and tax status of distributions paid to you by the fund for the preceding year.
The foregoing is a summary of certain federal income tax consequences of investing in the fund . You should consult your tax adviser to determine the precise effect of an investment in the fund on your particular tax situation (including possible liability for federal alternative minimum tax and state and local taxes).
About Putnam Investments, Inc.
Putnam Management has been managing mutual funds since 1937. Putnam Mutual Funds is the principal underwriter of the Trust and of other Putnam funds. Putnam Fiduciary Trust Company is the Trust's custodian. Putnam Investor Services, a division of Putnam Fiduciary Trust Company, is the Trust's investor servicing and transfer agent.
Putnam Management, Putnam Mutual Funds, and Putnam Fiduciary Trust Company are subsidiaries of Putnam Investments, Inc., which is wholly owned by Marsh & McLennan Companies, Inc., a publicly- owned holding company whose principal businesses are international insurance and reinsurance brokerage, employee benefit consulting and investment management.
Make the most of your Putnam privileges
The following services are available to you as a Putnam mutual fund shareholder .
SYSTEMATIC INVESTMENT PLAN Invest as much as you wish ($25 or more) on any business day of the month except for the 29th, 30th, or 31st. The amount will be automatically transferred from your checking or savings account.
SYSTEMATIC WITHDRAWAL Make regular withdrawals of $50 or more monthly, quarterly, or semiannually from an account valued at $10,000 or more. You may establish your withdrawal on any business day of the month except for the 29th, 30th, or 31st.
SYSTEMATIC EXCHANGE Transfer assets automatically from one Putnam account to another on a regular, prearranged basis. There is no additional charge for this service.
FREE EXCHANGE PRIVILEGE Exchange money between Putnam funds in the same class of shares without charge. The exchange privilege allows you to adjust your investments as your objectives change. A signature guarantee is required for exchanges of more than $500,000.
Investors may not maintain, within the same fund, simultaneous plans for systematic investment or exchange and systematic withdrawal or exchange. These privileges are subject to change or termination.
For more information about any of these services and privileges, call your investment advisor or a Putnam customer service representative toll - free at 1-800-225-1581.
PUTNAM TAX-FREE INSURED FUND
One Post Office Square
Boston, MA 02109
FUND INFORMATION:
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
INVESTOR SERVICING AGENT
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
CUSTODIAN
Putnam Fiduciary Trust Company
One Post Office Square
Boston, MA 02109
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
PUTNAMINVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
PUTNAM TAX-FREE INCOME TRUST
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION
("SAI")
DECEMBER 1, 1995
This SAI is not a prospectus and is only authorized
for distribution when accompanied or preceded by the
prospectus of Putnam Tax-Free Income Trust (the "Trust")
dated December 1, 1995 , as revised from time to time,
relating to the series of shares of the Trust the investor is
considering purchasing (the "prospectus"). This
SAI contains information which may be useful to investors
but which is not included in the prospectus. This SAI
relates to the shares of Putnam Tax-Free Insured Fund and Putnam
Tax-Free High Yield Fund (each a "fund " and referred to
collectively herein as the "funds"). The SAI
should be read together with the applicable prospectus .
Investors may obtain a free copy of the applicable
prospectus from Putnam Investor Services, Mailing address:
P. O. Box 41203, Providence, RI 02940-1203.
Part I of this SAI contains specific information about the Trust. Part II includes information about the Trust and the other Putnam funds.
Table of Contents
Part I
Page
TAX EXEMPT SECURITIES. . . . . . . . . . . . . . . . . . . . . .
. . . .I-3
SECURITIES RATINGS . . . . . . . . . . . . . . . . . . . . . . .
. . . .I-5
INVESTMENT RESTRICTIONS OF THE TRUST . . . . . . . . . . . . . .
. . . .I-9
CHARGES AND EXPENSES . . . . . . . . . . . . . . . . . .
. . . I-12
INVESTMENT PERFORMANCE . . . . . . . . . . . . . . . . . . . .
. I-20
EQUIVALENT YIELDS: TAX EXEMPT VERSUS TAXABLE SECURITIES. . . .
.I- 22
ADDITIONAL OFFICERS. . . . . . . . . . . . . . . . . . . . . .
. I-23
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . . .
.I- 24
Part II
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . .
. . . II-1
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II- 25
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . .
II- 30
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . .
II- 40
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . .
II- 41
DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . .
II- 54
INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . .
II- 55
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . .
II- 60
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . .
II- 61
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . .
II- 61
STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . .
II- 61
COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . .
II- 63
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . .
II- 67
|
PUTNAM TAX-FREE INCOME TRUST
STATEMENT OF ADDITIONAL INFORMATION
|
PART I
TAX EXEMPT SECURITIES
General description. As used in the prospectus and in this SAI, the term "tax-exempt securities" includes obligations of a state (including the District of Columbia), a territory or a U.S. possession, or any of their political subdivisions, agencies, instrumentalities or other governmental units, the interest on which , in the opinion of bond counsel, is exempt from federal income tax. These securities 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 such projects as privately operated housing facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal, student loans, or the obtaining of funds to lend to public or private institutions for the construction of facilities such as educational, hospital and housing 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 (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 constitute tax-exempt securities , although the current federal tax laws place substantial limitations on the size of such issues. Tax - exempt securities also include short-term discount notes (tax-exempt commercial paper), which are promissory notes issued by municipalities to enhance their cash flows.
Tax -exempt securities which are bonds are long-term obligations generally having maturities in excess of ten years. Tax -exempt securities which are notes are short- term obligations having maturities of less than one year or providing for adjustment of the interest rate payable to approximate current market rates not less frequently than annually.
Stand-by commitments. When a 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 funds expect that stand-by commitments generally will be available without the payment of direct or indirect consideration. The funds do 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 Moody's Investors Service, Inc. and Standard & Poor's represent their opinions as to the 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, 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 a 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 funds do 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 funds .
Additional risks. Securities in which the funds 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, which 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 for industrial development bonds and private activity bonds. Such limits may affect the future supply and yields of these types of tax-exempt securities . Further proposals limiting the issuance of tax-exempt bonds may well be introduced in the future. If it appeared that the availability of tax-exempt securities for investment by a fund and the value of a fund's portfolio could be materially affected by such changes in law, the Trustees of the Trust would reevaluate the fund's investment objective and policies and consider changes in the structure of the fund or its dissolution.
SECURITIES RATINGS
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:
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, will 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 -- Debt rated `AAA' has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated `AA' has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree.
A -- Debt rated `A' has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated `BBB' is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories.
BB-B-CCC-CC-C -- Debt rated `BB',`B',`CCC',`CC' and`C' is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal . `BB' indicates the least degree of speculation and `C' the highest . While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions.
BB -- Debt rated `BB' has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The `BB' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied `BBB-' rating.
B -- Debt rated `B' has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The `B' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied `BB' or `BB-' rating.
CCC -- Debt rated `CCC' has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The `CCC' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied `B' or `B-' rating.
CC -- The rating `CC' typically is applied to debt subordinated to senior debt that is assigned an actual or implied `CCC'- rating.
C -- The rating `C' typically is applied to debt subordinated to senior debt which is assigned an actual or implied `CCC-' debt rating. The `C' rating may be used to cover a situation where bankruptcy petition has been filed, but debt service payments are continued.
D - - Bonds rated `D' are 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 on the filing of a bankruptcy petition if debt service payments are jeopardized.
Notes
SP -1 -- Strong capacity to pay principal and interest.
Issues determined to possess very strong
characteristics are given a plus sign
(+) designation.
SP - 2 -- Satisfactory capacity to pay principal and interest , with some vulnerability to adverse financial and economic changes over the term of the notes.
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' .
INVESTMENT RESTRICTIONS OF THE TRUST
Without a vote of a majority of the outstanding voting securities of a fund created under the Trust, the Trust shall not take any of the following actions with respect to such fund :
(1) Borrow money in excess of 10% of the value (taken at the lower of cost or current value) of the fund's total assets (not including the amount borrowed) at the time the borrowing is made, and then only from banks as a temporary measure to facilitate the meeting of redemption requests (not for leverage) which might otherwise require the untimely disposition of portfolio investments or for extraordinary or emergency purposes. Such borrowings will be repaid before any additional investments are purchased.
(2) Pledge, hypothecate, mortgage or otherwise encumber its assets in excess of 15% of the fund's total assets (taken at cost) in connection with borrowings permitted by restriction 1 above.
(3) Purchase securities on margin, except such short-term credits as may be necessary for the clearance of purchases and sales of securities, and except that it may make margin payments in connection with financial futures contracts and related options.
(4) Make short sales of securities or maintain a short position for the account of a fund unless at all times when a short position is open such fund owns an equal amount of such securities or owns securities which, without payment of any further consideration, are convertible into or exchangeable for securities of the same issue as, and equal in amount to, the securities sold short.
(5) Underwrite securities issued by other persons except to the extent that, in connection with the disposition of its portfolio investments, it may be deemed to be an underwriter under federal securities laws.
(6) Purchase or sell real estate, although it may purchase securities which are secured by or represent interests in real estate.
(7) Purchase or sell commodities or commodity contracts, except that it may purchase and sell financial futures contracts and related options.
(8) Make loans, except by purchase of debt obligations in which the fund may invest consistent with its investment policies and by entering into repurchase agreements with respect to not more than 25% of the fund's total assets (taken at current value).
(9) Invest in securities of any issuer if, to the knowledge of the Trust, officers and Trustees of the Trust and officers and directors of Putnam Management who beneficially own more than 0.5% of the securities of that issuer together beneficially own more than 5%.
(10) 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 and principal by the U.S. government or its agencies or instrumentalities and that insurers of tax-exempt securities are not considered issuers of securities for this purpose. (Insurance policies of which the Trust is a beneficiary are not considered securities for purposes of this restriction.)
(11) Acquire more than 10% of the voting securities of any issuer, both with respect to any fund and to the Trust in the aggregate.
(12) Invest more than 25% of the value of the total assets of any fund in any one industry. (Securities of the U.S. government, its agencies or instrumentalities and tax-exempt securities backed by the credit of a governmental entity are not considered to represent industries.)
(13) Purchase securities the disposition of which is restricted under federal securities laws if, as a result, such investments would exceed 15% of the value of the fund's net assets, excluding restricted securities that have been determined by the Trustees of the Trust (or the person designated by them to make such determinations) to be readily marketable.
(14) Buy or sell oil, gas or other mineral leases, rights or royalty contracts.
(15) Make investments for the purpose of gaining control of a company's management.
(16) Issue any class of securities which is senior to a fund's shares of beneficial interest.
(17) Invest less than 80% of a fund's net assets in tax-exempt securities , except when investing for defensive purposes.
It is contrary to the Trust's present policy with respect to any fund created under the Trust, which may be changed by the Trustees without shareholder approval, to take any of the following actions with respect to such fund :
(1) Invest in (a) securities which at the time of such investment are not readily marketable, (b) securities restricted as to resale (excluding securities determined by the Trustees of the Trust (or the person designated by the Trustees of the Trust to make such determinations) to be readily marketable), and (c) repurchase agreements maturing in more than seven days, if, as a result, more than 15% of a fund's net assets (taken at current value) would be invested in the aggregate in securities described in (a), (b) and (c) above.
(2) Engage in puts, calls, straddles, spreads or any combination thereof, except that a fund may buy and sell put and call options (and any combination thereof) on securities, on financial futures contracts, and on securities indices;
(3) Invest in securities of an issuer, which, together with any predecessors, controlling persons, general partners and guarantors, have a record of less than three years' continuous business operation or relevant business experience if, as a result, the aggregate of such investments would exceed 5% of the value of the fund's net assets; provided, however, that this restriction shall not apply to any obligation of the U.S. government or its instrumentalities or agencies or any Tax Exempt Bond or Note backed by the credit of a governmental entity.
(4) Invest in securities of other registered open-end investment companies, except by purchase in the open market involving only customary brokers' commissions.
Although certain of the Trust's fundamental investment restrictions permit the funds to borrow money to a limited extent, the funds do not currently intend to do so and did not do so last year.
All percentage limitations on investments 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.
The Investment Company Act of 1940 provides that a "vote of a majority of the outstanding voting securities" of the Trust or a fund means the affirmative vote of the lesser of (1) more than 50% of the outstanding shares of the Trust or that fund , as the case may be, or (2) 67% or more of the shares present at a meeting if more than 50% of the outstanding shares of the Trust or that fund are represented at the meeting in person or by proxy.
Putnam Tax-Free Insured Fund has undertaken to a state securities authority that it will not purchase or sell real property (including limited partnership interests), except that the fund may (a) purchase or sell readily marketable interests in real estate investment trusts or readily marketable securities of companies which invest in real estate (b) purchase or sell securities that are secured by interests in real estate , or (c) acquire real estate through exercise of its rights as a holder of obligations secured by real estate or interests therein or sell real estate so acquired.
CHARGES AND EXPENSES
Management fees
Under a Management Contract (dated as described below) , the Trust pays a monthly fee to Putnam Management with respect to each fund based on the average net assets of that fund , as determined at the close of each business day during the month, at the following rates expressed as a percentage of each fund's average net assets:
Fund name Contract date Rates
Putnam Tax-Free 7/26/85, as 0.65% of the first $500
High Yield Fund amended through million
of average net
7/1/94 assets, 0.55% of the next
$500 million, 0.50% of the
next $500 million, and 0.45%
of any amount over $1.5
billion.
Putnam Tax-Free 7/26/85, as 0.60% of
the first $500
Insured Fund amended through million of average net
7/1/94 assets, 0.50% of the next
$500 million, 0.45% of the
next $500 million and 0.40%
of any amount over $1.5
billion
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For the past three fiscal years, pursuant to the Trust's Management Contract (and, in the case of Putnam Tax-Free High Yield Fund , a management contract in effect prior to July 1, 1994, under which the management fee payable to Putnam Management was paid at the following rates: 0.70% of the first $100 million of average net assets, 0.60% of the next $100 million, 0.50% of the next $300 million, 0.45% of the next $500 million and 0.425% of any amount over $1 billion ), each fund incurred the following fees:
Fiscal Management
year fee paid
------ ----------
Putnam Tax-Free High Yield Fund
1995 $10,082,299
1994 $8,498,843
1993 $6,015,521
Putnam Tax-Free Insured Fund
1995 $3,286,811
1994 $3,451,352
1993 $3,060,616
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Brokerage commissions
The following table shows brokerage commissions paid during the fiscal periods indicated.
Fiscal Brokerage
year commissions
------ ------------
Putnam Tax-Free High Yield Fund
1995 $157,118
1994 $183,921
1993 $436,683
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Putnam Tax-Free Insured Fund
1995 $85,448
1994 $421,729
1993 $911,063
|
The following table shows transactions placed with brokers and dealers during the most recent fiscal year to recognize research, statistical and quotation services Putnam Management considered to be particularly useful to it and its affiliates.
Dollar
value Percent of
of these total Amount of
transactions transactionscommissions
------------
- ---------- -------------
Putnam Tax-Free
High Yield Fund $6,042,765
0.50%$47,623
Putnam Tax-Free
Insured Fund --- --- ---
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Administrative expense reimbursement
The funds reimbursed Putnam Management in the following amounts for administrative services during fiscal 1995, including the following amounts for compensation of certain officers of the Trust and contributions to the Putnam Investments, Inc. Profit Sharing Retirement Plan for their benefit:
Portion of total
reimbursement for
compensation
Total and
reimbursement contributions
---------- --- ---------------
Putnam Tax-Free
High Yield Fund $30,277 $28,196
Putnam Tax-Free
Insured Fund $14,290 $13,303
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Trustee fees
Each Trustee receives a fee for his or her services. Each Trustee also receives fees for serving as Trustee of other Putnam funds. The Trustees periodically review their fees to assure that such fees continue to be appropriate in light of their responsibilities as well as in relation to fees paid to trustees of other mutual fund complexes. The Trustees meet monthly over a two-day period, except in August. The Compensation Committee, which consists solely of Trustees not affiliated with Putnam Management and is responsible for recommending Trustee compensation, estimates that Committee and Trustee meeting time together with the appropriate preparation requires the equivalent of at least three business days per Trustee meeting. The following table shows the year each Trustee was first elected a Trustee of the Putnam funds, the fees paid to each Trustee by each fund for fiscal 1995 and the fees paid to each Trustee by all of the Putnam funds during calendar year 1994:
COMPENSATION TABLE
Aggregate compensation* from:
Putnam Putnam
Tax-Free Tax-Free
High Yield Insured All
Putnam
Trustee/Year Fund Fund
funds**
- -----------------------------------------------------------------
Jameson A. Baxter/1994 $3,125 $1,395 $135,850
Hans H. Estin/1972 $3,124 $1,385 141,850
John A. Hill/1985 $3,112 $1,379 143,850
Elizabeth T. Kennan/1992 $3,085 $1,371 141,850
Lawrence J. Lasser/1992 $3,124 $1,385 141,850
Robert E. Patterson/1984 $3,164 $1,400 144,850
Donald S. Perkins/1982 $3,124 $1,385 139,850
William F. Pounds/1971 $3,144 $1,392 143,850
George Putnam/1957 $3,124 $1,385 141,850
George Putnam, III/1984 $3,124 $1,385 141,850
Eli Shapiro/1995*** $770 $340 N/A
A.J.C. Smith/1986 $3,072 $1,375 137,850
W. Nicholas Thorndike/1992 $3,164 $1,400 144,850
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* Includes an annual retainer and an attendance fee for each meeting attended. ** Reflects total payments received from all Putnam funds in the most recent calendar year. As of December 31, 1994, there were 86 funds in the Putnam family. *** Elected as a Trustee in April 1995. For the calendar year ended December 31, 1994, Dr. Shapiro received $38,577 in retirement benefits from the Putnam funds in respect of his prior service as a Trustee from 1984 to 1989, which benefits terminated at the end of 1994.
The Trustees have approved Retirement Guidelines for Trustees of the Putnam funds. These Guidelines provide generally that a Trustee who retires after reaching age 72 and who has at least 10 years of continuous service will be eligible to receive a retirement benefit from each Putnam fund for which he or she served as a Trustee. The amount and form of such benefit is subject to determination annually by the Trustees and, unless otherwise determined by the Trustees, will be an annual cash benefit payable for life equal to one-half of the Trustee retainer fees paid by each fund at the time of retirement. Several retired Trustees are currently receiving benefits pursuant to the Guidelines and it is anticipated that the current Trustees will receive similar benefits upon their retirement. A Trustee who retired in calendar 1994 and was eligible to receive benefits under these Guidelines would have received an annual benefit of $60,425, based upon the aggregate retainer fees paid by the Putnam funds for such year. The Trustees reserve the right to amend or terminate such Guidelines and the related payments at any time, and may modify or waive the foregoing eligibility requirements when deemed appropriate.
For additional information concerning the Trustees, see "Management" in Part II of this SAI.
Share ownership
At October 31, 1995, the officers and Trustees of the Trust as a group owned less than 1% of the outstanding shares of each class of each fund, and to the knowledge of each fund no person owned of record or beneficially 5% or more of the shares of any class of a fund.
Putnam Tax-Free High Yield Fund
Shareholder name Percentage
Class and address owned
----- --------- ------------- --------
B Merrill, Lynch, Pierce 8.60%
Fenner & Smith
4800 Deer Lake Dr. East
Jacksonville, FL 32246
M Ms. Betty Sprecher 5.90%
115 Nilewood Drive
Laporte, ID 46350
M Ms. Clara Jaegaer 7.00%
514 2 1/2 Avenue S.E.
Rugby, ND 58368
M Donaldson Lufkin Jenrette 7.10%
P.O. Box 2052
Jersey City, NJ 07003
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Putnam Tax-Free Insured Fund
Shareholder name Percentage
Class and address owned
----- ---------------------- --------
M Richard A. Shand 18.50%
111 W. 2nd
P.O. Box 496
Lajunta, CO 81050
M Robert G. Dunworth 64.00%
130 Keefauver Rd.
Grey, TN 37615
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Distribution fees
During fiscal 1995, the funds paid the following 12b-1 fees to Putnam Mutual Funds:
Class A Class B Class M
------- ------- -------
Putnam Tax-Free
High Yield Fund $813,093 $12,279,217 $3,092
Putnam Tax-Free
Insured Fund $327,934 $3,344,389 $5
|
Class A sales charges and contingent deferred sales charges
Putnam Mutual Funds received sales charges with respect to class A shares in the following amounts during the periods indicated:
Sales charges
retained by Putnam Contingent
Total Mutual Funds deferred
|
Putnam Tax-Free
High Yield Fund
Fiscal year
- -----------
1995 $1,280,085 $84,096 $4,769
1994 $1,826,603 $115,146 $6,066
1993 N/A N/A N/A
Putnam Tax-Free
Insured Fund
Fiscal year
- ----- ------
1995 $243,446 $14,530 $24,212
1994 $423,423 $34,822 None
1993 N/A N/A N/A
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Class B contingent deferred sales charges
Putnam Mutual Funds received contingent deferred sales charges upon redemptions of class B shares in the following amounts during the periods indicated:
Contingent deferred
sales charges
-------------------
Putnam Tax-Free High Yield Fund
Fiscal year
- -----------
1995 $2,930,977
1994 $795,020
1993 $632,749
Putnam Tax-Free Insured Fund
Fiscal year
- -----------
1995 $864,745
1994 $2,264,594
1993 $1,304,639
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Class M sales charges
Putnam Mutual Funds received sales charges with respect to class M shares in the following amounts during the 1995 fiscal year:
Sales charges retained by Putnam Mutual Funds Total after sales chargesdealer concessions
--------------------------- ----
Putnam Tax-Free
High Yield Fund $162 $2,088
Putnam Tax-Free
Insured Fund $22,204 $12
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Investor servicing and custody fees and expenses
During the 1995 fiscal year, each fund incurred the following fees and out-of-pocket expenses for investor servicing and custody services provided by Putnam Fiduciary Trust Company:
Putnam Tax-Free
High Yield Fund $1,800,807
Putnam Tax-Free
Insured Fund $331,359
INVESTMENT PERFORMANCE
Standard performance measures
(for periods ended July 31, 1995)
Putnam Tax-Free High Yield Fund
Total Class A Class B Class M+
return NAV* POP** NAV CDSC NAV POP
Inception date: 9/20/93 9/9/85 12/24/94
- -----------------------------------------------------------
1 year 6.24% 1.19% 5.54% 0.58% ---- ----
5 years ---- ---- 7.55 7.24 ---- ----
Life of class 2.75 0.12 8.76 8.76 9.69% 6.13%
|
+ Total return shown for class M shares for the period from December 1, 1994 to July 31, 1995 reflects cumulative, rather than average annual total return.
Class A Class B Class M
Yield POP NAV POP
30-day Yield 6.36% 6.01% 6.15%
Tax-equivalent
yield*** 10.53 9.95 10.18
|
*net asset value
**public offering price
*** Assumes the maximum federal tax rate of 39.6%. Results for
investors subject to lower tax rates would not be as
advantageous.
Putnam Tax-Free Insured Fund Total Class A Class B Class M+ return NAV* POP** NAV CDSC NAV POP Inception date: 9/20/93 9/9/85 6/1/95 - ------------------------------------------------------------ 1 year 7.21% 2.13% 6.53% 1.53% ---- ---- 5 years ---- ---- 6.70 6.39 ---- ---- Life of class 2.42 -0.22 8.26 8.26 -0.87% -4.11% |
+ Total return shown for class M shares for the period from December 1, 1994 to July 31, 1995 reflects cumulative, rather than average annual total return.
Class A Class B Class M
Yield POP NAV POP
30-day Yield 5.05% 4.62% 4.85%
Tax-equivalent 8.36% 7.65% 8.03%
yield***
|
*net asset value
**public offering price
*** Assumes the maximum federal tax rate of 39.6%. Results for
investors subject to lower tax rates would not be as
advantageous.
Data represent past performance and are not indicative of future results. Total return and yield at POP for class A and class M shares reflect the deduction of the maximum sales charge of 4.75% and 3.25%, respectively. Total return at CDSC for class B shares reflects the deduction of the applicable contingent deferred sales charge (CDSC). The maximum class B CDSC is 5.0%. See "Standard performance measures" in Part II of this SAI for information on how performance is calculated. Past performance is no guarantee of future results.
EQUIVALENT YIELDS: TAX EXEMPT VERSUS TAXABLE SECURITIES
The table below shows the effect of the tax status of
tax-exempt securities on the
effective yield received by their individual holders under the
federal income tax laws
currently in effect for 1995. It gives the approximate yield a
taxable security must earn
at various income levels to produce after-tax yields equivalent
to those of tax-exempt
securities yielding from 3.0% to 8.0% .
- -----------------------------------------------------------------
- ------------------------
Marginal
Taxable Income* federal
Tax-exempt yield
------------------------ income
- ------------------------------------
tax
Joint Single bracket** 3%
4% 5% 6% 7% 8%
- -----------------------------------------------------------------
- ------------------------
Equivalent taxable yield
$0-23,350 $0-39,000 15.0% 3.5%
4.7% 5.9% 7.1%
8.2%9.4%
23,351-56,550 39,001-94,250 28.0 4.2%
5.6% 6.9% 8.3%
9.7%11.1%
56,551-117,950 *** 94,251-143,600 *** 31.0 4.4%
5.8% 7.3% 8.7%
10.1%11.6%
117,951-256,500 *** 143,601-256,500 *** 36.0 4.7%
6.3% 7.8% 9.4%
10.9%12.5%
256,501 and more ***256,501 and more ***
39.6 5.0% 6.6% 8.3% 9.9%
11.6%13.3%
- -----------------------------------------------------------------
- -------------------------
|
* This amount represents taxable income as defined in the Internal Revenue Code of 1986, as amended (the "Code").
** These rates reflect the marginal federal income tax rates on taxable income currently in effect for 1995 under the Code.
*** The amount of taxable income in this bracket may be affected by the phase-out of personal exemptions and the limitation on itemized deductions under the Code.
Of course, there is no assurance that the funds will achieve any specific tax-exempt yield. While it is expected that the funds will invest principally in obligations which pay interest exempt from federal income tax, other income received by the funds may be taxable. The table does not take into account any federal alternative minimum tax or any state or local taxes payable on fund distributions.
ADDITIONAL OFFICERS
In addition to the persons listed as officers of the Trust in Part II of this SAI, each of following persons is also a Vice President of the Trust and Vice President of certain of the Putnam funds . Officers of Putnam Management hold the same offices in Putnam Management's parent company, Putnam Investments, Inc.
Gary N. Coburn, Senior Managing Director of Putnam Management. Director, Putnam Investments, Inc.
James E. Erickson, Managing Director of Putnam Management. Richard P. Wyke, Senior Vice President of Putnam Management. Triet M. Nguyen, Senior Vice President of Putnam Management. |
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts, 02110, are the Trust's independent accountants, providing audit services, tax return review and other tax consulting services and assistance and consultation in connection with the review of various Securities and Exchange Commission filings. The Reports of independent accountants, financial highlights and financial statements included in each fund's Annual Report for the fiscal year ended July 31, 1995 , filed electronically on October 6, 1995 (File No. 811-4345), are incorporated by reference into this SAI . The financial highlights included in the prospectus and incorporated by reference into this SAI and the financial statements incorporated by reference into the prospectus and this SAI have been so included and incorporated in reliance upon the report of the independent accountants, given on their authority as experts in auditing and accounting.
TABLE OF CONTENTS
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . . . . . II-1 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-25 MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-30 DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . .II-40 HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-41 DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . . . . . .II-54 INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-56 SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . .II-61 SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . .II-62 SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . .II-62 STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . . . . .II-62 COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . . . . .II-64 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-68 |
THE PUTNAM FUNDS
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
|
PART II
The following information applies generally to your fund and to the other Putnam funds. In certain cases the discussion applies to some but not all of the funds or their shareholders, and you should refer to your prospectus to determine whether the matter is applicable to you or your fund. You will also be referred to Part I for certain information applicable to your particular fund. 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 INVESTMENT PRACTICES
Your fund's prospectus states which of the following investment practices are available to your fund. The fact that your fund is authorized to engage in a particular practice does not necessarily mean that it will actually do so. You should disregard any practice described below which is not mentioned in the prospectus.
Short-term Trading
In seeking the fund's objectives(s), Putnam Management will buy or sell portfolio securities whenever Putnam Management believes it appropriate to do so. In deciding whether to sell a portfolio security, Putnam Management does not consider how long the fund has owned the security. From time to time the fund will buy securities intending to seek short-term trading profits. A change in the securities held by the fund is known as "portfolio turnover" and generally involves some expense to the fund. This expense may include brokerage commissions or dealer markups and other transaction costs on both the sale of securities and the reinvestment of the proceeds in other securities. If sales of portfolio securities cause the fund to realize net short-term capital gains, such gains will be taxable as ordinary income. As a result of the fund's investment policies, under certain market conditions the fund's portfolio turnover rate may be higher than that of other mutual funds. Portfolio turnover rate for a fiscal year is the ratio of the lesser of purchases or sales of portfolio securities to the monthly average of the value of portfolio securities -- excluding securities whose maturities at acquisition were one year or less. The fund's portfolio turnover rate is not a limiting factor when Putnam Management considers a change in the fund's portfolio.
Lower-rated Securities
The fund may invest in lower-rated fixed-income securities (commonly known as "junk bonds"), to the extent described in the prospectus. 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 organization) does not reflect an assessment of the volatility of the security's market value or the liquidity of an investment in the security. See the prospectus or Part I of this SAI for a description of security 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 recognized rating services in their ratings of any fixed-income security and changes in the ability of an issuer to make payments of interest and principal may also affect the value of these investments. Changes in the value of portfolio securities generally will not affect income derived from these securities, but will affect the fund's net asset value. The fund will not necessarily dispose of a security when its rating is reduced below its rating at the time of purchase. However, Putnam Management will monitor the investment to determine whether its retention will assist in meeting the fund's investment objective(s).
Issuers of lower-rated securities are often highly leveraged, so that their ability to service their debt obligations during an economic downturn or during sustained periods of rising interest rates may be impaired. Such issuers may not have more traditional methods of financing available to them and may be unable to repay outstanding obligations at maturity by refinancing. The risk of loss due to default in payment of interest or repayment of principal by such issuers is significantly greater because such securities frequently are unsecured and subordinated to the prior payment of senior indebtedness.
At times, a substantial portion of the fund's assets may be invested in securities as to which the fund, by itself or together with other funds and accounts managed by Putnam Management and 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 under such securities, the fund may be required to participate in various legal proceedings or take possession of and manage assets securing the issuer's obligations on such securities. This could increase the fund's operating expenses and adversely affect the fund's net asset value. In the case of tax-exempt funds, any income derived from the fund's ownership or operation of such assets would not be tax-exempt. The ability of a holder of a tax-exempt security to enforce the terms of that security in a bankruptcy proceeding may be more limited than would be the case with respect to privately- issued securities. 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.
If the fund's prospectus describes so-called "zero-coupon" bonds and "payment-in-kind" bonds as possible investments, the fund may invest without limit in such bonds unless otherwise specified in the prospectus. 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, the fund could be required at times to liquidate investments in order to satisfy its dividend requirements.
To the extent the fund invests in securities in the lower rating categories, the achievement of the fund's goals is more dependent on Putnam Management's investment analysis than would be the case if the fund were investing in securities in the higher rating categories. This may be particularly true with respect to tax- exempt securities, as the amount of information about the financial condition of an issuer of tax-exempt securities may not be as extensive as that which is made available by corporations whose securities are publicly traded.
Investments in Miscellaneous Fixed Income Securities
Unless otherwise specified in the prospectus or elsewhere in this SAI, if the fund may invest in inverse floating obligations, premium securities, or interest-only or principal-only classes of mortgage-backed securities, 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 under normal market conditions.
Private Placements
The fund may invest in securities that are purchased in private placements and, accordingly, are subject to restrictions on resale as a matter of contract or under federal securities laws. Because there may be relatively few potential purchasers for such investments, especially under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, the fund could find it more difficult to sell such securities when Putnam Management believes it advisable to do so or may be able to sell such securities only at prices lower than if such securities were more widely held. At times, it may also be more difficult to determine the fair value of such securities for purposes of computing the fund's net assets value.
Mortgage Related Securities
The fund may invest in mortgage-backed securities, including collateralized mortgage obligations ("CMOs") and certain stripped mortgage-backed securities. CMOs and other mortgage-backed securities represent a participation in, or are secured by, mortgage loans.
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 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 cause losses in securities purchased at a premium. At times, some of the mortgage-backed securities in which the fund may invest will have higher than market interest rates and therefore will be purchased at a premium above their par value. Unscheduled prepayments, which are made at par, will cause the fund to experience a loss equal to any unamortized premium.
CMOs may be issued by a U.S. government agency or instrumentality or by a private issuer. Although payment of the principal of, and interest on, the underlying collateral securing privately issued CMOs may be guaranteed by the U.S. government or its agencies or instrumentalities, these CMOs represent obligations solely of the private issuer and are not insured or guaranteed by the U.S. government, its agencies or instrumentalities or any other person or entity.
Prepayments could cause early retirement of CMOs. CMOs are designed to reduce the risk of prepayment for investors by issuing multiple classes of securities, each having different maturities, interest rates and payment schedules, and with the principal and interest on the underlying mortgages allocated among the several classes in various ways. Payment of interest or principal on some classes or series of CMOs may be subject to contingencies or some classes or series may bear some or all of the risk of default on the underlying mortgages. CMOS of different classes or series are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. If enough mortgages are repaid ahead of schedule, the classes or series of a CMO with the earliest maturities generally will be retired prior to their maturities. Thus, the early retirement of particular classes or series of a CMO held by the fund would have the same effect as the prepayment of mortgages underlying other mortgage-backed securities.
Prepayments could result in losses on stripped mortgage-backed securities. Stripped mortgage-backed securities are usually structured with two classes that receive different portions of the interest and principal distributions on a pool of mortgage loans. The fund may invest in both the interest-only or "IO" class and the principal-only or "PO" class. The yield to maturity on an IO class of stripped mortgage-backed securities is extremely sensitive not only to changes in prevailing interest rates but also to the rate of principal payments (including prepayments) on the underlying assets. A rapid rate of principal prepayments may have a measurable adverse effect on the fund's yield to maturity to the extent it invests in IOs. If the assets underlying the IO experience greater than anticipated prepayments of principal, the fund may fail to recoup fully its initial investment in these securities. Conversely, POs tend to increase in value if prepayments are greater than anticipated and decline if prepayments are slower than anticipated.
The secondary market for stripped mortgage-backed securities may be more volatile and less liquid than that for other mortgage- backed securities, potentially limiting the fund's ability to buy or sell those securities at any particular time.
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.
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 holds, and maintains until the settlement date in a segregated account, cash or high-grade debt obligations in an amount sufficient to meet the purchase price, or if 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.
Repurchase Agreements
The fund may enter into repurchase agreements up to the limit specified in the prospectus. 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 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.
Options on Securities
Writing covered options. The fund may write covered call options and covered put options on optionable securities held in its portfolio, when in the opinion of Putnam Management such transactions are consistent with the fund's investment objective(s) and policies. Call options written by the fund give the purchaser the right to buy the underlying securities from the fund at a stated exercise price; put options give the purchaser the right to sell the underlying securities to the fund at a stated price.
The fund may write only covered options, which means that, so long as the fund is obligated as the writer of a call option, it will own the underlying securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). In the case of put options, the fund will hold cash and/or high-grade short-term debt obligations equal to the price to be paid if the option is exercised. In addition, the fund will be considered to have covered a put or call option if and to the extent that it holds an option that offsets some or all of the risk of the option it has written. The fund may write combinations of covered puts and calls on the same underlying security.
The fund will receive a premium from writing a put or call option, which increases the fund's return on the underlying security in the event the option expires unexercised or is closed out at a profit. The amount of the premium reflects, among other things, the relationship between the exercise price and the current market value of the underlying security, the volatility of the underlying security, the amount of time remaining until expiration, current interest rates, and the effect of supply and demand in the options market and in the market for the underlying security. By writing a call option, the fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option but continues to bear the risk of a decline in the value of the underlying security. By writing a put option, the fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market value, resulting in a potential capital loss unless the security subsequently appreciates in value.
The fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction, in which it purchases an offsetting option. The fund realizes a profit or loss from a closing transaction if the cost of the transaction (option premium plus transaction costs) is less or more than the premium received from writing the option. If the fund writes a call option but does not own the underlying security, and when it writes a put option, the fund may be required to deposit cash or securities with its broker as "margin," or collateral, for its obligation to buy or sell the underlying security. As the value of the underlying security varies, the fund may have to deposit additional margin with the broker. Margin requirements are complex and are fixed by individual brokers, subject to minimum requirements currently imposed by the Federal Reserve Board and by stock exchanges and other self-regulatory organizations.
Purchasing put options. The fund may purchase put options to protect its portfolio holdings in an underlying security against a decline in market value. Such protection is provided during the life of the put option since the fund, as holder of the option, is able to sell the underlying security at the put exercise price regardless of any decline in the underlying security's market price. In order for a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs. By using put options in this manner, the fund will reduce any profit it might otherwise have realized from appreciation of the underlying security by the premium paid for the put option and by transaction costs.
Purchasing call options. The fund may purchase call options to hedge against an increase in the price of securities that the fund wants ultimately to buy. Such hedge protection is provided during the life of the call option since the fund, as holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs.
Risk Factors in Options Transactions
The successful use of the fund's options strategies depends on the ability of Putnam Management to forecast correctly interest rate and market movements. For example, if the fund were to write a call option based on Putnam Management's expectation that the price of the underlying security would fall, but the price were to rise instead, the fund could be required to sell the security upon exercise at a price below the current market price. Similarly, if the fund were to write a put option based on Putnam Management's expectation that the price of the underlying security would rise, but the price were to fall instead, the fund could be required to purchase the security upon exercise at a price higher than the current market price.
When the fund purchases an option, it runs the risk that it will lose its entire investment in the option in a relatively short period of time, unless the fund exercises the option or enters into a closing sale transaction before the option's expiration. If the price of the underlying security does not rise (in the case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the fund will lose part or all of its investment in the option. This contrasts with an investment by the fund in the underlying security, since the fund will not realize a loss if the security's price does not change.
The effective use of options also depends on the fund's ability to terminate option positions at times when Putnam Management deems it desirable to do so. There is no assurance that the fund will be able to effect closing transactions at any particular time or at an acceptable price.
If a secondary market in options were to become unavailable, the fund could no longer engage in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options or series of options. A market may discontinue trading of a particular option or options generally. In addition, a market could become temporarily unavailable if unusual events -- such as volume in excess of trading or clearing capability -- were to interrupt its normal operations.
A market may at times find it necessary to impose restrictions on particular types of options transactions, such as opening transactions. For example, if an underlying security ceases to meet qualifications imposed by the market or the Options Clearing Corporation, new series of options on that security will no longer be opened to replace expiring series, and opening transactions in existing series may be prohibited. If an options market were to become unavailable, the fund as a holder of an option would be able to realize profits or limit losses only by exercising the option, and the fund, as option writer, would remain obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying options purchased or sold by the fund could result in losses on the options. If trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, the fund as purchaser or writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with considerable losses if trading in the security reopens at a substantially different price. In addition, the Options Clearing Corporation or other options markets may impose exercise restrictions. If a prohibition on exercise is imposed at the time when trading in the option has also been halted, the fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has been lifted. If the Options Clearing Corporation were to determine that the available supply of an underlying security appears insufficient to permit delivery by the writers of all outstanding calls in the event of exercise, it may prohibit indefinitely the exercise of put options. The fund, as holder of such a put option, could lose its entire investment if the prohibition remained in effect until the put option's expiration.
Foreign-traded options are subject to many of the same risks presented by internationally-traded securities. In addition, because of time differences between the United States and various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed. As a result, option premiums may not reflect the current prices of the underlying interest in the United States.
Over-the-counter ("OTC") options purchased by the fund and assets held to cover OTC options written by the fund may, under certain circumstances, be considered illiquid securities for purposes of any limitation on the fund's ability to invest in illiquid securities.
Futures Contracts and Related Options
Subject to applicable law, and unless otherwise specified in the prospectus, the fund may invest without limit in the types of futures contracts and related options identified in the prospectus for hedging and non-hedging purposes. The use of futures and options transactions for purposes other than hedging entails greater risks. A financial futures contract sale creates an obligation by the seller to deliver the type of financial instrument called for in the contract in a specified delivery month for a stated price. A financial futures contract purchase creates an obligation by the purchaser to take delivery of the type of financial instrument called for in the contract in a specified delivery month at a stated price. The specific instruments delivered or taken, respectively, at settlement date are not determined until on or near that date. The determination is made in accordance with the rules of the exchange on which the futures contract sale or purchase was made. Futures contracts are traded in the United States only on commodity exchanges or boards of trade -- known as "contract markets" -- approved for such trading by the Commodity Futures Trading Commission (the "CFTC"), and must be executed through a futures commission merchant or brokerage firm which is a member of the relevant contract market.
Although futures contracts (other than index futures) by their terms call for actual delivery or acceptance of commodities or securities, in most cases the contracts are closed out before the settlement date without the making or taking of delivery. Closing out a futures contract sale is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity with the same delivery date. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the seller realizes a loss. If the fund is unable to enter into a closing transaction, the amount of the fund's potential loss is unlimited. The closing out of a futures contract purchase is effected by the purchaser's entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain, and if the purchase price exceeds the offsetting sale price, he realizes a loss. In general 40% of the gain or loss arising from the closing out of a futures contract traded on an exchange approved by the CFTC is treated as short-term gain or loss, and 60% is treated as long-term gain or loss.
Unlike when the fund purchases or sells a security, no price is paid or received by the fund upon the purchase or sale of a futures contract. Upon entering into a contract, the fund is required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash and/or U.S. government securities. 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.
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. Options on future contracts give the purchaser the right in return for the premium paid to assume a position in a futures contract at the specified option exercise price at any time during the period of the option. The fund may use options on futures contracts in lieu of writing or buying options directly on the underlying securities or purchasing and selling the underlying futures contracts. For example, to hedge against a possible decrease in the value of its portfolio securities, the fund may purchase put options or write call options on futures contracts rather than selling futures contracts. Similarly, the fund may purchase call options or write put options on futures contracts as a substitute for the purchase of futures contracts to hedge against a possible increase in the price of securities which the fund expects to purchase. Such options generally operate in the same manner as options purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate his position by selling or purchasing an offsetting option. There is no guarantee that such closing transactions can be effected.
The fund will be required to deposit initial margin and maintenance margin with respect to put and call options on futures contracts written by it pursuant to brokers' requirements similar to those described above in connection with the discussion of futures contracts.
Risks of transactions in futures contracts and related options. Successful use of futures contracts by the fund is subject to Putnam Management's ability to predict movements in various factors affecting securities markets, including interest rates. Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts involves less potential risk to the fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss to the fund when the purchase or sale of a futures contract would not, such as when there is no movement in the prices of the hedged investments. The writing of an option on a futures contract involves risks similar to those risks relating to the sale of futures contracts.
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 Composite 500 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.
Foreign Securities
Under its current policy, which may be changed without shareholder approval, the fund may invest up to the limit of its total assets specified in its prospectus in securities principally traded in markets outside the United States. Eurodollar certificates of deposit are excluded for purposes of this limitation. Since foreign securities are normally denominated and traded in foreign currencies, the value of the fund's assets may be affected favorably or unfavorably by changes in currency exchange rates, exchange control regulations and restrictions or prohibitions on the repatriation of foreign currencies. There may be less information publicly available about a foreign company than about a U.S. company, and foreign companies are not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. The securities of some foreign companies are less liquid and at times more volatile than securities of comparable U.S. companies. 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 domestic investments.
In addition, there may be a possibility of nationalization or expropriation of assets, imposition of currency exchange controls, confiscatory taxation, political or financial instability and diplomatic developments which could affect the value of the fund's investments in certain foreign countries. Legal remedies available to investors in certain foreign countries may be more limited than those available with respect to investments in the United States or in other foreign countries. The laws of some foreign countries may limit the fund's ability to invest in securities of certain issuers located in those foreign countries. Special tax considerations apply to foreign securities.
The risks described above, including the risks of nationalization or expropriation of assets, are typically increased to the extent that the fund invests in issuers located in less developed and developing nations, whose securities markets are sometimes referred to as "emerging securities markets." Investments in securities located in such countries are speculative and subject to certain special risks. Political and economic structures in many of these countries may be in their infancy and developing rapidly, and such countries may lack the social, political and economic stability characteristic of more developed countries. Certain of these countries have in the past failed to recognize private property rights and have at times nationalized and expropriated the assets of private companies.
In addition, unanticipated political or social developments may affect the values of the fund's investments in these countries and the availability to the fund of additional investments in these countries. The small size, limited trading volume and relative inexperience of the securities markets in these countries may make the fund's investments in such countries illiquid and more volatile than investments in more developed countries, and the fund may be required to establish special custodial or other arrangements before making investments in these countries. There may be little financial or accounting information available with respect to issuers located in these countries, and it may be difficult as a result to assess the value or prospects of an investment in such issuers.
Foreign Currency Transactions
Unless otherwise specified in the prospectus or Part I of this SAI, the fund may engage without limit in currency exchange transactions, including purchasing and selling foreign currency, foreign currency options, foreign currency forward contracts and foreign currency futures contracts and related options, to protect against uncertainty in the level of future currency exchange rates. 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." 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. The fund may also enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the fund may also purchase exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. A put option on a futures contract gives the fund the right to assume a short position in the futures contract until the expiration of the option. A put option on a currency gives the fund the right to sell the currency at an exercise price until the expiration of the option. A call option on a futures contract gives the fund the right to assume a long position in the futures contract until the expiration of the option. A call option on a currency gives the fund the right to purchase the currency at the exercise price until the expiration of the option.
When it engages in position hedging, the fund enters into foreign currency exchange transactions to protect against a decline in the values of the foreign currencies in which its portfolio securities are denominated (or an increase in the value of currency for securities which the fund expects to purchase). In connection with position hedging, the fund may purchase put or call options on foreign currency and on foreign currency futures contracts and buy or sell forward contracts and foreign currency futures contracts. The fund may also purchase or sell foreign currency on a spot basis.
It is impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for the fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the fund is obligated to deliver and a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities which the fund owns or intends to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in value of such currency. See "Risk factors in options transactions" above.
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 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.
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 amounts 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 European Currency Unit ("ECU"). The ECU is composed of amounts of a number of currencies, and is the official medium of exchange of the European Community's European Monetary System.
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.
Restricted Securities
The SEC Staff currently takes the view that any delegation by the Trustees of the authority to determine that a restricted security is readily marketable (as described in the investment restrictions of the funds) must be pursuant to written procedures established by the Trustees. It is the present intention of the funds' Trustees that, if the Trustees decide to delegate such determinations to Putnam Management or another person, they would do so pursuant to written procedures, consistent with the Staff's position. Should the Staff modify its position in the future, the Trustees would consider what action would be appropriate in light of the Staff's position at that time.
TAXES
Taxation of the fund. The fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). In order so to qualify and 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) derive less than 30% of its gross income from the sale or other disposition of certain assets (including stock or securities and certain options, futures contracts, forward contracts and foreign currencies) held for less than three months;
(c) distribute with respect to each taxable year at least 90% of the sum of its taxable net investment income, its net tax-exempt income, and the excess, if any, of net short-term capital gains over net long-term capital losses for such year; and
(d) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the fund's assets is represented by cash and cash items, U.S. government securities, securities of other regulated investment companies, and other securities limited in respect of any one issuer to a value not greater than 5% of the value of the fund's total assets and to not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its assets is invested in the securities (other than those of the U.S. Government or other regulated investment companies) of any one issuer or of two or more issuers which the fund controls and which are engaged in the same, similar, or related trades or businesses.
If the fund qualifies as a regulated investment company that is accorded special tax treatment, the fund will not be subject to federal income tax on income paid to its shareholders in the form of dividends (including capital gain dividends).
If the fund failed to qualify as a regulated investment company accorded special tax treatment in any taxable year, the fund would be subject to tax on its taxable income at corporate rates, and all distributions from earnings and profits, including any distributions of net tax-exempt income and net long-term capital gains, would be taxable to shareholders as ordinary income. In addition, the fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying as a regulated investment company that is accorded special tax treatment.
If the fund fails to distribute in a calendar year substantially all of its ordinary income for such year and substantially all of its capital gain net income for the one-year period ending October 31 (or later if the fund is permitted so to elect and so elects), plus any retained amount from the prior year, the fund will be subject to a 4% excise tax on the undistributed amounts. A dividend paid to shareholders by the fund in January of a year generally is deemed to have been paid by the fund on December 31 of the preceding year, if the dividend was declared and payable to shareholders of record on a date in October, November or December of that preceding year. The fund intends generally to make distributions sufficient to avoid imposition of the 4% excise tax.
Exempt-interest dividends. The fund will be qualified to pay exempt-interest dividends to its shareholders only if, at the close of each quarter of the fund's taxable year, at least 50% of the total value of the fund's assets consists of obligations the interest on which is exempt from federal income tax. Distributions that the fund properly designates as exempt- interest dividends are treated as interest excludable from shareholders' gross income for federal income tax purposes but may be taxable for federal alternative minimum tax purposes and for state and local purposes. If the fund intends to be qualified to pay exempt-interest dividends, the fund may be limited in its ability to enter into taxable transactions involving forward commitments, repurchase agreements, financial futures and options contracts on financial futures, tax-exempt bond indices and other assets.
Part or all of the interest on indebtedness, if any, incurred or continued by a shareholder to purchase or carry shares of a fund paying exempt-interest dividends is not deductible. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholder that are exempt-interest dividends. Under rules used by the Internal Revenue Service for determining when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares.
In general, exempt-interest dividends, if any, attributable to interest received on certain private activity obligations and certain industrial development bonds will not be tax-exempt to any shareholders who are "substantial users" of the facilities financed by such obligations or bonds or who are "related persons" of such substantial users.
A fund which is qualified to pay exempt-interest dividends will inform investors within 60 days of the fund's fiscal year-end of the percentage of its income distributions designated as tax-exempt. The percentage is applied uniformly to all distributions made during the year. The percentage of income designated as tax-exempt for any particular distribution may be substantially different from the percentage of the fund's income that was tax-exempt during the period covered by the distribution.
Hedging transactions. If the fund engages in hedging transactions, including hedging transactions in options, futures contracts, and straddles, or other similar transactions, it will be subject to special tax rules (including 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, 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.
Under the 30% of gross income test described above (see "Taxation of the fund"), the fund will be restricted in selling assets held or considered under Code rules to have been held for less than three months, and in engaging in certain hedging transactions (including hedging transactions in options and futures) that in some circumstances could cause certain fund assets to be treated as held for less than three months.
Certain of the fund's hedging activities (including its transactions, if any, in foreign currencies or foreign currency-denominated instruments) are likely to produce a difference between its book income and its taxable income. If the fund's book income exceeds its taxable income, the distribution (if any) of such excess will be treated as (i) a dividend to the extent of the fund's remaining earnings and profits (including earnings and profits arising from tax-exempt income), (ii) thereafter as a return of capital to the extent of the recipient's basis in the shares, and (iii) thereafter as gain from the sale or exchange of a capital asset. If the fund's book income is less than its taxable income, the fund could be required to make distributions exceeding book income to qualify as a regulated investment company that is accorded special tax treatment.
Return of capital distributions. If the fund makes a distribution to you in excess of its current and accumulated "earnings and profits" in any taxable year, the excess distribution will be treated as a return of capital to the extent of your tax basis in your shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces your tax basis in your shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition by you of your shares.
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 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 debt and equity 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 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. 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 of 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, and otherwise as short-term capital gain or loss. However, if a shareholder sells shares at a loss within six months of purchase, any loss will be disallowed for Federal income tax purposes to the extent of any exempt- interest dividends received on such shares. In addition, any loss (not already disallowed as provided in the preceding sentence) realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, to the extent of any long-term capital gain distributions received by the shareholder with respect to the shares. All or a portion of any loss realized upon a taxable disposition of fund shares will be disallowed if other shares of the same fund are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
Shares purchased through tax-qualified plans. Special tax rules apply to investments though defined contribution plans and other tax-qualified plans. Shareholders should consult their tax adviser to determine the suitability of shares of a fund as an investment through such plans and the precise effect of an investment on their particular tax situation.
Backup withholding. The fund generally is required to withhold and remit to the U.S. Treasury 31% of the taxable dividends and other distributions paid to any individual shareholder who fails to furnish the fund with a correct taxpayer identification number (TIN), who has under-reported dividends or interest income, or who fails to certify to the fund that he or she is not subject to such withholding. Shareholders who fail to furnish their correct TIN are subject to a penalty of $50 for each such failure unless the failure is due to reasonable cause and not wilful neglect. An individual's taxpayer identification number is his or her social security number.
MANAGEMENT
Trustees Name (Age)
*+George Putnam (69), Chairman and President. Chairman and Director of Putnam Management and Putnam Mutual Funds. Director, The Boston Company, Inc., Boston Safe Deposit and Trust Company, Freeport-McMoRan, Inc., General Mills, Inc., Houghton Mifflin Company, Marsh & McLennan Companies, Inc. and Rockefeller Group, Inc.
+William F. Pounds (67), Vice Chairman. Professor of Management, Alfred P. Sloan School of Management, Massachusetts Institute of Technology. Director of EG&G, Inc., Fisher Price, Inc., IDEXX, M/A-COM, Inc., and Sun Company, Inc.
Jameson A. Baxter (52), Trustee. President, Baxter Associates, Inc. (consultants to management). Director of Avondale Federal Savings Bank, ASHTA Chemicals, Inc. and Banta Corporation. Chairman Emeritus of the Board of Trustees, Mount Holyoke College.
+Hans H. Estin (67), Trustee. Vice Chairman, North American Management Corp. (a registered investment adviser). Director of The Boston Company, Inc. and Boston Safe Deposit and Trust Company.
Elizabeth T. Kennan (57), Trustee. President Emeritus and Professor, Mount Holyoke College. Director, the Kentucky Home Life Insurance Companies, NYNEX Corporation, Northeast Utilities and Talbots. Trustee of the University of Notre Dame.
*Lawrence J. Lasser (52), Trustee and Vice President. President, Chief Executive Officer and Director of Putnam Investments, Inc. and Putnam Investment Management, Inc. Director of Marsh & McLennan Companies, Inc.
John A. Hill (53), Trustee. Chairman and Managing Director, First Reserve Corporation (a registered investment adviser). Director, Lantana Corporation, Maverick Tube Corporation, Snyder Oil Corporation and various First Reserve Funds.
+Robert E. Patterson (50), Trustee. Executive Vice President, Cabot Partners Limited Partnership (a registered investment adviser).
*Donald S. Perkins (68), Trustee. Director of various corporations, including American Telephone & Telegraph Company, AON Corp., Cummins Engine Company, Inc., Illinois Power Company, Inland Steel Industries, Inc., Kmart Corporation, LaSalle Street Fund, Inc., Springs Industries, Inc., TBG, Inc. and Time Warner Inc.
*#George Putnam III (44), Trustee. President, New Generation Research, Inc. (publisher of bankruptcy information). Director, World Environment Center.
Eli Shapiro (79), Trustee. Alfred P. Sloan Professor of Management, Emeritus, Alfred P. Sloan School of Management, Massachusetts Institute of Technology. Director of Nomura Dividend Fund, Inc. (a privately held registered investment company managed by Putnam Management) and former Trustee of the Putnam funds (1984-1990).
*A.J.C. Smith (61), Trustee. Chairman, Chief Executive Officer and Director, Marsh & McLennan Companies, Inc.
W. Nicholas Thorndike (62), Trustee. Director of various corporations and charitable organizations, including Courier Corporation and Providence Journal Co. Also, Trustee and President of Massachusetts General Hospital and Trustee of Bradley Real Estate Trust and Eastern Utilities Associates.
Officers Name (Age)
Charles E. Porter (57), Executive Vice President. Managing Director of Putnam Investments, Inc. and Putnam Management.
Patricia C. Flaherty (48), Senior Vice President. Senior Vice President of Putnam Investments, Inc. and Putnam Management.
William N. Shiebler (53), Vice President. Director and Senior Managing Director of Putnam Investments, Inc. President and Director of Putnam Mutual Funds.
Gordon H. Silver (48), Vice President. Director and Senior Managing Director of Putnam Investments, Inc. and Putnam Management.
John R. Verani (56), Vice President. Senior Vice President of Putnam Investments, Inc. and Putnam Management.
Paul M. O'Neil (42), Vice President. Vice President of Putnam Investments, Inc. and Putnam Management.
John D. Hughes (60), Vice President and Treasurer.
Beverly Marcus (51), Clerk and Assistant Treasurer.
*Trustees who are or may be deemed to be "interested persons" (as defined in the Investment Company Act of 1940) of the fund, Putnam Management or Putnam Mutual Funds.
+Members of the Executive Committee of the Trustees. The Executive Committee meets between regular meetings of the Trustees as may be required to review investment matters and other affairs of the fund and may exercise all of the powers of the Trustees.
#George Putnam, III is the son of George Putnam.
Certain other officers of Putnam Management are officers of the fund. See "Additional officers" in Part I of this SAI. The mailing address of each of the officers and Trustees is One Post Office Square, Boston, Massachusetts 02109.
Except as stated below, the principal occupations of the officers and Trustees for the last five years have been with the employers as shown above, although in some cases they have held different positions with such employers. Prior to January, 1992, Ms. Baxter was Vice President and Principal, Regency Group, Inc. and Consultant, The First Boston Corporation. Prior to May, 1991, Dr. Pounds was Senior Advisor to the Rockefeller Family and Associates, Chairman of Rockefeller Trust Company and Director of Rockefeller Group, Inc. During the past five years Dr. Shapiro has provided economic and financial consulting services to various clients. Prior to November, 1990, Mr. Shiebler was President and Chief Operating Officer of the Intercapital Division of Dean Witter Reynolds, Inc., Vice President of the Dean Witter funds and Director of Dean Witter Trust Company.
Each Trustee of the fund receives an annual fee and an additional fee for each Trustees' meeting attended. Trustees who are not interested persons of Putnam Management and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings and for special services rendered in that connection. All of the Trustees are Trustees of all the Putnam funds and each receives fees for his or her services. For details of Trustees' fees paid by the fund and information concerning retirement guidelines for the Trustees, see "Charges and expenses" in Part I of this SAI.
The Agreement and Declaration of Trust of the fund provides that the fund will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the fund, except if it is determined in the manner specified in the Agreement and Declaration of Trust that they have not acted in good faith in the reasonable belief that their actions were in the best interests of the fund or that such indemnification would relieve any officer or Trustee of any liability to the fund or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The fund, at its expense, provides liability insurance for the benefit of its Trustees and officers.
Putnam Management and its affiliates
Putnam Management is one of America's oldest and largest money management firms. Putnam Management's staff of experienced portfolio managers and research analysts selects securities and constantly supervises the fund's portfolio. By pooling an investor's money with that of other investors, a greater variety of securities can be purchased than would be the case individually; the resulting diversification helps reduce investment risk. Putnam Management has been managing mutual funds since 1937. Today, the firm serves as the investment manager for the funds in the Putnam Family, with over $78 billion in assets in nearly 4.5 million shareholder accounts at June 30, 1995. An affiliate, The Putnam Advisory Company, Inc., manages domestic and foreign institutional accounts and mutual funds, including the accounts of many Fortune 500 companies. Another affiliate, Putnam Fiduciary Trust Company, provides investment advice to institutional clients under its banking and fiduciary powers. At June 30, 1995, Putnam Management and its affiliates managed over $109 billion in assets, including over $16 billion in tax-exempt securities and over $47 billion in retirement plan assets.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust Company are subsidiaries of Putnam Investments, Inc., a holding company which is in turn wholly owned by Marsh & McLennan Companies, Inc., a publicly-owned holding company whose principal operating subsidiaries are international insurance and reinsurance brokers, investment managers and management consultants.
Trustees and officers of the fund who are also officers of Putnam Management or its affiliates or who are stockholders of Marsh & McLennan Companies, Inc. will benefit from the advisory fees, sales commissions, distribution fees, custodian fees and transfer agency fees paid or allowed by the fund.
The Management Contract
Under a Management Contract between the fund and Putnam Management, subject to such policies as the Trustees may determine, Putnam Management, at its expense, furnishes continuously an investment program for the fund and makes investment decisions on behalf of the fund. Subject to the control of the Trustees, Putnam Management also manages, supervises and conducts the other affairs and business of the fund, furnishes office space and equipment, provides bookkeeping and clerical services (including determination of the fund's net asset value, but excluding shareholder accounting services) and places all orders for the purchase and sale of the fund's portfolio securities. Putnam Management may place fund portfolio transactions with broker-dealers which furnish Putnam Management, without cost to it, certain research, statistical and quotation services of value to Putnam Management and its affiliates in advising the fund and other clients. In so doing, Putnam Management may cause the fund to pay greater brokerage commissions than it might otherwise pay.
For details of Putnam Management's compensation under the Management Contract, see "Charges and expenses" in Part I of this SAI. Putnam Management's compensation under the Management Contract may be reduced in any year if the fund's expenses exceed the limits on investment company expenses imposed by any statute or regulatory authority of any jurisdiction in which shares of the fund are qualified for offer or sale. The term "expenses" is defined in the statutes or regulations of such jurisdictions, and generally excludes brokerage commissions, taxes, interest, extraordinary expenses and, if the fund has a distribution plan, payments made under such plan. The only such limitation as of the date of this SAI (applicable to any fund registered for sale in California) was 2.5% of the first $30 million of average net assets, 2% of the next $70 million and 1.5% of any excess over $100 million.
Under the Management Contract, Putnam Management may reduce its compensation to the extent that the fund's expenses exceed such lower expense limitation as Putnam Management may, by notice to the fund, declare to be effective. The expenses subject to this limitation are exclusive of brokerage commissions, interest, taxes, deferred organizational and extraordinary expenses and, if the fund has a distribution plan, payments required under such plan. For the purpose of determining any such limitation on Putnam Management's compensation, expenses of the fund shall not reflect the application of commissions or cash management credits that may reduce designated fund expenses. The terms of any expense limitation from time to time in effect are described in either the prospectus or Part I of this SAI.
In addition to the fee paid to Putnam Management, the fund reimburses Putnam Management for the compensation and related expenses of certain officers of the fund and their assistants who provide certain administrative services for the fund and the other Putnam funds, each of which bears an allocated share of the foregoing costs. The aggregate amount of all such payments and reimbursements is determined annually by the Trustees. The amount of this reimbursement for the fund's most recent fiscal year is included in "Charges and Expenses" in Part I of this SAI. Putnam Management pays all other salaries of officers of the fund. The fund pays all expenses not assumed by Putnam Management including, without limitation, auditing, legal, custodial, investor servicing and shareholder reporting expenses. The fund pays the cost of typesetting for its prospectuses and the cost of printing and mailing any prospectuses sent to its shareholders. Putnam Mutual Funds pays the cost of printing and distributing all other prospectuses.
The Management Contract provides that Putnam Management shall not be subject to any liability to the fund or to any shareholder of the fund for any act or omission in the course of or connected with rendering services to the fund in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its duties on the part of Putnam Management.
The Management Contract may be terminated without penalty by vote of the Trustees or the shareholders of the fund, or by Putnam Management, on 30 days' written notice. It may be amended only by a vote of the shareholders of the fund. The Management Contract also terminates without payment of any penalty in the event of its assignment. The Management Contract provides that it will continue in effect only so long as such continuance is approved at least annually by vote of either the Trustees or the shareholders, and, in either case, by a majority of the Trustees who are not "interested persons" of Putnam Management or the fund. In each of the foregoing cases, the vote of the shareholders is the affirmative vote of a "majority of the outstanding voting securities" as defined in the Investment Company Act of 1940.
Personal Investments by Employees of Putnam Management
Employees of Putnam Management are permitted to engage in personal securities transactions, subject to requirements and restrictions set forth in Putnam Management's Code of Ethics. The Code of Ethics contains provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of investment advisory clients such as the funds. Among other things, the Code of Ethics, consistent with standards recommended by the Investment Company Institute's Advisory Group on Personal Investing, prohibits certain types of transactions absent prior approval, imposes time periods during which personal transactions may not be made in certain securities, and requires the submission of duplicate broker confirmations and quarterly reporting of securities transactions. Additional restrictions apply to portfolio managers, traders, research analysts and others involved in the investment advisory process. Exceptions to these and other provisions of the Code of Ethics may be granted in particular circumstances after review by appropriate personnel.
Portfolio Transactions
Investment decisions. Investment decisions for the fund and for the other investment advisory clients of Putnam Management and its affiliates are made with a view to achieving their respective investment objectives. Investment decisions are the product of many factors in addition to basic suitability for the particular client involved. Thus, a particular security may be bought or sold for certain clients even though it could have been bought or sold for other clients at the same time. Likewise, a particular security may be bought for one or more clients when one or more other clients are selling the security. In some instances, one client may sell a particular security to another client. It also sometimes happens that two or more clients simultaneously purchase or sell the same security, in which event each day's transactions in such security are, insofar as possible, averaged as to price and allocated between such clients in a manner which in Putnam Management's opinion is equitable to each and in accordance with the amount being purchased or sold by each. There may be circumstances when purchases or sales of portfolio securities for one or more clients will have an adverse effect on other clients.
Brokerage and research services. Transactions on U.S. stock exchanges, commodities markets and futures markets and other agency transactions involve the payment by the fund of negotiated brokerage commissions. Such commissions vary among different brokers. A particular broker may charge different commissions according to such factors as the difficulty and size of the transaction. Transactions in foreign investments often involve the payment of fixed brokerage commissions, which may be higher than those in the United States. There is generally no stated commission in the case of securities traded in the over-the-counter markets, but the price paid by the fund usually includes an undisclosed dealer commission or mark-up. In underwritten offerings, the price paid by the fund includes a disclosed, fixed commission or discount retained by the underwriter or dealer. It is anticipated that most purchases and sales of securities by funds investing primarily in tax-exempt securities and certain other fixed-income securities will be with the issuer or with underwriters of or dealers in those securities, acting as principal. Accordingly, those funds would not ordinarily pay significant brokerage commissions with respect to securities transactions. See "Charges and expenses" in Part I of this SAI for information concerning commissions paid by the fund.
It has for many years been a common practice in the investment advisory business for advisers of investment companies and other institutional investors to receive brokerage and research services (as defined in the Securities Exchange Act of 1934, as amended (the "1934 Act")) from broker-dealers that execute portfolio transactions for the clients of such advisers and from third parties with which such broker-dealers have arrangements. Consistent with this practice, Putnam Management receives brokerage and research services and other similar services from many broker-dealers with which Putnam Management places the fund's portfolio transactions and from third parties with which these broker-dealers have arrangements. These services include such matters as general economic and market reviews, industry and company reviews, evaluations of investments, recommendations as to the purchase and sale of investments, newspapers, magazines, pricing services, quotation services, news services and personal computers utilized by Putnam Management's managers and analysts. Where the services referred to above are not used exclusively by Putnam Management for research purposes, Putnam Management, based upon its own allocations of expected use, bears that portion of the cost of these services which directly relates to their non-research use. Some of these services are of value to Putnam Management and its affiliates in advising various of their clients (including the fund), although not all of these services are necessarily useful and of value in managing the fund. The management fee paid by the fund is not reduced because Putnam Management and its affiliates receive these services even though Putnam Management might otherwise be required to purchase some of these services for cash.
Putnam Management places all orders for the purchase and sale of portfolio investments for the fund and buys and sells investments for the fund through a substantial number of brokers and dealers. In so doing, Putnam Management uses its best efforts to obtain for the fund the most favorable price and execution available, except to the extent it may be permitted to pay higher brokerage commissions as described below. In seeking the most favorable price and execution, Putnam Management, having in mind the fund's best interests, considers all factors it deems relevant, including, by way of illustration, price, the size of the transaction, the nature of the market for the security or other investment, the amount of the commission, the timing of the transaction taking into account market prices and trends, the reputation, experience and financial stability of the broker-dealer involved and the quality of service rendered by the broker-dealer in other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the Management Contract, Putnam Management may cause the fund to pay a broker-dealer which provides "brokerage and research services" (as defined in the 1934 Act) to Putnam Management an amount of disclosed commission for effecting securities transactions on stock exchanges and other transactions for the fund on an agency basis in excess of the commission which another broker-dealer would have charged for effecting that transaction. Putnam Management's authority to cause the fund to pay any such greater commissions is also subject to such policies as the Trustees may adopt from time to time. Putnam Management does not currently intend to cause the fund to make such payments. It is the position of the staff of the Securities and Exchange Commission that Section 28(e) does not apply to the payment of such greater commissions in "principal" transactions. Accordingly Putnam Management will use its best effort to obtain the most favorable price and execution available with respect to such transactions, as described above.
The Management Contract provides that commissions, fees, brokerage or similar payments received by Putnam Management or an affiliate in connection with the purchase and sale of portfolio investments of the fund, less any direct expenses approved by the Trustees, shall be recaptured by the fund through a reduction of the fee payable by the fund under the Management Contract. Putnam Management seeks to recapture for the fund soliciting dealer fees on the tender of the fund's portfolio securities in tender or exchange offers. Any such fees which may be recaptured are likely to be minor in amount.
Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc. and subject to seeking the most favorable price and execution available and such other policies as the Trustees may determine, Putnam Management may consider sales of shares of the fund (and, if permitted by law, of the other Putnam funds) as a factor in the selection of broker-dealers to execute portfolio transactions for the fund.
Principal Underwriter
Putnam Mutual Funds is the principal underwriter of shares of the fund and the other continuously offered Putnam funds. Putnam Mutual Funds is not obligated to sell any specific amount of shares of the fund and will purchase shares for resale only against orders for shares. See "Charges and expenses" in Part I of this SAI for information on sales charges and other payments received by Putnam Mutual Funds.
Investor Servicing Agent and Custodian
Putnam Investor Services, a division of Putnam Fiduciary Trust Company ("PFTC"), is the fund's investor servicing agent (transfer, plan and dividend disbursing agent), for which it receives fees which are paid monthly by the fund as an expense of all its shareholders. The fee paid to Putnam Investor Services is determined on the basis of the number of shareholder accounts, the number of transactions and the assets of the fund. Putnam Investor Services has won the DALBAR Quality Tested Service Seal every year since the award's 1990 inception. Over 10,000 tests of 38 separate shareholder service components demonstrated that Putnam Investor Services tied for highest scores, with two other mutual fund companies, in all categories.
PFTC is the custodian of the fund's assets. In carrying out its duties under its custodian contract, PFTC may employ one or more subcustodians whose responsibilities include safeguarding and controlling the fund's cash and securities, handling the receipt and delivery of securities and collecting interest and dividends on the fund's investments. PFTC and any subcustodians employed by it have a lien on the securities of the fund (to the extent permitted by the fund's investment restrictions) to secure charges and any advances made by such subcustodians at the end of any day for the purpose of paying for securities purchased by the fund. The fund expects that such advances will exist only in unusual circumstances. Neither PFTC nor any subcustodian determines the investment policies of the fund or decides which securities the fund will buy or sell. PFTC pays the fees and other charges of any subcustodians employed by it. The fund may from time to time pay custodial expenses in full or in part through the placement by Putnam Management of the fund's portfolio transactions with the subcustodians or with a third- party broker having an agreement with the subcustodians. The fund pays PFTC an annual fee based on the fund's assets, securities transactions and securities holdings and reimburses PFTC for certain out-of-pocket expenses incurred by it or any subcustodian employed by it in performing custodial services.
See "Charges and expenses" in Part I of this SAI for information on fees and reimbursements for investor servicing and custody received by PFTC. The fees may be reduced by credits allowed by PFTC.
DETERMINATION OF NET ASSET VALUE
The fund determines the net asset value per share of each class of shares once each day the New York Stock Exchange (the "Exchange") is open. Currently, the Exchange is closed Saturdays, Sundays and the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July, Labor Day, Thanksgiving and Christmas. The fund determines net asset value as of the close of regular trading on the Exchange, currently 4:00 p.m. However, equity options held by the fund are priced as of the close of trading at 4:10 p.m., and futures contracts on U.S. government and other fixed-income securities and index options held by the fund are priced as of their close of trading at 4:15 p.m.
Securities for which market quotations are readily available are valued at prices which, in the opinion of Putnam Management, most nearly represent the market values of such securities. Currently, such prices are determined using the last reported sale price or, if no sales are reported (as in the case of some securities traded over-the-counter), the last reported bid price, except that certain securities are valued at the mean between the last reported bid and asked prices. Short-term investments having remaining maturities of 60 days or less are valued at amortized cost, which approximates market value. All other securities and assets are valued at their fair value following procedures approved by the Trustees. Liabilities are deducted from the total, and the resulting amount is divided by the number of shares of the class outstanding.
Reliable market quotations are not considered to be readily available for long-term corporate bonds and notes, certain preferred stocks, tax-exempt securities, and certain foreign securities. These investments are valued at fair value on the basis of valuations furnished by pricing services, which determine valuations for normal, institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders.
If any securities held by the fund are restricted as to resale, Putnam Management determines their fair value following procedures approved by the Trustees. The fair value of such securities is generally determined as the amount which the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. The valuation procedures applied in any specific instance are likely to vary from case to case. However, consideration is generally given to the financial position of the issuer and other fundamental analytical data relating to the investment and to the nature of the restrictions on disposition of the securities (including any registration expenses that might be borne by the fund in connection with such disposition). In addition, specific factors are also generally considered, such as the cost of the investment, the market value of any unrestricted securities of the same class, the size of the holding, the prices of any recent transactions or offers with respect to such securities and any available analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign securities) is substantially completed each day at various times prior to the close of the Exchange. The values of these securities used in determining the net asset value of the fund's shares are computed as of such times. Also, because of the amount of time required to collect and process trading information as to large numbers of securities issues, the values of certain securities (such as convertible bonds, U.S. government securities, and tax-exempt securities) are determined based on market quotations collected earlier in the day at the latest practicable time prior to the close of the Exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange which will not be reflected in the computation of the fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value following procedures approved by the Trustees.
Money market funds generally value their portfolio securities at amortized cost according to Rule 2a-7 under the Investment Company Act of 1940.
HOW TO BUY SHARES
General
The prospectus contains a general description of how investors may buy shares of the fund and states whether the fund offers more than one class of shares. This SAI contains additional information which may be of interest to investors.
Class A shares and class M shares are generally sold with a sales charge payable at the time of purchase (except for class A shares and class M shares of money market funds). As used in this SAI and unless the context requires otherwise, the term "class A shares" includes shares of funds that offer only one class of shares. The prospectus contains a table of applicable sales charges. For information about how to purchase class A or class M shares of a Putnam fund at net asset value through an employer's defined contribution plan, please consult your employer. Certain purchases of class A shares and class M shares may be exempt from a sales charge or, in the case of class A shares, may be subject to a contingent deferred sales charge ("CDSC"). See "General--Sales without sales charges or contingent deferred sales charges," "Additional Information About Class A and Class M shares," and "Contingent Deferred Sales Charges--Class A shares."
Class B shares and class C shares are sold subject to a CDSC payable upon redemption within a specified period after purchase. The prospectus contains a table of applicable CDSCs.
Class B shares will automatically convert into class A shares 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 Y shares, which are not subject to sales charges or a CDSC, are available only to certain defined contribution plans. See the prospectus that offers class Y shares for more information.
Certain purchase programs described below are not available to defined contribution plans. Consult your employer for information on how to purchase shares through your plan.
The fund is currently making a continuous offering of its shares. The fund receives the entire net asset value of shares sold. The fund will accept unconditional orders for shares to be executed at the public offering price based on the net asset value per share next determined after the order is placed. In the case of class A shares and class M shares, the public offering price is the net asset value plus the applicable sales charge, if any. No sales charge is included in the public offering price of other classes of shares. In the case of orders for purchase of shares placed through dealers, the public offering price will be based on the net asset value determined on the day the order is placed, but only if the dealer receives the order before the close of regular trading on the Exchange. If the dealer receives the order after the close of the Exchange, the price will be based on the net asset value next determined. If funds for the purchase of shares are sent directly to Putnam Investor Services, they will be invested at the public offering price based on the net asset value next determined after receipt. Payment for shares of the fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank.
Initial and subsequent purchases must satisfy the minimums stated in the prospectus, except that (i) individual investments under certain employee benefit plans or Tax Qualified Retirement Plans may be lower, (ii) persons who are already shareholders may make additional purchases of $50 or more by sending funds directly to Putnam Investor Services (see "Your investing account" below), and (iii) for investors participating in systematic investment plans and military allotment plans, the initial and subsequent purchases must be $25 or more. Information about these plans is available from investment dealers or from Putnam Mutual Funds.
As a convenience to investors, shares may be purchased through a systematic investment plan. Pre-authorized monthly bank drafts for a fixed amount (at least $25) are used to purchase fund shares at the applicable public offering price next determined after Putnam Mutual Funds receives the proceeds from the draft (normally the 20th of each month, or the next business day thereafter). Further information and application forms are available from investment dealers or from Putnam Mutual Funds.
Except for funds that declare a distribution daily, distributions to be reinvested are reinvested without a sales charge in shares of the same class as of the ex-dividend date using the net asset value determined on that date, and are credited to a shareholder's account on the payment date. Dividends for Putnam money market funds are credited to a shareholder's account on the payment date. Distributions for all other funds that declare a distribution daily are reinvested without a sales charge as of the next day following 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. In the case of Putnam American Government Income Fund, Putnam Asia Pacific Growth Fund, Putnam Asset Allocation Funds, Putnam Capital Appreciation Fund, Putnam Preferred Income Fund, Putnam Diversified Equity Trust, Putnam Equity Income Fund, Putnam Europe Growth Fund, The Putnam Fund for Growth & Income, Putnam Global Governmental Income Trust, Putnam Growth and Income Fund II, Putnam High Yield Advantage Fund, Putnam Investment Funds, Putnam Intermediate Tax Exempt Fund, Putnam Investment- Grade Bond Fund, Putnam Municipal Income Fund, Putnam Natural Resources Fund, Putnam OTC Emerging Growth Fund, Putnam Overseas Growth Fund, Putnam Tax Exempt Income Fund and Putnam Tax-Free Income Trust, transactions involving the issuance of fund shares for securities or assets other than cash will be limited to a bona-fide re-organization or statutory merger and to other acquisitions of portfolio securities that meet all the following conditions: (a) such securities meet the investment objective(s) and policies of the fund; (b) such securities are acquired for investment and not for resale; (c) such securities are liquid securities which are not restricted as to transfer either by law or liquidity of market; and (d) such securities have a value which is readily ascertainable, as evidenced by a listing on the American Stock Exchange, the New York Stock Exchange or The Nasdaq Stock Market, Inc. In addition, Putnam Global Governmental Income Trust may accept only investment grade bonds with prices regularly stated in publications generally accepted by investors, such as the London Financial Times and the Association of International Bond Dealers manual, or securities listed on the New York or American Stock Exchanges or on The Nasdaq Stock Market, Inc. Putnam Diversified Income Trust may accept only bonds with prices regularly stated in publications generally accepted by investors. 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 realize a taxable gain or loss. The processing of a purchase of fund shares with securities involves certain delays while the fund considers the suitability of such securities and while other requirements are satisfied. For information regarding procedures for payment in securities, contact Putnam Mutual Funds. Investors should not send securities to the fund except when authorized to do so and in accordance with specific instructions received from Putnam Mutual Funds.
Sales without sales charges or contingent deferred sales charges. The fund may sell shares without a sales charge or CDSC to:
(i) current and retired Trustees of the fund; officers of the fund; directors and current and retired U.S. full-time employees of Putnam Management, Putnam Mutual Funds, their parent corporations and certain corporate affiliates; family members of and employee benefit plans for the foregoing; and partnerships, trusts or other entities in which any of the foregoing has a substantial interest;
(ii) employee benefit plans, for the repurchase of shares in connection with repayment of plan loans made to plan participants (if the sum loaned was obtained by redeeming shares of a Putnam fund sold with a sales charge) (not offered by tax-exempt funds);
(iii) clients of administrators of tax-qualified employee benefit plans which have entered into agreements with Putnam Mutual Funds (not offered by tax-exempt funds);
(iv) registered representatives and other employees of broker-dealers having sales agreements with Putnam Mutual Funds; employees of financial institutions having sales agreements with Putnam Mutual Funds or otherwise having an arrangement with any such broker-dealer or financial institution with respect to sales of fund shares; and their spouses and children under age 21 (Putnam Mutual Funds is regarded as the dealer of record for all such accounts);
(v) investors meeting certain requirements who sold shares of certain Putnam closed-end funds pursuant to a tender offer by such closed-end fund;
(vi) a trust department of any financial institution purchasing shares of the fund in its capacity as trustee of any trust, 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 planners who have entered into agreements with Putnam Mutual Funds with respect to such accounts.
In addition, 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, and the CDSC will be waived on redemptions of shares arising out of death or disability or in connection with certain withdrawals from IRA or other retirement plans. Up to 12% of the value of class B shares subject to a systematic withdrawal plan may also be redeemed each year without a CDSC. The fund may sell class M shares at net asset value to members of qualified groups. See "Group purchases of class A and class M shares" below.
Payments to dealers. Putnam Mutual Funds may, at its expense, pay concessions in addition to the payments disclosed in the prospectus to dealers which satisfy certain criteria established from time to time by Putnam Mutual Funds relating to increasing net sales of shares of the Putnam funds over prior periods, and certain other factors.
Additional Information About Class A and Class M Shares
The underwriter's commission is the sales charge shown in the prospectus less any applicable dealer discount. Putnam Mutual Funds will give dealers ten days' notice of any changes in the dealer discount. Putnam Mutual Funds retains the entire sales charge on any retail sales made by it.
Putnam Mutual Funds offers several plans by which an investor may obtain reduced sales charges on purchases of class A shares and class M shares. The variations in sales charges reflect the varying efforts required to sell shares to separate categories of purchasers. These plans may be altered or discontinued at any time.
Combined purchase privilege. The following persons may qualify for the sales charge reductions or eliminations shown in the prospectus by combining into a single transaction the purchase of class A shares or class M shares with other purchases of any class of shares:
(i) an individual, or a "company" as defined in Section 2(a)(8) of the Investment Company Act of 1940 (which includes corporations which are corporate affiliates of each other);
(ii) an individual, his or her spouse and their children under twenty-one, purchasing for his, her or their own account;
(iii) a trustee or other fiduciary purchasing for a single trust estate or single fiduciary account (including a pension, profit-sharing, or other employee benefit trust created pursuant to a plan qualified under Section 401 of the Internal Revenue Code of 1986, as amended (the "Code"));
(iv) tax-exempt organizations qualifying under Section 501(c)(3) of the Internal Revenue Code (not including tax- exempt organizations qualifying under Section 403(b)(7) (a "403(b) plan") of the Code; and
(v) employee benefit plans of a single employer or of affiliated employers, other than 403(b) plans.
A combined purchase currently may also include shares of any class of other continuously offered Putnam funds (other than money market funds) purchased at the same time through a single investment dealer, if the dealer places the order for such shares directly with Putnam Mutual Funds.
Cumulative quantity discount (right of accumulation). A purchaser of class A shares or class M shares may qualify for a cumulative quantity discount by combining a current purchase (or combined purchases as described above) with certain other shares of any class of Putnam funds already owned. The applicable sales charge is based on the total of:
(i) the investor's current purchase; and
(ii) the maximum public offering price (at the close of business on the previous day) of:
(a) all shares held by the investor in all of the Putnam funds (except money market funds); and
(b) any shares of money market funds acquired by exchange from other Putnam funds; and
(iii) the maximum public offering price of all shares described in paragraph (ii) owned by another shareholder eligible to participate with the investor in a "combined purchase" (see above).
To qualify for the combined purchase privilege or to obtain the cumulative quantity discount on a purchase through an investment dealer, when each purchase is made the investor or dealer must provide Putnam Mutual Funds with sufficient information to verify that the purchase qualifies for the privilege or discount. The shareholder must furnish this information to Putnam Investor Services when making direct cash investments.
Statement of Intention. Investors may also obtain the reduced sales charges for class A shares or class M shares shown in the prospectus for investments of a particular amount by means of a written Statement of Intention, which expresses the investor's intention to invest that amount (including certain "credits," as described below) within a period of 13 months in shares of any class of the fund or any other continuously offered Putnam fund (excluding money market funds). Each purchase of class A shares or class M shares under a Statement of Intention will be made at the public offering price applicable at the time of such purchase to a single transaction of the total dollar amount indicated in the Statement of Intention. A Statement of Intention may include purchases of shares made not more than 90 days prior to the date that an investor signs a Statement; however, the 13-month period during which the Statement of Intention is in effect will begin on the date of the earliest purchase to be included.
An investor may receive a credit toward the amount indicated in the Statement of Intention equal to the maximum public offering price as of the close of business on the previous day of all shares he or she owns on the date of the Statement of Intention which are eligible for purchase under a Statement of Intention (plus any shares of money market funds acquired by exchange of such eligible shares). Investors do not receive credit for shares purchased by the reinvestment of distributions. Investors qualifying for the "combined purchase privilege" (see above) may purchase shares under a single Statement of Intention.
The Statement of Intention is not a binding obligation upon the investor to purchase the full amount indicated. The minimum initial investment under a Statement of Intention is 5% of such amount, and must be invested immediately. Class A shares or class M shares purchased with the first 5% of such amount will be held in escrow to secure payment of the higher sales charge applicable to the shares actually purchased if the full amount indicated is not purchased. When the full amount indicated has been purchased, the escrow will be released. If an investor desires to redeem escrowed shares before the full amount has been purchased, the shares will be released from escrow only if the investor pays the sales charge that, without regard to the Statement of Intention, would apply to the total investment made to date.
To the extent that an investor purchases more than the dollar amount indicated on the Statement of Intention and qualifies for a further reduced sales charge, the sales charge will be adjusted for the entire amount purchased at the end of the 13-month period, upon recovery from the investor's dealer of its portion of the sales charge adjustment. Once received from the dealer, which may take a period of time or may never occur, the sales charge adjustment will be used to purchase additional shares at the then current offering price applicable to the actual amount of the aggregate purchases. These additional shares will not be considered as part of the total investment for the purpose of determining the applicable sales charge pursuant to the Statement of Intention. No sales charge adjustment will be made unless and until the investor's dealer returns any excess commissions previously received.
To the extent that an investor purchases less than the dollar amount indicated on the Statement of Intention within the 13- month period, the sales charge will be adjusted upward for the entire amount purchased at the end of the 13-month period. This adjustment will be made by redeeming shares from the account to cover the additional sales charge, the proceeds of which will be paid to the investor's dealer and Putnam Mutual Funds in accordance with the prospectus. If the account exceeds an amount that would otherwise qualify for a reduced sales charge, that reduced sales charge will be applied.
Statements of Intention are not available for certain employee benefit plans.
Statement of Intention forms may be obtained from Putnam Mutual Funds or from investment dealers. Interested investors should read the Statement of Intention carefully.
Group purchases of class A and class M shares. Members of qualified groups may purchase class A shares of the fund at a group sales charge rate of 4.50% of the public offering price (4.71% of the net amount invested). The dealer discount on such sales is 3.75% of the offering price. Members of qualified groups may also purchase class M shares at net asset value.
To receive the class A or class M group rate, group members must purchase shares through a single investment dealer designated by the group. The designated dealer must transmit each member's initial purchase to Putnam Mutual Funds, together with payment and completed application forms. After the initial purchase, a member may send funds for the purchase of shares directly to Putnam Investor Services. Purchases of shares are made at the public offering price based on the net asset value next determined after Putnam Mutual Funds or Putnam Investor Services receives payment for the shares. The minimum investment requirements described above apply to purchases by any group member. Only shares purchased under the class A group discount are included in calculating the purchased amount for the purposes of these requirements.
Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or
association, or other organized groups of persons (the members of
which may include other qualified groups) provided that: (i) the
group has at least 25 members of which, with respect to the class
A discount only, at least 10 members participate in the initial
purchase; (ii) the group has been in existence for at least six
months; (iii) the group has some purpose in addition to the
purchase of investment company shares at a reduced sales charge;
(iv) the group's sole organizational nexus or connection is not
that the members are credit card holders of a company, policy
holders of an insurance company, customers of a bank or
broker-dealer, clients of an investment adviser or security
holders of a company; (v) with respect to the class A discount
only, the group agrees to provide its designated investment
dealer access to the group's membership by means of written
communication or direct presentation to the membership at a
meeting on not less frequently than an annual basis; (vi) the
group or its investment dealer will provide annual certification
in form satisfactory to Putnam Investor Services that the group
then has at least 25 members and, with respect to the class A
discount only, that at least ten members participated in group
purchases during the immediately preceding 12 calendar months;
and (vii) the group or its investment dealer will provide
periodic certification in form satisfactory to Putnam Investor
Services as to the eligibility of the purchasing members of the
group.
Members of a qualified group include: (i) any group which meets the requirements stated above and which is a constituent member of a qualified group; (ii) any individual purchasing for his or her own account who is carried on the records of the group or on the records of any constituent member of the group as being a good standing employee, partner, member or person of like status of the group or constituent member; or (iii) any fiduciary purchasing shares for the account of a member of a qualified group or a member's beneficiary. For example, a qualified group could consist of a trade association which would have as its members individuals, sole proprietors, partnerships and corporations. The members of the group would then consist of the individuals, the sole proprietors and their employees, the members of the partnerships and their employees, and the corporations and their employees, as well as the trustees of employee benefit trusts acquiring class A shares for the benefit of any of the foregoing.
A member of a qualified group may, depending upon the value of class A shares of the fund owned or proposed to be purchased by the member, be entitled to purchase class A shares of the fund at non-group sales charge rates shown in the prospectus which may be lower than the group sales charge rate, if the member qualifies as a person entitled to reduced non-group sales charges. Such a group member will be entitled to purchase at the lower rate if, at the time of purchase, the member or his or her investment dealer furnishes sufficient information for Putnam Mutual Funds or Putnam Investor Services to verify that the purchase qualifies for the lower rate.
Interested groups should contact their investment dealer or Putnam Mutual Funds. The fund reserves the right to revise the terms of or to suspend or discontinue group sales at any time.
Employee benefit plans; Individual account plans. The term
"employee benefit plan" means any plan or arrangement, whether or
not tax-qualified, which provides for the purchase of class A
shares. The term "affiliated employer" means employers who are
affiliated with each other within the meaning of Section
2(a)(3)(C) of the Investment Company Act of 1940. The term
"individual account plan" means any employee benefit plan whereby
(i) class A shares are purchased through payroll deductions or
otherwise by a fiduciary or other person for the account of
participants who are employees (or their spouses) of an employer,
or of affiliated employers, and (ii) a separate investing account
is maintained in the name of such fiduciary or other person for
the account of each participant in the plan.
The table of sales charges in the prospectus applies to sales to employee benefit plans, except that the fund may sell class A shares at net asset value to employee benefit plans, including individual account plans, of employers or of affiliated employers which have at least 750 employees to whom such plan is made available, in connection with a payroll deduction system of plan funding (or other system acceptable to Putnam Investor Services) by which contributions or account information for plan participation are transmitted to Putnam Investor Services by methods acceptable to Putnam Investor Services. The fund may also sell class A shares at net asset value to participant- directed qualified retirement plans with at least 200 eligible employees, or prior to December 1, 1995, a plan sponsored by an employer or by affiliated employers which have at least 750 employees and, beginning December 1, 1995, the fund may sell class M shares at net asset value to participant-directed qualified retirement plans with at least 50 eligible employees.
A participant-directed qualified retirement plan participating in a "multi-fund" program approved by Putnam Mutual Funds may include amounts invested in the other mutual funds participating in such program for purposes of determining whether the plan may purchase class A shares at net asset value based on the size of the purchase as described in the prospectus. These investments will also be included for purposes of the discount privileges and programs described above.
Additional information about participant-directed qualified retirement plans and individual account plans is available from investment dealers or from Putnam Mutual Funds.
Contingent Deferred Sales Charges
Class A shares. Class A shares purchased at net asset value by shareholders investing $1 million or more, including purchases pursuant to any Combined Purchase Privilege, Right of Accumulation or Statement of Intention, are subject to a CDSC of 1.00% or 0.50%, respectively, if redeemed within the first or second year after purchase. The class A CDSC is imposed on the lower of the cost and the current net asset value of the shares redeemed. The CDSC does not apply to shares sold without a sales charge through participant-directed qualified retirement plans and shares purchased by certain investors investing $1 million or more that have made arrangements with Putnam Mutual Funds and whose dealer of record waived the commission described in the next paragraph.
Except as stated below, Putnam Mutual Funds pays investment dealers of record commissions on sales of class A shares of $1 million or more based on an investor's cumulative purchases of such shares, including purchases pursuant to any Combined Purchase Privilege, Right of Accumulation or Statement of Intention, during the one-year period beginning with the date of the initial purchase at net asset value and each subsequent one- year period beginning with the first net asset value purchase following the end of the prior period. Such commissions are paid at the rate of 1.00% of the amount under $3 million, 0.50% of the next $47 million and 0.25% thereafter. On sales at net asset value to a participant-directed qualified retirement plan initially investing less than $20 million in Putnam funds and other investments managed by Putnam Management or its affiliates (including a plan with at least 200 eligible employees, or prior to December 1, 1995, a plan sponsored by an employer with more than 750 employees), Putnam Mutual Funds pays commissions during each one-year measuring period, determined as described above, at the rate of 1.00% of the first $2 million, 0.80% of the next $1 million and 0.50% thereafter, except that commissions on sales prior to December 1, 1995 are based on cumulative purchases during the life of the account and are paid at the rate of 1.00% of the amount under $3 million and 0.50% thereafter. On sales at net asset value to all other participant-directed qualified retirement plans, Putnam Mutual Funds pays commissions on the initial investment and on subsequent net quarterly sales (gross sales minus gross redemptions during the quarter) at the rate of 0.15%. Money market fund shares are excluded from all commission calculations, except for determining the amount initially invested by a participant-directed qualified retirement plan. Commissions on sales at net asset value to such plans are subject to Putnam Mutual Funds' right to reclaim such commissions if the shares are redeemed within two years.
Different CDSC and commission rates may apply to shares purchased before April 1, 1994.
Class B and class C shares. Investors who set up an Automatic Cash Withdrawal Plan ("ACWP") for a class B and class C share account (see "Plans available to shareholders -- Automatic Cash Withdrawal Plan") may withdraw through the ACWP up to 12% of the net asset value of the account (calculated as set forth below) each year without incurring any CDSC. Shares not subject to a CDSC (such as shares representing reinvestment of distributions) will be redeemed first and will count toward the 12% limitation. If there are insufficient shares not subject to a CDSC, shares subject to the lowest CDSC liability will be redeemed next until the 12% limit is reached. The 12% figure is calculated on a pro rata basis at the time of the first payment made pursuant to an ACWP and recalculated thereafter on a pro rata basis at the time of each ACWP payment. Therefore, shareholders who have chosen an ACWP based on a percentage of the net asset value of their account of up to 12% will be able to receive ACWP payments without incurring a CDSC. However, shareholders who have chosen a specific dollar amount (for example, $100 per month from a fund that pays income distributions monthly) for their periodic ACWP payment should be aware that the amount of that payment not subject to a CDSC may vary over time depending on the net asset value of their account. For example, if the net asset value of the account is $10,000 at the time of payment, the shareholder will receive $100 free of the CDSC (12% of $10,000 divided by 12 monthly payments). However, if at the time of the next payment the net asset value of the account has fallen to $9,400, the shareholder will receive $94 free of any CDSC (12% of $9,400 divided by 12 monthly payments) and $6 subject to the lowest applicable CDSC. This ACWP privilege may be revised or terminated at any time.
All shares. No CDSC is imposed on shares of any class subject to a CDSC ("CDSC Shares") to the extent that the CDSC Shares redeemed (i) are no longer subject to the holding period therefor, (ii) resulted from reinvestment of distributions on CDSC Shares, 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 of CDSC Shares, CDSC 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 the death or post-purchase disability of a shareholder, for the purpose of paying benefits pursuant to tax-qualified retirement plans ("Benefit Payments"), or in the case of living trust accounts in the event of the death or post- purchase disability of the settlor of the trust). Benefit payments currently include, without limitation, (1) distributions from an IRA due to death or disability, (2) a return of excess contributions to an IRA or 401(k) plan, and (3) distributions from retirement plans qualified under Section 401(a) of the Code or from a 403(b) plan due to death, disability, retirement or separation from service. These waivers may be changed at any time. Additional waivers may apply to IRA accounts opened prior to February 1, 1994.
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.
If plan payments are made to reimburse Putnam Mutual Funds for payments to dealers based on the average net asset value of fund shares attributable to shareholders for whom the dealers are designated as the dealer of record, "average net asset value" attributable to a shareholder account means the product of (i) the fund's average daily share balance of the account and (ii) the fund's average daily net asset value per share (or the average daily net asset value per share of the class, if applicable). For administrative reasons, Putnam Mutual Funds may enter into agreements with certain dealers providing for the calculation of "average net asset value" on the basis of assets of the accounts of the dealer's customers on an established day in each quarter.
Financial institutions receiving payments from Putnam Mutual Funds as described above may be required to comply with various state and federal regulatory requirements, including among others those regulating the activities of securities brokers or dealers.
INVESTOR SERVICES
Shareholder Information
Each time shareholders buy or sell shares, they will receive a statement confirming the transaction and listing their current share balance. (Under certain investment plans, a statement may only be sent quarterly.) Shareholders will receive a statement confirming reinvestment of distributions in additional fund shares (or in shares of other Putnam funds for Dividends Plus accounts) promptly following the quarter in which the reinvestment occurs. To help shareholders take full advantage of their Putnam investment, they will receive a Welcome Kit and a periodic publication covering many topics of interest to investors. The fund also sends annual and semiannual reports that keep shareholders informed about its portfolio and performance, and year-end tax information to simplify their recordkeeping. Easy-to-read, free booklets on special subjects such as the Exchange Privilege and IRAs are available from Putnam Investor Services. Shareholders may call Putnam Investor Services toll-free weekdays at 1-800-225-1581 between 8:30 a.m. and 7:00 p.m. Boston time for more information, including account balances.
Your Investing Account
The following information provides more detail concerning the operation of a Putnam Investing Account. For further information or assistance, investors should consult Putnam Investor Services. Shareholders who purchase shares through a defined contribution plan should note that not all of the services or features described below may be available to them, and they should contact their employer for details.
A shareholder may reinvest a cash distribution without a front-end sales charge or without the reinvested shares being subject to a CDSC, as the case may be, by delivering to Putnam Investor Services the uncashed distribution check, endorsed to the order of the fund. Putnam Investor Services must receive the properly endorsed check within 1 year after the date of the check.
The Investing Account also provides a way to accumulate shares of the fund. In most cases, after an initial investment of $500, a shareholder may send checks to Putnam Investor Services for $50 or more, made payable to the fund, to purchase additional shares at the applicable public offering price next determined after Putnam Investor Services receives the check. Checks must be drawn on a U.S. bank and must be payable in U.S. dollars.
Putnam Investor Services acts as the shareholder's agent whenever it receives instructions to carry out a transaction on the shareholder's account. Upon receipt of instructions that shares are to be purchased for a shareholder's account, shares will be purchased through the investment dealer designated by the shareholder. Shareholders may change investment dealers at any time by written notice to Putnam Investor Services, provided the new dealer has a sales agreement with Putnam Mutual Funds.
Shares credited to an account are transferable upon written instructions in good order to Putnam Investor Services and may be sold to the fund as described under "How to sell shares" in the prospectus. Money market funds and certain other funds will not issue share certificates. A shareholder may send to Putnam Investor Services any certificates which have been previously issued for safekeeping at no charge to the shareholder.
Putnam Mutual Funds, at its expense, may provide certain additional reports and administrative material to qualifying institutional investors with fiduciary responsibilities to assist these investors in discharging their responsibilities. Institutions seeking further information about this service should contact Putnam Mutual Funds, which may modify or terminate this service at any time.
Putnam Investor Services may make special services available to shareholders with investments exceeding $1,000,000. Contact Putnam Investor Services for details.
The fund pays Putnam Investor Services' fees for maintaining Investing Accounts.
Reinstatement Privilege
An investor who has redeemed shares of the fund may reinvest (within 1 year) the proceeds of such sale in shares of the same class of the fund, or may be able to reinvest (within 1 year) the proceeds in shares of the same class of one of the other continuously offered Putnam funds (through the Exchange Privilege described in the prospectus), including, in the case of shares subject to a CDSC, the amount of CDSC charged on the redemption. Any such reinvestment would be at the net asset value of the shares of the fund(s) the investor selects, next determined after Putnam Mutual Funds receives a Reinstatement Authorization. The time that the previous investment was held will be included in determining any applicable CDSC due upon redemptions and, in the case of class B shares, the eight-year period for conversion to class A shares. Shareholders will receive from Putnam Mutual Funds the amount of any CDSC paid at the time of redemption as part of the reinstated investment, which may be treated as capital gains to the shareholder for tax purposes. Exercise of the Reinstatement Privilege does not alter the federal income tax treatment of any capital gains realized on a sale of fund shares, but to the extent that any shares are sold at a loss and the proceeds are reinvested in shares of the fund, some or all of the loss may be disallowed as a deduction. Consult your tax adviser. Investors who desire to exercise the Reinstatement Privilege should contact their investment dealer or Putnam Investor Services.
Exchange Privilege
Except as otherwise set forth in this section, by calling Putnam Investor Services, investors may exchange shares valued up to $500,000 between accounts with identical registrations, provided that no certificates are outstanding for such shares and no address change has been made within the preceding 15 days. During periods of unusual market changes and shareholder activity, shareholders may experience delays in contacting Putnam Investor Services by telephone to exercise the Telephone Exchange Privilege.
Putnam Investor Services also makes exchanges promptly after receiving a properly completed Exchange Authorization Form and, if issued, share certificates. If the shareholder is a corporation, partnership, agent, or surviving joint owner, Putnam Investor Services will require additional documentation of a customary nature. Because an exchange of shares involves the redemption of fund shares and reinvestment of the proceeds in shares of another Putnam fund, completion of an exchange may be delayed under unusual circumstances if the fund were to suspend redemptions or postpone payment for the fund shares being exchanged, in accordance with federal securities laws. Exchange Authorization Forms and prospectuses of the other Putnam funds are available from Putnam Mutual Funds or investment dealers having sales contracts with Putnam Mutual Funds. The prospectus of each fund describes its investment objective(s) and policies, and shareholders should obtain a prospectus and consider these objectives and policies carefully before requesting an exchange. Shares of certain Putnam funds are not available to residents of all states. The fund reserves the right to change or suspend the Exchange Privilege at any time. Shareholders would be notified of any change or suspension. Additional information is available from Putnam Investor Services.
Shares of the fund must be held at least 15 days by the shareholder requesting an exchange. There is no holding period if the shareholder acquired the shares to be exchanged through reinvestment of distributions, transfer from another shareholder, prior exchange or certain employer-sponsored defined contribution plans. In all cases, the shares to be exchanged must be registered on the records of the fund in the name of the shareholder requesting the exchange.
Shareholders of other Putnam funds may also exchange their shares at net asset value for shares of the fund, as set forth in the current prospectus of each fund.
For federal income tax purposes, an exchange is a sale on which the investor generally will realize a capital gain or loss depending on whether the net asset value at the time of the exchange is more or less than the investor's basis. The Exchange Privilege may be revised or terminated at any time. Shareholders would be notified of any such change or suspension.
Dividends PLUS
Shareholders may invest the fund's distributions of net investment income or distributions combining net investment income and short-term capital gains in shares of the same class of another continuously offered Putnam fund (the "receiving fund") using the net asset value per share of the receiving fund determined on the date the fund's distribution is payable. No sales charge or CDSC will apply to the purchased shares unless the fund paying the distribution is a money market fund. The prospectus of each fund describes its investment objective(s) and policies, and shareholders should obtain a prospectus and consider these objective(s) and policies carefully before investing their distributions in the receiving fund. Shares of certain Putnam funds are not available to residents of all states.
The minimum account size requirement for the receiving fund will not apply if the current value of your account in the fund paying the distribution is more than $5,000.
Shareholders of other Putnam funds (except for money market funds, whose shareholders must pay a sales charge or become subject to a CDSC) may also use their distributions to purchase shares of the fund at net asset value.
For federal tax purposes, distributions from the fund which are reinvested in another fund are treated as paid by the fund to the shareholder and invested by the shareholder in the receiving fund and thus, to the extent comprised of taxable income and deemed paid to a taxable shareholder, are taxable.
The Dividends PLUS program may be revised or terminated at any time.
Plans Available To Shareholders
The plans described below are fully voluntary and may be terminated at any time without the imposition by the fund or Putnam Investor Services of any penalty. All plans provide for automatic reinvestment of all distributions in additional shares of the fund at net asset value. The fund, Putnam Mutual Funds or Putnam Investor Services may modify or cease offering these plans at any time.
Automatic cash withdrawal plan ("ACWP"). An investor who owns or buys shares of the fund valued at $10,000 or more at the current public offering price may open an ACWP plan and have a designated sum of money ($50 or more) paid monthly, quarterly, semi-annually or annually to the investor or another person. (Payments from the fund can be combined with payments from other Putnam funds into a single check through a designated payment plan.) Shares are deposited in a plan account, and all distributions are reinvested in additional shares of the fund at net asset value (except where the plan is utilized in connection with a charitable remainder trust). Shares in a plan account are then redeemed at net asset value to make each withdrawal payment. Payment will be made to any person the investor designates; however, if shares are registered in the name of a trustee or other fiduciary, payment will be made only to the fiduciary, except in the case of a profit-sharing or pension plan where payment will be made to a designee. As withdrawal payments may include a return of principal, they cannot be considered a guaranteed annuity or actual yield of income to the investor. The redemption of shares in connection with a plan generally will result in a gain or loss for tax purposes. Some or all of the losses realized upon redemption may be disallowed pursuant to the so-called wash sale rules if shares of the same fund from which shares were redeemed are purchased (including through the reinvestment of fund distributions) within a period beginning 30 days before, and ending 30 days after, such redemption. In such a case, the basis of the replacement shares will be increased to reflect the disallowed loss. Continued withdrawals in excess of income will reduce and possibly exhaust invested principal, especially in the event of a market decline. The maintenance of a plan concurrently with purchases of additional shares of the fund would be disadvantageous to the investor because of the sales charge payable on such purchases. For this reason, the minimum investment accepted while a plan is in effect is $1,000, and an investor may not maintain a plan for the accumulation of shares of the fund (other than through reinvestment of distributions) and a plan at the same time. The cost of administering these plans for the benefit of those shareholders participating in them is borne by the fund as an expense of all shareholders. The fund, Putnam Mutual Funds or Putnam Investor Services may terminate or change the terms of the plan at any time. A plan will be terminated if communications mailed to the shareholder are returned as undeliverable.
Investors should consider carefully with their own financial advisers whether the plan and the specified amounts to be withdrawn are appropriate in their circumstances. The fund and Putnam Investor Services make no recommendations or representations in this regard.
Tax Qualified Retirement Plans; 403(b) and SEP Plans. (Not offered by funds investing primarily in tax-exempt securities.) Investors may purchase shares of the fund through the following Tax Qualified Retirement Plans, available to qualified individuals or organizations:
Standard and variable profit-sharing (including 401(k)) and money purchase pension plans; and
Individual Retirement Account Plans (IRAs).
Each of these Plans has been qualified as a prototype plan by the Internal Revenue Service. Putnam Investor Services will furnish services under each plan at a specified annual cost. Putnam Fiduciary Trust Company serves as trustee under each of these Plans.
Forms and further information on these Plans are available from investment dealers or from Putnam Mutual Funds. In addition, specialized professional plan administration services are available on an optional basis; contact Putnam Defined Contribution Plan Services at 1-800-225-2465, extension 8600.
A 403(b) Retirement Plan is available for employees of public
school systems and organizations which meet the requirements of
Section 501(c)(3) of the Internal Revenue Code. Forms and
further information on the 403(b) Plan are also available from
investment dealers or from Putnam Mutual Funds. Shares of the
fund may also be used in simplified employee pension (SEP) plans.
For further information on the Putnam prototype SEP plan, contact
an investment dealer or Putnam Mutual Funds.
Consultation with a competent financial and tax adviser regarding these Plans and consideration of the suitability of fund shares as an investment under the Employee Retirement Income Security Act of 1974, or otherwise, is recommended.
SIGNATURE GUARANTEES
Redemption requests for shares having a net asset value of $100,000 or more must be signed by the registered owners or their legal representatives and must be guaranteed by a bank, broker/dealer, municipal securities dealer or broker, government securities dealer or broker, credit union, national securities exchange, registered securities association, clearing agency, savings association or trust company, provided such institution is acceptable under and conforms with Putnam Fiduciary Trust Company's signature guarantee procedures. A copy of such procedures is available upon request. If you want your redemption proceeds sent to an address other than your address as it appears on Putnam's records, you must provide a signature guarantee. Putnam Investor Services usually requires additional documentation for the sale of shares by a corporation, partnership, agent or fiduciary, or a surviving joint owner. Contact Putnam Investor Services for details.
SUSPENSION OF REDEMPTIONS
The fund may not suspend shareholders' right of redemption, or postpone payment for more than seven days, unless the New York Stock Exchange is closed for other than customary weekends or holidays, or if permitted by the rules of the Securities and Exchange Commission during periods when trading on the Exchange is restricted or during any emergency which makes it impracticable for the fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by order of the Commission for protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the fund. However, the Agreement and Declaration of Trust disclaims shareholder liability for acts or obligations of the fund and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the fund or the Trustees. The Agreement and Declaration of Trust provides for indemnification out of fund property for all loss and expense of any shareholder held personally liable for the obligations of the fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the fund would be unable to meet its obligations. The likelihood of such circumstances is remote.
STANDARD PERFORMANCE MEASURES
Yield and total return data for the fund may from time to time be presented in Part I of this SAI and in advertisements. In the case of funds with more than one class of shares, all performance information is calculated separately for each class. The data is calculated as follows.
Total return for one-, five- and ten-year periods (or for such shorter periods as the fund has been in operation or shares of the relevant class have been outstanding) is determined by calculating the actual dollar amount of investment return on a $1,000 investment in the fund made at the beginning of the period, at the maximum public offering price for class A shares and class M shares and net asset value for other classes of shares, and then calculating the annual compounded rate of return which would produce that amount. Total return for a period of one year is equal to the actual return of the fund during that period. Total return calculations assume deduction of the fund's maximum sales charge or CDSC, if applicable, and reinvestment of all fund distributions at net asset value on their respective reinvestment dates.
The fund's yield is presented for a specified thirty-day period
(the "base period"). Yield is based on the amount determined by
(i) calculating the aggregate amount of dividends and interest
earned by the fund during the base period less expenses for that
period, and (ii) dividing that amount by the product of (A) the
average daily number of shares of the fund outstanding during the
base period and entitled to receive dividends and (B) the per
share maximum public offering price for class A shares or class M
shares, as appropriate, and net asset value for other classes of
shares on the last day of the base period. The result is
annualized on a compounding basis to determine the yield. For
this calculation, interest earned on debt obligations held by the
fund is generally calculated using the yield to maturity (or
first expected call date) of such obligations based on their
market values (or, in the case of receivables-backed securities
such as the Government National Mortgage Association ("GNMAs"),
based on cost). Dividends on equity securities are accrued daily
at their stated dividend rates. The amount of expenses used in
determining the fund's yield includes, in addition to expenses
actually accrued by the fund, an estimate of the amount of
expenses that the fund would have incurred if brokerage
commissions had not been used to reduce such expenses.
If the fund is a money market fund, yield is computed by determining the percentage net change, excluding capital changes, in the value of an investment in one share over the seven-day period for which yield is presented (the "base period"), and multiplying the net change by 365/7 (or approximately 52 weeks). Effective yield represents a compounding of the yield by adding 1 to the number representing the percentage change in value of the investment during the base period, raising that sum to a power equal to 365/7, and subtracting 1 from the result.
If the fund is a tax-exempt fund, the tax-equivalent yield during the base period may be presented for shareholders in one or more stated tax brackets. Tax-equivalent yield is calculated by adjusting the tax-exempt yield by a factor designed to show the approximate yield that a taxable investment would have to earn to produce an after-tax yield equal, for that shareholder, to the tax-exempt yield. The tax-equivalent yield will differ for shareholders in other tax brackets.
At times, Putnam Management may reduce its compensation or assume expenses of the fund in order to reduce the fund's expenses. The per share amount of any such fee reduction or assumption of expenses during the fund's past ten fiscal years (or for the life of the fund, if shorter) is reflected in the table in the section entitled "Financial highlights" in the prospectus. Any such fee reduction or assumption of expenses would increase the fund's yield and total return during the period of the fee reduction or assumption of expenses.
All data are based on past performance and do not predict future results.
COMPARISON OF PORTFOLIO PERFORMANCE
Independent statistical agencies measure the fund's investment performance and publish comparative information showing how the fund, and other investment companies, performed in specified time periods. Three agencies whose reports are commonly used for such comparisons are set forth below. From time to time, the fund may distribute these comparisons to its shareholders or to potential investors. The agencies listed below measure performance based on their own criteria rather than on the standardized performance measures described in the preceding section.
Lipper Analytical Services, Inc. distributes mutual fund rankings monthly. The rankings are based on total return performance calculated by Lipper, generally reflecting changes in net asset value adjusted for reinvestment of capital gains and income dividends. They do not reflect deduction of any sales charges. Lipper rankings cover a variety of performance periods, including year-to-date, 1-year, 5-year, and 10-year performance. Lipper classifies mutual funds by investment objective and asset category.
Morningstar, Inc. distributes mutual fund ratings twice a
month. The ratings are divided into five groups:
highest, above average, neutral, below average and lowest.
They represent a fund's historical risk/reward ratio
relative to other funds in its broad investment class as
determined by Morningstar, Inc. Morningstar ratings cover
a variety of performance periods, including 3-year, 5-
year, 10-year and overall performance. The performance
factor for the overall rating is a weighted-average
assessment of the fund's 3-year, 5-year, and 10-year total
return performance (if available) reflecting deduction of
expenses and sales charges. Performance is adjusted using
quantitative techniques to reflect the risk profile of the
fund. The ratings are derived from a purely quantitative
system that does not utilize the subjective criteria
customarily employed by rating agencies such as Standard &
Poor's and Moody's Investor Service, Inc.
CDA/Wiesenberger's Management Results publishes mutual fund rankings and is distributed monthly. The rankings are based entirely on total return calculated by Weisenberger for periods such as year-to-date, 1-year, 3-year, 5-year and 10-year. Mutual funds are ranked in general categories (e.g., international bond, international equity, municipal bond, and maximum capital gain). Weisenberger rankings do not reflect deduction of sales charges or fees.
Independent publications may also evaluate the fund's performance. The fund may from time to time refer to results published in various periodicals, including Barrons, Financial World, Forbes, Fortune, Investor's Business Daily, Kiplinger's Personal Finance Magazine, Money, U.S. News and World Report and The Wall Street Journal.
Independent, unmanaged indexes, such as those listed below, may be used to present a comparative benchmark of fund performance. The performance figures of an index reflect changes in market prices, reinvestment of all dividend and interest payments and, where applicable, deduction of foreign withholding taxes, and do not take into account brokerage commissions or other costs. Because the fund is a managed portfolio, the securities it owns will not match those in an index. Securities in an index may change from time to time.
The Consumer Price Index, prepared by the U.S. Bureau of Labor Statistics, is a commonly used measure of the rate of inflation. The index shows the average change in the cost of selected consumer goods and services and does not represent a return on an investment vehicle.
The Dow Jones Industrial Average is an index of 30 common stocks frequently used as a general measure of stock market performance.
The Dow Jones Utilities Average is an index of 15 utility stocks frequently used as a general measure of stock market performance.
CS First Boston High Yield Index is a market-weighted index including publicly traded bonds having a rating below BBB by Standard & Poor's and Baa by Moody's.
The Lehman Brothers Corporate Bond Index is an index of publicly issued, fixed-rate, non-convertible investment-grade domestic corporate debt securities frequently used as a general measure of the performance of fixed-income securities.
The Lehman Brothers Government/Corporate Bond Index is an index of publicly issued U.S. Treasury obligations, debt obligations of U.S. government agencies (excluding mortgage-backed securities), fixed-rate, non-convertible, investment-grade corporate debt securities and U.S. dollar-denominated, SEC-registered non-convertible debt issued by foreign governmental entities or international agencies used as a general measure of the performance of fixed-income securities.
The Lehman Brothers Intermediate Treasury Bond Index is an index of publicly issued U.S. Treasury obligations with maturities of up to ten years and is used as a general gauge of the market for intermediate-term fixed-income securities.
The Lehman Brothers Long-Term Treasury Bond Index is an index of publicly issued U.S. Treasury obligations (excluding flower bonds and foreign-targeted issues) that are U.S. dollar-denominated and have maturities of 10 years or greater.
The Lehman Brothers Mortgage-Backed Securities Index includes 15- and 30-year fixed rate securities backed by mortgage pools of the Government National Mortgage Association, Federal Home Loan Mortgage Corporation, and Federal National Mortgage Association.
The Lehman Brothers Municipal Bond Index is an index of approximately 20,000 investment-grade, fixed-rate tax-exempt bonds.
The Lehman Brothers Treasury Bond Index is an index of publicly issued U.S. Treasury obligations (excluding flower bonds and foreign-targeted issues) that are U.S. dollar denominated, have a minimum of one year to maturity, and are issued in amounts over $100 million.
The Morgan Stanley Capital International World Index is an index of approximately 1,482 equity securities listed on the stock exchanges of the United States, Europe, Canada, Australia, New Zealand and the Far East, with all values expressed in U.S. dollars.
The Morgan Stanley Capital International EAFE Index is an index of approximately 1,045 equity securities issued by companies located in 18 countries and listed on the stock exchanges of Europe, Australia, and the Far East. All values are expressed in U.S. dollars.
The Morgan Stanley Capital International Europe Index is an index of approximately 627 equity securities issued by companies located in one of 13 European countries, with all values expressed in U.S. dollars.
The Morgan Stanley Capital International Pacific Index is an index of approximately 418 equity securities issued by companies located in 5 countries and listed on the exchanges of Australia, New Zealand, Japan, Hong Kong, Singapore/Malaysia. All values are expressed in U.S. dollars.
The NASDAQ Industrial Average is an index of stocks traded in The Nasdaq Stock Market, Inc. National Market System.
The Salomon Brothers Long-Term High-Grade Corporate Bond Index is an index of publicly traded corporate bonds having a rating of at least AA by Standard & Poor's or Aa by Moody's and is frequently used as a general measure of the performance of fixed-income securities.
The Salomon Brothers Long-Term Treasury Index is an index of U.S. government securities with maturities greater than 10 years.
The Salomon Brothers World Government Bond Index is an index that tracks the performance of the 14 government bond markets of Australia, Austria, Belgium Canada, Denmark, France, Germany, Italy, Japan, Netherlands, Spain, Sweden, United Kingdom and the United States. Country eligibility is determined by market capitalization and investability criteria.
The Salomon Brothers World Government Bond Index (non $U.S.) is an index of foreign government bonds calculated to provide a measure of performance in the government bond markets outside of the United States.
Standard & Poor's 500 Composite Stock Price Index is an index of common stocks frequently used as a general measure of stock market performance.
Standard & Poor's 40 Utilities Index is an index of 40 utility stocks.
In addition, Putnam Mutual Funds may distribute to shareholders or prospective investors illustrations of the benefits of reinvesting tax-exempt or tax-deferred distributions over specified time periods, which may include comparisons to fully taxable distributions. These illustrations use hypothetical rates of tax-advantaged and taxable returns and are not intended to indicate the past or future performance of any fund.
DEFINITIONS
"Putnam Management" -- Putnam Investment Management,
Inc., the fund's investment
manager.
"Putnam Mutual Funds" -- Putnam Mutual Funds Corp., the
fund's principal underwriter.
"Putnam Fiduciary Trust -- Putnam Fiduciary Trust Company,
Company" the fund's custodian.
"Putnam Investor Services" -- Putnam Investor Services, a
division of Putnam Fiduciary
Trust Company, the fund's
investor servicing agent.
|
PUTNAM TAX-FREE INCOME TRUST
FORM N-1A
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Index to Financial Statements and Supporting
Schedules :
(1) Financial Statements:
Statements of assets and liabilities -- July
31, 1995(a) .
Statements of operations -- year ended July
31, 1995(a) .
Statements of changes in net assets -- years
|
ended July 31, 1995 and
1994(a) .
Financial highlights(a)(b).
Notes to financial statements(a).
(2) Supporting Schedules:
Schedule I -- Portfolios of investments owned
-- July 31, 1995(a) .
Schedules II through IX omitted because the
required matter is not present.
(a) Incorporated by reference into Parts A
and B.
(b) Included in Part A.
1. Agreement and Declaration of Trust, as
amended and restated July 21, 1993 --
Incorporated by reference to Post-Effective
Amendment No. 10 to the Registrant's
Registration Statement.
2. Bylaws, as amended February 1, 1994 --
Incorporated by reference to Post-
Effective Amendment No. 11 to the
Registrant's Registration Statement.
3. Not applicable.
4a. Specimen share certificates -- Incorporated
by reference to Post-Effective Amendment No.
9 to the Registrant's Registration Statement.
4b. Portions of Agreement and Declaration of
Trust Relating to Shareholder's Rights --
Incorporated by reference to Post-Effective
Amendment No. 10 to the Registrant's
Registration Statement.
4c. Portions of Bylaws Relating to Shareholder's
Rights -- Incorporated by reference to Post-
Effective Amendment No. 10 to the
Registrant's Registration Statement.
4d. Class M Specimen share certificate
for Putnam Tax-Free High Yield Fund --
Incorporated by reference to Post-
Effective Amendment No. 11 to the
Registrant's Registration Statement.
4e. Class M Specimen share certificate for Putnam
Tax-Free Insured Fund -- Exhibit
1.
5. Management Contract for Putnam Tax-
Free Income Trust dated July 26, 1985, as
amended and restated as of July 1, 1994 --
Incorporated by reference to Post-
Effective Amendment No. 11 to the
Registrant's Registration Statement.
6a. Distributors' Contract for Putnam
Tax-Free Insured Fund dated May 6, 1994 --
Incorporated by reference to Post-
Effective Amendment No. 11 to the
Registrant's Registration Statement.
Distributors' Contract for Putnam Tax-Free
High Yield Fund -- Incorporated by
reference to Post-Effective Amendment No. 11
to the Registrant's Registration
Statement.
6b. Form of Specimen Dealer Sales Contract
--Incorporated by reference to Post-Effective
Amendment No. 8 to the Registrant's
Registration Statement.
6c. Form of Specimen Financial Institution
Sales Contract -- Incorporated by reference
to Post-Effective Amendment No. 8 to the
Registrant's Registration Statement.
7. Not applicable.
8. Custodian Agreement dated May 3, 1991
with Putnam Fiduciary Trust Company --
Incorporated by reference to Post-Effective
Amendment No. 8 to the Registrant's
Registration Statement.
9. Investor Servicing Agency Agreement
dated June 3, 1991 with Putnam Fiduciary
Trust Company -- Incorporated by reference to
Post-Effective Amendment No. 8 to the
Registrant's Registration Statement.
10. Opinion of Ropes & Gray, including consent
for Putnam Tax-Free Income Trust - -
Incorporated by reference to Post-Effective
Amendment No. 7 to the Registrant's
Registration Statement.
Opinion of Ropes & Gray, including consent
for Putnam Tax-Free Income Trust - Tax-Free
High Yield Fund -- Incorporated by reference
to Post-Effective Amendment No. 7 to the
Registrant's Registration Statement.
11. Not applicable.
12. Not applicable.
13. Investment Letter from Putnam Investment
Management, Inc. to the Registrant --
Exhibit 2 .
14. Not applicable.
15a. Class A Distribution Plan and
Agreement for Putnam Tax-Free Insured
Fund dated September 19, 1993 -- Incorporated
by reference to Post-Effective Amendment No.
10 to the Registrant's Registration
Statement.
15b. Class B Distribution Plan and
Agreement for Putnam Tax-Free
Insured Fund, as revised August 23, 1993
-- Incorporated by reference to Post-
Effective Amendment No. 10 to the
Registrant's Registration Statement.
15c. Class A Distribution Plan and
Agreement for Putnam Tax-Free
High Yield Fund dated September 19, 1993
-- Incorporated by reference to Post-
Effective Amendment No. 10 to the
Registrant's Registration Statement.
15d. Class B Distribution Plan and
Agreement for Putnam Tax-Free
High Yield Fund, as revised August 23,
1993 -- Incorporated by reference to
Post-Effective Amendment No. 10 to the
Registrant's Registration Statement.
15e. Class M Distribution Plan and
Agreement for Putnam Tax-Free
High Yield Fund -- Incorporated by
reference to Post-Effective
Amendment No. 11 to the
Registrant's Registration
Statement.
15f. Class M Distribution Plan and
Agreement for Putnam Tax-Free Insured Fund --Exhibit 3 . 15g. Form of Specimen Dealer Service Agreement --Incorporated by reference to Post-Effective Amendment No. 8 to the Registrant's Registration Statement.
15h. Form of Specimen Financial
Institution Service Agreement -
Incorporated by reference to Post-
Effective Amendment No. 8 to the
Registrant's Registration Statement.
16a. Schedules for computation of
performance quotations for Putnam
Tax-Free High Yield Fund -- Exhibit
4 .
16b. Schedules for computation of performance
quotations for Putnam Tax-Free Insured
Fund -- Exhibit 5.
17a. Financial Data Schedule for Putnam Tax-Free
Insured Fund - Class A shares -- Exhibit
6 .
17b. Financial Data Schedule for Putnam
Tax-Free Insured Fund - Class B
shares -- Exhibit 7 .
17c. Financial Data Schedule for Putnam Tax-
Free Insured Fund - Class M shares --
Exhibit 8.
17d . Financial Data Schedule for Putnam
Tax-Free High Yield Fund - Class A
shares -- Exhibit 9 .
17e. Financial Data Schedule for Putnam
Tax-Free High Yield Fund - Class B
|
shares -- Exhibit 10 .
17f. Financial Data Schedule for Putnam Tax-
Free High Yield Fund - Class M shares --
Exhibit 11.
18. Rule 18f-3(d) Plan -- Exhibit 12.
Item 25. Persons Controlled by or under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
As of July 31, 1995 the number of each fund's record holders of each class of securities of the Registrant is as follows:
Number of record holders
---------------------------
- ---
Class A Class B Class M
------- ------- -------
Putnam Tax-Free High Yield Fund 15,937 40,131 75
Putnam Tax-Free Insured Fund 5,505 10,717 2
|
Item 27. Indemnification
The information required by this item is incorporated by reference from the Registrant's Initial Registration Statement on Form N-1A under the Investment Company Act of 1940 (File No. 811-4345).
Item 28. 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
Gail S. Attridge Prior to November, 1993, International
Vice President Analyst, Keystone Custodian Funds,
200 Berkeley Street, Boston, MA
02116
James D. Babcock Prior to June, 1994, Interest
Assistant Vice President Supervisor, Salomon Brothers, Inc.
7 World Trade Center, New York, NY
10048
Robert K. Baumbach Prior to August, 1994, Vice President
Vice President and Analyst, Keystone Custodian
Funds, 200 Berkeley St., Boston, MA
02110
Janet S. Becker Prior to July, 1995, National Account
Assistant Vice President Manager for Booz-Allen & Hamilton,
American Express Travel Management
Services, 100 Cambridge Park Drive,
02140; Prior to August, 1994,
Account Manager, Hilton at Dedham
Place, Dedham, MA 02026
Sharon A. Berka Prior to January, 1994, Vice
Vice President President - Compensation Manager,
BayBanks, Inc., 175 Federal Street,
Boston, MA 02110
Matthew G. Bevin Prior to February, 1995, Consultant,
Assistant Vice President SEI Corporation, 680 East Swedesford
Road, Wayne, PA 19807
Thomas Bogan Prior to November, 1994, Analyst
Senior Vice President Lord, Abbett & Co., 767 Fifth
Avenue, New York, NY 10153
Michael F. Bouscaren Prior to May, 1994, President and
Senior Vice President Chairman of the Board of Directors
at Salomon Series Funds, Inc. and a
Director of Salomon Brothers Asset
Management, 7 World Trade Center,
New York, NY 10048
Brett Browchuk Prior to April, 1994, Managing
Managing Director Director, Fidelity Investments, 82
Devonshire St., Boston, MA 02109
Andrea Burke Prior to August, 1994, Vice President
Vice President and Portfolio Manager, Back Bay
Advisors, 399 Boylston St., Boston,
MA 02116
Susan Chapman Prior to June, 1995, Vice President,
Senior Vice President Forbes, Walsh, Kelly & Company,
Inc., 17 Battery Place, New York, NY
10004
Steven Cheshire Prior to January, 1994, Assistant
Vice President Vice President, Wellington
Management, 75 State Street, Boston,
MA 02109
Louis F. Chrostowski Prior to August, 1995, Manager of
Vice President Compensation and Benefits, Itek
Optical Systems, 10 MacGuire Rd.,
Lexington, MA 02173
Judith S. Deming Prior to May, 1995, Asset Manager,
Assistant Vice President Fidelity Management & Research
Company, 82 Devonshire St., Boston,
MA 02109
John A. DeTore Prior to January, 1994, Director of
Managing Director Quantitative Portfolio Management,
Wellington Management, 75 State
Street, Boston, MA 02109
Theodore J. Deutz Prior to January, 1995, Senior Vice
Vice President President, Metropolitan West
Securities, Inc. 10880 Wilshire
Blvd., Suite 200, Los Angeles, CA
90024
Michael G. Dolan Prior to February, 1994, Senior
Assistant Vice President Financial Analyst, General Electric
Company, 1000 Western Ave., Lynn, MA
01905
Joseph J. Eagleeye Prior to August, 1994, Associate,
Assistant Vice President David Taussig & Associates, 424
University Ave., Sacramento, CA
95813
Michael T. Fitzgerald Prior to September, 1994, Senior
Senior Vice President Vice President, Vantage Global
Advisers, 1201 Morningside Dr.,
Manhattan Beach, CA 90266
Roland Gillis Prior to March, 1995, Vice President
Senior Vice President and Senior Portfolio Manager,
Keystone Group, Inc., 200 Berkeley
St., Boston, MA 02116
Mark D. Goodwin Prior to May, 1994, Manager, Audit &
Assistant Vice President Operations Analysis, Mitre
Corporation, 202 Burlington Rd.,
Bedford, MA 01730
Stephen A. Gorman Prior to July, 1994, Financial
Assistant Vice President Analyst, Boston Harbor Trust
Company, 100 Federal St., Boston, MA
02110
Jill Grossberg Prior to March, 1995, Associate
Assistant Vice President Counsel, 440 Financial Group of
and Associate Counsel Worcester, Inc., 440 Lincoln St.,
Worcester, MA 01653; Prior to
November, 1993, Counsel, Berman
DeValerio & Pease, One Liberty
Square, Boston, MA 02109
Deborah R. Healey Prior to June, 1994, Senior Equity
Senior Vice President Trader, Fidelity Management &
Research Company, 82 Devonshire St.,
Boston, MA 02109
Lisa A. Heitman Prior to July, 1994, Securities
Senior Vice President Analyst, Lord, Abbett & Company, 767
Fifth Ave., New York, NY 10153
Pamela Holding Prior to May, 1995, Senior Securities
Vice President Analyst, Kemper Financial Services,
Inc., 120 South LaSalle St.,
Chicago, IL 60603
Michael F. Hotchkiss Prior to May, 1994, Vice President,
Vice President Massachusetts Financial Services,
500 Boylston St., Boston, MA 02116
|
Walter Hunnewell, Jr. Prior to April, 1994, Managing
Vice President Director, Veronis, Suhler &
Associates, 350 Park Avenue, New
York, NY 10022
Joseph Joseph Prior to October, 1994, Managing
Vice President Director, Vert Independent Capital
Research, 53 Wall St., New York, NY
10052
Mary E. Kearney Prior to February, 1995, Partner,
Managing Director Price Waterhouse, 160 Federal St.,
Boston, MA 02110
D. William Kohli Prior to September, 1994, Executive
Managing Director Vice President and Co-Director of
Global Bond Management, Franklin
Advisors/Templeton Investment
Counsel, 777 Mariners Island Blvd.,
San Mateo, CA 94404
Karen R. Korn Prior to June, 1994, Vice President,
Vice President Assistant to the President, Designs,
Inc. 1244 Boylston St., Chestnut
Hill, MA 02167
Peter B. Krug Prior to January, 1995, Owner and
Vice President Director, Griswold Special Care, 42
Ethan Allen Drive, Acton, MA 01720
Catherine A. Latham Prior to August, 1995, Director of
Vice President Human Resources, Electronic Data
Systems, 1601 Trapello Rd., Waltham,
MA 02154
Kevin Lemire Prior to March, 1995, Corporate
Assistant Vice President Facilities Manager, Bose
Corporation, The Mountain,
Framingham, MA 01701; Prior to June,
1994, Facilities Manager, The
Pioneer Group, 60 State St., Boston,
MA 02109
Lawrence J. Lasser Director, Marsh & McLennan Companies,
President, Director Inc., 1221 Avenue of the Americas,
and Chief Executive New York, NY 10020; Director,
Officer INROADS/Central New England, Inc.,
99 Bedford St., Boston,MA 02111
Jeffrey R. Lindsey Prior to April, 1994, Vice President
Vice President and Board Member, Strategic
Portfolio Management, 900 Ashwood
Parkway, Suite 290, Atlanta, GA
30338
James W. Lukens Prior to February, 1995, Vice
Senior Vice President President of Institutional
Marketing, Keystone Group, Inc., 200
Berkeley St., Boston, MA 02116
Michael Martino Prior to January, 1994, Executive
Managing Director Vice President and Chief Investment
Officer until 1992
Helen Mazareas Prior to May, 1995, Librarian,
Assistant Vice President Scudder, Stevens & Clark, 2
International Place, Boston, MA
02110; Prior to January, 1994,
Systems Librarian, Goodwin, Procter
& Hoar, Exchange Place, Boston, MA
02109
Alexander J. McAuley Prior to June, 1995, Vice President,
Senior Vice President Deutsche Bank Securities Corp. -
Deutsche Asset Management, 1290
Avenue of the Americas, New York, NY
10019
Susan A. McCormack Prior to May, 1994, Associate
Vice President Investment Banker, Merrill Lynch &
Co., 350 South Grand Ave., Suite
2830, Los Angeles, CA 90071
Carol McMullen Prior to June, 1995, Senior Vice,
Managing Director President and Senior Portfolio
Manager, Baring Asset Management,
125 High Street, Boston, MA 02110
Darryl Mikami Prior to June, 1995, Vice President,
Senior Vice President Fidelity Management & Research
Company, 82 Devonshire St., Boston,
MA 02109
Carol H. Miller Prior to July, 1995, Business
Assistant Vice President Development Officer, Bank of Boston
- Connecticut, 100 Pearl St.,
Hartford, CT 06101
Seung H. Minn Prior to June, 1995, Vice President
Vice President in Portfolio Management and
Research, Templeton Quantitative
Advisors, Inc.,
Maziar Minovi Prior to January, 1995, Associate
Vice President Privatization Specialist, The
International Bank for
Reconstruction and Development, 1818
H St. N.W., Washington, DC 20433
Kenneth Mongtomery Prior to July, 1995, Senior Vice
Managing Director President and Director of World Wide
Sales, Chemcial Banking Corporation,
Paul G. Murphy Prior to January, 1995, Section
Assistant Vice President Manager, First Data Corp., 53 State
Street, Boston, MA 02109
C. Patrick O'Donnell, Jr. Prior to May, 1994, President,
Managing Director Exeter Research, Inc., 163 Water
Street, Exeter, New Hampshire, 03833
Brian O'Keefe Prior to December, 1993, Vice
Vice President President - Foreign Exchange Trader,
Bank of Boston, 100 Federal Street,
Boston, MA 02109
Margaret Pietropaolo Prior to January, 1994, Data Base/
Assistant Vice President Production Analyst, Wellington
Management, 75 State Street, Boston,
MA 02109
Jane E. Price Prior to February, 1995, Associate
Assistant Vice President ERISA Attorney, Hale & Dorr,
60 State St., Boston, MA 02109
Keith Quinton Prior to July, 1995, Vice President,
Senior Vice President Falconwood Securities Corporation.,
Paul T. Quistberg Prior to July, 1995, Assistant
Assistant Vice President Investment Officer, The Travelers
Insurance Group.,
George Putnam Chairman and Director, Putnam Mutual
Chairman and Director Funds Corp.; Director, The Boston
Company, Inc., One Boston Place,
Boston, MA 02108; Director, Boston
Safe Deposit and Trust Company, One
Boston Place, Boston, MA 02108;
Director, Freeport-McMoRan, Inc.,
200 Park Avenue, New York, NY 10166;
Director, General Mills, Inc., 9200
Wayzata Boulevard, Minneapolis, MN
55440; Director, Houghton Mifflin
Company, One Beacon Street, Boston,
MA 02108; Director, Marsh & McLennan
Companies, Inc., 1221 Avenue of the
Americas, New York, NY 10020;
Director, Rockefeller Group, Inc.,
1230 Avenue of the Americas, New
York, NY 10020
Thomas Rosalanko Prior to February, 1995, Senior
Senior Vice President Account Manager, SEI Corporation,
680 East Swedesford Road, Wayne, PA
19807
Michael Scanlon Prior to February, 1995, Senior
Assistant Vice President Financial Analyst, Massachusetts
Financial Services, 500 Boylston
St., Boston, MA 02116
Robert M. Shafto Prior to January, 1995, Account
Assistant Vice President Manager, IBM Corporation, 404 Wyman
St., Waltham, MA 02254
Karen F. Smith Prior to May, 1994, Consultant and
Assistant Vice President Portfolio Manager, Wyatt Asset
Services, Inc., 1211 W.W. 5th Ave.,
Portland, OR 97204
Margaret Smith Prior to September, 1995, Vice
Senior Vice President President, State Street Research,
One Financial Center, Boston, MA
02111
Steven Spiegel Prior to December, 1994, Managing
Senior Managing Director Director/Retirement, Lehman
Brothers, Inc., 200 Vesey St., World
Financial Center, New York, NY 10285
George W. Stairs Prior to July, 1994, Equity Research
Vice President Analyst, ValueQuest Limited,
Roundy's Hill, Marblehead, MA 01945
James H. Steggall Prior to May, 1995, Senior Municipal
Assistant Vice President Analyst, Colonial Management
Associates, Inc., One Financial
Center, Boston, MA 02111; Prior to
May, 1994, Controller, Wheelabrator
Environmental Systems, Libery Lane,
Hampton, NH 03842
Karen Stewart Prior to May, 1995, Equity Research
Assistant Vice President Analyst, Chancellor Capital
Management, 1166 Avenue of the
Americas, New York, NY 10036
Roger Sullivan Prior to December, 1994, Vice
Senior Vice President President, State Street Research &
Management Co., One Financial
Center, Boston, MA 02111
Robert Swift Prior to August, 1995, Far East Team
Senior Vice President Leader and Portfolio Manager, IAI
International/Hill Samuel Investment
Advisors, 10 Fleet Place, London,
England
Jerry H. Tempelman Prior to May, 1994, Senior Money
Assistant Vice President Market Trader, State Street Bank &
Trust Co., 225 Franklin, Street,
Boston, MA 02110
Michael Temple Prior to June, 1995, Vice President,
Vice President Duff & Phelps, 55 East Monroe,
Chicago, IL 60613
Hillary F. Till Prior to May, 1994, Fixed-Income
Vice President Derivative Trader, Bank of Boston,
100 Federal Street, Boston, MA
02109; Prior to December, 1993,
Equity Analyst, Harvard Management
Company, 600 Atlantic St., Boston,
MA 02109
Lisa L. Trubiano Prior to July, 1995, Senior Marketing
Vice President Consultant, John Hancock Mutual Life
Insurance Company,
Elizabeth A. Underhill Prior to August, 1994, Vice President
Senior Vice President and Senior Equity Analyst, State
Street Bank and Trust Company, 225
Franklin St., Boston, MA 02110
Charles C. Van Vleet Prior to August, 1994, Vice President
Senior Vice President and Fixed-Income Manager, Alliance
Capital Management, 1345 Avenue of
the Americas, New York, NY 10105
Francis P. Walsh Prior to November, 1994, Research
Vice President Analyst, Furman, Selz, Inc. 230 Park
Avenue, New York, NY 10169; Prior to
December, 1993, Strategic Marketing
Analyst, Lotus Development,
Corporation 55 Cambridge Parkway,
Cambridge, MA 02142
Michael R. Weinstein Prior to March, 1994, Management
Vice President Consultant, Arthur D. Little, Acorn
Park, Cambridge, MA 02140
|
Item 29. Principal Underwriter
(a) Putnam Mutual Funds Corp. is the principal underwriter for each of the following investment companies, including the Registrant:
Putnam Adjustable Rate U.S. Government Fund, Putnam American Government Income Fund, Putnam American Renaissance Fund, Putnam Arizona Tax Exempt Income Fund, Putnam Asia Pacific Growth Fund, Putnam Asset Allocation Funds, Putnam Balanced Retirement Fund, Putnam California Tax Exempt Income Trust, Putnam California Tax Exempt Money Market Fund, Putnam Capital Appreciation Fund, Putnam Capital Manager Trust, Putnam Convertible Income-Growth Trust, Putnam Diversified Equity Trust, Putnam Diversified Income Trust, Putnam Equity Income Fund, Putnam Europe Growth Fund, Putnam Federal Income Trust, Putnam Florida Tax Exempt Income Fund, The Putnam Fund for Growth and Income, The George Putnam Fund of Boston, Putnam Global Governmental Income Trust, Putnam Global Growth Fund, Putnam Growth Fund, Putnam Growth and Income Fund, Putnam Health Sciences Trust, Putnam High Yield Trust, Putnam High Yield Advantage Fund, Putnam Income Fund, Putnam Intermediate Tax Exempt Income Fund, Putnam Intermediate U.S. Government Income Fund, Putnam Investment Funds, Putnam Investment-Grade Bond Fund, 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 Natural Resources Fund, Putnam New Jersey Tax Exempt Income Fund, Putnam New Opportunities Fund, Putnam New York Tax Exempt Income Trust, Putnam New York Tax Exempt Money Market Fund, Putnam New York Tax Exempt Opportunities Fund, Putnam Ohio Tax Exempt Income Fund, Putnam OTC Emerging Growth Fund, Putnam Overseas Growth Fund, Putnam Pennsylvania Tax Exempt Income Fund, Putnam Preferred Income Fund, Putnam Research Fund, Putnam Tax Exempt Income Fund, Putnam Tax Exempt Money Market Fund, Putnam Tax-Free Income Trust, Putnam U.S. Government Income Trust, Putnam Utilities Growth and Income Fund, Putnam Vista Fund, Putnam Voyager Fund
(b) The directors and officers of the Registrant's principal underwriter are: Positions and Offices Positions and Offices Name with Underwriter with Registrant John V. Adduci Assistant Vice President None Christopher S. Alpaugh Vice President None Paulette C. Amisano Vice President None Ronald J. Anwar Vice President None Steven E. Asher Senior Vice President None Scott A. Avery Vice President None Hallie L. Baron Assistant Vice President None Ira G. Baron Senior Vice President None John L. Bartlett Senior Vice President None Dale Beardon Senior Vice President None Steven M. Beatty Vice President None Matthew F. Beaudry Vice President None Janet S. Becker Assistant Vice President None John J. Bent Vice President None Thomas A. Beringer Vice President None Sharon A. Berka Vice President None Maureen L. Boisvert Vice President None John F. Boneparth Managing Director None Keith R. Bouchard Vice President None Linda M. Brady Assistant Vice President None Leslee R. Bresnahan Senior Vice President None James D. Brockelman Senior Vice President None Scott C. Brown Vice President None Gail D. Buckner Senior Vice President None Robert W. Burke Senior Managing Director None Ellen S. Callahan Vice President None Thomas C. Callahan Assistant Vice President None Peter J. Campagna Vice President None Robert Capone Vice President None Charles A. Carey Vice President None Patricia A. Cartwright Assistant Vice President None Janet Casale-Sweeney Vice President None Stephen J. Chaput Assistant Vice President None Louis F. Chrostowski Vice President None Daniel J. Church Vice President None James E. Clinton Assistant Vice President None Kathleen M. Collman Managing Director None Mark L. Coneeny Vice President None Donald A. Connelly Senior Vice President None Karen E. Connolly Assistant Vice President None Anna Coppola Vice President None F. Nicholas Corvinus Senior Vice President None Thomas A. Cosmer Vice President None Chad H. Cristo Assistant Vice President None Lisa M. D'Allesandro Assistant vice President None Jessica E. Dahill Vice President None Kenneth L. Daly Senior Vice President None Edward H. Dane Vice President None Nancy M. Days Assistant Vice President None Pamela De Oliveira-Smith Assistant Vice President None Richard D. DeSalvo Vice President None Joseph C. DeSimone Assistant Vice President None Daniel J. Delianedis Vice President None Judith S. Deming Assistant Vice President None Teresa F. Dennehy Assistant Vice President None J. Thomas Despres Senior Vice President None Michael G. Dolan Assistant Vice President None Scott M. Donaldson Vice President None Emily J. Durbin Vice President None Dwyer Cabana, Susan Vice President None David B. Edlin Senior Vice President None James M. English Senior Vice President None Vincent Esposito Managing Director None Mary K. Farrell Assistant Vice President None Michael J. Fechter Vice President None Susan H. Feldman Vice President None Paul F. Fichera Senior Vice President None C. Nancy Fisher Senior Vice President None Mitchell B. Fishman Senior Vice President None Joseph C. Fiumara Vice President None Patricia C. Flaherty Senior Vice President None Samuel F. Gagliardi Vice President None Karen M. Gardner Assistant Vice President None Judy S. Gates Vice President None Richard W. Gauger Assistant Vice President None Joseph P. Gennaco Vice President None Stephen E. Gibson Managing Director None Mark P. Goodfellow Assistant Vice President None Robert Goodman Managing Director None Mark D. Goodwin Assistant Vice President None Anthony J. Grace Assistant Vice President None Linda K. Grace Assistant Vice President None Robert G. Greenly Vice President None Jill Grossberg Assistant Vice President None Jeffrey P. Gubala Vice President None James E. Halloran Vice President None Thomas W. Halloran Vice President None Meghan C. Hannigan Assistant Vice President None Bruce D. Harrington Assistant Vice President None Marilyn M. Hausammann Senior Vice President None Howard W. Hawkins, III Vice President None Deanna R. Hayes-Castro Vice President None Paul P. Heffernan Vice President None Susan M. Heimanson Vice President None Joanne Heyman Assistant Vice President None Bess J.M. Hochstein Vice President None Maureen A. Holmes Assistant Vice President None Paula J. Hoyt Assistant Vice President None William J. Hurley Senior Vice President None Gregory E. Hyde Senior Vice President None Dwight D. Jacobsen Senior Vice President None Douglas B. Jamieson Senior Managing Director, Director None Jay M. Johnson Vice President None Kevin M. Joyce Senior Vice President None Karen R. Kay Senior Vice President None Mary E. Kearney Managing Director None John P. Keating Vice President None A. Siobahn Kelly Assistant Vice President None Brian J. Kelly Vice President None Anne Kinsman Assistnat Vice President None Deborah H. Kirk Senior Vice President None Jill A. Koontz Assistant Vice President None Linda G. Kraunelis Assistant Vice President None Howard H. Kreutzberg Senior Vice President None Marjorie B. Krieger Assistant Vice President None Charles Lacasia Assistant Vice President None Arthur B. Laffer, Jr. Vice President None Catherine A. Lathan Vice President None James D. Lathrop Vice President None Charles C. Ledbetter Vice President None Kevin Lemire Assistant Vice President None Eric S. Levy Vice President None Edward V. Lewandowski Senior Vice President None Edward V. Lewandowski, Jr. Vice President None Samuel L. Lieberman Vice President None David M. Lifsitz Assistant Vice President None Ann Marie Linehan Assistant Vice President None Maura A. Lockwood Vice President None Rufino R. Lomba Vice President None Peter V. Lucas Senior Vice President None Robert F. Lucey Senior Managing Director, Director None Kathryn A. Lucier Assistant Vice President None Alana Madden Vice President None Ann Malatos Assistant Vice President None Bonnie Mallin Vice President None Renee L. Maloof Assistant Vice President None Frederick S. Marius Assistant Vice President None Karen E. Marotta Vice President None Kathleen M. McAnulty Assistant Vice President None Anne B. McCarthy Assistant Vice President None Paul McConville Vice President None Marla J. McDougall Assistant Vice President None Walter S. McFarland Vice President None Mark J. McKenna Senior Vice President None Gregory J. McMillan Vice President None Claye A. Metelmann Vice President None J. Chris Meyer Senior Vice President None Bart D. Miller Vice President None Douglas W. Miller Vice President None Jeffery M. Miller Senior Vice President None Ronald K. Mills Vice President None Peter M. Moore Assistant Vice President None Mitchell Moret Senior Vice President None Donald E. Mullen Vice President None Paul G. Murphy Assistant Vice President None Brendan R. Murray Vice President None Robert Nadherny Vice President None Alexander L. Nelson Managing Director None John P. Nickodemus Vice President None Michael C. Noonis Assistant Vice President None Kristen P. O'Brien Vice President None Kevin L. O'Shea Senior Vice President None Nathan D. O'Steen Assistant Vice President None Joseph R. Palombo Managing Director None Scott A. Papes Vice President None Cynthia O. Parr Vice President None John D. Pataccoli Vice President None John G. Phoenix Vice President None Joseph Phoenix Senior Vice President None Jeffrey E. Place Senior Vice President None Keith Plapinger Vice President None Jane E. Price Assistant Vice President None Douglas H. Powell Vice President None Susannah Psomas Vice President None Scott M. Pulkrabek Vice President None George Putnam Director Chairman & President George A. Rio Senior Vice President None Debra V. Rothman Vice President None Robert B. Rowe Vice President None Kevin A. Rowell Senior Vice President None Thomas C. Rowley Vice President None Charles A. Ruys de Perez Senior Vice President None Deborah A. Ryan Assistant Vice President None Robert M. Santosuosso Assistant Vice President None Debra J. Sarkisian Assistant Vice President None Catherine A. Saunders Senior Vice President None Robbin L. Saunders Assistant Vice President None Karl W. Saur Vice President None Michael Scanlon Assistant Vice President None Shannon D. Schofield Vice President None Christine A. Scordato Vice President None Joseph W. Scott Assistant Vice President None John B. Shamburg Vice President None Kathleen G. Sharpless Managing Director None John F. Sharry Managing Director None Stuart D. Sheppard Assistant Vice President None William N. Shiebler Director and President Vice President Daniel S. Shore Vice President None Mark J. Siebold Assistant Vice President None Gordon H. Silver Senior Managing Director Vice President John Skistimas, Jr. Assistant Vice President None Steven Spiegel Senior Managing Director None Nicholas T. Stanojev Senior Vice President None Paul R. Stickney Vice President None Brian L. Sullivan Vice President None Guy Sullivan Seniior Vice President None Kevin J. Sullivan Vice President None Moira Sullivan Vice President None James S. Tambone Managing Director None B. Iris Tanner Assistant Vice President None Louis Tasiopoulos Managing Director None David S. Taylor Vice President None John R. Telling Vice President None Richard B. Tibbetts Senior Vice President None Patrice M. Tirado Vice President None Janet E. Tosi Assistant Vice President None John C. Tredinnick Vice President None Bonnie L. Troped Vice President None Christine M. Twigg Assistant Vice Presient None Larry R. Unger Vice President None Douglas J. Vander Linde Senior Vice President None Edward F. Whalen Vice President None Robert J. Wheeler Senior Vice President None John B. White Vice President None Kirk E. Williamson Senior Vice President None Leigh T. Williamson Vice President None Jane Wolfson Vice President None Benjamin I. Woloshin Vice President None William H. Woolverton Senior Vice President None Timothy R. Young Vice President None SooHee L. Zebedee Vice President None Laura J. Zografos Vice President None |
The principal business address of each person listed above is One Post Office Square, Boston, MA 02109, except for:
Mr. Alpaugh, 5980 Richmond Highway, Alexandria, VA 22303
Mr. Anwar, 131 Crystal Road, Colmar, PA 18915
Mr. Avery, 7031 Spring Ridge Rd., Cary NC 27511
Mr. Baron, 31 Cala Moreya, Laguna Niguel, CA 92667
Mr. Bartlett, 7 Fairfield St., Boston, MA 02116
Mr. Beatty, 200 High St., Winchester, MA 01890
Mr. Beringer, 4915 Dupont Avenue South, Minneapolis, MN 55409
Ms. Besset, 1140 North LaSalle Blvd, Chicago, IL 60610
Mr. Bouchard, 18 Brice Rd., Annapolis, MD 21401
Mr. Brockelman, 94 Middleton Rd., Boxford, MA 01921
Mr. Brown, 2012 West Grove Drive, Gibson, PA 15044
Ms. Buckner, 21012 West Grove Drive, Gibsonia, PA 15044
Mr. Campagna, 2091-B Lake Park Drive, Smyrna, GA 30080
Ms. Castro, 26 Gould Road, Andover, MA 01810
Mr. Church, 4504 Sir Winston Place, Charlotte, NC 28211
Mr. Cristo, 11 Schenck Ave., Great Neck, NY 11021
Mr. Coneeny, 10 Amherst St., Arlington, MA 02174
Mr. Connelly, 4634 Mirada Way, Sarasota, FL 34238
Mr. Corvinus, 208 Water St., Newburyport, MA 01950
Ms. Dahill, 270-1 C Iven Ave., St. David's, PA 19087
Mr. Deliandis, 206 Promontory Drive, Newport Beach, CA 92660
Mr. DeSalvo, 54 Morriss Place, Maddison, NJ 07940
Mr. DeSimone, Pheasant Run Apartments, Inlet Ridge Drive,
Maryland Heights, MO 63043
Ms. Dwyer-Cabana, 7730 Herrick Park, Hudson, OH 44236
Mr. Edlin, 7 River Road, 305 Palmer Point, Cos Cob, CT 06807
Mr. English, 1184 Pintail Circle, Boulder, CO 80303
Mr. Goodman, 14 Clover Place, Cos Cob, CT 06807
Mr. Gubala, 4308 Rickover Drive, Dallas, TX 75244
Mr. J. Halloran, 978 W. Creek Lane, Westlake Village, CA 91362
Mr. T. Halloran, 19449 Misty Lake Dr., Strongsville, OH 44136
Mr. Hyde, 3305 Sulky, Marietta, GA 30067
Mr. Jacobsen, 2744 Joyce Ridge Drive, Chesterfield, MO 63017
Mr. Johnson, 200 Clock Tower Place, Carmel, CA 93923
Mr. Keating, 5521 Greenville Avenue, Dallas, TX 75206
Mr. Kelley, 3356 North Lakeharbor Lane, Boise, ID 83703
Ms. Kelly, 31 Jeffrey's Neck Road, Ipswich, MA 01938
Ms. Kinsman, 9599 Brookview Circle, Woodbury, MN 55125
Ms. Kirk, 124 Rivermist Dr., Buffalo, NY 14202
Ms. Kraunelis, 584 East Eighth St., South Boston, MA 02127
Mr. Lathrop, 14814 Straub Hill Lane, Chesterfield, MO 63017
Mr. Lewandowski, 805 Darrell Road, Hillsborough, CA 94010
Mr. Lewandowski, Jr., 1 Kara East, Irvine, CA 92720
Mr. Lieberman, 200 Roy St., Seattle, WA 98109
Ms. Madden, 8649 North Himes Avenue, Tampa, FL 33614
Mr. McConville, 515 S. Arlington Heights Rd., Arlington
Heights, IL 6005
Mr. McFarland, 8012 Dancing Fern Trail, Chattanooga, TN 37421
Mr. McMillan, 203 D. Zigler St., Zelienople, PA 16063
Mr. McMurtrie, 14529 Glastonbury, Detroit, MI 48223
Mr. B. Miller, 24815 Acropolis Drive, Mission Viejo, CA 92691
Mr. D. Miller, 70 Williams St., Greenwich, CT 06380
Mr. Moret, 4519 Lawn Avenue, Western Springs, IL 60558
Mr. Murray, 710 Cheyenne Drive, Franklin Lakes, NJ 07417
Mr. Nadherny, 9714 Marmount Drive, Seattle, WA 98117
Mr. Nickodemus, 463 Village Oaks Court, Ann Arbor, MI 48103
Mr. O'Steen, 2091-B Lake Park Drive, Smyrna, GA 30080
Mr. Papes, 3102 Wood View Bridge Drive, Kansas City, KS 66103
Mr. Pataccoli, 333 39th St., Manhattan Beach, CA 90266
Mr. Joe Phoenix, 1426 Asbury Avenue, Hubbard Woods, IL 60093
Mr. John Phoenix, 709 South Rome Avenue, Tampa, FL 33606
Mr. Place, 4211 Loch Highland Parkway, Roswell, GA 30075
Mr. Pulkrabek, 190 Jefferson Lane, Streamwood, IL 60107
Mr. Powell, 1508 Ruth Lane, Newport Beach, CA 92660
Mr. Rowe, 109 Shore Drive, Longwood, FL 32779
Mr. Rowell, 2240 Union St., San Francisco, CA 94123
Mr. Rowley, 237 Peeke Avenue, Kirkwood, MO 63122
Ms. Sarkisian, 1 Goodridge Ct., Boston, MA 02113
Ms. Saunders, 39939 Stevenson Common, Freemont, CA 94538
Ms. Schofield, 618 Rimington Lane, Decatur, GA 30030
Mr. Shamburg, 10603 N. 100th Street, Scottsdale, AZ 85260
Mr. Shore, 2870 Pharr Court South, N.W., Atlanta, GA 30305
Mr. Stickney, 1314 Log Cabin Lane, St. Louis, MO 63124
Mr. B. Sullivan, 777 Pinoake Road, Pittsburgh, PA 15243
Mr. G. Sullivan, 35 Marlborough St., Boston, MA 02116
Ms. M. Sullivan, 493 Zinfandel Lane, St. Helena, CA 94574
Ms. Sweeney, 31 Heritage Way, Marblehead, MA 01945
Mr. Tambone, 10 Commercial Wharf, Boston, MA 02110
Mr. Tasiopolous, 5 Homestead Farms Drive, Norwell, MA 02061
Mr. Tredinnick, 2995 Glenwood Drive, Boulder, CO 80301
Mr. Telling, 5 Spindriff Court, Williamsville, NY 14221
Mr. Unger, 212 E. Broadway, New York, NY 10002
Mr. Williamson, 111 Maple Ridge Way, Covington, LA 70433
Mr. White, 10 Mannion Place, Littleton, MA 01460
Mr. Woloshin, 100 West 89th St., New York, NY 10024
Ms. Zografos, 12712 Coeur de Monde Ct., St. Louis, MO 63146
Item 30. Location of Accounts and Records
Persons maintaining physical possession of accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder are Registrant's Clerk, Beverly Marcus; Registrant's investment adviser, Putnam Investment Management, Inc.; Registrant's principal underwriter, Putnam Mutual Funds Corp.; Registrant's custodian, Putnam Fiduciary Trust Company ("PFTC"); and Registrant's transfer and dividend disbursing agent, Putnam Investor Services, a division of PFTC. The address of the Clerk, investment adviser, principal underwriter, custodian and transfer and dividend disbursing agent is One Post Office Square, Boston, Massachusetts 02109.
Item 31. Management Services
None.
Item 32. Undertakings
The Registrant undertakes to furnish to each person to whom a prospectus of the Registrant is delivered a copy of the Registrant's latest annual report to shareholders, upon request and without charge.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and Statement of Additional Information constituting parts of this Post-Effective Amendment No. 12 to the Registration Statement on Form N-1A (File No. 2-98790) (the "Registration Statement") of our reports dated September 14, 1995 and September 18, 1995 , respectively, relating to the financial statements and financial highlights appearing in the July 31, 1995 Annual Reports of Putnam Tax-Free Insured Fund and Putnam Tax-Free High Yield Fund, which financial statements and financial highlights are also incorporated by reference into the Registration Statement. We also consent to the references to us under the headings "Independent Accountants and Financial Statements" in such Statement of Additional Information and under the heading "Financial highlights" in such Prospectuses.
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 1, 1995
NOTICE
A copy of the Agreement and Declaration of Trust of Putnam Tax-Free Income Trust is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the relevant series of the Registrant.
POWER OF ATTORNEY
I, the undersigned Trustee of Putnam Tax-Free Income Trust, hereby severally constitute and appoint George Putnam, Charles E. Porter, Gordon H. Silver, Edward A. Benjamin, Timothy W. Diggins and John W. Gerstmayr, 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 capacity indicated below, the Registration Statement on Form N-1A of Putnam Tax-Free Income Trust and any and all amendments (including post-effective amendments) to said Registration Statement 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/ Eli Shapiro - --------------- Trustee April 19, 1995 Eli Shapiro |
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 pursuant to 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, thereunto duly authorized, in the City of Boston, and The Commonwealth of Massachusetts, on the 1st day of December, 1995 .
PUTNAM TAX-FREE INCOME TRUST
By: Gordon H. Silver, Vice
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement of Putnam Tax- Free Income Trust has been signed below by the following persons in the capacities and on the dates indicated:
Signature Title
George Putnam President and Chairman of the Board;
Principal Executive Officer; Trustee
William F. Pounds Vice Chairman; Trustee
John D. Hughes Vice President; Treasurer and
Principal Financial Officer
Paul G. Bucuvalas Assistant Treasurer and Principal
Accounting Officer
Jameson A. Baxter Trustee
Hans H. Estin Trustee
John A. Hill Trustee
Elizabeth T. Kennan Trustee
Lawrence J. Lasser Trustee
Robert E. Patterson Trustee
Donald S. Perkins Trustee
|
George Putnam, III Trustee
Eli Shapiro Trustee
A.J.C. Smith Trustee
W. Nicholas Thorndike Trustee
By: Gordon H. Silver, as Attorney-
in-Fact
December 1, 1995
|
PUTNAM INVESTMENTS
(Logo)
PUTNAM TAX-FREE INCOME TRUST
A Massachusetts Business Trust
PUTNAM TAX-FREE INSURED FUND
Class M Shares
Trust Certificate
Account No. Certificate No. Shares
CUSIP 746872 60 5
THIS CERTIFIES THAT
is the owner of Class M shares of beneficial interest in Putnam Tax-Free Insured Fund of Putnam Tax-Free Income Trust, fully paid and nonassessable, the said shares being issued, received and held under and subject to the terms and provisions of the Agreement and Declaration of Trust dated as of June 28, 1985, establishing Putnam Tax-Free Income Trust, and all amendments thereto, copies of which are on file with the Secretary of State of The Commonwealth of Massachusetts. The said owner by accepting this certificate agrees to and is bound by all of the said terms and provisions. The shares represented hereby are transferable in writing by the owner thereof in person or by attorney upon surrender of this certificate to the Trustees properly endorsed for transfer. This certificate is executed on behalf of the Trustees as Trustees and not individually and the obligations hereof are not binding upon any of the Trustees or shareholders individually but are binding only upon the assets and property of the Trust. This certificate is not valid unless countersigned by the Investor Servicing Agent.
In Witness Whereof the Trustees of Putnam Tax-Free Income Trust have caused the following facsimile signatures to be affixed to this certificate.
Dated: COUNTERSIGNED:
PUTNAM INVESTOR SERVICES
a division of Putnam Fiduciary
Trust Company
INVESTOR SERVICING AGENT
BY
FOR THE TRUSTEES AUTHORIZED SIGNATURE
|
August 1, 1985
Putnam Tax-Free Income Trust
One Post Office Square
Boston, MA 02109
Gentlemen:
In connection with your sale to us today of 4,000 shares of
beneficial interest (the "Shares") in each Putnam Tax-Free
Insured Fund and Putnam Tax-Free High Yield Fund, the two series
of Putnam Tax-Free Income Trust (the "Fund") we understand that:
(i) the Shares have not been registered under the Securities Act
of 1933, as amended; (ii) your sale of the Shares to us is in
reliance on the sale's being exempt under Section 4(2) of the Act
as not involving any public offering; and (iii) in part, your
reliance on such exemption is predicated on our representation,
which we hereby confirm, that we are acquiring the Shares for
investment and for our own account as the sole beneficial owner
hereof, and not with a view to or in connection with any resale
or distribution of any or all of the Shares or of any interest
therein. We hereby agree that we will not sell, assign or
transfer the Shares or any interest therein except upon
repurchase or redemption by the Fund unless and until the Shares
have been registered under the Securities Act of 1933, as
amended, or you have received an opinion of your counsel
indicating to your satisfaction that such sale, assignment or
transfer will not violate the provisions of the Securities Act of
1933, as amended, or any rules and regulations promulgated
thereunder.
We further agree, pursuant to the requirements of the Staff of the Securities and Exchange Commission, that if any of the Shares are redeemed during the first five years of the Fund's operations by any holder thereof, the redemption proceeds will be reduced by the amount of the then unamortized organizational expenses in the same ratio as the number of Shares redeemed bears to the number of Shares held at the time of redemption.
This letter is intended to take effect as an instrument under seal, shall be construed under the laws of Massachusetts, and is delivered at Boston, Massachusetts, as of the date written above.
Very truly yours,
THE PUTNAM MANAGEMENT COMPANY, INC.
By: /s/ Lawrence J. Lasser
-----------------------------
Lawrence J. Lasser, President
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s:\shared\boiler\contract\a13.13
PUTNAM TAX-FREE INCOME TRUST --
PUTNAM TAX-FREE INSURED FUND
CLASS M
DISTRIBUTION PLAN AND AGREEMENT
This Plan and Agreement (the "Plan") constitutes the Distribution Plan for the Class M shares of Putnam Tax-Free Income Trust--Putnam Tax-Free Insured Fund, a Massachusetts business trust (the "Trust"), adopted pursuant to the provisions of Rule 12b-1 under the Investment Company Act of 1940 (the "Act") and the related agreement between the Trust and Putnam Mutual Funds Corp. ("PMF"). During the effective term of this Plan, the Trust may incur expenses primarily intended to result in the sale of its Class M shares upon the terms and conditions hereinafter set forth:
SECTION 1. The Trust shall pay to PMF a monthly fee at the annual rate of 1.00% of the average net asset value of the Class M shares of the Trust, as determined at the close of each business day during the month, to compensate PMF for services provided and expenses incurred by it in connection with the offering of the Trust's Class M shares, which may include, without limitation, payments by PMF to investment dealers with respect to Class M shares, as set forth in the then current Prospectus or Statement of Additional Information of the Trust, including the payment of a service fee of up to 0.25% of such net asset value for the purpose of maintaining or improving services provided to shareholders by PMF and investment dealers. Such fees shall be payable for each month within 15 days after the close of such month. A majority of the Qualified Trustees, as defined below, may, from time to time, reduce the amount of such payments, or may suspend the operation of the Plan for such period or periods of time as they may determine.
SECTION 2. This Plan shall not take effect until:
(a) it has been approved by a vote of a majority of the outstanding Class M shares of the Trust;
(b) it has been approved, together with any related agreements, by votes of the majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Act or the rules and regulations thereunder) of both (i) the Trustees of the Trust, and (ii) the Qualified Trustees of the Trust, cast in person at a meeting called for the purpose of voting on this Plan or such agreement; and
(c) the Trust has received the proceeds of the initial public offering of its Class M shares.
SECTION 3. This Plan shall continue in effect for a period of more than one year after it takes effect only so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in Section 2(b).
SECTION 4. PMF shall provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made.
SECTION 5. This Plan may be terminated at any time by vote of a majority of the Qualified Trustees or by vote of the majority of the outstanding Class M shares of the Trust.
SECTION 6. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide:
(a) that such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Qualified Trustees or by vote of a majority of the outstanding Class M shares of the Trust, on not more than 60 days' written notice to any other party to the agreement; and
(b) that such agreement shall terminate automatically in the event of its assignment.
SECTION 7. This Plan may not be amended to increase materially the amount of distribution expenses permitted pursuant to Section 1 hereof without the approval of a majority of the outstanding Class M shares of the Trust and all material amendments to this Plan shall be approved in the manner provided for approval of this Plan in Section 2(b).
SECTION 8. As used in this Plan, (a) the term "Qualified Trustees" shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the term "majority of the outstanding Class M shares of the Trust" means the affirmative vote, at a duly called and held meeting of Class M shareholders of the Trust, (i) of the holders of 67% or more of the Class M shares of the Trust present (in person or by proxy) and entitled to vote at such meeting, if the holders of more than 50% of the outstanding Class M shares of the Trust entitled to vote at such meeting are present in person or by proxy, or (ii) of the holders of more than 50% of the outstanding Class M shares of the Trust entitled to vote at such meeting, whichever is less, and (c) the terms "assignment" and "interested person" shall have the respective meanings specified in the Act and the rules and regulations thereunder, subject to such exemptions as may be granted by the Securities and Exchange Commission.
SECTION 9. A copy of the Agreement and Declaration of Trust of the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Trustees of the Trust as Trustees and not individually, and that the obligations of or arising out of this instrument are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the Trust.
Executed as of May 31, 1995.
PUTNAM MUTUAL FUNDS CORP. PUTNAM TAX-FREE INCOME TRUST --
PUTNAM TAX-FREE INSURED FUND
By: ---------------------- By: --------------------------
William N. Shiebler Charles E. Porter
President Executive Vice President
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SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Tax-Free High Yield Fund -- Class A Shares
Fiscal period ending: 7/31/95
Inception date (if less than 10 years of performance): 9/20/93
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 N/A $1,000
ERV = Ending Redeemable Value $1,012 N/A $1,002
T = Average Annual
Total Return 1.19% N/A 0.12%*
|
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1 POP x Average shares
Interest and Dividends $2,922,085 Expenses $348,760 Reimbursement $0 Average shares 33,120,733 NAV $14.14 Sales Charge 4.75% POP $14.85 |
Yield at POP 6.36%
TAX-EXEMPT EQUIVALENT YIELD
Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)
6.36% 6.36%
|
------ = ------ = 10.53% 1-39.6% .604%
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Tax-Free High Yield Fund -- Class B Shares
Fiscal period ending: 7/31/95
Inception date (if less than 10 years of performance): 9/9/85
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 $1,000 $1,000
ERV = Ending Redeemable Value $1,006 $1,000 $1,000
T = Average Annual
Total Return 0.58% 7.24% 8.76%*
|
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1 POP x Average shares
Interest and Dividends $8,965,387
Expenses $1,867,494
Reimbursement $0
Average shares 101,547,603
NAV $14.14
Maximum Contingent Deferred
Sales Charge 5.0%
|
Yield at NAV 6.01%
TAX-EXEMPT EQUIVALENT YIELD
Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)
6.01% 6.01%
------ = ------ = 9.95%
1-39.6% .604%
|
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Tax-Free High Yield Fund - Class M Shares
Fiscal period ending: 7/31/95
Inception date (if less than 10 years of performance): 12/29/94
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment N/A N/A $1,000
ERV = Ending Redeemable Value N/A N/A $1,061
T = Average Annual
Total Return N/A N/A 6.13%*
|
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1 POP x Average shares
Interest and Dividends $13,663 Expenses $2,175 Reimbursement $0 Average shares 155,013 NAV $14.13 Sales Charge 3.25% POP $14.60 |
Yield at POP 6.15%
TAX-EXEMPT EQUIVALENT YIELD
Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)
6.15% 6.15%
------ = ------ = 10.18%
1-39.6% .604%
|
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Tax-Free Insured Fund -- Class A Shares
Fiscal period ending: 7/31/95
Inception date (if less than 10 years of performance): 9/20/93
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 N/A $1,000
ERV = Ending Redeemable Value $1,021 N/A $996
T = Average Annual
Total Return 2.13% N/A -0.22%*
|
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1 POP x Average shares
Interest and Dividends $945,354 Expenses $143,442 Reimbursement $0 Average shares 12,356,552 NAV $14.86 Sales Charge 4.75% POP $15.60 |
Yield at POP 5.05%
TAX-EXEMPT EQUIVALENT YIELD
Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)
5.05% 5.05
|
------ = ------ = 8.36% 1-39.6% .604%
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Tax-Free Insured Fund -- Class B Shares
Fiscal period ending: 7/31/95
Inception date (if less than 10 years of performance): 9/9/85
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 $1,000 $1,000
ERV = Ending Redeemable Value $1,015 $1,363 $2,191
T = Average Annual
Total Return 1.53% 6.39% 8.26%*
|
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1 POP x Average shares
Interest and Dividends $1,946,323
Expenses $505,008
Reimbursement $0
Average shares 25,424,740
NAV $14.87
Maximum Contingent Deferred
Sales Charge 5.0%
|
Yield at NAV 4.62%
TAX-EXEMPT EQUIVALENT YIELD
Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)
4.62% 4.62%
------ = ------ = 7.65%
1-39.6% .604%
|
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Tax-Free Insured Fund - Class M Shares
Fiscal period ending: 7/31/95
Inception date (if less than 10 years of performance): 6/1/95
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment N/A N/A $1,000
ERV = Ending Redeemable Value N/A N/A $959
T = Average Annual
Total Return N/A N/A -4.11%*
|
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1 POP x Average shares
Interest and Dividends $29 Expenses $6 Reimbursement $0 Average shares 387 NAV $14.86 Sales Charge 3.25% POP $15.36 |
Yield at POP 4.87%
TAX-EXEMPT EQUIVALENT YIELD
Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)
4.85% 4.85%
------ = ------ = 8.03%
1-39.6% .604%
|
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM Putnam Tax Free Insured Fund Class A AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | JUL 31 1995 |
| PERIOD END | JUL 31 1995 |
| INVESTMENTS AT COST | 523,457,045 |
| INVESTMENTS AT VALUE | 551,443,265 |
| RECEIVABLES | 12,244,426 |
| ASSETS OTHER | 286,839 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 563,974,530 |
| PAYABLE FOR SECURITIES | 0 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 2,274,007 |
| TOTAL LIABILITIES | 2,274,007 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 541,634,539 |
| SHARES COMMON STOCK | 12,400,211 |
| SHARES COMMON PRIOR | 9,751,110 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (524,841) |
| ACCUMULATED NET GAINS | 0 |
| OVERDISTRIBUTION GAINS | (7,395,395) |
| ACCUM APPREC OR DEPREC | 27,986,220 |
| NET ASSETS | 561,700,523 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 36,690,228 |
| OTHER INCOME | 0 |
| EXPENSES NET | 7,515,150 |
| NET INVESTMENT INCOME | 29,175,078 |
| REALIZED GAINS CURRENT | (2,373,727) |
| APPREC INCREASE CURRENT | 8,753,042 |
| NET CHANGE FROM OPS | 35,554,393 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (9,224,293) |
| DISTRIBUTIONS OF GAINS | (50,968) |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 4,343,427 |
| NUMBER OF SHARES REDEEMED | (2,061,211) |
| SHARES REINVESTED | 366,885 |
| NET CHANGE IN ASSETS | (14,273,703) |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 10,055 |
| OVERDISTRIB NII PRIOR | (778,138) |
| OVERDIST NET GAINS PRIOR | (4,830,414) |
| GROSS ADVISORY FEES | 3,286,811 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 7,515,150 |
| AVERAGE NET ASSETS | 163,803,541 |
| PER SHARE NAV BEGIN | 14.67 |
| PER SHARE NII | .82 |
| PER SHARE GAIN APPREC | .19 |
| PER SHARE DIVIDEND | (.82) |
| PER SHARE DISTRIBUTIONS | (.01) |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 14.86 |
| EXPENSE RATIO | .89 |
| AVG DEBT OUTSTANDING0 | |
| AVG DEBT PER SHARE | 0 |
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM Putnam Tax Free Insured Fund Class B AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | JUL 31 1995 |
| PERIOD END | JUL 31 1995 |
| INVESTMENTS AT COST | 523,457,045 |
| INVESTMENTS AT VALUE | 551,443,265 |
| RECEIVABLES | 12,244,426 |
| ASSETS OTHER | 286,839 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 563,974,530 |
| PAYABLE FOR SECURITIES | 0 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 2,274,007 |
| TOTAL LIABILITIES | 2,274,007 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 541,634,539 |
| SHARES COMMON STOCK | 25,380,060 |
| SHARES COMMON PRIOR | 29,482,448 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (524,841) |
| ACCUMULATED NET GAINS | 0 |
| OVERDISTRIBUTION GAINS | (7,395,395) |
| ACCUM APPREC OR DEPREC | 27,986,220 |
| NET ASSETS | 561,700,523 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 36,690,228 |
| OTHER INCOME | 0 |
| EXPENSES NET | 7,515,150 |
| NET INVESTMENT INCOME | 29,175,078 |
| REALIZED GAINS CURRENT | (2,373,727) |
| APPREC INCREASE CURRENT | 8,753,042 |
| NET CHANGE FROM OPS | 35,554,393 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (19,697,447) |
| DISTRIBUTIONS OF GAINS | (140,286) |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 2,875,400 |
| NUMBER OF SHARES REDEEMED | (7,836,307) |
| SHARES REINVESTED | 858,519 |
| NET CHANGE IN ASSETS | (14,273,703) |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 10,055 |
| OVERDISTRIB NII PRIOR | (778,128) |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 3,286,811 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 7,515,150 |
| AVERAGE NET ASSETS | 393,683,985 |
| PER SHARE NAV BEGIN | 14.68 |
| PER SHARE NII | .73 |
| PER SHARE GAIN APPREC | .20 |
| PER SHARE DIVIDEND | (.73) |
| PER SHARE DISTRIBUTIONS | (.01) |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 14.87 |
| EXPENSE RATIO | 1.54 |
| AVG DEBT OUTSTANDING0 | |
| AVG DEBT PER SHARE | 0 |
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM Putnam Tax Free Insured Fund Class M AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | JUL 31 1995 |
| PERIOD END | JUL 31 1995 |
| INVESTMENTS AT COST | 523,457,045 |
| INVESTMENTS AT VALUE | 551,443,265 |
| RECEIVABLES | 12,244,426 |
| ASSETS OTHER | 286,839 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 563,974,530 |
| PAYABLE FOR SECURITIES | 0 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 2,274,007 |
| TOTAL LIABILITIES | 2,274,007 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 541,634,539 |
| SHARES COMMON STOCK | 1,163 |
| SHARES COMMON PRIOR | 0 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (524,841) |
| ACCUMULATED NET GAINS | 0 |
| OVERDISTRIBUTION GAINS | (7,395,395) |
| ACCUM APPREC OR DEPREC | 27,986,220 |
| NET ASSETS | 561,700,523 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 36,690,228 |
| OTHER INCOME | 0 |
| EXPENSES NET | 7,515,150 |
| NET INVESTMENT INCOME | 29,175,078 |
| REALIZED GAINS CURRENT | (2,373,727) |
| APPREC INCREASE CURRENT | 8,753,042 |
| NET CHANGE FROM OPS | 35,554,393 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (41) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 1,161 |
| NUMBER OF SHARES REDEEMED | 0 |
| SHARES REINVESTED | 2 |
| NET CHANGE IN ASSETS | (14,273,703) |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 3,286,811 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 7,515,150 |
| AVERAGE NET ASSETS | 0 |
| PER SHARE NAV BEGIN | 15.11 |
| PER SHARE NII | .12 |
| PER SHARE GAIN APPREC | (.25) |
| PER SHARE DIVIDEND | (.12) |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 14.86 |
| EXPENSE RATIO | .14 |
| AVG DEBT OUTSTANDING0 | |
| AVG DEBT PER SHARE | 0 |
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM Putnam Tax Free High Yield Fund Class A AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | JUL 31 1995 |
| PERIOD END | JUL 31 1995 |
| INVESTMENTS AT COST | 1,834,355,568 |
| INVESTMENTS AT VALUE | 1,873,061,441 |
| RECEIVABLES | 56,358,943 |
| ASSETS OTHER | 171,460 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 1,929,591,844 |
| PAYABLE FOR SECURITIES | 2,445,561 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 13,350,004 |
| TOTAL LIABILITIES | 15,795,565 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 1,936,689,307 |
| SHARES COMMON STOCK | 33,600,985 |
| SHARES COMMON PRIOR | 25,394,226 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (3,337,732) |
| ACCUMULATED NET GAINS | 0 |
| OVERDISTRIBUTION GAINS | (58,261,178) |
| ACCUM APPREC OR DEPREC | 38,705,882 |
| NET ASSETS | 1,913,796,279 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 140,969,969 |
| OTHER INCOME | 0 |
| EXPENSES NET | 25,417,572 |
| NET INVESTMENT INCOME | 115,552,397 |
| REALIZED GAINS CURRENT | (39,422,053) |
| APPREC INCREASE CURRENT | 25,168,624 |
| NET CHANGE FROM OPS | 101,298,968 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (27,401,547) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 12,577,731 |
| NUMBER OF SHARES REDEEMED | 5,436,536 |
| SHARES REINVESTED | 1,065,564 |
| NET CHANGE IN ASSETS | 29,247,518 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | (3,464,463) |
| OVERDIST NET GAINS PRIOR | (18,839,125) |
| GROSS ADVISORY FEES | 10,082,299 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 25,417,572 |
| AVERAGE NET ASSETS | 406,418,361 |
| PER SHARE NAV BEGIN | 14.24 |
| PER SHARE NII | .94 |
| PER SHARE GAIN APPREC | (.10) |
| PER SHARE DIVIDEND | (.94) |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 14.14 |
| EXPENSE RATIO | .87 |
| AVG DEBT OUTSTANDING0 | |
| AVG DEBT PER SHARE | 0 |
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM Putnam Tax Free High Yield Fund Class B AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | JUL 31 1995 |
| PERIOD END | JUL 31 1995 |
| INVESTMENTS AT COST | 1,834,355,568 |
| INVESTMENTS AT VALUE | 1,873,061,441 |
| RECEIVABLES | 56,358,943 |
| ASSETS OTHER | 171,460 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 1,929,591,844 |
| PAYABLE FOR SECURITIES | 2,445,561 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 13,350,004 |
| TOTAL LIABILITIES | 15,795,565 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 1,936,689,307 |
| SHARES COMMON STOCK | 101,591,475 |
| SHARES COMMON PRIOR | 106,941,561 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (3,337,732) |
| ACCUMULATED NET GAINS | 0 |
| OVERDISTRIBUTION GAINS | (58,261,178) |
| ACCUM APPREC OR DEPREC | 38,705,882 |
| NET ASSETS | 1,913,796,279 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 140,969,969 |
| OTHER INCOME | 0 |
| EXPENSES NET | 25,417,572 |
| NET INVESTMENT INCOME | 115,552,397 |
| REALIZED GAINS CURRENT | (39,422,053) |
| APPREC INCREASE CURRENT | 25,168,624 |
| NET CHANGE FROM OPS | 101,298,968 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (87,980,365) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 21,898,422 |
| NUMBER OF SHARES REDEEMED | (30,242,197) |
| SHARES REINVESTED | 2,993,689 |
| NET CHANGE IN ASSETS | 29,247,518 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | (3,464,463) |
| OVERDIST NET GAINS PRIOR | (18,839,125) |
| GROSS ADVISORY FEES | 10,082,299 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 25,417,572 |
| AVERAGE NET ASSETS | 1,445,024,567 |
| PER SHARE NAV BEGIN | 14.24 |
| PER SHARE NII | .85 |
| PER SHARE GAIN APPREC | (.10) |
| PER SHARE DIVIDEND | (.85) |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 14.14 |
| EXPENSE RATIO | 1.51 |
| AVG DEBT OUTSTANDING0 | |
| AVG DEBT PER SHARE | 0 |
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM Putnam Tax Free High Yield Fund Class M AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | JUL 31 1995 |
| PERIOD END | JUL 31 1995 |
| INVESTMENTS AT COST | 1,834,355,568 |
| INVESTMENTS AT VALUE | 1,873,061,441 |
| RECEIVABLES | 56,358,943 |
| ASSETS OTHER | 171,460 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 1,929,591,844 |
| PAYABLE FOR SECURITIES | 2,445,561 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 13,350,004 |
| TOTAL LIABILITIES | 15,795,565 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 1,936,689,307 |
| SHARES COMMON STOCK | 164,963 |
| SHARES COMMON PRIOR | 0 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | (3,337,732) |
| ACCUMULATED NET GAINS | 0 |
| OVERDISTRIBUTION GAINS | (58,261,178) |
| ACCUM APPREC OR DEPREC | 38,705,882 |
| NET ASSETS | 1,913,796,279 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 140,969,969 |
| OTHER INCOME | 0 |
| EXPENSES NET | 25,417,572 |
| NET INVESTMENT INCOME | 115,552,397 |
| REALIZED GAINS CURRENT | (39,422,053) |
| APPREC INCREASE CURRENT | 25,168,624 |
| NET CHANGE FROM OPS | 101,298,968 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (43,754) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 165,046 |
| NUMBER OF SHARES REDEEMED | (2,406) |
| SHARES REINVESTED | 2,323 |
| NET CHANGE IN ASSETS | 29,247,518 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | (3,464,463) |
| OVERDIST NET GAINS PRIOR | (18,839,125) |
| GROSS ADVISORY FEES | 10,082,299 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 25,417,572 |
| AVERAGE NET ASSETS | 1,091,078 |
| PER SHARE NAV BEGIN | 13.43 |
| PER SHARE NII | .58 |
| PER SHARE GAIN APPREC | .70 |
| PER SHARE DIVIDEND | (.58) |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 14.13 |
| EXPENSE RATIO | .71 |
| AVG DEBT OUTSTANDING0 | |
| AVG DEBT PER SHARE | 0 |
PUTNAM FUNDS
Plan pursuant to Rule 18f-3(D) under the Investment Company act of 1940
Effective July 1, 1995*
Each of the open-end investment companies managed by Putnam Investment Management, Inc. (each a "Fund" and, together, the "Funds") may from time to time issue one or more of the following classes of shares: Class A shares, Class B shares, Class C shares, Class M shares and Class Y shares. Each class is subject to such investment minimums and other conditions of eligibility as are set forth in the Funds' registration statements as from time to time in effect. The differences in expenses among these classes of shares, and the conversion and exchange features of each class of shares, are set forth below in this Plan. Except as noted below, expenses are allocated among the classes of shares of each Fund based upon the net assets of each Fund attributable to shares of each class. This Plan is subject to change, to the extent permitted by law and by the Agreement and Declaration of Trust and By-laws of each Fund, by action of the Trustees of each Fund.
CLASS A SHARES
DISTRIBUTION AND SERVICE FEES
Class A shares pay distribution and service fees pursuant to plans (the "Class A Plans") adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"). Class A shares also bear any costs associated with obtaining shareholder approval of the Class A Plans (or an amendment to a Class A Plan). Pursuant to the Class A Plans, Class A shares may pay up to 0.35% of the relevant Fund's average net assets attributable to the Class A shares* (which percentage may be less for certain Funds, as described in the Funds' registration statements as from time to time in effect). Amounts payable under the Class A Plans are subject to such further limitations as the Trustees may from time to time determine and as set forth in the registration statement of each Fund as from time to time in effect.
CONVERSION FEATURES
Class A shares do not convert to any other class of shares.
EXCHANGE FEATURES
Class A shares of any Fund may be exchanged, at the holder's option, for Class A shares of any other Fund that offers Class A shares without the payment of a sales charge beginning 15 days after purchase, provided that Class A shares of such other Fund are available to residents of the relevant state. The holding period for determining any contingent deferred sales charge (a "CDSC") will include the holding period of the shares exchanged, and will be calculated using the schedule of any Fund into or from which shares have been exchanged that would result in the highest CDSC applicable to such Class A shares.
INITIAL SALES CHARGE
Class A shares are offered at a public offering price that is equal to their net asset value ("NAV") plus a sales charge of up to 5.75% of the public offering price (which maximum may be less for certain Funds, as described in each Fund's registration statement as from time to time in effect). The sales charges on Class A shares are subject to reduction or waiver as permitted by Rule 22d-1 under the 1940 Act and as described in the Funds' registration statements as from time to time in effect.
CONTINGENT DEFERRED SALES CHARGE
Purchases of Class A shares of $1 million or more that are redeemed within one or two years of purchase are subject to a CDSC of 1.00% and 0.50%, respectively, of either the purchase price or the NAV of the shares redeemed, whichever is less. Class A shares are not otherwise subject to a CDSC.
The CDSC on Class A shares is subject to reduction or waiver in certain circumstances, as permitted by Rule 6c-10 under the 1940 Act and as described in the Funds' registration statements as from time to time in effect.
CLASS B SHARES
DISTRIBUTION AND SERVICE FEES
Class B shares pay distribution and service fees pursuant to plans adopted pursuant to Rule 12b-1 under the 1940 Act (the "Class B Plans"). Class B shares also bear any costs associated with obtaining shareholder approval of the Class B Plans (or an amendment to a Class B Plan). Pursuant to the Class B Plans, Class B shares may pay up to 1.00% of the relevant Fund's average net assets attributable to Class B shares (which percentage may be less for certain Funds, as described in the Funds' registration statements as from time to time in effect). Amounts payable under the Class B Plans are subject to such further limitations as the Trustees may from time to time determine and as set forth in the registration statement of each Fund as from time to time in effect.
CONVERSION FEATURES
Class B shares automatically convert to Class A shares of the same Fund at the end of the month eight years after purchase (or such earlier date as the Trustees of a Fund may authorize), except that Class B shares purchased through the reinvestment of dividends and other distributions on Class B shares convert to Class A shares at the same time as the shares with respect to which they were purchased are converted and Class B shares acquired by the exchange of Class B shares of another Fund will convert to Class A shares based on the time of the initial purchase.
EXCHANGE FEATURES
Class B shares of any Fund may be exchanged, at the holder's option, for Class B shares of any other Fund that offers Class B shares without the payment of a sales charge beginning 15 days after purchase, provided that Class B shares of such other Fund are available to residents of the relevant state. The holding period for determining any CDSC will include the holding period of the shares exchanged, and will be calculated using the schedule of any Fund into or from which shares have been exchanged that would result in the highest CDSC applicable to such Class B shares.
INITIAL SALES CHARGE
Class B shares are offered at their NAV, without an initial sales charge.
CONTINGENT DEFERRED SALES CHARGE
Class B shares that are redeemed within 6 years of purchase are subject to a CDSC of up to 5.00% of either the purchase price or the NAV of the shares redeemed, whichever is less (which period may be shorter and which percentage may be less for certain Funds, as described in the Funds' registration statements as from time to time in effect); such percentage declines the longer the shares are held, as described in the Funds' registration statements as from time to time in effect. Class B shares purchased with reinvested dividends or capital gains are not subject to a CDSC.
The CDSC on Class B shares is subject to reduction or waiver in certain circumstances, as permitted by Rule 6c-10 under the 1940 Act and as described in the Funds' registration statements as from time to time in effect.
CLASS C SHARES
DISTRIBUTION AND SERVICE FEES
Class C shares pay distribution and service fees pursuant to plans adopted pursuant to Rule 12b-1 under the 1940 Act (the "Class C Plans"). Class C shares also bear any costs associated with obtaining shareholder approval of the Class C Plans (or an amendment to a Class C Plan). Pursuant to the Class C Plans, Class C shares may pay up to 1.00% of the relevant Fund's average net assets attributable to the Class C shares (which percentage may be less for certain Funds, as described in the Funds' registration statements as from time to time in effect). Amounts payable under the Class C Plans are subject to such further limitations as the Trustees may from time to time determine and as set forth in the registration statement of each Fund as from time to time in effect.
CONVERSION FEATURES
Class C shares do not convert to any other class of shares.
EXCHANGE FEATURES
Class C shares of any Fund may be exchanged, at the holder's option, for Class C shares of any other Fund that offers Class C shares without the payment of a sales charge beginning 15 days after purchase, provided that Class C shares of such other Fund are available to residents of the relevant state. The holding period for determining any CDSC will include the holding period of the shares exchanged, and will be calculated using the schedule of any Fund into or from which shares have been exchanged that would result in the highest CDSC applicable to such Class C shares.
INITIAL SALES CHARGE
Class C shares are offered at their NAV, without an initial sales charge.
CONTINGENT DEFERRED SALES CHARGE
Class C shares are subject to a 1.00% CDSC if the shares are redeemed within one year of purchase. The CDSC on Class C shares is subject to reduction or waiver in certain circumstances, as permitted by Rule 6c-10 under the 1940 Act and as described in the Funds' registration statements as from time to time in effect.
CLASS M SHARES
DISTRIBUTION AND SERVICE FEES
Class M shares pay distribution and service fees pursuant to plans adopted pursuant to Rule 12b-1 under the 1940 Act (the "Class M Plans"). Class M shares also bear any costs associated with obtaining shareholder approval of the Class M Plans (or an amendment to a Class M Plan). Pursuant to the Class M Plans, Class M shares may pay up to 1.00% of the relevant Fund's average net assets attributable to Class M shares (which percentage may be less for certain Funds, as described in the Funds' registration statements as from time to time in effect). Amounts payable under the Class M Plans are subject to such further limitations as the Trustees may from time to time determine and as set forth in the registration statement of each Fund as from time to time in effect.
CONVERSION FEATURES
Class M shares do not convert to any other class of shares.
EXCHANGE FEATURES
Class M shares of any Fund may be exchanged, at the holder's option, for Class M shares of any other Fund that offers Class M shares without the payment of a sales charge beginning 15 days after purchase, provided that Class M shares of such other Fund are available to residents of the relevant state.
INITIAL SALES CHARGE
Class M shares are offered at a public offering price that is equal to their NAV plus a sales charge of up to 3.50% of the public offering price (which maximum may be less for certain Funds, as described in each Fund's registration statement as from time to time in effect). The sales charges on Class M shares are subject to reduction or waiver as permitted by Rule 22d-1 under the 1940 Act and as described in the Funds' registration statements as from time to time in effect.
CONTINGENT DEFERRED SALES CHARGE
Class M shares are not subject to any CDSC.
CLASS Y SHARES
DISTRIBUTION AND SERVICE FEES
Class Y shares do not pay a distribution fee.
CONVERSION FEATURES
Class Y shares do not convert to any other class of shares.
EXCHANGE FEATURES
Class Y shares of any Fund may be exchanged, at the holder's option, for Class Y shares of any other Fund that offers Class Y shares without the payment of a sales charge beginning 15 days after purchase, provided that Class Y shares of such other Fund are available to residents of the relevant state, and further provided that shares of such other Fund are available through the relevant employer's plan.
INITIAL SALES CHARGE
Class Y shares are offered at their NAV, without an initial sales charge.
CONTINGENT DEFERRED SALES CHARGE
Class Y shares are not subject to any CDSC.
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