As filed with the Securities and Exchange Commission on
January 19, 1995
Registration No.
2-57165
811-2675
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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
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 26
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and
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
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ACT OF 1940
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Amendment No. 20
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(Check appropriate box or boxes)
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PUTNAM TAX EXEMPT INCOME FUND
(Exact name of registrant as specified in charter)
One Post Office Square, Boston, Massachusetts 02109
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code
(617) 292-1000
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It is proposed that this filing will become effective
(check appropriate box)
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/ / immediately upon filing pursuant to paragraph (b)
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/ X / on February 1, 1995 pursuant to paragraph (b)
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/ / 60 days after filing pursuant to paragraph
(a) (1)
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/ / on (date) pursuant to paragraph (a) (1) of Rule
---- 485
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/ / 75 days after filing pursuant to paragraph (a)(2)
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/ / on (date) pursuant to paragraph (a)(2) of rule 485.
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If appropriate, check the following box:
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/ / this post-effective amendment designates a new
- ---- effective date for a previously filed post-effective
amendment.
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JOHN R. VERANI, Vice President
PUTNAM TAX EXEMPT INCOME 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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The Registrant has registered an indefinite number
or amount of securities under the Securities Act of 1933 pursuant
to Rule 24f-2. A Rule 24f-2 Notice for the fiscal
year ended September 30, 1994 was filed on November 29,
1994.
<PAGE>
PUTNAM TAX EXEMPT INCOME 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....................... Objective; How
objective is
pursued; Organization
and history
5. Management of the Fund........... Expenses summary; How
the Fund is
managed; About Putnam
Investments, Inc.
5A. Management's Discussion of
Fund
Performance. ............... . (Contained in the Annual
Report of the
Registrant)
6. Capital Stock and Other
Securities....................... Cover Page; Organization
and history; How
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
the Fund values
its shares
8. Redemption or Repurchase......... How to buy shares; How
to sell shares; How to
exchange shares;
Organization and history
9. Pending Legal
Proceedings........ Not Applicable
PART B
N-1A ITEM NO. LOCATION
10. Cover Page....................... Cover Page
11. Table of Contents................ Cover Page
12. General Information and History.. Organization and history
(Part A)
13. Investment Objectives and
Policies......................... How objective is
pursued (Part A);
Investment Restrictions
of the Fund ;
Miscellaneous Investment
Practices
14. Management of the Registrant..... Management of the Fund
(Trustees; Officers);
Additional Officers of
the Fund
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 ;
Investor Servicing Agent
and Custodian) ; Fund
Charges and Expenses;
Distribution Plans;
Independent Accountants
and Financial
Statements
<PAGE>
17. Brokerage Allocation............. Management of the Fund
(Portfolio
Transactions); Fund
Charges and Expenses
PART B
N-1A ITEM NO. LOCATION
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); How to Buy
Shares;
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
Fund ; 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,
1995
PUTNAM TAX EXEMPT INCOME FUND
CLASS A, B AND M SHARES
INVESTMENT STRATEGY: TAX-ADVANTAGED
This Prospectus explains concisely what you should know before
investing in Class A, B or M shares of Putnam Tax Exempt
Income Fund (the "Fund") . Please read it carefully and keep
it for future reference. You can find more detailed information
about the Fund in the February 1, 1995 Statement of
Additional Information, as amended from time to time. For a free
copy of the Statement or other information , 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 FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION , ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY AND INVOLVE RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL .
BOSTON * LONDON * TOKYO
<PAGE>
ABOUT THE FUND
Expenses summary 3
.....................................................
Financial highlights 4
.....................................................
Objective 6
.....................................................
How objective is pursued 6
.....................................................
Risk factors 9
.....................................................
How performance is shown
14
.....................................................
How the Fund is managed
15
.....................................................
Organization and history
16
.....................................................
ABOUT YOUR INVESTMENT
Alternative sales arrangements
17
.....................................................
How to buy shares
18
.....................................................
Distribution Plans
23
.....................................................
How to sell shares
25
.....................................................
How to exchange shares
26
.....................................................
How the Fund values its shares
27
.....................................................
How distributions are made; tax information
28
ABOUT PUTNAM INVESTMENTS, INC.
29
<PAGE>
ABOUT THE FUND
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing in
the Fund. The following table summarizes your
maximum transaction costs from investing in the Fund and
expenses incurred by the Fund based on its most recent
fiscal year. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment over
specified periods.
CLASS A CLASS B CLASS M
SHARES SHARES SHARES
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Charge
Imposed on Purchases
(as a percentage of
offering price) 4.75% NONE* 3.25%*
Deferred Sales Charge 5.0% in the first
(as a percentage year, declining
of the lower of to 1.0% in the
original purchase sixth year, and
price or redemption eliminated
proceeds) NONE** thereafter NONE
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Management Fees 0.47% 0.47% 0.47%
12b-1 Fees 0.20% 0.85% 0.50%
Other Expenses 0.10% 0.09% 0.10%
Total Fund Operating
Expenses 0.77% 1.41% 1.07%
The table is provided to help you understand the expenses of
investing in the Fund and your share of the operating expenses
that the Fund incurs. The 12b-1 fees for Class M shares shown in
the table reflect the amount to which the Trustees currently
limit payments under the Class M Distribution Plan. For Class M
shares, management fees and "Other Expenses" are based on the
operating expenses for the Fund's Class A shares.
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 $71 $88
$138
CLASS B $64 $75 $97 $152***
CLASS M $43 $65 $90
$159
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 $88
$138
CLASS B $14 $45 $77
$152***
CLASS M $43 $65 $90 $159
The Examples do not represent past or future expense levels.
Actual expenses may be greater or less than those shown. Federal
regulations require the Examples to assume a 5% annual return,
but actual annual return has varied.
* The higher 12b-1 fees borne by Class B and Class M
shares may cause long-term shareholders to pay more
than the economic equivalent of the maximum permitted
front-end sales charge on Class A shares .
** A deferred sales charge of up to 1.00% is assessed on
certain redemptions of Class A shares that were
purchased without an initial sales charge as part of an
investment of $1 million or more. See "How to buy shares -
Class A shares."
*** Reflects conversion of Class B shares to Class A
shares (which pay lower ongoing expenses)
approximately eight years after purchase. See "How to buy
shares - Class B shares - Conversion of Class B shares."
FINANCIAL HIGHLIGHTS
The table on the following page presents per share
financial information for Class A and B shares. No Class M
shares were outstanding during these periods . This
information has been audited and reported on by the Fund's
independent accountants. The Report of Independent Accountants
and financial statements included in the Fund's Annual
Report to shareholders for its 1994 fiscal
year are incorporated by reference into this Prospectus.
The Fund's Annual Report, which contains
additional unaudited performance information, is available
without charge upon request.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS *
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
FOR THE PERIOD
JAN. 4, 1993
(COMMENCE-
MENT OF
OPERATIONS)
TO SEPT. 30
YEAR ENDED SEPTEMBER 30
1994 1993
1994 1993 1992 1991
CLASS B
CLASS A
<S> <C> <C> <C>
<C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $9.66 $9.02
$9.66 $9.11 $8.81 $8.29
INVESTMENT OPERATIONS
NET INVESTMENT INCOME .47 .34
.53 .57 .59 .58
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (.98) .64
(.97) .67 .47 .54
TOTAL FROM INVESTMENT OPERATIONS (.51) .98
(.44) 1.24 1.06 1.12
DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME (.49) (.34)
(.54) (.56) (.60) (.58)
IN EXCESS OF NET INVESTMENT INCOME -- --
- -- (.01) -- --
NET REALIZED GAIN ON INVESTMENTS (.07) --
(.07) (.12) (.16) (.02)
IN EXCESS OF NET REALIZED GAIN ON
INVESTMENTS (.06) --
(.06) -- -- --
TOTAL DISTRIBUTIONS (.62) (.34)
(.67) (.69) (.76) (.60)
NET ASSET VALUE, END OF PERIOD $8.53 $9.66
$8.55 $9.66 $9.11 $8.81
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%) (A) (5.51) 11.10(B)
(4.72) 14.27 12.56 13.92
NET ASSET VALUE, END OF PERIOD
(IN THOUSANDS) $213,679 $137,323
$2,232,611 $2,425,661 $1,867,307 $1,513,029
RATIO OF EXPENSES TO AVERAGE
NET ASSETS (%) 1.41 1.04(B)
.77 .74 .66 .59
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS (%) 5.31 3.66(B)
5.97 6.81 6.65 6.75
PORTFOLIO TURNOVER (%) 59.27 43.77(B)
59.27 43.77 58.14 78.04
<FN>
* 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.
(A) TOTAL INVESTMENT RETURN ASSUMES DIVIDEND REINVESTMENT AND DOES
NOT REFLECT THE EFFECT OF SALES CHARGES.
(B) NOT ANNUALIZED.
/TABLE
<PAGE>
<PAGE>
<TABLE>
<CAPTON>
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
TEN
MONTHS
ENDED
YEAR
ENDED SEPTEMBER 30 SEPT. 30
1990 1989
1988 1987 1986 1985
CLASS
A
<S> <C> <C> <C>
<C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $8.54 $8.33
$7.68 $8.59 $7.44 $6.87
INVESTMENT OPERATIONS
NET INVESTMENT INCOME .57 .59
.61 .61 .65 .56
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (.20) .21
.65 (.83) 1.20 .57
TOTAL FROM INVESTMENT OPERATIONS .37 .80
1.26 (.22) 1.85 1.13
DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME (.58) (.59)
(.61) (.61) (.65) (.56)
IN EXCESS OF NET INVESTMENT INCOME -- --
- -- -- -- --
NET REALIZED GAIN ON INVESTMENTS (.04) --
- -- (.08) (.05) --
IN EXCESS OF NET REALIZED GAIN ON
INVESTMENTS -- --
- -- -- -- --
TOTAL DISTRIBUTIONS (.62) (.59)
(.61) (.69) (.70) (.56)
NET ASSET VALUE, END OF PERIOD $8.29 $8.54
$8.33 $7.68 $8.59 $7.44
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%) (A) 4.26 9.93
16.94 (3.10) 25.59 16.90(B)
NET ASSET VALUE, END OF PERIOD
(IN THOUSANDS) $1,306,100 $1,226,679
$1,037,074 $880,658 $625,574 $233,366
RATIO OF EXPENSES TO AVERAGE
NET ASSETS (%) .54 .52
.51 .51 .53 .54(B)
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS (%) 6.67 6.99
7.48 7.09 7.72 7.52(B)
PORTFOLIO TURNOVER (%) 73.70 98.90
112.52 171.00 123.27 249.54(B)
</TABLE> <PAGE>
OBJECTIVE
PUTNAM TAX EXEMPT INCOME FUND SEEKS AS HIGH A LEVEL OF
CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX AS PUTNAM
INVESTMENT MANAGEMENT , INC., THE FUND'S INVESTMENT
MANAGER ("PUTNAM MANAGEMENT"), BELIEVES IS CONSISTENT WITH
PRESERVATION OF CAPITAL . The Fund is not intended
to be a complete investment program, and there is no assurance
that it will achieve its objective.
HOW OBJECTIVE IS PURSUED
BASIC INVESTMENT STRATEGY
PUTNAM TAX EXEMPT INCOME FUND SEEKS ITS OBJECTIVE BY
FOLLOWING THE FUNDAMENTAL INVESTMENT POLICY
OF INVESTING AT LEAST 80% OF ITS NET ASSETS IN LONGER-TERM TAX
EXEMPT SECURITIES (WHICH ARE DESCRIBED BELOW) ,
EXCEPT WHEN 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. Putnam
Management expects that the Fund will generally invest in Tax
Exempt Securities of longer maturities (10 years or more), but
the Fund may invest in Tax Exempt Securities having a broad range
of maturities.
The Fund's investments in Tax Exempt Securities and taxable
obligations will be limited to securities rated at the time of
purchase 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 ("S&P") (AAA, AA, A,
BBB or BB), or unrated securities which Putnam Management
determines are of comparable quality. The Fund
will not purchase a Tax Exempt Security rated both Ba by Moody's
and BB by S&P at the time of purchase, or, if unrated,
determined by Putnam Management 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 are included 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.
<PAGE>
INTEREST INCOME FROM CERTAIN TYPES OF TAX EXEMPT
SECURITIES MAY BE SUBJECT TO FEDERAL ALTERNATIVE MINIMUM TAX
FOR INDIVIDUALS. It is a fundamental policy of the Fund to
exclude securities the interest from which may be subject to
federal alternative minimum tax for individuals from the term
"Tax Exempt Securities" for purposes of determining compliance
with the 80% test described above. More generally, an investment
in the Fund may cause corporate shareholders to be
subject to (or result in increased liability under) the
alternative minimum tax because a portion of
tax-exempt income is generally included in the alternative
minimum taxable income of corporations.
At times Putnam Management may judge that conditions in
the markets for Tax Exempt Securities make pursuing the
Fund's basic investment strategy inconsistent with the best
interests of its shareholders. At such times Putnam Management
may temporarily use alternative strategies, primarily designed to
reduce fluctuations in the value of the Fund's assets.
In implementing these "defensive" strategies, the Fund
may invest without limit in taxable obligations,
including: obligations of the U.S. government, its agencies or
instrumentalities; other debt securities rated within the four
highest grades by either Moody's or S&P ; 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 ; or any other
securities that Putnam Management considers consistent with such
defensive strategies. It is impossible to predict when, or for
how long, the Fund will use such alternative strategies.
TAX EXEMPT SECURITIES
TAX EXEMPT SECURITIES INCLUDE OBLIGATIONS OF A
STATE , ITS POLITICAL SUBDIVISIONS, AND THEIR AGENCIES,
INSTRUMENTALITIES OR OTHER GOVERNMENTAL UNITS, THE INTEREST
WITH RESPECT TO WHICH , IN THE OPINION OF BOND
COUNSEL, IS EXEMPT FROM FEDERAL INCOME TAX. These
securities are issued to obtain funds for various public
purposes, such as the construction of public facilities, the
payment of general operating expenses or the refunding of
outstanding debts. They may also be issued to finance various
private activities, including the lending of funds to public or
private institutions for the construction of housing, educational
or medical facilities , and may also include certain types
of industrial development bonds , private activity
bonds or notes issued by public authorities to finance
privately owned or operated facilities , or to fund short-
term cash requirements. Short-term Tax Exempt Securities may
be issued as interim financing in anticipation of tax
collections, revenue receipts or bond sales to finance various
public purposes. Tax Exempt Securities may also include
obligations issued by certain other governmental entities, such
as U.S. territories, if such debt obligations generate interest
income which is exempt from federal income tax.
THE TWO PRINCIPAL CLASSIFICATIONS OF TAX EXEMPT SECURITIES ARE
GENERAL OBLIGATION AND SPECIAL OBLIGATION (OR SPECIAL REVENUE
OBLIGATION) SECURITIES. GENERAL OBLIGATION securities involve a
pledge of the credit of an issuer possessing taxing power and are
payable from the issuer's general unrestricted revenues. Their
payment may depend on an appropriation by the issuer's
legislative body. The characteristics and methods of enforcement
of general obligation securities vary according to the law
applicable to the particular issuer. SPECIAL OBLIGATION (or
SPECIAL REVENUE OBLIGATION) securities are payable only from the
revenues derived from a particular facility or class of
facilities, or a specific revenue source, and generally are not
payable from the unrestricted revenues of the issuer. Industrial
development bonds and private activity bonds are in most
cases special obligation securities, the credit quality of which
is directly related to the private user of the facilities.
The Fund may also invest in securities representing
interests in Tax Exempt Securities, known as "inverse floating
obligations" or "residual interest bonds," which pay
interest rates that vary inversely to changes in the interest
rates of specified short-term tax exempt securities or an index
of short-term tax exempt securities. The interest rates on
inverse floating obligations or residual interest bonds will
typically decline as short-term market interest rates increase
and increase as short-term market rates decline. 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.
INVESTMENTS IN PREMIUM SECURITIES
During a period of declining interest rates, many of the 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 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 Fund during such periods would initially
receive higher monthly distributions (derived from the higher
coupon rates payable on the Fund's investments) than might be
available from alternative investments bearing current market
interest rates, but may face an increased risk of capital loss as
these higher coupon securities approach maturity (or first call
date). In evaluating the potential performance of an investment
in the Fund, investors may find it useful to compare the Fund's
current dividend rate with the Fund's "yield," which is computed
on a yield-to-maturity basis in accordance with SEC regulations
and which reflects amortization of market premiums. See "How
performance is shown."
RISK FACTORS
The values of Tax Exempt 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. The magnitude
of these fluctuations generally is greater for securities with
longer maturities. However, the yields on such securities are
also generally higher. In addition, the values of such
securities are affected by changes in general economic conditions
and business conditions affecting the specific industries of
their issuers. Changes by recognized rating services in their
ratings of any fixed-income security 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 generally will not affect 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 continued investment in the security will
assist in meeting its investment objective.
THE 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.
Putnam Management seeks to minimize the risks of investing in
lower-rated securities through careful investment analysis.
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 Fund invests in Tax Exempt Securities
in the lower rating categories, the achievement of the Fund's
goals is more dependent on Putnam Management's ability than would
be the case if the Fund were investing in Tax Exempt Securities
in the higher rating categories. 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.
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. 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 Fund may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were
to redeem securities held by the Fund during a time of declining
interest rates, the Fund may not be able to reinvest the proceeds
in securities providing the same investment return as the
securities redeemed.
The Fund may invest in so-called "zero-coupon" bonds whose values
are subject to greater fluctuation in response to changes in
market interest rates than bonds 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 Fund is
required to accrue and distribute income from zero-coupon bonds
on a current basis, even though it does not receive that income
currently in cash. Thus, the Fund may have to sell other
investments to obtain cash needed to make income distributions.
The secondary market for Tax Exempt Securities is generally less
liquid than that for taxable fixed-income securities,
particularly in the lower rating categories. Thus it may be more
difficult to value or buy and sell certain securities from time
to time.
FOR ADDITIONAL INFORMATION CONCERNING THE RISKS ASSOCIATED WITH
INVESTMENT BY THE FUND IN SECURITIES IN THE LOWER RATING
CATEGORIES, SEE THE STATEMENT OF ADDITIONAL INFORMATION.
CONCENTRATION. The 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 . Thus, the 25%
limitation would apply to such obligations.
It is nonetheless possible that the Fund may invest more
than 25% of its assets in a broader segment of the market
for Tax Exempt Securities , such as revenue
obligations of hospitals and other health care facilities,
housing 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 issuers (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.
The Fund reserves the right to invest more than 25% of its
assets in industrial development bonds and private
activity securities. The 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 the 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
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, 1994, the
Fund had invested approximately 21.45% of its assets in
securities relating to the State of New York.
PORTFOLIO TURNOVER
The length of time the Fund has held a particular security is
not generally a consideration in investment decisions. A change
in the securities held by the Fund is known as "portfolio
turnover." As a result of the Fund's investment policies,
under certain market conditions the Fund's portfolio turnover
rate may be higher than that of other mutual funds. Portfolio
turnover generally involves some expense to the Fund, including
brokerage commissions or dealer 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." Portfolio turnover rates for the ten most recent
fiscal years of the Fund are shown in the section "Financial
highlights."
FINANCIAL FUTURES AND OPTIONS
THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES
CONTRACTS FOR HEDGING PURPOSES. Futures contracts on 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
Fund enters into and terminates an index futures contract, the
Fund realizes a gain or loss. The Fund may
purchase and sell futures contracts on the Index (or any other
tax-exempt bond index approved for trading by the Commodity
Futures Trading Commission) to hedge against general changes in
market values of Tax Exempt Securities which the Fund owns or
expects to purchase. The 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.
The 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.
In addition, the Fund may purchase put and call options on, or
warrants to purchase, Tax Exempt Securities, either directly or
through custodial arrangements in which the Fund and other
investors own an interest in one or more options on Tax Exempt
Securities.
THE USE OF FUTURES AND OPTIONS INVOLVES CERTAIN SPECIAL RISKS AND
MAY RESULT IN REALIZATION OF TAXABLE INCOME OR CAPITAL GAINS.
FUTURES AND OPTIONS TRANSACTIONS INVOLVE COSTS AND MAY RESULT IN
LOSSES. Certain risks arise 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 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.
<PAGE>
A MORE DETAILED EXPLANATION OF FINANCIAL FUTURES AND
OPTIONS TRANSACTIONS AND THE RISKS ASSOCIATED WITH THEM IS
INCLUDED IN THE STATEMENT OF ADDITIONAL INFORMATION.
OTHER INVESTMENT PRACTICES
THE FUND 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. The Fund
may enter into repurchase agreements on up to 25% of its assets.
These transactions must be fully collateralized at all times.
The Fund may also purchase securities for future delivery,
which may increase its overall investment exposure and involves a
risk of loss if the value of the securities declines prior to the
settlement date. These transactions involve some risk to
the Fund if the other party should default on its
obligation and the Fund is delayed or prevented from
recovering the collateral or completing the transaction.
LIMITING INVESTMENT RISK
SPECIFIC INVESTMENT RESTRICTIONS HELP THE FUND LIMIT
INVESTMENT RISKS FOR ITS SHAREHOLDERS. THESE RESTRICTIONS
PROHIBIT THE 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 ) ;* (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.
Restrictions marked with an asterisk (*) above are summaries of
fundamental investment policies. See the Statement of
Additional Information for the full text of these policies and
each Fund's other fundamental investment 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 the Fund's
investment objective without shareholder approval.
HOW PERFORMANCE IS SHOWN
THE FUND'S INVESTMENT PERFORMANCE MAY FROM TIME TO TIME BE
INCLUDED IN ADVERTISEMENTS ABOUT THE FUND. "Yield" for each
class of shares is calculated by dividing the annualized net
investment income per share during a recent 30-day period by the
maximum public offering price per share of 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
net investment income as determined for financial
reporting purposes. SEC regulations require that net investment
income be calculated on a "yield-to-maturity" basis, which has
the effect of amortizing any premiums or discounts in the current
market value of fixed-income securities. The current
dividend rate is based on net investment income as
determined for tax purposes, which may not reflect
amortization in the same manner. See "How objective is
pursued -- Investments in premium securities ." Yield
reflects the deduction of the maximum initial sales charge in the
case of Class A and Class M 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 Fund. It reflects the
approximate yield that a taxable investment must earn for
shareholders at stated income levels to produce an after-tax
yield equivalent to a class's tax-exempt yield.
"Total return" for the one-, five- and ten-year periods
(or for the life of a class, if shorter) through the most
recent calendar quarter represents the average annual compounded
rate of return on an investment of $1,000 in the Fund
invested at the maximum public offering price (in the case of
Class A and Class M shares) or reflecting the deduction of
any applicable contingent deferred sales charge (in the case of
Class B shares). Total return may also be presented for other
periods or based on investment at reduced sales charge levels
. Any quotation of investment performance not
reflecting the maximum initial sales charge or contingent
deferred sales charge would be reduced if such sales
charge were used.
<PAGE>
ALL DATA IS BASED ON THE 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 the Fund's portfolio, the Fund's
operating expenses and which class of shares you purchase.
Investment performance also often reflects the risks associated
with the Fund's investment objective and policies. These factors
should be considered when comparing the Fund's investment results
to those of other mutual funds and other investment vehicles.
Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. The Fund's
performance may be compared to various indices. See the
Statement of Additional Information.
HOW THE FUND IS MANAGED
THE TRUSTEES OF THE FUND ARE RESPONSIBLE FOR GENERALLY
OVERSEEING THE CONDUCT OF THE FUND'S BUSINESS. Subject to
such policies as the Trustees may determine, Putnam Management
furnishes a continuing investment program for the Fund and
makes investment decisions on its behalf. Subject to the
control of the Trustees, Putnam Management also manages the
Fund's other affairs and business. David J. Eurkus,
Senior Vice President of Putnam Management and Vice President of
the Fund, has had primary responsibility for the day-to-
day management of the Fund's portfolio since 1985 .
Mr. Eurkus has been employed by Putnam Management since
1983 .
The 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). The 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 Fund . The total
reimbursement is determined annually by the Trustees .
Putnam Management places all orders for purchases and sales of
the Fund's securities. In selecting broker-dealers,
Putnam Management may consider research and brokerage services
furnished to it and its affiliates. Subject to seeking the most
favorable price and execution available, Putnam Management may
consider sales of shares of the Fund (and, if permitted by
law, of the other Putnam funds) as a factor in the selection of
broker-dealers.
ORGANIZATION AND HISTORY
Putnam Tax Exempt Income Fund is a Massachusetts business
trust organized on September 10, 1976 . A copy of
the Agreement and Declaration of Trust, which is governed
by Massachusetts law, is on file with the Secretary of State of
The Commonwealth of Massachusetts.
The Fund is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest which may be divided without
shareholder approval into two or more classes of shares
having such preferences and special or relative rights and
privileges as the Trustees determine. The Fund's
shares are currently divided into three classes.
Each share has one vote, with fractional shares voting
proportionally. Shares of each class 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 the Fund
were liquidated, would receive the net assets of the Fund.
The Fund may suspend the sale of shares at any time and
may refuse any order to purchase shares. Although the
Fund is not required to hold annual meetings of its
shareholders, shareholders holding at least 10% of the
outstanding shares entitled to vote have the right to call a
meeting to elect or remove Trustees, or to take other actions as
provided in the Agreement and Declaration of Trust.
If you own fewer shares than a minimum set by the Trustees of
the Fund (presently 20 shares ), the Fund may
choose to redeem your shares and pay you for them. You will
receive at least 30 days' written notice before the Fund
redeems your shares, and you may purchase additional shares at
any time to avoid a redemption. The Fund may also redeem
shares if you own shares above a maximum amount set by the
Trustees. There is presently no maximum , but the
Trustees may establish one at any time, which could apply to both
present and future shareholders .
THE FUND'S TRUSTEES: GEORGE PUTNAM,* CHAIRMAN. President
of the Putnam funds. Chairman and Director of Putnam Management
and Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director,
Marsh & McLennan Companies, Inc.; WILLIAM F. POUNDS, VICE
CHAIRMAN. Professor of Management, Alfred P. Sloan School of
Management, M.I.T.; JAMESON ADKINS BAXTER, President, Baxter
Associates, Inc.; HANS H. ESTIN, Vice Chairman, North American
Management Corp. ; JOHN A. HILL, Principal and Managing
Director, First Reserve Corporation; ELIZABETH T. KENNAN,
President, 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
Data General Corporation, Bradley Real Estate, Inc. and
Providence Journal Co. Also, Trustee of Massachusetts
General Hospital and Eastern Utilities Associates. The
Fund's Trustees are also Trustees of the other Putnam
funds. Those marked with an asterisk (*) are "interested
persons" of the Fund, Putnam Management or Putnam Mutual
Funds.
ABOUT YOUR INVESTMENT
ALTERNATIVE SALES ARRANGEMENTS
This Prospectus offers investors three 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 -- 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 -- Class B shares."
CLASS M SHARES. An investor who purchases Class M shares pays
a sales charge at the time of purchase which is lower than the
sales charge applicable to Class A shares. Class M shares are
not subject to any contingent deferred sales charge when they are
redeemed. Certain purchases of Class M shares qualify for
reduced sales charges. Class M shares currently bear a 12b-1 fee
at the annual rate of 0.50% of the Fund's average net assets
attributable to Class M shares. See "How to buy shares -- Class
M 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
or Class M shares. Investors who prefer not to pay an
initial sales charge might consider Class B shares. Orders for
Class B shares for $250,000 or more and orders for Class M
shares for $1 million 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."
HOW TO BUY SHARES
You can open a Fund account with as little as $500 and
make additional investments at any time with as little as $50.
You can buy Fund shares three ways - through most
investment dealers, through Putnam Mutual Funds (at 1-800-225-
1581), or through a systematic investment plan. If you do not
have a dealer, Putnam Mutual Funds can refer you to one.
BUYING SHARES THROUGH PUTNAM MUTUAL FUNDS. Complete an order
form and return it with a check payable to the 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 PRICE OF
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 million or more. However, a contingent
deferred sales charge ("CDSC") of 1.00% or 0.50%,
respectively, is imposed on redemptions of such shares
within the first or second year after purchase ,
based on the lower of the shares' cost and
current net asset value . Any shares acquired by
reinvestment of distributions will be redeemed without a CDSC.
In addition, shares purchased by certain investors investing
$1 million or more that have made arrangements with Putnam Mutual
Funds and whose dealer of record waived the commission as
described below are not subject to the CDSC. In determining
whether a CDSC is payable, the Fund will first redeem shares not
subject to any charge. Putnam Mutual Funds receives the
entire amount of any CDSC you pay. See the Statement of
Additional Information for more information about the CDSC.
Except as stated below, Putnam Mutual Funds pays investment
dealers of record commissions on sales of Class A shares of
$1 million or more based on an investor's cumulative purchases
during the one-year period beginning with the date of the initial
purchase at net asset value. Each subsequent one-year measuring
period for these purposes will begin with the first net asset
value purchase following the end of the prior period. Such
commissions are paid at the rate of 1.00% of the amount under $3
million, 0.50% of the next $47 million and 0.25% thereafter. On
sales at net asset value to a participant-directed
qualified retirement plan initially investing less than $20
million in Putnam funds and other investments managed by Putnam
Management or its affiliates (including a plan sponsored by an
employer with more than 750 employees), Putnam Mutual Funds pays
commissions on cumulative purchases during the life of the
account at the rate of 1.00% of the amount under $3 million and
0.50% thereafter. On sales at net asset value to all other
participant-directed qualified retirement plans, Putnam Mutual
Funds pays commissions on the initial investment and on
subsequent net quarterly sales at the rate of 0.15% .
CLASS B SHARES
Class B shares 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 in "How to buy shares - General" below.
For other shares , the amount of the charge is determined
as a percentage of the lesser of the current market value or the
cost of the shares being redeemed. 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
Fund will first redeem shares not subject to any charge,
and then shares held longest during the six-year period. For
this purpose, the amount of any increase in a share's value above
its initial purchase price is not regarded as a share exempt from
the CDSC. Thus, when a share that has appreciated in value is
redeemed during the six-year period, a CDSC is assessed on its
initial purchase price. For information on how sales charges
are calculated if you exchange your shares, see "How to exchange
shares." Putnam Mutual Funds receives the entire amount of any
CDSC you pay.
CONVERSION OF CLASS B SHARES . 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 exchanging Class B shares of
another Putnam fund will convert into Class A shares based on the
time of the initial purchase. Class B shares acquired through
reinvestment of distributions will convert into Class A shares
based on the date of the initial purchase to which such shares
relate. For this purpose, Class B shares acquired through
reinvestment of distributions will be attributed to particular
purchases of Class B shares in accordance with such procedures as
the Trustees may determine from time to time. The conversion of
Class B shares to Class A shares is subject to the 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.
<PAGE>
CLASS M SHARES
The public offering price of Class M 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:
<PAGE>
<TABLE>
<CAPTION>
SALES CHARGE
AS A PERCENTAGE OF:
AMOUNT OF SALES
-------------------
CHARGE REALLOWED
NET
TO DEALERS
AMOUNT OF TRANSACTION AMOUNT OFFERING
AS A PERCENTAGE OF
AT OFFERING PRICE INVESTED PRICE
OFFERING PRICE*
- -----------------------------------------------------------------
- ------------------------
<C> <C> <C> <C> <C>
<C>
Less than $ 50,000 3.36% 3.25%
3.00%
$ 50,000 but less than 100,000 2.30 2.25
2.00
100,000 but less than 250,000 1.52 1.50
1.25
250,000 but less than 500,000 1.01 1.00
1.00
500,000 but less that 1,000,000 NONE NONE
NONE
- -----------------------------------------------------------------
- ----------------------
/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.
Class M shares do not convert into any other class of shares.
GENERAL
YOU MAY BE ELIGIBLE TO BUY CLASS A SHARES AND CLASS M SHARES
AT REDUCED SALES CHARGES. Consult your investment dealer or
Putnam Mutual Funds for details about Putnam's Combined Purchase
Privilege, Cumulative Quantity Discount, Statement of Intention,
Group Sales Plan, Employee Benefit Plans and other plans.
Descriptions are also included in the order form and in the
Statement of Additional Information. In addition, sales charges
will not apply to Class M shares purchased with redemption
proceeds received within the prior ninety days from non-Putnam
mutual funds on which the investor paid a front-end or contingent
deferred sales charge.
The Fund may sell Class A , Class B and
Class M shares at net asset value without an initial sales
charge or a CDSC to the Fund's current and retired
Trustees (and their families), current and retired employees (and
their families) of Putnam Management and affiliates, registered
representatives and other employees (and their families) of
broker-dealers having sales agreements with Putnam Mutual Funds,
employees (and their families) of financial institutions having
sales agreements with Putnam Mutual Funds (or otherwise having an
arrangement with a broker-dealer or financial institution with
respect to sales of Fund shares), financial institution trust
departments investing an aggregate of $1 million or more in
Putnam funds, clients of certain administrators of tax-qualified
plans, employee benefit plans of companies with more than 750
employees, tax-qualified plans when proceeds from repayments of
loans to participants are invested (or reinvested) in Putnam
funds, "wrap accounts" for the benefit of clients of broker-
dealers , financial institutions or financial planners
adhering to certain standards established by Putnam Mutual Funds,
and investors meeting certain requirements who sold shares of
certain Putnam closed-end funds pursuant to a tender offer by the
closed-end fund. In addition, the Fund may sell shares
at net asset value without an initial sales charge or a CDSC in
connection with the acquisition by the Fund of assets of an
investment company or personal holding company, 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.
DISTRIBUTION PLANS
CLASS A DISTRIBUTION PLAN. The Class A Plan
provides for payments by the Fund to Putnam Mutual Funds
at the annual rate of up to 0.35% of the Fund's average
net assets attributable to Class A shares . The Trustees
currently limit payments under the Class A Plan to
the annual rate of 0.20% of such assets . 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. This calculation excludes until one year after
purchase shares purchased at net asset value by shareholders
investing $1 million or more and by participant-directed
qualified retirement plans sponsored by employers with more than
750 employees ("NAV Shares"), except for shares owned by certain
investors investing $1 million or more that have made
arrangements with Putnam Mutual Funds and whose dealer of record
waived the sales commission. Except as stated below, 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). For participant-
directed qualified retirement plans initially investing less than
$20 million in Putnam funds and other investments managed by
Putnam Management or its affiliates, Putnam Mutual Funds'
payments to qualifying dealers on NAV Shares are 100% of the
rate stated above if average plan assets in Putnam funds
(excluding money market funds) during the quarter are less than
$20 million, 60% of the stated rate if average plan assets are at
least $20 million but less than $30 million, and 40% of the
stated rate if average plan assets are $30 million or more. For
all other participant-directed qualified retirement plans
purchasing NAV Shares, Putnam Mutual Funds makes quarterly
payments to qualifying dealers at the annual rate of 0.10%
of the average net asset value of such shares.
CLASS B AND CLASS M DISTRIBUTION PLANS. The Class B and Class M
Plans provide for payments by the Fund to Putnam Mutual Funds at
the annual rate of up to 1.00% of the Fund's average
net assets attributable to Class B shares and Class M shares,
as the case may be . The Trustees currently limit payments
under the Class B Plan to the annual rate of 0.85% of such assets
and payments under the Class M Plan to the annual rate of
0.50% of such assets . Should the Trustees decide in the
future to approve payments in excess of these amounts ,
shareholders will be notified and this Prospectus will be
revised.
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. The amount paid to
dealers at the time of the sale of Class M shares is set forth
above under "How to buy shares -- Class M shares." In
addition, in order to further compensate dealers (including, for
this purpose, certain financial institutions) for services
provided in connection with sales of Class B shares and Class
M shares and the maintenance of shareholder accounts, Putnam
Mutual Funds makes quarterly payments to qualifying dealers based
on the average net asset value of Class B shares and Class
M shares which are attributable to shareholders for whom the
dealers are designated as the dealer of record, except for the
first year's service fees, 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 Class B
shares and Class M shares, as the case may be. Putnam Mutual
Funds also pays to dealers, as additional compensation with
respect to the sale of Class M shares, 0.20% of such average net
asset value of Class M shares. For Class M shares, the total
annual payment to dealers equals 0.40% of such average net asset
value.
GENERAL. Payments under the Plans are intended to compensate
Putnam Mutual Funds for services provided and expenses incurred
by it as principal underwriter of the Fund's shares, including
the payments to dealers mentioned above . Putnam Mutual
Funds may suspend or modify such payments to
dealers . Such payments are also subject to the
continuation of the relevant Distribution Plan ,
the terms of Service Agreements between dealers and Putnam Mutual
Funds, and any applicable limits imposed by the National
Association of Securities Dealers, Inc.
HOW TO SELL SHARES
You can sell your shares to the Fund any day the New York
Stock Exchange is open, either directly to the Fund or
through your investment dealer. The Fund will only
redeem shares for which it has received payment.
SELLING SHARES DIRECTLY TO THE FUND. Send a signed
letter of instruction or stock power form to Putnam Investor
Services, along with any certificates that represent shares you
want to sell. The price you will receive is the next net asset
value calculated after the Fund receives your request in proper
form less any applicable CDSC. In order to receive that day's
net asset value, Putnam Investor Services must receive your
request before the close of regular trading on the New York Stock
Exchange. If you sell shares having a net asset value of
$100,000 or more, the signatures of registered owners or their
legal representatives must be guaranteed by a bank, broker-dealer
or certain other financial institutions. See the 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.
THE FUND GENERALLY SENDS YOU PAYMENT FOR YOUR SHARES THE BUSINESS
DAY AFTER YOUR REQUEST IS RECEIVED. Under unusual circumstances,
the Fund may suspend redemptions , or postpone
payment for more than seven days, as permitted by federal
securities law.
You may use Putnam's Telephone Redemption Privilege to redeem
shares valued up to $100,000 from your account unless you have
notified Putnam Investor Services of an address change within the
preceding 15 days. Unless an investor indicates otherwise on the
Account Application, Putnam Investor Services will be authorized
to act upon redemption and transfer instructions received by
telephone from a shareholder, or any person claiming to act as
his or her representative, who can provide Putnam Investor
Services with his or her account registration and address as it
appears on Putnam Investor Services' records. Putnam Investor
Services will employ these and other reasonable procedures to
confirm that instructions communicated by telephone are genuine;
if it fails to employ reasonable procedures, Putnam Investor
Services may be liable for any losses due to unauthorized or
fraudulent instructions. For information, consult Putnam
Investor Services. During periods of unusual market changes and
shareholder activity, you may experience delays in contacting
Putnam Investor Services by telephone in 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 to receive that day's net asset
value. Your dealer will be responsible for furnishing all
necessary documentation to Putnam Investor Services, and may
charge you for its services.
HOW TO EXCHANGE SHARES
You can exchange your shares for shares of the
same class of certain other Putnam funds at net
asset value beginning 15 days after purchase. Not all Putnam
funds offer all classes of shares. If you exchange shares
subject to a CDSC, the transaction will not be subject to the
CDSC. However, when you redeem the shares acquired through the
exchange, the redemption may be subject to the CDSC, depending
upon when you originally purchased the shares 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 any 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. For federal income tax
purposes, an exchange is treated as a sale of shares and
generally results in a capital gain or loss. A Telephone
Exchange Privilege is currently available for amounts up to
$500,000. Putnam Investor Services' procedures for telephonic
transactions are described above under "How to sell shares." The
Telephone Exchange Privilege is not available if you were issued
certificates for shares which remain outstanding. Ask your
investment dealer or Putnam Investor Services for prospectuses of
other Putnam funds. Shares of certain Putnam funds are not
available to residents of all states.
The exchange privilege is not intended as a vehicle for short-
term trading. Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity and
in other circumstances where Putnam Management or the
Trustees believe doing so would be in the best interests of
the Fund, the Fund reserves the right to revise or
terminate the exchange privilege, limit the amount or number of
exchanges or reject any exchange. Shareholders would be
notified of any such action to the extent required by law.
Consult Putnam Investor Services before requesting an exchange.
See the Statement of Additional Information to find out more
about the exchange privilege.
HOW THE FUND VALUES ITS SHARES
THE FUND CALCULATES THE NET ASSET VALUE OF A SHARE
OF EACH CLASS BY DIVIDING THE TOTAL VALUE OF ITS ASSETS,
LESS LIABILITIES, BY THE NUMBER OF ITS SHARES OUTSTANDING.
SHARES ARE VALUED AS OF THE CLOSE OF REGULAR TRADING ON THE NEW
YORK STOCK EXCHANGE EACH DAY THE EXCHANGE IS OPEN. Tax
Exempt Securities are 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 Fund believes that reliable market quotations
generally are not readily available for purposes
of valuing its portfolio securities. As a result, it is likely
that most of the valuations provided by 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 valued at market
value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates
market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees.
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION
The Fund declares all of its net interest income as a
distribution on each day it is open for business. Net interest
income consists of interest accrued on portfolio investments of
the Fund, less accrued expenses, computed in each case
since the most recent determination of net asset value.
Normally, the Fund pays distributions of net interest
income on the last business day of each month. The Fund
will distribute at least annually all net realized capital gains,
if any, after applying any available capital loss carryovers.
Distributions paid by the Fund with respect to Class A
shares will generally be greater than those paid with respect to
Class B and Class M shares because expenses attributable
to Class B and Class M shares will generally be higher.
You begin earning distributions on the business day after
Putnam Mutual Funds receives payment for your shares. It is your
responsibility to see that your dealer forwards payment
promptly.
YOU CAN CHOOSE FROM THREE DISTRIBUTION OPTIONS: (1)
reinvest all distributions in additional Fund shares without a
sales charge; (2) receive distributions from net
investment income
in cash while reinvesting capital gains distributions in
additional shares 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 not
paid in cash will be reinvested in shares of the class on
which the distributions are paid . You will receive a
statement confirming reinvestment of distributions in additional
Fund shares (or in shares of other Putnam funds for Dividends
Plus accounts) promptly following the quarter in which the
reinvestment occurs.
If a check representing a Fund distribution is not cashed within
a specified period, Putnam Investor Services will notify you that
you have the option of requesting another check or reinvesting
the distribution in the Fund or in another Putnam fund.
If Putnam Investor Services does not receive your election, the
distribution will be reinvested in the Fund. Similarly,
if correspondence sent by the Fund or Putnam Investor
Services is returned as "undeliverable," Fund distributions will
automatically be reinvested in that Fund or in another Putnam
fund.
The Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of federal
taxes on income and gains it distributes to shareholders.
The Fund will distribute substantially all of its ordinary
income and capital gain net income on a current basis.
Distributions designated by the 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
the Fund may result in liability for federal alternative
minimum tax and for state and local taxes, both for individual
and corporate shareholders.
The Fund may at times purchase Tax Exempt Securities at a
discount from the price at which they were originally issued,
especially during periods of rising interest rates. For federal
income tax purposes, some or all of this market discount will be
included in the Fund's ordinary income and will be taxable to
shareholders as such when it is distributed to them.
<PAGE>
All distributions other than exempt-interest dividends
will be taxable to you as ordinary income, except that any
distributions of net long-term capital gains will be taxable
as such, regardless of how long you have held 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 the Fund will notify you of the amount
and tax status of distributions paid to you by the Fund
for the preceding year.
The foregoing is a summary of certain federal income tax
consequences of investing in the Fund. You should consult
your tax adviser to determine the precise effect of an investment
in the Fund on your particular tax situation (including
possible liability for state and local taxes).
ABOUT PUTNAM INVESTMENTS, INC.
PUTNAM MANAGEMENT HAS BEEN MANAGING MUTUAL FUNDS SINCE 1937.
Putnam Mutual Funds is the principal underwriter of the
Fund and of other Putnam funds. Putnam Fiduciary Trust
Company is the Fund's custodian. Putnam Investor
Services, a division of Putnam Fiduciary Trust Company, is the
Fund's investor servicing and transfer agent.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., which is
wholly owned by Marsh & McLennan Companies, Inc., a
publicly - owned holding company whose principal businesses
are international insurance and reinsurance brokerage, employee
benefit consulting and investment management.
<PAGE>
MAKE THE MOST OF YOUR PUTNAM PRIVILEGES
As a Putnam mutual fund shareholder, you have access to a
number of services that can help you build a more effective and
flexible financial program. Here are some of the ways you can use
these privileges to make the most of your Putnam mutual fund
investment
SYSTEMATIC INVESTMENT PLAN
Invest as much as you wish ($25 or more) on any day of the month
except for the 29th, 30th, or 31st. The amount will be
automatically transferred from your checking or savings account.
SYSTEMATIC WITHDRAWAL
Make regular withdrawals of $50 or more monthly, quarterly, or
semiannually from an account valued at $10,000 or more. You may
establish your withdrawal on any day of the month except for the
29th, 30th, or 31st.
SYSTEMATIC EXCHANGE
Transfer assets automatically from one Putnam account to another
on a regular, prearranged basis. There is no additional charge
for this service.
FREE EXCHANGE PRIVILEGE
Exchange money between Putnam funds in the same class of shares
without charge. The exchange privilege allows you to adjust your
investments as your objectives change. A signature guarantee is
required for exchanges of more than $500,000.
DIVIDENDS PLUS
Diversify your portfolio by investing dividends and other
distributions from one Putnam fund automatically into another at
net asset value.
STATEMENT OF INTENTION
To reduce a front-end sales charge, you agree to invest a minimum
dollar amount over 13 months. Depending on your fund, the
minimum is $25,000, $50,000, or $100,000. Whenever you make an
investment under this arrangement, you or your investment advisor
should notify Putnam that a Statement of Intention is in effect.
Investors may not maintain, within the same fund, simultaneous
plans for systematic investment or exchange and systematic
withdrawal or exchange. These privileges are subject to change
or termination.
For more information about any of these services and privileges,
call your investment advisor or a Putnam customer service
representative toll free at 1-800-225-1581.
<PAGE>
PUTNAM TAX EXEMPT INCOME 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 L.L.P.
One Post Office Square
Boston, MA 02109
PUTNAMINVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
<PAGE>
PUTNAM TAX EXEMPT INCOME FUND
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 1995
This Statement of Additional Information is not a Prospectus and
is only authorized for distribution when accompanied or preceded
by the Prospectus of the Fund dated February 1,
1995 , 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 the 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
Fund . Part II contains information about the Fund
and the other Putnam funds.
<PAGE>
TABLE OF CONTENTS
PART I PAGE
TAX EXEMPT SECURITIES . . . . . . . . . . . . . . . . . .
. . .I-3
SECURITIES RATINGS . . . . . . . . . . . . . . . .
. . .I-5
INVESTMENT RESTRICTIONS OF THE FUND . . . . . . . .
. . .I-8
FUND CHARGES AND EXPENSES . . . . . . . . . . . . . .
.I- 11
INVESTMENT PERFORMANCE OF THE FUND . . . . . .
.I- 13
EQUIVALENT YIELDS: TAX-EXEMPT VERSUS TAXABLE
SECURITIESI- 19
ADDITIONAL OFFICERS OF THE FUND . . . . . . . .
.I- 20
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS. . .
.I- 20
PART II
MISCELLANEOUS INVESTMENT PRACTICES. . . . . . . . . . . .
. . II-1
TAXES . . . . . . . . . . . . . . . . . . . . . . . .
II- 22
MANAGEMENT OF THE FUND. . . . . . . . . . . . . . . .
II- 27
DETERMINATION OF NET ASSET VALUE. . . . . . . . . . .
II- 36
HOW TO BUY SHARES . . . . . . . . . . . . . . . . . .
II- 38
DISTRIBUTION PLAN . . . . . . . . . . . . . . . . . .
II- 49
INVESTOR SERVICES . . . . . . . . . . . . . . . . . .
II- 50
SIGNATURE GUARANTEES. . . . . . . . . . . . . . . . .
II- 56
SUSPENSION OF REDEMPTIONS . . . . . . . . . . . . . .
II- 56
SHAREHOLDER LIABILITY . . . . . . . . . . . . . . . .
II- 56
STANDARD PERFORMANCE MEASURES . . . . . . . . . . . .
II- 57
COMPARISON OF PORTFOLIO PERFORMANCE . . . . . . . . .
II- 58
DEFINITIONS . . . . . . . . . . . . . . . . . . . . .
II- 63
<PAGE>
PUTNAM TAX EXEMPT INCOME 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" includes debt
obligations issued by a State and its political
subdivisions (for example, counties, cities, towns, villages,
districts and authorities) and their agencies,
instrumentalities or other governmental units, the interest
from which is, in the opinion of bond counsel, exempt from
federal income tax. 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 such projects as privately operated
housing facilities and certain local facilities for water
supply, gas, electricity or sewage or solid waste disposal,
student loans, or the obtaining of funds to lend to public or
private institutions for the construction of facilities such as
educational, hospital and housing facilities. Such obligations
are included within the term Tax Exempt Securities if the
interest paid thereon is, in the opinion of bond counsel, exempt
from federal income tax (such interest may, however, be
subject to federal alternative minimum tax.) Other types
of private activity bonds, the proceeds of which are used for the
construction, repair or improvement of, or to obtain equipment
for, privately operated industrial or commercial facilities, may
constitute Tax Exempt Securities, although the current federal
tax laws place substantial limitations on the size of such
issues. Tax Exempt Securities also include short-term discount
notes (tax-exempt commercial paper), which are promissory notes
issued by municipalities to enhance their cash flows.
<PAGE>
STAND-BY COMMITMENTS. When the Fund purchases Tax Exempt
Securities, it has the authority to acquire stand-by commitments
from banks and broker-dealers with respect to those Tax Exempt
Securities. A stand-by commitment may be considered a security
independent of the Tax Exempt Security to which it relates. The
amount payable by a bank or dealer during the time a stand-by
commitment is exercisable, absent unusual circumstances, would be
substantially the same as the market value of the underlying Tax
Exempt Security to a third party at any time. The Fund
expects that stand-by commitments generally will be available
without the payment of direct or indirect consideration.
The Fund does not expect to assign any value to
stand-by commitments.
YIELDS. The yields on Tax Exempt Securities depend on a variety
of factors, including general money market conditions, effective
marginal tax rates, the financial condition of the issuer,
general conditions of the Tax Exempt Security market, the size of
a particular offering, the maturity of the obligation and the
rating of the issue. The ratings of Moody's Investors
Service, Inc. and Standard & Poor's Corporation
represent their opinions as to the quality of the Tax Exempt
Securities which they undertake to rate. It should be
emphasized, however, that ratings are general and are not
absolute standards of quality. Consequently, Tax Exempt
Securities with the same maturity and interest rate but
with different ratings may have the same yield. Yield
disparities may occur for reasons not directly related to the
investment quality of particular issues or the general movement
of interest rates, due to such factors as changes in the overall
demand or supply of various types of Tax Exempt Securities or
changes in the investment objectives of investors. Subsequent to
purchase by the Fund, an issue of Tax Exempt Securities or
other investments may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by
the Fund. Neither event will require the elimination of
an investment from the Fund's portfolio, but Putnam
Management will consider such an event in its determination of
whether the Fund should continue to hold an investment in
its portfolio.
"MORAL OBLIGATION" BONDS. The Fund does not
currently intend to invest in so-called "moral obligation"
bonds, where repayment is backed by a moral commitment of an
entity other than the issuer, unless the credit of the issuer
itself, without regard to the "moral obligation , "
meets the investment criteria established for investments by the
Fund.
ADDITIONAL RISKS. Securities in which the Fund may
invest, including Tax Exempt Securities, are subject to the
provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors, such as the federal Bankruptcy
Code, and laws, if any, which may be enacted by Congress or
state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints
upon enforcement of such obligations. There is also the
possibility that as a result of litigation or other conditions
the power 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 laws limit
the types and amounts of tax-exempt bonds issuable for certain
purposes, especially for industrial development bonds and
private activity bonds . Such limits may affect the future
supply and yields of these types of Tax Exempt Securities.
Further proposals limiting the issuance of tax-exempt bonds may
well be introduced in the future. If it appeared that the
availability of Tax Exempt Securities for investment by
the Fund and the value of the Fund's portfolio
could be materially affected by such changes in law, the Trustees
of the Fund would reevaluate its investment objective and
policies and consider changes in the structure of the Fund or its
dissolution.
SECURITIES RATINGS
THE FOLLOWING RATING SERVICES DESCRIBE RATED SECURITIES
AS FOLLOWS :
MOODY'S INVESTORS SERVICE, INC.
BONDS
Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt-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.
<PAGE>
Baa -- Bonds which are rated Baa are considered as medium
grade obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments
may be very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
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-B -- Debt rated BB and B 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 (+) .
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 (+) .
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".
INVESTMENT RESTRICTIONS OF THE FUND
AS FUNDAMENTAL INVESTMENT RESTRICTIONS , WHICH MAY NOT BE
CHANGED WITHOUT A VOTE OF A MAJORITY OF THE OUTSTANDING VOTING
SECURITIES , THE FUND MAY NOT AND WILL NOT :
(1) 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.
(2) 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.
(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.
<PAGE>
(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 .
(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 FUND'S PRESENT POLICY , WHICH
MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL, 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 the 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
Fund's investment policies do not currently permit it
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
the 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) 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.
(7) 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
Fund's Prospectus or in this Statement. The Fund
has 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 the Fund are
registered for sale in such states. Changes in these policies
could result in increased investment risk.
Although certain of the Fund's investment restrictions
permit the Fund to borrow money to a limited extent, the
Fund does not currently intend to do so and did not do so
last year. The Fund has no present intention of selling
options, as addressed in fundamental investment restrictions 2,
3, and 7 and nonfundamental investment restriction 2.
--------------
<PAGE>
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 Fund
means the affirmative vote of the lesser of (1) more than 50% of
the outstanding shares of the Fund, or (2) 67% or more of
the shares present at a meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by
proxy.
FUND CHARGES AND EXPENSES
MANAGEMENT FEES
Under a Management Contract dated July 11, 1991, the Fund
pays a quarterly fee to Putnam Management based on the average
net assets of the Fund, as determined at the close of each
business day during the quarter, at 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 in excess of $1.5 billion. For its
1992 , 1993 and 1994 fiscal years, pursuant to the
Management Contract , the Fund incurred
fees of $8,373,819 , $10,553,630 and
$11,938,420 , respectively.
BROKERAGE COMMISSIONS
Most purchases and sales of portfolio investments are with
underwriters or dealers, acting as principal.
Accordingly, the Fund does not ordinarily pay significant
brokerage commissions. During fiscal 1992, 1993 and 1994, the
Fund incurred brokerage commissions aggregating $60,882
, $22,865 and
$740,150 , respectively, on agency transactions. In fiscal
1992 , 1993 and 1994 , the Fund
incurred underwriting commissions aggregating $4,192,719
, $967,813 and $5,461,306 , respectively, on
underwritten transactions. In fiscal 1994 Putnam
Management, on behalf of the Fund, placed agency and
underwritten transactions having an approximate aggregate dollar
value of $34,775,373 (3.76% of the Fund's agency and
underwritten transactions, on which approximately $233,062
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.
<PAGE>
ADMINISTRATIVE EXPENSE REIMBURSEMENT
The Fund reimbursed Putnam Management $36,424 for
administrative services in fiscal 1994, including
$33,639 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 Fund receives an annual fee of
$2,980 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 Fund incurred Trustees' fees aggregating
$61,684 in fiscal 1994 .
OWNERSHIP OF FUND SHARES
At December 31, 1994 , the officers and Trustees of the
Fund as a group owned less than 1% of the outstanding
shares of any class of the Fund, and to the
knowledge of the Fund no person owned of record or
beneficially 5% or more of the shares of any class of the
Fund. No Class M shares were outstanding at December
31, 1994.
CLASS A SALES CHARGES, CONTINGENT DEFERRED SALES CHARGES AND
12B-1 FEES
During fiscal 1992 , 1993 and 1994 , Putnam
Mutual Funds received $11,956,838 , $17,371,752
and $6,590,517 , respectively, in sales charges on sales of
Class A shares of the Fund, of which it retained
$774,328 , $892,113 and $439,492 , respectively,
after allowance of dealer concessions. During fiscal
1992 , 1993 and 1994 , Putnam Mutual Funds received
$163 , $15,738 and $44,565 , respectively, in
contingent deferred sales charges upon redemptions of Class A
shares of the Fund. During fiscal 1994 , the Fund incurred
$4,706,243 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 and 1994 , Putnam Mutual Funds received
$82,695 and $384,936, respectively, in contingent deferred
sales charges upon redemptions of Class B shares of the Fund.
During fiscal 1994 , the Fund incurred $1,588,963 in
12b-1 fees to Putnam Mutual Funds pursuant to the Fund's Class B
Distribution Plan.
<PAGE>
INVESTOR SERVICING AND CUSTODY FEES AND EXPENSES
During the 1994 fiscal year, the Fund incurred
$1,658,014 in fees and out-of-pocket expenses for investor
servicing and custody services provided by Putnam Fiduciary Trust
Company.
INVESTMENT PERFORMANCE OF THE FUND
STANDARD PERFORMANCE MEASURES
The tax-exempt yield for Class A shares for the
thirty-day period ended September 30, 1994 was 5.69%. A
shareholder in a 39.6% federal tax bracket would have to earn
9.42% from a taxable investment to produce an after-tax
yield equal to a tax-exempt yield of 5.69%. The
average annual total return (compounded annually) for
Class A shares for the one-, five- and ten-year periods ended
September 30, 1994 was -9.23%, 6.76% and
9.98%, respectively . Investment perfomance is
adjusted to reflect the deduction of the maximum sales charge of
4.75%. The tax-exempt yield for Class B shares
for the thirty-day period ended September 30, 1994 was
5.26%. A shareholder in a 39.6% federal tax bracket would
have to earn 8.71% from a taxable investment to produce an
after-tax yield equal to a tax-exempt yield of
5.26%. The average annual total return
(compounded annually) for Class B shares for the one-year
period ended September 30, 1994 and for the life of
the class through September 30, 1994 was -9.82% and 0.75%,
respectively. Investment performance is adjusted to reflect
deduction of the applicable contingent deferred sales charge.
The maximum contingent deferred sales charge is 5.0%. No Class M
shares were outstanding at September 30, 1994. See "Other
Performance Information" below for the inception date of each
class . See "Standard Performance Measures" in Part II of
this Statement for information on how the Fund's tax -
exempt yield, tax-equivalent yield and total
return are calculated.
PERFORMANCE RATINGS
For the 1994 fiscal year, the Class A shares were
ranked 121 of 175 general municipal debt funds by
Lipper Analytical Services, Inc. and 229 of 292
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. For the 1994 fiscal year, the Class B
shares were ranked 148 of 175 general municipal debt funds by
Lipper Analytical Services, Inc. and 259 of 292 general municipal
bond funds by CDA/Wiesenberger's Management Results. No Class M
shares were outstanding during fiscal 1994 . See "Comparison
of Portfolio Performance" in Part II of this Statement for
information about how these rankings and ratings are
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 the Fund during the life of the
Fund. This was a period of fluctuating tax-exempt bond prices.
The tables do not project the future performance of the Fund.
No Class M shares were outstanding during these periods .
<PAGE>
<TABLE>
<CAPTION>
CLA SS A
SHARES
DISTRIBUTIONS
CUMULATIVE
MAXIMUM NET ASSET
------------------ ----------------- -- NET
ASSET VALUE
OFFERING VALUE IN
EXCESS IN EXCESS OFAT YEAR-END
FISCAL PRICE AT ----------------- FROM FROM
OF NET NET
REALIZED WITH ALL
YEAR BEGINNING BEGINNING END OF INVESTMENT
CAPITAL INVESTMENT GAIN
ON DISTRIBUTIONS
ENDED OF YEAR OF YEAR YEAR INCOME GAINS
INCOME INVESTMENTS REINVESTED
---------------------------- ------------------------------
- -------------------------------------------------------
- ----
<C> <C> <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 0.56
0.12 $0.01 --- 35.83
09/30/94 10.14 9.66 8.55 0.54
0.07 --- $0.06 34.14
-----
- ----- ----- -----
Total distributions $10.06
$0.64 $0.01 $0.06
(1) Investment operations began December 31, 1976.
(2) December 1, 1984 - September 30, 1985.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGES DURING LIFE OF CLASS A
SHARES
PUTNAM TAX EXEMPT INCOME FUND
-----------------------------------------
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
09/30/94 -9.2 +304.8 -4.7 +325.0
- -2.4 +245.2 +3.0 +156.7
(1) Not available 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>
CLASS
B SHARES
DISTRIBUTIONS
CUMULATIVE
- ------------------- ------------------ NET ASSET VALUE
NET ASSET VALUE
IN EXCESS OF AT YEAR-END
FISCAL ------------------ FROM FROM
NET REALIZED WITH ALL
YEAR BEGINNING END OF INVESTMENT CAPITAL
GAIN ON DISTRIBUTIONS
ENDED OF YEAR YEAR INCOME GAINS
INVESTMENTS REINVESTED
-------------- --------------------------------------------
- ----------------------------------------------
<C> <C> <C> <C> <C>
<C> <C>
09/30/93 (1) $9.02 $9.66 $0.34
- -- -- $10.02
09/30/94 $9.66 $8.53 $0.49
$0.07
$0.06$9.47
------ ------
- --------
Total distributions $0.83
$0.07 $0.06
(1) Class B shares were offered beginning January 4 ,
1993.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGES DURING
LIFE OF CLASS B SHARES
PUTNAM TAX EXEMPT INCOME FUND
------------------------------
NET ASSET VALUE LEHMAN BROTHERS
TO NET MUNICIPAL CONSUMER
FISCAL ASSET VALUE BOND INDEX PRICE INDEX
YEAR CUMULA- CUMULA-
CUMULA-
ENDED ANNUAL TIVE ANNUAL TIVE ANNUAL
TIVE
- -----------------------------------------------------------------
- ---------------------------
<C> <C> <C> <C> <C> <C>
<C>
09/30/93(1) -- +11.1% -- +10.7% --
+2.3%
09/30/94 -5.5% +5.0% -2.4% +8.0 3.0%
+5.3%
(1) Class B shares were offered beginning January 4 , 1993.
/TABLE
<PAGE>
The tables are not adjusted for any payments under the
Fund's Class A Distribution Plan prior to its
implementation in fiscal 1993 or taxes payable on reinvested
distributions or for any contingent deferred sales charges which
would be applied upon redemption of Class B shares . The
total values for the Fund 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 Fund
invests. The index does not include bonds in certain of the
lower-rating classifications in which the Fund may
invest. The performance figures for the index reflect changes of
market prices and reinvestment of all interest payments. Because
the Fund is a managed portfolio investing in a variety
of 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
currently in effect for 1995 . It gives the
approximate yield a taxable security must earn at various income
levels to produce after-tax yields equivalent to those
of Tax-Exempt Securities yielding from 3.0% to 8.0%.
- -----------------------------------------------------------------
- ------------------------
MARGINAL
TAXABLE INCOME* FEDERAL
TAX-EXEMPT YIELD
------------------------ INCOME
- ------------------------------------
TAX
JOINT SINGLE RATE** 3% 4% 5%
6% 7% 8%
- -----------------------------------------------------------------
- ------------------------
EQUIVALENT TAXABLE YIELD
<C> <C> <C> <C> <C> <C> <C>
<C> <C> <C> <C>
$0- 39,000 $0- 23,350
15.0% 3.5% 4.7% 5.9% 7.1% 8.2% 9.4%
39,001-94,250 23,351-56,550 28.0
4.2 5.6 6.9 8.3 9.7 11.1
94,251-143,600 ***56,551-117,950 *** 31.0
4.3 5.8 7.3 8.7 10.1 11.6
143,601-256,500 ***117,951-256,500 *** 36.0
4.7 6.3 7.8 9.4 10.9 12.5
over 256,500 ***over 256,500 *** 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 1995
under the Code.
*** The amount of taxable income in this bracket may be affected
by the phase-out of personal exemptions and the
limitation on itemized deductions under the Code.
/TABLE
<PAGE>
Of course, there is no assurance that the Fund will
achieve any specific tax-exempt yield. While it is expected that
the Fund will invest principally in obligations which pay
interest exempt from federal income tax, other income received by
the Fund may be taxable. The table does not take into
account any state or local taxes payable on Fund distributions.
ADDITIONAL OFFICERS OF THE FUND
In addition to the persons listed as officers of the Fund
in Part II of this Statement, the following persons are also
officers of the Fund . 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 . Senior Vice President of
Putnam Management. Vice President of certain of the Putnam
funds.
BLAKE E. ANDERSON, Vice President . Senior Vice
President of Putnam Management. Vice President of certain of the
Putnam funds.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Coopers & Lybrand L.L.P. are the Fund's independent
accountants, providing audit services, tax return review
and other tax consulting services and assistance and consultation
in connection with the review of various Securities and Exchange
Commission filings. The Report of Independent Accountants and
financial statements included in the Fund's Annual Report
for the fiscal year ended September 30, 1994 , filed
electronically on December 7, 1994 (811-2675), is
incorporated by reference into this Statement of Additional
Information. The financial highlights 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
report 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-22
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . .II-27
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . .II-36
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-38
DISTRIBUTION PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . .II-49
INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-50
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . .II-56
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . .II-56
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . .II-56
STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . . . . .II-57
COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . . . . .II-58
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-63
<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.
<PAGE>
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.
If the Fund's Prospectus describes so-called "zero-coupon" bonds
and "payment-in-kind" bonds as possible investments, the Fund may
invest without limit in such bonds unless otherwise specified in
the Prospectus. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in
cash or in additional bonds. Because zero-coupon 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.
INVESTMENTS IN MISCELLANEOUS FIXED INCOME SECURITIES
Unless otherwise specified in the Prospectus or elsewhere in this
Statement of Additional Information, if the Fund may invest in
inverse floating obligations and premium securities, it may do so
without limit. The Fund, however, currently does not intend to
invest more than 15% of its assets in inverse floating
obligations under normal market conditions.
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 ("OTC") options purchased by the Fund and assets
held to cover OTC options written by the Fund may, under certain
circumstances, be considered illiquid securities for purposes of
any limitation on the Fund's ability to invest in illiquid
securities.
FUTURES CONTRACTS AND RELATED OPTIONS
Subject to applicable law, and unless otherwise specified in the
Prospectus, the Fund may invest without limit in the types of
futures contracts and related options identified in the
Prospectus. A financial futures contract sale creates an
obligation by the seller to deliver the type of financial
instrument called for in the contract in a specified delivery
month for a stated price. A financial futures contract purchase
creates an obligation by the purchaser to take delivery of the
type of financial instrument called for in the contract in a
specified delivery month at a stated price. The specific
instruments delivered or taken, respectively, at settlement date
are not determined until on or near that date. The determination
is made in accordance with the rules of the exchange on which the
futures contract sale or purchase was made. Futures contracts
are traded in the United States only on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for
such trading by the Commodity Futures Trading Commission (the
"CFTC"), and must be executed through a futures commission
merchant or brokerage firm which is a member of the relevant
contract market.
Although futures contracts (other than index futures) by their
terms call for actual delivery or acceptance of commodities or
securities, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery.
Closing out a futures contract sale is effected by purchasing a
futures contract for the same aggregate amount of the specific
type of financial instrument or commodity with the same delivery
date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid
the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial sale,
the seller realizes a loss. 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
Unless otherwise specified in the Prospectus, the Fund may engage
without limit in currency exchange transactions, as well as
foreign currency forward and futures contracts, 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, forward
contracts and foreign currencies) held for less than three
months;
(c) distribute with respect to each taxable year at least 90% of
the sum of its taxable net investment income, its net tax-exempt
income, and the excess, if any, of net short-term capital gains
over net long-term capital losses for such year; and
(d) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items, U.S. Government
securities, securities of other regulated investment companies,
and other securities limited in respect of any one issuer to a
value not greater than 5% of the value of the Fund's total assets
and to not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities (other than those of the
U.S. Government or other regulated investment companies) of any
one issuer or of two or more issuers which the Fund controls and
which are engaged in the same, similar, or related trades or
businesses.
If the Fund qualifies as a regulated investment company that is
accorded special tax treatment, the Fund will not be subject to
federal income tax on income paid to its shareholders in the form
of dividends (including capital gain dividends).
If the Fund failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the Fund
would be subject to tax on its taxable income at corporate rates,
and all distributions from earnings and profits, including any
distributions of net tax-exempt income and net long-term capital
gains, would be taxable to shareholders as ordinary income. In
addition, the Fund could be required to recognize unrealized
gains, pay substantial taxes and interest and make substantial
distributions before requalifying as a regulated investment
company that is accorded special tax treatment.
If the Fund fails to distribute in a calendar year substantially
all of its ordinary income for such year and substantially all of
its capital gain net income for the one-year period ending
October 31 (or later if the Fund is permitted so to elect and so
elects), plus any retained amount from the prior year, the Fund
will be subject to a 4% excise tax on the undistributed amounts.
A dividend paid to shareholders by the Fund in January of a year
generally is deemed to have been paid by the Fund on December 31
of the preceding year, if the dividend was declared and payable
to shareholders of record on a date in October, November or
December of that preceding year. The Fund intends generally to
make distributions sufficient to avoid imposition of the 4%
excise tax.
EXEMPT-INTEREST DIVIDENDS. The Fund will be qualified to pay
exempt-interest dividends to its shareholders only if, at the
close of each quarter of the Fund's taxable year, at least 50% of
the total value of the Fund's assets consists of obligations the
interest on which is exempt from federal income tax.
Distributions that the Fund properly designates as exempt-
interest dividends are treated by shareholders as interest
excludable from their gross income for federal income tax
purposes but may be taxable for federal alternative minimum tax
purposes and for state and local purposes. If the Fund intends
to be qualified to pay exempt-interest dividends, the Fund may be
limited in its ability to enter into taxable transactions
involving forward commitments, repurchase agreements, financial
futures, and options contracts on financial futures, tax-exempt
bond indices, and other assets.
Part or all of the interest on indebtedness, if any, incurred or
continued by a shareholder to purchase or carry shares of a Fund
paying exempt-interest dividends is not deductible. The portion
of interest that is not deductible is equal to the total interest
paid or accrued on the indebtedness, multiplied by the percentage
of the Fund's total distributions (not including distributions
from net long-term capital gains) paid to the shareholder that
are exempt-interest dividends. Under rules used by the Internal
Revenue Service for determining when borrowed funds are
considered used for the purpose of purchasing or carrying
particular assets, the purchase of shares may be considered to
have been made with borrowed funds even though such funds are not
directly traceable to the purchase of shares.
In general, exempt-interest dividends, if any, attributable to
interest received on certain private activity obligations and
certain industrial development bonds will not be tax-exempt to
any shareholders who are "substantial users" of the facilities
financed by such obligations or bonds or who are "related
persons" of such substantial users.
A Fund which is qualified to pay exempt-interest dividends will
inform investors within 60 days of the Fund's fiscal year-end of
the percentage of its income distributions designated as
tax-exempt. The percentage is applied uniformly to all
distributions made during the year. The percentage of income
designated as tax-exempt for any particular distribution may be
substantially different from the percentage of the Fund's income
that was tax-exempt during the period covered by the
distribution.
HEDGING TRANSACTIONS. If the Fund engages in 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 (including earnings and profits arising from tax-exempt
income), 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, thus reducing any loss or increasing any gain on
a subsequent taxable disposition by you of your shares.
SECURITIES ISSUED OR PURCHASED AT A DISCOUNT. The Fund's
investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a
discount may) require the Fund to accrue and distribute income
not yet received. In order to generate sufficient cash to make
the requisite distributions, the Fund may be required to sell
securities in its portfolio that it otherwise would have
continued to hold.
CAPITAL LOSS CARRYOVER. 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 currencies,
foreign currency-denominated debt securities and certain foreign
currency options, futures contracts, and forward contracts (and
similar instruments) may give rise to ordinary income or loss to
the extent such income or loss results from fluctuations in the
value of the foreign currency concerned.
If more than 50% of the Fund's assets at year end consists of the
debt and equity securities of foreign corporations, the Fund may
elect to permit shareholders to claim a credit or deduction on
their income tax returns for their pro rata portion of qualified
taxes paid by the Fund to foreign countries. In such a case,
shareholders will include in gross income from foreign sources
their pro rata shares of such taxes. A shareholder's ability to
claim a foreign tax credit or deduction in respect of foreign
taxes paid by the Fund may be subject to certain limitations
imposed by the Code, as a result of which a shareholder may not
get a full credit or deduction for the amount of such taxes.
Shareholders who do not itemize on their federal income tax
returns may claim a credit (but no deduction) for such foreign
taxes.
Investment by the Fund in 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
(TIN), 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. Shareholders who fail to furnish their currect
TIN are subject to a penalty of $50 for each such failure unless
the failure is due to reasonable cause and not wilful neglect.
An individual's taxpayer identification number is his or her
social security number.
MANAGEMENT OF THE FUND
TRUSTEES
*+GEORGE PUTNAM, Chairman and President. Chairman and Director
of Putnam Management and Putnam Mutual Funds. Director, The
Boston Company, Inc., Boston Safe Deposit and Trust Company,
Freeport-McMoRan, Inc., General Mills, Inc., Houghton Mifflin
Company, Marsh & McLennan Companies, Inc. and Rockefeller Group,
Inc.
+WILLIAM F. POUNDS, Vice Chairman. Professor of Management,
Alfred P. Sloan School of Management, Massachusetts Institute of
Technology. Director of EG&G, Inc., Fisher Price, Inc., IDEXX,
M/A-COM, Inc., and Sun Company, Inc.
JAMESON A. BAXTER, Trustee. President, Baxter Associates, Inc.
(consultants to management). Director of Avondale Federal Savings
Bank, ASHTA Chemicals, Inc. and Banta Corporation. 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, the Kentucky Home Life Insurance Companies,
NYNEX Corporation, Northeast Utilities and Talbots 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 Courier Corporation and
Providence Journal Co. Also, Trustee and President of
Massachusetts General Hospital and Trustee of Bradley Real Estate
Trust and Eastern Utilities Associates.
OFFICERS
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.
KATHERINE HOWARD, Assistant Vice President. Assistant Vice
President 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 $65 billion in assets
in over 4.0 million shareholder accounts at June 30, 1994. An
affiliate, The Putnam Advisory Company, Inc., manages domestic
and foreign institutional accounts and mutual funds, including
the accounts of many Fortune 500 companies. Another affiliate,
Putnam Fiduciary Trust Company, provides investment advice to
institutional clients under its banking and fiduciary powers. At
June 30, 1994, Putnam Management and its affiliates managed over
$92 billion in assets, including nearly $52 billion in tax exempt
securities and over $32 billion in retirement plan assets.
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
has won the DALBAR Quality Tested Service Seal every year since
the award's 1990 inception. 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 the net asset value per share of each class
of shares once each day the New York Stock Exchange (the
"Exchange") is open. Currently, the Exchange is closed
Saturdays, Sundays and the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, the Fourth of July,
Labor Day, Thanksgiving and Christmas. The Fund determines net
asset value as of the close of regular trading on the Exchange,
currently 4:00 p.m. However, equity options held by the Fund are
priced as of the close of trading at 4:10 p.m., and futures
contracts on U.S. Government 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, and 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 the Fund are restricted as to resale,
Putnam Management determines their fair value following
procedures approved by the Trustees. The fair value of such
securities is generally determined as the amount which the Fund
could reasonably expect to realize from an orderly disposition of
such securities over a reasonable period of time. The valuation
procedures applied in any specific instance are likely to vary
from case to case. However, consideration is generally given to
the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of
the restrictions on disposition of the securities (including any
registration expenses that might be borne by the Fund in
connection with such disposition). In addition, specific factors
are also generally considered, such as the cost of the
investment, the market value of any unrestricted securities of
the same class, the size of the holding, the prices
of any recent transactions or offers with respect to such
securities and any available analysts' reports regarding the
issuer.
Generally, trading in certain securities (such as foreign
securities) is substantially completed each day at various times
prior to the close of the Exchange. The values of these
securities used in determining the net asset value of the Fund's
shares are computed as of such times. Also, because of the
amount of time required to collect and process trading
information as to large numbers of securities issues, the values
of certain securities (such as convertible bonds, U.S. Government
securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest
practicable time prior to the close of the Exchange.
Occasionally, events affecting the value of such securities may
occur between such times and the close of the Exchange which will
not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such
securities occur during such period, then these securities will
be valued at their fair value following procedures approved by
the Trustees.
Money market funds generally value their portfolio securities at
amortized cost according to Rule 2a-7 under the Investment
Company Act of 1940.
HOW TO BUY SHARES
General
The Prospectus contains a general description of how investors
may buy shares of the Fund and states whether the Fund offers
more than one class of shares. This Statement contains
additional information which may be of interest to investors.
Class A shares and Class M shares are sold with a sales charge
payable at the time of purchase (except for Class A shares and
Class M shares of money market funds). As used in this 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 and Class M shares may be exempt from
a sales charge or, in the case of Class A shares, may be subject
to a contingent deferred sales charge ("CDSC"). See "General--
Sales without sales charges or contingent deferred sales
charges", "Additional Information About Class A and Class M
Shares", and "Contingent Deferred Sales Charges--Class A shares".
Class B shares and Class C shares are sold subject to a CDSC
payable upon redemption within a specified period after purchase.
The Prospectus contains a table of applicable CDSCs.
Class 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 a CDSC.
Certain purchase programs described below are not available to
defined contribution plans. Consult your employer for
information on how to purchase shares through your plan.
The Fund is currently making a continuous offering of its shares.
The Fund receives the entire net asset value of shares sold. The
Fund will accept unconditional orders for shares to be executed
at the public offering price based on the net asset value per
share next determined after the order is placed. In the case of
Class A shares and Class M shares, the public offering price is
the net asset value plus the applicable sales charge, if any. No
sales charge is included in the public offering price of other
classes of shares. In the case of orders for purchase of shares
placed through dealers, the public offering price will be based
on the net asset value determined on the day the order is placed,
but only if the dealer receives the order before the close of
regular trading on the Exchange. If the dealer receives the
order after the close of the Exchange, the price will be based on
the net asset value next determined. If funds for the purchase
of shares are sent directly to Putnam Investor Services, they
will be invested at the public offering price based on the net
asset value next determined after receipt. Payment for shares of
the Fund must be in U.S. dollars; if made by check, the check
must be drawn on a U.S. bank.
Initial and subsequent purchases must satisfy the minimums stated
in the Prospectus, except that (i) individual investments under
certain employee benefit plans or Tax Qualified Retirement Plans
may be lower, (ii) persons who are already shareholders may make
additional purchases of $50 or more by sending funds directly to
Putnam Investor Services (see "Your Investing Account" below),
and (iii) for investors participating in systematic investment
plans and military allotment plans, the initial and subsequent
purchases must be $25 or more. Information about these plans is
available from investment dealers or from Putnam Mutual Funds.
As a convenience to investors, shares may be purchased through a
systematic investment plan. 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 for Putnam funds that declare a distribution daily,
distributions to be reinvested are reinvested without a sales
charge in shares of the same class as of the ex-dividend date
using the net asset value determined on that date, and are
credited to a shareholder's account on the payment date.
Dividends for Putnam money market funds are credited to a
shareholder's account on the payment date. Distributions for
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. Distributions for all other Putnam
funds that declare a distribution daily are reinvested without a
sales charge as of the next day following the period for which
distributions are paid using the net asset value determined on
that date, and are credited to a shareholder's account on the
payment date.
PAYMENT IN SECURITIES. In addition to cash, the Fund may accept
securities as payment for Fund shares at the applicable net asset
value. Generally, the Fund will only consider accepting
securities to increase its holdings in a portfolio security, or
if Putnam Management determines that the offered securities are a
suitable investment for the Fund and in a sufficient amount for
efficient management.
While no minimum has been established, it is expected that the
Fund would not accept securities with a value of less than
$100,000 per issue as payment for shares. The Fund may reject in
whole or in part any or all offers to pay for purchases of Fund
shares with securities, may require partial payment in cash for
such purchases to provide funds for applicable sales charges, and
may discontinue accepting securities as payment for Fund shares
at any time without notice. The Fund will value accepted
securities in the manner described in the section "Determination
of Net Asset Value" for valuing shares of the Fund. The Fund
will only accept securities which are delivered in proper form.
The Fund will not accept options or restricted securities as
payment for shares. The acceptance of securities by certain
Funds in exchange for Fund shares are subject to additional
requirements. In the case of Putnam American Government Income
Fund, Putnam Asia Pacific Growth Fund, Putnam Capital
Appreciation Fund, Putnam Corporate Asset Trust, Putnam
Diversified Equity Trust, Putnam Equity Income Fund, Putnam
Europe Growth Fund, The Putnamn Fund for Growth & Income, Putnam
Growth and Income Fund II, Putnam High Yield Advantage Fund,
Putnam Intermediate Tax Exempt Fund, Putnam Municipal Income
Fund, Putnam OTC Emerging Growth Fund, Putnam Overseas Growth
Fund, Putnam Tax Exempt Income Fund and Putnam Total Return Bond
Funds, transactions involving the issuance of Fund shares for
securities or assets other than cash will be limited to a bona-
fide re-organization or statutory merger and to other
acquisitions of portfolio securities that meet all the following
conditions: (a) such securities meet the investment objectives
and policies of the Fund; (b) such securities are acquired for
investment and not for resale; (c) such securities are liquid
securities which are not restricted as to transfer either by law
or liquidity of market; and (d) such securities have a value
which is readily ascertainable, as evidenced by a listing on the
American Stock Exchange, the New York Stock Exchange or NASDAQ.
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 CDSC to:
(i) current and retired Trustees of the Fund; officers of
the Fund; directors and current and retired U.S. full-time
employees of Putnam Management, Putnam Mutual Funds, their
parent corporations and certain corporate affiliates;
family members of and employee benefit plans for the
foregoing; and partnerships, trusts or other entities in
which any of the foregoing has a substantial interest;
(ii) employee benefit plans, for the repurchase of shares
in connection with repayment of plan loans made to plan
participants (if the sum loaned was obtained by redeeming
shares of a Putnam fund sold with a sales charge) (not
offered by tax-exempt funds);
(iii) clients of administrators of tax-qualified employee
benefit plans which have entered into agreements with
Putnam Mutual Funds (not offered by tax-exempt funds);
(iv) registered representatives and other employees of
broker-dealers having sales agreements with Putnam Mutual
Funds; employees of financial institutions having sales
agreements with Putnam Mutual Funds or otherwise having an
arrangement with any such broker-dealer or financial
institution with respect to sales of Fund shares; and
their spouses and children under age 21 (Putnam Mutual
Funds is regarded as the dealer of record for all such
accounts);
(v) investors meeting certain requirements who sold shares
of certain Putnam closed-end funds pursuant to a tender
offer by such closed-end fund;
(vi) a trust department of any financial institution
purchasing shares of the Fund in its capacity as trustee
of any trust, if the value of the shares of the Fund and
other Putnam funds purchased or held by all such trusts
exceeds $1 million in the aggregate; and
(vii) "wrap accounts" maintained for clients of broker-
dealers, financial institutions or financial planners who
have entered into agreements with Putnam Mutual Funds with
respect to such accounts.
In addition, the Fund may issue its shares at net asset value 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 AND CLASS M SHARES
The underwriter's commission is the sales charge shown in the
Prospectus less any applicable dealer discount. Putnam Mutual
Funds will give dealers ten days' notice of any changes in the
dealer discount. Putnam Mutual Funds retains the entire sales
charge on any retail sales made by it.
Putnam Mutual Funds offers several plans by which an investor may
obtain reduced sales charges on purchases of Class A shares and
Class M shares. The variations in sales charges reflect the
varying efforts required to sell shares to separate categories of
purchasers. These plans may be altered or discontinued at any
time.
COMBINED PURCHASE PRIVILEGE. The following persons may qualify
for the sales charge reductions or eliminations shown in the
Prospectus by combining into a single transaction the purchase of
Class A shares or Class M shares with other purchases of any
class of shares:
(i) an individual, or a "company" as defined in Section
2(a)(8) of the Investment Company Act of 1940 (which
includes corporations which are corporate affiliates of
each other);
(ii) an individual, his or her spouse and their children
under twenty-one, purchasing for his, her or their own
account;
(iii) a trustee or other fiduciary purchasing for a single
trust estate or single fiduciary account (including a
pension, profit-sharing, or other employee benefit trust
created pursuant to a plan qualified under Section 401 of
the Internal Revenue Code);
(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 or Class M shares may qualify for a
cumulative quantity discount by combining a current purchase (or
combined purchases as described above) with certain other shares
of any class of Putnam funds already owned. The applicable sales
charge is based on the total of:
(i) the investor's current purchase; and
(ii) the maximum public offering price (at the close of
business on the previous day) of:
(a) all shares held by the investor in all of the
Putnam funds (except money market funds); and
(b) any shares of money market funds acquired by
exchange from other Putnam funds; and
(iii) the maximum public offering price of all shares
described in paragraph (ii) owned by another shareholder
eligible to participate with the investor in a "combined
purchase" (see above).
To qualify for the combined purchase privilege or to obtain the
cumulative quantity discount on a purchase through an investment
dealer, when each purchase is made the investor or dealer must
provide Putnam Mutual Funds with sufficient information to verify
that the purchase qualifies for the privilege or discount. The
shareholder must furnish this information to Putnam Investor
Services when making direct cash investments.
STATEMENT OF INTENTION. Investors may also obtain the reduced
sales charges for Class A shares or Class M shares shown in the
Prospectus for investments of a particular amount by means of a
written Statement of Intention, which expresses the investor's
intention to invest that amount (including certain "credits," as
described below) within a period of 13 months in shares of any
class of the Fund or any other continuously offered Putnam fund
(excluding money market funds). Each purchase of Class A shares
or Class M shares under a Statement of Intention will be made at
the public offering price applicable at the time of such purchase
to a single transaction of the total dollar amount indicated in
the Statement. 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 or
Class M shares purchased with the first 5% of such amount will be
held in escrow to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount
indicated is not purchased. When the full amount indicated has
been purchased, the escrow will be released. If an investor
desires to redeem escrowed shares before the full amount has been
purchased, the shares will be released from escrow only if the
investor pays the sales charge that, without regard to the
Statement of Intention, would apply to the total investment made
to date.
To the extent that an investor purchases more than the dollar
amount indicated on the Statement of Intention and qualifies for
a further reduced sales charge, the sales charge will be adjusted
for the entire amount purchased at the end of the 13-month
period, upon recovery from the investor's dealer of its portion
of the sales charge adjustment. Once received from the dealer,
which may take a period of time or may never occur, the sales
charge adjustment will be used to purchase additional shares at
the then current offering price applicable to the actual amount
of the aggregate purchases. These additional shares will not be
considered as part of the total investment for the purpose of
determining the applicable sales charge pursuant to the Statement
of Intention. No sales charge adjustment will be made unless and
until the investor's dealer returns any excess commissions
previously received.
To the extent that an investor purchases less than the dollar
amount indicated on the Statement of Intention within the 13-
month period, the sales charge will be adjusted upward for the
entire amount purchased at the end of the 13-month period. This
adjustment will be made by redeeming shares from the account to
cover the additional sales charge, the proceeds of which will be
paid to the investor's dealer and Putnam Mutual Funds in
accordance with the Prospectus. If the account exceeds an amount
that would otherwise qualify for a reduced sales charge, that
reduced sales charge will be applied.
Statements of Intention are not available for certain employee
benefit plans.
Statement of Intention forms may be obtained from Putnam Mutual
Funds or from investment dealers. Interested investors should
read the Statement of Intention carefully.
REDUCED SALES CHARGE FOR GROUP PURCHASES OF CLASS A SHARES.
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. Class A shares purchased at net asset value by
shareholders investing $1 million or more, including purchases
pursuant to any Combined Purchase Privilege, Right of
Accumulation or Statement of Intention, are subject to a CDSC of
1.00% or 0.50%, respectively, if redeemed within the first or
second year after purchase. The Class A CDSC is imposed on the
lower of the cost and the current net asset value of the shares
redeemed. The CDSC does not apply to shares sold without a sales
charge through participant-directed qualified retirement plans
and shares purchased by certain investors investing $1 million or
more that have made arrangements with Putnam Mutual Funds and
whose dealer of record waived the commission described in the
next paragraph.
Except as stated below, Putnam Mutual Funds pays investment
dealers of record commissions on sales of Class A shares of $1
million or more based on an investor's cumulative purchases of
such shares, including purchases pursuant to any Combined
Purchase Privilege, Right of Accumulation or Statement of
Intention, during the one-year period beginning with the date of
the initial purchase at net asset value and each subsequent one-
year period beginning with the first net asset value purchase
following the end of the prior period. Such commissions are paid
at the rate of 1.00% of the amount under $3 million, 0.50% of the
next $47 million and 0.25% thereafter. On sales at net asset
value to a participant-directed qualified retirement plan
initially investing less than $20 million in Putnam funds and
other investments managed by Putnam Management or its affiliates
(including a plan sponsored by an employer with more than 750
employees), Putnam Mutual Funds pays commissions on cumulative
purchases during the life of the account at the rate of 1.00% of
the amount under $3 million and 0.50% thereafter. On sales at
net asset value to all other participant-directed qualified
retirement plans, Putnam Mutual Funds pays commissions on the
initial investment and on subsequent net quarterly sales (gross
sales minus gross redemptions during the quarter) at the rate of
0.15%. Money market fund shares are excluded from all commission
calculations, except for determining the amount initially
invested by a participant-directed qualified retirement plan.
Commissions on sales at net asset value to such plans are subject
to Putnam Mutual Funds' right to reclaim such commissions if the
shares are redeemed within two years.
Different CDSC and commission rates may apply to shares purchased
before April 1, 1994.
CLASS B AND CLASS C SHARES. Investors who set up an Automatic
Cash Withdrawal Plan (ACWP) for a Class B and Class C share
account (see "Plans Available To Shareholders -- Automatic Cash
Withdrawal Plan") may withdraw through the ACWP up to 12% of the
net asset value of the account (calculated as set forth below)
each year without incurring any CDSC. Shares not subject to a
CDSC (such as shares representing reinvestment of distributions)
will be redeemed first and will count toward the 12% limitation.
If there are insufficient shares not subject to a CDSC, shares
subject to the lowest CDSC liability will be redeemed next until
the 12% limit is reached. The 12% figure is calculated on a pro
rata basis at the time of the first payment made pursuant to a
ACWP and recalculated thereafter on a pro rata basis at the time
of each ACWP payment. Therefore, shareholders who have chosen a
ACWP based on a percentage of the net asset value of their
account of up to 12% will be able to receive ACWP payments
without incurring a CDSC. However, shareholders who have chosen
a specific dollar amount (for example, $100 per month from a fund
that pays income distributions monthly) for their periodic ACWP
payment should be aware that the amount of that payment not
subject to a CDSC may vary over time depending on the net asset
value of their account. For example, if the net asset value of
the account is $10,000 at the time of payment, the shareholder
will receive $100 free of the CDSC (12% of $10,000 divided by 12
monthly payments). However, if at the time of the next payment
the net asset value of the account has fallen to $9,400, the
shareholder will receive $94 free of any CDSC (12% of $9,400
divided by 12 monthly payments) and $6 subject to the lowest
applicable CDSC. This ACWP privilege may be revised or
terminated at any time.
ALL SHARES. No CDSC is imposed on shares of any class subject to
a CDSC ("CDSC Shares") to the extent that the CDSC Shares
redeemed (i) are no longer subject to the holding period
therefor, (ii) resulted from reinvestment of distributions on
CDSC Shares, or (iii) were exchanged for shares of another Putnam
fund, provided that the shares acquired in such exchange or
subsequent exchanges (including shares of a Putnam money market
fund) will continue to remain subject to the CDSC, if applicable,
until the applicable holding period expires. In determining
whether the CDSC applies to each redemption of CDSC Shares, CDSC
Shares not subject to a CDSC are redeemed first.
The Fund will waive any CDSC on redemptions, in the case of
individual 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.
Financial institutions receiving payments from Putnam Mutual
Funds as described above may be required to comply with various
state and federal regulatory requirements, including among others
those regulating the activities of securities brokers or dealers.
INVESTOR SERVICES
SHAREHOLDER INFORMATION
Each time shareholders buy or sell shares, they will receive a
statement confirming the transaction and listing their current
share balance. (Under certain investment plans, a statement may
only be sent quarterly.) Shareholders will receive a statement
confirming reinvestment of distributions in additional Fund
shares (or in shares of other Putnam funds for Dividends Plus
accounts) promptly following the quarter in which the
reinvestment occurs. To help shareholders take full advantage of
their Putnam investment, they will receive a Welcome Kit and a
periodic publication covering many topics of interest to
investors. The Fund also sends annual and semiannual reports
that keep shareholders informed about its portfolio and
performance, and year-end tax information to simplify their
recordkeeping. Easy-to-read, free booklets on special subjects
such as the Exchange Privilege and IRAs are available from Putnam
Investor Services. Shareholders may call Putnam Investor
Services toll-free weekdays at 1-800-225-1581 between 8:30 a.m.
and 7:00 p.m. Boston time for more information, including account
balances.
YOUR INVESTING ACCOUNT
The following information provides more detail concerning the
operation of a Putnam Investing Account. For further information
or assistance, investors should consult Putnam Investor Services.
Shareholders who purchase shares through a defined contribution
plan should note that not all of the services or features
described below may be available to them, and they should contact
their employer for details.
A shareholder may reinvest a 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
An investor who has redeemed shares to the Fund may reinvest
(within 1 year) the proceeds of such sale in shares of the same
class of the Fund, or may be able to reinvest (within 1 year) the
proceeds in shares of the same class of one of the other
continuously offered Putnam funds (through the Exchange Privilege
described in the Prospectus), including, in the case of shares
subject to a CDSC, the amount of CDSC charged on the redemption.
Any such reinvestment would be at the net asset value of the
shares of the fund(s) the investor selects, next determined after
Putnam Mutual Funds receives a Reinstatement Authorization. The
time that the previous investment was held will be included in
determining any applicable CDSC due upon redemptions and, in the
case of Class B shares, the eight-year period for conversion to
Class A shares. Shareholders will receive from Putnam Mutual
Funds the amount of any CDSC paid at the time of redemption as
part of the reinstated investment, which may be treated as
capital gains to the shareholder for tax purposes. Exercise of
the Reinstatement Privilege does not alter the federal income tax
treatment of any capital gains realized on a sale of Fund shares,
but to the extent that any shares are sold at a loss and the
proceeds are reinvested in shares of the Fund, some or all of the
loss may be disallowed as a deduction. Consult your tax adviser.
Investors who desire to exercise 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 requesting an exchange. There is no holding period
if the shareholder acquired the shares to be exchanged through
reinvestment of distributions, transfer from another shareholder,
prior exchange or certain employer-sponsored defined contribution
plans. In all cases, the shares to be exchanged must be
registered on the records of the Fund in the name of the
shareholder requesting the exchange.
Shareholders of other Putnam funds may also exchange their shares
at net asset value for shares of the Fund, as set forth in the
current prospectus of each fund.
For federal income tax purposes, an exchange is a sale on which
the investor generally will realize a capital gain or loss
depending on whether the net asset value at the time of the
exchange is more or less than the investor's basis. The Exchange
Privilege may be revised or terminated at any time. Shareholders
would be notified of any such change or suspension.
DIVIDENDS PLUS
Shareholders may invest the Fund's distributions of net
investment income or distributions combining net investment
income and short-term capital gains in shares of the same class
of another continuously offered Putnam fund (the "receiving
fund") using the net asset value per share of the receiving fund
determined on the date the Fund's distribution is payable. No
sales charge or CDSC will apply to the purchased shares unless
the Fund 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 CDSC) may also use their distributions to purchase
shares of the Fund at net asset value.
For federal tax purposes, distributions from the Fund which are
reinvested in another fund are treated as paid by the Fund to the
shareholder and invested by the shareholder in the receiving fund
and thus, to the extent comprised of taxable income and deemed
paid to a taxable shareholder, are taxable.
The Dividends PLUS program may be revised or terminated at any
time.
PLANS AVAILABLE TO SHAREHOLDERS
The Plans described below are fully voluntary and may be
terminated at any time without the imposition by the Fund or
Putnam Investor Services of any penalty. All Plans provide for
automatic reinvestment of all distributions in additional shares
of the Fund at net asset value. The Fund, Putnam Mutual Funds or
Putnam Investor Services may modify or cease offering these Plans
at any time.
AUTOMATIC CASH WITHDRAWAL PLAN. 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 Class M shares and net asset value for other classes of
shares, and then calculating the annual compounded rate of return
which would produce that amount. Total return for a period of
one year is equal to the actual return of the Fund during that
period. Total return calculations assume deduction of the Fund's
maximum sales charge or CDSC, if applicable, and reinvestment of
all Fund distributions at net asset value on their respective
reinvestment dates.
The Fund's yield is presented for a specified thirty-day period
(the "base period"). Yield is based on the amount determined by
(i) calculating the aggregate amount of dividends and interest
earned by the Fund during the base period less expenses 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 or
Class M shares, as appropriate and net asset value for other
classes of shares on the last day of the base period. The result
is annualized on a compounding basis to determine the yield. For
this calculation, interest earned on debt obligations held by the
Fund is generally calculated using the yield to maturity (or
first expected call date) of such obligations based on their
market values (or, in the case of receivables-backed securities
such as 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.
<PAGE>
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
FORM N-1A
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Index to Financial Statements and Supporting
Schedules:
(1) Financial Statements :
Statement of assets and liabilities --
September 30, 1994(a) .
Statement of operations -- year ended
September 30, 1994(a) .
Statement of changes in net assets -- years
ended September 30, 1994 and
1993(a) .
Financial highlights (a)(b).
Notes to financial statements(a).
(2) Supporting Schedules:
Schedule I -- Portfolio of investments owned
-- September 30, 1994(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:
1 . Agreement and Declaration of Trust, as
amended November 9, 1992 --
Incorporated by reference to Post-
Effective Amendment No. 24 to the
Registrant's Registration Statement.
2. By-Laws, as amended through
February 1, 1994 -- Exhibit
1.
3. Not applicable.
4a. Class A Specimen share certificate --
Incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's
Registration Statement.
<PAGE>
4b. Class B Specimen share certificate --
Incorporated by reference to Post-Effective
Amendment No. 25 to the Registrant's
Registration Statement.
4c. Class M Specimen share certificate --
Exhibit 2.
4d . Portions of Agreement and
Declaration of Trust Relating to
Shareholders' Rights --
Incorporated by reference to Post-
Effective Amendment No. 25 to the
Registrant's Registration
Statement.
4e. Portions of By-Laws Relating to Shareholders'
Rights -- Exhibit 3.
5 . Copy of Management Contract dated July
11, 1991 -- Incorporated by
reference to the Registrant's Post-
Effective Amendment No. 23 to the
Registrant's Registration Statement.
6a. Copy of Distributor's Contract
dated May 6, 1994 -- Exhibit
4.
6b. Copy of Specimen Dealer Sales
Contract --Incorporated by reference
to Post-Effective Amendment No. 23 to the
Registrant's Registration Statement.
6c . Copy of Specimen Financial
Institution Sales Contract -
- Incorporated by reference to
Post-Effective Amendment No. 23 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 -- Incorporated by
reference to Post-Effective Amendment No. 25
to the Registrant's Registration
Statement.
9 . Copy of Investor Servicing Agreement
dated June 3, 1991 with Putnam Fiduciary
Trust Company -- Incorporated by
reference to Post-Effective Amendment
No. 23 to the Registrant's Registration
Statement.
10 . Opinion of Ropes & Gray, including
consent --Incorporated by
reference to Post-Effective
Amendment No. 21 to the
Registrant's Registration
Statement.
11. Not applicable.
12. Not applicable.
13a. Investment Letter from The Putnam Management
Company, Inc. to the Registrant --
Incorporated by reference to the Registrant's
Post-Effective Amendment No. 18 to the
Registrant's Registration Statement.
14. Not applicable.
15a. Copy of Class A Distribution Plan and
Agreement dated January 1, 1993 --
Incorporated by reference to the Registrant's
Post-Effective Amendment No. 25 to the
Registrant's Registration Statement.
15b. Copy of Class B Distribution
Plan and Agreement dated
January 1, 1993 --Incorporated
by reference to the Registrant's
Post-Effective Amendment No.
25 to the Registrant's
Registration Statement.
15c. Form of Class M Distribution Plan and
Agreement dated February 1, 1995 --
Exhibit 5.
15d. Copy of Specimen Dealer Service Agreement --
Exhibit 6.
15e. Copy of Specimen Financial Institution
Service Agreement -- Exhibit 7.
16 . Schedules for computation of
performance quotations
-- Exhibit 8.
17a. Financial Data Schedule for Class A
shares --Exhibit 9.
17b. Financial Data Schedule for Class B shares --
Exhibit 10.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of December 31, 1994, there were 60,792 and 8,292
holders, respectively, of the Registrant's Class A and Class
B shares of beneficial interest . No Class M shares were
outstanding as of that date.
ITEM 27. INDEMNIFICATION
The information required by this item is incorporated
by reference from the Registrant's Registration Statement
on Form N-8B-1 under the Investment Company Act of 1940 (File No.
811-2675) .
<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
John V. Adduci Prior to July, 1993, Human Resources
Assistant Vice President Manager, First Security Services, 80
Main St., Reading, MA 01867
Gail S. Attridge Prior to November, 1993, International
Vice President Analyst, Keystone Custodian Funds,
200 Berkley Street, Boston, MA 02116
James E. Babcock Prior to June, 1994, Interest
Assistant Vice President Supervisor, Salomon Brothers, Inc.
7 World Trade Center, New York, NY
10048
Prior to June, 1993, Audit Manager,
Coopers & Lybrand, One Sylvan Way,
Parsipanny, NJ 07054
Robert K. Baumbach Prior to August, 1994, Vice President
Vice President and Analyst, Keystone Custodian
funds, 200 Berkely St., Boston, MA
02110
Sharon A. Berka Prior to January, 1994, Vice
Vice President President - Compensation Manager,
BayBanks, Inc., 175 Federal Street,
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
Michael F. Bouscaren Prior to May, 1994, President and
Senior Vice President Chairman of the Board of Directors
at Salomon Series Funds, Inc. and a
Director of Salomon Brothers Asset
Management, 7 World Trade Center,
New York, NY 10048
Brett Browchuk Prior to April, 1994, Managing
Managing Director Director, Fidelity Investments, 82
Devonshire St., Boston, MA 02109
Carolyn S. Bunten Prior to July, 1993, Assistant Trader,
Assistant Vice President Scudder Stevens & Clark, Inc., 175
Federal St., Boston, MA 02110
Andrea Burke Prior to August, 1994, Vice President
Vice President and Portfolio Manager, Back Bay
Advisors, 399 Boylston St., Boston,
MA 02116
John M. Burton Prior to June, 1994, Manager --
Assistant Vice President Marketing Asset Management Pension
Services, The Travelers, Inc., 1
Tower Square, Hartford, CT 06183
Patricia A. Carey Prior to May, 1993, Research Analyst,
Assistant Vice President John Hancock Financial Services, 100
Clarendon St., Boston, MA 02116
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
Steven Cheshire Prior to January, 1994, Assistant
Vice President Vice President, Wellington
Management, 75 State Street, Boston,
MA 02109
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
<PAGE>
John A. DeTore Prior to January, 1994, Director of
Managing Director Quantitative Portfolio Management,
Wellington Management, 75 State
Street, Boston, Ma 02109
Michael G. Dolan Prior to February, 1994, Senior
Assistant Vice President Financial Analyst, General Electric
Company, 1000 Western Ave., Lynn, MA
01905
Joseph Eagleeye Prior to August, 1994, Associate,
Assistant Vice President David Taussig & Associates, 424
University Ave., Sacremento, CA
95813
Richard B. England Prior to December, 1992, Investment
Senior Vice President Officer, Aetna Equity Investors,
151 Farmington Avenue, Hartford,
CT, 06156
Jonathan H. Francis Prior to March, 1993, President,
Senior Vice President J.H. Francis & Co., N. Pheasant
Lane, Westport, CT 06880
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
Mark D. Goodwin Prior to May, 1994, Manager, Audit &
Assistant Vice President Operations Analysis, Mitre
Corporation, 202 Burlington Rd.,
Bedford, MA 01730
Stephen Gorman Prior to July, 1994, Financial
Assistant Vice President Analyst, Boston Harbor Trust
Company, 100 Federal St., Boston, MA
02110
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
<PAGE>
Billy P. Han Prior to December, 1992, Vice
Vice President President, Scudder, Stevens & Clark,
Inc., 160 Federal Street, Boston, MA
02110
Deborah R. Healy Prior to June, 1994, Senior Equity
Senior Vice President Trader, Fidelity Management &
Research Company, 82 Devonshire St.,
Boston, MA 02109
Lisa Heitman Prior to July, 1994, Securities
Analyst, Lord, Abbett & Company, 767
Fifth Ave., New York, NY 10153
Michael F. Hotchkiss Prior to May, 1994, Vice President,
Vice President Massachusetts Financial Services,
500 Boylston St., Boston, MA 02116
Walter Hunnewell, Jr. Prior to April, 1994, Managing
Vice President Director, Veronis, Suhler &
Associates, 350 Park Avenue, New
York, NY 10022
Stephon A. Jackson Prior to December, 1992, nalyst,
Assistant Vice President Arco Investment Management Co.,
515 South Flower Street,
Los Angeles, CA 91030
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
D. William Kohli Prior to September, 1994, Executive
Senior Vice President Vice President and Co-Director of
Global Bond Managment; Prior to
1993, Portfolio Manager, Franklin
Advisors/Templeton Investment
Counsel, 777 Mariners Island Blvd.,
San Mateo, CA 94404
<PAGE>
Karen R. Korn Prior to June, 1994, Vice President,
Vice President Assistant to the President, Designs,
Inc. 1244 Boylston St., Chestnut
Hill, MA 02167
Prior to March, 1993, Vice President,
Paine Webber, Inc., 265 Franklin
St., Boston, MA 02110
Bruce M. Landers Prior to February, 1993, Manager,
Assistant Vice President Purchasing, Vicor Coproration, 23
Frontage Road, Andover, MA 01810
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
John A. Libertine, Jr. Prior to December, 1992, Tax Manager,
Assistant Vice President Coopers & Lybrand, One Post Office
Square, Boston, MA 02109
Jeff Lindsay Prior to April, 1994, Vice President
Vice President and Board Member, Strategic
Portfolio Management, 900 Ashwood
Parkway, Suite 290, Atlanta, GA
30338
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
Michael Martino Prior to January, 1994, Executive
Senior Vice President Vice President and Chief Investment
Officer until 1992; Senior Vice
President and Portfolio Manager from
1990 to 1992, Back Bay Advisors, 399
Boylston St, Boston, MA 02116
Andrew S. Matteis Prior to March, 1993, Vice President,
Vice President Fitch Investors Service, One
State Street Plaza, New York,
NY 10004
Susan McCormack Prior to May, 1994, Associate
Vice President Investment Banker, Merrill Lynch &
Co., 350 South Grand Ave., Suite
2830, Los Angeles, CA 90071
Michael J. Mufson Prior to June, 1993, Senior Equity
Vice President Analyst, Stein Roe & Farnham,
One South Wacker Drive, Chicago, Il
60606
Warren S. 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
Patrick C. O'Donnell, Jr. Prior to May, 1994, President,
Managing Director Exeter Research, Inc., 163 Water
Street, Exeter, New Hampshire, 03833
Brian O'Keefe Prior to December, 1993, Vice
Vice President President - Foreign Exchange
Trader, Bank of Boston, 100 Federal
Street, Boston, MA 02109
Pat G. Patel Prior to April, 1993, Regional
Vice President Manager, Zacks Investment Research,
155 N. Wacker Drive, Chicago,
IL 60606
Margaret Pietropaolo Prior to January, 1994, Data Base/
Assistant Vice President Production Analyst, Wellington
Management, 75 State Street, Boston,
MA 02109
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
Christopher A. Ray Prior to December, 1992, Vice
Vice President President and Portfolio Manager at
Scudder, Stevens & Clark, Inc., 160
Federal Street, Boston, MA 02110
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
George W. Stairs Prior to July, 1994, Equity Research
Vice President Analyst, ValueQuest Limited,
Roundy's Hill, Marblehead, MA 01945
Hillary F. Till Prior to May, 1994, Fixed-Income
Vice President Deritive Trader, Bank of Boston,
100 Federal Street, Boston, MA 02109
Prior to December, 1993, Equity
Analyst, Harvard Management Company,
600 Atlantic St., Boston, MA 02109
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
Elizabeth A. Underhill Prior to August, 1994, Vice President
Vice President and Senior Equity Analyst, State
Street Bank and Trust Company, 225
Franklin St., Boston, MA 02110
Charles C. Van Vleet Prior to August, 1994, Vice President
Senior Vice President and Fixed-Income Manager, Alliance
Capital Management, 1345 Avenue of
the Americas, New York, NY 10105
Michael R. Weinstein Prior to March, 1994, Management
Vice President Consultant, Arthur D. Little, Acorn
Park, Cambridge, MA 02140
Item 29. Principal Underwriter
(a) Putnam Mutual Funds Corp. is the principal underwriter for
each of the following investment companies, including the
Registrant:
Putnam Adjustable Rate U.S. Government Fund, Putnam American
Government Income Fund, Putnam Arizona Tax Exempt Income Fund,
Putnam Asia Pacific Growth Fund, Putnam Asset Allocation Funds,
Putnam Balanced Government Fund, Putnam California Tax Exempt
Income Trust, 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
Diversified Equity Trust, Putnam Diversified Income Trust, Putnam
Dividend Growth Fund, 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 Intermediate Tax
Exempt 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 Money Market Fund, Putnam Municipal Income
Fund, Putnam Natural Resources Fund, Putnam New Jersey Tax Exempt
Income Fund, Putnam New Opportunities Fund, Putnam New York Tax
Exempt Income 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 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>
John V. Adduci Assistant Vice President None
Christopher S. Alpaugh Vice President None
Paulette C. Amisano Vice President None
Ronald J. Anwar Vice President None
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
Steven M. Beatty Vice President None
Matthew F. Beaudry Vice President None
Robert A. Benish Vice President None
John J. Bent Vice President None
Sharon A. Berka Vice President None
James R. Besher Vice President None
Suzanne J. Bessett Vice President None
Maureen L. Boisvert Vice President None
Keith R. Bouchard Vice President None
Leslee R. Bresnahan Vice President None
James D. Brockelman Senior Vice President None
Scott C. Brown Vice President None
Gail Buckner 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 Senior Vice President None
Charles A. Carey Assistant Vice President None
Patricia A. Cartwright Assistant Vice President None
Christopher D. Caton Assistant Vice President None
Stephen J. Chaput Assisant Vice President None
Daniel J. Church Vice President None
James E. Clinton Assistant Vice President None
Kathleen M. Collman Managing Director None
Mark L. Coneeny Vice President None
Donald A. Connelly Senior Vice President None
Anna Coppola Assistant Vice President None
F. Nicholas Corvinus Senior Vice President None
Kenneth L. Daly Senior Vice President None
Edward H. Dane Assistant Vice President None
Nancy M. Days Assistant Vice President None
Daniel J. Delianedis Vice President None
J. Thomas Depres Senior Vice President None
Michael G. Dolan Assistant Vice President None
Scott M. Donaldson Vice President None
Emily J. Durbin Assistant Vice President None
David B. Edlin Senior Vice President None
James M. English Senior Vice President None
Vincent Esposito Senior Vice President None
Mary K. Farrell Assistant Vice President None
Susan H. Feldman Vice President None
Michael J. Fetcher Assistant Vice President None
Paul F. Fichera Senior Vice President None
C. Nancy Fisher Senior Vice President None
Mitchell B. Fishman 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
Mark D. Goodwin Assistant Vice President None
Robert Goodman Managing Director None
Robert G. Greenly Vice President None
Thomas W. Halloran Vice President None
Marilyn M. Hausammann Senior Vice President None
Howard W. Hawkins, III Vice President None
Deanna R. Hayes-Castro Assistant Vice President None
Paul P. Heffernan Vice President None
Susan M. Heimanson Vice President None
Bradley J. Hilsabeck Vice President None
Bess J.M. Hochstein 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 Senior Vice President None
Douglas B. Jamieson Director and Senior Managing Director None
Jay M. Johnson Vice President None
Kevin M. Joyce Senior Vice President None
John P. Keating 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
Edward V. Lewandowski Senior Vice President None
Edward V. Lewandowski, Jr. Vice President None
Samuel L. Lieberman Vice President None
Rufino R. Lomba Vice President None
Maura A. Lockwood Assistant Vice President None
Robert F. Lucey Senior Managing Director 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 Vice President None
Jill Maserian Vice President None
Kathleen M. McAnulty Assistant Vice President None
Anne B. McCarthy Assistant Vice President None
Mark J. McKenna 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
Douglas W. Miller 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
Jane M. Nickodemus 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
Lorie C. O'Malley Senior Vice President None
Kevin L. O'Shea 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 Senior Vice President None
Keith Plapinger Vice President None
Douglas H. Powell Vice President None
George Putnam Director Chairman & President
Susannah Psomas Vice President None
Robert B. Rowe Vice President None
Kevin A. Rowell Senior Vice President None
Thomas C. Rowley Vice President None
Deborah A. Ryan Assistant Vice President None
Charles Ruys de Perez Vice President None
Catherine A. Saunders Senior Vice President None
Robbin L. Saunders Assistant Vice President None
Karl W. Saur Vice President None
Christine A. Scordato Vice President None
Joseph W. Scott Assistant Vice President None
Kathleen G. Sharpless Senior Vice President None
John F. Sharry Managing Director 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
Mark J. Siebold Assistant Vice President None
Gordon H. Silver Senior Managing Director Vice President
Barry Sommers Vice President None
Nicholas T. Stanojev Vice President None
Brian L. Sullivan Vice President None
Kevin J. Sullivan 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 Assistant Vice President None
John C. Tredinnick 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 Senior 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
SooHee L. Zebedee Assistant Vice President None
</TABLE>
The principal business address of each person listed above is One
Post Office Square, Boston, MA 02109, except for:
Mr. Alpaugh, 5980 Richmond Highway, Alexandria, VA 22303
Mr. Anwar, 25-49 86th St. Jackson Heights, NY 11369
Mr. Baron, 31 Cala Moreya, Laguna Niguel, CA 92667
Mr. Bartlett, 7 Farifield St., Boston, MA 02116
Mr. Besher, 14000 Margaux, Town & Country, MO 63017
Ms. Besset, 1140 North LaSalle Blvd, Chicago, IL 60610
Mr. Bouchard, 18 Brice Rd., Annapolis, MD 21401
Mr. Brown, 221 East Mallord Drive, Boise, ID 83706
Ms. Buckner, 8338 Timber Trail, Pittsburgh, PA 15237
Mr. Busher, 12005 Ridge Knoll Drive, Fairfax, VA 22033
Mr. Campagna, 2179-D Lake Park Drive, Smyrna, GA 30080
Mr. Church, 4504 Sir Winston Place, Charlotte, NC 28211
Mr. Connelly, 4634 Mirada Way, Sarasota, FL 34238
Mr. Corvinus, 208 Water St., Newburyport, MA 01950
Mr. Deliandis, 206 Promontory Drive, Newport Beach, CA 92660
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, 978 W. Creek Lane, Westlake Village, CA 91362
Mr. Hyde, 3305 Sulky, Marietta, GA 30067
Mr. Jacobsen, 2744 Joyce Ridge Drive, Chesterfield, MO 63017
Mr. Johnson, 200 Clock Tower Place, Carmel, CA 93923
Mr. Keating, 5521 Greenville Avenue, Dallas, TX 75206
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. Lieberman, 200 Roy St., Seattle, WA 98199
Mr. McFarland, 8012 Dancing Fern Trail, Chattanooga, TN 37421
Mr. McMillan, 203 D. Zigler St., Zelienople, PA 16063
Mr. McMurtrie, 14529 Glastonbury, Detroit, MI 48223
Mr. Miller, 260 West 72nd St., New York, NY 10023
Mr. Moret, 4519 Lawn Avenue, Western Springs, IL 60558
Mr. Murray, 13 Ridge Court, Saratoga Springs, NY 12866
Mr. Nadherny, 9714 Marmount Drive, Seattle, WA 98117
Mr. and Mrs. Nickodemus, 1232 B Louden St., Cincinnati, OH 45202
Mr. Nyhus, 7203 Oak Pointe Curve, Bloomington, MN 55438
Mr. Padgett, Jr., 7709 Charleston Drive, Bethesda, MD 20817
Mr. Papes, 3102 Wood View Bridge Drive, Kansas City, KS 66103
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, 1508 Ruth Lane, Newport Beach, CA 92660
Mr. Rowe, 109 Shore Drive, Longwood, FL 32779
Mr. Rowell, 1508 Ruth Lane, Newport Beach, CA 92660
Mr. Rowley, 237 Peeke Avenue, Kirkwood, MO 63122
Ms. Saunders, 39939 Stevenson Common, Freemont, CA 94538
Mr. Shamburg, 10603 N. 100th Street, Scottsdale, AZ 85260
Mr. Sheehan, Parkway Center, 1150 Galapago, Denver, CO 80204
Mr. Shore, 2870 Pharr Court South, N.W., Atlanta, BA 30305
Mr. Sommers, 397 North Little Pour, New City, NY 10956
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. Tambone, 10 Commercial Wharf, Boston, MA 02110
Mr. Tredinnick, 2995 Glenwood Drive, Boulder, CO 80301
Mr. Telling, 1995 Delaware Ave., Buffalo, NY 14216
Mr. Unger, 212 E. Broadway, 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 consent to the incorporation by reference in
Post-Effective Amendment No. 26 to the
Registration Statement of Putnam Tax Exempt Income Fund on
Form N-1A (File No. 2-57165) , of our report dated
November 10, 1994 , on our audits of the financial
statements and "Financial highlights" of the Fund, which
report is included in the Annual Report for Putnam Tax Exempt
Income Fund for the year ended September 30, 1994,
which is incorporated by reference in the Registration
Statement.
We also consent to the reference to our firm
under the caption "Independent Accountants and Financial
Statements" in the Statement of Additional Information.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 17, 1995
<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>
NOTICE
A copy of the Agreement and Declaration of Trust of
Putnam Tax Exempt Income 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 Registrant by an officer of the Registrant
as an officer and not individually and the obligations of or
arising out of this instrument are not binding upon any of the
Trustees, officers or shareholders individually but are binding
only upon the assets and property of the Registrant .
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant
certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement
to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boston, and The Commonwealth of
Massachusetts, on the 16th day of January, 1995 .
PUTNAM TAX EXEMPT INCOME FUND
By: Gordon H. Silver, Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement of Putnam Tax
Exempt Income Fund has been signed below by the following
persons in the capacities and on the dates indicated:
SIGNATURE TITLE
George Putnam President and Chairman of the Board;
Principal Executive Officer; Trustee
William F. Pounds Vice Chairman; Trustee
John D. Hughes Vice President; Treasurer and
Principal Financial Officer
Paul G. Bucuvalas Assistant Treasurer and Principal
Accounting Officer
Jameson 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 16, 1995
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 ASSET ALLOCATION FUNDS,
PUTNAM BALANCED GOVERNMENT FUND,
PUTNAM CALIFORNIA TAX EXEMPT MONEY MARKET FUND,
PUTNAM CONVERTIBLE INCOME-GROWTH TRUST,
PUTNAM DIVERSIFIED INCOME TRUST,
PUTNAM DIVIDEND GROWTH FUND,
PUTNAM EQUITY INCOME FUND,
PUTNAM EUROPE GROWTH FUND,
PUTNAM FLORIDA TAX EXEMPT INCOME FUND,
THE GEORGE PUTNAM FUND OF BOSTON,
PUTNAM GLOBAL GOVERNMENTAL INCOME TRUST,
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 MONEY MARKET FUND,
PUTNAM MUNICIPAL INCOME FUND,
PUTNAM NEW JERSEY TAX EXEMPT INCOME FUND,
PUTNAM NEW OPPORTUNITIES 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 PENNSYLVANIA TAX EXEMPT INCOME FUND,
PUTNAM RESEARCH ANALYSTS FUND,
PUTNAM TAX EXEMPT INCOME FUND,
PUTNAM TAX EXEMPT MONEY MARKET FUND,
PUTNAM TAX-FREE INCOME TRUST,
PUTNAM U.S. GOVERNMENT INCOME TRUST,
PUTNAM UTILITIES GROWTH AND INCOME FUND,
PUTNAM VISTA FUND,
PUTNAM VOYAGER FUND
(AS AMENDED THROUGH FEBRUARY 1, 1994),
PUTNAM INTERMEDIATE TAX EXEMPT FUND
(AS AMENDED THROUGH MARCH 7, 1994),
PUTNAM CALIFORNIA TAX EXEMPT INCOME TRUST,
PUTNAM NEW YORK TAX EXEMPT INCOME TRUST
(AS AMENDED THROUGH APRIL 8, 1994),
PUTNAM DIVERSIFIED EQUITY TRUST
(AS APPROVED APRIL 13, 1994)
PUTNAM HIGH YIELD ADVANTAGE FUND,
PUTNAM OVERSEAS GROWTH FUND
(AS AMENDED THROUGH JUNE 1, 1994),
PUTNAM FEDERAL INCOME TRUST
(AS AMENDED THROUGH JUNE 6, 1994),
PUTNAM NATURAL RESOURCES FUND
(AS AMENDED THROUGH JULY 1, 1994),
THE PUTNAM FUND FOR GROWTH AND INCOME
(AS AMENDED THROUGH JULY 7, 1994), <PAGE>
PUTNAM TOTAL RETURN BOND FUNDS,
PUTNAM GROWTH AND INCOME FUND II,
(AS AMENDED THROUGH OCTOBER 5, 1994) AND
PUTNAM EQUITY FUNDS
(AS AMENDED THROUGH OCTOBER 30, 1994)
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.
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
<PAGE>
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.
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.
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.
<PAGE>
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.
<PAGE>
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 Trust 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 Trust will
automatically convert into Class A shares of the Trust 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.
<PAGE>
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
PUTNAM INVESTMENTS
(Logo)
PUTNAM TAX EXEMPT INCOME FUND
Trust Certificate
Account No. Certificate No. Shares
746870-30-2
THIS CERTIFIES THAT
is the owner of Class M 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 the Trust, and all amendments thereto, copies
of which are on file with the Secretary of State of The
Commonwealth of Massachusetts. The said owner by accepting this
certificate agrees to and is bound by all of the said terms and
provisions. The shares represented hereby are transferable in
writing by the owner thereof in person or by attorney upon
surrender of this certificate to the Trustees properly endorsed
for transfer. This certificate is executed on behalf of the
Trustees as Trustees and not individually and the obligations
hereof are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of
the Putnam Tax Exempt Income Fund. 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
nf-28
(PORTIONS OF BYLAWS OF
PUTNAM TAX EXEMPT INCOME FUND
RELATING TO SHAREHOLDERS' 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 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
10.4 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
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.
PUTNAM TAX EXEMPT INCOME FUND
DISTRIBUTOR'S CONTRACT
Distributor's Contract dated May 6, 1994, 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 entering into
this agreement to provide for the distribution by Putnam of
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
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: -----------------------------
Executive Vice President
PUTNAM MUTUAL FUNDS CORP.
/s/ William N. Shiebler
By: -----------------------------
President<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. PAYMENTS TO PUTNAM. In connection with the distribution of
shares of the Fund, Putnam will be entitled to receive: (a)
payments pursuant to any Distribution Plan and Agreement from
time to time in effect between the Fund and Putnam with respect
to the Fund or any particular class of shares of the Fund, (b)
any contingent deferred sales charges applicable to the
redemption of shares of the Fund or of any particular class of
shares of the Fund, determined in the manner set forth in the
then current Prospectus and Statement of Additional Information
of the Fund and (c) subject to the provisions of Section 3 below,
any front-end sales charges applicable to the sale of shares of
the Fund or of any particular class of shares of the Fund, less
any applicable dealer discount.
3. SALES OF SHARES TO PUTNAM AND SALES BY PUTNAM. Putnam will
have the right, as principal, to sell shares of the Fund to
investment dealers against orders therefor (a) at the public
offering price (calculated as described below) less a discount
determined by Putnam, which discount shall not exceed the amount
of the sales charge referred to below, or (b) at net asset value.
Upon receipt of an order to purchase Fund shares from an
investment dealer with whom Putnam has a Sales Contract, Putnam
will promptly purchase shares from the Fund to fill such order.
The public offering price of a class of shares shall be the net
asset value of such shares then in effect, plus any applicable
front-end 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, as amended, 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 the 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 of the Fund.
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 or at net asset value.
Putnam will also have the right, as principal, to sell
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, as amended, and
the Rules and Regulations of the Securities and Exchange
Commission promulgated thereunder.
Putnam will also have the right, as agent for the Fund, to
sell shares at the public offering price or at net asset value to
such persons and upon such conditions as the Trustees of the Fund
may from time to time determine.
On every sale the Fund shall receive the applicable net
asset value of the shares. Putnam will reimburse the Fund for
any increased issue tax paid on account of sales charges. Upon
receipt of registration instructions in proper form and payment
for shares, Putnam will transmit such instructions to the Fund or
its agent for registration of the shares purchased.
4. 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.
5. 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.
6. 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 5, and will not take "long" or
"short" positions in shares contrary to the Agreement and
Declaration of Trust of the Fund.
7. 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.
8. 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.
9. 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).
10. 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 (or an affiliate 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.
11. 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.
12. 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 11) until
terminated:
(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, 1995 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, as
amended, and the Rules and Regulations thereunder.
Termination of this Contract pursuant to this Section 12
shall be without the payment of any penalty.
13. 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, as amended, subject, however, to
such exemptions as may be granted by the Securities and Exchange
Commission under said Act.
S:\shared\discon1
FORM OF
PUTNAM TAX EXEMPT INCOME FUND
CLASS M
DISTRIBUTION PLAN AND AGREEMENT
This Plan and Agreement (the "Plan") constitutes the
Distribution Plan for the Class M shares of Putnam Tax 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 M shares upon the terms and conditions hereinafter set
forth:
SECTION 1. The Trust shall pay to PMF a monthly fee at the
annual rate of 1.00% of the average net asset value of the Class
M shares of the Trust, as determined at the close of each
business day during the month, to compensate PMF for services
provided and expenses incurred by it in connection with the
offering of the Trust's Class M shares, which may include,
without limitation, payments by PMF to investment dealers with
respect to Class M shares, as set forth in the then current
Prospectus or Statement of Additional Information of the Trust,
including the payment of a service fee of up to 0.25% of such net
asset value for the purpose of maintaining or improving services
provided to shareholders by PMF and investment dealers. Such
fees shall be payable for each month within 15 days after the
close of such month. A majority of the Qualified Trustees, as
defined below, may, from time to time, reduce the amount of such
payments, or may suspend the operation of the Plan for such
period or periods of time as they may determine.
SECTION 2. This Plan shall not take effect until:
(a) it has been approved by a vote of a majority of the
outstanding Class M shares of the Trust;
(b) it has been approved, together with any related
agreements, by votes of the majority (or whatever greater
percentage may, from time to time, be required by Section
12(b) of the Act or the rules and regulations thereunder)
of both (i) the Trustees of the Trust, and (ii) the
Qualified Trustees of the Trust, cast in person at a
meeting called for the purpose of voting on this Plan or
such agreement; and
(c) the Trust has received the proceeds of the initial
public offering of its Class M shares.
<PAGE>
SECTION 3. This Plan shall continue in effect for a period
of more than one year after it takes effect only so long as such
continuance is specifically approved at least annually in the
manner provided for approval of this Plan in Section 2(b).
SECTION 4. PMF shall provide to the Trustees of the Trust,
and the Trustees shall review, at least quarterly, a written
report of the amounts so expended and the purposes for which such
expenditures were made.
SECTION 5. This Plan may be terminated at any time by vote
of a majority of the Qualified Trustees or by vote of the
majority of the outstanding Class M shares of the Trust.
SECTION 6. All agreements with any person relating to
implementation of this Plan shall be in writing, and any
agreement related to this Plan shall provide:
(a) that such agreement may be terminated at any time,
without payment of any penalty, by vote of a majority
of the Qualified Trustees or by vote of a majority of
the outstanding Class M shares of the Trust, on not
more than 60 days' written notice to any other party
to the agreement; and
(b) that such agreement shall terminate automatically in
the event of its assignment.
SECTION 7. This Plan may not be amended to increase
materially the amount of distribution expenses permitted pursuant
to Section 1 hereof without the approval of a majority of the
outstanding Class M shares of the Trust and all material
amendments to this Plan shall be approved in the manner provided
for approval of this Plan in Section 2(b).
SECTION 8. As used in this Plan, (a) the term "Qualified
Trustees" shall mean those Trustees of the Trust who are not
interested persons of the Trust, and have no direct or indirect
financial interest in the operation of this Plan or any
agreements related to it, and (b) the term "majority of the
outstanding Class M shares of the Trust" means the affirmative
vote, at a duly called and held meeting of Class M shareholders
of the Trust, (i) of the holders of 67% or more of the Class M
shares of the Trust present (in person or by proxy) and entitled
to vote at such meeting, if the holders of more than 50% of the
outstanding Class M shares of the Trust entitled to vote at such
meeting are present in person or by proxy, or (ii) of the holders
of more than 50% of the outstanding Class M shares of the Trust
entitled to vote at such meeting, whichever is less, and (c) the
terms "assignment" and "interested person" shall have the
respective meanings specified in the Act and the rules and
regulations thereunder, subject to such exemptions as may be
granted by the Securities and Exchange Commission.
SECTION 9. A copy of the Agreement and Declaration of
Trust of the Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts and notice is hereby given that
this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually, and that the obligations
of or arising out of this instrument are not binding upon any of
the Trustees, officers or shareholders individually but are
binding only upon the assets and property of the Trust.
Executed as of January 31, 1995.
PUTNAM MUTUAL FUNDS CORP. PUTNAM TAX EXEMPT INCOME FUND
By: ----------------------- By: -------------------------
William N. Shiebler Charles E. Porter
President Executive Vice President
DEALER SERVICE AGREEMENT
Between: and
PUTNAM MUTUAL FUNDS CORP.
General Distributor of
The Putnam Family of Mutual Funds
P.O. Box 2701
Boston, MA 02208
We are pleased to inform you that, pursuant to the terms of this
Dealer Service Agreement, we are authorized to pay you service
fees in connection with the accounts of your customers that hold
shares of certain Putnam funds listed in SCHEDULE 1 that have
adopted distribution plans pursuant to Rule 12b-1 (the "12b-1
Funds"). Payment of the service fees is subject to your initial
and continuing satisfaction of the following terms and conditions
which may be revised by us from time to time:
1. QUALIFICATION REQUIREMENTS
(a) You have entered into a Sales Contract with us with respect
to the Putnam Family of Mutual Funds (the "Putnam Funds").
(b) You are the dealer of record for accounts in Putnam Funds
having an aggregate average net asset value of at least the
minimum amount set forth in SCHEDULE 2 (DEALER FIRM REQUIREMENTS)
during the period for which a service fee is to be paid. Putnam
Fund accounts are accounts in any open-end Putnam Fund, but
excluding any accounts for your firm's own retirement plans.
(c) One or more of your current employees must be the designated
registered representative(s) on accounts in Putnam Funds having
an aggregate average net asset value of at least the minimum
amount set forth in SCHEDULE 2 (REGISTERED REPRESENTATIVE
REQUIREMENTS) during the period for which a service fee is to be
paid.
(d) You will provide the following information and agree that we
will be entitled to rely on the accuracy of such information in
updating our records for determining the levels of service fees
payable to you under the terms of this Agreement. You understand
that such payments will be based solely on Putnam's records.
(i) For each Putnam Fund account registered in the
name of one of your customers, you will advise us,
preferably by electronic means, before the end of the
second month in each calendar quarter, of the Putnam
Fund account number and the registered representative's
identification, social security and branch number.
(ii) For each Putnam Fund account registered in your
name (street name accounts), you will use your best
efforts to advise us, preferably by electronic means,
before the end of the second month in each calendar
quarter, of the Putnam Fund account number, net asset
value of the account, date of valuation, and, for each
registered representative assigned to assets in the
account: the representative's identification number,
social security number, branch number, and the net
asset value of assigned assets in the account.
2. SERVICE FEES
(a) If you meet the qualification requirements set forth above
in Paragraph 1, you will be paid a service fee on assets in the
12b-1 Funds for which you are the dealer of record and which are
serviced by a registered representative of your firm meeting the
Registered Representative Requirements, if any, at the annual
rates specified in SCHEDULE 3 (excluding any accounts for your
firm's own retirement plans).
(b) You understand and agree that:
(i) all service fee payments are subject to the
limitations contained in each 12b-1 Fund's Distribution
Plan, which may be varied or discontinued at any time;
(ii) your failure to provide the services described in
Paragraph 4 below as may be amended by us from time to
time, or otherwise comply with the terms of this
Agreement, will render you ineligible to receive
service fees; and
(iii) failure of an assigned registered representative
to provide services required by this Agreement will
render that representative's accounts ineligible as
accounts on which service fees are paid.
3. PAYMENTS AND COMMUNICATIONS TO REGISTERED REPRESENTATIVES
(a) You will pass through to your registered representatives a
significant share of the service fees paid to you pursuant to
this Agreement.
(b) You will assist us in distributing to your registered
representatives periodic statements which we will have prepared
showing the aggregate average net asset value of shares in Putnam
Funds with which they are credited on our records.
<PAGE>
4. REQUIRED SERVICES
(a) You will assign one of your registered representatives to
each Putnam Fund account on your records and reassign the Putnam
Fund account should that representative leave your firm.
(b) You and your registered representatives will assist us and
our affiliates in providing the following services to
shareholders of the Putnam Funds:
(i) Maintain regular contact with shareholders in
assigned accounts and assist in answering inquiries
concerning the Putnam Funds.
(ii) Assist in distributing sales and service
literature provided by us, particularly to the
beneficial owners of accounts registered in your name
(street name accounts).
(iii) Assist us and our affiliates in the establishment
and maintenance of shareholder accounts and records.
(iv) Assist shareholders in effecting administrative
changes, such as changing dividend options, account
designations, address, automatic investment programs or
systematic investment plans.
(v) Assist in processing purchase and redemption
transactions.
(vi) Provide any other information or services as the
customer or we may reasonably request.
(c) You will support our marketing efforts by granting
reasonable requests for visits to your offices by our wholesalers
and by including all Putnam Funds on your "approved" list.
(d) Your compliance with the service requirements set forth in
this Agreement will be evaluated by us from time to time by
surveying shareholder satisfaction with service, by monitoring
redemption levels of shareholder accounts assigned to you and by
such other methods as we deem appropriate.
(e) The provisions of this Paragraph 4 may be amended by us from
time to time upon notice to you.
5. AMENDMENT
This Agreement, including any Schedule hereto, shall be deemed
amended as provided in any written notice delivered by us to you.
6. EFFECTIVE PERIOD AND TERMINATION
The provisions of this Agreement shall remain in effect for not
more than one year from the date of its execution or adoption and
thereafter for successive annual periods only so long as such
continuance is specifically approved at least annually by the
Trustees of each of the 12b-1 Funds in conformity with Rule 12b-1
under the Investment Company Act of 1940 (the "1940 Act"). This
Agreement shall automatically terminate in the event of its
assignment (as defined by the 1940 Act). In addition, this
Agreement may be terminated at any time, without the payment of
any penalty, by either party upon written notice delivered or
mailed by registered mail, postage prepaid, to the other party,
or, as provided in Rule 12b-1 under the 1940 Act, by the Trustees
of any 12b-1 Fund or by the vote of the holders of the
outstanding voting securities of any 12b-1 Fund.
7. WRITTEN REPORTS
Putnam Mutual Funds Corp. shall provide the Trustees of each of
the 12b-1 Funds, and such Trustees shall review at least
quarterly, a written report of the amounts paid to you under this
Agreement and the purposes for which such expenditures were made.
8. MISCELLANEOUS
(a) All communications mailed to us should be sent to the above
address. Any notice to you shall be duly given if mailed or
delivered to you at the address specified by you below.
(b) The provisions of this Agreement shall be governed by and
construed in accordance with the laws of The Commonwealth of
Massachusetts.
Very truly yours,
PUTNAM MUTUAL FUNDS CORP.
By: ------------------------------
William N. Shiebler, President
and Chief Executive Officer
<PAGE>
We accept and agree to the foregoing Agreement as of the date set
forth below.
Dealer: -------------------------
By: ----------------------------
Authorized Signature, Title
------------------------------
------------------------------
Address
Dated: -------------------------
Please return the signed Putnam copy of this Agreement to Putnam
Mutual Funds Corp., P.O. Box 2701, Boston, MA 02208.
<PAGE>
SCHEDULE 1: THE 12B-1 FUNDS
CATEGORY A
Putnam Convertible Income-Growth Trust (Class A)
Putnam Equity Income Fund (Class A)
Putnam Global Growth Fund (Class A)
Putnam Health Sciences Trust (Class A)
Putnam Investors Fund (Class A)
Putnam Managed Income Trust (Class A)
Putnam Natural Resources Fund (Class A)
Putnam Vista Fund (Class A)
Putnam Voyager Fund (Class A)
The George Putnam Fund of Boston (Class A)
The Putnam Fund for Growth and Income (Class A)
CATEGORY B
Putnam High Yield Trust (Class A)
Putnam Tax-Free High Yield Fund (Class B)
Putnam Tax-Free Insured Fund (Class B)
Putnam U.S. Government Income Trust (Class A)
CATEGORY C
Putnam Income Fund (Class A)
CATEGORY D
Putnam Michigan Tax Exempt Income Fund II (Class A)
Putnam Minnesota Tax Exempt Income Fund II (Class A)
Putnam Ohio Tax Exempt Income Fund II (Class A)
CATEGORY E
Putnam Municipal Income Fund (Class A)
CATEGORY F
Putnam Massachusetts Tax Exempt Income Fund II (Class A)
CATEGORY G
Putnam New York Tax Exempt Opportunities Fund (Class A)
CATEGORY H
Putnam California Tax Exempt Income Fund (Class A)
Putnam New Jersey Tax Exempt Income Fund (Class A)
Putnam New York Tax Exempt Income Fund (Class A)
Putnam Tax Exempt Income Fund (Class A)
<PAGE>
CATEGORY I
Putnam Arizona Tax Exempt Income Fund (Class A)
CATEGORY J
Putnam Florida Tax Exempt Income Fund (Class A)
Putnam Pennsylvania Tax Exempt Income Fund (Class A)
CATEGORY K
Putnam California Intermediate Tax Exempt Fund (Class A and B)
Putnam Intermediate Tax Exempt Fund (Class A and B)
Putnam New York Intermediate Tax Exempt Fund (Class A and B)
CATEGORY L
Putnam Arizona Tax Exempt Income Fund (Class B)
Putnam California Tax Exempt Income Fund (Class B)
Putnam Equity Income Fund (Class B)
Putnam Florida Tax Exempt Income Fund (Class B)
Putnam Massachusetts Tax Exempt Income Fund II (Class B)
Putnam Michigan Tax Exempt Income Fund II (Class B)
Putnam Minnesota Tax Exempt Income Fund II (Class B)
Putnam New Jersey Tax Exempt Income Fund (Class B)
Putnam New York Tax Exempt Income Fund (Class B)
Putnam New York Tax Exempt Opportunities Fund (Class B)
Putnam Ohio Tax Exempt Income Fund II (Class B)
Putnam Pennsylvania Tax Exempt Income Fund (Class B)
Putnam Tax Exempt Income Fund (Class B)
Putnam Tax-Free High Yield Fund (Class A)
Putnam Tax-Free Insured Fund (Class A)
CATEGORY M
Putnam Adjustable Rate U.S. Government Fund (Class A and B)
Putnam American Government Income Fund (Class A and B)
Putnam Asset Allocation: Balanced Portfolio (Class A, B and C)
Putnam Asset Allocation: Conservative Portfolio (Class A,B and C)
Putnam Asset Allocation: Growth Portfolio (Class A, B and C)
Putnam Asia Pacific Growth Fund (Class A and B)
Putnam Balanced Government Fund (Class A and B)
Putnam Convertible Income-Growth Trust (Class B)
Putnam Diversified Income Trust (Class A and B)
Putnam Dividend Growth Fund (Class A and B)
Putnam Equity Income Fund (Class B)
Putnam Europe Growth Fund (Class A and B)
Putnam Federal Income Trust (Class A and B)
The George Putnam Fund of Boston (Class B)
Putnam Global Governmental Income Trust (Class A and B)
Putnam Global Growth Fund (Class B)
The Putnam Fund for Growth and Income (Class B)
Putnam Health Sciences Trust (Class B)
Putnam High Yield Advantage Fund (Class A and B)
Putnam High Yield Trust (Class B)
Putnam Income Fund (Class B)
Putnam Investors Fund (Class B)
Putnam Managed Income Trust (Class B)
Putnam Municipal Income Fund (Class B)
Putnam Natural Resources Fund (Class B)
Putnam New Opportunities Fund (Class A and B)
Putnam OTC Emerging Growth Fund (Class A and B)
Putnam Overseas Growth Fund (Class A and B)
Putnam U.S. Government Income Trust (Class B)
Putnam Utilities Growth and Income Fund (Class A and B)
Putnam Vista Fund (Class B)
Putnam Voyager Fund (Class B)
SCHEDULE 2: MINIMUM ASSETS
DEALER FIRM REQUIREMENTS. The minimum aggregate average net
asset value of all accounts in Putnam Funds specified by
Paragraph 1(b) is $250,000. We will review this requirement
prior to the start of each year and inform you of any changes.
REGISTERED REPRESENTATIVE REQUIREMENTS. With respect to
Paragraph 1(c), there is no minimum asset qualification
requirement in the Putnam Funds applicable to each of your
representatives. We will review this requirement prior to the
start of each year and inform you of any changes.
SCHEDULE 3: ANNUAL SERVICE FEE RATES
Category A: 0.20% on shares acquired through December 31, 1989
(including capital appreciation on such shares)
and 0.25% on shares acquired after December 31,
1989 (including shares purchased after December
31, 1989 with reinvested distributions on any
shares).
Category B: 0.20% on shares acquired through March 31, 1990
(including capital appreciation on such shares)
and 0.25% on shares acquired after March 31, 1990
(including shares purchased after March 31, 1990
with reinvested distributions on any shares).
Category C: 0.20% on shares acquired through March 31, 1991
(including capital appreciation on such shares)
and 0.25% on shares acquired after March 31, 1991
(including shares purchased after March 31, 1991
with reinvested distributions on any shares).
Category D: 0.15% on shares outstanding as of March 9, 1992
and 0.20% on shares acquired after March 9, 1992.
Category E: 0.20% on shares outstanding as of May 7, 1992 and
0.25% on shares acquired after May 7, 1992.
Category F: 0.15% on shares outstanding as of May 11, 1992 and
0.20% on shares acquired after May 11, 1992.
Category G: 0.15% on shares outstanding as of July 13, 1992
and 0.20% on shares acquired after July 13, 1992.
Category H: 0.15% on shares outstanding as of December 31,
1992 and 0.20% on shares acquired after December
31, 1992.
Category I: 0.15% on shares outstanding as of March 5, 1993
and 0.20% on shares acquired after March 5, 1993.
Category J: 0.15% on shares outstanding as of July 8, 1993 and
0.20% on shares acquired after July 8, 1993.
Category K: 0.15% on all shares.
Category L: 0.20% on all shares.
Category M: 0.25% on all shares.
These calculations exclude until one year after purchase shares
purchased at net asset value by shareholders investing $1 million
or more and by participant-directed qualified retirement plans
sponsored by employers with more than 750 employees ("NAV
Shares"), except for shares owned by certain investors investing
$1 million or more that have made arrangements with Putnam Mutual
Funds and for whom you have waived the sales commission.
For participant-directed qualified retirement plans initially
investing less than $20 million in Putnam funds and other
investments managed by Putnam Management or its affiliates,
Putnam Mutual Funds' payments to you on NAV Shares will be 100%
of the rate stated above if average plan assets in Putnam funds
(excluding money market funds) during the quarter are less than
$20 million, 60% of the rate stated above if average plan assets
are at least $20 million but less than $30 million, and 40% of
the rate stated above if average plan assets are $30 million or
more. For all other participant-directed qualified retirement
plans purchasing NAV Shares, Putnam Mutual Funds will make
quarterly payments to you at the annual rate of 0.10% of the
average net asset value of such shares.
NF-57
9/1/94
FINANCIAL INSTITUTION
SERVICE AGREEMENT
Between: and
PUTNAM MUTUAL FUNDS CORP.
General Distributor of
The Putnam Family of Mutual Funds
P.O. Box 2701
Boston, MA 02208
We are pleased to inform you that, pursuant to the terms of this
FINANCIAL INSTITUTION SERVICE AGREEMENT, we are authorized to pay
you service fees in connection with the accounts of your
customers that hold shares of certain Putnam funds listed in
SCHEDULE 1 that have adopted distribution plans pursuant to Rule
12b-1 (the "12b-1 Funds"). Payment of the service fees is
subject to your initial and continuing satisfaction of the
following terms and conditions which may be revised by us from
time to time:
1. QUALIFICATION REQUIREMENTS
(a) You have entered into a Financial Institution Sales Contract
with us with respect to the Putnam Family of Mutual Funds (the
"Putnam Funds"), whose shares you have agreed to make available
to your customers on an agency basis.
(b) You are the financial institution of record for accounts in
Putnam Funds having an aggregate average net asset value of at
least the minimum amount set forth in SCHEDULE 2 (FINANCIAL
INSTITUTION REQUIREMENTS) during the period for which a service
fee is to be paid. Putnam Fund accounts are accounts in any
open-end Putnam Fund but excluding any accounts for your
organization's own retirement plans.
(c) One or more of your current employees must be the designated
registered representative(s) in the case of a bank affiliated
dealer, or agent representative(s) in the case of a bank (both
referred to as "representatives"), on accounts in Putnam Funds
having an aggregate average net asset value of at least the
minimum amount set forth in SCHEDULE 2 (REPRESENTATIVE
REQUIREMENTS) during the period for which a service fee is to be
paid.
(d) You will provide the following information and agree that we
will be entitled to rely on the accuracy of such information in
updating our records for determining the levels of service fees
payable to you under the terms of this Agreement. You understand
that such payments will be based solely on Putnam's records:
<PAGE>
(i) For each Putnam Fund account registered in the name of
one of your customers, you will advise us, preferably by
electronic means, before the end of the second month in each
calendar quarter, of the Putnam Fund account number and the
representative's identification number, social security
number and branch number.
(ii) For each Putnam Fund account registered in your name
(nominee name accounts), you will use your best efforts to
advise us, preferably by electronic means, before the end of
the second month in each calendar quarter, of the Putnam
Fund account number, net asset value of the account, date of
valuation, and, for each representative assigned to assets
in the account: the representative's identification number,
social security number, branch number, and net asset value
of assigned assets in the account.
2. SERVICE FEES
(a) If you meet the qualification requirements set forth above in
Paragraph 1, you will be paid, at the end of each calendar
quarter, a service fee on assets of your customers in the 12b-1
Funds for which you are the financial institution of record and
which are serviced by a representative of your organization
meeting the Representative Requirements, if any, at the annual
rates specified in SCHEDULE 3 (excluding any accounts for your
organization's own retirement plans), provided that you have
evaluated such service fees and have concluded that it is
consistent with applicable laws, rules, regulations and
regulatory interpretations for you to receive such service fees.
(b) You understand and agree that:
(i) all service fee payments are subject to the limitations
contained in each 12b-1 Fund's Distribution Plan, which may
be varied or discontinued at any time;
(ii) your failure to provide the services described in
Paragraph 4 below as may be amended by us from time to time,
or otherwise comply with the terms of this Agreement, will
render you ineligible to receive service fees; and
(iii) failure of an assigned representative to provide
services required by this Agreement will render that
representative's accounts ineligible as accounts on which
service fees are paid.
3. PAYMENTS AND COMMUNICATIONS TO REPRESENTATIVES
(a) Where consistent with applicable laws, rules, regulations and
regulatory interpretations, you will pass through to your
representatives a significant share of the service fees paid to
you pursuant to this Agreement, or you will otherwise use the
payments of service fees to advance the objective of providing
and improving service to shareholders of the Putnam Funds in a
manner specifically approved by Putnam Mutual Funds (for example,
via training courses for representatives or shareholder
seminars).
(b) You will assist us in distributing to your representatives
periodic statements which we will have prepared showing the
aggregate average net asset value of shares in Putnam Funds with
which they are credited on our records.
4. REQUIRED SERVICES
(a) You will assign one of your representatives to each Putnam
Fund account on your records and reassign the Putnam Fund account
should that representative leave your organization.
(b) You and your representatives will assist us and our
affiliates in providing the following services to shareholders of
the Putnam Funds:
(i) Maintain regular contact with shareholders in assigned
accounts and assist in answering inquiries concerning the
Putnam Funds.
(ii) Assist in distributing sales and service literature
provided by us, particularly to the beneficial owners of
accounts registered in your name (nominee name accounts).
(iii) Assist us and our affiliates in the establishment and
maintenance of shareholder accounts and records.
(iv) Assist shareholders in effecting administrative
changes, such as changing dividend options, account
designations, address, automatic investment programs or
systematic investment plans.
(v) Assist in processing purchase and redemption
transactions.
(vi) Provide any other information or services as the
customer or we may reasonably request.
(c) You will grant reasonable requests for visits to your offices
by our wholesalers and include all Putnam Funds on your menu or
list of investments made available by you to your customers.
(d) Your compliance with the service requirements set forth in
this Agreement will be evaluated by us from time to time by
surveying shareholder satisfaction with service, by monitoring
redemption levels of shareholder accounts assigned to you and by
such other methods as we deem appropriate.
(e) The provisions of this Paragraph 4 may be amended by us from
time to time upon notice to you.
5. AMENDMENT
This Agreement, including any Schedule hereto, shall be deemed
amended as provided in any written notice delivered by us to you.
6. EFFECTIVE PERIOD AND TERMINATION
The provisions of this Agreement shall remain in effect for one
year from the date of its execution or adoption and thereafter
for successive annual periods only so long as such continuance is
specifically approved at least annually by the Trustees of each
of the 12b-1 Funds in conformity with Rule 12b-1 under the
Investment Company Act of 1940 (the "1940 Act"). This Agreement
shall automatically terminate in the event of its assignment (as
defined by the 1940 Act). In addition, this Agreement may be
terminated at any time, without the payment of any penalty, by
either party upon written notice to the other party, or, as
provided in Rule 12b-1 under the 1940 Act, by the Trustees of any
12b-1 Fund or by the vote of the holders of the outstanding
voting securities of any 12b-1 Fund.
7. WRITTEN REPORTS
Putnam Mutual Funds Corp. shall provide the Trustees of each of
the 12b-1 Funds, and such Trustees shall review at least
quarterly, a written report of the amounts paid to you under this
Agreement and the purposes for which such expenditures were made.
8. COMPLIANCE WITH LAWS
With respect to the receipt of service fees under the terms of
this Agreement, you will comply with all applicable federal and
state laws and rules, and all applicable regulations and
interpretations of regulatory agencies or authorities, which may
affect your business practices, including any requirement of
written authorization or consent by your customers to your
receipt of service fees, and any requirement to provide
disclosure to your customers of such service fees.
9. MISCELLANEOUS
(a) All communications mailed to us should be sent to the above
address. Any notice to you shall be duly given if mailed or
delivered to you at the address specified by you below.
<PAGE>
(b) The provisions of this Agreement shall be governed by and
construed in accordance with the laws of The Commonwealth of
Massachusetts.
Very truly yours,
PUTNAM MUTUAL FUNDS CORP.
By: --------------------------
William N. Shiebler,
President and
Chief Executive Officer
We accept and agree to the foregoing Agreement as of the date set
forth below.
Financial Institution: --------------------------
By: --------------------------
Authorized Signature, Title
--------------------------
--------------------------
Address
Dated: --------------------------
Please return the signed Putnam copy of this Agreement to Putnam
Mutual Funds Corp., P.O. Box 2701, Boston, MA 02208.
<PAGE>
SCHEDULE 1: THE 12B-1 FUNDS
CATEGORY A
Putnam Convertible Income-Growth Trust (Class A)
Putnam Equity Income Fund (Class A)
Putnam Global Growth Fund (Class A)
Putnam Health Sciences Trust (Class A)
Putnam Investors Fund (Class A)
Putnam Managed Income Trust (Class A)
Putnam Natural Resources Fund (Class A)
Putnam Vista Fund (Class A)
Putnam Voyager Fund (Class A)
The George Putnam Fund of Boston (Class A)
The Putnam Fund for Growth and Income (Class A)
CATEGORY B
Putnam High Yield Trust (Class A)
Putnam Tax-Free High Yield Fund (Class B)
Putnam Tax-Free Insured Fund (Class B)
Putnam U.S. Government Income Trust (Class A)
CATEGORY C
Putnam Income Fund (Class A)
CATEGORY D
Putnam Michigan Tax Exempt Income Fund II (Class A)
Putnam Minnesota Tax Exempt Income Fund II (Class A)
Putnam Ohio Tax Exempt Income Fund II (Class A)
CATEGORY E
Putnam Municipal Income Fund (Class A)
CATEGORY F
Putnam Massachusetts Tax Exempt Income Fund II (Class A)
CATEGORY G
Putnam New York Tax Exempt Opportunities Fund (Class A)
CATEGORY H
Putnam California Tax Exempt Income Fund (Class A)
Putnam New Jersey Tax Exempt Income Fund (Class A)
Putnam New York Tax Exempt Income Fund (Class A)
Putnam Tax Exempt Income Fund (Class A)
<PAGE>
CATEGORY I
Putnam Arizona Tax Exempt Income Fund (Class A)
CATEGORY J
Putnam Florida Tax Exempt Income Fund (Class A)
Putnam Pennsylvania Tax Exempt Income Fund (Class A)
CATEGORY K
Putnam California Intermediate Tax Exempt Fund (Class A and B)
Putnam Intermediate Tax Exempt Fund (Class A and B)
Putnam New York Intermediate Tax Exempt Fund (Class A and B)
CATEGORY L
Putnam Arizona Tax Exempt Income Fund (Class B)
Putnam California Tax Exempt Income Fund (Class B)
Putnam Equity Income Fund (Class B)
Putnam Florida Tax Exempt Income Fund (Class B)
Putnam Massachusetts Tax Exempt Income Fund II (Class B)
Putnam Michigan Tax Exempt Income Fund II (Class B)
Putnam Minnesota Tax Exempt Income Fund II (Class B)
Putnam New Jersey Tax Exempt Income Fund (Class B)
Putnam New York Tax Exempt Income Fund (Class B)
Putnam New York Tax Exempt Opportunities Fund (Class B)
Putnam Ohio Tax Exempt Income Fund II (Class B)
Putnam Pennsylvania Tax Exempt Income Fund (Class B)
Putnam Tax Exempt Income Fund (Class B)
Putnam Tax-Free High Yield Fund (Class A)
Putnam Tax-Free Insured Fund (Class A)
CATEGORY M
Putnam Adjustable Rate U.S. Government Fund (Class A and B)
Putnam American Government Income Fund (Class A and B)
Putnam Asset Allocation: Balanced Portfolio (Class A, B and C)
Putnam Asset Allocation: Conservative Portfolio (Class A,B and C)
Putnam Asset Allocation: Growth Portfolio (Class A, B and C)
Putnam Asia Pacific Growth Fund (Class A and B)
Putnam Balanced Government Fund (Class A and B)
Putnam Convertible Income-Growth Trust (Class B)
Putnam Diversified Income Trust (Class A and B)
Putnam Dividend Growth Fund (Class A and B)
Putnam Equity Income Fund (Class B)
Putnam Europe Growth Fund (Class A and B)
Putnam Federal Income Trust (Class A and B)
The George Putnam Fund of Boston (Class B)
Putnam Global Governmental Income Trust (Class A and B)
Putnam Global Growth Fund (Class B)
The Putnam Fund for Growth and Income (Class B)
Putnam Health Sciences Trust (Class B)
Putnam High Yield Advantage Fund (Class A and B)
Putnam High Yield Trust (Class B)
Putnam Income Fund (Class B)
Putnam Investors Fund (Class B)
Putnam Managed Income Trust (Class B)
Putnam Municipal Income Fund (Class B)
Putnam Natural Resources Fund (Class B)
Putnam New Opportunities Fund (Class A and B)
Putnam OTC Emerging Growth Fund (Class A and B)
Putnam Overseas Growth Fund (Class A and B)
Putnam U.S. Government Income Trust (Class B)
Putnam Utilities Growth and Income Fund (Class A and B)
Putnam Vista Fund (Class B)
Putnam Voyager Fund (Class B)
SCHEDULE 2: MINIMUM ASSETS
FINANCIAL INSTITUTION REQUIREMENTS. The minimum aggregate
average net asset value of all accounts in Putnam Funds specified
by Paragraph 1(b) is $250,000. We will review this requirement
prior to the start of each year and inform you of any changes.
REPRESENTATIVE REQUIREMENTS. With respect to Paragraph
1(c), there is no minimum asset qualification requirement in the
Putnam Funds applicable to each of your representatives. We will
review this requirement prior to the start of each year and
inform you of any changes. We reserve the right to set a minimum
at any time.
SCHEDULE 3: ANNUAL SERVICE FEE RATES
Category A: 0.20% on shares acquired through December 31, 1989
(including capital appreciation on such shares)
and 0.25% on shares acquired after December 31,
1989 (including shares purchased after December
31, 1989 with reinvested distributions on any
shares).
Category B: 0.20% on shares acquired through March 31, 1990
(including capital appreciation on such shares)
and 0.25% on shares acquired after March 31, 1990
(including shares purchased after March 31, 1990
with reinvested distributions on any shares).
Category C: 0.20% on shares acquired through March 31, 1991
(including capital appreciation on such shares)
and 0.25% on shares acquired after March 31, 1991
(including shares purchased after March 31, 1991
with reinvested distributions on any shares).
Category D: 0.15% on shares outstanding as of March 9, 1992
and 0.20% on shares acquired after March 9, 1992.
Category E: 0.20% on shares outstanding as of May 7, 1992 and
0.25% on shares acquired after May 7, 1992.
Category F: 0.15% on shares outstanding as of May 11, 1992 and
0.20% on shares acquired after May 11, 1992.
Category G: 0.15% on shares outstanding as of July 13, 1992
and 0.20% on shares acquired after July 13, 1992.
Category H: 0.15% on shares outstanding as of December 31,
1992 and 0.20% on shares acquired after December
31, 1992.
Category I: 0.15% on shares outstanding as of March 5, 1993
and 0.20% on shares acquired after March 5, 1993.
Category J: 0.15% on shares outstanding as of July 8, 1993 and
0.20% on shares acquired after July 8, 1993.
Category K: 0.20% on all shares.
Category L: 0.25% on all shares.
These calculations exclude until one year after purchase, shares
purchased at net asset value by shareholders investing $1 million
or more and by participant-directed qualified retirement plans
sponsored by employers with more than 750 employees ("NAV
Shares"), except for shares owned by certain investors investing
$1 million or more that have made arrangements with Putnam Mutual
Funds and for whom you have waived the sales commission.
For participant-directed qualified retirement plans initially
investing less than $20 million in Putnam funds and other
investments managed by Putnam Management or its affiliates,
Putnam Mutual Funds' payments to you on NAV Shares will be 100%
of the rate stated above if average plan assets in Putnam funds
(excluding money market funds) during the quarter are less than
$20 million, 60% of the rate stated above if average plan assets
are at least $20 million but less than $30 million, and 40% of
the rate stated above if average plan assets are $30 million or
more. For all other participant-directed qualified retirement
plans purchasing NAV Shares, Putnan Mutual Funds will make
quarterly payments to you at the annual rate of 0.10% of the
average net asset value of such shares.
NF-58
9/1/94
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Tax Exempt Income Fund -- Class A Shares
Fiscal period ending: September 30, 1994
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 $908 $1,387 $2,590
T = Average Annual
Total Return -9.23% 6.76% 9.98%
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $12,475,670
Expenses $1,449,981
Reimbursement $0
Average shares 262,102,443
NAV $8.55
Sales Charge 4.75%
POP $8.98
Yield at POP 5.69%
<PAGE>
TAX-EXEMPT EQUIVALENT YIELD
Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)
5.69% 5.69%
- ------ = ------ = 9.42%
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, 1994
Inception date (if less than 10 years of performance):
January 4, 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 N/A $1,000
ERV = Ending Redeemable Value $902 N/A $1,013
T = Average Annual
Total Return -9.82% N/A 0.75%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $1,169,763
Expenses $260,023
Reimbursement $0
Average shares 24,583,141
NAV $8.54
Maximum Contingent Deferred
Sales Charge 5.0%
Yield at NAV 5.26%
<PAGE>
TAX-EXEMPT EQUIVALENT YIELD
Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)
5.26% 5.26%
- ------ = ------ = 8.71%
1-39.6% .604%
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM Putnam Tax Exempt Income Fund Class A AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 2,373,214,565
<INVESTMENTS-AT-VALUE> 2,361,986,182
<RECEIVABLES> 97,731,208
<ASSETS-OTHER> 897,829
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,460,615,219
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,325,364
<TOTAL-LIABILITIES> 14,325,364
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,473,174,087
<SHARES-COMMON-STOCK> 261,196,059
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (417,701)
<ACCUMULATED-NET-GAINS> (15,999,092)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (10,467,439)
<NET-ASSETS> 2,446,289,855
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 171,537,242
<OTHER-INCOME> 0
<EXPENSES-NET> 20,693,891
<NET-INVESTMENT-INCOME> 150,843,351
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> (123,629,548)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (141,138,697)
<DISTRIBUTIONS-OF-GAINS> (32,434,871)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 98,892,293
<NUMBER-OF-SHARES-REDEEMED> (102,548,532)
<SHARES-REINVESTED> 11,764,103
<NET-CHANGE-IN-ASSETS> (116,694,417)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11,938,420
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 20,693,891
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 9.66
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> .97
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.67)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.55
<EXPENSE-RATIO> .77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM Putnam Tax Exempt Income Fund Class B AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 2,373,214,565
<INVESTMENTS-AT-VALUE> 2,361,986,182
<RECEIVABLES> 97,731,208
<ASSETS-OTHER> 897,829
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,460,615,219
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,325,364
<TOTAL-LIABILITIES> 14,325,364
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,473,174,087
<SHARES-COMMON-STOCK> 25,038,595
<SHARES-COMMON-PRIOR> 261,196,059
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (417,701)
<ACCUMULATED-NET-GAINS> (15,999,092)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (10,467,439)
<NET-ASSETS> 2,446,289,855
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 171,537,242
<OTHER-INCOME> 0
<EXPENSES-NET> 20,693,891
<NET-INVESTMENT-INCOME> 150,843,351
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> (123,629,548)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10,623,343)
<DISTRIBUTIONS-OF-GAINS> (2,441,333)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,392,070
<NUMBER-OF-SHARES-REDEEMED> 6,518,200
<SHARES-REINVESTED> 947,875
<NET-CHANGE-IN-ASSETS> (116,694,417)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11,938,420
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 20,693,891
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 9.66
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> (.98)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.62)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.53
<EXPENSE-RATIO> 1.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
