AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
JANUARY 27, 1994
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
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Pre-Effective Amendment No. / /
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Post-Effective Amendment No. 25 / X /
and ----
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X /
ACT OF 1940 ----
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Amendment No. 19 / X /
(Check appropriate box or boxes) ----
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PUTNAM TAX EXEMPT INCOME FUND Registration No. 2-57165
811-2675
(Exact name of registrant as specified in charter)
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
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Pre-Effective Amendment No. / /
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Post-Effective Amendment No. 7 / X /
and ----
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X /
ACT OF 1940 ----
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Amendment No. 9 / X /
(Check appropriate box or boxes) ----
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PUTNAM TAX EXEMPT MONEY MARKET FUND Registration No. 33-15238
811-5215
(Exact name of registrant as specified in charter)
One Post Office Square, Boston, Massachusetts 02109
(Address of principal executive offices)
Registrants' Telephone Number, including Area Code
(617) 292-1000
<PAGE>
It is proposed that this filing will become effective
(check appropriate box)
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/ / immediately upon filing pursuant to paragraph (b)
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/ X / on February 1, 1994 pursuant to paragraph
(b)
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/ / 60 days after filing pursuant to paragraph (a)
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/ / on (date) pursuant to paragraph (a) of Rule
485
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JOHN R. VERANI, Vice President
Putnam Tax Exempt Income Fund
Putnam Tax Exempt Money Market Fund
One Post Office Square
Boston, Massachusetts 02109
(Name and address of agent for service)
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Copy to:
JOHN W. GERSTMAYR, Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
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Each Registrant has registered an indefinite number or
amount of securities under the Securities Act of 1933 pursuant to
Rule 24f-2. Rule 24f-2 notices for Putnam Tax Exempt Income Fund
and Putnam Tax Exempt Money Market Fund for the fiscal year ended
September 30, 1993 were filed on November 30,
1993 .
<PAGE>
<TABLE>
<CAPTION>
PUTNAM TAX EXEMPT MONEY MARKET FUND
CALCULATION OF REGISTRATION FEE
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- -----------------------------------------------------------------------------------
Proposed Proposed
maximum maximum
Amount offering aggregate Amount of
Title of securities being price per offering registration
being registered registered unit* price** fee
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<C> <C> <C> <C> <C>
Shares of Beneficial
Interest 40,223,064 shs. $1.00 $290,000 $100.00
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- -----------------------------------------------------------------------------------
* Based on offering price per share.
** Calculated pursuant to Rule 24e-2 under the Investment Company Act of 1940. The
total amount of securities redeemed or repurchased during the Registrant's
previous fiscal year was 327,039,308 shares, 287,106,264 of which
have been used for reductions pursuant to Rules 24e-2(a) or Rule 24f-2(c) under
said Act in the current fiscal year, and 39,933,064 of which are being used
for such reduction in this Amendment.
/TABLE
<PAGE>
PUTNAM TAX EXEMPT INCOME FUND
PUTNAM TAX EXEMPT MONEY MARKET FUND
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
PART A
N-1A ITEM NO. LOCATION
1. Cover Page....................... Cover Page
2. Synopsis......................... Expenses summary
3. Condensed Financial Information.. Financial
highlights ; How
performance is shown
4. General Description of
Registrant....................... Objectives; How
objectives are pursued;
Organization and history
5. Management of the Fund........... Expenses summary; How
the Funds are managed;
About Putnam
Investments , Inc.
5A. Management's Discussion
of Fund Performance.............. (Contained in the Annual
Report of each
Registrant)
6. Capital Stock and Other
Securities....................... Cover Page; Organization
and history; How
distributions are made;
tax information
7. Purchase of Securities Being
Offered.......................... How to buy shares;
Distribution Plans;
How to sell shares; How
to exchange shares; How
each Fund values its
shares
8. Redemption or Repurchase......... How to buy shares; How
to sell shares; How to
exchange shares;
Organization and history
PART B
N-1A ITEM NO.
LOCATION
9. Pending Legal
Proceedings........ Not Applicable
10. Cover Page....................... Cover Page
11. Table of Contents................ Cover Page
12. General Information and History.. Organization and history
(Part A)
13. Investment Objectives and
Policies......................... How objectives are
pursued (Part A);
Investment Restrictions
of the Funds;
Miscellaneous Investment
Practices
14. Management of the Registrant..... Management of the Fund
(Trustees; Officers);
Additional Officers of
the Funds
15. Control Persons and Principal
Holders of Securities............ Management of the Fund
(Trustees; Officers);
Fund Charges and
Expenses (Ownership of
Fund Shares)
16. Investment Advisory and Other
Services......................... Management of the Fund
(Trustees; Officers; The
Management Contract;
Principal Underwriter);
Fund Charges and
Expenses; Distribution
Plans;
Independent Accountants
and Financial
Statements ;
Custodian
17. Brokerage Allocation............. Management of the Fund
(Portfolio
Transactions); Fund
Charges and Expenses
18. Capital Stock and Other
Securities....................... Organization and history
(Part A); How
distributions are made;
tax information (Part
A); Suspension of
Redemptions
19. Purchase, Redemption and Pricing
of Securities Being Offered...... How to buy shares (Part
A); How to sell shares
(Part A); How to
exchange shares (Part
A); Determination of Net
Asset Value; Suspension
of Redemptions
20. Tax Status....................... How distributions are
made; tax information
(Part A); Taxes
21. Underwriters..................... Management of the Fund
(Principal Underwriter);
Fund Charges and
Expenses
22. Calculation of Performance Data.. How performance is shown
(Part A); Investment
Performance of the
Funds; Standard
Performance Measures
23. Financial Statements............. Independent
Accountants and
Financial Statements
PART C
Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C of the
Registration Statement.
<PAGE>
PROSPECTUS
FEBRUARY 1, 1994
PUTNAM TAX EXEMPT INCOME FUND
PUTNAM TAX EXEMPT MONEY MARKET FUND
INVESTMENT STRATEGY: TAX-ADVANTAGED
AN INVESTMENT IN PUTNAM TAX EXEMPT MONEY MARKET FUND IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN
BE NO ASSURANCE THAT PUTNAM TAX EXEMPT MONEY MARKET FUND WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
This Prospectus explains concisely what you should know before
investing in the Funds. Please read it carefully and keep it for
future reference. You can find more detailed information about
the Funds in the February 1, 1994 Statement of
Additional Information, as amended from time to time. For a free
copy of the Statement, call Putnam Investor Services at 1-800-
225-1581. The Statement has been filed with the Securities and
Exchange Commission and is incorporated into this Prospectus by
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
BOSTON * LONDON * TOKYO
<PAGE>
PUTNAM TAX EXEMPT INCOME FUND AND PUTNAM TAX EXEMPT MONEY
MARKET FUND BOTH SEEK AS HIGH A LEVEL OF CURRENT INCOME EXEMPT
FROM FEDERAL INCOME TAX AS PUTNAM INVESTMENT
MANAGEMENT , INC., EACH FUND'S INVESTMENT MANAGER ("PUTNAM
MANAGEMENT"), BELIEVES IS CONSISTENT WITH PRESERVATION OF CAPITAL
AND, IN THE CASE OF THE MONEY MARKET FUND, WITH MAINTENANCE OF
LIQUIDITY AND STABILITY OF PRINCIPAL.
PUTNAM TAX EXEMPT INCOME FUND
(THE "INCOME FUND")
invests primarily in a diversified portfolio of longer-term Tax
Exempt Securities. The Income Fund offers two classes of
shares: Class A and Class B . Each class is sold
pursuant to different sales arrangements and bears different
expenses. For more information about the different sales
arrangements, see "Alternative sales arrangements." For
information about various expenses borne by each class, see
"Expenses summary."
PUTNAM TAX EXEMPT MONEY MARKET FUND
(THE "MONEY MARKET FUND")
invests primarily in a diversified portfolio of short-term, high-
quality Tax Exempt Securities.
The Funds are separate, open-end, diversified management
investment companies. Each is described in this Prospectus in
order to help investors understand the similarities and
differences between the Funds and determine which Fund--or
combination of Funds--best meets their investment objectives.
See "Organization and history."
<PAGE>
ABOUT THE FUNDS
Expenses summary..................................... 4
Financial highlights................................ .
6
Objectives...........................................
10
How objectives are pursued...........................
10
How performance is shown.............................
21
How the Funds are managed............................
22
Organization and history.............................
23
ABOUT YOUR INVESTMENT
Alternative sales
arrangements....................... 25
How to buy shares....................................
26
Distribution
Plans................................... 31
How to sell shares...................................
33
How to exchange shares............................... 36
How each Fund values its shares...................... 37
How distributions are made; tax information..........
38
ABOUT PUTNAM INVESTMENTS, INC.
40
ABOUT THE FUNDS
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing in
a Fund. The following tables summarize your maximum transaction
costs from investing in each Fund and expenses incurred by each
Fund based on its most recent fiscal year. The Examples show the
cumulative expenses attributable to a hypothetical $1,000
investment in each Fund over specified periods.
PUTNAM TAX EXEMPT INCOME FUND
CLASS A CLASS
B
SHARES
SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed
on Purchases (as a percentage of
offering price) 4.75% NONE*
Deferred Sales Charge (as a 5.0% in the
percentage of the lower NONE** first year,
of original purchase declining to
price or redemption proceeds) 1.0% in the
sixth
year , and
eliminated
thereafter
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.48%
0.48%
12b-1 Fees 0.20% 0.85%
Other Expenses 0.10%
0.10%
Total Fund Operating Expenses 0.78%
1.43%
EXAMPLES
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and redemption at the end of each
period:
1 3 5 10
year years years years
CLASS A $55 $7 $89
$140
CLASS B $65 $75 $98
$154** *
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return but no redemption:
1 3 5 10
year years years years
CLASS A $55 $71 $89
$140
CLASS B $15 $45 $78
$154** *
* Class B shares of the Income Fund are sold without a front-end
sales charge, but their 12b-1 fees may cause long-term
shareholders to pay more than the economic equivalent of the
maximum permitted front-end sales charge.
** A deferred sales charge of up to 1.00% is assessed on certain
redemptions of Class A shares of the Income Fund that were
purchased without an initial sales charge as part of an
investment of $1 million or more. See "How to buy shares -
Class A shares."
*** Reflects conversion of Class B shares of the Income Fund to
Class A shares of the Income Fund (which pay lower ongoing
expenses) approximately eight years after purchase. See "How
to buy shares - Class B shares - Conversion of Class B
shares."
<PAGE>
PUTNAM TAX EXEMPT MONEY MARKET FUND
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) NONE
Deferred Sales Charge
(as a percentage of the lower of original
purchase price or redemption proceeds) NONE
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.45%
12b-1 Fees NONE
Other Expenses 0.44%
Total Fund Operating Expenses 0.89%
EXAMPLE
Your investment of $1,000 would incur the following expenses,
assuming (1) 5% annual return and (2) redemption at the end of each
period:
1 3 5 10
year years years years
$9 $28 $49 $110
The tables are provided to help you understand the expenses of
investing in each Fund and your share of the operating expenses
which that Fund incurs. The 12b-1 fees shown in the table for
Class A and Class B shares of the Income Fund reflect the
amount to which the Funds' Trustees currently limit payments under
each classes' Distribution Plan. Actual Income Fund 12b-
1 fees and total operating expenses for Class A shares were 0.16%
and 0.74%, respectively. The management fees shown in
the table for the Class B shares of the Income Fund
reflect Class A management fees for fiscal 1993. Actual
management fees and total operating expenses for Class B
shares in fiscal 1993 were 0.46% and 1.41%, respectively. The 12b-
1 fees shown in the table for the Money Market Fund reflect the
termination of payments under the Fund's Distribution Plan
effective January 1, 1994. See "Distribution Plans." Actual 12b-1
fees and total operating expenses for the Money Market Fund's
last fiscal year were 0.10% and 0.99%, respectively. The
Examples do not represent past or future expense levels. For
Class B shares of the Income Fund, management fees and other
expenses are estimated based on the operating expenses for the
Fund's Class A shares. Actual expenses incurred by the Funds may
be greater or less than those shown. Federal regulations require
the Examples to assume a 5% annual return, but actual annual return
has varied.
<PAGE>
FINANCIAL HIGHLIGHTS
The tables on the following pages present per share financial
information for the Income Fund's ten most recent fiscal years, and
for the life of the Money Market Fund. This information has been
audited and reported on by the Funds' independent accountants. The
Report of Independent Accountants and financial statements included
in the Funds' Annual Reports to shareholders for their 1993
fiscal years are incorporated by reference into this Prospectus.
The Funds' Annual Reports, which contain additional unaudited
performance information, will be made available without charge upon
request.
<PAGE>
<TABLE>
<CAPTION>
PUTNAM TAX EXEMPT INCOME FUND
FINANCIAL HIGHLIGHTS*
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<S> <C> <C> <C> <C> <C>
JANUARY 4, 1993
TO SEPTEMBER 30 YEAR ENDED SEPTEMBER 30
1993 1993 1992 1991 1990
CLASS B CLASS A
NET ASSET VALUE,
BEGINNING OF PERIOD $9.02 $9.11 $8.81 $8.29 $8.54
INVESTMENT OPERATIONS
NET INVESTMENT INCOME .34 .57 .59 .58 .57
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS .64 .67 .47 .54 (.20)
TOTAL FROM
INVESTMENT OPERATIONS .98 1.24 1.06 1.12 .37
DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME (.34) (.56) (.60) (.58) (.58)
IN EXCESS OF NET INVESTMENT INCOME -- (.01) -- -- --
NET REALIZED GAIN ON INVESTMENTS -- (.12) (.16) (.02) (.04)
TOTAL DISTRIBUTIONS (.34) (.69) (.76) (.60) (.62)
NET ASSET VALUE, END OF PERIOD $9.66 $9.66 $9.11 $8.81 $8.29
TOTAL INVESTMENT RETURN AT NET ASSET VALUE (%) (A) 15.00(B) 14.27 12.56 13.92 4.26
NET ASSETS, END OF PERIOD (IN THOUSANDS) $137,323 $2,425,661 $1,867,307 $1,513,029 $1,306,100
RATIO OF EXPENSES TO AVERAGE NET ASSETS (%) 1.41(B) .74 .66 .59 .54
RATIO OF NET INVESTMENT INCOME TO AVERAGE
NET ASSETS (%) 4.97(B) 6.81 6.65 6.75 6.67
PORTFOLIO TURNOVER (%) 43.77(C) 43.77 58.14 78.04 73.70
(FOOTNOTES TO "FINANCIAL HIGHLIGHTS" FOR INCOME FUND APPEAR ON PAGE 8.)
/TABLE
<PAGE>
<TABLE>
<CAPTION>
PUTNAM TAX EXEMPT INCOME FUND (CONTINUED)
FINANCIAL HIGHLIGHTS*
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<S> <C> <C> <C> <C> <C> <C>
TEN MONTHS
ENDED YEAR ENDED
YEAR ENDED SEPTEMBER 30 SEPTEMBER 30 NOVEMBER 30
1989 1988 1987 1986 1985 1984
CLASS A
NET ASSET VALUE, BEGINNING OF PERIOD $8.33 $7.68 $8.59 $7.44 $6.87 $7.28
INVESTMENT OPERATIONS
NET INVESTMENT INCOME .59 .61 .61 .65 .56 .63
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS .21 .65 (.83) 1.20 .57 (.41)
TOTAL FROM INVESTMENT OPERATIONS .80 1.26 (.22) 1.85 1.13 .22
DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME (.59) (.61) (.61) (.65) (.56) (.63)
IN EXCESS OF NET INVESTMENT INCOME -- -- -- -- -- --
NET REALIZED GAIN ON INVESTMENTS -- -- (.08) (.05) -- --
TOTAL DISTRIBUTIONS (.59) (.61) (.69) (.70) (.56) (.63)
NET ASSET VALUE, END OF PERIOD $8.54 $8.33 $7.68 $8.59 $7.44 $6.87
TOTAL INVESTMENT
RETURN AT NET ASSET VALUE (%) (A) 9.93 16.94 (3.10) 25.59 20.36(B) 3.12
NET ASSETS, END OF PERIOD
(IN THOUSANDS) $1,226,679 $1,037,074 $880,658 $625,574 $233,366 $119,014
RATIO OF EXPENSES TO AVERAGE NET ASSETS (%) .52 .51 .51 .53 .65(B) .68<PAGE>
RATIO OF NET INVESTMENT INCOME TO AVERAGE
NET ASSETS (%) 6.99 7.48 7.09 7.72 9.02(B) 8.85
PORTFOLIO TURNOVER (%) 98.90 112.52 171.00 123.27 249.54(C) 696.18
*FINANCIAL HIGHLIGHTS FOR PERIODS ENDED THROUGH SEPTEMBER 30, 1992 HAVE BEEN RESTATED TO CONFORM WITH REQUIREMENTS ISSUED
BY THE SEC IN APRIL, 1993. TABLE HAS BEEN RESTATED TO REFLECT A 3-FOR-1 SHARE SPLIT DECLARED BY THE FUND TO SHAREHOLDERS
OF RECORD ON OCTOBER 27, 1989, PAYABLE ON OCTOBER 28, 1989.
+COMMENCEMENT OF OPERATIONS FOR CLASS B SHARES.
(A)TOTAL INVESTMENT RETURN ASSUMES DIVIDEND REINVESTMENT AND DOES NOT REFLECT THE EFFECT OF SALES CHARGES.
(B)ANNUALIZED.
(C)NOT ANNUALIZED.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
PUTNAM TAX EXEMPT MONEY MARKET FUND
FINANCIAL
HIGHLIGHTS*
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD
OCTOBER 26, 1987
(COMMENCEMENT
OF OPERATIONS) TO
YEAR ENDED SEPTEMBER 30 SEPTEMBER 30
1993 1992 1991 1990 1989 1988
INVESTMENT OPERATIONS
NET INVESTMENT INCOME .0184 .0297(A) .0462(A) .0548(A) .0578(A) .0424(A)
NET REALIZED GAIN (LOSS) ON INVESTMENTS -- -- (.0001) -- -- .0002
TOTAL FROM INVESTMENT OPERATIONS .0184 .0297 .0461 .0548 .0578 .0426
TOTAL DISTRIBUTIONS (.0184) (.0297) (.0461) (.0548) (.0578) (.0426)
TOTAL INVESTMENT RETURN AT NET ASSET VALUE (%) (B) 1.85 3.02 4.74 5.61 5.92 4.68(C)
NET ASSETS, END OF PERIOD (IN THOUSANDS) $81,076 $81,820 $100,077 $111,705 $98,867 $83,336
RATIO OF EXPENSES TO AVERAGE NET ASSETS (%) .99 .87(A) .79(A) .68(A) .69(A) .62(A)(C)
RATIO OF NET INVESTMENT INCOME TO AVERAGE
NET ASSETS (%) 1.85 2.99(A) 4.62(A) 5.45(A) 5.79(A) 4.62(A)(C)
<PAGE>
*FINANCIAL HIGHLIGHTS FOR PERIODS ENDED THROUGH SEPTEMBER 30, 1992 HAVE BEEN RESTATED TO CONFORM WITH REQUIREMENTS ISSUED
BY THE SEC IN APRIL 1993.
(A) REFLECTS AN EXPENSE LIMITATION AND, DURING THE PERIOD ENDED SEPTEMBER 30, 1988, A WAIVER OF A PORTION OF DISTRIBUTION
FEES IN EFFECT DURING THE PERIOD. AS A RESULT OF SUCH LIMITATION AND WAIVER, EXPENSES OF THE FUND FOR THE YEARS ENDED
SEPTEMBER 30, 1992, 1991, 1990, 1989 AND THE PERIOD ENDED SEPTEMBER 30, 1988 REFLECT PER SHARE REDUCTIONS OF APPROXIMATELY
$0.0029, $0.0030, $0.0034, $0.0035 AND $0.0047, RESPECTIVELY.
(B) TOTAL INVESTMENT RETURN ASSUMES DIVIDEND REINVESTMENT AND DOES NOT REFLECT THE EFFECT OF SALES CHARGES.
(C) ANNUALIZED.
/TABLE
<PAGE>
OBJECTIVES
EACH OF THE FUNDS SEEKS AS HIGH A LEVEL OF CURRENT INCOME EXEMPT
FROM FEDERAL INCOME TAX AS PUTNAM MANAGEMENT BELIEVES IS CONSISTENT
WITH PRESERVATION OF CAPITAL AND, IN THE CASE OF THE MONEY MARKET
FUND, WITH MAINTENANCE OF LIQUIDITY AND STABILITY OF PRINCIPAL.
Neither Fund is intended to be a complete investment program, and
there is no assurance that either Fund will achieve its objective.
HOW OBJECTIVES ARE PURSUED
EACH FUND SEEKS ITS OBJECTIVE BY INVESTING PRIMARILY IN A
DIVERSIFIED PORTFOLIO OF TAX EXEMPT SECURITIES (AS DEFINED BELOW).
The Funds have separate investment policies involving differing
levels of yield and risk.
PUTNAM TAX EXEMPT INCOME FUND
PUTNAM TAX EXEMPT INCOME 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 IT IS INVESTING FOR
LIQUIDITY OR DURING TIMES OF ADVERSE MARKET CONDITIONS. The Fund
may invest in taxable obligations on a temporary basis pending
investment in Tax Exempt Securities, or for liquidity purposes.
The Fund may also hold its assets in cash or money market
instruments. The Fund's investments in Tax Exempt Securities and
taxable obligations will be limited to securities rated not lower
than the five highest grades assigned by Moody's Investors Service,
Inc. ("Moody's") (Aaa, Aa, A, Baa or Ba) and Standard &
Poor's Corporation ("Standard & Poor's") (AAA, AA, A, BBB or
BB), or unrated securities which Putnam Management determines are
of comparable quality. During fiscal 1993 , all of the
Fund's distributions from investment income were exempt from
federal income tax. The Fund will not necessarily dispose of a
security when its rating is reduced below its rating at the time of
purchase, although Putnam Management will monitor the investment to
determine whether continued investment in the security will assist
in meeting the Fund's investment objective.
<PAGE>
The market value of the Income Fund's 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 derived from those securities but
will affect the Income Fund's net asset value.
THE INCOME FUND 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. Under such circumstances, the
values of such securities may be more volatile, and the markets for
such securities may be less liquid, than those for higher-rated
securities, and the Income Fund may as a result find it more
difficult to determine the fair value of such securities. The
Income Fund will not purchase a Tax Exempt Security rated both Ba
by Moody's and BB by Standard & Poor's at the time of purchase, or,
if unrated, determined to be of comparable quality if, as a result,
more than 25% of the Fund's total assets would be of that quality.
The rating services' descriptions of the five highest grades of
debt securities and other rating information are described in the
Statement of Additional Information. Tax Exempt Securities rated
Ba or BB, commonly known as "junk bonds," are considered to have
speculative elements, with large uncertainties or major risk
exposures to adverse conditions.
Putnam Management may take full advantage of the entire range of
Tax Exempt Securities and may adjust the average maturity of the
Income Fund's portfolio from time to time depending on its
assessment of relative yields on securities of different maturities
and its expectations of future changes in interest rates.
Putnam Management seeks to minimize the risks of investing in
lower-rated securities through investment analysis and attention to
current developments in interest rates and economic conditions.
However, the amount of information about the financial
condition of an issuer of Tax Exempt Securities may not be
as extensive as that which is made available by corporations whose
shares are publicly traded . When the Income Fund
invests in Tax Exempt Securities in the lower rating categories,
the achievement of the Fund's goals is more dependent on Putnam
Management's investment analysis than would be the case if
the Income Fund were investing in Tax Exempt Securities in
the higher rating categories. Investors should consider
carefully their ability to assume the risks of owning shares of a
mutual fund which may invest in securities in certain of the lower
rating categories. For additional information concerning the risks
associated with investments by the Fund in securities in the lower
rating categories, see the Statement of Additional Information.
Certain investment grade Tax Exempt Securities in which the Fund
may invest share some of the risk factors discussed above with
respect to lower-rated Tax Exempt Securities.
At times, a portion of the Income Fund's assets may be invested in
securities as to which the Fund, by itself or together with other
funds and accounts managed by Putnam Management and its affiliates,
holds a major portion or all of an issue of Tax Exempt Securities.
Under adverse market or economic conditions or in the event of
adverse changes in the financial condition of the issuer, the Fund
could find it more difficult to sell such securities when Putnam
Management believes it advisable to do so or may be able to sell
such securities only at prices lower than if such securities were
more widely held. Under such circumstances, it may also be more
difficult to determine the fair value of such securities for
purposes of computing the Fund's net asset value. In order to
enforce its rights in the event of a default under such securities,
the Fund may be required to take possession of and manage assets
securing the issuer's obligations on such securities, which may
increase the Fund's operating expenses and adversely affect the
Fund's net asset value. Any income derived from the Fund's
ownership or operation of such assets would not be tax-exempt.
Certain securities held by the Income Fund may permit the issuer at
its option to "call," or redeem, its securities. If an issuer were
to redeem securities held by the Income Fund during a time of
declining interest rates, the Income Fund may not be able to
reinvest the proceeds in securities providing the same investment
return as the securities redeemed.
Some of the securities in which the Fund invests may include so-
called "zero-coupon" bonds, whose values are subject to greater
fluctuation in response to changes in market interest rates than
bonds which pay interest currently. Zero-coupon bonds are issued
at a significant discount from face value and pay interest only at
maturity rather than at intervals during the life of the security.
Zero-coupon bonds allow an issuer to avoid the need to generate
cash to meet current interest payments. Accordingly, such bonds
may involve greater credit risks than bonds paying interest
currently. The Income Fund is required to accrue and
distribute income from zero-coupon bonds on a current basis, even
though it does not receive that income currently in cash.
Thus, the Income Fund may have to sell investments to obtain cash
needed to make income distributions.
ALTERNATIVE INVESTMENT STRATEGIES. At times Putnam Management may
judge that conditions in the markets for Tax Exempt Securities make
pursuing the Income Fund's basic investment strategy inconsistent
with the best interests of its shareholders. At such times Putnam
Management may temporarily use alternative strategies, primarily
designed to reduce fluctuations in the value of the Income Fund's
assets. In implementing these "defensive" strategies, the Income
Fund may invest in taxable obligations, including:
obligations of the U.S. government, its agencies or
instrumentalities; other debt securities rated within the four
highest grades by either Moody's or Standard & Poor's; commercial
paper rated in the highest grade by either rating service (Prime-1
or A-1+, respectively); certificates of deposit and bankers'
acceptances; repurchase agreements with respect to any of the
foregoing investments; or any other securities that Putnam
Management considers consistent with such defensive strategies. It
is impossible to predict when, or for how long, the Income Fund
will use such alternative strategies.
SHORT-TERM TRADING. Putnam Management buys and sells securities
for the Income Fund whenever it believes it is appropriate to do
so. The Fund's investment policies may lead to frequent changes in
investments, particularly in periods of rapidly fluctuating
interest rates. From time to time, consistent with its investment
objective, the Fund may also trade securities for the purpose of
seeking short-term profits. Securities may be sold in anticipation
of a market decline or bought in anticipation of a market rise.
They may also be traded in response to anticipated movements in the
general level of interest rates, or to take advantage of perceived
short-term disparities in market values or yields among securities
of comparable quality and maturity.
A change in the securities held by the Fund is known as "portfolio
turnover." Portfolio turnover generally involves some expense to
the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and reinvestment
in other securities. Such transactions may result in the
realization of taxable capital gains. See "How distributions are
made; tax information." As a result of the Income Fund's investment
policies, under certain market conditions its portfolio turnover
rate may be higher than that of other mutual funds. Portfolio
turnover rates for the ten most recent fiscal years of the Income
Fund are shown in the section "Financial highlights. "
As described more fully above, Putnam Management believes that, in
general, the secondary market for Tax Exempt Securities is less
liquid than that for taxable fixed-income securities. Accordingly,
the ability of the Income Fund to buy and sell securities may, at
any particular time and with respect to any particular securities,
be limited.
PUTNAM TAX EXEMPT MONEY MARKET FUND
PUTNAM TAX EXEMPT MONEY MARKET FUND FOLLOWS THE FUNDAMENTAL POLICY
THAT AT LEAST 80% OF ITS NET ASSETS NORMALLY WILL BE INVESTED IN
SHORT-TERM TAX EXEMPT SECURITIES. Subject to this limitation, the
Money Market Fund may also invest in high quality taxable money
market instruments of the type described under "Alternative
investment strategies" below.
The Money Market Fund will invest in only the following Tax Exempt
Securities: (i) municipal notes; (ii) municipal bonds; (iii)
municipal securities backed by the U.S. government; (iv) short-term
discount notes (tax-exempt commercial paper); (v) participation
interests in any of the foregoing; and (vi) unrated securities or
new types of tax-exempt instruments which become available in the
future if Putnam Management determines they meet the quality
standards discussed below. In connection with the purchase of Tax
Exempt Securities, the Fund may acquire stand-by commitments, which
give the Fund the right to resell the security to the dealer at a
specified price. Stand-by commitments may provide additional
liquidity for the Fund but are subject to the risk that the dealer
may fail to meet its obligations. The Fund does not generally
expect to pay additional consideration for stand-by commitments nor
to assign any value to them.
The Fund will invest only in high-quality Tax Exempt Securities and
other money market instruments that Putnam Management believes
present minimal credit risk. High-quality securities are
securities rated in one of the two highest categories by at least
two nationally recognized rating services (or, if only one rating
service has rated the security, by that service) or if the security
is unrated, judged to be of equivalent quality by Putnam
Management. The Fund will maintain a dollar-weighted average
maturity of 90 days or less and will not invest in securities with
remaining maturities of more than 397 days. The Fund may invest in
variable or floating-rate Tax Exempt Securities which bear interest
at rates subject to periodic adjustment or which provide for
periodic recovery of principal on demand. Under certain
conditions, these securities may be deemed to have remaining
maturities equal to the time remaining until the next interest
adjustment date or the date on which principal can be recovered on
demand. The Money Market Fund follows investment and valuation
policies designed to maintain a stable net asset value of $1.00 per
share, although there is no assurance that these policies will be
successful.
Considerations of liquidity and preservation of capital mean that
the Fund may not necessarily invest in Tax Exempt Securities paying
the highest available yield at a particular time. Consistent with
its investment objective, the Fund will attempt to maximize yields
by portfolio trading and by buying and selling portfolio
investments in anticipation of or in response to changing economic
and money market conditions and trends. The Fund will also invest
to take advantage of what Putnam Management believes to be
temporary disparities in yields of different segments of the market
for Tax Exempt Securities or among particular instruments within
the same segment of the market. These policies, as well as the
relatively short maturity of obligations purchased by the Fund, may
result in frequent changes in the Fund's portfolio. Portfolio
turnover may give rise to taxable gains. The Fund does not usually
pay brokerage commissions in connection with the purchase of
portfolio securities. See "Management of the Fund - Portfolio
transactions - Brokerage and research services" in the Statement of
Additional Information for a discussion of underwriters'
commissions and dealers' spreads involved in the purchase and sale
of portfolio securities.
The portfolio of the Money Market Fund will be affected by general
changes in interest rates resulting in increases or decreases in
the value of the obligations held by the Fund. Although the Fund's
investment policies are designed to minimize these changes and to
maintain a net asset value of $1.00 per share, there is no
assurance that these policies will be successful. Withdrawals by
shareholders could require the sale of portfolio investments at a
time when such a sale might not otherwise be desirable.
ALTERNATIVE INVESTMENT STRATEGIES. At times Putnam Management may
judge that conditions in the markets for Tax Exempt Securities make
pursuing the Money Market Fund's basic investment strategy
inconsistent with the best interests of shareholders. At such
times Putnam Management may temporarily use alternative strategies.
In implementing these "defensive" strategies, the Money Market Fund
may invest in high quality money market instruments, including bank
certificates of deposit, bankers' acceptances, prime commercial
paper, high-grade, short-term corporate obligations, short-term
U.S. government securities or repurchase agreements, or other
securities Putnam Management considers consistent with such
defensive strategies. The interest income from these instruments
would be subject to federal income tax. It is impossible to
predict when, or for how long, the Money Market Fund may use these
alternative strategies.
DIVERSIFICATION. Although the Money Market Fund is a "diversified"
investment company under the Investment Company Act of 1940, which
means that with respect to 75% of its total assets the Fund may not
invest more than 5% of its total assets in the securities of any
one issuer (except U.S. government obligations), up to 25% of the
Fund's total assets may be invested in the securities of any one
issuer of Tax Exempt Securities. Because of the relatively small
number of issuers of Tax Exempt Securities, the Fund is more likely
to invest a higher percentage of its assets in the securities of a
single issuer than an investment company which invests in a broad
range of tax exempt securities. This practice involves an
increased risk of loss to the Fund if the issuer is unable to make
interest or principal payments or if the market value of such
securities declines. For diversification purposes, Tax Exempt
Securities backed only by the assets and revenues of
nongovernmental users may be deemed to be issued by the
nongovernmental users.
TAX EXEMPT SECURITIES
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 INCOME TAX. These securities are issued to obtain funds
for various public purposes, such as the construction of public
facilities, the payment of general operating expenses or the
refunding of outstanding debts. They may also be issued to finance
various private activities, including the lending of funds to
public or private institutions for the construction of housing,
educational or medical facilities and may also include certain
types of private activity and industrial development bonds issued
by public authorities to finance privately owned or operated
facilities or to fund short-term cash requirements . Short-
term Tax Exempt Securities are generally issued as interim
financing in anticipation of tax collections, revenue receipts or
bond sales to finance various public purposes.
THE TWO PRINCIPAL CLASSIFICATIONS OF TAX EXEMPT SECURITIES ARE
GENERAL OBLIGATION AND SPECIAL OBLIGATION (OR SPECIAL
REVENUE OBLIGATION) SECURITIES. GENERAL OBLIGATION securities
involve a pledge of the credit of an issuer possessing
taxing power and are payable from the issuer's general unrestricted
revenues. Their payment may depend on an appropriation by the
issuer's legislative body. The characteristics and methods of
enforcement of general obligation securities vary according to the
law applicable to the particular issuer. SPECIAL OBLIGATION
(OR SPECIAL REVENUE OBLIGATION) securities are payable only
from the revenues derived from a particular facility or class of
facilities, or a specific revenue source, and generally are not
payable from the unrestricted revenues of the issuer. Industrial
development and private activity bonds are in most cases
special obligation securities, the credit quality of which
is directly related to the private user of the facilities.
The Income Fund may also invest in securities
representing interests in Tax Exempt Securities , known as
"inverse floating obligations" or "residual interest bonds,"
paying interest rates that vary inversely to changes in
the interest rates of specified short-term tax exempt securities
or an index of short-term tax exempt securities. The interest
rates on inverse floating obligations or residual interest bonds
will typically decline as short-term market interest rates
increase and increase as short-term market rates decline .
Such securities have the effect of providing a degree
of investment leverage , since they will generally
increase or decrease in value in response to changes in market
interest rates at a rate which is a multiple (typically two) of the
rate at which fixed-rate long-term tax exempt securities increase
or decrease in response to such changes . As a result, the
market values of inverse floating obligations and residual
interest bonds will generally be more volatile than the market
values of fixed-rate tax exempt securities.
CONCENTRATION. A Fund will not invest more than 25% of its total
assets in any one industry. Governmental issuers of Tax Exempt
Securities are not considered part of any "industry." However, Tax
Exempt Securities backed only by the assets and revenues of
nongovernmental users may for this purpose be deemed to be issued
by such nongovernmental users, and the 25% limitation would apply
to such obligations.
It is nonetheless possible that a Fund may invest more than 25% of
its assets in a broader segment of the Tax Exempt Securities
market, such as revenue obligations of hospitals and other health
care facilities, housing agency revenue obligations, or airport
revenue obligations. This would be the case only if Putnam
Management determined that the yields available from obligations in
a particular segment of the market justified the additional risks
associated with such concentration. Although such obligations
could be supported by the credit of governmental users or by the
credit of nongovernmental users engaged in a number of industries,
economic, business, political and other developments generally
affecting the revenues of such users (for example, proposed
legislation or pending court decisions affecting the financing of
such projects and market factors affecting the demand for their
services or products) may have a general adverse effect on all Tax
Exempt Securities in such a market segment.
Each Fund reserves the right to invest more than 25% of its assets
in industrial development securities and private activity bonds.
Each Fund also reserves the right to invest more than 25% of its
assets in securities relating to one or more states (including the
District of Columbia), territories, or United States possessions,
or any of their political subdivisions. As a result of such an
investment, the performance of a Fund may be especially affected by
factors pertaining to the economy of the relevant state and other
factors specifically affecting the ability of issuers of such
securities to meet their obligations. As a result, the value of
the Income Fund's shares may fluctuate more widely than the value
of shares of a portfolio investing in securities relating to a
greater number of different states. The ability of governmental
issuers to meet their obligations will depend primarily on the
availability of tax and other revenues to those governments and on
their fiscal conditions generally. The amounts of tax and other
revenues available to governmental issuers may be affected from
time to time by economic, political, and demographic conditions
within the particular state. In addition, constitutional or
statutory restrictions may limit a government's power to raise
revenues or increase taxes. The availability of federal, state,
and local aid to issuers of such securities may also affect their
ability to meet their obligations. Payments of principal and
interest on special obligation securities will depend on the
economic condition of the facility or specific revenue source from
whose revenues the payments will be made, which in turn could be
affected by economic, political, and demographic conditions in the
particular state. Any reduction in the actual or perceived ability
of an issuer of Tax Exempt Securities in a particular state to meet
its obligations (including a reduction in the rating of its
outstanding securities) would likely affect adversely the market
value and marketability of its obligations and could affect
adversely the values of Tax Exempt Securities issued by others in
that state as well. As of December 31 , 1993, the Income
Fund had invested approximately 20.81% of its assets in
securities relating to the State of New York.
ALTERNATIVE MINIMUM TAX. As part of each Fund's fundamental 80%
tax exempt policy described above, neither Fund will treat
obligations as "Tax Exempt Securities" for purposes of measuring
compliance with such policy if they would give rise to interest
income subject to federal alternative minimum tax for individuals.
To the extent that either Fund invests in these securities,
individual shareholders of a Fund, depending on their own tax
status, may be subject to federal alternative minimum tax on the
part of that Fund's distributions derived from these securities.
In addition, an investment in a Fund may cause corporate
shareholders to be subject to (or result in an increased liability
under) the alternative minimum tax because a portion of tax-exempt
income is generally included in alternative minimum taxable income.
INVESTMENTS IN PREMIUM SECURITIES (THE INCOME FUND)
During a period of declining interest rates many of the Income
Fund's portfolio investments will likely bear coupon rates which
are higher than current market rates, regardless of whether such
securities were originally purchased at a premium. Such securities
would generally carry market values greater than the principal
amounts payable on maturity, which would be reflected in the net
asset value of the Income Fund's shares. The values of such
"premium" securities tend to approach the principal amount as they
approach maturity (or call price in the case of securities
approaching their first call date). As a result, an investor who
purchases shares of the Income Fund during such periods would
initially receive higher monthly distributions (derived from the
higher coupon rates payable on the Income Fund's investments) than
might be available from alternative investments bearing current
market interest rates, but may face an increased risk of capital
loss as these higher coupon securities approach maturity (or first
call date). In evaluating the potential performance of an
investment in the Income Fund, investors may find it useful to
compare the Income Fund's current dividend rate with the Income
Fund's "yield," which is computed on a yield-to-maturity basis in
accordance with SEC regulations and which reflects amortization of
market premiums. See "How performance is shown."
FINANCIAL FUTURES AND OPTIONS (THE INCOME FUND)
THE INCOME FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS
FOR HEDGING PURPOSES. Futures contracts on a Municipal Bond Index
are traded on the Chicago Board of Trade. This Index is intended
to represent a numerical measure of market performance for long-
term tax-exempt bonds. An "index future" is a contract to buy or
sell units of a particular securities index at an agreed price on a
specified future date. Depending on the change in value of the
index between the time when the Income Fund enters into and
terminates an index futures contract , the Income Fund
realizes a gain or loss. The Income Fund may purchase and sell
futures contracts on the Index (or any other tax-exempt bond index
approved for trading by the Commodity Futures Trading Commission)
to hedge against general changes in market values of Tax Exempt
Securities which the Fund owns or expects to purchase. The Income
Fund may also purchase and sell put and call options on index
futures or on indices directly , in addition to or as
an alternative to purchasing and selling index futures
.
<PAGE>
The Income Fund may also, for hedging purposes, purchase and sell
futures contracts and related options with respect to U.S.
Treasury securities, including U.S. Treasury bills, notes and
bonds ("U.S. Government Securities") and options directly
on U.S. Government Securities. U.S. Government Securities
futures and options would be used in a way similar
to the Fund's use of index futures and options.
THE USE OF FUTURES AND OPTIONS INVOLVES CERTAIN SPECIAL RISKS AND
MAY RESULT IN REALIZATION OF TAXABLE INCOME OR CAPITAL
GAINS. FUTURES AND OPTIONS TRANSACTIONS INVOLVE COSTS AND MAY
RESULT IN LOSSES. Certain risks arise because of the possibility
of imperfect correlations between movements in the prices of
financial futures and options and movements in the prices of the
underlying bond index or U.S. Government Securities or of the Tax
Exempt Securities which are the subject of the hedge. The
successful use of futures and options further depends on Putnam
Management's ability to forecast interest rate movements correctly.
Other risks arise from the Income Fund's potential inability to
close out its futures or related options positions, and there can
be no assurance that a liquid secondary market will exist for any
futures contract or option at a particular time. Certain
provisions of the Internal Revenue Code and certain
regulatory requirements may limit the Fund's ability to engage
in futures and options transactions.
A MORE DETAILED EXPLANATION OF FUTURES AND OPTIONS TRANSACTIONS AND
THE RISKS ASSOCIATED WITH THEM IS INCLUDED IN THE STATEMENT OF
ADDITIONAL INFORMATION.
OTHER INVESTMENT PRACTICES
EACH OF THE FUNDS MAY ALSO ENGAGE TO A LIMITED EXTENT IN THE
FOLLOWING INVESTMENT PRACTICES, EACH OF WHICH MAY RESULT IN TAXABLE
INCOME OR CAPITAL GAINS AND INVOLVES CERTAIN SPECIAL RISKS. THE
STATEMENT OF ADDITIONAL INFORMATION CONTAINS MORE DETAILED
INFORMATION ABOUT THESE PRACTICES, INCLUDING LIMITATIONS DESIGNED
TO REDUCE THESE RISKS.
REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS. Each Fund may enter
into repurchase agreements on up to 25% of its assets. These
transactions must be fully collateralized at all times .
Each Fund may also purchase securities for future delivery, which
may increase its overall investment exposure and involves a risk of
loss if the value of the securities declines prior to the
settlement date. These transactions involve some risk to each
Fund if the other party should default on its obligation and that
Fund is delayed or prevented from recovering the collateral or
completing the transaction.
<PAGE>
LIMITING INVESTMENT RISK
SPECIFIC INVESTMENT RESTRICTIONS HELP THE FUNDS LIMIT INVESTMENT
RISKS FOR THEIR SHAREHOLDERS. THESE RESTRICTIONS PROHIBIT
EACH FUND FROM INVESTING MORE THAN: (a) 5% of its total assets in
securities of any one issuer (other than obligations issued or
guaranteed by the U.S. government or its agencies or
instrumentalities, and, for the Money Market Fund, Tax Exempt
Securities);* (b) 5% of its net assets in securities of any issuer
if the party responsible for payment, together with any
predecessor, has been in operation for less than three years
(except U.S. government and agency obligations and obligations
backed by the faith, credit and taxing power of any person
authorized to issue Tax Exempt Securities); (c) 15% of its net
assets in securities restricted as to resale, excluding restricted
securities that have been determined by the Fund's Trustees (or the
person designated by them to make such determinations) to be
readily marketable;* or (d) 15% of its net assets in any
combination of securities that are not readily marketable, in
securities restricted as to resale (excluding restricted securities
that have been determined by the Fund's Trustees (or the person
designated by them to make such determinations) to be readily
marketable), and in repurchase agreements maturing in more than
seven days. The Money Market Fund has not invested more than 10%
of its net assets in the types of securities listed in item (d) and
has no current intention of doing so.
Restrictions marked with an asterisk (*) above are summaries of
fundamental policies. See the Statement of Additional Information
for the full text of these policies and each Fund's other
fundamental policies. Except for investment policies designated as
fundamental in this Prospectus or the Statement, the investment
policies described in this Prospectus and in the Statement are not
fundamental policies. The Trustees may change any non-fundamental
investment policies without shareholder approval. As a matter of
policy, the Trustees would not materially change a Fund's
investment objective without shareholder approval.
HOW PERFORMANCE IS SHOWN
PUTNAM TAX EXEMPT INCOME FUND
THE INCOME FUND'S YIELD, TAX-EQUIVALENT YIELD AND TOTAL RETURN DATA
MAY FROM TIME TO TIME BE INCLUDED IN ADVERTISEMENTS ABOUT THE FUND.
"Yield" for each class of shares is calculated by dividing the
annualized net investment income per share during a recent
30-day period by the maximum public offering price per share of
such class on the last day of that period. For this purpose, net
investment income is calculated in accordance with SEC regulations
and may differ from the Income Fund's net investment income
as determined for financial reporting purposes. SEC regulations
require that net investment income be calculated on a "yield-to-
maturity" basis, which has the effect of amortizing any premiums or
discounts in the current market value of fixed-income securities.
The Income Fund's current dividend rate is based on the
Fund's net investment income as determined for financial statement
purposes, which may not reflect amortization in the same
manner . See "How objectives are pursued -- Investments in
premium securities (the Income Fund)." The Fund's yield reflects
the deduction of the maximum initial sales charge in the case of
Class A shares, but does not reflect the deduction of any
contingent deferred sales charge in the case of Class B shares.
"Tax-equivalent" yield for each class of shares shows the effect on
performance of the tax-exempt status of distributions received from
the Income Fund. It reflects the approximate yield that a
taxable investment must earn for shareholders at stated income
levels to produce an after-tax yield equivalent to the
Income Fund's tax-exempt yield. "Total return" for the one-
, five- and ten-year periods of the Income Fund (or since
the commencement of the public offering of the shares of a
class, if shorter) through the most recent calendar quarter
represents the average annual compounded rate of return on an
investment of $1,000 in the Income Fund invested at the
maximum public offering price (in the case of Class A shares) or
reflecting the deduction of any applicable contingent deferred
sales charge (in the case of Class B shares). Total return may
also be presented for other periods or based on investment at
reduced sales charge levels or net asset value. Any quotation of
total return , yield, or tax-equivalent yield not
reflecting the maximum initial sales charge or contingent
deferred sales charge would be reduced if such sales charges were
used. Quotations of yield, tax-equivalent yield or total return
for any period when an expense limitation was in effect will be
greater than if the limitation had not been in effect. The
Income Fund's performance may be compared to various
indices. See the Statement of Additional Information.
PUTNAM TAX EXEMPT MONEY MARKET FUND
THE MONEY MARKET FUND'S YIELD, EFFECTIVE YIELD AND TAX-EQUIVALENT
YIELD DATA MAY FROM TIME TO TIME BE INCLUDED IN ADVERTISEMENTS
ABOUT THE FUND. "Yield" represents an annualization of the change
in value of a shareholder account (excluding any capital changes)
for a specific seven-day period. "Effective yield" compounds the
Money Market Fund's yield for a year and is, for that
reason, greater than the Money Market Fund's yield. "Tax-
equivalent" yield shows the effect on performance of the tax-exempt
status of distributions received from the Money Market Fund.
It reflects the approximate yield that a taxable investment must
earn for shareholders at stated income levels to produce an after-
tax yield equivalent to the Money Market Fund's tax-exempt
yield or tax-exempt effective yield . Quotations of yield,
effective yield or tax-equivalent yield for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. The Money Market Fund's
performance may be compared to various indices. See the Statement
of Additional Information.
<PAGE>
GENERAL
ALL DATA IS BASED ON EACH FUND'S PAST INVESTMENT RESULTS AND DOES
NOT PREDICT FUTURE PERFORMANCE. Investment performance, which will
vary, is based on many factors, including market conditions, the
composition of each Fund's portfolio, each Fund's operating
expenses, and which class of shares you purchase .
Investment performance also often reflects the risks associated
with each Fund's investment objective and policies. These
factors should be considered when comparing each Fund's
investment results to those of other mutual funds and other
investment vehicles.
HOW THE FUNDS ARE MANAGED
THE TRUSTEES OF EACH FUND ARE RESPONSIBLE FOR GENERALLY OVERSEEING
THE CONDUCT OF THAT FUND'S BUSINESS. Subject to such policies as
the Trustees may determine, Putnam Management furnishes a
continuing investment program for each Fund and makes investment
decisions on each Fund's behalf. Subject to the control of the
Trustees, Putnam Management also manages the Funds' other affairs
and business. David J. Eurkus, Senior Vice President of Putnam
Management and Vice President of the Income Fund and Lindsey M.
Callen, Vice President of Putnam Management and Vice President of
the Money Market Fund, have had primary responsibility for the day-
to-day management of each Fund's portfolio since 1985 and March,
1992, respectively. Mr. Eurkus and Ms. Callen have been employed
by Putnam Management for the past five years.
Each Fund pays all expenses not assumed by Putnam Management,
including Trustees' fees, auditing, legal, custodial, investor
servicing and shareholder reporting expenses, and payments under
its Distribution Plans (which are in turn allocated to
the relevant class of shares) . Each Fund also reimburses
Putnam Management for the compensation and related expenses of
certain officers of the Fund and their staff who provide
administrative services to the Funds. The total reimbursement is
determined annually by the Trustees of each Fund.
Putnam Management places all orders for purchases and sales of the
Funds' securities. In selecting broker-dealers, Putnam Management
may consider research and brokerage services furnished to it and
its affiliates. Subject to seeking the most favorable price and
execution available, Putnam Management may consider sales of shares
of each Fund (and, if permitted by law, of the other Putnam funds)
as a factor in the selection of broker-dealers.
ORGANIZATION AND HISTORY
Putnam Tax Exempt Income Fund and Putnam Tax Exempt Money Market
Fund are organized as Massachusetts business trusts by Agreements
and Declarations of Trust dated September 10, 1976 and December 3,
1986, respectively. A copy of each Agreement and Declaration of
Trust, which is governed by Massachusetts law, is on file with the
Secretary of State of The Commonwealth of Massachusetts.
Each Fund is an open-end, diversified management investment company
with an unlimited number of authorized shares of beneficial
interest. Although shares of the Money Market Fund may, without
shareholder approval, be divided into two or more series of such
shares, Money Market Fund shares are not presently divided into
series. Under the Declarations of Trust, any such series of shares
and the shares of the Income Fund may be divided, without
shareholder approval, into two or more classes of shares having
such preferences and special or relative rights and
privileges as the Trustees may determine. The Income Fund's shares
are currently divided into two classes, while the Money Market
Fund's shares are not currently divided into classes. Each share
has one vote, with fractional shares voting proportionally. Shares
of each class of the Income Fund will vote together as a single
class except when required by law or as determined by the Trustees.
Shares are freely transferable, are entitled to dividends as
declared by the Trustees, and, if a Fund were liquidated, would
receive the net assets of that Fund. Either Fund may suspend the
sale of shares at any time and may refuse any order to purchase
shares. Although neither Fund is required to hold annual meetings
of its shareholders, shareholders of a Fund holding at least 10%
of the outstanding shares entitled to vote have the right to
call a meeting to elect or remove Trustees, or to take other
actions as provided in its Declaration of Trust.
Although each Fund is offering only its own shares in this
Prospectus, it is possible that a Fund might become liable for any
misstatement in the Prospectus about the other Fund. The Trustees
of a Fund have considered this factor in approving the use of a
single prospectus.
If you own fewer shares than a minimum set by the Trustees of a
Fund (presently 20 shares in the case of the Income Fund, and
shares worth $500 in the case of the Money Market Fund), that Fund
may choose to redeem your shares and pay you for them. You will
receive at least 30 days' written notice before a Fund redeems your
shares, and you may purchase additional shares at any time to avoid
a redemption. A Fund may also redeem shares if you own shares
above a maximum amount set by the Trustees. There is presently no
maximum for either Fund, but a Fund's Trustees may establish one at
any time, which could apply to both present and future shareholders
of that Fund.
THE FUNDS' TRUSTEES: GEORGE PUTNAM,* CHAIRMAN. President of the
Putnam funds. Chairman and Director of Putnam Management and
Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director, Marsh
& McLennan Companies, Inc.; WILLIAM F. POUNDS, VICE CHAIRMAN.
Professor of Management, Alfred P. Sloan School of Management,
M.I.T. ; JAMESON ADKINS BAXTER, President, Baxter Associates,
Inc. ; HANS H. ESTIN, Vice Chairman, North American Management;
JOHN A. HILL, Principal and Managing Director, First Reserve
Corporation; ELIZABETH T. KENNAN, President, Mount Holyoke
College; LAWRENCE J. LASSER,* Vice President of the Putnam funds.
President, Chief Executive Officer and Director of Putnam
Investments , Inc. and Putnam Management. Director, Marsh &
McLennan Companies, Inc.; ROBERT E. PATTERSON, Executive Vice
President, Cabot Partners Limited Partnership; DONALD S. PERKINS,
Director of various corporations, including AT&T, K mart
Corporation and Time Warner Inc.; GEORGE PUTNAM, III,* President,
New Generation Research, Inc.; A.J.C. SMITH,* Chairman, Chief
Executive Officer and Director, Marsh & McLennan Companies Inc.;
and W. NICHOLAS THORNDIKE, Director of various corporations and
charitable organizations, including Providence Journal Co. Also,
Trustee and President, Massachusetts General Hospital and Trustee
of Eastern Utilities Associates. The Funds' Trustees are also
Trustees of the other Putnam funds. Those marked with an asterisk
(*) are "interested persons" of a Fund, Putnam Management or Putnam
Mutual Funds.
ABOUT YOUR INVESTMENT
ALTERNATIVE SALES ARRANGEMENTS
THE INCOME FUND
The Income Fund offers investors two classes of shares which bear
sales charges in different forms and amounts and which bear
different levels of expenses:
CLASS A SHARES. An investor who purchases Class A shares pays a
sales charge at the time of purchase. As a result, Class A shares
are not subject to any charges when they are redeemed (except for
sales at net asset value in excess of $1 million which are subject
to a contingent deferred sales charge). Certain purchases of Class
A shares qualify for reduced sales charges. Class A shares
currently bear a 12b-1 fee at the annual rate of 0.20% of the
Fund's average net assets attributable to Class A shares. See "How
to buy shares -- The Income Fund -- Class A shares."
CLASS B SHARES. Class B shares are sold without an initial sales
charge, but are subject to a contingent deferred sales charge of up
to 5% if redeemed within six years. Class B shares also bear a
higher 12b-1 fee than Class A shares, currently at the annual rate
of 0.85% of the Fund's average net assets attributable to Class B
shares. Class B shares will automatically convert into Class A
shares, based on relative net asset value, approximately eight
years after purchase. Class B shares provide an investor the
benefit of putting all of the investor's dollars to work from the
time the investment is made, but (until conversion) will have a
higher expense ratio and pay lower dividends than Class A shares
due to the higher 12b-1 fee. See "How to buy shares -- The Income
Fund -- Class B shares."
WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which
class of shares provides a more suitable investment for an investor
depends on a number of factors, including the amount and intended
length of the investment. Investors making investments that
qualify for reduced sales charges might consider Class A shares.
Investors who prefer not to pay an initial sales charge might
consider Class B shares. Orders for Class B shares for $250,000 or
more will be treated as orders for Class A shares or declined. For
more information about these sales arrangements, consult your
investment dealer or Putnam Investor Services. Sales personnel may
receive different compensation depending on which class of shares
they sell. Shares may only be exchanged for shares of the same
class of another Putnam fund. See "How to exchange shares."
THE MONEY MARKET FUND
The Money Market Fund offers its shares at a price of $1.00 per
share, without a sales charge, although the Money Market Fund may
pay certain distribution expenses. See "How to buy shares -- The
Money Market Fund."
HOW TO BUY SHARES
THE INCOME FUND
You can open an Income Fund account with as little as $500 and make
additional investments at any time with as little as $50. You can
buy Income Fund shares three ways - through most investment
dealers, through Putnam Mutual Funds (at 1-800-225-1581) , or
through a systematic investment plan. If you do not have a dealer,
Putnam Mutual Funds can refer you to one.
BUYING SHARES THROUGH PUTNAM MUTUAL FUNDS . Complete an
order form and return it with a check payable to Putnam Tax
Exempt Income Fund to Putnam Mutual Funds, which will
act as your agent in purchasing shares through your designated
investment dealer.
BUYING SHARES THROUGH SYSTEMATIC INVESTING. You can make regular
investments of $25 or more per month through automatic deductions
from your bank checking account. Application forms are available
from your investment dealer or through Putnam Investor Services.
Shares are sold at the public offering price based on the net asset
value next determined after Putnam Investor Services receives your
order. In most cases, in order to receive that day's public
offering price, Putnam Investor Services must receive your order
before the close of regular trading on the New York Stock Exchange.
If you buy shares through your investment dealer, the dealer must
receive your order before the close of regular trading on the New
York Stock Exchange to receive that day's public offering
price.
<PAGE>
<TABLE>
<CAPTION>
CLASS A SHARES
The public offering price of Class A shares is the net asset value plus a sales charge.
The Fund receives the net asset value. The sales charge varies depending on the size
of your purchase and is allocated between your investment dealer and Putnam Mutual
Funds . The current sales charges are:
SALES CHARGE AMOUNT OF
AS A PERCENTAGE OF: SALES CHARGE
------------------- REALLOWED
NET TO DEALERS
AMOUNT OF TRANSACTION AMOUNT OFFERING AS A PERCENTAGE
AT OFFERING PRICE INVESTED PRICEOF OFFERING PRICE *
- -------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Less than $ 25,000 4.99% 4.75% 4.50%
- -------------------------------------------------------------------------------------
$ 25,000 but less than 100,000 4.71 4.50 4.25
- -------------------------------------------------------------------------------------
100,000 but less than 250,000 3.90 3.75 3.50
- -------------------------------------------------------------------------------------
250,000 but less than 500,000 3.09 3.00 2.75
- -------------------------------------------------------------------------------------
500,000 but less than 1,000,000 2.04 2.00 1.85
- -------------------------------------------------------------------------------------
/TABLE
<PAGE>
* At the discretion of Putnam Mutual Funds, however, the
entire sales charge may at times be reallowed to dealers. The
Staff of the Securities and Exchange Commission has indicated that
dealers who receive more than 90% of the sales charge may be
considered underwriters.
There is no initial sales charge on purchases of Class A shares
of $1,000,000 or more. However, Putnam Mutual Funds pays
investment dealers of record commissions on such sales at the rates
shown below. If you redeem such shares within a certain period of
time after purchase, a contingent deferred sales charge ("CDSC")
will be imposed as follows:
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF TRANSACTION PERIOD AFTER PURCHASE
AT OFFERING PRICE APPLICABLE CDSC DURING WHICH CDSC APPLIES
------------------------- --------------- -------------------------
<C> <C> <C> <C> <C>
$1,000,000 but less than $2,500,000 1.00% 2 years
2,500,000 but less than 5,000,000 0.50% 1 year
5,000,000 and over 0.25% 1 year
/TABLE
<PAGE>
The CDSC is imposed on the lower of the cost and the current net
asset value of the shares redeemed. Putnam Mutual Funds receives
the entire amount of any CDSC you pay. Shares owned by certain
tax-qualified retirement plans may be redeemed without charge to
pay benefits. In addition, any shares acquired by reinvestment of
distributions will be redeemed without a CDSC. In determining
whether a CDSC is payable, the Fund will first redeem shares not
subject to any charge. See the Statement of Additional Information
for more information about the CDSC.
YOU MAY BE ELIGIBLE TO BUY CLASS A SHARES OF THE INCOME FUND AT
REDUCED SALES CHARGES. Consult your investment dealer or Putnam
Mutual Funds for details about Putnam's Combined Purchase
Privilege, Cumulative Quantity Discount, Statement of Intention,
Group Sales Plan, Employee Benefit Plans and other plans.
Descriptions are also included in the order form and in the
Statement of Additional Information. Shares may be sold at net
asset value to certain categories of investors. See "How to buy
shares - The Income Fund -- General" below.
CLASS B SHARES
Class B shares of the Income Fund are sold without an initial sales
charge, although a CDSC will be imposed if you redeem shares
within six years of purchase. The following types of shares may be
redeemed without charge at any time : (i) shares acquired by
reinvestment of distributions and (ii) shares otherwise exempt from
the CDSC , as described below. Subject to the foregoing
exclusions, the amount of the charge is determined as a percentage
of the lesser of the current market value or the cost of Class B
shares being redeemed. Therefore when a share is redeemed, any
increase in its value above the initial purchase price is
not subject to any CDSC . The amount of the CDSC will
depend on the number of years since you invested and the dollar
amount being redeemed, according to the following table:
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
YEARS SINCE PURCHASE DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
------------------- ------------------
0-1 ........................................ 5.0%
1-2 ........................................ 4.0%
2-3 ........................................ 3.0%
3-4 ........................................ 3.0%
4-5 ........................................ 2.0%
5-6 ........................................ 1.0%
6 and thereafter ........................... NONE
In determining whether a CDSC is payable on any redemption,
the Income Fund will first redeem shares not subject to any
charge , and then shares held longest during the
six-year period. For information on how sales charges are
calculated if you exchange your shares, see "How to exchange
shares." Putnam Mutual Funds receives the entire amount of any
CDSC you pay.
CONVERSION OF CLASS B SHARES OF THE INCOME FUND. Class B shares
will automatically convert into Class A shares at the end of the
month eight years after the purchase date, except as noted
below. Class B shares acquired by exchange from Class B shares of
another Putnam fund will convert into Class A shares based
on the time of the initial purchase. Class B shares acquired
through reinvestment of distributions will convert into Class A
shares based on the date of the initial purchase to which such
shares relate. For this purpose, Class B shares acquired through
reinvestment of distributions will be attributed to particular
purchases of Class B shares in accordance with such procedures as
the Trustees may determine from time to time. The conversion of
Class B shares to Class A shares is subject to the continuing
availability of a ruling from the Internal Revenue Service or an
opinion of counsel that such conversions will not constitute
taxable events for Federal tax purposes. There can be no assurance
that such ruling or opinion will be available, and the
conversion of Class B shares to Class A shares will not occur if
such ruling or opinion is not available. In such event, Class B
shares would continue to be subject to higher expenses than Class A
shares for an indefinite period.
GENERAL
The Income Fund may also sell Class A and Class B shares at net
asset value without an initial sales charge or a CDSC to its
current and retired Trustees (and their families), current and
retired employees (and their families) of Putnam Management and
affiliates, registered representatives and other employees (and
their families) of broker-dealers having sales agreements with
Putnam Mutual Funds, employees (and their families) of financial
institutions having sales agreements with Putnam Mutual Funds (or
otherwise having an arrangement with a broker-dealer or financial
institution with respect to sales of Fund shares), financial
institution trust departments investing an aggregate of $1 million
or more in Putnam funds, clients of certain administrators of tax-
qualified plans, employee benefit plans of companies with more than
750 employees, tax-qualified plans when proceeds from repayments of
loans to participants are invested (or reinvested) in Putnam funds,
"wrap accounts" for the benefit of clients of broker-dealers and
financial institutions or financial planners adhering to certain
standards established by Putnam Mutual Funds , and
investors meeting certain requirements who sold shares of certain
Putnam closed-end funds pursuant to a tender offer by the closed-
end fund. In addition, the Income Fund may sell shares at net
asset value without an initial sales charge or a CDSC in
connection with the acquisition by the Fund of assets of an
investment company or personal holding company, and the CDSC
will be waived on redemptions of shares arising out of
death or disability or in connection with certain withdrawals from
IRA or other retirement plans. Up to 12% of the value of Class
B shares subject to a Systematic Withdrawal Plan may also be
redeemed each year without a CDSC. See the Statement of
Additional Information.
Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
shares of the Fund at net asset value.
If you are considering redeeming or exchanging shares or
transferring shares to another person shortly after purchase, you
should pay for those shares with a certified check to avoid any
delay in redemption, exchange or transfer. Otherwise the Fund may
delay payment until the purchase price of those shares has been
collected or, if you redeem by telephone, until 15 calendar days
after the purchase date.
To eliminate the need for safekeeping, the Fund will not issue
certificates for your shares unless you request them.
Putnam Mutual Funds may, at its expense, provide additional
promotional incentives or payments to dealers that sell shares of
the Putnam funds. In some instances, these incentives or payments
may be offered only to certain dealers who have sold or may sell
significant amounts of shares . Certain dealers may not
sell all classes of shares.
THE MONEY MARKET FUND
The Money Market Fund continuously offers its shares at a price of
$1.00 per share. You can open an account for $1,000 or more and
make additional investments at any time for as little as $100. You
can buy Money Market Fund shares three ways - by mail, by wire, or
through most investment dealers. There are no sales charges on the
sale of Money Market Fund shares, although the Money
Market Fund may pay certain distribution expenses
as described below.
Because the Money Market Fund seeks to be fully invested at all
times, investments must be in Same Day Funds to be accepted. Same
Day Funds are monies credited to the account of the
Money Market Fund's designated bank by the Federal
Reserve Bank of Boston . When payment in Same Day Funds is
available to the Money Market Fund prior to the close of
regular trading on the New York Stock Exchange, the Money
Market Fund will accept the order to purchase shares that day.
If you are considering redeeming shares or transferring shares to
another person shortly after purchase, you should pay for those
shares with wired Same Day Funds or a certified check to avoid any
delay in redemption or transfer. Otherwise, the Money
Market Fund may delay payment for shares until the purchase
price of those shares has been collected or, if you redeem by
check, telephone or Telex, until 15 calendar days after the
purchase date.
<PAGE>
After you make your initial investment in the Money Market Fund,
Putnam Investor Services will establish an Investing Account for
you on the Money Market Fund's records. This account is a
complete record of all transactions between you and the Money
Market Fund, which at all times shows the balance of shares you
own. The Money Market Fund will not issue share certificates.
BUYING SHARES BY MAIL. Complete the order form and send it to
Putnam Investor Services with your check, Federal Reserve Draft or
other negotiable bank draft drawn on a U.S. bank and payable in
U.S. dollars to the order of Putnam Tax Exempt Money Market Fund.
If you pay by check or draft, the Money Market Fund's
designated bank will make Same Day Funds available to the Money
Market Fund, and the Money Market Fund will accept the
order, on the first business day after receipt of your check or
draft. If you pay by Federal Reserve Draft, the Money
Market Fund will accept the order the day it is received
provided it is received before the close of regular trading on
the New York Stock Exchange .
BUYING SHARES BY WIRE. You may invest in the Money Market Fund by
bank wire transfer of Same Day Funds to the Money Market
Fund's designated bank. For wiring instructions, see the order
form.
Any commercial bank can transfer Same Day Funds by wire. Wired
funds received by the Money Market Fund's designated bank by
3:00 p.m. Boston time are normally accepted for investment on the
day received. To be sure that a bank wire order is accepted on the
same day it is sent, your bank should wire funds as early in the
day as possible. Your bank may charge for sending Same Day Funds
on your behalf. The Money Market Fund's designated bank
presently does not charge you for receipt of wired Same Day Funds,
but reserves the right to charge for this service.
BUYING SHARES THROUGH INVESTMENT DEALERS. You may, if you wish,
purchase shares of the Money Market Fund through investment
dealers, which may charge a fee for their services. Most
investment dealers have a sales agreement with Putnam Mutual Funds
and will be glad to accept your order. If you do not have a
dealer, Putnam Mutual Funds can refer you to one. Investment
dealers must follow the instructions in the order form.
DISTRIBUTION PLANS
INCOME FUND CLASS A DISTRIBUTION PLAN. The purpose of the
Class A Plan is to permit the Income Fund to compensate Putnam
Mutual Funds for services provided and expenses incurred by it in
promoting the sale of Class A shares of the Fund, reducing
redemptions, or maintaining or improving services provided to
shareholders by Putnam Mutual Funds or dealers. The Class A Plan
provides for payments by the Income Fund to Putnam Mutual Funds at
the annual rate of up to 0.35% of the Income Fund's average net
assets attributable to Class A shares, subject to the authority of
the Income Fund's Trustees to reduce the amount of payments or to
suspend the Class A Plan for such periods as they may
determine. Subject to these limitations, the amount of such
payments and the specific purposes for which they are made shall be
determined by the Trustees of the Fund. At present, the Trustees
have approved payments under the Class A Plan at the annual rate
of 0.20% of the Fund's average net assets attributable to Class A
shares for the purpose of compensating Putnam Mutual
Funds for services provided and expenses incurred by it as
principal underwriter of the Fund's Class A shares, including
payments made by it to dealers under the Service Agreements
referred to below . Should the Trustees decide in the
future to approve payments in excess of this amount, shareholders
will be notified and this Prospectus revised.
In order to compensate investment dealers (including, for this
purpose, certain financial institutions) for services provided in
connection with sales of Class A shares and the maintenance
of shareholder accounts, Putnam Mutual Funds makes quarterly
payments to qualifying dealers based on the average net asset value
of Class A shares of the Fund which are attributable to
shareholders for whom the dealers are designated as the dealer of
record. Putnam Mutual Funds makes such payments at the annual rate
of 0.15% of such average net asset value for Class A shares
outstanding as of December 31, 1992 and 0.20% of such
average net asset value of shares acquired after that date
(including shares acquired through reinvestment of distributions).
INCOME FUND CLASS B DISTRIBUTION PLAN. The Class B Plan
provides for payments by the Income Fund to Putnam Mutual Funds at
the annual rate of up to 1.00% of the Income Fund's average net
assets attributable to Class B shares, subject to the authority of
the Trustees to reduce the amount of payments or to suspend the
Class B Plan for such periods as they may determine. The Trustees
currently limit payments under the Class B Plan to the annual rate
of 0.85% of such assets. Should the Trustees decide in the future
to approve payments in excess of this amount, shareholders will be
notified and this Prospectus will be revised. Putnam Mutual Funds
also receives the proceeds of any CDSC imposed on
redemptions of shares.
Although Class B shares are sold without an initial sales charge,
Putnam Mutual Funds pays a sales commission equal to 4.00%
of the amount invested (including a prepaid service fee of 0.20% of
the amount invested) to dealers who sell Class B shares . These
commissions are not paid on exchanges from other Putnam funds
and sales to investors exempt from the CDSC. In addition,
in order to further compensate dealers (including, for this
purpose, certain financial institutions) for services provided in
connection with sales of Class B shares and the maintenance of
shareholder accounts, Putnam Mutual Funds makes quarterly payments
to qualifying dealers based on the average net asset value of Class
B shares which are attributable to shareholders for whom the
dealers are designated as the dealer of record, except for the
first year's service fees, which are prepaid as described above.
Putnam Mutual Funds makes such payments at an annual rate
of 0.20% of such average net asset value of such shares.
<PAGE>
THE MONEY MARKET FUND'S DISTRIBUTION PLAN. The purpose of the
Plan is to permit the Money Market Fund to compensate Putnam
Mutual Funds for services provided and expenses incurred by
it in promoting the sale of shares of the Money Market Fund,
reducing redemptions, or maintaining or improving services provided
to shareholders by Putnam Mutual Funds or dealers. The Plan
provides for payments by the Money Market Fund to Putnam
Mutual Funds at the annual rate of up to 0.35% of the Money
Market Fund's average net assets . At present, the
Money Market Fund's Trustees have not authorized any
payments under the plan for the period beginning January
1, 1994 . Should the Money Market Fund's Trustees decide in the
future to approve payments , shareholders will be notified
and this Prospectus will be revised.
GENERAL . Putnam Mutual Funds may suspend or modify
the payments made to dealers described above, and
such payments are subject to the continuation of the
relevant Plan described above , the terms of Service
Agreements between dealers and Putnam Mutual Funds , and any
applicable limits imposed by the National Association of Securities
Dealers, Inc.
HOW TO SELL SHARES
THE INCOME FUND
You can sell your shares to the Income Fund any day the New York
Stock Exchange is open, either directly to the Income Fund or
through your investment dealer. The Income Fund will only
repurchase shares for which it has received payment.
SELLING SHARES DIRECTLY TO THE INCOME FUND. Send a signed letter
of instruction or stock power form to Putnam Investor Services,
along with any certificates that represent shares you want to sell.
The price you will receive is the next net asset value calculated
after the Fund receives your request in proper form less any
applicable CDSC . In order to receive that day's net asset
value, Putnam Investor Services must receive your request before
the close of regular trading on the New York Stock Exchange.
If you sell shares having a net asset value of $100,000 or
more, the signatures of registered owners or their legal
representatives must be guaranteed by a bank, broker-dealer
or certain other financial institutions. See the Statement of
Additional Information for more information about where to obtain a
signature guarantee. Stock power forms are available from your
investment dealer, Putnam Investor Services and many commercial
banks. If you want your redemption proceeds sent to an address
other than your address as it appears on Putnam's records, a
signature guarantee is required. Putnam Investor Services usually
requires additional documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or a surviving joint
owner. Contact Putnam Investor Services for details.
<PAGE>
THE FUND GENERALLY SENDS YOU PAYMENT FOR YOUR SHARES THE BUSINESS
DAY AFTER YOUR REQUEST IS RECEIVED. Under unusual circumstances,
the Income Fund may suspend repurchases, or postpone payment for
more than seven days, as permitted by federal securities law.
You may use Putnam's Telephone Redemption Privilege to redeem
shares valued up to $100,000 from your account unless you have
notified Putnam Investor Services of an address change within the
preceding 15 days. Unless an investor indicates otherwise on
the Account Application, Putnam Investor Services will be
authorized to act upon redemption and transfer instructions
received by telephone from a shareholder, or any person claiming to
act as his or her representative, who can provide Putnam Investor
Services with his or her account registration and address as it
appears on Putnam Investor Services' records. Putnam Investor
Services will employ these and other reasonable procedures to
confirm that instructions communicated by telephone are genuine; if
it fails to employ reasonable procedures, Putnam Investor Services
may be liable for any losses due to unauthorized or fraudulent
instructions. For information, consult Putnam Investor
Services. During periods of unusual market changes and shareholder
activity, you may experience delays in contacting Putnam Investor
Services by telephone in which case you may wish to submit a
written redemption request, as described above, or contact your
investment dealer, as described below. The Telephone Redemption
Privilege is not available if you were issued certificates for your
shares which remain outstanding. The Telephone Redemption
Privilege may be modified or terminated without notice.
SELLING SHARES THROUGH YOUR INVESTMENT DEALER. Your dealer must
receive your request before the close of regular trading on the New
York Stock Exchange and transmit it to Putnam Mutual Funds before 5
p.m. Boston time to receive that day's net asset value. Your
dealer will be responsible for furnishing all necessary
documentation to Putnam Investor Services, and may charge for its
services.
THE MONEY MARKET FUND
You can sell your shares to the Money Market Fund any day the New
York Stock Exchange is open, by check, by telephone or Telex, by
mail or through your investment dealer. The Money Market Fund must
receive your properly completed application before you may sell
shares; certain methods require additional documentation (see
below). To enable shareholders to earn daily dividends as long as
possible, the Money Market Fund has arranged the following methods
of selling shares:
SELLING SHARES BY CHECK. If you would like to use the Money Market
Fund's CheckWriting Service, please mark the proper box on the
order form and complete the signature card and, if applicable,
the resolution . When Putnam Investor Services receives your
properly completed order form , card and resolution ,
the Fund will provide you with checks drawn on the Fund's
designated bank. These checks may be made payable to the order of
any person in the amount of $500 or more. You will continue to
earn dividends until the check clears. When a check is presented
to the Fund's designated bank for payment, a sufficient number of
full and fractional shares in your account will be redeemed to
cover the amount of the check.
Shareholders using Money Market Fund checks are subject to the
Fund's designated bank's rules governing checking accounts. There
is currently no charge to the shareholder for the use of checks.
You should make sure that there are sufficient shares in your
account to cover the amount of the check drawn. If there is an
insufficient number of shares in the account, the check will be
returned marked "insufficient funds" and no shares will be
redeemed. Because dividends declared on shares held in your
account or prior withdrawals may cause the value of your account to
change, it is impossible to determine in advance your account's
total value. Accordingly, you should not write a check for the
entire value of your account or close your account by writing a
check. Redemptions by check will be confirmed at least monthly.
SELLING SHARES BY TELEPHONE OR TELEX. If you would like to sell
Money Market Fund shares by telephone or Telex with proceeds
directed to your bank account, please mark the proper box on the
order form. You may call toll-free 1-800-225-1581 or by Telex 94-
0153. On the following business day, the amount withdrawn from
your account will either be mailed by check or wired in Same Day
Funds to the bank account designated on your application. (To wire
proceeds, the amount must be $1,000 or more and the designated bank
must be a commercial bank within the United States.) The
shareholder, not the Money Market Fund, the Fund's designated bank
or Putnam Investor Services, is responsible for the authenticity of
sale instructions received by telephone or Telex. You may change a
designated bank account by sending a written request to Putnam
Investor Services with your signature guaranteed by a bank,
broker/dealer or other financial institution. See the Statement of
Additional Information about how to obtain a
signature guarantee.
You may also use Putnam's Telephone Redemption Privilege to redeem
shares valued up to $100,000 from your account unless you have
notified Putnam Investor Services of an address change within the
preceding 15 days. Unless an investor indicates otherwise on
the Account Application, Putnam Investor Services will be
authorized to act upon redemption and transfer instructions
received by telephone from a shareholder, or any person claiming to
act as his or her representative, who can provide Putnam Investor
Services with his or her account registration and address as it
appears on Putnam Investor Services' records. Putnam Investor
Services will employ these and other reasonable procedures to
confirm that instructions communicated by telephone are genuine; if
it fails to employ reasonable procedures, Putnam Investor Services
may be liable for any losses due to unauthorized or fraudulent
instructions. For information, consult Putnam Investor
Services. During periods of unusual market changes and shareholder
activity, you may experience delays in contacting Putnam Investor
Services by telephone, in which case you may wish to submit a
written redemption request, as described below, or contact your
investment dealer. The Telephone Redemption Privilege may be
modified or terminated without notice.
SELLING SHARES BY MAIL. You may also sell shares of the Money
Market Fund by sending a written withdrawal request to: Putnam
Investor Services, Mailing address: P.O. Box 41203, Providence, RI
02940-1203. If you sell shares having a net asset value of
$100,000 or more, the signatures of registered owners or their
legal representatives must be guaranteed by a bank, broker-
dealer or certain other financial institutions .
See the Statement of Additional Information for more information
about where to obtain a signature guarantee.
Putnam Investor Services may require additional documentation from
shareholders which are corporations, partnerships, agents,
fiduciaries or surviving joint owners. Corporations, partnerships,
agents, trusts and fiduciary accounts must submit a completed
resolution in proper form before selling shares by telephone or
check. Resolution forms are available from Putnam Investor
Services. If you are currently a shareholder and did not request
the CheckWriting Service or telephone/Telex redemption privilege on
your initial order form, you must first complete and return an
authorization form, available from Putnam Investor Services. A
shareholder may revoke authorization for CheckWriting Service or
telephone/Telex redemption by written notice at any time, effective
when Putnam Investor Services receives such notice.
The Money Market Fund reserves the right to terminate or modify the
terms of the CheckWriting Service or telephone/Telex redemption
privilege, or to charge shareholders for the use of these services
at any time.
THE MONEY MARKET FUND GENERALLY SENDS YOU PAYMENT FOR YOUR SHARES
THE BUSINESS DAY AFTER YOUR REQUEST IS RECEIVED. Under unusual
circumstances, the Fund may suspend repurchases, or postpone
payment for more than seven days, as permitted by federal
securities law.
HOW TO EXCHANGE SHARES
Shareholders of the Money Market Fund who received their shares in
exchange for shares of another Putnam fund with a sales charge and
shareholders of the Income Fund can exchange their shares for
shares of other Putnam funds (including shares of the Income Fund
or the Money Market Fund, as the case may be) at net asset value
beginning 15 days after purchase . Other shareholders of the
Money Market Fund may need to pay a sales charge which varies
depending on the fund to which they exchange and the amount
exchanged. Shareholders of the Money Market Fund
exchanging into funds with more than one class of shares may
exchange their shares only for Class A shares .
Shareholders of the Income Fund may exchange their
shares only for shares of the same class. If the other
Putnam fund offers only one class of shares ,
only Class A shares may be exchanged for such class. If you
exchange shares subject to a CDSC, the transaction will
not be subject to the CDSC. However, when you redeem
the shares acquired through the exchange, the redemption
may be subject to the CDSC, depending on when you originally
purchased the shares and using the schedule of any fund into or
from which you have exchanged your shares that would result in your
paying the highest CDSC applicable to your class of shares .
For purposes of computing the CDSC, the length of time you have
owned your shares will be measured from the date of
original purchase and will not be affected by the exchange.
To exchange your shares, simply complete an Exchange
Authorization Form and send it to Putnam Investor Services.
Exchange Authorization Forms are available by calling or writing
Putnam Investor Services. A Telephone Exchange Privilege is
currently available for amounts up to $500,000. Putnam Investor
Services' procedures for telephonic transactions are described
above under "How to sell shares". The Telephone Exchange
Privilege is not available if you were issued certificates of the
Income Fund for shares which remain outstanding. For federal
income tax purposes, an exchange is treated as a sale of shares and
generally results in a capital gain or loss. Ask your investment
dealer or Putnam Investor Services for prospectuses of other Putnam
funds. Shares of certain Putnam funds are not available to
residents of all states.
The exchange privilege is not intended as a vehicle for
short-term trading. Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity and in
other circumstances where the Trustees or Putnam Management
believes doing so would be in the best interests of a Fund, each
Fund reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any
exchange .
Shareholders would be notified of any such action to the
extent required by law . Consult Putnam Investor Services
before requesting an exchange. See the Statement of Additional
Information to find out more about the exchange privilege .
HOW EACH FUND VALUES ITS SHARES
THE MONEY MARKET FUND CALCULATES THE NET ASSET VALUE OF A SHARE,
AND THE INCOME FUND CALCULATES THE NET ASSET VALUE OF A SHARE OF
EACH CLASS, BY DIVIDING THE TOTAL VALUE OF ITS ASSETS, LESS
LIABILITIES, BY THE NUMBER OF ITS SHARES OUTSTANDING. SHARES ARE
VALUED AS OF THE CLOSE OF REGULAR TRADING ON THE NEW YORK STOCK
EXCHANGE EACH DAY THE EXCHANGE IS OPEN.
THE INCOME FUND. Tax Exempt Securities are stated on the basis of
valuations provided by a pricing service approved by the Trustees,
which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable
securities and various relationships between securities in
determining value. The Income Fund believes that reliable market
quotations are generally not readily available for purposes of
valuing its portfolio securities. As a result, it is likely that
most of the valuations provided by such pricing service will be
based upon fair value determined on the basis of the factors listed
above. Non-tax-exempt securities for which market quotations are
readily available are stated at market value. Short-term
investments that will mature in 60 days or less are stated at
amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following
procedures approved by the Trustees.
THE MONEY MARKET FUND. The Money Market Fund values its portfolio
investments at amortized cost according to Securities and Exchange
Commission Rule 2a-7. The amortized cost of an instrument is
determined by valuing it at cost originally and thereafter
amortizing any discount or premium from its face value at a
constant rate until maturity.
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION
THE INCOME FUND. The Income Fund declares all of its net interest
income as a distribution on each day it is open for business. Net
interest income consists of interest accrued on portfolio
investments of the Income Fund, less accrued expenses, computed in
each case since the most recent determination of net asset value.
Normally, the Income Fund pays distributions of net interest income
on the last business day of each month. The Income Fund will
distribute at least annually all net realized capital gains, if
any, after applying any available capital loss carryovers.
Distributions paid by the Income Fund with respect to Class A
shares will generally be greater than those paid with respect to
Class B shares because expenses attributable to Class B shares will
generally be higher.
THE MONEY MARKET FUND. The Money Market Fund determines its net
income each day the New York Stock Exchange is open, as of the
close of regular trading on the Exchange. Each determination of
the Money Market Fund's net income includes (i) all accrued
interest on portfolio investments of the Fund, (ii) plus or minus
all realized and unrealized gains and losses on the Fund's
portfolio investments, (iii) less all accrued expenses of the Fund.
(The Money Market Fund will not have unrealized gains or losses so
long as it values its investments by the amortized cost method.)
All of the net income of the Money Market Fund is declared each day
that the Money Market Fund is open for business as a dividend to
shareholders of record at the time of each declaration.
Shareholders begin earning dividends on the day after the Money
Market Fund accepts their orders. Each month's dividends will be
paid and reinvested on the last business day of each
month. Since the net income of the Money Market Fund is declared
as a dividend each time it is determined, the net asset value per
share of the Fund remains at $1.00 immediately after each
determination and dividend declaration.
YOU CAN CHOOSE FROM A NUMBER OF DISTRIBUTION OPTIONS: (1) reinvest
all distributions in additional Fund shares without a sales charge;
(2) (INCOME FUND ONLY) receive distributions from net interest
income in cash while reinvesting capital gains distributions in
additional shares of the Fund without a sales charge; or (3)
receive all distributions in cash. You can change your
distribution option by notifying Putnam Investor Services in
writing. If you do not select an option when you open your
account, all distributions will be reinvested. All distributions
of the Income Fund not paid in cash will be reinvested in shares of
the class which you own. You will receive a statement confirming
reinvestment of distributions in additional Fund shares (or in
shares of other Putnam funds for Dividends Plus accounts) promptly
following the quarter in which the reinvestment occurs.
If a check representing a Fund distribution is not cashed within
a specified period, Putnam Investor Services will notify you that
you have the option of requesting another check or reinvesting the
distribution in that Fund or in another Putnam fund. If Putnam
Investor Services does not receive your election, the distribution
will be reinvested in that Fund. Similarly, if correspondence sent
by a Fund or Putnam Investor Services is returned as
"undeliverable," Fund distributions will automatically be
reinvested in that Fund or in another Putnam fund.
Each Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on income
and gains it distributes to shareholders. Each Fund will
distribute substantially all of its ordinary income and
capital gain net income on a current basis.
Distributions designated by a Fund as "exempt-interest dividends"
are not generally subject to federal income tax. However, if you
receive Social Security or railroad retirement benefits, you should
consult your tax adviser to determine what effect, if any, an
investment in the Fund may have on the taxation of your benefits.
In addition, an investment in a Fund may result in liability for
federal alternative minimum tax and for state and local taxes, both
for individual and corporate shareholders.
All distributions of each Fund's income other than exempt-interest
dividends will be taxable to you as ordinary income, except that
any distributions of net long-term capital gains will be taxable to
you as such, regardless of how long you have held your shares.
Distributions will be taxable as described above whether received
in cash or in shares through the reinvestment of distributions.
Early in each year each Fund will notify you of the amount and tax
status of distributions paid to you by that Fund for the preceding
year.
<PAGE>
The foregoing is a summary of certain federal income tax
consequences of investing in each Fund. You should consult your
tax adviser to determine the precise effect of an investment in a
Fund on your particular tax situation (including possible liability
for alternative minimum tax and for state and local taxes).
ABOUT PUTNAM INVESTMENTS , INC.
PUTNAM MANAGEMENT HAS BEEN MANAGING MUTUAL FUNDS SINCE 1937.
Putnam Mutual Funds is the principal underwriter of the
Funds and of other Putnam funds. Putnam Fiduciary Trust Company is
the Funds' custodian. Putnam Investor Services, a division of
Putnam Fiduciary Trust Company, is the Funds' investor servicing
and transfer agent.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments ,
Inc., which is wholly-owned by Marsh & McLennan Companies, Inc., a
publicly owned holding company whose principal businesses are
international insurance and reinsurance brokerage, employee benefit
consulting and investment management.
<PAGE>
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PUTNAM TAX EXEMPT INCOME FUND
PUTNAM TAX EXEMPT MONEY MARKET FUND
One Post Office Square
Boston, MA 02109
FUND INFORMATION:
INVESTMENT MANAGER
Putnam Investment Management , Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
INVESTOR SERVICING AGENT
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
CUSTODIAN
Putnam Fiduciary Trust
Company
One Post Office Square
Boston, MA 02109
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand
One Post Office Square
Boston, MA 02109
PUTNAM INVESTMENTS
One Post Office Square
Boston, MA 02109
Toll-free 1-800-225-1581
<PAGE>
PUTNAM TAX EXEMPT INCOME FUND
PUTNAM TAX EXEMPT MONEY MARKET FUND
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 1994
This Statement of Additional Information is not a Prospectus
and is only authorized for distribution when accompanied or
preceded by the Prospectus of the Funds dated February 1,
1994, as revised from time to time . This
Statement contains information which may be useful to investors
but which is not included in the Prospectus. If a Fund has more
than one form of current Prospectus, each reference to the
Prospectus in this Statement shall include all the Fund's
Prospectuses, unless otherwise noted. The Statement should be
read together with the applicable Prospectus. Investors may
obtain a free copy of the applicable Prospectus from Putnam
Investor Services, Mailing address: P.O. Box 41203, Providence,
RI 02940-1203.
Part I of this Statement contains specific information about
the Funds. Part II contains information about the Funds and the
other Putnam funds.
TABLE OF CONTENTS
PART I PAGE
TAX EXEMPT SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . .I-3
TAX-EXEMPT SECURITY RATINGS. . . . . . . . . . . . . . . . . . . . . . .I-5
INVESTMENT RESTRICTIONS OF THE FUNDS . . . . . . . . . . . . . . . . . .I-8
FUND CHARGES AND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . I-12
AMORTIZED COST VALUATION AND DAILY DIVIDENDS (THE MONEY MARKET
FUND) . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-15
INVESTMENT PERFORMANCE OF THE FUNDS. . . . . . . . . . . . . . . . . . I-17
EQUIVALENT YIELDS: TAX-EXEMPT VERSUS TAXABLE SECURITIES. . . . .I- 25
ADDITIONAL OFFICERS OF THE FUNDS . . . . . . . . . . . . . . . .I- 26
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTSI-26
<PAGE>
PART II
MISCELLANEOUS INVESTMENT PRACTICES. . . . . . . . . . . . . . II-1
TAXES . . . . . . . . . . . . . . . . . . . . . . . . II- 23
MANAGEMENT OF THE FUND. . . . . . . . . . . . . . . . II- 28
DETERMINATION OF NET ASSET VALUE. . . . . . . . . . . II- 37
HOW TO BUY SHARES . . . . . . . . . . . . . . . . . . II- 39
DISTRIBUTION PLAN . . . . . . . . . . . . . . . . . . II- 50
INVESTOR SERVICES . . . . . . . . . . . . . . . . . . II- 51
SIGNATURE GUARANTEES. . . . . . . . . . . . . . . . . II- 57
SUSPENSION OF REDEMPTIONS . . . . . . . . . . . . . . II- 57
SHAREHOLDER LIABILITY . . . . . . . . . . . . . . . . II- 58
STANDARD PERFORMANCE MEASURES . . . . . . . . . . . . II- 58
COMPARISON OF PORTFOLIO PERFORMANCE . . . . . . . . . II- 59
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . II- 64
<PAGE>
PUTNAM TAX EXEMPT INCOME FUND
PUTNAM TAX EXEMPT MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
PART I
TAX EXEMPT SECURITIES
GENERAL DESCRIPTION. As used in the Prospectus and in this
Statement, the term "Tax Exempt Securities" refers to debt
obligations issued by a state and its political subdivisions (for
example, counties, cities, towns, villages, districts and
authorities) the interest from which is, in the opinion of bond
counsel, exempt from federal income tax. Such obligations are
issued to obtain funds for various public purposes, including the
construction of a wide range of public facilities, such as
airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works.
Other public purposes for which Tax Exempt Securities may be
issued include the refunding of outstanding obligations or
obtaining funds for general operating expenses. Short-term Tax
Exempt Securities are generally issued by state and local
governments and public authorities as interim financing in
anticipation of tax collections, revenue receipts, or bond sales
to finance such public purposes. In addition, certain types of
"private activity" bonds may be issued by public authorities to
finance privately operated housing facilities, and certain local
facilities for water supply, gas, electricity or sewage or solid
waste disposal, student loans, or the obtaining of funds to lend
to public or private institutions for the construction of
facilities such as educational, hospital and housing facilities.
Such obligations are included within the term Tax Exempt
Securities if the interest paid thereon is, in the opinion of
bond counsel, exempt from federal income tax (such intrest
may, however, be subject to federal alternative minimum tax) .
Other types of private activity bonds, the proceeds of which are
used for the construction, repair or improvement of, or to obtain
equipment for, privately operated industrial or commercial
facilities, may constitute Tax Exempt Securities, although the
current federal tax laws place substantial limitations on the
size of such issues. Tax Exempt Securities also include short-
term discount notes (tax-exempt commercial paper), which are
promissory notes issued by municipalities to enhance their cash
flows.
PARTICIPATION INTERESTS. The Money Market Fund may invest
in Tax Exempt Securities either by purchasing them directly or by
purchasing certificates of accrual or similar instruments
evidencing direct ownership of interest payments or principal
payments, or both, on Tax Exempt Securities, provided that, in
the opinion of counsel to the initial seller of each such
certificate or instrument, any discount accruing on the
certificate or instrument that is purchased at a yield not
greater than the coupon rate of interest on the related Tax
Exempt Securities will be exempt from federal income tax to the
same extent as interest on the Tax Exempt Securities. The Money
Market Fund may also invest in Tax Exempt Securities by
purchasing from banks participation interests in all or part of
specific holdings of Tax Exempt Securities. These participations
may be backed in whole or in part by an irrevocable letter of
credit or guarantee of the selling bank. The selling bank may
receive a fee from the Fund in connection with the arrangement.
The Fund will not purchase such participation interests unless it
receives an opinion of counsel or a ruling of the Internal
Revenue Service that interest earned by it on Tax Exempt
Securities in which it holds such participation interests is
exempt from federal income tax. The Money Market Fund does not
expect to invest more than 5% of its assets in participation
interests.
STAND-BY COMMITMENTS. When a Fund purchases Tax
Exempt Securities, it has the authority to acquire stand-by
commitments from banks and broker-dealers with respect to those
Tax Exempt Securities. A stand-by commitment may be considered a
security independent of the Tax Exempt Security to which it
relates. The amount payable by a bank or dealer during the time
a stand-by commitment is exercisable, absent unusual
circumstances, would be substantially the same as the market
value of the underlying Tax Exempt Security to a third party at
any time. Each Fund expects that stand-by commitments
generally will be available without the payment of direct or
indirect consideration. Neither Fund expects to
assign any value to stand-by commitments.
YIELDS. The yields on Tax Exempt Securities depend on a
variety of factors, including general money market conditions,
effective marginal tax rates, the financial condition of the
issuer, general conditions of the Tax Exempt Security market, the
size of a particular offering, the maturity of the obligation and
the rating of the issue. The ratings of Moody's and Standard &
Poor's represent their opinions as to the quality of the Tax
Exempt Securities which they undertake to rate. It should be
emphasized, however, that ratings are general and are not
absolute standards of quality. Consequently, Tax Exempt
Securities with the same maturity and interest rate with
different ratings may have the same yield. Yield disparities may
occur for reasons not directly related to the investment quality
of particular issues or the general movement of interest rates,
due to such factors as changes in the overall demand or supply of
various types of Tax Exempt Securities or changes in the
investment objectives of investors. Subsequent to purchase by a
Fund, an issue of Tax Exempt Securities or other investments may
cease to be rated or its rating may be reduced below the minimum
rating required for purchase by a Fund. Neither event will
require the elimination of an investment from a Fund's portfolio,
but Putnam Management will consider such an event in its
determination of whether a Fund should continue to hold an
investment in its portfolio.
"MORAL OBLIGATION" BONDS. Neither Fund currently intends to
invest in so-called "moral obligation" bonds, where repayment is
backed by a moral commitment of an entity other than the issuer,
unless the credit of the issuer itself, without regard to the
"moral obligation", meets the investment criteria established for
investments by the Fund.
ADDITIONAL RISKS. Securities in which the Funds may invest,
including Tax Exempt Securities, are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the federal Bankruptcy Code, and
laws, if any, which may be enacted by Congress or the state
legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement
of such obligations. There is also the possibility that as a
result of litigation or other conditions the power or ability of
issuers to meet their obligations for the payment of interest and
principal on their Tax Exempt Securities may be materially
affected.
From time to time, proposals have been introduced before
Congress for the purpose of restricting or eliminating the
federal income tax exemption for interest on debt obligations
issued by states and their political subdivisions.
Federal tax legislation limits the types and amounts of
tax-exempt bonds issuable for certain purposes, especially for
industrial development bonds and other types of so-called
"private activity bonds". Such limits may affect the future
supply and yields of these types of Tax Exempt Securities.
Further proposals limiting the issuance of tax-exempt bonds may
well be introduced in the future. If it appeared that the
availability of Tax Exempt Securities for investment by a Fund
and the value of that Fund's portfolio could be materially
affected by such changes in law, the Trustees of that Fund would
reevaluate its investment objective and policies and consider
changes in the structure of the Fund or its dissolution.
TAX-EXEMPT SECURITY RATINGS
The ratings services' descriptions of the tax-exempt securities
in which the Funds will invest are:
<PAGE>
MOODY'S INVESTORS SERVICE, INC.
BONDS
Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt-edge". Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high-grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger
than in Aaa securities.
*A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which suggest
a susceptibility to impairment sometime in the future.
*Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
*Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
NOTES
MIG 1/VMIG 1 -- This designation denotes best quality. There is
present strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the
market for refinancing.
MIG 2/VMIG 2 -- This designation denotes high quality. Margins
of protection are ample although not so large as in the preceding
group.
COMMERCIAL PAPER
Issuers rated PRIME-1 (or related supporting institutions)
have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics:
-- Leading market positions in well established
industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
-- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
-- Well established access to a range of financial markets
and assured sources of alternate liquidity.
Issuers rated PRIME-2 (or related supporting institutions)
have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the
characteristics cited above to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
STANDARD & POOR'S CORPORATION
BONDS
AAA -- Debt rated AAA has the highest rating assigned by Standard
& Poor's. Capacity to pay interest and repay principal is
extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues only
in small degree.
*A -- Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
*BBB -- Debt rated BBB is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in
this category than in higher rated categories.
*BB -- Debt rated BB is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the
obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
NOTES
SP-1 -- Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
COMMERCIAL PAPER
A-1 -- This designation indicates that the degree of safety
regarding timely payment is either overwhelming or very strong.
Those issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign designation.
A-2 -- Capacity for timely payment on issues with this
designation is strong. However, the relative degree of safety is
not as high as for issues designated "A-1".
*Applies only to the Income Fund.
INVESTMENT RESTRICTIONS OF THE FUNDS
AS FUNDAMENTAL INVESTMENT RESTRICTIONS OF EACH FUND, WHICH
MAY NOT BE CHANGED WITHOUT A VOTE OF A MAJORITY OF THE
OUTSTANDING VOTING SECURITIES OF THAT FUND, THE FUND MAY NOT AND
WILL NOT TAKE ANY OF THE FOLLOWING ACTIONS WITH RESPECT TO SUCH
FUND:
(1) Borrow money in excess of 10% of the value (taken at the
lower of cost or current value) of its total assets (not
including the amount borrowed) at the time the borrowing is made,
and then only from banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio
investments or for extraordinary or emergency purposes. Such
borrowings will be repaid before any additional investments are
purchased.
<PAGE>
(2a) (INCOME FUND ONLY) Pledge, hypothecate, mortgage, or
otherwise encumber its assets in excess of 10% of its total
assets (taken at the lower of cost or current value) in
connection with borrowings permitted by restriction 1 above.
(2b) (MONEY MARKET FUND ONLY) Pledge, hypothecate, mortgage,
or otherwise encumber its assets in excess of 10% of its total
assets (taken at the lower of cost or current value) and then
only to secure borrowings permitted by restriction 1 above. For
the purposes of this restriction, collateral arrangements with
respect to margin for financial futures contracts or related
options are not deemed to be a pledge of assets.
(3) Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of purchases and
sales of securities, but it may make margin payments in
connection with financial futures contracts or related options.
(4) Make short sales of securities or maintain a short
position for the account of the Fund unless at all times when a
short position is open it owns an equal amount of such securities
or owns securities which, without payment of any further
consideration, are convertible into or exchangeable for
securities of the same issue as, and equal in amount to, the
securities sold short.
(5) Underwrite securities issued by other persons except to
the extent that, in connection with the disposition of its
portfolio investments, it may be deemed to be an underwriter
under certain federal securities laws.
(6) Purchase or sell real estate, although it may purchase
securities which are secured by or represent interests in real
estate.
(7) Purchase or sell commodities or commodity contracts
except financial futures contracts and related options.
(8) Make loans, except by purchase of debt obligations in
which the Fund may invest consistent with its investment
policies, and through repurchase agreements.
(9) Invest in securities of any issuer if, to the knowledge
of the Fund, officers and Trustees of the Fund and officers and
directors of Putnam Management who beneficially own more than
0.5% of the securities of that issuer together own more than 5%.
(10) Invest in securities of any issuer if, immediately
after such investment, more than 5% of the total assets of the
Fund taken at current value would be invested in the securities
of such issuer; provided that this limitation does not apply to
obligations issued or guaranteed as to interest and principal by
the U.S. government, its agencies or instrumentalities and, for
the Money Market Fund, Tax Exempt Securities.
(11) Purchase securities which are restricted as to resale,
if, as a result, such investments would exceed 15% of the value
of the Fund's net assets, excluding restricted securities that
have been determined by the Trustees of the Fund (or the person
designated by them to make such determinations) to be readily
marketable.
(12) Purchase securities (other than securities of the U.S.
government, its agencies or instrumentalities) if as a result of
such purchase more than 25% of the Fund's total assets would be
invested in any one industry.
(13) Acquire more than 10% of the voting securities of any
issuer.
(14) Issue any class of securities which is senior to the
Fund's shares of beneficial interest.
IT IS CONTRARY TO THE PRESENT POLICY OF EACH FUND, WHICH
POLICY MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL, WITH RESPECT
TO EITHER FUND, TO:
(1) Invest in securities of registered open-end investment
companies, except as they may be acquired as part of a merger or
consolidation or acquisition of assets or by purchases in the
open market involving only customary brokers' commissions.
(2) Engage in puts, calls, straddles, spreads or any
combination thereof, except that a fund may buy and sell put and
call options (and any combination thereof) on securities, on
financial futures contracts, and on securities indices and may,
in connection with the purchase of fixed-income securities,
acquire attached warrants or other rights to subscribe for
securities of companies issuing such fixed-income securities or
securities of parents or subsidiaries of such companies. (The
Funds' investment policies do not currently permit them to
exercise warrants or rights with respect to equity securities.)
(3) Invest in securities of any issuer if the party
responsible for payment, together with any predecessor, has been
in operation for less than three years, and, as a result of the
investment, the aggregate of such investments would exceed 5% of
the value of a Fund's net assets; provided, however, that this
restriction shall not apply to any obligation of the United
States or its agencies or for the payment of which is pledged the
faith, credit and taxing power of any person authorized to issue
Tax Exempt Securities.
(4) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts.
(5) Invest in (a) securities which at the time of such
investment are not readily marketable, (b) securities restricted
as to resale (excluding securities determined by the Trustees of
the Fund (or the person designated by the Trustees of the Fund to
make such determinations) to be readily marketable), and (c)
repurchase agreements maturing in more than seven days, if, as a
result, more than 15% of the Fund's net assets (taken at current
value) would then be invested in the aggregate in securities
described in (a), (b) and (c) above.
(6) (MONEY MARKET FUND ONLY) Engage in arbitrage provisions
(i.e. buy and sell a security simultaneously on different
exchanges).
(7) (INCOME FUND ONLY) Invest in warrants if, as a result,
such investments (valued at the lower cost or market) would
exceed 5% of the value of the Fund's net assets; provided that
not more than 2% of the Fund's net assets may be invested in
warrants not listed on the New York or American Stock Exchanges.
(8) (INCOME FUND ONLY) Purchase or sell real property
(including limited partnership interests), except that the Fund
may (a) purchase or sell readily marketable interests in real
estate investment trusts or readily marketable securities of
companies which invest in real estate (b) purchase or sell
securities that are secured by interests in real estate or
interests therein, or (c) acquire real estate through exercise of
its rights as a holder of obligations secured by real estate or
interests therein or sell real estate so acquired.
Changes in the above policies will be reflected in the
Funds' Prospectus or in this Statement. The Funds have
undertaken to certain state securities authorities that certain
of these policies will not be changed without approval of such
authorities so long as shares of a Fund are registered for sale
in such states. Changes in these policies could result in
increased investment risk.
Although certain of the Funds' investment restrictions
permit the Funds to borrow money to a limited extent, the Funds
do not currently intend to do so and did not do so last year.
The Money Market Fund has no present intention of engaging in
options or futures transactions and the Income Fund has no
present intention of selling options, as addressed in fundamental
investment restrictions 2, 3, and 7 and nonfundamental investment
restriction 2.
--------------
All percentage limitations on investments will apply at the
time of the making of an investment and shall not be considered
violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.
The Investment Company Act of 1940 provides that a "vote of
a majority of the outstanding voting securities" of the Funds
means the affirmative vote of the lesser of (1) more than 50% of
the outstanding shares of a Fund, or (2) 67% or more of the
shares present at a meeting if more than 50% of the outstanding
shares are represented at the meeting in person or by proxy.
FUND CHARGES AND EXPENSES
THE INCOME FUND
MANAGEMENT FEES
Under a Management Contract dated July 11, 1991, the Income
Fund pays a quarterly fee to Putnam Management based on the
average net assets of the Fund, as determined at the close of
each business day during the quarter, at an annual rate of 0.60%
of the first $500 million of the Fund's average net assets, 0.50%
of the next $500 million, 0.45% of the next $500 million and
0.40% of any amount of $1.5 billion. For its 1991
, 1992 and 1993 fiscal years, pursuant to the
Management Contract (and a management contract in effect prior to
July 11, 1991, under which the management fee payable to Putnam
Management was paid at the rate of 0.50% of the first $100
million of the average net assets, 0.40% of the next $100
million, 0.35% of the next $300 million, 0.325% of the next $1
billion and 0.30% of any amount over $1.5 billion), the Income
Fund incurred fees of $5,461,513 , $8,373,819
and $10,553,630 , respectively.
BROKERAGE COMMISSIONS
Most purchases and sales of portfolio investments are with
underwriters of or dealers, acting as principal. Accordingly,
the Income Fund does not ordinarily pay significant brokerage
commissions. During fiscal 1991, the Income Fund did not
incur any brokerage commissions on agency transactions. During
fiscal 1992 and 1993 , the Income Fund incurred brokerage
commissions aggregating $60,882 and $22,865, respectively,
on agency transactions. In fiscal 1991 , 1992
and 1993 , the Income Fund incurred underwriting
commissions aggregating $656,080 , $4,192,719
and $967,813 , respectively, on underwritten transactions.
In fiscal 1993 Putnam Management, on behalf of the Income
Fund, placed agency and underwritten transactions having an
approximate aggregate dollar value of $12,768,390 (8.77%
of the Fund's agency and underwritten transactions, on which
approximately $86,875 of commissions were paid) with
brokers and dealers to recognize research, statistical and
quotation services Putnam Management considered to be
particularly useful to it and its affiliates.
ADMINISTRATIVE EXPENSE REIMBURSEMENT
The Income Fund reimbursed Putnam Management $49,761
for administrative services in fiscal 1993 , including
$44,600 for the compensation of certain officers of the Fund and
their staff and contributions to the Putnam
Investments, Inc. Profit Sharing Retirement Plan
for their benefit.
TRUSTEE FEES
Each Trustee of the Income Fund receives an annual fee of
$3,160 and an additional fee for each Trustees' meeting
attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the Trustees receive
additional fees for attendance at certain committee meetings.
The Income Fund incurred Trustees' fees aggregating
$45,457 in fiscal 1993 .
OWNERSHIP OF FUND SHARES
At December 31, 1993 , the officers and
Trustees of the Income Fund as a group owned less than 1% of the
outstanding shares of either class of the Income Fund, and to the
knowledge of the Income Fund no person owned of record or
beneficially 5% or more of the shares of either class of the
Income Fund.
CLASS A SALES CHARGES, CONTINGENT DEFERRED SALES CHARGES
AND
12B-1 FEES
During fiscal 1991 , 1992 and 1993 ,
Putnam Mutual Funds received $7,438,142 ,
$11,956,838 and $17,371,752 , respectively, in sales
charges on sales of Class A shares of the Income Fund, of which
it retained $524,761 , $774,328 and
$892,113 , respectively, after allowance of dealer
concessions. During fiscal 1991, Putnam Mutual Funds did
not receive any contingent deferred sales charges upon
redemptions of Class A shares of the Fund. During fiscal 1992
and 1993 , Putnam Mutual Funds received $163 and
$15,738, respectively, in contingent deferred sales charges
upon redemptions of Class A shares of the Fund. During fiscal
1993, the Fund incurred $3,353,271 in 12b-1 fees to Putnam Mutual
Funds pursuant to the Fund's Class A Distribution Plan.
CLASS B CONTINGENT DEFERRED SALES CHARGES AND 12B-1 FEES
During fiscal 1993, Putnam Mutual Funds received $82,695 in
contingent deferred sales charges upon redemptions of Class B
shares of the Fund. During fiscal 1993, the Fund
incurred $428,694 in 12b-1 fees to Putnam Mutual Funds pursuant
to the Fund's Class B Distribution Plan .
INVESTOR SERVICING AND CUSTODY FEES AND EXPENSES
During the 1993 fiscal year, the Income Fund incurred
$1,703,872 in fees and out-of-pocket expenses for
investor servicing and custody services provided by Putnam
Fiduciary Trust Company.
<PAGE>
MONEY MARKET FUND
MANAGEMENT FEES
Under a Management Contract dated July 9, 1992, the Money
Market Fund pays a quarterly fee to Putnam Management based on
the average net assets of the Fund, as determined at the close of
each business day during the quarter, at an annual rate of 0.45%
of the first $500 million of the Fund's average net assets, 0.35%
of the next $500 million, 0.30% of the next $500 million and
0.25% of any amount over $1.5 billion. For its 1991
, 1992 and 1993 fiscal years, pursuant to the
Management Contract (and a management contract in effect prior to
July 9, 1992 under which the fee payable to Putnam Management was
paid at the annual rate of 0.50% of the Fund's average net
assets), the Money Market Fund incurred fees of $216,424
, $190,911 and $357,072 , respectively. (This
reflects reductions of $324,354 and $275,388 for
fiscal 1991 and 1992 , respectively, pursuant to an expense
limitation in effect during these periods which was
terminated as of September 30, 1992).
BROKERAGE COMMISSIONS
It is anticipated that most purchases and sales of portfolio
investments will be with the issuer or with major dealers in
money market instruments acting as principal. Accordingly, it is
not anticipated that the Fund will pay significant brokerage
commissions. The Fund paid no brokerage commissions in fiscal
1991 , 1992 or 1993 . In underwritten
offerings, the price paid by the Fund includes a disclosed, fixed
commission or discount retained by the underwriter. There is
generally no stated commission in the case of securities
purchased from or sold to dealers, but the prices of such
securities usually include an undisclosed dealer's mark-up or
mark-down. The Fund paid no underwriting commissions in fiscal
1991 , 1992 or 1993 .
ADMINISTRATIVE EXPENSE REIMBURSEMENT
The Money Market Fund reimbursed Putnam Management
$5,676 for administrative services in fiscal 1993,
including $5,087 for the compensation of certain officers
of the Fund and their staff and contributions to the Putnam
Investments, Inc. Profit Sharing Retirement Plan
for their benefit.
QUALIFICATION AND REGISTRATION FEES
The Money Market Fund pays all fees for its qualification or
registration as an issuer or broker-dealer or for registration of
its shares in states in connection with such qualifications or
registrations.
TRUSTEE FEES
Each Trustee of the Money Market Fund receives an annual fee
of $430 , and an additional fee for each Trustees' meeting
attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the Trustees receive
additional fees for attendance at certain committee meetings.
The Money Market Fund incurred Trustees' fees aggregating
$9,565 in fiscal 1993 .
OWNERSHIP OF FUND SHARES
At December 31, 1993 the officers and Trustees
of the Money Market Fund as a group owned 812,274 (1.05%)
of the outstanding shares of the Money Market Fund, and to the
knowledge of the Money Market Fund no person owned of record or
beneficially 5% or more of the shares of the Money Market Fund.
SALES CHARGES AND 12B-1 FEES
Shares are distributed directly by the Money Market Fund
through Putnam Mutual Funds, which acts as principal underwriter
for the Money Market Fund. During fiscal 1993 , the Money
Market Fund incurred $78,252 in 12b-1 fees to Putnam
Mutual Funds pursuant to the Fund's Distribution Plan.
INVESTOR SERVICING AND CUSTODY FEES AND EXPENSES
During the 1993 fiscal year, the Money Market Fund
incurred $244,681 in fees and out-of-pocket expenses for
investor servicing and custody services provided by Putnam
Fiduciary Trust Company.
AMORTIZED COST VALUATION AND DAILY DIVIDENDS (THE MONEY MARKET
FUND)
The valuation of the Money Market Fund's portfolio
instruments at amortized cost is permitted in accordance with
Securities and Exchange Commission Rule 2a-7 and certain
procedures which were adopted by the Trustees. The amortized
cost of an instrument is determined by valuing it at cost
originally and thereafter amortizing any discount or premium from
its face value at a constant rate until maturity, regardless of
the effect of fluctuating interest rates on the market value of
the instrument. Although the amortized cost method provides
certainty in valuation, it may result at times in determinations
of value that are higher or lower than the price the Money Market
Fund would receive if the instruments were sold. Consequently,
in the absence of circumstances described below, changes in the
market value of portfolio instruments during periods of rising or
falling interest rates will not be reflected either in the
computation of net asset value of the Fund's portfolio or in the
daily computation of net income. Under the procedures adopted by
the Trustees, the Money Market Fund must maintain a dollar-
weighted average portfolio maturity of 90 days or less, purchase
only instruments having remaining maturities of 397 days or less
and invest in securities determined by the Trustees to be of high
quality with minimal credit risks. The Trustees have also
established procedures designed to stabilize, to the extent
reasonably possible, the Fund's price per share as computed for
the purpose of distribution, redemption and repurchase at $1.00.
Such procedures will include review of the Fund's portfolio
holdings by the Trustees, at such intervals as they may deem
appropriate, to determine whether the Fund's net asset value
calculated by using readily available market quotations deviates
from $1.00 per share, and, if so, whether such deviation may
result in material dilution or is otherwise unfair to existing
shareholders. In the event the Trustees determine that such a
deviation exists, they will take such corrective action as they
regard as necessary and appropriate, including the sale of
portfolio instruments prior to maturity to realize capital gains
or losses or to shorten average portfolio maturity; withholding
dividends; redemption of shares in kind; or establishing a net
asset value per share by using readily available market
quotations.
Since the net income of the Money Market Fund is declared as
a dividend each time it is determined, the net asset value per
share of the Fund remains at $1.00 per share immediately after
such determination and dividend declaration. Any increase in the
value of a shareholder's investment in the Money Market Fund
representing the reinvestment of dividend income is reflected by
an increase in the number of shares of the Fund in the
shareholder's account on the first day of the next month (or, if
that day is not a business day, on the next business day). It is
expected that the Money Market Fund's net income will be positive
each time it is determined. However, if because of realized
losses on sales of portfolio investments, a sudden rise in
interest rates, or for any other reason the net income of the
Money Market Fund determined at any time is a negative amount,
the Fund will offset such amount allocable to each shareholder's
account from dividends accrued during the month with respect to
such account. If at the time of payment of a dividend (either at
the regular monthly dividend payment date, or, in the case of a
shareholder who is withdrawing all or substantially all of the
shares in an account, at the time of withdrawal), such negative
amount exceeds a shareholder's accrued dividends, the Fund will
reduce the number of outstanding shares by treating the
shareholder as having contributed to the capital of the Fund that
number of full and fractional shares which represent the amount
of the excess. Each shareholder is deemed to have agreed to such
contribution in these circumstances by his or her investment in
the Money Market Fund.
<PAGE>
INVESTMENT PERFORMANCE OF THE FUNDS
STANDARD PERFORMANCE MEASURES
THE INCOME FUND
The Income Fund's tax-exempt yield for the thirty-
day period ended September 30, 1993 for Class A shares was
4.78% . A Class A shareholder in a 39.6% federal tax
bracket would have to earn 7.91% from a taxable investment
to produce an after-tax yield equal to the Income Fund's tax-
exempt yield of 4.78% . The Income Fund's average annual
total return (compounded annually) for Class A shares for the
one-, five- and ten-year periods ended September 30, 1993
was +8.90%, +9.84% and +10.76% , respectively,
adjusted to reflect the deduction of the maximum sales charge of
4.75%. The Income Fund's tax-exempt yield for the thirty-day
period ended September 30, 1993 for Class B shares was
4.35%. A Class B shareholder in a 39.6% federal tax bracket
would have to earn 7.20% from a taxable investment to produce an
after-tax yield equal to the Income Fund's tax-exempt yield of
4.35%. The Income Fund's average annual total return (compounded
annually) for Class B shares since the commencement of the public
offering of such shares on January 1, 1993 through September 30,
1993 was +6.10%, adjusted to reflect the deduction of the maximum
sales charge of 5.00% . See "Standard Performance Measures"
in Part II of this Statement for information on how the Income
Fund's tax-exempt yield, total return and tax-equivalent yield
are calculated.
THE MONEY MARKET FUND
Based on the seven-day period ended September 30,
1993 the Money Market Fund's tax exempt yield was
1.89% , and the Money Market Fund's tax-exempt effective
yield was 1.91% . A shareholder in a 39.6% federal
tax bracket would have to earn 3.13% from a taxable
investment to produce an after-tax yield equal to the Money
Market Fund's tax exempt yield of 1.89% . See "Standard
Performance Measures" in Part II of this Statement for
information on how the Money Market Fund's tax exempt yield,
effective yield and tax-equivalent yield are calculated.
PERFORMANCE RATINGS
THE INCOME FUND
For the 1993 fiscal year, the Class A shares of the
Income Fund were ranked 36 of 125 general municipal
debt funds by Lipper Analytical Services, Inc. and 39 of
205 general municipal bond funds by
CDA/Wiesenberger's Management Results. As of the end of
the fiscal year, the Class A shares were given a 2-star rating
(out of 5 stars) by Morningstar, Inc. . Rankings are not
available for the Class B shares of the Fund . See
"Comparison of Portfolio Performance" in Part II of this
Statement for information about how these rankings are
determined. Past performance is no guarantee of future
results.
THE MONEY MARKET FUND
For the 1993 fiscal year, the Money Market Fund was
ranked 92 of 117 tax exempt money market funds
by Lipper Analytical Services, Inc. See "Comparison of
Portfolio Performance" in Part II of this Statement for
information about how this ranking is determined. Past
performance is no guarantee of future results.
OTHER PERFORMANCE INFORMATION
The tables below show total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment
in one share of each Fund during the life of that Fund. This was
a period of fluctuating tax-exempt bond prices. The tables do
not project the future performance of the Funds.
<PAGE>
<TABLE>
<CAPTION>
PUTNAM TAX EXEMPT INCOME FUND - CLASS A SHARES
CUMULATIVE
MAXIMUM NET ASSET DISTRIBUTIONS NET ASSET VALUE
OFFERING VALUE ------------------AT YEAR-END
FISCAL PRICE AT ----------------- FROM FROM WITH ALL
YEAR BEGINNING BEGINNING END OF INVESTMENT CAPITAL DISTRIBUTIONS
ENDED OF YEAR OF YEAR YEAR INCOME GAINS REINVESTED
- -----------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
11/30/77(1) $8.43 $8.03 $8.15 $ 0.37 --- $ 8.53
11/30/78 8.56 8.15 7.33 0.42 $0.02 8.13
11/30/79 7.70 7.33 6.81 0.45 --- 8.03
11/30/80 7.15 6.81 6.10 0.50 --- 7.78
11/30/81 6.40 6.10 5.53 0.58 --- 7.79
11/30/82 5.81 5.53 6.86 0.62 --- 10.76
11/30/83 7.20 6.86 7.28 0.62 --- 12.44
11/30/84 7.64 7.28 6.87 0.63 --- 12.83
09/30/85(2) 7.21 6.87 7.44 0.56 --- 15.00
09/30/86 7.81 7.44 8.59 0.65 0.05 18.84
09/30/87 9.02 8.59 7.68 0.61 0.08 18.25
09/30/88 8.06 7.68 8.33 0.61 --- 21.34
09/30/89 8.75 8.33 8.54 0.59 --- 23.46
09/30/90 8.97 8.54 8.29 0.57 0.04 24.46
09/30/91 8.70 8.29 8.81 0.58 0.02 27.87
09/30/92 9.25 8.81 9.11 0.60 0.16 31.37
09/30/93 9.56 9.11 9.66 0.57 0.13 35.84
----- -----
Total distributions $9.53 $0.50
(1) Investment operations began December 31, 1976.
(2) December 1, 1984 - September 30, 1985.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGES DURING LIFE OF FUND
PUTNAM TAX EXEMPT INCOME FUND - CLASS A SHARES
----------------------------------------------
MAXIMUM OFFERING NET ASSET VALUE LEHMAN BROTHERS
PRICE TO NET TO NET MUNICIPAL CONSUMER
FISCAL ASSET VALUE ASSET VALUE BOND INDEX (1) PRICE INDEX
YEAR CUMULA- CUMULA- CUMULA- CUMULA-
ENDED ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE
- ---------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
11/30/77(2) -- +1.2% -- +6.2% n.a. n.a. -- +6.4%
11/30/78 -9.2 % -3.6 -4.7% +1.2 n.a. n.a. +8.9% +15.8
11/30/79 -5.9 -4.8 -1.2 -0.1 n.a. n.a. +12.6 +30.4
11/30/80 -7.8 -7.8 -3.2 -3.3 n.a. n.a. +12.7 +46.9
11/30/81 -4.4 -7.6 +0.3 - 3.0 n.a. -3.5% +9.6+61.0
11/30/82 +31.4 +27.7 +38.1 +34.0 +22.2 +17.9 +4.6 +68.4
11/30/83 +10.0 +47.6 +15.6 +54.9 +13.3 +33.6 +3.3 +73.9
11/30/84 -1.7 +52.2 +3.1 +59.7 +8.7 +45.2 +4.1 +80.9
09/30/85(3) +11.3 +77.9 +16.9 +86.7 +13.1 +64.3 +2.9 +86.1
09/30/86 +19.7 +123.4 +25.6 +134.5 +24.7 +104.8 +1.8 +89.4
09/30/87 -7.7 +116.5 -3.1 +127.2 +0.5 +105.9 +4.4 +97.6
09/30/88 +11.4 +153.2 +17.0 +165.7 +13.0 +132.6 +4.2 +105.8
09/30/89 +4.7 +178.3 +9.9 +192.0 +8.7 +152.8 +4.3 +114.8
09/30/90 -0.7 +190.2 +4.3 +204.5 +6.8 +169.9 +6.2 +128.0
09/30/91 +8.6 +230.6 +13.9 +246.9 +13.2 +205.5 +3.4 +135.7
09/30/92 +7.2 +272.1 +12.6 +290.5 +10.5 +237.5 +3.0 +142.8
09/30/93 +8.9 +325.2 +14.3 +346.2 +12.8 +280.5 +2.7 +149.3
(1) Not availabe for entire period. Period begins November 30, 1980.
(2) Investment operations began December 31, 1976.
(3) December 1, 1984 - September 30, 1985.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
PUTNAM TAX EXEMPT INCOME FUND - CLASS B SHARES
CUMULATIVE
DISTRIBUTIONS NET ASSET VALUE
PERIOD NET ASSET VALUE ------------------- AT YEAR-END
ENDED ------------------ FROM FROM WITH ALL
SEPTEMBER BEGINNING END OF INVESTMENT CAPITAL DISTRIBUTIONS
30 OF YEAR YEAR INCOME GAINS REINVESTED
- ------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
1993 (1) $9.02 $9.66 $0.346 $--
$10.02
(1) Class B shares were offered beginning January 1, 1993.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGES SINCE THE COMMENCEMENT OF THE PUBLIC OFFERING OF CLASS B SHARES
PUTNAM TAX EXEMPT INCOME FUND
-------------------------------
NET ASSET VALUE LEHMAN BROTHERS
PERIOD TO NET MUNICIPAL CONSUMER
ENDED ASSET VALUE BOND INDEX PRICE INDEX
SEPTEMBER CUMULA- CUMULA- CUMULA-
30 ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE
- --------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
1993(1) -- +11.10% -- +10.73% -- +2.25%
(1) Class B shares were offered beginning January 1, 1993.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
THE MONEY MARKET FUND
PUTNAM TAX CUMULATIVE
EXEMPT NET ASSET VALUE
MONEY MARKET DISTRIBUTIONS AT YEAR-END CONSUMER
FISCAL FUND FROM NET WITH ALL PRICE INDEX
YEAR CUMULA- INVESTMENT DISTRIBUTIONS CUMULA-
ENDED ANNUAL TIVE INCOME REINVESTED ANNUAL TIVE
- -------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
09/30/88(1) -- +4.4% $0.04263 $1.04 -- +3.9%
09/30/89 +5.9% +10.5 0.05767 1.11 +4.3% +8.4
09/30/90 +5.6 +16.7 0.05468 1.17 +6.2 +15.1
09/30/91 +4.7 +22.3 0.04643 1.22 +3.4 +19.0
09/30/92 +3.0 +25.9 0.02975 1.26 +3.0 +22.6
09/30/93 +1.9 +28.3 0.01835 1.28 +2.7 +25.9
Total distributions $0.24951
(1) Investment operations began October 26, 1987
/TABLE
<PAGE>
The tables are not adjusted for any taxes payable on
reinvested distributions and are not adjusted to reflect payments
under the Income Fund's Class A Distribution Plan prior to its
implementation on January 1, 1993. The total values for the
Funds as of the end of each period reflect reinvestment of all
distributions and all changes in net asset value.
The Lehman Brothers Municipal Bond Index is an unmanaged
list of approximately 20,000 investment-grade, fixed-rate tax-
exempt bonds. The average quality of bonds held in the index may
differ from the average quality of those bonds in which the
Income Fund invests. The index does not include bonds in certain
of the lower-rating classifications in which the Income Fund may
invest. The performance figures for the index reflect changes of
market prices and reinvestment of all interest payments. Because
the Income Fund is a managed portfolio investing in tax-exempt
securities, the securities it owns will not match those in the
index.
The Consumer Price Index, prepared by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the rate of
inflation. The index shows the average change in the cost of
selected consumer goods and services and does not represent a
return on an investment vehicle.<PAGE>
<TABLE>
<CAPTION>
EQUIVALENT YIELDS: TAX-EXEMPT VERSUS TAXABLE SECURITIES
The table below shows the effect of the tax status of Tax Exempt Securities on the effective yield received by their
individual holders under the federal income tax laws in effect for 1994. It gives the approximate yield a taxable
security must earn at various income levels to produce after-tax yields equivalent to those of tax-exempt securities
yielding from 3.0% to 8.0%.
- -----------------------------------------------------------------------------------------
MARGINAL
TAXABLE INCOME* FEDERAL TAX-EXEMPT YIELD
------------------------ INCOME ------------------------------------
TAX
JOINT SINGLE RATE** 3% 4% 5% 6% 7% 8%
- -----------------------------------------------------------------------------------------
EQUIVALENT TAXABLE YIELD
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-38,000 $0-22,750 15.0% 3.5% 4.7% 5.9% 7.1% 8.2% 9.4%
38,001-91,850 22,751-55,100 28.0 4.2 5.6 6.9 8.3 9.7 11.1
91,851-140,000 *** 55,101-115,000 *** 31.0 4.3 5.8 7.3 8.7 10.1 11.6
140,001-250,000 *** 115,001-250,000 *** 36.0 4.7 6.3 7.8 9.4 10.9 12.5
over 250,000 *** over 250,000 *** 39.6 5.0 6.6 8.3 9.9 11.6 13.3
- ------------------------------------------------------------------------------------------
* This amount represents taxable income as defined in the Internal Revenue Code of 1986, as amended (the "Code").
** These rates are the marginal federal income tax rates on taxable income currently in effect for 1994 under the
Code.
*** The amount of taxable income in this bracket may be affected by the phase-out of personal exemptions and the
limitation on itemized deductions under the Code.
</TABLE>
<PAGE>
Of course, there is no assurance that the Funds will achieve
any specific tax-exempt yield. While it is expected that the
Funds will invest principally in obligations which pay interest
exempt from federal income tax, other income received by the
Funds may be taxable. The table does not take into account any
state or local taxes payable on Fund distributions.
ADDITIONAL OFFICERS OF THE FUNDS
In addition to the persons listed as officers of the Funds
in Part II of this Statement, the following persons are also
officers of the Funds. Officers of Putnam Management hold the
same offices in Putnam Management's parent company,
Putnam Investments , Inc.
GARY N. COBURN, Vice President. Senior Managing Director of
Putnam Management . Director, Putnam
Investments , Inc. Vice President of certain of the Putnam
funds.
JAMES E. ERICKSON, Vice President. Managing Director of
Putnam Management . Vice President of certain of
the Putnam funds.
DAVID J. EURKUS, Vice President (Income Fund only). Senior
Vice President of Putnam Management . Vice
President of certain of the Putnam funds.
LINDSEY M. CALLEN, Vice President (Money Market Fund only).
Vice President of Putnam Management . Vice
President of certain of the Putnam funds.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Coopers & Lybrand are the Funds' independent accountants,
providing audit services, tax return review services 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 each
Fund's Annual Report for the fiscal year ended September 30,
1993 , filed electronically on December 2, 1993 for the
Income Fund and November 24, 1993 for the Money Market
Fund (File nos. 811-2675 and 811-5215) , are incorporated by
reference into this Statement of Additional Information.
The financial highlights of each Fund included in
the Prospectus and the financial statements incorporated
by reference into the Prospectus and the Statement of
Additional Information have been so included and incorporated
in reliance upon the reports of the independent accountants,
given on their authority as experts in auditing and
accounting .
<PAGE>
<PAGE>
TABLE OF CONTENTS
MISCELLANEOUS INVESTMENT PRACTICES. . . . . . . . . . . . . . . . II-1
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-23
MANAGEMENT OF THE FUND. . . . . . . . . . . . . . . . . . . . . .II-28
DETERMINATION OF NET ASSET VALUE. . . . . . . . . . . . . . . . .II-37
HOW TO BUY SHARES . . . . . . . . . . . . . . . . . . . . . . . .II-39
DISTRIBUTION PLAN . . . . . . . . . . . . . . . . . . . . . . . .II-50
INVESTOR SERVICES . . . . . . . . . . . . . . . . . . . . . . . .II-51
SIGNATURE GUARANTEES. . . . . . . . . . . . . . . . . . . . . . .II-57
SUSPENSION OF REDEMPTIONS . . . . . . . . . . . . . . . . . . . .II-57
SHAREHOLDER LIABILITY . . . . . . . . . . . . . . . . . . . . . .II-58
STANDARD PERFORMANCE MEASURES . . . . . . . . . . . . . . . . . .II-58
COMPARISON OF PORTFOLIO PERFORMANCE . . . . . . . . . . . . . . .II-59
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .II-64
<PAGE>
THE PUTNAM FUNDS
STATEMENT OF ADDITIONAL INFORMATION
PART II
The following information applies generally to your Fund
and to the other Putnam funds. In certain cases the discussion
applies to some but not all of the funds or their shareholders,
and you should refer to your Prospectus to determine whether the
matter is applicable to you or your Fund. You will also be
referred to Part I for certain information applicable to your
particular Fund. Shareholders who purchase shares at net asset
value through employer-sponsored defined contribution plans
should also consult their employer for information about the
extent to which the matters described below apply to them.
MISCELLANEOUS INVESTMENT PRACTICES
YOUR FUND'S PROSPECTUS STATES WHICH OF THE FOLLOWING
INVESTMENT PRACTICES ARE AVAILABLE TO YOUR FUND. THE FACT THAT
YOUR FUND IS AUTHORIZED TO ENGAGE IN A PARTICULAR PRACTICE DOES
NOT NECESSARILY MEAN THAT IT WILL ACTUALLY DO SO. YOU SHOULD
DISREGARD ANY PRACTICE DESCRIBED BELOW WHICH IS NOT MENTIONED IN
THE PROSPECTUS.
SHORT-TERM TRADING
In seeking the Fund's objective, Putnam Management will
buy or sell portfolio securities whenever Putnam Management
believes it appropriate to do so. In deciding whether to sell a
portfolio security, Putnam Management does not consider how long
the Fund has owned the security. From time to time the Fund will
buy securities intending to seek short-term trading profits. A
change in the securities held by the Fund is known as "portfolio
turnover" and generally involves some expense to the Fund. These
expenses may include brokerage commissions or dealer mark-ups and
other transaction costs on both the sale of securities and the
reinvestment of the proceeds in other securities. If sales of
portfolio securities cause the Fund to realize net short-term
capital gains, such gains will be taxable as ordinary income. As
a result of the Fund's investment policies, under certain market
conditions the Fund's portfolio turnover rate may be higher than
that of other mutual funds. Portfolio turnover rate for a fiscal
year is the ratio of the lesser of purchases or sales of
portfolio securities to the monthly average of the value of
portfolio securities -- excluding securities whose maturities at
acquisition were one year or less. The Fund's portfolio turnover
rate is not a limiting factor when Putnam Management considers a
change in the Fund's portfolio.
LOWER-RATED SECURITIES
The Fund may invest in lower-rated fixed-income
securities, (commonly known as "junk bonds") to the extent
described in the Prospectus. The lower ratings of certain
securities held by the Fund reflect a greater possibility that
adverse changes in the financial condition of the issuer or in
general economic conditions, or both, or an unanticipated rise in
interest rates, may impair the ability of the issuer to make
payments of interest and principal. The inability (or perceived
inability) of issuers to make timely payment of interest and
principal would likely make the values of securities held by the
Fund more volatile and could limit the Fund's ability to sell its
securities at prices approximating the values the Fund had placed
on such securities. In the absence of a liquid trading market
for securities held by it, the Fund may be unable at times to
establish the fair value of such securities. The rating assigned
to a security by Moody's Investors Service, Inc. or Standard &
Poor's Corporation (or by any other nationally recognized
securities rating organization) does not reflect an assessment of
the volatility of the security's market value or the liquidity of
an investment in the security. See the Prospectus or Part I of
this Statement for a description of security ratings.
Like those of other fixed-income securities, the values of
lower-rated securities fluctuate in response to changes in
interest rates. Thus, a decrease in interest rates will
generally result in an increase in the value of the Fund's
assets. Conversely, during periods of rising interest rates, the
value of the Fund's assets will generally decline. In addition,
the values of such securities are also affected by changes in
general economic conditions and business conditions affecting the
specific industries of their issuers. Changes by recognized
rating services in their ratings of any fixed-income security and
in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments.
Changes in the value of portfolio securities generally will not
affect cash income derived from such securities, but will affect
the Fund's net asset value. The Fund will not necessarily
dispose of a security when its rating is reduced below its rating
at the time of purchase, although Putnam Management will monitor
the investment to determine whether its retention will assist in
meeting the Fund's investment objective.
At times, a substantial portion of the Fund's assets may
be invested in securities as to which the Fund, by itself or
together with other funds and accounts managed by Putnam
Management and its affiliates, holds a major portion or all of
such securities. Although Putnam Management generally considers
such securities to be liquid because of the availability of an
institutional market for such securities, it is possible that,
under adverse market or economic conditions or in the event of
adverse changes in the financial condition of the issuer, the
Fund could find it more difficult to sell such securities when
Putnam Management believes it advisable to do so or may be able
to sell such securities only at prices lower than if such
securities were more widely held. Under such circumstances, it
may also be more difficult to determine the fair value of such
securities for purposes of computing the Fund's net asset value.
In order to enforce its rights in the event of a default under
such securities, the Fund may be required to take possession of
and manage assets securing the issuer's obligations on such
securities, which may increase the Fund's operating expenses and
adversely affect the Fund's net asset value. In the case of
tax-exempt funds, any income derived from the Fund's ownership or
operation of such assets would not be tax-exempt. In addition,
the Fund's intention to qualify as a "regulated investment
company" under the Internal Revenue Code may limit the extent to
which the Fund may exercise its rights by taking possession of
such assets.
Certain securities held by the Fund may permit the issuer
at its option to "call", or redeem, its securities. If an issuer
were to redeem securities held by the Fund during a time of
declining interest rates, the Fund may not be able to reinvest
the proceeds in securities providing the same investment return
as the securities redeemed.
The Fund may invest without limit in so-called
"zero-coupon" bonds and "payment-in-kind" bonds identified in the
Prospectus, unless otherwise specified in the Prospectus.
Zero-coupon bonds are issued at a significant discount from their
principal amount in lieu of paying interest periodically.
Payment-in-kind bonds allow the issuer, at its option, to make
current interest payments on the bonds either in cash or in
additional bonds. Because zero-coupon bonds do not pay current
interest, their value is subject to greater fluctuation in
response to changes in market interest rates than bonds which pay
interest currently. Both zero-coupon and payment-in-kind bonds
allow an issuer to avoid the need to generate cash to meet
current interest payments. Accordingly, such bonds may involve
greater credit risks than bonds paying interest currently. Even
though such bonds do not pay current interest in cash, the Fund
is nonetheless required to accrue interest income on such
investments and to distribute such amounts at least annually to
shareholders. Thus, the Fund could be required at times to
liquidate investments in order to satisfy its dividend
requirements.
The amount of information about the financial condition of
an issuer of tax exempt securities may not be as extensive as
that which is made available by corporations whose securities are
publicly traded. Therefore, to the extent the Fund invests in
tax exempt securities in the lower rating categories, the
achievement of the Fund's goals is more dependent on Putnam
Management's investment analysis than would be the case if the
Fund were investing in securities in the higher rating
categories.
SECURITIES LOANS
The Fund may make secured loans of its portfolio
securities, on either a short-term or long-term basis, amounting
to not more than 25% of its total assets, thereby realizing
additional income. The risks in lending portfolio securities, as
with other extensions of credit, consist of possible delay in
recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially. As a matter of
policy, securities loans are made to broker-dealers pursuant to
agreements requiring that loans be continuously secured by
collateral consisting of cash or short-term debt obligations at
least equal at all times to the value of the securities on loan,
"marked-to-market" daily. The borrower pays to the Fund an
amount equal to any dividends or interest received on securities
lent. The Fund retains all or a portion of the interest received
on investment of the cash collateral or receives a fee from the
borrower. Although voting rights, or rights to consent, with
respect to the loaned securities pass to the borrower, the Fund
retains the right to call the loans at any time on reasonable
notice, and it will do so to enable the Fund to exercise voting
rights on any matters materially affecting the investment. The
Fund may also call such loans in order to sell the securities.
FORWARD COMMITMENTS
The Fund may enter into contracts to purchase securities
for a fixed price at a future date beyond customary settlement
time ("forward commitments") if the Fund holds, and maintains
until the settlement date in a segregated account, cash or
high-grade debt obligations in an amount sufficient to meet the
purchase price, or if the Fund enters into offsetting contracts
for the forward sale of other securities it owns. In the case of
to-be-announced ("TBA") purchase commitments, the unit price and
the estimated principal amount are established when the Fund
enters into a contract, with the actual principal amount being
within a specified range of the estimate. Forward commitments
may be considered securities in themselves, and involve a risk of
loss if the value of the security to be purchased declines prior
to the settlement date, which risk is in addition to the risk of
decline in the value of the Fund's other assets. Where such
purchases are made through dealers, the Fund relies on the dealer
to consummate the sale. The dealer's failure to do so may result
in the loss to the Fund of an advantageous yield or price.
Although the Fund will generally enter into forward commitments
with the intention of acquiring securities for its portfolio or
for delivery pursuant to options contracts it has entered into,
the Fund may dispose of a commitment prior to settlement if
Putnam Management deems it appropriate to do so. The Fund may
realize short-term profits or losses upon the sale of forward
commitments.
The Fund may enter into TBA sale commitments to hedge its
portfolio positions or to sell mortgage-backed securities it owns
under delayed delivery arrangements. Proceeds of TBA sale
commitments are not received until the contractual settlement
date. During the time a TBA sale commitment is outstanding,
equivalent deliverable securities, or an offsetting TBA purchase
commitment deliverable on or before the sale commitment date, are
held as "cover" for the transaction. Unsettled TBA sale
commitments are valued at current market value of the underlying
securities. If the TBA sale commitment is closed through the
acquisition of an offsetting purchase commitment, the Fund
realizes a gain or loss on the commitment without regard to any
unrealized gain or loss on the underlying security. If the Fund
delivers securities under the commitment, the Fund realizes a
gain or loss from the sale of the securities based upon the unit
price established at the date the commitment was entered into.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements up to the
limit specified in the Prospectus. A repurchase agreement is a
contract under which the Fund acquires a security for a
relatively short period (usually not more than one week) subject
to the obligation of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the
Fund's cost plus interest). It is the Fund's present intention
to enter into repurchase agreements only with commercial banks
and registered broker-dealers and only with respect to
obligations of the U.S. government or its agencies or
instrumentalities. Repurchase agreements may also be viewed as
loans made by the Fund which are collateralized by the securities
subject to repurchase. Putnam Management will monitor such
transactions to ensure that the value of the underlying
securities will be at least equal at all times to the total
amount of the repurchase obligation, including the interest
factor. If the seller defaults, the Fund could realize a loss on
the sale of the underlying security to the extent that the
proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or
insolvency proceedings, the Fund may incur delay and costs in
selling the underlying security or may suffer a loss of principal
and interest if the Fund is treated as an unsecured creditor and
required to return the underlying collateral to the seller's
estate.
Pursuant to an exemptive order issued by the Securities
and Exchange Commission, the Fund may transfer uninvested cash
balances into a joint account, along with cash of other Putnam
funds and certain other accounts. These balances may be invested
in one or more repurchase agreements and/or short-term money
market instruments.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call
options and covered put options on optionable securities held in
its portfolio, when in the opinion of Putnam Management such
transactions are consistent with the Fund's investment objectives
and policies. Call options written by the Fund give the
purchaser the right to buy the underlying securities from the
Fund at a stated exercise price; put options give the purchaser
the right to sell the underlying securities to the Fund at a
stated price.
The Fund may write only covered options, which means that,
so long as the Fund is obligated as the writer of a call option,
it will own the underlying securities subject to the option (or
comparable securities satisfying the cover requirements of
securities exchanges). In the case of put options, the Fund will
hold cash and/or high-grade short-term debt obligations equal to
the price to be paid if the option is exercised. In addition,
the Fund will be considered to have covered a put or call option
if and to the extent that it holds an option that offsets some or
all of the risk of the option it has written. The Fund may write
combinations of covered puts and calls on the same underlying
security.
The Fund will receive a premium from writing a put or call
option, which increases the Fund's return on the underlying
security in the event the option expires unexercised or is closed
out at a profit. The amount of the premium reflects, among other
things, the relationship between the exercise price and the
current market value of the underlying security, the volatility
of the underlying security, the amount of time remaining until
expiration, current interest rates, and the effect of supply and
demand in the options market and in the market for the underlying
security. By writing a call option, the Fund limits its
opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option
but continues to bear the risk of a decline in the value of the
underlying security. By writing a put option, the Fund assumes
the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current
market value, resulting in a potential capital loss unless the
security subsequently appreciates in value.
The Fund may terminate an option that it has written prior
to its expiration by entering into a closing purchase
transaction, in which it purchases an offsetting option. The
Fund realizes a profit or loss from a closing transaction if the
cost of the transaction (option premium plus transaction costs)
is less or more than the premium received from writing the
option. Because increases in the market price of a call option
generally reflect increases in the market price of the security
underlying the option, any loss resulting from a closing purchase
transaction may be offset in whole or in part by unrealized
appreciation of the underlying security owned by the Fund.
If the Fund writes a call option but does not own the
underlying security, and when it writes a put option, the Fund
may be required to deposit cash or securities with its broker as
"margin", or collateral, for its obligation to buy or sell the
underlying security. As the value of the underlying security
varies, the Fund may have to deposit additional margin with the
broker. Margin requirements are complex and are fixed by
individual brokers, subject to minimum requirements currently
imposed by the Federal Reserve Board and by stock exchanges and
other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options
to protect its portfolio holdings in an underlying security
against a decline in market value. Such protection is provided
during the life of the put option since the Fund, as holder of
the option, is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying
security's market price. In order for a put option to be
profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the
premium and transaction costs. By using put options in this
manner, the Fund will reduce any profit it might otherwise have
realized from appreciation of the underlying security by the
premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The Fund may purchase call
options to hedge against an increase in the price of securities
that the Fund wants ultimately to buy. Such hedge protection is
provided during the life of the call option since the Fund, as
holder of the call option, is able to buy the underlying security
at the exercise price regardless of any increase in the
underlying security's market price. In order for a call option
to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the
premium and transaction costs.
RISK FACTORS IN OPTIONS TRANSACTIONS
The successful use of the Fund's options strategies
depends on the ability of Putnam Management to forecast correctly
interest rate and market movements. For example, if the Fund
were to write a call option based on Putnam Management's
expectation that the price of the underlying security would fall,
but the price were to rise instead, the Fund could be required to
sell the security upon exercise at a price below the current
market price. Similarly, if the Fund were to write a put option
based on Putnam Management's expectation that the price of the
underlying security would rise, but the price were to fall
instead, the Fund could be required to purchase the security upon
exercise at a price higher than the current market price.
When the Fund purchases an option, it runs the risk that
it will lose its entire investment in the option in a relatively
short period of time, unless the Fund exercises the option or
enters into a closing sale transaction before the option's
expiration. If the price of the underlying security does not
rise (in the case of a call) or fall (in the case of a put) to an
extent sufficient to cover the option premium and transaction
costs, the Fund will lose part or all of its investment in the
option. This contrasts with an investment by the Fund in the
underlying security, since the Fund will not realize a loss if
the security's price does not change.
The effective use of options also depends on the Fund's
ability to terminate option positions at times when Putnam
Management deems it desirable to do so. There is no assurance
that the Fund will be able to effect closing transactions at any
particular time or at an acceptable price.
If a secondary market in options were to become
unavailable, the Fund could no longer engage in closing
transactions. Lack of investor interest might adversely affect
the liquidity of the market for particular options or series of
options. A market may discontinue trading of a particular option
or options generally. In addition, a market could become
temporarily unavailable if unusual events -- such as volume in
excess of trading or clearing capability -- were to interrupt its
normal operations.
A market may at times find it necessary to impose
restrictions on particular types of options transactions, such as
opening transactions. For example, if an underlying security
ceases to meet qualifications imposed by the market or the
Options Clearing Corporation, new series of options on that
security will no longer be opened to replace expiring series, and
opening transactions in existing series may be prohibited. If an
options market were to become unavailable, the Fund as a holder
of an option would be able to realize profits or limit losses
only by exercising the option, and the Fund, as option writer,
would remain obligated under the option until expiration or
exercise.
Disruptions in the markets for the securities underlying
options purchased or sold by the Fund could result in losses on
the options. If trading is interrupted in an underlying
security, the trading of options on that security is normally
halted as well. As a result, the Fund as purchaser or writer of
an option will be unable to close out its positions until options
trading resumes, and it may be faced with considerable losses if
trading in the security reopens at a substantially different
price. In addition, the Options Clearing Corporation or other
options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in
the option has also been halted, the Fund as purchaser or writer
of an option will be locked into its position until one of the
two restrictions has been lifted. If the Options Clearing
Corporation were to determine that the available supply of an
underlying security appears insufficient to permit delivery by
the writers of all outstanding calls in the event of exercise, it
may prohibit indefinitely the exercise of put options. The Fund,
as holder of such a put option, could lose its entire investment
if the prohibition remained in effect until the put option's
expiration.
Special risks are presented by internationally-traded
options. Because of time differences between the United States
and various foreign countries, and because different holidays are
observed in different countries, foreign options markets may be
open for trading during hours or on days when U.S. markets are
closed. As a result, option premiums may not reflect the current
prices of the underlying interest in the United States.
OVER-THE-COUNTER OPTIONS
The Staff of the Division of Investment Management of the
Securities and Exchange Commission has taken the position that
over-the-counter ("OTC") options purchased by the Fund and assets
held to cover OTC options written by the Fund are illiquid
securities. Although the Staff has indicated that it is
continuing to evaluate this issue, pending further developments,
the Fund intends to enter into OTC options transactions only with
primary dealers in U.S. Government Securities and, in the case of
OTC options written by the Fund, only pursuant to agreements that
will assure that the Fund will at all times have the right to
repurchase the option written by it from the dealer at a
specified formula price. The Fund will treat the amount by which
such formula price exceeds the amount, if any, by which the
option may be "in-the-money" as an illiquid investment. It is
the present policy of the Fund not to enter into any OTC option
transaction if, as a result, more than 15% of the Fund's net
assets would be invested in (i) illiquid investments (determined
under the foregoing formula) relating to OTC options written by
the Fund, (ii) OTC options purchased by the Fund, (iii)
securities which are not readily marketable, and (iv) repurchase
agreements maturing in more than seven days.
FUTURES CONTRACTS AND RELATED OPTIONS
The Fund may invest without limit in the futures contracts
and related options identified in the Prospectus unless otherwise
specified in the Prospectus. A financial futures contract sale
creates an obligation by the seller to deliver the type of
financial instrument called for in the contract in a specified
delivery month for a stated price. A financial futures contract
purchase creates an obligation by the purchaser to take delivery
of the type of financial instrument called for in the contract in
a specified delivery month at a stated price. The specific
instruments delivered or taken, respectively, at settlement date
are not determined until on or near that date. The determination
is made in accordance with the rules of the exchange on which the
futures contract sale or purchase was made. Futures contracts
are traded in the United States only on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for
such trading by the Commodity Futures Trading Commission (the
"CFTC"), and must be executed through a futures commission
merchant or brokerage firm which is a member of the relevant
contract market.
Although futures contracts by their terms call for actual
delivery or acceptance of commodities or securities, in most
cases the contracts are closed out before the settlement date
without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for
the same aggregate amount of the specific type of financial
instrument or commodity with the same delivery date. If the
price of the initial sale of the futures contract exceeds the
price of the offsetting purchase, the seller is paid the
difference and realizes a gain. Conversely, if the price of the
offsetting purchase exceeds the price of the initial sale, the
seller realizes a loss. Similarly, the closing out of a futures
contract purchase is effected by the purchaser's entering into a
futures contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the
purchase price exceeds the offsetting sale price, he realizes a
loss. In general 40% of the gain or loss arising from the
closing out of a futures contract traded on an exchange approved
by the CFTC is treated as short-term gain or loss, and 60% is
treated as long-term gain or loss.
Unlike when the Fund purchases or sells a security, no
price is paid or received by the Fund upon the purchase or sale
of a futures contract. Upon entering into a contract, the Fund
is required to deposit with its custodian in a segregated account
in the name of the futures broker an amount of cash and/or U.S.
Government Securities. This amount is known as "initial margin."
The nature of initial margin in futures transactions is different
from that of margin in security transactions in that futures
contract margin does not involve the borrowing of funds to
finance the transactions. Rather, initial margin is similar to a
performance bond or good faith deposit which is returned to the
Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Futures contracts
also involve brokerage costs.
Subsequent payments, called "variation margin" or
"maintenance margin", to and from the broker (or the custodian)
are made on a daily basis as the price of the underlying security
or commodity fluctuates, making the long and short positions in
the futures contract more or less valuable, a process known as
"marking to the market." For example, when the Fund has
purchased a futures contract on a security and the price of the
underlying security has risen, that position will have increased
in value and the Fund will receive from the broker a variation
margin payment based on that increase in value. Conversely, when
the Fund has purchased a security futures contract and the price
of the underlying security has declined, the position would be
less valuable and the Fund would be required to make a variation
margin payment to the broker.
The Fund may elect to close some or all of its futures
positions at any time prior to their expiration in order to
reduce or eliminate a hedge position then currently held by the
Fund. The Fund may close its positions by taking opposite
positions which will operate to terminate the Fund's position in
the futures contracts. Final determinations of variation margin
are then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.
Such closing transactions involve additional commission costs.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and
write call and put options on futures contracts it may buy or
sell and enter into closing transactions with respect to such
options to terminate existing positions. Options on future
contracts give the purchaser the right in return for the premium
paid to assume a position in a futures contract at the specified
option exercise price at any time during the period of the
option. The Fund may use options on futures contracts in lieu of
writing or buying options directly on the underlying securities
or purchasing and selling the underlying futures contracts. For
example, to hedge against a possible decrease in the value of its
portfolio securities, the Fund may purchase put options or write
call options on futures contracts rather than selling futures
contracts. Similarly, the Fund may purchase call options or
write put options on futures contracts as a substitute for the
purchase of futures contracts to hedge against a possible
increase in the price of securities which the Fund expects to
purchase. Such options generally operate in the same manner as
options purchased or written directly on the underlying
investments.
As with options on securities, the holder or writer of an
option may terminate his position by selling or purchasing an
offsetting option. There is no guarantee that such closing
transactions can be effected.
The Fund will be required to deposit initial margin and
maintenance margin with respect to put and call options on
futures contracts written by it pursuant to brokers' requirements
similar to those described above in connection with the
discussion of futures contracts.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED
OPTIONS. Successful use of futures contracts by the Fund is
subject to Putnam Management's ability to predict movements in
the direction of interest rates and other factors affecting
securities markets. For example, if the Fund has hedged against
the possibility of decline in the values of its investments and
the values of its investments increase instead, the Fund will
lose part or all of the benefit of the increase through payments
of daily maintenance margin. The Fund may have to sell
investments at a time when it may be disadvantageous to do so in
order to meet margin requirements.
Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves
less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the purchase of
a call or put option on a futures contract would result in a loss
to the Fund when the purchase or sale of a futures contract would
not, such as when there is no movement in the prices of the
hedged investments. The writing of an option on a futures
contract involves risks similar to those risks relating to the
sale of futures contracts.
There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render
certain market clearing facilities inadequate, and thereby result
in the institution by exchanges of special procedures which may
interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund,
the Fund may seek to close out a position. The ability to
establish and close out positions will be subject to the
development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist
for a particular futures contract or option. Reasons for the
absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in
certain contracts or options; (ii) restrictions may be imposed by
an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of
contracts or options, or underlying securities; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to
discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the
secondary market on that exchange for such contracts or options
(or in the class or series of contracts or options) would cease
to exist, although outstanding contracts or options on the
exchange that had been issued by a clearing corporation as a
result of trades on that exchange would continue to be
exercisable in accordance with their terms.
U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. If
the Fund invests in tax-exempt securities issued by a
governmental entity, the Fund may purchase and sell futures
contracts and related options on U.S. Treasury securities when,
in the opinion of Putnam Management, price movements in Treasury
security futures and related options will correlate closely with
price movements in the tax-exempt securities which are the
subject of the hedge. U.S. Treasury security futures contracts
require the seller to deliver, or the purchaser to take delivery
of, the type of U.S. Treasury security called for in the contract
at a specified date and price. Options on U.S. Treasury security
futures contracts give the purchaser the right in return for the
premium paid to assume a position in a U.S. Treasury security
futures contract at the specified option exercise price at any
time during the period of the option.
Successful use of U.S. Treasury security futures contracts
by the Fund is subject to Putnam Management's ability to predict
movements in the direction of interest rates and other factors
affecting markets for debt securities. For example, if the Fund
has sold U.S. Treasury security futures contracts in order to
hedge against the possibility of an increase in interest rates
which would adversely affect tax-exempt securities held in its
portfolio, and the prices of the Fund's tax-exempt securities
increase instead as a result of a decline in interest rates, the
Fund will lose part or all of the benefit of the increased value
of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily maintenance margin requirements at
a time when it may be disadvantageous to do so.
There is also a risk that price movements in U.S. Treasury
security futures contracts and related options will not correlate
closely with price movements in markets for tax-exempt
securities. For example, if the Fund has hedged against a
decline in the values of tax-exempt securities held by it by
selling Treasury security futures and the values of Treasury
securities subsequently increase while the values of its
tax-exempt securities decrease, the Fund would incur losses on
both the Treasury security futures contracts written by it and
the tax-exempt securities held in its portfolio. Putnam
Management will seek to reduce this risk by monitoring movements
in markets for U.S. Treasury security futures and options and for
tax-exempt securities closely. The Fund will only purchase or
sell Treasury security futures or related options when, in the
opinion of Putnam Management, price movements in Treasury
security futures and related options will correlate closely with
price movements in tax-exempt securities in which the Fund
invests.
INDEX FUTURES CONTRACTS. An index futures contract is a
contract to buy or sell units of an index at a specified future
date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to
as buying or purchasing a contract or holding a long position in
the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short
position. A unit is the current value of the index. The Fund
may enter into stock index futures contracts, debt index futures
contracts, or other index futures contracts appropriate to its
objective. The Fund may also purchase and sell options on index
futures contracts.
For example, the Standard & Poor's Composite 500 Stock
Price Index ("S&P 500") is composed of 500 selected common
stocks, most of which are listed on the New York Stock Exchange.
The S&P 500 assigns relative weightings to the common stocks
included in the Index, and the value fluctuates with changes in
the market values of those common stocks. In the case of the S&P
500, contracts are to buy or sell 500 units. Thus, if the value
of the S&P 500 were $150, one contract would be worth $75,000
(500 units x $150). The stock index futures contract specifies
that no delivery of the actual stocks making up the index will
take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the
difference between the contract price and the actual level of the
stock index at the expiration of the contract. For example, if
the Fund enters into a futures contract to buy 500 units of the
S&P 500 at a specified future date at a contract price of $150
and the S&P 500 is at $154 on that future date, the Fund will
gain $2,000 (500 units x gain of $4). If the Fund enters into a
futures contract to sell 500 units of the stock index at a
specified future date at a contract price of $150 and the S&P 500
is at $152 on that future date, the Fund will lose $1,000 (500
units x loss of $2).
There are several risks in connection with the use by the
Fund of index futures as a hedging device. One risk arises
because of the imperfect correlation between movements in the
prices of the index futures and movements in the prices of
securities which are the subject of the hedge. Putnam Management
will, however, attempt to reduce this risk by buying or selling,
to the extent possible, futures on indices the movements of which
will, in its judgment, have a significant correlation with
movements in the prices of the securities sought to be hedged.
Successful use of index futures by the Fund for hedging
purposes is also subject to Putnam Management's ability to
predict movements in the direction of the market. It is possible
that, where the Fund has sold futures to hedge its portfolio
against a decline in the market, the index on which the futures
are written may advance and the value of securities held in the
Fund's portfolio may decline. If this occurred, the Fund would
lose money on the futures and also experience a decline in value
in its portfolio securities. It is also possible that, if the
Fund has hedged against the possibility of a decline in the
market adversely affecting securities held in its portfolio and
securities prices increase instead, the Fund will lose part or
all of the benefit of the increased value of those securities it
has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily
variation margin requirements at a time when it is
disadvantageous to do so.
In addition to the possibility that there may be an
imperfect correlation, or no correlation at all, between
movements in the index futures and the portion of the portfolio
being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain
market distortions. First, all participants in the futures
market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through
offsetting transactions which could distort the normal
relationship between the index and futures markets. Second,
margin requirements in the futures market are less onerous than
margin requirements in the securities market, and as a result the
futures market may attract more speculators than the securities
market does. Increased participation by speculators in the
futures market may also cause temporary price distortions. Due
to the possibility of price distortions in the futures market and
also because of the imperfect correlation between movements in
the index and movements in the prices of index futures, even a
correct forecast of general market trends by Putnam Management
may still not result in a successful hedging transaction over a
short time period.
OPTIONS ON STOCK INDEX FUTURES. Options on index futures
are similar to options on securities except that options on index
futures give the purchaser the right, in return for the premium
paid, to assume a position in an index futures contract (a long
position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during
the period of the option. Upon exercise of the option, the
delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the index
futures contract, at exercise, exceeds (in the case of a call) or
is less than (in the case of a put) the exercise price of the
option on the index future. If an option is exercised on the
last trading day prior to its expiration date, the settlement
will be made entirely in cash equal to the difference between the
exercise price of the option and the closing level of the index
on which the future is based on the expiration date. Purchasers
of options who fail to exercise their options prior to the
exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES
As an alternative to purchasing call and put options on
index futures, the Fund may purchase and sell call and put
options on the underlying indices themselves. Such options would
be used in a manner identical to the use of options on index
futures.
INDEX WARRANTS
The Fund may purchase put warrants and call warrants whose
values vary depending on the change in the value of one or more
specified securities indices ("index warrants"). Index warrants
are generally issued by banks or other financial institutions and
give the holder the right, at any time during the term of the
warrant, to receive upon exercise of the warrant a cash payment
from the issuer based on the value of the underlying index at the
time of exercise. In general, if the value of the underlying
index rises above the exercise price of the index warrant, the
holder of a call warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference
between the value of the index and the exercise price of the
warrant; if the value of the underlying index falls, the holder
of a put warrant will be entitled to receive a cash payment from
the issuer upon exercise based on the difference between the
exercise price of the warrant and the value of the index. The
holder of a warrant would not be entitled to any payments from
the issuer at any time when, in the case of a call warrant, the
exercise price is greater than the value of the underlying index,
or, in the case of a put warrant, the exercise price is less than
the value of the underlying index. If the Fund were not to
exercise an index warrant prior to its expiration, then the Fund
would lose the amount of the purchase price paid by it for the
warrant.
The Fund will normally use index warrants in a manner
similar to its use of options on securities indices. The risks
of the Fund's use of index warrants are generally similar to
those relating to its use of index options. Unlike most index
options, however, index warrants are issued in limited amounts
and are not obligations of a regulated clearing agency, but are
backed only by the credit of the bank or other institution which
issues the warrant. Also, index warrants generally have longer
terms than index options. Although the Fund will normally invest
only in exchange-listed warrants, index warrants are not likely
to be as liquid as certain index options backed by a recognized
clearing agency. In addition, the terms of index warrants may
limit the Fund's ability to exercise the warrants at such time,
or in such quantities, as the Fund would otherwise wish to do.
FOREIGN SECURITIES
Under its current policy, which may be changed without
shareholder approval, the Fund may invest up to the limit of its
total assets specified in its Prospectus in securities
principally traded in markets outside the United States.
Eurodollar certificates of deposit are excluded for purposes of
this limitation. Foreign investments can be affected favorably
or unfavorably by changes in currency exchange rates and in
exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S.
company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Securities of
some foreign companies are less liquid or more volatile than
securities of U.S. companies, and foreign brokerage commissions
and custodian fees are generally higher than in the United
States. Investments in foreign securities can involve other
risks different from those affecting U.S. investments, including
local political or economic developments, expropriation or
nationalization of assets and imposition of withholding taxes on
dividend or interest payments. To hedge against possible
variations in foreign exchange rates, the Fund may purchase and
sell forward foreign currency contracts. These represent
agreements to purchase or sell specified currencies at specified
dates and prices. The Fund will only purchase and sell forward
foreign currency contracts in amounts Putnam Management deems
appropriate to hedge existing or anticipated portfolio positions
and will not use such forward contracts for speculative purposes.
Foreign securities, like other assets of the Fund, will be held
by the Fund's custodian or by a subcustodian.
FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in currency exchange transactions to
protect against uncertainty in the level of future currency
exchange rates. In addition, the Fund may write covered call and
put options on foreign currencies for the purpose of increasing
its current return.
Generally, the Fund may engage in both "transaction
hedging" and "position hedging". When it engages in transaction
hedging, the Fund enters into foreign currency transactions with
respect to specific receivables or payables, generally arising in
connection with the purchase or sale of portfolio securities.
The Fund will engage in transaction hedging when it desires to
"lock in" the U.S. dollar price of a security it has agreed to
purchase or sell, or the U.S. dollar equivalent of a dividend or
interest payment in a foreign currency. By transaction hedging
the Fund will attempt to protect itself against a possible loss
resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold, or
on which the dividend or interest payment is earned, and the date
on which such payments are made or received.
The Fund may purchase or sell a foreign currency on a spot
(or cash) basis at the prevailing spot rate in connection with
the settlement of transactions in portfolio securities
denominated in that foreign currency. The Fund may also enter
into contracts to purchase or sell foreign currencies at a future
date ("forward contracts") and purchase and sell foreign currency
futures contracts.
For transaction hedging purposes the Fund may also
purchase exchange-listed and over-the-counter call and put
options on foreign currency futures contracts and on foreign
currencies. A put option on a futures contract gives the Fund
the right to assume a short position in the futures contract
until the expiration of the option. A put option on a currency
gives the Fund the right to sell the currency at an exercise
price until the expiration of the option. A call option on a
futures contract gives the Fund the right to assume a long
position in the futures contract until the expiration of the
option. A call option on a currency gives the Fund the right to
purchase the currency at the exercise price until the expiration
of the option.
When it engages in position hedging, the Fund enters into
foreign currency exchange transactions to protect against a
decline in the values of the foreign currencies in which its
portfolio securities are denominated (or an increase in the value
of currency for securities which the Fund expects to purchase,
when the Fund holds cash or short-term investments). In
connection with position hedging, the Fund may purchase put or
call options on foreign currency and on foreign currency futures
contracts and buy or sell forward contracts and foreign currency
futures contracts. The Fund may also purchase or sell foreign
currency on a spot basis.
The precise matching of the amounts of foreign currency
exchange transactions and the value of the portfolio securities
involved will not generally be possible since the future value of
such securities in foreign currencies will change as a
consequence of market movements in the value of those securities
between the dates the currency exchange transactions are entered
into and the dates they mature.
It is impossible to forecast with precision the market
value of portfolio securities at the expiration or maturity of a
forward or futures contract. Accordingly, it may be necessary
for the Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market
value of the security or securities being hedged is less than the
amount of foreign currency the Fund is obligated to deliver and a
decision is made to sell the security or securities and make
delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security or securities if
the market value of such security or securities exceeds the
amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate
fluctuations in the underlying prices of the securities which the
Fund owns or intends to purchase or sell. They simply establish
a rate of exchange which one can achieve at some future point in
time. Additionally, although these techniques tend to minimize
the risk of loss due to a decline in the value of the hedged
currency, they tend to limit any potential gain which might
result from the increase in value of such currency.
The Fund may seek to increase its current return or to
offset some of the costs of hedging against fluctuations in
current exchange rates by writing covered call options and
covered put options on foreign currencies. The Fund receives a
premium from writing a call or put option, which increases the
Fund's current return if the option expires unexercised or is
closed out at a net profit. The Fund may terminate an option
that it has written prior to its expiration by entering into a
closing purchase transaction in which it purchases an option
having the same terms as the option written.
The Fund's currency hedging transactions may call for the
delivery of one foreign currency in exchange for another foreign
currency and may at times not involve currencies in which its
portfolio securities are then denominated. Putnam Management
will engage in such "cross hedging" activities when it believes
that such transactions provide significant hedging opportunities
for the Fund. Cross hedging transactions by the Fund involve the
risk of imperfect correlation between changes in the values of
the currencies to which such transactions relate and changes in
the value of the currency or other asset or liability which is
the subject of the hedge.
CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign
currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number
of days from the date of the contract as agreed by the parties,
at a price set at the time of the contract. In the case of a
cancelable forward contract, the holder has the unilateral right
to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial
banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage
for trades. A foreign currency futures contract is a
standardized contract for the future delivery of a specified
amount of a foreign currency at a future date at a price set at
the time of the contract. Foreign currency futures contracts
traded in the United States are designed by and traded on
exchanges regulated by the CFTC, such as the New York Mercantile
Exchange.
Forward foreign currency exchange contracts differ from
foreign currency futures contracts in certain respects. For
example, the maturity date of a forward contract may be any fixed
number of days from the date of the contract agreed upon by the
parties, rather than a predetermined date in a given month.
Forward contracts may be in any amounts agreed upon by the
parties rather than predetermined amounts. Also, forward foreign
exchange contracts are traded directly between currency traders
so that no intermediary is required. A forward contract
generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund
either may accept or make delivery of the currency specified in
the contract, or at or prior to maturity enter into a closing
transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts
are usually effected with the currency trader who is a party to
the original forward contract. Closing transactions with respect
to futures contracts are effected on a commodities exchange; a
clearing corporation associated with the exchange assumes
responsibility for closing out such contracts.
Positions in the foreign currency futures contracts may be
closed out only on an exchange or board of trade which provides a
secondary market in such contracts. Although the Fund intends to
purchase or sell foreign currency futures contracts only on
exchanges or boards of trade where there appears to be an active
secondary market, there is no assurance that a secondary market
on an exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be
possible to close a futures position and, in the event of adverse
price movements, the Fund would continue to be required to make
daily cash payments of variation margin.
FOREIGN CURRENCY OPTIONS. In general, options on foreign
currencies operate similarly to options on securities and are
subject to many similar risks. Foreign currency options are
traded primarily in the over-the-counter market, although options
on foreign currencies have recently been listed on several
exchanges. Options are traded not only on the currencies of
individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of
currencies, and is the official medium of exchange of the
European Community's European Monetary System.
The Fund will only purchase or write foreign currency
options when Putnam Management believes that a liquid secondary
market exists for such options. There can be no assurance that a
liquid secondary market will exist for a particular option at any
specific time. Options on foreign currencies are affected by all
of those factors which influence foreign exchange rates and
investments generally.
The value of any currency, including U.S. dollars and
foreign currencies, may be affected by complex political and
economic factors applicable to the issuing country. In addition,
the exchange rates of foreign currencies (and therefore the
values of foreign currency options) may be affected
significantly, fixed, or supported directly or indirectly by U.S.
and foreign government actions. Government intervention may
increase risks involved in purchasing or selling foreign currency
options, since exchange rates may not be free to fluctuate in
response to other market forces.
The value of a foreign currency option reflects the value
of an exchange rate, which in turn reflects relative values of
two currencies, the U.S. dollar and the foreign currency in
question. Because foreign currency transactions occurring in the
interbank market involve substantially larger amounts than those
that may be involved in the exercise of foreign currency options,
investors may be disadvantaged by having to deal in an odd lot
market for the underlying foreign currencies in connection with
options at prices that are less favorable than for round lots.
Foreign governmental restrictions or taxes could result in
adverse changes in the cost of acquiring or disposing of foreign
currencies.
There is no systematic reporting of last sale information
for foreign currencies and there is no regulatory requirement
that quotations available through dealers or other market sources
be firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot
transactions in the interbank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1
million) where rates may be less favorable. The interbank market
in foreign currencies is a global, around-the-clock market. To
the extent that options markets are closed while the markets for
the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be
reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to
the Fund's investments in foreign securities and to the Fund's
foreign currency exchange transactions may be more complex than
settlements with respect to investments in debt or equity
securities of U.S. issuers, and may involve certain risks not
present in the Fund's domestic investments. For example,
settlement of transactions involving foreign securities or
foreign currency may occur within a foreign country, and the Fund
may be required to accept or make delivery of the underlying
securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay
any fees, taxes or charges associated with such delivery. Such
investments may also involve the risk that an entity involved in
the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange
dealers do not charge a fee for currency conversion, they do
realize a profit based on the difference (the "spread") between
prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund
at one rate, while offering a lesser rate of exchange should the
Fund desire to resell that currency to the dealer.
RESTRICTED SECURITIES
The SEC Staff currently takes the view that any
designation by the Trustees of the authority to determine that a
restricted security is readily marketable (as described in the
investment restrictions of the Funds) must be pursuant to written
procedures established by the Trustees. It is the present
intention of the Funds' Trustees that, if the Trustees decide to
delegate such determinations to Putnam Management or another
person, they would do so pursuant to written procedures,
consistent with the Staff's position. Should the Staff modify
its position in the future, the Trustees would consider what
action would be appropriate in light of the Staff's position at
that time.
TAXES
TAXATION OF THE FUND. The Fund intends to qualify each
year as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). In order
so to qualify and to qualify for the special tax treatment
accorded regulated investment companies and their shareholders,
the Fund must, among other things:
(a) Derive at least 90% of its gross income from
dividends, interest, payments with respect to certain securities
loans, and gains from the sale of stock, securities and foreign
currencies, or other income (including but not limited to gains
from options, futures, or forward contracts) derived with respect
to its business of investing in such stock, securities, or
currencies;
(b) derive less than 30% of its gross income from the
sale or other disposition of certain assets (including stock or
securities and certain options, futures contracts and forward
contracts) held for less than three months;
(c) distribute with respect to each taxable year at least
90% of the sum of its taxable net investment income, its net
tax-exempt income, and the excess, if any, of net short-term
capital gains over net long-term capital losses for such year;
and
(d) diversify its holdings so that, at the end of each
fiscal quarter, (i) at least 50% of the market value of the
Fund's assets is represented by cash and cash items, U.S.
Government securities, securities of other regulated investment
companies, and other securities limited in respect of any one
issuer to a value not greater than 5% of the value of the Fund's
total assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is
invested in the securities (other than those of the U.S.
Government or other regulated investment companies) of any one
issuer or of two or more issuers which the Fund controls and
which are engaged in the same, similar, or related trades or
businesses.
If the Fund qualifies as a regulated investment company
that is accorded special tax treatment, the Fund will not be
subject to federal income tax on income paid to its shareholders
in the form of dividends (including capital gain dividends).
If the Fund failed to qualify as a regulated investment
company accorded special tax treatment in any taxable year, the
Fund would be subject to tax on its taxable income at corporate
rates, and all distributions from earnings and profits, including
any distributions of net tax-exempt income and net long-term
capital gains, would be taxable to shareholders as ordinary
income. In addition, the Fund could be required to recognize
unrealized gains, pay substantial taxes and interest and make
substantial distributions before requalifying as a regulated
investment company that is accorded special tax treatment.
If the Fund fails to distribute in a calendar year
substantially all of its ordinary income for such year and
substantially all of its capital gain net income for the one-year
period ending October 31 (or later if the Fund is permitted so to
elect and so elects), plus any retained amount from the prior
year, the Fund will be subject to a 4% excise tax on the
undistributed amounts. A dividend paid to shareholders by the
Fund in January of a year generally is deemed to have been paid
by the Fund on December 31 of the preceding year, if the dividend
was declared and payable to shareholders of record on a date in
October, November or December of that preceding year. The Fund
intends generally to make distributions sufficient to avoid
imposition of the 4% excise tax.
EXEMPT-INTEREST DIVIDENDS. The Fund will be qualified to
pay exempt-interest dividends to its shareholders only if, at the
close of each quarter of the Fund's taxable year, at least 50% of
the total value of the Fund's assets consists of obligations the
interest on which is exempt from federal income tax.
Distributions that the Fund properly designates as exempt-
interest dividends are treated by shareholders as interest
excludable from their gross income for federal income tax
purposes but may be taxable for federal alternative minimum tax
purposes. If the Fund intends to be qualified to pay
exempt-interest dividends, the Fund may be limited in its ability
to engage in such taxable transactions as forward commitments,
repurchase agreements, financial futures, and options contracts
on financial futures, tax-exempt bond indices, and other assets.
Part or all of the interest on indebtedness, if any, incurred or
continued by a shareholder to purchase or carry shares of a Fund
paying exempt-interest dividends is not deductible. The portion
of interest that is not deductible is equal to the total interest
paid or accrued on the indebtedness, multiplied by the percentage
of the Fund's total distributions (not including distributions
from net long-term capital gains) paid to the shareholder that
are exempt-interest dividends. Under rules used by the Internal
Revenue Service for determining when borrowed funds are
considered used for the purpose of purchasing or carrying
particular assets, the purchase of shares may be considered to
have been made with borrowed funds even though such funds are not
directly traceable to the purchase of shares.
In general, exempt-interest dividends, if any,
attributable to interest received on certain private activity
obligations and certain industrial development bonds will not be
tax-exempt to any shareholders who are "substantial users" of the
facilities financed by such obligations or bonds or who are
"related persons" of such substantial users.
A Fund which is qualified to pay exempt-interest dividends
will inform investors within 60 days of the Fund's fiscal
year-end of the percentage of its income distributions designated
as tax-exempt. The percentage is applied uniformly to all
distributions made during the year. The percentage of income
designated as tax-exempt for any particular distribution may be
substantially different from the percentage of the Fund's income
that was tax-exempt during the period covered by the
distribution.
HEDGING TRANSACTIONS. If the Fund engages in
transactions, including hedging transactions in options, futures
contracts, and straddles, or other similar transactions, it will
be subject to special tax rules (including mark-to-market,
straddle, wash sale, and short sale rules), the effect of which
may be to accelerate income to the Fund, defer losses to the
Fund, cause adjustments in the holding periods of the Fund's
securities, or convert short-term capital losses into long-term
capital losses. These rules could therefore affect the amount,
timing and character of distributions to shareholders. The Fund
will endeavor to make any available elections pertaining to such
transactions in a manner believed to be in the best interests of
the Fund.
Under the 30% of gross income test described above (see
"Taxation of the Fund"), the Fund will be restricted in selling
assets held or considered under Code rules to have been held for
less than three months, and in engaging in certain hedging
transactions (including hedging transactions in options and
futures) that in some circumstances could cause certain Fund
assets to be treated as held for less than three months.
Certain of the Fund's hedging activities (including its
transactions, if any, in foreign currencies or foreign
currency-denominated instruments) are likely to produce a
difference between its book income and its taxable income. If
the Fund's book income exceeds its taxable income, the
distribution (if any) of such excess will be treated as a
dividend to the extent of the Fund's remaining earnings and
profits, and thereafter as a return of capital or as gain from
the sale or exchange of a capital asset, as the case may be. If
the Fund's book income is less than its taxable income, the Fund
could be required to make distributions exceeding book income to
qualify as a regulated investment company that is accorded
special tax treatment.
RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a
distribution to you in excess of its current and accumulated
"earnings and profits" in any taxable year, the excess
distribution will be treated as a return of capital to the extent
of your tax basis in your shares, and thereafter as capital gain.
A return of capital is not taxable, but it reduces your tax basis
in your shares.
SECURITIES ISSUED OR PURCHASED AT A DISCOUNT. The Fund's
investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a
discount may) require the Fund to accrue and distribute income
not yet received. In order to generate sufficient cash to make
the requisite distributions, the Fund may be required to sell
securities in its portfolio that it otherwise would have
continued to hold.
CAPITAL LOSS CARRYOVER. The amounts and expiration dates
of any capital loss carryovers available to the Fund are shown in
Note 1 (Federal income taxes) to the financial statements
included in Part I of this Statement or incorporated by reference
into this Statement.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED
HEDGING TRANSACTIONS. The Fund's transactions in foreign
currency-denominated debt securities, certain foreign currency
options, futures contracts, and forward contracts may give rise
to ordinary income or loss to the extent such income or loss
results from fluctuations in the value of the foreign currency
concerned.
If more than 50% of the Fund's assets at year end consists
of the debt and equity securities of foreign corporations, the
Fund may elect to permit shareholders to claim a credit or
deduction on their income tax returns for their pro rata portion
of qualified taxes paid by the Fund to foreign countries. In
such a case, shareholders will include in gross income from
foreign sources their pro rata shares of such taxes. A
shareholder's ability to claim a foreign tax credit or deduction
in respect of foreign taxes paid by the Fund may be subject to
certain limitations imposed by the Code, as a result of which a
shareholder may not get a full credit or deduction for the amount
of such taxes. Shareholders who do not itemize on their federal
income tax returns may claim a credit (but no deduction) for such
foreign taxes.
Investment by the Fund in certain "passive foreign
investment companies" could subject the Fund to a U.S. federal
income tax or other charge on the proceeds from the sale of its
investment in such a company; however, this tax can be avoided by
making an election to mark such investments to market annually or
to treat the passive foreign investment company as a "qualified
electing fund."
SALE OR REDEMPTION OF SHARES. The sale, exchange or
redemption of Fund shares may give rise to a gain or loss. In
general, any gain or loss realized upon a taxable disposition of
shares will be treated as long-term capital gain or loss if the
shares have been held for more than 12 months, and otherwise as
short-term capital gain or loss. However, if a shareholder sells
shares at a loss within six months of purchase, any loss will be
disallowed for Federal income tax purposes to the extent of any
exempt-interest dividends received on such shares. In addition,
any loss (not already disallowed as provided in the preceding
sentence) realized upon a taxable disposition of shares held for
six months or less will be treated as long-term, rather than
short-term, to the extent of any long-term capital gain
distributions received by the shareholder with respect to the
shares. All or a portion of any loss realized upon a taxable
disposition of Fund shares will be disallowed if other Fund
shares are purchased within 30 days before or after the
disposition. In such a case, the basis of the newly purchased
shares will be adjusted to reflect the disallowed loss.
SHARES PURCHASED THROUGH TAX-QUALIFIED PLANS. Special tax
rules apply to investments though defined contribution plans and
other tax-qualified plans. Shareholders should consult their tax
adviser to determine the suitability of shares of a fund as an
investment through such plans and the precise effect of an
investment on their particular tax situation.
BACKUP WITHHOLDING. The Fund generally is required to
withhold and remit to the U.S. Treasury 31% of the taxable
dividends and other distributions paid to any individual
shareholder who fails to furnish the Fund with a correct taxpayer
identification number, who has underreported dividends or
interest income, or who fails to certify to the Fund that he or
she is not subject to such withholding. An individual's taxpayer
identification number is his or her social security number.
MANAGEMENT OF THE FUND
TRUSTEES
*+GEORGE PUTNAM, Chairman and President. Chairman and
Director of Putnam Investment Management, Inc. and Putnam Mutual
Funds. Director, The Boston Company, Inc., Boston Safe Deposit
and Trust Company, Freeport-McMoRan, Inc., General Mills, Inc.,
Houghton Mifflin Company, Marsh & McLennan Companies, Inc. and
Rockefeller Group, Inc.
+WILLIAM F. POUNDS, Vice Chairman. Professor of
Management, Alfred P. Sloan School of Management, Massachusetts
Institute of Technology. Director of Fisher Price, Inc., IDEXX,
M/A-COM, Inc., EG&G, Inc. and Sun Company, Inc.
JAMESON A. BAXTER, Trustee. President, Baxter Associates,
Inc. (consultants to management). Director of Banta Corporation,
Avondale Federal Savings Bank and ASHTA Chemicals, Inc. Chairman
of the Board of Trustees, Mount Holyoke College.
+HANS H. ESTIN, Trustee. Vice Chairman, North American
Management Corp. (a registered investment adviser). Director of
The Boston Company, Inc. and Boston Safe Deposit and Trust
Company.
ELIZABETH T. KENNAN, Trustee. President of Mount Holyoke
College. Director, NYNEX Corporation, Northeast Utilities and
the Kentucky Home Life Insurance Companies and Trustee of the
University of Notre Dame.
*LAWRENCE J. LASSER, Trustee and Vice President.
President, Chief Executive Officer and Director of Putnam
Investments, Inc. and Putnam Investment Management, Inc.
Director of Marsh & McLennan Companies, Inc. Vice President of
the Putnam funds.
John A. Hill, Trustee. Chairman and Managing Director,
First Reserve Corporation (a registered investment adviser).
Director, Lantana Corporation, Maverick Tube Corporation, Snyder
Oil Corporation and various First Reserve Funds.
+ROBERT E. PATTERSON, Trustee. Executive Vice President,
Cabot Partners Limited Partnership (a registered investment
adviser).
DONALD S. PERKINS, Trustee. Director of various
corporations, including American Telephone & Telegraph Company,
AON Corp., Cummins Engine Company, Inc., Illinois Power Company,
Inland Steel Industries, Inc., K mart Corporation, LaSalle Street
Fund, Inc., Springs Industries, Inc., TBG, Inc. and Time Warner
Inc.
*#GEORGE PUTNAM, III, Trustee. President, New Generation
Research, Inc. (publisher of bankruptcy information). Director,
World Environment Center.
*A.J.C. SMITH, Trustee. Chairman, Chief Executive Officer
and Director, Marsh & McLennan Companies, Inc.
W. NICHOLAS THORNDIKE, Trustee. Director of various
corporations and charitable organizations, including Providence
Journal Co. and Courier Corporation. Also, Trustee and President
of Massachusetts General Hospital and Trustee of Bradley Real
Estate Trust and Eastern Utilities Associates.
Officers
CHARLES E. PORTER, Executive Vice President. Managing
Director of Putnam Investments, Inc. and Putnam Investment
Management, Inc. Executive Vice President of the Putnam funds.
PATRICIA C. FLAHERTY, Senior Vice President. Senior Vice
President of Putnam Investments, Inc. and Putnam Investment
Management, Inc.
WILLIAM N. SHIEBLER, Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. President, Chief
Operating Officer and Director of Putnam Mutual Funds. Vice
President of the Putnam funds.
GORDON H. SILVER, Vice President. Senior Managing
Director of Putnam Investments, Inc. and Putnam Investment
Management, Inc. Director, Putnam Investments, Inc. and Putnam
Investment Management, Inc. Vice President of the Putnam funds.
JOHN R. VERANI, Vice President. Senior Vice President of
Putnam Investments, Inc. and Putnam Investment Management, Inc.
Vice President of the Putnam funds.
PAUL M. O'NEIL, Vice President. Vice President of Putnam
Investments, Inc. and Putnam Investment Management, Inc. Vice
President of the Putnam funds.
JOHN D. HUGHES, Vice President and Treasurer. Vice
President and Treasurer of the Putnam funds.
BEVERLY MARCUS, Clerk and Assistant Treasurer. Clerk and
Assistant Treasurer of the Putnam funds.
*Trustees who are "interested persons" (as defined in the
Investment Company Act of 1940) of the Fund, Putnam Management or
Putnam Mutual Funds.
+Members of the Executive Committee of the Trustees. The
Executive Committee meets between regular meetings of the
Trustees as may be required to review investment matters and
other affairs of the Fund and may exercise all of the powers of
the Trustees.
#George Putnam, III is the son of George Putnam.
-----------------
Certain other officers of Putnam Management are officers
of your Fund. SEE "ADDITIONAL OFFICERS OF THE FUND" IN PART I OF
THIS STATEMENT. The mailing address of each of the officers and
Trustees is One Post Office Square, Boston, Massachusetts 02109.
Except as stated below, the principal occupations of the
officers and Trustees for the last five years have been with the
employers as shown above, although in some cases they have held
different positions with such employers. Also, prior to January,
1992, Ms. Baxter was Vice President and Principal, Regency Group,
Inc. and Consultant, The First Boston Corporation. Prior to May,
1991, Mr. Pounds was Senior Advisor to the Rockefeller Family and
Associates, Chairman of Rockefeller Trust Company and Director of
Rockefeller Group, Inc. Prior to November, 1990, Mr. Shiebler
was President and Chief Operating Officer of the Intercapital
Division of Dean Witter Reynolds, Inc., Vice President of the
Dean Witter Funds and Director of Dean Witter Trust Company.
Each Trustee of the Fund receives an annual fee and an
additional fee for each Trustees' meeting attended. Trustees who
are not interested persons of Putnam Management and who serve on
committees of the Trustees receive additional fees for attendance
at certain committee meetings and for special services rendered
in that connection. All of the Trustees are Trustees of all the
Putnam funds and each receives fees for his or her services. FOR
DETAILS OF TRUSTEES' FEES PAID BY THE FUND, SEE "FUND CHARGES AND
EXPENSES" IN PART I OF THIS STATEMENT.
The Agreement and Declaration of Trust of the Fund
provides that the Fund will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their offices
with the Fund, except if it is determined in the manner specified
in the Agreement and Declaration of Trust that they have not
acted in good faith in the reasonable belief that their actions
were in the best interests of the Fund or that such
indemnification would relieve any officer or Trustee of any
liability to the Fund or its shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
his or her duties. The Fund, at its expense, provides liability
insurance for the benefit of its Trustees and officers.
Putnam Management, Putnam Mutual Funds and Putnam
Fiduciary Trust Company are subsidiaries of Putnam Investments,
Inc., a holding company which is in turn wholly owned by Marsh &
McLennan Companies, Inc., a publicly owned holding company whose
principal operating subsidiaries are international insurance and
reinsurance brokers, investment managers and management
consultants.
Trustees and officers of the Fund who are also officers of
Putnam Management or its affiliates or who are stockholders of
Marsh & McLennan Companies, Inc. will benefit from the advisory
fees, sales commissions, distribution fees (if any), custodian
fees and transfer agency fees paid or allowed by the Fund.
PUTNAM MANAGEMENT
Putnam Management is one of America's oldest and largest
money management firms. Putnam Management's staff of experienced
portfolio managers and research analysts selects securities and
constantly supervises the Fund's portfolio. By pooling an
investor's money with that of other investors, a greater variety
of securities can be purchased than would be the case
individually; the resulting diversification helps reduce
investment risk. Putnam Management has been managing mutual funds
since 1937. Today, the firm serves as the investment manager for
the funds in the Putnam Family, with over $64 billion in assets
in nearly 3.5 million shareholder accounts at December 31, 1993.
An affiliate, The Putnam Advisory Company, Inc., manages domestic
and foreign institutional accounts and mutual funds, including
the accounts of many Fortune 500 companies. Another affiliate,
Putnam Fiduciary Trust Company, provides investment advice to
institutional clients under its banking and fiduciary powers. At
December 31, 1993, Putnam Management and its affiliates managed
nearly $91 billion in assets, including over $17 billion in tax
exempt securities and nearly $31 billion in retirement plan
assets.
<PAGE>
THE MANAGEMENT CONTRACT
Under a Management Contract between the Fund and Putnam
Management, subject to such policies as the Trustees may
determine, Putnam Management, at its expense, furnishes
continuously an investment program for the Fund and makes
investment decisions on behalf of the Fund. Subject to the
control of the Trustees, Putnam Management also manages,
supervises and conducts the other affairs and business of the
Fund, furnishes office space and equipment, provides bookkeeping
and clerical services (including determination of the Fund's net
asset value, but excluding shareholder accounting services) and
places all orders for the purchase and sale of the Fund's
portfolio securities. Putnam Management may place Fund portfolio
transactions with broker-dealers which furnish Putnam Management,
without cost to it, certain research, statistical and quotation
services of value to Putnam Management and its affiliates in
advising the Fund and other clients. In so doing, Putnam
Management may cause the Fund to pay greater brokerage
commissions than it might otherwise pay.
FOR DETAILS OF PUTNAM MANAGEMENT'S COMPENSATION UNDER THE
MANAGEMENT CONTRACT, SEE "FUND CHARGES AND EXPENSES" IN PART I OF
THIS STATEMENT. Putnam Management's compensation under the
Management Contract may be reduced in any year if the Fund's
expenses exceed the limits on investment company expenses imposed
by any statute or regulatory authority of any jurisdiction in
which shares of the Fund are qualified for offer or sale. The
term "expenses" is defined in the statutes or regulations of such
jurisdictions, and generally, excludes brokerage commissions,
taxes, interest, extraordinary expenses and, if the Fund has a
Distribution Plan, payments made under such Plan. The only such
limitation as of the date of this Statement (applicable to any
Fund registered for sale in California) was 2.5% of the first $30
million of average net assets, 2% of the next $70 million and
1.5% of any excess over $100 million.
Under the Management Contract, Putnam Management may
reduce its compensation to the extent that the Fund's expenses
exceed such lower expense limitation as Putnam Management may, by
notice to the Fund, declare to be effective. The expenses
subject to this limitation are exclusive of brokerage
commissions, interest, taxes, deferred organizational and
extraordinary expenses and, if the Fund has a Distribution Plan,
payments required under such Plan. THE TERMS OF ANY EXPENSE
LIMITATION FROM TIME TO TIME IN EFFECT ARE DESCRIBED IN EITHER
THE PROSPECTUS OR PART I OF THIS STATEMENT.
In addition to the fee paid to Putnam Management, the Fund
reimburses Putnam Management for the compensation and related
expenses of certain officers of the Fund and their assistants who
provide certain administrative services for the Fund and the
other funds in the Putnam Family, each of which bears an
allocated share of the foregoing costs. The aggregate amount of
all such payments and reimbursements is determined annually by
the Trustees. THE AMOUNT OF THIS REIMBURSEMENT FOR THE FUND'S
MOST RECENT FISCAL YEAR IS INCLUDED IN "FUND CHARGES AND
EXPENSES" IN PART I OF THIS STATEMENT. Putnam Management pays
all other salaries of officers of the Fund. The Fund pays all
expenses not assumed by Putnam Management including, without
limitation, auditing, legal, custodial, investor servicing and
shareholder reporting expenses. The Fund pays the cost of
typesetting for its Prospectuses and the cost of printing and
mailing any Prospectuses sent to its shareholders. Putnam Mutual
Funds pays the cost of printing and distributing all other
Prospectuses.
The Management Contract provides that Putnam Management
shall not be subject to any liability to the Fund or to any
shareholder of the Fund for any act or omission in the course of
or connected with rendering services to the Fund in the absence
of willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties on the part of Putnam Management.
The Management Contract may be terminated without penalty
by vote of the Trustees or the shareholders of the Fund, or by
Putnam Management, on 30 days' written notice. It may be amended
only by a vote of the shareholders of the Fund. The Management
Contract also terminates without payment of any penalty in the
event of its assignment. The Management Contract provides that
it will continue in effect only so long as such continuance is
approved at least annually by vote of either the Trustees or the
shareholders, and, in either case, by a majority of the Trustees
who are not "interested persons" of Putnam Management or the
Fund. In each of the foregoing cases, the vote of the
shareholders is the affirmative vote of a "majority of the
outstanding voting securities" as defined in the Investment
Company Act of 1940.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. Investment decisions for the Fund
and for the other investment advisory clients of Putnam
Management and its affiliates are made with a view to achieving
their respective investment objectives. Investment decisions are
the product of many factors in addition to basic suitability for
the particular client involved. Thus, a particular security may
be bought or sold for certain clients even though it could have
been bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling the security.
In some instances, one client may sell a particular security to
another client. It also sometimes happens that two or more
clients simultaneously purchase or sell the same security, in
which event each day's transactions in such security are, insofar
as possible, averaged as to price and allocated between such
clients in a manner which in Putnam Management's opinion is
equitable to each and in accordance with the amount being
purchased or sold by each. There may be circumstances when
purchases or sales of portfolio securities for one or more
clients will have an adverse effect on other clients.
BROKERAGE AND RESEARCH SERVICES. Transactions on U.S.
stock exchanges, commodities markets and futures markets and
other agency transactions involve the payment by the Fund of
negotiated brokerage commissions. Such commissions vary among
different brokers. A particular broker may charge different
commissions according to such factors as the difficulty and size
of the transaction. Transactions in foreign investments often
involve the payment of fixed brokerage commissions, which may be
higher than those in the United States. There is generally no
stated commission in the case of securities traded in the
over-the-counter markets, but the price paid by the Fund usually
includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Fund includes a
disclosed, fixed commission or discount retained by the
underwriter or dealer. It is anticipated that most purchases and
sales of securities by funds investing primarily in tax-exempt
securities and certain other fixed-income securities will be with
the issuer or with underwriters of or dealers in those
securities, acting as principal. Accordingly, those funds would
not ordinarily pay significant brokerage commissions with respect
to securities transactions. SEE "FUND CHARGES AND EXPENSES" IN
PART I OF THIS STATEMENT FOR INFORMATION CONCERNING COMMISSIONS
PAID BY THE FUND.
It has for many years been a common practice in the
investment advisory business for advisers of investment companies
and other institutional investors to receive brokerage and
research services (as defined in the Securities Exchange Act of
1934, as amended (the "1934 Act")) from broker-dealers that
execute portfolio transactions for the clients of such advisers
and from third parties with which such broker-dealers have
arrangements. Consistent with this practice, Putnam Management
receives brokerage and research services and other similar
services from many broker-dealers with which Putnam Management
places the Fund's portfolio transactions and from third parties
with which these broker-dealers have arrangements. These
services include such matters as general economic and market
reviews, industry and company reviews, evaluations of
investments, recommendations as to the purchase and sale of
investments, newspapers, magazines, pricing services, quotation
services, news services and personal computers utilized by Putnam
Management's managers and analysts. Where the services referred
to above are not used exclusively by Putnam Management for
research purposes, Putnam Management, based upon its own
allocations of expected use, bears that portion of the cost of
these services which directly relates to their non-research use.
Some of these services are of value to Putnam Management and its
affiliates in advising various of their clients (including the
Fund), although not all of these services are necessarily useful
and of value in managing the Fund. The management fee paid by
the Fund is not reduced because Putnam Management and its
affiliates receive these services even though Putnam Management
might otherwise be required to purchase some of these services
for cash.
Putnam Management places all orders for the purchase and
sale of portfolio investments for the Fund and buys and sells
investments for the Fund through a substantial number of brokers
and dealers. In so doing, Putnam Management uses its best
efforts to obtain for the Fund the most favorable price and
execution available, except to the extent it may be permitted to
pay higher brokerage commissions as described below. In seeking
the most favorable price and execution, Putnam Management, having
in mind the Fund's best interests, considers all factors it deems
relevant, including, by way of illustration, price, the size of
the transaction, the nature of the market for the security or
other investment, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the
broker-dealer involved and the quality of service rendered by the
broker-dealer in other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the
Management Contract, Putnam Management may cause the Fund to pay
a broker-dealer which provides "brokerage and research services"
(as defined in the 1934 Act) to Putnam Management an amount of
disclosed commission for effecting securities transactions on
stock exchanges and other transactions for the Fund on an agency
basis in excess of the commission which another broker-dealer
would have charged for effecting that transaction. Putnam
Management's authority to cause the Fund to pay any such greater
commissions is also subject to such policies as the Trustees may
adopt from time to time. Putnam Management does not currently
intend to cause the Fund to make such payments. It is the
position of the staff of the Securities and Exchange Commission
that Section 28(e) does not apply to the payment of such greater
commissions in "principal" transactions. Accordingly Putnam
Management will use its best effort to obtain the most favorable
price and execution available with respect to such transactions,
as described above.
The Management Contract provides that commissions, fees,
brokerage or similar payments received by Putnam Management or an
affiliate in connection with the purchase and sale of portfolio
investments of the Fund, less any direct expenses approved by the
Trustees, shall be recaptured by the Fund through a reduction of
the fee payable by the Fund under the Management Contract.
Putnam Management seeks to recapture for the Fund soliciting
dealer fees on the tender of the Fund's portfolio securities in
tender or exchange offers. Any such fees which may be recaptured
are likely to be minor in amount.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and subject to seeking
the most favorable price and execution available and such other
policies as the Trustees may determine, Putnam Management may
consider sales of shares of the Fund (and, if permitted by law,
of the other Putnam funds) as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
PRINCIPAL UNDERWRITER
Putnam Mutual Funds is the principal underwriter of shares
of the Fund and the other continuously offered Putnam funds.
Putnam Mutual Funds is not obligated to sell any specific amount
of shares of the Fund and will purchase shares for resale only
against orders for shares. SEE "FUND CHARGES AND EXPENSES" IN
PART I OF THIS STATEMENT FOR INFORMATION ON SALES CHARGES AND
OTHER PAYMENTS RECEIVED BY PUTNAM MUTUAL FUNDS.
INVESTOR SERVICING AGENT AND CUSTODIAN
Putnam Investor Services, a division of Putnam Fiduciary
Trust Company ("PFTC"), is the Fund's investor servicing agent
(transfer, plan and dividend disbursing agent), for which it
receives fees which are paid monthly by the Fund as an expense of
all its shareholders. The fee paid to Putnam Investor Services
is determined by the Trustees taking into account the number of
shareholder accounts and transactions. Putnam Investor Services
earned the DALBAR Quality Tested Service Seal in 1990, 1991 and
1992. Over 10,000 tests of 38 separate shareholders service
components demonstrated that Putnam Investor Services exceeded
the industry standard in all categories.
PFTC is the custodian of the Fund's assets. In carrying
out its duties under its custodian contract, PFTC may employ one
or more subcustodians whose responsibilities will include
safeguarding and controlling the Fund's cash and securities,
handling the receipt and delivery of securities and collecting
interest and dividends on the Fund's investments. PFTC and any
subcustodians employed by it have a lien on the securities of the
Fund (to the extent permitted by the Fund's investment
restrictions) to secure charges and any advances made by such
subcustodians at the end of any day for the purpose of paying for
securities purchased by the Fund. The Fund expects that such
advances will exist only in unusual circumstances. Neither PFTC
nor any subcustodian determines the investment policies of the
Fund or decides which securities the Fund will buy or sell. PFTC
pays the fees and other charges of any subcustodians employed by
it. The Fund may from time to time pay custodial expenses in
full or in part through the placement by Putnam Management of the
Fund's portfolio transactions with the subcustodians or with a
third-party broker having an agreement with the subcustodians.
The Fund pays PFTC an annual fee based on the Fund's assets,
securities transactions and securities holdings and reimburses
PFTC for certain out-of-pocket expenses incurred by it or any
subcustodian employed by it in performing custodial services.
SEE "FUND CHARGES AND EXPENSES" IN PART I OF THIS
STATEMENT FOR INFORMATION ON FEES AND REIMBURSEMENTS FOR INVESTOR
SERVICING AND CUSTODY RECEIVED BY PFTC. The fees may be reduced
by credits allowed by PFTC.
DETERMINATION OF NET ASSET VALUE
The Fund determines net asset value per share of each
class of shares once each day the New York Stock Exchange (the
"Exchange") is open. Currently, the Exchange is closed
Saturdays, Sundays and the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, the Fourth of July,
Labor Day, Thanksgiving and Christmas. The Fund determines net
asset value as of the close of regular trading on the Exchange.
However, equity options held by the Fund are priced as of the
close of trading at 4:10 p.m., and futures contracts on U.S.
Government securities and index options held by the Fund are
priced as of their close of trading at 4:15 p.m.
Securities for which market quotations are readily
available are valued at prices which, in the opinion of the
Trustees or Putnam Management, most nearly represent the market
values of such securities. Currently, such prices are determined
using the last reported sale price or, if no sales are reported
(as in the case of some securities traded over-the-counter), the
last reported bid price, except that certain U.S. Government
securities are stated at the mean between the last reported bid
and asked prices. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost, which
approximates market value. All other securities and assets are
valued at their fair value following procedures approved by the
Trustees. Liabilities are deducted from the total, and the
resulting amount is divided by the number of shares of the class
outstanding.
Reliable market quotations are not considered to be
readily available for long-term corporate bonds and notes,
certain preferred stocks, tax-exempt securities, or certain
foreign securities. These investments are stated at fair value
on the basis of valuations furnished by pricing services approved
by the Trustees, which determine valuations for normal,
institutional-size trading units of such securities using methods
based on market transactions for comparable securities and
various relationships between securities which are generally
recognized by institutional traders.
If any securities held by a Fund are restricted as to
resale, Putnam Management determines their fair value following
procedures approved by the Trustees. The fair value of such
securities is generally determined as the amount which the Fund
could reasonably expect to realize from an orderly disposition of
such securities over a reasonable period of time. The valuation
procedures applied in any specific instance are likely to vary
from case to case. However, consideration is generally given to
the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of
the restrictions on disposition of the securities (including any
registration expenses that might be borne by the Fund in
connection with such disposition). In addition, specific factors
are also generally considered, such as the cost of the
investment, the market value of any unrestricted securities of
the same class (both at the time of purchase and at the time of
valuation), the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any
available analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign
securities) is substantially completed each day at various times
prior to the close of the Exchange. The values of these
securities used in determining the net asset value of the Fund's
shares are computed as of such times. Also, because of the
amount of time required to collect and process trading
information as to large numbers of securities issues, the values
of certain securities (such as convertible bonds, U.S. Government
securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest
practicable time prior to the close of the Exchange.
Occasionally, events affecting the value of such securities may
occur between such times and the close of the Exchange which will
not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such
securities occur during such period, then these securities will
be valued at their fair value following procedures approved by
the Trustees.
Money market funds generally value their portfolio
securities at amortized cost according to Rule 2a-7 under the
Investment Company Act of 1940.
HOW TO BUY SHARES
General
The Prospectus contains a general description of how
investors may buy shares of the Fund and states whether the Fund
offers more than one class of shares. This Statement contains
additional information which may be of interest to investors.
Class A shares are sold with a sales charge payable at the
time of purchase (except for Class A shares of money market
funds). As used in this Statement and unless the context
requires otherwise, the term "Class A shares" includes shares of
Funds that offer only one class of shares. The Prospectus
contains a table of applicable sales charges. For information
about how to purchase Class A shares of a Putnam fund at net
asset value through an employer's defined contribution plan,
please consult your employer. Certain purchases of Class A
shares may be exempt from a sales charge or may be subject to a
contingent deferred sales charge. See "General--Sales without
sales charges or contingent deferred sales charges", "Additional
Information About Class A Shares", and "Contingent Deferred Sales
Charges--Class A shares".
Class B shares are sold subject to a contingent deferred
sales charge payable upon redemption within a specified period
after purchase. The Prospectus contains a table of applicable
contingent deferred sales charges.
Class Y shares, which are available only to employer-
sponsored defined contribution plans initially investing at least
$250 million in a combination of Putnam funds and other
investments managed by Putnam Management or its affiliates, are
not subject to sales charges or contingent deferred sales
charges.
Certain purchase programs described below are not
available to defined contribution plans. Consult your employer
for information on how to purchase shares through your plan.
The Fund is currently making a continuous offering of its
shares. The Fund receives the entire net asset value of shares
sold. The Fund will accept unconditional orders for shares to be
executed at the public offering price based on the net asset
value per share next determined after the order is placed. In
the case of Class A shares, the public offering price is the net
asset value plus the applicable sales charge, if any. No sales
charge is included in the public offering price of other classes
of shares. In the case of orders for purchase of shares placed
through dealers, the public offering price will be based on the
net asset value determined on the day the order is placed, but
only if the dealer receives the order before the close of regular
trading on the Exchange. If the dealer receives the order after
the close of the Exchange, the price will be based on the net
asset value next determined. If funds for the purchase of shares
are sent directly to Putnam Investor Services, they will be
invested at the public offering price based on the net asset
value next determined after receipt. Payment for shares of the
Fund must be in U.S. dollars; if made by check, the check must be
drawn on a U.S. bank.
Initial and subsequent purchases must satisfy the minimums
stated in the Prospectus, except that (i) individual investments
under certain employee benefit plans or Tax Qualified Retirement
Plans may be lower, (ii) persons who are already shareholders may
make additional purchases of $50 or more by sending funds
directly to Putnam Investor Services (see "Your Investing
Account" below), and (iii) for investors participating in
systematic investment plans and military allotment plans, the
initial and subsequent purchases must be $25 or more.
Information about these plans is available from investment
dealers or from Putnam Mutual Funds.
As a convenience to investors, shares may be purchased
through a systematic investment plan. Preauthorized monthly bank
drafts for a fixed amount (at least $25) are used to purchase
Fund shares at the applicable public offering price next
determined after Putnam Mutual Funds receives the proceeds from
the draft (normally the 20th of each month, or the next business
day thereafter). Further information and application forms are
available from investment dealers or from Putnam Mutual Funds.
Except as described below, distributions to be reinvested
are reinvested without a sales charge in shares of the same class
as of the ex-dividend date using the net asset value determined
on that date, and are credited to a shareholder's account on the
payment date. Distributions for Putnam Tax Exempt Income Fund,
Putnam Arizona Tax Exempt Income Fund, Putnam California Tax
Exempt Income Fund, Putnam Municipal Income Fund, Putnam Florida
Tax Exempt Income Fund, Putnam Massachusetts Tax Exempt Income
Fund II, Putnam Michigan Tax Exempt Income Fund II, Putnam
Minnesota Tax Exempt Income Fund II, Putnam New Jersey Tax Exempt
Income Fund, Putnam New York Tax Exempt Income Fund, Putnam New
York Tax Exempt Opportunities Fund, Putnam Ohio Tax Exempt Income
Fund II, Putnam Pennsylvania Tax Exempt Income Fund and Putnam
Texas Tax Exempt Income Fund are reinvested without a sales
charge as of the next day following the period for which
distributions are paid using the net asset value determined on
that date, and are credited to a shareholder's account on the
payment date. Distributions for Putnam Tax-Free Income Trust and
Putnam Corporate Asset Trust are reinvested without a sales
charge as of the last day of the period for which distributions
are paid using the net asset value determined on that date, and
are credited to a shareholder's account on the payment date.
Dividends for Putnam money market funds are credited to a
shareholder's account on the payment date.
PAYMENT IN SECURITIES. In addition to cash, the Fund may
accept securities as payment for Fund shares at the applicable
net asset value. Generally, the Fund will only consider
accepting securities to increase its holdings in a portfolio
security, or if Putnam Management determines that the offered
securities are a suitable investment for the Fund and in a
sufficient amount for efficient management.
While no minimum has been established, it is expected that
the Fund would not accept securities with a value of less than
$100,000 per issue as payment for shares. The Fund may reject in
whole or in part any or all offers to pay for purchases of Fund
shares with securities, may require partial payment in cash for
such purchases to provide funds for applicable sales charges, and
may discontinue accepting securities as payment for Fund shares
at any time without notice. The Fund will value accepted
securities in the manner described in the section "Determination
of Net Asset Value" for valuing shares of the Fund. The Fund
will only accept securities which are delivered in proper form.
The Fund will not accept options or restricted securities as
payment for shares. The acceptance of securities by the Fund in
exchange for Fund shares must comply with applicable regulations
of certain states. In addition, Putnam Global Governmental
Income Trust may accept only investment grade bonds with prices
regularly stated in publications generally accepted by investors,
such as the London Financial Times and the Association of
International Bond Dealers manual, or securities listed on the
New York or American Stock Exchanges or with NASDAQ, and Putnam
Diversified Income Trust may accept only bonds with prices
regularly stated in publications generally accepted by investors.
For federal income tax purposes, a purchase of Fund shares with
securities will be treated as a sale or exchange of such
securities on which the investor will realize a taxable gain or
loss. The processing of a purchase of Fund shares with
securities involves certain delays while the Fund considers the
suitability of such securities and while other requirements are
satisfied. For information regarding procedures for payment in
securities, contact Putnam Mutual Funds. Investors should not
send securities to the Fund except when authorized to do so and
in accordance with specific instructions received from Putnam
Mutual Funds.
SALES WITHOUT SALES CHARGES OR CONTINGENT DEFERRED SALES
CHARGES. The Fund may sell shares without a sales charge or
contingent deferred sales charge to:
(i) current and retired Trustees of the Fund; officers of
the Fund; directors and current and retired U.S. full-time
employees of Putnam Management, Putnam Mutual Funds, their
parent corporations and certain corporate affiliates;
family members of and employee benefit plans for the
foregoing; and partnerships, trusts or other entities in
which any of the foregoing has a substantial interest;
(ii) employee benefit plans, for the repurchase of shares
in connection with repayment of plan loans made to plan
participants (if the sum loaned was obtained by redeeming
shares of a Putnam fund sold with a sales charge) (not
offered by tax-exempt funds);
(iii) clients of administrators of tax-qualified employee
benefit plans which have entered into agreements with
Putnam Mutual Funds (not offered by tax-exempt funds);
(iv) registered representatives and other employees of
broker-dealers having sales agreements with Putnam Mutual
Funds; employees of financial institutions having sales
agreements with Putnam Mutual Funds or otherwise having an
arrangement with any such broker-dealer or financial
institution with respect to sales of Fund shares; and
their spouses and children under age 21 (Putnam Mutual
Funds is regarded as the dealer of record for all such
accounts);
(v) investors meeting certain requirements who sold shares
of certain Putnam closed-end funds pursuant to a tender
offer by such closed-end fund;
(vi) a trust department of any financial institution
purchasing shares of the Fund in its capacity as trustee
of any trust, if the value of the shares of the Fund and
other Putnam funds purchased or held by all such trusts
exceeds $1 million in the aggregate; and
(vii) "wrap accounts" maintained for clients of broker-
dealers, financial institutions or financial planners who
have entered into agreements with Putnam Mutual Funds with
respect to such accounts.
In addition, the Fund may issue its shares at net asset
value or more in connection with the acquisition of substantially
all of the securities owned by other investment companies or
personal holding companies.
PAYMENTS TO DEALERS. Putnam Mutual Funds may, at its
expense, pay concessions in addition to the payments disclosed in
the Prospectus to dealers which satisfy certain criteria
established from time to time by Putnam Mutual Funds relating to
increasing net sales of shares of the Putnam funds over prior
periods, and certain other factors.
ADDITIONAL INFORMATION ABOUT CLASS A SHARES
The underwriter's commission is the sales charge shown in
the Prospectus less any applicable dealer discount. The dealer
discount is the same for all dealers, except that Putnam Mutual
Funds retains the entire sales charge on any retail sales made by
it. Putnam Mutual Funds will give dealers ten days' notice of
any changes in the dealer discount.
Putnam Mutual Funds offers several plans by which an
investor may obtain reduced sales charges on purchases of Class A
shares. The variations in sales charges reflect the varying
efforts required to sell shares to separate categories of
purchasers. These plans may be altered or discontinued at any
time.
COMBINED PURCHASE PRIVILEGE. The following persons may
qualify for the sales charge reductions or eliminations shown in
the Prospectus by combining into a single transaction the
purchase of Class A shares with other purchases of any class of
shares:
(i) an individual, or a "company" as defined in Section
2(a)(8) of the Investment Company Act of 1940 (which
includes corporations which are corporate affiliates of
each other);
(ii) an individual, his or her spouse and their children
under twenty-one, purchasing for his, her or their own
account;
(iii) a trustee or other fiduciary purchasing for a single
trust estate or single fiduciary account (including a
pension, profit-sharing, or other employee benefit trust
created pursuant to a plan qualified under Section 401 of
the Internal Revenue Code);
(iv) tax-exempt organizations qualifying under Section
501(c)(3) of the Internal Revenue Code (not including
403(b) plans); and
(v) employee benefit plans of a single employer or of
affiliated employers, other than 403(b) plans.
A combined purchase currently may also include shares of
any class of other continuously offered Putnam funds (other than
money market funds) purchased at the same time through a single
investment dealer, if the dealer places the order for such shares
directly with Putnam Mutual Funds.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). A
purchaser of Class A shares may qualify for a cumulative quantity
discount by combining a current purchase (or combined purchases
as described above) with certain other shares of any class of
Putnam funds already owned. The applicable sales charge is based
on the total of:
(i) the investor's current purchase; and
(ii) the maximum public offering price (at the close of
business on the previous day) of:
(a) all shares held by the investor in all of the
Putnam funds (except money market funds); and
(b) any shares of money market funds acquired by
exchange from other Putnam funds; and
(iii) the maximum public offering price of all shares
described in paragraph (ii) owned by another shareholder
eligible to participate with the investor in a "combined
purchase" (see above).
To qualify for the combined purchase privilege or to
obtain the cumulative quantity discount on a purchase through an
investment dealer, when each purchase is made the investor or
dealer must provide Putnam Mutual Funds with sufficient
information to verify that the purchase qualifies for the
privilege or discount. The shareholder must furnish this
information to Putnam Investor Services when making direct cash
investments.
STATEMENT OF INTENTION. Investors may also obtain the
reduced sales charges for Class A shares shown in the Prospectus
for investments of a particular amount by means of a written
Statement of Intention, which expresses the investor's intention
to invest that amount (including certain "credits," as described
below) within a period of 13 months in shares of any class of the
Fund or any other continuously offered Putnam fund (excluding
money market funds). Each purchase of Class A shares under a
Statement of Intention will be made at the public offering price
applicable at the time of such purchase to a single transaction
of the total dollar amount indicated in the Statement. A
Statement of Intention may include purchases of shares made not
more than 90 days prior to the date that an investor signs a
Statement; however, the 13-month period during which the
Statement is in effect will begin on the date of the earliest
purchase to be included.
An investor may receive a credit toward the amount
indicated in the Statement equal to the maximum public offering
price as of the close of business on the previous day of all
shares he or she owns on the date of the Statement which are
eligible for purchase under a Statement (plus any shares of money
market funds acquired by exchange of such eligible shares).
Investors do not receive credit for shares purchased by the
reinvestment of distributions. Investors qualifying for the
"combined purchase privilege" (see above) may purchase shares
under a single Statement of Intention.
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
of such amount, and must be invested immediately. Class A shares
purchased with the first 5% of such amount will be held in escrow
to secure payment of the higher sales charge applicable to the
shares actually purchased if the full amount indicated is not
purchased. When the full amount indicated has been purchased,
the escrow will be released. If an investor desires to redeem
escrowed shares before the full amount has been purchased, the
shares will be released from escrow only if the investor pays the
sales charge that, without regard to the Statement of Intention,
would apply to the total investment made to date.
To the extent that an investor purchases more than the
dollar amount indicated on the Statement of Intention and
qualifies for a further reduced sales charge, the sales charge
will be adjusted for the entire amount purchased at the end of
the 13-month period, upon recovery from the investor's dealer of
its portion of the sales charge adjustment. Once received from
the dealer, which may take a period of time or may never occur,
the sales charge adjustment will be used to purchase additional
shares at the then current offering price applicable to the
actual amount of the aggregate purchases. These additional
shares will not be considered as part of the total investment for
the purpose of determining the applicable sales charge pursuant
to the Statement of Intention. No sales charge adjustment will
be made unless and until the investor's dealer returns any excess
commissions previously received.
To the extent that an investor purchases less than the
dollar amount indicated on the Statement of Intention within the
13-month period, the sales charge will be adjusted upward for the
entire amount purchased at the end of the 13-month period. This
adjustment will be made by redeeming shares from the account to
cover the additional sales charge, the proceeds of which will be
paid to the investor's dealer and Putnam Mutual Funds in
accordance with the Prospectus. If the account exceeds an amount
that would otherwise qualify for a reduced sales charge, that
reduced sales charge will be applied.
Statements of Intention are not available for certain
employee benefit plans.
Statement of Intention forms may be obtained from Putnam
Mutual Funds or from investment dealers. Interested investors
should read the Statement of Intention carefully.
REDUCED SALES CHARGE FOR GROUP PURCHASES. Members of
qualified groups may purchase Class A shares of the Fund at a
group sales charge rate of 4.5% of the public offering price
(4.71% of the net amount invested). The dealer discount on such
sales is 3.75% of the offering price.
To receive the group rate, group members must purchase
Class A shares through a single investment dealer designated by
the group. The designated dealer must transmit each member's
initial purchase to Putnam Mutual Funds, together with payment
and completed application forms. After the initial purchase, a
member may send funds for the purchase of Class A shares directly
to Putnam Investor Services. Purchases of Class A shares are
made at the public offering price based on the net asset value
next determined after Putnam Mutual Funds or Putnam Investor
Services receives payment for the shares. The minimum investment
requirements described above apply to purchases by any group
member. Only Class A shares are included in calculating the
purchased amount.
Qualified groups include the employees of a corporation or
a sole proprietorship, members and employees of a partnership or
association, or other organized groups of persons (the members of
which may include other qualified groups) provided that: (i) the
group has at least 25 members of which at least 10 members
participate in the initial purchase; (ii) the group has been in
existence for at least six months; (iii) the group has some
purpose in addition to the purchase of investment company shares
at a reduced sales charge; (iv) the group's sole organizational
nexus or connection is not that the members are credit card
holders of a company, policy holders of an insurance company,
customers of a bank or broker-dealer, clients of an investment
adviser or security holders of a company; (v) the group agrees to
provide its designated investment dealer access to the group's
membership by means of written communication or direct
presentation to the membership at a meeting on not less
frequently than an annual basis; (vi) the group or its investment
dealer will provide annual certification in form satisfactory to
Putnam Investor Services that the group then has at least 25
members and that at least ten members participated in group
purchases during the immediately preceding 12 calendar months;
and (vii) the group or its investment dealer will provide
periodic certification in form satisfactory to Putnam Investor
Services as to the eligibility of the purchasing members of the
group.
Members of a qualified group include: (i) any group which
meets the requirements stated above and which is a constituent
member of a qualified group; (ii) any individual purchasing for
his or her own account who is carried on the records of the group
or on the records of any constituent member of the group as being
a good standing employee, partner, member or person of like
status of the group or constituent member; or (iii) any fiduciary
purchasing shares for the account of a member of a qualified
group or a member's beneficiary. For example, a qualified group
could consist of a trade association which would have as its
members individuals, sole proprietors, partnerships and
corporations. The members of the group would then consist of the
individuals, the sole proprietors and their employees, the
members of the partnerships and their employees, and the
corporations and their employees, as well as the trustees of
employee benefit trusts acquiring Class A shares for the benefit
of any of the foregoing.
A member of a qualified group may, depending upon the
value of Class A shares of the Fund owned or proposed to be
purchased by the member, be entitled to purchase Class A shares
of the Fund at non-group sales charge rates shown in the
Prospectus which may be lower than the group sales charge rate,
if the member qualifies as a person entitled to reduced non-group
sales charges. Such a group member will be entitled to purchase
at the lower rate if, at the time of purchase, the member or his
or her investment dealer furnishes sufficient information for
Putnam Mutual Funds or Putnam Investor Services to verify that
the purchase qualifies for the lower rate.
Interested groups should contact their investment dealer
or Putnam Mutual Funds. The Fund reserves the right to revise
the terms of or to suspend or discontinue group sales at any
time.
EMPLOYEE BENEFIT PLANS; INDIVIDUAL ACCOUNT PLANS. The
term "employee benefit plan" means any plan or arrangement,
whether or not tax-qualified, which provides for the purchase of
Class A shares. The term "affiliated employer" means employers
who are affiliated with each other within the meaning of Section
2(a)(3)(C) of the Investment Company Act of 1940. The term
"individual account plan" means any employee benefit plan whereby
(i) Class A shares are purchased through payroll deductions or
otherwise by a fiduciary or other person for the account of
participants who are employees (or their spouses) of an employer,
or of affiliated employers, and (ii) a separate Investing Account
is maintained in the name of such fiduciary or other person for
the account of each participant in the plan.
The table of sales charges in the Prospectus applies to
sales to employee benefit plans, except that the Fund may sell
Class A shares at net asset value to employee benefit plans,
including individual account plans, of employers or of affiliated
employers which have at least 750 employees to whom such plan is
made available, in connection with a payroll deduction system of
plan funding (or other system acceptable to Putnam Investor
Services) by which contributions or account information for plan
participation are transmitted to Putnam Investor Services by
methods acceptable to Putnam Investor Services. The Fund may
also sell Class A shares at net asset value to employee benefit
plans of employers or of affiliated employers which have at least
750 employees, if such plans are qualified under Section 401 of
the Internal Revenue Code.
Additional information about employee benefit plans and
individual account plans is available from investment dealers or
from Putnam Mutual Funds.
CONTINGENT DEFERRED SALES CHARGES
Class A shares. The Fund exempts purchases of $1 million
or more of Class A shares from front-end sales charges. Putnam
Mutual Funds pays commissions at the rates shown in the table
below to investment dealers of record on any such sales,
including purchases pursuant to any Combined Purchase Privilege,
Right of Accumulation or Statement of Intention. Shareholders
will be charged a contingent deferred sales charge ("Class A
CDSC") if those shares are redeemed within the period shown
below:
Commissions
paid to
investment
dealers of
record and Period after
Amount of transaction applicable purchase during
at offering price CDSC which CDSC applies
- --------------------------------------------- -----------------
$1,000,000 but less than $2,500,000 1.00% 2 years
2,500,000 but less than 5,000,000 0.50% 1 year
5,000,000 and over 0.25% 1 year
The Class A CDSC is imposed on the lower of the cost and
the current net asset value of the shares redeemed.
Shares of the Fund sold without a sales charge through
defined contribution plans are not subject to the Class A CDSC.
Putnam Mutual Funds may make payments out of its own assets to
certain brokers and financial consultants in connection with
purchases of shares of the Fund at net asset value by such plans,
subject to the right of Putnam Mutual Funds to reclaim such
payments if such shares are redeemed. The payments will be made
by Putnam Mutual Funds as follows: (1) for purchases of at least
$1,000,000 but less than $2,500,000, at the rate of 1.00%,
subject to reclaim if the shares are redeemed within two years;
(2) for purchases of at least $2,500,000 but less than
$5,000,000, at the rate of 0.50%, subject to reclaim if the
shares are redeemed within one year; and (3) for purchases of
$5,000,000 or more, at a rate of up to 0.25%, subject to reclaim
if the shares are redeemed within one year. For the purpose of
these payments, Putnam Mutual Funds will treat plans that are
purchasing shares of the Fund in an amount less than $1,000,000
but that are sponsored by employers with more than 750 employees
as if they were plans purchasing shares of the Fund in an amount
of at least $1,000,000 but less than $2,500,000.
CLASS B SHARES. Investors who set up a Systematic
Withdrawal Plan (SWP) for a Class B share account (see "Plans
Available To Shareholders -- Automatic Cash Withdrawal Plan") may
withdraw through the SWP up to 12% of the net asset value of the
account (calculated as set forth below) each year without
incurring any CDSC. Shares not subject to a CDSC (such as shares
representing reinvestment of distributions) will be redeemed
first and will count toward the 12% limitation. If there are
insufficient shares not subject to a CDSC, shares subject to the
lowest CDSC liability will be redeemed next until the 12% limit
is reached. The 12% figure is calculated on a pro rata basis at
the time of the first payment made pursuant to a SWP and
recalculated thereafter on a pro rata basis at the time of each
SWP payment. Therefore, shareholders who have chosen a SWP based
on a percentage of the net asset value of their account of up to
12% will be able to receive SWP payments without incurring a
CDSC. However, shareholders who have chosen a specific dollar
amount (for example, $100 per month from a fund that pays income
distributions monthly) for their periodic SWP payment should be
aware that the amount of that payment not subject to a CDSC may
vary over time depending on the net asset value of their account.
For example, if the net asset value of the account is $10,000 at
the time of payment, the shareholder will receive $100 free of
the CDSC (12% of $10,000 divided by 12 monthly payments).
However, if at the time of the next payment the net asset value
of the account has fallen to $9,400, the shareholder will receive
$94 free of any CDSC (12% of $9,400 divided by 12 monthly
payments) and $6 subject to the lowest applicable CDSC. This SWP
privilege may be revised or terminated at any time.
ALL SHARES. No CDSC is imposed on shares of any class
subject to a CDSC ("CDSC Shares") to the extent that the CDSC
Shares redeemed (i) are no longer subject to the holding period
therefor, (ii) resulted from reinvestment of distributions on
CDSC Shares, or (iii) were exchanged for shares of another Putnam
fund, provided that the shares acquired in such exchange or
subsequent exchanges (including shares of a Putnam money market
fund) will continue to remain subject to the CDSC, if applicable,
until the applicable holding period expires. In determining
whether the CDSC applies to each redemption of CDSC Shares, CDSC
Shares no longer subject to a CDSC and CDSC Shares representing
reinvestment of distributions are redeemed first.
The Fund will waive any CDSC on redemptions, in the case
of individual or Uniform Transfers to Minors Act accounts, in
case of death or disability or for the purpose of paying benefits
pursuant to tax-qualified retirement plans. Such payments
currently include, without limitation, (1) distributions from an
IRA due to death or disability, (2) a return of excess
contributions to an IRA or 401(k) plan, and (3) distributions
from retirement plans qualified under section 401(a) or section
403(b)(7) (a "403(b) plan") of the Internal Revenue Code of 1986,
as amended (the "Code"), due to death, disability, retirement or
separation from service. The Fund will also waive any CDSC in
the case of the death of one joint tenant. These waivers may be
changed at any time. Additional waivers may apply to IRA
accounts opened prior to February 1, 1994.
DISTRIBUTION PLAN
If the Fund or a class of shares of the Fund has adopted a
Distribution Plan, the Prospectus describes the principal
features of the Plan. This Statement contains additional
information which may be of interest to investors.
Continuance of a Plan is subject to annual approval by a
vote of the Trustees, including a majority of the Trustees who
are not interested persons of the Fund and who have no direct or
indirect interest in the Plan or related arrangements (the
"Qualified Trustees"), cast in person at a meeting called for
that purpose. All material amendments to a Plan must be likewise
approved by the Trustees and the Qualified Trustees. No Plan may
be amended in order to increase materially the costs which the
Fund may bear for distribution pursuant to such Plan without also
being approved by a majority of the outstanding voting securities
of the Fund or the relevant class of the Fund, as the case may
be. A Plan terminates automatically in the event of its
assignment and may be terminated without penalty, at any time, by
a vote of a majority of the Qualified Trustees or by a vote of a
majority of the outstanding voting securities of the Fund or the
relevant class of the Fund, as the case may be.
If Plan payments are made to reimburse Putnam Mutual Funds
for payments to dealers based on the average net asset value of
Fund shares attributable to shareholders for whom the dealers are
designated as the dealer of record, "average net asset value"
attributable to a shareholder account means the product of (i)
the Fund's average daily share balance of the account and (ii)
the Fund's average daily net asset value per share (or the
average daily net asset value per share of the class, if
applicable). For administrative reasons, Putnam Mutual Funds may
enter into agreements with certain dealers providing for the
calculation of "average net asset value" on the basis of assets
of the accounts of the dealer's customers on an established day
in each quarter.
INVESTOR SERVICES
SHAREHOLDER INFORMATION
Each time shareholders buy or sell shares, they will
receive a statement confirming the transaction and listing their
current share balance. (Under certain investment plans, a
statement may only be sent quarterly.) Shareholders will receive
a statement confirming reinvestment of distributions in
additional Fund shares (or in shares of other Putnam funds for
Dividends Plus accounts) promptly following the quarter in which
the reinvestment occurs. To help shareholders take full
advantage of their Putnam investment, they will receive a Welcome
Kit and a periodic publication covering many topics of interest
to investors. The Fund also sends annual and semiannual reports
that keep shareholders informed about its portfolio and
performance, and year-end tax information to simplify their
recordkeeping. Easy-to-read, free booklets on special subjects
such as the Exchange Privilege and IRAs are available from Putnam
Investor Services. Shareholders may call Putnam Investor
Services toll-free weekdays at 1-800-225-1581 between 8:30 a.m.
and 7:00 p.m. Boston time for more information, including account
balances.
YOUR INVESTING ACCOUNT
The following information provides more detail concerning
the operation of a Putnam Investing Account. For further
information or assistance, investors should consult Putnam
Investor Services. Shareholders who purchase shares through a
defined contribution plan should note that not all of the
services or features described below may be available to them,
and they should contact their employer for details.
A shareholder may reinvest a recent cash distribution
without a front-end sales charge or without the reinvested shares
being subject to a CDSC, as the case may be, by delivering to
Putnam Investor Services the uncashed distribution check,
endorsed to the order of the Fund. Putnam Investor Services must
receive the properly endorsed check within 30 days after the date
of the check. Upon written notice to shareholders, the Fund may
permit shareholders who receive cash distributions to reinvest
amounts representing returns of capital without a sales charge or
without being subject to the CDSC.
The Investing Account also provides a way to accumulate
shares of the Fund. In most cases, after an initial investment
of $500, a shareholder may send checks to Putnam Investor
Services for $50 or more, made payable to the Fund, to purchase
additional shares at the applicable public offering price next
determined after Putnam Investor Services receives the check.
For Putnam Corporate Asset Trust, the minimum initial investment
is $25,000 and the minimum subsequent investment is $5,000.
Checks must be drawn on a U.S. bank and must be payable in U.S.
dollars.
Putnam Investor Services acts as the shareholder's agent
whenever it receives instructions to carry out a transaction on
the shareholder's account. Upon receipt of instructions that
shares are to be purchased for a shareholder's account, shares
will be purchased through the investment dealer designated by the
shareholder. Shareholders may change investment dealers at any
time by written notice to Putnam Investor Services, provided the
new dealer has a sales agreement with Putnam Mutual Funds.
Shares credited to an account are transferable upon
written instructions in good order to Putnam Investor Services
and may be sold to the Fund as described under "How to buy
shares, sell shares and exchange shares" in the Prospectus.
Money market funds and certain other funds will not issue share
certificates. A shareholder may send any certificates which have
been previously issued to Putnam Investor Services for
safekeeping at no charge to the shareholder.
Putnam Mutual Funds, at its expense, may provide certain
additional reports and administrative material to qualifying
institutional investors with fiduciary responsibilities to assist
these investors in discharging their responsibilities.
Institutions seeking further information about this service
should contact Putnam Mutual Funds, which may modify or terminate
this service at any time.
Putnam Investor Services may make special services
available to shareholders with investments exceeding $1,000,000.
Contact Putnam Investor Services for details.
The Fund pays Putnam Investor Services' fees for
maintaining Investing Accounts.
REINSTATEMENT PRIVILEGE
CLASS A SHARES
An investor who has sold shares to the Fund may reinvest
(within 90 days) the proceeds of such sale in shares of the Fund,
or may be able to reinvest (within 90 days) the proceeds in
shares of the other continuously offered Putnam funds (through
the Exchange Privilege described in the Prospectus and below).
Any such reinvestment would be at the net asset value of the
shares of the fund(s) the investor selects, next determined after
Putnam Mutual Funds receives a Reinstatement Authorization and
will not be subject to any sales charge, including a contingent
deferred sales charge.
CLASS B SHARES
An investor who has sold Class B shares to the Fund may
reinvest (within 90 days) the proceeds of such sale in Class B
shares of the Fund, or may be able to reinvest (within 90 days)
the proceeds in Class B shares of other Putnam funds (through the
Exchange Privilege described in the Prospectus and below). Upon
such reinvestment, the investor would receive Class B shares at
the net asset value next determined after Putnam Mutual Funds
receives a Reinstatement Authorization subject to the applicable
contingent deferred sales charge calculated for this purpose
using the date of the original purchase.
ALL SHARES
Exercise of the Reinstatement Privilege does not alter the
federal income tax treatment of any capital gains realized on a
sale of Fund shares, but to the extent that any shares are sold
at a loss and the proceeds are reinvested in shares of the Fund,
some or all of the loss may be disallowed as a deduction.
Consult your tax adviser.
Investors who desire to exercise this Privilege should
contact their investment dealer or Putnam Investor Services.
EXCHANGE PRIVILEGE
Except as otherwise set forth in this section, by calling
Putnam Investor Services, investors may exchange shares valued up
to $500,000 between accounts with identical registrations,
provided that no certificates are outstanding for such shares and
no address change has been made within the preceding 15 days.
During periods of unusual market changes and shareholder
activity, shareholders may experience delays in contacting Putnam
Investor Services by telephone to exercise the Telephone Exchange
Privilege.
Putnam Investor Services also makes exchanges promptly
after receiving a properly completed Exchange Authorization Form
and, if issued, share certificates. If the shareholder is a
corporation, partnership, agent, or surviving joint owner, Putnam
Investor Services will require additional documentation of a
customary nature. Because an exchange of shares involves the
redemption of Fund shares and reinvestment of the proceeds in
shares of another Putnam fund, completion of an exchange may be
delayed under unusual circumstances if the Fund were to suspend
redemptions or postpone payment for the Fund shares being
exchanged, in accordance with federal securities laws. Exchange
Authorization Forms and prospectuses of the other Putnam funds
are available from Putnam Mutual Funds or investment dealers
having sales contracts with Putnam Mutual Funds. The prospectus
of each fund describes its investment objective(s) and policies,
and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange.
Shares of certain Putnam funds are not available to residents of
all states. The Fund reserves the right to change or suspend the
Exchange Privilege at any time. Shareholders would be notified
of any change or suspension. Additional information is available
from Putnam Investor Services.
Shares of the Fund must be held at least 15 days by the
shareholder desiring an exchange. There is no holding period if
the shareholder acquired the shares to be exchanged through
reinvestment of distributions, transfer from another shareholder,
prior exchange or certain employer-sponsored defined contribution
plans. In all cases, the shares to be exchanged must be
registered on the records of the Fund in the name of the
shareholder desiring the exchange.
Shareholders of other Putnam funds may also exchange their
shares at net asset value for shares of the Fund, as set forth in
the current prospectus of each fund.
For federal income tax purposes, an exchange is a sale on
which the investor generally will realize a capital gain or loss
depending on whether the net asset value at the time of the
exchange is more or less than the investor's cost. The Exchange
Privilege may be revised or terminated at any time. Shareholders
would be notified of any such change or suspension.
DIVIDENDS PLUS
Shareholders may invest the Fund's distributions of net
investment income or distributions combining net investment
income and short-term capital gains in shares of the same class
of another continuously offered Putnam fund (the "receiving
fund") using the net asset value per share of the receiving fund
determined on the date the Fund's distribution is payable. No
sales charge or contingent deferred sales charge will apply to
the purchased shares unless the Fund is a money market fund. The
prospectus of each fund describes its investment objective(s) and
policies, and shareholders should obtain a prospectus and
consider these objective(s) and policies carefully before
investing their distributions in the receiving fund. Shares of
certain Putnam funds are not available to residents of all
states.
The minimum account size requirement for the receiving
fund will not apply if the current value of your account in this
Fund is more than $5,000.
Shareholders of other Putnam funds (except for money
market funds, whose shareholders must pay a sales charge or
become subject to a contingent deferred sales charge) may also
use their distributions to purchase shares of the Fund at net
asset value.
For federal tax purposes, distributions from the Fund
which are reinvested in another fund are treated as paid by the
Fund to the shareholder and invested by the shareholder in the
receiving fund and thus, to the extent comprised of taxable
income and deemed paid to a taxable shareholder, are taxable.
The Dividends PLUS program may be revised or terminated at
any time.
PLANS AVAILABLE TO SHAREHOLDERS
The Plans described below are fully voluntary and may be
terminated at any time without the imposition by the Fund or
Putnam Investor Services of any penalty. All Plans provide for
automatic reinvestment of all distributions in additional shares
of the Fund at net asset value. The Fund, Putnam Mutual Funds or
Putnam Investor Services may modify or cease offering these Plans
at any time.
AUTOMATIC CASH WITHDRAWAL PLAN. An investor who owns or
buys shares of the Fund valued at $10,000 or more at the current
public offering price may open a Withdrawal Plan and have a
designated sum of money ($50 or more) paid monthly, quarterly,
semi-annually or annually to the investor or another person.
(Payments from the Fund can be combined with payments from other
Putnam funds into a single check through a Designated Payment
Plan.) Shares are deposited in a Plan account, and all
distributions are reinvested in additional shares of the Fund at
net asset value (except where the Plan is utilized in connection
with a charitable remainder trust). Shares in a Plan account are
then redeemed at net asset value to make each withdrawal payment.
Payment will be made to any person the investor designates;
however, if shares are registered in the name of a trustee or
other fiduciary, payment will be made only to the fiduciary,
except in the case of a profit-sharing or pension plan where
payment will be made to a designee. As withdrawal payments may
include a return of principal, they cannot be considered a
guaranteed annuity or actual yield of income to the investor.
The redemption of shares in connection with a Withdrawal Plan
generally will result in a gain or loss for tax purposes. Some
or all of the losses realized upon redemption may be disallowed
pursuant to the so-called wash sale rules if shares of the same
fund from which shares were redeemed are purchased (including
through the reinvestment of fund distributions) within a period
beginning 30 days before, and ending 30 days after, such
redemption. In such a case, the basis of the replacement shares
will be increased to reflect the disallowed loss. Continued
withdrawals in excess of income will reduce and possibly exhaust
invested principal, especially in the event of a market decline.
The maintenance of a Withdrawal Plan concurrently with purchases
of additional shares of the Fund would be disadvantageous to the
investor because of the sales charge payable on such purchases.
For this reason, the minimum investment accepted while a
Withdrawal Plan is in effect is $1,000, and an investor may not
maintain a Plan for the accumulation of shares of the Fund (other
than through reinvestment of distributions) and a Withdrawal Plan
at the same time. The cost of administering these Plans for the
benefit of those shareholders participating in them is borne by
the Fund as an expense of all shareholders. The Fund, Putnam
Mutual Funds or Putnam Investor Services may terminate or change
the terms of the Withdrawal Plan at any time. A Withdrawal Plan
will be terminated if communications mailed to the shareholder
are returned as undeliverable.
Investors should consider carefully with their own
financial advisers whether the Plan and the specified amounts to
be withdrawn are appropriate in their circumstances. The Fund
and Putnam Investor Services make no recommendations or
representations in this regard.
TAX QUALIFIED RETIREMENT PLANS; 403(B) AND SEP PLANS.
(NOT OFFERED BY FUNDS INVESTING PRIMARILY IN TAX-EXEMPT
SECURITIES.) Investors may purchase shares of the Fund through
the following Tax Qualified Retirement Plans, available to
qualified individuals or organizations:
Standard and variable profit-sharing (including 401(k))
and money purchase pension plans; and
Individual Retirement Account Plans (IRAs).
Each of these Plans has been qualified as a prototype plan
by the Internal Revenue Service. Putnam Investor Services will
furnish services under each plan at a specified annual cost.
Putnam Fiduciary Trust Company serves as trustee under each of
these Plans.
Forms and further information on these Plans are available
from investment dealers or from Putnam Mutual Funds. In
addition, specialized professional plan administration services
are available on an optional basis; contact Putnam Defined
Contribution Plan Services at 1-800-225-2465, extension 8600.
A 403(b) Retirement Plan is available for employees of
public school systems and organizations which meet the
requirements of Section 501(c)(3) of the Internal Revenue Code.
Forms and further information on the 403(b) Plan are also
available from investment dealers or from Putnam Mutual Funds.
Shares of the Fund may also be used in simplified employee
pension (SEP) plans. For further information on the Putnam
prototype SEP plan, contact an investment dealer or Putnam Mutual
Funds.
Consultation with a competent financial and tax adviser
regarding these Plans and consideration of the suitability of
Fund shares as an investment under the Employee Retirement Income
Security Act of 1974 or otherwise is recommended.
SIGNATURE GUARANTEES
Redemption requests for shares having a net asset value of
$100,000 or more must be signed by the registered owners or their
legal representatives and must be guaranteed by a bank,
broker/dealer, municipal securities dealer or broker, government
securities dealer or broker, credit union, national securities
exchange, registered securities association, clearing agency,
savings association or trust company, provided such institution
is acceptable under and conforms with Putnam Fiduciary Trust
Company's signature guarantee procedures. A copy of such
procedures is available upon request. If you want your
redemption proceeds sent to an address other than your address as
it appears on Putnam's records, you must provide a signature
guarantee. Putnam Investor Services usually requires additional
documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or a surviving joint owner.
Contact Putnam Investor Services for details.
SUSPENSION OF REDEMPTIONS
The Fund may not suspend shareholders' right of
redemption, or postpone payment for more than seven days, unless
the New York Stock Exchange is closed for other than customary
weekends or holidays, or if permitted by the rules of the
Securities and Exchange Commission during periods when trading on
the Exchange is restricted or during any emergency which makes it
impracticable for the Fund to dispose of its securities or to
determine fairly the value of its net assets, or during any other
period permitted by order of the Commission for protection of
investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the Fund. However, the Agreement and Declaration of Trust
disclaims shareholder liability for acts or obligations of the
Fund and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by
the Fund or the Trustees. The Agreement and Declaration of Trust
provides for indemnification out of Fund property for all loss
and expense of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund would be unable to
meet its obligations. The likelihood of such circumstances is
remote.
STANDARD PERFORMANCE MEASURES
Yield and total return data for the Fund may from time to
time be presented in Part I of this Statement and in
advertisements. In the case of funds with more than one class of
shares, all performance information is calculated separately for
each class. The data is calculated as follows.
Total return for one-, five- and ten-year periods (or for
such shorter periods as the Fund has been in operation or shares
of the relevant class have been outstanding) is determined by
calculating the actual dollar amount of investment return on a
$1,000 investment in the Fund made at the beginning of the
period, at the maximum public offering price for Class A shares
and net asset value for other classes of shares, and then
calculating the annual compounded rate of return which would
produce that amount. Total return for a period of one year is
equal to the actual return of the Fund during that period. Total
return calculations assume deduction of the Fund's maximum sales
charge or contingent deferred sales charge, if applicable, and
reinvestment of all Fund distributions at net asset value on
their respective reinvestment dates.
The Fund's yield is presented for a specified thirty-day
period (the "base period"). Yield is based on the amount
determined by (i) calculating the aggregate amount of dividends
and interest earned by the Fund during the base period less
expenses accrued for that period, and (ii) dividing that amount
by the product of (A) the average daily number of shares of the
Fund outstanding during the base period and entitled to receive
dividends and (B) the per share maximum public offering price for
Class A shares and net asset value for other classes of shares on
the last day of the base period. The result is annualized on a
compounding basis to determine the yield. For this calculation,
interest earned on debt obligations held by the Fund is generally
calculated using the yield to maturity (or first expected call
date) of such obligations based on their market values (or, in
the case of receivables-backed securities such as GNMA's, based
on cost). Dividends on equity securities are accrued daily at
their stated dividend rates.
If the Fund is a money market fund, yield is computed by
determining the percentage net change, excluding capital changes,
in the value of an investment in one share over the seven-day
period for which yield is presented (the "base period"), and
multiplying the net change by 365/7 (or approximately 52 weeks).
Effective yield represents a compounding of the yield by adding 1
to the number representing the percentage change in value of the
investment during the base period, raising that sum to a power
equal to 365/7, and subtracting 1 from the result.
If the Fund is a tax-exempt fund, the tax-equivalent yield
during the base period may be presented for shareholders in one
or more stated tax brackets. Tax-equivalent yield is calculated
by adjusting the tax-exempt yield by a factor designed to show
the approximate yield that a taxable investment would have to
earn to produce an after-tax yield equal, for that shareholder,
to the tax-exempt yield. The tax-equivalent yield will differ
for shareholders in other tax brackets.
At times, Putnam Management may reduce its compensation or
assume expenses of the Fund in order to reduce the Fund's
expenses. The per share amount of any such fee reduction or
assumption of expenses during the Fund's past ten fiscal years
(or for the life of the Fund, if shorter) is reflected in the
table in the section entitled "Financial history" in the
Prospectus. Any such fee reduction or assumption of expenses
would increase the Fund's yield and total return during the
period of the fee reduction or assumption of expenses.
All data are based on past performance and do not predict
future results.
COMPARISON OF PORTFOLIO PERFORMANCE
Independent statistical agencies measure the Fund's
investment performance and publish comparative information
showing how the Fund, and other investment companies, performed
in specified time periods. Three agencies whose reports are
commonly used for such comparisons are set forth below. From
time to time, the Fund may distribute these comparisons to its
shareholders or to potential investors. THE AGENCIES LISTED
BELOW MEASURE PERFORMANCE BASED ON THEIR OWN CRITERIA RATHER THAN
ON THE STANDARDIZED PERFORMANCE MEASURES DESCRIBED IN THE
PRECEDING SECTION.
LIPPER ANALYTICAL SERVICES, INC. distributes mutual fund
rankings monthly. The rankings are based on total return
performance calculated by Lipper, reflecting generally
changes in net asset value adjusted for reinvestment of
capital gains and income dividends. They do not reflect
deduction of any sales charges. Lipper rankings cover a
variety of performance periods, for example year-to-date,
1-year, 5-year, and 10-year performance. Lipper
classifies mutual funds by investment objective and asset
category.
MORNINGSTAR, INC. distributes mutual fund ratings twice a
month. The ratings are divided into five groups:
highest, above average, neutral, below average and lowest.
They represent a fund's historical risk/reward ratio
relative to other funds with similar objectives. The
performance factor is a weighted-average assessment of the
Fund's 3-year, 5-year, and 10-year total return
performance (if available) reflecting deduction of
expenses and sales charges. Performance is adjusted using
quantitative techniques to reflect the risk profile of the
fund. The ratings are derived from a purely quantitative
system that does not utilize the subjective criteria
customarily employed by rating agencies such as Standard &
Poor's Corporation and Moody's Investor Service, Inc.
CDA/WIESENBERGER'S MANAGEMENT RESULTS publishes mutual
fund rankings and is distributed monthly. The rankings
are based entirely on total return calculated by
Weisenberger for periods such as year-to-date, 1-year,
3-year, 5-year and 10-year. Mutual funds are ranked in
general categories (e.g., international bond,
international equity, municipal bond, and maximum capital
gain). Weisenberger rankings do not reflect deduction of
sales charges or fees.
Independent publications may also evaluate the Fund's
performance. Certain of those publications are listed below, at
the request of Putnam Mutual Funds, which bears full
responsibility for their use and the descriptions appearing
below. From time to time the Fund may distribute evaluations by
or excerpts from these publications to its shareholders or to
potential investors. The following illustrates the types of
information provided by these publications.
BUSINESS WEEK publishes mutual fund rankings in its
Investment Figures of the Week column. The rankings are
based on 4-week and 52-week total return reflecting
changes in net asset value and the reinvestment of all
distributions. They do not reflect deduction of any sales
charges. Funds are not categorized; they compete in a
large universe of over 2000 funds. The source for
rankings is data generated by Morningstar, Inc.
INVESTOR'S BUSINESS DAILY publishes mutual fund rankings
on a daily basis. The rankings are depicted as the top 25
funds in a given category. The categories are based
loosely on the type of fund, e.g., growth funds, balanced
funds, U.S. government funds, GNMA funds, growth and
income funds, corporate bond funds, etc. Performance
periods for sector equity funds can vary from 4 weeks to
39 weeks; performance periods for other fund groups vary
from 1 year to 3 years. Total return performance reflects
changes in net asset value and reinvestment of dividends
and capital gains. The rankings are based strictly on
total return. They do not reflect deduction of any sales
charges. Performance grades are conferred from A+ to E.
An A+ rating means that the fund has performed within the
top 5% of a general universe of over 2000 funds; an A
rating denotes the top 10%; an A- is given to the top 15%,
etc.
BARRON'S periodically publishes mutual fund rankings. The
rankings are based on total return performance provided by
Lipper Analytical Services. The Lipper total return data
reflects changes in net asset value and reinvestment of
distributions, but does not reflect deduction of any sales
charges. The performance periods vary from short-term
intervals (current quarter or year-to-date, for example)
to long-term periods (five-year or ten-year performance,
for example). Barron's classifies the funds using the
Lipper mutual fund categories, such as Capital
Appreciation Funds, Growth Funds, U.S. Government Funds,
Equity Income Funds, Global Funds, etc. Occasionally,
Barron's modifies the Lipper information by ranking the
funds in asset classes. "Large funds" may be those with
assets in excess of $25 million; "small funds" may be
those with less than $25 million in assets.
THE WALL STREET JOURNAL publishes its Mutual Fund
Scorecard on a daily basis. Each Scorecard is a ranking
of the top-15 funds in a given Lipper Analytical Services
category. Lipper provides the rankings based on its total
return data reflecting changes in net asset value and
reinvestment of distributions and not reflecting any sales
charges. The Scorecard portrays 4-week, year-to-date,
one-year and 5-year performance; however, the ranking is
based on the one-year results. The rankings for any given
category appear approximately once per month.
FORTUNE magazine periodically publishes mutual fund
rankings that have been compiled for the magazine by
Morningstar, Inc. Funds are placed in stock or bond fund
categories (for example, aggressive growth stock funds,
growth stock funds, small company stock funds, junk bond
funds, Treasury bond funds, etc.), with the top-10 stock
funds and the top-5 bond funds appearing in the rankings.
The rankings are based on 3-year annualized total return
reflecting changes in net asset value and reinvestment of
distributions and not reflecting sales charges.
Performance is adjusted using quantitative techniques to
reflect the risk profile of the fund.
MONEY magazine periodically publishes mutual fund rankings
on a database of funds tracked for performance by Lipper
Analytical Services. The funds are placed in 23 stock or
bond fund categories and analyzed for five-year risk
adjusted return. Total return reflects changes in net
asset value and reinvestment of all dividends and capital
gains distributions and does not reflect deduction of any
sales charges. Grades are conferred (from A to E): the
top 20% in each category receive an A, the next 20% a B,
etc. To be ranked, a fund must be at least one year old,
accept a minimum investment of $25,000 or less and have
had assets of at least $25 million as of a given date.
FINANCIAL WORLD publishes its monthly Independent
Appraisals of Mutual Funds, a survey of approximately 1000
mutual funds. Funds are categorized as to type, e.g.,
balanced funds, corporate bond funds, global bond funds,
growth and income funds, U.S. government bond funds, etc.
To compete, funds must be over one year old, have over $1
million in assets, require a maximum of $10,000 initial
investment, and should be available in at least 10 states
in the United States. The funds receive a composite past
performance rating, which weighs the intermediate- and
long-term past performance of each fund versus its
category, as well as taking into account its risk, reward
to risk, and fees. An A+ rated fund is one of the best,
while a D-rated fund is one of the worst. The source for
Financial World rating is Schabacker investment management
in Rockville, MD.
FORBES magazine periodically publishes mutual fund ratings
based on performance over at least two bull and bear
market cycles. The funds are categorized by type,
including stock and balanced funds, taxable bond funds,
municipal bond funds, etc. Data sources include Lipper
Analytical Services and CDA Investment Technologies. The
ratings are based strictly on performance at net asset
value over the given cycles. Funds performing in the top
5% receive an A+ rating; the top 15% receive an A rating;
and so on until the bottom 5% receive an F rating. Each
fund exhibits two ratings, one for performance in "up"
markets and another for performance in "down" markets.
KIPLINGER'S PERSONAL FINANCE MAGAZINE (formerly Changing
Times), periodically publishes rankings of mutual funds
based on one-, three- and five-year total return
performance reflecting changes in net asset value and
reinvestment of dividends and capital gains and not
reflecting deduction of any sales charges. Funds are
ranked by tenths: a rank of 1 means that a fund was among
the highest 10% in total return for the period; a rank of
10 denotes the bottom 10%. Funds compete in categories of
similar funds--aggressive growth funds, growth and income
funds, sector funds, corporate bond funds, global
governmental bond funds, mortgage-backed securities funds,
etc. Kiplinger's also provides a risk-adjusted grade in
both rising and falling markets. Funds are graded against
others with the same objective. The average weekly total
return over two years is calculated. Performance is
adjusted using quantitative techniques to reflect the risk
profile of the fund.
U.S. NEWS AND WORLD REPORT periodically publishes mutual
fund rankings based on an overall performance index (OPI)
devised by Kanon Bloch Carre & Co., a Boston research
firm. Over 2000 funds are tracked and divided into 10
equity, taxable bond and tax-free bond categories. Funds
compete within the 10 groups and three broad categories.
The OPI is a number from 0-100 that measures the relative
performance of funds at least three years old over the
last 1, 3, 5 and 10 years and the last six bear markets.
Total return reflects changes in net asset value and the
reinvestment of any dividends and capital gains
distributions and does not reflect deduction of any sales
charges. Results for the longer periods receive the most
weight.
THE 100 BEST MUTUAL FUNDS YOU CAN BUY (1992), authored by
Gordon K. Williamson. The author's list of funds is
divided into 12 equity and bond fund categories, and the
100 funds are determined by applying four criteria.
First, equity funds whose current management teams have
been in place for less than five years are eliminated.
(The standard for bond funds is three years.) Second, the
author excludes any fund that ranks in the bottom 20
percent of its category's risk level. Risk is determined
by analyzing how many months over the past three years the
fund has underperformed a bank CD or a U.S. Treasury bill.
Third, a fund must have demonstrated strong results for
current three-year and five-year performance. Fourth, the
fund must either possess, in Mr. Williamson's judgment,
"excellent" risk-adjusted return or "superior" return with
low levels of risk. Each of the 100 funds is ranked in
five categories: total return, risk/volatility,
management, current income and expenses. The rankings
follow a five-point system: zero designates "poor"; one
point means "fair"; two points denote "good"; three points
qualify as a "very good"; four points rank as "superior";
and five points mean "excellent."
In addition, Putnam Mutual Funds may distribute to
shareholders or prospective investors illustrations of the
benefits of reinvesting tax-exempt or tax-deferred distributions
over specified time periods, which may include comparisons to
fully taxable distributions. These illustrations use
hypothetical rates of tax-advantaged and taxable returns and are
not intended to indicate the past or future performance of any
fund.
DEFINITIONS
"Putnam Management" -- Putnam Investment Management,
Inc., the Fund's investment
manager.
"Putnam Mutual Funds" -- Putnam Mutual Funds Corp., the
Fund's principal underwriter.
"Putnam Fiduciary Trust -- Putnam Fiduciary Trust Company,
Company" the Fund's custodian.
"Putnam Investor Services" -- Putnam Investor Services, a
division of Putnam Fiduciary
Trust Company, the Fund's
investor servicing agent.
<PAGE>
PUTNAM TAX EXEMPT INCOME FUND
PUTNAM TAX EXEMPT MONEY MARKET FUND
FORM N-1A
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Index to Financial Statements and Supporting
Schedules:
(1) Financial Statements for Putnam Tax Exempt
Income Fund and Putnam Tax Exempt Money
Market Fund:
Statement of assets and liabilities --
September 30,
1993(a) .
Statement of operations -- year ended
September 30, 1993(a) .
Statement of changes in net assets -- years
ended September 30, 1993 and
1992(a) .
Financial highlights (a)(b).
Notes to financial statements(a).
(2) Supporting Schedules:
Schedule I -- Portfolio of investments owned
-- September 30, 1993(a) .
Schedules II through IX omitted because the
required matter is not present.
- ----------------------
(a) Incorporated by reference into Parts
A and B.
(b) Included in Part A.
(b) Exhibits:
1a. Agreement and Declaration of Trust, as
amended November 9, 1992, for Putnam Tax
Exempt Income Fund -- Incorporated by
reference to Post-Effective Amendment No. 25
to the Registrant's Registration
Statement.
1b. Agreement and Declaration of Trust, as
amended July 13, 1992, for Putnam Tax Exempt
Money Market Fund -- Incorporated by
reference to Post-Effective Amendment No. 6
to the Registrant's Registration
Statement.
2. By-Laws, as amended through September 9,
1993 for Putnam Tax Exempt Income Fund
and Putnam Tax Exempt Money Market Fund --
Exhibit 1 .
3. Not applicable.
4a . Class A Specimen share certificate
for Putnam Tax Exempt Income Fund -
- Exhibit 2.
4b. Class B Specimen share certificate for Putnam
Tax Exempt Income Fund -- Exhibit 3.
4c. Portions of Agreement and Declaration of
Trust Relating to Shareholders' Rights for
Putnam Tax Exempt Income Fund -- Exhibit 4.
4d. Portions of Agreement and Declaration of
Trust Relating to Shareholders' Rights for
Putnam Tax Exempt Money Market Fund --Exhibit
5.
4e. Portions of By-Laws Relating to Shareholders'
Rights for Putnam Tax Exempt Income Fund and
Putnam Tax Exempt Money Market Fund --Exhibit
6.
5a. Copy of Management Contract dated July 11,
1991 for Putnam Tax Exempt Income Fund --
Incorporated by reference to the Registrant's
Post-Effective Amendment No. 23 to the
Registrant's Registration Statement.
5b. Copy of Management Contract dated July 9,
1992 for Putnam Tax Exempt Money Market Fund
-- Incorporated by reference to the
Registrant's Post-Effective Amendment No. 6
to the Registrant's Registration
Statement.
6a. Copy of Distributor's Contract dated
January 1, 1993 for Putnam Tax Exempt
Income Fund -- Exhibit 7.
6b. Copy of Distributor's Contract dated
September 9, 1988 for Putnam Tax Exempt Money
Market Fund -- Incorporated by reference to
Post-Effective Amendment No. 2 to the
Registrant's Registration Statement.
<PAGE>
6c. Copy of Specimen Dealer Sales Contract for
Putnam Tax Exempt Income Fund -- Incorporated
by reference to Post-Effective Amendment No.
23 to the Registrant's Registration
Statement.
6d. Copy of Specimen Dealer Sales Contract for
Putnam Tax Exempt Money Market Fund --
Incorporated by reference to Post-Effective
Amendment No. 5 to the Registrant's
Registration Statement.
6e. Copy of Specimen Financial Institution Sales
Contract for Putnam Tax Exempt Income Fund --
Incorporated by reference to Post-Effective
Amendment No. 23 to the Registrant's
Registration Statement.
6f. Copy of Specimen Financial Institution Sales
Contract for Putnam Tax Exempt Money Market
Fund -- Incorporated by reference to Post-
Effective Amendment No. 5 to the Registrant's
Registration Statement.
7. Not applicable.
8 . Copy of Custodian Agreement with Putnam
Fiduciary Trust Company dated May 3,
1991 , as amended July 13, 1992
for Putnam Tax Exempt Income Fund
and Putnam Tax Exempt
Money Market Fund -- Exhibit 8.
9a. Copy of Investor Servicing Agreement dated
June 3, 1991 with Putnam Fiduciary Trust
Company for Putnam Tax Exempt Income Fund --
Incorporated by reference to Post-Effective
Amendment No. 23 to the Registrant's
Registration Statement.
9b. Copy of Investor Servicing Agreement dated
June 3, 1991 with Putnam Fiduciary Trust
Company for Putnam Tax Exempt Money Market
Fund -- Incorporated by reference to Post-
Effective Amendment No. 5 to the Registrant's
Registration Statement.
10a. Opinion of Ropes & Gray, including consent
for Putnam Tax Exempt Income Fund --
Incorporated by reference to Post-Effective
Amendment No. 21 to the Registrant's
Registration Statement.
10b. Opinion of Ropes & Gray, including consent
for Putnam Tax Exempt Money Market Fund --
Exhibit 9 .
11. Not applicable.
12. Not applicable.
13a. Investment Letter from The Putnam Management
Company, Inc. to Putnam Tax Exempt Income
Fund for Class A shares --
Incorporated by reference to the Registrant's
Post-Effective Amendment No. 18 to the
Registrant's Registration Statement.
13b. Investment Letter from Putnam
Investments, Inc. to Putnam Tax Exempt
Income Fund for Class B shares --
Exhibit 10.
13c . Investment Letter from The Putnam
Management Company, Inc. to Putnam
Tax Exempt Money Market Fund --
Incorporated by reference to the
Registrant's Pre-Effective
Amendment No. 2 to the Registrant's
Registration Statement.
14. Not applicable.
15a. Copy of Class A Distribution Plan and
Agreement dated January 1, 1993 for
Putnam Tax Exempt Income Fund -- Exhibit
11.
15b. Copy of Class B Distribution Plan and
Agreement dated January 1, 1993 for Putnam
Tax Exempt Income Fund -- Exhibit 12.
15c . Copy of Distribution Plan and
Agreement dated July 10, 1987, as
amended on January 1, 1990 for
Putnam Tax Exempt Money Market Fund
--Incorporated by reference to the
Registrant's Post-Effective
Amendment No. 4 to the Registrant's
Registration Statement.
<PAGE>
15d . Copy of Specimen Dealer Service
Agreement for Putnam Tax Exempt
Income Fund and Putnam Tax Exempt
Money Market Fund --
Incorporated by reference to the
Registrant's Post-Effective
Amendment No. 25 to the
Registrant's Registration
Statement.
15e . Copy of Specimen Financial
Institution Service Agreement for
Putnam Tax Exempt Income Fund and
Putnam Tax Exempt Money Market Fund
-- Incorporated by reference to
the Registrant's Post-Effective
Amendment No. 6 to the Registrant's
Registration Statement.
16a. Schedules for computation of performance
quotations for Putnam Tax Exempt Income
Fund -- Exhibit 13 .
16b. Schedules for computation of performance
quotations for Putnam Tax Exempt Money Market
Fund -- Exhibit 14 .
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
None.
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of December 31, 1993 the number of
shares of beneficial interest of Registrants held of record were
as follows:
Number of
Record Holders
- ----------------
Putnam Tax Exempt Income Fund - Class A62,003
Putnam Tax Exempt Income Fund - Class B6,228
Putnam Tax Exempt Money Market Fund
4,730
ITEM 27. INDEMNIFICATION
The information required by this item is incorporated
by reference from Putnam Tax Exempt Income Fund's Registration
Statement on Form N-8B-1 under the Investment Company Act of 1940
(File No. 811-2675) and for Putnam Tax Exempt Money Market Fund,
incorporated by reference to its Initial Registration Statement
on Form N-1A (File No. 811-5215).
<PAGE>
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Except as set forth below, the directors and officers
of the Registrant's investment adviser have been engaged during
the past two fiscal years in no business, vocation or employment
of a substantial nature other than as directors or officers of
the investment adviser or certain of its corporate affiliates.
Certain officers of the investment adviser serve as officers of
some or all of the Putnam funds. The address of the investment
adviser, its corporate affiliates and the Putnam Funds is One
Post Office Square, Boston, Massachusetts 02109.
NAME NON-PUTNAM BUSINESS AND OTHER
CONNECTIONS
Christopher J. Ainley Prior to March, 1992, Vice President,
Vice President J.P. Morgan Investment Management,
522 Fifth Avenue, New York, NY 10021
Gail S. Attridge Prior to November, 1993, International
Vice President Analyst, Keystone Custodian Funds,
200 Berkley Street, Boston, MA 02116
Dolores Snyder Bamford Prior to June, 1992, Research
Assistant Vice President Associate, Fidelity Investments, 82
Devonshire St., Boston, MA 02109
Charles L. Beach Prior to May, 1992, Senior Analyst,
Assistant Vice President Dean Witter Investment Banking,
One Financial Center,
Boston, MA 02110
Edward P. Bousa Prior to October, 1992, Vice President
Senior Vice President and Portfolio Manager, Fidelity
Investments, 82 Devonshire St.,
Boston, MA 02109
Kathleen M. Brant Prior to June, 1992, Global Bond
Vice President Trader, Fidelity Investments,
82 Devonshire St., Boston, MA 02109
Leslie J. Burke Prior to February, 1992, Research
Assistant Vice President Associate, Fidelity Investments, 82
Devonshire St., Boston, MA 02109
Peter Carman Prior to August, 1993, Chief
Senior Managing Director Investment Officer, Chairman, U.S.
Equity Investment Policy Committee,
Member of Board of Directors,
Sanford C. Bernstein & Co., Inc.,
767 Fifth Avenue, New York, NY 10153
Anna Coppola Prior to May, 1993, Associate,
Assistant Vice President Heidrick & Struggles, One Post
Office Square, Boston, MA 02109
Kathleen Crews Prior to February, 1993, Assistant
Assistant Vice President Vice President, Alliance Capital
Management, L.P., 1345 Avenue of
the Americas, New York, NY 10105
York, NY
Kenneth L. Daly Prior to September, 1993, Vice
Senior Vice President President, Fidelity Investments,
82 Devonshire St., Boston, MA 02109
Richard B. England Prior to December, 1992, Investment
Vice President Officer, Aetna Equity Investors,
151 Farmington Avenue, Hartford,
CT, 06156
Joseph F. Feeney, Jr. Prior to June, 1992, Assistant
Assistant Vice President Vice President, Bank of Boston,
100 Federal St., Boston, MA 02110
Jonathan H. Francis Prior to March, 1993, President,
Assistant Vice President J.H. Francis & Co., N. Pheasant
Lane, Westport, CT 06880
Judy P. Frodigh Prior to June, 1992, Manager, Human
Vice President Resources, Massachusetts Financial
Services, Inc., 500 Boylston St.,
Boston, MA 02110
James F. Giblin Prior to April, 1993, Managing
Senior Vice President Director, CIGNA Corp. Investments,
Inc., 900 Cottage Grove Rd.
Bloomfield, CT 06152
Thomas C. Goggins Prior to June, 1993, Portfolio
Vice President Manager, Transamerica Investment
Services, 1150 South Olive Street,
Los Angeles, CA 90015
Corey A. Griffin Prior to June, 1992, Vice President,
Assistant Vice President Coldwell Banker Commercial Real
Estate
Services, 70-80 Lincoln St.,
Boston,
MA 02111
<PAGE>
Daniel J. Grim Prior to May 1993, Consultant,
Vice President Connie
Lee, 2445 M Street N.W.,
Washington, D.C. 20037;
Chief Operating Officer, Boardwalk,
Inc., Minocqua, WI 54548
Billy P. Han Prior to December, 1992, Vice
Assistant Vice President President, Scudder, Stevens & Clark,
Inc., 160 Federal Street, Boston, MA
02110
Stephon A. Jackson Prior to December, 1992, nalyst,
Assistant Vice President Arco Investment Management Co.,
515 South Flower Street,
Los Angeles, CA 91030
David J. Jallits Prior to August, 1992, Vice President,
Vice President Citibank Corp., 55 Water Street,
New York, NY 10043
Jeffrey L. Knight Prior to March, 1993, Teacher,
Vice President Greater Newburyport Educational
Collaborative, Newburyport, MA 01950
Jeffrey J. Kobylarz Prior to May, 1993, Credit Analyst,
Vice President Dean Witter Reynolds, Inc.,
Two World Trade Center,
New York, NY 10048
Ami T. Kuan Prior to June, 1992, Equity Analyst,
Assistant Vice President Fidelity Investments, 82 Devonshire
St., Boston, MA 02109
Lawrence J. Lasser Director, Marsh & McLennan Companies,
President, Director Inc., 1221 Avenue of the Americas,
and Chief Executive New York, NY 10020
Officer Director, INROADS/Central New England,
Inc., 99 Bedford St., Boston,
MA 02111
Robert A. Madore Prior to October, 1992, Senior Vice
Vice President President and Portfolio Manager,
Fiduciary Captial Management, Inc.
51 Sherman Hill Rd., Woodbury,
CT 06798
Frederick S. Marius Prior to September, 1992, Associate
Assistant Vice President Attorney at Skadden Arps, One
Associate Counsel Beacon St., Boston, MA 02109
<PAGE>
Andrew S. Matteis Prior to March, 1993, Vice President,
Vice President Fitch Investors Service, One
State Street Plaza, New York
NY 10004
Michael J. Mufson Prior to June, 1993, Senior Equity
Vice President Analyst, Stein Roe & Farnum,
One South Wacker Drive, Chicago, Il
60606
Warren Naphtal Prior to January, 1994, Managing
Senior Vice President Director, Continental Bank, 231
So. Lasalle St., Chicago, IL 60697
Jeffrey W. Netols Prior to February, 1993, Portfolio
Senior Vice President Analyst, Associated Bank,
200 N. Adams, Greenbay, WI 54307
Brian O'Keefe Prior to December, 1993, Vice
Vice President President - Foreign Exchange
Trader, Bank of Boston, 100 Federal
Street, Boston, MA 02109
Pat G. Patel Prior to April, 1993, Regional
Assistant Vice President Manager, Zacks Investment Research,
155 N. Wacker Drive, Chicago,
IL 60606
George Putnam Chairman and Director, Putnam Mutual
Chairman and Director Funds Corp.
Director, The Boston Company, Inc.,
One Boston Place, Boston, MA 02108
Director, Boston Safe Deposit and
Trust Company, One Boston Place,
Boston, MA 02108
Director, Freeport-McMoRan, Inc., 200
Park Avenue, New York, NY 10166
Director, General Mills, Inc., 9200
Wayzata Boulevard, Minneapolis,
MN 55440
Director, Houghton Mifflin Company,
One Beacon Street, Boston, MA 02108
Director, Marsh & McLennan Companies,
Inc., 1221 Avenue of the Americas,
New York, NY 10020
Director, Rockefeller Group, Inc.,
1230 Avenue of the Americas,
New York, NY 10020
<PAGE>
Christopher A. Ray Prior to January, 1993, Vice President
Vice President and Portfolio Manager at Scudder,
Stevens & Clark, Inc., 160 Federal
Street, Boston, MA 02110
Charles A. Ruys de Perez Prior to August, 1992, Associate,
Vice President and Debevoise and Plimpton,
Senior Counsel 875 Third Ave., New York, NY 19022
Mark J. Siegel Prior to June, 1993, Vice President,
Vice President Salomon Brothers International,
Ltd., Victoria Plaza, 111 Buckingham
Palace Road, London SW1W 0SB,
England
Joanne Soja Prior to June, 1993, Managing
Senior Vice President Director/Portfolio Manager,
Chancellor Capital Management,
153 East 53rd Street, New York, NY
10002
Harlan R. Sonderling Prior to March, 1992, Vice President,
Vice President Mutual of America Life Insurance
Company, 666 Fifth Avenue, New
York, NY 10103
Douglas T. Terreson Prior to October, 1992, Investment
Vice President Analyst, Sunbank Capital Management,
200 South Orange Avenue, Orlando,
FL, 32802
Bonnie L. Troped Prior to May, 1993, Assistant Vice
Vice President President/Director of Corporate
Events, The Boston Company, One
Boston Place, Boston, MA 02108
F. Mark Turner Prior to November, 1992, Managing
Managing Director Director, Scudder, Stevens & Clark,
160 Federal St., Boston, MA 02110
Thomas M. Turpin Prior to March, 1993, Vice President
Senior Vice President The Boston Company, One Boston
Place, Boston, MA 02108
John D. Weber Prior to June, 1992, Associate,
Assistant Vice President Citicorp Venture Capital, Ltd.
399 Park Avenue, New York, NY 10043
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITER
(a) Putnam Mutual Funds Corp. is the principal
underwriter for each of the following investment companies,
including the Registrant:
Putnam Adjustable Rate U.S. Government Fund, Putnam American
Government Income Fund, Putnam Arizona Tax Exempt Income Fund,
Putnam Asia Pacific Growth Fund, Putnam Asset Allocation Funds,
Putnam Balanced Government Fund, Putnam California Tax Exempt
Income Fund, Putnam California Tax Exempt Money Market Fund,
Putnam Capital Appreciation Fund, Putnam Capital Growth and
Income Fund, Putnam Capital Manager Trust, Putnam Convertible
Income-Growth Trust, Putnam Corporate Asset Trust, Putnam Daily
Dividend Trust, Putnam Diversified Income Trust, Putnam Dividend
Growth Fund, Putnam Energy-Resources Trust, Putnam Equity Income
Fund, Putnam Europe Growth Fund, Putnam Federal Income Trust,
Putnam Florida Tax Exempt Income Fund, The George Putnam Fund of
Boston, Putnam Global Governmental Income Trust, Putnam Global
Growth Fund, Putnam Growth Fund, The Putnam Fund for Growth and
Income, Putnam Health Sciences Trust, Putnam High Yield Trust,
Putnam High Yield Advantage Fund, Putnam Income Fund, Putnam
Investors Fund, Putnam Managed Income Trust, Putnam Massachusetts
Tax Exempt Income Fund II, Putnam Michigan Tax Exempt Income Fund
II, Putnam Minnesota Tax Exempt Income Fund II, Putnam Municipal
Income Fund, Putnam New Jersey Tax Exempt Income Fund, Putnam New
Opportunities Fund, Putnam New York Tax Exempt Income Fund,
Putnam New York Tax Exempt Money Market Fund, Putnam New York Tax
Exempt Opportunities Fund, Putnam Ohio Tax Exempt Income Fund II,
Putnam OTC Emerging Growth Fund, Putnam Overseas Growth Fund,
Putnam Pennsylvania Tax Exempt Income Fund, Putnam Research
Analyst Fund, Putnam Tax-Free Income Trust, Putnam Tax Exempt
Income Fund, Putnam Tax Exempt Money Market Fund, Putnam Texas
Tax Exempt Income Fund, Putnam U.S. Government Income Trust,
Putnam Utilities Growth and Income Fund, Putnam Vista Fund,
Putnam Voyager Fund
(b) The directors and officers of the Registrant's
principal underwriter are:<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND OFFICES Positions and Offices
Name with Underwriter WITH REGISTRANT
<C> <C> <C>
Paulette C. Amisano Vice President None
Ronald J. Anwar Vice President None
Karen M. Apatow Assistant Vice President None
Steven E. Asher Senior Vice President None
Georgette M. Bacca Vice President None
Ira G. Baron Senior Vice President None
John L. Bartlett Senior Vice President None
Robert A. Benish Assistant Vice President None
John J. Bent Vice President None
James R. Besher Vice President None
Maureen L. Boisvert Vice President None
Keith R. Bouchard Vice President None
Leslee R. Bresnahan Vice President None
James D. Brockelman Vice President None
Kathleen T. Brogan Vice President None
Scott P. Brogan Vice President None
Gail Buckner Senior Vice President None
Martha B. Bunker Assistant Vice President None
Jon D. Burke Senior Vice President None
Robert W. Burke Senior Managing Director None
Richard P. Busher Vice President None
Ellen S. Callahan Assistant Vice President None
William A. Campagna Vice President None
Lauren M. Campbell Assistant Vice President None
Charles A. Carey Assistant Vice President None
Patricia A. Cartwright Assistant Vice President None
Christopher D. Caton Assistant Vice President None
Dana F. Clark Vice President None
James E. Clinton Assistant Vice President None
Kathleen M. Collman Managing Director None
Mark L. Coneeny Vice President None
Donald A. Connelly Senior Vice President None
Anna Coppola Assistant Vice President None
F. Nicholas Corvinus Senior Vice President None
Kenneth L. Daly Senior Vice President None
Nancy M. Days Assistant Vice President None
Daniel Delianedis Vice President None
Janice D. Delory Assistant Vice President None
J. Thomas Depres Senior Vice President None
Scott M. Donaldson Assistant Vice President None
Emily J. Durbin Assistant Vice President None
David B. Edlin Vice President None
James M. English Vice President None
Vincent Esposito Senior Vice President None
Susan H. Feldman Vice President None
Paul F. Fichera Vice President None
C. Nancy Fisher Senior Vice President None
Mitchell B. Fishman Assistant Vice President None
Joseph C. Fiumara Vice President None
Patricia C. Flaherty Senior Vice President None
Judy P. Frodigh Vice President None
Samuel F. Gagliardi Vice President None
Judy S. Gates Vice President None
Richard W. Gauger Assistant Vice President None
Joseph P. Gennaco Vice President None
Steven E. Gibson Managing Director None
Robert Goodman Managing Director None
Robert G. Greenly Vice President None
Daniel W. Greenwood Vice President None
Keith E. Gregg Vice President None
Thomas W. Halloran Vice President None
Marilyn M. Hausammann Senior Vice President None
Howard W. Hawkins, III Vice President None
Jill M. Hayes Vice President None
Paul P. Heffernan Vice President None
Susan M. Heimanson Vice President None
Katherine L. Hickney Vice President None
Bradley J. Hilsabeck Vice President None
Bess J.M. Hochstein Vice President None
Sherrie V. Holder-Watts Vice President None
Maureen A. Holmes Assistant Vice President None
William J. Hurley Senior Vice President None
Gregory E. Hyde Vice President None
Dwight D. Jacobsen Vice President None
Douglas B. Jamieson Director & Senior Managing Director None
Kevin M. Joyce Senior Vice President None
James J. Kilbane Vice President None
Deborah H. Kirk Senior Vice President None
Jill A. Koontz Assistant Vice President None
Howard H. Kreutzberg Senior Vice President None
Christopher W. LaPierre Assistant Vice President None
Mary E. Ledwith Vice President None
Edward V. Lewandowski, Sr. Vice President None
Edward V. Lewandowski, Jr. Vice President None
Ann-Marie Linehan Vice President None
Rufino R. Lomba Assistant Vice President None
Philip J. Lussier Managing Director None
Ann Malatos Assistant Vice President None
Renee L. Maloof Assistant Vice President None
Frederick S. Marius Assistant Vice President None
Karen E. Marotta Assistant Vice President None
Kathleen M. McAnulty Assistant Vice President None
Anne B. McCarthy Assistant Vice President None
Marla J. McDougall Assistant Vice President None
Walter S. McFarland Vice President None
Greg J. McMillan Assistant Vice President None
Robert E. McMurtrie Vice President None
Claye A. Metelmann Assistant Vice President None
J. Chris Meyer Senior Vice President None
Ronald K. Mills Vice President None
Mitchell L. Moret Vice President None
Donald E. Mullen Vice President None
Brendan R. Murray Vice President None
Robert Nadherny Vice President None
Alexander L. Nelson Managing Director None
Mary K. Nickerson Vice President None
John P. Nickodemus Vice President None
Michael C. Noonis Assistant Vice President None
Peter A. Nyhus Vice President None
Kristen P. O'Brien Vice President None
Donald O'Fee Vice President None
Edward J. O'Hara Assistant Vice President None
Lorie C. O'Malley Senior Vice President None
Philip G. Padgett, Jr. Vice President None
Richard N. Pallan Senior Managing Director None
Scott A. Papes Vice President None
Cynthia O. Parr Vice President None
John D. Pataccoli Vice President None
Joseph Phoenix Vice President None
Jeffrey E. Place Vice President None
Keith Plapinger Vice President None
Douglas H. Powell Vice President None
George Putnam Director Chairman & President
Douglas F. Rowe Vice President None
Robert B. Rowe Vice President None
Kevin A. Rowell Vice President None
Thomas C. Rowley Vice President None
Charles Ruys de Perez Vice President None
Laurie A. Ryan Assistant Vice President None
Catherine A. Saunders Vice President None
Robbin L. Saunders Assistant Vice President None
Karl W. Saur Vice President None
Christine A. Scordato Vice President None
Kathleen G. Sharpless Senior Vice President None
John F. Sharry Senior Vice President None
John B. Shamburg Vice President None
Vincent P. Sheehan Vice President None
William N. Shiebler Director, Chief Executive Vice President
Officer and President
Daniel S. Shore Vice President None
Gordon H. Silver Senior Managing Director None
Nicholas T. Stanojev Vice President None
Matthew S. Stein Assistant Vice President None
Moira A. Sullivan Vice President None
Janet C. Sweeney Vice President None
Edward M. Syring, Jr. Vice President None
James S. Tambone Senior Vice President None
B. Iris Tanner Assistant Vice President None
Louis Tasiopoulos Senior Vice President None
David S. Taylor Vice President None
John R. Telling Vice President None
Richard B. Tibbetts Senior Vice President None
Patrice M. Tirado Vice President None
Janet E. Tosi-Barry Assistant Vice President None
Bonnie L. Troped Vice President None
Larry R. Unger Vice President None
Douglas J. Vander Linde Vice President None
John F. Wallin Senior Vice President None
Edward F. Whalen Vice President None
Robert J. Wheeler Senior Vice President None
John B. White Vice President None
Kirk E. Williamson Vice President None
Leigh T. Williamson Vice President None
Benjamin Woloshin Vice President None
William H. Woolverton Senior Vice President and Clerk None
Timothy R. Young Vice President None
Ronald J. Zucker Senior Vice President None
</TABLE>
<PAGE>
The principal business address of each person listed above is One
Post Office Square, Boston, MA 02109, except for:
Mr. Anwar 25-49 86th Street, Jackson Heights, NY 11369
Mr. Bartlett, 1946 Westholme Avenue, Los Angeles, CA 90025
Mr. Besher, 8141 S. 77th East Ave., Tulsa, OK 74133
Mr. Bouchard, 18 Brice Rd., Annapolis, MD 21401
Mr. Brogan, 1601-Q Bridge Mill Road, Marietta, GA 30067
Ms. Buckner, 235 Walton Street, Englewood, NJ 07631
Mr. Burke, 2333 Stormcroft Court, Westlake Village, CA 91361
Mr. Busher, 12005 Ridge Knoll Drive, Fairfax, VA 22033
Mr. Connelly, 4634 Mirada Way, Sarasota, FL 34238
Mr. Corvinus, 208 Water St., Newburyport, MA 01950
Mr. Edlin, 7 River Road, 305 Palmer Point, Cos Cob, CT 06807
Mr. English, 1184 Pintail Circle, Boulder, CO 80303
Mr. Goodman, 14 Clover Place, Cos Cob, CT 06807
Mr. Halloran, 19449 Misty Lake Drive, Strongsville, OH 44136
Mr. Hyde, 3305 Sulky, Marietta, GA 30067
Mr. Jacobsen, 3 Sylvan Court, Pompton Plains, NJ 07444
Ms. Kirk, 124 Rivermist Dr., Buffalo, NY 14202
Mr. Lewandowski, 805 Darrell Road, Hillsborough, CA 94010
Mr. Lewandowski, Jr., 2120 The Strand, Manhattan Beach, CA 90266
Mr. McFarland, P.O. Box 4189, Chesterfield, MO 63006
Mr. McMurtrie, 14529 Glastonbury, Detroit, MI 48223
Mr. Moret, 4519 Lawn Avenue, Western Springs, IL 60558
Mr. Murray, 528 Plum Street, Syracuse, NY 13024
Mr. Nadherny, 9714 Marmount Drive, Seattle, WA 98117
Mr. Nickodemus, 1232 B Louden St., Cincinnati, OH 45202
Mr. Nyhus, 7203 Oak Pointe Curve, Bloomington, MN 55438
Mr. O'Fee, 1012 Vista Del Mar Drive, Delray Beach, FL 33483
Mr. Padgett, Jr., 7709 Charleston Drive, Bethesda, MD 20817
Mr. Papes, 1127 Olive Lake Drive, St. Louis, MO 63132
Mr. Pataccoli, 125 41st Street, Manhattan Beach, Ca 90266
Mr. Phoenix, 1426 Asbury Avenue, Hubbard Woods, IL 60093
Mr. Place, 4211 Loch Highland Parkway, Roswell, GA 30075
Mr. Powell, 2823 34th Avenue West, Seattle, WA 98199
Mr. D. Rowe 2309 Woodmont Circle, Heath, TX 75087
Mr. R. Rowe, 109 Shore Drive, Longwood, FL 32779
Mr. Rowell, 3535 East Coast Highway, Corona Del Mar, CA 92625
Mr. Rowley, 10061 S. Wood, Chicago, IL 60643
Ms. Saunders, 6400 Christie Avenue, Emeryville, CA 94608
Mr. Shamburg, 10603 N. 100th Street, Scottsdale, AZ 85260
Mr. Sheehan, Parkway Center, 1150 Galapago, Denver, CO 80204
Mr. Shore, 1100 Charlotte, Austin, TX 78203
Mr. B. Sullivan, 777 Pinoake Road, Mt. Lebanon, PA 15243
Ms. M. Sullivan, 493 Zinfandel Lane, St. Helena, CA 94574
Ms. Sweeney, 8 Surf Street, Marblehead, MA 01945
Mr. Syring, 7540 Mandarian Dr., Boca Raton, FL 33433
Mr. Telling, 329 Belt Avenue, St. Louis, MO 63112
Mr. Unger, 212 E. Broadway, Suite 903, New York, NY 10002
Mr. Vessels, 7 Riverview Drive, Norwalk, CT 06850
Mr. Williamson, 32 Kramer Place, Mandeville, LA 70448
Mr. White, 23 Wellington St., Arlington, MA 02174
Mr. Woloshin, 730 North Bundy Drive, Los Angeles, CA 90049
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Persons maintaining physical possession of accounts,
books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder are Registrant's Clerk, Beverly Marcus;
Registrant's investment adviser, Putnam Investment
Management , Inc.; Registrant's principal underwriter,
Putnam Mutual Funds Corp.; Registrant's custodian, Putnam
Fiduciary Trust Company ("PFTC"); and Registrant's transfer and
dividend disbursing agent, Putnam Investor Services, a division
of PFTC . The address of the Clerk, investment adviser,
principal underwriter, custodian and transfer and dividend
disbursing agent is One Post Office Square, Boston, Massachusetts
02109.
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32. UNDERTAKINGS
The Registrant undertakes to furnish to each person to
whom a prospectus of the Registrant is delivered a copy of the
Registrant's latest annual report to shareholders, upon request
and without charge.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectus and the Statement of Additional Information
constituting part of these Post-Effective Amendments to the
Registration Statements on Form N-1A (File No. 2-57165) (File No.
33-15238), respectively, of our reports dated November 17,
1993 and November 8, 1993 , respectively, on our audits
of the financial statements and Financial Highlights of
Putnam Tax Exempt Income Fund and Putnam Tax Exempt Money Market
Fund, respectively, which reports are included in the Annual
Reports for each Fund for the year ended September 30,
1993 .
We further consent to the references to our firm under the
captions "Financial highlights" in the Prospectus and
"Independent Accountants and Financial Statements " in the
Statement of Additional Information.
COOPERS & LYBRAND
Boston, Massachusetts
January 21, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned Trustee 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, my true and
lawful attorneys, with full power to them and each of them, to
sign for me, and in my name and in the capacity indicated below,
the Registration Statement on Form N-1A of Putnam Tax 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 my said attorneys, and each of them acting alone, full power
and authority to do and perform each and every act and thing
requisite or necessary to be done in the premises, as fully to
all intents and purposes as he 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 my hand and seal on the date set forth below.
SIGNATURE TITLE DATE
/s/ Jameson A. Baxter
- ----------------------
JAMESON A. BAXTER Trustee January 6, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned Trustee of Putnam Tax Exempt Money Market
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, my
true and lawful attorneys, with full power to them and each of
them, to sign for me, and in my name and in the capacity
indicated below, the Registration Statement on Form N-1A of
Putnam Tax Exempt Money Market 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 my said attorneys, and each of
them acting alone, full power and authority to do and perform
each and every act and thing requisite or necessary to be done in
the premises, as fully to all intents and purposes as he 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 my hand and seal on the date set forth below.
SIGNATURE TITLE DATE
/s/ Jameson A. Baxter
- ----------------------
JAMESON A. BAXTER Trustee January 6, 1994
<PAGE>
NOTICE
A copy of the Agreement and Declarations of Trust of
Putnam Tax Exempt Income Fund and Putnam Tax Exempt Money Market
Fund is on file with the Secretary of State of The Commonwealth
of Massachusetts and notice is hereby given that this instrument
is executed on behalf of each Registrant by an officer of each
Registrant as an officer and not individually and the obligations
of or arising out of this instrument are not binding upon any of
the Trustees, officers or shareholders individually but are
binding only upon the assets and property of the Registrants.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrants certify
that they meet all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and have duly caused this Amendment to
their Registration Statements to be signed on their behalf by the
undersigned, thereunto duly authorized, in the City of Boston,
and The Commonwealth of Massachusetts, on the 25th day of
January, 1994 .
PUTNAM TAX EXEMPT INCOME FUND
PUTNAM TAX EXEMPT MONEY MARKET FUND
By: Gordon H. Silver, Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statements of Putnam Tax Exempt
Income Fund and Putnam Tax Exempt Money Market Fund have been
signed below by the following persons in the capacities and on
the dates indicated:
SIGNATURE TITLE
George Putnam President and Chairman of the Board;
Principal Executive Officer; Trustee
William F. Pounds Vice Chairman; Trustee
John D. Hughes Vice President; Treasurer and
Principal Financial Officer
Paul G. Bucuvalas Assistant Treasurer and Principal
Accounting Officer
Jameson Adkins Baxter Trustee
Hans H. Estin Trustee
John A. Hill Trustee
SIGNATURE TITLE
Elizabeth T. Kennan Trustee
Lawrence J. Lasser Trustee
Robert E. Patterson Trustee
Donald S. Perkins Trustee
George Putnam, III Trustee
A.J.C. Smith Trustee
W. Nicholas Thorndike Trustee
By: Gordon H. Silver, as Attorney-
in-Fact
January 25, 1994 <PAGE>
EXHIBIT
INDEX
2. By-Laws, as amended through September 9, 1993 for
Putnam Tax Exempt Income Fund and Putnam Tax Exempt
Money Market Fund -- Exhibit 1.
4a. Class A Specimen share certificate for Putnam Tax
Exempt Income Fund -- Exhibit 2.
4b. Class B Specimen share certificate for Putnam Tax
Exempt Income Fund -- Exhibit 3.
4c. Portions of Agreement and Declaration of Trust
Relating to Shareholders' Rights for Putnam Tax Exempt
Income Fund -- Exhibit 4.
4d. Portions of Agreement and Declaration of Trust
Relating to Shareholders' Rights for Putnam Tax Exempt
Money Market Fund -- Exhibit 5.
4e. Portions of By-Laws Relating to Shareholders' Rights
for Putnam Tax Exempt Income Fund and Putnam Tax
Exempt Money Market Fund -- Exhibit 6.
6a. Copy of Distributor's Contract dated January 1, 1993
for Putnam Tax Exempt Income Fund -- Exhibit 7.
8. Copy of Custodian Agreement with Putnam Fiduciary
Trust Company dated May 3, 1991, as amended July 13,
1992 for Putnam Tax Exempt Income Fund and Putnam Tax
Exempt Money Market Fund -- Exhibit 8.
10b. Opinion of Ropes & Gray, including consent for Putnam
Tax Exempt Money Market Fund -- Exhibit 9.
13b. Investment Letter from Putnam Investments, Inc. to
Putnam Tax Exempt Income Fund for Class B shares --
Exhibit 10.
15a. Copy of Class A Distribution Plan and Agreement dated
January 1, 1993 for Putnam Tax Exempt Income Fund --
Exhibit 11.
15b. Copy of Class B Distribution Plan and Agreement dated
January 1, 1993 for Putnam Tax Exempt Income Fund --
Exhibit 12.
16a. Schedules for computation of performance quotations
for Putnam Tax Exempt Income Fund -- Exhibit 13.
16b. Schedules for computation of performance quotations
for Putnam Tax Exempt Money Market Fund -- Exhibit 14.
<PAGE>
EXHIBIT 1
<PAGE>
BYLAWS
OF
PUTNAM ADJUSTABLE RATE U.S. GOVERNMENT FUND,
PUTNAM AMERICAN GOVERNMENT INCOME FUND,
PUTNAM ARIZONA TAX EXEMPT INCOME FUND,
PUTNAM ASIA PACIFIC GROWTH FUND,
PUTNAM BALANCED GOVERNMENT FUND,
PUTNAM CALIFORNIA TAX EXEMPT INCOME FUND,
PUTNAM CALIFORNIA TAX EXEMPT MONEY MARKET FUND,
PUTNAM CONVERTIBLE INCOME-GROWTH TRUST,
PUTNAM DAILY DIVIDEND TRUST,
PUTNAM DIVERSIFIED INCOME TRUST,
PUTNAM DIVIDEND GROWTH FUND,
PUTNAM ENERGY-RESOURCES TRUST,
PUTNAM EQUITY INCOME FUND,
PUTNAM FLORIDA TAX EXEMPT INCOME FUND,
THE GEORGE PUTNAM FUND OF BOSTON,
PUTNAM GLOBAL GROWTH FUND,
PUTNAM HEALTH SCIENCES TRUST,
PUTNAM HIGH YIELD TRUST,
PUTNAM INCOME FUND,
PUTNAM INVESTORS FUND,
PUTNAM MANAGED INCOME TRUST,
PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND II,
PUTNAM MICHIGAN TAX EXEMPT INCOME FUND II,
PUTNAM MINNESOTA TAX EXEMPT INCOME FUND II,
PUTNAM MUNICIPAL INCOME FUND,
PUTNAM NEW JERSEY TAX EXEMPT INCOME FUND,
PUTNAM NEW OPPORTUNITIES FUND,
PUTNAM NEW YORK TAX EXEMPT INCOME FUND,
PUTNAM NEW YORK TAX EXEMPT MONEY MARKET FUND,
PUTNAM OHIO TAX EXEMPT INCOME FUND II,
PUTNAM OTC EMERGING GROWTH FUND,
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND,
PUTNAM RESEARCH ANALYSTS FUND,
PUTNAM STRATEGIC INCOME TRUST,
PUTNAM TAX EXEMPT INCOME FUND,
PUTNAM TAX EXEMPT MONEY MARKET FUND,
PUTNAM TAX-FREE INCOME TRUST,
PUTNAM U.S. GOVERNMENT INCOME TRUST,
PUTNAM UTILITIES GROWTH AND INCOME FUND,
PUTNAM VISTA FUND, AND
PUTNAM VOYAGER FUND
(AS AMENDED THROUGH SEPTEMBER 9, 1993)
<PAGE>
ARTICLE 1
AGREEMENT AND DECLARATION OF TRUST AND PRINCIPAL OFFICE
1.1 AGREEMENT AND DECLARATION OF TRUST. These Bylaws shall
be subject to the Agreement and Declaration of Trust, as from
time to time in effect (the "Declaration of Trust"), of the
Massachusetts business trust established by the Declaration of
Trust (the "Trust").
1.2 PRINCIPAL OFFICE OF THE TRUST. The principal office of
the Trust shall be located in Boston, Massachusetts.
ARTICLE 2
MEETINGS OF TRUSTEES
2.1 REGULAR MEETINGS. Regular meetings of the Trustees may
be held without call or notice at such places and at such times
as the Trustees may from time to time determine, provided that
notice of the first regular meeting following any such
determination shall be given to absent Trustees.
2.2 SPECIAL MEETINGS. Special meetings of the Trustees may
be held at any time and at any place designated in the call of
the meeting when called by the Chairman of the Trustees, the
President or the Treasurer or by two or more Trustees, sufficient
notice thereof being given to each Trustee by the Clerk or an
Assistant Clerk or by the officer or the Trustees calling the
meeting.
2.3 NOTICE OF SPECIAL MEETINGS. It shall be sufficient
notice to a Trustee of a special meeting to send notice by mail
at least forty-eight hours or by telegram at least twenty-four
hours before the meeting addressed to the Trustee at his or her
usual or last known business or residence address or to give
notice to him or her in person or by telephone at least
twenty-four hours before the meeting. Notice of a special
meeting need not be given to any Trustee if a written waiver of
notice, executed by him or her before or after the meeting, is
filed with the records of the meeting, or to any Trustee who
attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him or her. Neither notice of
a meeting nor a waiver of a notice need specify the purposes of
the meeting.
2.4 QUORUM. At any meeting of the Trustees a majority of
the Trustees then in office shall constitute a quorum. Any
meeting may be adjourned from time to time by a majority of the
votes cast upon the question, whether or not a quorum is present,
and the meeting may be held as adjourned without further notice.
<PAGE>
2.5 NOTICE OF CERTAIN ACTIONS BY CONSENT. If in accordance
with the provisions of the Declaration of Trust any action is
taken by the Trustees by a written consent of less than all of
the Trustees, then prompt notice of any such action shall be
furnished to each Trustee who did not execute such written
consent, provided that the effectiveness of such action shall not
be impaired by any delay or failure to furnish such notice.
ARTICLE 3
OFFICERS
3.1 ENUMERATION; QUALIFICATION. The officers of the Trust
shall be a Chairman of the Trustees, a President, a Treasurer, a
Clerk and such other officers, if any, as the Trustees from time
to time may in their discretion elect. The Trust may also have
such agents as the Trustees from time to time may in their
discretion appoint. The Chairman of the Trustees and the
President shall be a Trustee and may but need not be a
shareholder; and any other officer may but need not be a Trustee
or a shareholder. Any two or more offices may be held by the
same person. A Trustee may but need not be a shareholder.
3.2 ELECTION. The Chairman of the Trustees, the President,
the Treasurer and the Clerk shall be elected by the Trustees upon
the occurrence of any vacancy in any such office. Other
officers, if any, may be elected or appointed by the Trustees at
any time. Vacancies in any such other office may be filled at
any time.
3.3 TENURE. The Chairman of the Trustees, the President,
the Treasurer and the Clerk shall hold office in each case until
he or she dies, resigns, is removed or becomes disqualified.
Each other officer shall hold office and each agent shall retain
authority at the pleasure of the Trustees.
3.4 POWERS. Subject to the other provisions of these
Bylaws, each officer shall have, in addition to the duties and
powers herein and in the Declaration of Trust set forth, such
duties and powers as are commonly incident to the office occupied
by him or her as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the
Trustees may from time to time designate.
3.5 CHAIRMAN; PRESIDENT. Unless the Trustees otherwise
provide, the Chairman of the Trustees or, if there is none or in
the absence of the Chairman of the Trustees, the President shall
preside at all meetings of the shareholders and of the Trustees.
Unless the Trustees otherwise provide, the President shall be the
chief executive officer.
<PAGE>
3.6 TREASURER. Unless the Trustees shall provide
otherwise, the Treasurer shall be the chief financial and
accounting officer of the Trust, and shall, subject to the
provisions of the Declaration of Trust and to any arrangement
made by the Trustees with a custodian, investment adviser or
manager, or transfer, shareholder servicing or similar agent, be
in charge of the valuable papers, books of account and accounting
records of the Trust, and shall have such other duties and powers
as may be designated from time to time by the Trustees or by the
President.
3.7 CLERK. The Clerk shall record all proceedings of the
shareholders and the Trustees in books to be kept therefor, which
books or a copy thereof shall be kept at the principal office of
the Trust. In the absence of the Clerk from any meeting of the
shareholders or Trustees, an Assistant Clerk, or if there be none
or if he or she is absent, a temporary Clerk chosen at such
meeting shall record the proceedings thereof in the aforesaid
books.
3.8 RESIGNATIONS AND REMOVALS. Any Trustee or officer may
resign at any time by written instrument signed by him or her and
delivered to the Chairman of the Trustees, the President or the
Clerk or to a meeting of the Trustees. Such resignation shall be
effective upon receipt unless specified to be effective at some
other time. The Trustees may remove any officer elected by them
with or without cause. Except to the extent expressly provided
in a written agreement with the Trust, no Trustee or officer
resigning and no officer removed shall have any right to any
compensation for any period following his or her resignation or
removal, or any right to damages on account of such removal.
ARTICLE 4
COMMITTEES
4.1 QUORUM; VOTING. A majority of the members of any
Committee of the Trustees shall constitute a quorum for the
transaction of business, and any action of such a Committee may
be taken at a meeting by a vote of a majority of the members
present (a quorum being present) or evidenced by one or more
writings signed by such a majority. Members of a Committee may
participate in a meeting of such Committee by means of a
conference telephone or other communications equipment by means
of which all persons participating in the meeting can hear each
other at the same time and participation by such means shall
constitute presence in person at a meeting.
<PAGE>
ARTICLE 5
REPORTS
5.1 GENERAL. The Trustees and officers shall render
reports at the time and in the manner required by the Declaration
of Trust or any applicable law. Officers and Committees shall
render such additional reports as they may deem desirable or as
may from time to time be required by the Trustees.
ARTICLE 6
FISCAL YEAR
6.1 GENERAL. Except as from time to time otherwise
provided by the Trustees, the initial fiscal year of the Trust
shall end on such date as is determined in advance or in arrears
by the Treasurer, and subsequent fiscal years shall end on such
date in subsequent years.
ARTICLE 7
SEAL
7.1 GENERAL. The seal of the Trust shall consist of a
flat-faced die with the word "Massachusetts", together with the
name of the Trust and the year of its organization cut or
engraved thereon but, unless otherwise required by the Trustees,
the seal shall not be necessary to be placed on and its absence
shall not impair the validity of, any document, instrument or
other paper executed and delivered by or on behalf of the Trust.
ARTICLE 8
EXECUTION OF PAPERS
8.1 GENERAL. Except as the Trustees may generally or in
particular cases authorize the execution thereof in some other
manner, all deeds, leases, contracts, notes and other obligations
made by the Trustees shall be signed by the President, the Vice
Chairman, a Vice President or the Treasurer and need not bear the
seal of the Trust.
ARTICLE 9
ISSUANCE OF SHARES AND SHARE CERTIFICATES
9.1 SALE OF SHARES. Except as otherwise determined by the
Trustees, the Trust will issue and sell for cash or securities
from time to time, full and fractional shares of its shares of
beneficial interest, such shares to be issued and sold at a price
of not less than the par value per share, if any, and not less
than the net asset value per share as from time to time
determined in accordance with the Declaration of Trust and these
Bylaws and, in the case of fractional shares, at a proportionate
reduction in such price. In the case of shares sold for
securities, such securities shall be valued in accordance with
the provisions for determining the value of the assets of the
Trust as stated in the Declaration of Trust and these Bylaws.
The officers of the Trust are severally authorized to take all
such actions as may be necessary or desirable to carry out this
Section 9.1.
9.2 SHARE CERTIFICATES. In lieu of issuing certificates
for shares, the Trustees or the transfer agent may either issue
receipts therefor or may keep accounts upon the books of the
Trust for the record holders of such shares, who shall in either
case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such
certificates and shall be held to have expressly assented and
agreed to the terms hereof.
The Trustees may at any time authorize the issuance of share
certificates. In that event, each shareholder shall be entitled
to a certificate stating the number of shares of each class owned
by him, in such form as shall be prescribed from time to time by
the Trustees. Such certificate shall be signed by the President
or a Vice President and by the Treasurer or an Assistant
Treasurer. Such signatures may be facsimile if the certificate
is signed by a transfer agent or by a registrar. In case any
officer who has signed or whose facsimile signature has been
placed on such certificate shall cease to be such officer before
such certificate is issued, it may be issued by the Trust with
the same effect as if he were such officer at the time of its
issue.
9.3 LOSS OF CERTIFICATES. The transfer agent of the Trust,
with the approval of any two officers of the Trust, is authorized
to issue and countersign replacement certificates for the shares
of the Trust which have been lost, stolen or destroyed upon (i)
receipt of an affidavit or affidavits of loss or non-receipt and
of an indemnity agreement executed by the registered holder or
his legal representative and supported by an open penalty surety
bond, said agreement and said bond in all cases to be in form and
content satisfactory to and approved by the President or the
Treasurer, or (ii) receipt of such other documents as may be
approved by the Trustees.
9.4 ISSUANCE OF NEW CERTIFICATE TO PLEDGEE. A pledgee of
shares transferred as collateral security shall be entitled to a
new certificate if the instrument of transfer substantially
describes the debt or duty that is intended to be secured
thereby. Such new certificate shall express on its face that it
is held as collateral security, and the name of the pledgor shall
be stated thereon, who alone shall be liable as a shareholder and
entitled to vote thereon.
9.5 DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The
Trustees may at any time discontinue the issuance of share
certificates and may, by written notice to each shareholder,
require the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not affect
the ownership of shares in the Trust.
ARTICLE 10
PROVISIONS RELATING TO THE CONDUCT OF THE TRUST'S BUSINESS
10.1 CERTAIN DEFINITIONS. When used herein the following
words shall have the following meanings: "Distributor" shall mean
any one or more corporations, firms or associations which have
distributor's or principal underwriter's contracts in effect with
the Trust providing that redeemable shares issued by the Trust
shall be offered and sold by such Distributor. "Manager" shall
mean any corporation, firm or association which may at the time
have an advisory or management contract with the Trust.
10.2 LIMITATIONS ON DEALINGS WITH OFFICERS OR TRUSTEES.
The Trust will not lend any of its assets to the Distributor or
Manager or to any officer or director of the Distributor or
Manager or any officer or Trustee of the Trust, and shall not
permit any officer or Trustee or any officer or director of the
Distributor or Manager to deal for or on behalf of the Trust with
himself or herself as principal or agent, or with any
partnership, association or corporation in which he or she has a
financial interest; provided that the foregoing provisions shall
not prevent (a) officers and Trustees of the Trust or officers
and directors of the Distributor or Manager from buying, holding
or selling shares in the Trust or from being partners, officers
or directors of or otherwise financially interested in the
Distributor or the Manager; (b) purchases or sales of securities
or other property if such transaction is permitted by or is
exempt or exempted from the provisions of the Investment Company
Act of 1940 or any Rule or Regulation thereunder and if such
transaction does not involve any commission or profit to any
security dealer who is, or one or more of whose partners,
shareholders, officers or directors is, an officer or Trustee of
the Trust or an officer or director of the Distributor or
Manager; (c) employment of legal counsel, registrar, transfer
agent, shareholder servicing agent, dividend disbursing agent or
custodian who is, or has a partner, shareholder, officer or
director who is, an officer or Trustee of the Trust or an officer
or director of the Distributor or Manager; (d) sharing
statistical, research, legal and management expenses and office
hire and expenses with any other investment company in which an
officer or Trustee of the Trust or an officer or director of the
Distributor or Manager is an officer or director or otherwise
financially interested.
10.3 SECURITIES AND CASH OF THE TRUST TO BE HELD BY
CUSTODIAN SUBJECT TO CERTAIN TERMS AND CONDITIONS.
(a) All securities and cash owned by the Trust
shall be held by or deposited with one or more banks or
trust companies having (according to its last published
report) not less than $1,000,000 aggregate capital,
surplus and undivided profits (any such bank or trust
company being hereby designated as "Custodian"),
provided such a Custodian can be found ready and
willing to act; subject to such rules, regulations and
orders, if any, as the Securities and Exchange
Commission may adopt, the Trust may, or may permit any
Custodian to, deposit all or any part of the securities
owned by the Trust in a system for the central handling
of securities pursuant to which all securities of any
particular class or series of any issue deposited
within the system may be transferred or pledged by
bookkeeping entry, without physical delivery. The
Custodian may appoint, subject to the approval of the
Trustees, one or more subcustodians.
(b) The Trust shall enter into a written contract
with each Custodian regarding the powers, duties and
compensation of such Custodian with respect to the cash
and securities of the Trust held by such Custodian.
Said contract and all amendments thereto shall be
approved by the Trustees.
(c) The Trust shall upon the resignation or
inability to serve of any Custodian or upon change of
any Custodian:
(i) in case of such resignation or inability to
serve, use its best efforts to obtain a successor
Custodian;
(ii) require that the cash and securities owned
by the Trust be delivered directly to the successor
Custodian; and
(iii) in the event that no successor Custodian
can be found, submit to the shareholders, before
permitting delivery of the cash and securities owned by
the Trust otherwise than to a successor Custodian, the
question whether the Trust shall be liquidated or shall
function without a Custodian.
10.4 REPORTS TO SHAREHOLDERS. The Trust shall send to each
shareholder of record at least semi-annually a statement of the
condition of the Trust and of the results of its operations,
containing all information required by applicable laws or
regulations.
10.5 DETERMINATION OF NET ASSET VALUE PER SHARE. Net asset
value per share of each class or series of shares of the Trust
shall mean: (i) the value of all the assets properly allocable
to such class or series; (ii) less total liabilities properly
allocable to such class or series; (iii) divided by the number of
shares of such class or series outstanding, in each case at the
time of each determination. Except as otherwise determined by
the Trustees, the net asset value per share of each class or
series shall be determined no less frequently than once daily,
Monday through Friday, on days on which the New York Stock
Exchange is open for trading, at such time or times that the
Trustees set at least annually.
In valuing the portfolio investments of any class or series
of shares for the determination of the net asset value per share
of such class or series, securities for which market quotations
are readily available shall be valued at prices which, in the
opinion of the Trustees or the person designated by the Trustees
to make the determination, most nearly represent the market value
of such securities, and other securities and assets shall be
valued at their fair value as determined by or pursuant to the
direction of the Trustees, which in the case of debt obligations,
commercial paper and repurchase agreements may, but need not, be
on the basis of yields for securities of comparable maturity,
quality and type, or on the basis of amortized cost. Expenses
and liabilities of the Trust shall be accrued each day.
Liabilities may include such reserves for taxes, estimated
accrued expenses and contingencies as the Trustees or their
designates may in their sole discretion deem fair and reasonable
under the circumstances. No accruals shall be made in respect of
taxes on unrealized appreciation of securities owned unless the
Trustees shall otherwise determine.
ARTICLE 11
SHAREHOLDERS
11.1 MEETINGS. A meeting of the shareholders shall be
called by the Clerk whenever ordered by the Trustees, the
Chairman of the Trustees or requested in writing by the holder or
holders of at least one-tenth of the outstanding shares entitled
to vote at such meeting. If the Clerk, when so ordered or
requested, refuses or neglects for more than two days to call
such meeting, the Trustees, Chairman of the Trustees or the
shareholders so requesting may, in the name of the Clerk, call
the meeting by giving notice thereof in the manner required when
notice is given by the Clerk.
11.2 ACCESS TO SHAREHOLDER LIST. Shareholders of record
may apply to the Trustees for assistance in communicating with
other shareholders for the purpose of calling a meeting in order
to vote upon the question of removal of a Trustee. When ten or
more shareholders of record who have been such for at least six
months preceding the date of application and who hold in the
aggregate shares having a net asset value of at least $25,000 so
apply, the Trustees shall within five business days either:
(i) afford to such applicants access to a list of
names and addresses of all shareholders as recorded on
the books of the Trust; or
(ii) inform such applicants of the approximate
number of shareholders of record and the approximate
cost of mailing material to them, and, within a
reasonable time thereafter, mail, at the applicants'
expense, materials submitted by the applicants, to all
such shareholders of record. The Trustees shall not be
obligated to mail materials which they believe to be
misleading or in violation of applicable law.
11.3 RECORD DATES. For the purpose of determining the
shareholders of any class or series of shares of the Trust who
are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to receive payment of any dividend
or of any other distribution, the Trustees may from time to time
fix a time, which shall be not more than 90 days before the date
of any meeting of shareholders or more than 60 days before the
date of payment of any dividend or of any other distribution, as
the record date for determining the shareholders of such class or
series having the right to notice of and to vote at such meeting
and any adjournment thereof or the right to receive such dividend
or distribution, and in such case only shareholders of record on
such record date shall have such right notwithstanding any
transfer of shares on the books of the Trust after the record
date; or without fixing such record date the Trustees may for any
such purposes close the register or transfer books for all or
part of such period.
11.4 PROXIES. The placing of a shareholder's name on a
proxy pursuant to telephone or electronically transmitted
instructions obtained pursuant to procedures reasonably designed
to verify that such instructions have been authorized by such
shareholder shall constitute execution of such proxy by or on
behalf of such shareholder.
ARTICLE 12
PREFERENCES, RIGHTS AND PRIVILEGES OF THE
TRUST'S CLASSES OF SHARES
12.1 GENERAL. Each class of shares of the Trust or of a
particular series of the Trust, as the case may be, will
represent interests in the same portfolio of investments of the
Trust (or that series) and be identical in all respects, except
as set forth below: (a) each class of shares shall be charged
with the expense of any Distribution Plan adopted by the Trust
pursuant to Rule 12b-1 under the Investment Company Act of 1940
with respect to such class of shares, (b) each class of shares
will be charged with any incremental shareholder servicing
expense attributable solely to such class, as determined by the
Trustees (c) each class of shares shall be charged with any other
expenses properly allocated to such class, as determined by the
Trustees and approved by the Securities and Exchange Commission,
(d) each class of shares shall vote as a separate class on
matters which pertain to any Rule 12b-1 Distribution Plan
pertaining to such class of shares, (e) each class of shares will
have only such exchange privileges as may from time to time be
described in the Trust's prospectus with respect to such class,
(f) each class of shares shall bear such designation as may be
approved from time to time by the Trustees and (g) reinvestments
of distributions from the Fund paid with respect to the shares of
a particular class will be paid in additional shares of such
class.
12.2. CONVERSION OF CLASS B SHARES. Except as hereinafter
provided with respect to shares acquired by exchange or
reinvestment of distributions, Class B shares of the Fund will
automatically convert into Class A shares of the Fund at the end
of the month eight years after the month of purchase, or at such
earlier time as the Trustees may in their sole discretion
determine from time to time as to all Class B shares purchased on
or before such date as the Trustees may specify. Class B shares
acquired by exchange from Class B shares of another Putnam Fund
will convert into Class A shares based on the date of the initial
purchase of the Class B shares of such other Fund. Class B
shares acquired through reinvestment of distributions will
convert into Class A shares based on the date of the initial
purchase of Class B shares to which such reinvestment shares
relate. For this purpose, Class B shares acquired through
reinvestment of distributions will be attributed to particular
purchases of Class B shares in accordance with such procedures,
which may include without limitation methods of proration or
approximation, as the Trustees may in their sole discretion
determine from time to time.
ARTICLE 13
AMENDMENTS TO THE BYLAWS
13.1 GENERAL. These Bylaws may be amended or repealed, in
whole or in part, by a majority of the Trustees then in office at
any meeting of the Trustees, or by one or more writings signed by
such a majority.
NF-04F<PAGE>
EXHIBIT 2
PUTNAM TAX EXEMPT INCOME FUND
Class A Shares
Trust Certificate
Account No. Certificate No. Shares
746870-10-4
THIS CERTIFIES THAT
is the owner of Class A shares of
beneficial interest in Putnam Tax Exempt Income Fund, fully paid
and nonassessable, the said shares being issued, received and
held under and subject to the terms and provisions of the
Agreement and Declaration of Trust dated as of September 16,
1976, establishing Putnam Tax Exempt Income Fund, and all
amendments thereto, copies of which are on file with the
Secretary of State of The Commonwealth of Massachusetts. The
said owner by accepting this certificate agrees to and is bound
by all of the said terms and provisions. The shares represented
hereby are transferable in writing by the owner thereof in person
or by attorney upon surrender of this certificate to the Trustees
properly endorsed for transfer. This certificate is executed on
behalf of the Trustees as Trustees and not individually and the
obligations hereof are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets
and property of the Trust. This certificate is not valid unless
countersigned by the Investor Servicing Agent.
In Witness Whereof the Trustees of Putnam Tax Exempt Income
Fund have caused the following facsimile signatures to be affixed
to this certificate.
Dated: COUNTERSIGNED:
PUTNAM INVESTOR SERVICES, a
division of Putnam Fiduciary
Trust Company, INVESTOR
SERVICING AGENT
BY
FOR THE TRUSTEES AUTHORIZED SIGNATURE
<PAGE>
EXHIBIT 3
PUTNAM TAX EXEMPT INCOME FUND
Class B Shares
Trust Certificate
Account No. Certificate No. Shares
746870-20-3
THIS CERTIFIES THAT
is the owner of Class B shares of
beneficial interest in Putnam Tax Exempt Income Fund, fully paid
and nonassessable, the said shares being issued, received and
held under and subject to the terms and provisions of the
Agreement and Declaration of Trust dated as of September 16,
1976, establishing Putnam Tax Exempt Income Fund, and all
amendments thereto, copies of which are on file with the
Secretary of State of The Commonwealth of Massachusetts. The
said owner by accepting this certificate agrees to and is bound
by all of the said terms and provisions. The shares represented
hereby are transferable in writing by the owner thereof in person
or by attorney upon surrender of this certificate to the Trustees
properly endorsed for transfer. This certificate is executed on
behalf of the Trustees as Trustees and not individually and the
obligations hereof are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets
and property of the Trust. This certificate is not valid unless
countersigned by the Investor Servicing Agent.
In Witness Whereof the Trustees of Putnam Tax Exempt Income
Fund have caused the following facsimile signatures to be affixed
to this certificate.
Dated: COUNTERSIGNED:
PUTNAM INVESTOR SERVICES, a
division of Putnam Fiduciary
Trust Company, INVESTOR
SERVICING AGENT
BY
FOR THE TRUSTEES AUTHORIZED SIGNATURE
<PAGE>
EXHIBIT 4
(PORTIONS OF AGREEMENT AND DECLARATION OF TRUST OF
PUTNAM TAX EXEMPT INCOME FUND
RELATING TO SHAREHOLDER RIGHTS)
ARTICLE I
NAMES AND DEFINITIONS
(c) "Shares" means the equal proportionate units of interest
into which the beneficial interest in the Trust shall be
divided from time to time, or, if more than one class of
Shares is authorized by the Trustees, the equal proportionate
transferable units into which each class of Shares shall be
divided from time to time;
(d) "Shareholder" means a record owner of Shares;
ARTICLE III
SHARES
DIVISION OF BENEFICIAL INTEREST
Section 1. The beneficial interest in the Trust shall at all
times be divided into Shares, without par value, each of which
shall, except as provided in the following sentence, represent an
equal proportionate interest in the Trust with each other Share,
none having priority or preference over another. The Trustees may,
without shareholder approval, divide the Shares of into two or more
classes, Shares of each such class having such preferences and
special or relative rights and privileges (including conversion
rights, if any) as the Trustees may determine and as shall be set
forth in the Bylaws. The number of Shares authorized shall be
unlimited. The Trustees may from time to time divide or combine
the Shares of any class into a greater or lesser number without
thereby changing the proportionate beneficial interest in the
class.
OWNERSHIP OF SHARES
Section 2. The ownership of Shares shall be recorded on the
books of the Trust or a transfer or similar agent. No certificates
certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees
may make such rules as they consider appropriate for the issuance
of Share Certificates, the transfer of Shares and similar matters.
The record books of the Trust as kept by the Trust or any transfer
or similar agent, as the case may be, shall be conclusive as to who
are the Shareholders of each class and as to the number of Shares
of each class held from time to time by each Shareholder.
<PAGE>
No Preemptive Rights
Section 4. Shareholders shall have no preemptive or other
right to subscribe to any additional Shares or other securities
issued by the Trust.
STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY
Section 5. Shares shall be deemed to be personal property
giving only the rights provided in this Declaration of Trust or the
Bylaws. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms of
this Declaration of Trust and the Bylaws and to have become a party
hereto. The death of a Shareholder during the continuance of the
Trust shall not operate to terminate the same nor entitle the
representative of any deceased Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the
Trustees, but only to the rights of said decedent under this Trust.
Ownership of Shares shall not entitle the Shareholder to any title
in or to the whole or any part of the Trust property or right to
call for a partition or division of the same or for an accounting,
nor shall the ownership of Shares constitute the Shareholders
partners. Neither the Trust nor the Trustees, nor any officer,
employee or agent of the Trust shall have any power to bind
personally any Shareholders, nor except as specifically provided
herein to call upon any Shareholder for the payment of any sum of
money or assessment whatsoever other than such as the Shareholder
may at any time personally agree to pay.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
VOTING POWERS
Section 1. Subject to the voting powers of one or more
classes of Shares as set forth elsewhere in this Declaration of
Trust or in the Bylaws, the Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Article IV,
Section 1, (ii) for the removal of Trustees as provided in
Article IV, Section 1, (iii) with respect to any Manager as
provided in Article IV, Section 7, (iv) with respect to any
amendment of this Declaration of Trust to the extent and as
provided in Article IX, Section 7, (v) to the same extent as the
stockholders of a Massachusetts business corporation as to
whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class
action on behalf of the Trust or the Shareholders, and (vi) with
respect to such additional matters relating to the Trust as may
be required by this Declaration of Trust, the Bylaws or any
registration of the Trust with the Securities and Exchange
Commission (or any successor agency) or any state, or as the
Trustees may consider necessary or desirable. Each whole share
shall be entitled to one vote as to any matter on which it is
entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. On any matter submitted to a vote
of Shareholders, all Shares of the Trust then entitled to vote
shall, except as otherwise provided in the Bylaws, be voted in
the aggregate as a single class without regard to classes of
shares, except (1) when required by the 1940 Act or when the
Trustees shall have determined that the matter affects one or more
classes of Shares materially differently, Shares shall be voted by
individual class; and (2) when the Trustees have determined that
the matter affects only the interests of one or more classes, then
only Shareholders of such classes shall be entitled to vote
thereon. There shall be no cumulative voting in the election of
Trustees. Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise
of the proxy the Trust receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed
by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger. Until Shares of any class
are issued, the Trustees may exercise all rights of Shareholders
and may take any action required by law, this Declaration of Trust
or the Bylaws to be taken by Shareholders as to such class.
VOTING POWER AND MEETINGS
Section 2. Meetings of Shareholders of any or all classes
may be called by the Trustees from time to time for the purpose of
taking action upon any matter requiring the vote or authority of
the Shareholders of such classes as herein provided or upon any
other matter deemed by the Trustees to be necessary or desirable.
Written notice of any meeting of Shareholders shall be given or
caused to be given by the Trustees by mailing such notice at least
seven days before such meeting, postage prepaid, stating the time,
place and purpose of the meeting to each Shareholder entitled to
vote at such meeting at the Shareholder's address as it appears on
the records of the Trust. If the Trustees shall fail to call or
give notice of any meeting of Shareholders for a period of 30 days
after written application by Shareholders holding at least 10% of
the then outstanding Shares of all classes entitled to vote at such
meeting requesting that a meeting be called for a purpose requiring
action by the Shareholders as provided herein or in the Bylaws,
then Shareholders holding at least 10% of the then outstanding
Shares of all classes entitled to vote at such meeting may call and
give notice of such meeting and thereupon the meeting shall be held
in the manner provided for herein in case of call thereof by the
Trustees.
QUORUM AND REQUIRED VOTE
Section 3. Thirty percent of Shares entitled to vote on a
particular matter shall be a quorum for the transaction of business
on that matter at a Shareholders' meeting, except that where any
provision of law or of this Declaration of Trust or the bylaws
permits or requires that holders of any series or class shall vote
as an individual series or class, then thirty percent of the
aggregate number of Shares of that series or class entitled to vote
shall be necessary to constitute a quorum for the transaction of
business by that series or class. Any adjourned session or
sessions may be held, within a reasonable time after the date set
for the original meeting, without the necessity of further notice.
Except when a larger vote is required by any provision of law or of
this Declaration of Trust or the Bylaws, a majority of the Shares
voted shall decide any questions and a plurality shall elect a
Trustee, provided that where any provision of law or of this
Declaration of Trust or the bylaws requires that the holders of any
class shall vote as an individual class then a majority of the
Shares of that class voted on the matter (or a plurality with
respect to the election of a Trustee) shall decide that matter
insofar as that class is concerned.
ACTION BY WRITTEN CONSENT
Section 4. Any action taken by Shareholders may be taken
without a meeting if a majority of Shareholders entitled to vote on
the matter (or such larger proportion thereof as shall be required
by any express provision of this Declaration of Trust or the
Bylaws) consent to the action in writing and such written consents
are filed with the records of the meetings of Shareholders. Such
consent shall be treated for all purposes as a vote taken at a
meeting of Shareholders.
ADDITIONAL PROVISIONS
Section 5. The Bylaws may include further provisions not
inconsistent with this Declaration of Trust, regarding
Shareholders' voting powers, the conduct of meetings and related
matters.
ARTICLE VI
DISTRIBUTIONS, AND REDEMPTIONS AND REPURCHASES
DISTRIBUTIONS
Section 1. The Trustees may each year, or more frequently if
they so determine, distribute to the Shareholders out of the assets
of the Trust such amounts, as the Trustees may determine. Any
such amounts shall be distributed pro rata to Shareholders in
proportion to the number of Shares held by each of them, except to
the extent otherwise required or permitted by the preferences and
special or relative rights and privileges of any classes of Shares
of the Trust, and any distribution to the Shareholders of a
particular class of Shares shall be made to such Shareholders pro
rata in proportion to the number of Shares of such class held by
each of them. Such distributions shall be made in cash or Shares
or a combination thereof as determined by the Trustees. Any such
distribution paid in Shares will be paid at the net asset value
thereof as determined in accordance with the Bylaws.
REDEMPTIONS AND REPURCHASES
Section 2. The Trust shall purchase such Shares as are
offered by any Shareholder for redemption, upon the presentation of
a proper instrument of transfer together with a request directed to
the Trust or a person designated by the Trust that the Trust
purchase such Shares or in accordance with such other procedures
for redemption as the Trustees may from time to time authorize; and
the Trust will pay therefor the net asset value thereof, as
described in Section 1 of this Article VI, next determined.
Payment for said Shares shall be made by the Trust to the
Shareholder within seven days after the date on which the request
is made. The obligation set forth in this Section 2 is subject to
the provision that in the event that any time the New York Stock
Exchange is closed for other than customary weekends or holidays,
or if permitted by the rules of the Securities and Exchange
Commission, during periods when trading on the Exchange is
restricted or during any emergency which makes it impractical for
the Trust to dispose of its investments or to determine fairly the
value of its net assets, or during any period permitted by order of
the Securities and Exchange Commission for the protection of
investors, such obligation may be suspended or postponed by the
Trustees. The Trust may also purchase or repurchase Shares at a
price not exceeding the net asset value of such Shares in effect
when the purchase or repurchase or any contract to purchase or
repurchase is made.
REDEMPTIONS AT THE OPTION OF THE TRUST
Section 3. The Trust shall have the right at its option and
at any time to redeem Shares of any Shareholder at the net asset
value thereof as determined in accordance with the Bylaws: (i) if
at such time such Shareholder owns Shares having an aggregate net
asset value of less than an amount determined from time to time by
the Trustees; or (ii) to the extent that such Shareholder owns
Shares equal to or in excess of a percentage of the Shares
determined from time to time by the Trustees.
ARTICLE VIII
INDEMNIFICATION
SHAREHOLDERS
Section 4. In case any Shareholder or former Shareholder
shall be held to be personally liable solely by reason of his or
her being or having been a Shareholder and not because of his or
her acts or omissions or for some other reason, the Shareholder or
former Shareholder (or his or her heirs, executors, administrators
or other legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) shall be
entitled out of the assets of the Trust to be held harmless from
and indemnified against all loss and expense arising from such
liability.
ARTICLE IX
MISCELLANEOUS
TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE
Section 1. All persons extending credit to, contracting with
or having any claim against the Trust shall look only to the assets
of the Trust for payment under such credit, contract or claim; and
neither the Shareholders nor the Trustees, nor any of the Trust's
officers, employees or agents, whether past, present or future,
shall be personally liable therefor. Nothing in this Declaration
of Trust shall protect any Trustee against any liability to which
such Trustee would otherwise be subject by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or
undertaking made or issued by the Trustees or by any officers or
officer shall give notice that this Declaration of Trust is on file
with the Secretary of the Commonwealth of Massachusetts and shall
recite that the same was executed or made by or on behalf of the
Trust or by them as Trustee or Trustees or as officers or officer
and not individually and that the obligations of such instrument
are not binding upon any of them or the Shareholders individually
but are binding only upon the assets and property of the Trust, and
may contain such further recital as he or she or they may deem
appropriate, but the omission thereof shall not operate to bind any
Trustee or Trustees or officers or officer or Shareholders
individually.
<PAGE>
EXHIBIT 5
(PORTIONS OF AGREEMENT AND DECLARATION OF TRUST OF
PUTNAM TAX EXEMPT MONEY MARKET FUND
RELATING TO SHAREHOLDER RIGHTS)
ARTICLE I
NAME AND DEFINITIONS
(c) "Shares" means the equal proportionate transferable units
of interest into which the beneficial interest in the Trust
shall be divided from time to time or, if more than one series
or class of Shares is authorized by the Trustees, the equal
proportionate transferable units into which each series or
class of Shares shall be divided from time to time;
(d) "Shareholder" means a record owner of Shares;
ARTICLE III
SHARES
DIVISION OF BENEFICIAL INTEREST
Section 1. The Shares of the Trust shall be issued in one or
more series as the Trustees may, without shareholder approval,
authorize. Each series shall be preferred over all other series in
respect of the assets allocated to that series within the meaning
of the 1940 Act and shall represent a separate investment portfolio
of the Trust. The beneficial interest in each series shall at all
times be divided into Shares, without par value, each of which
shall, except as provided in the following sentence, represent an
equal proportionate interest in the series with each other Share of
the same series, none having priority or preference over another.
The Trustees may, without Shareholder approval, divide the Shares
of any series into two or more classes, Shares of each such class
having such preferences and special or relative rights and
privileges (including conversion rights, if any) as the Trustees
may determine and as shall be set forth in the Bylaws. The number
of Shares authorized shall be unlimited. The Trustees may from
time to time divide or combine the Shares of any series or class
into a greater or lesser number without thereby changing the
proportionate beneficial interest in the series or class.
OWNERSHIP OF SHARES
Section 2. The ownership of Shares shall be recorded on the
books of the Trust or a transfer or similar agent. No certificates
certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees
may make such rules as they consider appropriate for the issuance
of Share certificates, the transfer of Shares and similar matters.
The record books of the Trust as kept by the Trust or any transfer
or similar agent, as the case may be, shall be conclusive as to who
are the Shareholders of each series and class and as to the number
of Shares of each series and class held from time to time by each
Shareholder.
<PAGE>
No Preemptive Rights
Section 4. Shareholders shall have no preemptive or other
right to subscribe to any additional Shares or other securities
issued by the Trust.
STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY
Section 5. Shares shall be deemed to be personal property
giving only the rights provided in this Declaration of Trust or the
Bylaws. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms of
this Declaration of Trust and the Bylaws and to have become a party
hereto. The death of a Shareholder during the continuance of the
Trust shall not operate to terminate the same nor entitle the
representative of any deceased Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the
Trustees, but only to the rights of said decedent under this Trust.
Ownership of Shares shall not entitle the Shareholder to any title
in or to the whole or any part of the Trust property or right to
call for a partition or division of the same or for an accounting,
nor shall the ownership of Shares constitute the Shareholders
partners. Neither the Trust nor the Trustees, nor any officer,
employee or agent of the Trust, shall have any power to bind
personally any Shareholder, nor except as specifically provided
herein to call upon any Shareholder for the payment of any sum of
money or assessment whatsoever other than such as the Shareholder
may at any time personally agree to pay.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
VOTING POWERS
Section 1. Subject to the voting powers of one or more
classes of Shares as set forth elsewhere in this Declaration of
Trust or in the Bylaws, the Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Article IV,
Section 1, (ii) for the removal of Trustees as provided in Article
IV, Section 1, (iii) with respect to any Manager as provided in
Article IV, Section 6, (iv) with respect to any termination of this
Trust to the extent and as provided in Article IX, Section 4, (v)
with respect to any amendment of this Declaration of Trust to the
extent and as provided in Article IX, Section 7, (vi) to the same
extent as the stockholders of a Massachusetts business corporation
as to whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class
action on behalf of the Trust or the Shareholders, and (vii) with
respect to such additional matters relating to the Trust as may be
required by this Declaration of Trust, the Bylaws or any
registration of the Trust with the Securities and Exchange
Commission (or any successor agency) or any state, or as the
Trustees may consider necessary or desirable. Each whole Share
shall be entitled to one vote as to any matter on which it is
entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. Notwithstanding any other provision
of this Declaration of Trust, on any matter submitted to a vote of
Shareholders, all Shares of the Trust then entitled to vote shall,
except as otherwise provided in the Bylaws, be voted in the
aggregate as a single class without regard to series or classes of
shares, except (1) when required by the 1940 Act or when the
Trustees shall have determined that the matter affects one or more
series or classes of Shares materially differently, Shares shall be
voted by individual series or class; and (2) when the Trustees have
determined that the matter affects only the interests of one or
more series or classes, then only Shareholders of such series or
classes shall be entitled to vote thereon. There shall be no
cumulative voting in the election of Trustees. Shares may be voted
in person or by proxy. A proxy with respect to Shares held in the
name of two or more persons shall be valid if executed by any one
of them unless at or prior to exercise of the proxy the Trust
receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to
its exercise and the burden of proving invalidity shall rest on the
challenger. Until Shares of any series or class are issued, the
Trustees may exercise all rights of Shareholders and may take any
action required by law, this Declaration of Trust or the Bylaws to
be taken by Shareholders as to such series or class.
VOTING POWER AND MEETINGS
Section 2. Meetings of Shareholders of any or all series or
classes may be called by the Trustees from time to time for the
purpose of taking action upon any matter requiring the vote or
authority of the Shareholders of such series or classes as herein
provided or upon any other matter deemed by the Trustees to be
necessary or desirable. Written notice of any meeting of
Shareholders shall be given or caused to be given by the Trustees
by mailing such notice at least seven days before such meeting,
postage prepaid, stating the time, place and purpose of the
meeting, to each Shareholder entitled to vote at such meeting at
the Shareholder's address as it appears on the records of the
Trust. If the Trustees shall fail to call or give notice of any
meeting of Shareholders for a period of 30 days after written
application by Shareholders holding at least 10% of the then
outstanding shares of all series and classes entitled to vote at
such meeting requesting a meeting to be called for a purpose
requiring action by the Shareholders as provided herein or in the
Bylaws, then Shareholders holding at least 10% of the then
outstanding Shares of all series and classes entitled to vote at
such meeting or of all series if all series are entitled to vote at
such meeting may call and give notice of such meeting, and
thereupon the meeting shall be held in the manner provided for
herein in case of call thereof by the Trustees. Notice of a
meeting need not be given to any Shareholder if a written waiver of
notice, executed by him or her before or after the meeting, is
filed with the records of the meeting, or to any Shareholder who
attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him or her.
<PAGE>
QUORUM AND REQUIRED VOTE
Section 3. Thirty percent of Shares entitled to vote on a
particular matter shall be a quorum for the transaction of business
on that matter at a Shareholders' meeting, except that where this
Declaration of Trust requires that holders of any series or class
shall vote as an individual series or class, then thirty percent of
the aggregate number of Shares of that series or class entitled to
vote shall be necessary to constitute a quorum for the transaction
of business by that series or class. Any lesser number shall be
sufficient for adjournments. Any adjourned session or sessions may
be held, within a reasonable time after the date set for the
original meeting, without the necessity of further notice. Except
when a larger vote is required by any provision of this Declaration
of Trust or the Bylaws, a majority of the Shares voted shall decide
any questions and a plurality shall elect a Trustee, provided that
where any provision of this law or of this Declaration of Trust
permits or requires that the holders of any series or class shall
vote as an individual series or class then a majority of the Shares
of that series or class voted on the matter (or a plurality with
respect to the election of a Trustee) shall decide that matter
insofar as that series or class is concerned.
ACTION BY WRITTEN CONSENT
Section 4. Any action taken by Shareholders may be taken
without a meeting if a majority of Shareholders entitled to vote on
the matter (or such larger proportion thereof as shall be required
by any express provision of this Declaration of Trust or the
Bylaws) consent to the action in writing and such written consents
are filed with the records of the meetings of Shareholders. Such
consent shall be treated for all purposes as a vote taken at a
meeting of Shareholders.
ADDITIONAL PROVISIONS
Section 5. The Bylaws may include further provisions, not
inconsistent with this Declaration of Trust, regarding
Shareholders' voting powers, the conduct of meetings and related
matters.
<PAGE>
ARTICLE VI
DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES
DISTRIBUTIONS
Section 1. The Trustees may each year, or more frequently if
they so determine, distribute to the Shareholders of each series
out of the assets of such series such amounts as the Trustees may
determine. Any such distribution to the Shareholders of a
particular series shall be made to said Shareholders pro rata in
proportion to the number of Shares of such series held by each of
them, except to the extent otherwise required or permitted by the
preferences and special or relative rights and privileges of any
classes of Shares of that series, and any distribution to the
Shareholders of a particular class of Shares shall be made to such
Shareholders pro rata in proportion to the number of Shares of such
class held by each of them. Such distributions shall be made in
cash, Shares or other property, or a combination thereof, as
determined by the Trustees. Any such distribution paid in Shares
will be paid at the net asset value thereof as determined in
accordance with the Bylaws.
REDEMPTIONS AND REPURCHASES
Section 2. The Trust shall purchase such Shares as are
offered by any Shareholder for redemption, upon the presentation of
any certificate for the Shares to be purchased, a proper instrument
of transfer and a request directed to the Trust or a person
designated by the Trust that the Trust purchase such Shares, or in
accordance with such other procedures for redemption as the
Trustees may from time to time authorize; and the Trust will pay
therefor the net asset value thereof, as next determined in
accordance with the Bylaws, less any redemption charge fixed by the
Trustees. Payment for said Shares shall be made by the Trust to
the Shareholder within seven days after the date on which the
request is made. The obligation set forth in this Section 2 is
subject to the provision that in the event that any time the New
York Stock Exchange is closed for other than customary weekends or
holidays, or, if permitted by rules of the Securities and Exchange
Commission, during periods when trading on the Exchange is
restricted or during any emergency which makes it impractical for
the Trust to dispose of its investments or to determine fairly the
value of its net assets, or during any other period permitted by
order of the Securities and Exchange Commission for the protection
of investors, such obligation may be suspended or postponed by the
Trustees. The Trust may also purchase or repurchase Shares at a
price not exceeding the net asset value of such Shares in effect
when the purchase or repurchase or any contract to purchase or
repurchase is made.
<PAGE>
REDEMPTIONS AT THE OPTION OF THE TRUST
Section 3. The Trust shall have the right at its option and
at any time to redeem Shares of any Shareholder at the net asset
value thereof as determined in accordance with the Bylaws: (i) if
at such time such Shareholder owns fewer Shares than, or Shares
having an aggregate net asset value of less than, an amount
determined from time to time by the Trustees; or (ii) to the extent
that such Shareholder owns Shares of a particular series or class
of Shares equal to or in excess of a percentage of the outstanding
Shares of that series or class determined from time to time by the
Trustees; or (iii) to the extent that such Shareholder owns Shares
of the Trust representing a percentage equal to or in excess of
such percentage of the aggregate number of outstanding Shares of
the Trust or the aggregate net asset value of the Trust determined
from time to time by the Trustees.
ARTICLE VIII
INDEMNIFICATION
SHAREHOLDERS
Section 4. In case any Shareholder or former Shareholder
shall be held to be personally liable solely by reason of his or
her being or having been a Shareholder and not because of his or
her acts or omissions or for some other reason, the Shareholder or
former Shareholder (or his or her heirs, executors, administrators
or other legal representative or in the case of a corporation or
other entity, its corporate or other general successor) shall be
entitled to be held harmless from and indemnified against all loss
and expense arising from such liability, but only out of the assets
of the particular series of Shares of which he or she is or was a
Shareholder.
ARTICLE IX
MISCELLANEOUS
TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE
Section 1. All persons extending credit to, contracting with
or having any claim against the Trust or a particular series of
Shares shall look only to the assets of the Trust or the assets of
that particular series of Shares for payment under such credit,
contract or claim, and neither the Shareholders nor the Trustees,
nor any of the Trust's officers, employees or agents, whether past,
present or future, shall be personally liable therefor. Nothing in
this Declaration of Trust shall protect any Trustee against any
liability to which such Trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the
office of Trustee.
<PAGE>
Every note, bond, contract, instrument, certificate or
undertaking made or issued by the Trustees or by any officer or
officers shall give notice that this Declaration of Trust is on
file with the Secretary of State of The Commonwealth of
Massachusetts and shall recite that the same was executed or made
by or on behalf of the Trust or by them as Trustee or Trustees or
as officer or officers and not individually and that the
obligations of such instrument are not binding upon any of them or
the Shareholders individually but are binding only upon the assets
and property of the Trust, and may contain such further recital as
he or she or they may deem appropriate, but the omission thereof
shall not operate to bind any Trustee or Trustees or officer or
officers or Shareholder or Shareholders individually.
<PAGE>
EXHIBIT 6
(PORTIONS OF BYLAWS OF PUTNAM TAX EXEMPT INCOME FUND
AND PUTNAM TAX EXEMPT MONEY MARKET FUND
RELATING TO SHAREHOLDER RIGHTS)
ARTICLE 9
ISSUANCE OF SHARES AND SHARE CERTIFICATES
9.1 SALE OF SHARES. Except as otherwise determined by the
Trustees, the Trust will issue and sell for cash or securities from
time to time, full and fractional shares of its shares of
beneficial interest, such shares to be issued and sold at a price
of not less than the par value per share, if any, and not less than
the net asset value per share as from time to time determined in
accordance with the Declaration of Trust and these Bylaws and, in
the case of fractional shares, at a proportionate reduction in such
price. In the case of shares sold for securities, such securities
shall be valued in accordance with the provisions for determining
the value of the assets of the Trust as stated in the Declaration
of Trust and these Bylaws. The officers of the Trust are severally
authorized to take all such actions as may be necessary or
desirable to carry out this Section 9.1.
9.2 SHARE CERTIFICATES. In lieu of issuing certificates for
shares, the Trustees or the transfer agent may either issue
receipts therefor or may keep accounts upon the books of the Trust
for the record holders of such shares, who shall in either case be
deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such
certificates and shall be held to have expressly assented and
agreed to the terms hereof.
The Trustees may at any time authorize the issuance of share
certificates. In that event, each shareholder shall be entitled to
a certificate stating the number of shares owned by him, in such
form as shall be prescribed from time to time by the Trustees.
Such certificate shall be signed by the President or a Vice
President and by the Treasurer or an Assistant Treasurer. Such
signatures may be facsimile if the certificate is signed by a
transfer agent or by a registrar. In case any officer who has
signed or whose facsimile signature has been placed on such
certificate shall cease to be such officer before such certificate
is issued, it may be issued by the Trust with the same effect as if
he were such officer at the time of its issue.
9.3 LOSS OF CERTIFICATES. The transfer agent of the Trust,
with the approval of any two officers of the Trust, is authorized
to issue and countersign replacement certificates for the shares of
the Trust which have been lost, stolen or destroyed upon (i)
receipt of an affidavit or affidavits of loss or non-receipt and of
an indemnity agreement executed by the registered holder or his
legal representative and supported by an open penalty surety bond,
said agreement and said bond in all cases to be in form and content
satisfactory to and approved by the President or the Treasurer, or
(ii) receipt of such other documents as may be approved by the
Trustees.
9.4 ISSUANCE OF NEW CERTIFICATE TO PLEDGEE. A pledgee of
shares transferred as collateral security shall be entitled to a
new certificate if the instrument of transfer substantially
describes the debt or duty that is intended to be secured thereby.
Such new certificate shall express on its face that it is held as
collateral security, and the name of the pledgor shall be stated
thereon, who alone shall be liable as a shareholder and entitled to
vote thereon.
9.5 DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The Trustees
may at any time discontinue the issuance of share certificates and
may, by written notice to each shareholder, require the surrender
of share certificates to the Trust for cancellation. Such
surrender and cancellation shall not affect the ownership of shares
in the Trust.
ARTICLE 10
PROVISIONS RELATING TO THE CONDUCT OF THE TRUST'S BUSINESS
10.4 REPORTS TO SHAREHOLDERS. The Trust shall send to each
shareholder of record at least semi-annually a statement of the
condition of the Trust and of the results of its operations,
containing all information required by applicable laws or
regulations.
ARTICLE 11
SHAREHOLDERS
11.1 MEETINGS. A meeting of the shareholders shall be called
by the Clerk whenever ordered by the Trustees, the Chairman of the
Trustees or requested in writing by the holder or holders of at
least one-tenth of the outstanding shares entitled to vote at such
meeting. If the Clerk, when so ordered or requested, refuses or
neglects for more than two days to call such meeting, the Trustees,
Chairman of the Trustees or the shareholders so requesting may, in
the name of the Clerk, call the meeting by giving notice thereof in
the manner required when notice is given by the Clerk.
11.2 ACCESS TO SHAREHOLDER LIST. Shareholders of record may
apply to the Trustees for assistance in communicating with other
shareholders for the purpose of calling a meeting in order to vote
upon the question of removal of a Trustee. When ten or more
shareholders of record who have been such for at least six months
preceding the date of application and who hold in the aggregate
shares having a net asset value of at least $25,000 so apply, the
Trustees shall within five business days either:
(i) afford to such applicants access to a list of names and
addresses of all shareholders as recorded on the books of the
Trust; or
(ii) inform such applicants of the approximate number of
shareholders of record and the approximate cost of mailing
material to them, and, within a reasonable time thereafter,
mail, at the applicants' expense, materials submitted by the
applicants, to all such shareholders of record. The Trustees
shall not be obligated to mail materials which they believe to
be misleading or in violation of applicable law.
11.3 RECORD DATES. For the purpose of determining the
shareholders of any class or series of shares of the Trust who are
entitled to vote or act at any meeting or any adjournment thereof,
or who are entitled to receive payment of any dividend or of any
other distribution, the Trustees may from time to time fix a time,
which shall be not more than 90 days before the date of any meeting
of shareholders or more than 60 days before the date of payment of
any dividend or of any other distribution, as the record date for
determining the shareholders of such class or series having the
right to notice of and to vote at such meeting and any adjournment
thereof or the right to receive such dividend or distribution, and
in such case only shareholders of record on such record date shall
have such right notwithstanding any transfer of shares on the books
of the Trust after the record date; or without fixing such record
date the Trustees may for any such purposes close the register or
transfer books for all or part of such period.
11.4 PROXIES. The placing of a shareholder's name on a proxy
pursuant to telephone or electronically transmitted instructions
obtained pursuant to procedures reasonably designed to verify that
such instructions have been authorized by such shareholder shall
constitute execution of such proxy by or on behalf of such
shareholder.
ARTICLE 12
AMENDMENTS TO THE BYLAWS
12.1 GENERAL. These Bylaws may be amended or repealed, in
whole or in part, by a majority of the Trustees then in office at
any meeting of the Trustees, or by one or more writings signed by
such a majority.
<PAGE>
EXHIBIT 7
PUTNAM TAX EXEMPT INCOME FUND
DISTRIBUTOR'S CONTRACT
Distributor's Contract dated January 1, 1993, by and
between PUTNAM TAX EXEMPT INCOME FUND, a Massachusetts business
trust (the "Fund"), and PUTNAM MUTUAL FUNDS CORP., a
Massachusetts corporation ("Putnam").
WHEREAS, the Fund and Putnam are desirous of amending this
agreement to provide for the distribution by Putnam of Class A
shares and Class B shares of the Fund;
NOW, THEREFORE, in consideration of the mutual agreements
contained in the Terms and Conditions of Distributor's Contract
attached to and forming a part of this Contract (the "Terms and
Conditions"), the Fund hereby appoints Putnam as a distributor of
Class A shares and Class B shares of the Fund, and Putnam hereby
accepts such appointment, all as set forth in the Terms and
Conditions.
A copy of the Agreement and Declaration of Trust of the
Fund is on file with the Secretary of State of The Commonwealth
of Massachusetts and notice is hereby given that this instrument
is executed on behalf of the Trustees of the Fund as Trustees and
not individually, and that the obligations of or arising out of
this instrument are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets
and property of the Fund.
IN WITNESS WHEREOF, PUTNAM TAX EXEMPT INCOME FUND and
PUTNAM MUTUAL FUNDS CORP. have each caused this Distributor's
Contract to be signed in duplicate in its behalf, all as of the
day and year first above written.
PUTNAM TAX EXEMPT INCOME FUND
/s/ Charles E.
Porter
By: ------------------------------
PUTNAM MUTUAL FUNDS CORP.
/s/ William N.
Shiebler
By: ------------------------------
<PAGE>
TERMS AND CONDITIONS
OF
DISTRIBUTOR'S CONTRACT
1. RESERVATION OF RIGHT NOT TO SELL. The Fund reserves the
right to refuse at any time or times to sell any of its shares of
beneficial interest ("shares") hereunder for any reason deemed
adequate by it.
2. FEE WITH RESPECT TO CLASS A SHARES. Except as otherwise
provided in Section 4 below, Putnam shall not be entitled to
receive any compensation from the Fund for its services in
connection with the distribution of Class A shares, except to the
extent that the Fund may from time to time agree to reimburse
Putnam for specific expenses pursuant to a Distribution Plan and
Agreement from time to time in effect between the Fund and Putnam
with respect to the Class A shares of the Fund and except that
Putnam may receive a contingent deferred sales charge upon the
redemption of Class A shares, determined in the manner set forth
in the then current Prospectus or Statement of Additional
Information of the Fund.
3. FEE WITH RESPECT TO CLASS B SHARES. For the services
provided and expenses incurred by Putnam as a distributor of
Class B shares of the Fund, which shall include the payment by
Putnam to investment dealers of commissions on the sale of Class
B shares of the Fund and dealer service fees as set forth in the
then current Prospectus or Statement of Additional Information of
the Fund, Putnam shall receive from the Fund:
(a) a distribution fee payable in such amounts and upon
such terms and conditions as is provided under a Distribution
Plan and Agreement from time to time in effect between the Fund
and Putnam with respect to Class B shares of the Fund; and
(b) a contingent deferred sales charge upon the redemption
of Class B shares, determined in the manner set forth in the then
current Prospectus or Statement of Additional Information of the
Fund.
4. SALES OF SHARES TO PUTNAM AND SALES BY PUTNAM. Putnam will
have the right, as principal, to sell Class A shares of the Fund
to investment dealers against orders therefor at the public
offering price less a discount determined by Putnam, which
discount shall not exceed the amount of the sales charge referred
to below. Putnam will have the right, as principal, to sell
Class B shares of the Fund to investment dealers against orders
therefor at net asset value.
<PAGE>
Putnam will also have the right, as principal, to purchase
shares from the Fund at their net asset value and to sell such
shares to the public against orders therefor at the public
offering price (in the case of Class A shares) or at net asset
value (in the case of Class B shares). Upon receipt of an order
to purchase Fund shares from a bank or dealer with whom Putnam
has a Sales Contract, Putnam will promptly purchase shares from
the Fund to fill such order. Upon receipt of registration
instructions in proper form and payment for such shares, Putnam
will transmit such instructions to the Fund or its agent for
registration of the shares purchased.
Putnam will also have the right, as agent for the Fund, to
sell Class A shares at the public offering price or Class B
shares at net asset value to such persons and upon such
conditions as the Trustees of the Fund may from time to time
determine.
Putnam will also have the right, as principal, to sell
Class A shares at their net asset value or Class B shares at
their net asset value and not subject to a contingent deferred
sales charge to such persons as may be approved by the Trustees
of the Fund, all such sales to comply with the provisions of the
Investment Company Act of 1940 and the Rules and Regulations of
the Securities and Exchange Commission promulgated thereunder.
The public offering price of Class A shares shall be the
net asset value of Class A shares then in effect, plus any
applicable sales charge determined in the manner set forth in the
then current Prospectus and Statement of Additional Information
of the Fund or as permitted by the Investment Company Act of 1940
and the Rules and Regulations of the Securities and Exchange
Commission promulgated thereunder. In no event shall the public
offering price exceed 1000/915ths of such net asset value, and in
no event shall any applicable sales charge exceed 8 1/2% of the
public offering price. The net asset value of Class A shares and
Class B shares shall be determined in the manner provided in the
Agreement and Declaration of Trust of the Fund as then amended
and when determined shall be applicable to transactions as
provided for in the then current Prospectus and Statement of
Additional Information.
On every sale the Fund shall receive the applicable net
asset value of the shares. Putnam shall have the right to retain
the sales charge on Class A shares less any applicable dealer
discount. Putnam will reimburse the Fund for any increased issue
tax paid on account of the sales charge.
<PAGE>
5. SALES OF SHARES BY THE FUND. The Fund reserves the right to
issue shares at any time directly to its shareholders as a stock
dividend or stock split and to sell shares to its shareholders or
to other persons approved by Putnam at not less than net asset
value.
6. REPURCHASE OF SHARES. Putnam will act as agent for the Fund
in connection with the repurchase of shares by the Fund upon the
terms and conditions set forth in the then current Prospectus and
Statement of Additional Information of the Fund.
7. BASIS OF PURCHASES AND SALES OF SHARES. Putnam will use its
best efforts to place shares sold by it on an investment basis.
Putnam does not agree to sell any specific number of shares.
Shares will be sold by Putnam only against orders therefor.
Putnam will not purchase shares from anyone other than the Fund
except in accordance with Section 6, and will not take "long" or
"short" positions in shares contrary to the Agreement and
Declaration of Trust of the Fund.
8. RULES OF NASD, ETC. Putnam will conform to the Rules of
Fair Practice of the National Association of Securities Dealers,
Inc. and the sale of securities laws of any jurisdiction in which
it sells, directly or indirectly, any shares. Putnam also agrees
to furnish to the Fund sufficient copies of any agreements or
plans it intends to use in connection with any sales of shares in
adequate time for the Fund to file and clear them with the proper
authorities before they are put in use, and not to use them until
so filed and cleared.
9. PUTNAM INDEPENDENT CONTRACTOR. Putnam shall be an
independent contractor and neither Putnam nor any of its officers
or employees as such is or shall be an employee of the Fund.
Putnam is responsible for its own conduct and the employment,
control and conduct of its agents and employees and for injury to
such agents or employees or to others through its agents or
employees. Putnam assumes full responsibility for its agents and
employees under applicable statutes and agrees to pay all
employer taxes thereunder.
Putnam will maintain at its own expense insurance against
public liability in such an amount as the Trustees of the Fund
may from time to time reasonably request.
10. EXPENSES. Putnam will pay all expenses of qualifying shares
of the Fund for sale under the so-called "Blue Sky" laws of any
state (except expenses of any action by the Fund relating to its
Agreement and Declaration of Trust or other matters in which the
Fund has a direct concern), and expenses of preparing, printing
and distributing advertising and sales literature (apart from
expenses of registering shares under the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
and the preparation and printing of Prospectuses and Statements
of Additional Information and reports as required by said Acts
and the direct expenses of the issue of shares, except that
Putnam will pay the cost of the preparation and printing of
Prospectuses and Statements of Additional Information and
shareholders' reports used by it and by others in the sale of
Fund shares to the extent such cost is not paid by others).
11. INDEMNIFICATION OF FUND. Putnam agrees to indemnify and
hold harmless the Fund and each person who has been, is, or may
hereafter be a Trustee of the Fund against expenses reasonably
incurred by any of them in connection with any claim or in
connection with any action, suit or proceeding to which any of
them may be a party, which arises out of or is alleged to arise
out of any misrepresentation or omission to state a material
fact, or out of any alleged misrepresentation or omission to
state a material fact, on the part of Putnam or any agent or
employee of Putnam or any other person for whose acts Putnam is
responsible or is alleged to be responsible unless such
misrepresentation or omission was made in reliance upon written
information furnished by the Fund. Putnam also agrees likewise
to indemnify and hold harmless the Fund and each such person in
connection with any claim or in connection with any action, suit
or proceeding which arises out of or is alleged to arise out of
Putnam's failure to exercise reasonable care and diligence with
respect to its services rendered in connection with investment,
reinvestment, automatic withdrawal and other plans for shares.
The term "expenses" includes amounts paid in satisfaction of
judgments or in settlements which are made with Putnam's consent.
The foregoing rights of indemnification shall be in addition to
any other rights to which the Fund or a Trustee may be entitled
as a matter of law.
12. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS
CONTRACT. This Contract shall automatically terminate, without
the payment of any penalty, in the event of its assignment. This
Contract may be amended only if such amendment be approved either
by action of the Trustees of the Fund or at a meeting of the
shareholders of the Fund by the affirmative vote of a majority of
the outstanding shares of the Fund, and by a majority of the
Trustees of the Fund who are not interested persons of the Fund
or of Putnam by vote cast in person at a meeting called for the
purpose of voting on such approval.
13. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT. This
Contract shall take effect upon the date first above written and
shall remain in full force and effect continuously (unless
terminated automatically as set forth in Section 12) until
terminated:
<PAGE>
(a) Either by the Fund or Putnam by not more
than sixty (60) days' nor less than ten (10) days'
written notice delivered or mailed by registered
mail, postage prepaid, to the other party; or
(b) If the continuance of this Contract after
January 31, 1994 is not specifically approved at
least annually by the Trustees of the Fund or the
shareholders of the Fund by the affirmative vote of a
majority of the outstanding shares of the Fund, and
by a majority of the Trustees of the Fund who are not
interested persons of the Fund or of Putnam by vote
cast in person at a meeting called for the purpose of
voting on such approval.
Action by the Fund under (a) above may be taken either (i) by
vote of its Trustees or (ii) by the affirmative vote of a
majority of the outstanding shares of the Fund. The requirement
under (b) above that continuance of this Contract be
"specifically approved at least annually" shall be construed in a
manner consistent with the Investment Company Act of 1940 and the
Rules and Regulations thereunder.
Termination of this Contract pursuant to this Section 13
shall be without the payment of any penalty.
14. CERTAIN DEFINITIONS. For the purposes of this Contract,
the "affirmative vote of a majority of the outstanding shares of
the Fund" means the affirmative vote, at a duly called and held
meeting of shareholders of the Fund, (a) of the holders of 67% or
more of the shares of the Fund present (in person or by proxy)
and entitled to vote at such meeting, if the holders of more than
50% of the outstanding shares of the Fund entitled to vote at
such meeting are present in person or by proxy, or (b) of the
holders of more than 50% of the outstanding shares of the Fund
entitled to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "interested
person" and "assignment" shall have the meanings defined in the
Investment Company Act of 1940, subject however, to such
exemptions as may be granted by the Securities and Exchange
Commission under said Act.
<PAGE>
EXHIBIT 8
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of the 3rd day of May, 1991, as amended
July 13, 1992, between each of the Putnam Funds listed in
Schedule A, each of such Funds acting on its own behalf
separately from all the other Funds and not jointly or jointly
and severally with any of the other Funds (each of the Funds
being hereinafter referred to as the "Fund"), and Putnam
Fiduciary Trust Company (the "Custodian").
WHEREAS, the Custodian represents to the Fund that it is
eligible to serve as a custodian for a management investment
company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), and
WHEREAS, the Fund wishes to appoint the Custodian as the
Fund's custodian.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. APPOINTMENT OF CUSTODIAN. The Fund hereby employs and
appoints the Custodian as custodian of its assets for the term
and subject to the provisions of this Agreement. At the
direction of the Custodian, the Fund agrees to deliver to the
Sub-Custodians appointed pursuant to Section 2 below (the "Sub-
Custodians") securities, funds and other property owned by it.
The Custodian shall have no responsibility or liability for or on
account of securities, funds or other property not so delivered
to the Sub-Custodians. Upon request, the Fund shall deliver to
the Custodian or to such Sub-Custodians as the Custodian may
direct such proxies, powers of attorney or other instruments as
may be reasonably necessary or desirable in connection with the
performance by the Custodian or any Sub-Custodian of their
respective obligations under this Agreement or any applicable
Sub-Custodian Agreement.
2. APPOINTMENT OF SUB-CUSTODIANS. The Custodian may at any
time and from time to time appoint, at its own cost and expense,
as a Sub-Custodian for the Fund any bank or trust company which
meets the requirements of the 1940 Act and the rules and
regulations thereunder to act as a custodian, provided that the
Fund shall have approved in writing any such bank or trust
company and the Custodian gives prompt written notice to the Fund
of any such appointment. The agreement between the Custodian and
any Sub-Custodian shall be substantially in the form of the Sub-
Custodian agreement attached hereto as Exhibit 1 (the "Sub-
Custodian Agreement") unless otherwise approved by the Fund,
provided, however, that the agreement between the Custodian and
any Sub-Custodian appointed primarily for the purpose of holding
foreign securities of the Fund shall be substantially in the form
of the Sub-Custodian Agreement attached hereto as Exhibit 1(A)
(the "Foreign Sub-Custodian Agreement"; the "Sub-Custodian
Agreement" and the "Foreign Sub-Custodian Agreement" are herein
referred to collectively and each individually as the "Sub-
Custodian Agreement"). All Sub-Custodians shall be subject to
the instructions of the Custodian and not the Fund. The
Custodian may, at any time in its discretion, remove any bank or
trust company which has been appointed as a Sub-Custodian but
shall in such case promptly notify the Fund in writing of any
such action. Securities, funds and other property of the Fund
delivered pursuant to this Agreement shall be held exclusively by
Sub-Custodians appointed pursuant to the provisions of this
Section 2.
The Sub-Custodians which the Fund has approved to date are
set forth in Schedule B hereto. Schedule B shall be amended from
time to time as Sub-Custodians are changed, added or deleted. The
Fund shall be responsible for informing the Custodian
sufficiently in advance of a proposed investment which is to be
held at a location not listed on Schedule B, in order that there
shall be sufficient time for the Custodian to put the appropriate
arrangements in place with such Sub-Custodian pursuant to such
Sub-Custodian Agreement.
With respect to the securities, funds or other property held
by a Sub-Custodian, the Custodian shall be liable to the Fund if
and only to the extent that such Sub-Custodian is liable to the
Custodian. The Custodian shall nevertheless be liable to the
Fund for its own negligence in transmitting any instructions
received by it from the Fund and for its own negligence in
connection with the delivery of any securities, funds or other
property of the Fund to any such Sub-Custodian.
In the event that any Sub-Custodian appointed pursuant to
the provisions of this Section 2 fails to perform any of its
obligations under the terms and conditions of the applicable Sub-
Custodian Agreement, the Custodian shall use its best efforts to
cause such Sub-Custodian to perform such obligations. In the
event that the Custodian is unable to cause such Sub-Custodian to
perform fully its obligations thereunder, the Custodian shall
forthwith terminate such Sub-Custodian and, if necessary or
desirable, appoint another Sub-Custodian in accordance with the
provisions of this Section 2. The Custodian may with the
approval of the Fund commence any legal or equitable action which
it believes is necessary or appropriate in connection with the
failure by a Sub-Custodian to perform its obligations under the
applicable Sub-Custodian Agreement. Provided the Custodian shall
not have been negligent with respect to any such matter, such
action shall be at the expense of the Fund. The Custodian shall
keep the Fund fully informed regarding such action and the Fund
may at any time upon notice to the Custodian elect to take
responsibility for prosecuting such action. In such event the
Fund shall have the right to enforce and shall be subrogated to
the Custodian's rights against any such Sub-Custodian for loss or
damage caused the Fund by such Sub-Custodian.
At the written request of the Fund, the Custodian will
terminate any Sub-Custodian appointed pursuant to the provisions
of this Section 2 in accordance with the termination provisions
of the applicable Sub-Custodian Agreement. The Custodian will
not amend any Sub-Custodian Agreement in any material manner
except upon the prior written approval of the Fund and shall in
any case give prompt written notice to the Fund of any amendment
to the Sub-Custodian Agreement.
3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND
HELD BY SUB-CUSTODIANS.
3.1 HOLDING SECURITIES - The Custodian shall cause one or
more Sub-Custodians to hold and, by book-entry or otherwise,
identify as belonging to the Fund all non-cash property delivered
to such Sub-Custodian.
3.2 DELIVERY OF SECURITIES - The Custodian shall cause Sub-
Custodians holding securities of the Fund to release and deliver
securities owned by the Fund held by the Sub-Custodian or in a
Securities System account of the Sub-Custodian only upon receipt
of Proper Instructions, which may be continuing instructions when
deemed appropriate by the parties, and only in the following
cases:
3.2.1 Upon sale of such securities for the account
of the Fund and receipt of payment therefor;
PROVIDED, HOWEVER, that a Sub-Custodian may
release and deliver securities prior to the
receipt of payment therefor if (i) in the
Sub-Custodian's judgment, (A) release and
delivery prior to payment is required by the
terms of the instrument evidencing the
security or (B) release and delivery prior
to payment is the prevailing method of
settling securities transactions between
institutional investors in the applicable
market and (ii) release and delivery prior
to payment is in accordance with generally
accepted trade practice and with any
applicable governmental regulations and the
rules of Securities Systems or other
securities depositories and clearing
<PAGE>
agencies in the applicable market. The
Custodian agrees, upon request, to advise
the Fund of all pending transactions in
which release and delivery will be made
prior to the receipt of payment therefor;
3.2.2 Upon the receipt of payment in connection
with any repurchase agreement related to
such securities entered into by the Fund;
3.2.3 In the case of a sale effected through a
Securities System, in accordance with the
provisions of Section 3.12 hereof;
3.2.4 To the depository agent in connection with
tender or other similar offers for portfolio
securities of the Fund; provided that, in
any such case, the cash or other
consideration is thereafter to be delivered
to the Sub-Custodian;
3.2.5 To the issuer thereof or its agent, when
such securities are called, redeemed,
retired or otherwise become payable;
provided that, in any such case, the cash or
other consideration is to be delivered to
the Sub-Custodian;
3.2.6 To the issuer thereof, or its agent for
transfer into the name of the Fund or into
the name of any nominee or nominees of the
Sub-Custodian or into the name or nominee
name of any agent appointed pursuant to
Section 3.11 or any other name permitted
pursuant to Section 3.3; or for exchange for
a different number of bonds, certificates or
other evidence representing the same
aggregate face amount or number of units;
provided that, in any such case, the new
securities are to be delivered to the Sub-
Custodian;
3.2.7 Upon the sale of such securities for the
account of the Fund, to the broker or its
clearing agent, against a receipt, for
examination in accordance with "street
delivery" custom; provided that in any such
case, the Sub-Custodian shall have no
<PAGE>
responsibility or liability for any loss
arising from the delivery of such securities
prior to receiving payment for such
securities except as may arise from the Sub-
Custodian's own negligence or willful
misconduct;
3.2.8 For exchange or conversion pursuant to any
plan of merger, consolidation,
recapitalization, reorganization or
readjustment of the securities of the issuer
of such securities, or pursuant to
provisions for conversion contained in such
securities, or pursuant to any deposit
agreement; provided that, in any such case,
the new securities and cash, if any, are to
be delivered to the Sub-Custodian;
3.2.9 In the case of warrants, rights or similar
securities, the surrender thereof in the
exercise of such warrants, rights or similar
securities or the surrender of interim
receipts or temporary securities for
definitive securities; provided that, in any
such case, the new securities and cash, if
any, are to be delivered to the Sub-
Custodian;
3.2.10 For delivery in connection with any loans of
securities made by the Fund, but only
against receipt of adequate collateral as
agreed upon from time to time by the
Custodian and the Fund, which may be in the
form of cash or obligations issued by the
United States government, its agencies or
instrumentalities; except that in connection
with any loan of securities held in a
Securities System for which collateral is to
credited to the Sub-Custodian's account in
another Securities System, the Sub-Custodian
will not be held liable or responsible for
delivery of the securities prior to the
receipt of such collateral.
3.2.11 For delivery as security in connection with
any borrowings by the Fund requiring a
pledge of assets by the Fund, but only
against receipt of amounts borrowed;
3.2.12 Upon receipt of instructions from the
transfer agent ("Transfer Agent") for the
Fund, for delivery to such Transfer Agent or
to the shareholders of the Fund in
connection with distributions in kind, as
may be described from time to time in the
Fund's Declaration of Trust and currently
effective registration statement, if any, in
satisfaction of requests by Fund
shareholders for repurchase or redemption;
3.2.13 For delivery to another Sub-Custodian of the
Fund; and
3.2.14 For any other proper corporate purpose, but
only upon receipt of, in addition to Proper
Instructions, a certified copy of a
resolution of the Trustees or of the
Executive Committee of the Fund signed by an
officer of the Fund and certified by its
Clerk or an Assistant Clerk, specifying the
securities to be delivered, setting forth
the purpose for which such delivery is to be
made, declaring such purposes to be proper
corporate purposes, and naming the person or
persons to whom delivery of such securities
shall be made.
3.3 REGISTRATION OF SECURITIES. Securities of the
Fund held by the Sub-Custodians hereunder (other than bearer
securities) shall be registered in the name of the Fund or
in the name of any nominee of the Fund or of any nominee of
the Sub-Custodians or any 17f-5 Sub-Custodian or Foreign
Depository (as each of those terms is defined in the Foreign
Sub-Custodian Agreement, which nominee shall be assigned
exclusively to the Fund, unless the Fund has authorized in
writing the appointment of a nominee to be used in common
with other registered investment companies having the same
investment adviser as the Fund, or in the name or nominee
name of any agent appointed pursuant to Section 3.12.
Notwithstanding the foregoing, a Sub-Custodian, agent, 17f-5
Sub-Custodian or Foreign Depository may hold securities of
the Fund in a nominee name which is used for its other
clients provided that such name is not used by the Sub-
Custodian, agent, 17f-5 Sub-Custodian or Foreign Depository
for its own securities and that securities of the Fund are,
by book-entry or otherwise, at all times identified as
belonging to the Fund and distinguished from other
securities held for other clients using the same nominee
name. In addition, and notwithstanding the foregoing, a
Sub-Custodian or agent thereof or 17f-5 Sub-Custodian or
Foreign Depository may hold securities of the Fund in its
own name if such registration is the prevailing method in
the applicable market by which custodians register
securities of institutional clients and provided that
securities of the Fund are, by book-entry or otherwise, at
all times identified as belonging to the Fund and
distinguished from other securities held for other clients
or for the Sub-Custodian or agent thereof or 17f-5 Sub-
Custodian or Foreign Depository. All securities accepted by
a Sub-Custodian under the terms of a Sub-Custodian Agreement
shall be in good delivery form.
3.4 BANK ACCOUNTS. The Custodian shall cause one or
more Sub-Custodians to open and maintain a separate bank account
or accounts in the name of the Fund or the Custodian, subject
only to draft or order by the Sub-Custodian acting pursuant to
the terms of a Sub-Custodian Contract or by the Custodian acting
pursuant to this Agreement, and shall hold in such account or
accounts, subject to the provisions hereof, all cash received by
it from or for the account of the Fund, other than cash
maintained by the Fund in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of
1940. Funds held by the Sub-Custodian for the Fund may be
deposited by it to its credit as sub-custodian or to the
Custodian's credit as custodian in the Banking Department of the
Sub-Custodian or in such other banks or trust companies as it may
in its discretion deem necessary or desirable; provided, however,
that every such bank or trust company shall be qualified to act
as a custodian under the Investment Company Act of 1940 and that
each such bank or trust company and the funds to be deposited
with each such bank or trust company shall be approved by vote of
a majority of the Trustees of the Fund. Such funds shall be
deposited by the Sub-Custodian or the Custodian in its capacity
as sub-custodian or custodian, respectively, and shall be
withdrawable by the Sub-Custodian or the Custodian only in that
capacity. The Sub-Custodian shall be liable for actual losses
incurred by the Fund attributable to any failure on the part of
the Sub-Custodian to report accurate cash availability
information with respect to the Fund's or the Custodian's bank
accounts maintained by the Sub-Custodian or any of its agents.
3.5 PAYMENTS FOR SHARES. The Custodian shall cause one or
more Sub-Custodians to deposit into the Fund's account amounts
received from the Transfer Agent of the Fund for shares of the
Fund issued by the Fund and sold by its distributor. The
Custodian will provide timely notification to the Fund of any
receipt by the Sub-Custodian from the Transfer Agent of payments
for shares of the Fund.
3.6 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement
between the Fund and the Custodian, the Custodian shall cause one
or more Sub-Custodians, upon the receipt of Proper Instructions,
to make federal funds available to the Fund as of specified times
agreed upon from time to time by the Fund and the Custodian with
respect to amounts received by the Sub-Custodians for the
purchase of shares of the Fund.
3.7 COLLECTION OF INCOME. The Custodian shall cause one or
more Sub-Custodians to collect on a timely basis all income and
other payments with respect to registered securities held
hereunder, including securities held in a Securities System, to
which the Fund shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely
basis all income and other payments with respect to bearer
securities if, on the date of payment by the issuer, such
securities are held by the Sub-Custodian or agent thereof and
shall credit such income, as collected, to the Fund's account.
Without limiting the generality of the foregoing, the Custodian
shall cause the Sub-Custodian to detach and present for payment
all coupons and other income items requiring presentation as and
when they become due and shall collect interest when due on
securities held under the applicable Sub-Custodian Agreement.
Arranging for the collection of income due the Fund on securities
loaned pursuant to the provisions of Section 3.2.10 shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the
Fund with such information or data as may be necessary to assist
the Fund in arranging for the timely delivery to the Sub-
Custodian of the income to which the Fund is properly entitled.
3.8 PAYMENT OF FUND MONIES. Upon receipt of Proper
Instructions, which may be continuing instructions when deemed
appropriate by the parties, the Custodian shall cause one or more
Sub-Custodians to pay out monies of the Fund in the following
cases only:
3.8.1 Upon the purchase of securities for the
account of the Fund but only (a) against the
delivery of such securities to the Sub-
Custodian (or any bank, banking firm or
trust company doing business in the United
States or abroad which is qualified under
the Investment Company Act of 1940, as
amended, to act as a custodian and has been
designated by the Sub-Custodian as its agent
for this purpose) or any 17f-5 Sub-Custodian
or any Foreign Depository registered in the
name of the Fund or in the name of a nominee
of the Sub-Custodian referred to in Section
3.3 hereof or in proper form for transfer;
PROVIDED, HOWEVER, that the Sub-Custodian
may cause monies of the Fund to be paid out
prior to delivery of such securities if (i)
in the Sub-Custodian's judgment, (A) payment
prior to delivery is required by the terms
of the instrument evidencing the security or
(B) payment prior to delivery is the
prevailing method of settling securities
transactions between institutional investors
in the applicable market and (ii) payment
prior to delivery is in accordance with
generally accepted trade practice and with
any applicable governmental regulations and
the rules of Securities Systems or other
securities depositories and clearing
agencies in the applicable market; the
Custodian agrees, upon request, to advise
the Fund of all pending transactions in
which payment will be made prior to the
receipt of securities in accordance with the
provision to the foregoing sentence; (b) in
the case of a purchase effected through a
Securities System, in accordance with the
conditions set forth in Section 3.13 hereof;
or (c)(i) in the case of a repurchase
agreement entered into between the Fund and
the Sub-Custodian, another bank, or a
broker-dealer against delivery of the
securities either in certificate form or
through an entry crediting the Sub-
Custodian's account at the Federal Reserve
Bank with such securities or (ii) in the
case of a repurchase agreement entered into
between the Fund and the Sub-Custodian,
against delivery of a receipt evidencing
purchase by the Fund of Securities owned by
the Sub-Custodian along with written
evidence of the agreement by the Sub-
Custodian to repurchase such securities from
the Fund; or (d) for transfer to a time
deposit account of the Fund in any bank,
whether domestic or foreign, which transfer
may be effected prior to receipt of a
confirmation of the deposit from the
applicable bank or a financial intermediary;
3.8.2 In connection with conversion, exchange or
surrender of securities owned by the Fund as
set forth in Section 3.2 hereof;
3.8.3 For the redemption or repurchase of Shares
issued by the Fund as set forth in Section
3.10 hereof;
3.8.4 For the payment of any expense or liability
incurred by the Fund, including but not
limited to the following payments for the
account of the Fund: interest, taxes,
management, accounting, transfer agent and
legal fees, including the Custodian's fee;
and operating expenses of the Fund whether
or not such expenses are to be in whole or
part capitalized or treated as deferred
expenses;
3.8.5 For the payment of any dividends or other
distributions declared to shareholders of
the Fund;
3.8.6 For transfer to another Sub-Custodian of the
Fund;
3.8.7 For any other proper purpose, but only upon
receipt of, in addition to Proper
Instructions, a certified copy of a
resolution of the Trustees or of the
Executive Committee of the Fund signed by an
officer of the Fund and certified by its
Clerk or an Assistant Clerk, specifying the
amount of such payment, setting forth the
purpose for which such payment is to be
made, declaring such purpose to be a proper
purpose, and naming the person or persons to
whom such payments is to be made.
3.9 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF
SECURITIES PURCHASED. Except as otherwise provided in this
Agreement, in any and every case where payment for purchase of
securities for the account of the Fund is made by a Sub-Custodian
in advance of receipt of the securities purchased in the absence
of specific written instructions from the Fund to so pay in
advance, the Custodian shall cause the Sub-Custodian to be
absolutely liable to the Fund in the event any loss results to
the Fund from the payment by the Sub-Custodian in advance of
delivery of such securities.
3.10 PAYMENTS FOR REPURCHASE OR REDEMPTIONS OF SHARES OF
THE FUND. From such funds as may be available, the Custodian
shall, upon receipt Proper Instructions, cause one or more Sub-
Custodians to make funds available for payment to a shareholder
who has delivered to the Transfer Agent a request for redemption
or repurchase of shares of the Fund. In connection with the
redemption or repurchase of shares of the Fund, the Custodian is
authorized, upon receipt of Proper Instructions, to cause one or
more Sub-Custodian, to wire funds to or through a commercial bank
designated by the redeeming shareholder. In connection with the
redemption or repurchase of Shares of the Fund, the Custodian,
upon receipt of Proper Instructions, shall cause one or more Sub-
Custodians to honor checks drawn on the Sub-Custodian by a
shareholder when presented to the Sub-Custodian in accordance
with such procedures and controls as are mutually agreed upon
from time to time among the Fund, the Custodian and the Sub-
Custodian.
3.11 APPOINTMENT OF AGENTS. The Custodian may permit
any Sub-Custodian at any time or times in its discretion to
appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company
Act of 1940, as amended, to act as a custodian, as its agent to
carry out such of the provisions of this Section 3 as the Sub-
Custodian may from time to time direct; provided, however, that
the appointment of any agent shall not relieve the Custodian or
any Sub-Custodian of its responsibilities or liabilities
hereunder and provided that any such agent shall have been
approved by vote of the Trustees of the Fund. The Custodian may
also permit any Sub-Custodian to which foreign securities of the
Fund have been delivered to direct such securities to be held by
17f-5 Sub-Custodians and to use the facilities of Foreign
Depositories, as those terms are defined in the Foreign Sub-
Custodian Agreement, in accordance with the terms of the Foreign
Sub-Custodian Agreement.
The agents which the Fund and the Custodian have approved to
date are set forth in Schedule B hereto. Schedule B shall be
amended from time to time as agents are changed, added or
deleted. The Fund shall be responsible for informing the
Custodian, and the Custodian shall be responsible for informing
the appropriate Sub-Custodian, sufficiently in advance of a
proposed investment which is to be held at a location not listed
on Schedule B, in order that there shall be sufficient time for
the Sub-Custodian to complete the appropriate contractual and
technical arrangements with such agent. Any Sub-Custodian
Agreement shall provide that the engagement by the Sub-Custodian
of one or more agents shall not relieve the Sub-Custodian of its
responsibilities or liabilities thereunder.
3.12 DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS. The
Custodian may permit any Sub-Custodian to deposit and/or maintain
securities owned by the Fund in a clearing agency registered with
the Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System" in
accordance with applicable rules and regulations (including Rule
17f-4 of the 1940 Act) and subject to the following provisions:
3.12.1 The Sub-Custodian may, either directly or
through one or more agents, keep securities
of the Fund in a Securities System provided
that such securities are represented in an
account ("Account") of the Sub-Custodian in
the Securities System which shall not
include any assets of the Sub-Custodian
other than assets held as a fiduciary,
custodian or otherwise for customers;
3.12.2 The records of the Sub-Custodian with
respect to securities of the Fund which are
maintained in a Securities System shall
identify by book-entry those securities
belonging to the Fund;
3.12.3 The Sub-Custodian shall pay for securities
purchased for the account of the Fund upon
(i) receipt of advice from the Securities
System that such securities have been
transferred to the Account, and (ii) the
making of an entry on the records of the
Sub-Custodian to reflect such payment and
transfer for the account of the Fund. The
Sub-Custodian shall transfer securities sold
for the account of the Fund upon (i) receipt
of advice from the Securities System that
payment for such securities has been
transferred to the Account, and (ii) the
making of an entry on the records of the
Sub-Custodian to reflect such transfer and
payment for the account of the Fund. Copies
of all advices from the Securities System of
transfers of securities for the account of
the Fund shall identify the Fund, be
maintained for the Fund by the Sub-Custodian
or such an agent and be provided to the Fund
at its request. The Sub-Custodian shall
furnish the Fund confirmation of each
transfer to or from the account of the Fund
in the form of a written advice or notice
and shall furnish to the Fund copies of
daily transaction sheets reflecting each
day's transactions in the Securities System
for the account of the Fund on the next
business day;
3.12.4 The Sub-Custodian shall provide the Fund
with any report obtained by the Sub-
Custodian on the Securities System's
accounting system, internal accounting
controls and procedures for safeguarding
securities deposited in the Securities
System;
3.12.5 The Sub-Custodian shall utilize only such
Securities Systems as are approved by the
Board of Trustees of the Fund, and included
on a list maintained by the Custodian;
<PAGE>
3.12.6 Anything to the contrary in this Agreement
notwithstanding, the Sub-Custodian shall be
liable to the Fund for any loss or damage to
the Fund resulting from use of the
Securities System by reason of any
negligence, misfeasance or misconduct of the
Sub-Custodian or any of its agents or of any
of its or their employees or from failure of
the Sub-Custodian or any such agent to
enforce effectively such rights as it may
have against the Securities System; at the
election of the Fund, it shall be entitled
to be subrogated to the rights of the Sub-
Custodian with respect to any claim against
the Securities System or any other person
which the Sub-Custodian may have as a
consequence of any such loss or damage if
and to the extent that the Fund has not been
made whole for any such loss or damage.
3.12A DEPOSITARY RECEIPTS. Only upon receipt of Proper
Instructions, the Sub-Custodian shall instruct a 17f-5 Sub-
Custodian or an agent of the Sub-Custodian appointed pursuant to
the applicable Foreign Sub-Custodian Agreement (an "Agent") to
surrender securities to the depositary used by an issuer of
American Depositary Receipts or International Depositary Receipts
(hereinafter collectively referred to as "ADRs") for such
securities against a written receipt therefor adequately
describing such securities and written evidence satisfactory to
the 17f-5 Sub-Custodian or Agent that the depositary has
acknowledged receipt of instructions to issue with respect to
such securities ADRs in the name of the Sub-Custodian, or a
nominee of the Sub-Custodian, for delivery to the Sub-Custodian.
Only upon receipt of Proper Instructions, the Sub-Custodian
shall surrender ADRs to the issuer thereof against a written
receipt therefor adequately describing the ADRs surrendered and
written evidence satisfactory to the Sub-Custodian that the
issuer of the ADRs has acknowledged receipt of instructions to
cause its depository to deliver the securities underlying such
ADRs to a 17f-5 Sub-Custodian or an Agent.
3.12BFOREIGN EXCHANGE TRANSACTIONS AND FUTURES
CONTRACTS. Only upon receipt of Proper Instructions, the Sub-
Custodian shall enter into foreign exchange contracts or options
to purchase and sell foreign currencies for spot and future
delivery on behalf and for the account of the Fund or shall enter
into futures contracts or options on futures contracts. Such
transactions may be undertaken by the Sub-Custodian with such
banking institutions, including the Sub-Custodian and 17f-5 Sub-
Custodian(s) appointed pursuant to the applicable Foreign Sub-
Custodian Agreement, as principals, as approved and authorized by
the Fund. Foreign exchange contracts, futures contracts and
options, other than those executed with the Sub-Custodian, shall
for all purposes of this Agreement be deemed to be portfolio
securities of the Fund.
3.12COPTION TRANSACTIONS. Only upon receipt of Proper
Instructions, the Sub-Custodian shall enter into option
transactions in accordance with the provisions of any agreement
among the Fund, the Custodian and/or the Sub-Custodian and a
broker-dealer.
3.13 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The
Custodian shall cause one or more Sub-Custodians as may be
appropriate to execute ownership and other certificates and
affidavits for all federal and state tax purposes in connection
with receipt of income or other payments with respect to
securities of the Fund held by the Sub-Custodian and in
connection with transfers of securities.
3.14 PROXIES. The Custodian shall, with respect to the
securities held by the Sub-Custodians, cause to be promptly
executed by the registered holder of such securities, if the
securities are registered other than in the name of the Fund or a
nominee of the fund, all proxies, without indication of the
manner in which such proxies are to be voted, and shall promptly
deliver to the Fund such proxies, all proxy soliciting materials
and all notices relating to such securities.
3.15 COMMUNICATIONS RELATING TO FUND PORTFOLIO
SECURITIES. The Custodian shall cause the Sub-Custodians to
transmit promptly to the Custodian, and the Custodian shall
transmit promptly to the Fund, all written information
(including, without limitation, pendency of calls and maturities
of securities and expirations of rights in connection therewith)
received by the Sub-Custodian from issuers of the securities
being held for the account of the Fund. With respect to tender
or exchange offers, the Custodian shall cause the Sub-Custodian
to transmit promptly to the Fund, all written information
received by the Sub-Custodian from issuers of the securities
whose tender or exchange is sought and from the party (or his
agents) making the tender or exchange offer. If the Fund desires
to take action with respect to any tender offer, exchange offer
or any other similar transaction, the Fund shall notify the
Custodian of the action the Fund desires such Sub-Custodian to
take, provided, however, neither the Custodian nor the Sub-
Custodian shall be liable to the Fund for the failure to take any
such action unless such instructions are received by the
Custodian at least four business days prior to the date on which
the Sub-Custodian is to take such action or, in the case of
foreign securities, such longer period as shall have been agreed
upon in writing by the Custodian and the Sub-Custodian.
3.16 PROPER INSTRUCTIONS. Proper Instructions as used
throughout this Agreement means a writing signed or initialed by
one or more person or persons who are authorized by the Trustees
of the Fund and the Custodian. Each such writing shall set forth
the specific transaction or type of transaction involved,
including a specific statement of the purpose for which such
action is requested. Oral instructions will be considered Proper
Instructions if the Custodian or Sub-Custodian, as the case may
be, reasonably believes them to have been given by a person
authorized to give such instructions with respect to the
transaction involved. All oral instructions shall be confirmed
in writing. Proper Instructions also include communications
effected directly between electro-mechanical or electronic
devices provided that the Trustees have approved such procedures.
Notwithstanding the foregoing, no Trustee, officer, employee or
agent of the Fund shall be permitted access to any securities or
similar investments of the Fund deposited with any Sub-Custodian
or any agent of any Sub-Custodian for any reason except in
accordance with the provisions of Rule 17f-2 under the 1940 Act.
3.17 ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY. The
Custodian may in its discretion, and may permit one or more Sub-
Custodians in their discretion, without express authority from
the Fund to:
3.17.1 make payments to itself or others for minor
expenses of handling securities or other
similar items relating to its duties under
this Agreement, or in the case of a Sub-
Custodian, under the applicable Sub-
Custodian Agreement, provided that all such
payments shall be accounted for to the Fund;
3.17.2 surrender securities in temporary form for
securities in definitive form;
3.17.3 endorse for collection, in the name of the
Fund, checks, drafts and other negotiable
instruments; and
3.17.4 in general, attend to all non-discretionary
details in connection with the sale,
exchange, substitution, purchase, transfer
and other dealings with the securities and
property of the Fund except as otherwise
directed by the Trustees of the Fund.
3.18 EVIDENCE OF AUTHORITY. The Custodian shall be
protected in acting upon any instructions, notice, request,
consent, certificate or other instrument or paper believed by it
to be genuine and to have been properly executed by or on behalf
of the Fund.
3.19 INVESTMENT LIMITATIONS. In performing its duties
generally, and more particularly in connection with the purchase,
sale and exchange of securities made by or for the Fund, the
Custodian may assume, unless and until notified in writing to the
contrary, that Proper Instructions received by it are not in
conflict with or in any way contrary to any provisions of the
Fund's Declaration of Trust or By-Laws (or comparable documents)
or votes or proceedings of the shareholders or Trustees of the
Fund. The Custodian shall in no event be liable to the Fund and
shall be indemnified by the Fund for any violation of any
investment limitations to which the Fund is subject or other
limitations with respect to the Fund's powers to expend funds,
encumber securities, borrow or take similar actions affecting its
portfolio.
4. PERFORMANCE STANDARDS. The Custodian shall use its best
efforts to perform its duties hereunder in accordance with the
standards set forth in Schedule C hereto. Schedule C may be
amended from time to time as agreed to by the Custodian and the
Trustees of the Fund.
5. RECORDS. The Custodian shall create and maintain all
records relating to the Custodian's activities and obligations
under this Agreement and cause all Sub-Custodians to create and
maintain all records relating to the Sub-Custodian's activities
and obligations under the appropriate Sub-Custodian Agreement in
such manner as will meet the obligations of the Fund under the
1940 Act, with particular attention to Sections 17(f) and 31
thereof and Rules 17f-2, 31a-1 and 31a-2 thereunder, applicable
federal and state tax laws, and any other law or administrative
rules or procedures which may be applicable to the Fund. All
such records shall be the property of the Fund and shall at all
times during the regular business hours of the Custodian or
during the regular business hours of the Sub-Custodian, as the
case may be, be open for inspection by duly authorized officers,
employees or agents of the Custodian and Fund and employees and
agents of the Securities and Exchange Commission. At the Fund's
request, the Custodian shall supply the Fund and cause one or
more Sub-Custodians to supply the Custodian with a tabulation of
securities owned by the Fund and held under this Agreement. When
requested to do so by the Fund and for such compensation as shall
be agreed upon, the Custodian shall include and cause one or more
Sub-Custodians to include certificate numbers in such
tabulations.
6. OPINION AND REPORTS OF FUND'S INDEPENDENT ACCOUNTANTS. The
Custodian shall take all reasonable actions, as the Fund may from
time to time request, to furnish such information with respect to
its activities hereunder as the Fund's independent public
accountants may request in connection with the accountant's
verification of the Fund's securities and similar investments as
required by Rule 17f-2 under the 1940 Act, the preparation of the
Fund's registration statement and amendments thereto, the Fund's
reports to the Securities and Exchange Commission, and with
respect to any other requirements of such Commission.
The Custodian shall also direct any Sub-Custodian to take
all reasonable actions, as the Fund may from time to time
request, to furnish such information with respect to its
activities under the applicable Sub-Custodian Agreement as the
Fund's independent public accountant may request in connection
with the accountant's verification of the Fund's securities and
similar investments as required by Rule 17f-2 under the 1940 Act,
the preparation of the Fund's registration statement and
amendments thereto, the Fund's reports to the Securities and
Exchange Commission, and with respect to any other requirements
of such Commission.
7. REPORTS OF CUSTODIAN'S AND SUB-CUSTODIANS' INDEPENDENT
ACCOUNTANTS. The Custodian shall provide the Fund, at such times
as the Fund may reasonably require, with reports by its
independent public accountant on its accounting system, internal
accounting controls and procedures for safeguarding securities,
including securities deposited and/or maintained in Securities
Systems, relating to services provided by the Custodian under
this Agreement. The Custodian shall also cause one or more of
the Sub-Custodians to provide the Fund, at such time as the Fund
may reasonably require, with reports by independent public
accountants on their accounting systems, internal accounting
controls and procedures for safeguarding securities, including
securities deposited and/or maintained in Securities Systems,
relating to services provided by those Sub-Custodians under their
respective Sub-Custody Agreements. Such reports, which shall be
of sufficient scope and in sufficient detail as may reasonably be
required by the Fund, shall provide reasonable assurance that any
material inadequacies would be disclosed by such examinations,
and, if there is no such inadequacies, shall so state.
8. COMPENSATION. The Custodian shall be entitled to reasonable
compensation for its services and expenses as custodian, as
agreed upon from time to time between the Fund and the Custodian.
Such expenses shall not include, however, the fees paid by the
Custodian to any Sub-Custodian.
9. RESPONSIBILITY OF CUSTODIAN. The Custodian shall exercise
reasonable care and diligence in carrying out the provisions of
this Agreement and shall not be liable to the Fund for any action
taken or omitted by it in good faith without negligence. So long
as and to the extent that it is in the exercise of reasonable
care, neither the Custodian nor any Sub-Custodian shall be
responsible for the title, validity or genuineness of any
property or evidence of title thereto received by it or delivered
by it pursuant to this Agreement and shall be held harmless in
acting upon any notice, request, consent, certificate or other
instrument reasonably believed by it to be genuine and, if in
writing, reasonably believed by it to be signed by the proper
party or parties. It shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for the Fund) on all
matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice. Notwithstanding the
foregoing, the responsibility of the Custodian or a Sub-Custodian
with respect to redemptions effected by check shall be in
accordance with a separate Agreement entered into between the
Custodian and the Fund. It is also understood that the Custodian
shall not be liable for any loss resulting from a Sovereign Risk.
A "Sovereign Risk" shall mean nationalization, expropriation,
devaluation, revaluation, confiscation, seizure, cancellation,
destruction or similar action by any governmental authority, de
facto or de jure; or enactment, promulgation, imposition or
enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges
affecting the Fund's property; or acts of war, terrorism,
insurrection or revolution; or any other similar act or event
beyond the Custodian's control.
If the Fund requires the Custodian which in turn may require
a Sub-Custodian to take any action with respect to securities,
which action involves the payment of money or which action may,
in the opinion of the Custodian or the Sub-Custodian result in
the Custodian or its nominee or a Sub-Custodian or its nominee
being liable for the payment of money or incurring liability of
some other form, the Fund, as a prerequisite to requiring the
Custodian or the Custodian requiring any Sub-Custodian to take
such action, shall provide indemnity to the Custodian in an
amount and form satisfactory to it.
The Fund agrees to indemnify and hold harmless the Custodian
and its nominee from and against all taxes, charges, expenses,
assessments, claims and liabilities (including counsel fees)
incurred or assessed against it or its nominee or any Sub-
Custodian or its nominee in connection with the performance of
this Agreement, or any Sub-Custodian Agreement except, as to the
Custodian, such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct,
and as to a Sub-Custodian, such as may arise from such Sub-
Custodian's or its nominee's own negligent action, negligent
failure to act or willful misconduct. The negligent action,
negligent failure to act or willful misconduct of the Custodian
shall not diminish the Fund's obligation to indemnify the
Custodian in the amount, but only in the amount, of any indemnity
required to be paid to a Sub-Custodian under its Sub-Custodian
Agreement. The Custodian may assign this indemnity from the Fund
directly to, and for the benefit of, any Sub-Custodian. The
Custodian is authorized, and may authorize any Sub-Custodian, to
charge any account of the Fund for such items and such fees. To
secure any such authorized charges and any advances of cash or
securities made by the Custodian or any Sub-Custodian to or for
the benefit of the Fund for any purpose which results in the Fund
incurring an overdraft at the end of any business day or for
extraordinary or emergency purposes during any business day, the
Fund (except a Fund specified in Schedule D to this Agreement)
hereby grants to the Custodian a security interest in and pledges
to the Custodian securities up to a maximum of 10% of the value
of the Fund's net assets for the purpose of securing payment of
any such advances and hereby authorizes the Custodian on behalf
of the Fund to grant to any Sub-Custodian a security interest in
and pledge of securities held for the Fund (including those which
may be held in a Securities System) up to a maximum of 10% of the
value of the net assets held by such Sub-Custodian. The specific
securities subject to such security interest may be designated in
writing from time to time by the Fund or its investment adviser.
In the absence of any designation of securities subject to such
security interest, the Custodian or the Sub-Custodian, as the
case may be, may designate securities held by it. Should the
Fund fail to repay promptly any authorized charges or advances of
cash or securities, the Custodian or the Sub-Custodian shall be
entitled to use such available cash and to dispose of pledged
securities and property as is necessary to repay any such
authorized charges or advances and to exercise its rights as a
secured party under the U.C.C. The Fund agrees that a Sub-
Custodian shall have the right to proceed directly against the
Fund and not solely as subrogee to the Custodian with respect to
any indemnity hereunder assigned to a Sub-Custodian, and in that
regard, the Fund agrees that it shall not assert against any Sub-
Custodian proceeding against it any defense or right of set-off
the Fund may have against the Custodian arising out of the
negligent action, negligent failure to act or willful misconduct
of the Custodian, and hereby waives all rights it may have to
object to the right of a Sub-Custodian to maintain an action
against it.
10. SUCCESSOR CUSTODIAN. If a successor custodian shall be
appointed by the Trustees of the Fund, the Custodian shall, upon
termination, cause to be delivered to such successor custodian,
duly endorsed and in the form for transfer, all securities, funds
and other properties then held by the Sub-Custodians and all
instruments held by the Sub-Custodians relative thereto and cause
the transfer to an account of the successor custodian all of the
Fund's securities held in any Securities System.
If no such successor custodian shall be appointed, the
Custodian shall, in like manner, upon receipt of a certified copy
of a vote of the Trustees of the Fund, cause to be delivered at
the office of the Custodian and transfer such securities, funds
and other properties in accordance with such vote.
In the event that no written order designating a successor
custodian or certified copy of a vote of the Trustees shall have
been delivered to the Custodian on or before the date when such
termination shall become effective, then the Custodian shall have
the right to deliver to a bank or trust company, which meets the
requirements of the 1940 Act and the rules and regulations
thereunder, such securities, funds and other properties.
Thereafter, such bank or trust company shall be the successor of
the Custodian under this Agreement.
In the event that such securities, funds and other
properties remain in the possession of the Custodian or any Sub-
Custodian after the date of termination hereof owing to failure
of the Fund to procure the certified copy of the vote referred to
or of the Trustees to appoint a successor custodian, the
Custodian shall be entitled to fair compensation for its services
during such period as the Sub-Custodians retain possession of
such securities, funds and other properties and the provisions of
this Agreement relating to the duties and obligations of the
Custodian shall remain in full force and effect.
11. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT. This Agreement
shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided,
may be amended at any time by mutual agreement of the parties
hereto and may be terminated by either party by an instrument in
writing delivered or mailed, postage prepaid to the other party,
such termination to take effect not sooner than thirty (30) days
after the date of such delivery or mailing; provided either party
may at any time immediately terminate this Agreement in the event
of the appointment of a conservator or receiver for the other
party or upon the happening of a like event at the direction of
an appropriate regulatory agency or court of competent
jurisdiction. No provision of this Agreement may be amended or
terminated except by a statement in writing signed by the party
against which enforcement of the amendment or termination is
sought.
Upon termination of the Agreement, the Fund shall pay to the
Custodian such compensation as may be due as of the date of such
termination and shall likewise reimburse the Custodian and
through the Custodian any Sub-Custodian for its costs, expenses
and disbursements.
12. INTERPRETATION. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to
the subject matter hereof. In connection with the operation of
this Agreement, the Custodian and the Fund may from time to time
agree in writing on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their
joint opinion be consistent with the general tenor of this
Agreement. No interpretive or additional provisions made as
provided in the preceding sentence shall be deemed to be an
amendment of this Agreement.
13. GOVERNING LAW. This instrument is executed and delivered in
The Commonwealth of Massachusetts and shall be governed by and
construed according to the internal laws of said Commonwealth,
without regard to principles of conflicts of law.
14. NOTICES. Notices and other writings delivered or mailed
postage prepaid to the Fund addressed to the Fund attention: John
Hughes, or to such other person or address as the Fund may have
designated to the Custodian in writing, or to the Custodian at
One Post Office Square, Boston, Massachusetts 02109 attention:
George Crane, or to such other address as the Custodian may have
designated to the Fund in writing, shall be deemed to have been
properly delivered or given hereunder to the respective
addressee.
15. BINDING OBLIGATION. This Agreement shall be binding on and
shall inure to the benefit of the Fund and the Custodian and
their respective successors and assigns, provided that neither
party hereto may assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the
other party.
16. DECLARATION OF TRUST. A copy of the Declaration of Trust of
each of the Funds is on file with the Secretary of The
Commonwealth of Massachusetts and notice is hereby given that
this instrument is executed on behalf of the Trustees of each of
the Funds as Trustees and not individually and that the
obligations of this instrument are not binding on any of the
Trustees or officers or shareholders individually, but are
binding only on the assets and property of each Fund with respect
to its obligations hereunder.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name and behalf as of the day
and year first above written.
THE PUTNAM FUNDS LISTED
IN SCHEDULE A
By ----------------------------
Vice President and Treasurer
PUTNAM FIDUCIARY TRUST COMPANY
By ----------------------------
President
Putnam Investments, Inc. ("Putnam"), the sole owner of the
Custodian, agrees that Putnam shall be the primary obligor with
respect to compensation due the Sub-Custodians pursuant to the
Sub-Custodian Agreements in connection with the Sub-Custodians'
performance of their responsibilities thereunder and agrees to
take all actions necessary and appropriate to assure that the
Sub-Custodians shall be compensated in the amounts and on the
schedules agreed to by the Custodian and the Sub-Custodians
pursuant to those Agreements.
PUTNAM INVESTMENTS, INC.
By ------------------------------
<PAGE>
EXHIBIT 1
MASTER SUB-CUSTODIAN AGREEMENT
AGREEMENT made this day of , 199 , between
Putnam Fiduciary Trust Company, a Massachusetts-chartered trust
company (the "Custodian"), and , a
(the "Sub-Custodian").
WHEREAS, the Sub-Custodian represents to the Custodian that
it is eligible to serve as a custodian for a management
investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"), and
WHEREAS, the Custodian has entered into a Custodian
Agreement between it and each of the Putnam Funds listed in
Schedule A, each of such Funds acting on its own behalf
separately from all the other Funds and not jointly or jointly
and severally with any of the other Funds (each of the Funds
being hereinafter referred to as the "Fund"), and
WHEREAS, the Custodian and the Fund desire to utilize sub-
custodians for the purpose of holding cash and securities of the
Fund, and
WHEREAS, the Custodian wishes to appoint the Sub-Custodian
as the Fund's Sub-Custodian,
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. APPOINTMENT OF CUSTODIAN. The Custodian hereby employs
and appoints the Sub-Custodian as a Sub-Custodian for the Fund
for the term and subject to the provisions of this Agreement.
Upon request, the Custodian shall deliver to the Sub-Custodian
such proxies, powers of attorney or other instruments as may be
reasonably necessary or desirable in connection with the
performance by the Sub-Custodian of its obligations under this
Agreement on behalf of the Fund.
2. DUTIES OF THE SUB-CUSTODIAN WITH RESPECT TO PROPERTY OF
THE FUND HELD BY IT. The Custodian may from time to time deposit
securities or cash owned by the Fund with the Sub-Custodian. The
Sub-Custodian shall have no responsibility or liability for or on
account of securities, funds or other property of the Fund not so
delivered to it. The Sub-Custodian shall hold and dispose of the
securities hereafter held by or deposited with the Sub-Custodian
as follows:
2.1 HOLDING SECURITIES. The Sub-Custodian shall hold and
physically segregate for the account of the Fund all non-cash
property, including all securities owned by the Funds, other than
securities which are maintained pursuant to Section 2.13 in a
Securities System. All such securities are to be held or
disposed of for, and subject at all times to the instructions of,
the Custodian pursuant to the terms of this Agreement. The Sub-
Custodian shall maintain adequate records identifying the
securities as being held by it as Sub-Custodian of the Fund.
2.2 DELIVERY OF SECURITIES. The Sub-Custodian shall
release and deliver securities of the Fund held by it hereunder
(or in a Securities System account of the Sub-Custodian) only
upon receipt of Proper Instructions (as defined in Section 2.17),
which may be continuing instructions when deemed appropriate by
the parties, and only in the following cases:
1) Upon sale of such securities for the account of
the Fund and receipt of payment therefor;
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered into by
the Fund;
3) In the case of a sale effected through a
Securities System, in accordance with the provisions of Section
2.13 hereof;
4) To the depository agent in connection with tender
or other similar offers for portfolio securities of the Fund;
5) To the issuer thereof or its agent when such
securities are called, redeemed, retired or otherwise become
payable; provided that, in any such case, the cash or other
consideration is to be delivered to the Sub-Custodian;
6) To the issuer thereof, or its agent, for transfer
into the name of the Fund or into the name of any nominee or
nominees of the Sub-Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.12; or for exchange for
a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Sub-Custodian;
7) Upon the sale of such securities for the account
of the Fund, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that, in any such case, the Sub-Custodian shall
have no responsibility or liability for any loss arising from the
<PAGE>
delivery of such securities prior to receiving payment for such
securities except as may arise from the Sub-Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such securities,
or pursuant to provisions for conversion contained in such
securities, or pursuant to any deposit agreement; provided that,
in any such case, the new securities and cash, if any, are to be
delivered to the Sub-Custodian;
9) In the case of warrants, rights or similar
securities, the surrender thereof in the exercise of such
warrants, rights or similar securities or the surrender of
interim receipts or temporary securities for definitive
securities; provided that, in any such case, the new securities
and cash, if any, are to be delivered to the Sub-Custodian;
10) For delivery in connection with any loans of
securities made by the Fund, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian and
the Sub-Custodian, which may be in the form of cash or
obligations issued by the United States government, its agencies
or instrumentalities;
11) For delivery as security in connection with any
borrowings by the Fund requiring a pledge of assets by the Fund,
but only against receipt of amounts borrowed;
12) Upon receipt of instructions from the transfer
agent for the Fund (the "Transfer Agent"), for delivery to such
Transfer Agent or to the shareholders of the Fund in connection
with distributions in kind, as may be described from time to time
in the Fund's Declaration of Trust and currently effective
registration statement, if any, in satisfaction of requests by
shareholders for repurchase or redemption;
13) For delivery to another Sub-Custodian of the Fund;
and
14) For any other proper purpose, but only upon
receipt of, in addition to Proper Instructions, a certified copy
of a resolution of the Trustees or of the Executive Committee of
the Fund signed by an officer of the Fund and certified by its
Clerk or an Assistant Clerk, specifying the securities to be
delivered, setting forth the purpose for which such delivery is
to be made, declaring such purposes to be proper corporate
purposes, and naming the person or persons to whom delivery of
such securities is to be made.
<PAGE>
2.3 REGISTRATION OF SECURITIES. Securities of the Fund
held by the Sub-Custodian hereunder (other than bearer
securities) shall be registered in the name of the Fund or in the
name of any nominee of the Fund or of any nominee of the Sub-
Custodian, which nominee shall be assigned exclusively to the
Fund, unless the Fund has authorized in writing the appointment
of a nominee to be used in common with other registered
investment companies having the same investment adviser as the
Fund, or in the name or nominee name of any agent appointed
pursuant to Section 2.12. Notwithstanding the foregoing, a Sub-
Custodian or agent thereof may hold securities of the Fund in a
nominee name which is used for its other clients provided such
name is not used by the Sub-Custodian or agent for its own
securities and that securities of the Fund are physically
segregated at all times from other securities held for other
clients using the same nominee name. All securities accepted by
the Sub-Custodian under the terms of this Agreement shall be in
"street name" or other good delivery form.
2.4 BANK ACCOUNTS. The Sub-Custodian shall open and
maintain a separate bank account or accounts in the name of the
Fund, subject only to draft or order by the Sub-Custodian acting
pursuant to the terms of this Agreement, and shall hold in such
account or accounts, subject to the provisions hereof, all cash
received for the account of the Funds, other than cash maintained
by the Fund in a bank account established and used in accordance
with Rule 17f-3 under the 1940 Act. Funds held by the Sub-
Custodian for the Fund shall be deposited by it to its credit as
Sub-Custodian of the Fund in the Banking Department of the Sub-
Custodian or other banks. Such funds shall be deposited by the
Sub-Custodian in its capacity as Sub-Custodian and shall be
withdrawable by the Sub-Custodian only in that capacity. The
Sub-Custodian shall be liable for losses incurred by the Fund
attributable to any failure on the part of the Sub-Custodian to
report accurate cash availability information with respect to the
Fund's bank accounts maintained by the Sub-Custodian or any of
its agents, provided that such liability shall be determined
solely on a cost-of-funds basis.
2.5 PAYMENTS FOR SHARES. The Sub-Custodian shall receive
from any distributor of the Fund's shares or from the Transfer
Agent of the Fund and deposit into the Fund's account such
payments as are received for shares of the Fund issued or sold
from time to time by the Fund. The Sub-Custodian will provide
timely notification to the Custodian, and the Transfer Agent of
any receipt by it of payments for shares of the Fund.
2.6 INVESTMENT AND AVAILABILITY OF FEDERAL FUNDS. Upon
mutual agreement between the Custodian and the Sub-Custodian, the
Sub-Custodian shall, upon the receipt of Proper Instructions,
1) invest in such instruments as may be set forth in
such instructions on the same day as received all federal funds
received after a time agreed upon between the Sub-Custodian and
the Custodian; and
2) make federal funds available to the Fund as of
specified times agreed upon from time to time by the Custodian
and the Sub-Custodian in the amount of checks, when cleared
within the Federal Reserve System, received in payment for shares
of the Fund which are deposited into the Fund's account or
accounts.
2.7 COLLECTION OF INCOME. The Sub-Custodian shall collect
on a timely basis all income and other payments with respect to
registered securities held hereunder to which the Fund shall be
entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and
other payments with respect to bearer securities if, on the date
of payment by the issuer, such securities are held hereunder and
shall credit such income, as collected, to the Fund's account.
Without limiting the generality of the foregoing, the Sub-
Custodian shall detach and present for payment all coupons and
other income items requiring presentation as and when they become
due and shall collect interest when due on securities held
hereunder. Arranging for the collection of income due the Fund
on securities loaned pursuant to the provisions of Section
2.2(10) shall be the responsibility of the Custodian. The Sub-
Custodian will have no duty or responsibility in connection
therewith, other than to provide the Custodian with such
information or data as may be necessary to assist the Custodian
in arranging for the timely delivery to the Sub-Custodian of the
income to which the Fund is properly entitled.
2.8 PAYMENT OF FUND MONIES. Upon receipt of Proper
Instructions, which may be continuing instructions when deemed
appropriate by the parties, the Sub-Custodian shall cause monies
of a Fund to be paid out in the following cases only:
1) Upon the purchase of securities for the account of
the Fund but only (a) against the delivery of such securities to
the Sub-Custodian (or any bank, banking firm or trust company
doing business in the United States or abroad which is qualified
under the 1940 Act, as amended, to act as a custodian and has
been designated by the Sub-Custodian as its agent for this
purpose) registered in the name of the Fund or in the name of a
nominee referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth in
Section 2.13 hereof; or (c) in the case of repurchase agreements
entered into between the Fund and the Sub-Custodian, or another
bank, (i) against delivery of the securities either in
certificate form or through an entry crediting the Sub-
Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing
purchase by the Fund of securities owned by the Sub-Custodian
along with written evidence of the agreement by the Sub-Custodian
to repurchase such securities from the Fund;
2) In connection with conversion, exchange or
surrender of securities owned by the Fund as set forth in Section
2.2 hereof;
3) For the redemption or repurchase of shares issued
by the Fund as set forth in Section 2.10 hereof;
4) For the payment of any expense or liability
incurred by the Fund, including but not limited to the following
payments for the account of the Fund: interest, taxes,
management, accounting, custodian and Sub-Custodian, transfer
agent and legal fees, including the Custodian's fee; and
operating expenses of the Fund whether or not such expenses are
to be in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends declared pursuant
to the governing documents of the Fund;
6) For transfer to another Sub-Custodian of the Fund;
and
7) For any other proper purpose, but only upon
receipt of, in addition to Proper Instructions, a certified copy
of a resolution of the Trustees or of the Executive Committee of
the Fund signed by an officer of the Fund and certified by its
Clerk or an Assistant Clerk, specifying the amount of such
payment, setting forth the purpose for which such payment is to
be made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be made.
2.9 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF
SECURITIES PURCHASED. In any and every case where payment for
purchase of securities for the account of a Fund is made by the
Sub-Custodian in advance of receipt of the securities purchased
in the absence of specific written instructions from the
Custodian to so pay in advance, the Sub-Custodian shall be
absolutely liable to the Fund and the Custodian in the event any
loss results to the Fund or the Custodian from the failure of the
Sub-Custodian to make such payment against delivery of such
securities, except that in the case of repurchase agreements
entered into by the Fund with a bank which is a member of the
Federal Reserve System, the Sub-Custodian may transfer funds to
the account of such bank prior to the receipt of written evidence
that the securities subject to such a repurchase agreement have
been transferred by book-entry into a segregated non-proprietary
account of the Sub-Custodian maintained with any Federal Reserve
Bank or of the safe-keeping receipt, provided that such
securities have in fact been so transferred by book-entry.
2.10 PAYMENTS FOR REPURCHASES OR REDEMPTIONS OF SHARES
OF THE FUND. From such funds as may be available for the purpose
but subject to the limitations of the Declaration of Trust and
By-Laws and any applicable votes of the Trustees of the Fund
pursuant thereto, the Sub-Custodian shall, upon receipt of
instructions from the Custodian, make funds available for payment
to shareholders of the Fund who have delivered to the Transfer
Agent a request for redemption or repurchase of their shares. In
connection with the redemption or repurchase of shares of the
Fund, the Sub-Custodian, upon receipt of Proper Instructions, is
authorized to wire funds to or through a commercial bank
designated by the redeeming shareholders. In connection with the
redemption or repurchase of shares of the Fund, the Sub-
Custodian, upon receipt of Proper Instructions, shall honor
checks drawn on the Sub-Custodian by a shareholder, when
presented to the Sub-Custodian in accordance with such procedures
and controls as are mutually agreed upon from time to time among
the Fund, the Custodian and the Sub-Custodian.
2.11 VARIANCES. The Sub-Custodian may accept
securities or cash delivered in settlement of trades
notwithstanding variances between the amount of securities or
cash so delivered and the amount specified in the instructions
furnished to it by the Custodian, provided that the variance in
any particular transaction does not exceed (i) $25 in the case of
transactions of $1,000,000 or less, and (ii) $50 in the case of
transactions exceeding $1,000,000. The Sub-Custodian shall
maintain a record of any such variances and notify the Custodian
of such variances in periodic transaction reports submitted to
the Custodian. The Sub-Custodian will not advise any party with
whom the Fund effects securities transactions of the existence of
these variance provisions without the consent of the Fund and the
Custodian.
2.12 APPOINTMENT OF AGENTS. Without limiting its own
responsibility for its obligations assumed hereunder, the Sub-
Custodian may at any time and from time to time engage, at its
own cost and expense, as an agent to act for the Fund on the Sub-
Custodian's behalf with respect to any such obligations any bank
or trust company which meets the requirements of the 1940 Act,
and the rules and regulations thereunder, to perform services
delegated to the Sub-Custodian hereunder, provided that the Fund
shall have approved in writing any such bank or trust company and
the Sub-Custodian shall give prompt written notice to the
Custodian and the Fund of any such engagement. All agents of the
Sub-Custodian shall be subject to the instructions of the Sub-
Custodian and not the Custodian. The Sub-Custodian may, at any
time in its discretion, and shall at the Custodian's direction,
remove any bank or trust company which has been appointed as an
agent, and shall in either case promptly notify the Custodian and
the Fund in writing of the completion of any such action.
The agents which the Fund has approved to date are set forth
in Schedule B hereto. Schedule B shall be amended from time to
time as approved agents are changed, added or deleted. The
Custodian shall be responsible for informing the Sub-Custodian
sufficiently in advance of a proposed investment which is to be
held at a location not listed on Schedule B, in order that there
shall be sufficient time for the Fund to give the approval
required by the preceding paragraph and for the Sub-Custodian to
complete the appropriate contractual and technical arrangements
with such agent. The engagement by the Sub-Custodian of one or
more agents to carry out such of the provisions of this Section 2
shall not relieve the Sub-Custodian of its responsibilities or
liabilities hereunder.
2.13 DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS. The
Sub-Custodian may deposit and/or maintain securities owned by the
Fund in a clearing agency registered with the Securities and
Exchange Commission under Section 17A of the Securities Exchange
Act of 1934, which acts as a securities depository, or in the
book-entry system authorized by the U.S. Department of the
Treasury (collectively referred to herein as "Securities System")
in accordance with applicable Federal Reserve Board and
Securities and Exchange Commission rules and regulations
(including Rule 17f-4 of the 1940 Act), and subject to the
following provisions:
1) The Sub-Custodian may keep securities of the Fund
in a Securities System provided that such securities are
represented in an account ("Account") of the Sub-Custodian in the
Securities System which shall not include any assets other than
assets held as a fiduciary, custodian or otherwise for customers;
2) The records of the Sub-Custodian with respect to
securities of the Fund which are maintained in a Securities
System shall identify by book-entry those securities belonging to
the Fund;
3) The Sub-Custodian shall pay for securities
purchased for the account of the Fund upon (i) receipt of advice
from the Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry on
the records of the Sub-Custodian to reflect such payment and
transfer for the account of the Fund. The Sub-Custodian shall
transfer securities sold for the account of the Fund upon (a)
receipt of advice from the Securities System that payment for
such securities has been transferred to the Account, and (b) the
making of an entry on the records of the Sub-Custodian to reflect
such transfer and payment for the account of the Fund. Copies of
all advices from the Securities System of transfers of securities
for the account of the Fund shall identify the Fund, be
maintained for the Fund by the Sub-Custodian and be provided to
the Fund or the Custodian at the Custodian's request. The Sub-
Custodian shall furnish the Custodian confirmation of each
transfer to or from the account of the Fund in the form of a
written advice or notice and shall furnish to the Custodian
copies of daily transaction sheets reflecting each day's
transactions in the Securities System for the account of the Fund
on the next business day;
4) The Sub-Custodian shall provide the Custodian with
any report obtained by the Sub-Custodian on the Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
5) The Sub-Custodian shall have received the initial
or annual certificate, as the case may be, required by Section
2.10 hereof;
6) Anything to the contrary in this Agreement
notwithstanding, the Sub-Custodian shall be liable to the Fund
and the Custodian for any loss or damage to the Fund or the
Custodian resulting from use of the Securities System by reason
of any negligence, misfeasance or misconduct of the Sub-Custodian
or any of its agents or of any of its or their employees or from
failure of the Sub-Custodian or any such agent to enforce
effectively such rights as it may have against the Securities
System; at the election of the Custodian, it shall be entitled to
be subrogated to the rights of the Sub-Custodian with respect to
any claim against the Securities System or any other person which
the Sub-Custodian may have as a consequence of any such loss or
damage if and to the extent that the Fund and the Custodian have
not been made whole for any such loss or damage.
2.14 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Sub-
Custodian shall execute ownership and other certificates and
affidavits for all federal and state tax purposes in connection
with receipt of income or other payments with respect to
securities held by it hereunder and in connection with transfers
of securities.
2.15 PROXIES. The Sub-Custodian shall, with respect to
the securities held hereunder, cause to be promptly executed by
the registered holder of such securities, if the securities are
registered otherwise than in the name of a Fund, all proxies,
without indication of the manner in which such proxies are to be
voted, and shall promptly deliver to the Custodian such proxies,
all proxy soliciting materials and all notices relating to such
securities.
2.16 COMMUNICATIONS RELATING TO FUND PORTFOLIO
SECURITIES. The Sub-Custodian shall transmit promptly to the
Custodian all written information (including, without limitation,
pendency of calls and maturities of securities and expirations of
rights in connection therewith) received by the Sub-Custodian
from issuers of the securities being held for the account of the
Fund. With respect to tender or exchange offers, the Sub-
Custodian shall transmit promptly to the Custodian all written
information received by the Sub-Custodian from issuers of the
securities whose tender or exchange is sought and from the party
(or his agents) making the tender or exchange offer. If the Fund
desires to take action with respect to any tender offer, exchange
offer or any other similar transactions, the Custodian shall
notify the Sub-Custodian of the action the Fund desires the Sub-
Custodian to take; provided, however, that the Sub-Custodian
shall not be liable to the Fund or the Custodian for the failure
to take any such action unless such instructions are received by
the Sub-Custodian at least two business days prior to the date on
which the Sub-Custodian is to take such action.
2.17 PROPER INSTRUCTIONS. Proper Instructions as used
throughout this Agreement means a writing signed or initialed by
one or more persons who are authorized by the Trustees of the
Fund and by vote of the Board of Directors of the Custodian.
Each such writing shall set forth the specific transaction or
type of transaction involved, including a specific statement of
the purpose for which such action is requested. Oral
instructions will be considered Proper Instructions if the Sub-
Custodian reasonably believes them to have been given by a person
authorized to give such instructions with respect to the
transaction involved. The Custodian shall cause all oral
instructions to be confirmed in writing. Upon receipt of a
certificate of the Clerk or an Assistant Clerk as to the
authorization by the Trustees of the Funds accompanied by a
detailed description of procedures approved by the Trustees,
Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices, provided that
the Trustees, the Custodian and the Sub-Custodian are satisfied
that such procedures afford adequate safeguards for the Fund's
assets. Notwithstanding the foregoing, no Trustee, officer,
employee or agent of the Fund shall be permitted access to any
securities or similar investments of the Fund deposited with the
Sub-Custodian or any agent for any reason except in accordance
with the provisions of Rule 17f-2 under the 1940 Act.
2.18 ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY. The
Sub-Custodian may in its discretion, without express authority
from the Custodian:
1) make payments to itself or others for minor
expenses of handling securities or other similar items relating
to its duties under this Agreement, provided that all such
payments shall be accounted for to the Fund and the Custodian;
2) surrender securities in temporary form for
securities in definitive form;
3) endorse for collection, in the name of the Fund,
checks, drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary
details in connection with the sale, exchange, substitution,
purchase, transfer and other dealings with the securities and
property of the Fund held by the Sub-Custodian hereunder except
as otherwise directed by the Custodian or the Trustees of the
Fund.
2.19 EVIDENCE OF AUTHORITY. The Sub-Custodian shall be
protected in acting upon any instruction, notice, request,
consent, certificate or other instrument or paper reasonably
believed by it to be genuine and to have been properly executed
by or on behalf of the Fund or the Custodian as custodian of the
Fund. The Sub-Custodian may receive and accept a certified copy
of a vote of the Trustees of the Fund or the Board of Directors
of the Custodian, as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any
determination or of any action by the Trustees pursuant to the
Declaration of Trust and By-Laws and the Board of Directors of
the Custodian, as the case may be as described in such vote, and
such vote may be considered as in full force and effect until
receipt by the Sub-Custodian of written notice to the contrary.
3. PERFORMANCE STANDARDS; PROTECTION OF THE FUND. The
Sub-Custodian shall use its best efforts to perform its duties
hereunder in accordance with the standards set forth in Schedule
C hereto. Schedule C may be amended from time to time as agreed
to by the Custodian and the Trustees of the Fund.
4. RECORDS. The Sub-Custodian shall cooperate with and
supply necessary information to the entity or entities appointed
by the Trustees of the Fund to keep the books of account of the
Funds or, if directed in writing to do so by the Custodian, shall
itself keep such books of account. The Sub-Custodian shall
create and maintain all records relating to its activities and
obligations under this Agreement in such manner as will meet the
obligations of the Custodian under its Custodian Agreement with
the Fund under the 1940 Act, with particular attention to
Sections 17(f) and 31 thereof and Rules 17f-2, 31a-1 and 31a-2
thereunder, applicable federal and state tax laws, and any other
law or administrative rules or procedures which may be applicable
to the Fund or the Custodian. All such records shall be the
property of the Fund and shall at all times during the regular
business hours of the Sub-Custodian be open for inspection by
duly authorized officers, employees or agents of the Custodian
and the Fund and employees and agents of the Securities and
Exchange Commission. The Sub-Custodian shall, at the Custodian's
request, supply the Custodian with a tabulation of securities
owned by the Fund and held under this Agreement and shall, when
requested to do so by the Custodian and for such compensation as
shall be agreed upon between the Custodian and Sub-Custodian,
include certificate numbers in such tabulations.
5. OPINION AND REPORTS OF THE FUND'S INDEPENDENT
ACCOUNTANTS. The Sub-Custodian shall take all reasonable
actions, as the Custodian may from time to time request, to
obtain from year to year favorable opinions from the Fund's
independent public accountants with respect to its activities
hereunder in connection with the preparation of the Fund's
registration statements and amendments thereto, the Fund's
reports to the Securities and Exchange Commission and with
respect to any other requirements of such Commission.
6. REPORTS OF SUB-CUSTODIAN'S INDEPENDENT ACCOUNTANTS.
The Sub-Custodian shall provide the Custodian, at such times as
the Custodian may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, including
securities deposited and/or maintained in a Securities System,
relating to the services provided by the Sub-Custodian under this
Agreement; such reports, which shall be of sufficient scope and
in sufficient detail as may reasonably be required by the
Custodian, shall provide reasonable assurance that any material
inadequacies would be disclosed by such examination, and, if
there are no such inadequacies, shall so state.
7. COMPENSATION. The Sub-Custodian shall be entitled to
reasonable compensation for its services and expenses as Sub-
Custodian, as agreed upon from time to time between the Custodian
and the Sub-Custodian.
8. RESPONSIBILITY OF SUB-CUSTODIAN. The Sub-Custodian
shall exercise reasonable care and diligence in carrying out the
provisions of this Agreement and shall not be liable to the Fund
or the Custodian for any action taken or omitted by it in good
faith without negligence. So long as and to the extent that it
is in the exercise of reasonable care, the Sub-Custodian shall
not be responsible for the title, validity or genuineness of any
property or evidence of title thereto received by it or delivered
by it pursuant to this Agreement and shall be held harmless in
acting upon any notice, request, consent, certificate or other
instrument reasonably believed by it to be genuine and to be
signed by the proper party or parties. It shall be entitled to
rely on and may act upon advice of counsel (who may be counsel
for the Fund) on all matters, and shall be without liability for
any action reasonably taken or omitted pursuant to such advice.
Notwithstanding the foregoing, the responsibility of the Sub-
Custodian with respect to redemptions effected by check shall be
in accordance with a separate agreement entered into between the
Custodian and the Sub-Custodian.
The Sub-Custodian shall protect the Fund and the Custodian
from direct losses to the Fund resulting from any act or failure
to act of the Sub-Custodian in violation of its duties hereunder
or of law and shall maintain customary errors and omissions and
fidelity insurance policies in an amount not less than $25
million to cover losses to the Fund resulting from any such act
or failure to act.
If the Custodian requires the Sub-Custodian to take any
action with respect to securities, which action involves the
payment of money or which action may, in the opinion of the Sub-
Custodian, result in the Sub-Custodian's being liable for the
payment of money or incurring liability of some other form, the
Custodian, as a prerequisite to requiring the Sub-Custodian to
take such action, shall provide indemnity to the Sub-Custodian in
an amount and form satisfactory to it.
The Custodian agrees to indemnify and hold harmless the Sub-
Custodian from and against all taxes, charges, expenses,
assessments, claims and liabilities (including counsel fees)
incurred or assessed against it or its nominee in connection with
the performance of this Agreement, except such as may arise from
its own negligent action, negligent failure to act or willful
misconduct. To secure any such authorized charges and any
advances of cash or securities made by the Sub-Custodian to or
for the benefit of the Fund for any purpose which results in the
Fund's incurring an overdraft at the end of any business day or
for extraordinary or emergency purposes during any business day,
the Custodian on behalf of the Fund, unless prohibited from doing
so by one or more of the Fund's fundamental investment
restrictions, hereby represents that it has obtained from the
Fund authorization to apply available cash in any account
maintained by the Sub-Custodian on behalf of the Fund and a
security interest in and pledge to it of securities held for the
Fund by the Sub-Custodian, in an amount not to exceed the amount
not prohibited by such restrictions, for the purposes of securing
payment of any such advances, and that the Fund has agreed, from
time to time, to designate in writing, or to cause its investment
adviser to designate in writing, the specific securities subject
to such security interest and pledge. The Custodian hereby
assigns the benefits of such security interest and pledge to the
Sub-Custodian, and agrees that, should the Fund or the Custodian
fail to repay promptly any advances of cash or securities, the
Sub-Custodian shall be entitled to use such available cash and to
dispose of such pledged securities as is necessary to repay any
such advances.
9. SUCCESSOR SUB-CUSTODIAN. If a successor Sub-Custodian
shall be appointed by the Custodian, the Sub-Custodian shall,
upon termination, cause to be delivered to such successor Sub-
Custodian, duly endorsed and in the form for transfer, all
securities then held by it, shall cause the transfer to an
account of the successor Sub-Custodian all of the Fund's
securities held in a Securities System and shall cause to be
delivered to such successor Sub-Custodian all funds and other
property held by it or any of its agents.
If no such successor Sub-Custodian shall be appointed, the
Sub-Custodian shall, in like manner, upon receipt of a certified
copy of a vote of the Trustees of the Fund, cause to be delivered
at the office of the Sub-Custodian and transfer such securities,
funds and other properties in accordance with such vote.
In the event that no written order designating a successor
Sub-Custodian or certified copy of a vote of the Trustees shall
have been delivered to the Sub-Custodian on or before the date
when such termination shall become effective, then the Sub-
Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the 1940 Act, doing
business in Boston, Massachusetts, of its own selection, having
an aggregate capital, surplus, and undivided profits, as shown by
its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Sub-Custodian
and its agents and all instruments held by the Sub-Custodian and
its agents relative thereto and all other property held by it and
its agents under this Agreement and to cause to be transferred to
an account of such successor Sub-Custodian all of the Fund's
securities held in any Securities System. Thereafter, such bank
or trust company shall be the successor of the Sub-Custodian
under this Agreement.
In the event that securities, funds and other properties
remain in the possession of the Sub-Custodian after the date of
termination hereof owing to failure of the Custodian to obtain
the certified copy of vote referred to or of the Trustees to
appoint a successor Sub-Custodian, the Sub-Custodian shall be
entitled to fair compensation for its services during such period
as the Sub-Custodian retains possession of such securities, funds
and other properties and the provisions of this Agreement
relating to the duties and obligations of the Sub-Custodian shall
remain in full force and effect.
Upon termination, the Sub-Custodian shall, upon receipt of a
certified copy of a vote of the Trustees of the Fund, cause to be
delivered to any other Sub-Custodian designated in such vote such
assets, securities and other property of the Fund as are
designated in such vote, or pursuant to Proper Instructions,
cause such assets, securities and other property of the Fund as
are designated by the Custodian to be delivered to one or more of
the sub-custodians designated on Schedule D hereto, as from time
to time amended.
10. EFFECTIVE PERIOD; TERMINATION AND AMENDMENT. This
Agreement shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the
parties hereto and may be terminated by either party by an
instrument in writing delivered or mailed, postage prepaid, to
the other party, such termination to take effect not sooner than
thirty (30) days after the date of mailing; provided, however,
that the Sub-Custodian shall not act under Section 2.13 hereof in
the absence of receipt of an initial certificate of the Clerk or
an Assistant Clerk that the Trustees of the Fund have approved
the initial use of a particular Securities System and the receipt
of an annual certificate of the Clerk or an Assistant Clerk that
the Trustees have reviewed the use by the Fund of such Securities
System, as required in each case by Rule 17f-4 under the
Investment Company Act of 1940; and provided, further, however,
that the Custodian shall not amend or terminate this Agreement in
contravention of any applicable federal or state regulations or
any provision of the Declarations of Trust or By-Laws of the
Fund; and provided, further, that the Custodian may at any time,
by action of its Board of Directors, or the Trustees of the Fund,
as the case may be, immediately terminate this Agreement in the
event of the appointment of a conservator or receiver for the
Sub-Custodian by the Comptroller of the Currency or upon the
happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.
Upon termination of this Agreement, the Custodian shall pay
to the Sub-Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Sub-
Custodian for its reimbursable costs, expenses and disbursements.
11. AMENDMENT AND INTERPRETATION. This Agreement
constitutes the entire understanding and agreement of the parties
hereto with respect to the subject matter hereof. No provision
of this Agreement may be amended or terminated except by a
statement in writing signed by the party against which
enforcement of the amendment or termination is sought.
In connection with the operation of this Agreement, the Sub-
Custodian and the Custodian may from time to time agree in
writing on such provisions interpretive of or in addition to the
provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. No
interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this
Agreement.
12. GOVERNING LAW. This Agreement is executed and
delivered in The Commonwealth of Massachusetts and shall be
governed by and construed according to the laws of said
Commonwealth.
13. NOTICES. Notices and other writings delivered or
mailed postage prepaid to the Custodian addressed to the
Custodian attention: , or to such other person or
address as the Custodian may have designated to the Sub-Custodian
in writing, or to the Sub-Custodian at , or to such
other address as the Sub-Custodian may have designated to the
Custodian in writing, shall be deemed to have been properly
delivered or given hereunder to the respective addressee.
14. BINDING OBLIGATION. This Agreement shall be binding on
and shall inure to the benefit of the Custodian and the Sub-
Custodian and their respective successors and assigns, provided
that neither party hereto may assign this Agreement or any of its
rights or obligations hereunder without the prior written consent
of the other party.
15. PRIOR AGREEMENTS. This Agreement supersedes and
terminates, as of the date hereof, all prior contracts between
the Fund or the Custodian and the Sub-Custodian relating to the
custody of the Fund's assets.
16. DECLARATION OF TRUST. A copy of the Agreement and
Declaration of Trust of the Fund is on file with the Secretary of
The Commonwealth of Massachusetts, and notice is hereby given
that the obligations of or arising out of this instrument are not
binding upon any of the Trustees or beneficiaries individually
but binding only upon the assets and property of the Funds.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name and behalf by its duly
authorized representative and its seal to be hereunder affixed as
of the day of , 199 .
PUTNAM FIDUCIARY TRUST COMPANY
By ---------------------------
(SUB-CUSTODIAN)
By ---------------------------
<PAGE>
EXHIBIT 1(A)
MASTER FOREIGN SUB-CUSTODIAN AGREEMENT
AGREEMENT made this day of , 199 , between
Putnam Fiduciary Trust Company, a Massachusetts-chartered trust
company (the "Custodian"), and ,
(the "Sub-Custodian").
WHEREAS, the Sub-Custodian represents to the Custodian that
it is eligible to serve as a custodian for a management
investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"), and
WHEREAS, the Custodian has entered into a Custodian
Agreement between it and each of the Putnam Funds listed in
Schedule A to this Agreement, each of such Funds acting on its
own behalf separately from all the other Funds and not jointly or
jointly and severally with any of the other Funds (each of the
Funds being hereinafter referred to as the "Fund"), and
WHEREAS, the Custodian and the Fund desire to utilize
sub-custodians for the purpose of holding cash and securities of
the Fund, and
WHEREAS, the Custodian wishes to appoint the Sub-Custodian
as the Fund's Sub-Custodian,
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. APPOINTMENT OF SUB-CUSTODIAN. The Custodian hereby
employs and appoints the Sub-Custodian as a sub-custodian for
safekeeping of securities and other assets of the Fund for the
term and subject to the provisions of this Agreement. Upon
request, the Custodian shall deliver to the Sub-Custodian such
proxies, powers of attorney or other instruments as may be
reasonably necessary or desirable in connection with the
performance by the Sub-Custodian of its obligations under this
Agreement on behalf of the Fund.
2. DUTIES OF THE SUB-CUSTODIAN WITH RESPECT TO PROPERTY OF
THE FUND HELD BY IT. The Custodian may from time to time deposit
or direct the deposit of securities or cash owned by the Fund
with the Sub-Custodian. The Sub-Custodian shall have no
responsibility or liability for or on account of securities,
funds or other property of the Fund not so delivered to it.
Except for securities and funds held by 17f-5 Sub-Custodians (as
defined in Section 2.11(b)) the Sub-Custodian shall hold and
dispose of the securities or cash hereafter held by or deposited
with the Sub-Custodian as follows:
2.1. HOLDING SECURITIES. The Sub-Custodian shall hold
and, by book-entry or otherwise, identify as belonging to the
Fund all non-cash property which has been delivered to the
Sub-Custodian. All such securities are to be held or disposed of
for, and subject at all times to the instructions of, the
Custodian pursuant to the terms of this Agreement. The
Sub-Custodian shall maintain adequate records identifying the
securities as being held by it as sub-custodian of the Fund.
2.2. DELIVERY OF SECURITIES. The Sub-Custodian shall
release and deliver securities of the Fund held by it hereunder
(or in a Securities System account of the Sub-Custodian) only
upon receipt of Proper Instructions (as defined in Section 2.19),
which may be continuing instructions when deemed appropriate by
the parties, and only in the following cases:
1) Upon sale of such securities for the account
of the Fund and receipt of payment therefor, provided, however,
that the Sub-Custodian may release and deliver securities prior
to the receipt of payment therefor if (i) in the Sub-Custodian's
judgment, (A) release and delivery prior to payment is required
by the terms of the instrument evidencing the security or (B)
release and delivery prior to payment is the prevailing method of
settling securities transactions between institutional investors
in the applicable market and (ii) release and delivery prior to
payment is in accordance with generally accepted trade practice
and with any applicable governmental regulations and the rules of
Securities Systems or other securities depositories and clearing
agencies in the applicable market. The Sub-Custodian agrees,
upon request, to advise the Custodian of all pending transactions
in which release and delivery will be made prior to the receipt
of payment therefor;
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered into by
the Fund;
3) In the case of a sale effected through a Securities
System, in accordance with the provisions of Section 2.12 hereof;
4) To the depository agent in connection with tender
or other similar offers for such securities; provided that, in any
such case, the cash or other consideration is thereafter to be
delivered to the Sub-Custodian;
5) To the issuer thereof or its agent when such
securities are called, redeemed, retired or otherwise become
payable; provided that, in any such case, the cash or other
consideration is thereafter to be delivered to the Sub-Custodian;
6) To the issuer thereof, or its agent, for
transfer into the name of the Fund or into the name of any nominee
or nominees of the Sub-Custodian or into the name or nominee name
of any agent appointed pursuant to Section 2.11 or any other name
permitted pursuant to Section 2.3; or for exchange for a different
number of bonds, certificates or other evidence representing the
same aggregate face amount or number of units; provided that, in
any such case, the new securities are thereafter to be delivered
to the Sub-Custodian;
7) Upon the sale of such securities for the
account of the Fund, to the broker or its clearing agent, against
a receipt, for examination in accordance with "street delivery"
custom; provided that, in any such case, the Sub-Custodian shall
have no responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for such
securities except as may arise from the Sub-Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan
of merger, consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such securities,
or pursuant to provisions for conversion contained in such
securities, or pursuant to any deposit agreement; provided that,
in any such case, the new securities and cash, if any, thereafter
are to be delivered to the Sub-Custodian;
9) In the case of warrants, rights or similar
securities, the surrender thereof in the exercise of such
warrants, rights or similar securities or the surrender of interim
receipts or temporary securities for definitive securities;
provided that, in any such case, the now securities and cash, if
any, are thereafter to be delivered to the Sub-Custodian;
10) For delivery in connection with any loans of
securities made by the Fund, but only against receipt of
collateral the adequacy and timing of receipt of which shall be as
agreed upon from time to time in writing by the Custodian and the
Sub-Custodian, which may be in the form of cash or obligations
issued by the United States government, its agencies or
instrumentalities;
11) For delivery as security in connection with
any borrowings by the Fund requiring a pledge of assets by the
Fund, but only against receipt of amounts borrowed;
12) Upon receipt of instructions from the transfer
agent for the Fund (the "Transfer Agent"), for delivery to such
Transfer Agent or to the shareholders of the Fund in connection
with distributions in kind, in satisfaction of requests by
shareholders for repurchase or redemption;
13) For delivery to the Custodian or another
sub-custodian of the Fund; and
14) For any other proper purpose, but only upon
receipt of, in addition to Proper Instructions, a certified copy
of a resolution of the Trustees or of the Executive Committee of
the Fund signed by an officer of the Fund and certified by its
Clerk or an Assistant Clerk, specifying the securities to be
delivered, setting forth the purpose for which such delivery is to
be made, declaring such purposes to be proper corporate purposes,
and naming the person or persons to whom delivery of such
securities is to be made.
2.3. REGISTRATION OF SECURITIES. Securities of the
Fund held by the Sub-Custodian hereunder (other than bearer
securities) shall be registered in the name of the Fund or in the
name of any nominee of the Fund or of any nominee of the
Sub-Custodian or any 17f-5 Sub-Custodian or Foreign Depository (as
each of those terms is defined in Section 2.11(b)), which nominee
shall be assigned exclusively to the Fund, unless the Fund has
authorized in writing the appointment of a nominee to be used in
common with other registered investment companies having the same
investment adviser as the Fund, or in the name or nominee name of
any agent appointed pursuant to Section 2.11(a). Notwithstanding
the foregoing, the Sub-Custodian or agent thereof or any 17f-5
Sub-Custodian or Foreign Depository may hold securities of the
Fund in a nominee name which is used for its other clients
provided that such name is not used by the Sub-Custodian, agent,
17f-5 Sub-Custodian or Foreign Depository for its own securities
and that securities of the Fund are, by book-entry or otherwise,
at all times identified as belonging to the Fund and distinguished
from other securities held for other clients using the same
nominee name. In addition, and notwithstanding the foregoing, the
Sub-Custodian or agent thereof or 17f-5 Sub-Custodian or Foreign
Depository may hold securities of the Fund in its own name if such
registration is the prevailing method in the applicable market by
which custodians register securities of institutional clients and
provided that securities of the Fund are, by book-entry or
otherwise, at all times identified as belonging to the Fund and
distinguished from other securities held for other clients or for
the Sub-Custodian or agent thereof or 17f-5 Sub-Custodian or
Foreign Depository. All securities accepted by the Sub-Custodian
under the terms of this Agreement shall be in good delivery form.
2.4. BANK ACCOUNTS. The Sub-Custodian shall open and
maintain a separate bank account or accounts in the name of the
Fund or of the Custodian for the benefit of the Fund, subject only
to draft or order by the Sub-Custodian acting pursuant to the
terms of this Agreement or by the Custodian acting pursuant to the
Custodian Agreement, and shall hold in such account or accounts,
subject to the provisions hereof, to the Sub-Custodian's credit as
sub-custodian of the Fund or the Custodian's credit as custodian
for the Fund, cash received for the account of the Fund other than
cash maintained by the Fund in a bank account established and used
in accordance with Rule 17f-3 under the 1940 Act or cash held as
deposits with 17f-5 Sub-Custodians in accordance with the
following paragraph. The responsibilities of the Sub-Custodian
for cash, including foreign currency, of the Fund accepted on the
Sub-Custodian's books as a deposit shall be that of a U.S. bank
for a similar deposit.
The Sub-Custodian may open a bank account on the books of a
17f-5 Sub-Custodian in the name of the Fund or of the Sub-
Custodian as a sub-custodian for the Fund, and may deposit cash,
including foreign currency, of the Fund in such account, and such
funds shall be withdrawable only pursuant to draft or order of the
Sub-Custodian. The records for such account will be maintained by
the Sub-Custodian but such account shall not constitute a deposit
liability of the Sub-Custodian. The responsibilities of the Sub-
Custodian for deposits maintained in such account shall be the
same as and no greater than the Sub-Custodian's responsibility in
respect of other portfolio securities of the Fund.
The Sub-Custodian shall be liable for actual losses incurred
by the Fund attributable to any failure on the part of the Sub-
Custodian to report accurate cash availability information with
respect to the bank accounts referred to in this Section 2.4.
2.5. PAYMENTS FOR SHARES. The Sub-Custodian shall
maintain custody of amounts received from the Transfer Agent of
the Fund for shares of the Fund issued by the Fund and sold by its
distributor and deposit such amounts into the Fund's account. The
Sub-Custodian will provide timely notification to the Custodian
and the Transfer Agent of any receipt by it of payments for shares
of the Fund.
2.6. AVAILABILITY OF FEDERAL FUNDS. Upon mutual
agreement between the Custodian and the Sub-Custodian, the
Sub-Custodian shall, upon the receipt of Proper Instructions, make
federal funds available to the Custodian for the account of the
Fund as of specified times agreed upon from time to time by the
Custodian and the Sub-Custodian with respect to amounts received
by the Sub-Custodian for the purchase of shares of the Fund.
2.7. COLLECTION OF INCOME. The Sub-Custodian shall
collect on a timely basis all income and other payments with
respect to registered securities held hereunder, including
securities held in a Securities System, to which the Fund shall be
entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and other
payments with respect to bearer securities if, on the date of
payment by the issuer, such securities are held hereunder and
shall credit such income, as collected, to the Fund's account.
Without limiting the generality of the foregoing, the
Sub-Custodian shall detach and present for payment all coupons and
other income items requiring presentation as and when they become
due and shall collect interest when due on securities held
hereunder. Arranging for the collection of income due the Fund on
securities loaned pursuant to the provisions of Section 2.2(10)
shall be the responsibility of the Custodian. The Sub-Custodian
will have no duty or responsibility in connection therewith, other
than to provide the Custodian with such information or data as may
be necessary to assist the Custodian in arranging for the timely
delivery to the Sub-Custodian of the income to which the Fund is
properly entitled.
2.8. PAYMENT OF FUND MONIES. Upon receipt of Proper
Instructions, which may be continuing instructions when deemed
appropriate by the parties, the Sub-Custodian shall cause monies
of the Fund to be paid out in the following cases only:
1) Upon the purchase of securities for the account
of the Fund but only (a) against the delivery of such securities
to the Sub-Custodian (or any bank, banking firm or trust company
doing business in the United States or abroad which is qualified
under the 1940 Act, as amended, to act as a custodian and has been
designated by the Sub-Custodian as its agent for this purpose) or
any 17f-5 Sub-Custodian or any Foreign Depository (as each of
those terms is defined in Section 2.11(b)) registered in the name
of the Fund or in the name of a nominee referred to in Section 2.3
hereof or in proper form for transfer, provided, however, that the
Sub-Custodian may cause monies of the Fund to be paid out prior to
delivery of such securities if (i) in the Sub-Custodian's
judgment, (A) payment prior to delivery is required by the terms
of the instrument evidencing the security or (B) payment prior to
delivery is the prevailing method of settling securities
transactions between institutional investors in the applicable
market and (ii) payment prior to delivery is in accordance with
generally accepted trade practice and with any applicable
governmental regulations and the rules of Securities Systems or
other securities depositories and clearing agencies in the
applicable market. The Sub-Custodian agrees, upon request, to
advise the Custodian of all pending transactions in which payment
will be made prior to the receipt of securities in accordance with
the proviso to the foregoing sentence; (b) in the case of a
purchase effected through a Securities System, in accordance with
the conditions set forth in Section 2.12 hereof; or (c) (i) in the
case of a repurchase agreement entered into between the Fund and
the Sub-Custodian, another bank or a broker-dealer, against
delivery of the securities either in certificate form or through
an entry crediting the Sub-Custodian's or its agent's
non-proprietary account at any Federal Reserve Bank with such
securities or (ii) in the case of a repurchase agreement entered
into between the Fund and the Sub-Custodian, against delivery of a
receipt evidencing purchase by the Fund of securities owned by the
Sub-Custodian along with written evidence of the agreement by the
Sub-Custodian to repurchase such securities from the Fund; or (d)
for transfer to a time deposit account of the Fund in any bank,
whether domestic or foreign, which transfer may be effected prior
to receipt of a confirmation of the deposit from the applicable
bank or a financial intermediary;
2) In connection with conversion, exchange or
surrender or tender or exercise of securities owned by the Fund as
set forth in Section 2.2 hereof;
3) For the redemption or repurchase of shares
issued by the Fund as set forth in Section 2.10 hereof;
4) For the payment of any expense or liability
incurred by the Fund, including but not limited to the following
payments for the account of the Fund: interest, taxes, management,
accounting, custodian and sub-custodian, transfer agent and legal
fees, including the Custodian's fee; and operating expenses of the
Fund whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends or other
distributions declared to shareholders of the Fund;
6) For transfer to the Custodian or another
sub-custodian of the Fund; and
7) For any other proper purpose, but only upon
receipt of, in addition to Proper Instructions, a certified copy
of a resolution of the Trustees or of the Executive Committee of
the Fund signed by an officer of the Fund and certified by its
Clerk or Assistant Clerk, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.9. LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF
SECURITIES PURCHASED. Except as otherwise provided in this
Agreement, in any and every case where payment for purchase of
securities for the account of the Fund is made by the
Sub-Custodian in advance of receipt of the securities purchased in
the absence of Proper Instructions from the Custodian to so pay in
advance, the Sub-Custodian shall be absolutely liable to the Fund
and the Custodian in the event any loss results to the Fund or the
Custodian from the payment by the Sub-Custodian in advance of
delivery of such securities.
2.10. PAYMENTS FOR REPURCHASES OR REDEMPTIONS OF SHARES
OF THE FUND. From such funds as may be available, the
Sub-custodian shall, upon receipt of Proper Instructions, make
funds available for payment to a shareholder of the Fund who has
delivered to the Transfer Agent a request for redemption or
repurchase of shares of the Fund. In connection with the
redemption or repurchase of shares of the Fund, the Sub-Custodian,
upon receipt of Proper Instructions, is authorized to wire funds
to or through a commercial bank designated by the redeeming
shareholder. In connection with the redemption or repurchase of
shares of the Fund, the Sub-Custodian, upon receipt of Proper
Instructions, shall honor checks drawn on the Sub-Custodian by a
shareholder, when presented to the Sub-Custodian in accordance
with such procedures and controls as are mutually agreed upon from
time to time among the Fund, the Custodian and the Sub-Custodian.
2.11. APPOINTMENT OF AGENTS AND SUB-CUSTODIANS PURSUANT
TO RULE 17F-5.
(a) Agents. Without limiting its own responsibility
for its obligations assumed hereunder, the Sub-Custodian may at
any time and from time to time engage, at its own cost and
expense, as an agent to act for the Fund on the Sub-Custodian's
behalf with respect to any such obligations any bank or trust
company which meets the requirements of the 1940 Act, and the
rules and regulations thereunder, to perform services delegated to
the Sub-Custodian hereunder, provided that the Fund and the
Custodian shall have approved in writing any such bank or trust
company. All agents of the Sub-Custodian shall be subject to the
instructions of the Sub-Custodian and not the Custodian. The Sub-
Custodian may, at any time in its discretion, and shall at the
Custodian's direction, remove any bank or trust company which has
been appointed as an agent, and shall in either case promptly
notify the Custodian and the Fund in writing of the completion of
any such action.
The agents which the Fund has approved to date are set forth
in Schedule B hereto. Schedule B shall be amended from time to
time as approved agents are changed, added or deleted. The
Custodian shall be responsible for informing the Sub-Custodian
sufficiently in advance of a proposed investment which is to be
held at a location not listed on Schedule B, in order that there
shall be sufficient time for the Fund to give the approval
required by the preceding paragraph and for the Sub-Custodian to
complete the appropriate contractual and technical arrangements
with such agent. The engagement by the Sub-Custodian of one or
more agents shall not relieve the Sub-Custodian of its
responsibilities or liabilities hereunder.
(b) 17f-5 Sub-Custodians. Securities, funds and other
property of the Fund may be held by sub-custodians appointed
pursuant to the provisions of this Section 2.11 (each, a "17f-5
Sub-Custodian"). The Sub-Custodian may, at any time and from time
to time, appoint any bank or trust company (that meets the
requirements of a custodian or a foreign custodian under the
Investment Company Act of 1940 and the rules and regulations
thereunder, including without limitation Rule 17f-5 thereunder, or
that has received an order of the Securities and Exchange
Commission ("SEC") exempting it from any of such requirements that
it does not meet) to act as a 17f-5 Sub-Custodian for the Fund,
provided that the Fund shall have approved in writing (1) any such
bank or trust company and the sub-custodian agreement to be
entered into between such bank or trust company and the Sub-
Custodian, and (2) the 17f-5 Sub-Custodian's offices or branches
at which the 17f-5 Sub-Custodian is authorized to hold securities,
cash and other property of the Fund. Upon such approval by the
Fund, the Sub-Custodian is authorized on behalf of the Fund to
notify each 17f-5 Sub-Custodian of its appointment as such. The
Sub-Custodian may, at any time in its discretion, remove any bank
or trust company that has been appointed as a 17f-5 Sub-Custodian.
Those 17f-5 Sub-Custodians and their offices or branches
which the Fund has approved to date are set forth on Schedule C
hereto. Such Schedule C shall be amended from time to time as
17f-5 Sub-Custodians, branches or offices are changed, added or
deleted. The Custodian shall be responsible for informing the
Sub-Custodian sufficiently in advance of a proposed investment
which is to be held at a location not listed on Schedule C, in
order that there shall be sufficient time for the Fund to give the
approval required by the preceding paragraph and for the Sub-
Custodian to put the appropriate arrangements in place with such
17f-5 Sub-Custodian pursuant to such sub-custodian agreement.
With respect to the securities and funds held by a 17f-5 Sub-
Custodian, either directly or indirectly, including demand and
interest bearing deposits, currencies or other deposits and
foreign exchange contracts, the Sub-Custodian shall be liable to
the Custodian and the Fund if and only to the extent that such
17f-5 Sub-Custodian is liable to the Sub-Custodian and the Sub-
Custodian recovers under the applicable sub-custodian agreement,
provided, however, that the foregoing limitation shall not apply
if such 17f-5 Sub-Custodian's liability to the Sub-Custodian is
limited because the applicable sub-custodian agreement does not
contain provisions substantially similar to the provisions of
Section 2 (but not including Section 2.12) of this Agreement. The
Sub-Custodian shall also be liable to the Custodian and the Fund
for its own negligence in transmitting any instructions received
by it from the Fund or the Custodian and for its own negligence in
connection with the delivery of any securities or funds held by it
to any such 17f-5 Sub-Custodian.
The Custodian or the Fund may authorize the Sub-Custodian or
one or more of the 17f-5 Sub-Custodians to use the facilities of
one or more foreign securities depositories or clearing agencies
(each, a "Foreign Depository") that is permitted to be used by
registered investment companies by a Rule or Rules of the SEC or
that has received an order of the SEC exempting it from any of
such requirements that it does not meet. The records of the Sub-
Custodian or a 17f-5 Sub-Custodian employing a Foreign Depository
or clearing agency shall identify those securities belonging to
the Fund which are maintained in such a Foreign Depository. The
engagement by the Sub-Custodian of one or more Foreign
Depositories shall not relieve the Sub-Custodian of its
responsibilities or liabilities hereunder. The Foreign
Depositories which the Fund has approved to date are set forth in
Schedule C hereto. Schedule C shall be amended from time to time
as approved Foreign Depositories are changed, added or deleted.
The Custodian shall be responsible for informing the Sub-Custodian
sufficiently in advance of a proposed investment which is to be
held at a location not listed on Schedule C, in order that there
shall be sufficient time for the Fund to give the approval
required by the preceding paragraph and for the Sub-Custodian to
complete the appropriate contractual and technical arrangements
with such Foreign Depository.
In the event that any 17f-5 Sub-Custodian appointed pursuant
to the provisions of this Section 2.11 fails to perform any of its
obligations under the terms and conditions of the applicable sub-
custodian agreement, the Sub-Custodian shall use its best efforts
to cause such 17f-5 Sub-Custodian to perform such obligations. In
the event that the Sub-Custodian is unable to cause such 17f-5
Sub-Custodian to perform fully its obligations thereunder, the
Sub-Custodian shall forthwith upon the Custodian's request
terminate such 17f-5 Sub-Custodian as a sub-custodian for the Fund
and, if necessary or desirable, appoint another 17f-5 Sub-
Custodian in accordance with the provisions of this Section 2.11.
At the election of the Custodian, it shall have the right to
enforce and shall be subrogated to the Sub-Custodian's rights
against any such 17f-5 Sub-Custodian for loss or damage caused the
Fund by such 17f-5 Sub-Custodian.
At the written request of the Fund, the Sub-Custodian will
terminate as a sub-custodian for the Fund any 17f-5 Sub-Custodian
appointed pursuant to the provisions of this Section 2.11 in
accordance with the termination provisions under the applicable
sub-custodian agreement. The Sub-Custodian will not amend any
sub-custodian agreement or agree to change or permit any changes
thereunder except upon the prior written approval of the Fund.
In the event the Sub-Custodian makes any payment to a 17f-5
Sub-Custodian under the indemnification provisions of any sub-
custodian agreement, no more than thirty days after written notice
to the Custodian of the Sub-Custodian's having made such payment,
the Custodian will reimburse the Sub-Custodian the amount of such
payment except in respect of any negligence or misconduct of the
Sub-Custodian.
2.12. DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS.
The Sub-Custodian may deposit and/or maintain securities owned by
the Fund in a clearing agency registered with the Securities and
Exchange Commission under Section 17A of the Securities Exchange
Act of 1934, which acts as a securities depository, or in the
book-entry system authorized by the U.S. Department of the
Treasury or by a federal agency (collectively referred to herein
as "Securities System") in accordance with applicable rules and
regulations (including Rule 17f-4 of the 1940 Act), and subject to
the following provisions:
1) The Sub-Custodian may, either directly or
through one or more agents, keep securities of the Fund in a
Securities System provided that such securities are represented in
an account ("Account") of the Sub-Custodian or such an agent in
the Securities System which shall not include any assets other
than assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of the Sub-Custodian with respect
to securities of the Fund which are maintained in a Securities
System shall identify by book-entry those securities belonging to
the Fund;
3) The Sub-Custodian shall pay for securities
purchased for the account of the Fund upon (i) receipt of advice
from the Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry on the
records of the Sub-Custodian to reflect such payment and transfer
for the account of the Fund. The Sub-Custodian shall transfer
securities sold for the account of the Fund upon (i) receipt of
advice from the Securities System that payment for such securities
has been transferred to the Account, and (ii) the making of an
entry on the records of the Sub-Custodian to reflect such transfer
and payment for the account of the Fund. Copies of all advices
from the Securities System of transfers of securities for the
account of the Fund shall identify the Fund, be maintained for the
Fund by the Sub-Custodian or such an agent and be provided to the
Fund or the Custodian at the Custodian's request. The
Sub-Custodian shall furnish the Custodian confirmation of each
transfer to or from the account of the Fund in the form of a
written advice or notice and shall furnish to the Custodian copies
of daily transaction statements reflecting each day's transactions
in the Securities System for the account of the Fund on the next
business day;
4) The Sub-Custodian shall provide the Custodian
with any report obtained by the Sub-Custodian on the Securities
System's accounting system, internal accounting controls and
procedures for safeguarding securities deposited in the Securities
System;
5) The Sub-Custodian shall utilize only such
Securities Systems as are set forth in a list provided by the
Custodian of Securities Systems approved for use by the Board of
Trustees of the Fund, which list will be amended from time to time
by the Custodian as may be necessary to reflect any subsequent
action taken by the Trustees of the Fund;
6) Anything to the contrary in this Agreement
notwithstanding, the Sub-Custodian shall be liable to the Fund and
the Custodian for any loss or damage to the Fund or the Custodian
resulting from use of the Securities System by reason of any
negligence, misfeasance or misconduct of the Sub-Custodian or any
of its agents or of any of its or their employees or from failure
of the Sub-Custodian or any such agent or employee to enforce
effectively such rights as it may have against the Securities
System. At the election of the Custodian, it shall be entitled to
be subrogated to the rights of the Sub-Custodian with respect to
any claim against the Securities System or any other person which
the Sub-Custodian may have as a consequence of any such loss or
damage if and to the extent that the Fund and the Custodian have
not been made whole for any such loss or damage.
2.13. DEPOSITARY RECEIPTS. Only upon receipt of Proper
Instructions, the Sub-Custodian shall instruct a 17f-5 Sub-
Custodian appointed pursuant to Section 2.11(b) hereof or an agent
of the Sub-Custodian appointed pursuant to Section 2.11(a) hereof
(an "Agent") to surrender securities to the depositary used by an
issuer of American Depositary Receipts or International Depositary
Receipts (hereinafter collectively referred to as "ADRs") for such
securities against a written receipt therefor adequately
describing such securities and written evidence satisfactory to
the 17f-5 Sub-Custodian or Agent that the depositary has
acknowledged receipt of instructions to issue with respect to such
securities ADRs in the name of the Sub-Custodian, or a nominee of
the Sub-Custodian, for delivery to the Sub-Custodian in Boston,
Massachusetts, or at such other place as the Sub-Custodian may
from time to time designate.
Only upon receipt of Proper Instructions, the Sub-Custodian
shall surrender ADRs to the issuer thereof against a written
receipt therefor adequately describing the ADRs surrendered and
written evidence satisfactory to the Sub-Custodian that the issuer
of the ADRs has acknowledged receipt of instructions to cause its
depository to deliver the securities underlying such ADRs to a
17f-5 Sub-Custodian or an Agent.
2.14. FOREIGN EXCHANGE TRANSACTIONS AND FUTURES
CONTRACTS. Only upon receipt of Proper Instructions, the Sub-
Custodian shall enter into foreign exchange contracts or options
to purchase and sell foreign currencies for spot and future
delivery on behalf and for the account of the Fund or shall enter
into futures contracts or options on futures contracts. Such
transactions may be undertaken by the Sub-Custodian with such
banking institutions, including the Sub-Custodian and 17f-5 Sub-
Custodian(s) appointed pursuant to Section 2.11(b), as principals,
as approved and authorized by the Fund. In connection with such
transaction, the Sub-Custodian is authorized to make free outgoing
payments of cash in the form of U.S. Dollars or foreign currency
without receiving confirmation of a foreign exchange contract,
futures contract or option thereon or confirmation that the
countervalue currency completing the foreign exchange contract or
futures contract has been delivered or received or that the option
has been delivered or received. Foreign exchange contracts,
futures contracts and options, other than those executed with the
Sub-Custodian as principal, shall for all purposes of this
Agreement be deemed to be portfolio securities of the Fund.
2.15. OPTION TRANSACTIONS. Only upon receipt of Proper
Instructions, the Sub-Custodian shall enter into option
transactions in accordance with the provisions of any agreement
among the Fund, the Custodian, and/or the Sub-Custodian and a
broker-dealer.
2.16. OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The
Sub-Custodian shall execute ownership and other certificates and
affidavits for all federal and state tax purposes in connection
with receipt of income or other payments with respect to
securities held by it hereunder and in connection with transfers
of securities.
2.17. PROXIES. The Sub-Custodian shall, with respect
to the securities held hereunder, cause to be promptly executed by
the registered holder of such securities, if the securities are
registered other than in the name of the Fund, all proxies that
are received by the Sub-Custodian, without indication of the
manner in which such proxies are to be voted, and shall promptly
deliver to the Custodian such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.18. COMMUNICATIONS RELATING TO FUND PORTFOLIO
SECURITIES. The Sub-Custodian shall transmit promptly to the
Custodian all written information (including, without limitation,
pendency of calls and maturities of securities and expirations of
rights in connection therewith) received by the Sub-Custodian from
issuers of the securities being held for the account of the Fund.
With respect to tender or exchange offers, the Sub-Custodian shall
transmit promptly to the Custodian all written information
received by the Sub-Custodian from issuers of the securities whose
tender or exchange is sought and from the party (or his agents)
making the tender or exchange offer. If the Fund desires to take
action with respect to any tender offer, exchange offer or any
other similar transactions, the Custodian shall notify the
Sub-Custodian of the action the Fund desires the Sub-Custodian to
take; provided, however, that the Sub-Custodian shall not be
liable to the Fund or the Custodian for the failure to take any
such action unless Proper Instructions are received by the
Sub-Custodian at least two business days prior to the date on
which the Sub-Custodian is to take such action, or in the case of
foreign securities, such longer periods as shall have been agreed
upon in writing by the Custodian and the Sub-Custodian, which may
be in the form of written operating procedures or standards.
2.19. PROPER INSTRUCTIONS. Proper Instructions as used
throughout this Agreement means a writing signed or initialed by
one or more persons who are authorized by the Trustees of the Fund
and by the Custodian. Each such writing shall set forth the
specific transaction or type of transaction involved. Oral
instructions will be considered Proper Instructions if the
Sub-Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the
transaction involved. The Custodian shall cause all oral
instructions to be confirmed in writing. Proper Instructions
shall also include communications effected directly between the
Custodian and Sub-Custodian by electro-mechanical or electronic
devices, provided that the Custodian and the Sub-Custodian have
approved such procedures. Notwithstanding the foregoing, no
Trustee, officer, employee or agent of the Fund
shall be permitted access to any securities or similar investments
of the Fund deposited with the Sub-Custodian or any agent for any
reason except in accordance with the provisions of Rule 17f-2
under the 1940 Act.
2.20. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY. The
Sub-Custodian may in its discretion, without express authority
from the Custodian:
1) make payments to itself or others for minor
expenses of handling securities or other similar items relating to
its duties under this Agreement, provided that all such payments
shall be accounted for to the Custodian;
2) surrender securities in temporary form for
securities in definitive form;
3) endorse for collection, in the name of the
Fund, checks, drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary
details in connection with the sale, exchange, substitution,
purchase, transfer and other dealings with the securities and
property of the Fund held by the Sub-Custodian hereunder except as
otherwise directed by the Custodian.
2.21. EVIDENCE OF AUTHORITY. The Sub-Custodian shall
be protected in acting upon any instruction, notice, request,
consent, certificate or other instrument or paper reasonably
believed by it to be genuine and to have been properly executed by
or on behalf of the Fund or the Custodian as custodian of the
Fund.
2.22. PERFORMANCE STANDARDS. The Sub-Custodian shall
use its best efforts to perform its duties hereunder in accordance
with such standards as are agreed upon from time to time by the
Custodian and the Sub-Custodian.
3. RECORDS. The Sub-Custodian shall cooperate with and
supply necessary information to the entity or entities appointed
by the Trustees of the Fund to keep the books of account of the
Fund or, if directed in writing to do so by the Custodian, shall
itself keep such books of account. The Sub-Custodian shall create
and maintain all records relating to its activities and
obligations under this Agreement in such manner as will meet the
obligations of the Fund under the 1940 Act, with particular
attention to Sections 17(f) and 31 thereof and Rules 17f-2, 31a-1
and 31a-2 thereunder; the Sub-Custodian shall also create and
maintain such records as are required by applicable federal and
state tax laws, and any other law or administrative rules or
procedures which may be applicable to the Fund or the Custodian,
such laws, rules or procedures to be specified by the Custodian
from time to time. All such records shall be the property of the
Fund and shall at all times during the regular business hours of
the Sub-Custodian be open for inspection by duly authorized
officers, employees or agents of the Custodian and the Fund and
employees and agents of the Securities and Exchange Commission.
The Sub-Custodian shall, at the Custodian's request, supply the
Custodian with a tabulation of securities owned by the Fund and
held under this Agreement and shall, when requested to do so by
the Custodian and for such compensation as shall be agreed upon
between the Custodian and Sub-Custodian, include certificate
numbers in such tabulations.
4. Opinion and Reports of the Fund's Independent Accountant.
The Sub-Custodian shall take all reasonable actions, as the
Custodian may from time to time request, to furnish such
information with respect to its activities hereunder as the Fund's
independent public accountant may request in connection with the
accountant's verification of the Fund's securities and similar
investments as required by Rule 17f-2 under the 1940 Act, the
preparation of the Fund's registration statement and amendments
thereto, the Fund's reports to the Securities and Exchange
Commission and with respect to any other requirements of such
Commission.
5. Reports of Sub-Custodian's Independent Accountant. The
Sub-Custodian shall provide the Custodian, at such times as the
Custodian may reasonably require, with reports by an independent
public accountant on the accounting system, internal accounting
controls and procedures for safeguarding securities, including
securities deposited and/or maintained in a Securities System,
relating to the services provided by the Sub-Custodian under this
Agreement; such reports, which shall be of sufficient scope and in
sufficient detail as may reasonably be required by the Custodian,
shall provide reasonable assurance that any material inadequacies
would be disclosed by such examination, and if there are no such
inadequacies, shall so state.
6. Compensation. The Sub-Custodian shall be entitled to
reasonable compensation for its services and expenses as
sub-custodian, as agreed upon from time to time between the
Custodian and the Sub-Custodian.
7. Responsibility of Sub-Custodian. The Sub-Custodian shall
exercise reasonable care and diligence in carrying out the
provisions of this Agreement and shall not be liable to the Fund
or the Custodian for any action taken or omitted by it in good
faith without negligence or willful misconduct. So long as and to
the extent that it is in the exercise of reasonable care, the
Sub-Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received
by it or delivered by it pursuant to this Agreement and shall be
held harmless in acting upon any notice, request, consent,
certificate or other instrument reasonably believed by it to be
genuine and, if in writing, reasonably believed to be signed by
the proper party or parties. It shall be entitled to rely on and
may act upon advice of counsel (who may be counsel for the Fund)
on all matters and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
Notwithstanding the foregoing, the responsibility of the
Sub-Custodian with respect to redemptions effected by check shall
be in accordance with a separate agreement entered into between
the Custodian and the Sub-Custodian. It is also understood that
the Sub-Custodian shall not be liable for any loss resulting from
a Sovereign Risk. A "Sovereign Risk" shall mean nationalization,
expropriation, devaluation, revaluation, confiscation, seizure,
cancellation, destruction or similar action by any governmental
authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of
currency restrictions, exchange controls, taxes, levies or other
charges affecting the Fund's property; or acts of war, terrorism,
insurrection or revolution; or any other similar act or event
beyond the Sub-Custodian's control.
The Sub-Custodian shall protect the Fund and the Custodian
from losses to the Fund resulting from any act or failure to act
of the Sub-Custodian in violation of its duties hereunder or of
any law applicable to the Sub-Custodian's duties hereunder.
If the Custodian requires the Sub-Custodian to take any
action with respect to securities, which action involves the
payment of money or which action may, in the opinion of the
Sub-Custodian, result in the Sub-Custodian's being liable for the
payment of money or incurring liability of some other form, the
Custodian, as a prerequisite to requiring the Sub-Custodian to
take such action, shall provide indemnity to the Sub-Custodian in
an amount and form satisfactory to the Sub-Custodian.
The Custodian agrees to indemnify and hold harmless the
Sub-Custodian from and against all taxes, charges, expenses,
assessments, claims and liabilities (including counsel fees)
(collectively, "Authorized Charges") incurred or assessed against
it or its nominee in connection with the performance of this
Agreement, except such as may arise from its own negligent action,
negligent failure to act or willful misconduct. The Sub-Custodian
is authorized to charge any account of the Fund for such items and
such fees. To secure any such Authorized Charges and any advances
of cash or securities made by the Sub-Custodian to or for the
benefit of the Fund for any purpose which results in the Fund's
incurring an overdraft at the end of any business day or for
extraordinary or emergency purposes during any business day, the
Custodian on behalf of the Fund hereby represents that it has
obtained from the Fund authorization to apply available cash in
any account maintained by the Sub-Custodian on behalf of the Fund
and a security interest in and pledge to the Sub-Custodian of
securities of the Fund held by the Sub-Custodian (including those
which may be held in a Securities System) up to a maximum of 10%
of the value of the net assets held by the Sub-Custodian for the
purposes of securing payment of any Authorized Charges and any
advances of cash or securities, and that the Fund has agreed, from
time to time, to designate in writing, or to cause its investment
adviser to, or permit the Custodian to, designate in writing, the
securities subject to such security interest and pledge with such
specificity and detail as the Sub-Custodian may reasonably request
(and in the absence of such designation to permit the Sub-
Custodian so to designate securities). The Custodian hereby
grants on behalf of the Fund a security interest and pledge to the
Sub-Custodian, as aforesaid, in securities and available cash, as
security for any Authorized Charges and any advances of cash or
securities and agrees that, should the Fund or the Custodian fail
to repay promptly any Authorized Charges and any advances of cash
or securities, the Sub-Custodian shall be entitled to use such
available cash and to dispose of such pledged securities as is
necessary to repay any such Authorized Charges or any advances of
cash or securities and to exercise the rights of a secured party
under the Uniform Commercial Code.
The Custodian agrees not to amend the third paragraph of
Section 9 of the Custodian Agreement unless it provides the Sub-
Custodian with at least thirty (30) days' prior written notice of
the substance of any proposed amendments, provided that the
foregoing shall not be construed to in any way to provide that the
Sub-Custodian's consent shall be required to make such an
amendment effective or that the Sub-Custodian's failure to give
such consent shall in any way affect its obligations under this
Agreement.
8. SUCCESSOR SUB-CUSTODIAN. If a successor sub-custodian
shall be appointed by the Custodian, the Sub-Custodian shall, upon
termination and upon receipt of Proper Instructions, cause to be
delivered to such successor sub-custodian, duly endorsed and in
the form for transfer, all securities, funds and other property of
the Fund then held by it and all instruments held by the
Sub-Custodian related thereto and cause the transfer to an account
of the successor sub-custodian all of the Fund's securities held
in any Securities Systems.
If no such successor sub-custodian shall be appointed, the
Sub-Custodian shall, in like manner, upon receipt of a certified
copy of a vote of the Trustees of the Fund, cause to be
transferred such securities, funds and other property in
accordance with such vote.
In the event that no written order designating a successor
sub-custodian or certified copy of a vote of the Trustees shall
have been delivered to the Sub-Custodian on or before the date
when such termination shall become effective, then the Sub-
Custodian shall have the right to deliver to a bank or trust
company, which meets the requirements of the 1940 Act and the
rules and regulations thereunder, all securities, funds and other
properties of the Fund. Thereafter, such bank or trust company
shall be the successor of the Sub-Custodian under this Agreement.
In the event that securities, funds and other property remain
in the possession of the Sub-Custodian after the date of
termination hereof owing to failure of the Custodian to obtain a
certified copy of the Trustees appointing a successor sub-
custodian, the Sub-Custodian shall be entitled to fair
compensation for its services during such period as the Sub-
Custodian retains possession of such securities, funds and other
property and the provisions of this Agreement relating to the
duties and obligations of the Sub-Custodian shall remain in full
force and affect.
9. EFFECTIVE PERIOD; TERMINATION AND AMENDMENT. This
Agreement shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the
parties hereto and may be terminated by either party by an
instrument in writing delivered or mailed, postage prepaid, to the
other party, such termination to take effect not sooner than
thirty (30) days after the date of mailing; provided, that either
party may at any time immediately terminate this Agreement in the
event of the appointment of a conservator or receiver for the
other party or upon the happening of a like event at the direction
of an appropriate regulatory agency or court of competent
jurisdiction. No provision of this Agreement may be amended or
terminated except by a statement in writing signed by the party
against which enforcement of the amendment or termination is
sought.
Upon termination of this Agreement, the Custodian shall pay
to the Sub-Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the
Sub-Custodian for its reimbursable costs, expenses and
disbursements. The provisions of Section 7, including, until any
Authorized Charges and any advances of cash or securities referred
to therein are repaid, all liens and security interests created
pursuant thereto, and all rights to indemnification, shall survive
any termination of this Agreement.
10. INTERPRETATION. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to
the subject matter hereof. In connection with the operation of
this Agreement, the Sub-Custodian and the Custodian may from time
to time agree in writing on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint
opinion be consistent with the general tenor of this Agreement.
No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this
Agreement.
11. GOVERNING LAW. This Agreement is executed and delivered
in The Commonwealth of Massachusetts and shall be governed by and
construed according to the internal laws of said Commonwealth,
without regard to principles of conflicts of law.
12. NOTICES. Notices and other writings delivered or mailed
postage prepaid to the Custodian addressed to the Custodian
attention: George H. Crane, Senior Vice President, The Putnam
Companies, 99 High Street, Boston, MA 02109 or to such other
person or address as the Custodian may have designated to the Sub-
Custodian in writing, or to the Sub-Custodian attention:
or to such other address as the SubCustodian may have designated
to the Custodian in writing, shall be deemed to have been properly
delivered or given hereunder to the respective addressee.
13. BINDING OBLIGATION. This Agreement shall be binding on
and shall inure to the benefit of the Custodian and the Sub-
Custodian and their respective successors and assigns, provided
that neither party hereto may assign this Agreement or any of its
rights or obligations hereunder without the prior written consent
of the other party.
14. PRIOR AGREEMENTS. This Agreement supersedes and
terminates, as of the date hereof, all prior contracts between the
Fund or the Custodian and the Sub-Custodian relating to the
custody of the Fund's assets.
15. DECLARATION OF TRUST. A copy of the Declaration of
Trust of the Fund is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that the
obligations of or arising out of this instrument are not binding
upon any of the Trustees or beneficiaries individually but binding
only upon the assets and property of the Fund.
IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name and behalf by its duly
authorized representative and its seal to be hereunder affixed as
of the day of , 199 .
PUTNAM FIDUCIARY TRUST COMPANY
By--------------------------------
Name:
Title:
(Sub-Custodian)
By---------------------------------
Name:
Title:
The Sub-Custodian and Putnam Investments, Inc. ("Putnam"),
the sole owner of the Custodian, agree that Putnam shall be the
primary obligor with respect to compensation due the Sub-Custodian
pursuant to Section 6 of this Agreement in connection with the
Sub-Custodian's performance of its responsibilities hereunder.
The Custodian and Putnam agree to take all actions necessary and
appropriate to assure that the Sub-Custodian shall be compensated
<PAGE>
in the amounts and on the schedule agreed to by the Custodian and
the Sub-Custodian pursuant to Section 6.
PUTNAM INVESTMENTS, INC.
By:-------------------------------
Name:
Title:
PUTNAM FIDUCIARY TRUST COMPANY
By:--------------------------------
Name:
Title:
(Sub-Custodian)
By:----------------------------------
Name:
Title:
S:\shared\boiler\newfunds\pre-eff\NF-27d.rev<PAGE>
EXHIBIT 9
ROPES & GRAY
One International Place
Boston, Massachusetts 02110-2624
(617) 951-7000
January 24, 1994
Putnam Tax Exempt Money Market Fund (the "Fund")
One Post Office Square
Boston, Massachusetts 02109
Gentlemen:
You have informed us that you propose to offer and sell from
time to time 40,233,064 of your shares of beneficial interest
(the "Shares"), for cash or securities at the net asset value per
share, determined in accordance with your Bylaws, which Shares
are in addition to your shares of beneficial interest which you
have previously offered and sold or which you are currently
offering.
We have examined copies of (i) your Agreement and Declaration
of Trust as on file at the office of the Secretary of State of
The Commonwealth of Massachusetts, which provides for an
unlimited number of authorized shares of beneficial interest, and
(ii) your Bylaws, which provide for the issue and sale by the
Fund of such Shares.
We assume that appropriate action will be taken to register
or qualify the sale of the Shares under any applicable state and
federal laws regulating offerings and sales of securities.
Based upon the foregoing, we are of the opinion that:
1. The Fund is a legally organized and validly existing
voluntary association with transferable shares of beneficial
interest under the laws of The Commonwealth of Massachusetts and
is authorized to issue an unlimited number of shares of
beneficial interest.
2. Upon the issue of any of the Shares referred to in the
first paragraph hereof for cash or securities at net asset value,
and the receipt of the appropriate consideration therefor as
provided in your Bylaws, such Shares so issued will be validly
issued, fully paid and nonassessable by the Fund.
<PAGE>
ROPES & GRAY
Putnam Tax Exempt
Money Market Fund -2- January 24, 1994
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 obligations of the Fund. However, the
Agreement and Declaration of Trust disclaims shareholder
liability for acts or obligations of the Fund and requires that
notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Fund or 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 for
the obligations of the Fund solely by reason of his being or
having been a shareholder. Thus, the risk of a shareholder's
incurring financial loss on account of shareholder liability 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 Securities Act of 1933, as amended, and the
provisions of Rule 24e-2 under the Investment Company Act of
1940, as amended. We consent to the filing of this opinion with
and as a part of Post-Effective Amendment No. 7 to your
Registration Statement No. 33-15238.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE>
EXHIBIT 10
December 31, 1992
Putnam Tax Exempt Income Fund
One Post Office Square
Boston, MA 02109
Gentlemen:
In connection with your sale to us today of 111.111 Class B
Shares of beneficial interest (the "Shares") in Putnam Tax Exempt
Income Fund (the "Fund"), we understand that: (i) the Shares have
not been registered under the Securities Act of 1933, as amended;
(ii) your sale of the Shares to us is in reliance on the sale's
being exempt under Section 4(2) of the Act as not involving any
public offering; and (iii) in part, your reliance on such
exemption is predicated on our representation, which we hereby
confirm, that we are acquiring the Shares for investment and for
our own account as the sole beneficial owner hereof, and not with
a view to or in connection with any resale or distribution of any
or all of the Shares or of any interest therein. We hereby agree
that we will not sell, assign or transfer the Shares or any
interest therein except upon repurchase or redemption by the Fund
unless and until the Shares have been registered under the
Securities Act of 1933, as amended, or you have received an
opinion of your counsel indicating to your satisfaction that such
sale, assignment or transfer will not violate the provisions of
the Securities Act of 1933, as amended, or any rules and
regulations promulgated thereunder.
This letter is intended to take effect as an instrument
under seal, shall be construed under the laws of Massachusetts,
and is delivered at Boston, Massachusetts, as of the date written
above.
Very truly yours,
THE PUTNAM COMPANIES, INC.
/s/ Steven E. Asher
By: -----------------------------
Steven E. Asher
Senior Vice President
<PAGE>
EXHIBIT 11
PUTNAM TAX EXEMPT INCOME FUND
CLASS A DISTRIBUTION PLAN AND AGREEMENT
This Plan and Agreement (the "Plan") constitutes the
Distribution Plan for the Class A shares of Putnam Tax Exempt
Income Fund, a Massachusetts business trust (the "Trust"),
adopted pursuant to the provisions of Rule 12b-1 under the
Investment Company Act of 1940 (the "Act") and the related
agreement between the Trust and Putnam Mutual Funds Corp.
("PMF"), the principal underwriter of the Trust's shares. During
the effective term of this Plan, the Trust may make payments to
PMF upon the terms and conditions hereinafter set forth:
SECTION 1. The Trust may make payments to PMF, in the form
of fees or reimbursements, to compensate PMF for services
provided and expenses incurred by it for purposes of promoting
the sale of Class A shares of the Fund, reducing redemptions of
Class A shares, or maintaining or improving services provided to
Class A shareholders by PMF and investment dealers. The amount
of such payments and the purposes for which they are made shall
be determined by the Qualified Trustees (as defined below).
Payments under this Plan shall not exceed in any fiscal year the
annual rate of 0.35% of the average net asset value of the Class
A shares of the Trust, as determined at the close of each
business day during the year. A majority of the Qualified
Trustees may, at any time and from time to time, reduce the
amount of such payments, or may suspend the operation of the Plan
for such period or periods of time as they may determine.
SECTION 2. This Plan shall not take effect until:
(a) it has been approved by a vote of a majority of
the outstanding Class A shares of the Trust; and
(b) it has been approved, together with any related
agreements, by votes, of the majority (or whatever greater
percentage may, from time to time, be required by Section
12(b) of the Act or the rules and regulations thereunder) of
both (i) the Trustees of the Trust, and (ii) the Qualified
Trustees of the Trust, cast in person at a meeting called
for the purpose of voting on this Plan or such agreement.
SECTION 3. This Plan shall continue in effect for a period
of more than one year after it takes effect only so long as such
continuance is specifically approved at least annually in the
manner provided for approval of this Plan in Section 2(b).
SECTION 4. PMF shall provide to the Trustees of the Trust,
and the Trustees shall review, at least quarterly, a written
report of the amounts so expended and the purposes for which such
expenditures were made.
SECTION 5. This Plan may be terminated at any time by vote
of a majority of the Qualified Trustees, or by vote of a majority
of the outstanding Class A shares of the Trust.
SECTION 6. All agreements with any person relating to
implementation of this Plan shall be in writing, and any
agreement related to this Plan shall provide:
(a) that such agreement may be terminated at any time,
without payment of any penalty, by vote of a majority of the
Qualified Trustees or by vote of a majority of the
outstanding Class A shares of the Trust, on not more than 60
days' written notice to any other party to the agreement;
and
(b) that such agreement shall terminate automatically
in the event of its assignment.
SECTION 7. This Plan may not be amended to increase
materially the amount of distribution expenses permitted pursuant
to Section 1 hereof without the approval of a majority of the
outstanding Class A shares of the Trust, and all material
amendments to this Plan shall be approved in the manner provided
for approval of this Plan in Section 2(b).
SECTION 8. As used in this Plan, (a) the term "Qualified
Trustees" shall mean those Trustees of the Trust who are not
interested persons of the Trust, and have no direct or indirect
financial interest in the operation of this Plan or any
agreements related to it, (b) the term "majority of the
outstanding Class A shares of the Trust" means the affirmative
vote, at a duly called and held meeting of Class A shareholders
of the Trust, (i) of the holders of 67% or more of the Class A
shares of the Trust present (in person or by proxy) and entitled
to vote at such meeting, if the holders of more than 50% of the
outstanding Class A shares of the Trust entitled to vote at such
meeting are present in person or by proxy, or (ii) of the holders
of more than 50% of the outstanding Class A shares of the Trust
entitled to vote at such meeting, whichever is less, and (c) the
<PAGE>
terms "assignment" and "interested person" shall have the
respective meaning specified in the Act and the rules and
regulations thereunder, subject to such exemptions as may be
granted by the Securities and Exchange Commission.
SECTION 9. A copy of the Agreement and Declaration of Trust
of the Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts and notice is hereby given that
this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually, and that the obligations
of or arising out of this instrument are not binding upon any of
the Trustees, officers or shareholders individually but are
binding only upon the assets and property of the Trust.
Executed as of January 1, 1993
PUTNAM MUTUAL FUNDS CORP. PUTNAM TAX EXEMPT INCOME FUND
/s/ William N. Shiebler /s/ Charles E. Porter
By: ------------------------ By: ------------------------
<PAGE>
EXHIBIT 12
PUTNAM TAX EXEMPT INCOME FUND
CLASS B
DISTRIBUTION PLAN AND AGREEMENT
This Plan and Agreement (the "Plan") constitutes the
Distribution Plan for the Class B shares of Putnam Tax Exempt
Income Fund, a Massachusetts business trust (the "Trust"),
adopted pursuant to the provisions of Rule 12b-1 under the
Investment Company Act of 1940 (the "Act") and the related
agreement between the Trust and Putnam Mutual Funds Corp.
("PMF"). During the effective term of this Plan, the Trust may
incur expenses primarily intended to result in the sale of its
Class B shares upon the terms and conditions hereinafter set
forth:
SECTION 1. The Trust shall pay to PMF a monthly fee at the
annual rate of 1.00% of the average net asset value of the Class
B shares of the Trust, as determined at the close of each
business day during the month, to compensate PMF for services
provided and expenses incurred by it in connection with the
offering of the Trust's Class B shares, which may include,
without limitation, the payment by PMF to investment dealers of
commissions on the sale of Class B shares, as set forth in the
then current Prospectus or Statement of Additional Information of
the Trust and the payment of a service fee of up to 0.25% of such
net asset value for the purposes of maintaining or improving
services provided to shareholders by PMF and investment dealers.
Such fees shall be payable for each month within 15 days after
the close of such month. A majority of the Qualified Trustees,
as defined below, may, from time to time, reduce the amount of
such payments, or may suspend the operation of the Plan for such
period or periods of time as they may determine.
SECTION 2. This Plan shall not take effect until:
(a) it has been approved by a vote of a majority of
the outstanding Class B shares of the Trust;
(b) it has been approved, together with any related
agreements, by votes of the majority (or whatever
greater percentage may, from time to time, be
required by Section 12 (b) of the Act or the rules
and regulations thereunder) of both (i) the
Trustees of the Trust, and (ii) the Qualified
Trustees of the Trust, cast in person at a meeting
called for the purpose of voting on this Plan or such agreement;
and
(c) the Trust has received the proceeds of the initial
public offering of its Class B shares.
SECTION 3. This Plan shall continue in effect for a period
of more than one year after it takes effect only so long as such
continuance is specifically approved at least annually in the
manner provided for approval of this Plan in Section 2 (b).
SECTION 4. PMF shall provide to the Trustees of the Trust,
and the Trustees shall review, at least quarterly, a written
report of the amounts so expended and the purposes for which such
expenditures were made.
SECTION 5. This Plan may be terminated at any time by vote
of a majority of the Qualified Trustees or by vote of the
majority of the outstanding Class B shares of the Trust.
SECTION 6. All agreements with any person relating to
implementation of this Plan shall be in writing, and any
agreement related to this Plan shall provide:
(a) that such agreement may be terminated at any time,
without payment of any penalty, by vote of a
majority of the Qualified Trustees or by vote of a
majority of the outstanding Class B shares of the
Trust, on not more than 60 days' written notice to
any other party to the agreement; and
(b) that such agreement shall terminate automatically
in the event of its assignment.
SECTION 7. This Plan may not be amended to increase
materially the amount of distribution expenses permitted pursuant
to Section 1 hereof without the approval of a majority of the
outstanding Class B shares of the Trust and all material
amendments to this Plan shall be approved in the manner provided
for approval of this Plan in Section 2(b).
SECTION 8. As used in this Plan, (a) the term "Qualified
Trustees" shall mean those Trustees of the Trust who are not
interested persons of the Trust, and have no direct or indirect
financial interest in the operation of this Plan or any
agreements related to it, and (b) the term "majority of the
outstanding Class B shares of the Trust" means the affirmative
vote, at a duly called and held meeting of Class B shareholders
of the Trust, (i) of the holders of 67% or more of the Class B
shares of the Trust present (in person or by proxy) and entitled
to vote at such meeting, if the holders of more than 50% of the
outstanding Class B shares of the Trust entitled to vote at such
meeting are present in person or by proxy, or (ii) of the holders
of more than 50% of the outstanding Class B shares of the Trust
entitled to vote at such meeting, whichever is less, and (c) the
terms "assignment" and "interested person" shall have the
respective meanings specified in the Act and the rules and
regulations thereunder, subject to such exemptions as may be
granted by the Securities and Exchange Commission.
SECTION 9. A copy of the Agreement and Declaration of Trust
of the Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts and notice is hereby given that
this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually, and that the obligations
of or arising out of this instrument are not binding upon any of
the Trustees, officers or shareholders individually but are
binding only upon the assets and property of the Trust.
Executed as of January 1, 1993.
PUTNAM MUTUAL FUNDS CORP. PUTNAM TAX EXEMPT INCOME FUND
/s/ William N. Shiebler /s/ Charles E. Porter
By: -------------------------- By: ------------------------
William N. Shiebler Executive Vice President
President
<PAGE>
EXHIBIT 13
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Tax Exempt Income Fund - Class A Shares
Fiscal period ending: September 30, 1993
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T) n
n = Number of Time Periods 1 Year 5 Years 10 Years
P = Initial Investment $1,000 $1,000 $1,000
ERV = Ending Redeemable Value $1,088.97$1,598.81 $2,777.98
T = Average Annual
Total Return +8.90% +9.84% +10.76%
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $11,567,967
Expenses $1,534,923
Reimbursement $0
Average shares 250,673,347
NAV $9.66
Sales Charge 4.75%
POP $10.14
Yield at POP 4.78%
<PAGE>
Putnam Tax Exempt Income Fund - Class A Shares (cont.)
TAX-EXEMPT EQUIVALENT YIELD
Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)
4.78% 4.78%
- -------- = ------ = 7.91%
1-39.6% .604
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Tax Exempt Income Fund - Class B Shares
Fiscal period ending: September 30, 1993
Inception date (if less than 10 years of performance): January 1,
1993
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T) n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment n/a n/a $1,000
ERV = Ending Redeemable Value n/a n/a $1,060.98
T = Average Annual
Total Return n/a n/a +6.10%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $610,070
Expenses $151,509
Reimbursement $0
Average shares 13,215,156
NAV $9.66
Yield at NAV 4.35%
<PAGE>
Putnam Tax Exempt Income Fund - Class B Shares (cont.)
TAX-EXEMPT EQUIVALENT YIELD
Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)
4.35% 4.35%
- ------ = ------ = 7.20%
1-39.6% .604
<PAGE>
EXHIBIT 14
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Tax Exempt Money Market Fund
Fiscal periods ending: September 30, 1993
Inception date (if less than 10 years of performance):
October 26, 1987
7 DAY YIELD FORMULA - DIVIDENDS DECLARED FOR LAST 7 DAYS / 7 *365
TOTAL DIVIDENDS DECLARED
PER SHARE FOR LAST 7 DAYS: .000363
7 DAY YIELD = 1.89%
CALCULATION OF 7 DAY EFFECTIVE YIELD
7 DAY YIELD 52.142857
( 1 + --------------------
) -1
(100 * 52.142587)
7 DAY EFFECTIVE YIELD= 1.91%
