AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
MARCH 14 , 1994
REGISTRATION NO. 2-57165
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 1
PUTNAM TAX EXEMPT INCOME FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
ONE POST OFFICE SQUARE, BOSTON, MASSACHUSETTS 02109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
617-292-1000
(AREA CODE AND TELEPHONE NUMBER)
JOHN R. VERANI, VICE PRESIDENT
PUTNAM TAX EXEMPT INCOME FUND
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
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
<PAGE>
AN INDEFINITE AMOUNT OF THE REGISTRANT'S SECURITIES HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-
2 UNDER THE INVESTMENT COMPANY ACT OF 1940. IN RELIANCE UPON
SUCH RULE, NO FILING FEE IS BEING PAID AT THIS TIME. A RULE 24F-
2 NOTICE FOR THE REGISTRANT FOR THE YEAR ENDED SEPTEMBER 30, 1993
WAS FILED ON NOVEMBER 30, 1993.
<PAGE>
CROSS-REFERENCE SHEET
FORM N-14 ITEM CAPTION IN PROSPECTUS/PROXY STATEMENT
(PART A)
1 CROSS-REFERENCE SHEET;
FRONT COVER
2 FRONT COVER
3 SYNOPSIS; RISK FACTORS
4 INTRODUCTION; PROPOSAL REGARDING APPROVAL OR
DISAPPROVAL OF AGREEMENT AND PLAN OF
REORGANIZATION; BACKGROUND AND REASONS FOR
THE PROPOSED REORGANIZATION; INFORMATION
ABOUT THE REORGANIZATION
5, 6 FRONT COVER -- INCORPORATED BY REFERENCE TO
SPECIFIED DOCUMENTS
7 INTRODUCTION; PROPOSAL REGARDING APPROVAL OR
DISAPPROVAL OF AGREEMENT AND PLAN OF
REORGANIZATION; INFORMATION ABOUT THE
REORGANIZATION; VOTING INFORMATION
8, 9 NOT APPLICABLE
FORM N-14 ITEM CAPTION IN STATEMENT OF ADDITIONAL
INFORMATION (PART B)
10, 11 COVER PAGE
12 NOT APPLICABLE
13 COVER PAGE -- INCORPORATED BY REFERENCE TO
SPECIFIED DOCUMENTS
14 INDEPENDENT ACCOUNTANTS AND
FINANCIAL STATEMENTS
PART C
THE INFORMATION REQUIRED TO BE INCLUDED IN PART C IS SET FORTH
UNDER THE APPROPRIATE ITEM, SO NUMBERED, IN PART C TO THIS
REGISTRATION STATEMENT.
<PAGE>
PUTNAM TEXAS TAX EXEMPT INCOME FUND
One Post Office Square
Boston, Massachusetts 02109
March 14 , 1994
To the Shareholders:
Enclosed you will find several documents being furnished to
you in connection with a meeting of Putnam Texas Tax Exempt
Income Fund (the "Texas Fund") shareholders to be held May 5,
1994 at 1:00 p.m. in Boston, Massachusetts. I hope this material
will receive your immediate attention and that, if you cannot
attend the meeting in person, you will vote your proxy promptly.
The Trustees of the Texas Fund are recommending that
shareholders approve a reorganization of the Texas Fund in which
the Texas Fund will transfer all of its assets to Putnam Tax
Exempt Income Fund (the "Income Fund") in return for Class A
shares of the Income Fund and the assumption by the Income Fund
of all of the liabilities of the Texas Fund. After the transfer,
the Class A shares of the Income Fund will be distributed to
holders of the Texas Fund shares, thereby liquidating the Texas
Fund. As a result of these transactions, your shares of the
Texas Fund would, in effect, be exchanged at net asset value and
on a tax-free basis for Class A shares of the Income Fund. Both
Funds are managed by Putnam Investment Management, Inc. ("Putnam
Management") and have the same Trustees.
Both Funds seek as high level of current income exempt from
federal income tax as is consistent with preservation of capital
and follow virtually identical investment policies. The
principal difference between the Funds is that the Texas Fund
normally concentrates its investments in tax exempt securities of
Texas issuers , while the Income Fund normally invests in
tax-exempt securities of issuers located in
various states. Because of the similarities between the
Funds, the proposed reorganization will not affect the
general strategy or style in which the portfolio manager will
manage your investment.
Putnam Management, the investment adviser for both Funds,
believes that combining the Texas Fund with the Income Fund
offers shareholders of the Texas Fund an opportunity to pursue a
similar investment objective with greater economies of scale that
will result in a lower operating expense ratio. Putnam Management
also believes that the expected lower expense ratio and
additional portfolio management flexibility offered by a much
larger fund over the longer-term will likely result in
improved investment performance for Texas Fund shareholders
acquiring Income Fund shares in the reorganization.
YOUR TRUSTEES BELIEVE THAT THE PROPOSED COMBINATION WITH THE
INCOME FUND IS IN THE BEST INTERESTS OF SHAREHOLDERS AND
RECOMMEND THAT YOU VOTE IN FAVOR OF IT.
The Notice of Meeting of Shareholders and the accompanying
Prospectus/Proxy Statement and form of proxy are enclosed.
Please read them carefully. If you are unable to attend the
meeting in person, we urge you to sign, date and return
the proxy card so that your shares may be voted in accordance
with your instructions.
SINCE THE MEETING IS LESS THAN TEN WEEKS AWAY, I
URGE YOU TO GIVE THE ENCLOSED MATERIAL YOUR PROMPT ATTENTION SO
THAT YOUR FUND WILL NOT HAVE TO INCUR THE EXPENSE OF ADDITIONAL
MAILINGS.
Sincerely yours,
George Putnam, Chairman
<PAGE>
PUTNAM TEXAS TAX EXEMPT INCOME FUND
NOTICE OF MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF PUTNAM TEXAS TAX EXEMPT INCOME FUND
NOTICE IS HEREBY GIVEN that a Meeting of Shareholders
(the "Meeting") of Putnam Texas Tax Exempt Income Fund (the
"Fund" or the "Texas Fund") will be held at One Post Office
Square, 8th Floor, Boston, Massachusetts, on May 5, 1994, at 1:00
p.m., Boston time, for the following purposes:
1. To consider and act upon an Agreement and Plan of
Reorganization providing for the transfer of all of the
assets of the Fund to Putnam Tax Exempt Income Fund
(the "Income Fund") in exchange for shares of the
Income Fund and the assumption by the Income Fund of
all of the liabilities of the Fund, and the
distribution of such shares to the shareholders of the
Fund in liquidation of the Fund; and
2. To transact such other business as may properly come
before the Meeting or any adjournment or adjournments
thereof.
The Trustees have fixed the close of business on February
11, 1994 as the record date for determination of shareholders
entitled to notice of, and to vote at, the Meeting.
Each shareholder who does not expect to attend in person is
requested to date, fill in, sign and return promptly the
enclosed form of proxy.
By the Trustees
George Putnam, Chairman Lawrence J. Lasser
William F. Pounds, Vice Chairman Robert E. Patterson
Jameson Adkins Baxter Donald S. Perkins
Hans H. Estin George Putnam, III
John A. Hill A.J.C. Smith
Elizabeth T. Kennan W. Nicholas
Thorndike
Boston, Massachusetts
March 14 , 1994
Your prompt attention to the enclosed form of proxy will
help to avoid the expense of additional mailings.
PROSPECTUS/PROXY STATEMENT
March 14 , 1994
Acquisition of the assets of
PUTNAM TEXAS TAX EXEMPT INCOME FUND
One Post Office Square
Boston, Massachusetts 02109
(617) 292-1000
BY AND IN EXCHANGE FOR SHARES OF
PUTNAM TAX EXEMPT INCOME FUND
One Post Office Square
Boston, Massachusetts 02109
(617) 292-1000
TABLE OF CONTENTS
SYNOPSIS. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . 9
INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . 12
PROPOSAL REGARDING APPROVAL OR DISAPPROVAL OF
AGREEMENT AND PLAN OF REORGANIZATION . . . . . . . . . . 13
BACKGROUND AND REASONS FOR THE PROPOSED REORGANIZATION. . . . 15
INFORMATION ABOUT THE REORGANIZATION. . . . . . . . . . . . . 17
VOTING INFORMATION. . . . . . . . . . . . . . . . . . . . . . 23
AGREEMENT AND PLAN OF REORGANIZATION. . . . . . . . . . . . . . Exhibit A
This Prospectus/Proxy Statement relates to the proposed
transfer of all of the assets of Putnam Texas Tax Exempt Income
Fund (the "Texas Fund") to Putnam Tax Exempt Income Fund (the
"Income Fund") in exchange for Class A shares of beneficial
interest of the Income Fund (the "Income Fund Shares") and the
assumption by the Income Fund of all of the liabilities of the
Texas Fund. (The Income Fund and the Texas Fund are collectively
referred to herein as the "Funds", and each is referred to
individually as a "Fund"). Following the transfer, the Income
Fund Shares received by the Texas Fund will be distributed to
shareholders of the Texas Fund in liquidation of the Texas Fund.
As a result of the proposed transaction, each shareholder of the
Texas Fund will receive, on a tax-free basis, a number of full
and fractional Income Fund Shares equal in value at the date of
the exchange to the aggregate value of the shares of the Texas
Fund held by the shareholder.
This Prospectus/Proxy Statement explains concisely what you
should know before investing in the Income Fund. Please read it
and keep it for future reference. This Prospectus/ Proxy
Statement is accompanied by the Prospectus, dated February
1 , 1994, of the Income Fund, which contains information
about the Income Fund and is incorporated into this
Prospectus/Proxy Statement by reference. The current Statement
of Additional Information of the Income Fund, dated February
1 , 1994, has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus/Proxy
Statement by reference. The Report of Independent Accountants
and financial statements included in the Income Fund's Annual
Report to Shareholders for the 1993 fiscal year are also
incorporated by reference into this Prospectus/Proxy Statement.
The current Prospectus dated June 1, 1993, as
supplemented July 12, 1993, and Statement of Additional
Information, dated June 1, 1993, as revised July 12, 1993, of the
Texas Fund, have been filed with the Securities and Exchange
Commission and are incorporated into this Prospectus/Proxy
Statement by reference. The Report of Independent Accountants
and financial statements included in the Texas Fund's Annual
Report to Shareholders for the 1993 fiscal year, and the Report
of Independent Accountants and financial statements included in
the Texas Fund's Semi-annual Report for the sixth-month period
ended July 31, 1993, are incorporated by reference in this
Prospectus/Proxy Statement. In addition, a Statement of
Additional Information dated March 14 , 1994 relating
to the transactions described in this Prospectus/Proxy Statement
has been filed with the Securities and Exchange Commission and is
also incorporated into this Prospectus/Proxy Statement by
reference. For a free copy of any or all of these Prospectuses
or Statements of Additional Information or Annual Reports, call
Putnam Investor Services at 1-800-225-1581. Proxy materials,
information statements and other information filed by the
registrant can be inspected and copied at the Public Reference
Facilities maintained by the Securities and Exchange Commission
at 450 Fifth Street, N.W., Washington, D.C., 20549. Copies of
such material can also be obtained from the Public Reference
Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C., 20549 at
prescribed rates.
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 INCOME 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 .
SYNOPSIS
PROPOSED TRANSACTION. The Trustees of the Texas Fund have
approved an Agreement and Plan of Reorganization providing for
the transfer of all of the assets of the Texas Fund to the
Income Fund in exchange for the assumption by the Income Fund of
all of the liabilities of the Texas Fund and for a number of
Class A Shares of the Income Fund equal in value to the value of
the net assets of the Texas Fund transferred to the Income Fund.
Following the transfer, the Texas Fund will distribute the Income
Fund Shares received by it to its shareholders of record, in
complete liquidation of the Texas Fund. No gain or loss will be
recognized for federal income tax purposes by the Texas Fund or
its shareholders as a result of the reorganization.
For the reasons set forth below under "Background and Reasons
for the Proposed Reorganization," the Funds' Trustees, including
the Trustees who are not interested persons of either Fund (the
"Independent Trustees"), have concluded (i) that the
reorganization would be in the best interests of the Funds'
shareholders and recommend approval of the reorganization ,
and (ii) that the interests of the Funds' existing
shareholders will not be diluted as a result of the transactions
contemplated by the reorganization. The Income Fund and the
Texas Fund have the same Trustees.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS. The Texas
Fund and the Income Fund are both federally tax-exempt income
funds with the same investment objectives and similar investment
policies. Each Fund follows the fundamental policy of investing
at least 80% of its net assets in longer-term Tax - Exempt
Securities (as defined below), except when investing during times
of adverse market conditions. "Tax - Exempt Securities"
are debt obligations issued by a state (including the District of
Columbia), a territory or a United States possession, or any of
their political subdivisions, the interest from which is, in the
opinion of bond counsel, exempt from federal tax. Both funds may
not invest more than 25% of their assets in non-investment grade
bonds . The Texas Fund may invest in bonds rated B or
higher, while the Income Fund may only invest in bonds rated BB
or higher. Currently, less than 2% of the total assets of the
Texas Fund are invested in B-rated bonds that would need to be
disposed of in anticipation of the merger. As of December
31 , 1993, the quality composition of the Tax-Exempt
Securities in each Fund's portfolio was as follows:
TEXAS FUND INCOME FUND
AAA 28.6% 36.5%
AA 7.7% 23.6%
A 13.5% 17.6%
BBB 37.1% 18.7%
BB 12.1% 3.6%
B 1.0% --
The higher over all quality, and consequent lower risk
profile, of the Income Fund may benefit the shareholders of the
Texas Fund.
The principal difference in the Funds' investment policies is
that the Texas Fund normally invests at least 65% of its assets
in Tax - Exempt Securities of Texas issuers, while the
Income Fund is not subject to such a requirement and normally
invests in Tax - Exempt Securities of issuers located in
various states. Another significant difference is that
the Texas Fund is classified as a "non-diversified" fund under
the Investment Company Act of 1940 (the "1940 Act"), permitting
it to invest a higher percentage of its assets in the securities
of a single issuer than the Income Fund , which is
classified as a "diversified" Fund.
Despite these differences, the securities currently held by
the Income Fund are substantially similar, but for their broader
geographic diversification, to those securities currently held by
the Texas Fund. Consequently, the proposed reorganization is not
expected to result in a significant amount of portfolio turnover
as a result of the Income Fund's disposal of investments.
Because both Funds have identical investment objectives, very
similar investment policies and currently invest in certain of
the same issues, the reorganization will not affect the
general strategy or style in which a shareholder's investment
will be managed.
MANAGEMENT FEES AND OTHER EXPENSES. Both Funds pay a
quarterly fee to Putnam Management based on their respective
average net assets, as determined at the close of business each
day during the quarter, at an annual rate of .60% of the first
$500 million of average net assets, .50% of the next $500
million, .45% of the next $500 million and .40% of any amount
over $1.5 billion. The Income Fund currently pays
management fees at the rate of .47% . As of March 9,
1994, the net assets of the Texas Fund and
the Income Fund were $17,420,931 and $2,649,808,961,
respectively . Pursuant to an expense limitation currently
in effect through April 30, 1994 , Putnam Management has
agreed to reduce its compensation and, where necessary, absorb
other expenses of the Texas Fund, to the extent that total
operating expenses of the Fund (exclusive of brokerage, interest,
taxes, deferred organizational and extraordinary expense and
payments under the Fund's Distribution Plan) exceed an annual
rate of .90% of the Fund's average net assets. The Texas Fund
currently pays management fees at the rate of .51%
(reflecting the expense limitation). In the absence of the
expense limitation, the Texas fund would pay fees at the rate of
.60% .
The Funds have adopted identical Distribution Plans pursuant
to Rule 12b-1 under the Investment Company Act of 1940 to permit
the Funds to compensate Putnam Mutual Funds Corp. ("Putnam Mutual
Funds") for services provided and expenses incurred by it in
promoting the sale of Class A shares of the Income Fund and
shares of the Texas Fund, reducing redemptions, or maintaining or
improving services provided to shareholders by Putnam Mutual
Funds or dealers. See "Distribution Plans" in the enclosed
Income Fund Prospectus for a detailed description of that
Fund's Plan.
The Income Fund incurred total fund operating expenses for its
fiscal year ended September 30, 1993 of .78%. For the fiscal
year ended January 31, 1994, Putnam Management projects that the
Texas Fund will incur total fund operating expenses of 1.06%,
reflecting the expense limitation described above and
distribution plan payments less than the maximum permitted by the
plan. In the absence of the expense limitation and with
payment of the maximum in distribution plan
payments (.20%) , such projected expenses would be 1.22%.
Putnam Management has advised the Trustees that it expects,
based on the projected relative sizes of the two Funds, that the
management fees paid by the Income Fund after the proposed
reorganization would likely be paid at the effective rate of
.47%. Putnam Management believes the Income Fund's total
expenses following the reorganization would amount to
approximately .77% of the Fund's net assets as compared to the
Texas Fund's current expense level of 1.06% of net assets (after
expense limitation). The above expense projections are based
upon average net assets of approximately $2.3 billion
for Class A shares of the Income Fund and $15.4 million
for the Texas Fund for the calendar year ended December 31, 1993.
SALES CHARGES AND OPERATING PROCEDURES. Texas
Fund shares and Income Fund Class A shares are subject to
identical sales charge arrangements which are described in detail
in the enclosed Income Fund Prospectus. In addition, the
procedures for purchasing and redeeming shares of the Texas Fund
and Class A shares of the Income Fund, and for exchanging such
shares of each Fund for shares of other Putnam funds, are
identical and are described in detail in the enclosed Income Fund
Prospectus.
PERFORMANCE. The tax-equivalent yield (based on maximum
marginal tax rates) for the thirty-day period ended December
31, 1993 was 8.43% for Class A shares of the Income Fund and
8.29% (8.06% in the absence of the expense limitation discussed
above) for the Texas Fund. The actual yield for this same period
was 5.09% for Class A shares of the Income Fund and 5.01% (4.87%
in the absence of the expense limitation) for the Texas Fund.
The total return for the twelve-month period ended December 31,
1993 was 7.99% for Class A shares of the Income Fund and 7.1%
(which would have been lower in the absence of the expense
limitation) for the Texas Fund. See "How performance is shown"
in the enclosed Income Fund Prospectus for a
description of tax-equivalent yield, yield and total return.
<PAGE>
RISK FACTORS
Because the Income Fund and the Texas Fund share similar
investment objectives and policies, the risks of an investment in
the Income Fund are similar to the risks of an investment in the
Texas Fund, except with respect to concentration and
diversification as noted below.
CERTAIN RISKS ASSOCIATED WITH INVESTMENTS IN TAX -
EXEMPT SECURITIES. The market value of the Funds' investments
will change in response to changes in interest rates and other
factors. During periods of falling interest rates, the values of
long-term fixed-income securities generally rise. Conversely,
during periods of rising interest rates, the values of such
securities generally decline. Changes by recognized rating
services in their ratings of Tax - Exempt Securities and
in the ability of an issuer to make payments of interest and
principal will also affect the value of these investments.
Changes in the value of portfolio securities will not affect
interest income dividend from those securities but will affect
the net asset value of the Funds.
LOWER-RATED SECURITIES. The Funds may invest in both higher-
rated and lower-rated Tax - Exempt Securities. The values
of lower-rated securities generally fluctuate more than those of
higher-rated securities. In addition, the lower rating reflects
a greater possibility that the financial condition of the issuer,
or adverse changes in general economic conditions, or both, may
impair the ability of the issuer to make payments of income and
principal. The Texas Fund may invest in securities rated
as low as B, whereas the Income Fund may not invest in securities
rated lower than Ba/BB. Neither Fund may invest more than 25% of
its assets in securities rated below BBB or judged to be of
comparable quality by the manager . The rating
services' descriptions of the six highest grades of debt
securities are included in the Fund's Statement of Additional
Information. A breakdown of the quality composition of
the Tax -Exempt Securities held by each Fund is presented
on page 3 of this Prospectus. Tax- Exempt Securities rated
Ba or BB or lower, commonly known as "junk bonds", are considered
to have speculative elements, with large uncertainties or major
risk exposures to adverse conditions.
OPTIONS AND FUTURES TRANSACTIONS AND OTHER INVESTMENT
PRACTICES. The ability of both Funds to engage in options and
futures transactions involves certain risks, including the risks
that the Fund will be unable at times to close out such
positions, that such transactions may not accomplish their
purpose because of imperfect market correlations, or that Putnam
Management may not forecast market movements correctly.
Finally, to the extent that a Fund exercises its ability to
engage in certain investment practices, such as repurchase
agreements and securities lending, it may be delayed in
recovering or unable to recover its collateral in the event of
default by the other party. In purchasing securities for future
delivery, a Fund runs the risk of a decline in the value of such
securities prior to the settlement date.
CONCENTRATION OF INVESTMENTS IN SECURITIES OF TEXAS ISSUERS.
Since the Texas Fund's portfolio investments generally emphasize
Tax - Exempt Securities of Texas issuers, the value of its
shares may be especially affected by factors pertaining to the
Texas economy and other factors specifically affecting the
ability of Texas issuers of such securities to meet their
obligations. The Income Fund, on the other hand, may take full
advantage of the entire geographic range of Tax - Exempt
Securities.
NON-DIVERSIFIED INVESTMENT COMPANY. Because the Texas Fund is
a "non-diversified" investment company, it is more likely to
invest a higher percentage of its assets in the securities of a
single issuer or of a limited number of issuers than the Income
Fund, which is a "diversified" investment company investing in a
broader range of securities. This practice involves an increased
risk of loss to the Texas Fund if the issuers were to be unable
to make interest or principal payments or if the market values of
such securities were to decline.<PAGE>
INTRODUCTION
This Prospectus/Proxy Statement is furnished in connection
with the proposed reorganization of Putnam Texas Tax Exempt
Income Fund (the "Texas Fund") by the transfer of all of its
assets and liabilities to Putnam Tax Exempt Income Fund (the
"Income Fund") and the solicitation of proxies by and on behalf
of the Trustees of the Texas Fund for use at the Meeting of
Shareholders (the "Meeting"). The Meeting is to be held on May
5, 1994 at 1:00 p.m. at One Post Office Square, 8th Floor,
Boston, Massachusetts. This Prospectus/Proxy Statement and the
enclosed form of proxy are being mailed to shareholders on or
about March 16 , 1994.
Any shareholder giving a proxy has the power to revoke it by
mail (addressed to the Texas Fund's Clerk at the principal office
of the Texas Fund, One Post Office Square, Boston, Massachusetts
02109) or in person at the Meeting , by executing a
superseding proxy, or by submitting a notice of revocation to the
Texas Fund. All properly executed proxies received in time for
the Meeting will be voted as specified in the proxy, or, if no
specification is made, FOR the proposal (set forth in item (1) of
the Notice of Meeting) to implement the reorganization of the
Texas Fund by the transfer of all of its assets to the Income
Fund in exchange for the Class A Shares of the Income Fund (the
"Income Fund Shares") and the assumption by the Income Fund of
all of the liabilities of the Texas Fund.
At February 11, 1994 there were outstanding 1,912,890
shares of beneficial interest of the Texas Fund. Only
shareholders of record on February 11, 1994 will be entitled to
notice of and to vote at the Meeting. Each share is entitled to
one vote, with fractional shares voting proportionally.
The Texas Fund's Trustees know of no matters other than those
set forth herein to be brought before the Meeting. If, however,
any other matters properly come before the Meeting, it is the
Trustees' intention that proxies will be voted on such matters in
accordance with the judgment of the persons named in the enclosed
form of proxy.
PROPOSAL REGARDING APPROVAL OR DISAPPROVAL OF
AGREEMENT AND PLAN OF REORGANIZATION
The shareholders of the Texas Fund are being asked to approve
or disapprove the Agreement and Plan of Reorganization by and
between the Income Fund and the Texas Fund, dated as of
January 7 , 1994 (the "Agreement"), a copy of which is
attached to this Prospectus/Proxy Statement as Exhibit A. The
Agreement provides, among other things, for the transfer of all
of the assets of the Texas Fund to the Income Fund in exchange
for the assumption by the Income Fund of all of the liabilities
of the Texas Fund and for a number of Income Fund Shares,
calculated based on the value of the net assets of the Texas Fund
acquired by the Income Fund and the net asset value per Income
Fund Share, all as more fully described below under "Information
about the Reorganization". After receipt of the Income Fund
Shares, the Texas Fund will cause the Income Fund Shares to be
distributed to its shareholders in complete liquidation of the
Texas Fund, and the legal existence of the Texas Fund as a
separate business trust under Massachusetts law will be
terminated. In addition, the Texas Fund will file an
application for deregistration under Section 8(f) of the
Investment Company Act of 1940.
Prior to the date of the transfer (the "Exchange Date"), the
Texas Fund will declare a distribution to shareholders which,
together with all previous distributions, will have the effect of
distributing to shareholders all of its investment company
taxable income (computed without regard to the deduction for
dividends paid) and net realized capital gains, if any, through
the Exchange Date.
The Trustees of the Texas Fund have voted unanimously to
approve the proposed transaction and to recommend that
shareholders also approve the transaction. The affirmative vote
of two-thirds (66 2/3%) of the outstanding shares of beneficial
interest of the Texas Fund that are entitled to be voted at the
Meeting is necessary for the consummation of the proposed
transactions. The Income Fund and the Texas Fund have the same
Trustees.
A shareholder of the Texas Fund objecting to the proposed
transaction is not entitled under either Massachusetts law or the
Agreement and Declaration of Trust to demand payment for and an
appraisal of his or her Texas Fund shares if the transaction is
consummated over his or her objection. Like shares of the Texas
Fund, shares of the Income Fund are redeemable for cash at their
net asset value on any day on which the New York Stock Exchange
is open.
In the event that this proposal is not approved by the
shareholders of the Texas Fund, the Texas Fund will continue to
be managed as a separate fund in accordance with its current
investment objectives and policies, and the Trustees may consider
alternatives in the best interests of the shareholders.
BACKGROUND AND REASONS FOR THE PROPOSED REORGANIZATION
The Trustees of each of the Income Fund and the Texas Fund
have determined that the reorganization would be in the best
interests of each Fund's shareholders, and that the interests of
existing shareholders of each of the Funds would not be diluted
as a result of effecting the reorganization. The Trustees,
including all Trustees who are not "interested persons" of the
Income Fund and the Texas Fund, have unanimously approved the
proposed reorganization and have recommended its approval by
shareholders.
The principal reasons why the Trustees are recommending the
reorganization are:
(1) ECONOMIES OF SCALE. The proposed reorganization would
achieve economies of scale for the shareholders of the Texas Fund
by permitting them to invest in a substantially larger Fund with
an identical investment objective and very similar investment
policies. Such economies of scale will have an immediate
positive impact on the Texas Fund, given its small size.
Based upon the projections of Putnam Management, the Trustees
believe that following the combination of the Funds, the expense
ratio of the Income Fund will be lower than the expenses the
Texas Fund would likely incur if the combination were not
effected. Putnam Management has advised the Trustees that it
expects, based on the projected relative sizes of the two Funds,
that the management fees paid by the Income Fund after the
proposed reorganization would likely be paid at the effective
rate of .47% as compared with .60%, the amount the Texas Fund
would pay in management fees in the absence of the expense
limitation currently in effect through April 30, 1994 .
Putnam Management also believes that the projected total annual
expense rate of 1.06% (after expense limitation) of net assets
currently paid by shareholders of the Texas Fund would decline to
.77% of net assets after the contemplated reorganization,
assuming average net assets of $2.3 billion for Class A
shares of the Income Fund and $15.4 million for the
Texas Fund.
(2) PERFORMANCE BENEFITS. Putnam Management believes that
the projected economies of scale achieved by the reorganization
and other factors relating to the small size of the Texas Fund
will result in performance benefits for Texas Fund shareholders
acquiring Income Fund Shares pursuant to the reorganization. The
Texas Fund had a tax-equivalent yield of 8.24% (8.06% in the
absence of the expense limitation) for the thirty-day period
ended December 31, 1993 as compared to a tax-equivalent yield
(assuming maximum marginal tax rates) for the same period
of 8.43% for Class A shares of the Income Fund. The actual yield
for the Texas Fund and the Class A shares of the Income Fund for
the same period was 5.01% (4.87% in the absence of the expense
limitation) and 5.09%, respectively. The total return for the
twelve-month period ended December 31, 1993 was 7.26% (which
would have been lower in the absence of the expense limitation)
for the Texas Fund and 8.01% for Class A Shares of the Income
Fund. Putnam Management expects that over time the relative
performance advantages of the Income Fund over the Texas Fund
would increase if the reorganization were not implemented as a
result of the projected higher operating expenses of the Texas
Fund and the investment management limitations inherent in a
portfolio as small as the Texas Fund. Putnam Management does not
believe that the Texas Fund has reached (or is likely to reach in
the future) a sufficient net asset level to achieve competitive
investment returns over the long-term.
(3) ABILITY TO EXCHANGE AN INVESTMENT IN THE TEXAS FUND FOR
AN INVESTMENT IN THE INCOME FUND WITHOUT RECOGNITION OF GAIN OR
LOSS FOR FEDERAL INCOME TAX PURPOSES. If a shareholder in the
Texas Fund were to redeem an investment in the Texas Fund in
order to invest in the Income Fund or another investment product,
gain or loss would be recognized by that shareholder for federal
income tax purposes upon the redemption of those shares. If the
Texas Fund were liquidated or were reorganized in a taxable
reorganization, the transaction would likely result in a taxable
event for shareholders. By contrast, the proposed reorganization
will permit the Texas Fund's shareholders to exchange their
investment in the Texas Fund for an investment in the Income Fund
without recognition of gain or loss for federal income tax
purposes. After the reorganization, as shareholders of an open-
end fund, shareholders will be free to redeem any or all of their
Income Fund Shares at net asset value at any time, at
which point a taxable gain or loss would be recognized.
INFORMATION ABOUT THE REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION. The proposed Agreement
and Plan of Reorganization provides that the Income
Fund will acquire all of the assets of the Texas Fund in exchange
for the assumption by the Income Fund of all of the liabilities
of the Texas Fund and for the issuance of Income Fund Shares, all
as of the Exchange Date (defined in the Agreement to be the next
full business day following the Valuation Time, defined in the
Plan as 4:00 p.m. Boston time on May 9, 1994 or such other date
as may be agreed upon by the parties). The following discussion
of the Agreement is qualified in its entirety by the full text of
the Agreement, which is attached as Exhibit A to this
Prospectus/Proxy Statement.
The Texas Fund will transfer all of its assets to the Income
Fund, and in exchange, the Income Fund will assume all of the
liabilities of the Texas Fund and deliver to the Texas Fund a
number of full and fractional Income Fund Shares having an
aggregate net asset value equal to the value of the assets of the
Texas Fund transferred to the Income Fund, less the
value of the liabilities of the Texas Fund assumed by the Income
Fund.
As a result of the proposed transaction, each shareholder of
the Texas Fund will receive that number of full and fractional
Income Fund Shares equal in aggregate value at the Exchange Date
to the value of the shares of the Texas Fund held by the
shareholder. Portfolio securities of the Income Fund and the
Texas Fund will be valued in accordance with the valuation
practices which are described under "How the Fund values its
shares" in the enclosed Income Fund Prospectus. The
reorganization is being accounted for as a tax-free business
combination.
Immediately following the Exchange Date, the Texas Fund will
distribute pro rata to its shareholders of record as of the close
of business on the Exchange Date the full and fractional Income
Fund Shares received by the Texas Fund. Such liquidation and
distribution will be accomplished by the establishment of
accounts on the share records of the Income Fund in the name of
such Texas Fund's shareholders, each account representing the
respective number of full and fractional Income Fund
Shares due such shareholder. New certificates for Income Fund
Shares will be issued only upon written request.
The consummation of the reorganization is subject to the
conditions set forth in the Agreement. The Agreement may be
terminated and the reorganization abandoned at any time, before
or after approval by the shareholders, prior to the Exchange Date
by mutual consent of the Income Fund and the Texas Fund or, if
any condition set forth in the Agreement has not been fulfilled
and has not been waived by the party entitled to its benefits, by
such party.
The Income Fund will not permit any Texas Fund shareholder
holding certificates for Texas Fund shares at the Exchange Date
to receive cash dividends or other distributions, receive
certificates for Income Fund Shares, exchange Income Fund Shares
for shares of other investment companies managed by Putnam
Management or pledge or redeem Income Fund Shares until those
certificates for Texas Fund shares have been surrendered, or, in
the case of lost certificates, an adequate surety bond has been
posted. If a shareholder is not for that reason permitted to
receive cash dividends or other distributions on Income Fund
Shares, the Income Fund will pay all such dividends and
distributions in additional Income Fund Shares, notwithstanding
any election the shareholder may have made previously to receive
dividends and distributions on Texas Fund shares in cash.
All fees and expenses, including legal and accounting
expenses, portfolio transfer taxes (if any) or other similar
expenses incurred in connection with the consummation of the
transactions contemplated by the Agreement will be allocated
ratably between the two Funds in proportion to their net assets
as of the day of the transfer, except that the costs of proxy
materials and proxy solicitations will be borne by the Texas
Fund. However, to the extent that any payment by the Income Fund
of such fees or expenses would result in the disqualification of
the Income Fund or the Texas Fund as a "regulated investment
company" within the meaning of Section 851 of the Internal
Revenue Code of 1986, as amended (the "Code"), such fees and
expenses will be paid directly by the party incurring them.
Full and fractional Income Fund Shares will be issued to the
Texas Fund's shareholders in accordance with the procedure under
the Agreement as described above. Income Fund Shares (as defined
above) are Class A shares of the Income Fund. Class A shares are
normally sold pursuant to sales charges in different forms and
amounts. Investors purchasing Class A shares pay a sales charge
at the time of purchase. Class A shares of the Income Fund are
not subject to redemption fees and such shares are subject to a
12b-1 fee at the current annual rate of .20% of the
Fund's average daily net assets attributable to Class A shares.
Shareholders holding shares of the Texas Fund will receive Class
A shares of the Income Fund as described above, and will not pay
the sales charge otherwise attributable to Class A Income Fund
shares. Each Income Fund Share will be fully paid and
nonassessable by the Fund when issued, will be
transferable without restriction, and will have no preemptive or
conversion rights. Like that of the Texas Fund, the Income
Fund's Agreement and Declaration of Trust permits the Fund to
divide its shares, without shareholder approval, into two or more
series of shares representing separate investment portfolios and
to further divide any such series, without shareholder approval,
into two or more classes of shares having such preferences and
special or relative rights and privileges as the Trustees may
determine. The Income Fund's shares are currently divided into
Class A and Class B. As indicated above, only Class A shares
will be distributed by the Income Fund in connection with the
proposed reorganization. Class B shares of the Income Fund are
described in detail in the enclosed Income Fund Prospectus.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the Income Fund. However, the Agreement and Declaration of Trust
disclaims shareholder liability for acts or obligations of the
Income Fund and requires that notice of such disclaimer be given
in each agreement, obligation, or instrument entered into or
executed by the Income 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 Income Fund. Thus,
the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the
Income Fund would be unable to meet its obligations. The
likelihood of such circumstances is remote. The shareholders of
the Texas Fund are currently subject to this same risk of
shareholder liability.
FEDERAL INCOME TAX CONSEQUENCES. As a condition to
its obligations to consummate the reorganization, the Texas
Fund will receive an opinion from Ropes & Gray, counsel to the
Funds, to the effect that, on the basis of the existing
provisions of the Code, current administrative rules, and court
decisions, for federal income tax purposes: (i) under Section
361 of the Code, no gain or loss will be recognized by the Texas
Fund as a result of the reorganization, (ii) under Section 354 of
the Code, no gain or loss will be recognized by the shareholders
of the Texas Fund on the distribution of the Income Fund Shares
to them in exchange for their shares of the Texas Fund, (iii)
under Section 358 of the Code, the basis of the Income Fund
Shares that the Texas Fund shareholders receive in place of their
Texas Fund shares will be the same as the basis of
Texas Fund shares exchanged, and (iv) under Section
1223(1) of the Code, a shareholder's holding period for Income
Fund Shares received pursuant to the Agreement will be determined
by including the holding period for the Texas Fund
shares exchanged for Income Fund Shares, provided that the
shareholder held the Texas Fund shares as a capital asset.
CAPITALIZATION. The following tables show the capitalization
of the Income Fund and the Texas Fund as of December 31, 1993
and on a pro forma basis as of that date, giving effect to the
proposed acquisition of assets at net asset value :
(UNAUDITED)
The Income Fund
CLASS A CLASS B TEXAS FUND PRO
FORMA
COMBINED
Net assets......
(000's omitted)
$ 2,459,676 $173,307 $18,403
$2,478,079
Shares
outstanding ..
(000's omitted) 259,025 18,262 1,946
279,233
Net asset value
per share.....
$ 9.50 $ 9.49 $ 9.46 $
9.50 (Class
A)
VOTING INFORMATION
Proxies are being solicited from the Texas Fund's
shareholders by the Trustees for the Meeting of Shareholders to
be held on May 5, 1994 at 1:00 p.m., at One Post Office Square,
8th Floor, Boston, Massachusetts, or at such later time made
necessary by adjournment. A proxy may be revoked at any time at
or before the Meeting by oral or written notice to
Beverly Marcus, Clerk of the Fund, c/o Putnam Texas Fund Trust,
One Post Office Square, Boston, Massachusetts 02109 or as
otherwise described in the "Introduction", above. Unless
revoked, all valid proxies will be voted in accordance with the
specification thereon or, in the absence of specifications, FOR
approval of the Agreement and Plan of Reorganization. The
transactions contemplated by the Agreement will be consummated
only if approved by the affirmative vote of the holders of at
least two-thirds (66 2/3%) of the outstanding shares of the Texas
Fund that are entitled to vote thereon at the Meeting. In the
event the shareholders do not approve the reorganization, the
Texas Fund's Trustees will consider possible alternative
arrangements in the best interests of the Texas Fund and its
shareholders.
Proxies are being solicited by mail. Additional
solicitations may be made by telephone, telegraph, or personal
contact by officers or employees of Putnam Management and its
affiliates or by proxy soliciting firms retained by the Texas
Fund or the Income Fund. The Texas Fund may also arrange to have
votes recorded by telephone. If this procedure were subject to a
successful legal challenge, such votes would not be
counted at the meeting. The Texas Fund has retained at its
expense Tritech Services, Four Corporate Place, Corporate Park
287, Piscataway, New Jersey 08854, to aid in the solicitation of
proxies for a fee not to exceed $9,750 plus reasonable
out-of-pocket expenses.
Shareholders of record of the Texas Fund at the close of
business on February 11, 1994 (the "record date") will be
entitled to vote at the Meeting or any adjournment thereof. The
holders of 30% of the shares of the Texas Fund outstanding at the
close of business on the record date present in person or
represented by proxy will constitute a quorum for the meeting;
however, as noted above, the affirmative vote of at least two-
thirds (66 2/3%) of the shares outstanding at the close of
business on the record date is necessary to approve the
reorganization. Shareholders are entitled to one vote for each
share held, with fractional shares voting proportionally.
Votes cast by proxy or in person at the meeting will be
counted by persons appointed by the Texas Fund as tellers for the
Meeting . The tellers will count the total number of
votes cast "for" approval of the proposal for purposes of
determining whether sufficient affirmative votes have been cast.
The tellers will count shares represented by proxies that reflect
abstentions and "broker non-votes" (i.e., shares held by brokers
or nominees as to which (i) instructions have not been received
from the beneficial owners or the persons entitled to vote and
(ii) the broker or nominee does not have the discretionary voting
power on a particular matter) as shares that are present and
entitled to vote on the matter for purposes of determining the
presence of a quorum. Abstentions and broker non-votes have the
effect of a negative vote on the proposal.
As of February 11, 1994 as shown on the books of the Texas
Fund, there were issued and outstanding 1,912,890 shares
of beneficial interest of the Texas Fund. As of January 31,
1994 , the officers and Trustees of the Texas Fund as a group
beneficially owned less than 1% of the outstanding shares of the
Texas Fund. At January 31 , 1994, to the best of the
knowledge of the Texas Fund, no person owned beneficially 5% or
more of the outstanding shares of the Texas Fund.
The votes of the shareholders of the Income Fund are not
being solicited, since their approval or consent is not necessary
for this transaction. As of January 31 , 1994, the
officers and Trustees of the Income Fund as a group beneficially
owned less than 1% of the outstanding shares of the Income Fund.
At January 31 , 1994, to the best of the knowledge of the
Income Fund, no person beneficially owned 5% or more of the
outstanding shares of the Income Fund.
<PAGE>
THE BOARD OF TRUSTEES OF PUTNAM TEXAS TAX EXEMPT INCOME
FUND , INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS APPROVAL OF THE PLAN.
<PAGE>
PUTNAM TEXAS TAX EXEMPT INCOME FUND
PROXY FOR A MEETING OF
SHAREHOLDERS, MAY 5, 1994
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES OF THE
FUND.
The undersigned hereby appoints George Putnam, Hans H. Estin and
William F. Pounds, and each of them separately, proxies, with
power of substitution, and hereby authorizes them to represent
and to vote, as designated below, at the Meeting of Shareholders
of Putnam Texas Tax Exempt Income Fund on May 5, 1994, at 1:00
p.m., Boston time, and at any adjournments thereof, all of the
shares of the Fund which the undersigned would be entitled to
vote if personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1. IN THEIR
DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. THE TRUSTEES
RECOMMEND A VOTE FOR THE PROPOSAL ON THE REVERSE SIDE.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN
ENCLOSED ENVELOPE.
NOTE: Please sign exactly as name appears on this card. All
joint owners should sign. When signing as executor,
administrator, attorney, trustee or guardian or as custodian for
a minor, please give full title as such, if a corporation, please
sign in full corporate name and indicate the signer's office. If
a partner, sign in the partnership name.
CHANGE OF ADDRESS NOTIFICATION. Please use this form to inform
us of any change in address or telephone number or to provide us
with your comments. Detach this form from the Proxy Ballot and
return it with your executed proxy in the enclosed envelope.
Has your address changed?
Do you have any comments?
1. Approval of the Agreement and Plan of Reorganization
providing for the transfer of all of the assets of Putnam Texas
Tax Exempt Income Fund (the "Fund") to Putnam Tax Exempt Income
Fund (the "Income Fund") in exchange for Class A shares of the
Income Fund and the assumption by the Income Fund of all of the
liabilities of the Fund, and the distribution of such Class A
shares to the shareholders of the Fund in liquidation of the
Fund.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Please be sure to sign and date this Proxy.
--------------------------
Shareholder sign here
--------------------------
Co-owner sign here
Dated: , 199
<PAGE>
PUTNAM TAX EXEMPT INCOME FUND
Statement of Additional Information
March 14 , 1994
This Statement of Additional Information contains material
which may be of interest to investors but which is not included
in the Prospectus/Proxy Statement (the "Prospectus") of Putnam
Tax Exempt Income Fund ("Income Fund") dated March 14 ,
1994 relating to the sale of all or substantially all of the
assets of Putnam Texas Tax Exempt Income Fund ("Texas Fund") to
Income Fund. The Texas Fund's Statement of Additional
Information dated March 14 , 1994 and The Income Fund's
Statement of Additional Information dated February 1 ,
1994 respectively, have been filed with the Securities and
Exchange Commission and are incorporated herein by reference.
This Statement is not a Prospectus and is authorized for
distribution only when it accompanies or follows delivery of the
Prospectus. This Statement should be read in conjunction with
the Prospectus. Investors may obtain a free copy of the
Prospectus or either or both of the Statements of Additional
Information by writing Putnam Investor Services, One Post Office
Square, Boston, MA 02109 or by calling 1-800-225-1581.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Coopers & Lybrand are each Fund's independent accountants,
providing audit services, tax return review and other tax
consulting services and assistance, and consultation in
connection with the review of various Securities and Exchange
Commission filings. The Report of Independent Accountants and
financial statements included in the Income Fund's Annual Report
for the fiscal year ended September 30, 1993, filed
electronically on December 2, 1993 (811-2675) are incorporated by
reference into this Statement of Additional Information. The
Report of Independent Accountants and financial statements
included in the Texas Fund's Annual Report for the fiscal year
ended January 31, 1993 filed electronically on April 1, 1993
(811-6228) are incorporated by reference into this Statement of
Additional Information. The Report of Independent Accountants
and financial statements included in the Texas Fund's semi-annual
report for the six-month period ended July 31, 1993, filed
electronically on October 1, 1993, are incorporated by reference
into this Statement of Additional Information. The financial
statements referred to above, and the financial highlights or
selected per share data and ratios, as appropriate, of each Fund
incorporated by reference into the Prospectus/Proxy Statements
and the Statement of Additional Information have been so
incorporated in reliance upon the report of Coopers & Lybrand,
given on the authority of that firm as experts in auditing and
accounting.
March 14, 1994
Putnam Tax Exempt Income Fund
c/o The Putnam Companies, Inc.
One Post Office Square
Boston, MA 02109
Putnam Texas Tax Exempt Income Fund
c/o The Putnam Companies, Inc.
One Post Office Square
Boston, MA 02109
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement
and Plan of Reorganization (the "Agreement") dated as of
January 7, 1994, between Putnam Tax Exempt Income Fund, a
Massachusetts business trust ("Income Fund") and Putnam Texas Tax
Exempt Income Fund, a Massachusetts business trust ("Texas
Fund"). The Agreement describes a proposed transaction (the
"Transaction") to occur on a date to be agreed upon by Income
Fund and Texas Fund (the "Exchange Date"), pursuant to which
Income Fund will acquire substantially all of the assets of Texas
Fund in exchange for shares of beneficial interest in Income Fund
(the "Income Fund Shares") and the assumption by Income Fund of
all of the liabilities of Texas Fund following which the Income
Fund Shares received by Texas Fund will be distributed by Texas
Fund to its shareholders in liquidation and termination of Texas
Fund. This opinion as to certain federal income tax consequences
of the Transaction is furnished to you pursuant to Sections 9(h)
and 10(g) of the Agreement.
Texas Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act") as an open-end management
investment company. Shares of Texas Fund are redeemable at net
asset value at each shareholder's option. Texas Fund has elected
to be a regulated investment company for federal income tax
purposes under Section 851 of the Internal Revenue Code of 1986,
as amended (the "Code").
Income Fund is registered under the 1940 Act as an open-end
management investment company. Shares of Income Fund are
redeemable at net asset value at each shareholder's option.
Income Fund has elected to be a regulated investment company for
federal income tax purposes under Section 851 of the Code.
For purposes of this opinion, we have considered the
Agreement, the Registration Statement filed with the Securities
and Exchange Commission on February 2, 1994 (including the items
incorporated by reference therein), and such other items as we
have deemed necessary to render this opinion. In addition, you
have represented to us the following facts, occurrences and
information upon which you have indicated we may rely in
rendering this opinion (whether or not contained or reflected in
the documents and items referred to above):
1. Texas Fund will transfer to Income Fund all of its assets,
and Income Fund will assume all of the liabilities of Texas Fund
as of the Exchange Date.
2. The fair market value of the Income Fund Shares received
by each Texas Fund shareholder will be approximately equal to the
fair market value of the Texas Fund shares surrendered in
exchange therefor. The Texas Fund shareholders will receive no
consideration other than Income Fund Shares (which may include
fractional shares) in exchange for their shares of beneficial
interest in Texas Fund (the "Texas Fund Shares").
3. None of the compensation received by any shareholder-
employees of Texas Fund, if any, will be separate consideration
for, or allocable to, any of their Texas Fund Shares; none of the
Income Fund Shares received by any Texas Fund shareholder-
employees will be separate consideration for, or allocable to,
any employment; and the compensation paid to any Income Fund or
Texas Fund shareholder-employees, if any, will be for services
actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's length for similar services.
4. There is no plan or intention by any Texas Fund
shareholder who owns 5% or more of the total outstanding Texas
Fund Shares, and to the best of the knowledge of the management
of Texas Fund, there is no plan or intention on the part of the
remaining Texas Fund shareholders to sell, exchange, or otherwise
dispose of a number of Income Fund Shares received in the
Transaction that would reduce Texas Fund shareholders' ownership
of Income Fund Shares to a number of Income Fund Shares having a
value, as of the date of the Transaction, of less than 50 percent
of the value of all of the formerly outstanding Texas Fund Shares
as of the same date. For purposes of this representation, Income
Fund Shares or Texas Fund Shares surrendered by Texas Fund
shareholders in redemption or otherwise disposed, where such
dispositions, if any, appear to be initiated by Texas Fund
shareholders in connection with or as a result of the Agreement
or the Transaction, will be treated as outstanding Texas Fund
shares on the date of the Transaction.
5. Income Fund has no plan or intention to reacquire any of
the Income Fund Shares issued in the Transaction, except for
Income Fund Shares reacquired in the ordinary course of its
business as an open-end investment company.
6. Income Fund will acquire at least 90 percent of the fair
market value of the net assets and at least 70 percent of the
fair market value of the gross assets held by Texas Fund
immediately prior to the Transaction. For purposes of this
representation, (a) amounts paid by Texas Fund, out of the assets
of Texas Fund, to Texas Fund shareholders in redemption of Texas
Fund Shares, where such redemptions, if any, appear to be
initiated by Texas Fund shareholders in connection with or as a
result of the Agreement or the Transaction, (b) amounts used by
Texas Fund to pay expenses of the Transaction, and (c) amounts
used to effect all redemptions and distributions (except for
regular, normal dividends declared and paid in order to ensure
Texas Fund's continued qualification as a regulated investment
company and to avoid fund-level tax) made by Texas Fund
immediately preceding the transfer will be included as assets of
Texas Fund held immediately prior to the Transaction. Further,
for purposes of this representation, the amounts, if any, that
Income Fund pays after the Transaction to Income Fund
shareholders who are former Texas Fund shareholders in redemption
of Income Fund Shares received in exchange for Texas Fund Shares,
where such redemptions, if any, appear to be initiated by such
shareholders in connection with or as a result of the Agreement
or the Transaction, will be considered to be assets of Texas Fund
that were not transferred to Income Fund.
7. The fair market value of the assets transferred to
Income Fund by Texas Fund will equal or exceed the sum of the
liabilities to be assumed by Income Fund.
8. Following the Transaction, Income Fund will continue to
use a substantial portion (in this case, at least 50%) of the
historic business assets of Texas Fund. Specifically, Income
Fund will use such significant portion of Texas Fund's historic
business assets in its business by continuing to hold at least
such portion of the total assets transferred to it by Texas Fund.
In making this determination, dispositions made in the ordinary
course of Income Fund's business as an open-end investment
company (i.e., dispositions resulting from investment decisions
made after the Transaction on the basis of investment
considerations independent of the Transaction) shall not be taken
into account.
9. Income Fund has no plan or intention to sell or
otherwise dispose of any of the assets received from Texas Fund
except for (i) dispositions made in the ordinary course of Income
Fund's business as an open-end investment company (i.e.,
dispositions resulting from investment decisions made after the
Transaction on the basis of investment considerations independent
of the Transaction) and (ii) dispositions made by Income Fund to
realign its portfolio in order to reflect its investment
objective and conform to its investment restrictions
("Realignment Dispositions"), which Realignment Dispositions
shall not exceed 50% of the net assets of Texas Fund immediately
prior to the Exchange Date. For purposes of this representation,
Realignment Dispositions made by Texas Fund, if any, will be
considered to have been made by Income Fund.
10. The liabilities of Texas Fund to be assumed by Income
Fund were incurred by Texas Fund in the ordinary course of its
business and are associated with the assets transferred to Income
Fund. For purposes of this paragraph, expenses of the
Transaction are not treated as liabilities.
11. All fees and expenses incurred by Texas Fund and/or
Income Fund as a direct result of the Agreement or the
Transaction, will be allocated ratably between the two funds in
proportion to their net assets as of the Exchange Date except
that (a) the costs of proxy materials and proxy solicitations
will be borne by Texas Fund, and (b) such fees and expenses will
be paid by the party directly incurring such expenses if and to
the extent that payment by the other party would result in the
disqualification of Income Fund or Texas Fund, as the case may
be, as a "regulated investment company" within the meaning of
Section 851 of the Code. All such fees and expenses incurred and
borne by either of Income Fund and Texas Fund shall be solely and
directly related to the Transaction and shall be paid directly by
Income Fund or Texas Fund, as the case may be, to the relevant
providers of services or other payees, in accordance with the
principles set forth in Rev. Rul. 73-54, 1973-1 C.B. 187.
Texas Fund shareholders will pay their respective expenses,
if any, incurred in connection with the Transaction.
12. For federal income tax purposes, Texas Fund qualifies
as a regulated investment company, and the provisions of Sections
851 through 855 of the Code apply to Texas Fund for its current
taxable year February 1, 1993 and will continue to apply to it
through the Exchange Date.
In that regard, Texas Fund will declare to Texas Fund
shareholders of record on or prior to the Exchange Date a
dividend or dividends which together with all previous such
dividends shall have the effect of distributing all of Texas
Fund's investment company taxable income (see Code Section 852)
for both the taxable year ending January 31, 1994 and the short
taxable year of Texas Fund beginning on February 1, 1994 and
ending on the Exchange Date (computed in each case without regard
to any deduction for dividends paid) and all of the net capital
gain realized in Texas Fund's taxable year ending January 31,
1994 in its short taxable year beginning on February 1, 1994 and
ending on the Exchange Date (after reduction for any capital loss
carryover). Such dividends will be made to ensure continued
qualification of Texas Fund as a regulated investment company for
tax purposes and to eliminate fund-level tax.
13. For federal income tax purposes, Income Fund qualifies
as a regulated investment company, and the provisions of Sections
851 through 855 of the Code apply to Income Fund for its current
taxable year beginning October 1, 1993 and will continue to apply
to it through the Exchange Date.
14. Income Fund does not own, directly or indirectly, nor
has it owned during the past five years, directly or indirectly,
any Texas Fund Shares.
15. There is no intercorporate indebtedness existing
between Texas Fund and Income Fund.
16. Texas Fund will distribute the shares in Income Fund it
receives in the Transaction (the "Income Fund Shares") to its
shareholders as provided in the Agreement.
17. Texas Fund is not under the jurisdiction of a court in
a Title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
Based on the foregoing representations and our review of the
documents and items referred to above, we are of the opinion that
for federal income tax purposes:
(i) No gain or loss will be recognized by Income Fund upon
the receipt of the assets of Texas Fund in exchange for
Income Fund Shares and the assumption by Income Fund of
the liabilities of Texas Fund;
(ii) The basis in the hands of Income Fund of the assets of
Texas Fund transferred to Income Fund will be the same
as the basis of such assets in the hands of Texas Fund
immediately prior to the transfer;
(iii) The holding periods of the assets of Texas Fund in the
hands of Income Fund will include the periods during
which such assets were held by Texas Fund;
(iv) No gain or loss will be recognized by Texas Fund upon
the transfer of Texas Fund's assets to Income Fund in
exchange for Income Fund Shares and the assumption by
Income Fund of the liabilities of Texas Fund, or upon
the distribution of Income Fund Shares by Texas Fund to
its shareholders in liquidation;
(v) No gain or loss will be recognized by the Texas Fund
shareholders upon the exchange of their Texas Fund
Shares for Income Fund Shares;
(vi) The basis of Income Fund Shares a Texas Fund
shareholder receives in connection with the Transaction
will be the same as the basis of his or her Texas Fund
Shares exchanged therefor; and
(vii) An Texas Fund shareholder's holding period for his or
her Income Fund Shares will be determined by including
the period for which he or she held the Texas Fund
Shares exchanged therefor, provided that he or she held
such Texas Fund shares as capital assets.
Very truly yours,
Ropes & Gray
PUTNAM TAX EXEMPT INCOME FUND
One Post Office Square
Boston, MA 02109
March 14, 1994
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Putnam Tax Exempt Income Fund - Registration
Statement on Form N-14 (File No. 33-52131
Ladies and Gentlemen:
Putnam Tax Exempt Income Fund respectfully requests that the
effectiveness of the above-referenced registration statement be
accelerated to March 14, 1994 or as soon thereafter as
practicable.
Very truly yours,
PUTNAM TAX EXEMPT
INCOME FUND
By:
Gordon H. Silver
Vice President
cc: Ms. Ruth Armstrong Sanders
<PAGE>
PUTNAM MUTUAL FUNDS CORP.
One Post Office Square
Boston, MA 02109
March 14, 1994
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Putnam Tax Exempt Income Fund - Registration
Statement on Form N-14 (File No. 33-52131)
Ladies and Gentlemen:
Putnam Mutual Funds Corp., principal underwriter for Putnam
Tax Exempt Income Fund, respectfully requests that the
effectiveness of the above-referenced registration statement be
accelerated to March 14, 1994 or as soon thereafter as
practicable.
Very truly yours,
PUTNAM MUTUAL FUNDS CORP.
By:
William N. Shiebler
President
cc: Ms. Ruth Armfield Sanders
PART C. OTHER INFORMATION
ITEM 15. INDEMNIFICATION
THE INFORMATION REQUIRED BY THIS ITEM IS INCORPORATED HEREIN
BY REFERENCE TO THE REGISTRANT'S INITIAL REGISTRATION STATEMENT
ON FORM N-1A (FILE NO . 2-57165) UNDER THE SECURITIES ACT
OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940 (FILE NO . 811-
2675).
ITEM 16. EXHIBITS
(1) AGREEMENT AND DECLARATION OF TRUST, AS AMENDED
THROUGH NOVEMBER 9, 1992 -- INCORPORATED BY
REFERENCE TO POST-EFFECTIVE AMENDMENT NO. 25 TO
THE REGISTRANT'S REGISTRATION STATEMENT ON FORM N-
1A (FILE NO . 2-57165).
(2) BY-LAWS, AS AMENDED THROUGH SEPTEMBER 9,
1993 -- INCORPORATED BY REFERENCE TO POST-
EFFECTIVE AMENDMENT NO. 25 TO THE REGISTRANT'S
REGISTRATION STATEMENT ON FORM N-1A (FILE NO .
2-57165).
(3) A. COPY OF CLASS A SPECIMEN SHARE CERTIFICATE --
INCORPORATED BY REFERENCE TO POST-EFFECTIVE
AMENDMENT NO. 25 TO THE REGISTRANT'S REGISTRATION
STATEMENT ON FORM N-1A (FILE NO . 2-57165).
B. COPY OF CLASS B SPECIMEN SHARE CERTIFICATE --
INCORPORATED BY REFERENCE TO POST-EFFECTIVE
AMENDMENT NO. 25 TO THE REGISTRANT'S REGISTRATION
STATEMENT ON FORM N-1A (FILE NO . 2-57165).
(4) AGREEMENT AND PLAN OF REORGANIZATION
CONSTITUTES EXHIBIT A INCLUDED IN PART A
HEREOF.
(5) PORTIONS OF BY-LAWS RELATING TO SHAREHOLDERS'
RIGHTS INCORPORATED BY REFERENCE TO POST-EFFECTIVE
AMENDMENT NO. 25 TO THE REGISTRANT'S REGISTRATION
STATEMENT ON FORM N-1A (FILE NO . 2-57165).
(6) COPY OF MANAGEMENT CONTRACT DATED JULY
11, 1991 -- INCORPORATED BY REFERENCE TO POST-
EFFECTIVE AMENDMENT NO. 23 TO THE REGISTRANT'S
REGISTRATION STATEMENT ON FORM N-1A (FILE NO .
2-57165).
(7) FORM OF DISTRIBUTOR'S CONTRACT DATED
JANUARY 1, 1993 -- INCORPORATED BY
REFERENCE TO POST-EFFECTIVE AMENDMENT NO. 25 TO
THE REGISTRANT'S REGISTRATION STATEMENT ON FORM N-
1A (FILE NO . 2-57165).
(8) NOT APPLICABLE.
(9) COPY OF CUSTODIAN AGREEMENT WITH PUTNAM
FIDUCIARY TRUST COMPANY DATED MAY 3, 1991,
AS AMENDED JULY 13, 1992 --
INCORPORATED BY REFERENCE TO POST-EFFECTIVE
AMENDMENT NO. 25 TO THE REGISTRANT'S REGISTRATION
STATEMENT ON FORM N-1A (FILE NO . 2-57165).
(10) A. COPY OF CLASS A DISTRIBUTION PLAN AND
AGREEMENT DATED JANUARY 1, 1993 --
INCORPORATED BY REFERENCE TO POST-EFFECTIVE
AMENDMENT NO. 25 TO THE REGISTRANT'S
REGISTRATION STATEMENT ON FORM N-1A (FILE
NO . 2-57165).
B. FORM OF CLASS B DISTRIBUTION PLAN AND
AGREEMENT DATED JANUARY 1, 1993 --
INCORPORATED BY REFERENCE TO POST-EFFECTIVE
AMENDMENT NO. 25 TO THE REGISTRANT'S
REGISTRATION STATEMENT ON FORM N-14 (FILE
NO . 33-49721).
(11) OPINION OF ROPES & GRAY, INCLUDING CONSENT --
FILED HEREWITH.
(12) OPINION OF ROPES & GRAY AS TO TAX
MATTERS -- FILED HEREWITH .
(13) A. SPECIMEN DEALER SALES CONTRACT --
INCORPORATED BY REFERENCE TO POST-EFFECTIVE
AMENDMENT NO. 23 TO THE REGISTRANT'S
REGISTRATION STATEMENT ON FORM N-1A (FILE
NO . 2-57165).
B. SPECIMEN FINANCIAL INSTITUTION SALES
CONTRACT --INCORPORATED BY REFERENCE TO POST-
EFFECTIVE AMENDMENT NO. 23 TO THE
REGISTRANT'S REGISTRATION STATEMENT ON FORM
N-1A (FILE NO . 2-57165).
C. COPY OF INVESTOR SERVICING AGREEMENT DATED
JUNE 3, 1991 -- INCORPORATED BY
REFERENCE TO POST-EFFECTIVE AMENDMENT NO. 23
TO THE REGISTRANT'S REGISTRATION STATEMENT ON
FORM N-1A (FILE NO . 2-57165).
(14) CONSENT OF INDEPENDENT ACCOUNTANTS -- FILED
HEREWITH.
(15) A. FINANCIAL SCHEDULES IN SUPPORT OF MOST
RECENT BALANCE SHEET INCORPORATED BY
REFERENCE TO POST-EFFECTIVE AMENDMENT NO. 23
TO THE REGISTRANT'S REGISTRATION STATEMENT ON
FORM N-1A (FILE NO . 2-57165)
(16) POWER OF ATTORNEY -- FILED HEREWITH.
(17) COPY OF REGISTRANT'S DECLARATION UNDER RULE
24F-2 -- INCORPORATED BY REFERENCE TO THE
REGISTRANT'S INITIAL REGISTRATION STATEMENT ON
FORM N-1A (FILE NO . 2-57165).
ITEM 17. UNDERTAKINGS
(1) THE UNDERSIGNED REGISTRANT AGREES THAT PRIOR TO ANY
PUBLIC REOFFERING OF THE SECURITIES REGISTERED THROUGH THE
USE OF A PROSPECTUS WHICH IS A PART OF THIS REGISTRATION
STATEMENT BY ANY PERSON OR PARTY WHO IS DEEMED TO BE AN
UNDERWRITER WITHIN THE MEANING OF RULE 145(C) UNDER THE ACT,
THE REOFFERING PROSPECTUS WILL CONTAIN THE INFORMATION
CALLED FOR BY THE APPLICABLE REGISTRATION FORM FOR
REOFFERINGS BY PERSONS WHO MAY BE DEEMED UNDERWRITERS, IN
ADDITION TO THE INFORMATION CALLED FOR BY THE OTHER ITEMS OF
THE APPLICABLE FORM.
(2) THE UNDERSIGNED REGISTRANT AGREES THAT EVERY
PROSPECTUS THAT IS FILED UNDER PARAGRAPH (1) ABOVE WILL
BE FILED AS A PART OF AN AMENDMENT TO THIS REGISTRATION
STATEMENT AND WILL NOT BE USED UNTIL THE AMENDMENT IS
EFFECTIVE, AND THAT, IN DETERMINING ANY LIABILITY UNDER
THE ACT, EACH POST-EFFECTIVE AMENDMENT SHALL BE DEEMED
TO BE A NEW REGISTRATION STATEMENT FOR THE SECURITIES
OFFERED THEREIN, AND THE OFFERING OF THE SECURITIES AT
THAT TIME SHALL BE DEEMED TO BE THE INITIAL BONA FIDE
OFFERING OF THEM.
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust, as
amended, of Putnam Tax Exempt Income Trust (the "Fund"), is on
file with the Secretary of State of The Commonwealth of
Massachusetts, and notice is hereby given that this Pre-
Effective Amendment No. 1 to the Registration Statement has
been executed on behalf of the Fund by officers of the Fund as
officers and by its Trustees as trustees and not individually,
and the obligations of or arising out of this Registration
Statement are not binding upon any of the Trustees, officers, or
shareholders of the Fund individually, but are binding only upon
the assets and property of the Fund.<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Pre-Effective Amendment
No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, in the City of Boston and The
Commonwealth of Massachusetts on the 14th day of
March , 1994.
PUTNAM TAX EXEMPT INCOME TRUST
/S/GORDON H. SILVER
Gordon H. Silver
Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Pre-Effective Amendment No. 1 to the Registration
Statement has been signed below by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
* President and Chairman March 14 ,
1994
George Putnam of the Trustees;
Principal Executive
Officer; Trustee
* Vice Chairman and March 14 ,
1994
William F. Pounds Trustee
* Principal Financial March 14 ,
1994
John D. Hughes Officer; Vice President;
Treasurer
* Principal Accounting March 14 ,
1994
Paul G. Bucuvalas Officer; Assistant
Treasurer
<PAGE>
SIGNATURE TITLE DATE
* Trustee March 14 ,
1994
Jameson Adkins Baxter
* Trustee March 14 ,
1994
Hans H. Estin
* Trustee March 14 ,
1994
John A. Hill
* Trustee March 14 ,
1994
Elizabeth T. Kennan
* Trustee March 14 ,
1994
Lawrence J. Lasser
* Trustee March 14 ,
1994
Robert E. Patterson
* Trustee March 14 ,
1994
Donald S. Perkins
* Trustee March 14 ,
1994
George Putnam, III
* Trustee March 14 ,
1994
A.J.C. Smith
* Trustee March 14 ,
1994
W. Nicholas Thorndike
*By /S/GORDON H. SILVER
Gordon H. Silver
Attorney-in-fact
<PAGE>
EXHIBIT INDEX
EXHIBIT
11 Opinion of Ropes & Gray, including consent
12 Opinion of Ropes & Gray as to the Tax
Matters
14 Consent of Independent Accountants
16 Power of Attorney
<PAGE>
March 14 , 1994
Putnam Tax-Exempt Income Fund
One Post Office Square
Boston, Massachusetts 02109
Ladies and Gentlemen:
We have acted as counsel to Putnam Tax-Exempt Income Fund (the
"Fund") in connection with the Registration Statement of the Fund on
Form N-14 (File Nos. 2-57165 and 811-2675) (the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Act"),
relating to the proposed combination of the Fund with the Putnam Texas
Tax-Exempt Income Fund (the "Texas Fund"), and the issuance of shares
of the Fund in connection therewith (the "Shares"), all in accordance
with the terms of the Agreement and Plan of Reorganization between the
Fund and the Texas Fund dated on or about January 7 , 1994
(the "Agreement").
We have examined the Fund's Agreement and Declaration of Trust on
file in the office of the Secretary of State of The Commonwealth of
Massachusetts and the Clerk of the City of Boston and the Fund's By-
Laws, as amended, and are familiar with the actions taken by the
Fund's Trustees in connection with the issuance and sale of the
Shares. We have also examined such other documents and records as we
have deemed necessary for the purpose of this opinion.
Based upon the foregoing, we are of the opinion that:
1. The Fund is a duly organized and validly existing
unincorporated association under the laws of The Commonwealth of
Massachusetts and is authorized to issue an unlimited number of its
shares of beneficial interest.
2. The Shares have been duly authorized and, when issued in
accordance with the Agreement, will be validly issued, fully paid, and
nonassessable by the Fund.
The Fund is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders
could, under certain circumstances, be held personally liable for the<PAGE>
Putnam Tax Exempt Income Fund -2- March 14 , 1994
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
note, bond, contract, instrument, certificate, or undertaking entered
into or executed by the Fund or its Trustees. The Agreement and
Declaration of Trust provides for indemnification out of the property
of the Fund for all loss and expense of any shareholder of the Fund
held personally liable solely by reason of his being or having been a
shareholder. Thus, the risk of a shareholder's incurring financial
loss on account of being a shareholder is limited to circumstances in
which the Fund itself would be unable to meet its obligations.
We understand that this opinion is to be used in connection with
the registration of the Shares for offering and sale pursuant to the
Act. We consent to the filing of this opinion with and as part of the
Registration Statement and to the references to our firm in the
related prospectus under the captions "Taxation" and "Legal Matters."
Very truly yours,
/s/ Ropes & Gray
ROPES & GRAY
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Putnam Tax Exempt Income Fund:
We consent to the Incorporation by reference in the Pre-effective
Amendment No. 1 to the Registration Statement of Putnam Tax Exempt
Income Fund on Form N-14 (File No. 2-57165) (the "Pre-effective
Amendment") of our report dated November 17, 1993, on our audit of
the financial statements and "Financial highlights" of Putnam Tax
Exempt Income Fund, which report is included in the Annual Report to
Shareholders, for the year ended September 30, 1993, which is
incorporated by reference in the Pre-effective Amendment , our
report dated March 18, 1993, on our audit of the financial statements
and "Selected per share data and ratios" of Putnam Texas Tax Exempt
Income Fund, which report is included in the Annual Report to
Shareholders, for the year ended January 31, 1993, which is
incorporated by reference in the Pre-effective
Amendment , and our report dated September 15, 1993, on our audit
of the financial statements and "Financial highlights" of Putnam Texas
Tax Exempt Income Fund, which report is included in the Semi-annual
Report to Shareholders, for the six months ended July 31, 1993, which
is incorporated by reference in the Pre-effective Amendment .
We also consent to the reference to our Firm under the caption
"Independent Accountants and financial statements" in the Statement of
Additional Information.
COOPERS & LYBRAND
Boston, Massachusetts
March 14 , 1994
<PAGE>
POWER OF ATTORNEY
We, the undersigned Officers and Trustees of Putnam Tax Exempt
Income Fund, 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, our true and
lawful attorneys, with full power to them and each of them, to sign
for us, and in our names and in the capacities indicated below, the
Registration Statement on Form N-14 of Putnam Tax Exempt Income Fund
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 thereunder, with the
Securities and Exchange Commission, granting unto our said attorneys,
and each of them acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done
in the premises, as fully to all intents and purposes as he or she
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 our hands and common seal on the date set forth below.
SIGNATURE TITLE DATE
/s/George Putnam
Principal Executive
GEORGE PUTNAM Officer; President and
Chairman of the Trustees January 6, 1994
/s/ William F. Pounds Trustee; Vice Chairman January 6, 1994
WILLIAM F. POUNDS
/s/ John D. Hughes Principal Financial
JOHN D. HUGHES Officer; Treasurer January 6, 1994
/s/ Paul G. Bucuvalas Principal Accounting
PAUL G. BUCUVALAS Officer; Assistant
Treasurer January 6, 1994
<PAGE>
/s/ Jameson A Baxter
JAMESON A. BAXTER Trustee January 6,
1994
/s/ Hans H. Estin Trustee January 6, 1994
HANS H. ESTIN
/s/ John A. Hill Trustee January 6, 1994
JOHN A. HILL
/s/ Elizabeth T. Kennan Trustee January 6,
1994 ELIZABETH T. KENNAN
/s/ Lawrence J. Lasser Trustee January 6,
1994 LAWRENCE J. LASSER
/s/ Robert E. Patterson Trustee January 6,
1994 ROBERT E. PATTERSON
/s/ Donald S. Perkins Trustee January 6,
1994 DONALD S. PERKINS
/s/ George Putnam, III Trustee January 6, 1994
GEORGE PUTNAM, III
/s/ A.J.C. Smith Trustee January 6,
1994 A.J.C. SMITH
/s/ W. Nicholas Thorndike Trustee January 6,
1994 W. NICHOLAS THORNDIKE
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement")
is made as of January 7 , 1994 in Boston, Massachusetts,
by and between Putnam Tax Exempt Income Fund, a Massachusetts
business trust (the "Income Fund"), and Putnam Texas Tax Exempt
Income Fund, a Massachusetts business trust (the "Texas Fund").
PLAN OF REORGANIZATION
(a) The Texas Fund will sell, assign, convey,
transfer and deliver to the Income Fund on the Exchange Date (as
defined in Section 7) all of its properties and assets existing
at the Valuation Time. In consideration therefor, the Income
Fund shall, on the Exchange Date, assume all of the liabilities
of the Texas Fund existing at the Valuation Time and deliver to
the Texas Fund a number of full and fractional Class A
shares of beneficial interest of the Income Fund (the
"Income Fund Shares") having an aggregate net asset value equal
to the value of the assets of the Texas Fund transferred to the
Income Fund on such date less the value of the liabilities of the
Texas Fund assumed by the Income Fund on that date. It is
intended that the reorganization described in this Plan shall be
a tax-free reorganization under the Internal Revenue Code of
1986, as amended (the "Code").
(b) Upon consummation of the transactions described
in paragraph (a) of this Plan, the Texas Fund shall distribute in
complete liquidation to its shareholders of record as of the
Exchange Date the Income Fund Shares, each shareholder being
entitled to receive that proportion of such Income Fund Shares
which the number of shares of beneficial interest of the Texas
Fund held by such shareholder bears to the number of shares of
the Texas Fund outstanding on such date. Certificates
representing the Income Fund Shares will be issued only if the
shareholder so requests.
(c) As promptly as practicable after the liquidation
of the Texas Fund as aforesaid, the Texas Fund shall be dissolved
pursuant to the provisions of its Agreement and Declaration of
Trust, as amended, and applicable law, and its legal existence
terminated.
AGREEMENT
The Income Fund and the Texas Fund agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE INCOME FUND.
The Income Fund represents and warrants to and agrees with the
Texas Fund that:
(a) The Income Fund is a business trust duly
established and validly existing under the laws of The
Commonwealth of Massachusetts and has power to own all of its
properties and assets and to carry out its obligations under this
Agreement. The Income Fund is not required to qualify as a
foreign association in any jurisdiction. The Income Fund has all
necessary federal, state and local authorizations to carry on its
business as now being conducted and to carry out this Agreement.
(b) The Income Fund is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as
an open-end management investment company, and such registration
has not been revoked or rescinded and is in full force and
effect.
(c) A statement of assets and liabilities,
statements of operations, and statements of changes in net assets
and schedules of investments (indicating their market values) of
the Income Fund for the year ended September 30, 1993, such
statements and schedules having been audited by Coopers &
Lybrand, independent accountants, have been furnished to the
Texas Fund. Such statements of assets and liabilities and
schedules fairly present the financial position of the Income
Fund as of their dates and said statements of operations and
changes in net assets fairly reflect the results of its
operations and changes in net assets for the periods covered
thereby in conformity with generally accepted accounting
principles.
(d) Post-Effective Amendment No. 25 (File No.
811-2675) to the Registration Statement of the Income Fund under
the 1940 Act, as filed with the Securities and Exchange
Commission (the "Commission") on January 27 , 1994,
previously furnished to the Texas Fund, did not as of such date
and does not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(e) There are no material legal, administrative or
other proceedings pending or, to the knowledge of the Income
Fund, threatened against the Income Fund which assert liability
on the part of the Income Fund.
(f) There are no material contracts outstanding to
which the Income Fund is a party, other than as will be disclosed
in the Proxy Statement (as defined below) .
(g) The Income Fund has no known liabilities of a
material nature, contingent or otherwise, other than those shown
as belonging to it on its statement of assets and liabilities as
of September 30, 1993 and those incurred in the ordinary course
of the Income Fund's business as an investment company since
September 30, 1993.
(h) No consent, approval, authorization or order of
any court or governmental authority is required for the
consummation by the Income Fund of the transactions contemplated
by this Agreement, except such as may be required under the 1933
Act, the Securities Exchange Act of 1934, as amended (the "1934
Act"), the 1940 Act, state securities or blue sky laws (which
term as used herein shall include the laws of the District of
Columbia and of Puerto Rico) or the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "H-S-R Act").
(i) The registration statement (the "Registration
Statement") filed with the Commission by the Income Fund on Form
N-14 relating to the Income Fund Shares issuable hereunder, and
the proxy statement of the Texas Fund included therein (the
"Proxy Statement"), on the effective date of the Registration
Statement (i) will comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and the
rules and regulations thereunder and (ii) will not contain any
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 8(a) and at the
Exchange Date, the prospectus contained in the Registration
Statement of which the Proxy Statement is a part (the
"Prospectus"), as amended or supplemented by any amendments or
supplements filed with the Commission by the Texas Fund, will not
contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however,
that none of the representations and warranties in this
subsection shall apply to statements in or omissions from the
Registration Statement, the Prospectus or the Proxy Statement
made in reliance upon and in conformity with information
furnished by the Texas Fund for use in the Registration
Statement, the Prospectus or the Proxy Statement.
(j) All of the issued and outstanding shares of
beneficial interest of the Income Fund have been offered for sale
and sold in conformity with all applicable federal securities
laws.
(k) The Income Fund is and will at all times
through the Exchange Date qualify for taxation as a "regulated
investment company" under Sections 851 and 852 of the Code.
(l) The issuance of the Income Fund Shares
pursuant to this Agreement will be in compliance with all
applicable federal securities laws.
(m) The Income Fund shares to be issued to the
Texas Fund have been duly authorized and, when issued and
delivered pursuant to this Agreement, will be legally and validly
issued and will be fully paid and nonassessable by the Income
Fund, and no shareholder of the Income Fund will have any
preemptive right of subscription or purchase in respect thereof.
2. REPRESENTATIONS AND WARRANTIES OF THE TEXAS FUND. The
Texas Fund represents and warrants to and agrees with the Income
Fund that:
(a) The Texas Fund is a business trust duly
established and validly existing under the laws of The
Commonwealth of Massachusetts and has power to carry on its
business as it is now being conducted and to carry out this
Agreement. The Texas Fund is not required to qualify as a
foreign association in any jurisdiction. The Texas Fund has all
necessary federal, state and local authorizations to own all of
its properties and assets and to carry on its business as now
being conducted and to carry out this Agreement.
(b) The Texas Fund is registered under the 1940 Act
as an open-end management investment company and such
registration has not been revoked or rescinded and is in full
force and effect.
(c) A statement of assets and liabilities,
statements of operations, and statements of changes in net assets
and schedules of investments (indicating their market values) of
the Texas Fund for the year ended January 31, 1994, such
statements and schedules having been audited by Coopers &
Lybrand, independent accountants will be furnished to the
Income Fund. Such statements of assets and liabilities and
schedules will fairly present the financial position of
the Texas Fund as of their dates, and said statements of
operations and changes in net assets will fairly reflect
the results of its operations and changes in financial position
for the periods covered thereby in conformity with generally
accepted accounting principles.
(d) Post-Effective Amendment No. 1 (File No.
811 -6228) to the Registration Statement of the Texas Fund
under the 1940 Act, filed with the Commission on
June 1, 1993, previously furnished to the Income Fund, did not
contain as of its date any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(e) There are no material legal, administrative or
other proceedings pending or, to the knowledge of the Texas Fund,
threatened against the Texas Fund which assert liability or may,
if successfully prosecuted to their conclusion, result in
liability on the part of the Texas Fund, other than as have been
disclosed in the Prospectus.
(f) There are no material contracts outstanding
to which the Texas Fund is a party, other than as will be
disclosed in the Proxy Statement.
(g) The Texas Fund has no known liabilities of a
material nature, contingent or otherwise, other than those shown
on the Texas Fund's statement of assets and liabilities as of
January 31, 1994 referred to above and those incurred in
the ordinary course of the business of the Texas Fund as an
investment company since such date. Prior to the Exchange Date,
the Texas Fund will advise the Income Fund of all material
liabilities, contingent or otherwise, incurred by it subsequent
to January 31 , 1994, whether or not incurred in the
ordinary course of business.
(h) As used in this Agreement, the term
"Investments" shall mean the Texas Fund's investments shown on
the schedule of its investments as of January 31 , 1994
referred to in Section 2(c) hereof, as supplemented with such
changes as the Texas Fund shall make after advising the Income
Fund of such proposed changes, and changes resulting from stock
dividends, stock split-ups, mergers and similar corporate
actions.
(i) The Texas Fund has filed or will file all
federal and state tax returns which, to the knowledge of the
Texas Fund's officers, are required to be filed by the Texas Fund
and has paid or will pay all federal and state taxes shown to be
due on said returns or on any assessments received by the Texas
Fund. All tax liabilities of the Texas Fund have been adequately
provided for on its books, and no tax deficiency or liability of
the Texas Fund has been asserted, and no question with respect
thereto has been raised, by the Internal Revenue Service or by
any state or local tax authority for taxes in excess of those
already paid.
(j) At both the Valuation Time (as defined in
Section 3(c)) and the Exchange Date, the Texas Fund will have
full right, power and authority to sell, assign, transfer and
deliver the Investments and any other assets and liabilities of
the Income Fund to be transferred to the Texas Fund pursuant to
this Agreement. At the Exchange Date, subject only to the
delivery of the Investments and all such other assets and
liabilities as contemplated by this Agreement, the Income Fund
will acquire the Investments and all such other assets
subject to no encumbrances, liens or security interests
whatsoever and without any restrictions upon the transfer
thereof.
(k) No registration under the Securities Act of
1933, as amended (the "1933 Act"), of any of the Investments
would
be required if they were, as of the time of such transfer,
the subject of a public distribution by either of the Income Fund
or the Texas Fund, except as previously disclosed to the Income
Fund by the Texas Fund.
(l) No consent, approval, authorization or order of
any court or governmental authority is required for the
consummation by the Texas Fund of the transactions contemplated
by this Agreement, except such as may be required under the 1933
Act, the 1934 Act, the 1940 Act, state securities laws or the
H-S-R Act.
(m) The Registration Statement, the Prospectus and
the Proxy Statement, on the effective date of the
Registration Statement and insofar as they do not relate to the
Income Fund (i) will comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and the
rules and regulations thereunder and (ii) will not contain any
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 8(a) below and on
the Exchange Date, the Prospectus, as amended or supplemented by
any amendments or supplements filed with the Commission by the
Income Fund, insofar as it does not relate to the Income Fund,
will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided, however, that the representations and warranties in
this subsection shall apply only to statements of fact relating
to the Texas Fund contained in the Registration Statement, the
Prospectus or the Proxy Statement, or omissions to state in any
thereof a material fact relating to the Texas Fund, as such
Registration Statement, Prospectus and Proxy Statement shall be
furnished to the Texas Fund in definitive form as soon as
practicable following effectiveness of the Registration Statement
and before any public distribution of the Prospectus or Proxy
Statement.
(n) The Texas Fund is and will at all times through
the Exchange Date qualify for taxation as a "regulated investment
company" under Sections 851 and 852 of the Code.
(o) At the Exchange Date, the Texas Fund will
have sold such of its assets, if any, as are necessary to
assure that, after giving effect to the acquisition of the assets
of the Texas Fund pursuant to this Agreement, the Income Fund
will remain a "diversified company" within the meaning of
Section 5(b)(1) of the 1940 Act and in compliance with such other
mandatory investment restrictions as are set forth in the
prospectus and statement of additional information of the Income
Fund dated February 1 , 1994 (collectively, the "Income
Fund Prospectus"), previously furnished to the Texas Fund. The
Income Fund Shares to be issued to the Texas Fund have been duly
authorized and, when issued and delivered pursuant to this
Agreement, will be legally and validly issued and will be fully
paid and nonassessable by the Texas Fund, and no shareholder of
the Income Fund will have any preemptive right of subscription or
purchase in respect thereof.
3. REORGANIZATION. (a) Subject to the
requisite approval of the shareholders of the Texas Fund and to
the other terms and conditions contained herein (including the
Texas Fund's obligation to distribute to its shareholders all of
its investment company taxable income and net capital gain as
described in Section 9(m) hereof), the Texas Fund agrees to sell,
assign, convey, transfer and deliver to the Income Fund, and the
Income Fund agrees to acquire from the Texas Fund, on the
Exchange Date all of the Investments and all of the cash and
other properties and assets of the Texas Fund, whether accrued or
contingent, in exchange for that number of shares of beneficial
interest of the Income Fund provided for in Section 4 and the
assumption by the Income Fund of all of the liabilities of the
Texas Fund. Pursuant to this Agreement, the Texas Fund will, as
soon as practicable after the Exchange Date, distribute all of
the Income Fund Shares received by it to the shareholders of the
Texas Fund in exchange for their shares of beneficial interest of
the Texas Fund.
(b) The Texas Fund will pay or cause to be paid to
the Income Fund any interest, cash or such dividends ,
rights and other payments received by it on or after the
Exchange Date with respect to the Investments and other
properties and assets of the Texas Fund, whether accrued or
contingent, received by it on or after the Exchange
Date. Any such distribution shall be deemed included in
the assets transferred to the Income Fund at the Exchange Date
and shall not be separately valued unless the securities in
respect of which such distribution is made shall have gone "ex"
such distribution prior to the Valuation Time, in which case any
such distribution which remains unpaid at the Exchange Date shall
be included in the determination of the value of the assets of
the Texas Fund acquired by the Income Fund.
(c) The Valuation Time shall be 4:00 p.m. Boston
time on May 6, 1994 or such earlier or later day as may be
mutually agreed upon in writing by the parties hereto (the
"Valuation Time").
4. EXCHANGE DATE; VALUATION TIME. On the Exchange
Date, the Income Fund will deliver to the Texas Fund a
number of full and fractional Income Fund Shares having an
aggregate net asset value equal to the value of assets of the
Texas Fund transferred to the Income Fund on such date less the
value of the liabilities of the Texas Fund attributable to shares
of the Texas Fund assumed by the Income Fund on that date,
determined as hereafter provided in this Section 4.
(a) The net asset value of the Income Fund Shares to
be delivered to the Texas Fund, the value of the assets of the
Texas Fund and the value of the liabilities of the Texas Fund to
be assumed by the Income Fund shall in each case be determined as
of the Valuation Time.
(b) The net asset value of the Income Fund Shares
shall be computed in the manner set forth in the current Income
Fund Prospectus. The value of the assets and liabilities of the
Texas Fund shall be determined by the Income Fund, in cooperation
with the Texas Fund, pursuant to procedures customarily used by
the Income Fund in valuing the Income Fund's assets.
(c) No adjustment shall be made in the net asset
value of either the Texas Fund or the Income Fund to take into
account differences in realized and unrealized gains and losses.
(d) The Income Fund shall issue the Income Fund
Shares to the Texas Fund in one certificate (excluding any
fractional share) registered in the name of the Texas Fund. The
Texas Fund shall distribute the Income Fund Shares to the
shareholders of the Texas Fund by redelivering such certificate
to the Income Fund's transfer agent which will as soon as
practicable set up open accounts for each Texas Fund shareholder
in accordance with written instructions furnished by the Texas
Fund. With respect to any Texas Fund shareholder holding the
Texas Fund share certificates as of the Exchange Date, the Income
Fund will not permit such shareholder to receive dividends and
other distributions on the Income Fund Shares (although such
dividends and other distributions shall be credited to the
account of such shareholder), receive certificates representing
the Income Fund Shares, exchange the Income Fund Shares credited
to such shareholder's account for shares of other investment
companies managed by Putnam, or pledge or redeem such Shares
until notified by the Texas Fund or the shareholder's agent that
such shareholder has surrendered his or her outstanding Texas
Fund certificates or, in the event of lost, stolen or destroyed
certificates, posted adequate bond. In the event that a
shareholder shall not be permitted to receive dividends and other
distributions on the Income Fund Shares as provided in the
preceding sentence, the Income Fund shall pay any such dividends
or distributions in additional Income Fund Shares,
notwithstanding any election such shareholder shall have made
previously with respect to the payment, in cash or otherwise, of
dividends and distributions on shares of the Texas Fund. The
Texas Fund will, at its expense, request the shareholders of the
Texas Fund to surrender their outstanding Texas Fund
certificates, or post adequate bond, as the case may be.
(e) The Income Fund shall assume all liabilities of
the Texas Fund, whether accrued or contingent, in connection with
the acquisition of assets and subsequent dissolution of the Texas
Fund or otherwise.
5. EXPENSES, FEES, ETC. (a) All fees and
expenses, including legal and accounting expenses, portfolio
transfer taxes (if any) or other similar expenses incurred in
connection with the consummation by the Texas Fund and the Income
Fund of the transactions contemplated by this Agreement will be
allocated ratably between the two Funds in proportion to their
net assets as of the Valuation Time, except that the costs of
proxy materials and proxy solicitation will be borne by the Texas
Fund; PROVIDED, HOWEVER, that such expenses will in any event be
paid by the party directly incurring such expenses if and to the
extent that the payment by the other party of such expenses would
result in the disqualification of the Income Fund or the Texas
Fund, as the case may be, as a "regulated investment company"
within the meaning of Section 851 of the Code.
(b) In the event the transactions contemplated by
this Agreement are not consummated by reason of the Income Fund's
being either unwilling or unable to go forward (other than by
reason of the nonfulfillment or failure of any condition to the
Income Fund's obligations referred to in Section 8(a) or
Section 9) , the Income Fund shall pay directly all
reasonable fees and expenses incurred by the Texas Fund in
connection with such transactions, including without
limitation legal, accounting and filing fees.
(c) In the event the transactions contemplated by
this
Agreement are not consummated by reason of the Texas Fund's being
either unwilling or unable to go forward (other than by reason of
the nonfulfillment or failure of any condition to the Texas
Fund's obligations referred to in Section 8(a) or Section 10),
the Texas Fund shall pay directly all reasonable fees and
expenses incurred by the Income Fund in connection with such
transactions, including without limitation legal, accounting and
filing fees.
(d) In the event the transactions contemplated by
this Agreement are not consummated for any reason other than
(i) the Income Fund's or the Texas Fund's being either unwilling
or unable to go forward or (ii) the nonfulfillment or failure of
any condition to the Income Fund's or the Texas Fund's
obligations referred to in Section 8(a), Section 9 or Section 10
of this Agreement, then each of the Income Fund and the Texas
Fund shall bear all of its own expenses incurred in connection
with such transactions.
(e) Notwithstanding any other provisions of this
Agreement, if for any reason the transactions contemplated by
this Agreement are not consummated, no party shall be liable to
the other party for any damages resulting therefrom, including
without limitation consequential damages, except as specifically
set forth above.
6. PERMITTED ASSETS. The Income Fund agrees to
advise the Texas Fund promptly if at any time prior to the
Exchange Date the assets of the Texas Fund include any assets
that the Income Fund is not permitted, or reasonably believes to
be unsuitable for it, to acquire, including without limitation
any security that, prior to its acquisition by the Texas Fund,
the Income Fund has informed the Texas Fund is unsuitable for the
Income Fund to acquire.
7. EXCHANGE DATE. Delivery of the assets of the
Texas Fund to be transferred, assumption of the liabilities of
the Texas Fund to be assumed and the delivery of the Income Fund
Shares to be issued shall be made at the offices of Ropes & Gray,
One International Place, Boston, Massachusetts, at 10:00
a.m . on the next full business day following the Valuation
Time, or at such other time and date agreed to by the Income Fund
and the Texas Fund, the date and time upon which such delivery is
to take place being referred to herein as the "Exchange Date."
8. MEETING OF SHAREHOLDERS; DISSOLUTION.
(a) The Texas Fund agrees to call a meeting of its
shareholders as soon as is practicable after the effective date
of the Registration Statement for the purpose of considering the
sale of all of its assets to and the assumption of all of its
liabilities by the Income Fund as herein provided, adopting this
Agreement, and authorizing the liquidation and dissolution of the
Texas Fund, and it shall be a condition to the obligations of
each of the parties hereto that the holders of at least
two-thirds (66 2/3%) of the shares of beneficial interest of the
Texas Fund shall have approved such vote at such a meeting on or
before the Valuation Time.
(b) The Texas Fund agrees that the liquidation and
dissolution of the Texas Fund will be effected in the manner
provided in the Texas Fund's Agreement and Declaration of Trust
in accordance with applicable law, and that on and after the
Exchange Date, the Texas Fund shall not conduct any business
except in connection with its liquidation and dissolution.
(c) The Income Fund will, as promptly as practicable
after the preparation and delivery to the Income Fund by the
Texas Fund of a preliminary version of the Proxy Statement which
is satisfactory to the Income Fund and to Ropes & Gray for
inclusion in the Registration Statement, file the Registration
Statement with the Commission. Each of the Texas Fund and the
Income Fund will cooperate with the other, and each will furnish
to the other the information relating to itself required by the
1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder to be set forth in the Registration
Statement, including the Prospectus and the Proxy Statement.
9. CONDITIONS TO THE INCOME FUND'S OBLIGATIONS. The
obligations of the Income Fund hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted and
the transactions contemplated hereby shall have been approved by
the affirmative vote of the holders of at least two-thirds
(66 2/3%) of the outstanding shares of beneficial interest of the
Texas Fund.
(b) That the Texas Fund shall have furnished to the
Income Fund a statement of the Texas Fund's assets and
liabilities, with values determined as provided in Section 4 of
this Agreement, together with a list of Investments and all other
properties and assets of the Texas Fund, whether accrued or
contingent, with their respective tax costs (if applicable), all
as of the Valuation Time, certified on the Texas Fund's behalf by
its President (or any Vice President) and Treasurer, and a
certificate of both such officers, dated the Exchange Date, that
there has been no material adverse change in the financial
position of the Texas Fund since January 31 , 1994 other
than changes in the Investments and other properties and assets
of the Texas Fund since that date or changes in the market value
of the Investments and other properties and assets of the Texas
Fund, or changes due to net redemptions of shares of the Texas
Fund, dividends paid or losses from operations.
(c) That the Texas Fund shall have furnished to the
Income Fund a statement, dated the Exchange Date, signed by the
Texas Fund's President (or any Vice President) and Treasurer
certifying that as of the Valuation Time and as of the Exchange
Date all representations and warranties of the Texas Fund made in
this Agreement are true and correct in all material respects as
if made at and as of such dates and the Texas Fund has complied
with all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to such dates.
(d) That the Texas Fund shall have delivered to the
Income Fund a letter from Coopers & Lybrand dated the Exchange
Date stating that such firm reviewed the federal and state income
tax returns of the Texas Fund for the year ended January 31,
1994, and for the period from February 1 , 1994 to the
Exchange Date, and that, in the course of such review, nothing
came to their attention which caused them to believe that such
returns did not properly reflect, in all material respects, the
federal and state income taxes of the Texas Fund for the periods
covered thereby, or that the Texas Fund would not qualify as a
regulated investment company for federal income tax purposes.
(e) That there shall not be any material litigation
pending with respect to the matters contemplated by this
Agreement.
(f) That the Income Fund shall have received an
opinion of Ropes & Gray, in form satisfactory to the Income Fund
and dated the Exchange Date, to the effect that (i) the Texas
Fund is a business trust duly established and validly existing
under the laws of The Commonwealth of Massachusetts, and the
Texas Fund is not, to the knowledge of such counsel, required to
qualify to do business as a foreign association in any
jurisdiction, (ii) this Agreement has been duly authorized,
executed, and delivered by the Texas Fund and, assuming that the
Registration Statement, the Prospectus and the Proxy Statement
comply with the 1933 Act, the 1934 Act and the 1940 Act and
assuming due authorization, execution and delivery of this
Agreement by the Income Fund, is a valid and binding obligation
of the Texas Fund, (iii) the Texas Fund has power to sell,
assign, convey, transfer and deliver the assets contemplated
hereby and, upon consummation of the transactions contemplated
hereby in accordance with the terms of this Agreement, the Texas
Fund will have duly sold, assigned, conveyed, transferred and
delivered such assets to the Income Fund, (iv) the execution and
delivery of this Agreement did not, and the consummation of the
transactions contemplated hereby will not, violate the Texas
Fund's Agreement and Declaration of Trust, as amended, or any
provision of any agreement known to such counsel to which the
Texas Fund is a party or by which it is bound, and (v) no
consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Texas Fund of the transactions contemplated hereby, except such
as have been obtained under the 1933 Act, the 1934 Act and the
1940 Act and such as may be required under state securities or
blue sky laws and the H-S-R Act, it being understood that with
respect to investment restrictions as contained in the Texas
Fund's Agreement and Declaration of Trust, Bylaws or then-current
prospectus or statement of additional information, such counsel
may rely upon a certificate of an officer of the Texas Fund whose
responsibility it is to advise the Texas Fund with respect to
such matters.
(g) That the Income Fund shall have received an
opinion of Ropes & Gray, in form satisfactory to the Income Fund,
with respect to the matters specified in Section 10(f) of this
Agreement, and such other matters as the Income Fund may
reasonably deem necessary or desirable.
(h) That the Income Fund shall have received an
opinion of Ropes & Gray to the effect that for federal income tax
purposes (i) no gain or loss will be recognized by the Income
Fund upon receipt of the Investments and other assets transferred
to the Income Fund pursuant to this Agreement in exchange for the
Income Fund Shares, (ii) the basis to the Income Fund of the
Investments and such other assets will be the same as the basis
of the assets in the hands of the Texas Fund immediately prior to
such exchange, and (iii) the Income Fund's holding periods with
respect to the Investments and such other assets will include the
respective periods for which the Investments and such other
assets were held by the Texas Fund.
(i) That the assets of the Texas Fund to be acquired
by the Income Fund will include no assets which the Income Fund,
by reason of charter limitations or of investment restrictions
disclosed in the Income Fund Prospectus in effect on the Exchange
Date, may not properly acquire.
(j) That the Registration Statement shall have
become effective under the 1933 Act, and no stop order suspending
such effectiveness shall have been instituted or, to the
knowledge of the Income Fund, contemplated by the Commission.
(k) That the Income Fund shall have received from
the Commission, any relevant state securities administrator, the
Federal Trade Commission (the "FTC") and the Department of
Justice (the "Department") such order or orders as Ropes & Gray
deems reasonably necessary or desirable under the 1933 Act, the
1934 Act, the 1940 Act, any applicable state securities or blue
sky laws and the H-S-R Act in connection with the transactions
contemplated hereby, and that all such orders shall be in full
force and effect.
(l) That all proceedings taken by the Texas Fund in
connection with the transactions contemplated by this Agreement
and all documents incidental thereto shall be satisfactory in
form and substance to the Income Fund and Ropes & Gray.
(m) That, prior to the Exchange Date, the Texas Fund
shall have declared a dividend or dividends which, together with
all previous such dividends, shall have the effect of
distributing to the shareholders of the Texas Fund all of the
Texas Fund's investment company taxable income for its taxable
years ending on or after January 31 , 1994 and on or prior
to the Exchange Date (computed without regard to any deduction
for dividends paid), and all of its net capital gain realized in
each of its taxable years ending on or after January 31 ,
1994 and on or prior to the Exchange Date.
(n) That the Texas Fund shall have furnished to the
Income Fund a certificate, signed by the President (or any Vice
President) and the Treasurer of the Texas Fund, as to the tax
cost to the Texas Fund of the securities delivered to the Income
Fund pursuant to this Agreement, together with any such other
evidence as to such tax cost as the Income Fund may reasonably
request.
(o) That the Texas Fund's custodian shall have
delivered to the Income Fund a certificate identifying all of the
assets of the Texas Fund held by such custodian as of the
Valuation Time.
(p) That the Texas Fund's transfer agent shall have
provided to the Income Fund (i) the originals or true copies of
all of the records of the Texas Fund in the possession of such
transfer agent as of the Exchange Date, (ii) a certificate
setting forth the number of shares of the Texas Fund outstanding
as of the Valuation Time and (iii) the name and address of each
holder of record of any such shares and the number of shares held
of record by each such shareholder.
(q) That all of the issued and outstanding shares of
beneficial interest of the Texas Fund shall have been offered for
sale and sold in conformity with all applicable state securities
or blue sky laws and, to the extent that any audit of the records
of the Texas Fund or its transfer agent by the Income Fund or its
agents shall have revealed otherwise, the Texas Fund shall have
taken all actions that in the opinion of the Income Fund or its
counsel are necessary to remedy any prior failure on the part of
the Texas Fund to have offered for sale and sold such shares in
conformity with such laws.
(r) That the Income Fund shall have received from
Coopers & Lybrand a letter addressed to the Income Fund dated as
of the Exchange Date satisfactory in form and substance to the
Income Fund to the effect that, on the basis of limited
procedures agreed upon by the Income Fund and described in such
letter (but not an examination in accordance with generally
accepted auditing standards), as of the Valuation Time the value
of the assets of the Texas Fund to be exchanged for the Income
Fund Shares has been determined in accordance with the provisions
of the Income Fund's Agreement and Declaration of Trust, pursuant
to the procedures customarily utilized by the Income Fund in
valuing its assets and issuing its shares.
10. CONDITIONS TO THE TEXAS FUND'S OBLIGATIONS. The
obligations of the Texas Fund hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted and
the transactions contemplated hereby shall have been approved by
the affirmative vote of the holders of at least two-thirds (66
2/3%) of the outstanding shares of beneficial interest of the
Texas Fund.
(b) That the Income Fund shall have furnished to the
Texas Fund a statement of the Income Fund's net assets, together
with a list of portfolio holdings with values determined as
provided in Section 4, all as of the Valuation Time, certified on
the Income Fund's behalf by its President (or any Vice President)
and Treasurer (or any Assistant Treasurer), and a certificate of
both such officers, dated the Exchange Date, to the effect that
as of the Valuation Time and as of the Exchange Date there has
been no material adverse change in the financial position of the
Income Fund since September 30, 1993, other than changes in its
portfolio securities since that date, changes in the market value
of its portfolio securities, changes due to net redemptions,
dividends paid or losses from operations.
(c) That the Income Fund shall have executed and
delivered to the Texas Fund an Assumption of Liabilities dated as
of the Exchange Date pursuant to which the Income Fund will
assume all of the liabilities of the Texas Fund existing at the
Valuation Time in connection with the transactions contemplated
by this Agreement.
(d) That the Income Fund shall have furnished to the
Texas Fund a statement, dated the Exchange Date, signed by the
Income Fund's President (or any Vice President) and Treasurer (or
any Assistant Treasurer) certifying that as of the Valuation Time
and as of the Exchange Date all representations and warranties of
the Income Fund made in this Agreement are true and correct in
all material respects as if made at and as of such dates, and
that the Income Fund has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or
satisfied at or prior to each of such dates.
(e) That there shall not be any material litigation
pending with respect to the matters contemplated by this
Agreement.
(f) That the Texas Fund shall have received an
opinion of Ropes & Gray, in form satisfactory to the Texas Fund
and dated the Exchange Date, to the effect that (i) the Income
Fund is an unincorporated voluntary association duly established
and validly existing in conformity with the laws of The
Commonwealth of Massachusetts, and, to the knowledge of such
counsel, is not required to qualify to do business as a foreign
association in any jurisdiction except as may be required by
state securities or blue sky laws, (ii) the Income Fund Shares to
be delivered to the Texas Fund as provided for by this Agreement
are duly authorized and upon such delivery will be validly issued
and will be fully paid and nonassessable by the Income Fund and
no shareholder of the Income Fund has any preemptive right to
subscription or purchase in respect thereof, (iii) this Agreement
has been duly authorized, executed and delivered by the Income
Fund and, assuming that the Prospectus, the Registration
Statement and the Proxy Statement comply with the 1933 Act, the
1934 Act and the 1940 Act and assuming due authorization,
execution and delivery of this Agreement by the Texas Fund
is a valid and binding obligation of the Income Fund, (iv) the
execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not,
violate the Income Fund's Agreement and Declaration of Trust, as
amended, or By-laws, or any provision of any agreement known to
such counsel to which the Income Fund is a party or by which it
is bound, it being understood that with respect to investment
restrictions as contained in the Income Fund's Agreement and
Declaration of Trust, as amended, By-Laws or then-current
prospectus or statement of additional information, such counsel
may rely upon a certificate of an officer of the Income Fund
whose responsibility it is to advise the Income Fund with respect
to such matters, (v) no consent, approval, authorization or order
of any court or governmental authority is required for the
consummation by the Income Fund of the transactions contemplated
herein, except such as have been obtained under the 1933 Act, the
1934 Act and the 1940 Act and such as may be required under state
securities or blue sky laws, and (vi) the Registration Statement
has become effective under the 1933 Act, and to the best of the
knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or are
pending or contemplated under the 1933 Act.
(g) That the Texas Fund shall have received an
opinion of Ropes & Gray dated the Exchange Date to the effect
that (i) no gain or loss will be recognized by the Texas Fund as
a result of the transaction contemplated by this Agreement, (ii)
no gain or loss will be recognized by the shareholders of the
Texas Fund on the distribution to them by the Texas Fund of the
Income Fund Shares in exchange for their shares of the Texas Fund
as contemplated by this Agreement, (iii) the basis of the Income
Fund Shares a shareholder receives in place of his or her Texas
Fund shares will be the same as the basis of his or her Texas
Fund shares exchanged, and (iv) a shareholder's holding period
for the Income Fund Shares received by him or her will be
determined by including the period for which he or she held the
Texas Fund shares exchanged therefor, provided that he or she
held such the Texas Fund shares as a capital asset.
(h) That all proceedings taken by the Income Fund in
connection with the transactions contemplated by this Agreement
and all documents incidental thereto shall be satisfactory in
form and substance to the Texas Fund and Ropes & Gray.
(i) That the Registration Statement shall have
become effective under the 1933 Act, and no stop order suspending
such effectiveness shall have been instituted or, to the
knowledge of the Income Fund, contemplated by the Commission.
(j) That the Texas Fund shall have received from the
Commission, any relevant state securities administrator, the
Federal Trade Commission and the Department of
Justice such order or orders as Ropes & Gray deems reasonably
necessary or desirable under the 1933 Act, the 1934 Act, the 1940
Act, any applicable state securities or blue sky laws and the
H-S-R Act in connection with the transactions contemplated
hereby, and that all such orders shall be in full force and
effect.
11. INDEMNIFICATION. (a) The Texas Fund
will indemnify and hold harmless , out of the assets of the
Texas Fund but no other assets, the Income Fund, its trustees
and its officers (for purposes of this subparagraph, the
"Indemnified Parties") against any and all expenses, losses,
claims, damages and liabilities at any time imposed upon or
reasonably incurred by any one or more of the Indemnified Parties
in connection with, arising out of, or resulting from any claim,
action, suit or proceeding in which any one or more of the
Indemnified Parties may be involved or with which any one or more
of the Indemnified Parties may be threatened by reason of any
untrue statement or alleged untrue statement of a material fact
relating to the Texas Fund contained in the Registration
Statement, the Prospectus or the Proxy Statement or any amendment
or supplement to any of the foregoing, or arising out of or based
upon the omission or alleged omission to state in any of the
foregoing a material fact relating to the Texas Fund required to
be stated therein or necessary to make the statements relating to
the Texas Fund therein not misleading, including, without
limitation, any amounts paid by any one or more of the
Indemnified Parties in a reasonable compromise or settlement of
any such claim, action, suit or proceeding, or threatened claim,
action, suit or proceeding made with the consent of the Texas
Fund. The Indemnified Parties will notify the Texas Fund in
writing within ten days after the receipt by any one or more of
the Indemnified Parties of any notice of legal process or any
suit brought against or claim made against such Indemnified Party
as to any matters covered by this Section 11(a). The Texas Fund
shall be entitled to participate at its own expense in the
defense of any claim, action, suit or proceeding covered by this
Section 11(a), or, if it so elects, to assume at its expense by
counsel satisfactory to the Indemnified Parties the defense of
any such claim, action, suit or proceeding, and if the Texas Fund
elects to assume such defense, the Indemnified Parties shall be
entitled to participate in the defense of any such claim, action,
suit or proceeding at their expense. The Texas Fund's obligation
under this Section 11(a) to indemnify and hold harmless the
Indemnified Parties shall constitute a guarantee of payment so
that the Texas Fund will pay in the first instance any expenses,
losses, claims, damages and liabilities required to be paid by it
under this Section 11(a) without the necessity of the Indemnified
Parties' first paying the same.
(b) The Income Fund will indemnify and hold
harmless, out of the assets of the Income Fund but no other
assets, the Texas Fund, its trustees and its officers (for
purposes of this subparagraph, the "Indemnified Parties") against
any and all expenses, losses, claims, damages and liabilities at
any time imposed upon or reasonably incurred by any one or more
of the Indemnified Parties in connection with, arising out of, or
resulting from any claim, action, suit or proceeding in which any
one or more of the Indemnified Parties may be involved or with
which any one or more of the Indemnified Parties may be
threatened by reason of any untrue statement or alleged untrue
statement of a material fact relating to the Income Fund
contained in the Registration Statement, the Prospectus or the
Proxy Statement, or any amendment or supplement to any thereof,
or arising out of, or based upon, the omission or alleged
omission to state in any of the foregoing a material fact
relating to the Income Fund required to be stated therein or
necessary to make the statements relating to the Income Fund
therein not misleading, including without limitation any amounts
paid by any one or more of the Indemnified Parties in a
reasonable compromise or settlement of any such claim, action,
suit or proceeding, or threatened claim, action, suit or
proceeding made with the consent of the Income Fund. The
Indemnified Parties will notify the Income Fund in writing within
ten days after the receipt by any one or more of the Indemnified
Parties of any notice of legal process or any suit brought
against or claim made against such Indemnified Party as to any
matters covered by this Section 11(b). The Income Fund shall be
entitled to participate at its own expense in the defense of any
claim, action, suit or proceeding covered by this Section 11(b),
or, if it so elects, to assume at its expense by counsel
satisfactory to the Indemnified Parties the defense of any such
claim, action, suit or proceeding, and, if the Income Fund elects
to assume such defense, the Indemnified Parties shall be entitled
to participate in the defense of any such claim, action, suit or
proceeding at their own expense. The Income Fund's obligation
under this Section 11(b) to indemnify and hold harmless the
Indemnified Parties shall constitute a guarantee of payment so
that the Income Fund will pay in the first instance any expenses,
losses, claims, damages and liabilities required to be paid by it
under this Section 11(b) without the necessity of the Indemnified
Parties' first paying the same.
12. NO BROKER, ETC. Each of the Texas Fund and the
Income Fund represents that there is no person who has dealt with
it who by reason of such dealings is entitled to any broker's or
finder's or other similar fee or commission arising out of the
transactions contemplated by this Agreement.
13. TERMINATION. The Texas Fund and the Income Fund
may, by mutual consent of their respective trustees, terminate
this Agreement, and the Texas Fund or the Income Fund, after
consultation with counsel and by consent of their respective
trustees or an officer authorized by such trustees, may waive any
condition to their respective obligations hereunder. If the
transactions contemplated by this Agreement have not been
substantially completed by December 31, 1994, this Agreement
shall automatically terminate on that date unless a later date is
agreed to by the Texas Fund and the Income Fund.
14. RULE 145. Pursuant to Rule 145 under the 1933
Act, the Income Fund will, in connection with the issuance of any
Income Fund Shares to any person who at the time of the
transaction contemplated hereby is deemed to be an affiliate of a
party to the transaction pursuant to Rule 145(c), cause to be
affixed upon the certificates issued to such person (if any) a
legend as follows:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD
OR OTHERWISE TRANSFERRED EXCEPT TO PUTNAM TAX EXEMPT
INCOME FUND OR ITS PRINCIPAL UNDERWRITER UNLESS (i) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR (ii) IN THE OPINION OF COUNSEL REASONABLY
SATISFACTORY TO PUTNAM TEXAS TAX EXEMPT INCOME FUND
SUCH REGISTRATION IS NOT REQUIRED."
and, further, the Income Fund will issue stop transfer
instructions to the Income Fund's transfer agent with respect to
such shares. The Texas Fund will provide the Income
Fund on the Exchange Date with the name of any Texas Fund
shareholder who is to the knowledge of the Texas Fund an
affiliate of the Texas Fund on such date.
15. COVENANTS, ETC. DEEMED MATERIAL. All covenants,
agreements, representations and warranties made under this
Agreement and any certificates delivered pursuant to this
Agreement shall be deemed to have been material and relied upon
by each of the parties, notwithstanding any investigation made by
them or on their behalf.
16. SOLE AGREEMENT; AMENDMENTS. This Agreement
supersedes all previous correspondence and oral communications
between the parties regarding the subject matter hereof,
constitutes the only understanding with respect to such subject
matter, may not be changed except by a letter of agreement signed
by each party hereto, and shall be construed in accordance with
and governed by the laws of The Commonwealth of Massachusetts.
17. AGREEMENTS AND DECLARATIONS OF TRUST. Copies of
the Agreements and Declarations of Trust of the Texas Fund and
the Income Fund, respectively, are 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 Texas Fund and the Income Fund, respectively, as trustees
and not individually and that the obligations of this instrument
are not binding upon any of the trustees, officers or
shareholders of the Texas Fund or the Income Fund individually
but are binding only upon the assets and property of the Texas
Fund and the Income Fund, respectively.
<PAGE>
This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall
be deemed to be an original.
PUTNAM TAX EXEMPT INCOME FUND
By: /S/ GORDON H. SILVER
Vice President
PUTNAM TEXAS TAX EXEMPT INCOME FUND
By: /S/ GORDON H. SILVER
Vice President<PAGE>
