PUTNAM MANAGED INCOME TRUST
One Post Office Square, Boston, MA 02109
Class A shares
INVESTMENT STRATEGY: Growth and Income
PROSPECTUS - March 1, 1995, As Revised April 1, 1995
This Prospectus explains concisely what you should know before
investing in Class A shares of Putnam Managed Income Trust
(the "Fund") offered without a sales charge through eligible
employer-sponsored defined contribution plans ("defined
contribution plans") . Please read it carefully and keep it
for future reference. You can find more detailed information
about the Fund in the March 1, 1995 Statement of Additional
Information, as amended from time to time. For a free copy of
the Statement or other information, including a Prospectus
regarding any other class of Fund shares or Class A shares for
other investors, call Putnam Investor Services at 1-800-
752-9894 . The Statement has been filed with the
Securities and Exchange Commission and is incorporated into this
Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PUTNAMINVESTMENTS
PUTNAM DEFINED
CONTRIBUTION PLANS<PAGE>
ABOUT THE FUND
Expenses summary .......................................
2
Financial highlights ...................................
3
Objectives .............................................
6
How objectives are pursued .............................
6
Risk factors ...........................................
7
How performance is shown ...............................
13
How the Fund is managed ................................
14
Organization and history .............................
15
ABOUT YOUR INVESTMENT
How to buy shares ......................................
16
Distribution Plan......................................
17
How to sell shares .....................................
18
How to exchange shares .................................
18
How the Fund values its shares .........................
19
How distributions are made; tax information ..........
19
ABOUT PUTNAM INVESTMENTS, INC. .......................
20
APPENDIX
Securities ratings ...................................
21
<PAGE>
ABOUT THE FUND
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing in
the Fund. The following table summarizes expenses
incurred by the Fund based on its most recent fiscal year. The
Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in Class A shares of the
Fund over specified periods.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.65%
12b-1 Fees 0.25%
Other Expenses 0.18%
Total Fund Operating Expenses 1.08%
The table is provided to help you understand the expenses of
investing in the Fund and your share of the operating expenses
which the Fund incurs.
EXAMPLE
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and redemption at the end of each
period:
1 3 5 10
YEAR YEARS YEARS YEARS
$11 $34 $60 $132
The Example does not represent past or future expense
levels , and actual expenses may be greater or less than
those shown. Federal regulations require the Example to
assume a 5% annual return, but actual annual return has varied.
The Example does not reflect any charges or expenses related
to your employer's plan.
See "Organization and history" for information about any other
class of shares offered by the Fund.
<PAGE>
FINANCIAL HIGHLIGHTS
The table on the following page presents per share financial
information for Class A shares. This information
has been derived from the Fund's financial statements, which
have been audited and reported on by the Fund's independent
accountants. The Report of Independent Accountants and financial
statements included in the Fund's Annual Report to shareholders
for the 1994 fiscal year are incorporated by reference into this
Prospectus. The Fund's Annual Report, which contains additional
unaudited performance information, is available without charge
upon request.
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Year ended October 31
1994 1993 1992* 1991 1990
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $9.28 $8.50 $8.56 $7.47 $9.34
Investment operations
Net investment income .43 .45 .16 .21 .31
Net realized and unrealized
Gain (loss) on investments (.49) .99 .74 1.87 (1.03)
Total from investment operations (.06) 1.44 .90 2.08 (.72)
Less distributions from:**
Net investment income (.43) (.45) (.16) (.19) (.31)
Net realized gain on investments
and options (.11) (.21) (.80) (.75) --
In excess of net realized
gain on investments -- -- -- -- (.01)
Tax returns of capital -- -- -- (.05) (.83)
Total distributions (.54) (.66) (.96) (.99) (1.15)
Net asset value, end of period $8.68 $9.28 $8.50 $8.56 $7.47
Total investment return at
Net asset value (%) (a) ( 0.61) 17.68 11.15 29.29 (8.64)
Net assets, end of period (in thousands) $455,299 $551,391 $633,181 $699,858 $724,871
Ratio of expenses to average
Net assets (%) 1.08 1.02 1.11 1.09 1.03
Ratio of net investment income
to average net assets (%) 4.92 5.06 1.87 2.56 3.65
Portfolio turnover (%) 125.69 224.28 118.43 135.18 152.06
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the period
April 19, 1985
(commencement of
operations)
Three months to
ended October 31 Year ended July 31 July 31
1989 1988 1987 1987 1986 1985
Class A
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $9.15 $9.05 $11.76 $11.40 $11.95 $11.71
Investment operations
Net investment income .39 .23 .05 .20 .27 .12
Net realized and unrealized
Gain (loss) on investments 1.00 1.37 (2.34) 1.90 1.03 .12
Total from investment operations 1.39 1.60 (2.29) 2.10 1.30 .24
Less distributions from:**
Net investment income (.39) (.27) (.02) (.37) (.40) --
Net realized gain on investments
and options (.31) (.08) (.40) (1.37) (1.45) --
In excess of net realized
gain on investments (.01) -- -- -- -- --
Tax returns of capital (.49) (1.15) -- -- -- --
Total distributions (1.20) (1.50) (.42) (1.74) (1.85) --
Net asset value, end of period $9.34 $9.15 $9.05 $11.76 $11.40 $11.95
Total investment return at
Net asset value (%) (a) 16.30 19.81 (20.20)(b) 20.39 11.87 2.08(b)
Net assets, end of period
(in thousands) $1,138,983 $1,391,983 $1,497,312 $1,868,298 $1,026,462 $171,869
Ratio of expenses to average
Net assets (%) .82 .81 .19(b) .78 .82 .29(b)
Ratio of net investment income
to average net assets (%) 4.20 .57 .45(b) 1.78 2.24 .77(b)
Portfolio turnover (%) 117.59 31.21 49.66 214.89 197.96 23.41
<FN>
* During fiscal 1992, the fund expanded its investment flexibility to include
corporate bonds, foreign securities, warrants and restricted securities.
Accordingly, results of operations prior to fiscal 1992, as presented above,
may not reflect those that would have been achieved under the fund's current
investment policies.
** Distributions for periods ended through October 31, 1993 have
been restated to conform to Statement of Position 93-2.
(a) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(b) Not annualized.
/TABLE
<PAGE>
OBJECTIVES
PUTNAM MANAGED INCOME TRUST SEEKS HIGH CURRENT RETURN AS ITS
PRIMARY INVESTMENT OBJECTIVE. AS A SECONDARY INVESTMENT
OBJECTIVE, THE FUND SEEKS RELATIVE STABILITY OF PRINCIPAL. The
Fund is not intended to be a complete investment program, and
there is no assurance it will achieve its objectives.
HOW OBJECTIVES ARE PURSUED
THE FUND SEEKS HIGH CURRENT RETURN BY INVESTING IN A DIVERSIFIED
PORTFOLIO OF EQUITY AND DEBT SECURITIES. The Fund may invest in
common and preferred stocks, corporate bonds, notes and
debentures, and securities issued or guaranteed as to principal
or interest by the U.S. government or any of its agencies or
instrumentalities. The types of securities held by the Fund will
vary from time to time in light of market changes, changes in
interest rates and economic and other factors. The Fund may seek
to increase its current return and to hedge against adverse
changes in the value of its portfolio securities by engaging in
the options and futures strategies described below under "Futures
and options." The Fund may hold a portion of its assets in cash.
The Fund's investments in fixed-income securities will be limited
to securities rated at the time of purchase not lower than B by
Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Corporation ("S&P"), or unrated securities which Putnam
Investment Management, Inc. ("Putnam Management") determines are
of comparable quality. The Fund will not purchase a fixed-income
security rated lower than Baa by Moody's and BBB by S&P at the
time of purchase, or, if unrated, determined by Putnam Management
to be of comparable quality if, as a result, more than 35% of the
Fund's total assets would be of that quality. The rating
services' descriptions of debt securities are included in the
Appendix to this Prospectus. Securities rated B are
predominantly speculative and have large uncertainties or major
risk exposures to adverse conditions.
The Fund's current return will include dividends and interest
income earned on its investments and any net realized short-term
capital gains. In an effort to provide more level quarterly
payments to shareholders, the Fund currently pays quarterly
distributions based on projections by Putnam Management, the
Fund's investment manager, of the current return that the Fund is
likely to earn over the longer term. At times the Fund may
continue to pay quarterly distributions at a level rate even
though the Fund's earnings for a given period may be below such
projections. In such cases the Fund's distributions may include
a return of capital to shareholders. At other times Putnam
Management may realize short-term capital gains on some portfolio
securities while at the same time seeking to avoid realizing
losses on other securities held in the portfolio. In such cases
the Fund's current return could exceed its total return for such
period. See "How distributions are made; tax information" and
"Financial highlights."
At times, Putnam Management may judge that conditions in the
securities markets make pursuing the Fund's basic investment
strategy inconsistent with the best interests of its
shareholders. At such times, Putnam Management may temporarily
use alternative strategies, primarily designed to reduce
fluctuations in the value of the Fund's assets. In implementing
these "defensive" strategies, the Fund may increase its
investments in high-quality debt securities, cash or money-market
instruments, and may invest in any other securities Putnam
Management considers consistent with such defensive strategies.
It is impossible to predict when, or for how long, the Fund will
use such alternative strategies.
INVESTMENTS IN PREMIUM SECURITIES
The Fund may at times invest in securities bearing coupon rates
higher than prevailing market rates. Such "premium" securities
are typically purchased at prices greater than the principal
amounts payable on maturity. The Fund does not amortize the
premium paid for such securities in calculating its net
investment income. As a result, the purchase of such securities
provides the Fund a higher level of investment income
distributable to shareholders on a current basis than if the Fund
had purchased securities bearing current market rates of
interest. Because the value of premium securities tends to
approach the principal amount as they approach maturity (or call
price in the case of securities approaching their first call
date), the purchase of such securities may increase the Fund's
risk of capital loss if such securities are held to maturity (or
first call date).
During a period of declining interest rates, many of the Fund's
portfolio investments will likely bear coupon rates which are
higher than the current market rates, regardless of whether such
securities were originally purchased at a premium. Such
securities would generally carry premium market values which
would be reflected in the net asset value of the Fund's shares.
As a result, an investor who purchases shares of the Fund during
such periods would initially receive higher taxable monthly
distributions (derived from the higher coupon rates payable on
the Fund's investments) than might be available from alternative
investments bearing current market interest rates, but may face
an increased risk of capital loss as these higher coupon
securities approach maturity (or first call date). In evaluating
the potential performance of an investment in the Fund, investors
may find it useful to compare the Fund's current dividend rate
with the Fund's "yield," which is computed on a yield-to-maturity
basis in accordance with SEC regulations and which reflects
amortization of market premiums. See "How performance is shown."
RISK FACTORS
THE VALUES OF FIXED-INCOME SECURITIES FLUCTUATE IN RESPONSE TO
CHANGES IN INTEREST RATES. Thus, a decrease in interest rates
will generally result in an increase in the value of the Fund's
assets. Conversely, during periods of rising interest rates, the
value of the Fund's assets will generally decline. The
magnitude of these fluctuations generally is greater for
securities with longer maturities. However, the yields on such
securities are also generally higher. In addition, the values of
such securities are affected by changes in general economic
conditions and business conditions affecting the specific
industries of their issuers. Changes by recognized rating
services in their ratings of any fixed-income security and in the
ability of an issuer to make payments of interest and principal
may also affect the value of these investments. Changes in the
value of portfolio securities generally will not affect income
derived from such securities, but will affect the Fund's net
asset value. The Fund will not necessarily dispose of a security
when its rating is reduced below its rating at the time of
purchase, although Putnam Management will monitor the investment
to determine whether continued investment in the security will
assist in meeting its investment objective.
THE FUND MAY INVEST IN BOTH HIGHER-RATED AND LOWER-RATED FIXED-
INCOME SECURITIES. The values of lower-rated fixed-income
securities, commonly known as "junk bonds," generally fluctuate
more than those of higher-rated fixed-income securities. In
addition, the lower rating reflects a greater possibility that
the financial condition of the issuer, or adverse changes in
economic conditions, or both, may impair the ability of an issuer
to make payments of income and principal.
The table below shows the percentages of the Fund's assets
invested during fiscal 1994 in securities assigned to the various
rating categories by Moody's and S&P and in unrated securities
determined by Putnam Management to be of comparable quality:
RATED SECURITIES, UNRATED SECURITIES OF
AS PERCENTAGE OF COMPARABLE QUALITY, AS
RATING FUND'S ASSETS PERCENTAGE OF FUND'S ASSETS
"AAA"/"Aaa" 14.23% --%
"AA"/"Aa" 9.67% --%
"A"/"A" 7.23% --%
"BBB"/"Baa" 11.16% 5.25%
"BB"/"Ba" 6.13% --%
"B"/"B" 3.51% 1.61%
"CCC"/"Caa" 0.71% --%
----- -----
Total 52.64% 6.86%
===== =====
Putnam Management seeks to minimize the risks of investing in
lower-rated securities through investment analysis. When the
Fund invests in 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 securities in the higher rating categories.
Investors should consider carefully their ability to assume the
risks of owning shares of a mutual fund which may invest in
securities in certain of the lower rating categories.
At times, a substantial portion of the Fund's assets may be
invested in securities as to which the Fund, by itself or
together with other funds and accounts managed by Putnam
Management and its affiliates, holds a major portion or all of
such securities. Under adverse market or economic conditions or
in the event of adverse changes in the financial condition of the
issuer, the Fund could find it more difficult to sell such
securities when Putnam Management believes it advisable to do so
or may be able to sell such securities only at prices lower than
if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the
fair value of such securities for purposes of computing the
Fund's net asset value. In order to enforce its rights in the
event of a default under such securities, the Fund may be
required to take possession of and manage assets securing the
issuer's obligations on such securities, which may increase the
Fund's operating expenses and adversely affect the Fund's net
asset value.
<PAGE>
Certain securities held by the Fund may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were
to redeem securities held by the Fund during a time of declining
interest rates, the Fund may not be able to reinvest the proceeds
in securities providing the same investment return as the
securities redeemed.
The Fund may invest in so-called "zero-coupon" bonds whose values
are subject to greater fluctuation in response to changes in
market interest rates than bonds which pay interest currently.
Zero-coupon bonds are issued at a significant discount from face
value and pay interest only at maturity rather than at intervals
during the life of the security. Zero-coupon bonds allow an
issuer to avoid the need to generate cash to meet current
interest payments. Accordingly, such bonds may involve greater
credit risks than bonds paying interest currently. The Fund is
required to accrue and distribute income from zero-coupon bonds
on a current basis, even though it does not receive that income
currently in cash. Thus the Fund may have to sell other
investments to obtain cash needed to make income distributions.
THE FUND MAY INVEST ITS ASSETS IN ASSET-BACKED AND MORTGAGE-
BACKED SECURITIES, SUCH AS COLLATERALIZED MORTGAGE OBLIGATIONS.
Mortgage-backed securities represent a participation in, or are
secured by, mortgage loans and include securities issued or
guaranteed by the United States government or one of its agencies
or instrumentalities; securities issued by private issuers that
represent an interest in or are collateralized by mortgage-backed
securities issued or guaranteed by the U.S. government or one of
its agencies or instrumentalities; or securities issued by
private issuers that represent an interest in or are
collateralized by mortgage loans or mortgage-backed securities
without a government guarantee but usually having some form of
private credit enhancement.
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, and a rapid rate of principal payments may
have a material adverse effect on the Fund's yield to maturity to
the extent it invests in IOs. If the underlying assets
experience greater than anticipated prepayments of principal, the
Fund may fail to fully recoup 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.
Asset-backed securities are structured like mortgage-backed
securities, but instead of mortgage loans or interests in
mortgage loans, the underlying assets may include motor vehicle
installment sales or installment loan contracts, leases of
various types of real and personal property, and receivables from
credit card agreements. The ability of an issuer of asset-backed
securities to enforce its security interest in the underlying
assets may be limited.
Due to the risk of voluntary prepayment, especially when interest
rates decline, mortgage-backed and asset-backed securities are
less effective than other types of securities as a means of
"locking in" attractive long-term interest rates and, as a
result, may have less potential for capital appreciation during
periods of declining interest rates than other securities of
comparable maturities. If the Fund purchases mortgage-backed and
asset-backed securities at a premium above their par value,
unscheduled prepayments made at par will cause the Fund to suffer
a loss equal to any unamortized premium.
FOREIGN INVESTMENTS
THE FUND MAY INVEST UP TO 20% OF ITS ASSETS IN SECURITIES
PRINCIPALLY TRADED IN FOREIGN MARKETS. The Fund may also
purchase Eurodollar certificates of deposit without regard to the
20% limit. Since foreign securities are normally denominated and
traded in foreign currencies, the values of the Fund's assets may
be affected favorably or unfavorably by currency exchange rates
and exchange control regulations. 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 are typically increased to the extent
that the Fund invests in securities traded in under-developed and
developing nations, which are sometimes referred to as "emerging
markets."
The Fund may buy or sell foreign currencies, foreign currency
forward contracts and call options on foreign currencies for
hedging purposes in connection with its foreign investments.
A MORE DETAILED EXPLANATION OF FOREIGN INVESTMENTS, AND THE RISKS
AND SPECIAL TAX CONSIDERATIONS ASSOCIATED WITH THEM, IS INCLUDED
IN THE STATEMENT OF ADDITIONAL INFORMATION.
PORTFOLIO TURNOVER
The length of time the Fund has held a particular security is not
generally a consideration in investment decisions. A change in
the securities held by the Fund is known as "portfolio turnover."
As a result of the Fund's investment policies, under certain
market conditions the Fund's portfolio turnover rate may be
higher than that of other mutual funds. Portfolio turnover
generally involves some expense to the Fund, including brokerage
commissions or dealer mark-ups and other transaction costs on the
sale of securities and reinvestment in other securities. Such
transactions may result in realization of taxable capital gains.
Portfolio turnover rates for the life of the Fund are shown in
the section "Financial highlights."
FUTURES AND OPTIONS
THE FUND MAY PURCHASE AND SELL STOCK INDEX FUTURES CONTRACTS FOR
HEDGING PURPOSES. An "index future" is a contract to buy or sell
units of a particular securities index at an agreed price on a
specified future date. Depending on the change in value of the
index between the time when the Fund enters into and terminates
an index futures contract, the Fund realizes a gain or loss. The
Fund may purchase and sell put and call options on index futures
or on stock indices directly, in addition to or as an alternative
to purchasing or selling index futures.
The Fund may also, for hedging purposes, purchase and sell
futures contracts and related options with respect to U.S.
Treasury securities, including U.S. Treasury bills, notes and
bonds ("U.S. Government Securities") and options directly on U.S.
Government Securities. U.S. Government Securities futures and
options would be used in a way similar to the Fund's use of index
futures and options.
<PAGE>
The Fund may also purchase warrants on equity securities in which
it may invest and warrants issued by banks and other financial
institutions whose values are based on the values from time to
time of one or more securities indices.
THE USE OF FUTURES AND OPTIONS INVOLVES CERTAIN SPECIAL RISKS.
FUTURES AND OPTIONS TRANSACTIONS INVOLVE COSTS AND MAY RESULT IN
LOSSES. Certain risks arise because of the possibility of
imperfect correlations between movements in the prices of futures
and options and movements in the prices of the underlying stock
index or of the securities in the Fund's portfolio that are the
subject of a hedge. The successful use of the strategies
described above further depends on Putnam Management's ability to
forecast market movements correctly. Other risks arise from the
Fund's potential inability to close out its futures or options
positions, and there can be no assurance that a liquid secondary
market will exist for any future or option at any particular
time. Certain provisions of the Internal Revenue Code and
certain regulatory requirements may limit the Fund's ability to
engage in futures and options transactions.
The Fund generally expects that its options and futures contract
transactions will be conducted on recognized exchanges. In
certain instances, however, the Fund may purchase and sell
options in the over-the-counter markets. The Fund's ability to
terminate options in the over-the-counter markets may be more
limited than for exchange-traded options and may also involve the
risk that securities dealers participating in such transactions
would be unable to meet their obligations to the Fund.
A MORE DETAILED EXPLANATION OF FUTURES AND OPTIONS TRANSACTIONS
AND THE RISKS ASSOCIATED WITH THEM IS INCLUDED IN THE STATEMENT
OF ADDITIONAL INFORMATION.
OTHER INVESTMENT PRACTICES
THE FUND MAY ALSO ENGAGE TO A LIMITED EXTENT IN THE FOLLOWING
INVESTMENT PRACTICES, EACH OF WHICH INVOLVES CERTAIN SPECIAL
RISKS. THE STATEMENT OF ADDITIONAL INFORMATION CONTAINS MORE
DETAILED INFORMATION ABOUT THESE PRACTICES, INCLUDING LIMITATIONS
DESIGNED TO REDUCE THESE RISKS.
OPTIONS. The Fund may seek to increase its current return by
writing covered call and put options on securities it owns or in
which it may invest. The Fund receives a premium from writing a
call or put option, which increases the Fund's return if the
option expires unexercised or is closed out at a net profit.
When the Fund writes a call option, it gives up the opportunity
to profit from any increase in the price of a security above the
exercise price of the option; when it writes a put option, the
Fund takes the risk that it will be required to purchase a
security from the option holder at a price above the current
market price of the security. 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 may also
buy and sell put and call options for hedging purposes. The Fund
may also from time to time buy and sell combinations of put and
call options on the same underlying security to earn additional
income. The Fund's use of these strategies may be limited by
applicable law.
SECURITIES LOANS, REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS.
The Fund may lend portfolio securities amounting to not more than
25% of its assets to broker-dealers and may enter into repurchase
agreements on up to 25% of its assets. These transactions must
be fully collateralized at all times. The Fund may also purchase
securities for future delivery, which may increase its overall
investment exposure and involves a risk of loss if the value of
the securities declines prior to the settlement date. These
transactions involve some risk to the Fund if the other party
should default on its obligation and the Fund is delayed or
prevented from recovering the collateral or completing the
transaction.
LIMITING INVESTMENT RISK
SPECIFIC INVESTMENT RESTRICTIONS HELP THE FUND LIMIT INVESTMENT
RISKS FOR ITS SHAREHOLDERS. THESE RESTRICTIONS PROHIBIT THE FUND
FROM: acquiring more than 10% of the voting securities of any
one issuer* and investing more than: (a) 5% of its total assets
in securities of any one issuer (other than U.S. Government
Securities);* (b) 5% of its net assets in securities of issuers
(other than U.S. Government Securities) that, together with any
predecessors or controlling persons have been in operation less
than three years and in equity securities that do not have
readily available market quotations; (c) 25% of its total assets
in any one industry (U.S. Government Securities are not
considered to represent an industry);* (d) 15% of its net assets
in securities restricted as to resale (excluding securities
determined by the Fund's Trustees (or the person designated by
the Fund's Trustees to make such determinations) to be readily
marketable);* (e) 5% of its net assets in warrants or more than
2% of its net assets in warrants not listed in the New York or
American Stock Exchange; or (f) 15% of its net assets in any
combination of securities that are not readily marketable,
securities restricted as to resale (excluding securities
determined by the Trustees of the Fund (or the person designated
by the Trustees of the Fund to make such determinations) to be
readily marketable), and in repurchase agreements maturing in
more than seven days.
Restrictions marked with an asterisk (*) above are summaries of
fundamental investment policies. See the Statement of Additional
Information for the full text of these policies and the Fund's
other fundamental investment policies. Except for investment
policies designated as fundamental in this Prospectus or the
Statement, the investment policies described in this Prospectus
and in the Statement are not fundamental policies. The Trustees
may change any non-fundamental investment policies without
shareholder approval. As a matter of policy, the Trustees would
not materially change the Fund's investment objectives without
shareholder approval.
HOW PERFORMANCE IS SHOWN
THE FUND'S INVESTMENT PERFORMANCE MAY FROM TIME TO TIME BE
INCLUDED IN ADVERTISEMENTS ABOUT THE FUND. "Yield" 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 on the last day of that
period. For this purpose, net investment income is calculated in
accordance with SEC regulations and may differ from net
investment income as determined for financial reporting purposes.
SEC regulations require that net investment income be calculated
on a "yield-to-maturity" basis, which has the effect of
amortizing any premiums or discounts in the current market value
of fixed-income securities. The current dividend rate is based
on net investment income as determined for tax purposes, which
may not reflect amortization in the same manner. See "How
objectives are pursued -- Investments in premium securities."
Yield reflects the deduction of the maximum initial sales charge
.
"Total return" for the one-, five- and ten-year periods (or for
the life of the Fund , if shorter) through the most recent
calendar quarter represents the average annual compounded rate of
return on an investment of $1,000 in the Fund invested at the
maximum public offering price . 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 would be
reduced if such sales charge were used.
ALL DATA IS BASED ON THE FUND'S PAST INVESTMENT RESULTS AND DOES
NOT PREDICT FUTURE PERFORMANCE. Investment performance, which
will vary, is based on many factors, including market conditions,
the composition of the Fund's portfolio, the Fund's operating
expenses and which class of shares you purchase. Investment
performance also often reflects the risks associated with the
Fund's investment objectives and policies. These factors should
be considered when comparing the Fund's investment results to
those of other mutual funds and other investment vehicles.
Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. The Fund's performance may be
compared to various indices. See the Statement of Additional
Information. Because shares sold through eligible defined
contribution plans are sold without a sales charge, quotations of
investment performance reflecting the deduction of a sales charge
will be lower than the actual investment performance on shares
purchased through such plans.
HOW THE FUND IS MANAGED
THE TRUSTEES OF THE FUND ARE RESPONSIBLE FOR GENERALLY OVERSEEING
THE CONDUCT OF THE FUND'S BUSINESS. Subject to such policies as
the Trustees may determine, Putnam Management furnishes a
continuing investment program for the Fund and makes investment
decisions on its behalf. Subject to the control of the Trustees,
Putnam Management also manages the Fund's other affairs and
business. Edward P. Bousa, Kenneth J. Taubes and Rosemary H.
Thomsen, each a Senior Vice President of Putnam Management and
Vice President of the Fund, have had primary responsibility for
the day-to-day management of the Fund's portfolio since 1992,
1994 and 1995, respectively. Mr. Bousa has been employed by
Putnam Management since 1992. Prior to 1992, Mr. Bousa was a
Vice President and Portfolio Manager at Fidelity Investments.
Mr. Taubes has been employed by Putnam Management since 1991.
Prior to 1991, Mr. Taubes was Senior Vice President of the
Finance Division of U.S. Trust Company. Ms. Thomsen has been
employed by Putnam Management since 1986.
The Fund pays all expenses not assumed by Putnam Management,
including Trustees' fees, auditing, legal, custodial, investor
servicing, shareholder reporting expenses, and payments under its
Distribution Plans (which are in turn allocated to the relevant
class of shares). The Fund also reimburses Putnam Management for
the compensation and related expenses of certain officers of the
Fund and their staff who provide administrative services to the
Fund. The total reimbursement is determined annually by the
Trustees.
Putnam Management places all orders for purchases and sales of
the Fund's securities. In selecting broker-dealers, Putnam
Management may consider research and brokerage services furnished
to it and its affiliates. Subject to seeking the most favorable
price and execution available, Putnam Management may consider
sales of shares of the Fund (and, if permitted by law, of the
other Putnam funds) as a factor in the selection of broker-
dealers.
ORGANIZATION AND HISTORY
Putnam Managed Income Trust is a Massachusetts business trust
organized on February 21, 1985. From February 21, 1985 to July
13, 1992 the Fund was known as Putnam Option Income Trust II. A
copy of the Agreement and Declaration of Trust, which is governed
by Massachusetts law, is on file with the Secretary of State of
The Commonwealth of Massachusetts.
The Fund is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the Fund may, without shareholder
approval, be divided into two or more series of shares
representing separate investment portfolios. 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
Fund's shares are not currently divided into series. The Fund's
shares are currently divided into three classes.
Only the Fund's Class A shares are offered by this Prospectus.
Class B and Class M shares bear a higher 12b-1 fee than Class A
shares. Class B shares are subject to a contingent deferred
sales charge, and Class M shares are subject to a front-end sales
charge. Because Class A shares bear lower expenses than Class B
shares and Class M shares, the investment performance of Class A
shares sold without a sales charge will be greater than that of
Class B shares and Class M shares. Because of sales charges and
different expenses, the investment performance of the classes
will vary.
Each share has one vote, with fractional shares voting
proportionally. Shares of each class will vote together as a
single class except when required by law or as determined by the
Trustees. Shares are freely transferable, are entitled to
dividends as declared by the Trustees, and, if the Fund were
liquidated, would receive the net assets of the Fund. The Fund
may suspend the sale of shares at any time and may refuse any
order to purchase shares. Although the Fund is not required to
hold annual meetings of its shareholders, shareholders holding at
least 10% of the outstanding shares entitled to vote have the
right to call a meeting to elect or remove Trustees, or to take
other actions as provided in the Agreement and Declaration of
Trust.
If you own fewer shares than a minimum amount set by the Trustees
(presently 20 shares), the Fund may choose to redeem your shares
and pay you for them. You will receive at least 30 days' written
notice before the Fund redeems your shares, and you may purchase
additional shares at any time to avoid a redemption. The Fund
may also redeem shares if you own shares above a maximum amount
set by the Trustees. There is presently no maximum, but the
Trustees may establish one at any time, which could apply to both
present and future shareholders.
THE FUND'S TRUSTEES: GEORGE PUTNAM,* CHAIRMAN. President of the
Putnam funds. Chairman and Director of Putnam Management and
Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director,
Marsh & McLennan Companies, Inc.; WILLIAM F. POUNDS, VICE
CHAIRMAN. Professor of Management, Alfred P. Sloan School of
Management, M.I.T.; JAMESON ADKINS BAXTER, President, Baxter
Associates, Inc.; HANS H. ESTIN, Vice Chairman, North American
Management Corp.; JOHN A. HILL, Principal and Managing Director,
First Reserve Corporation; ELIZABETH T. KENNAN, President, Mount
Holyoke College; LAWRENCE J. LASSER,* Vice President of the
Putnam funds. President, Chief Executive Officer and Director of
Putnam Investments, Inc. and Putnam Management. Director, Marsh
& McLennan Companies, Inc.; ROBERT E. PATTERSON, Executive Vice
President, Cabot Partners Limited Partnership; DONALD S.
PERKINS, * Chairman of the Board and Director of Kmart
Corporation Director of various corporations, including AT&T and
Time Warner Inc.; GEORGE PUTNAM, III,* President, New Generation
Research, Inc.; A.J.C. SMITH,* Chairman, Chief Executive Officer
and Director, Marsh & McLennan Companies, Inc.; and W. NICHOLAS
THORNDIKE, Director of various corporations and charitable
organizations, including Data General Corporation, Bradley Real
Estate, Inc. and Providence Journal Co. Also, Trustee of
Massachusetts General Hospital and Eastern Utilities Associates.
The Fund's Trustees are also Trustees of the other Putnam funds.
Those marked with an asterisk (*) are or may be deemed to
be "interested persons" of the Fund, Putnam Management or
Putnam Mutual Funds.
ABOUT YOUR INVESTMENT
HOW TO BUY SHARES
ALL ORDERS TO PURCHASE SHARES MUST BE MADE THROUGH
YOUR EMPLOYER'S DEFINED CONTRIBUTION PLAN. FOR MORE
INFORMATION ABOUT HOW TO PURCHASE SHARES OF THE FUND THROUGH YOUR
EMPLOYER'S PLAN OR LIMITATIONS ON THE AMOUNT THAT MAY BE
PURCHASED, PLEASE CONSULT YOUR EMPLOYER. Shares are sold to
eligible defined contribution plans at the net asset value per
share next determined after receipt of an order by Putnam
Mutual Funds . Orders must be received by Putnam Mutual
Funds before the close of regular trading
on the New York Stock Exchange in order to receive
that day's net asset value . In order to be eligible
to purchase shares at net asset value , defined
contribution plans must initially invest at least $1
million or be sponsored by companies with more than 750
employees. Eligible plans may make additional investments of any
amount at any time. To eliminate the need for safekeeping ,
the Fund will not issue certificates for your shares. Sales
personnel may receive different compensation depending on which
class of shares they sell .
On sales at net asset value to a participant-directed
qualified retirement plan initially investing less than $20
million in Putnam funds and other investments managed by Putnam
Management or its affiliates (including a plan sponsored by an
employer with more than 750 employees), Putnam Mutual Funds pays
commissions on cumulative purchases during the life of the
account at the rate of 1.00% of the amount under $3 million and
0.50% thereafter. On sales at net asset value to all other
participant-directed qualified retirement plans, Putnam Mutual
Funds pays commissions on the initial investment and on
subsequent net quarterly sales at the rate of 0.15%.
Putnam Mutual Funds may, at its expense, provide additional
promotional incentives or payments to dealers that sell shares of
the Putnam funds. In some instances, these incentives or
payments may be offered only to certain dealers who have sold or
may sell significant amounts of shares.
DISTRIBUTION PLAN
CLASS A DISTRIBUTION PLAN. The Class A Plan provides for
payments by the Fund to Putnam Mutual Funds at the annual rate of
up to 0.35% of the Fund's average net assets attributable to
Class A shares. The Trustees currently limit payments under the
Class A Plan to the annual rate of 0.25% of such assets. Should
the Trustees decide in the future to approve payments in excess
of this amount, shareholders will be notified and this Prospectus
will be revised.
In order to compensate investment dealers (including, for this
purpose, certain financial institutions) for services provided in
connection with sales of Class A shares and the maintenance of
shareholder accounts, Putnam Mutual Funds makes quarterly
payments to qualifying dealers based on the average net asset
value of Class A shares of the Fund which are attributable to
shareholders for whom the dealers are designated as the dealer of
record. This calculation excludes until one year after purchase
shares purchased at net asset value by shareholders investing $1
million or more and by participant-directed qualified retirement
plans sponsored by employers with more than 750 employees ("NAV
Shares"), except for shares owned by certain investors investing
$1 million or more that have made arrangements with Putnam Mutual
Funds and whose dealer of record waived the sales commission.
Except as stated below, Putnam Mutual Funds makes such payments
at the annual rate of 0.20% of such average net asset value for
Class A shares outstanding as of December 31, 1989 and 0.25% of
such average net asset value of shares acquired after that date
(including shares acquired through reinvestment of
distributions). For participant-directed qualified retirement
plans initially investing less than $20 million in Putnam funds
and other investments managed by Putnam Management or its
affiliates, Putnam Mutual Funds' payments to qualifying dealers
on NAV Shares are 100% of the rate stated above if average plan
assets in Putnam funds (excluding money market funds) during the
quarter are less than $20 million, 60% of the stated rate if
average plan assets are at least $20 million but less than $30
million, and 40% of the stated rate if average plan assets are
$30 million or more. For all other participant-directed
qualified retirement plans purchasing NAV Shares, Putnam Mutual
Funds makes quarterly payments to qualifying dealers at the
annual rate of 0.10% of the average net asset value of such
shares.
Payments under the Plan are intended to compensate
Putnam Mutual Funds for services provided and expenses incurred
by it as principal underwriter of the Fund's shares, including
the payments to dealers mentioned above. Putnam Mutual Funds may
suspend or modify such payments to dealers. Such payments are
also subject to the continuation of the 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. Banks and other
financial service firms may be subject to various state laws
regarding the services described above, and may be required to
register as dealers pursuant to state law.
HOW TO SELL SHARES
SUBJECT TO ANY RESTRICTIONS IMPOSED BY YOUR EMPLOYER'S PLAN,
YOU CAN SELL YOUR SHARES THROUGH THE PLAN TO THE FUND
ANY DAY THE NEW YORK STOCK EXCHANGE IS OPEN . For more
information about how to sell shares of the Fund
through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
Your plan administrator must send a signed letter of
instruction to Putnam Investor Services . The
price you will receive is the next net asset value calculated
after the Fund receives your request in proper form . All
requests must be received by the Fund prior to the close of
regular trading on the New York Stock Exchange in order to
receive that day's net asset value . If you sell shares
having a net asset value of $100,000 or more, the signatures of
registered owners or their legal representatives must be
guaranteed by a bank, broker-dealer or certain other financial
institutions. See the Statement of Additional Information for
more information about where to obtain a signature guarantee.
THE FUND GENERALLY PROVIDES PAYMENT FOR REDEEMED
SHARES THE BUSINESS DAY AFTER THE REQUEST IS RECEIVED.
Under unusual circumstances, the Fund may suspend redemptions, or
postpone payment for more than seven days, as permitted by
federal securities law. The Fund will only redeem shares for
which it has received payment.
HOW TO EXCHANGE SHARES
Subject to any restrictions contained in your plan, you
can exchange your shares for shares of other Putnam funds
available through your plan at net asset value .
Contact your plan administrator or Putnam Investor
Services on how to exchange your shares or how to
obtain prospectuses of other Putnam funds in which you may
invest . Shares of certain Putnam funds are not available to
residents of all states.
The exchange privilege is not intended as a vehicle for short-
term trading. Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity and
in other circumstances where Putnam Management or the Trustees
believe doing so would be in the best interests of the Fund, the
Fund reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any
exchange. Shareholders would be notified of any such action to
the extent required by law. Consult Putnam Investor Services
before requesting an exchange. See the Statement of Additional
Information to find out more about the exchange privilege.
HOW THE FUND VALUES ITS SHARES
THE FUND CALCULATES THE NET ASSET VALUE OF A SHARE OF EACH CLASS
BY DIVIDING THE TOTAL VALUE OF ITS ASSETS, LESS LIABILITIES, BY
THE NUMBER OF ITS SHARES OUTSTANDING. SHARES ARE VALUED AS OF
THE CLOSE OF REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE EACH
DAY THE EXCHANGE IS OPEN. Portfolio securities for which market
quotations are readily available are stated at market value.
Short-term investments that will mature in 60 days or less are
valued at amortized cost, which approximates market value. All
other securities and assets are valued at their fair value
following procedures approved by the Trustees.
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION
THE FUND WILL PAY QUARTERLY DISTRIBUTIONS FROM NET INVESTMENT
INCOME AND ANY NET REALIZED SHORT-TERM CAPITAL GAINS. Any net
realized long-term capital gains will be distributed at least
annually. Net investment income consists of dividends and
interest accrued on portfolio investments of the Fund, less
accrued expenses.
The Fund's quarterly distributions will be based on Putnam
Management's projections of the net investment income and net
realized short-term capital gains that the Fund is likely to earn
over the longer term. ACCORDINGLY, THE FUND'S DISTRIBUTION
PROCEDURES DIFFER FROM THOSE OF MANY OTHER INVESTMENT COMPANIES
BECAUSE THE AMOUNT OF EACH QUARTERLY DISTRIBUTION MAY VARY FROM
THE FUND'S ACTUAL INCOME AND GAIN FOR SUCH QUARTER AS DETERMINED
IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
At times, the Fund may pay out less than the entire amount of net
investment income and net realized short-term capital gains
earned in a particular quarter. Any such amount retained by the
Fund would be available to stabilize future distributions. At
other times the Fund may continue to pay quarterly distributions
at a level rate even though, as a result of market conditions or
investment decisions, the Fund may have failed to achieve
projected investment results for a given period. In such cases,
the Fund's distributions may include a substantial return of
capital to shareholders. Shareholders who reinvest their
distributions are largely unaffected by such returns of capital.
In the case of shareholders who do not reinvest, a return of
capital is equivalent to a partial redemption of the
shareholder's investment (on which a sales charge may have been
paid at the time of purchase).
In order to provide more level quarterly distributions, Putnam
Management may at times realize short-term capital gains on some
portfolio securities, while at the same time seeking to avoid
realizing losses on other securities held in the portfolio. As a
result, the Fund's shareholders may receive taxable distributions
from a net realized short-term capital gain at times when the
Fund has unrealized losses in its portfolio which could have been
used to offset such gain. Similarly, the Fund may at times
continue to pay taxable distributions from a net realized short-
term gain which could have been retained by the Fund and offset
by a capital loss carryforward available to the Fund. In such
circumstances the Fund would lose the benefit of such a loss
carryforward.
The terms of your plan will govern how your plan may receive
distributions from the Fund. Generally, periodic
distributions from the Fund to your plan are reinvested in
additional Fund shares , although your plan may permit
Fund distributions from net investment income to be
received by you in cash while reinvesting capital
gains distributions in additional shares or all
Fund distributions to be received in cash. If
another option is not selected , all distributions will
be reinvested in additional Fund shares .
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of federal
taxes on income and gains it distributes . The Fund will
distribute substantially all of its ordinary income and capital
gain net income on a current basis. Generally, Fund
distributions are taxable as ordinary income,
except that any distributions of net long-term capital gains will
be taxed as such . However, distributions
by the Fund to employer-sponsored defined contribution
plans that qualify for tax-exempt treatment under federal income
tax laws will not be taxable. Special tax rules apply to
investments through such plans. You should consult your tax
adviser to determine the suitability of the Fund as an investment
through such a plan and the tax treatment of distributions
(including distributions of amounts attributable to an investment
in the Fund) from such a plan.
The foregoing is a summary of certain federal income tax
consequences of investing in the Fund. You should consult your
tax adviser to determine the precise effect of an investment in
the Fund on your particular tax situation (including possible
liability for state and local taxes).
ABOUT PUTNAM INVESTMENTS, INC.
PUTNAM MANAGEMENT HAS BEEN MANAGING MUTUAL FUNDS SINCE 1937.
Putnam Mutual Funds is the principal underwriter of the Fund and
of other Putnam funds. Putnam Defined Contribution Plans is a
division of Putnam Mutual Funds. Putnam Fiduciary Trust
Company is the Fund's custodian. Putnam Investor Services, a
division of Putnam Fiduciary Trust Company, is the Fund's
investor servicing and transfer agent.
Putnam Management, Putnam Mutual Funds and Putnam
Fiduciary Trust Company are located at One Post Office Square,
Boston, Massachusetts, 02109 and 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-edge". Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high-grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger
than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which suggest
a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
<PAGE>
B -- Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
STANDARD & POOR'S CORPORATION:
BONDS
AAA -- Debt rated AAA has the highest rating assigned by Standard
& Poor's. Capacity to pay interest and repay principal is
extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues only
in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in
this category than in higher rated categories.
BB-B-CCC -- Debt rated BB, B and CCC is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance with the terms
of the obligation. While such debt will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
