PROSPECTUS
FEBRUARY 1, 1996 ,
AS REVISED AUGUST 2, 1996
PUTNAM NEW YORK TAX EXEMPT INCOME FUND
CLASS A, B AND M SHARES
PUTNAM NEW YORK TAX EXEMPT OPPORTUNITIES FUND
CLASS A, B AND M SHARES
PUTNAM NEW YORK TAX EXEMPT MONEY MARKET FUND
INVESTMENT STRATEGY: TAX-FREE
This prospectus explains concisely what you should know before
investing in Putnam New York Tax Exempt Income Fund (the "Income
Fund"), Putnam New York Tax Exempt Opportunities Fund (the
"Opportunities Fund"), and Putnam New York Tax Exempt Money
Market Fund (the "Money Market Fund") (collectively, the
"funds"). The Income Fund is a portfolio of Putnam New York Tax
Exempt Income Trust (the "Trust"). Please read this prospectus
carefully and keep it for future reference. You can find more
detailed information about each fund in the February 1, 1996
Statement of Additional Information (the "SAI"), as amended from
time to time. For a free copy of the SAI or other information,
call Putnam Investor Services at 1-800-225-1581. The SAI has
been filed with the Securities and Exchange Commission and is
incorporated into this prospectus by reference.
An investment in the Money Market Fund is neither insured nor
guaranteed by the U.S. government. There can be no assurance
that the Money Market Fund will be able to maintain a stable net
asset value of $1.00 per share. The Money Market Fund may
invest a significant percentage of its assets in the securities
of a single issuer, and an investment in the fund may therefore
be riskier than an investment in other types of money market
funds.
Each fund invests primarily in a portfolio of New York tax-exempt
securities, which may include securities of issuers other than
New York and its political subdivisions.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
BOSTON * LONDON * TOKYO
<PAGE>
ABOUT THE FUNDS
EXPENSES SUMMARY
This section describes the sales charges, management fees, and
annual operating expenses that apply to a fund's various classes
of shares. Use it to help you estimate the impact of transaction
costs on your investment over time.
FINANCIAL HIGHLIGHTS
Study this table to see, among other things, how a fund performed
each year for the past 10 years or since it began investment
operations if it has been in operation for less than 10 years.
OBJECTIVES
Read this section to make sure a fund's objectives are consistent
with your own.
HOW THE FUNDS PURSUE THEIR OBJECTIVES
This section explains in detail how a fund seeks its investment
objectives.
RISK FACTORS. All investments entail some risk. Read this
section to make sure you understand certain risks that may be
involved when investing in a fund.
HOW PERFORMANCE IS SHOWN
This section describes and defines the measures used to assess a
fund's performance. All data are based on the fund's past
investment results and do not predict future performance.
HOW THE FUNDS ARE MANAGED
Consult this section for information about a fund's management,
allocation of a fund's expenses, and how purchases and sales of
securities are made for the fund.
ORGANIZATION AND HISTORY
In this section, you will learn when a fund was introduced, how
it is organized, how it may offer shares, and who its Trustees
are.
ABOUT YOUR INVESTMENT
ALTERNATIVE SALES ARRANGEMENTS
Read this section for descriptions of the classes of shares this
prospectus offers and for points you should consider when making
your choice.
<PAGE>
HOW TO BUY SHARES
This section describes the ways you may purchase shares and tells
you the minimum amounts required to open various types of
accounts. It explains how sales charges are determined and how
you may become eligible for reduced sales charges on each class
of shares.
DISTRIBUTION PLANS
This section tells you what distribution fees are charged against
each class of shares.
HOW TO SELL SHARES
In this section you can learn how to sell shares of a fund,
either directly to the fund or through an investment dealer.
HOW TO EXCHANGE SHARES
Find out in this section how you may exchange shares of a fund
for shares of other Putnam funds. The section also explains how
exchanges can be made without sales charges and the conditions
under which sales charges may be required.
HOW A FUND VALUES ITS SHARES
This section explains how a fund determines the value of its
shares.
HOW A FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX INFORMATION
This section describes the various options you have in choosing
how to receive dividends from a fund. It also discusses the
federal tax status of the payments and counsels shareholders to
seek specific advice about their own situation.
ABOUT PUTNAM INVESTMENTS, INC.
Read this section to learn more about the companies that provide
the marketing, investment management, and shareholder account
services to Putnam funds and their shareholders.
APPENDIX
Securities ratings
<PAGE>
ABOUT THE FUNDS
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing.
The following tables summarize your maximum transaction costs
from investing in a fund and expenses incurred by each fund based
on its most recent fiscal year. The examples show the cumulative
expenses attributable to a hypothetical $1,000 investment over
specified periods.
INCOME FUND AND OPPORTUNITIES FUND
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
MONEY MARKET FUND
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) NONE
Deferred sales charge (as a
percentage of the lower
of the original purchase
price or redemption proceeds) NONE
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Total fund
Management 12b-1 Other operating
fees fees expenses expenses
- ---------- ----- -------------------
INCOME FUND
Class A 0.48% 0.20% 0.10% 0.78%
Class B 0.48% 0.85% 0.10% 1.43%
Class M 0.48% 0.50% 0.10% 1.08%
OPPORTUNITIES FUND
Class A 0.60% 0.20% 0.20% 1.00%
Class B 0.60% 0.85% 0.19% 1.64%
Class M 0.60% 0.50% 0.20% 1.30%
MONEY MARKET FUND 0.45% 0% 0.46%0.91%
The tables are provided to help you understand the expenses of
investing in each fund and your share of the operating expenses
which the funds incur. The expenses shown in the tables do not
reflect the application of credits related to brokerage service
and expense offset arrangements that reduce certain fund
expenses. Management fees and total fund operating expenses
shown in the table for the Opportunities Fund reflect a decrease
in the management fees payable by the fund to Putnam Management.
Actual management fees and total fund operating expenses
were 0.61% and 1.01%, respectively, for class A shares ,
and 0.61% and 1.65%, respectively, for class B shares. For the
class M shares of the Income Fund and the Opportunities Fund,
12b-1 fees reflect the amount to which the Trustees currently
limit payments under the relevant fund's class M distribution
plan, and management fees and "Other expenses" are based on the
operating expenses for the relevant fund's class A shares.
<PAGE>
EXAMPLES
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and, except as indicated, redemption at
the end of each period:
1 3 5 10
year years years years
INCOME FUND
CLASS A $55 $71 $89 $140
CLASS B $65 $75 $98 $154***
CLASS B (NO REDEMPTION) $15 $45 $78 $154 ***
CLASS M $43 $66 $90 $160
OPPORTUNITIES FUND
CLASS A $57 $78 $100 $164
CLASS B $67 $82 $109 $177 ***
CLASS B (NO REDEMPTION) $17 $52 $89 $177 ***
CLASS M $45 $72 $101 $184
MONEY MARKET FUND $9 $29 $50 $112
The examples do not represent past or future expense levels.
Actual expenses may be greater or less than those shown. Federal
regulations require the examples to assume a 5% annual return,
but actual annual return varies.
* The higher 12b-1 fees borne by class B and class M shares
may cause long-term shareholders to pay more than the
economic equivalent of the maximum permitted front-end sales
charge on class A shares.
** A deferred sales charge of up to 1.00% is assessed on
certain redemptions of class A shares that were purchased
without an initial sales charge as part of an investment of
$1 million or more. See "How to buy shares--Class A
shares."
*** Reflects conversion of class B shares to class A shares
(which pay lower ongoing expenses) approximately eight years
after purchase. See "Alternative sales arrangements."
FINANCIAL HIGHLIGHTS
The following tables present per share financial information for
class A, B and M shares. This information has been audited and
reported on by each fund's independent accountants. The "Report
of independent accountants" and financial statements included in
each fund's annual report to shareholders for the 1995 fiscal
year are incorporated by reference into this prospectus. Each
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 FOR THE PERIOD
APRIL 10, 1995 JANUARY 4, 1993
(COMMENCEMENT (COMMENCEMENT OF
OF OPERATIONS) TO YEAR ENDED OPERATIONS) TO
NOVEMBER 30 NOVEMBER 30 NOVEMBER 30 YEAR ENDED NOVEMBER 30
1995 1995 1994 1993 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS M CLASS B CLASS A
NET ASSET VALUE
BEGINNING OF PERIOD $8.79 $8.02 $9.37 $8.95 $8.05 $9.38 $8.98 $8.75 $8.34
INVESTMENT OPERATIONS
NET INVESTMENT INCOME .26 .43 .46 .40 .49 .53 .53 .57 .58
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS .21 .93 (1.24) .42 .92 (1.24) .52 .32 .42
TOTAL FROM INVESTMENT
OPERATIONS .47 1.36 (.78) .82 1.41 (.71) 1.05 .89 1.00
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.29) (.43) (.46) (.40) (.49) (.51) (.53) (.58) (.59)
NET REALIZED GAIN ON
INVESTMENTS (.05) (.05) (.10) (.08)
IN EXCESS OF NET REALIZED
GAIN ON INVESTMENTS (.06) (.06) (.02)
TOTAL DISTRIBUTIONS (.29) (.43) (.57) (.40) (.49) (.62) (.65) (.66) (.59)
NET ASSET VALUE,
END OF PERIOD $8.97 $8.95 $8.02 $9.37 $8.97 $8.05 $9.38 $8.98 $8.75
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%) (A) 5.44 (B) 17.26 (8.75) (9.25)(B) 17.95 (8.02) 12.02 10.60 12.44
NET ASSETS, END OF
PERIOD (IN THOUSANDS) $588 $215,614 $173,213 $146,665 $2,013,022$1,901,901$2,280,604$1,960,500 $1,659,383
RATIO OF EXPENSES TO
AVERAGE NET ASSETS(%)(C) .65(B) 1.43 1.39 1.28(B) .78 .75 .76 .66 .63
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS (%) 3.30(B) 4.95 5.16 4.29(B) 5.63 5.82 5.67 6.44 6.84
PORTFOLIO TURNOVER (%) 73.85 73.85 47.56 26.60 73.85 47.56 26.60 20.13 49.91
TWO
MONTHS YEAR
ENDED ENDED
NOVEMBER 30 SEPTEMBER 30
1990 1989 1988 1987 1987 1986
NET ASSET VALUE CLASS A
BEGINNING OF PERIOD $8.61 $8.33 $7.99 $7.76 $8.56 $7.57
INVESTMENT OPERATIONS
NET INVESTMENT INCOME .58 .60 .61 .11 .60 .65
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (.23) .27 .39 .22 (.72) .99
TOTAL FROM INVESTMENT
OPERATIONS .35 .87 1.00 .33 (.12) 1.64
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.56) (.59) (.60) (.10) (.61) (.65)
NET REALIZED GAIN ON
INVESTMENTS (.06) -- (.06) -- (.07) --
IN EXCESS OF NET REALIZED
GAIN ON INVESTMENTS -- -- -- -- -- --
TOTAL DISTRIBUTIONS (.62) (.59) (.66) (.10) (.68) (.65)
NET ASSET VALUE,
END OF PERIOD $8.34 $8.61 $8.33 $7.99 $7.76 $8.56
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%) (A) 4.37 10.77 12.99 25.41(B) (1.76) 22.41
NET ASSETS, END OF PERIOD
(IN THOUSANDS) $1,416,555$1,313,050$1,063,650 $958,201 $950,417 $701,799
RATIO OF EXPENSES TO AVERAGE
NET ASSETS (%) (C) .56 .57 .54 .08(B) .55 .56
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS (%) 6.96 6.94 7.34 1.33(B) 7.08 7.81
PORTFOLIO TURNOVER (%) 17.22 42.87 31.91 12.90(B) 43.28 50.45
TABLE HAS BEEN RESTATED TO REFLECT A 3-FOR 1 SHARE SPLIT, CLASS A SHARES ONLY, DECLARED BY THE FUND TO SHAREHOLDERS OF
RECORD ON OCTOBER 27, 1989, EFFECTIVE OCTOBER 28, 1989.
(A) TOTAL INVESTMENT RETURN ASSUMES DIVIDEND REINVESTMENT AND DOES NOT REFLECT THE EFFECT OF SALES CHARGES.
(B) NOT ANNUALIZED.
(C) THE RATIO OF EXPENSES TO AVERAGE NET ASSETS FOR THE YEAR ENDED NOVEMBER 30, 1995 INCLUDED AMOUNTS
PAID THROUGH EXPENSE OFFSET ARRANGEMENTS. PRIOR PERIOD RATIOS EXCLUDE THESE AMOUNTS. SEE NOTE 2.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 1, 1994
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
SEPTEMBER 30 SEPTEMBER 30
1995 1995 1994 1995 1994
CLASS M CLASS B CLASS A
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $8.51 $8.48 $ 9.07 $8.48 $9.12
INVESTMENT OPERATIONS
NET INVESTMENT INCOME .31 .47 .32 .52 .54
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS .29 .31 (.60) .32 (.62)
TOTAL FROM INVESTMENT OPERATIONS .60 .78 (.28) .84 (.08)
LESS DISTRIBUTIONS:
FROM NET INVESTMENT INCOME (.32) (.47) (.31) (.52) (.54)
IN EXCESS OF NET INVESTMENT INCOME -- -- -- --
NET REALIZED GAIN ON INVESTMENTS -- -- -- -- (.02)
TOTAL DISTRIBUTIONS (.32) (.47) (.31) (.52) (.56)
NET ASSET VALUE, END OF PERIOD $8.79 $8.79 $8.48 $8.80 $8.48
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%) (B) $7.11(C) 9.46 (3.06)(C) 10.27 (.89)
NET ASSETS, END OF PERIOD (IN THOUSANDS) $299 $24,259 $8,622 $175,210 $175,741
RATIO OF EXPENSES TO AVERAGE
NET ASSETS (%)(D) 0.83(C) 1.65 1.05(C) 1.01 .98
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS (%) 3.21(C) 5.28 3.39(C) 6.12 6.22
PORTFOLIO TURNOVER (%) 120.38 120.38 13.85 120.38 13.85
</TABLE>FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
<S> <C> <C> <C> <C>
1995 1994 1993 1992
NET ASSET VALUE,
BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00
INVESTMENT OPERATIONS:
NET INVESTMENT INCOME .0318 .0188 .0165 .0259(A)
NET REALIZED GAIN ON INVESTMENTS -- -- .0001 --
TOTAL FROM INVESTMENT OPERATIONS $.0318 $.0188 $.0166 $.0259
LESS DISTRIBUTIONS:
FROM NET INVESTMENT INCOME (.0318) (.0188) (.0165) (.0259)
FROM NET REALIZED GAIN
ON INVESTMENTS -- -- (.0001) --
TOTAL DISTRIBUTIONS (.0318) (.0188) (.0166) (.0259)
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00
TOTAL INVESTMENT RETURN
AT NET ASSET VALUE (%)(B) 3.04 1.90 1.67 2.62
NET ASSETS,
END OF PERIOD (IN THOUSANDS) $38,873 $44,815 $50,473 $57,705
RATIO OF EXPENSES TO AVERAGE
NET ASSETS (%)(D) 0.91 .77 .91 .78(A)
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS (%) 3.18 1.86 1.69 2.59(A)
<PAGE>
FOR THE PERIOD
OCTOBER 26, 1987
(COMMENCEMENT OF
OPERATIONS) TO
YEAR ENDED NOVEMBER 30 NOVEMBER 30
<C> <C> <C> <C> <C>
1991 1990 1989 1988 1987
$1.00 $1.00 $1.00 $1.00 $1.00
.0399(A) .0497(A) .0530(A) .0436(A) .0041(A)
-- -- -- -- --
$.0399 $.0497 $.0530 $.0436 $.0041
(.0399) (.0497) (.0530) (.0436) (.0041)
-- -- -- -- --
(.0399) (.0497) (.0530) (.0436) (.0041)
$1.00 $1.00 $1.00 $1.00 $1.00
4.07 5.09 5.44 4.46 0.41(C)
$64,286 $63,671 $51,113 $34,432 $3,953
.80(A) .67(A) .67(A) .64(A) .05(A)(C)
3.96(A) 4.95(A) 5.31(A) 4.34(A) .47(A)(C)
(A) REFLECTS AN EXPENSE LIMITATION AND, DURING THE YEAR ENDED NOVEMBER 30, 1988 AND THE
PERIOD ENDED NOVEMBER 30,1987, A WAIVER OF DISTRIBUTION FEES IN EFFECT DURING THE PERIOD.
AS A RESULT OF SUCH LIMITATIONS, EXPENSES OF THE FUND FOR THE YEARS ENDED NOVEMBER 30,
1992, 1991, 1990, 1989, 1988 AND FOR THE PERIOD ENDED NOVEMBER 30, 1987 REFLECT REDUCTIONS
OF $0.0024, $0.0034, $0.0043, $0.0048, $0.0061 AND $0.0015 PER SHARE RESPECTIVELY.
(B) TOTAL INVESTMENT RETURN ASSUMES DIVIDEND REINVESTMENT.
(C) THE RATIO OF EXPENSES TO AVERAGE NET ASSETS FOR THE YEAR ENDED NOVEMBER 30, 1995
INCLUDES AMOUNTS PAID THROUGH EXPENSE OFFSET ARRANGEMENTS. PRIOR YEAR RATIOS EXCLUDE
THESE AMOUNTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 7, 1990
(COMMENCEMENT
OF OPERATIONS) TO
YEAR ENDED SEPTEMBER 30
SEPTEMBER 30
1993 1992 1991
CLASS A
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $8.86 $8.67 $8.50
INVESTMENT OPERATIONS
NET INVESTMENT INCOME .57 .63(A) .58(A)
NET REALIZED AND UNREALIZED
GAIN ON IINVESTMENTS .27 .19 .17
TOTAL FROM INVESTMENT OPERATIONS .84 .82 .75
LESS DISTRIBUTIONS:
FROM NET INVESTMENT INCOME (.57) (.63) (.58)
IN EXCESS OF NET INVESTMENT INCOME (.01) -- --
NET REALIZED GAIN ON INVESTMENTS -- -- --
TOTAL DISTRIBUTIONS (.58) (.63) (.58)
NET ASSET VALUE, END OF PERIOD $9.12 $8.86 $8.67
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%) (B) 9.80 9.89 9.16(C)
NET ASSETS, END OF PERIOD (IN THOUSANDS) $170,533 $108,609 $30,864
RATIO OF EXPENSES TO AVERAGE
NET ASSETS (%)(D) 1.02 .91(A) .64(A)(C)
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS (%) 6.32 7.04(A) 6.73(A)(C)
PORTFOLIO TURNOVER (%) 17.68 11.56 5.74(C)
</TABLE>
(A) REFLECTS AN EXPENSE LIMITATION. AS A RESULT, EXPENSES OF THE FUND FOR THE
YEAR ENDED SEPTEMBER 30, 1992 AND THE PERIOD ENDED SEPTEMBER 30, 1991
REFLECT REDUCTIONS OF APPROXIMATELY $0.02 AND $0.07 PER SHARE, RESPECTIVELY.
(B) TOTAL INVESTMENT RETURN ASSUMES DIVIDEND REINVESTMENT AND DOES NOT REFLECT
THE EFFECT OF SALES CHARGES.
(C) NOT ANNUALIZED.
(D) THE RATIO OF EXPENSES TO AVERAGE NET ASSETS FOR THE YEAR ENDED
SEPTEMBER 30, 1995 INCLUDED AMOUNTS PAID THROUGH EXPENSE OFFSET
ARRANGEMENTS.
PRIOR PERIOD RATIOS EXCLUDE THESE AMOUNTS.<PAGE>
OBJECTIVES
The Income and Money Market Funds seek as high a level of current
income exempt from federal income tax and New York State and City
personal income taxes as Putnam Investment Management, Inc.
("Putnam Management") believes is consistent with preservation of
capital and, in the case of the Money Market Fund, maintenance of
liquidity and stability of principal. The Opportunities Fund
seeks high current income exempt from federal income tax and New
York State and City personal income taxes. Under current law, to
the extent distributions by the funds are derived from interest
on New York tax-exempt securities (which are described below) and
are designated as such, they will be exempt from federal income
tax and New York State and City personal income taxes. None of
the funds is intended to be a complete investment program, and
there is no assurance that any fund will achieve its objective.
HOW THE FUNDS PURSUE THEIR OBJECTIVES
BASIC INVESTMENT STRATEGY
EACH FUND SEEKS ITS OBJECTIVE BY INVESTING PRIMARILY IN A
PORTFOLIO OF NEW YORK TAX-EXEMPT SECURITIES (AS DEFINED BELOW).
The funds have separate investment policies involving different
levels of yield and risk.
THE INCOME FUND
PUTNAM NEW YORK TAX EXEMPT INCOME FUND SEEKS ITS OBJECTIVE BY
INVESTING PRIMARILY IN LONGER-TERM NEW YORK TAX-EXEMPT SECURITIES
(WHICH ARE DESCRIBED BELOW). It is a fundamental policy of the
Income Fund that at least 90% of the Income Fund's investment
income distributions will be exempt from federal income tax and
New York State and City personal income taxes, except during
times of adverse market conditions when more than 10% of
investment income distributions could be subject to those taxes.
The Income Fund may also hold its assets in cash or money market
instruments. The Income Fund's investments in New York tax-
exempt securities and taxable obligations will be limited to
securities rated at the time of purchase at least Ba by
Moody's Investors Service, Inc. ("Moody's") or at least BB
by Standard & Poor's ("S&P") , or unrated securities
which Putnam Management determines are of comparable quality
at the time of purchase .
The Income Fund will not purchase a New York tax-exempt security
rated both Ba by Moody's and BB by S&P 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 prospectus. For
more detailed information about the risks of investing in lower-
rated securities, see "Risk Factors" below.
Putnam Management may take full advantage of the entire range of
New York tax-exempt securities and may adjust the average
maturity of the Income Fund's portfolio from time to time
depending on its assessment of relative yields on securities of
different maturities and its expectations of future changes in
interest rates.
THE OPPORTUNITIES FUND
PUTNAM NEW YORK TAX EXEMPT OPPORTUNITIES FUND SEEKS ITS OBJECTIVE
BY INVESTING IN A PORTFOLIO OF NEW YORK TAX-EXEMPT SECURITIES
WHICH PUTNAM MANAGEMENT BELIEVES DOES NOT INVOLVE UNDUE RISK TO
INCOME OR PRINCIPAL. THE FUND IS DESIGNED FOR INVESTORS WILLING
TO ASSUME ADDITIONAL RISK IN RETURN FOR THE OPPORTUNITY TO EARN
ABOVE-AVERAGE TAX-EXEMPT INCOME. It is a fundamental policy of
the fund that under normal circumstances at least 80% of the
fund's net assets will be invested in New York tax-exempt
securities. The fund may hold a portion of its assets in cash or
money market instruments.
The fund will invest at least a majority of its assets in
securities considered to be "investment grade." Such securities
will be rated at the time of purchase at least Baa by Moody's or
BBB by S&P, or will be unrated securities which Putnam Management
determines are of comparable quality. The fund may invest the
balance of its assets in high yielding lower-rated securities
that at the time of purchase are rated at least B by Moody's or
S&P or in unrated securities that Putnam Management determines
are of comparable quality. Securities in these lower rating
categories are considered to be of poor standing and
predominantly speculative. For more detailed information about
the risks associated with investing in lower-rated securities,
see "Risk factors" below. For these rating services'
descriptions of tax-exempt securities and other rating
information, see "Securities ratings."
Putnam Management may take full advantage of the entire range of
New York tax-exempt securities and may adjust the average
maturity of the Opportunities Fund's portfolio from time to time
depending on its assessment of relative yields on securities of
different maturities and its expectations of future changes in
interest rates.
THE MONEY MARKET FUND
PUTNAM NEW YORK TAX EXEMPT MONEY MARKET FUND FOLLOWS THE
FUNDAMENTAL POLICY THAT 90% OF THE FUND'S INVESTMENT INCOME
DISTRIBUTIONS NORMALLY WILL BE EXEMPT FROM FEDERAL INCOME TAX AND
NEW YORK STATE AND CITY PERSONAL INCOME TAXES. Subject to this
limitation, the Money Market Fund may also invest in high quality
taxable money market instruments of the type described under
"Alternative investment strategies" below.
The Money Market Fund will invest in only the following New York
tax-exempt securities: (i) municipal notes rated at least MIG-2
by Moody's; (ii) municipal bonds rated Aa or better by Moody's or
AA or better by S&P; (iii) municipal securities backed by the
U.S. government; (iv) short-term discount notes (tax-exempt
commercial paper) rated at least Prime-2 by Moody's or A-2 by
S&P; (v) participation interests in any of the foregoing; and
(vi) unrated securities or new types of tax-exempt instruments
which become available in the future if the Money Market Fund's
Trustees determine they are of comparable quality. In connection
with the purchase of New York tax-exempt securities, the Money
Market Fund may acquire stand-by commitments, which give the
Money Market Fund the right to resell the security to the dealer
at a specified price. Stand-by commitments may provide
additional liquidity for the Money Market Fund but are subject to
the risk that the dealer may fail to meet its obligations. The
Money Market Fund does not generally expect to pay additional
consideration for stand-by commitments nor to assign any value to
them. The Money Market Fund's investments are concentrated in
New York tax-exempt securities and an investment in the fund may
therefore be riskier than an investment in a money market fund
that does not concentrate its investments in tax-exempt
securities relating to a single state.
THE MONEY MARKET FUND FOLLOWS INVESTMENT AND VALUATION POLICIES
DESIGNED TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
There can be no assurance that the fund will be able to maintain
a stable net asset value of $1.00 per share. The Money Market
Fund will invest in New York tax-exempt securities maturing in
397 days or less from the time of investment and will maintain a
dollar-weighted average portfolio maturity of 90 days or less.
The Money Market Fund may invest in variable or floating-rate New
York tax-exempt securities which bear interest at rates subject
to periodic adjustment or which provide for periodic recovery of
principal on demand. Under certain conditions, these securities
may be deemed to have remaining maturities equal to the time
remaining until the next interest adjustment date or the date on
which principal can be recovered on demand.
<PAGE>
Considerations of liquidity and preservation of capital mean that
the Money Market Fund may not necessarily invest in New York tax-
exempt securities paying the highest available yield at a
particular time. Consistent with its investment objective, the
Money Market Fund will attempt to maximize yields by portfolio
trading and by buying and selling portfolio investments in
anticipation of or in response to changing economic and money
market conditions and trends. The Money Market Fund will also
invest to take advantage of what Putnam Management believes to be
temporary disparities in yields of different segments of the
market for New York tax-exempt securities or among particular
instruments within the same segment of the market. These
policies, as well as the relatively short maturity of obligations
purchased by the Money Market Fund, may result in frequent
changes in the Money Market Fund's portfolio. Portfolio turnover
may give rise to taxable gains.
The portfolio of the Money Market Fund will be affected by
general changes in interest rates resulting in increases or
decreases in the value of the obligations held by the Money
Market Fund. Although the Money Market Fund's investment
policies are designed to minimize these changes and to maintain a
net asset value of $1.00 per share, there is no assurance that
these policies will be successful. Withdrawals by shareholders
could require the sale of portfolio investments at a time when
such a sale might not otherwise be desirable.
ALTERNATIVE MINIMUM TAX
INTEREST INCOME FROM CERTAIN TYPES OF NEW YORK TAX-EXEMPT
SECURITIES MAY BE SUBJECT TO FEDERAL ALTERNATIVE MINIMUM TAX FOR
INDIVIDUALS AND CORPORATIONS.
None of the funds treat securities the interest from which may be
subject to federal alternative minimum tax for individuals and
corporations as New York tax-exempt securities for purposes of
determining compliance with its 80% test (in the case of the
Opportunities Fund) and its 90% test (in the case of the Income
and Money Market Funds).
ALTERNATIVE INVESTMENT STRATEGIES
At times Putnam Management may judge that conditions in the
markets for New York tax-exempt securities make pursuing a fund's
basic investment strategy inconsistent with the best interests of
its shareholders. At such times Putnam Management may
temporarily use alternative investment strategies primarily
designed to reduce fluctuations in the value of the fund's
assets.
<PAGE>
In implementing these defensive strategies, the Income and
Opportunities Funds may invest without limit in taxable
obligations, such as 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 with respect to any of the
foregoing investments; or any other securities that Putnam
Management considers consistent with such defensive strategies.
Similarly, for defensive purposes, the Money Market Fund may
invest in taxable high quality money market instruments,
including bank certificates of deposit, bankers' acceptances,
prime commercial paper, high-grade, short-term corporate
obligations, short-term U.S. government securities, repurchase
agreements, or other securities Putnam Management considers
consistent with such defensive strategies.
It is impossible to predict when, or for how long, a fund will
use these alternative strategies. The interest income from these
instruments would be subject to federal income tax and/or New
York State and City personal income taxes.
NEW YORK TAX-EXEMPT SECURITIES
NEW YORK TAX-EXEMPT SECURITIES INCLUDE OBLIGATIONS OF THE STATE
OF NEW YORK, ITS POLITICAL SUBDIVISIONS, AND THEIR AGENCIES,
INSTRUMENTALITIES, OR OTHER GOVERNMENTAL UNITS, THE INTEREST ON
WHICH, IN THE OPINION OF BOND COUNSEL, IS EXEMPT FROM FEDERAL
INCOME TAX AND NEW YORK STATE AND CITY PERSONAL INCOME TAXES.
These securities are issued to obtain funds for various public
purposes, such as the construction of public facilities, the
payment of general operating expenses or the refunding of
outstanding debts.
They may also be issued to finance various private activities,
including the lending of funds to public or private institutions
for the construction of housing, educational or medical
facilities, or to fund short-term cash requirements. They may
also include certain types of industrial development bonds,
private activity bonds or notes issued by public authorities to
finance privately owned or operated facilities.
Short-term New York tax-exempt securities may be issued as
interim financing in anticipation of tax collections, revenue
receipts or bond sales to finance various public purposes. New
York tax-exempt securities may also include debt obligations
issued by certain other governmental entities, such as U.S.
territories, if these debt obligations generate interest income
that is exempt from federal income tax and New York State and
City personal income taxes.
THE TWO PRINCIPAL CLASSIFICATIONS OF NEW YORK TAX-EXEMPT
SECURITIES ARE GENERAL OBLIGATION AND SPECIAL OBLIGATION (OR
SPECIAL REVENUE OBLIGATION) SECURITIES.
GENERAL OBLIGATION securities involve a pledge of the credit of
an issuer possessing taxing power and are payable from the
issuer's general unrestricted revenues. Their payment may depend
on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation
securities vary according to the law applicable to the particular
issuer.
SPECIAL OBLIGATION (or SPECIAL REVENUE OBLIGATION) securities are
payable only from the revenues derived from a particular facility
or class of facilities, or a specific revenue source, and
generally are not payable from the unrestricted revenues of the
issuer. Industrial development bonds and private activity bonds
are in most cases special obligation securities, whose credit
quality is tied to the private user of the facilities.
The funds (excluding the Money Market Fund) may also invest in
securities representing interests in New York tax-exempt
securities, known as "inverse floating obligations" or "residual
interest bonds." These obligations pay interest rates that vary
inversely with changes in the interest rates of specified short-
term tax-exempt securities or an index of short-term tax-exempt
securities. The interest rates on inverse floating obligations
or residual interest bonds will typically decline as short-term
market interest rates increase and increase as short-term market
rates decline.
These securities have the effect of providing a degree of
investment leverage. They will generally respond to changes in
market interest rates more rapidly than fixed-rate long-term
securities (typically twice as fast). As a result, the market
values of inverse floating obligations and residual interest
bonds will generally be more volatile than the market values of
fixed-rate tax-exempt securities.
RISK FACTORS
THE INCOME AND OPPORTUNITIES FUNDS
THE VALUES OF NEW YORK TAX-EXEMPT SECURITIES FLUCTUATE IN
RESPONSE TO CHANGES IN INTEREST RATES. A decrease in interest
rates will generally result in an increase in the value of a
fund's assets. Conversely, during periods of rising interest
rates, the value of a 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
fixed-income securities are affected by changes in general
economic and business conditions affecting the specific
industries of their issuers.
Changes by recognized rating services in their ratings of a
fixed-income security and changes in the ability of an issuer to
make payments of interest and principal may also affect the value
of these investments. Changes in the value of portfolio
securities will not affect income derived from these securities,
but will affect a fund's net asset value.
EACH OF THE INCOME AND OPPORTUNITIES FUNDS MAY INVEST IN BOTH
HIGHER-RATED AND LOWER-RATED NEW YORK TAX-EXEMPT SECURITIES.
LOWER-RATED SECURITIES ARE SECURITIES RATED BELOW BAA BY MOODY'S
OR BBB BY S&P, (AND UNRATED SECURITIES OF COMPARABLE QUALITY),
AND ARE COMMONLY KNOWN AS "JUNK BONDS." The values of lower-
rated securities generally fluctuate more than those of higher-
rated securities. In addition, the lower rating reflects a
greater possibility that the financial condition of the issuer,
or adverse changes in general economic conditions, or both, may
impair the ability of the issuer to make payments of income and
principal.
The table below shows the percentages of the Opportunities Fund's
assets invested during fiscal 1995 in securities assigned to the
various rating categories by S&P, or, if unrated by S&P, assigned
to comparable rating categories by Moody's, and in unrated
securities determined by Putnam Management to be of comparable
quality:
UNRATED SECURITIES
RATED SECURITIES,OF COMPARABLE QUALITY,
AS A PERCENTAGE OFAS A PERCENTAGE
OPPORTUNITIES FUND'S OF OPPORTUNITIES FUND'S
RATING NET ASSETS NET ASSETS
"AAA" 20.77% ---
"AA" 19.45% ---
"A" 23.10% ---
"BBB" 29.30% 1.61%
"BB" 0.17% 2.97%
"B" --- 2.63%
------ -----
Total 92.79% 7.21%
====== =====
Putnam Management seeks to minimize the risks of investing in
lower-rated securities through careful investment analysis.
However, the amount of information available about the financial
condition of an issuer of New York tax-exempt securities may not
be as extensive as that which is made available by corporations
whose securities are publicly traded. When a fund invests in New
York 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 New York 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 that may
invest in securities in certain of the lower rating categories.
A fund will not necessarily dispose of a security when its rating
is reduced below its rating at the time of purchase. However,
Putnam Management will monitor the investment to determine
whether continued investment in the security will assist in
meeting a fund's investment objective.
In order to enforce its rights in the event of a default of these
securities, a fund may be required to participate in various
legal proceedings or take possession of and manage assets
securing the issuer's obligations on the securities. This could
increase a fund's operating expenses and adversely affect a
fund's net asset value. Any income derived from a fund's
ownership or operation of such assets would not be tax-exempt.
The ability of a holder of a tax-exempt security to enforce the
terms of that security in a bankruptcy proceeding may be more
limited than would be the case with respect to a privately-issued
security.
Certain securities held by the funds may permit the issuer at its
option to "call," or redeem, such securities. If an issuer were
to redeem securities held by a 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 funds may invest in so-called "zero-coupon" bonds whose
values are subject to greater fluctuation in response to changes
in market interest rates than bonds that pay interest currently.
Zero-coupon bonds are issued at a significant discount from face
value and pay interest only at maturity rather than at intervals
during the life of the security.
Zero-coupon bonds allow an issuer to avoid the need to generate
cash to meet current interest payments. Accordingly, such bonds
may involve greater credit risks than bonds paying interest
currently. Each 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 funds may
have to sell investments to obtain cash needed to make income
distributions.
The secondary market for New York tax-exempt securities is
generally less liquid than that for taxable fixed-income
securities, particularly in the lower rating categories. Thus it
may be more difficult from time to time to value or buy and sell
certain securities.
Certain investment grade securities in which the funds may invest
share some of the risk factors discussed above with respect to
lower-rated New York tax-exempt securities.
FOR ADDITIONAL INFORMATION CONCERNING THE RISKS ASSOCIATED WITH
INVESTING IN SECURITIES IN THE LOWER RATING CATEGORIES, SEE THE
SAI.
SINCE THE FUNDS INVEST PRIMARILY IN NEW YORK TAX-EXEMPT
SECURITIES, THE VALUE OF EACH FUND'S SHARES MAY BE ESPECIALLY
AFFECTED BY FACTORS PERTAINING TO THE NEW YORK STATE ECONOMY AND
OTHER FACTORS SPECIFICALLY AFFECTING THE ABILITY OF ISSUERS OF
NEW YORK TAX-EXEMPT SECURITIES TO MEET THEIR OBLIGATIONS.
As a result, the value of each of the Income and Opportunities
Fund's shares may fluctuate more widely than the value of shares
of a portfolio investing in securities relating to a number of
different states. The ability of state, county or local
governments 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 of New York tax-exempt securities may be affected from
time to time by economic, political and demographic conditions
within or outside of New York. 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 New York tax-exempt 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. The facility's economic status, in turn, could be
affected by economic, political and demographic conditions
affecting the state.
Any reduction in the actual or perceived ability of an issuer of
New York tax-exempt securities to meet its obligations would
likely have an adverse effect on the market value and
marketability of its obligations. A reduction in the rating of
the issuer's outstanding securities would be included among these
factors. Doubts surrounding an issuer's ability to meet its
obligations also could adversely affect the values of other New
York tax-exempt securities as well.
At times, a substantial portion of a fund's assets may be
invested in securities as to which a fund, by itself or together
with other funds and accounts managed by Putnam Management and
its affiliates, holds all or a major portion. Under adverse
market or economic conditions or in the event of adverse changes
in the financial condition of the issuer, a fund could find it
more difficult to sell these securities when Putnam Management
believes it advisable to do so or may be able to sell the
securities only at prices lower than if they were more widely
held. Under these circumstances, it may also be more difficult
to determine the fair value of such securities for purposes of
computing such fund's net asset value.
ALL FUNDS
DIVERSIFICATION AND CONCENTRATION POLICIES
The Income Fund is a "diversified" investment company and the
Opportunities and Money Market Funds are "non-diversified"
investment companies. This means that, under the Investment
Company Act of 1940 and other applicable law, the Income Fund may
invest up to 25% of its total assets in the securities of one or
more issuers of New York tax-exempt securities and each of the
Opportunities and Money Market funds may invest up to 25% of its
total assets in the securities of each of two or more
issuers of New York tax-exempt securities. Each fund is limited
with respect to the remaining portion of its assets to investing
5% or less of its total assets in the securities of any one
issuer (other than the U.S. government).
As a result of this policy and because of the relatively small
number of issuers of New York tax-exempt securities, each fund is
more likely to invest a higher percentage of its assets in the
securities of a single issuer than an investment company that
invest in a broad range of tax-exempt securities. This practice
involves an increased risk of loss to a fund if the issuer were
unable to make interest or principal payments or if the market
value of these securities were to decline.
A FUND WILL NOT INVEST MORE THAN 25% OF ITS TOTAL ASSETS IN ANY
ONE INDUSTRY. Governmental issuers of New York tax-exempt
securities are not considered part of any "industry." However,
for this purpose (and for diversification purposes discussed
above) New York tax-exempt securities backed only by the assets
and revenues of nongovernmental users may be deemed to be issued
by such nongovernmental users. Thus, the 25% limitation would
apply to these obligations.
It is possible that a fund may invest more than 25% of its assets
in a broader segment of the market for New York 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 these obligations could be supported by the credit of
governmental issuers or by the credit of nongovernmental issuers
engaged in a number of industries, economic, business, political
and other developments generally affecting the revenues of these
issuers may have a general adverse effect on all New York tax-
exempt securities in a particular market segment. (Examples
would include proposed legislation or pending court decisions
affecting the financing of such projects and market factors
affecting the demand for their services or products.)
Each fund reserves the right to invest more than 25% of its
assets in industrial development bonds and private activity
securities.
INVESTMENTS IN PREMIUM SECURITIES
During a period of declining interest rates, many of the Income
and Opportunities Fund's portfolio investments will likely bear
coupon rates that are higher than current market rates,
regardless of whether these securities were originally purchased
at a premium. These securities would generally carry market
values greater than the principal amounts payable on maturity,
which would be reflected in the net asset value of each fund's
shares.
The values of these "premium" securities tend to approach the
principal amount as the securities approach maturity (or call
price in the case of securities approaching their first call
date). As a result, an investor who purchases shares of a fund
during these periods would initially receive higher monthly
distributions (derived from the higher coupon rates payable on
the fund's investments) than might be available from alternative
investments bearing current market interest rates. But the
investor may face an increased risk of capital loss as these
higher coupon securities approach maturity (or first call date).
In evaluating the potential performance of an investment in the
fund, investors may find it useful to compare the fund's current
dividend rate with the fund's "yield," which is computed on a
yield-to-maturity basis in accordance with SEC regulations and
which reflects amortization of market premiums. See "How
performance is shown."
PORTFOLIO TURNOVER
The length of time a fund has held a particular security is not
generally a consideration in investment decisions. A change in
the securities held by a fund is known as "portfolio turnover."
As a result of the funds' investment policies, under certain
market conditions each fund's portfolio turnover rate may be
higher than that of other mutual funds.
Portfolio turnover generally involves some expense to a fund,
including brokerage commissions or dealer markups and other
transaction costs on the sale of securities and reinvestment in
other securities. These transactions may result in realization
of taxable capital gains. Portfolio turnover rates for the ten
most recent fiscal years of the Income Fund and for the life of
the Opportunities Fund are shown in the section "Financial
highlights."
FINANCIAL FUTURES AND OPTIONS
EACH OF THE INCOME AND OPPORTUNITIES FUNDS MAY PURCHASE AND SELL
FINANCIAL FUTURES CONTRACTS FOR HEDGING PURPOSES.
Futures contracts on the Municipal Bond Index are traded on the
Chicago Board of Trade. This index is intended to represent a
numerical measure of market performance for long-term tax-exempt
bonds. An "index future" is a contract to buy or sell units of a
particular securities index at an agreed price on a specified
future date. Depending on the change in value of the index
between the time a fund enters into and terminates an index
futures contract, the fund realizes a gain or loss. The Income
and Opportunities Funds 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 New York tax-exempt
securities that a fund owns or expects to purchase. The Income
and Opportunities Funds may also purchase and sell put and call
options on index futures or on the indexes directly, in addition
to or as an alternative to purchasing and selling index futures.
For hedging purposes, each of the Income and Opportunities Funds
may also purchase and sell futures contracts and related options
on U.S. Treasury securities, including U.S. Treasury bills, notes
and bonds ("U.S. government securities") and options directly on
U.S. government securities. U.S. government securities futures
and options would be used for purposes similar to index futures
and options.
In addition, each of the Income and Opportunities Funds may
purchase put and call options on, or warrants to purchase, New
York 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 New York tax-exempt
securities.
THE USE OF FUTURES AND OPTIONS INVOLVES CERTAIN SPECIAL RISKS AND
MAY RESULT IN REALIZATION OF TAXABLE INCOME OR CAPITAL GAINS.
FUTURES AND OPTIONS TRANSACTIONS INVOLVE COSTS AND MAY RESULT IN
LOSSES.
Certain risks arise from the possibility of imperfect
correlations between movements in the prices of financial futures
and options and movements in the prices of the underlying bond
index or U.S. government securities or of the New York tax-exempt
securities that are the subject of the hedge. The successful use
of futures and options further depends on Putnam Management's
ability to forecast interest rate movements correctly.
Other risks arise from the potential inability to close out
futures or options positions. There can be no assurance that a
liquid secondary market will exist for any futures contract or
option at a particular time. Certain provisions of the Internal
Revenue Code and certain regulatory requirements may limit the
use of futures and options transactions.
A MORE DETAILED EXPLANATION OF FINANCIAL FUTURES AND OPTIONS
TRANSACTIONS AND THE RISKS ASSOCIATED WITH THEM IS INCLUDED IN
THE SAI.
OTHER INVESTMENT PRACTICES
THE FUNDS MAY ALSO ENGAGE IN THE FOLLOWING INVESTMENT PRACTICES,
EACH OF WHICH MAY RESULT IN TAXABLE INCOME OR CAPITAL GAINS AND
INVOLVES CERTAIN SPECIAL RISKS. THE SAI CONTAINS MORE DETAILED
INFORMATION ABOUT THESE PRACTICES, INCLUDING LIMITATIONS DESIGNED
TO REDUCE THESE RISKS.
REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS. Each fund may
enter into repurchase agreements on up to 25% of its assets.
These transactions must be fully collateralized at all times.
Each fund may also purchase securities for future delivery, which
may increase its overall investment exposure and involves a risk
of loss if the value of the securities declines prior to the
settlement date. These transactions involve some risk to a fund
if the other party should default on its obligation and that fund
is delayed or prevented from recovering the collateral or
completing the transaction.
DERIVATIVES
Certain of the instruments in which each fund will invest, such
as financial futures and options and inverse floating obligations
in the case of the Income and Opportunities funds, are considered
to be "derivatives." Derivatives are financial instruments whose
value depends upon, or is derived from, the value of an
underlying asset, such as a security or an index. Further
information about these instruments and the risks involved in
their use is included elsewhere in this prospectus and in the
SAI.
<PAGE>
LIMITING INVESTMENT RISK
SPECIFIC INVESTMENT RESTRICTIONS HELP THE FUNDS LIMIT INVESTMENT
RISKS FOR THEIR SHAREHOLDERS. These restrictions prohibit a fund
from acquiring more than 10% of the voting securities of any one
issuer .* They also prohibit each fund from otherwise
investing more than:
(a) (for all funds) 5% of its net assets in securities of any
issuer if the party responsible for payment, together with any
predecessors, has been in operation for less than three years
(except U.S. government and agency obligations and obligations
backed by the full faith, credit and taxing power of any person
authorized to issue New York tax-exempt securities);
(b) (for all funds) 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 Trustees (or the
person designated by them to make such determinations) to be
readily marketable) and in repurchase agreements maturing in more
than seven days.
The Money Market Fund has not invested more than 10% of its net
assets in the types of securities listed in item (b) and has no
current intention of doing so.
At a meeting scheduled to be held on September 5, 1996, the
shareholders will be asked to approve a number of changes to the
Opportunities Fund's fundamental investment restrictions. If the
changes are approved, then the second sentence of the first
paragraph under the heading "Limiting investment risk" above will
be revised for the Opportunities Fund to read as follows:
These restrictions prohibit a fund from acquiring (in the
case of the Opportunities Fund, with respect to 50% of its
total assets) more than 10% of the voting securities of
any one issuer.*
If any or all of these proposals do not receive sufficient votes
for approval, this prospectus will be revised as appropriate.
Restrictions marked with an asterisk (*) above are summaries of
fundamental investment policies. See the SAI for the full text
of these policies and the funds' other fundamental investment
policies. Except for investment policies designated as
fundamental in this prospectus or the SAI, the investment
policies described in this prospectus and in the SAI are not
fundamental policies. The Trustees may change any non-
fundamental investment policies without shareholder approval. As
a matter of policy, the Trustees would not materially change a
fund's investment objective without shareholder approval.
HOW PERFORMANCE IS SHOWN
THE INCOME FUND AND THE OPPORTUNITIES FUND
EACH FUND'S INVESTMENT PERFORMANCE MAY FROM TIME TO TIME BE
INCLUDED IN ADVERTISEMENTS ABOUT THE FUND. "Yield" for each
class of shares is calculated by dividing the annualized net
investment income per share during a recent 30-day period by the
maximum public offering price per share of the class on the last
day of that period.
For purposes of calculating yield, net investment income is
calculated in accordance with SEC regulations and may differ from
net investment income as determined for financial reporting
purposes. SEC regulations require that net investment income be
calculated on a "yield-to-maturity" basis, which has the effect
of amortizing any premiums or discounts in the current market
value of fixed-income securities. The current dividend rate is
based on net investment income as determined for tax purposes,
which may not reflect amortization in the same manner. See "How
the funds pursue their objectives -- Investments in premium
securities."
Yield is based on the price of the shares, including the maximum
initial sales charge in the case of class A shares and class M
shares, but does not reflect the 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 a 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 a fund invested at the maximum
public offering price (in the case of class A and class M shares)
or reflecting the deduction of any applicable contingent deferred
sales charge (in the case of class B shares). Total return may
also be presented for other periods or based on investment at
reduced sales charge levels. Any quotation of investment
performance not reflecting the maximum initial sales charge or
contingent deferred sales charge would be reduced if the sales
charge were used.
THE MONEY MARKET FUND
THE MONEY MARKET FUND'S INVESTMENT PERFORMANCE MAY FROM TIME TO
TIME BE INCLUDED IN ADVERTISEMENTS ABOUT THE FUND. "Yield"
represents an annualization of the change in value of a
shareholder account (excluding any capital changes) for a
specific seven-day period. "Effective yield" compounds the Money
Market Fund's yield for a year and is, for that reason, greater
than the Money Market Fund's yield. "Tax-equivalent yield" shows
the effect on performance of the tax-exempt status of
distributions received from the Money Market Fund. It reflects
the approximate yield that a taxable investment must earn for
shareholders at stated income levels to produce an after-tax
yield equivalent to the Money Market Fund's tax-exempt yield or
tax-exempt effective yield.
ALL FUNDS
ALL DATA ARE BASED ON PAST INVESTMENT RESULTS AND DO NOT PREDICT
FUTURE PERFORMANCE.
Investment performance, which will vary, is based on many
factors, including market conditions, the composition of a fund's
portfolio, a fund's operating expenses and which class of shares
the investor purchases. Investment performance also often
reflects the risks associated with a fund's investment objective
and policies. These factors should be considered when comparing
a fund's investment results with those of other mutual funds and
other investment vehicles.
Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. Each fund's performance may
be compared to that of various indexes. See the SAI.
HOW THE FUNDS ARE MANAGED
THE TRUSTEES ARE RESPONSIBLE FOR GENERALLY OVERSEEING THE CONDUCT
OF A FUND'S BUSINESS. Subject to such policies as the Trustees
may determine, Putnam Management furnishes a continuing
investment program for each fund and makes investment decisions
on that fund's behalf. Subject to the control of the Trustees,
Putnam Management also manages the funds' other affairs and
business.
Each fund pays Putnam Management a quarterly fee for these
services based on the fund's average net assets. See "Expenses
summary" and the SAI.
<PAGE>
The following officers of Putnam Management have had primary
responsibility for the day-to-day management of each fund's
portfolio since the year stated below:
Business experience
Year (at least 5 years)
---- -------------------
INCOME FUND
- -----------
David J. Eurkus
Senior Vice President 1985 Employed as an investment
professional by Putnam
Management since 1983.
James E. Erickson
Managing Director 1996 Employed as an investment
professional by Putnam
Management since 1978.
OPPORTUNITIES FUND
- ------------------
Michael Bouscaren
Senior Vice President 1994 Employed as an investment
professional by Putnam
Management since 1994. Prior
to 1994, Mr. Bouscaren was
President and Chairman of the
Board of Directors at Salomon
Brothers Series Funds, Inc.,
and a Director of Salomon
Brothers Asset Management,
Inc.
James E. Erickson
Managing Director 1996 Employed as an investment
professional by Putnam
Management since 1978.
MONEY MARKET FUND
- -----------------
Lindsey C. Strong
Vice President 1993 Employed as an investment
professional by Putnam
Management since 1984.
Each fund pays all expenses not assumed by Putnam Management,
including Trustees' fees, auditing, legal, custodial, investor
servicing, and shareholder reporting expenses, and payments under
any distribution plans. In the case of the Income and
Opportunities Funds, payments under any distribution plan are in
turn allocated to the relevant class of shares. Expenses of the
Trust directly charged or attributable to the Income Fund will be
paid from the assets of that fund. General expenses of the Trust
will be allocated among the Trust's series and charged to the
assets of the Income Fund on a basis that the Trustees deem fair
and equitable, which may be based on the relative assets of each
series or the nature of the services performed and their relative
applicability to each series. Each fund also reimburses Putnam
Management for the compensation and related expenses of certain
of its officers and their staffs who provide administrative
services to such fund. The total reimbursement is determined
annually by the Trustees.
Putnam Management places all orders for purchases and sales of
the funds' securities. In selecting broker-dealers, Putnam
Management may consider research and brokerage services furnished
to it and its affiliates. Subject to seeking the most favorable
price and execution available, Putnam Management may consider
sales of shares of each fund (and, if permitted by law, of the
other Putnam funds) as a factor in the selection of broker-
dealers.
ORGANIZATION AND HISTORY
Each of the Trust, the Opportunities Fund and the Money Market
Fund is a Massachusetts business trust organized on May 12, 1983,
September 20, 1990 and September 2, 1987, respectively. Copies
of their Agreements and Declarations of Trust, which are governed
by Massachusetts law, are on file with the Secretary of State of
The Commonwealth of Massachusetts. Prior to June 1, 1994, the
Trust was known as Putnam New York Tax Exempt Income Fund.
The Trust, the Opportunities Fund and the Money Market Fund are
open-end management investment companies with an unlimited number
of authorized shares of beneficial interest. Their shares may,
without shareholder approval, be divided into two or more series
of such shares. Shares of the Trust are currently divided into
two series of shares: Putnam New York Tax Exempt Income Fund and
Putnam New York Intermediate Tax Exempt Fund.
Any such series of shares 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 Income Fund's shares and the
Opportunities Fund's shares are currently divided into three
classes. Only the Income Fund and Opportunities Fund's class A,
B and M shares are offered by this prospectus. Such funds may
also offer other classes of shares with different sales charges
and expenses. Because of these different sales charges and
expenses, the investment performance of the classes will vary.
For more information, including your eligibility to purchase any
other class of shares, contact your investment dealer or Putnam
Mutual Funds (at 1-800-225-1581). The Money Market Fund's shares
are not currently divided into classes.
Each share has one vote, with fractional shares voting
proportionally. Shares of the Trust vote in the aggregate on all
matters except (i) when required by the Investment Company Act of
1940, or (ii) when the Trustees have determined that the matter
affects only the interests of one series. Shares of each class
will vote together as a single class except when otherwise
required by law or as determined by the Trustees. Shares are
freely transferable, are entitled to dividends as declared by the
Trustees, and, if a fund were liquidated, would receive the net
assets of that fund. A fund may suspend the sale of shares at
any time and may refuse any order to purchase shares. Although a
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 each
relevant Agreement and Declaration of Trust.
Although each fund is offering only its own shares in this
prospectus, it is possible that a fund might become liable for
any misstatement in the prospectus about another fund. The
Trustees of each fund have considered this factor in approving
the use of a single prospectus.
If you own fewer shares than a minimum amount set by the Trustees
(presently 20 shares for the Income and Opportunities Funds and
500 shares for the Money Market Fund), a fund may choose to
redeem your shares. You will receive at least 30 days' written
notice before a fund redeems your shares, and you may purchase
additional shares at any time to avoid a redemption. Each 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 TRUSTEES OF THE FUNDS: GEORGE PUTNAM,* CHAIRMAN. President
of the Putnam funds. Chairman and Director of Putnam Management
and Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director,
Marsh & McLennan Companies, Inc.; WILLIAM F. POUNDS, VICE
CHAIRMAN. Professor of Management, Alfred P. Sloan School of
Management, Massachusetts Institute of Technology; JAMESON ADKINS
BAXTER, President, Baxter Associates, Inc.; HANS H. ESTIN, Vice
Chairman, North American Management Corp.; JOHN A. HILL,
Chairman and Managing Director, First Reserve
Corporation; RONALD J. JACKSON, Former Chairman, President and
Chief Executive Officer of Fisher-Price, Inc., Trustee of Salem
Hospital and Overseer of the Peabody Essex Museum; ELIZABETH
T. KENNAN, President Emeritus and Professor, Mount Holyoke
College; LAWRENCE J. LASSER,* Vice President of the Putnam funds.
President, Chief Executive Officer and Director of Putnam
Investments, Inc. and Putnam Management. Director, Marsh &
McLennan Companies, Inc.; ROBERT E. PATTERSON, Executive Vice
President and Director of Acquisitions , Cabot Partners
Limited Partnership; DONALD S. PERKINS,* Director of various
corporations, including Cummins Engine Company, Inc., Lucent
Technologies, Inc., Springs Industries, Inc. and Time Warner
Inc.; GEORGE PUTNAM, III,* President, New Generation Research,
Inc.; ELI SHAPIRO, Alfred P. Sloan Professor of Management,
Emeritus, Alfred P. Sloan School of Management, Massachusetts
Institute of Technology; A.J.C. SMITH,* Chairman, Chief Executive
Officer and Director, Marsh & McLennan Companies, Inc.; and W.
NICHOLAS THORNDIKE, Director of various corporations and
charitable organizations, including Data General Corporation,
Bradley Real Estate, Inc. and Providence Journal Co. Also,
Trustee of Massachusetts General Hospital and Eastern Utilities
Associates. The funds' Trustees are also Trustees of the other
Putnam funds. Those marked with an asterisk (*) are or may be
deemed to be "interested persons" of the Trust, the Opportunities
Fund, the Money Market Fund, Putnam Management or Putnam Mutual
Funds.
ABOUT YOUR INVESTMENT
ALTERNATIVE SALES ARRANGEMENTS
THE INCOME AND OPPORTUNITIES FUNDS
The Income Fund and Opportunities Fund offer investors three
classes of shares that bear sales charges in different forms and
amounts and that bear different levels of expenses:
CLASS A SHARES. An investor who purchases class A shares pays a
sales charge at the time of purchase. As a result, class A
shares are not subject to any charges when they are redeemed,
except for certain sales at net asset value that are subject to a
contingent deferred sales charge ("CDSC"). Certain purchases of
class A shares qualify for reduced sales charges. Class A shares
bear a lower 12b-1 fee than class B and class M shares. See "How
to buy shares -- Class A shares" and "Distribution plans."
CLASS B SHARES. Class B shares are sold without an initial sales
charge, but are subject to a CDSC if redeemed within a specified
period after purchase. Class B shares also bear a higher 12b-1
fee than class A and class M shares. Class B shares
automatically convert into class A shares, based on relative net
asset value, approximately eight years after purchase. For more
information about the conversion of class B shares, see the SAI.
This discussion will include information about how shares
acquired through reinvestment of distributions are treated for
conversion purposes. The discussion will also note certain
circumstances under which a conversion may not occur. Class B
shares provide an investor the benefit of putting all of the
investor's dollars to work from the time the investment is made.
Until conversion, class B shares will have a higher expense ratio
and pay lower dividends than class A and class M shares because
of the higher 12b-1 fee. See "How to buy shares -- Class B
shares" and "Distribution plans."
CLASS M SHARES. An investor who purchases class M shares pays a
sales charge at the time of purchase that is lower than the sales
charge applicable to class A shares. Certain purchases of class
M shares qualify for reduced sales charges. Class M shares bear
a 12b-1 fee that is lower than class B shares but higher than
class A shares. Class M shares are not subject to any CDSC and
do not convert into any other class of shares. See "How to buy
shares -- Class M shares" and "Distribution plans."
WHICH ARRANGEMENT IS BEST FOR YOU? The decision as to which
class of shares provides a more suitable investment for an
investor depends on a number of factors, including the amount and
intended length of the investment. Investors making investments
that qualify for reduced sales charges might consider class A or
class M shares. Investors who prefer not to pay an initial sales
charge might consider class B shares. Orders for class B shares
for $250,000 or more will be treated as orders for class A shares
or declined. For more information about these sales
arrangements, consult your investment dealer or Putnam Investor
Services. Shares may only be exchanged for shares of the same
class of another Putnam fund. See "How to exchange shares."
HOW TO BUY SHARES
THE INCOME AND OPPORTUNITIES FUNDS
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 shares of the Income and Opportunities Funds three ways -
through most investment dealers, through Putnam Mutual Funds (at
1-800-225-1581), or through a systematic investment plan. If you
do not have a dealer, Putnam Mutual Funds can refer you to one.
BUYING SHARES THROUGH PUTNAM MUTUAL FUNDS. Complete an order
form and write a check for the amount you wish to invest, payable
to the fund. Return the completed form and check to Putnam
Mutual Funds, which will act as your agent in purchasing shares
through your designated investment dealer.
BUYING SHARES THROUGH SYSTEMATIC INVESTING. You can make regular
investments of $25 or more per month through automatic deductions
from your bank checking or savings account. Application forms
are available from your investment dealer or through Putnam
Investor Services.
Shares are sold at the public offering price based on the net
asset value next determined after Putnam Investor Services
receives your order. In most cases, in order to receive that
day's public offering price, Putnam Investor Services must
receive your order before the close of regular trading on the New
York Stock Exchange. If you buy shares through your investment
dealer, the dealer must receive your order before the close of
regular trading on the New York Stock Exchange to receive that
day's public offering price.
CLASS A SHARES
The public offering price of class A shares is the net asset
value plus a sales charge that varies depending on the size of
your purchase. The funds receive the net asset value. The sales
charge is allocated between your investment dealer and Putnam
Mutual Funds as shown in the following table, except when Putnam
Mutual Funds, in its discretion, allocates the entire amount to
your investment dealer.
SALES CHARGE AMOUNT OF
AS A PERCENTAGE OF: SALES CHARGE
------------------- REALLOWED TO
NET DEALERS AS A
AMOUNT OF TRANSACTION AMOUNT OFFERING PERCENTAGE OF
AT OFFERING PRICE ($) INVESTED PRICE OFFERING PRICE
- -----------------------------------------------------------------
Under 25,000 4.99% 4.75% 4.50%
25,000 but under 100,000 4.71 4.50 4.25
100,000 but under 250,000 3.90 3.75 3.50
250,000 but under 500,000 3.09 3.00 2.75
500,000 but under 1,000,000 2.04 2.00 1.85
- -----------------------------------------------------------------
There is no initial sales charge on purchases of class A shares
of $1 million or more. However, a CDSC of 1.00% or 0.50%,
respectively, will be imposed if you redeem these shares within
the first or second year after purchase, based on the lower of
the shares' cost and current net asset value. Any shares
acquired by reinvestment of distributions will be redeemed
without a CDSC.
Shares purchased by certain investors investing $1 million or
more who have made arrangements with Putnam Mutual Funds and
whose dealer of record waived the commission as described below
are not subject to the CDSC. In determining whether a CDSC is
payable, the fund will first redeem shares not subject to any
charge. Putnam Mutual Funds receives the entire amount of any
CDSC you pay. See the SAI for more information about the CDSC.
Putnam Mutual Funds pays investment dealers of record commissions
on sales of class A shares of $1 million or more based on an
investor's cumulative purchases during the one-year period
beginning with the date of the initial purchase at net asset
value. Each subsequent one-year measuring period for these
purposes will begin with the first net asset value purchase
following the end of the prior period. Such commissions are paid
at the rate of 1.00% of the amount under $3 million, 0.50% of the
next $47 million and 0.25% thereafter.
CLASS B SHARES
Class B shares are sold without an initial sales charge, although
a CDSC will be imposed if you redeem shares within a specified
period after purchase, as shown in the table below. The
following types of shares may be redeemed without charge at any
time: (i) shares acquired by reinvestment of distributions and
(ii) shares otherwise exempt from the CDSC, as described in "How
to buy shares--General" below. For other shares, the amount of
the charge is determined as a percentage of the lesser of the
current market value or the cost of the shares being redeemed.
YEAR 1 2 3 4 5 6 7+
- -------------------------------------------------------------
CHARGE 5% 4% 3% 3% 2% 1% 0%
In determining whether a CDSC is payable on any redemption, the
funds will first redeem shares not subject to any charge, and
then shares held longest during the CDSC period. For this
purpose, the amount of any increase in a share's value above its
initial purchase price is not regarded as a share exempt from the
CDSC. Thus, when a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its
initial purchase price. For information on how sales charges are
calculated if you exchange your shares, see "How to exchange
shares." Putnam Mutual Funds receives the entire amount of any
CDSC you pay.
CLASS M SHARES
The public offering price of class M shares is the net asset
value plus a sales charge that varies depending on the size of
your purchase. The funds receive the net asset value. The sales
charge is allocated between your investment dealer and Putnam
Mutual Funds as shown in the following table, except when Putnam
Mutual Funds, at its discretion, allocates the entire amount to
your investment dealer.
<PAGE>
SALES CHARGE AMOUNT OF
AS A PERCENTAGE OF: SALES CHARGE
------------------- REALLOWED TO
NET DEALERS AS A
AMOUNT OF TRANSACTION AMOUNT OFFERING PERCENTAGE OF
AT OFFERING PRICE ($) INVESTED PRICE OFFERING PRICE
- -----------------------------------------------------------------
Under 50,000 3.36% 3.25% 3.00%
50,000 but under 100,000 2.30 2.25 2.00
100,000 but under 250,000 1.52 1.50 1.25
250,000 but under 500,000 1.01 1.00 1.00
500,000 and above NONE NONE NONE
GENERAL
YOU MAY BE ELIGIBLE TO BUY CLASS A SHARES AND CLASS M SHARES AT
REDUCED SALES CHARGES.
Consult your investment dealer or Putnam Mutual Funds for details
about Putnam's combined purchase privilege, cumulative quantity
discount, statement of intention, group sales plan, employee
benefit plans, and other plans. Descriptions are also included
in the order form and in the SAI.
The funds 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, 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 funds may sell shares at net asset value without
an initial sales charge or a CDSC in connection with the
acquisition by the funds of assets of an investment company or
personal holding company. The CDSC will be waived on redemptions
of shares arising out of the death or post-purchase disability of
a shareholder or settlor of a living trust account, and on
redemptions in connection with certain withdrawals from IRA or
other retirement plans. Up to 12% of the value of shares subject
to a systematic withdrawal plan may also be redeemed each year
without a CDSC. The SAI contains additional information about
purchasing the fund's shares at reduced sales charges.
Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
shares of the funds 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 funds will not issue certificates for your
shares unless you request them.
Putnam Mutual Funds will from time to time, at its expense,
provide additional promotional incentives or payments to dealers
that sell shares of the Putnam funds. These incentives or
payments may include payments for travel expenses, including
lodging, incurred in connection with trips taken by invited
registered representatives and their guests to locations within
and outside the United States for meetings or seminars of a
business nature. In some instances, these incentives or payments
may be offered only to certain dealers who have sold or may sell
significant amounts of shares. Certain dealers may not sell all
classes of shares.
THE MONEY MARKET FUND
The Money Market Fund continuously offers its shares at a price
of $1.00 per share. You can open an account with as little as
$1,000 and make additional investments at any time for as little
as $100. You can buy Money Market Fund shares three ways - by
mail, by wire, or through most investment dealers. There are no
sales charges on the sale of Money Market Fund shares.
Because the Money Market Fund seeks to be fully invested at all
times, investments must be in Same Day Funds to be accepted.
Same Day Funds are monies credited to the account of the Money
Market Fund's designated bank by the Federal Reserve Bank of
Boston. When payment in Same Day Funds is available to the Money
Market Fund prior to the close of regular trading on the New York
Stock Exchange, the Money Market Fund will accept the order to
purchase shares that day.
If you are considering redeeming shares or transferring shares to
another person shortly after purchase, you should pay for those
shares with wired Same Day Funds or a certified check to avoid
any delay in redemption or transfer. Otherwise, the Money Market
Fund may delay payment for shares until the purchase price of
those shares has been collected or, if you redeem by check or
telephone, until 15 calendar days after the purchase date.
After you make your initial investment in the Money Market Fund,
Putnam Investor Services will establish an Investing Account for
you on the Money Market Fund's records. This account is a
complete record of all transactions between you and the Money
Market Fund, and at all times shows the balance of shares you
own. The Money Market Fund will not issue share certificates.
BUYING SHARES BY MAIL. Complete the order form and send it to
Putnam Investor Services with your check, Federal Reserve Draft
or other negotiable bank draft drawn on a U.S. bank and payable
in U.S. dollars to the order of Putnam New York Tax Exempt Money
Market Fund. If you pay by check or draft, the Money Market
Fund's designated bank will make Same Day Funds available to the
Money Market Fund, and the Money Market Fund will accept the
order on the first business day after receipt of your check or
draft. If you pay by Federal Reserve Draft, the Money Market
Fund will accept the order the day it is received, provided it is
received before the close of regular trading on the New York
Stock Exchange.
BUYING SHARES BY WIRE. You may invest in the Money Market Fund
by bank wire transfer of Same Day Funds to the Money Market
Fund's designated bank. For wiring instructions, see the order
form.
Any commercial bank can transfer Same Day Funds by wire. Wired
Funds received by the Money Market Fund's designated bank by 3:00
p.m. Boston time are normally accepted for investment on the day
received. To be sure that a bank wire order is accepted on the
same day it is sent, your bank should wire funds as early in the
day as possible. Your bank may charge for sending Same Day Funds
on your behalf. The Money Market Fund's designated bank
presently does not charge you for receipt of wired Same Day
Funds, but reserves the right to charge you for this service.
BUYING SHARES THROUGH INVESTMENT DEALERS. You may, if you wish,
purchase shares of the Money Market Fund through investment
dealers, which may charge a fee for their services. Most
investment dealers have a sales agreement with Putnam Mutual
Funds and will be glad to accept your order. If you do not have
a dealer, Putnam Mutual Funds can refer you to one. Investment
dealers must follow the instructions in the order form.
DISTRIBUTION PLANS
THE INCOME AND OPPORTUNITIES FUNDS
CLASS A DISTRIBUTION PLANS. Each fund's class A plan provides
for payments by the fund to Putnam Mutual Funds at the annual
rate of up to 0.35% of such fund's average net assets
attributable to its class A shares. The Trustees currently limit
payments under the Income Fund's and the Opportunities Fund's
class A plans to the annual rate of 0.20% of such assets.
Putnam Mutual Funds makes quarterly payments to qualifying
dealers (including, for this purpose, certain financial
institutions) to compensate them for services provided in
connection with sales of class A shares and the maintenance of
shareholder accounts. The payments are based on the average net
asset value of class A shares attributable to shareholders for
whom the dealers are designated as the dealer of record.
This calculation excludes until one year after purchase shares
purchased at net asset value, known as "NAV shares," by
shareholders investing $1 million or more. NAV shares are not
subject to the one-year exclusion provision in cases where
certain shareholders who invested $1 million or more have made
arrangements with Putnam Mutual Funds and the dealer of record
waived the sales commission.
Putnam Mutual Funds makes the quarterly payments at the annual
rate of 0.15% of such average net asset value for class A shares
of the Income Fund and the Opportunities Fund outstanding as of
December 31, 1992 and July 13, 1992, respectively, and 0.20% of
the average net asset value of class A shares acquired after
these respective dates (including shares acquired through
reinvestment of distributions).
CLASS B AND CLASS M DISTRIBUTION PLANS. The class B and class M
plans provide for payments by the funds to Putnam Mutual Funds at
the annual rate of up to 1.00% of the funds' average net assets
attributable to class B shares and class M shares, as the case
may be. The Trustees currently limit payments under the Income
Fund's and Opportunities Fund's class B and class M plans to the
annual rates of 0.85% and 0.50% of such assets, respectively.
Although class B shares of each fund 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 of the Income Fund and Opportunities Fund. These
commissions are not paid on exchanges from other Putnam funds or
on sales to investors exempt from the CDSC.
The amount paid to dealers at the time of the sale of class M
shares of the Income Fund and Opportunities Fund is set forth
above under "How to buy shares -- The Income and Opportunities
Funds -- Class M Shares." In addition, in order to further
compensate dealers (including qualifying financial institutions)
for services provided in connection with sales of class B and
class M shares and the maintenance of shareholder accounts,
Putnam Mutual Funds makes quarterly payments to qualifying
dealers.
The payments are based on the average net asset value of class B
and class M shares attributable to shareholders for whom the
dealers are designated as the dealer of record, except for the
first year's service fees with respect to class B shares of the
Income Fund and Opportunities Fund, which are prepaid as
described above. Putnam Mutual Funds makes the payments at an
annual rate of 0.20% of such average net asset value of class B
and 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 of the
Income Fund and the Opportunities Fund, 0.20% of such average net
asset value of class M shares. For class M shares of the Income
Fund and the Opportunities Fund, the total annual payment to
dealers equals 0.40% of such average net asset value.
THE MONEY MARKET FUND
The purpose of the plan is to permit the Money Market Fund to
compensate Putnam Mutual Funds for services provided and expenses
incurred by it in promoting the sale of shares of the Money
Market Fund, reducing redemptions, or maintaining or improving
services provided to shareholders by Putnam Mutual Funds or
dealers. The plan provides for payments by the Money Market Fund
to Putnam Mutual Funds at the annual rate of up to 0.35% of the
Money Market Fund's average net assets. No payments under the
plan are currently authorized. No payments under the plan are
currently authorized. Should the Money Market Fund's Trustees
decide in the future to approve payments, shareholders will be
notified and this prospectus will be revised.
GENERAL (ALL FUNDS)
Payments under the plans are intended to compensate Putnam Mutual
Funds for services provided and expenses incurred by it as
principal underwriter of the funds' shares, including the
payments to dealers mentioned above. Putnam Mutual Funds may
suspend or modify such payments to dealers.
The payments are also subject to the continuation of the relevant
distribution plan, the terms of service agreements between
dealers and Putnam Mutual Funds, and any applicable limits
imposed by the National Association of Securities Dealers, Inc.
HOW TO SELL SHARES
THE INCOME AND OPPORTUNITIES FUNDS
You can sell your shares to each fund any day the New York Stock
Exchange is open, either directly to the fund or through your
investment dealer. A fund will only redeem shares for which it
has received payment.
SELLING SHARES DIRECTLY TO A FUND. Send a signed letter of
instruction or stock power form to Putnam Investor Services,
along with any certificates that represent shares you want to
sell. The price you will receive is the next net asset value
calculated after the fund receives your request in proper form
less any applicable CDSC. In order to receive that day's net
asset value, Putnam Investor Services must receive your request
before the close of regular trading on the New York Stock
Exchange.
If you sell shares having a net asset value of $100,000 or more,
the signatures of registered owners or their legal
representatives must be guaranteed by a bank, broker-dealer or
certain other financial institutions. See the SAI for more
information about where to obtain a signature guarantee. Stock
power forms are available from your investment dealer, Putnam
Investor Services and many commercial banks.
If you want your redemption proceeds sent to an address other
than your address as it appears on Putnam's records, a signature
guarantee is required. Putnam Investor Services usually requires
additional documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or a surviving joint owner.
Contact Putnam Investor Services for details.
EACH FUND GENERALLY SENDS YOU PAYMENT FOR YOUR SHARES THE
BUSINESS DAY AFTER YOUR REQUEST IS RECEIVED. Under unusual
circumstances, the funds may suspend redemptions, or postpone
payment for more than seven days, as permitted by federal
securities law.
You may use Putnam's Telephone Redemption Privilege to redeem
shares valued up to $100,000 from your account unless you have
notified Putnam Investor Services of an address change within the
preceding 15 days. Unless an investor indicates otherwise on the
account application, Putnam Investor Services will be authorized
to act upon redemption and transfer instructions received by
telephone from a shareholder, or any person claiming to act as
his or her representative, who can provide Putnam Investor
Services with his or her account registration and address as it
appears on Putnam Investor Services' records.
Putnam Investor Services will employ these and other reasonable
procedures to confirm that instructions communicated by telephone
are genuine; if it fails to employ reasonable procedures, Putnam
Investor Services may be liable for any losses due to
unauthorized or fraudulent instructions. For information,
consult Putnam Investor Services.
During periods of unusual market changes and shareholder
activity, you may experience delays in contacting Putnam Investor
Services by telephone. In this event, you may wish to submit a
written redemption request, as described above, or contact your
investment dealer, as described below. The Telephone Redemption
Privilege is not available if you were issued certificates for
shares that remain outstanding. The Telephone Redemption
Privilege may be modified or terminated without notice.
SELLING SHARES THROUGH YOUR INVESTMENT DEALER. Your dealer must
receive your request before the close of regular trading on the
New York Stock Exchange to receive that day's net asset value.
Your dealer will be responsible for furnishing all necessary
documentation to Putnam Investor Services, and may charge you for
its services.
THE MONEY MARKET FUND
You can sell your shares to the Money Market Fund any day the New
York Stock Exchange is open, by check, by telephone, by mail or
through your investment dealer. The Money Market Fund must
receive your properly completed application before you may sell
shares; certain methods require additional documentation (see
below). To enable shareholders to earn daily dividends as long
as possible, the Money Market Fund has arranged the following
methods of selling shares:
SELLING SHARES BY CHECK. If you would like to use the Money
Market Fund's check-writing service, mark the proper box on the
order form and complete the signature card and, if applicable,
the resolution. Upon receiving the properly completed order
form, signature card, and resolution, the Money Market Fund will
send you checks which may be made payable to the order of any
person in the amount of $500 or more. When a check is presented
for payment, a sufficient number of full and fractional shares in
your account will be redeemed to cover the amount of the check.
Shareholders utilizing fund checks are subject to the bank's
rules governing checking accounts. There is currently no charge
to shareholders for the use of checks. You should make sure that
there are sufficient shares in the account to cover the amount of
any check drawn, since the net asset value of shares will
fluctuate. If insufficient shares are in the account, the check
will be returned and no shares will be redeemed. Because
dividends declared on shares held in your account, prior
redemptions, and possible changes in net asset value may cause
the value of your account to change, it is impossible to
determine in advance your account's total value. Accordingly,
you should not write a check for the entire value of your account
or close your account by writing a check. The check-writing
service is not available for tax-qualified retirement plans.
SELLING SHARES BY TELEPHONE. If you would like to sell Money
Market Fund shares by telephone with proceeds directed to your
bank account, please mark the proper box on the order form. You
may call toll-free 1-800-225-1581. On the following business
day, the amounts withdrawn from your account will either be
mailed by check or wired in Same Day Funds to the bank account
designated on your application. (To wire proceeds, the amount
must be $1,000 or more and the designated bank must be a
commercial bank within the United States.) You may change a
designated bank account by sending a written request to Putnam
Investor Services with your signature guaranteed by a bank,
broker-dealer or certain other financial institutions. See the
SAI for more information about how to obtain a signature
guarantee.
You may also use Putnam's Telephone Redemption Privilege to
redeem shares valued up to $100,000 from your account unless you
have notified Putnam Investor Services of an address change
within the preceding 15 days. Unless an investor indicates
otherwise on the Account Application, Putnam Investor Services
will be authorized to act upon redemption and transfer
instructions received by telephone from a shareholder, or any
person claiming to act as his or her representative, who can
provide Putnam Investor Services with his or her account
registration and address as it appears on Putnam Investor
Services' records. Putnam Investor Services will employ these and
other reasonable procedures to confirm that instructions
communicated by telephone are genuine; if it fails to employ
reasonable procedures, Putnam Investor Services may be liable for
any losses due to unauthorized or fraudulent instructions. For
information, consult Putnam Investor Services. During periods of
unusual market changes and shareholder activity, you may
experience delays in contacting Putnam Investor Services by
telephone in which case you may wish to submit a written
redemption request, as described below, or contact your
investment dealer. The Telephone Redemption Privilege may be
modified or terminated without notice.
SELLING SHARES BY MAIL. You may also sell shares of the Money
Market Fund by sending a written withdrawal request to: Putnam
Investor Services, Mailing address: P.O. Box 41203, Providence,
RI 02940-1203. If you sell shares having a net asset value of
$100,000 or more, the signatures of registered owners or their
legal representatives must be guaranteed by a bank, broker-dealer
or certain other financial institutions. See the SAI for more
information about where to obtain a signature guarantee.
Putnam Investor Services may require additional documentation
from shareholders which are corporations, partnerships, agents,
fiduciaries or surviving joint owners. Corporations,
partnerships, agents, trusts and fiduciary accounts must submit a
completed resolution in proper form before selling shares by
telephone or check. Resolution forms are available from Putnam
Investor Services. If you are currently a shareholder and did
not request the check-writing service or telephone redemption
privilege on your initial order form, you must first complete and
return an authorization form, available from Putnam Investor
Services. A shareholder may revoke authorization for the check-
writing service or telephone redemption by written notice at any
time, effective when Putnam Investor Services receives such
notice.
The Money Market Fund reserves the right to terminate or modify
the terms of the check-writing service or telephone redemption
privilege, or to charge shareholders for the use of these
services at any time.
THE MONEY MARKET FUND GENERALLY SENDS YOU PAYMENT FOR YOUR SHARES
THE BUSINESS DAY AFTER YOUR REQUEST IS RECEIVED. Under unusual
circumstances, the fund may suspend repurchases, or postpone
payment for more than seven days, as permitted by federal
securities law.
HOW TO EXCHANGE SHARES
Shareholders of the Money Market Fund who received their shares
in exchange for shares of another Putnam fund with a sales
charge, and shareholders of the Income and Opportunities Funds,
can exchange their shares for shares of other Putnam funds at net
asset value beginning 15 days after purchase. Other shareholders
of the Money Market Fund may need to pay a sales charge, which
varies depending on the fund to which they exchange and the
amount exchanged. Shareholders of the Money Market Fund
exchanging into funds with more than one class of shares may
exchange their shares only for class A shares of the other fund.
Shareholders of the Income and Opportunities Funds may exchange
their shares only for shares of the same class. Not all Putnam
funds offer all classes of shares. If you exchange shares
subject to a CDSC, the transaction will not be subject to the
CDSC. However, when you redeem the shares acquired through the
exchange, the redemption may be subject to the CDSC, depending
upon when you originally purchased the shares. The CDSC will be
computed using the schedule of any fund into or from which you
have exchanged your shares that would result in your paying the
highest CDSC applicable to your class of shares. For purposes of
computing the CDSC, the length of time you have owned your shares
will be measured from the date of original purchase and will not
be affected by any exchange.
To exchange your shares, simply complete an Exchange
Authorization Form and send it to Putnam Investor Services. The
form is available from Putnam Investor Services. For federal
income tax purposes, an exchange is treated as a sale of shares
and generally results in a capital gain or loss. A Telephone
Exchange Privilege is currently available for amounts up to
$500,000. Putnam Investor Services' procedures for telephonic
transactions are described above under "How to sell shares." The
Telephone Exchange Privilege is not available if you were issued
certificates for shares that remain outstanding. Ask your
investment dealer or Putnam Investor Services for prospectuses of
other Putnam funds. Shares of certain Putnam funds are not
available to residents of all states.
The exchange privilege is not intended as a vehicle for short-
term trading. Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity and
in other circumstances where Putnam Management or the Trustees
believe doing so would be in the best interests of a fund, each
fund reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any
exchange. Shareholders would be notified of any such action to
the extent required by law. Consult Putnam Investor Services
before requesting an exchange. See the SAI to find out more
about the exchange privilege.
HOW EACH FUND VALUES ITS SHARES
GENERAL. The Money Market Fund calculates the net asset value of
a share, and the Income and Opportunities Funds calculate the net
asset value of a share of each class, by dividing the total value
of its assets, less liabilities, by the number of shares
outstanding. Shares are valued as of the close of regular
trading on the New York Stock Exchange each day the Exchange is
open.
THE INCOME AND OPPORTUNITIES FUNDS. New York tax-exempt
securities are valued on the basis of valuations provided by a
pricing service approved by the Trustees, which uses information
with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities and various
relationships between securities in determining value.
Each fund believes that reliable market quotations generally are
not readily available for purposes of valuing its portfolio
securities. As a result, it is likely that most of the
valuations provided by a pricing service will be based upon fair
value determined on the basis of the factors listed above.
Taxable obligations 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.
THE MONEY MARKET FUND. The Money Market Fund values its
portfolio investments at amortized cost according to Rule 2a-7 of
the 1940 Act. The amortized cost of an instrument is determined
by valuing it at cost originally and thereafter amortizing any
discount or premium from its face value at a constant rate until
maturity.
HOW THE FUNDS MAKE DISTRIBUTIONS TO SHAREHOLDERS; TAX INFORMATION
THE INCOME AND OPPORTUNITIES FUNDS. Each 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 a fund, less accrued expenses,
computed in each case since the most recent determination of net
asset value. Normally, the Income and Opportunities Funds pay
distributions of net interest income monthly. A fund will
distribute at least annually all net realized capital gains, if
any, after applying any available capital loss carryovers.
Distributions paid on class A shares will generally be greater
than those paid on class B shares and class M shares because
expenses attributable to class B shares 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.
THE MONEY MARKET FUND. The Money Market Fund determines its net
income once each day the New York Stock Exchange is open, as of
the close of regular trading on the Exchange. Each determination
of the Money Market Fund's net income includes (i) all accrued
interest on portfolio investments of the fund, (ii) plus or minus
all realized and unrealized gains and losses on the fund's
investments, (iii) less all accrued expenses of the fund. (The
Money Market Fund will not have unrealized gains or losses so
long as it values its investments by the amortized cost method.)
All of the net income of the Money Market Fund is declared each
day that the Money Market Fund is open for business as a dividend
to shareholders of record at the time of each declaration.
Shareholders begin earning dividends on the day after the Money
Market Fund accepts their orders. Each month's dividends will be
paid and reinvested on the tenth business day of the following
month. Since the net income of the fund is declared as a
dividend each time it is determined, the net asset value per
share of the fund remains at $1.00 immediately after each
determination and dividend declaration.
<PAGE>
GENERAL. You can choose from three distribution options:
- - (all funds) Reinvest all distributions in additional fund
shares without a sales charge;
- - (Income and Opportunities Funds only) Receive
distributions from net interest income in cash while
reinvesting capital gains distributions in additional
shares of the fund without a sales charge; or
- - (all funds) 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 distribution is paid. You will receive
a statement confirming reinvestment of distributions in
additional shares (or in shares of other Putnam funds for
Dividends Plus accounts) promptly following the quarter in which
the reinvestment occurs.
If a check representing a fund distribution is not cashed within
a specified period, Putnam Investor Services will notify you that
you have the option of requesting another check or reinvesting
the distribution in that fund or in another Putnam fund. If
Putnam Investor Services does not receive your election, the
distribution will be reinvested in your 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.
Each fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements necessary for it to be relieved of federal taxes on
income and gains it distributes to shareholders. Each fund will
distribute substantially all of its ordinary income and capital
gain net income on a current basis.
Fund distributions designated as "exempt-interest dividends" are
not generally subject to federal income tax. However, if you
receive social security or railroad retirement benefits, you
should consult your tax adviser to determine what effect, if any,
an investment in a fund may have on the taxation of your
benefits. In addition, an investment in a fund may result in
liability for federal alternative minimum tax and for state and
local taxes, both for individual and corporate shareholders. See
"New York tax-exempt securities--Alternative Minimum Tax". To
the extent that exempt-interest dividends are derived from
interest on New York tax-exempt securities, such distributions
will also be exempt from New York State and New York City
personal income taxes. However, an investment in a fund may
result in liability for state and/or local taxes for individual
shareholders subject to taxation by states other than New York
State or cities other than New York City because the exemption
from New York State and New York City personal income taxes does
not prevent such other jurisdictions from taxing individual
shareholders on dividends received from a fund. In addition,
distributions derived from interest on tax exempt securities
other than New York tax-exempt securities will be treated as
taxable ordinary income for purposes of the New York State and
New York City personal income taxes.
Exempt-interest dividends, including those derived from New York
tax-exempt securities, are included in a corporation's net
investment income for purposes of calculating such corporation's
New York State corporate franchise tax and New York City general
corporation tax and will be subject to such taxes to the extent
that a corporation's net investment income is allocated to New
York State and/or New York City.
All or a portion of interest on indebtedness incurred or
continued to purchase or carry a fund's shares generally will not
be deductible for federal or New York State and New York City
personal income tax purposes.
For federal income tax purposes, all fund distributions other
than exempt-interest dividends will be taxable to you as ordinary
income, except that any distributions of net long-term capital
gains will be taxable to you as such, regardless of how long you
have held your shares. For New York State and City personal
income tax purposes, distributions of net long-term gains will be
taxable at the same rates as ordinary income. Distributions will
be taxable as described above whether received in cash or in
shares through the reinvestment of distributions.
The funds may at times purchase New York tax-exempt securities at
a discount from the price at which they were initially issued.
For federal income tax purposes, some or all of the market
discount will be included in the funds' ordinary income and will
be taxable to you as such when it is distributed to you.
Early in each year each fund will notify you of the amount and
tax status of distributions paid to you by that fund for the
preceding year.
The foregoing is a summary of certain federal, New York State and
New York City income tax consequences of investing in a fund.
You should consult your tax adviser to determine the precise
effect of an investment in a fund on your particular tax
situation (including possible liability for federal alternative
minimum tax and state and local taxes).
ABOUT PUTNAM INVESTMENTS, INC.
PUTNAM MANAGEMENT HAS BEEN MANAGING MUTUAL FUNDS SINCE 1937.
Putnam Mutual Funds is the principal underwriter of the funds and
of other Putnam funds. Putnam Fiduciary Trust Company is the
funds' custodian. Putnam Investor Services, a division of Putnam
Fiduciary Trust Company, is the funds' investor servicing and
transfer agent.
Putnam Management, Putnam Mutual Funds, and Putnam Fiduciary
Trust Company are subsidiaries of Putnam Investments, Inc., which
is wholly owned by Marsh & McLennan Companies, Inc., a publicly-
owned holding company whose principal businesses are
international insurance and reinsurance brokerage, employee
benefit consulting and investment management.
<PAGE>
APPENDIX
SECURITIES RATINGS
THE FOLLOWING RATING SERVICES DESCRIBE RATED SECURITIES AS
FOLLOWS:
MOODY'S INVESTORS SERVICE, INC.
BONDS
Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt-edged". Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high-grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than
the Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
NOTES
MIG 1/VMIG 1 -- This designation denotes best quality. There is
present strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the
market for refinancing.
MIG 2/VMIG 2 -- This designation denotes high quality. Margins
of protection are ample although not so large as in the preceding
group.
COMMERCIAL PAPER
Issuers rated PRIME-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced
by the following characteristics:
- -- Leading market positions in well established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
- -- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- -- Well-established access to a range of financial markets
and assured sources of alternate liquidity.
Issuers rated PRIME-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the characteristics
cited above to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity
is maintained.
STANDARD & POOR'S
BONDS
AAA -- Debt rated `AAA' has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal
is extremely strong.
AA -- Debt rated `AA' has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues only
in small degree.
A -- Debt rated `A' has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB -- Debt rated `BBB' is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
BB -- Debt rated `BB' has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The `BB' rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied `BBB-' rating.
B -- Debt rated `B' has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal. The `B' rating category is also
used for debt subordinated to senior debt that is assigned an
actual or implied `BB' or `BB-' rating.
NOTES
SP-1 -- Strong capacity to pay principal and interest. Issues
determined to possess very strong characteristics are given a
plus sign (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest, with
some vulnerability to adverse financial and economic changes over
the term of the notes.
COMMERCIAL PAPER
A-1 -- This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted with
a plus sign (+) designation.
A-2 -- Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of
safety is not as high as for issues designated `A-1'.
<PAGE>
PUTNAM NEW YORK TAX EXEMPT INCOME FUND
PUTNAM NEW YORK TAX EXEMPT OPPORTUNITIES FUND
PUTNAM NEW YORK TAX EXEMPT MONEY MARKET FUND
One Post Office Square
Boston, MA 02109
FUND INFORMATION:
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
INVESTOR SERVICING AGENT
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
CUSTODIAN
Putnam Fiduciary Trust Company
One Post Office Square
Boston, MA 02109
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
Putnam New York Tax Exempt Income Trust and
Putnam New York Tax Exempt Money Market Fund
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
<PAGE>
Putnam New York Tax Exempt Opportunities Fund
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
PUTNAMINVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
<PAGE>
PUTNAM NEW YORK TAX EXEMPT INCOME FUND
A SERIES OF
PUTNAM NEW YORK TAX EXEMPT INCOME TRUST (THE "TRUST")
PUTNAM NEW YORK TAX EXEMPT OPPORTUNITIES FUND
PUTNAM NEW YORK TAX EXEMPT MONEY MARKET FUND
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
FEBRUARY 1, 1996
, as revised August 2, 1996
This SAI is not a prospectus and is only authorized for
distribution when accompanied or preceded by the prospectus of
Putnam New York Tax Exempt Income Fund (the "Income Fund"),
Putnam New York Tax Exempt Opportunities Fund (the "Opportunities
Fund") and Putnam New York Tax Exempt Money Market Fund (the
"Money Market Fund") (collectively the "funds") dated February 1,
1996, as revised from time to time. This SAI contains
information which may be useful to investors but which is not
included in the prospectus. If a fund has more than one form of
current prospectus, each reference to the prospectus in this SAI
shall include all of the funds' prospectuses, unless otherwise
noted. The SAI should be read together with the applicable
prospectus. Investors may obtain a free copy of the applicable
prospectus from Putnam Investor Services, Mailing address: P.O.
Box 41203, Providence, RI 02940-1203.
Part I of this SAI contains specific information about the funds.
Part II includes information about the funds and the other Putnam
funds.
<PAGE>
TABLE OF CONTENTS
PART I
NEW YORK TAX-EXEMPT SECURITIES . . . . . . . . . . . . . . . . . . . . .I-3
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . .I-5
CHARGES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . .I- 13
INVESTMENT PERFORMANCE . . . . . . . . . . . . . . . . . . . . .I- 22
AMORTIZED COST VALUATION AND DAILY DIVIDENDS (THE MONEY
MARKET FUND ONLY). . . . . . . . . . . . . . . . . . . .I- 24
EQUIVALENT YIELDS: TAX-EXEMPT VERSUS TAXABLE SECURITIES . . . .I- 26
ADDITIONAL OFFICERS. . . . . . . . . . . . . . . . . . . . . . .I- 29
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . . . .I- 29
PART II
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . . . . . II-1
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-25
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . II- 30
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . .II-40
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-42
DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . . . . . .II-54
INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-55
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . .II-61
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . .II-61
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . .II-61
STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . . . . .II-62
COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . . . . .II-63
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-67
<PAGE>
SAI
PART I
NEW YORK TAX-EXEMPT SECURITIES
GENERAL DESCRIPTION. As used in the prospectus and in this SAI,
the term "New York tax-exempt securities" includes debt
obligations issued by the State of New York, 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 and New
York State and City personal 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 New York tax-exempt securities
may be issued include the refunding of outstanding obligations
and the payment of general operating expenses. Short-term New
York 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 New York tax-exempt securities if the interest paid thereon
is, in the opinion of bond counsel, exempt from federal income
tax and New York State and City personal 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 New York tax-exempt
securities, although the current federal tax laws place
substantial limitations on the size of such issues. New York
tax-exempt securities also include short-term discount notes
(tax-exempt commercial paper), which are promissory notes issued
by municipalities to enhance their cash flows.
PARTICIPATION INTERESTS. The Money Market Fund may invest in New
York tax-exempt securities either by purchasing them directly or
by purchasing certificates of accrual or similar instruments
evidencing direct ownership of interest payments or principal
payments, or both, on New York tax-exempt securities, provided
that, in the opinion of counsel to the initial seller of each
such certificate or instrument, any discount accruing on the
certificate or instrument that is purchased at a yield not
greater than the coupon rate of interest on the related New York
tax-exempt securities will be exempt from federal income tax to
the same extent as interest on the New York tax-exempt
securities. The Money Market Fund may also invest in New York
tax-exempt securities by purchasing from banks participation
interests of all or part of specific holdings of New York
tax-exempt securities. These participations may be backed in
whole or in part by an irrevocable letter of credit or guarantee
of the selling bank. The selling bank may receive a fee from the
Money Market Fund in connection with the arrangement. The Money
Market Fund will not purchase such participation interests unless
it receives an opinion of counsel or a ruling of the Internal
Revenue Service that interest earned by it on New York tax-exempt
securities in which it holds such participation interests is
exempt from federal income tax. The Money Market Fund does not
expect to invest more than 5% of its assets in participation
interests.
STAND-BY COMMITMENTS. When a fund purchases New York tax-exempt
securities, it has the authority to acquire stand-by commitments
from banks and broker-dealers with respect to those New York tax-
exempt securities. A stand-by commitment may be considered a
security independent of the New York 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 New York tax-exempt security to a third
party at any time. The funds expect that stand-by commitments
generally will be available without the payment of direct or
indirect consideration. The funds do not expect to assign any
value to stand-by commitments.
YIELDS. The yields on New York 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 New York 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. ("Moody's") and Standard & Poor's ("S&P")
represent their opinions as to the quality of the New York 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, New York 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 factors such as changes in the overall demand or supply of
various types of New York tax-exempt securities or changes in the
investment objectives of investors. Subsequent to purchase by a
fund, an issue of New York 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 that 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. None of the funds currently intends to
invest in so-called "moral obligation" bonds, where repayment is
backed by a moral commitment of an entity other than the issuer,
unless the credit of the issuer itself, without regard to the
"moral obligation," meets the investment criteria established for
investments by that fund.
ADDITIONAL RISKS. Securities in which the funds may invest,
including New York tax-exempt securities, are subject to the
provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors, such as the federal Bankruptcy
Code (including special provisions related to municipalities and
other public entities), and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints
upon enforcement of such obligations. There is also the
possibility that as a result of litigation or other conditions
the power, ability or willingness of issuers to meet their
obligations for the payment of interest and principal on their
New York 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 industrial development bonds and private
activity bonds. Such limits may affect the future supply and
yields of these types of New York 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 New York tax-exempt securities for investment by a fund and
the value of the fund's portfolio could be materially affected by
such changes in law, the Trustees would reevaluate its investment
objective and policies and consider changes in the structure of
the fund or its dissolution.
INVESTMENT RESTRICTIONS
AS FUNDAMENTAL INVESTMENT RESTRICTIONS, WHICH MAY NOT BE CHANGED
WITHOUT A VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES, THE RELEVANT 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.
(2a) (the Income and Opportunities Funds only) Pledge,
hypothecate, mortgage, or otherwise encumber its assets in excess
of 10% of its total assets (taken at the lower of cost or current
value) in connection with borrowings permitted by restriction 1
above (relating to permitted bank borrowings).
(2b) (the Money Market Fund only) Pledge, hypothecate, mortgage,
or otherwise encumber its assets in excess of 10% of its total
assets (taken at the lower of cost of current value) and then
only to secure borrowings by restriction 1 above (relating to
permitted bank borrowings). For the purposes of this
restriction, collateral arrangements with respect to margin for
financial futures contracts or options are not deemed to be a
pledge of assets.
(3a) (the Income and Money Market Funds only) 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.
(3b) (the Opportunities Fund only) Purchase securities on
margin, except such short-term credits as may be necessary for
the clearance of purchases and sales of securities, and except
that it may make margin payments in connection with futures
contracts and options.
(4a) (the Income and Money Market Funds only) 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.
(4b) (the Opportunities Fund only) Make short sales of
securities or maintain a short sale 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 at
least 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.
(6a) (the Income and Money Market Funds only) Purchase or sell
real estate, although it may purchase securities which are
secured by or represent interests in real estate.
(6b) (the Opportunities Fund only) Purchase or sell real estate,
although it may purchase securities of issuers which deal in real
estate, securities which are secured by interests in real estate,
and securities representing interests in real estate, and it may
acquire and dispose of real estate or interests in real estate
acquired through the exercise of its rights as a holder of debt
obligations secured by real estate or interests therein.
(7a) (the Income and Money Market Funds only) Purchase or sell
commodities or commodity contracts except financial futures
contracts and related options.
(7b) (the Opportunities Fund only) Purchase or sell commodities
or commodity contracts, except that the fund may purchase and
sell financial futures contracts and related options.
(8a) (the Income and Money Market Funds only) Make loans, except
by purchase of debt obligations in which the fund may invest
consistent with its investment policies, and through repurchase
agreements.
(8b) (the Opportunities Fund only) Make loans, except by
purchase of debt obligations in which the fund may invest
consistent with its investment policies, or by entering into
repurchase agreements with respect to not more than 25% of its
total assets (taken at current value) or through the lending of
its portfolio securities with respect to not more than 25% of its
assets.
(9a) (the Income Fund and the Money Market Fund) 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%.
(9b) (the Opportunities Fund) 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 shares or securities of
that issuer together own more than 5%.
(10a) (the Income and Money Market Funds only) 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 or to New York tax-
exempt securities.
(10b) (the Opportunities Fund only) With respect to 50% of its
total assets, 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 or principal by
the U.S. government or its agencies or instrumentalities and New
York tax-exempt securities.
(11a) (the Income and Money Market Funds only) 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.
(11b) (the Opportunities Fund only) Purchase securities the
disposition of which is restricted under federal securities laws,
if, as a result, such investments would exceed 15% of the value
of the fund's current 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.
(12a) (the Income and Money Market Funds only) Purchase
securities (other than securities of the U.S. government, its
agencies or instrumentalities or New York tax-exempt securities,
except obligations backed only by the assets and revenues of
nongovernmental issuers) if, as a result of such purchase, more
than 25% of the fund's total assets would be invested in any one
industry.
(12b) (the Opportunities Fund only) Purchase securities (other
than securities of the U.S. government, its agencies or
instrumentalities or New York tax-exempt securities, except
obligations backed only by the assets and revenues of
nongovernmental issuers) 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.
(15) (the Opportunities Fund only) Make investments for
the purpose of gaining control of a company's management.
IT IS CONTRARY TO THE PRESENT POLICY OF EACH OF THE FUNDS ,
WHICH POLICY MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL, TO:
(1a) (the Income and Money Market Funds only) 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.
(1b) (the Opportunities Fund only) Invest in the
securities of other registered open-end investment companies,
except by purchases in the open market including only customary
brokers' commissions, and except as they may be acquired as part
of a merger or consolidation or acquisition of assets.
(2a) (the Income and Money Market Funds only) Engage in puts,
calls, straddles, spreads or any combination thereof, except that
a fund may buy and sell call and put options (and any combination
thereof) on securities, on financial futures contracts and on
securities indices; in connection with the purchase of fixed-
income securities, however, a fund may 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. (Each fund's investment policies
do not currently permit it to exercise warrants or rights with
respect to equity securities.)
(2b) (the Opportunities Fund only) Invest in warrants (other than
warrants acquired by the fund as part of a unit or attached to
securities at the time of purchase).
(3a) (the Income and Money Market Fund only) 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 New York tax-
exempt securities.
(3b) (the Opportunities Fund only) Invest in securities of any
issuer if the party responsible for payment, together with any
predecessors, has been in operation for less than three
consecutive 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 instrumentalities and New York tax-exempt securities.
(4a) (the Income and Money Market Fund only) Buy or sell oil,
gas or other mineral leases, rights or royalty contracts.
(4b) (the Opportunities Fund only) Buy or sell oil, gas or other
mineral leases, rights or royalty contracts, although it may
purchase securities of issuers which deal in, represent interests
in, or are secured by interests in such leases, rights, or
contracts, and it may acquire or dispose of such leases, rights,
or contracts acquired through the exercise of its rights as a
holder of debt obligations secured thereby.
(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 (or
the person designated by the Trustees 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 be invested in securities described in (a), (b) and (c)
above.
The Money Market Fund has no present intention of engaging in
options or futures transactions and the Income Fund has no
present intention of selling options, as addressed in fundamental
investment restrictions 2b, 3a and 7a and non-fundamental
investment restriction 2a.
At a meeting scheduled to be held on September 5, 1996, the
Trustees are recommending that shareholders approve a number of
changes to the Opportunities Fund's fundamental investment
restrictions. If any or all of these proposals do not receive
sufficient votes for approval, this SAI will be revised as
appropriate. If the shareholders approve the changes, the
following fundamental and non-fundamental restrictions will
replace the restrictions for the Opportunities Fund listed above.
AS FUNDAMENTAL INVESTMENT RESTRICTIONS, WHICH MAY NOT BE CHANGED
WITHOUT A VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES, THE OPPORTUNITIES 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) 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.
(3) Purchase or sell real estate, although it may purchase
securities of issuers which deal in real estate, securities which
are secured by interests in real estate, and securities
representing interests in real estate, and it may acquire and
dispose of real estate or interests in real estate acquired
through the exercise of its rights as a holder of debt
obligations secured by real estate or interests therein.
(4) Purchase or sell commodities or commodity contracts, except
that the fund may purchase and sell financial futures contracts
and options and may enter into foreign exchange contracts and
other financial transactions not involving physical commodities.
(5) Make loans, except by purchase of debt obligations in which
the fund may invest consistent with its investment policies, by
entering into repurchase agreements, or by lending its portfolio
securities.
(6) With respect to 50% of its total assets, invest in the
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 or principal by the U.S.
government or its agencies or instrumentalities.
(7) With respect to 50% of its total assets, acquire more than
10% of the outstanding voting securities of any issuer.
(8) Purchase securities (other than securities of the U.S.
government, its agencies or instrumentalities or New York tax-
exempt securities, except obligations backed only by the assets
and revenues of nongovernmental issuers) if, as a result of such
purchase, more than 25% of the fund's total assets would be
invested in any one industry.
(9) Issue any class of securities which is senior to the fund's
shares of beneficial interest, except for permitted borrowings.
IT IS CONTRARY TO THE PRESENT POLICY OF THE OPPORTUNITIES FUND,
WHICH POLICY MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL, TO:
(1) Invest in (a) securities which at the time of such
investment are not readily marketable, (b) securities restricted
as to resale (excluding securities determined by the Trustees (or
the person designated by the Trustees 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 be invested in securities described in (a), (b) and (c)
above.
(2) Invest in warrants (other than warrants acquired by the fund
as part of a unit or attached to securities at the time of
purchase).
(3) Pledge, hypothecate, mortgage, or otherwise encumber its
assets in excess of 33 1/3% of its total assets (taken at cost)
in connection with permitted borrowings.
(4) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts, although it may purchase securities of issuers
which deal in, represent interests in, or are secured by
interests in such leases, rights, or contracts, and it may
acquire or dispose of such leases, rights, or contracts acquired
through the exercise of its rights as a holder of debt
obligations secured thereby.
(5) Invest in the securities of other registered open-end
investment companies, except by purchases in the open market
including only customary brokers' commissions, and except as they
may be acquired as part of a merger or consolidation or
acquisition of assets.
(6) 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.
(7) 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%
of such securities.
(8) Invest in securities of any issuer if the party responsible
for payment, together with any predecessors, has been in
operation for less than three consecutive 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 instrumentalities and New York tax-
exempt securities.
(9) Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of purchases and
sales of securities, and except that it may make margin payments
in connection with financial futures contracts or options.
-----------------
GENERAL
Although certain of each fund's fundamental investment
restrictions permit the fund to borrow money to a limited extent,
the funds do not currently intend to do so and did not do so last
year.
-----------------
All percentage limitations on investments will apply at the time
of the making of an investment and shall not be considered
violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.
The Investment Company Act of 1940 provides that a "vote of a
majority of the outstanding voting securities" of a fund means
the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of that fund, or (2) 67% or more of the shares
present at a meeting if more than 50% of the outstanding shares
of that fund are represented at the meeting in person or by
proxy.
CHARGES AND EXPENSES
MANAGEMENT FEES
Under a Management Contract (dated as indicated below),
each fund pays a quarterly fee to Putnam Management based on the
average net assets of that fund, as determined at the close of
each business day during the quarter, at the following rates
expressed as a percentage of each fund's average net assets:
FUND NAME CONTRACT DATE RATES
Income Fund 07/11/91 0.60% of the first $500
million of average net
assets, 0.50% of the
next $500 million,
0.45% of the next $500
million and 0.40% of
any amount over $1.5
billion.
Opportunities Fund 01/01/95 0.60% of the first $500
million of average net
assets, 0.50% of the
next $500 million,
0.45% of the next $500
million, 0.40% of the
next $5 billion, 0.375%
of the next $5 billion,
0.355% of the next $5
billion, 0.340% of the
next $5 billion and
0.330% of any amount
thereafter.
Prior to January 1,
1995: 0.65% of the
first $500 million of
average net assets,
0.55% of the next $500
million, 0.50% of the
next $500 million and
0.45% of any amount
over $1.5 billion.
Money Market Fund 07/09/92 0.45% of the first $500
million of average net
assets, 0.35% of the
next $500 million,
0.30% of the next $500
million and 0.25% of
any amount over $1.5
billion.
For the past three fiscal years, pursuant to its Management
Contract, each fund incurred the following fees:
FISCAL MANAGEMENT
YEAR FEE PAID
------ ----------
Income Fund
1995 $10,485,165
1994 $11,066,326
1993 $10,741,863
Opportunities Fund
1995 $1,140,841
1994 $1,161,243
1993 $903,366
Money Market Fund
1995 $199,969
1994 $225,863
1993 $241,921
BROKERAGE COMMISSIONS
Most purchases and sales of portfolio investments are with
underwriters of, or dealers in, New York tax-exempt securities
and other tax-exempt securities, acting as principal.
Accordingly, the funds will not ordinarily pay significant
brokerage commissions. The following table shows brokerage
commissions paid during the fiscal period indicated.
FISCAL BROKERAGE
YEAR COMMISSIONS
------ ------------
Income Fund
1995 $563,069
1994 $475,165
1993 $589,005
<PAGE>
Opportunities Fund
1995 $12,844
1994 $0
1993 $0
Money Market Fund
1995 $0
1994 $0
1993 $0
The following table shows transactions placed with brokers and
dealers during the most recent fiscal year to recognize research,
statistical and quotation services Putnam Management considered
to be particularly useful to it and its affiliates.
DOLLAR VALUE PERCENT OF
OF THESE TOTAL AMOUNT OF
TRANSACTIONS TRANSACTIONS COMMISSIONS
------------ ------------ -----------
Income Fund $12,788,625 0.80% $76,250
ADMINISTRATIVE EXPENSE REIMBURSEMENT
Each fund reimbursed Putnam Management in the following amounts
for administrative services during fiscal 1995, including the
following amounts for compensation of certain officers of that
fund and contributions to the Putnam Investments, Inc. Profit
Sharing Retirement Plan for their benefit:
PORTION OF TOTAL
REIMBURSEMENT FOR
COMPENSATION
TOTAL AND
REIMBURSEMENT CONTRIBUTIONS
------------- ----------------
Income Fund $30,132 $27,804
Opportunities Fund $4,781 $4,660
Money Market Fund $4,801 $4,430
TRUSTEE FEES
Each Trustee receives a fee for his or her services. Each
Trustee also receives fees for serving as Trustee of other Putnam
funds. The Trustees periodically review their fees to assure
that such fees continue to be appropriate in light of their
responsibilities as well as in relation to fees paid to trustees
of other mutual fund complexes. The Trustees meet monthly over a
two-day period, except in August. The Compensation Committee,
which consists solely of Trustees not affiliated with Putnam
Management and is responsible for recommending Trustee
compensation, estimates that Committee and Trustee meeting time
together with the appropriate preparation requires the equivalent
of at least three business days per Trustee meeting. The
following table shows the year each Trustee was first elected a
Trustee of the Putnam funds, the fees paid to each Trustee by
each fund for fiscal 1995 and the fees paid to each Trustee by
all of the Putnam funds during calendar year 1995:
<TABLE>
<CAPTION>
COMPENSATION TABLE
AGGREGATE COMPENSATION* FROM:
<C> <C> <C> <C> <C>
INCOME OPPORTUNITIES MONEY MARKET ALL PUTNAM
TRUSTEE/YEAR FUND* FUND* FUND* FUNDS**
- ---------------------------------------------------------------------------------
Jameson A. Baxter/1994 $2,706 $888 $362 $150,854
Hans H. Estin/1972 2,734 888 364 $150,854
John A. Hill/1985*** 2,686 883 360 $149,854
Ronald J. Jackson/1996****N/A N/A N/A
Elizabeth T. Kennan/1992 2,719 878 363 $148,854
Lawrence J. Lasser/1992 2,734 888 364 $150,854
Robert E. Patterson/1984 2,748 897 365 $152,854
Donald S. Perkins/1982 2,732 888 364 $150,854
William F. Pounds/1971 2,669 883 359 $149,854
George Putnam/1957 2,734 888 364 $150,854
George Putnam, III/1984 2,734 887 364 $150,854
Eli Shapiro/1995**** * 1,370 564 183 $95,372
A.J.C. Smith/1986 2,714 883 363 $149,854
W. Nicholas Thorndike/1992 2,748 897 365 $152,854
* Includes an annual retainer and an attendance fee for each meeting attended.
** Reflects total payments received from all Putnam funds in the most recent calendar year. As of December 31, 1995,
there were 99 funds in the Putnam family.
*** Includes amounts of compensation deferred pursuant to a Trustee Compensation Deferral Plan. The total amount of
deferred compensation payable to Mr. Hill by all Putnam funds as of September 30, 1995 was $26,395.14, including
income earned on such amounts.
**** Elected a Trustee in May 1996.
***** Elected as a Trustee in April 1995.
</TABLE>
The Trustees have approved Retirement Guidelines for Trustees of
the Putnam funds. These Guidelines provide generally that a
Trustee who retires after reaching age 72 and who has at least 10
years of continuous service will be eligible to receive a
retirement benefit from each Putnam fund for which he or she
served as a Trustee. The amount and form of such benefit is
subject to determination annually by the Trustees and, unless
otherwise determined by the Trustees, will be an annual cash
benefit payable for life equal to one-half of the Trustee
retainer fees paid by each fund at the time of retirement.
Several retired Trustees are currently receiving benefits
pursuant to the Guidelines and it is anticipated that the current
Trustees will receive similar benefits upon their retirement. A
Trustee who retired in calendar 1995 and was eligible to receive
benefits under these Guidelines would have received an annual
benefit of $66,749, based upon the aggregate retainer fees paid
by the Putnam funds for such year. The Trustees reserve the
right to amend or terminate such Guidelines and the related
payments at any time, and may modify or waive the foregoing
eligibility requirements when deemed appropriate.
For additional information concerning the Trustees, see
"Management" in Part II of this SAI.
SHARE OWNERSHIP
At December 31, 1995, the officers and Trustees of each fund as a
group owned less than 1% of the outstanding shares of each fund
or, in the case of the Income and Opportunities Fund, any class
of each fund, and, except as noted below, to the knowledge of the
funds no person owned of record or beneficially 5% or more of the
shares of any fund (or any class of any fund ) .
SHAREHOLDER NAME PERCENTAGE
CLASSAND ADDRESS OWNED
---------------------------------
Income Fund
- -----------
A Merrill Lynch, Pierce, 12.6%
Fenner & Smith*
B Merrill Lynch, Pierce, 6.9%
Fenner & Smith*
M Siupeli Malamala 11.4%
New York Jets
1000 Fulton Ave.
Hempstead, NY 11550
M James E. Fishbaugh 11.0%
45 College Green
N. Chili, NY 14514
M John R. Heister 10.6%
82 Larkin Ave .
Jamestown, NY 14701
M Stephen P. Bartenope 6.5%
78 Third Place
Brooklyn, NY 11231
M Craig E. Burdick 5.7%
2205 Weservey
Wellsville, NY 14895
Opportunities Fund
- ------------------
A Merrill Lynch, Pierce, 13.3%
Fenner & Smith*
M NFSC FEBO 20.8%
200 Liberty St.
New York, NY 10281
M Dorothea M. Salzarulo 18.9%
73 Leland Ave.
Pleasantville, NY 10570
M Nancy K. Whitman 8.3%
38 Old Lake Rd.
Congers, NY 10920
M William D. Rezak 7.6%
9 Reynolds St.
Alfred, NY 14802
M Shirley D. Brownheim 6.2%
76 Beacon Ave.
Albany, NY 12203
M Donna Van Patten 6.1%
698 Fischer Rd.
Kinderhook, NY 12106
M Dorothy T. Wetherald 5.5%
128 Chestnut Hill Dr.
Rochester, NY 14617
M Diane M. Mullen 5.0%
Rd. 1 Box 119
Voorheesville, NY 12186
* One Liberty Plaza, 165 Broadway, New York, NY 10006
DISTRIBUTION FEES
During fiscal 1995, the Income and Opportunities Funds paid the
following 12b-1 fees to Putnam Mutual Funds:
CLASS A CLASS B CLASS M
------- ------- -------
Income Fund $3,971,349 $1,683,624 $989
Opportunities Fund $343,462 $134,173 $423
CLASS A SALES CHARGES AND CONTINGENT DEFERRED SALES CHARGES
Putnam Mutual Funds received sales charges with respect to class
A shares in the following amounts during the periods indicated:
SALES CHARGES
RETAINED BY PUTNAM CONTINGENT
TOTAL MUTUAL FUNDS DEFERRED
FRONT-END AFTER SALES
SALES CHARGESDEALER CONCESSIONS CHARGES
------------------------------- --------
Income Fund
Fiscal year
- -----------
1995 $2,445,543 $165,649 $3,864
1994 $3,975,808 $264,944 $0
1993 $11,303,898 $634,632 $4,188
Opportunities Fund
Fiscal year
- -----------
1995 $697,703 $43,188 $31,327
1994 $1,307,355 $81,736 $0
1993 $2,534,299 $132,091 $0
There are no sales charges for the Money Market Fund because the
Money Market Fund's shares are distributed directly by the Money
Market Fund through Putnam Mutual Funds, which acts as principal
underwriter for the Money Market Fund.
CLASS B CONTINGENT DEFERRED SALES CHARGES
Putnam Mutual Funds received contingent deferred sales charges
upon redemptions of class B shares in the following amounts
during the periods indicated:
CONTINGENT DEFERRED
SALES CHARGES
-------------------
Income Fund
Fiscal year
- -----------
1995 $567,167
1994 $541,067
1993 $152,891
<PAGE>
Opportunities Fund
Fiscal year
- -----------
1995 $57,939
1994 $3,159
1993 $152,891
CLASS M SALES CHARGES
Putnam Mutual Funds received sales charges with respect to class
M shares in the following amounts during the 1995 fiscal year:
SALES CHARGES
RETAINED BY PUTNAM
MUTUAL FUNDS
TOTAL AFTER
SALES CHARGES DEALER CONCESSIONS
------------- ------------------
Income Fund $7,258 $ 687
Opportunities Fund $4,222 $393
INVESTOR SERVICING AND CUSTODY FEES AND EXPENSES
During the 1995 fiscal year, each fund incurred the following
fees and out-of-pocket expenses for investor servicing and
custody services provided by Putnam Fiduciary Trust Company:
Income Fund $1,553,095
Opportunities Fund $216,985
Money Market Fund $106,956
INVESTMENT PERFORMANCE
STANDARD PERFORMANCE MEASURES
Income Fund
(for periods ended November 30, 1995)
Class A Class B Class M+
Inception
date: 9/2/83 1/4/93 4/10/95
TOTAL
RETURN NAV* POP** NAV CDSC NAV POP
- ---------------------------------------------------------------
1 year 17.95% 12.36% 17.26% 12.26% --- ---
5 years 8.61 7.55 --- --- --- ---
10 years 8.96 8.43 --- --- --- ---
Life of class --- --- 5.53 4.27 5.44% 1.96%
+ Total return shown for class M shares for the period from
4/10/95 to 11/30/95 reflects cumulative, rather than average
annual , total return.
<PAGE>
Class A Class B Class M
YIELD POP NAV POP
30-day
Yield 4.67% 4.26% 4.46%
Tax-equivalent
yield*** 8.79% 8.02% 8.40%
Opportunities Fund
(for periods ended September 30, 1995)
Class A Class B Class M+
Inception date: 11/7/90 2/1/94 2/1/95
TOTAL
RETURN NAV* POP** NAV CDSC NAV POP
- -----------------------------------------------------------
1 year 10.27% 5.07% 9.46% 4.46% --- ---
10 years 7.72 6.66 --- --- --- ---
Life of class --- --- 6.11 2.24 7.11% 3.58%
Class A Class B Class M
YIELD POP NAV POP
30-day
Yield 5.44% 5.00% 5.13%
Tax-equivalent
yield*** 10.24% 9.41% 9.66%
+ Total return shown for class M shares for the period from
2/1/95 to 9/30/95 reflects cumulative, rather than average
annual , total return.
Money Market Fund
(for periods ended November 30, 1995)
Inception date: 10/26/87
YIELD
7-day tax- exempt
yield 3.09%
Tax-exempt
effective yield 3.17%
Tax-equivalent
yield*** 5.97%
- ----------------
*net asset value
**public offering price
<PAGE>
*** Assumes the maximum combined 46.88% federal, state and city
tax rate. Results for investors subject to lower tax rates would
not be as advantageous.
Data represent past performance and are not indicative of future
results. Total return and yield at POP for class A and class M
shares for the Income and Opportunities Funds reflect the
deduction of the maximum sales charge of 4.75% and 3.25%,
respectively. Total return at CDSC for class B shares for the
Income and Opportunities Funds reflect the deduction of the
applicable contingent deferred sales charge (CDSC). The maximum
class B CDSC is 5.0%. See "Standard performance measures" in
Part II of this SAI for information on how performance is
calculated. Past performance is no guarantee of future results.
QUALIFICATION AND REGISTRATION FEES (THE MONEY MARKET FUND ONLY)
The Money Market Fund pays all fees for its qualification or
registration as an issuer or broker-dealer or for registration of
its shares in states in connection with such qualifications or
registrations.
AMORTIZED COST VALUATION AND DAILY DIVIDENDS (THE MONEY MARKET
FUND ONLY)
The valuation of the Money Market Fund's portfolio instruments at
amortized cost is permitted in accordance with Securities and
Exchange Commission Rule 2a-7 and certain procedures adopted by
the Trustees. The amortized cost of an instrument is determined
by valuing it at cost originally and thereafter amortizing any
discount or premium from its face value at a constant rate until
maturity, regardless of the effect of fluctuating interest rates
on the market value of the instrument. Although the amortized
cost method provides certainty in valuation, it may result at
times in determinations of value that are higher or lower than
the price the Money Market Fund would receive if the instruments
were sold. Consequently, in the absence of circumstances
described below, changes in the market value of portfolio
instruments during periods of rising or falling interest rates
will not be reflected either in the computation of net asset
value of the Money Market Fund's portfolio or in the daily
computation of net income. Under the procedures adopted by the
Trustees, the Money Market Fund must maintain a dollar-weighted
average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 397 days or less from
the time of investment and invest in securities determined to be
of high quality with minimal credit risks. The Trustees have
also established procedures designed to stabilize, to the extent
reasonably possible, the Money Market Fund's price per share as
computed for the purpose of distribution, redemption and
repurchase at $1.00. Such procedures will include review of the
Money Market Fund's portfolio holdings by the Trustees, at such
intervals as they may deem appropriate, to determine whether the
Money Market Fund's net asset value calculated by using readily
available market quotations deviates from $1.00 per share, and,
if so, whether such deviation may result in material dilution or
is otherwise unfair to existing shareholders. In the event the
Trustees determine that such a deviation exists, they will take
such corrective action as they regard as necessary and
appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average
portfolio maturity; withholding dividends; redeeming of shares in
kind; or establishing a net asset value per share by using
readily available market quotations.
Since the net income of the Money Market Fund is declared as a
dividend each time it is determined, the net asset value per
share of the Money Market Fund normally remains at $1.00 per
share immediately after such determination and dividend
declaration. Any increase in the value of a shareholder's
investment in the Money Market Fund representing the reinvestment
of dividend income is reflected by an increase in the number of
shares of the Money Market Fund in the shareholder's account on
the tenth day of the next month (or, if that day is not a
business day, on the next business day). It is expected that the
Money Market Fund's net income will be positive each time it is
determined. However, if because an unexpected liability must be
accrued or a loss realized or for any other reason the net income
of the Money Market Fund determined at any time is a negative
amount, each shareholder's pro rata share of such negative amount
will constitute a liability of the shareholder to the Money
Market Fund. Any such liability will be paid at such times and
in such manner as the Trustees may determine by reducing the
amount of such shareholder's accrued dividend account, by
reducing the number of shares in a shareholder's account, or
otherwise.
<PAGE>
<TABLE>
<CAPTION>
EQUIVALENT YIELDS: TAX-EXEMPT VERSUS TAXABLE SECURITIES
The tables below show the effect of the tax status of New York tax-exempt securities on the effective yield received by
their individual holders, in the case of table 1, under the federal income tax and New York State personal income tax
laws currently in effect for 1996 and, in the case of table 2, under the federal, New York State and New York City
personal income tax laws currently in effect for 1996. The tables give the approximate yield a taxable security must
earn at various income levels to produce after-tax yields equivalent to those of New York tax-exempt securities yielding
from 3.0% to 8.0%.
TABLE 1
- ------------------------------------------------------------------------------------------------------------------------
1996 COMBINED
TAXABLE INCOME* NEW YORK STATE NEW YORK TAX-EXEMPT SECURITY YIELD OF
------------------------------ AND FEDERAL ------------------------------------------------------
Single Joint Tax Rate** 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
- ------------------------------------------------------------------------------------------------------------------------
Equivalent taxable yield if double tax-exempt
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 - 5,500 $0 - 11,000 18.40% 3.68% 4.90% 6.13% 7.35% 8.58% 9.80%
5,501 - 8,000 11,001 - 16,000 19.25% 3.72% 4.95% 6.19% 7.43% 8.67% 9.91%
8,001 - 11,000 16,001 - 22,000 20.10% 3.75% 5.01% 6.26% 7.51% 8.76% 10.01%
11,001 - 24,000 22,001 - 40,100 21.06% 3.80% 5.07% 6.33% 7.60% 8.87% 10.13%
24,001 - 58,150 40,101 - 96,900 33.13% 4.49% 5.98% 7.48% 8.97% 10.47% 11.96%
58,151 - 121,300*** 96,901 - 147,700*** 35.92% 4.68% 6.24% 7.80% 9.36% 10.93% 12.48%
121,301 - 263,750*** 147,701 - 263,750*** 40.56% 5.05% 6.73% 8.41% 10.09% 11.78% 13.46%
over - 263,750*** over - 263,750*** 43.90% 5.35% 7.13% 8.91% 10.70% 12.58% 14.26%
/TABLE
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
- ------------------------------------------------------------------------------------------------------------------------
1996 COMBINED
NEW YORK STATE,
TAXABLE INCOME* NEW YORK CITY NEW YORK TAX-EXEMPT SECURITY YIELD OF
------------------------------ AND FEDERAL ------------------------------------------------------
Single Joint Tax Rate** 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
- ------------------------------------------------------------------------------------------------------------------------
Equivalent taxable yield if triple tax-exempt
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 - 5,500 0 - 11,000 20.92% 3.79% 5.06% 6.32% 7.59% 8.85% 10.12%
5,501 - 8,000 11,001 - 14,400 21.77% 3.83% 5.11% 6.39% 7.67% 8.95% 10.23%
14,401 - 16,000 22.65% 3.88% 5.17% 6.46% 7.76% 9.05% 10.34%
8,001 - 8,400 23.01% 3.90% 5.20% 6.49% 7.79% 9.09% 10.39%
8,401 - 11,000 16,001 - 22,000 23.50% 3.92% 5.23% 6.54% 7.84% 9.15% 10.46%
11,001 - 15,000 22,001 - 27,000 24.46% 3.97% 5.30% 6.62% 7.94% 9.27% 10.59%
15,001 - 24,000 27,001 - 40,100 24.79% 3.99% 5.32% 6.65% 7.98% 9.31% 10.64%
24,001 - 25,000 40,101 - 45,000 36.29% 4.71% 6.28% 7.85% 9.42% 10.99% 12.56%
25,001 - 58,150 45,001 - 96,900 36.30% 4.71% 6.28% 7.85% 9.42% 10.99% 12.56%
58,151 - 60,000 96,901 - 108,000 38.95% 4.91% 6.55% 8.19% 9.83% 11.47% 13.10%
60,001 - 121,300*** 108,001 - 147,700*** 38.99% 4.92% 6.56% 8.20% 9.84% 11.47% 13.11%
121,301 - 256,500*** 147,701 - 263,750*** 43.41% 5.30% 7.07% 8.84% 10.60% 12.37% 14.14%
over 263,750*** over - 263,750*** 46.60% 5.62% 7.49% 9.36% 11.24% 13.11% 14.98%
/TABLE
<PAGE>
* This amount represents taxable income as defined in the
Internal Revenue Code of 1986, as amended (the "Code"). It
is assumed that the definition of taxable income in the Code
is the same as under the New York State and City Personal
Income Tax law. However, New York State and City taxable
income may differ due to differences in exemptions, itemized
deductions, and other items.
** For federal tax purposes, these combined rates reflect the
marginal rates on taxable income currently in effect for
1996. These rates include the effect of deducting state and,
for the second table, state and city taxes on your Federal
return. For New York purposes, these combined rates reflect
the expected New York State and New York City income tax
rates and the New York City surcharge rates for 1996.
*** The amount of taxable income in this bracket may be affected
by the phase-out of personal exemptions and the limitation on
itemized deductions, based upon adjusted gross income, under
the Code. A supplemental New York State tax is also phased
in for New York adjusted gross income between $100,000 and
$150,000 and fully eliminates the benefit of the lower
marginal brackets for taxpayers with New York adjusted gross
income of $150,000 or more. This adjustment is not reflected
in the tables above.
Of course, there is no assurance that the funds will achieve any
specific tax-exempt yield. While it is expected that the funds
will invest principally in obligations which pay interest exempt
from federal income tax and New York State and City personal
income taxes, other income received by the funds may be taxable.
The tables do not take into account any state or local taxes
payable on fund distributions except for New York State and for
table 2, New York City personal income taxes.
<PAGE>
ADDITIONAL OFFICERS
In addition to the persons listed as officers in Part II of this
SAI, each of the following persons is also a Vice President of
the Trust and the Opportunities and Money Market Funds and Vice
President of certain of the Putnam funds. Officers of Putnam
Management hold the same offices in Putnam Management's parent
company, Putnam Investments, Inc.
THE TRUST
GARY N. COBURN. Senior Managing Director of Putnam Management.
Director, Putnam Investments, Inc.
JAMES E. ERICKSON. Managing Director of Putnam Management.
DAVID J. EURKUS. Senior Vice President of Putnam Management.
JAMES M. PRUSKO. Vice President of Putnam Management. Prior to
August, 1992, Mr. Prusko was a Sales and Trading Associate at
Salomon Brothers, Inc.
THE OPPORTUNITIES FUND
GARY N. COBURN. Senior Managing Director of Putnam Management.
Director, Putnam Investments, Inc.
JAMES E. ERICKSON. Managing Director of Putnam Management.
BLAKE E. ANDERSON. Senior Vice President of Putnam Management.
MICHAEL BOUSCAREN. Senior Vice President of Putnam Management.
Prior to May, 1994, Mr. Bouscaren was President and Chairman of
the Board of Directors at Salomon Brothers Series Funds, Inc. and
a Director of Salomon Brothers.
THE MONEY MARKET FUND
GARY N. COBURN. Senior Managing Director of Putnam Management.
Director, Putnam Investments, Inc.
JAMES E. ERICKSON. Managing Director of Putnam Management.
WILLIAM F. MCGUE. Managing Director of Putnam Management.
BLAKE E. ANDERSON. Senior Vice President of Putnam Management.
LINDSEY C. STRONG. Vice President of Putnam Management.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
THE TRUST AND THE MONEY MARKET FUND
Coopers & Lybrand L.L.P., One Post Office Square, Boston, MA
02109 are the Trust's and Money Market 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,
financial highlights and financial statements included in each
fund's Annual Report for the fiscal year ended November 30, 1995,
filed electronically on January 26, 1996 for the Income Fund
(File No. 811-3741), and January 25, 1996 for the Money Market
Fund (File No. 811-5335), are incorporated by reference into this
SAI. The financial highlights included in the prospectus and
incorporated by reference into this SAI and the financial
statements incorporated by reference into the prospectus and this
SAI have been so included and incorporated in reliance upon the
report of the independent accountants, given on their authority
as experts in auditing and accounting.
THE OPPORTUNITIES FUND
Price Waterhouse LLP, 160 Federal Street, Boston, MA 02110 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, financial highlights and financial
statements included in the fund's Annual Report for the fiscal
year ended September 30, 1995, filed electronically on November
28, 1995 (File No. 811-6176), are incorporated by reference into
this SAI. The financial highlights included in the prospectus
and incorporated by reference into this SAI and the financial
statements incorporated by reference into the prospectus and this
SAI have been so included and incorporated in reliance upon the
report of the independent accountants, given on their authority
as experts in auditing and accounting.
<PAGE>
<PAGE>
TABLE OF CONTENTS
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . . . . . II-1
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-25
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-30
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . .II-40
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-42
DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . . . . . .II-54
INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-55
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . .II-60
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . .II-61
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . .II-61
STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . . . . .II-61
COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . . . . .II-63
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-67
<PAGE>
THE PUTNAM FUNDS
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
PART II
The following information applies generally to your fund and to
the other Putnam funds. In certain cases the discussion applies
to some but not all of the funds or their shareholders, and you
should refer to your prospectus to determine whether the matter
is applicable to you or your fund. You will also be referred to
Part I for certain information applicable to your particular
fund. Shareholders who purchase shares at net asset value
through employer-sponsored defined contribution plans should also
consult their employer for information about the extent to which
the matters described below apply to them.
MISCELLANEOUS INVESTMENT PRACTICES
YOUR FUND'S PROSPECTUS STATES WHICH OF THE FOLLOWING INVESTMENT
PRACTICES ARE AVAILABLE TO YOUR FUND. THE FACT THAT YOUR FUND IS
AUTHORIZED TO ENGAGE IN A PARTICULAR PRACTICE DOES NOT
NECESSARILY MEAN THAT IT WILL ACTUALLY DO SO. YOU SHOULD
DISREGARD ANY PRACTICE DESCRIBED BELOW WHICH IS NOT MENTIONED IN
THE PROSPECTUS.
SHORT-TERM TRADING
In seeking the fund's objectives(s), Putnam Management will buy
or sell portfolio securities whenever Putnam Management believes
it appropriate to do so. In deciding whether to sell a portfolio
security, Putnam Management does not consider how long the fund
has owned the security. From time to time the fund will buy
securities intending to seek short-term trading profits. A
change in the securities held by the fund is known as "portfolio
turnover" and generally involves some expense to the fund. This
expense may include brokerage commissions or dealer markups and
other transaction costs on both the sale of securities and the
reinvestment of the proceeds in other securities. If sales of
portfolio securities cause the fund to realize net short-term
capital gains, such gains will be taxable as ordinary income. As
a result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than
that of other mutual funds. Portfolio turnover rate for a fiscal
year is the ratio of the lesser of purchases or sales of
portfolio securities to the monthly average of the value of
portfolio securities -- excluding securities whose maturities at
acquisition were one year or less. The fund's portfolio turnover
rate is not a limiting factor when Putnam Management considers a
change in the fund's portfolio.
<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 at times may be unable to establish the fair value
of such securities.
Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' analysis at the time
of rating. Consequently, the rating assigned to any particular
security is not necessarily a reflection of the issuer's current
financial condition, which may be better or worse than the rating
would indicate. In addition, the rating assigned to a security
by Moody's Investors Service, Inc. or Standard & Poor's (or by
any other nationally recognized securities rating organization)
does not reflect an assessment of the volatility of the
security's market value or the liquidity of an investment in the
security. See the prospectus or Part I of this SAI for a
description of security ratings.
Like those of other fixed-income securities, the values of
lower-rated securities fluctuate in response to changes in
interest rates. A decrease in interest rates will generally
result in an increase in the value of the fund's assets.
Conversely, during periods of rising interest rates, the value of
the fund's assets will generally decline. The values of lower-
rated securities may often be affected to a greater extent by
changes in general economic conditions and business conditions
affecting the issuers of such securities and their industries.
Negative publicity or investor perceptions may also adversely
affect the values of lower-rated securities. Changes by
recognized rating services in their ratings of any fixed-income
security and changes in the ability of an issuer to make payments
of interest and principal may also affect the value of these
investments. Changes in the value of portfolio securities
generally will not affect income derived from these securities,
but will affect the fund's net asset value. The fund will not
necessarily dispose of a security when its rating is reduced
below its rating at the time of purchase. However, Putnam
Management will monitor the investment to determine whether its
retention will assist in meeting the fund's investment
objective(s).
Issuers of lower-rated securities are often highly leveraged, so
that their ability to service their debt obligations during an
economic downturn or during sustained periods of rising interest
rates may be impaired. Such issuers may not have more
traditional methods of financing available to them and may be
unable to repay outstanding obligations at maturity by
refinancing. The risk of loss due to default in payment of
interest or repayment of principal by such issuers is
significantly greater because such securities frequently are
unsecured and subordinated to the prior payment of senior
indebtedness.
At times, a substantial portion of the fund's assets may be
invested in securities as to which the fund, by itself or
together with other funds and accounts managed by Putnam
Management and its affiliates, holds all or a major portion.
Although Putnam Management generally considers such securities to
be liquid because of the availability of an institutional market
for such securities, it is possible that, under adverse market or
economic conditions or in the event of adverse changes in the
financial condition of the issuer, the fund could find it more
difficult to sell these securities when Putnam Management
believes it advisable to do so or may be able to sell the
securities only at prices lower than if they were more widely
held. Under these circumstances, it may also be more difficult
to determine the fair value of such securities for purposes of
computing the fund's net asset value. In order to enforce its
rights in the event of a default under such securities, the fund
may be required to participate in various legal proceedings or
take possession of and manage assets securing the issuer's
obligations on such securities. This could increase the fund's
operating expenses and adversely affect the fund's net asset
value. In the case of tax-exempt funds, any income derived from
the fund's ownership or operation of such assets would not be
tax-exempt. The ability of a holder of a tax-exempt security to
enforce the terms of that security in a bankruptcy proceeding may
be more limited than would be the case with respect to privately-
issued securities. In addition, the fund's intention to qualify
as a "regulated investment company" under the Internal Revenue
Code may limit the extent to which the fund may exercise its
rights by taking possession of such assets.
Certain securities held by the fund may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were
to redeem securities held by the fund during a time of declining
interest rates, the fund may not be able to reinvest the proceeds
in securities providing the same investment return as the
securities redeemed.
If the fund's prospectus describes so-called "zero-coupon" bonds
and "payment-in-kind" bonds as possible investments, the fund may
invest without limit in such bonds unless otherwise specified in
the prospectus. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in
cash or in additional bonds. Because zero-coupon and payment-in-
kind bonds do not pay current interest in cash, their value is
subject to greater fluctuation in response to changes in market
interest rates than bonds that pay interest currently. Both
zero-coupon and payment-in-kind bonds allow an issuer to avoid
the need to generate cash to meet current interest payments.
Accordingly, such bonds may involve greater credit risks than
bonds paying interest currently in cash. The fund is required to
accrue interest income on such investments and to distribute such
amounts at least annually to shareholders even though such bonds
do not pay current interest in cash. Thus, the fund could be
required at times to liquidate investments in order to satisfy
its dividend requirements.
To the extent the fund invests in securities in the lower rating
categories, the achievement of the fund's goals is more dependent
on Putnam Management's investment analysis than would be the case
if the fund were investing in securities in the higher rating
categories. This may be particularly true with respect to tax-
exempt securities, as the amount of information about the
financial condition of an issuer of tax-exempt securities may not
be as extensive as that which is made available by corporations
whose securities are publicly traded.
INVESTMENTS IN MISCELLANEOUS FIXED INCOME SECURITIES
Unless otherwise specified in the prospectus or elsewhere in this
SAI, if the fund may invest in inverse floating obligations,
premium securities, or interest-only or principal-only classes of
mortgage-backed securities (IOs and POs), 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 or
more than 35% of its assets in IOs and POs under normal market
conditions.
PRIVATE PLACEMENTS
The fund may invest in securities that are purchased in private
placements and, accordingly, are subject to restrictions on
resale as a matter of contract or under federal securities laws.
Because there may be relatively few potential purchasers for such
investments, especially under adverse market or economic
conditions or in the event of adverse changes in the financial
condition of the issuer, the fund could find it more difficult to
sell such securities when Putnam Management believes it advisable
to do so or may be able to sell such securities only at prices
lower than if such securities were more widely held. At times,
it may also be more difficult to determine the fair value of such
securities for purposes of computing the fund's net assets value.
MORTGAGE RELATED SECURITIES
The fund may invest in mortgage-backed securities, including
collateralized mortgage obligations ("CMOs") and certain stripped
mortgage-backed securities. CMOs and other mortgage-backed
securities represent a participation in, or are secured by,
mortgage loans.
Mortgage-backed securities have yield and maturity
characteristics corresponding to the underlying assets. Unlike
traditional debt securities, which may pay a fixed rate of
interest until maturity, when the entire principal amount comes
due, payments on certain mortgage-backed securities include both
interest and a partial repayment of principal. Besides the
scheduled repayment of principal, repayments of principal may
result from the voluntary prepayment, refinancing, or foreclosure
of the underlying mortgage loans. If property owners make
unscheduled prepayments of their mortgage loans, these
prepayments will result in early payment of the applicable
mortgage-related securities. In that event the fund may be
unable to invest the proceeds from the early payment of the
mortgage-related securities in an investment that provides as
high a yield as the mortgage-related securities. Consequently,
early payment associated with mortgage-related securities may
cause these securities to experience significantly greater price
and yield volatility than that experienced by traditional fixed-
income securities. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates,
general economic conditions, the location and age of the mortgage
and other social and demographic conditions. During periods of
falling interest rates, the rate of mortgage prepayments tends to
increase, thereby tending to decrease the life of mortgage-
related securities. During periods of rising interest rates, the
rate of mortgage prepayments usually decreases, thereby tending
to increase the life of mortgage-related securities. If the life
of a mortgage-related security is inaccurately predicted, the
fund may not be able to realize the rate of return it expected.
Mortgage-backed securities are less effective than other types of
securities as a means of "locking in" attractive long-term
interest rates. One reason is the need to reinvest prepayments
of principal; another is the possibility of significant
unscheduled prepayments resulting from declines in interest
rates. These prepayments would have to be reinvested at lower
rates. As a result, these securities may have less potential for
capital appreciation during periods of declining interest rates
than other securities of comparable maturities, although they may
have a similar risk of decline in market value during periods of
rising interest rates.
Prepayments may cause losses in securities purchased at a
premium. At times, some of the mortgage-backed securities in
which the fund may invest will have higher than market interest
rates and therefore will be purchased at a premium above their
par value. Unscheduled prepayments, which are made at par, will
cause the fund to experience a loss equal to any unamortized
premium.
CMOs may be issued by a U.S. government agency or instrumentality
or by a private issuer. Although payment of the principal of,
and interest on, the underlying collateral securing privately
issued CMOs may be guaranteed by the U.S. government or its
agencies or instrumentalities, these CMOs represent obligations
solely of the private issuer and are not insured or guaranteed by
the U.S. government, its agencies or instrumentalities or any
other person or entity.
Prepayments could cause early retirement of CMOs. CMOs are
designed to reduce the risk of prepayment for investors by
issuing multiple classes of securities, each having different
maturities, interest rates and payment schedules, and with the
principal and interest on the underlying mortgages allocated
among the several classes in various ways. Payment of interest
or principal on some classes or series of CMOs may be subject to
contingencies or some classes or series may bear some or all of
the risk of default on the underlying mortgages. CMOS of
different classes or series are generally retired in sequence as
the underlying mortgage loans in the mortgage pool are repaid.
If enough mortgages are repaid ahead of schedule, the classes or
series of a CMO with the earliest maturities generally will be
retired prior to their maturities. Thus, the early retirement of
particular classes or series of a CMO held by the fund would have
the same effect as the prepayment of mortgages underlying other
mortgage-backed securities.
Prepayments could result in losses on stripped mortgage-backed
securities. Stripped mortgage-backed securities are usually
structured with two classes that receive different portions of
the interest and principal distributions on a pool of mortgage
loans. The fund may invest in both the interest-only or "IO"
class and the principal-only or "PO" class. The yield to
maturity on an IO class of stripped mortgage-backed securities is
extremely sensitive not only to changes in prevailing interest
rates but also to the rate of principal payments (including
prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurable adverse effect on the fund's
yield to maturity to the extent it invests in IOs. If the assets
underlying the IO experience greater than anticipated prepayments
of principal, the fund may fail to recoup fully its initial
investment in these securities. Conversely, POs tend to increase
in value if prepayments are greater than anticipated and decline
if prepayments are slower than anticipated.
The secondary market for stripped mortgage-backed securities may
be more volatile and less liquid than that for other mortgage-
backed securities, potentially limiting the fund's ability to buy
or sell those securities at any particular time.
SECURITIES LOANS
The fund may make secured loans of its portfolio securities, on
either a short-term or long-term basis, amounting to not more
than 25% of its total assets, thereby realizing additional
income. The risks in lending portfolio securities, as with other
extensions of credit, consist of possible delay in recovery of
the securities or possible loss of rights in the collateral
should the borrower fail financially. As a matter of policy,
securities loans are made to broker-dealers pursuant to
agreements requiring that the loans be continuously secured by
collateral consisting of cash or short-term debt obligations at
least equal at all times to the value of the securities on loan,
"marked-to-market" daily. The borrower pays to the fund an
amount equal to any dividends or interest received on securities
lent. The fund retains all or a portion of the interest received
on investment of the cash collateral or receives a fee from the
borrower. Although voting rights, or rights to consent, with
respect to the loaned securities may pass to the borrower, the
fund retains the right to call the loans at any time on
reasonable notice, and it will do so to enable the fund to
exercise voting rights on any matters materially affecting the
investment. The fund may also call such loans in order to sell
the securities.
FORWARD COMMITMENTS
The fund may enter into contracts to purchase securities for a
fixed price at a future date beyond customary settlement time
("forward commitments") if the fund holds, and maintains until
the settlement date in a segregated account, cash or high-grade
debt obligations in an amount sufficient to meet the purchase
price, or if the fund enters into offsetting contracts for the
forward sale of other securities it owns. In the case of to-be-
announced ("TBA") purchase commitments, the unit price and the
estimated principal amount are established when the fund enters
into a contract, with the actual principal amount being within a
specified range of the estimate. Forward commitments may be
considered securities in themselves, and involve a risk of loss
if the value of the security to be purchased declines prior to
the settlement date, which risk is in addition to the risk of
decline in the value of the fund's other assets. Where such
purchases are made through dealers, the fund relies on the dealer
to consummate the sale. The dealer's failure to do so may result
in the loss to the fund of an advantageous yield or price.
Although the fund will generally enter into forward commitments
with the intention of acquiring securities for its portfolio or
for delivery pursuant to options contracts it has entered into,
the fund may dispose of a commitment prior to settlement if
Putnam Management deems it appropriate to do so. The fund may
realize short-term profits or losses upon the sale of forward
commitments.
The fund may enter into TBA sale commitments to hedge its
portfolio positions or to sell securities it owns under delayed
delivery arrangements. Proceeds of TBA sale commitments are not
received until the contractual settlement date. During the time
a TBA sale commitment is outstanding, equivalent deliverable
securities, or an offsetting TBA purchase commitment deliverable
on or before the sale commitment date, are held as "cover" for
the transaction. Unsettled TBA sale commitments are valued at
current market value of the underlying securities. If the TBA
sale commitment is closed through the acquisition of an
offsetting purchase commitment, the fund realizes a gain or loss
on the commitment without regard to any unrealized gain or loss
on the underlying security. If the fund delivers securities
under the commitment, the fund realizes a gain or loss from the
sale of the securities based upon the unit price established at
the date the commitment was entered into.
REPURCHASE AGREEMENTS
The fund may enter into repurchase agreements up to the limit
specified in the prospectus. A repurchase agreement is a
contract under which the fund acquires a security for a
relatively short period (usually not more than one week) subject
to the obligation of the seller to repurchase and the fund to
resell such security at a fixed time and price (representing the
fund's cost plus interest). It is the fund's present intention
to enter into repurchase agreements only with commercial banks
and registered broker-dealers and only with respect to
obligations of the U.S. government or its agencies or
instrumentalities. Repurchase agreements may also be viewed as
loans made by the fund which are collateralized by the securities
subject to repurchase. Putnam Management will monitor such
transactions to ensure that the value of the underlying
securities will be at least equal at all times to the total
amount of the repurchase obligation, including the interest
factor. If the seller defaults, the fund could realize a loss on
the sale of the underlying security to the extent that the
proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or
insolvency proceedings, the fund may incur delay and costs in
selling the underlying security or may suffer a loss of principal
and interest if the fund is treated as an unsecured creditor and
required to return the underlying collateral to the seller's
estate.
Pursuant to an exemptive order issued by the Securities and
Exchange Commission, the fund may transfer uninvested cash
balances into a joint account, along with cash of other Putnam
funds and certain other accounts. These balances may be invested
in one or more repurchase agreements and/or short-term money
market instruments.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The fund may write covered call options
and covered put options on optionable securities held in its
portfolio, when in the opinion of Putnam Management such
transactions are consistent with the fund's investment
objective(s) and policies. Call options written by the fund give
the purchaser the right to buy the underlying securities from the
fund at a stated exercise price; put options give the purchaser
the right to sell the underlying securities to the fund at a
stated price.
The fund may write only covered options, which means that, so
long as the fund is obligated as the writer of a call option, it
will own the underlying securities subject to the option (or
comparable securities satisfying the cover requirements of
securities exchanges). In the case of put options, the fund will
hold cash and/or high-grade short-term debt obligations equal to
the price to be paid if the option is exercised. In addition,
the fund will be considered to have covered a put or call option
if and to the extent that it holds an option that offsets some or
all of the risk of the option it has written. The fund may write
combinations of covered puts and calls on the same underlying
security.
The fund will receive a premium from writing a put or call
option, which increases the fund's return on the underlying
security in the event the option expires unexercised or is closed
out at a profit. The amount of the premium reflects, among other
things, the relationship between the exercise price and the
current market value of the underlying security, the volatility
of the underlying security, the amount of time remaining until
expiration, current interest rates, and the effect of supply and
demand in the options market and in the market for the underlying
security. By writing a call option, the fund limits its
opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option
but continues to bear the risk of a decline in the value of the
underlying security. By writing a put option, the fund assumes
the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current
market value, resulting in a potential capital loss unless the
security subsequently appreciates in value.
The fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction, in
which it purchases an offsetting option. The fund realizes a
profit or loss from a closing transaction if the cost of the
transaction (option premium plus transaction costs) is less or
more than the premium received from writing the option. If the
fund writes a call option but does not own the underlying
security, and when it writes a put option, the fund may be
required to deposit cash or securities with its broker as
"margin," or collateral, for its obligation to buy or sell the
underlying security. As the value of the underlying security
varies, the fund may have to deposit additional margin with the
broker. Margin requirements are complex and are fixed by
individual brokers, subject to minimum requirements currently
imposed by the Federal Reserve Board and by stock exchanges and
other self-regulatory organizations.
PURCHASING PUT OPTIONS. The fund may purchase put options to
protect its portfolio holdings in an underlying security against
a decline in market value. Such protection is provided during
the life of the put option since the fund, as holder of the
option, is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying
security's market price. In order for a put option to be
profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the
premium and transaction costs. By using put options in this
manner, the fund will reduce any profit it might otherwise have
realized from appreciation of the underlying security by the
premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The fund may purchase call options to
hedge against an increase in the price of securities that the
fund wants ultimately to buy. Such hedge protection is provided
during the life of the call option since the fund, as holder of
the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying
security's market price. In order for a call option to be
profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and
transaction costs.
RISK FACTORS IN OPTIONS TRANSACTIONS
The successful use of the fund's options strategies depends on
the ability of Putnam Management to forecast correctly interest
rate and market movements. For example, if the fund were to
write a call option based on Putnam Management's expectation that
the price of the underlying security would fall, but the price
were to rise instead, the fund could be required to sell the
security upon exercise at a price below the current market price.
Similarly, if the fund were to write a put option based on Putnam
Management's expectation that the price of the underlying
security would rise, but the price were to fall instead, the fund
could be required to purchase the security upon exercise at a
price higher than the current market price.
When the fund purchases an option, it runs the risk that it will
lose its entire investment in the option in a relatively short
period of time, unless the fund exercises the option or enters
into a closing sale transaction before the option's expiration.
If the price of the underlying security does not rise (in the
case of a call) or fall (in the case of a put) to an extent
sufficient to cover the option premium and transaction costs, the
fund will lose part or all of its investment in the option. This
contrasts with an investment by the fund in the underlying
security, since the fund will not realize a loss if the
security's price does not change.
The effective use of options also depends on the fund's ability
to terminate option positions at times when Putnam Management
deems it desirable to do so. There is no assurance that the fund
will be able to effect closing transactions at any particular
time or at an acceptable price.
If a secondary market in options were to become unavailable, the
fund could no longer engage in closing transactions. Lack of
investor interest might adversely affect the liquidity of the
market for particular options or series of options. A market may
discontinue trading of a particular option or options generally.
In addition, a market could become temporarily unavailable if
unusual events -- such as volume in excess of trading or clearing
capability -- were to interrupt its normal operations.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening
transactions. For example, if an underlying security ceases to
meet qualifications imposed by the market or the Options Clearing
Corporation, new series of options on that security will no
longer be opened to replace expiring series, and opening
transactions in existing series may be prohibited. If an options
market were to become unavailable, the fund as a holder of an
option would be able to realize profits or limit losses only by
exercising the option, and the fund, as option writer, would
remain obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying options
purchased or sold by the fund could result in losses on the
options. If trading is interrupted in an underlying security,
the trading of options on that security is normally halted as
well. As a result, the fund as purchaser or writer of an option
will be unable to close out its positions until options trading
resumes, and it may be faced with considerable losses if trading
in the security reopens at a substantially different price. In
addition, the Options Clearing Corporation or other options
markets may impose exercise restrictions. If a prohibition on
exercise is imposed at the time when trading in the option has
also been halted, the fund as purchaser or writer of an option
will be locked into its position until one of the two
restrictions has been lifted. If the Options Clearing
Corporation were to determine that the available supply of an
underlying security appears insufficient to permit delivery by
the writers of all outstanding calls in the event of exercise, it
may prohibit indefinitely the exercise of put options. The fund,
as holder of such a put option, could lose its entire investment
if the prohibition remained in effect until the put option's
expiration.
Foreign-traded options are subject to many of the same risks
presented by internationally-traded securities. In addition,
because of time differences between the United States and various
foreign countries, and because different holidays are observed in
different countries, foreign options markets may be open for
trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of
the underlying interest in the United States.
Over-the-counter ("OTC") options purchased by the fund and assets
held to cover OTC options written by the fund may, under certain
circumstances, be considered illiquid securities for purposes of
any limitation on the fund's ability to invest in illiquid
securities.
FUTURES CONTRACTS AND RELATED OPTIONS
Subject to applicable law, and unless otherwise specified in the
prospectus, the fund may invest without limit in the types of
futures contracts and related options identified in the
prospectus for hedging and non-hedging purposes. The use of
futures and options transactions for purposes other than hedging
entails greater risks. A financial futures contract sale creates
an obligation by the seller to deliver the type of financial
instrument called for in the contract in a specified delivery
month for a stated price. A financial futures contract purchase
creates an obligation by the purchaser to take delivery of the
type of financial instrument called for in the contract in a
specified delivery month at a stated price. The specific
instruments delivered or taken, respectively, at settlement date
are not determined until on or near that date. The determination
is made in accordance with the rules of the exchange on which the
futures contract sale or purchase was made. Futures contracts
are traded in the United States only on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for
such trading by the Commodity Futures Trading Commission (the
"CFTC"), and must be executed through a futures commission
merchant or brokerage firm which is a member of the relevant
contract market.
Although futures contracts (other than index futures) by their
terms call for actual delivery or acceptance of commodities or
securities, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery.
Closing out a futures contract sale is effected by purchasing a
futures contract for the same aggregate amount of the specific
type of financial instrument or commodity with the same delivery
date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid
the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial sale,
the seller realizes a loss. If the fund is unable to enter into
a closing transaction, the amount of the fund's potential loss is
unlimited. The closing out of a futures contract purchase is
effected by the purchaser's entering into a futures contract
sale. If the offsetting sale price exceeds the purchase price,
the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, he realizes a loss. In general 40% of
the gain or loss arising from the closing out of a futures
contract traded on an exchange approved by the CFTC is treated as
short-term gain or loss, and 60% is treated as long-term gain or
loss.
Unlike when the fund purchases or sells a security, no price is
paid or received by the fund upon the purchase or sale of a
futures contract. Upon entering into a contract, the fund is
required to deposit with its custodian in a segregated account in
the name of the futures broker an amount of cash and/or U.S.
government securities. This amount is known as "initial margin."
The nature of initial margin in futures transactions is different
from that of margin in security transactions in that futures
contract margin does not involve the borrowing of funds to
finance the transactions. Rather, initial margin is similar to a
performance bond or good faith deposit which is returned to the
fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Futures contracts
also involve brokerage costs.
Subsequent payments, called "variation margin" or "maintenance
margin," to and from the broker (or the custodian) are made on a
daily basis as the price of the underlying security or commodity
fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to
the market." For example, when the fund has purchased a futures
contract on a security and the price of the underlying security
has risen, that position will have increased in value and the
fund will receive from the broker a variation margin payment
based on that increase in value. Conversely, when the fund has
purchased a security futures contract and the price of the
underlying security has declined, the position would be less
valuable and the fund would be required to make a variation
margin payment to the broker.
The fund may elect to close some or all of its futures positions
at any time prior to their expiration in order to reduce or
eliminate a hedge position then currently held by the fund. The
fund may close its positions by taking opposite positions which
will operate to terminate the fund's position in the futures
contracts. Final determinations of variation margin are then
made, additional cash is required to be paid by or released to
the fund, and the fund realizes a loss or a gain. Such closing
transactions involve additional commission costs.
OPTIONS ON FUTURES CONTRACTS. The fund may purchase and write
call and put options on futures contracts it may buy or sell and
enter into closing transactions with respect to such options to
terminate existing positions. Options on future contracts give
the purchaser the right in return for the premium paid to assume
a position in a futures contract at the specified option exercise
price at any time during the period of the option. The fund may
use options on futures contracts in lieu of writing or buying
options directly on the underlying securities or purchasing and
selling the underlying futures contracts. For example, to hedge
against a possible decrease in the value of its portfolio
securities, the fund may purchase put options or write call
options on futures contracts rather than selling futures
contracts. Similarly, the fund may purchase call options or
write put options on futures contracts as a substitute for the
purchase of futures contracts to hedge against a possible
increase in the price of securities which the fund expects to
purchase. Such options generally operate in the same manner as
options purchased or written directly on the underlying
investments.
As with options on securities, the holder or writer of an option
may terminate his position by selling or purchasing an offsetting
option. There is no guarantee that such closing transactions can
be effected.
The fund will be required to deposit initial margin and
maintenance margin with respect to put and call options on
futures contracts written by it pursuant to brokers' requirements
similar to those described above in connection with the
discussion of futures contracts.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS.
Successful use of futures contracts by the fund is subject to
Putnam Management's ability to predict movements in various
factors affecting securities markets, including interest rates.
Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves
less potential risk to the fund because the maximum amount at
risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the purchase of
a call or put option on a futures contract would result in a loss
to the fund when the purchase or sale of a futures contract would
not, such as when there is no movement in the prices of the
hedged investments. The writing of an option on a futures
contract involves risks similar to those risks relating to the
sale of futures contracts.
There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render
certain market clearing facilities inadequate, and thereby result
in the institution by exchanges of special procedures which may
interfere with the timely execution of customer orders.
To reduce or eliminate a position held by the fund, the fund may
seek to close out such position. The ability to establish and
close out positions will be subject to the development and
maintenance of a liquid secondary market. It is not certain that
this market will develop or continue to exist for a particular
futures contract or option. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there
may be insufficient trading interest in certain contracts or
options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii)
trading halts, suspensions or other restrictions may be imposed
with respect to particular classes or series of contracts or
options, or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or a clearing corporation may not
at all times be adequate to handle current trading volume; or
(vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the
trading of contracts or options (or a particular class or series
of contracts or options), in which event the secondary market on
that exchange for such contracts or options (or in the class or
series of contracts or options) would cease to exist, although
outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with
their terms.
U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. U.S.
Treasury security futures contracts require the seller to
deliver, or the purchaser to take delivery of, the type of U.S.
Treasury security called for in the contract at a specified date
and price. Options on U.S. Treasury security futures contracts
give the purchaser the right in return for the premium paid to
assume a position in a U.S. Treasury security futures contract at
the specified option exercise price at any time during the period
of the option.
Successful use of U.S. Treasury security futures contracts by the
fund is subject to Putnam Management's ability to predict
movements in the direction of interest rates and other factors
affecting markets for debt securities. For example, if the fund
has sold U.S. Treasury security futures contracts in order to
hedge against the possibility of an increase in interest rates
which would adversely affect securities held in its portfolio,
and the prices of the fund's securities increase instead as a
result of a decline in interest rates, the fund will lose part or
all of the benefit of the increased value of its securities which
it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the fund
has insufficient cash, it may have to sell securities to meet
daily maintenance margin requirements at a time when it may be
disadvantageous to do so.
There is also a risk that price movements in U.S. Treasury
security futures contracts and related options will not correlate
closely with price movements in markets for particular
securities. For example, if the fund has hedged against a
decline in the values of tax-exempt securities held by it by
selling Treasury security futures and the values of Treasury
securities subsequently increase while the values of its
tax-exempt securities decrease, the fund would incur losses on
both the Treasury security futures contracts written by it and
the tax-exempt securities held in its portfolio.
INDEX FUTURES CONTRACTS. An index futures contract is a contract
to buy or sell units of an index at a specified future date at a
price agreed upon when the contract is made. Entering into a
contract to buy units of an index is commonly referred to as
buying or purchasing a contract or holding a long position in
the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short
position. A unit is the current value of the index. The fund
may enter into stock index futures contracts, debt index futures
contracts, or other index futures contracts appropriate to its
objective(s). The fund may also purchase and sell options on
index futures contracts.
For example, the Standard & Poor's Composite 500 Stock Price
Index ("S&P 500") is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange. The S&P 500
assigns relative weightings to the common stocks included in the
Index, and the value fluctuates with changes in the market values
of those common stocks. In the case of the S&P 500, contracts
are to buy or sell 500 units. Thus, if the value of the S&P 500
were $150, one contract would be worth $75,000 (500 units x
$150). The stock index futures contract specifies that no
delivery of the actual stocks making up the index will take
place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the
difference between the contract price and the actual level of the
stock index at the expiration of the contract. For example, if
the fund enters into a futures contract to buy 500 units of the
S&P 500 at a specified future date at a contract price of $150
and the S&P 500 is at $154 on that future date, the fund will
gain $2,000 (500 units x gain of $4). If the fund enters into a
futures contract to sell 500 units of the stock index at a
specified future date at a contract price of $150 and the S&P 500
is at $152 on that future date, the fund will lose $1,000 (500
units x loss of $2).
There are several risks in connection with the use by the fund of
index futures. One risk arises because of the imperfect
correlation between movements in the prices of the index futures
and movements in the prices of securities which are the subject
of the hedge. Putnam Management will, however, attempt to reduce
this risk by buying or selling, to the extent possible, futures
on indices the movements of which will, in its judgment, have a
significant correlation with movements in the prices of the
securities sought to be hedged.
Successful use of index futures by the fund is also subject to
Putnam Management's ability to predict movements in the direction
of the market. For example, it is possible that, where the fund
has sold futures to hedge its portfolio against a decline in the
market, the index on which the futures are written may advance
and the value of securities held in the fund's portfolio may
decline. If this occurred, the fund would lose money on the
futures and also experience a decline in value in its portfolio
securities. It is also possible that, if the fund has hedged
against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices
increase instead, the fund will lose part or all of the benefit
of the increased value of those securities it has hedged because
it will have offsetting losses in its futures positions. In
addition, in such situations, if the fund has insufficient cash,
it may have to sell securities to meet daily variation margin
requirements at a time when it is disadvantageous to do so.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the
index futures and the portion of the portfolio being hedged, the
prices of index futures may not correlate perfectly with
movements in the underlying index due to certain market
distortions. First, all participants in the futures market are
subject to margin deposit and maintenance requirements. Rather
than meeting additional margin deposit requirements, investors
may close futures contracts through offsetting transactions which
could distort the normal relationship between the index and
futures markets. Second, margin requirements in the futures
market are less onerous than margin requirements in the
securities market, and as a result the futures market may attract
more speculators than the securities market does. Increased
participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price
distortions in the futures market and also because of the
imperfect correlation between movements in the index and
movements in the prices of index futures, even a correct forecast
of general market trends by Putnam Management may still not
result in a profitable position over a short time period.
OPTIONS ON STOCK INDEX FUTURES. Options on index futures are
similar to options on securities except that options on index
futures give the purchaser the right, in return for the premium
paid, to assume a position in an index futures contract (a long
position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during
the period of the option. Upon exercise of the option, the
delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the index
futures contract, at exercise, exceeds (in the case of a call) or
is less than (in the case of a put) the exercise price of the
option on the index future. If an option is exercised on the
last trading day prior to its expiration date, the settlement
will be made entirely in cash equal to the difference between the
exercise price of the option and the closing level of the index
on which the future is based on the expiration date. Purchasers
of options who fail to exercise their options prior to the
exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES
As an alternative to purchasing call and put options on index
futures, the fund may purchase and sell call and put options on
the underlying indices themselves. Such options would be used in
a manner identical to the use of options on index futures.
INDEX WARRANTS
The fund may purchase put warrants and call warrants whose values
vary depending on the change in the value of one or more
specified securities indices ("index warrants"). Index warrants
are generally issued by banks or other financial institutions and
give the holder the right, at any time during the term of the
warrant, to receive upon exercise of the warrant a cash payment
from the issuer based on the value of the underlying index at the
time of exercise. In general, if the value of the underlying
index rises above the exercise price of the index warrant, the
holder of a call warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference
between the value of the index and the exercise price of the
warrant; if the value of the underlying index falls, the holder
of a put warrant will be entitled to receive a cash payment from
the issuer upon exercise based on the difference between the
exercise price of the warrant and the value of the index. The
holder of a warrant would not be entitled to any payments from
the issuer at any time when, in the case of a call warrant, the
exercise price is greater than the value of the underlying index,
or, in the case of a put warrant, the exercise price is less than
the value of the underlying index. If the fund were not to
exercise an index warrant prior to its expiration, then the fund
would lose the amount of the purchase price paid by it for the
warrant.
The fund will normally use index warrants in a manner similar to
its use of options on securities indices. The risks of the
fund's use of index warrants are generally similar to those
relating to its use of index options. Unlike most index options,
however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only
by the credit of the bank or other institution which issues the
warrant. Also, index warrants generally have longer terms than
index options. Although the fund will normally invest only in
exchange-listed warrants, index warrants are not likely to be as
liquid as certain index options backed by a recognized clearing
agency. In addition, the terms of index warrants may limit the
fund's ability to exercise the warrants at such time, or in such
quantities, as the fund would otherwise wish to do.
FOREIGN SECURITIES
Under its current policy, which may be changed without
shareholder approval, the fund may invest up to the limit of its
total assets specified in its prospectus in securities
principally traded in markets outside the United States.
Eurodollar certificates of deposit are excluded for purposes of
this limitation. Since foreign securities are normally
denominated and traded in foreign currencies, the value of the
fund's assets may be affected favorably or unfavorably by changes
in currency exchange rates, exchange control regulations and
restrictions or prohibitions on the repatriation of foreign
currencies. There may be less information publicly available
about a foreign company than about a U.S. company, and foreign
companies are not generally subject to accounting, auditing and
financial reporting standards and practices comparable to those
in the United States. The securities of some foreign companies
are less liquid and at times more volatile than securities of
comparable U.S. companies. Foreign brokerage commissions and
other fees are also generally higher than in the United States.
Foreign settlement procedures and trade regulations may involve
certain risks (such as delay in payment or delivery of securities
or in the recovery of the fund's assets held abroad) and expenses
not present in the settlement of domestic investments.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange
controls, confiscatory taxation, political or financial
instability and diplomatic developments which could affect the
value of the fund's investments in certain foreign countries.
Legal remedies available to investors in certain foreign
countries may be more limited than those available with respect
to investments in the United States or in other foreign
countries. The laws of some foreign countries may limit the
fund's ability to invest in securities of certain issuers located
in those foreign countries. Special tax considerations apply to
foreign securities.
The risks described above, including the risks of nationalization
or expropriation of assets, are typically increased to the extent
that the fund invests in issuers located in less developed and
developing nations, whose securities markets are sometimes
referred to as "emerging securities markets." Investments in
securities located in such countries are speculative and subject
to certain special risks. Political and economic structures in
many of these countries may be in their infancy and developing
rapidly, and such countries may lack the social, political and
economic stability characteristic of more developed countries.
Certain of these countries have in the past failed to recognize
private property rights and have at times nationalized and
expropriated the assets of private companies.
In addition, unanticipated political or social developments may
affect the values of the fund's investments in these countries
and the availability to the fund of additional investments in
these countries. The small size, limited trading volume and
relative inexperience of the securities markets in these
countries may make the fund's investments in such countries
illiquid and more volatile than investments in more developed
countries, and the fund may be required to establish special
custodial or other arrangements before making investments in
these countries. There may be little financial or accounting
information available with respect to issuers located in these
countries, and it may be difficult as a result to assess the
value or prospects of an investment in such issuers.
FOREIGN CURRENCY TRANSACTIONS
Unless otherwise specified in the prospectus or Part I of this
SAI, the fund may engage without limit in currency exchange
transactions, including purchasing and selling foreign currency,
foreign currency options, foreign currency forward contracts and
foreign currency futures contracts and related options, to
protect against uncertainty in the level of future currency
exchange rates. In addition, the fund may write covered call and
put options on foreign currencies for the purpose of increasing
its current return.
Generally, the fund may engage in both "transaction hedging" and
"position hedging." When it engages in transaction hedging, the
fund enters into foreign currency transactions with respect to
specific receivables or payables, generally arising in connection
with the purchase or sale of portfolio securities. The fund will
engage in transaction hedging when it desires to "lock in" the
U.S. dollar price of a security it has agreed to purchase or
sell, or the U.S. dollar equivalent of a dividend or interest
payment in a foreign currency. By transaction hedging the fund
will attempt to protect itself against a possible loss resulting
from an adverse change in the relationship between the U.S.
dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold, or
on which the dividend or interest payment is earned, and the date
on which such payments are made or received.
The fund may purchase or sell a foreign currency on a spot (or
cash) basis at the prevailing spot rate in connection with the
settlement of transactions in portfolio securities denominated in
that foreign currency. The fund may also enter into contracts to
purchase or sell foreign currencies at a future date ("forward
contracts") and purchase and sell foreign currency futures
contracts.
For transaction hedging purposes the fund may also purchase
exchange-listed and over-the-counter call and put options on
foreign currency futures contracts and on foreign currencies. A
put option on a futures contract gives the fund the right to
assume a short position in the futures contract until the
expiration of the option. A put option on a currency gives the
fund the right to sell the currency at an exercise price until
the expiration of the option. A call option on a futures
contract gives the fund the right to assume a long position in
the futures contract until the expiration of the option. A call
option on a currency gives the fund the right to purchase the
currency at the exercise price until the expiration of the
option.
When it engages in position hedging, the fund enters into foreign
currency exchange transactions to protect against a decline in
the values of the foreign currencies in which its portfolio
securities are denominated (or an increase in the value of
currency for securities which the fund expects to purchase). In
connection with position hedging, the fund may purchase put or
call options on foreign currency and on foreign currency futures
contracts and buy or sell forward contracts and foreign currency
futures contracts. The fund may also purchase or sell foreign
currency on a spot basis.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward
or futures contract. Accordingly, it may be necessary for the
fund to purchase additional foreign currency on the spot market
(and bear the expense of such purchase) if the market value of
the security or securities being hedged is less than the amount
of foreign currency the fund is obligated to deliver and a
decision is made to sell the security or securities and make
delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security or securities if
the market value of such security or securities exceeds the
amount of foreign currency the fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in
the underlying prices of the securities which the fund owns or
intends to purchase or sell. They simply establish a rate of
exchange which one can achieve at some future point in time.
Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the
increase in value of such currency. See "Risk factors in options
transactions" above.
The fund may seek to increase its current return or to offset
some of the costs of hedging against fluctuations in current
exchange rates by writing covered call options and covered put
options on foreign currencies. The fund receives a premium from
writing a call or put option, which increases the fund's current
return if the option expires unexercised or is closed out at a
net profit. The fund may terminate an option that it has written
prior to its expiration by entering into a closing purchase
transaction in which it purchases an option having the same terms
as the option written.
The fund's currency hedging transactions may call for the
delivery of one foreign currency in exchange for another foreign
currency and may at times not involve currencies in which its
portfolio securities are then denominated. Putnam Management
will engage in such "cross hedging" activities when it believes
that such transactions provide significant hedging opportunities
for the fund. Cross hedging transactions by the fund involve the
risk of imperfect correlation between changes in the values of
the currencies to which such transactions relate and changes in
the value of the currency or other asset or liability which is
the subject of the hedge.
The value of any currency, including U.S. dollars and foreign
currencies, may be affected by complex political and economic
factors applicable to the issuing country. In addition, the
exchange rates of foreign currencies (and therefore the values of
foreign currency options, forward contracts and futures
contracts) may be affected significantly, fixed, or supported
directly or indirectly by U.S. and foreign government actions.
Government intervention may increase risks involved in purchasing
or selling foreign currency options, forward contracts and
futures contracts, since exchange rates may not be free to
fluctuate in response to other market forces.
The value of a foreign currency option, forward contract or
futures contract reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar
and the foreign currency in question. Because foreign currency
transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in
the exercise of foreign currency options, forward contracts and
futures contracts, investors may be disadvantaged by having to
deal in an odd-lot market for the underlying foreign currencies
in connection with options at prices that are less favorable than
for round lots. Foreign governmental restrictions or taxes could
result in adverse changes in the cost of acquiring or disposing
of foreign currencies.
There is no systematic reporting of last sale information for
foreign currencies and there is no regulatory requirement that
quotations available through dealers or other market sources be
firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot
transactions in the interbank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1
million) where rates may be less favorable. The interbank market
in foreign currencies is a global, around-the-clock market. To
the extent that options markets are closed while the markets for
the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be
reflected in the options markets.
CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign
currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number
of days from the date of the contract as agreed by the parties,
at a price set at the time of the contract. In the case of a
cancelable forward contract, the holder has the unilateral right
to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial
banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage
for trades. A foreign currency futures contract is a
standardized contract for the future delivery of a specified
amount of a foreign currency at a price set at the time of the
contract. Foreign currency futures contracts traded in the
United States are designed by and traded on exchanges regulated
by the CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the
maturity date of a forward contract may be any fixed number of
days from the date of the contract agreed upon by the parties,
rather than a predetermined date in a given month. Forward
contracts may be in any amounts agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange
contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires
no margin or other deposit.
At the maturity of a forward or futures contract, the fund either
may accept or make delivery of the currency specified in the
contract, or at or prior to maturity enter into a closing
transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts
are usually effected with the currency trader who is a party to
the original forward contract. Closing transactions with respect
to futures contracts are effected on a commodities exchange; a
clearing corporation associated with the exchange assumes
responsibility for closing out such contracts.
Positions in the foreign currency futures contracts may be closed
out only on an exchange or board of trade which provides a
secondary market in such contracts. Although the fund intends to
purchase or sell foreign currency futures contracts only on
exchanges or boards of trade where there appears to be an active
secondary market, there is no assurance that a secondary market
on an exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be
possible to close a futures position and, in the event of adverse
price movements, the fund would continue to be required to make
daily cash payments of variation margin.
FOREIGN CURRENCY OPTIONS. In general, options on foreign
currencies operate similarly to options on securities and are
subject to many of the risks described above. Foreign currency
options are traded primarily in the over-the-counter market,
although options on foreign currencies are also listed on several
exchanges. Options are traded not only on the currencies of
individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of
currencies, and is the official medium of exchange of the
European Community's European Monetary System.
The fund will only purchase or write foreign currency options
when Putnam Management believes that a liquid secondary market
exists for such options. There can be no assurance that a liquid
secondary market will exist for a particular option at any
specific time. Options on foreign currencies are affected by all
of those factors which influence foreign exchange rates and
investments generally.
SETTLEMENT PROCEDURES. Settlement procedures relating to the
fund's investments in foreign securities and to the fund's
foreign currency exchange transactions may be more complex than
settlements with respect to investments in debt or equity
securities of U.S. issuers, and may involve certain risks not
present in the fund's domestic investments. For example,
settlement of transactions involving foreign securities or
foreign currencies may occur within a foreign country, and the
fund may be required to accept or make delivery of the underlying
securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay
any fees, taxes or charges associated with such delivery. Such
investments may also involve the risk that an entity involved in
the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers
do not charge a fee for currency conversion, they do realize a
profit based on the difference (the "spread") between prices at
which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to the fund at one
rate, while offering a lesser rate of exchange should the fund
desire to resell that currency to the dealer.
RESTRICTED SECURITIES
The SEC Staff currently takes the view that any delegation by the
Trustees of the authority to determine that a restricted security
is readily marketable (as described in the investment
restrictions of the funds) must be pursuant to written procedures
established by the Trustees. It is the present intention of the
funds' Trustees that, if the Trustees decide to delegate such
determinations to Putnam Management or another person, they would
do so pursuant to written procedures, consistent with the Staff's
position. Should the Staff modify its position in the future,
the Trustees would consider what action would be appropriate in
light of the Staff's position at that time.
TAXES
TAXATION OF THE FUND. The fund intends to qualify each year as a
regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). In order so to
qualify and to qualify for the special tax treatment accorded
regulated investment companies and their shareholders, the fund
must, among other things:
(a) Derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and
gains from the sale of stock, securities and foreign currencies,
or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its
business of investing in such stock, securities, or currencies;
(b) derive less than 30% of its gross income from the sale or
other disposition of certain assets (including stock or
securities and certain options, futures contracts, forward
contracts and foreign currencies) held for less than three
months;
(c) distribute with respect to each taxable year at least 90% of
the sum of its taxable net investment income, its net tax-exempt
income, and the excess, if any, of net short-term capital gains
over net long-term capital losses for such year; and
(d) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the fund's
assets is represented by cash and cash items, U.S. government
securities, securities of other regulated investment companies,
and other securities limited in respect of any one issuer to a
value not greater than 5% of the value of the fund's total assets
and to not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities (other than those of the
U.S. Government or other regulated investment companies) of any
one issuer or of two or more issuers which the fund controls and
which are engaged in the same, similar, or related trades or
businesses.
If the fund qualifies as a regulated investment company that is
accorded special tax treatment, the fund will not be subject to
federal income tax on income paid to its shareholders in the form
of dividends (including capital gain dividends).
If the fund failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the fund
would be subject to tax on its taxable income at corporate rates,
and all distributions from earnings and profits, including any
distributions of net tax-exempt income and net long-term capital
gains, would be taxable to shareholders as ordinary income. In
addition, the fund could be required to recognize unrealized
gains, pay substantial taxes and interest and make substantial
distributions before requalifying as a regulated investment
company that is accorded special tax treatment.
If the fund fails to distribute in a calendar year substantially
all of its ordinary income for such year and substantially all of
its capital gain net income for the one-year period ending
October 31 (or later if the fund is permitted so to elect and so
elects), plus any retained amount from the prior year, the fund
will be subject to a 4% excise tax on the undistributed amounts.
A dividend paid to shareholders by the fund in January of a year
generally is deemed to have been paid by the fund on December 31
of the preceding year, if the dividend was declared and payable
to shareholders of record on a date in October, November or
December of that preceding year. The fund intends generally to
make distributions sufficient to avoid imposition of the 4%
excise tax.
EXEMPT-INTEREST DIVIDENDS. The fund will be qualified to pay
exempt-interest dividends to its shareholders only if, at the
close of each quarter of the fund's taxable year, at least 50% of
the total value of the fund's assets consists of obligations the
interest on which is exempt from federal income tax.
Distributions that the fund properly designates as exempt-
interest dividends are treated as interest excludable from
shareholders' gross income for federal income tax purposes but
may be taxable for federal alternative minimum tax purposes and
for state and local purposes. If the fund intends to be
qualified to pay exempt-interest dividends, the fund may be
limited in its ability to enter into taxable transactions
involving forward commitments, repurchase agreements, financial
futures and options contracts on financial futures, tax-exempt
bond indices and other assets.
Part or all of the interest on indebtedness, if any, incurred or
continued by a shareholder to purchase or carry shares of a fund
paying exempt-interest dividends is not deductible. The portion
of interest that is not deductible is equal to the total interest
paid or accrued on the indebtedness, multiplied by the percentage
of the fund's total distributions (not including distributions
from net long-term capital gains) paid to the shareholder that
are exempt-interest dividends. Under rules used by the Internal
Revenue Service for determining when borrowed funds are
considered used for the purpose of purchasing or carrying
particular assets, the purchase of shares may be considered to
have been made with borrowed funds even though such funds are not
directly traceable to the purchase of shares.
In general, exempt-interest dividends, if any, attributable to
interest received on certain private activity obligations and
certain industrial development bonds will not be tax-exempt to
any shareholders who are "substantial users" of the facilities
financed by such obligations or bonds or who are "related
persons" of such substantial users.
A fund which is qualified to pay exempt-interest dividends will
inform investors within 60 days of the fund's fiscal year-end of
the percentage of its income distributions designated as
tax-exempt. The percentage is applied uniformly to all
distributions made during the year. The percentage of income
designated as tax-exempt for any particular distribution may be
substantially different from the percentage of the fund's income
that was tax-exempt during the period covered by the
distribution.
HEDGING TRANSACTIONS. If the fund engages in hedging
transactions, including hedging transactions in options, futures
contracts, and straddles, or other similar transactions, it will
be subject to special tax rules (including mark-to-market,
straddle, wash sale, and short sale rules), the effect of which
may be to accelerate income to the fund, defer losses to the
fund, cause adjustments in the holding periods of the fund's
securities, or convert short-term capital losses into long-term
capital losses. These rules could therefore affect the amount,
timing and character of distributions to shareholders. The fund
will endeavor to make any available elections pertaining to such
transactions in a manner believed to be in the best interests of
the fund.
Under the 30% of gross income test described above (see "Taxation
of the fund"), the fund will be restricted in selling assets held
or considered under Code rules to have been held for less than
three months, and in engaging in certain hedging transactions
(including hedging transactions in options and futures) that in
some circumstances could cause certain fund assets to be treated
as held for less than three months.
Certain of the fund's hedging activities (including its
transactions, if any, in foreign currencies or foreign
currency-denominated instruments) are likely to produce a
difference between its book income and its taxable income. If
the fund's book income exceeds its taxable income, the
distribution (if any) of such excess will be treated as (i) a
dividend to the extent of the fund's remaining earnings and
profits (including earnings and profits arising from tax-exempt
income), (ii) thereafter as a return of capital to the extent of
the recipient's basis in the shares, and (iii) thereafter as gain
from the sale or exchange of a capital asset. If the fund's book
income is less than its taxable income, the fund could be
required to make distributions exceeding book income to qualify
as a regulated investment company that is accorded special tax
treatment.
RETURN OF CAPITAL DISTRIBUTIONS. If the fund makes a
distribution to you in excess of its current and accumulated
"earnings and profits" in any taxable year, the excess
distribution will be treated as a return of capital to the extent
of your tax basis in your shares, and thereafter as capital gain.
A return of capital is not taxable, but it reduces your tax basis
in your shares, thus reducing any loss or increasing any gain on
a subsequent taxable disposition by you of your shares.
SECURITIES ISSUED OR PURCHASED AT A DISCOUNT. The fund's
investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a
discount may) require the fund to accrue and distribute income
not yet received. In order to generate sufficient cash to make
the requisite distributions, the fund may be required to sell
securities in its portfolio that it otherwise would have
continued to hold.
CAPITAL LOSS CARRYOVER. Distributions from capital gains are
made after applying any available capital loss carryovers. The
amounts and expiration dates of any capital loss carryovers
available to the fund are shown in Note 1 (Federal income taxes)
to the financial statements included in Part I of this SAI or
incorporated by reference into this SAI.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING
TRANSACTIONS. The fund's transactions in foreign currencies,
foreign currency-denominated debt securities and certain foreign
currency options, futures contracts and forward contracts (and
similar instruments) may give rise to ordinary income or loss to
the extent such income or loss results from fluctuations in the
value of the foreign currency concerned.
If more than 50% of the fund's assets at year end consists of the
debt and equity securities of foreign corporations, the fund may
elect to permit shareholders to claim a credit or deduction on
their income tax returns for their pro rata portion of qualified
taxes paid by the fund to foreign countries. In such a case,
shareholders will include in gross income from foreign sources
their pro rata shares of such taxes. A shareholder's ability to
claim a foreign tax credit or deduction in respect of foreign
taxes paid by the fund may be subject to certain limitations
imposed by the Code, as a result of which a shareholder may not
get a full credit or deduction for the amount of such taxes.
Shareholders who do not itemize on their federal income tax
returns may claim a credit (but no deduction) for such foreign
taxes.
Investment by the fund in "passive foreign investment companies"
could subject the fund to a U.S. federal income tax or other
charge on the proceeds from the sale of its investment in such a
company; however, this tax can be avoided by making an election
to mark such investments to market annually or to treat the
passive foreign investment company as a "qualified electing
fund."
A "passive foreign investment company" is any foreign
corporation: (i) 75 percent of more of the income of which for
the taxable year is passive income, or (ii) the average
percentage of the assets of which (generally by value, but by
adjusted tax basis in certain cases) that produce or are held for
the production of passive income is at least 50 percent.
Generally, passive income for this purpose means dividends,
interest (including income equivalent to interest), royalties,
rents, annuities, the excess of gains over losses from certain
property transactions and commodities transactions, and foreign
currency gains. Passive income for this purpose does not include
rents and royalties received by the foreign corporation from
active business and certain income received from related persons.
SALE OR REDEMPTION OF SHARES. The sale, exchange or redemption
of fund shares may give rise to a gain or loss. In general, any
gain or loss realized upon a taxable disposition of shares will
be treated as long-term capital gain or loss if the shares have
been held for more than 12 months, and otherwise as short-term
capital gain or loss. However, if a shareholder sells shares at
a loss within six months of purchase, any loss will be disallowed
for Federal income tax purposes to the extent of any exempt-
interest dividends received on such shares. In addition, any
loss (not already disallowed as provided in the preceding
sentence) realized upon a taxable disposition of shares held for
six months or less will be treated as long-term, rather than
short-term, to the extent of any long-term capital gain
distributions received by the shareholder with respect to the
shares. All or a portion of any loss realized upon a taxable
disposition of fund shares will be disallowed if other shares of
the same fund are purchased within 30 days before or after the
disposition. In such a case, the basis of the newly purchased
shares will be adjusted to reflect the disallowed loss.
SHARES PURCHASED THROUGH TAX-QUALIFIED PLANS. Special tax rules
apply to investments though defined contribution plans and other
tax-qualified plans. Shareholders should consult their tax
adviser to determine the suitability of shares of a fund as an
investment through such plans and the precise effect of an
investment on their particular tax situation.
BACKUP WITHHOLDING. The fund generally is required to withhold
and remit to the U.S. Treasury 31% of the taxable dividends and
other distributions paid to any individual shareholder who fails
to furnish the fund with a correct taxpayer identification number
(TIN), who has under-reported dividends or interest income, or
who fails to certify to the fund that he or she is not subject to
such withholding. Shareholders who fail to furnish their correct
TIN are subject to a penalty of $50 for each such failure unless
the failure is due to reasonable cause and not wilful neglect.
An individual's taxpayer identification number is his or her
social security number.
MANAGEMENT
TRUSTEES NAME (AGE)
*+GEORGE PUTNAM (69), Chairman and President. Chairman and
Director of Putnam Management and Putnam Mutual Funds. Director,
The Boston Company, Inc., Boston Safe Deposit and Trust Company,
Freeport-McMoRan, Inc., Freeport Copper and Gold, Inc., McMoRan
Oil and Gas, Inc., General Mills, Inc., Houghton Mifflin Company,
Marsh & McLennan Companies, Inc. and Rockefeller Group, Inc.
+WILLIAM F. POUNDS (68), Vice Chairman. Professor of Management,
Alfred P. Sloan School of Management, Massachusetts Institute of
Technology. Director of EG&G, Inc., IDEXX Laboratories, Inc.,
Perseptive Biosystems, Inc., Management Sciences for Health,
Inc., and Sun Company, Inc.
JAMESON A. BAXTER (52), Trustee. President, Baxter Associates,
Inc. (a management and financial consultant). Director of
Avondale Federal Savings Bank, ASHTA Chemicals, Inc. and Banta
Corporation. Chairman Emeritus of the Board of Trustees, Mount
Holyoke College.
+HANS H. ESTIN (67), Trustee. Vice Chairman, North American
Management Corp. (a registered investment adviser). Director of
The Boston Company, Inc. and Boston Safe Deposit and Trust
Company.
JOHN A. HILL (54), Trustee. Chairman and Managing Director,
First Reserve Corporation (a registered investment adviser).
Director, Maverick Tube Corporation, PetroCorp Incorporated,
Snyder Oil Corporation, Weatherford Enterra, Inc. (an oil field
service company) and various First Reserve Funds.
RONALD J. JACKSON (52), Trustee. Former Chairman, President and
Chief Executive Officer of Fisher-Price, Inc. Trustee of Salem
Hospital and Overseer of the Peabody Essex Museum.
ELIZABETH T. KENNAN (58), Trustee. President Emeritus and
Professor, Mount Holyoke College. Director, the Kentucky Home
Life Insurance Companies, NYNEX Corporation, Northeast Utilities
and Talbots. Trustee of the University of Notre Dame.
*LAWRENCE J. LASSER (53), 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.
+ROBERT E. PATTERSON (51), Trustee. Executive Vice President and
Director of Acquisitions, Cabot Partners Limited Partnership (a
registered investment adviser).
*DONALD S. PERKINS (69), Trustee. Director of various
corporations, including AON Corp., Cummins Engine Company, Inc.,
Current Assets L.L.C., Illinova and Illinois Power Company,
Inland Steel Industries, Inc., LaSalle Street Fund, Inc., Lucent
Technologies Inc., Springs Industries, Inc. (a textile
manufacturer), and Time Warner Inc.
*#GEORGE PUTNAM III (44), Trustee. President, New Generation
Research, Inc. (publisher of bankruptcy information) and New
Generation Advisers, Inc. (a registered investment adviser).
ELI SHAPIRO (79), Trustee. Alfred P. Sloan Professor of
Management, Emeritus, Alfred P. Sloan School of Management,
Massachusetts Institute of Technology. Director of Nomura
Dividend Fund, Inc. (a privately held registered investment
company managed by Putnam Management) and former Trustee of the
Putnam funds (1984-1990).
*A.J.C. SMITH (62), Trustee. Chairman and Chief Executive
Officer, Marsh & McLennan Companies, Inc. Director, Trident
Corp.
W. NICHOLAS THORNDIKE (63), Trustee. Director of various
corporations and charitable organizations, including Courier
Corporation, Data General Corporation, Bradley Real Estate, Inc.,
and Providence Journal Co.
OFFICERS NAME (AGE)
CHARLES E. PORTER (57), Executive Vice President. Managing
Director of Putnam Investments, Inc. and Putnam Management.
PATRICIA C. FLAHERTY (49), Senior Vice President. Senior Vice
President of Putnam Investments, Inc. and Putnam Management.
WILLIAM N. SHIEBLER (54), Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. President and
Director of Putnam Mutual Funds.
GORDON H. SILVER (48), Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. and Putnam
Management.
JOHN R. VERANI (56), Vice President. Senior Vice President of
Putnam Investments, Inc. and Putnam Management.
PAUL M. O'NEIL (42), Vice President. Vice President of Putnam
Investments, Inc. and Putnam Management.
JOHN D. HUGHES (61), Vice President and Treasurer.
BEVERLY MARCUS (51), Clerk and Assistant Treasurer.
*Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund,
Putnam Management or Putnam Mutual Funds.
+Members of the Executive Committee of the Trustees. The
Executive Committee meets between regular meetings of the
Trustees as may be required to review investment matters and
other affairs of the fund and may exercise all of the powers of
the Trustees.
#George Putnam, III is the son of George Putnam.
-----------------
Certain other officers of Putnam Management are officers of the
fund. SEE "ADDITIONAL OFFICERS" IN PART I OF THIS SAI. The
mailing address of each of the officers and Trustees is One Post
Office Square, Boston, Massachusetts 02109.
Except as stated below, the principal occupations of the officers
and Trustees for the last five years have been with the employers
as shown above, although in some cases they have held different
positions with such employers. Prior to 1993, Mr. Jackson was
Chairman of the Board, President and Chief Executive Officer of
Fisher-Price, Inc. Prior to January, 1992, Ms. Baxter was Vice
President and Principal, Regency Group, Inc. and Consultant, The
First Boston Corporation. Prior to May, 1991, Dr. Pounds was
Senior Advisor to the Rockefeller Family and Associates, Chairman
of Rockefeller Trust Company and Director of Rockefeller Group,
Inc. During the past five years Dr. Shapiro has provided
economic and financial consulting services to various clients.
Each Trustee of the fund receives an annual fee and an additional
fee for each Trustees' meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on
committees of the Trustees receive additional fees for attendance
at certain committee meetings and for special services rendered
in that connection. All of the Trustees are Trustees of all the
Putnam funds and each receives fees for his or her services. FOR
DETAILS OF TRUSTEES' FEES PAID BY THE FUND AND INFORMATION
CONCERNING RETIREMENT GUIDELINES FOR THE TRUSTEES, SEE "CHARGES
AND EXPENSES" IN PART I OF THIS SAI.
The Agreement and Declaration of Trust of the fund provides that
the fund will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the
fund, except if it is determined in the manner specified in the
Agreement and Declaration of Trust that they have not acted in
good faith in the reasonable belief that their actions were in
the best interests of the fund or that such indemnification would
relieve any officer or Trustee of any liability to the fund or
its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of his or her duties. The
fund, at its expense, provides liability insurance for the
benefit of its Trustees and officers.
PUTNAM MANAGEMENT AND ITS AFFILIATES
Putnam Management is one of America's oldest and largest money
management firms. Putnam Management's staff of experienced
portfolio managers and research analysts selects securities and
constantly supervises the fund's portfolio. By pooling an
investor's money with that of other investors, a greater variety
of securities can be purchased than would be the case
individually; the resulting diversification helps reduce
investment risk. Putnam Management has been managing mutual funds
since 1937. Today, the firm serves as the investment manager for
the funds in the Putnam Family, with over $113 billion in assets
in over 6.2 million shareholder accounts at June 30, 1996. 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, 1996, Putnam Management and its affiliates managed
nearly $149 billion in assets, including over $17 billion in tax-
exempt securities and over $66 billion in retirement plan assets.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., a holding
company which is in turn wholly owned by Marsh & McLennan
Companies, Inc., a publicly-owned holding company whose principal
operating subsidiaries are international insurance and
reinsurance brokers, investment managers and management
consultants.
Trustees and officers of the fund who are also officers of Putnam
Management or its affiliates or who are stockholders of Marsh &
McLennan Companies, Inc. will benefit from the advisory fees,
sales commissions, distribution fees, custodian fees and transfer
agency fees paid or allowed by the fund.
THE MANAGEMENT CONTRACT
Under a Management Contract between the fund and Putnam
Management, subject to such policies as the Trustees may
determine, Putnam Management, at its expense, furnishes
continuously an investment program for the fund and makes
investment decisions on behalf of the fund. Subject to the
control of the Trustees, Putnam Management also manages,
supervises and conducts the other affairs and business of the
fund, furnishes office space and equipment, provides bookkeeping
and clerical services (including determination of the fund's net
asset value, but excluding shareholder accounting services) and
places all orders for the purchase and sale of the fund's
portfolio securities. Putnam Management may place fund portfolio
transactions with broker-dealers which furnish Putnam Management,
without cost to it, certain research, statistical and quotation
services of value to Putnam Management and its affiliates in
advising the fund and other clients. In so doing, Putnam
Management may cause the fund to pay greater brokerage
commissions than it might otherwise pay.
FOR DETAILS OF PUTNAM MANAGEMENT'S COMPENSATION UNDER THE
MANAGEMENT CONTRACT, SEE "CHARGES AND EXPENSES" IN PART I OF THIS
SAI. Putnam Management's compensation under the Management
Contract may be reduced in any year if the fund's expenses exceed
the limits on investment company expenses imposed by any statute
or regulatory authority of any jurisdiction in which shares of
the fund are qualified for offer or sale. The term "expenses" is
defined in the statutes or regulations of such jurisdictions, and
generally excludes brokerage commissions, taxes, interest,
extraordinary expenses and, if the fund has a distribution plan,
payments made under such plan. The only such limitation as of
the date of this SAI (applicable to any fund registered for sale
in California) was 2.5% of the first $30 million of average net
assets, 2% of the next $70 million and 1.5% of any excess over
$100 million.
Under the Management Contract, Putnam Management may reduce its
compensation to the extent that the fund's expenses exceed such
lower expense limitation as Putnam Management may, by notice to
the fund, declare to be effective. The expenses subject to this
limitation are exclusive of brokerage commissions, interest,
taxes, deferred organizational and extraordinary expenses and,
if the fund has a distribution plan, payments required under such
plan. For the purpose of determining any such limitation on
Putnam Management's compensation, expenses of the fund shall not
reflect the application of commissions or cash management credits
that may reduce designated fund expenses. THE TERMS OF ANY
EXPENSE LIMITATION FROM TIME TO TIME IN EFFECT ARE DESCRIBED IN
EITHER THE PROSPECTUS OR PART I OF THIS SAI.
In addition to the fee paid to Putnam Management, the fund
reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their assistants who
provide certain administrative services for the fund and the
other Putnam funds, each of which bears an allocated share of the
foregoing costs. The aggregate amount of all such payments and
reimbursements is determined annually by the Trustees.
THE AMOUNT OF THIS REIMBURSEMENT FOR THE FUND'S MOST RECENT
FISCAL YEAR IS INCLUDED IN "CHARGES AND EXPENSES" IN PART I OF
THIS SAI. Putnam Management pays all other salaries of officers
of the fund. The fund pays all expenses not assumed by Putnam
Management including, without limitation, auditing, legal,
custodial, investor servicing and shareholder reporting expenses.
The fund pays the cost of typesetting for its prospectuses and
the cost of printing and mailing any prospectuses sent to its
shareholders. Putnam Mutual Funds pays the cost of printing and
distributing all other prospectuses.
The Management Contract provides that Putnam Management shall not
be subject to any liability to the fund or to any shareholder of
the fund for any act or omission in the course of or connected
with rendering services to the fund in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
its duties on the part of Putnam Management.
The Management Contract may be terminated without penalty by vote
of the Trustees or the shareholders of the fund, or by Putnam
Management, on 30 days' written notice. It may be amended only
by a vote of the shareholders of the fund. The Management
Contract also terminates without payment of any penalty in the
event of its assignment. The Management Contract provides that
it will continue in effect only so long as such continuance is
approved at least annually by vote of either the Trustees or the
shareholders, and, in either case, by a majority of the Trustees
who are not "interested persons" of Putnam Management or the
fund. In each of the foregoing cases, the vote of the
shareholders is the affirmative vote of a "majority of the
outstanding voting securities" as defined in the Investment
Company Act of 1940.
PERSONAL INVESTMENTS BY EMPLOYEES OF PUTNAM MANAGEMENT
Employees of Putnam Management are permitted to engage in
personal securities transactions, subject to requirements and
restrictions set forth in Putnam Management's Code of Ethics.
The Code of Ethics contains provisions and requirements designed
to identify and address certain conflicts of interest between
personal investment activities and the interests of investment
advisory clients such as the funds. Among other things, the Code
of Ethics, consistent with standards recommended by the
Investment Company Institute's Advisory Group on Personal
Investing, prohibits certain types of transactions absent prior
approval, imposes time periods during which personal transactions
may not be made in certain securities, and requires the
submission of duplicate broker confirmations and quarterly
reporting of securities transactions. Additional restrictions
apply to portfolio managers, traders, research analysts and
others involved in the investment advisory process. Exceptions
to these and other provisions of the Code of Ethics may be
granted in particular circumstances after review by appropriate
personnel.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. Investment decisions for the fund and for
the other investment advisory clients of Putnam Management and
its affiliates are made with a view to achieving their respective
investment objectives. Investment decisions are the product of
many factors in addition to basic suitability for the particular
client involved. Thus, a particular security may be bought or
sold for certain clients even though it could have been bought or
sold for other clients at the same time. Likewise, a particular
security may be bought for one or more clients when one or more
other clients are selling the security. In some instances, one
client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously
purchase or sell the same security, in which event each day's
transactions in such security are, insofar as possible, averaged
as to price and allocated between such clients in a manner which
in Putnam Management's opinion is equitable to each and in
accordance with the amount being purchased or sold by each.
There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on
other clients.
BROKERAGE AND RESEARCH SERVICES. Transactions on U.S. stock
exchanges, commodities markets and futures markets and other
agency transactions involve the payment by the fund of negotiated
brokerage commissions. Such commissions vary among different
brokers. A particular broker may charge different commissions
according to such factors as the difficulty and size of the
transaction. Transactions in foreign investments often involve
the payment of fixed brokerage commissions, which may be higher
than those in the United States. There is generally no stated
commission in the case of securities traded in the
over-the-counter markets, but the price paid by the fund usually
includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the fund includes a
disclosed, fixed commission or discount retained by the
underwriter or dealer. It is anticipated that most purchases and
sales of securities by funds investing primarily in tax-exempt
securities and certain other fixed-income securities will be with
the issuer or with underwriters of or dealers in those
securities, acting as principal. Accordingly, those funds would
not ordinarily pay significant brokerage commissions with respect
to securities transactions. SEE "CHARGES AND EXPENSES" IN PART I
OF THIS SAI FOR INFORMATION CONCERNING COMMISSIONS PAID BY THE
FUND.
It has for many years been a common practice in the investment
advisory business for advisers of investment companies and other
institutional investors to receive brokerage and research
services (as defined in the Securities Exchange Act of 1934, as
amended (the "1934 Act")) from broker-dealers that execute
portfolio transactions for the clients of such advisers and from
third parties with which such broker-dealers have arrangements.
Consistent with this practice, Putnam Management receives
brokerage and research services and other similar services from
many broker-dealers with which Putnam Management places the
fund's portfolio transactions and from third parties with which
these broker-dealers have arrangements. These services include
such matters as general economic and market reviews, industry and
company reviews, evaluations of investments, recommendations as
to the purchase and sale of investments, newspapers, magazines,
pricing services, quotation services, news services and personal
computers utilized by Putnam Management's managers and analysts.
Where the services referred to above are not used exclusively by
Putnam Management for research purposes, Putnam Management, based
upon its own allocations of expected use, bears that portion of
the cost of these services which directly relates to their
non-research use. Some of these services are of value to Putnam
Management and its affiliates in advising various of their
clients (including the fund), although not all of these services
are necessarily useful and of value in managing the fund. The
management fee paid by the fund is not reduced because Putnam
Management and its affiliates receive these services even though
Putnam Management might otherwise be required to purchase some of
these services for cash.
Putnam Management places all orders for the purchase and sale of
portfolio investments for the fund and buys and sells investments
for the fund through a substantial number of brokers and dealers.
In so doing, Putnam Management uses its best efforts to obtain
for the fund the most favorable price and execution available,
except to the extent it may be permitted to pay higher brokerage
commissions as described below. In seeking the most favorable
price and execution, Putnam Management, having in mind the fund's
best interests, considers all factors it deems relevant,
including, by way of illustration, price, the size of the
transaction, the nature of the market for the security or other
investment, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the
broker-dealer involved and the quality of service rendered by the
broker-dealer in other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the
Management Contract, Putnam Management may cause the fund to pay
a broker-dealer which provides "brokerage and research services"
(as defined in the 1934 Act) to Putnam Management an amount of
disclosed commission for effecting securities transactions on
stock exchanges and other transactions for the fund on an agency
basis in excess of the commission which another broker-dealer
would have charged for effecting that transaction. Putnam
Management's authority to cause the fund to pay any such greater
commissions is also subject to such policies as the Trustees may
adopt from time to time. Putnam Management does not currently
intend to cause the fund to make such payments. It is the
position of the staff of the Securities and Exchange Commission
that Section 28(e) does not apply to the payment of such greater
commissions in "principal" transactions. Accordingly Putnam
Management will use its best effort to obtain the most favorable
price and execution available with respect to such transactions,
as described above.
The Management Contract provides that commissions, fees,
brokerage or similar payments received by Putnam Management or an
affiliate in connection with the purchase and sale of portfolio
investments of the fund, less any direct expenses approved by the
Trustees, shall be recaptured by the fund through a reduction of
the fee payable by the fund under the Management Contract.
Putnam Management seeks to recapture for the fund soliciting
dealer fees on the tender of the fund's portfolio securities in
tender or exchange offers. Any such fees which may be recaptured
are likely to be minor in amount.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and subject to seeking
the most favorable price and execution available and such other
policies as the Trustees may determine, Putnam Management may
consider sales of shares of the fund (and, if permitted by law,
of the other Putnam funds) as a factor in the selection of
broker-dealers to execute portfolio transactions for the fund.
PRINCIPAL UNDERWRITER
Putnam Mutual Funds is the principal underwriter of shares of the
fund and the other continuously offered Putnam funds. Putnam
Mutual Funds is not obligated to sell any specific amount of
shares of the fund and will purchase shares for resale only
against orders for shares. SEE "CHARGES AND EXPENSES" IN PART I
OF THIS SAI FOR INFORMATION ON SALES CHARGES AND OTHER PAYMENTS
RECEIVED BY PUTNAM MUTUAL FUNDS.
INVESTOR SERVICING AGENT AND CUSTODIAN
Putnam Investor Services, a division of Putnam Fiduciary Trust
Company ("PFTC"), is the fund's investor servicing agent
(transfer, plan and dividend disbursing agent), for which it
receives fees which are paid monthly by the fund as an expense of
all its shareholders. The fee paid to Putnam Investor Services
is determined on the basis of the number of shareholder accounts,
the number of transactions and the assets of the fund. Putnam
Investor Services has won the DALBAR Quality Tested Service Seal
every year since the award's 1990 inception. Over 10,000 tests
of 38 separate shareholder service components demonstrated that
Putnam Investor Services tied for highest scores, with two other
mutual fund companies, in all categories.
PFTC is the custodian of the fund's assets. In carrying out its
duties under its custodian contract, PFTC may employ one or more
subcustodians whose responsibilities include safeguarding and
controlling the fund's cash and securities, handling the receipt
and delivery of securities and collecting interest and dividends
on the fund's investments. PFTC and any subcustodians employed
by it have a lien on the securities of the fund (to the extent
permitted by the fund's investment restrictions) to secure
charges and any advances made by such subcustodians at the end of
any day for the purpose of paying for securities purchased by the
fund. The fund expects that such advances will exist only in
unusual circumstances. Neither PFTC nor any subcustodian
determines the investment policies of the fund or decides which
securities the fund will buy or sell. PFTC pays the fees and
other charges of any subcustodians employed by it. The fund may
from time to time pay custodial expenses in full or in part
through the placement by Putnam Management of the fund's
portfolio transactions with the subcustodians or with a third-
party broker having an agreement with the subcustodians. The
fund pays PFTC an annual fee based on the fund's assets,
securities transactions and securities holdings and reimburses
PFTC for certain out-of-pocket expenses incurred by it or any
subcustodian employed by it in performing custodial services.
SEE "CHARGES AND EXPENSES" IN PART I OF THIS SAI FOR INFORMATION
ON FEES AND REIMBURSEMENTS FOR INVESTOR SERVICING AND CUSTODY
RECEIVED BY PFTC. THE FEES MAY BE REDUCED BY CREDITS ALLOWED BY
PFTC.
DETERMINATION OF NET ASSET VALUE
The fund determines the net asset value per share of each class
of shares once each day the New York Stock Exchange (the
"Exchange") is open. Currently, the Exchange is closed
Saturdays, Sundays and the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, the Fourth of July,
Labor Day, Thanksgiving and Christmas. The fund determines net
asset value as of the close of regular trading on the Exchange,
currently 4:00 p.m. However, equity options held by the fund are
priced as of the close of trading at 4:10 p.m., and futures
contracts on U.S. government and other fixed-income securities
and index options held by the fund are priced as of their close
of trading at 4:15 p.m.
Securities for which market quotations are readily available are
valued at prices which, in the opinion of Putnam Management, most
nearly represent the market values of such securities.
Currently, such prices are determined using the last reported
sale price or, if no sales are reported (as in the case of some
securities traded over-the-counter), the last reported bid price,
except that certain securities are valued at the mean between the
last reported bid and asked prices. Short-term investments
having remaining maturities of 60 days or less are valued at
amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following
procedures approved by the Trustees. Liabilities are deducted
from the total, and the resulting amount is divided by the number
of shares of the class outstanding.
Reliable market quotations are not considered to be readily
available for long-term corporate bonds and notes, certain
preferred stocks, tax-exempt securities, and certain foreign
securities. These investments are valued at fair value on the
basis of valuations furnished by pricing services, which
determine valuations for normal, institutional-size trading units
of such securities using methods based on market transactions for
comparable securities and various relationships between
securities which are generally recognized by institutional
traders.
If any securities held by the fund are restricted as to resale,
Putnam Management determines their fair value following
procedures approved by the Trustees. The fair value of such
securities is generally determined as the amount which the fund
could reasonably expect to realize from an orderly disposition of
such securities over a reasonable period of time. The valuation
procedures applied in any specific instance are likely to vary
from case to case. However, consideration is generally given to
the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of
the restrictions on disposition of the securities (including any
registration expenses that might be borne by the fund in
connection with such disposition). In addition, specific factors
are also generally considered, such as the cost of the
investment, the market value of any unrestricted securities of
the same class, the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any
available analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign
securities) is substantially completed each day at various times
prior to the close of the Exchange. The values of these
securities used in determining the net asset value of the fund's
shares are computed as of such times. Also, because of the
amount of time required to collect and process trading
information as to large numbers of securities issues, the values
of certain securities (such as convertible bonds, U.S. government
securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest
practicable time prior to the close of the Exchange.
Occasionally, events affecting the value of such securities may
occur between such times and the close of the Exchange which will
not be reflected in the computation of the fund's net asset
value. If events materially affecting the value of such
securities occur during such period, then these securities will
be valued at their fair value following procedures approved by
the Trustees.
Money market funds generally value their portfolio securities at
amortized cost according to Rule 2a-7 under the Investment
Company Act of 1940.
<PAGE>
HOW TO BUY SHARES
GENERAL
The prospectus contains a general description of how investors
may buy shares of the fund and states whether the fund offers
more than one class of shares. This SAI contains additional
information which may be of interest to investors.
Class A shares and class M shares are generally sold with a sales
charge payable at the time of purchase (except for class A shares
and class M shares of money market funds). As used in this SAI
and unless the context requires otherwise, the term "class A
shares" includes shares of funds that offer only one class of
shares. The prospectus contains a table of applicable sales
charges. For information about how to purchase class A or class
M shares of a Putnam fund at net asset value through an
employer's defined contribution plan, please consult your
employer. Certain purchases of class A shares and class M shares
may be exempt from a sales charge or, in the case of class A
shares, may be subject to a contingent deferred sales charge
("CDSC"). See "General--Sales without sales charges or
contingent deferred sales charges," "Additional Information About
Class A and Class M shares," and "Contingent Deferred Sales
Charges--Class A shares."
Class B shares and class C shares are sold subject to a CDSC
payable upon redemption within a specified period after purchase.
The prospectus contains a table of applicable CDSCs.
Class B shares will automatically convert into class A shares at
the end of the month eight years after the purchase date. Class
B shares acquired by exchanging class B shares of another Putnam
fund will convert into class A shares based on the time of the
initial purchase. Class B shares acquired through reinvestment
of distributions will convert into Class A shares based on the
date of the initial purchase to which such shares relate. For
this purpose, class B shares acquired through reinvestment of
distributions will be attributed to particular purchases of class
B shares in accordance with such procedures as the Trustees may
determine from time to time. The conversion of class B shares to
class A shares is subject to the condition that such conversions
will not constitute taxable events for Federal tax purposes.
Class Y shares, which are not subject to sales charges or a CDSC,
are available only to certain defined contribution plans. See
the prospectus that offers class Y shares for more information.
Certain purchase programs described below are not available to
defined contribution plans. Consult your employer for
information on how to purchase shares through your plan.
The fund is currently making a continuous offering of its shares.
The fund receives the entire net asset value of shares sold. The
fund will accept unconditional orders for shares to be executed
at the public offering price based on the net asset value per
share next determined after the order is placed. In the case of
class A shares and class M shares, the public offering price is
the net asset value plus the applicable sales charge, if any. No
sales charge is included in the public offering price of other
classes of shares. In the case of orders for purchase of shares
placed through dealers, the public offering price will be based
on the net asset value determined on the day the order is placed,
but only if the dealer receives the order before the close of
regular trading on the Exchange. If the dealer receives the
order after the close of the Exchange, the price will be based on
the net asset value next determined. If funds for the purchase
of shares are sent directly to Putnam Investor Services, they
will be invested at the public offering price based on the net
asset value next determined after receipt. Payment for shares of
the fund must be in U.S. dollars; if made by check, the check
must be drawn on a U.S. bank.
Initial and subsequent purchases must satisfy the minimums stated
in the prospectus, except that (i) individual investments under
certain employee benefit plans or Tax Qualified Retirement Plans
may be lower, (ii) persons who are already shareholders may make
additional purchases of $50 or more by sending funds directly to
Putnam Investor Services (see "Your investing account" below),
and (iii) for investors participating in systematic investment
plans and military allotment plans, the initial and subsequent
purchases must be $25 or more. Information about these plans is
available from investment dealers or from Putnam Mutual Funds.
As a convenience to investors, shares may be purchased through a
systematic investment plan. Pre-authorized monthly bank drafts
for a fixed amount (at least $25) are used to purchase fund
shares at the applicable public offering price next determined
after Putnam Mutual Funds receives the proceeds from the draft
(normally the 20th of each month, or the next business day
thereafter). Further information and application forms are
available from investment dealers or from Putnam Mutual Funds.
Except for funds that declare a distribution daily, distributions
to be reinvested are reinvested without a sales charge in shares
of the same class as of the ex-dividend date using the net asset
value determined on that date, and are credited to a
shareholder's account on the payment date. Dividends for Putnam
money market funds are credited to a shareholder's account on the
payment date. Distributions for all other funds that declare a
distribution daily are reinvested without a sales charge as of
the next day following the period for which distributions are
paid using the net asset value determined on that date, and are
credited to a shareholder's account on the payment date.
PAYMENT IN SECURITIES. In addition to cash, the fund may accept
securities as payment for fund shares at the applicable net asset
value. Generally, the fund will only consider accepting
securities to increase its holdings in a portfolio security, or
if Putnam Management determines that the offered securities are a
suitable investment for the fund and in a sufficient amount for
efficient management.
While no minimum has been established, it is expected that the
fund would not accept securities with a value of less than
$100,000 per issue as payment for shares. The fund may reject in
whole or in part any or all offers to pay for purchases of fund
shares with securities, may require partial payment in cash for
such purchases to provide funds for applicable sales charges, and
may discontinue accepting securities as payment for fund shares
at any time without notice. The fund will value accepted
securities in the manner described in the section "Determination
of Net Asset Value" for valuing shares of the fund. The fund
will only accept securities which are delivered in proper form.
The fund will not accept options or restricted securities as
payment for shares. The acceptance of securities by certain
funds in exchange for fund shares is subject to additional
requirements. In the case of Putnam American Government Income
Fund, Putnam Asia Pacific Growth Fund, Putnam Asset Allocation
Funds, Putnam Capital Appreciation Fund, Putnam Diversified
Equity Trust, Putnam Diversified Income Trust II, Putnam Equity
Income Fund, Putnam Europe Growth Fund, The Putnam Fund for
Growth & Income, Putnam Funds Trust, Putnam Global Governmental
Income Trust, Putnam Growth and Income Fund II, Putnam High Yield
Advantage Fund, Putnam Intermediate Tax Exempt Fund, Putnam
Investment Funds, Putnam Intermediate U.S. Government Income
Fund, Putnam Investment-Grade Bond Fund, Putnam Municipal Income
Fund, Putnam Natural Resources Fund, Putnam OTC Emerging Growth
Fund, Putnam Overseas Growth Fund, Putnam Preferred Income Fund,
Putnam Tax Exempt Income Fund and Putnam Tax-Free Income Trust,
transactions involving the issuance of fund shares for securities
or assets other than cash will be limited to a bona-fide re-
organization or statutory merger and to other acquisitions of
portfolio securities that meet all the following conditions: (a)
such securities meet the investment objective(s) and policies of
the fund; (b) such securities are acquired for investment and not
for resale; (c) such securities are liquid securities which are
not restricted as to transfer either by law or liquidity of
market; and (d) such securities have a value which is readily
ascertainable, as evidenced by a listing on the American Stock
Exchange, the New York Stock Exchange or The Nasdaq Stock Market,
Inc. In addition, Putnam Global Governmental Income Trust may
accept only investment grade bonds with prices regularly stated
in publications generally accepted by investors, such as the
London Financial Times and the Association of International Bond
Dealers manual, or securities listed on the New York or American
Stock Exchanges or on The Nasdaq Stock Market, Inc. Putnam
Diversified Income Trust may accept only bonds with prices
regularly stated in publications generally accepted by investors.
For federal income tax purposes, a purchase of fund shares with
securities will be treated as a sale or exchange of such
securities on which the investor will realize a taxable gain or
loss. The processing of a purchase of fund shares with
securities involves certain delays while the fund considers the
suitability of such securities and while other requirements are
satisfied. For information regarding procedures for payment in
securities, contact Putnam Mutual Funds. Investors should not
send securities to the fund except when authorized to do so and
in accordance with specific instructions received from Putnam
Mutual Funds.
SALES WITHOUT SALES CHARGES OR CONTINGENT DEFERRED SALES CHARGES.
The fund may sell shares without a sales charge or CDSC to:
(i) current and retired Trustees of the fund; officers of
the fund; directors and current and retired U.S. full-time
employees of Putnam Management, Putnam Mutual Funds, their
parent corporations and certain corporate affiliates;
family members of and employee benefit plans for the
foregoing; and partnerships, trusts or other entities in
which any of the foregoing has a substantial interest;
(ii) employee benefit plans, for the repurchase of shares
in connection with repayment of plan loans made to plan
participants (if the sum loaned was obtained by redeeming
shares of a Putnam fund sold with a sales charge) (not
offered by tax-exempt funds);
(iii) clients of administrators of tax-qualified employee
benefit plans which have entered into agreements with
Putnam Mutual Funds (not offered by tax-exempt funds);
(iv) registered representatives and other employees of
broker-dealers having sales agreements with Putnam Mutual
Funds; employees of financial institutions having sales
agreements with Putnam Mutual Funds or otherwise having an
arrangement with any such broker-dealer or financial
institution with respect to sales of fund shares; and
their spouses and children under age 21 (Putnam Mutual
Funds is regarded as the dealer of record for all such
accounts);
(v) investors meeting certain requirements who sold shares
of certain Putnam closed-end funds pursuant to a tender
offer by such closed-end fund;
(vi) a trust department of any financial institution
purchasing shares of the fund in its capacity as trustee
of any trust, if the value of the shares of the fund and
other Putnam funds purchased or held by all such trusts
exceeds $1 million in the aggregate; and
(vii) "wrap accounts" maintained for clients of broker-
dealers, financial institutions or financial planners who
have entered into agreements with Putnam Mutual Funds with
respect to such accounts.
In addition, the fund may issue its shares at net asset value
without an initial sales charge or a CDSC in connection with the
acquisition of substantially all of the securities owned by other
investment companies or personal holding companies, and the CDSC
will be waived on redemptions of shares arising out of death or
disability or in connection with certain withdrawals from IRA or
other retirement plans. Up to 12% of the value of class B shares
subject to a systematic withdrawal plan may also be redeemed each
year without a CDSC. The fund may sell class M shares at net
asset value to members of qualified groups. See "Group
purchases of class A and class M shares" below.
PAYMENTS TO DEALERS. Putnam Mutual Funds may, at its expense,
pay concessions in addition to the payments disclosed in the
prospectus to dealers which satisfy certain criteria established
from time to time by Putnam Mutual Funds relating to increasing
net sales of shares of the Putnam funds over prior periods, and
certain other factors.
ADDITIONAL INFORMATION ABOUT CLASS A AND CLASS M SHARES
The underwriter's commission is the sales charge shown in the
prospectus less any applicable dealer discount. Putnam Mutual
Funds will give dealers ten days' notice of any changes in the
dealer discount. Putnam Mutual Funds retains the entire sales
charge on any retail sales made by it.
Putnam Mutual Funds offers several plans by which an investor may
obtain reduced sales charges on purchases of class A shares and
class M shares. The variations in sales charges reflect the
varying efforts required to sell shares to separate categories of
purchasers. These plans may be altered or discontinued at any
time.
COMBINED PURCHASE PRIVILEGE. The following persons may qualify
for the sales charge reductions or eliminations shown in the
prospectus by combining into a single transaction the purchase of
class A shares or class M shares with other purchases of any
class of shares:
(i) an individual, or a "company" as defined in Section
2(a)(8) of the Investment Company Act of 1940 (which
includes corporations which are corporate affiliates of
each other);
(ii) an individual, his or her spouse and their children
under twenty-one, purchasing for his, her or their own
account;
(iii) a trustee or other fiduciary purchasing for a single
trust estate or single fiduciary account (including a
pension, profit-sharing, or other employee benefit trust
created pursuant to a plan qualified under Section 401 of
the Internal Revenue Code of 1986, as amended (the
"Code"));
(iv) tax-exempt organizations qualifying under Section
501(c)(3) of the Internal Revenue Code (not including tax-
exempt organizations qualifying under Section 403(b)(7) (a
"403(b) plan") of the Code; and
(v) employee benefit plans of a single employer or of
affiliated employers, other than 403(b) plans.
A combined purchase currently may also include shares of any
class of other continuously offered Putnam funds (other than
money market funds) purchased at the same time through a single
investment dealer, if the dealer places the order for such shares
directly with Putnam Mutual Funds.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). A
purchaser of class A shares or class M shares may qualify for a
cumulative quantity discount by combining a current purchase (or
combined purchases as described above) with certain other shares
of any class of Putnam funds already owned. The applicable sales
charge is based on the total of:
(i) the investor's current purchase; and
(ii) the maximum public offering price (at the close of
business on the previous day) of:
(a) all shares held by the investor in all of the
Putnam funds (except money market funds); and
(b) any shares of money market funds acquired by
exchange from other Putnam funds; and
(iii) the maximum public offering price of all shares
described in paragraph (ii) owned by another shareholder
eligible to participate with the investor in a "combined
purchase" (see above).
To qualify for the combined purchase privilege or to obtain the
cumulative quantity discount on a purchase through an investment
dealer, when each purchase is made the investor or dealer must
provide Putnam Mutual Funds with sufficient information to verify
that the purchase qualifies for the privilege or discount. The
shareholder must furnish this information to Putnam Investor
Services when making direct cash investments.
STATEMENT OF INTENTION. Investors may also obtain the reduced
sales charges for class A shares or class M shares shown in the
prospectus for investments of a particular amount by means of a
written Statement of Intention, which expresses the investor's
intention to invest that amount (including certain "credits," as
described below) within a period of 13 months in shares of any
class of the fund or any other continuously offered Putnam fund
(excluding money market funds). Each purchase of class A shares
or class M shares under a Statement of Intention will be made at
the public offering price applicable at the time of such purchase
to a single transaction of the total dollar amount indicated in
the Statement of Intention. A Statement of Intention may include
purchases of shares made not more than 90 days prior to the date
that an investor signs a Statement; however, the 13-month period
during which the Statement of Intention is in effect will begin
on the date of the earliest purchase to be included.
An investor may receive a credit toward the amount indicated in
the Statement of Intention equal to the maximum public offering
price as of the close of business on the previous day of all
shares he or she owns on the date of the Statement of Intention
which are eligible for purchase under a Statement of Intention
(plus any shares of money market funds acquired by exchange of
such eligible shares). Investors do not receive credit for
shares purchased by the reinvestment of distributions. Investors
qualifying for the "combined purchase privilege" (see above) may
purchase shares under a single Statement of Intention.
The Statement of Intention is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum
initial investment under a Statement of Intention is 5% of such
amount, and must be invested immediately. Class A shares or
class M shares purchased with the first 5% of such amount will be
held in escrow to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount
indicated is not purchased. When the full amount indicated has
been purchased, the escrow will be released. If an investor
desires to redeem escrowed shares before the full amount has been
purchased, the shares will be released from escrow only if the
investor pays the sales charge that, without regard to the
Statement of Intention, would apply to the total investment made
to date.
To the extent that an investor purchases more than the dollar
amount indicated on the Statement of Intention and qualifies for
a further reduced sales charge, the sales charge will be adjusted
for the entire amount purchased at the end of the 13-month
period, upon recovery from the investor's dealer of its portion
of the sales charge adjustment. Once received from the dealer,
which may take a period of time or may never occur, the sales
charge adjustment will be used to purchase additional shares at
the then current offering price applicable to the actual amount
of the aggregate purchases. These additional shares will not be
considered as part of the total investment for the purpose of
determining the applicable sales charge pursuant to the Statement
of Intention. No sales charge adjustment will be made unless and
until the investor's dealer returns any excess commissions
previously received.
To the extent that an investor purchases less than the dollar
amount indicated on the Statement of Intention within the 13-
month period, the sales charge will be adjusted upward for the
entire amount purchased at the end of the 13-month period. This
adjustment will be made by redeeming shares from the account to
cover the additional sales charge, the proceeds of which will be
paid to the investor's dealer and Putnam Mutual Funds in
accordance with the prospectus. If the account exceeds an amount
that would otherwise qualify for a reduced sales charge, that
reduced sales charge will be applied.
Statements of Intention are not available for certain employee
benefit plans.
Statement of Intention forms may be obtained from Putnam Mutual
Funds or from investment dealers. Interested investors should
read the Statement of Intention carefully.
GROUP PURCHASES OF CLASS A AND CLASS M SHARES. Members of
qualified groups may purchase class A shares of the fund at a
group sales charge rate of 4.50% of the public offering price
(4.71% of the net amount invested). The dealer discount on such
sales is 3.75% of the offering price. Members of qualified
groups may also purchase class M shares at net asset value.
To receive the class A or class M group rate, group members must
purchase shares through a single investment dealer designated by
the group. The designated dealer must transmit each member's
initial purchase to Putnam Mutual Funds, together with payment
and completed application forms. After the initial purchase, a
member may send funds for the purchase of shares directly to
Putnam Investor Services. Purchases of shares are made at the
public offering price based on the net asset value next
determined after Putnam Mutual Funds or Putnam Investor Services
receives payment for the shares. The minimum investment
requirements described above apply to purchases by any group
member. Only shares purchased under the class A group discount
are included in calculating the purchased amount for the purposes
of these requirements.
Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or
association, or other organized groups of persons (the members of
which may include other qualified groups) provided that: (i) the
group has at least 25 members of which, with respect to the class
A discount only, at least 10 members participate in the initial
purchase; (ii) the group has been in existence for at least six
months; (iii) the group has some purpose in addition to the
purchase of investment company shares at a reduced sales charge;
(iv) the group's sole organizational nexus or connection is not
that the members are credit card holders of a company, policy
holders of an insurance company, customers of a bank or
broker-dealer, clients of an investment adviser or security
holders of a company; (v) with respect to the class A discount
only, the group agrees to provide its designated investment
dealer access to the group's membership by means of written
communication or direct presentation to the membership at a
meeting on not less frequently than an annual basis; (vi) the
group or its investment dealer will provide annual certification
in form satisfactory to Putnam Investor Services that the group
then has at least 25 members and, with respect to the class A
discount only, that at least ten members participated in group
purchases during the immediately preceding 12 calendar months;
and (vii) the group or its investment dealer will provide
periodic certification in form satisfactory to Putnam Investor
Services as to the eligibility of the purchasing members of the
group.
Members of a qualified group include: (i) any group which meets
the requirements stated above and which is a constituent member
of a qualified group; (ii) any individual purchasing for his or
her own account who is carried on the records of the group or on
the records of any constituent member of the group as being a
good standing employee, partner, member or person of like status
of the group or constituent member; or (iii) any fiduciary
purchasing shares for the account of a member of a qualified
group or a member's beneficiary. For example, a qualified group
could consist of a trade association which would have as its
members individuals, sole proprietors, partnerships and
corporations. The members of the group would then consist of the
individuals, the sole proprietors and their employees, the
members of the partnerships and their employees, and the
corporations and their employees, as well as the trustees of
employee benefit trusts acquiring class A shares for the benefit
of any of the foregoing.
A member of a qualified group may, depending upon the value of
class A shares of the fund owned or proposed to be purchased by
the member, be entitled to purchase class A shares of the fund at
non-group sales charge rates shown in the prospectus which may be
lower than the group sales charge rate, if the member qualifies
as a person entitled to reduced non-group sales charges. Such a
group member will be entitled to purchase at the lower rate if,
at the time of purchase, the member or his or her investment
dealer furnishes sufficient information for Putnam Mutual Funds
or Putnam Investor Services to verify that the purchase qualifies
for the lower rate.
Interested groups should contact their investment dealer or
Putnam Mutual Funds. The fund reserves the right to revise the
terms of or to suspend or discontinue group sales at any time.
EMPLOYEE BENEFIT PLANS; INDIVIDUAL ACCOUNT PLANS. The term
"employee benefit plan" means any plan or arrangement, whether or
not tax-qualified, which provides for the purchase of class A
shares. The term "affiliated employer" means employers who are
affiliated with each other within the meaning of Section
2(a)(3)(C) of the Investment Company Act of 1940. The term
"individual account plan" means any employee benefit plan whereby
(i) class A shares are purchased through payroll deductions or
otherwise by a fiduciary or other person for the account of
participants who are employees (or their spouses) of an employer,
or of affiliated employers, and (ii) a separate investing account
is maintained in the name of such fiduciary or other person for
the account of each participant in the plan.
The table of sales charges in the prospectus applies to sales to
employee benefit plans, except that the fund may sell class A
shares at net asset value to employee benefit plans, including
individual account plans, of employers or of affiliated employers
which have at least 750 employees to whom such plan is made
available, in connection with a payroll deduction system of plan
funding (or other system acceptable to Putnam Investor Services)
by which contributions or account information for plan
participation are transmitted to Putnam Investor Services by
methods acceptable to Putnam Investor Services. The fund may
also sell class A shares at net asset value to participant-
directed qualified retirement plans with at least 200 eligible
employees, or prior to December 1, 1995, a plan sponsored by an
employer or by affiliated employers which have at least 750
employees and, beginning December 1, 1995, the fund may sell
class M shares at net asset value to participant-directed
qualified retirement plans with at least 50 eligible employees.
A participant-directed qualified retirement plan participating in
a "multi-fund" program approved by Putnam Mutual Funds may
include amounts invested in the other mutual funds participating
in such program for purposes of determining whether the plan may
purchase class A shares at net asset value based on the size of
the purchase as described in the prospectus. These investments
will also be included for purposes of the discount privileges and
programs described above.
Additional information about participant-directed qualified
retirement plans and individual account plans is available from
investment dealers or from Putnam Mutual Funds.
CONTINGENT DEFERRED SALES CHARGES
CLASS A SHARES. Class A shares purchased at net asset value by
shareholders investing $1 million or more, including purchases
pursuant to any Combined Purchase Privilege, Right of
Accumulation or Statement of Intention, are subject to a CDSC of
1.00% or 0.50%, respectively, if redeemed within the first or
second year after purchase. The class A CDSC is imposed on the
lower of the cost and the current net asset value of the shares
redeemed. The CDSC does not apply to shares sold without a sales
charge through participant-directed qualified retirement plans
and shares purchased by certain investors investing $1 million or
more that have made arrangements with Putnam Mutual Funds and
whose dealer of record waived the commission described in the
next paragraph.
Except as stated below, Putnam Mutual Funds pays investment
dealers of record commissions on sales of class A shares of $1
million or more based on an investor's cumulative purchases of
such shares, including purchases pursuant to any Combined
Purchase Privilege, Right of Accumulation or Statement of
Intention, during the one-year period beginning with the date of
the initial purchase at net asset value and each subsequent one-
year period beginning with the first net asset value purchase
following the end of the prior period. Such commissions are paid
at the rate of 1.00% of the amount under $3 million, 0.50% of the
next $47 million and 0.25% thereafter. On sales at net asset
value to a participant-directed qualified retirement plan
initially investing less than $20 million in Putnam funds and
other investments managed by Putnam Management or its affiliates
(including a plan with at least 200 eligible employees, or prior
to December 1, 1995, a plan sponsored by an employer with more
than 750 employees), Putnam Mutual Funds pays commissions during
each one-year measuring period, determined as described above, at
the rate of 1.00% of the first $2 million, 0.80% of the next $1
million and 0.50% thereafter, except that commissions on sales
prior to December 1, 1995 are based on cumulative purchases
during the life of the account and are paid at the rate of 1.00%
of the amount under $3 million and 0.50% thereafter. On sales at
net asset value to all other participant-directed qualified
retirement plans, Putnam Mutual Funds pays commissions on the
initial investment and on subsequent net quarterly sales (gross
sales minus gross redemptions during the quarter) at the rate of
0.15%. Money market fund shares are excluded from all commission
calculations, except for determining the amount initially
invested by a participant-directed qualified retirement plan.
Commissions on sales at net asset value to such plans are subject
to Putnam Mutual Funds' right to reclaim such commissions if the
shares are redeemed within two years.
Different CDSC and commission rates may apply to shares purchased
before April 1, 1994.
CLASS B AND CLASS C SHARES. Investors who set up an Automatic
Cash Withdrawal Plan ("ACWP") for a class B and class C share
account (see "Plans available to shareholders -- Automatic Cash
Withdrawal Plan") may withdraw through the ACWP up to 12% of the
net asset value of the account (calculated as set forth below)
each year without incurring any CDSC. Shares not subject to a
CDSC (such as shares representing reinvestment of distributions)
will be redeemed first and will count toward the 12% limitation.
If there are insufficient shares not subject to a CDSC, shares
subject to the lowest CDSC liability will be redeemed next until
the 12% limit is reached. The 12% figure is calculated on a pro
rata basis at the time of the first payment made pursuant to an
ACWP and recalculated thereafter on a pro rata basis at the time
of each ACWP payment. Therefore, shareholders who have chosen an
ACWP based on a percentage of the net asset value of their
account of up to 12% will be able to receive ACWP payments
without incurring a CDSC. However, shareholders who have chosen
a specific dollar amount (for example, $100 per month from a fund
that pays income distributions monthly) for their periodic ACWP
payment should be aware that the amount of that payment not
subject to a CDSC may vary over time depending on the net asset
value of their account. For example, if the net asset value of
the account is $10,000 at the time of payment, the shareholder
will receive $100 free of the CDSC (12% of $10,000 divided by 12
monthly payments). However, if at the time of the next payment
the net asset value of the account has fallen to $9,400, the
shareholder will receive $94 free of any CDSC (12% of $9,400
divided by 12 monthly payments) and $6 subject to the lowest
applicable CDSC. This ACWP privilege may be revised or
terminated at any time.
ALL SHARES. No CDSC is imposed on shares of any class subject to
a CDSC ("CDSC Shares") to the extent that the CDSC Shares
redeemed (i) are no longer subject to the holding period
therefor, (ii) resulted from reinvestment of distributions on
CDSC Shares, or (iii) were exchanged for shares of another Putnam
fund, provided that the shares acquired in such exchange or
subsequent exchanges (including shares of a Putnam money market
fund) will continue to remain subject to the CDSC, if applicable,
until the applicable holding period expires. In determining
whether the CDSC applies to each redemption of CDSC Shares, CDSC
Shares not subject to a CDSC are redeemed first.
The fund will waive any CDSC on redemptions, in the case of
individual, joint or Uniform Transfers to Minors Act accounts, in
the event of death or post-purchase disability of a shareholder,
for the purpose of paying benefits pursuant to tax-qualified
retirement plans ("Benefit Payments"), or, in the case of living
trust accounts, in the event of the death or post-purchase
disability of the settlor of the trust). Benefit payments
currently include, without limitation, (1) distributions from an
IRA due to death or disability, (2) a return of excess
contributions to an IRA or 401(k) plan, and (3) distributions
from retirement plans qualified under Section 401(a) of the Code
or from a 403(b) plan due to death, disability, retirement or
separation from service. These waivers may be changed at any
time. Additional waivers may apply to IRA accounts opened prior
to February 1, 1994.
DISTRIBUTION PLANS
If the fund or a class of shares of the fund has adopted a
distribution plan, the prospectus describes the principal
features of the plan. This SAI contains additional information
which may be of interest to investors.
Continuance of a plan is subject to annual approval by a vote of
the Trustees, including a majority of the Trustees who are not
interested persons of the fund and who have no direct or indirect
interest in the plan or related arrangements (the "Qualified
Trustees"), cast in person at a meeting called for that purpose.
All material amendments to a plan must be likewise approved by
the Trustees and the Qualified Trustees. No plan may be amended
in order to increase materially the costs which the fund may bear
for distribution pursuant to such plan without also being
approved by a majority of the outstanding voting securities of
the fund or the relevant class of the fund, as the case may be.
A plan terminates automatically in the event of its assignment
and may be terminated without penalty, at any time, by a vote of
a majority of the Qualified Trustees or by a vote of a majority
of the outstanding voting securities of the fund or the relevant
class of the fund, as the case may be.
If plan payments are made to reimburse Putnam Mutual Funds for
payments to dealers based on the average net asset value of fund
shares attributable to shareholders for whom the dealers are
designated as the dealer of record, "average net asset value"
attributable to a shareholder account means the product of (i)
the fund's average daily share balance of the account and (ii)
the fund's average daily net asset value per share (or the
average daily net asset value per share of the class, if
applicable). For administrative reasons, Putnam Mutual Funds may
enter into agreements with certain dealers providing for the
calculation of "average net asset value" on the basis of assets
of the accounts of the dealer's customers on an established day
in each quarter.
Financial institutions receiving payments from Putnam Mutual
Funds as described above may be required to comply with various
state and federal regulatory requirements, including among others
those regulating the activities of securities brokers or dealers.
INVESTOR SERVICES
SHAREHOLDER INFORMATION
Each time shareholders buy or sell shares, they will receive a
statement confirming the transaction and listing their current
share balance. (Under certain investment plans, a statement may
only be sent quarterly.) Shareholders will receive a statement
confirming reinvestment of distributions in additional fund
shares (or in shares of other Putnam funds for Dividends Plus
accounts) promptly following the quarter in which the
reinvestment occurs. To help shareholders take full advantage of
their Putnam investment, they will receive a Welcome Kit and a
periodic publication covering many topics of interest to
investors. The fund also sends annual and semiannual reports
that keep shareholders informed about its portfolio and
performance, and year-end tax information to simplify their
recordkeeping. Easy-to-read, free booklets on special subjects
such as the Exchange Privilege and IRAs are available from Putnam
Investor Services. Shareholders may call Putnam Investor
Services toll-free weekdays at 1-800-225-1581 between 8:30 a.m.
and 7:00 p.m. Boston time for more information, including account
balances.
YOUR INVESTING ACCOUNT
The following information provides more detail concerning the
operation of a Putnam Investing Account. For further information
or assistance, investors should consult Putnam Investor Services.
Shareholders who purchase shares through a defined contribution
plan should note that not all of the services or features
described below may be available to them, and they should contact
their employer for details.
A shareholder may reinvest a cash distribution without a
front-end sales charge or without the reinvested shares being
subject to a CDSC, as the case may be, by delivering to Putnam
Investor Services the uncashed distribution check, endorsed to
the order of the fund. Putnam Investor Services must receive the
properly endorsed check within 1 year after the date of the
check.
The Investing Account also provides a way to accumulate shares of
the fund. In most cases, after an initial investment of $500, a
shareholder may send checks to Putnam Investor Services for $50
or more, made payable to the fund, to purchase additional shares
at the applicable public offering price next determined after
Putnam Investor Services receives the check. Checks must be
drawn on a U.S. bank and must be payable in U.S. dollars.
Putnam Investor Services acts as the shareholder's agent whenever
it receives instructions to carry out a transaction on the
shareholder's account. Upon receipt of instructions that shares
are to be purchased for a shareholder's account, shares will be
purchased through the investment dealer designated by the
shareholder. Shareholders may change investment dealers at any
time by written notice to Putnam Investor Services, provided the
new dealer has a sales agreement with Putnam Mutual Funds.
Shares credited to an account are transferable upon written
instructions in good order to Putnam Investor Services and may be
sold to the fund as described under "How to sell shares" in the
prospectus. Money market funds and certain other funds will not
issue share certificates. A shareholder may send to Putnam
Investor Services any certificates which have been previously
issued for safekeeping at no charge to the shareholder.
Putnam Mutual Funds, at its expense, may provide certain
additional reports and administrative material to qualifying
institutional investors with fiduciary responsibilities to assist
these investors in discharging their responsibilities.
Institutions seeking further information about this service
should contact Putnam Mutual Funds, which may modify or terminate
this service at any time.
Putnam Investor Services may make special services available to
shareholders with investments exceeding $1,000,000. Contact
Putnam Investor Services for details.
The fund pays Putnam Investor Services' fees for maintaining
Investing Accounts.
REINSTATEMENT PRIVILEGE
An investor who has redeemed shares of the fund may reinvest
(within 1 year) the proceeds of such sale in shares of the same
class of the fund, or may be able to reinvest (within 1 year) the
proceeds in shares of the same class of one of the other
continuously offered Putnam funds (through the Exchange Privilege
described in the prospectus), including, in the case of shares
subject to a CDSC, the amount of CDSC charged on the redemption.
Any such reinvestment would be at the net asset value of the
shares of the fund(s) the investor selects, next determined after
Putnam Mutual Funds receives a Reinstatement Authorization. The
time that the previous investment was held will be included in
determining any applicable CDSC due upon redemptions and, in the
case of class B shares, the eight-year period for conversion to
class A shares. Shareholders will receive from Putnam Mutual
Funds the amount of any CDSC paid at the time of redemption as
part of the reinstated investment, which may be treated as
capital gains to the shareholder for tax purposes. Exercise of
the Reinstatement Privilege does not alter the federal income tax
treatment of any capital gains realized on a sale of fund shares,
but to the extent that any shares are sold at a loss and the
proceeds are reinvested in shares of the fund, some or all of the
loss may be disallowed as a deduction. Consult your tax adviser.
Investors who desire to exercise the Reinstatement Privilege
should contact their investment dealer or Putnam Investor
Services.
EXCHANGE PRIVILEGE
Except as otherwise set forth in this section, by calling Putnam
Investor Services, investors may exchange shares valued up to
$500,000 between accounts with identical registrations, provided
that no certificates are outstanding for such shares and no
address change has been made within the preceding 15 days.
During periods of unusual market changes and shareholder
activity, shareholders may experience delays in contacting Putnam
Investor Services by telephone to exercise the Telephone Exchange
Privilege.
Putnam Investor Services also makes exchanges promptly after
receiving a properly completed Exchange Authorization Form and,
if issued, share certificates. If the shareholder is a
corporation, partnership, agent, or surviving joint owner, Putnam
Investor Services will require additional documentation of a
customary nature. Because an exchange of shares involves the
redemption of fund shares and reinvestment of the proceeds in
shares of another Putnam fund, completion of an exchange may be
delayed under unusual circumstances if the fund were to suspend
redemptions or postpone payment for the fund shares being
exchanged, in accordance with federal securities laws. Exchange
Authorization Forms and prospectuses of the other Putnam funds
are available from Putnam Mutual Funds or investment dealers
having sales contracts with Putnam Mutual Funds. The prospectus
of each fund describes its investment objective(s) and policies,
and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange.
Shares of certain Putnam funds are not available to residents of
all states. The fund reserves the right to change or suspend the
Exchange Privilege at any time. Shareholders would be notified
of any change or suspension. Additional information is available
from Putnam Investor Services.
Shares of the fund must be held at least 15 days by the
shareholder requesting an exchange. There is no holding period
if the shareholder acquired the shares to be exchanged through
reinvestment of distributions, transfer from another shareholder,
prior exchange or certain employer-sponsored defined contribution
plans. In all cases, the shares to be exchanged must be
registered on the records of the fund in the name of the
shareholder requesting the exchange.
Shareholders of other Putnam funds may also exchange their shares
at net asset value for shares of the fund, as set forth in the
current prospectus of each fund.
For federal income tax purposes, an exchange is a sale on which
the investor generally will realize a capital gain or loss
depending on whether the net asset value at the time of the
exchange is more or less than the investor's basis. The Exchange
Privilege may be revised or terminated at any time. Shareholders
would be notified of any such change or suspension.
DIVIDENDS PLUS
Shareholders may invest the fund's distributions of net
investment income or distributions combining net investment
income and short-term capital gains in shares of the same class
of another continuously offered Putnam fund (the "receiving
fund") using the net asset value per share of the receiving fund
determined on the date the fund's distribution is payable. No
sales charge or CDSC will apply to the purchased shares unless
the fund paying the distribution is a money market fund. The
prospectus of each fund describes its investment objective(s) and
policies, and shareholders should obtain a prospectus and
consider these objective(s) and policies carefully before
investing their distributions in the receiving fund. Shares of
certain Putnam funds are not available to residents of all
states.
The minimum account size requirement for the receiving fund will
not apply if the current value of your account in the fund paying
the distribution is more than $5,000.
Shareholders of other Putnam funds (except for money market
funds, whose shareholders must pay a sales charge or become
subject to a CDSC) may also use their distributions to purchase
shares of the fund at net asset value.
For federal tax purposes, distributions from the fund which are
reinvested in another fund are treated as paid by the fund to the
shareholder and invested by the shareholder in the receiving fund
and thus, to the extent comprised of taxable income and deemed
paid to a taxable shareholder, are taxable.
The Dividends PLUS program may be revised or terminated at any
time.
<PAGE>
PLANS AVAILABLE TO SHAREHOLDERS
The plans described below are fully voluntary and may be
terminated at any time without the imposition by the fund or
Putnam Investor Services of any penalty. All plans provide for
automatic reinvestment of all distributions in additional shares
of the fund at net asset value. The fund, Putnam Mutual Funds or
Putnam Investor Services may modify or cease offering these plans
at any time.
AUTOMATIC CASH WITHDRAWAL PLAN ("ACWP"). An investor who owns or
buys shares of the fund valued at $10,000 or more at the current
public offering price may open an ACWP plan and have a designated
sum of money ($50 or more) paid monthly, quarterly, semi-annually
or annually to the investor or another person. (Payments from
the fund can be combined with payments from other Putnam funds
into a single check through a designated payment plan.) Shares
are deposited in a plan account, and all distributions are
reinvested in additional shares of the fund at net asset value
(except where the plan is utilized in connection with a
charitable remainder trust). Shares in a plan account are then
redeemed at net asset value to make each withdrawal payment.
Payment will be made to any person the investor designates;
however, if shares are registered in the name of a trustee or
other fiduciary, payment will be made only to the fiduciary,
except in the case of a profit-sharing or pension plan where
payment will be made to a designee. As withdrawal payments may
include a return of principal, they cannot be considered a
guaranteed annuity or actual yield of income to the investor.
The redemption of shares in connection with a plan generally will
result in a gain or loss for tax purposes. Some or all of the
losses realized upon redemption may be disallowed pursuant to the
so-called wash sale rules if shares of the same fund from which
shares were redeemed are purchased (including through the
reinvestment of fund distributions) within a period beginning 30
days before, and ending 30 days after, such redemption. In such
a case, the basis of the replacement shares will be increased to
reflect the disallowed loss. Continued withdrawals in excess of
income will reduce and possibly exhaust invested principal,
especially in the event of a market decline. The maintenance of
a plan concurrently with purchases of additional shares of the
fund would be disadvantageous to the investor because of the
sales charge payable on such purchases. For this reason, the
minimum investment accepted while a plan is in effect is $1,000,
and an investor may not maintain a plan for the accumulation of
shares of the fund (other than through reinvestment of
distributions) and a plan at the same time. The cost of
administering these plans for the benefit of those shareholders
participating in them is borne by the fund as an expense of all
shareholders. The fund, Putnam Mutual Funds or Putnam Investor
Services may terminate or change the terms of the plan at any
time. A plan will be terminated if communications mailed to the
shareholder are returned as undeliverable.
Investors should consider carefully with their own financial
advisers whether the plan and the specified amounts to be
withdrawn are appropriate in their circumstances. The fund and
Putnam Investor Services make no recommendations or
representations in this regard.
TAX QUALIFIED RETIREMENT PLANS; 403(B) AND SEP PLANS. (NOT
OFFERED BY FUNDS INVESTING PRIMARILY IN TAX-EXEMPT SECURITIES.)
Investors may purchase shares of the fund through the following
Tax Qualified Retirement Plans, available to qualified
individuals or organizations:
Standard and variable profit-sharing (including 401(k))
and money purchase pension plans; and
Individual Retirement Account Plans (IRAs).
Each of these Plans has been qualified as a prototype plan by the
Internal Revenue Service. Putnam Investor Services will furnish
services under each plan at a specified annual cost. Putnam
Fiduciary Trust Company serves as trustee under each of these
Plans.
Forms and further information on these Plans are available from
investment dealers or from Putnam Mutual Funds. In addition,
specialized professional plan administration services are
available on an optional basis; contact Putnam Defined
Contribution Plan Services at 1-800-225-2465, extension 8600.
A 403(b) Retirement Plan is available for employees of public
school systems and organizations which meet the requirements of
Section 501(c)(3) of the Internal Revenue Code. Forms and
further information on the 403(b) Plan are also available from
investment dealers or from Putnam Mutual Funds. Shares of the
fund may also be used in simplified employee pension (SEP) plans.
For further information on the Putnam prototype SEP plan, contact
an investment dealer or Putnam Mutual Funds.
Consultation with a competent financial and tax adviser regarding
these Plans and consideration of the suitability of fund shares
as an investment under the Employee Retirement Income Security
Act of 1974, or otherwise, is recommended.
SIGNATURE GUARANTEES
Redemption requests for shares having a net asset value of
$100,000 or more must be signed by the registered owners or their
legal representatives and must be guaranteed by a bank,
broker/dealer, municipal securities dealer or broker, government
securities dealer or broker, credit union, national securities
exchange, registered securities association, clearing agency,
savings association or trust company, provided such institution
is acceptable under and conforms with Putnam Fiduciary Trust
Company's signature guarantee procedures. A copy of such
procedures is available upon request. If you want your
redemption proceeds sent to an address other than your address as
it appears on Putnam's records, you must provide a signature
guarantee. Putnam Investor Services usually requires additional
documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or a surviving joint owner.
Contact Putnam Investor Services for details.
SUSPENSION OF REDEMPTIONS
The fund may not suspend shareholders' right of redemption, or
postpone payment for more than seven days, unless the New York
Stock Exchange is closed for other than customary weekends or
holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange
is restricted or during any emergency which makes it
impracticable for the fund to dispose of its securities or to
determine fairly the value of its net assets, or during any other
period permitted by order of the Commission for protection of
investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the fund. However, the Agreement and Declaration of Trust
disclaims shareholder liability for acts or obligations of the
fund and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by
the fund or the Trustees. The Agreement and Declaration of Trust
provides for indemnification out of fund property for all loss
and expense of any shareholder held personally liable for the
obligations of the fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
limited to circumstances in which the fund would be unable to
meet its obligations. The likelihood of such circumstances is
remote.
STANDARD PERFORMANCE MEASURES
Yield and total return data for the fund may from time to time be
presented in Part I of this SAI and in advertisements. In the
case of funds with more than one class of shares, all performance
information is calculated separately for each class. The data is
calculated as follows.
Total return for one-, five- and ten-year periods (or for such
shorter periods as the fund has been in operation or shares of
the relevant class have been outstanding) is determined by
calculating the actual dollar amount of investment return on a
$1,000 investment in the fund made at the beginning of the
period, at the maximum public offering price for class A shares
and class M shares and net asset value for other classes of
shares, and then calculating the annual compounded rate of return
which would produce that amount. Total return for a period of
one year is equal to the actual return of the fund during that
period. Total return calculations assume deduction of the fund's
maximum sales charge or CDSC, if applicable, and reinvestment of
all fund distributions at net asset value on their respective
reinvestment dates.
The fund's yield is presented for a specified thirty-day period
(the "base period"). Yield is based on the amount determined by
(i) calculating the aggregate amount of dividends and interest
earned by the fund during the base period less expenses for that
period, and (ii) dividing that amount by the product of (A) the
average daily number of shares of the fund outstanding during the
base period and entitled to receive dividends and (B) the per
share maximum public offering price for class A shares or class M
shares, as appropriate, and net asset value for other classes of
shares on the last day of the base period. The result is
annualized on a compounding basis to determine the yield. For
this calculation, interest earned on debt obligations held by the
fund is generally calculated using the yield to maturity (or
first expected call date) of such obligations based on their
market values (or, in the case of receivables-backed securities
such as the Government National Mortgage Association ("GNMAs"),
based on cost). Dividends on equity securities are accrued daily
at their stated dividend rates. The amount of expenses used in
determining the fund's yield includes, in addition to expenses
actually accrued by the fund, an estimate of the amount of
expenses that the fund would have incurred if brokerage
commissions had not been used to reduce such expenses.
If the fund is a money market fund, yield is computed by
determining the percentage net change, excluding capital changes,
in the value of an investment in one share over the seven-day
period for which yield is presented (the "base period"), and
multiplying the net change by 365/7 (or approximately 52 weeks).
Effective yield represents a compounding of the yield by adding 1
to the number representing the percentage change in value of the
investment during the base period, raising that sum to a power
equal to 365/7, and subtracting 1 from the result.
If the fund is a tax-exempt fund, the tax-equivalent yield during
the base period may be presented for shareholders in one or more
stated tax brackets. Tax-equivalent yield is calculated by
adjusting the tax-exempt yield by a factor designed to show the
approximate yield that a taxable investment would have to earn to
produce an after-tax yield equal, for that shareholder, to the
tax-exempt yield. The tax-equivalent yield will differ for
shareholders in other tax brackets.
At times, Putnam Management may reduce its compensation or assume
expenses of the fund in order to reduce the fund's expenses. The
per share amount of any such fee reduction or assumption of
expenses during the fund's past ten fiscal years (or for the life
of the fund, if shorter) is reflected in the table in the section
entitled "Financial highlights" in the prospectus. Any such fee
reduction or assumption of expenses would increase the fund's
yield and total return during the period of the fee reduction or
assumption of expenses.
All data are based on past performance and do not predict future
results.
COMPARISON OF PORTFOLIO PERFORMANCE
Independent statistical agencies measure the fund's investment
performance and publish comparative information showing how the
fund, and other investment companies, performed in specified time
periods. Three agencies whose reports are commonly used for such
comparisons are set forth below. From time to time, the fund may
distribute these comparisons to its shareholders or to potential
investors. THE AGENCIES LISTED BELOW MEASURE PERFORMANCE BASED
ON THEIR OWN CRITERIA RATHER THAN ON THE STANDARDIZED PERFORMANCE
MEASURES DESCRIBED IN THE PRECEDING SECTION.
LIPPER ANALYTICAL SERVICES, INC. distributes mutual fund
rankings monthly. The rankings are based on total return
performance calculated by Lipper, generally reflecting
changes in net asset value adjusted for reinvestment of
capital gains and income dividends. They do not reflect
deduction of any sales charges. Lipper rankings cover a
variety of performance periods, including year-to-date,
1-year, 5-year, and 10-year performance. Lipper
classifies mutual funds by investment objective and asset
category.
MORNINGSTAR, INC. distributes mutual fund ratings twice a
month. The ratings are divided into five groups:
highest, above average, neutral, below average and lowest.
They represent a fund's historical risk/reward ratio
relative to other funds in its broad investment class as
determined by Morningstar, Inc. Morningstar ratings cover
a variety of performance periods, including 3-year, 5-
year, 10-year and overall performance. The performance
factor for the overall rating is a weighted-average
assessment of the fund's 3-year, 5-year, and 10-year total
return performance (if available) reflecting deduction of
expenses and sales charges. Performance is adjusted using
quantitative techniques to reflect the risk profile of the
fund. The ratings are derived from a purely quantitative
system that does not utilize the subjective criteria
customarily employed by rating agencies such as Standard &
Poor's and Moody's Investor Service, Inc.
CDA/WIESENBERGER'S MANAGEMENT RESULTS publishes mutual
fund rankings and is distributed monthly. The rankings
are based entirely on total return calculated by
Weisenberger for periods such as year-to-date, 1-year,
3-year, 5-year and 10-year. Mutual funds are ranked in
general categories (e.g., international bond,
international equity, municipal bond, and maximum capital
gain). Weisenberger rankings do not reflect deduction of
sales charges or fees.
Independent publications may also evaluate the fund's
performance. The fund may from time to time refer to results
published in various periodicals, including Barrons, Financial
World, Forbes, Fortune, Investor's Business Daily, Kiplinger's
Personal Finance Magazine, Money, U.S. News and World Report and
The Wall Street Journal.
Independent, unmanaged indexes, such as those listed below, may
be used to present a comparative benchmark of fund performance.
The performance figures of an index reflect changes in market
prices, reinvestment of all dividend and interest payments and,
where applicable, deduction of foreign withholding taxes, and do
not take into account brokerage commissions or other costs.
Because the fund is a managed portfolio, the securities it owns
will not match those in an index. Securities in an index may
change from time to time.
THE CONSUMER PRICE INDEX, prepared by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the rate
of inflation. The index shows the average change in the
cost of selected consumer goods and services and does not
represent a return on an investment vehicle.
THE DOW JONES INDUSTRIAL AVERAGE is an index of 30 common
stocks frequently used as a general measure of stock
market performance.
THE DOW JONES UTILITIES AVERAGE is an index of 15 utility
stocks frequently used as a general measure of stock
market performance.
CS FIRST BOSTON HIGH YIELD INDEX is a market-weighted
index including publicly traded bonds having a rating
below BBB by Standard & Poor's and Baa by Moody's.
THE LEHMAN BROTHERS AGGREGATE BOND INDEX is an index
composed of securities from The Lehman Brothers
Government/Corporate Bond Index, The Lehman Brothers
Mortgage-Backed Securities Index and The Lehman Brothers
Asset-Backed Securities Index and is frequently used as a
broad market measure for fixed-income securities.
THE LEHMAN BROTHERS ASSET-BACKED SECURITIES INDEX is an
index composed of credit card, auto, and home equity
loans. Included in the index are pass-through, bullet
(noncallable), and controlled amortization structured debt
securities; no subordinated debt is included. All
securities have an average life of at least one year.
THE LEHMAN BROTHERS CORPORATE BOND INDEX is an index of
publicly issued, fixed-rate, non-convertible
investment-grade domestic corporate debt securities
frequently used as a general measure of the performance of
fixed-income securities.
THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX is an
index of publicly issued U.S. Treasury obligations, debt
obligations of U.S. government agencies (excluding
mortgage-backed securities), fixed-rate, non-convertible,
investment-grade corporate debt securities and U.S.
dollar-denominated, SEC-registered non-convertible debt
issued by foreign governmental entities or international
agencies used as a general measure of the performance of
fixed-income securities.
THE LEHMAN BROTHERS INTERMEDIATE TREASURY BOND INDEX is an
index of publicly issued U.S. Treasury obligations with
maturities of up to ten years and is used as a general
gauge of the market for intermediate-term fixed-income
securities.
THE LEHMAN BROTHERS LONG-TERM TREASURY BOND INDEX is an
index of publicly issued U.S. Treasury obligations
(excluding flower bonds and foreign-targeted issues) that
are U.S. dollar-denominated and have maturities of 10
years or greater.
THE LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX
includes 15- and 30-year fixed rate securities backed by
mortgage pools of the Government National Mortgage
Association, Federal Home Loan Mortgage Corporation, and
Federal National Mortgage Association.
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX is an index of
approximately 20,000 investment-grade, fixed-rate
tax-exempt bonds.
THE LEHMAN BROTHERS TREASURY BOND INDEX is an index of
publicly issued U.S. Treasury obligations (excluding
flower bonds and foreign-targeted issues) that are U.S.
dollar denominated, have a minimum of one year to
maturity, and are issued in amounts over $100 million.
THE MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX is an
index of approximately 1,482 equity securities listed on
the stock exchanges of the United States, Europe, Canada,
Australia, New Zealand and the Far East, with all values
expressed in U.S. dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX is an
index of approximately 1,045 equity securities issued by
companies located in 18 countries and listed on the stock
exchanges of Europe, Australia, and the Far East. All
values are expressed in U.S. dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE INDEX is
an index of approximately 627 equity securities issued by
companies located in one of 13 European countries, with
all values expressed in U.S. dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL PACIFIC INDEX is
an index of approximately 418 equity securities issued by
companies located in 5 countries and listed on the
exchanges of Australia, New Zealand, Japan, Hong Kong,
Singapore/Malaysia. All values are expressed in U.S.
dollars.
THE NASDAQ INDUSTRIAL AVERAGE is an index of stocks traded
in The Nasdaq Stock Market, Inc. National Market System.
THE RUSSELL 2000 INDEX is composed of the 2,000 smallest
securities in the Russell 3000 Index, representing
approximately 7% of the Russell 3000 total market
capitalization. The Russell 3000 Index is composed of
3,000 large U.S. companies ranked by market
capitalization, representing approximately 98% of the U.S.
equity market.
THE SALOMON BROTHERS LONG-TERM HIGH-GRADE CORPORATE BOND
INDEX is an index of publicly traded corporate bonds
having a rating of at least AA by Standard & Poor's or Aa
by Moody's and is frequently used as a general measure of
the performance of fixed-income securities.
THE SALOMON BROTHERS LONG-TERM TREASURY INDEX is an index
of U.S. government securities with maturities greater than
10 years.
THE SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX is an
index that tracks the performance of the 14 government
bond markets of Australia, Austria, Belgium Canada,
Denmark, France, Germany, Italy, Japan, Netherlands,
Spain, Sweden, United Kingdom and the United States.
Country eligibility is determined by market capitalization
and investability criteria.
THE SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX (non
$U.S.) is an index of foreign government bonds calculated
to provide a measure of performance in the government bond
markets outside of the United States.
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX is an
index of common stocks frequently used as a general
measure of stock market performance.
STANDARD & POOR'S 40 UTILITIES INDEX is an index of 40
utility stocks.
STANDARD & POOR'S/BARRA VALUE INDEX is an index
constructed by ranking the securities in the Standard &
Poor's 500 Composite Stock Price Index by price-to-book
ratio and including the securities with the lowest price-
to-book ratios that represent approximately half of the
market capitalization of the Standard & Poor's 500
Composite Stock Price Index.
In addition, Putnam Mutual Funds may distribute to shareholders
or prospective investors illustrations of the benefits of
reinvesting tax-exempt or tax-deferred distributions over
specified time periods, which may include comparisons to fully
taxable distributions. These illustrations use hypothetical
rates of tax-advantaged and taxable returns and are not intended
to indicate the past or future performance of any fund.
DEFINITIONS
"Putnam Management" -- Putnam Investment Management,
Inc., the fund's investment
manager.
"Putnam Mutual Funds" -- Putnam Mutual Funds Corp., the
fund's principal underwriter.
"Putnam Fiduciary Trust -- Putnam Fiduciary Trust Company,
Company" the fund's custodian.
"Putnam Investor Services" -- Putnam Investor Services, a
division of Putnam Fiduciary
Trust Company, the fund's
investor servicing agent.
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Differences between the typeset (printed) prospectus and the
EDGAR filing version.
1. Each interior page of the prospectus includes the word
"prospectus" at the bottom of the page.
2. Pagination is different in printed prospectus.
3. Section headings and subheadings in the printed prospectus
are printed in boldface type with colored ink.
4. The first page of the printed prospectus contains an
illustration of balanced scales, Putnam's logo.
5. The last page of the printed prospectus contains a graphic
recyclable logo.
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