s filed with the
Securities and
Exchange Commission
on November
23,1998
Registration No.2-
98790811-4345
SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM N-1A--
REGISTRATION
STATEMENT UNDER THE
SECURITIES ACT OF
1933/ X /
< R
> < /
R >-
- --
- - -
Pre-Effective Amendment No. <R
>
<
/
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/
/
<
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-
- --
--
Post-Effective
Amendment No. 16
/ X /
and -
- -- -
--- REGISTRATION
STATEMENT UNDER
THE INVESTMENT
COMPANY/
X /
ACT OF 1940 - -
- --
Amendment No.
16 /
X /
(Check
appropriate box or
boxes) --
-
--
--
--
--
--
--
-
P
UTNAM
TAXFREE
INCOME
TRUS T
(Exact name of
regi
stra
nt
as
spec
ifie
d in
char
ter<
R></
R>)
One Post Office
Square,
Boston,
Massachusetts
0210 9
(Address of
principal
executive
offices
)
Registrant's
Telephone
Number,
including Area
Cod e
(617) 292-
100 <
/
R
>
0
--
--
--
-
-
- --
-
It is proposed that
this
filing will
b
e
c
o
m
e
e
f
f
e
c
t
i
v
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c
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p
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i
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o
x
<
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>
)
--- -
/ /
immediately upon
filing
pursuant to
paragraph
(
b)
- -- --
--
--
/ X / on
November 30,
1998
pursuant to
paragraph (b)
- ----
----
/ / 60
days after
filing pursuant
to paragraph
(a)(1 )
- --- -
---
-
/ / on
(date) pursuant
to
paragraph
(a)( 1)
- -- --
--
--
/ / 75
days after
filing pursuant
to paragraph
(a) (2)
- - ---
- -
- --
/ / on
(date) pursuant
to
paragraph (a)(2)
of
Rule
485.
- ----
If
appropriate,
check the
following
box:
----
/ /
this post-
effective
amendment
designate <
/R> s a new -
- --- effective
date for a
previously
filed
post-
effective
amen
dment.
- -------- -
-----
JO
H
N
R
.
V
E
R
A
N
I
,
V
i
c
e
P
r
e
<
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i
d
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n
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P
U
T
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A
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TAX-
FREE
INCOM
E TRUST
O
n
e
P
o
s
t
O
f
f
i
c
e
Square
Boston,
Massachusett
s
02109
(Name and
address of
a
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f
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<
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v
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- ---
-----
---
---
C opy
to:
JOHN W.
GERSTMAYR,
E
squire
ROPE </
R> S &
GRAY
One
Internati
ona
</R
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Place
Boston,
Massachus
ett
</R
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PUTN
A
M
T
A
X
F
R
E
E
I
N
C
O
M
E
T
R
U
S
T
C
R
O
S
S
REFERENCE
SHEET
(as required by
Rule 481(a))
PART A N -
1A ITEM
NO.
LOCATIO
N
1.
Cover
P
a
g
e
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
...Cover
p age
2.
Synopsis.....................
.... Expenses
su mmary
3.
Condensed
Financial
I
n
f
o
r
m
a
t
i
o
n
.
.
F
i
n
a
n
c
i
a
l
h
i
g
h
l
i
g
h
t
s
;
H
o
w
p
e
r
f
o
r
m
a
n
c
e
<
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>
<
/
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>
i
s
s
h
o
w
n
4. General Descr
iption of
Registrant...............
........ Objective; How
the fund
p
u
r
s
u
e
s
i
t
s
o
b
j
e
c
t
i
v
e
;
O
r
g
a
n
i
z
a
t
i
o
n
a
<
R
>
<
/
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>
n
d
h
i
s
t
o
r
y
5.
Management
of the
F
u
n
d
.
.
.
.
.
.
.
.
.
.
E
x
p
e
n
s
e
s
s
u
m
m
a
r
y
;
H
o
w
t
h
e
f
u
n
d
i
s
m
a
n
a
g
e
d
;
A
b
o
u
t
P
u
t
n
a
m
I
n
v
e
s
<
R
>
<
/
R
>
t
m
e
n
t
s
,
I
n
c
.
5A. Management's Disc
ussion of Fund
Performance..............
........ (Contain
ed in the
annual
r
e
p
o
r
t
o
f
t
<
R
>
<
/
R
>
h
e
R
e
g
i
s
t
r
a
n
t
)
6. Capita l Stock and
Other
Securities...............
........ Cover page;
Organization
a
n
d
h
i
s t o r y ; H o w t h e f u n d m a k e s
d i s t r i b u t i o n s t o s h a r e h
o l d e r s < R > < / R > ; t a x i n f o
r m a
t
i
o
n
7. Purchase o f
SecuritiesBeing
Offered..................
........
How to buy shares;
D
i
s
t
r
i
b
u
t
i
o
n
p
l
a
n
s
;
H
o
w
t
o
s
e
l
l
s
h
a
r
e
s
;
H
o
w
t
o
e
x
c
h
a
n
g
e
s
h
a
r
e
s
;
H
o
w
t
h
e
f
u
n
d
v
a
l
u
e
s
i
t
s
s
h
a
r
e
<
R
>
<
/
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>
s
8.
Redemption
or
R
e
p
u
r
c
h
a
s e . . . . . . . . . H o w t o b u y s h
a r e s ; H o w t o s e l l s h a r e s ;
H o w t o e x c h a n g e s h a r e s ; O
r g a
n
i
z
a
t
i
o
n
a
n
d
h
i
s
t
<
R
>
<
/
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> o
r y
9.
Pending
Legal
P r
o c
e e
d i
n g
s
.
.
.
.
.
.
.
.
N o
t a
p p
l i
< R
> <
/ R
> c
a b
l e
PART B
N - 1A ITEM NO. LOCATIO
N
10. Cover Page....................... Cover
p age
11. Table of Contents................
Cove r page
12.
General
Information and
H
i
s
t
o
r
y
.
.
O
r
g
a
n
i
z
a
t
i
o
n
a
n
d
h
i
s
t
o
r
y
<
R
>
<
/
R
>
(
P
a
r
t
A
)
13. Investment Objec tives and
Policies.........................
How the fund pursues its
o
b
j
e
c
t
i
v
e
( P a r t A ) ; I n v e s t m e n t r e s
t r i c t i o n s ; M i s c e l l a n e o
u s i n v e s t m e n t < R > < / R > p r
a c t
i
c
e
s
14.
Management of
the
R
e
g
i
s
t
r
a
n
t
.
.
.
.
.
M
a
n
a
g
e
m
e
n
t
(
T
r
u
s
t
e
e
s
;
T
r
u
s
t
e
e
s
f
e
e
s
;
O
f
f
i
c
e
r
s
)
;
A
d d
i t
i o
< R
> <
/ R
> n
a l
o f
f i
c e
r s
15. Control Persons and Principal
Holders of Securities............
Man
age
men
t
(Tr
ust
ees
; O
f f
i c
e r
s )
; C
h a
r g
e s
a n
d e
x p
e n
s e
s (
S h
< R
> <
/ R
> a
r
e
o
w
n
e
r
s
h
i
p
)
16. Investment Ad visory and Other
Services.........................
Organization and history
(
P
a
r
t
A
)
;
M
a
n
a
g
e
m
e
n
t
(
T
r
u
s
t
e
e
s
;
O
f
f
i
c
e
r
s
;
T
h
e
m
a
n
a
g
e
m
e
n
t
c
o n t r a c t ; P r i n c i p a l u n d e
r w r i t e r ; I n v e s t o r s e r v i
c i n g a g e n t a n d c u s t o d i a n
) ; C
h
a
r
g
e
s
a
n
d
e
x
p
e
n
s
e
s
;
D
i
s
t
r
i
b
u
t
i
o
n
p
l
a
n
s
;
I
n
d
e
p
e
n
d
e
n
t
a
c
c
o
u
n
t
a
n
t
s
a
n
d
f
i
n
a
<
R
>
<
/
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>
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
17.
Brokerage
A
l
l
o
c
a
t
i
o
n . . . . . . . . . . . . M a n a g e m e
n t ( P o r t f o l i o t r a n s a c t i
o n s ) ; C < R > < / R > h a r g e s a n
d e x
p
e
n
s
e
s
18. Ca pital Stock and Other
Securities.......................
Organization and history
(
P
a
r
t
A
)
;
H
o
w
t
h
e
f
u
n
d
m
a
k
e s d i s t r i b u t i o n s t o s h a r
e h o l d e r s ; t a x i n f o r m a t i
o n ( P a r t A ) ; S u s p < R > < / R >
e n s
i
o
n
o
f
r
e
d
e
m
p
t
i
o
n
s
19. Purchase, Redemption and
Pricing
of Securities Being Offered...... How to
buy shares (Part A
)
; H
o w
t o
s e
l l
s h
a
r e s ( P a r t A ) ; H o w t o e x c h a
n g e s h a r e s ( P a r t A ) ; H o w t
o b u y s h a r e s ; D e t e r m i n a t
i o n
o
f
n
e
t
a
s
s
e
t
v
a
l
u
e
;
S
u
<
R
>
<
/
R
>
s
p
e
n
s
i
o
n
o
f
r
e
d
e
m
p
t
i
o
n
s
20.
Tax
S
t
a
t
u
s
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.....How the
f
u
n
d
m
a
k
e
s
d
i
s
t
r
i
b
u
t
i
o
n
s
t
o
s
h
a
r
e
h
o
l
d
e
r
s
;
t
a
x
i
<
R
>
<
/
R
>
n
f
o
r
m
a
t
i
o
n
(
P
a
r
t
A
)
;
T
a
x
e
s
21.
Underwriters............
.........Management
(
P
r
i
n
c
i
p
a
l
u
n
d
e
r
w
<
R
>
<
/
R
>
r
i
t
e
r
)
;
C
h
a
r
g
e
s
a
n
d
e
x
p
e
n
s
e
s
22.
Calculations
of
Performance
D
a
t
a
.
H
o
w
p
e
r
f
o
r
m
a
n
c
e
i
s
s
h
o
w
n
(
P
a
r
t
A
)
;
I
n
v
e
s
t
m
e
n
t
p
e
r
f
o
r
m
a
n
c
e
;
<
R
>
<
/
R
>
S
t
a
n
d
a
r
d
p
e
r
f
o
r
m
a
n
c
e
m
e
a
s
u
r
e
s
23.
Financial
S
t
a
t e m e n t s . . . . . . . . . . . . . I
n d e p e n d e n t a c c o < R > < / R >
u n t a n < R > < / R > t s a n d f i n a
n c i
a
l
s
t
a
t
e
m
e
n
t
s
PART C
Information required to be included
in Part C is set forth
under the appropriate Item, so numbered,
in Par t C of the Registration
Statement.
PROSPECTUS NOVEMBER
30,
1998
PUTNAM TAX-FREE INSURED FUND
CLASS A, B AND M SHARES INVESTMENT
STRATEGY: TAX-ADVANTAGED
This prospectus explains concisely what
you should know before investing in Putnam
Tax-Free Insured Fund (the "fund"), a
series of Putnam Tax-Free Income Trust (the
"Trust"). Please read it carefully and
keep it for future reference. You can find
more detailed information in the November
30, 1998 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 1-800-2251581. The SAI has
been filed with the Securities and Exchange
Commission (the "Commission") and is
incorporated into this prospectus by
reference. The Commission maintains a Web
site (http://www.sec.gov) that contains the
SAI, material incorporated by reference
into this prospectus and the SAI, and other
information regarding registrants that file
electronically with the Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER AGENCY, AND INVOLVE RISK,
INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL
AMOUNT INVESTED.
BOSTON * LONDON
* TOKYO
ABOUT THE FUND
EXPENSES SUMMARY
PAGE NUMBER
.........................................
............ ............ This section
describes the sales charges, management
fees, and annual operating expenses that
apply to various classes of the fund's
shares. Use it to help you estimate the
impact of transaction costs and recurring
expenses on your investment over time.
FINANCIAL HIGHLIGHTS
. .................................
............ ............ ....... S
tudy these tables to see, among other
things, how the 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.
O BJECTIVE
.. ................................
............ ............ ....... Re
ad this section to make sure the fund's
objective is consistent with your own.
HO W THE FUND PURSUES ITS OBJECTIVE
.. ................................
............ ............ ....... Th
is section explains in detail how the fund
seeks its investment objective and
identifies risks associated with the
fund ' s investment policies .
HOW PERFORMANCE IS SHOWN
. .................................
............ ............
.......
T his section describes and defines
the measures used to assess fund
performance. All data are based on past
investment results and do not predict
future performance.
H OW THE FUND IS MANAGED
.. ................................
............ ............ ....... Co
nsult this section for information about
the fund's management, allocation of its
expenses, and how it purchases and sells
securities.
OR GANIZATION AND HISTORY
... ...............................
............ ............ .......
In t his section, you will learn
when the fund was introduced, how it is
organized, how it may offer shares, and who
its Trustees are.
ABO UT YOUR INVESTMENT
ALT ERNATIVE 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.
HOW T O 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.
DIST RIBUTION PLANS
..... .............................
............ ............ .......
This s ection 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 fund shares, either directly to the
fund or through an investment dealer.
HOW TO E XCHANGE SHARES
....... ...........................
............ ............ .......
Find out in this section how you
may exchange fund shares 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 THE F UND VALUES ITS SHARES
........ ..........................
............ ............ .......
This sect ion explains how the fund
determines the value of its shares.
HOW THE FU ND MAKES DISTRIBUTIONS TO
SHAREHOLDERS; TAX INFORMATION
......... .........................
............ ............ .......
This secti on describes the various
options you have in choosing how to receive
fund dividends. It also discusses the tax
status of the payments and counsels you to
seek specific advice about your own
situation.
ABOUT PUTN AM INVESTMENTS, INC.
.......... ........................
............ ............ .......
Read this se ction to learn more
about the companies that provide marketing,
investment management, and
shareholder account services to Putnam
funds and their shareholders.
ABOUT THE FU ND
EXPENSES SU MMARY
Expenses ar e one of several factors
to consider when investing. The following
table summarizes your maximum transaction
costs from investing in the fund and
expenses based on the most recent fiscal
year. The examples show the cumulative
expenses attributable to a hypothetical
$1,000
investment over specified periods.
CLASS A CLA
SS B CLASS M
SHARES SHA
RES SHARES
SHAREHOLDE R TRANSACTION
EXPENSES
Ma ximum sal es charge
imposed on p urchases (as a
percen tage of
offering pr ice) 4.75%
NONE*
3.25%*
Deferred sa les charge
5.0% in the first (as a
percen tage
year, declining of the lower
of
to 1.0% in the original pu
rchase sixth year, and price or
red emption eliminated
proceeds) NONE**
thereafter
NONE
ANNUAL FUND OPERATING EXPENSES (as a
percen tage of average net assets)
Total fund M
anagement 12b-1
Other
operating
fees
fees
expensesexpenses --------
---- ---------------
--
Class A 0.59% 0.20%
0.15%0.94%
Class B 0.59% 0.60%
0.15%1.34%
Class M 0.59% 0.50%
0.15%1.24%
The table is provided to help you understand
the expenses of investing and your share of
fund operating expenses. The 12b-1 fees for
class B shares reflect the
maximum amount expected to be payable
under the class B distribution plan
through at least December 31, 1998,
although no payments are currently
being made under the plan . Actual 12b1
fees and total fund operating expenses for
class B shares were 0.00% and
0.74% , respectively.
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
CLASS A $57
$76 $97
$157
CLASS B $64
$72 $93
$150** *
CLASS B (NO REDEMPTION) $14
$42 $73
$150***
CLASS M $45
$71 $98
$178
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. 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 the Trust's independent
accountants. The "Report of independent
accountants" and financial statements included
in the fund's annual report to shareholders for
the 1998 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.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS A
PER-SHARE
OPERATING PERFORMANCE YEAR
ENDED
JULY 31
1998
1997
1996 <S> <C>
<C>
<C>
Net asset value,
beginning of period $15.50
$14.94
$14.86
Investment operations
Net investment income .74(c)
.79
.81
Net realized and unrealized
gain (loss) on investments (.04)
.67 .08
Total from
investment operations .70
1.46
.89
Less distributions:
From net investment income (.73)
(.80) (.81)
From net realized gain on
investments (.07)
(.10)
--
In excess of net realized gain
on investments --
- --
--
Total distributions (.80)
(.90)
(.81)
Net asset value,
end of period $15.40
$15.50
$14.94
RATIOS AND SUPPLEMENTAL DATA
Total investment return at
net asset value (%)(a) 4.63
10.09
6.06
Net assets, end of period
(in thousands) $230,283
$219,265
$196,948
Ratio of expenses to average
net assets (%)(b) .94
.92
.90
Ratio of net investment income
to average net assets (%) 4.80
5.22
5.37
Portfolio turnover (%) 40.38
36.13
54.58
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend
reinvestment and
does not reflect the effect of sales charges.
(b) The ratio of expenses to average net
assets for periods ended
on or after July 31, 1996, includes amounts
paid
through expense offset arrangements. Prior period
ratios exclude these amounts. (c) Per share net
investment income has been determined on the basis
of the weighted average number of shares
outstanding during the period.
</TABLE> [/R]
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS A
FOR THE PERIOD
PER-SHARE
SEPTEMBER
20, 1993
OPERATING PERFORMANCE JULY 31
TO JULY
31+
JULY 31
1995
1994 <S>
<C> <C>
Net asset value,
beginning of period $14.67
$15.88
Investment operations
Net investment income .83
.73
Net realized and unrealized
gain (loss) on investments .19
(1.12)
Total from
investment operations 1.02
(.39)
Less distributions:
From net investment income (.82)
(.72)
From net realized gain on
investments --
--
In excess of net realized gain
on investments (.01)
(.10)
Total distributions (.83)
(.82)
Net asset value,
end of period $14.86
$14.67
RATIOS AND SUPPLEMENTAL DATA
Total investment return at
net asset value (%)(a)
7.21
(2.49)*
Net assets, end of period
(in thousands)
$184,241
$143,079
Ratio of expenses to average
net assets (%)(b) .89
.80*
Ratio of net investment income
to average net assets (%) 5.68
4.73*
Portfolio turnover (%) 37.62
47.72
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend
reinvestment and does not reflect the
effect of sales charges.
(b) The ratio of expenses to average net
assets for periods ended on or after July
31, 1996, includes amounts paid through
expense offset arrangements. Prior period
ratios exclude these amounts.
</TABLE> [/R][/R]
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the
period)
<TABLE>
<CAPTION>
CLASS B
PER-SHARE
OPERATING PERFORMANCE
JULY 31
1998 1997 1996
1995 1994 1993 <S> <C> <C> <C>
<C>
<C>
<C>
Net asset value,
beginning of period $15.52 $14.96
$14.87 $14.68
$15.50 $15.42
Investment operations
Net investment income .77(c) .74 .71 .73
.74 .75
Net realized and unrealized
gain (loss) on investments (.04) .68 .09 .20
(.73) .28
Total from investment
operations .73 1.42 .80 .93
.01 1.03
Less distributions:
From net investment income (.76) (.76) (.71)
(.73) (.73) (.75)
From net realized gain
on investments (.07) (.10) -- --
- -
- (.20)
In excess of net realized
gain on investments -- --
- -- (.01)
(.10) --
Total distributions (.83) (.86) (.71)
(.74)
(.83) (.95)
Net asset value,
end of period $15.42 $15.52
$14.96 $14.87
$14.68 $15.50
RATIO AND SUPPLEMENTAL DATA
Total investment return at
net asset value (%)(a) 4.83 9.76 5.44 6.53
- -- 7.00
Net assets, end of period
(in thousands) $336,286
$339,354$354,431 $377,443
$432,895 $572,659
Ratio of expenses to average
net assets (%)(b) .74 1.22 1.58 1.54
1.53 1.74
Ratio of net investment income
to average net assets (%) 5.00 4.93 4.72 5.05
4.81 4.88
Portfolio turnover (%) 40.38 36.13 54.58 37.62
47.72 42.01
(a) Total investment return assumes dividend
reinvestment and does
not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for
periods ended on
or after July 31, 1996, includes amounts paid through
expense offset
arrangements. Prior period ratios exclude these
amounts.
(c) Per share net investment income has been
determined on the basis
of the weighted average number of shares outstanding
during the period.
</TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS B
PER-SHARE
OPERATING PERFORMANCE
JULY 31
1992
1991
1990
1989
<S> <C> <C>
<C>
<C>
Net asset value,
beginning of period $14.38
$14.25
$14.79
$13.85
Investment operations
Net investment income .76
.79
.83
.85
Net realized and unrealized
gain (loss) on investments 1.14
.14
(.06)
.93
Total from investment operations 1.90
.93
.77
1.78
Less distributions:
From net investment income (.77)
(.80)
(.83)
(.84)
From net realized gain
on investments (.09)
- --
(.48)
--
In excess of net realized gain
on investments --
- --
- --
--
Total distributions (.86)
(.80)
(1.31)
(.84)
Net asset value,
end of period $15.42
$14.38
$14.25
$14.79
RATIO AND SUPPLEMENTAL DATA
Total investment return at
net asset value (%)(a) 13.63
6.79
5.49
13.31
Net assets, end of period
(in thousands) $466,135
$359,465
$309,050
$293,127
Ratio of expenses to average
net assets (%)(b) 1.79
1.68
1.63
1.61
Ratio of net investment income
to average net assets (%) 5.16
5.60
5.81
6.01
Portfolio turnover (%) 66.18
54.69 86.29
201.21
(a) Total investment return assumes dividend
reinvestment and does
not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for
periods ended on
or after July 31, 1996, includes amounts paid through
expense offset
arrangements. Prior period ratios exclude these
amounts.
</TABLE> [/R][/R]
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS M
FOR THE PERIOD PER
SHARE
JUNE
1, 1995+
OPERATING PERFORMANCE JULY
31
TO
JULY 31
1998 1997
1996 1995
<S> <C> <C>
<C>
<C>
Net asset value,
beginning of period $15.50
$14.94
$14.86
$15.11
Investment operations
Net investment income .69(c) .74
.76
.12
Net realized and unrealized
gain (loss) on investments (.04) .67
.08
(.25)
Total from investment operations .65 1.41
.84 (.13)
Less distributions:
From net investment income (.69) (.75)
(.76)
(.12)
From net realized gain
on investments (.07)
(.10) -
- -
--
In excess of net realized gain
on investments --
- -- -
- -
--
Total distributions (.76) (.85)
(.76)
(.12)
Net asset value,
end of period $15.39
$15.50
$14.94
$14.86
Total investment return at
net asset value (%)(a) 4.24 9.76
5.74
(0.87)*
Net assets, end of period
(in thousands) $1, 835
$892
$325
$17
Ratio of expenses to average
net assets (%)(b) 1.24
1.22
1.19
.14*
Ratio of net investment income
to average net assets (%) 4.50
4.87
4.99
.73*
Portfolio turnover (%) 40.38 36.13
54.58
37.62
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend
reinvestment and does
not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for
periods ended on
or after July 31, 1996, includes amounts paid through
expense offset
arrangements. Prior period ratios exclude these
amounts.
(c) Per share net investment income has been
determined on the basis
of the weighted average number of shares outstanding
during the period.
</TABLE> [/R][/R]
OBJECTIVE
Putnam Tax-Free Insured Fund seeks high
current income exempt from federal income
tax. The fund is not intended to
be a complete investment program, and there
is no assurance it will achieve its
objective.
HOW THE FUND PURSUES ITS OBJECTIVE
BASIC INVESTMENT STRATEGY
PUTNAM TAX-FREE INSURED FUND SEEKS ITS
OBJECTIVE BY FOLLOWING THE FUNDAMENTAL
INVESTMENT POLICY OF INVESTING AT LEAST 80%
OF ITS NET ASSETS IN A DIVERSIFIED PORTFOLIO
OF TAX-EXEMPT SECURITIES (WHICH ARE
DESCRIBED BELOW), EXCEPT WHEN INVESTING FOR
DEFENSIVE PURPOSES DURING TIMES OF ADVERSE
MARKET CONDITIONS. The fund may trade its
portfolio investments seeking short-term
profits, which may result in taxable income
or capital gains and may involve special
risks. See "Portfolio turnover" below.
The fund invests in tax-exempt securities
which are insured, rated AAA or Aaa (SP-1,
Prime-1, A-1+ or MIG1 in the case of notes
or commercial paper), or
backed by the U.S. government. Insurance
guarantees payment of principal and
interest, but not market value.
The fund may also invest in taxable
obligations, as described below, to the
extent permitted by its investment
policies, or hold a portion of its assets
in money market instruments or in cash.
Putnam Investment Management, Inc., the
fund's investment manager ("Putnam
Management"), expects the fund will
generally invest in tax-exempt securities
of longer maturities (10 years or more),
but the fund may invest in tax-exempt
securities having a broad range of
maturities.
Investments by the fund in tax-exempt
securities will be limited to securities
rated at least BBB or Baa by a nationally
recog nized securities rating agency, such
as Standard & Poor's ("S&P") or Moody's
Investors Service, Inc. ("Moody's"), or
unrated securities that Putnam Management
determines are of comparable quality. The
rating services' descriptions of the rating
categories are included in the SAI.
Securities rated BBB or Baa (and comparable
unrated securities) lack outstanding
investment characteristics, have
speculative characteristics and may be more
likely to exhibit a weakened capacity to
pay interest and repay principal under
adverse economic conditions. To the extent
that a security is assigned a different
rating by one or more of the various rating
agencies, Putnam Management will use the
highest rating assigned by any agency in
determining compliance with the foregoing
investment limitations.
In addition, at the time of purchase and so
long as a tax-exempt security is held by
the fund, each such security must be
covered by insurance guaranteeing the
timely payment of principal and interest,
unless the security is, at the time of
purchase, (i) rated AAA or Aaa, in the case
of a bond, or SP-1, MIG-1, Prime-1, or A-
1+, in the case of a note or commercial
paper, or (ii) backed by the full faith and
credit of the U.S. government.
Under normal market conditions it is
expected that at least 70% of the fund's
tax-exempt securities will be protected by
insurance. Such insurance may be provided
under (i) a "new issue" insurance policy
obtained by the issuer or underwriter of a
security, (ii) a "secondary market" policy
purchased by the fund with respect to a
security, or (iii) a portfolio insurance
policy maintained by the fund. In each
case, such insurance policies guarantee
only the timely payment of principal and
interest on the insured tax-exempt
securities. Market value, which may
fluctuate due to changes in interest rates
or factors affecting the credit of the
issuer or the insurer, is not insured.
These forms of insurance, which are more
fully described below under "Insurance,"
are available from a number of insurance
companies. The fund will only acquire
insurance from, and purchase tax-exempt
securities insured by, companies whose
claims paying ability is rated AAA or Aaa
at the time of purchase. Changes in the
financial condition of an insurer could
result in a subsequent reduction or
withdrawal of such rating.
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 consider
such reduction in its determination of
whether the fund should continue to hold
the security in its portfolio. Certain
investment grade securities share some of
the risk factors discussed above with
respect to lower-rated securities.
ALTERNATIVE MINIMUM TAX
INTEREST INCOME DISTRIBUTED BY THE FUND
FROM CERTAIN TYPES OF TAXEXEMPT SECURITIES
MAY BE SUBJECT TO FEDERAL ALTERNATIVE
MINIMUM TAX FOR INDIVIDUALS AND
CORPORATIONS.
In determining compliance with the 80% test
described above, it
is a fundamental policy of the fund to
exclude from the defini tion of the
definition of tax-exempt securities any
securities the interest from which may be
subject to the federal alternative minimum
tax for individuals. All taxexempt
interest dividends will, however, be
included in determining the federal
alternative minimum taxable income of
corporations.
ALTERNATIVE INVESTMENT STRATEGIES
At times Putnam Management may judge that
conditions in the markets for tax-exempt
securities make pursuing the fund's basic
investment strategy inconsistent with the
best interests of its shareholders. At
such times Putnam Management may
temporarily use alternative strategies
primarily designed to reduce fluctua tions
in the value of fund assets.
In implementing these defensive strategies,
the fund may invest
without limit in taxable obligations,
including obligations of the U.S.
government, its agencies or
instrumentalities, may place up to 25% of
its assets in repurchase agreements with
commercial banks and registered broker
dealers, or may invest in any other
securities that Putnam Management
considers consistent with such defensive
strategies.
It is impossible to predict when, or for
how long, these alternative strategies will
be used.
TAX-EXEMPT SECURITIES
TAX-EXEMPT SECURITIES INCLUDE OBLIGATIONS
OF A STATE (INCLUDING THE DISTRICT OF
COLUMBIA), A TERRITORY OR A U.S.
POSSESSION, OR ANY OF THEIR AGENCIES,
INSTRUMENTALITIES OR OTHER GOVERNMENTAL
UNITS, THE INTEREST ON WHICH, IN THE
OPINION OF BOND COUNSEL, IS EXEMPT FROM
FEDERAL INCOME TAX.
These securities are issued to obtain funds
for various public purposes, such as the
construction of public facilities, the
payment of general operating expenses or
the refunding of outstanding debts.
They may also be issued to finance various
private activities, including the lending
of funds to public or private institutions
for the construction of housing,
educational or medical facili ties, 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 tax-exempt securities may be
issued as interim financing in anticipation
of tax collections, revenue receipts or
bond sales to finance various public
purposes.
THE TWO PRINCIPAL CLASSIFICATIONS OF TAX
EXEMPT SECURITIES ARE GENERAL OBLIGATION
AND SPECIAL OBLIGATION (OR SPECIAL REVENUE
OBLIGATION) SECURITIES.
GENERAL OBLIGATION securities involve a
pledge of the credit of an issuer
possessing taxing power and are payable
from the issuer's general unrestricted
revenues. Their payment may depend on an
appropriation by the issuer's legislative
body. The characteristics and methods of
enforcement of general obligation
securities vary according to the law
applicable to the particular issuer.
SPECIAL OBLIGATION (or SPECIAL REVENUE
OBLIGATION) securities are payable only
from the revenues derived from a particular
facility or class of facilities, or a
specific revenue source, and generally are
not payable from the unrestricted revenues
of the issuer. Industrial development 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 fund may also invest in securities
representing interests in 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 shortterm taxexempt 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 longterm
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 fixedrate tax-exempt securities.
RISK FACTORS
THE VALUES OF 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 fund
assets. Conversely, during periods of rising
interest rates, the value of fund 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 conditions and
business conditions affecting the specific
industries of their issuers.
Changes by nationally recognized securities
rating agencies in their ratings of a fixed
income security changes in an
insurer ' s claims paying
ability, and changes in the ability of an
issuer to make payments of interest and
principal may also affect the value of
these investments. The portfolio insurance
covering taxexempt securities purchased by
the fund does not insure against changes in
market value. 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.
Certain securities held by the fund may
permit the issuer at its option to "call,"
or redeem, the 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 secondary market for tax-exempt
securities is generally less liquid than
that for taxable fixedincome securities,
particularly in the lower rating categories.
Thus it may be more difficult to value or
buy and sell certain of these securities.
FOR ADDITIONAL INFORMATION CONCERNING THE
RISKS ASSOCIATED WITH INVESTING IN
SECURITIES IN THE LOWER RATING CATEGORIES,
SEE THE SAI.
INSURANCE
The three types of insurance are "new issue"
insurance, portfolio insurance and
"secondary market" insurance. The fund may
obtain a portfolio insurance policy which
would guarantee payment of principal and
interest on eligible taxexempt securities
owned by the fund which are not otherwise
insured by "new issue" insurance or
"secondary market" insurance and which would
require insurance coverage under the fund's
investment policies. Under a portfolio
insurance policy, the insurer may from time
to time establish criteria for determining
taxexempt securities eligible for insurance.
The fund will not purchase a tax-exempt
security which is not eligible for coverage
under a portfolio policy unless the security
is otherwise insured or is exempt from the
fund's insurance requirements.
Unlike tax-exempt securities covered by "new
issue" insurance, which continues in force
for the life of the security, a tax exempt
security will be entitled to the benefit of
insurance under a portfolio policy only so
long as the fund owns the security. If the
fund sells the
security, the insurance protection ends. As
a result, the fund will generally not
attribute any value to portfolio insurance
in valuing its investments. However, if any
tax-exempt security is in default or
presents a material risk of default, the
fund intends to continue to hold the
security in its portfolio and to place a
value on the insurance protection. Thus,
Putnam Management's ability to manage the
portfolio of the fund or to obtain portfolio
insurance from other insurers
may be limited to the extent that it holds
defaulted securities. Portfolio insurance
cannot be cancelled by the insurer with
respect to any tax-exempt security already
held by the fund except for nonpayment of
premiums. However, there is no assurance
that portfolio insurance will be
available at reasonable premium rates.
The fund may at times purchase "secondary
market" insurance on tax-exempt securities
which it holds or acquires. Like "new issue"
insurance, this insurance continues in force
for the life of the security for the benefit
of any holder of the security. The purchase
of secondary market insurance would be
reflected in the market value of the
security and, if available, may enable the
fund to dispose of a defaulted security at a
price similar to that of comparable,
undefaulted securities.
Insurance premiums paid by the fund for
portfolio insurance would be treated as an
expense of the fund, reducing the fund's net
investment income. While the amount of
premiums depends on the composition of the
fund's portfolio, Putnam Management
estimates that, at current rates, the fund's
annual premium expense for portfolio
insurance, if purchased, would range from
0.1% to 0.5% of that portion of the fund's
assets covered by such insurance. Premiums
paid for secondary market insurance,
however, would be treated as capital costs,
increasing the fund's cost basis in
its investments and reducing its effective
yield. During fiscal 1998 , the fund
did not pay any insurance premiums.
CONCENTRATION POLICIES
THE FUND WILL NOT INVEST MORE THAN 25% OF
ITS TOTAL ASSETS IN ANY ONE INDUSTRY.
Governmental issuers of tax-exempt
securities are not considered part of any
"industry." However, for this purpose tax
exempt securities backed only by the
assets and revenues of privately owned or
operated facilities may be deemed to be
issued by such private owners or operators.
Thus, the 25% limitation would apply to
these obligations.
It is possible that the fund may invest
more than 25% of its assets in a broader
segment of the market for tax-exempt
securities, such as revenue obligations of
hospitals and other health care facilities,
housing revenue obligations, or airport
revenue obligations. This would be the case
only if Putnam Management determined that
the yields available from obligations in a
particular segment of the market justified
the additional risks
associated with such concentration.
Although 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 such issuers may have a general
adverse effect on all taxexempt securities
in a particular market segment. (Examples
of such developments include proposed
legislation or pending court decisions
affecting the financing of such projects
and market factors affecting the demand for
the services or products of a particular
market segment.)
The fund reserves the right to invest more
than 25% of its assets in industrial
development bonds and private
activity securities or in issuers located
in the same state.
INVESTMENTS IN PREMIUM SECURITIES
During a period of declining interest
rates, many of the 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 fund
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 fund shares during
these periods would initially receive
higher monthly distributions (derived from
the higher coupon rates payable on fund
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,
investors may find it useful to compare
the 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 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 its
portfolio turnover rate may be higher than
that of other mutual funds.
Portfolio turnover generally involves some
expense, including brokerage commissions or
dealer markups and other transaction costs
in connection with the sale of securities
and reinvestment in other securities. These
transactions may result in realiza tion of
taxable capital gains. To the extent
such gains are short-term capital gains,
they will generally be taxed at ordinary
income tax rates. Portfolio turnover
rates are shown in the section "Financial
highlights."
FINANCIAL FUTURES AND OPTIONS
THE FUND MAY PURCHASE AND SELL FINANCIAL
FUTURES CONTRACTS AND OPTIONS.
The fund may purchase and sell index
futures contracts on the Municipal Bond
Index. 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 the fund enters into
and terminates an index futures contract,
the fund realizes a gain or loss.
The fund may also purchase and sell put and
call options on index
futures or on indexes directly, in addition
to or as an alterna tive to purchasing and
selling index futures.
The fund 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.
In addition, the fund may purchase put and
call options on, or warrants to purchase,
tax-exempt securities, either directly or
through custodial arrangements in which the
fund and other investors own an interest in
one or more options on taxexempt
securities.
The fund will engage in these transactions
for hedging purposes and, to the extent
permitted by
applicable law, for nonhedging purposes,
such as to manage the effective duration of
the fund's portfolio or as a substitute for
direct investment.
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 among movements in
the prices of financial futures and options
purchased or sold by the fund, of the
underlying bond index or U.S. government
securities and, in the case of hedging
transactions, of the tax-exempt securities
that are the subject of the hedge.
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 regulatory
requirements may limit the use of
futures and options transactions.
The successful use of these strategies
further depends on the ability of Putnam
Management to forecast interest rates
and market movements correctly.
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 FUND 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. The fund may enter into
repurchase agreements on up to 25% of its
assets. These transactions must be fully
collateralized at all times.
The fund may also purchase securities for
future delivery, which may increase its
overall investment exposure and involves a
risk of loss if the value of the securities
declines prior to the settlement date.
These transactions involve some risk if the
other party should default on its
obligation and the fund is delayed or
prevented from recovering the collateral or
completing
the transaction.
DIVERSIFICATION
The fund is a "diversified" investment
company under the Investment Company Act of
1940. This means that with respect to 75%
of its total assets, the fund may not
invest more than 5% of its total assets in
the securities of any one issuer (except
U.S. government securities). The remaining
25% of its total assets is not subject to
this restriction. To the extent the fund
invests a significant portion of its assets
in the securities of a particular issuer,
it will be subject to an increased risk of
loss if the market value of such issuer's
securities declines.
DERIVATIVES
Certain of the instruments in which the
fund may invest, such as futures contracts,
options and inverse floating obligations,
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. The
fund ' s use of derivatives may cause
the fund to recognize higher amounts of
short-term capital gains (generally taxed
at ordinary income tax rates) than it would
recognize if it did not use such
instruments.
LIMITING INVESTMENT RISK
SPECIFIC INVESTMENT RESTRICTIONS HELP TO
LIMIT INVESTMENT RISKS FOR THE FUND'S
SHAREHOLDERS. These restrictions prohibit
the fund, with respect to 75% of its total
assets, from acquiring more than 10% of the
voting securities of any one issuer.* They
also prohibit the fund from investing more
than:
(a) (with respect to 75% of its
total assets) 5% of its total assets in
securities of any one issuer other than the
U.S. government , its agencies or
instrumentalities (insurance policies
of which the fund is a beneficiary are not
considered securities for purposes of this
restriction);* or
(b) 25% of its total assets in any one
industry (securities of the U.S.
government, its agencies or
instrumentalities are not considered to
represent any industry);* or
(c) 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 (or the
person designated by them to make such
determinations) to be readily marketable),
and repurchase agreements maturing
in more than seven days.
Restrictions marked with an asterisk (*)
above are summaries of fundamental
investment policies. See the SAI for the
full text of these policies and other
fundamental investment policies. Except as
otherwise noted in the SAI , all
percentage limitations described in this
prospectus and the SAI will apply at the
time an investment is made, and will not be
considered violated unless an excess or
deficiency occurs or exists immediately
after and as a result of such investment.
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
nonfundamental investment policy without
shareholder approval. As a matter of
policy, the Trustees would not materially
change the fund's investment objective
without shareholder approval.
HOW PERFORMANCE IS SHOWN
FUND ADVERTISEMENTS MAY, FROM TIME TO TIME,
INCLUDE PERFORMANCE INFORMATION. "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 tax 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 fund pursues its objective -
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 and class M shares,
but does not reflect any contingent deferred
sales charge in the case of class B shares.
"Tax-equivalent" yield for each class of
shares shows the effect on performance of
the taxexempt status of distributions
received from the fund. It reflects the
approximate yield that a taxable investment
must earn for shareholders at stated income
levels to produce an after-tax yield
equivalent to a class's tax-exempt yield.
"Total return" for the one-, five- and ten
year periods (or for the life of a class, if
shorter) through the most recent calendar
quarter represents the average annual
compounded rate of return on an investment
of $1,000 in the fund invested at the
maximum public offering price (in the case
of class A and class M shares) or reflecting
the deduction of any applicable contingent
deferred sales charge (in the case of class
B shares). Total return may also be
presented for other periods or based on
investment at reduced sales
charge levels. Any quotation of investment
performance not reflecting the maximum
initial sales charge or contingent deferred
sales charge would be reduced if the sales
charge were used.
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, portfolio
composition, fund operating expenses and
the class of shares the investor purchases.
Investment performance also often reflects
the risks associated with the fund's
investment objective and policies. These
factors should be considered when comparing
the fund's investment results 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. Fund
performance may be compared to that of
various indexes. See the SAI.
HOW THE FUND IS MANAGED
THE TRUSTEES ARE RESPONSIBLE FOR GENERALLY
OVERSEEING THE CONDUCT OF FUND 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.
The fund pays Putnam Management a monthly
fee for these services
based on average net assets. See "Expenses
summary" and the SAI. The following officer
of Putnam
Management has had primary responsibility
for the day-to-day management of the fund's
portfolio since the year stated below:
Busine ss
experience
Year (at
least 5 years)
---- -------
- ------------
Richard P. Wyke 1988
Employed by Putnam
Management
Senior Vice President
since 1987.
The Trust pays all expenses not assumed by
Putnam Management, including Trustees' fees,
auditing, legal, custodial, investor
servicing and shareholder reporting
expenses, and payments under its
distribution plans (which are in turn
allocated to the relevant class of shares).
Expenses of the Trust directly charged or
attributable to the fund will be paid from
the assets of the fund. General expenses of
the Trust will be allocated among and
charged to the assets of the fund and any
other series of the Trust on a basis that
the Trustees deem fair and equita ble, which
may be based on the nature of the services
performed and relative applicability to, or
the relative assets of, the fund and such
series. The Trust also reimburses Putnam
Manage ment for the compensation and related
expenses of certain fund officers and their
staff who provide administrative services.
The total reimbursement is determined
annually by the Trustees.
Putnam Management places all orders for
purchases and sales of fund securities.
In selecting brokerdealers, 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 fund
shares (and, if permitted by law, shares of
the other Putnam funds) as a factor in the
selection of broker-dealers.
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business Trust
organized on June 28, 1985. A copy
of the Trust's 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 Trust is an open-end, diversified
management investment company with an
unlimited number of authorized shares of
beneficial interest. Shares of the Trust
may, without share holder approval, be
divided into two or more series of such
shares and are currently divided into two
series of shares: the fund and Putnam Tax
Free High Yield 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.
Only class A, B and M shares are offered by
this prospectus. The fund 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 1-8002251581).
Each share has one vote, with fractional
shares voting proportionally. Shares vote
by individual series on all matters
except (i) when required by the Investment
Company Act of 1940, shares of all series
shall be voted in the aggregate and (ii)
when the Trustees have determined that the
matter affects only the interests of one or
more series, only shareholders of such
series shall be entitled to vote. Shares of
all classes will vote together as a single
class except when otherwise required by law
or as determined by the Trustees. Shares are
freely transfer able, are entitled to
dividends from the assets of the fund as
declared by the Trustees, and, if the Trust
were liquidated, would receive the net
assets of the fund. The Trust may suspend
the sale of shares of the fund at any time
and may refuse any order to purchase shares.
Although the Trust 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 the minimum set
by the Trustees (presently 20 shares), the
fund may choose to redeem your shares. 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, at any time, establish one
which could apply to both present and future
shareholders.
THE TRUST'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. ; JOHN A. HILL,VICE
CHAIRMAN. Chairman and Managing Director,
First Reserve Corporation ; WILLIAM F.
POUNDS, VICE CHAIRMAN. Professor
Emeritus 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. ; RONALD J. JACKSON,
Former Chairman, President and Chief
Executive Officer of Fisher-Price,
Inc. , Trustee of Salem Hospital and
the Peabody Essex Museum; PAUL L.
JOSKOW, * Professor of Economics and
Management, Massachusetts Institute of
Technology . Director, New England
Electric System, State Farm Indemnity
Company and Whitehead Institute for
Biomedical Research; 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.; JOHN H. MULLIN, III,
Chairman and CEO of Ridgeway Farm, Director
of ACX Technologies, Inc., Alex .
Brown Realty, Inc., and The Liberty
Corporation ; ROBERT E. PATTERSON,
President and Trustee of Cabot Industrial
Trust and Trustee of the SEA Education
Association ; DONALD S. PERKINS,*
Director of various corporations, including
Cummins Engine Company, Lucent Technologies,
Inc., Nanophase Technologies, Inc.
and Springs Industries, Inc. ;
GEORGE PUTNAM, III,* President, New
Generation Research, Inc.; A.J.C. SMITH,*
Chairman and Chief Executive Officer
, Marsh & McLennan Companies, Inc.;
W. THOMAS STEPHENS, President and Chief
Executive Officer of MacMillan Bloedel Ltd.,
Director of Qwest
Communications and New Century
Energies; 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 Cabot Industrial Trust,
Massachusetts General Hospital and
Eastern Utilities Associates. The 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, Putnam Management or Putnam Mutual
Funds.
ABOUT YOUR INVESTMENT
ALTERNATIVE SALES ARRANGEMENTS
CLASS A SHARES. If you purchase class A
shares, you will generally pay a sales
charge at the time of purchase and, as a
result, will not have to pay any charges
when you redeem the shares. If you purchase
class A shares at net asset value, you may
have to pay a contingent deferred sales
charge ("CDSC") when you redeem the shares.
Certain purchases of class A shares qualify
for reduced sales charges. Class A shares
pay lower 12b1 fees than class B and class M
shares. See "How to buy shares - Class A
shares" and "Distribution plans."
CLASS B SHARES. If you purchase class B
shares, you will not pay an initial sales
charge, but you may have to pay a CDSC if
you redeem the shares within six years.
Class B shares also pay 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, including information about
how shares acquired through reinvestment of
distributions are treated and certain
circumstances under which class B shares may
not convert into class A shares, see the
SAI. 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. If you purchase class M
shares, you will generally pay a sales
charge at the time of purchase that is lower
than the sales charge you would pay for
class A shares. Certain purchases of class M
shares qualify for reduced sales charges.
Class M shares pay 12b-1 fees that are lower
than class B shares but higher than class A
shares. You will not have to pay any
charges when you redeem class M shares, but
class M shares will not convert into any
other class of shares.
See "How to buy shares -Class M shares" and
"Distribution plans."
WHICH CLASS IS BEST FOR YOU? Which class of
shares provides the most suitable investment
for you depends on a number of factors,
including the amount you intend to invest
and how long you intend to hold the shares.
If your intended purchase qualifies for
reduced sales charges, you might consider
class A or class M shares. If you prefer not
to pay a sales charge at the time of
purchase, you 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
You can open a fund account with as little
as $500 and make additional investments at
any time with as little as $50. You can
buy fund shares three ways - through most
investment dealers
or other intermediaries , 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. Your dealer or other
intermediary will be responsible for
furnishing all necessary documentation to
Putnam Investor Services and may charge you
a transaction fee.
BUYING SHARES THROUGH YOUR INVESTMENT
DEALER.Your 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.
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 $25 or more per month
through automatic deductions from your bank
checking or savings account. Application
forms are available from your investment
dealer or through Putnam Investor Services.
Shares are sold at the public offering
price based on the net asset value next
determined after Putnam Investor Services
receives your order. In most cases, in
order to receive that day's public offering
price, Putnam Investor Services must
receive your order before the close of
regular trading on the New York Stock
Exchange.
CLASS A SHARES
The public offering price of class A shares
is the net asset value plus a sales charge
that varies depending on the size of your
purchase. The fund receives the net asset
value. The sales charge is allocated
between your investment dealer and Putnam
Mutual Funds as shown in the following
table, except when Putnam Mutual Funds, in
its discretion, allocates the entire amount
to your investment dealer.
SALES
CHARGE
AMOUNT OF
AS A
PERCENTAGE
OF: SALES
CHARGE ------
-------
REALLOWED TO
NET
DEALERS
AS A
AMOUNT OF TRANSACTION AMOUNT
OFFERING
PERCENTAGE OF
AT OFFERING PRICE ($) 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 --------------------------------------
- ------------------------
No initial sales charge applies to
purchases of class A shares of $1 million
or more. However, a CDSC of 1.00% or
0.50% is imposed on redemptions of these
shares within the first or second year,
respectively, after purchase, unless the
dealer of record waived its commission with
Putnam Mutual Funds' approval.
Putnam Mutual Funds pays 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 first $3
million of shares purchased, 0.50% of the
next $47 million and 0.25% thereafter.
CLASS B SHARES
Class B shares are sold without an initial
sales charge, although a CDSC will be
imposed if you redeem shares within a
specified period after purchase, as shown
in the table below.
YEAR 1 2 3 4
5 6
7+ ----------------------------------------
- -----------------CHARGE 5% 4%
3% 3%
2% 1% 0%
Putnam Mutual Funds pays a sales commission
equal to 4.00% of the amount invested
(including a prepaid service fee of 0.25%
of the amount invested) to dealers who sell
class B shares. These commissions are not
paid on exchanges from other Putnam funds
or on sales to investors exempt from the
CDSC.
CLASS M SHARES
The public offering price of class M shares
is the net asset value plus a sales charge
that varies depending on the size of your
purchase. The fund receives the net asset
value. The sales charge is allocated
between your investment dealer and Putnam
Mutual Funds as shown in the following
table, except when Putnam Mutual Funds, at
its discretion, allocates the entire amount
to your investment dealer.
SALES
CHARGE
AMOUNT OF
AS A
PERCENTAGE
OF: SALES
CHARGE ------
-------
REALLOWED TO
NET
DEALERS
AS A
AMOUNT OF TRANSACTION AMOUNT
OFFERING
PERCENTAGE OF
AT OFFERING PRICE ($) 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
Members of qualified groups may purchase
class M
shares without a sales charge.
GENERAL
YOU MAY BE ELIGIBLE TO BUY FUND SHARES AT
REDUCED SALES CHARGES OR TO SELL FUND
SHARES WITHOUT A CDSC.
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, and other plans.
Descriptions are also included in the order
form and in the SAI.
The fund may sell class A, class B and
class M shares at net asset value without
an initial sales charge or a CDSC to
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, taxqualified 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 closedend fund.
In addition, the fund may sell shares at
net asset value without an initial sales
charge or a CDSC in connection with the
acquisition by the fund of assets of an
investment company or personal holding
company. 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
shares at reduced sales charges.
In determining whether a CDSC is payable on
any redemption, shares not subject to any
charge will be redeemed first, followed by
shares held longest during the CDSC period.
Any CDSC will be based on the lower of the
shares' cost and net asset value. 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 you redeem a
share that has appreciated in value during
the CDSC period, a CDSC is assessed on its
initial purchase price. Shares acquired by
reinvestment of distributions may be
redeemed without a CDSC at any time. 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. See the SAI for more
information about the CDSC.
Shareholders of other Putnam funds may be
entitled to exchange their shares for, or
reinvest distributions from their funds in,
fund shares at net asset value.
If you are considering redeeming 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 or transfer.
Otherwise, payment may be delayed 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,
certificates will not be issued 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.
DISTRIBUTION PLANS
The fund has adopted distribution plans to
compensate Putnam
Mutual Funds for services provided and
expenses incurred by it as principal
underwriter of fund shares, including the
payments to dealers mentioned below. The
plans provide for payments by the fund to
Putnam Mutual Funds at the annual rates
(expressed as a percentage of average net
assets) of up to 0.35% on class A shares
and 1.00% on class B and class M shares.
The Trustees currently limit payments on
class A, class B and Class M shares to
0.20%, 0.60% and 0.50% of average net
assets, respectively.
Putnam Mutual Funds has agreed to waive the
class B 12b-1 fee in its entirety through
December 31, 1998 . Payments to
dealers are not affected by this waiver.
The table of fees and expenses set forth
under the heading "About the fund -
Expenses summary" has not been restated to
reflect this waiver. With Trustee approval,
the waiver may be terminated earlier, in
which event class B shareholders would be
notified and the prospectus revised.
Putnam Mutual Funds compensates qualifying
dealers (including, for this purpose,
certain financial institutions) for sales
of shares and the maintenance of
shareholder accounts.
Putnam Mutual Funds makes quarterly
payments to dealers at the annual rate of
up to 0.20% of the average net asset value
of class A shares for which such dealers
are designated as the dealer of record. No
payments are made during the first year
after purchase on shares
purchased at net asset value by
shareholders investing $1 million or more,
unless the shareholder has made
arrangements with Putnam Mutual Funds and
the dealer of record has waived the sales
commission.
Putnam Mutual Funds makes quarterly
payments to dealers at the annual rates of
0.20% and 0.25% of the average net asset
value of class B shares outstanding as of
March 31, 1990 and acquired after that
date, respectively, except that the first
year, for which service fees are prepaid at
the time of sale as described above. Putnam
Mutual Funds makes quarterly payments to
dealers at the annual rate of 0.40% of the
average net asset value of class M shares.
Putnam Mutual Funds may suspend or modify
its 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
You can sell your shares to the fund any
day the New York Stock Exchange is open,
either directly to the fund or through your
investment dealer. The fund will only
redeem shares for which it has received
payment.
SELLING SHARES DIRECTLY TO YOUR 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, brokerdealer 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.
YOUR FUND GENERALLY SENDS YOU PAYMENT FOR
YOUR SHARES THE BUSINESS DAY AFTER YOUR
REQUEST IS RECEIVED. Under unusual
circumstances, the fund may suspend
redemptions, or postpone payment for more
than seven days, as permitted by federal
securities law.
You may use Putnam's Telephone Redemption
Privilege to redeem shares valued up to
$100,000 unless you have notified Putnam
Investor Services of an address change
within the preceding 15 days. Unless you
indicate otherwise on the account
application, Putnam Investor Services will
be authorized to act upon redemption and
transfer instructions received by telephone
from you, or any person claiming to act as
your representative, who can provide Putnam
Investor Services with your 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.
HOW TO EXCHANGE SHARES
You can exchange your shares for shares of
the same class of certain other Putnam
funds at net asset value. 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 shortterm 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 your fund, the
fund reserves the right to revise or
terminate the exchange privilege, limit the
amount or number of exchanges or reject any
exchange.
Consult Putnam Investor Services before
requesting an exchange. See the SAI to
find out more about the exchange privilege.
HOW THE FUND VALUES ITS SHARES
THE FUND CALCULATES THE NET ASSET VALUE OF
A SHARE OF EACH CLASS BY DIVIDING THE TOTAL
VALUE OF ITS ASSETS, LESS LIABILITIES, BY
THE NUMBER OF ITS SHARES OUTSTANDING.
SHARES ARE VALUED AS OF THE CLOSE OF
REGULAR TRADING ON THE NEW YORK STOCK
EXCHANGE EACH DAY THE EXCHANGE IS OPEN.
Tax-exempt securities are 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.
The fund believes that reliable market
quotations generally are not readily
available for purposes of valuing its
portfolio securities. As a result, it is
likely that most of the valuations provided
by a pricing service will be based upon
fair value determined on the basis of the
factors listed above.
Non-tax-exempt securities for which market
quotations are readily available are valued
at market value. Short-term investments
that will mature in 60 days or less are
valued at amortized cost, which
approximates market value. All other
securities and assets are valued at their
fair value following procedures approved by
the Trustees.
HOW THE FUND MAKES DISTRIBUTIONS TO
SHAREHOLDERS; TAX INFORMATION
The fund declares all of its net investment
income as a distribution on each day it is
open for business. Net investment income
consists of interest accrued on portfolio
investments of the fund, less accrued
expenses, computed in each case since the
most recent determination of net asset
value. Normally, the fund pays
distributions of net investment income
monthly. The 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 and class M shares because expenses
attributable to class B and class M shares
will generally be higher. You begin earning
distributions on the business day
that Putnam Mutual Funds receives
payment for your shares. It is your
responsibility to see that your dealer
forwards payment promptly.
YOU CAN CHOOSE FROM THREE DISTRIBUTION
OPTIONS:
- - Reinvest all distributions in
additional shares
without a
sales charge;
- - Receive distributions from net
investment income
in cash
while reinvesting capital gains
distributions in additional shares
without a sales charge; or
- - Receive all distributions in cash.
You can change your distribution option by
notifying Putnam Investor Services in
writing. If you do not select an option
when you open your account, all
distributions will be reinvested. All
distributions not paid in cash will be
reinvested in shares of the class on which
the distributions are paid. You will
receive a statement confirming reinvestment
of distributions in additional fund shares
(or in shares of other Putnam funds for
Dividends Plus accounts) promptly following
the quarter in which the reinvestment
occurs.
If a check representing a fund distribution
is not cashed within a specified period,
Putnam Investor Services will notify you
that you have the option of requesting
another check or reinvesting the
distribution. You will not receive any
interest on amounts represented by uncashed
distribution or redemption checks. If
Putnam Investor Services does not receive
your election, the distribution will be
reinvested in the fund. Similarly, if
correspondence sent by the fund or Putnam
Investor Services is returned as
"undeliverable," fund distributions will
automatically be reinvested in the fund or
in another Putnam fund.
The fund intends to qualify as a "regulated
investment company" for federal income tax
purposes and to meet all other requirements
necessary for it to be relieved of federal
taxes on income and gains it distributes to
shareholders. The fund will distribute
substantially all of its ordinary income
and capital gain net income on a current
basis.
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 the fund
may have on the taxation of your benefits.
In addition, an investment in the fund may
result in liability for federal alternative
minimum tax and for state and local taxes,
for both individual and corporate
shareholders. The fund may at times
purchase tax-exempt securities at a
discount from the price at which they were
originally issued, especially during
periods of rising interest rates. For
federal income tax purposes, some or all of
this market discount will be included in
the fund's ordinary income and will be
taxable to you as such when it is
distributed to you.
Fund distributions will be taxable to you
as ordinary income to
the extent derived from the fund's
investment income (other than exempt
interest income) and net short-term
gains (that is, net gains from securities
held for not more than a year).
Distributions designated by the fund as
deriving from net gains on securities held
for more than one year will be
taxable to you as such, regardless of how
long you have held the shares.
Distributions will be taxable as described
above whether received in cash or in shares
through the reinvestment of distributions.
Early in each calendar year Putnam Investor
Services will notify you of the amount and
tax status of distributions paid to you
for the preceding year.
The foregoing is a summary of certain
federal income tax consequences of
investing in the fund. You should consult
your tax adviser to determine the precise
effect of an investment in the fund on your
particular tax situation (including
possible liability for 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
fund and of other Putnam funds.
Putnam Fiduciary Trust Company is the
custodian of the fund . Putnam
Investor Services, a division of Putnam
Fiduciary Trust Company, is the investor
servicing and transfer agent for the
fund .
Putnam Management, Putnam Mutual Funds and
Putnam Fiduciary Trust Company are
subsidiaries of Putnam Investments, Inc.,
which is located at One PostOffice
Square, Boston, Massachusetts 02109 and,
except for a minority stake owned by
employees, are owned by Marsh &
McLennan Companies, Inc., a publiclyowned
holding company whose principal
businesses are international insurance
and reinsurance brokerage, employee
benefit consulting and investment
management.
PUTNAM INVESTMENTS
P.O. Box 989
Boston, Massachusetts 02103
Toll-free 1-800-225-1581
www.putnaminv.com
PROSPECTUS NOVEMBER
30, 1998
PUTNAM TAX-FREE HIGH YIELD FUND
CLASS A, B AND M SHARES
INVESTMENT STRATEGY: TAX-ADVANTAGED
This prospectus explains concisely what you should
know before investing in Putnam Tax-Free High Yield
Fund (the "fund"), a series of Putnam Tax-Free Income
Trust (the "Trust"). Please read it carefully and keep
it for future reference. You can find more detailed
information in the November 30, 1998 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 (the "Commission")
and is incorporated into this prospectus by reference.
The Commission maintains a Web site
(http://www.sec.gov) that contains the SAI, material
incorporated by reference into this prospectus and the
SAI, and other information regarding registrants that
file electronically with the Commission.
THE FUND INVESTS PRIMARILY IN LOWER-RATED BONDS,
COMMONLY KNOWN AS "JUNK BONDS." THESE INVESTMENTS ARE
SUBJECT TO A GREATER RISK OF LOSS OF PRINCIPAL AND
NONPAYMENT OF INTEREST.
INVESTORS SHOULD CAREFULLY ASSESS THE RISKS
ASSOCIATED WITH AN INVESTMENT IN THE FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL
INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY, AND INVOLVE RISK, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL AMOUNT INVESTED.
BOSTON * LONDON * TOKYO
ABOUT THE FUND
EXPENSES SUMMARY
.....................................................
............ This section describes the sales charges,
management fees, and annual operating
expenses that apply to various classes of the fund's
shares. Use it to help you estimate the impact of
transaction costs and recurring expenses on your
investment over time.
FINANCIAL HIGHLIGHTS
.....................................................
............ Study these tables to see, among other
things, how the 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.
OBJECTIVE
.....................................................
............ Read this section to make sure the fund's
objective is consistent with your own.
HOW THE FUND PURSUES ITS OBJECTIVE
.....................................................
............ This section explains in detail how the
fund seeks its investment objective and identifies
risks associated with the fund ' s investment
policies .
HOW PERFORMANCE IS SHOWN
.....................................................
............ This section describes and defines the
measures used to assess fund performance. All data are
based on past investment results and do not predict
future performance.
HOW THE FUND IS MANAGED
.....................................................
............ Consult this section for information about
the fund's management, allocation of its expenses, and
how it purchases and sells securities.
ORGANIZATION AND HISTORY
.....................................................
............ In this section, you will learn when the
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.
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.
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 fund shares, either directly to the fund or
through an investment dealer.
HOW TO EXCHANGE SHARES
.....................................................
............ Find out in this section how you may
exchange fund shares 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 THE FUND VALUES ITS SHARES
.....................................................
............ This section explains how the fund
determines the value of its shares.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX
INFORMATION
.....................................................
............ This section describes the various
options you have in choosing how to receive fund
dividends. It also discusses the tax status of the
payments and counsels you to seek specific advice
about your own situation.
ABOUT PUTNAM INVESTMENTS, INC.
.....................................................
............ Read this section to learn more about the
companies that provide marketing, investment
management, and shareholder account services to Putnam
funds and their shareholders.
APPENDIX
.....................................................
............ Securities ratings
ABOUT THE FUND
EXPENSES SUMMARY
Expenses are one of several factors to consider when
investing. The following table summarizes your maximum
transaction costs from investing in the fund and
expenses based on the most recent fiscal year. The
examples show the cumulative expenses attributable to a
hypothetical $1,000 investment over specified periods.
CLASS A CLASS B
CLASS M
SHARES SHARES
SHARES
SHAREHOLDER TRANSACTION
EXPENSES
Maximum sales charge
imposed on purchases (as a percentage of
offering price) 4.75% NONE* 3.25%*
Deferred sales charge 5.0% in the
first
(as a percentage
year, declining
of the lower of to
1.0% in the
original purchase
sixth year, and
price or redemption
eliminated
proceeds) NONE** thereafter
NONE
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Total fund Management 12b-1 Other
operating
fees fees expenses
expenses
---------- ----- -------- -----
- ----
Class A .54% 0.20% .14%.88%
Class B .54%
0.70% .14%1.38% Class M
.54% 0.50% .14%1.18%
The table is provided to help you understand the
expenses of
investing and your share of fund operating expenses.
The 12b-1 fees for class B shares reflect the maximum
amount currently payable under the class B
distribution plan. Actual 12b-1 fees and total fund
operating expenses for class B shares were
0.85 1.53% , respectively.
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
CLASS A $56 $74 $94
$151
CLASS B $64 $74 $96
$152** *
CLASS B (NO REDEMPTION) $14 $44 $76
$152***
CLASS M $44 $69 $95
$171
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. 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 the
Trust's independent accountants. The "Report of
independent accountants" and financial statements
included in the fund's annual report to shareholders
for the 1998 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.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS A
PER-SHARE
OPERATING PERFORMANCE YEAR ENDED JULY
31
1998 1997 1996
Net asset value,
beginning of period $14.56 $14.05
$14.14
Investment operations
Net investment income .80(c) .84
.90
Net realized and unrealized
gain (loss) on investments .06 .52
(.10)
Total from investment
operations .86 1.36
.80
Less distributions:
From net investment income (.81) (.85) (.89)
In excess of net investment
income -- --
--
From net realized gain
on investments -- --
--
In excess of net realized gain
on investments -- --
--
Total distributions (.81) (.85)
(.89)
Net asset value,
end of period $14.61 $14.56
$14.05
RATIOS AND SUPPLEMENTAL DATA
Total investment return at
net asset value (%)(a) 6.08 9.97
5.76
Net assets, end of period
(in thousands) $934,747 $625,602
$540,607
Ratio of expenses to average
net assets (%)(b) .88 .85
.84
Ratio of net investment income
to average net assets (%) 5.60 5.94
6.27
Portfolio turnover (%) 39.62 56.22
67.70
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend
reinvestment and does not reflect the effect of sales
charges.
(b) The ratio of expenses to average net assets for
periods ended on or after July 31, 1996, includes
amounts paid through expense offset arrangements. Prior
period ratios exclude these amounts. (c) Per share net
investment income has been determined on the
basis of the weighted average number of shares
outstanding during the period.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS A
FOR THE
PERIOD PER-SHARE YEAR
ENDED SEPTEMBER 20, 1993</R >
OPERATING PERFORMANCE
JULY 31 TO
JULY 31 1995
1994+
Net asset value,
beginning of period $14.24
$15.34
Investment operations
Net investment income .94
.83
Net realized and unrealized
gain (loss) on investments (.10)
(.98)
Total from investment
operations .84
(.15)
Less distributions:
From net investment income (.94)
(.83)
In excess of net investment
income --
(.02)
From net realized gain
on investments --
(.05)
In excess of net realized gain
on investments --
(.05)
Total distributions (.94)
(.95)
Net asset value,
end of period 14.14
$14.24
RATIOS AND SUPPLEMENTAL DATA
Total investment return at
net asset value (%)(a) 6.24
(.99)*
Net assets, end of period
(in thousands) $474,984
$361,593
Ratio of expenses to average
net assets (%)(b) .87
.71*
Ratio of net investment income
to average net assets (%) 6.73
5.58*
Portfolio turnover (%) 60.41
44.41
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend
reinvestment and does not reflect the effect of
sales charges.
(b) The ratio of expenses to average net assets for
periods ended on or after July 31, 1996,
includes amounts paid through expense offset
arrangements. Prior period ratios exclude these
amounts.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
CLASS B
PER-SHARE
OPERATING PERFORMANCE YEAR ENDED JULY 31
1998 1997 1996 1995
1994 <S> <C> <C> <C>
<C>
<C>
Net asset value,
beginning of period $14.56 $14.05 $14.14 $14.24
$15.01
Investment operations
Net investment income .73(c) .75 .80 .85
.86
Net realized and unrealized
gain (loss) on investments .05 .51 (.09) (.10)
(.65)
Total from investment
operations .78 1.26 .71 .75
.21
Less distributions:
From net investment income (.72) (.75) (.80) (.85)
(.85)
In excess of net investment
income -- -- -- --
(.03)
From net realized gain
on investments -- -- -- --
(.05)
In excess of net realized
gain on investments -- -- -- --
(.05)
Total distributions (.72) (.75) (.80) (.85)
(.98)
Net asset value,
end of period $14.62 $14.56 $14.05
$14.14 $14.24
RATIOS AND SUPPLEMENTAL DATA
Total investment return at
net asset value (%)(a) 5.47 9.26 5.08
5.54 1.36
Net assets, end of period
(in thousands) $1,052,827 $1,427,365 $1,421,448
$1,436,481$1,522,955
Ratio of expenses to average
net assets (%)(b) 1.53 1.50 1.50
1.51 1.45
Ratio of net investment income
to average net assets (%) 4.95 5.30 5.62
6.10 5.76
Portfolio turnover (%) 39.62 56.22 67.70
60.41 44.41
(a) Total investment return assumes dividend reinvestment and does not
reflect
the effect of sales charges.
(b) The ratio of expenses to average net assets for periods ended on or
after
July 31, 1996, includes amounts paid through expense offset
arrangements. Prior period ratios exclude these amounts.
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the
period.
</TABLE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
CLASS B
PER-SHARE
OPERATING PERFORMANCE YEAR ENDED JULY 31
1992 1991 1990 1989
1988
<S> <C> <C> <C> <C>
<C>
Net asset value,
beginning of period $14.64 $13.79 $13.87 $14.30
$13.72
Investment operations
Net investment income .95 .99 .99 1.00
.98
Net realized and unrealized
gain (loss) on investments .41 .94 (.07) (.43)
.56
Total from investment
operations 1.36 1.93 .92 .57
1.54
Less distributions:
From net investment income (.95) (.99) (1.00) (1.00)
(.96)
In excess of net investment
income -- -- -- -- --
From net realized gain
on investments (.04) (.09) -- -- --
In excess of net realized
gain on investments -- -- -- -- --
Total distributions (.99) (1.08) (1.00) (1.00) (.96)
Net asset value, end of period $15.01 $14.64 $13.79
$13.87 $14.30 RATIOS AND SUPPLEMENTAL DATA
Total investment return at
net asset value (%)(a) 9.68 14.60 6.98
4.20 11.71
Net assets, end of period
(in thousands)
$1,501,535$1,015,866$738,113$651,152$635,899
Ratio of expenses to average
net assets (%)(b) 1,381.45 1.52 1.66
1.75
Ratio of Net Investment income
to average net assets (%) 6,397.03 7.26 7.12
7.02
Portfolio turnover (%) 52.29 82.31 49.83 46.66
96.97
(a) Total investment return assumes dividend reinvestment and does not
reflect
the effect of sales charges.
(b) The ratio of expenses to average net assets for periods ended on or
after
July 31, 1996, includes amounts paid through expense offset arrangements.
Prior period ratios exclude these amounts.
</TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS M
FOR THE
PERIOD PER-SHARE DECEMBER
29, 1994+
OPERATING PERFORMANCE YEAR ENDED JULY 31 TO
JULY 31
1998 1997
1996 1995
<S> <C> <C> <C>
<C>
Net asset value,
beginning of period $14.55 $14.04
$14.13 $13.43
Investment operations
Net investment income .78(c) .80
.84 .58
Net realized and unrealized
gain (loss) on investments .05 .51
(.08) .70
Total from investment
operations .83 1.31
.76 1.28
Less distributions:
From net investment income (.77) (.80)
(.85) (.58)
In excess of net investment
income -- -- -
- --
From net realized gain
on investments -- -- -
- --
In excess of net investment
gain on investments -- -- -
- --
Total distributions (.77) (.80)
(.85) (.58)
Net asset value,
end of period $14.61 $14.55 $14.04
$14.13
Total investment return at
net asset value (%)(a) 5.84 9.64 5.44
9.69*
Net assets, end of period
(in thousands) $18,082 $16,192 $9,984
$2,331
Ratio of expenses to average
net assets (%)(b) 1.18 1.15 1.13
.71*
Ratio of net investment income
to average net assets (%) 5.30 5.63 5.87
3.98*
Portfolio turnover (%) 39.62 56.22 67.70
60.41
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for periods ended on
or after July 31, 1996, includes amounts paid through expense offset
arrangements. Prior period ratios exclude these amounts.
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the
period.
</TABLE>
OBJECTIVE
Putnam Tax-Free High Yield Fund seeks high current income exempt from
federal income tax. The fund is not intended to
be a complete investment program, and there is no
assurance it will achieve its objective.
HOW THE FUND PURSUES ITS OBJECTIVE
BASIC INVESTMENT STRATEGY
PUTNAM TAX-FREE HIGH YIELD FUND SEEKS ITS OBJECTIVE BY
FOLLOWING THE FUNDAMENTAL INVESTMENT POLICY OF INVESTING
AT LEAST 80% OF ITS NET ASSETS IN A DIVERSIFIED
PORTFOLIO OF TAX-EXEMPT SECURITIES (WHICH ARE DESCRIBED
BELOW), EXCEPT WHEN INVESTING FOR DEFENSIVE PURPOSES
DURING TIMES OF ADVERSE MARKET CONDITIONS.
The fund may trade its portfolio investments seeking
short-term profits, which may result in taxable income
or capital gains and may involve special risks. See
"Portfolio turnover" below.
The fund may also invest in taxable obligations, as
described below, to the extent permitted by its
investment policies, or hold a portion of its assets in
money market instruments or in cash.
THE FUND INVESTS PRIMARILY IN HIGHER YIELDING,
HIGHERRISK, LOWER-RATED TAX-EXEMPT SECURITIES
CONSTITUTING A PORTFOLIO THAT PUTNAM INVESTMENT
MANAGEMENT, INC., THE FUND'S INVESTMENT MANAGER ("PUTNAM
MANAGEMENT"), BELIEVES DOES NOT INVOLVE UNDUE RISK TO
INCOME OR PRINCIPAL.
Differing yields on tax-exempt securities of the same
maturity are a function of several factors, including
the relative financial strength of the issuers. High
yields are generally available from securities in the
lower categories of nationally recognized securities
rating agencies (such as Baa or MIG-4 or lower by
Moody's Investors Service, Inc. ("Moody's") and BBB or
SP-3 or lower by Standard & Poor's ("S&P")), or from
unrated securities of comparable quality. Securities
rated below BBB and Baa (and comparable unrated
securities) are commonly known as "junk bonds," and are
considered to be of
poor standing and predominantly speculative. The fund
may invest up to 10% of its total assets in securities
rated below Ca or CC by each of the agencies rating the
security, including securities in the lowest rating
category of each rating agency, and in unrated
securities that Putnam Management determines are of
comparable quality. Such securities may be in default
and are generally regarded by the rating agencies as
having extremely poor prospects of ever attaining any
real investment standing. The fund is not subject to
any other restrictions based on securities ratings. The
rating services' descriptions of securities in the lower
rating categories, including their speculative
characteristics, are set forth in the appendix to this
prospectus. The foregoing investment limitations will
be measured at the time of purchase and, to the extent
that a security is assigned a different rating by one or
more of the various rating agencies, Putnam Management
will use the highest rating assigned by any agency.
ALTERNATIVE MINIMUM TAX
INTEREST INCOME DISTRIBUTED BY THE FUND FROM CERTAIN
TYPES OF TAXEXEMPT SECURITIES MAY BE SUBJECT TO FEDERAL
ALTERNATIVE MINIMUM TAX FOR INDIVIDUALS AND
CORPORATIONS.
In determining compliance with the 80% test described
above, it
is a fundamental policy of the fund to exclude from the
definition of tax-exempt securities any securities the
interest from which may be subject to the federal
alternative minimum tax for individuals. All taxexempt
interest dividends will, however, be included in
determining the federal alternative minimum taxable
income of corporations.
ALTERNATIVE INVESTMENT STRATEGIES
At times Putnam Management may judge that conditions in
the markets for tax-exempt securities make pursuing the
fund's basic investment strategy inconsistent with the
best interests of its shareholders. At such times
Putnam Management may temporarily use alternative
strategies primarily designed to reduce fluctuations in
the value of fund assets.
In implementing these defensive strategies, the fund may
invest without limit in taxable obligations,
including : obligations of the U.S. government,
its agencies or instrumentalities, may place up to 25%
of its assets in
repurchase agreements with commercial banks and
registered brokerdealers, or may invest in any other
securities that Putnam Management considers consistent
with such defensive strategies.
It is impossible to predict when, or for how long, these
alternative strategies will be used.
TAX-EXEMPT SECURITIES
TAX-EXEMPT SECURITIES INCLUDE OBLIGATIONS OF A STATE
(INCLUDING THE DISTRICT OF COLUMBIA), A TERRITORY OR A
U.S. POSSESSION, OR ANY OF THEIR AGENCIES,
INSTRUMENTALITIES OR OTHER GOVERNMENTAL UNITS, THE
INTEREST ON WHICH, IN THE OPINION OF BOND COUNSEL, IS
EXEMPT FROM FEDERAL INCOME TAX.
These securities are issued to obtain funds for various
public purposes, such as the construction of public
facilities, the payment of general operating expenses or
the refunding of
outstanding debts.
They may also be issued to finance various private
activities, including the lending of funds to public or
private institutions for the construction of housing,
educational or medical facilities, 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 tax-exempt securities may be issued as
interim financing in anticipation of tax collections,
revenue receipts or bond sales to finance various public
purposes.
THE TWO PRINCIPAL CLASSIFICATIONS OF TAX-EXEMPT
SECURITIES ARE GENERAL OBLIGATION AND SPECIAL OBLIGATION
(OR SPECIAL REVENUE OBLIGATION) SECURITIES.
GENERAL OBLIGATION securities involve a pledge of the
credit of an issuer possessing taxing power and are
payable from the issuer's general unrestricted revenues.
Their payment may depend on an
appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general
obligation securities vary according to the law
applicable to the particular issuer.
SPECIAL OBLIGATION (or SPECIAL REVENUE OBLIGATION)
securities are payable only from the revenues derived
from a particular facility or class of facilities, or a
specific revenue source, and generally are not payable
from the unrestricted revenues of the issuer. Industrial
development 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 fund may also invest in securities representing
interests in 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 shortterm 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 shortterm 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 VALUES OF 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 fund assets. Conversely, during periods of
rising interest rates, the value of fund 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 conditions and business conditions affecting
the specific industries of their issuers.
Changes by nationally recognized securities rating
agencies 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 generally will not affect income derived from
these securities, but will affect the fund's net asset
value.
THE FUND MAY INVEST IN BOTH HIGHER-RATED AND LOWER
RATED TAXEXEMPT SECURITIES. LOWER-RATED SECURITIES ARE
SECURITIES RATED BELOW BBB OR BAA BY NATIONALLY
RECOGNIZED SECURITIES RATING AGENCIES, AND, TOGETHER
WITH UNRATED SECURITIES OF COMPARABLE QUALITY, ARE
COMMONLY KNOWN AS "JUNK BONDS." The values of these
securities generally fluctuate more than those of higher-
rated securities. In addition, the lower rating
reflects a greater possibility that
adverse changes in 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 inability (or perceived inability) of issuers to
make timely payments 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 placed
on such securities. In the absence of a liquid trading
market for its portfolio securities, the fund at times
may be unable to establish the fair value of such
securities.
The rating assigned to a security by a rating agency
does not reflect an assessment of the volatility of the
security's market value or of the liquidity of an
investment in the security.
The table below shows the percentages of fund assets
invested during fiscal 1998 in securities
assigned to the various rating categories by S&P, or, if
unrated by S&P, assigned to comparable rating categories
by another rating agency, and in unrated securities
determined by Putnam Management to be of comparable
quality:
Unrated
securities Rated securities, of
comparable quality,
as percentage of as
percentage of
Rating net assets net
assets
"AAA" 4.36%
30.49%
"AA" 1.52
6.25
"A" 0.05
5.61
"BBB" 2.61
9.25
"BB" 13.58
5.47
"B" 16.82
2.56
"CCC" 0.21
0.43
"CC" 0.00
- --
"C" 0.00
- --
"D" 0.71
- --
------
- ------
39.86%
60.06%
======
======
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
tax-exempt securities may not be as extensive as that
which is made available by corporations whose securities
are publicly traded. When the fund invests in taxexempt
securities in the lower rating categories, the
achievement of its goals is more dependent on Putnam
Management's ability than would be the case if it were
investing in tax-exempt
securities in the higher rating categories. Investors
should consider carefully their ability to assume the
risks of owning shares of a mutual fund that may invest
in securities in the lower rating categories.
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 consider such
reduction in its determination of whether the fund
should continue to hold the security in its portfolio.
At times, a substantial portion of fund assets may be
invested in securities of which the fund, by itself or
together with other funds and accounts managed by Putnam
Management or 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, it may be more difficult to
sell these securities when Putnam Management believes it
advisable to do so or the fund 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
of these 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 the securities. This could increase fund
operating expenses and adversely affect the fund's net
asset value. Any income derived from the
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 securities of private
issuers.
Certain securities held by the fund may permit the
issuer at its option to "call," or redeem, the
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,
which 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. The values
of zero-coupon bonds are subject to greater fluctuation
in response to changes in market interest rates than
bonds that pay interest currently.
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, under applicable tax regulations, to
accrue and distribute interest income from zerocoupon
bonds on a current basis, even though it does not
receive that income currently in cash. Thus it may be
necessary to sell other investments to obtain cash
needed to make income distributions.
The secondary market for tax-exempt securities is
generally less liquid than that for taxable fixed
income securities, particularly in the lower rating
categories. Thus it may be more difficult to value or
buy and sell certain of these securities. Certain
investment grade securities share some of the risk
factors discussed above with respect to lower-rated
securities.
FOR ADDITIONAL INFORMATION CONCERNING THE RISKS
ASSOCIATED WITH INVESTING IN SECURITIES IN THE LOWER
RATING CATEGORIES, SEE THE SAI.
PUTNAM MANAGEMENT BUYS AND SELLS SECURITIES FOR THE
FUND'S PORTFOLIO WITH A VIEW TO SEEKING AS HIGH A LEVEL
OF CURRENT INCOME AS PUTNAM MANAGEMENT BELIEVES DOES
NOT POSE UNDUE RISK TO PRINCIPAL.
As a result, the fund will not necessarily invest in
the highest yielding tax-exempt securities permitted by
its investment policies if Putnam Management determines
that market risks or credit risks associated with such
investments would subject the fund's portfolio to
excessive risk. The potential for realization of
capital gains resulting from possible changes in
interest rates will not be a major consideration.
Putnam Management will be free to take full advantage
of the entire range of maturities offered by tax-exempt
securities and may adjust the average maturity of the
fund's portfolio from time to time, depending on its
assessment of the relative yields available on
securities of different maturities and its expectations
of future changes in interest rates. However, it is
anticipated that under normal market conditions the
fund will invest primarily in long-term tax-exempt
securities having maturities greater than ten years and
that it will generally hold short-term tax-exempt
securities only for liquidity purposes.
CONCENTRATION POLICIES
THE FUND WILL NOT INVEST MORE THAN 25% OF ITS TOTAL
ASSETS IN ANY ONE INDUSTRY. Governmental issuers of
tax-exempt securities are not considered part of any
"industry." However, for this purpose tax-exempt
securities backed only by the assets and revenues of
privately owned or operated facilities may be deemed to
be issued by such private owners or operators. Thus,
the 25% limitation would apply to these
obligations.
It is possible that the fund may invest more than 25%
of its assets in a broader segment of the market for
tax-exempt securities, such as revenue obligations of
hospitals and other health care facilities, housing
revenue obligations, or airport revenue obligations.
This would be the case only if Putnam Management
determined that the yields available from obligations
in a particular segment of the market justified the
additional risks associated with such concentration.
Although 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 such
issuers may have a general adverse effect on all tax
exempt securities in a particular market segment.
(Examples of such developments include proposed
legislation or pending court decisions affecting the
financing of such projects and market factors affecting
the demand for the services or products of a particular
market segment.)
The fund reserves the right to invest more than 25% of
its assets in industrial development bonds and private
activity securities or in issuers located in the same
state.
INVESTMENTS IN PREMIUM SECURITIES
During a period of declining interest rates, many of
the 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 fund
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 fund shares during
these periods would initially receive higher monthly
distributions (derived from the higher coupon rates
payable on fund 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, investors
may find it useful to compare 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 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 its portfolio turnover rate may be higher
than that of other mutual funds.
Portfolio turnover generally involves some expense,
including brokerage commissions or dealer markups and
other transaction costs in connection with the sale of
securities and reinvestment in other securities. These
transactions may result in realization of taxable
capital gains. To the extent such gains are short
term capital gains, they will generally be taxed at
ordinary income tax rates. Portfolio turnover
rates are shown in the section "Financial highlights."
FINANCIAL FUTURES AND OPTIONS
THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES
CONTRACTS AND OPTIONS.
The fund may purchase and sell index futures contracts
on the Municipal Bond Index. 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 the fund enters into and
terminates an index futures contract, the fund realizes
a gain or loss.
The fund may also purchase and sell put and call
options on index futures or on indexes directly, in
addition to or as an alternative to purchasing and
selling index futures. The fund 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.
In addition, the fund may purchase put and call options
on, or warrants to purchase, tax-exempt securities,
either directly or through custodial arrangements in
which the fund and other investors own an interest in
one or more options on tax-exempt securities.
The fund will engage in these transactions for hedging
purposes and, to the extent permitted by applicable
law, for nonhedging purposes, such as to manage the
effective duration of the fund's portfolio or as a
substitute for direct investment.
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 among movements in the prices of financial
futures and options purchased or sold by the fund, of
the underlying bond index or U.S. government securities
and, in the case of hedging transactions, of the tax-
exempt securities that are the subject of the hedge.
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.
The fund's ability to terminate option positions
established in the over-the-counter market may be more
limited than for exchange-traded options and may also
involve the risk that securities dealers participating
in such transactions would fail to meet their
obligations to the fund. Certain regulatory
requirements may limit the use of futures and options
transactions. The successful use of these
strategies further depends on the
ability of Putnam Management to forecast interest
rates and market movements correctly.
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 FUND 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. The
fund may enter into repurchase agreements on up to 25%
of its assets. These transactions must be fully
collateralized at all times.
The fund may also purchase securities for future
delivery, which may increase its overall investment
exposure and involves a risk of loss if the value of
the securities declines prior to the settlement date.
These transactions involve some risk if the other party
should default on its obligation and the fund is
delayed or prevented from recovering the collateral or
completing the transaction.
DIVERSIFICATION
The fund is a "diversified" investment company under
the Investment Company Act of 1940. This means that
with respect to 75% of its total assets, the fund may
not invest more than 5% of its total assets in the
securities of any one issuer (except U.S. government
securities). The remaining 25% of its total assets is
not subject to this restriction. To the extent the
fund invests a significant portion of its assets in the
securities of a particular issuer, it will be subject
to an increased risk of loss if the market value of
such issuer's securities declines.
DERIVATIVES
Certain of the instruments in which the fund may
invest, such as futures contracts, options and inverse
floating obligations, 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. The fund ' s
use of derivatives may cause the fund to recognize
higher amounts of short-term capital gains (generally
taxed at ordinary income tax rates) than it would if it
did not use such instruments.
LIMITING INVESTMENT RISK
SPECIFIC INVESTMENT RESTRICTIONS HELP TO LIMIT
INVESTMENT RISKS FOR THE FUND'S SHAREHOLDERS. These
restrictions prohibit the fund, with respect to 75% of
its total assets, from acquiring more than 10% of the
voting securities of any one issuer.* They also
prohibit the fund from investing more than:
(a) (with respect to 75% of its total assets) 5% of its
total assets in securities of any one issuer
( other than the U.S. government , its agencies
or instrumentalities); * or
(b) 25% of its total assets in any one industry
(securities of the U.S. government, its agencies or
instrumentalities are not considered to represent any
industry);* or
(c) 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 (or the person
designated by the Trustees to make such
determinations) to be readily marketable), and
repurchase agreements maturing in more than
seven days.
Restrictions marked with an asterisk (*) above are
summaries of fundamental investment policies. See the
SAI for the full text of these policies and other
fundamental investment policies. Except as otherwise
noted in the SAI , all percentage limitations
described in this prospectus and the SAI will apply at
the time an investment is made, and will not be
considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of
such investment. 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 nonfundamental investment
policy without shareholder approval. As a matter of
policy, the Trustees would not materially change the
fund's investment objective without shareholder
approval.
HOW PERFORMANCE IS SHOWN
FUND ADVERTISEMENTS MAY, FROM TIME TO TIME, INCLUDE
PERFORMANCE INFORMATION. "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 tax 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 fund pursues its objective -
- - 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
and class M shares, but does not reflect any contingent
deferred sales charge in the case of class
B shares. "Tax-equivalent" yield for each class of
shares shows the effect on performance of the tax
exempt status of distributions received from the fund.
It reflects the approximate yield that a taxable
investment must earn for shareholders at stated income
levels to produce an after-tax yield equivalent to a
class's tax-exempt yield.
"Total return" for the one-, five- and ten-year periods
(or for the life of a class, if shorter) through the
most recent calendar quarter represents the average
annual compounded rate of return on an investment of
$1,000 in the fund invested at the maximum public
offering price (in the case of class A and class M
shares) or reflecting the deduction of any applicable
contingent deferred sales charge (in the case of class
B shares). Total return may also be presented for
other periods or based on investment at reduced sales
charge levels. Any quotation of investment performance
not reflecting the maximum initial sales charge or
contingent deferred sales charge would be reduced if
the sales charge were used. 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,
portfolio composition, fund operating expenses and the
class of shares the investor purchases. Investment
performance also often reflects the risks associated
with the fund's investment objective and policies.
These factors should be considered when comparing the
fund's investment results 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.
Fund performance may be compared to that of various
indexes. See the SAI.
HOW THE FUND IS MANAGED
THE TRUSTEES ARE RESPONSIBLE FOR GENERALLY OVERSEEING
THE CONDUCT OF FUND 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.
The fund pays Putnam Management a monthly fee for these
services based on average net assets. See "Expenses
summary" and the SAI.
The following officer of Putnam Management has had
primary responsibility for the day-to-day management of
the fund's portfolio since the year stated below:
Business experience
Year (at least 5 years)
---- --------------
- ---- Blake E. Anderson 1998 Employed as an
investment
Managing Director
professional by Putnam
Management
since 1987 .
The Trust pays all expenses not assumed by Putnam
Management, including Trustees' fees, auditing, legal,
custodial, investor servicing and shareholder reporting
expenses, and payments under its distribution plans
(which are in turn allocated to the relevant class of
shares). Expenses of the Trust directly charged or
attributable to the fund will be paid from the assets of
the fund. General expenses of the Trust will be
allocated among and charged to the assets of the fund
and any other series of the Trust on a basis that the
Trustees deem fair and equitable, which may be based on
the nature of the services performed and relative
applicability, to or the relative assets of, the fund
and such series. The Trust also reimburses Putnam
Management for the compensation and related expenses of
certain fund officers and their staff who provide
administrative services. The total reimbursement is
determined annually by the Trustees.
Putnam Management places all orders for purchases and
sales of fund securities. In selecting brokerdealers,
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 fund shares (and, if permitted by law, shares
of the other Putnam funds) as a factor in the selection
of broker-dealers.
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business Trust organized on
June 28, 1985. A copy of the Trust's 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 Trust is an open-end, diversified management
investment company with an unlimited number of
authorized shares of beneficial interest. Shares of the
Trust may, without shareholder approval, be divided into
two or more series of such shares and are currently
divided into two series of shares: the fund and Putnam
Tax-Free Insured 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. Only class A,
B and M shares are offered by this prospectus. The fund
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 1-8002251581).
Each share has one vote, with fractional shares voting
proportionally. Shares vote by individual series on all
matters except (i) when required by the Investment
Company Act of 1940, shares of all series shall be voted
in the aggregate and (ii) when the Trustees have
determined that the matter affects only the interests of
one or more series, only shareholders of such series
shall be entitled to vote. Shares of all classes 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 from
the assets of the fund as declared by the Trustees, and,
if the Trust were liquidated, would receive the net
assets of the fund. The Trust
may suspend the sale of shares of the fund at any time
and may refuse any order to purchase shares. Although
the Trust 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 the minimum set by the
Trustees (presently 20 shares), the fund may choose to
redeem your shares. 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, at
any time, establish one which could apply to both
present and future shareholders.
THE TRUST'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. ; JOHN A. HILL,VICE CHAIRMAN. Chairman and
Managing Director, First Reserve Corporation ;
WILLIAM F. POUNDS, VICE CHAIRMAN. Professor
Emeritus 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. ; RONALD J. JACKSON, Former
Chairman, President and Chief Executive Officer of
Fisher-Price, Inc. , Trustee of Salem Hospital and
the Peabody Essex Museum; PAUL L. JOSKOW, *
Professor of Economics and Management, Massachusetts
Institute of Technology . Director, New England
Electric System, State Farm Indemnity Company and
Whitehead Institute for Biomedical Research; 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.;
JOHN H. MULLIN, III, Chairman and CEO of Ridgeway Farm,
Director of ACX Technologies, Inc., Alex . Brown
Realty, Inc., and The Liberty Corporation ;
ROBERT E. PATTERSON, President and Trustee of Cabot
Industrial Trust and Trustee of the SEA Education
Association ; DONALD S. PERKINS,* Director of various
corporations, including Cummins Engine Company, Lucent
Technologies, Inc., Nanophase Technologies, Inc.
and Springs Industries, Inc. ; GEORGE PUTNAM,
III,* President, New Generation Research, Inc.; A.J.C.
SMITH,* Chairman and Chief Executive Officer
, Marsh & McLennan Companies, Inc.; W. THOMAS
STEPHENS, President and Chief Executive Officer of
MacMillan Bloedel Ltd., Director of Qwest
Communications and New Century Energies; 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 Cabot Industrial
Trust, Massachusetts General Hospital and Eastern
Utilities Associates. The 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, Putnam Management or Putnam Mutual Funds.
ABOUT YOUR INVESTMENT
ALTERNATIVE SALES ARRANGEMENTS
CLASS A SHARES. If you purchase class A shares, you
will generally pay a sales charge at the time of
purchase and, as a result, will not have to pay any
charges when you redeem the shares. If you purchase
class A shares at net asset value, you may have to pay a
contingent deferred sales charge ("CDSC") when you
redeem the shares. Certain purchases of class A shares
qualify for reduced sales charges. Class A shares pay
lower 12b1 fees than class B and class M
shares. See "How to buy shares - Class A shares" and
"Distribution plans."
CLASS B SHARES. If you purchase class B shares, you
will not pay an initial sales charge, but you may have
to pay a CDSC if you redeem the shares within six years.
Class B shares also pay 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,
including information about how shares acquired through
reinvestment of distributions are treated and certain
circumstances under which class B shares may not convert
into class A shares, see the SAI. 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. If you purchase class M shares, you
will generally pay a sales charge at the time of
purchase that is lower than the sales charge you would
pay for class A shares. Certain purchases of class M
shares qualify for reduced sales charges. Class M
shares pay 12b-1 fees that are lower than class B shares
but higher than class A shares. You will not have to
pay any charges when you redeem class M shares, but
class M shares will not convert into any other class of
shares. See "How to buy shares -Class M shares" and
"Distribution plans."
WHICH CLASS IS BEST FOR YOU? Which class of shares
provides the most suitable investment for you depends on
a number of factors, including the amount you intend to
invest and how long you intend to hold the shares. If
your intended purchase qualifies for reduced sales
charges, you might consider class A or class M shares.
If you prefer not to pay a sales charge at the time of
purchase, you 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
You can open a fund account with as little as $500 and
make additional investments at any time with as little
as $50. You can buy fund shares three ways - through
most investment dealers
or other intermediaries , through Putnam Mutual
Funds (at 1800-225-1581), or through a systematic
investment plan. If you
do not have a dealer, Putnam Mutual Funds can refer you
to one. Your dealer or other intermediary
will be responsible for furnishing all necessary
documentation to Putnam Investor Services and may charge
you a transaction fee.
BUYING SHARES THROUGH YOUR INVESTMENT DEALER.Your 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.
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 $25 or
more per month through automatic deductions from your
bank checking or savings account.
Application forms are available from your investment
dealer or through Putnam Investor Services.
Shares are sold at the public offering price based on
the net asset value next determined after Putnam
Investor Services receives your order. In most cases,
in order to receive that day's public offering price,
Putnam Investor Services must receive your order before
the close of regular trading on the New York Stock
Exchange.
CLASS A SHARES
The public offering price of class A shares is the net
asset value plus a sales charge that varies depending on
the size of your purchase. The fund receives the net
asset value. The sales charge is allocated between your
investment dealer and Putnam Mutual Funds as shown in
the following table, except when Putnam Mutual Funds, in
its discretion, allocates the entire amount to your
investment dealer.
SALES CHARGE
AMOUNT OF
AS A PERCENTAGE OF: SALES
CHARGE -----------------
REALLOWED TO
NET
DEALERS AS A
AMOUNT OF TRANSACTION AMOUNT OFFERING
PERCENTAGE OF
AT OFFERING PRICE ($) 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 ---------------------------------------------------
- ------------
No initial sales charge applies to purchases of class A
shares of $1 million or more. However, a CDSC of 1.00%
or 0.50% is imposed on redemptions of these shares
within the first or second year, respectively,
after purchase, unless the dealer of record waived its
commission with Putnam Mutual Funds' approval.
Putnam Mutual Funds pays dealers of record commissions
on sales of class A shares of $1 million or more based
on an investor's cumulative purchases during the oneyear
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 first $3 million of shares purchased, 0.50% of
the next $47 million and 0.25% thereafter. CLASS B
SHARES
Class B shares are sold without an initial sales charge,
although a CDSC will be imposed if you redeem shares
within a specified period after purchase, as shown in
the table below.
YEAR 1 2 3 4 5 6
7+ -----------------------------------------------------
- -----CHARGE 5% 4% 3% 3%
2% 1% 0%
Putnam Mutual Funds pays a sales commission equal to
4.00% of the amount invested (including a prepaid
service fee of 0.25% of the amount invested) to dealers
who sell class B shares. These commissions are not paid
on exchanges from other Putnam funds or on sales to
investors exempt from the CDSC.
CLASS M SHARES
The public offering price of class M shares is the net
asset value plus a sales charge that varies depending on
the size of your purchase. The fund receives the net
asset value. The sales charge is allocated between your
investment dealer and Putnam Mutual Funds as shown in
the following table, except when Putnam Mutual Funds, at
its discretion, allocates the entire amount to your
investment dealer.
SALES CHARGE
AMOUNT OF
AS A PERCENTAGE OF: SALES
CHARGE -----------------
REALLOWED TO
NET
DEALERS AS A
AMOUNT OF TRANSACTION AMOUNT OFFERING
PERCENTAGE OF
AT OFFERING PRICE ($) 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
Members of qualified groups may purchase class M shares
without a sales charge.
GENERAL
YOU MAY BE ELIGIBLE TO BUY FUND SHARES AT REDUCED SALES
CHARGES OR TO SELL FUND SHARES WITHOUT A CDSC.
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 and other plans. Descriptions
are also included in the order form and in the SAI.
The fund may sell class A, class B and class M shares at
net asset value without an initial sales charge or a
CDSC to 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
brokerdealers, 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 closedend
fund.
In addition, the fund may sell shares at net asset value
without an initial sales charge or a CDSC in connection
with the acquisition by the fund of assets of an
investment company or personal holding company. 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 shares at reduced sales charges.
In determining whether a CDSC is payable on any
redemption, shares not subject to any charge will be
redeemed first, followed by shares held longest during
the CDSC period. Any CDSC will be based on the lower of
the shares' cost and net asset value. 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 you redeem a share that has
appreciated in value
during the CDSC period, a CDSC is assessed on its
initial purchase price. Shares acquired by reinvestment
of distributions may be redeemed without
a CDSC at any time. 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. See the SAI for
more information about the CDSC.
Shareholders of other Putnam funds may be entitled to
exchange their shares for, or reinvest distributions
from their funds in, fund shares at net asset value.
If you are considering redeeming 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 or transfer. Otherwise,
payment may be delayed 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,
certificates will not be issued 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.
DISTRIBUTION PLANS
The fund has adopted distribution plans to compensate
Putnam Mutual Funds for services provided and expenses
incurred by it as principal underwriter of fund shares,
including the payments to dealers mentioned below. The
plans provide for payments by the fund to Putnam Mutual
Funds at the annual rates (expressed as a percentage of
average net assets) of up to 0.35% on class A shares and
1.00% on class B and class M shares. The Trustees
currently limit payments on class A, class B and Class M
shares to 0.20%, 0.70% and 0.50% of average net
assets, respectively.
Putnam Mutual Funds compensates qualifying dealers
(including,
for this purpose, certain financial institutions) for
sales of shares and the maintenance of shareholder
accounts.
Putnam Mutual Funds makes quarterly payments to dealers
at the annual rate of up to 0.20% of the average net
asset value of class A shares. No payments are made
during the first year after purchase on shares purchased
at net asset value by shareholders investing $1 million
or more, unless the shareholder has made arrangements
with Putnam Mutual
Funds and the dealer of record has waived the sales
commission.
Putnam Mutual Funds makes quarterly payments to dealers
at the annual rates of 0.20% and 0.25% of the average
net asset value of class B shares outstanding as of
March 31, 1990 and acquired after that date,
respectively, except that the first year, for which
service fees are prepaid at the time of sale as
described above. Putnam Mutual Funds makes quarterly
payments to dealers at the annual rate of 0.40% of the
average net asset value of class M shares.
Putnam Mutual Funds may suspend or modify its 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
You can sell your shares to the fund any day the New
York Stock Exchange is open, either directly to the fund
or through your investment dealer. The fund will only
redeem shares for which it has received payment.
SELLING SHARES DIRECTLY TO YOUR 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.
YOUR FUND GENERALLY SENDS YOU PAYMENT FOR YOUR SHARES
THE BUSINESS DAY AFTER YOUR REQUEST IS RECEIVED. Under
unusual circumstances, the fund may suspend redemptions,
or postpone payment for more than seven days, as
permitted by federal securities law.
You may use Putnam's Telephone Redemption Privilege to
redeem
shares valued up to $100,000 unless you have notified
Putnam Investor Services of an address change within the
preceding 15 days. Unless you indicate otherwise on the
account application, Putnam Investor Services will be
authorized to act upon redemption and transfer
instructions received by telephone from you, or any
person claiming to act as your representative, who can
provide Putnam Investor Services with your 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.
HOW TO EXCHANGE SHARES
You can exchange your shares for shares of the same
class of certain other Putnam funds at net asset value.
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
shortterm 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 your fund, the fund reserves the
right to revise or terminate the exchange privilege,
limit the amount or number of exchanges or reject any
exchange. Consult Putnam Investor Services before
requesting an exchange. See the SAI to find out more
about the exchange privilege.
HOW THE FUND VALUES ITS SHARES
THE FUND CALCULATES THE NET ASSET VALUE OF A SHARE OF
EACH CLASS BY DIVIDING THE TOTAL VALUE OF ITS ASSETS,
LESS LIABILITIES, BY THE NUMBER OF ITS SHARES
OUTSTANDING. SHARES ARE VALUED AS OF THE CLOSE OF
REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE EACH DAY
THE EXCHANGE IS OPEN.
Tax-exempt securities are 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.
The fund believes that reliable market quotations
generally are not readily available for purposes of
valuing its portfolio securities. As a result, it is
likely that most of the valuations provided by a pricing
service will be based upon fair value determined on the
basis of the factors listed above. Non-tax-exempt
securities for which market quotations are readily
available are valued at market value. Short-term
investments that will mature in 60 days or less are
valued at amortized cost, which approximates market
value. All other securities and assets are valued at
their fair value following procedures approved by the
Trustees.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX
INFORMATION
The fund declares all of its net investment income as a
distribution on each day it is open for business. Net
investment income consists of interest accrued on
portfolio investments of the fund, less accrued
expenses, computed in each case since the most recent
determination of net asset value. Normally, the fund
pays distributions of net investment income monthly. The
fund will distribute at least annually all net realized
capital gains, if any, after applying any available
capital loss carryovers. A capital loss carryover is
currently available. Distributions paid on class A
shares will generally be greater than those paid on
class B and class M shares because expenses attributable
to class B and class M shares will generally be higher.
You begin earning distributions on the business day
that Putnam Mutual Funds receives payment for
your shares. It is your responsibility to see that your
dealer forwards payment promptly. YOU CAN CHOOSE FROM
THREE DISTRIBUTION OPTIONS:
- - Reinvest all distributions in additional shares
without a
sales charge;
- - Receive distributions from net investment income
in cash
while reinvesting capital gains distributions in
additional shares without a sales charge; or
- - Receive all distributions in cash.
You can change your distribution option by notifying
Putnam Investor Services in writing. If you do not
select an option when you open your account, all
distributions will be reinvested. All distributions not
paid in cash will be reinvested in shares of the class
on which the distributions are paid. You will receive a
statement confirming reinvestment of distributions in
additional fund shares (or in shares of other Putnam
funds for Dividends Plus accounts) promptly following
the quarter in which the reinvestment occurs.
If a check representing a fund distribution is not
cashed within a specified period, Putnam Investor
Services will notify you that you have the option of
requesting another check or reinvesting the
distribution. You will not receive any interest on
amounts represented by uncashed distribution or
redemption checks. If Putnam Investor Services does
not receive your election, the distribution will be
reinvested in the fund. Similarly, if correspondence
sent by the fund or Putnam Investor Services is returned
as "undeliverable," fund distributions will
automatically be reinvested in the fund or in another
Putnam fund.
The fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all
other requirements necessary for it to be relieved of
federal taxes on income and gains it distributes to
shareholders. The fund will distribute substantially
all of its ordinary income and capital gain net income
on a current basis.
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 the fund may have on the taxation of your
benefits. In addition, an investment in the fund may
result in liability for federal alternative minimum tax
and for state and local taxes, for both individual and
corporate shareholders.
The fund may at times purchase tax-exempt securities at
a discount from the price at which they were originally
issued, especially during periods of rising interest
rates. For federal income tax purposes, some or all of
this market discount will be included in the fund's
ordinary income and will be
taxable to you as such when it is distributed to you.
The fund ' s investments in certain debt
obligations may cause the fund to recognize taxable
income in excess of the cash generated by such
obligations. Thus, the fund could be required at
times to liquidate other investments in order to satisfy
its distribution requirements.
Fund distributions will be taxable to you as ordinary
income to the extent derived from the fund's investment
income (other than exempt interest income) and net short-
term gains (that is, net gains from securities held for
not more than a year). Distributions designated by the
fund as deriving from net gains on securities held for
more than one year will be taxable to you as
such, regardless of how long you have held the shares.
Distributions will be taxable as described above whether
received in cash or in shares through the reinvestment
of distributions.
Early in each calendar year Putnam Investor Services
will notify you of the amount and tax status of
distributions paid to you for the preceding year.
The foregoing is a summary of certain federal income tax
consequences of investing in the fund. You should
consult your tax adviser to determine the precise effect
of an investment in the fund on your particular tax
situation (including possible liability for 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 custodian of the
funds . Putnam Investor Services, a division of
Putnam Fiduciary Trust Company, is the investor
servicing and transfer agent for the funds .
Putnam Management, Putnam Mutual Funds and Putnam
Fiduciary Trust Company are subsidiaries of Putnam
Investments, Inc., which is located at One Post
Office Square, Boston, Massachusetts 02109 and, except
for a minority stake owned by employees, are 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.
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.
(THE FUND WILL INVEST PRINCIPALLY IN SECURITIES IN THE
FOLLOWING RATING CATEGORIES:)
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.
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.
CA -- Bonds which are rated CA represent obligations
which are speculative in a high degree. Such issues
are often in default or have other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class
of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
STANDARD & POOR'S
BONDS
AAA -- An obligation rated AAA has the
highest rating assigned by Standard & Poor's. The
obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
AA -- An obligation rated AA differs from the
highest-rated obligations only in small degree.
The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A -- An obligation rated A is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than
obligations in higher-rated categories. However,
the obligor's capacity to meet its financial commitment
on the obligation is still strong.
BBB -- An obligation rated BBB exhibits
adequate protection parameters . However ,
adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity of
the obligor to meet its financial commitment on the
obligation.
Obligations rated BB, B, CCC, CC and C are regarded as
having significant speculative characteristics.
BB indicates the lowest degree of speculation and C the
highest. While such obligations will likely have
some quality and protective characteristics, these are
outweighed by large uncertainties or major
exposures to adverse conditions.
BB -- An obligation rated BB is less vulnerable to
nonpayment than other speculative issues. However,
it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions
which could lead to the
obligor's inadequate capacity to meet its
financial commitment on the obligation.
B -- An obligation rated B is more vulnerable to
nonpayment than obligations rated BB, but the
obligor currently has the capacity to meet its
financial commitment on the obligations .
Adverse business, financial, or economic conditions
will likely impair the obligor's capacity or
willingness to meet its financial commitment on the
obligation.
CCC-- An obligation rated CCC is currently vulnerable
to nonpayment , and is dependent upon favorable
business, financial, and economic conditions for the
obligor to met its financial commitment on the
obligation . In the event of adverse business,
financial, or economic conditions, the obligor
is not likely to have the capacity to meet its
financial commitment on the obligation.
CC-- An obligation rated CC is currently highly
vulnerable to nonpayment.
C-- The C rating may be used to cover a situation
where a bankruptcy petition has been filed,
or similar action has been taken, but payments on
this obligation are being continued.
D - - An obligation rated D is in payment
default. The D rating category is used when
interest payments or principal payments are not made on
the date due even if the applicable grace period has
not expired, unless Standard & Poor's believes
that such payments will be made during such grace
period. The D rating also will be used
upon the filing of a bankruptcy petition , or
the taking of a similar action if payments on an
obligation are jeopardized.
DUFF & PHELPS CORPORATION
LONG-TERM DEBT
AAA -- Highest credit quality. The risk factors are
negligible, being only slightly more than for riskfree
U.S. Treasury debt.
AA+, AA, AA- -- High credit quality. Protection
factors are strong. Risk is modest but may vary
slightly from time to time because of economic
conditions.
A+, A, A- -- Protection factors are average but
adequate. However, risk factors are more variable and
greater in periods of economic stress.
BBB+, BBB, BBB- -- Below-average protection factors but
still considered sufficient for prudent investment.
Considerable variability in risk during economic
cycles.
BB+, BB, BB- -- Below investment grade but deemed
likely to meet obligations when due. Present or
prospective financial protection factors fluctuate
according to industry conditions or company fortunes.
Overall quality may move up or down frequently within
this category.
B+, B, B- -- Below investment grade and possessing risk
that obligations will not be met when due. Financial
protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the
rating within this category or into a
higher or lower rating grade.
CCC -- Well below investment-grade securities.
Considerable uncertainty exists as to timely payment of
principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with
unfavorable company developments.
DD -- Defaulted debt obligations. Issuer failed to meet
scheduled principal and/or interest payments. FITCH
INVESTORS SERVICE, INC.
AAA -- Bonds considered to be investment grade and of
the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by
reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of
very high credit quality. The obligor's ability to pay
interest and repay principal is very strong, although
not quite as strong as bonds rated AAA.
A -- Bonds considered to be investment grade and of
high credit quality. The obligor's ability to pay
interest and repay principal is considered to be
strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than
bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to
pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than
for bonds with higher ratings.
BB -- Bonds considered to be speculative. The
obligor's ability to pay interest and repay principal
may be affected over time by adverse economic changes.
However, business and financial alternatives can be
identified which could assist the obligor in satisfying
its debt service requirements. B -- Bonds are
considered highly speculative. Bonds
in this class are lightly protected as to the obligor's
ability to pay interest over the life of the issue and
repay principal when due.
CCC -- Bonds have certain characteristics which, with
passing of time, could lead to the possibility of
default on either principal or interest payments.
CC -- Bonds are minimally protected. Default in
payment of interest and/or principal sees probable.
C -- Bonds are in actual or imminent default in
payment of interest or principal.
DDD -- Bonds are in default and in arrears in
interest and/or principal payments. Such bonds are
extremely speculative and should be valued only on
the basis of their value in liquidation or
reorganization of the obligor.
PUTNAM INVESTMENTS
P.O. Box 989
Boston, Massachusetts 02103
Toll-free 1-800-225-1581
www.putnaminv.com
I-25
PUTNAM TAX-FREE INCOME TRUST
FORM N-1A
PART B
STATEMENT OF ADDITIONAL
INFORMATI
ON ("SAI")
NOVEMBER
30,
1998</
R>
This SAI is not a prospectus
and is only authorized for
distribution when accompanied
or preceded by the
prospectuses of Putnam
Tax-Free Income Trust (the
"Trust") dated November 30,
1998 , as revised from
time to time, relating to the
series of shares of the Trust
the investor is considering
purchasing (the "prospectus").
This SAI contains information
which may be useful to
investors but which is not
included in the
prospectuses. If the Trust
has more than one form of
current prospectus, each
reference to the prospectus in
this SAI shall include all of
the Trust's 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
Trust. Part II includes
information about the Trust and
the other Putnam funds.
TABLE
OF CONTENTS PART I
PAG E
TAX EXEMPT SECURITIES I
3
SECURITIES RATINGS I
5
INVESTMENT RESTRICTIONS I -
9
CHARGES AND EXPENSES I
11
INVESTMENT PERFORMANCE I
20
EQUIVALENT YIELDS: TAX EXEMPT
VERSUS TAXABLE SECURITIES I -
22 ADDITIONAL OFFICERS
I 23
INDEPENDENT ACCOUNTANTS AND
FINANCIAL STATEMENTS I23
PART II
MISCELLANEOUS INVESTMENT
PRACTICES II1
TAXES
II - 33
MANAGEMENT
II - 39 DETERMINATION
OF NET ASSET VALUE II
51
HOW TO BUY SHARES II
53 DISTRIBUTION PLANS
II - 66 INVESTOR
SERVICES II - 67
SIGNATURE GUARANTEES II
73 SUSPENSION OF REDEMPTIONS
II 74 SHAREHOLDER
LIABILITY II 74
STANDARD PERFORMANCE MEASURES
II - 74 COMPARISON OF
PORTFOLIO PERFORMANCE
II 76 DEFINITIONS
II - 82
PUTNAM TAX-FREE INCOME
TRUST
STATEMENT OF
ADDITIO
NAL
INFORMA TION
PART I
TAX EXEMPT SECURITIESTAX EXEMPT
SECURITIES
GENERAL DESCRIPTION. As used
in the prospectus and in this
SAI, the term "taxexempt
securities" includes obligations
of a state (including the
District of Columbia), a
territory or a U.S. possession,
or any of their agencies,
instrumentalities or other
governmental units, the interest
from which is , in
the opinion of bond counsel,
exempt from federal
income tax. Such obligations are
issued to obtain funds for
various public purposes,
including the construction of a
wide range of public facilities,
such as airports, bridges,
highways, housing, hospitals,
mass transportation, schools,
streets and water and sewer
works. Other public purposes for
which tax-exempt securities may
be issued include the refunding
of outstanding obligations or the
payment of general operating
expenses.
Short-term tax-exempt securities
are generally issued by state and
local governments and public
authorities as interim financing
in anticipation of tax
collections, revenue receipts, or
bond sales to finance such public
purposes.
In addition, certain types of
"private activity" bonds may be
issued by public authorities to
finance such projects as
privately operated housing
facilities; certain local
facilities for supplying water,
gas or electricity; sewage
or solid
waste disposal; student loans; or
public or private institutions
for the construction of
educational, hospital ,
housing and other facilities.
Such obligations are included
within the term tax-exempt
securities if the interest paid
thereon is, in the opinion of
bond counsel, exempt from federal
income tax (such interest may,
however, be subject to federal
alternative minimum tax). Other
types of private activity bonds,
the proceeds of which are used
for the construction,
repair or improvement of, or to
obtain equipment for, privately
operated industrial or commercial
facilities, may also constitute
taxexempt securities, although
the current federal tax laws
place substantial limitations on
the size of such issues.
STAND - BY
COMMITMENTS. When a fund
purchases taxexempt securities,
it
has the authority to acquire
stand by commitments
from banks and broker -
dealers with respect to
those taxexempt securities. A
standby commitment may be
considered a
security independent of the tax
exempt security to which it
relates. The amount payable by
a bank or dealer during the time
a stand - by
commitment is exercisable,
absent unusual circumstances,
would be substantially the same
as the market value of the
underlying tax-exempt
security to a third
party at any time. The funds
expect that standby
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 tax
exempt securities depend on a
variety of factors, including
general money market
conditions, effective marginal
tax rates, the financial
condition of the issuer,
general conditions of the tax
exempt security market, the
size of a particular offering,
the maturity of the obligation
and the rating of the issue.
The ratings of nationally
recognized securities rating
agencies represent their
opinions as to the credit
quality of the taxexempt
securities which they undertake
to rate. It should be
emphasized, however, that
ratings are general and are not
absolute standards of quality.
Consequently, tax exempt
securities with the
same maturity and interest rate
but with different ratings may
have the same yield. Yield
disparities may occur for
reasons not directly related to
the investment quality of
particular
issues or the general movement
of interest rates and may be due
to such factors as changes in
the overall demand or
supply of various types of tax
exempt securities or changes
in the investment objectives of
investors. Subsequent to
purchase by a fund, an issue of
taxexempt securities or other
investments may cease to be
rated or its rating may be
reduced below the minimum
rating required for purchase by
the fund. Neither event will
require the elimination of an
investment from the fund's
portfolio, but Putnam
Management will consider such
an event in its determination
of whether the fund should
continue to hold an investment
in its portfolio.
"MORAL OBLIGATION" BONDS. None
of the funds currently intends
to invest in socalled "moral
obligation" bonds, where
repayment is backed by a moral
commitment of an entity other
than the issuer, unless the
credit of the issuer itself,
without regard to the "moral
obligation," meets the
investment criteria established
for investments by the funds.
ADDITIONAL RISKS. Securities
in which the funds may invest,
including taxexempt 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 taxexempt
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 taxexempt
securities. Further proposals
limiting the issuance of tax-
exempt bonds may well be
introduced in the future. If
it appeared that the
availability of taxexempt
securities for investment by a
fund and the value of a fund's
portfolio could be materially
affected by such changes in
law, the Trustees of the Trust
would reevaluate the
funds ' investment
objectives and
policies and consider changes
in the structure of the
Trust or its
dissolution.
SECURITIES RATINGSSECURITIES
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 wellassured.
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.
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.
CA -- Bonds which are rated CA
represent obligations which are
speculative in a high degree.
Such issues are often in
default or have other marked
shortcomings.
C -- Bonds which are
rated C are the lowest rated
class of bonds and issues so
rated can be regarded as having
extremely poor prospects of
ever attaining any real
investment standing.
STANDARD & POOR'S
BONDS
AAA -- An obligation
rated AAA has the
highest rating assigned by
Standard & Poor's. The
obligor's capacity to meet its
financial commitment on the
obligation is extremely
strong.
AA -- An obligation rated AA
differs from the highest rated
obligations only in small
degree. The obligor's
capacity to meet its financial
commitment on the obligation is
very strong.
A -- An obligation rated
A is somewhat more
susceptible to the adverse
effects of changes in
circumstances and economic
conditions than obligations
in higherrated categories.
However, the obligor's capacity
to meet its financial
commitment on the obligation is
still strong.
BBB -- An obligation
rated BBB exhibits adequate
protection parameters .
However , adverse economic
conditions or changing
circumstances are more likely
to lead to a weakened capacity
of the obligor to meet its
financial commitment on the
obligation.
Obligations rated BB, B, CCC,
CC and C are regarded as having
significant speculative
characteristics. BB
indicates the lowest degree of
speculation and C the
highest. While such
obligations will likely
have some quality and
protective characteristics,
these are outweighed by large
uncertainties or major
exposures to adverse
conditions.
BB -- An obligation rated BB
is less vulnerable to
nonpayment than other
speculative issues. However, it
faces major ongoing
uncertainties or exposure to
adverse business, financial, or
economic conditions which could
lead to the obligor's
inadequate capacity to meet
its financial commitment on
the obligation.
B -- An obligation rated B is
more vulnerable to nonpayment
than obligations rated BB, but
the obligor currently has
the capacity to meet its
financial commitment on the
obligations . Adverse
business, financial, or
economic conditions will likely
impair the obligor's
capacity or willingness to
meet its financial
commitment on the obligation.
CCC-- An obligation rated CCC
is currently vulnerable to
nonpayment , and is
dependent upon favorable
business, financial, and
economic conditions for the
obligor to met its financial
commitment on the
obligation . In the event
of adverse business, financial,
or economic conditions, the
obligor is not likely to
have the capacity to meet
its financial commitment on the
obligation.
CC-- An obligation rated CC is
currently highly vulnerable to
nonpayment.
C-- The C rating may be
used to cover a situation where
a bankruptcy petition has been
filed, or similar action has
been taken, but payments on
this obligation are being
continued.
D - - An obligation rated
D is in payment default.
The D rating category is
used when interest payments or
principal payments are not made
on the date due even if the
applicable grace period has not
expired, unless Standard &
Poor's believes that such
payments will be made during
such
grace period. The D
rating also will be used
upon the filing of a
bankruptcy petition , or the
taking of a similar action if
payments on an obligation
are jeopardized.
DUFF & PHELPS CORPORATION
LONG-TERM DEBT
AAA -- Highest credit
quality. The risk factors are
negligible, being only slightly
more than for risk free U.S.
Treasury debt.
AA+, AA, AA- -- High credit
quality. Protection factors are
strong. Risk is modest but may
vary slightly from time to time
because of economic conditions.
A+, A, A- -- Protection factors
are average but adequate.
However, risk factors are more
variable and greater in periods
of economic stress.
BBB+, BBB, BBB- -- Below
average protection factors but
still considered sufficient for
prudent investment.
Considerable variability in
risk during economic cycles.
BB+, BB, BB- -- Below
investment grade but deemed
likely to meet obligations when
due. Present or prospective
financial protection factors
fluctuate according to industry
conditions or company fortunes.
Overall quality may move up or
down frequently within this
category.
B+, B, B- -- Below investment
grade and possessing risk that
obligations will not be met
when due. Financial protection
factors will fluctuate widely
according to economic cycles,
industry conditions and/or
company fortunes. Potential
exists for frequent changes in
the rating within this category
or into a higher or lower
rating grade.
CCC -- Well below investment
grade securities. Considerable
uncertainty exists as to timely
payment of principal, interest
or preferred dividends.
Protection factors are narrow
and risk can be substantial
with unfavorable
economic/industry conditions,
and/or with unfavorable company
developments.
DD -- Defaulted debt
obligations. Issuer failed to
meet scheduled principal and/or
interest payments.
FITCH INVESTORS SERVICE, INC.
AAA -- Bonds considered to be
investment grade and of the
highest credit quality. The
obligor has an exceptionally
strong ability to pay interest
and repay principal, which is
unlikely to be affected by
reasonably foreseeable events.
AA -- Bonds considered to be
investment grade and of very
high credit quality. The
obligor's ability to pay
interest and repay principal is
very strong, although not quite
as strong as bonds rated
AAA.
A -- Bonds considered to be
investment grade and of high
credit quality. The obligor's
ability to pay interest and
repay principal is considered
to be strong, but may be more
vulnerable to adverse changes
in economic conditions and
circumstances than bonds with
higher ratings.
BBB -- Bonds considered to be
investment grade and of
satisfactory credit quality.
The obligor's ability to pay
interest and repay principal is
considered to be adequate.
Adverse changes in economic
conditions and circumstances,
however, are more likely to
have adverse impact on these
bonds, and therefore impair
timely payment. The likelihood
that the ratings of these bonds
will fall below investment
grade is
higher than for bonds with
higher ratings.
BB -- Bonds considered to be
speculative.
The obligor's ability to pay
interest and repay principal
may be affected over time by
adverse economic changes.
However, business and financial
alternatives can be identified
which could assist the obligor
in satisfying its debt service
requirements.
B -- Bonds are considered
highly speculative. Bonds in
this class are lightly
protected as to the obligor's
ability to pay interest over
the life of the issue and repay
principal when due.
CCC -- Bonds have certain
characteristics which, with
passing of time, could lead to
the possibility of default on
either principal or interest
payments.
CC -- Bonds are minimally
protected. Default in payment
of interest and/or principal
seems probable.
C -- Bonds are in actual or
imminent default in payment of
interest or principal.
DDD -- Bonds are in default and
in arrears in interest and/or
principal payments. Such bonds
are extremely speculative and
should be valued only on the
basis of their value in
liquidation or reorganization
of the obligor.
INVESTMENT
RESTRICTIONSINVESTMENT
RESTRICTIONS
WITHOUT A VOTE OF A MAJORITY OF
THE OUTSTANDING VOTING
SECURITIES OF A FUND CREATED
UNDER THE TRUST,
THE TRUST SHALL NOT TAKE ANY OF
THE FOLLOWING ACTIONS WITH
RESPECT TO SUCH FUND:
(1) Borrow money in excess
of 10% of the value
(taken at the lower of cost or
current value) of the fund's
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 federal
securities
law s.
(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 which represent
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 obligation
secured by real estate or
interests there in.
(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
commodit ies. (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
securi ties.
(6) With respect to 75% 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 and
principal by the U.S.
government or its agencies or
instrumentalities and that
insurers of taxexempt
securities are not considered
issuers of securities for this
purpose. (Insurance policies of
which the Trust is a
beneficiary are not considered
securities for purposes of this
restric tion.)
(7) With respect to 75% of
the fund's total
assets, acquire
more than 10% of the voting
securities of any
issuer.
(8) Purchase securities
(other than securities of the
U.S
government, its agencies or
instrumentalities or taxexempt
securities, except tax-exempt
securities 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
i ndustry.
(9) Issue any class of
securities which is senior to
the
fund's shares of beneficial
interest, except for permitted
bo rrowings.
(10) Invest less than 80%
of a fund's net assets in tax
exempt
securities, except when
investing for defensiv e
purposes.
Although certain of the Trust's
fundamental
investment restrictions
permit the funds to borrow money
to a limited extent,
the funds do not currently
intend to do so and did not do
s o last year.
The Investment Company Act of
1940 provides that a "vote of a
majority of the outstanding
voting securities" of the Trust
or a fund means the affirmative
vote of the lesser of (1) more
than 50% of the outstanding
shares of the Trust or that
fund, as the case may be, or
(2) 67% or more of the shares
present at a meeting if more
than 50% of the outstanding
shares of the Trust or that
fund are represented at the
meeting in person or by
proxy.
IT IS CONTRARY TO THE TRUST'S
PRESENT POLICY WITH RESPECT TO
ANY FUND CREATED UNDER THE
TRUST, WHICH MAY BE CHANGED BY
THE TRUSTEES WITHOUT
SHAREHOLDER APPROVAL, TO TAKE
ANY OF THE FOLLOWING ACTIONS
WITH RESPECT T O SUCH
FUND:
(1) Invest in (a) securities
which are not readily
marketable,
(b) securities restricted as to
resale (excluding securities
determined by the Trustees of
the Trust (or the person
designated by the Trustees of
the Trust 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 a
fund's net assets (taken at
current value) would be
invested in the aggregate in
securities described in (a),
(b) a nd (c) above.
All percentage limitations on
investments (other than
pursuant to the non fundamental
restriction) 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.
CHARGES AND
EXPENSESCHARGES AND
EXPENSES MAN AGEMENT
FEES Each fund pays a
monthly fee to Putnam
Management based on the
average net assets of that
fund, as
determined at the close of each
business day during the month,
at the following rates
expressed as a percentage of
each fund's average net assets:
FUND NAME CONTRACT DATE
RAT ES
Putnam Tax-Free 11/20/96
0.65% of
the first
$500 mill
ion;
High Yield Fund
0.55% of the
next $500
m
i
l
l
i
o
n
;
0
.
5
0
%
o
f
t
h
e
n
e
x
t
$
5
0
0
m
i
l
l
i
o
n
;
0
.
4
5
%
o
f
t
h
e
n
e x t $ 5 b i l < R > < / R > l i o n ; 0 . 4 2
5 % o f t h e n e x t $ 5 b i l l i o n ; 0 . 4
0 5 % o f t h e n e x t $ 5 b i l l
i
o
n
;
0
.
3
9
%
o
f
t
h
e
n
e
x
t
$
5
b
i
l
l
i
o
n
;
a
n
d
0
.
3
8
%
t
h
e
r
e
a
<
R
>
<
/
R
>
f
t
e
r
.
Putnam Tax-Free 11/20/96
0.60% of
the first
$500 m
illion;
Insured Fund 0.50% of
the next
$500
million;
0
.
4
5
%
o
f
t
h
e
n
e
x
t
$
5
0
0
m
i
l
l
i
o
n
;
0
.
4
0
%
o
f
t
h
e
n
e
x
t
$
5
b
i l l i o n ; 0 . 3 7 5 % o f t h e n e x t $ 5 b i l l
i o n ; 0 . 3 5 5 % o f t h e n e x t $ 5 b i l l i o n
; 0 . 3 4 % o f t h
e
n
e
x
t
$
5
b
i
l
l
i
o
n
;
a
n
d
0
.
3
3
%
t
h
e < R > < / R > r e a
f t e r .
For the past three fiscal
years, pursuant to its management contract
and, in the case of Putnam Tax-Free High Yield Fund, a
management contract in effect prior to November 20,
1996, under which the management fee payable to Putnam
Management was paid at the following rates: 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 and, in the
case of Putnam Tax-Free Insured Fund, a management
contract in effect prior to November 20, 1996, under
which the management fee payable to Putnam Management
was paid at the following rates: 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, each fund incurred
the following fees:
FISCAL MANAGEMENT Y
E
A
R
F
E
E
P
A
<
R
>
<
/
R
>
I
D
---
-
< R > < / R >--
Putnam Tax-Free High Yield
F und
<
R
>
1
9
9
8
$
1
0
,
9
1
1
,
2
4
8
<
/
R
>
1
9
9
7
$
1
0
,
8
0
9
,
8
6
<
R
>
<
/
R
>
9
1
9
9
6
$
1
0
,
5
9
1
,
0
<
R
>
<
/
R
>
5
8
Putnam Tax-Free Insured Fund
<
R
>
1
9
9
8
$
3
,
3
0
1
,
5
0
7
<
/
R
>
1
9
9
7
$
3
,
2
5
1
,
0
9
<
R
>
<
/
R
>
7
1
9
9
6
$
3
,
3
2
1
,
0
<
R
>
<
/
R
>
8
8
BROKERAGE COMMISSIONS
The following table shows
brokerage commissions paid during the fiscal periods
indicated:
FISCAL BROKERAG
E
YEAR
COMMISSIO
NS
------------- --
Putnam Tax-Free High Yield
F und
1998 $97,734
1
9
9
7
$
9
9
,
5
9
<
R
>
<
/
R
>
3
1
9
9
6
$
1
1
8
,
1
<
R
>
<
/
R
>
7
0
Putnam Tax-Free Insured Fund
1998 $29,133
1997 $40,65 1
1996 $45,3 96
The following table shows
transactions placed with
brokers and dealers during the
most recent fiscal year to
recognize research, statistical
and quotation services received
by Putnam Management and its
affiliates:
DOLLAR
VALUE
PERCENT OF
OF THESE
TOTAL AMOU NT OF
TRANSACTIONS
TRANSACTIONSCOMMI SS
IONS
------------
- ----------- -------Putnam
Tax-Free
High Yield Fund $0
0.0%
$0
Putnam Tax-Free
Insured Fund $0
0.0%
$0
ADMINISTRATIVE EXPENSE
REIMBURSEMENT
The funds reimbursed Putnam
Management for administrative
services during fiscal
1998 , including
compensation of certain
Trust officers
and contributions to the Putnam
Investments, Inc. Profit
Sharing Retirement Plan for
their benefit, as follows:
PORTI
O N OF
TOTAL
REIMB
U
RSEME
N T
FOR
C O
M P
E N
S A
T I
O N
TOTAL
AN
D
REIMBURSEMENT
CONTRIBUTIO NS
------------- ------
- -----
---
Putnam Tax-F ree
High Yield Fund $19,440
$16,600
Putnam Tax-Free
Insured Fund $9,843
$8,405
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 1998
and the fees paid to each
Trustee by all of the Putnam
funds during calendar
1997:
<TABLE>
<CAPTION>
COMPENSATION TABLE
PENSION
OR
RETIREMENT
ACCRUED AS PART OF
AGGREGATE
COMPENSATION
FUND EXPENSES
FROM (1):
FROM:
ESTIMATE D
----------------------------------
- -
- ------
- -------- ANNUAL
PUTNAM PUTNAM
PUTNAM PUTNAM
BENE FITS
TAX-FREE TAX-FREE
TAX-FREE TAX-FREE
FROM ALL
HIGH YIELD INSURED
ALL PUTNAM HIGH YIELD INSURE D
PUTNAM FUNDS
TRUSTEE/YEAR FUND FUND
FUNDS (2)
FUND FUND
UPON
RETIREMENT (3) ---------------------------------------------------
- --------------------------------------------------
<S> <C> <C>
<C>
<C>
<C> <C>
Jameson A. Baxter/1994 $1,965 $726
$176,000(4)
$431 $158
$87,500
Hans H. Estin/1972 1,712 630
175,000
912 333 87,500
John A. Hill/1985 (4) 1,694 623
175,000
343 125 98,000(6)
Ronald J. Jackson/1996 (4) 1,898 700
176,000
213 78 87,500
Paul L. Joskow/1997 (4)(5) 1,268 470
25,500
21 8 87,500
Elizabeth T. Kennan/1992 1,898 700
174,000
485 178 87,500
Lawrence J. Lasser/1992 1,670 614 172,000
363 132 87,500
John H. Mullin III/1997 (4)(5) 1,268 470 25,500
32 12 87,500
Robert E. Patterson/1984 1,703 626 176,000
274 100 87,500
Donald S. Perkins/1982 1,712 630 176,000
987 360 87,500
William F. Pounds/1971 (6) 1,980 703 201,000
1,025 374 98,000
George Putnam/1957 1,679 617 175,000
1,043 381 87,500
George Putnam, III/1984 1,700 625 174,000
181 66 87,500
A.J.C. Smith/1986 1,668 613 170,000
615 225 87,500
W. Thomas Stephens/1997 (4)(7) 1,588 587 53,000
30 11 87,500
W. Nicholas Thorndike/1992 1,712 630 176,000
697 255 87,500
(1) Includes an annual retainer and an attendance
fee for each
meeting
attended.
(2) As of December 31, 1997, there were 101 funds
in the
Putnam family.
(3) Assumes that each Trustee retires at the normal
retirement
date.
Estimated benefits for each Trustee are based on
Trustee fee rates in
effect during calendar 1997.
(4) Includes compensation deferred pursuant to a
Trustee
Compensation Deferral
Plan. The total amounts of deferred compensation
payable by Putnam Tax-
Free High Yield Fund to Mr. Hill, Mr. Jackson, Mr.
Joskow, Mr. Mullin and Mr. Stephens as of
July 31, 1998
were $10,509, $5,464, $992, $992 and $1,632,
respectively, and the total amounts of
deferred compensation payable by Putnam
Tax-Free Insured Fund to Mr. Hill, Mr.
Jackson, Mr. Joskow, Mr. Mullin and Mr.
Stephens as of July 31, 1998 were
$4,422,
$2,174, $371, $371 and $603, respectively,
including income
earned on such amounts.
(5) Elected as a Trustee in November,
1997.
(6) Includes additional compensation for
service as
Vice Chairman
of the
Putnam funds.
(7) Elected as a Trustee in September ,
1997.
</TABLE> [/R][/R]
Under a Retirement Plan for Trustees of the
Putnam funds (the "Plan"), each Trustee who
retires with at least five
years[/R]
of service as a Trustee of the funds is
entitled to receive an annual retirement
benefit
equal to onehalf of the
average annual compensation paid to such
Trustee for the last three years of
service prior to retirement. This
retirement benefit is payable during a
Trustee's lifetime, beginning the year
following retirement, for a number of
years equal to such Trustee's years of
service. A death benefit is also
available under the Plan which assures
that the Trustee and his or her
beneficiaries will receive benefit
payments for the lesser of an aggregate
period of (i) ten years or (ii) such
Trustee's total years of service.
The Plan Administrator (a committee
comprised of Trustees that are not
"interested persons" of the fund, as
defined in the Investment Company Act of
1940) may terminate or amend the Plan at
any time, but no termination or amendment
will result in a reduction in the amount
of benefits (i) currently being paid to a
Trustee at the time of such termination or
amendment, or (ii) to which a current
Trustee would have been entitled
had he or she retired immediately prior to
such termination or amendment. For
additional information concerning the
Trustees, see "Management" in Part II of
this SAI.
At October 31, 1998 , the officers
and Trustees of the Trust as a group owned
less than 1% of the outstanding shares of
each class of the relevant fund, and,
except as noted below, to the knowledge of
each fund no person owned of record or
beneficially 5% or more of the shares of
any class of shares of that fund:
PUTNAM TAX-FREE HIGH YIELD FUND
SHAREHOLDER NAME
PERCENTAG E CLASS AND ADDRESS
OW NED ----- ----
-----
- ------------
- - ---
-----
B Merrill
Lynch
Pierce Fenner &
Smith
11.90%
1 Liberty
Plaza
165 Broadway
New York, NY 10006
PUTNAM TAX-FREE INSURED FUND
SHAREHOLDER NAME PERCENTAG E
CLASS AND ADDRESS OW NED -----
---------
- ------------
- - ---
-----
M Donaldson
Lufkin
Jenrette
16.60%
Post office box 2052 Jersey
city, NJ
07303
M National
Financial
Service Corp.
13.20%
200 Liberty
St.
New York, NY 10281
M David A.
Humphrey
& Linda
Humphrey 8.60%
2841 Bent Oaks Drive
Burleson, TX 76028
DISTRIBUTION FEES
During fiscal 1998 , the funds paid the
following 12b-1 fees to Putnam Mutual Funds:
CLASS A CLASS B
CLAS S M
------- --------
- - ----
Putnam Tax- Free
High Yield Fund $1,290,402
$11,626,175
$90,457
Putnam Tax-Free
Insured Fund $445,969
$0
$7,834
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
PUTNAMCONTING
EN T
TOTAL MUTUAL
FUNDS
DEFER
RED
FRONT-END AFTER
SALES
SALES CHARGES
DEALER
CONCESSIONS
CHARGES -----------------------------
------
- -
Putna m Tax-Free
High
Yield Fund
F
iscal year
- -- --
- -------
1998 $1,791,735
$116,216
$19,643
1997 $1,840,463
$120,283
$13, 626
1996 $2,038,840
$126,558
$1,254
Putnam Tax-Free
Insured Fund
Fiscal year
- -----------
1998 $395,026
$32,308
$98
1997 $285,700
$18,616
$10, 436
1996
$371,750$25,99 4
$451
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
------------------
Putnam Tax-Free High Yield Fund
Fiscal year
- -----------
1998
$2,184,733
1997
$2,395,94 2
1996
$2,350,3 58
Putnam Tax-Free Insured Fund
Fiscal year
- -----------
1998
$318,736
1997
$488,39 1
1996
$652,6 66
CLASS M SALES CHARGES
Putnam Mutual Funds received sales charges
with respect to class M shares in the
following amounts during the periods
indicated:
SALES CHARGES
RETAINED BY PUTNAM
MUTUAL
FUNDS
TOTAL
AFTE R
SALES
CHARGESDEALER
CONCESSIO </
R> NS -------------------
-
----
---
Putnam Tax-F ree
High Yield
F und
1998
$55,870
$5,795
1997
$83,372
$8,0 96
1996 $59,870
$6 ,095
Putnam Tax-Free
Insured Fund
1998
$15,784
$1,435
1997 $7,403
$7 11
1996 $3,487
$358
INVESTOR SERVICING AND CUSTODY
FEES AND EXPENSES
During the 1998 fiscal
year, each fund incurred the
following fees and out-ofpocket
expenses for investor servicing
and custody services provided by
Putnam Fiduciary Trust Company:
Putnam Tax-Free
High Yield Fund $2,323,194
Putnam Tax-Free
Insured Fund
$681,850
INVESTMENT
PERFORMANCEINVESTMENT PERFORMANCE
STANDARD PERFORMANCE
MEASURES
(for periods ended July 31,
1998)
PUTNAM TAX-FREE HIGH YIELD
FUND
CLASS A CLASS B
CLAS S M
Inception date: 9/20/93
9/9/85
12/ 29/94
AVERAGE ANNUAL TOTAL R ETURN
1 year 1.02%
0.47%
2.39%
5 years 4.94
4.99
4.85
10 years 7.14
7.32
7.09
YIELD
30-day yield
4.38%
4.02%
4.20%
Tax-equivalent
yield*
7.25%
6.66%
6.95%
PUTNAM TAX-FREE INSURED FUND
CLASS A
CLASS B CLAS S M Inception date: 9/20/93
9/9/85
6 /1/95
AVERAGE ANNUAL TOTAL R ETURN
1 year -0.32%
- -0.13%
0.86%
5 years 4.63
4.94
4.50
10 years 6.89
7.21
6.82
YIELD
30-day yield
3.93%
4.35%
3.69%
Tax-equivalent
yield*
6.51% 7.20%
6.11%
* Assumes the maximum individual
federal tax
rate of 39.6% (and assumes that the
federal alternative minimum
tax does not apply) .
Results for investors subject
to lower tax rates would not be
as advantageous.
Returns for class A and class M
shares reflect the deduction of
the current maximum initial
sales charges of 4.75% for
class A shares and 3.25% for
class M shares.
Returns for class B shares
reflect the deduction of the
applicable contingent deferred
sales charge ("CDSC") which is
5% in the first year, declining
to 1% in the sixth year, and is
eliminated thereafter.
Returns shown for class A and
class M shares for periods
prior to their inception
are derived from the historical
performance of class B shares,
adjusted to reflect the
deduction of the initial sales
charge applicable to each class
but has not been adjusted to
reflect the higher operating
expenses applicable to class B
shares. All returns assume
reinvestment of distributions
at net asset value and
represent past performance;
they do not guarantee future
results. Investment return and
principal value
will fluctuate so that an investor's shares,
when redeemed, may
be worth more or less than their original
cost.
See "Standard Performance measures" in Part II
of this SAI for information on how performance
is calculated. EQUIVALENT YIELDS: TAX EXEMPT
VERSUS TAXABLE
SECURITIESEQUIVALENT YIELDS: TAX EXEMPT VERSUS
TAXABLE SECURITIES
The table below shows the effect of the tax
status of tax-exempt securities on the
effective yield received by their individual
holders under the federal income tax laws
currently in effect for 1998 . It gives
the approximate yield a taxable security must
earn at various income levels to produce after-
tax yields equivalent to those of tax-exempt
securities yielding 4.0%,
6.0% and 8.0%.
<TABLE><CAPTION> ------------------------------
- -------------------------------
MARGINA L
TAXABLE INCOME*
FEDERAL TAX-EXEMPT
YIE LD
--------------------------- INCOME
TAX
---------------JOINT SINGLE
BRACKET** 4%
6% 8%
- --------------------------------------------------
-------------------
EQUIVALENT TAXABLE
YIELD
<S> <C> <C> <C>
$0-42,350 $0-25,350
15.0%
4.71%
7.06% 9. 41%
42,351-102,300 25,351-61,400
28.0
5.56
8.33 11.11
102,301-155,950 *** 61,401-128,100 ***
31.0
5.80
8.70 1 1.59
155,951-278,450 *** 128,101-278,450 ***
36.0
6.25
9.38 1 2.50
278,451 and more ***
278,451 and
more*** 39.6
6.62
9.93 13.25
- -----------------------------------------------
- --------------------------
* This amount represents taxable
income as defined
in the Internal Revenue
Code of 1986, as amended (the "Code").
** These rates reflect the maximum
marginal federal
income tax
rates on
taxable income currently in effect for
individuals for 1998 under the Code.
*** The amount of taxable income in this
bracket may be affected
by the phase-out of personal exemptions
and the limitation on itemized deductions
under the Code.
Of course, there is no assurance that the funds
will achieve any specific taxexempt yield. While
it is expected that the funds will invest
principally in obligations which pay interest
exempt from federal income tax, other income
received by the funds may be taxable. The table
does not take into account any federal alternative
minimum tax or any state or local taxes payable on
fund distributions. </TABLE> [/R][/R][/R]
ADDITIONAL OFFICER S ADDITIONAL OFFICERS
In addition to the persons listed as fund
officers
in Part II of this SAI, each of the
following persons is also a Vice President of
each fund and
certain of the other Putnam funds, the
total number of which is noted parenthetically.
Officers of Putnam Management hold the same
offices in Putnam Management's parent company,
Putnam Investments, Inc.
BLAKE ANDERSON (age 42) (18 funds),
Managing Director of Putnam Management.
BRETT C. BROWCHUCK(age 35) (111 funds),
Managing Director of Putnam Management. Prior
to April, 1994, Mr. Browchuck was Managing
Director of Fidelity Investments.
JEROME J. JACOBS (age 40) (29 funds),
Managing Director of Putnam Management. Prior to
October, 1996 Mr. Jacobs was Principal at The
Vanguard Group.
STEPHEN ORISTAGLIO (AGE 43) (48 FUNDS).
Managing Director of Putnam Management. Prior to
July, 1998, Mr. Oristaglio was a
Managing Director at Swiss Bank Corp.
RICHARD P. WYKE (age 42) (5 funds), Senior
Vice President of Putnam Management.
INDEPENDENT ACCOUNTANTS AND FINANCIAL
STATEMENTSINDEPENDENT ACCOUNTANTS AND FINANCIAL
STATEMENTS
PricewaterhouseCoopers, LLP, 160 Federal
Street, Boston, MA 02110 are
each fund's independent accountants,
providing audit services, tax return review and
other tax consulting services and assistance and
consultation in connection with the review of
various Securities and Exchange Commission
filings. The Report
of Independent Accountants, financial
statements and financial highlights
included in each fund's Annual Report for the
fiscal year ended July 31, 1998 , filed
electronically on September 11, 1998 and
September 16, 1998 for Putnam TaxFree Insured Fund
and Putnam Tax-Free High Yield Fund, respectively,
(File No. 8114345) , 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>
10/22/98
TABLE OF CONTENTS
MISCELLANEOUS INVESTMENT PRACTICES II-1
TAXES II-33
MANAGEMENT II-39
DETERMINATION OF NET ASSET VALUE II-51
HOW TO BUY SHARES II-53
DISTRIBUTION PLANS II-66
INVESTOR SERVICES II-67
SIGNATURE GUARANTEES II-73
SUSPENSION OF REDEMPTIONS II-74
SHAREHOLDER LIABILITY II-74
STANDARD PERFORMANCE MEASURES II-74
COMPARISON OF PORTFOLIO PERFORMANCE II-76
DEFINITIONS II-82
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 objective(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.
Convertible Securities. Convertible securities include bonds,
debentures, notes, preferred stocks and other securities that may
be converted into or exchanged for, at a specific price or
formula within a particular period of time, a prescribed amount
of common stock or other equity securities of the same or a
different issuer. Convertible securities entitle the holder to
receive interest paid or accrued on debt or dividends paid or
accrued on preferred stock until the security matures or is
redeemed, converted or exchanged.
The market value of a convertible security is a function of its
"investment value" and its "conversion value." A security's
"investment value" represents the value of the security without
its conversion feature (i.e., a nonconvertible fixed income
security). The investment value may be determined by reference
to its credit quality and the current value of its yield to
maturity or probable call date. At any given time, investment
value is dependent upon such factors as the general level of
interest rates, the yield of similar nonconvertible securities,
the financial strength of the issuer and the seniority of the
security in the issuer's capital structure. A security's
"conversion value" is determined by multiplying the number of
shares the holder is entitled to receive upon conversion or
exchange by the current price of the underlying security.
If the conversion value of a convertible security is
significantly below its investment value, the convertible
security will trade like nonconvertible debt or preferred stock
and its market value will not be influenced greatly by
fluctuations in the market price of the underlying security.
Conversely, if the conversion value of a convertible security is
near or above its investment value, the market value of the
convertible security will be more heavily influenced by
fluctuations in the market price of the underlying security.
The fund's investments in convertible securities may at times
include securities that have a mandatory conversion feature,
pursuant to which the securities convert automatically into
common stock or other equity securities at a specified date and a
specified conversion ratio, or that are convertible at the option
of the issuer. Because conversion of the security is not at the
option of the holder, the fund may be required to convert the
security into the underlying common stock even at times when the
value of the underlying common stock or other equity security has
declined substantially.
The fund's investments in convertible securities, particularly
securities that are convertible into securities of an issuer
other than the issuer of the convertible security, may be
illiquid. The fund may not be able to dispose of such securities
in a timely fashion or for a fair price, which could result in
losses to the fund.
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 of which the fund, by itself or together
with other funds and accounts managed by Putnam Management or 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 of 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 securities of private issuers.
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, it may be necessary
at times for the fund 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 asset value.
LOAN PARTICIPATIONS
The fund may invest in "loan participations." By purchasing a
loan participation, the fund acquires some or all of the interest
of a bank or other lending institution in a loan to a particular
borrower. Many such loans are secured, and most impose
restrictive covenants which must be met by the borrower.
The loans in which the fund may invest are typically made by a
syndicate of banks, represented by an agent bank which has
negotiated and structured the loan and which is responsible
generally for collecting interest, principal, and other amounts
from the borrower on its own behalf and on behalf of the other
lending institutions in the syndicate and for enforcing its and
their other rights against the borrower. Each of the lending
institutions, including the agent bank, lends to the borrower a
portion of the total amount of the loan, and retains the
corresponding interest in the loan.
The fund's ability to receive payments of principal and interest
and other amounts in connection with loan participations held by
it will depend primarily on the financial condition of the
borrower. The failure by the fund to receive scheduled interest
or principal payments on a loan participation would adversely
affect the income of the fund and would likely reduce the value
of its assets, which would be reflected in a reduction in the
fund's net asset value. Banks and other lending institutions
generally perform a credit analysis of the borrower before
originating a loan or participating in a lending syndicate. In
selecting the loan participations in which the fund will invest,
however, Putnam Management will not rely solely on that credit
analysis, but will perform its own investment analysis of the
borrowers. Putnam Management's analysis may include
consideration of the borrower's financial strength and managerial
experience, debt coverage, additional borrowing requirements or
debt maturity schedules, changing financial conditions, and
responsiveness to changes in business conditions and interest
rates. Because loan participations in which the fund may invest
are not generally rated by independent credit rating agencies, a
decision by the fund to invest in a particular loan participation
will depend almost exclusively on Putnam Management's, and the
original lending institution's, credit analysis of the borrower.
Loan participations may be structured in different forms,
including novations, assignments, and participating interests.
In a novation, the fund assumes all of the rights of a lending
institution in a loan, including the right to receive payments of
principal and interest and other amounts directly from the
borrower and to enforce its rights as a lender directly against
the borrower. The fund assumes the position of a co-lender with
other syndicate members. As an alternative, the fund may
purchase an assignment of a portion of a lender's interest in a
loan. In this case, the fund may be required generally to rely
upon the assigning bank to demand payment and enforce its rights
against the borrower, but would otherwise be entitled to all of
such bank's rights in the loan. The fund may also purchase a
participating interest in a portion of the rights of a lending
institution in a loan. In such case, it will be entitled to
receive payments of principal, interest, and premium, if any, but
will not generally be entitled to enforce its rights directly
against the agent bank or the borrower, but must rely for that
purpose on the lending institution. The fund may also acquire a
loan participation directly by acting as a member of the original
lending syndicate.
The fund will in many cases be required to rely upon the lending
institution from which it purchases the loan participation to
collect and pass on to the fund such payments and to enforce the
fund's rights under the loan. As a result, an insolvency,
bankruptcy, or reorganization of the lending institution may
delay or prevent the fund from receiving principal, interest, and
other amounts with respect to the underlying loan. When the fund
is required to rely upon a lending institution to pay to the fund
principal, interest, and other amounts received by it, Putnam
Management will also evaluate the creditworthiness of the lending
institution.
The borrower of a loan in which the fund holds a participation
interest may, either at its own election or pursuant to terms of
the loan documentation, prepay amounts of the loan from time to
time. There is no assurance that the fund will be able to
reinvest the proceeds of any loan prepayment at the same interest
rate or on the same terms as those of the original loan
participation.
Corporate loans in which the fund may purchase a loan
participation are made generally to finance internal growth,
mergers, acquisitions, stock repurchases, leveraged buy-outs, and
other corporate activities. Under current market conditions,
most of the corporate loan participations purchased by the fund
will represent interests in loans made to finance highly
leveraged corporate acquisitions, known as "leveraged buy-out"
transactions. The highly leveraged capital structure of the
borrowers in such transactions may make such loans especially
vulnerable to adverse changes in economic or market conditions.
In addition, loan participations generally are subject to
restrictions on transfer, and only limited opportunities may
exist to sell such participations in secondary markets. As a
result, the fund may be unable to sell loan participations at a
time when it may otherwise be desirable to do so or may be able
to sell them only at a price that is less than their fair market
value.
Certain of the loan participations acquired by the fund may
involve revolving credit facilities under which a borrower may
from time to time borrow and repay amounts up to the maximum
amount of the facility. In such cases, the fund would have an
obligation to advance its portion of such additional borrowings
upon the terms specified in the loan participation. To the
extent that the fund is committed to make additional loans under
such a participation, it will at all times hold and maintain in a
segregated account liquid assets in an amount sufficient to meet
such commitments. Certain of the loan participations acquired by
the fund may also involve loans made in foreign currencies. The
fund's investment in such participations would involve the risks
of currency fluctuations described above with respect to
investments in the foreign securities.
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 also significantly shorten
the effective maturities of these securities, especially during
periods of declining interest rates. Conversely, during periods
of rising interest rates, a reduction in prepayments may increase
the effective maturities of these securities, subjecting them to
a greater risk of decline in market value in response to rising
interest rates than traditional debt securities, and, therefore,
potentially increasing the volatility of the fund.
Prepayments may cause losses on 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. Conversely, slower than anticipated
prepayments can extend the effective maturities of CMOs,
subjecting them to a greater risk of decline in market value in
response to rising interest rates than traditional debt
securities, and, therefore, potentially increasing the volatility
of the fund.
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 sets aside, on the books and
records of its custodian, liquid assets 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, such as to
manage the effective duration of the fund's portfolio or as a
substitute for direct investment. 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 liquid assets. 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.
The fund does not intend to purchase or sell futures or related
options for other than hedging purposes, if, as a result, the sum
of the initial margin deposits on the fund's existing futures and
related options positions and premiums paid for outstanding
options on futures contracts would exceed 5% of the fund's net
assets.
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. In return for the premium paid,
options on future contracts give the purchaser the right 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.
The use of options and futures strategies also involves the risk
of imperfect correlation among movements in the prices of the
securities underlying the futures and options purchased and sold
by the fund, of the options and futures contracts themselves,
and, in the case of hedging transactions, of the securities which
are the subject of a hedge. The successful use of these
strategies further depends on the ability of Putnam Management to
forecast interest rates and market movements correctly.
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 500 Composite 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 INVESTMENTS
The fund may invest in securities of foreign issuers. These
foreign investments involve certain special risks described
below.
Foreign securities are normally denominated and traded in foreign
currencies. As a result, the value of the fund's foreign
investments and the value of its shares may be affected favorably
or unfavorably by changes in currency exchange rates relative to
the U.S. dollar. There may be less information publicly
available about a foreign issuer than about a U.S. issuer, and
foreign issuers 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
issuers are less liquid and at times more volatile than
securities of comparable U.S. issuers. 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
investments in U.S. markets.
In addition, the fund's investments in foreign securities may be
subject to the risk of nationalization or expropriation of
assets, imposition of currency exchange controls, foreign
withholding taxes or restrictions on the repatriation of foreign
currency, confiscatory taxation, political or financial
instability and diplomatic developments which could affect the
value of the fund's investments in certain foreign countries.
Dividends or interest on, or proceeds from the sale of, foreign
securities may be subject to foreign withholding taxes, and
special U.S. tax considerations may apply.
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
organized under the laws of those foreign countries.
The risks described above, including the risks of nationalization
or expropriation of assets, are typically increased in connection
with investments in "emerging markets." For example, political
and economic structures in these countries may be in their
infancy and developing rapidly, and such 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. High rates of inflation or currency devaluations may
adversely affect the economies and securities markets of such
countries. Investments in emerging markets may be considered
speculative.
The currencies of certain emerging market countries have
experienced a steady devaluation relative to the U.S. dollar, and
continued devaluations may adversely affect the value of a fund's
assets denominated in such currencies. Many emerging market
companies have experienced substantial, and in some periods
extremely high, rates of inflation for many years, and continued
inflation may adversely affect the economies and securities
markets of such countries.
In addition, unanticipated political or social developments may
affect the value of the fund's investments in emerging markets
and the availability to the fund of additional investments in
these markets. The small size, limited trading volume and
relative inexperience of the securities markets in these
countries may make the fund's investments in securities traded in
emerging markets illiquid and more volatile than investments in
securities traded in more developed countries, and the fund may
be required to establish special custodial or other arrangements
before making investments in securities traded in emerging
markets. There may be little financial or accounting information
available with respect to issuers of emerging market securities,
and it may be difficult as a result to assess the value of
prospects of an investment in such securities.
Certain of the foregoing risks may also apply to some extent to
securities of U.S. issuers that are denominated in foreign
currencies or that are traded in foreign markets, or securities
of U.S. issuers having significant foreign operations.
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 manage
its exposure to foreign currencies. 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." The fund may also engage in foreign currency
transactions for non-hedging purposes, subject to applicable law.
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. If conditions warrant, for transaction
hedging purposes 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. A foreign currency forward contract is a negotiated
agreement to exchange currency at a future time at a rate or
rates that may be higher or lower than the spot rate. Foreign
currency futures contracts are standardized exchange-traded
contracts and have margin requirements. In addition, for
transaction hedging purposes the fund may also purchase or sell
exchange-listed and over-the-counter call and put options on
foreign currency futures contracts and on foreign currencies.
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.
The fund may engage in position hedging to protect against a
decline in the value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or
quoted (or an increase in the value of the currency in which the
securities the fund intends to buy are denominated, when the fund
holds cash or short-term investments). For position hedging
purposes, the fund may purchase or sell, on exchanges or in over-
the-counter markets, foreign currency futures contracts, foreign
currency forward contracts and options on foreign currency
futures contracts and on foreign currencies. In connection with
position hedging, 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 fund may also engage in non-hedging currency transactions.
For example, Putnam Management may believe that exposure to a
currency is in the fund's best interest but that securities
denominated in that currency are unattractive. In that case the
fund may purchase a currency forward contract or option in order
to increase its exposure to the currency. In accordance with SEC
regulations, the fund will segregate liquid assets in its
portfolio to cover forward contracts used for non-hedging
purposes.
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.
The decision as to whether and to what extent the fund will
engage in foreign currency exchange transactions will depend on a
number of factors, including prevailing market conditions, the
composition of the fund's portfolio and the availability of
suitable transactions. Accordingly, there can be no assurance
that the fund will engage in foreign currency exchange
transactions at any given time or from time to time.
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 amount 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) 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
(c) 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.
In addition, until the start of the fund's first tax year
beginning after August 5, 1997, the fund must 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 in order to qualify
as a regulated investment company.
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.
FUND DISTRIBUTIONS. Distributions from the fund (other than
exempt-interest dividends, as discussed below) will be taxable to
shareholders as ordinary income to the extent derived from the
fund's investment income and net short-term gains. Pursuant to
the Taxpayer Relief Act of 1997, two different tax rates apply to
net capital gains (that is, the excess of net gains from capital
assets held more than one year over net losses from capital
assets held for not more than one year). One rate (generally
28%) applies to net gains on capital assets held for more than
one year but not more than 18 months (28% rate gains) and a
second, preferred rate (generally 20%) applies to the balance of
such net capital gains ("adjusted net capital gains").
Distributions of net capital gains will be treated in the hands
of shareholders as 28% rate gains to the extent designated by the
fund as deriving from net gains from assets held for more than
one year but not more than 18 months, and the balance will be
treated as adjusted net capital gains. Distributions of 28% rate
gains and adjusted net capital gains will be taxable to
shareholders as such, regardless of how long a shareholder has
held the shares in the fund.
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 constructive sale,
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
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 respect of foreign securities the
fund has held for at least the minimum period specified in the
Code. 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. In particular, shareholders must hold their fund
shares (without protection from risk of loss) on the ex-dividend
date and for at least 15 additional days during the 30-day period
surrounding the ex-dividend date to be eligible to claim a
foreign tax credit with respect to a given dividend.
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 or 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 realized upon a taxable disposition of shares will be
treated as 28% rate gain if the shares have been held for more
than 12 months but not more than 18 months, and as adjusted net
capital gains if the shares have been held for more than 18
months. Otherwise the gain on the sale, exchange or redemption
of fund shares will be treated as short-term capital gain. In
general, any loss realized upon a taxable disposition of shares
will be treated as long-term loss if the shares have been held
for more than 12 months, and otherwise as short-term capital
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.
MANAGEMENT
TRUSTEES NAME (AGE)
*+GEORGE PUTNAM (72), Chairman and President. Chairman and
Director of Putnam Management and Putnam Mutual Funds. Director,
Freeport Copper and Gold, Inc. (a mining and natural resource
company), Houghton Mifflin Company (a major publishing company)
and Marsh & McLennan Companies, Inc.
JOHN A. HILL (56), Vice Chairman. Chairman and Managing
Director, First Reserve Corporation (a registered investment
adviser investing in companies in the world-wide energy industry
on behalf of institutional investors). Director of Snyder Oil
Corporation, TransMontaigne Oil Company, Weatherford Enterra,
Inc. (an oil field service company) and various private companies
owned by First Reserve Corporation, such as James River Coal and
Anker Coal Corporation, and various First Reserve Funds, such as
American Gas & Oil Investors, Ltd., AmGO II, L.P., First Reserve
Secured Energy Assets Fund, L.P., First Reserve Fund V., L.P.,
First Reserve Fund VI, L.P., and First Reserve Fund VII, L.P.
+WILLIAM F. POUNDS (70), Vice Chairman. Professor Emeritus of
Management, Alfred P. Sloan School of Management, Massachusetts
Institute of Technology. Director of IDEXX Laboratories, Inc.,
Management Sciences for Health, Inc., and Sun Company, Inc.
JAMESON A. BAXTER (55), Trustee. President, Baxter Associates,
Inc. (a management and financial consulting firm). Director of
Avondale Federal Savings Bank, ASHTA Chemicals, Inc. and Banta
Corporation (printing and digital imaging). Chairman Emeritus of
the Board of Trustees, Mount Holyoke College.
+HANS H. ESTIN (70), Trustee. Chartered Financial Analyst and
Vice Chairman, North American Management Corp. (a registered
investment adviser).
RONALD J. JACKSON (54), Trustee. Former Chairman, President and
Chief Executive Officer of Fisher-Price, Inc.
*PAUL L. JOSKOW (51), Trustee. Professor of Economics and
Management, Massachusetts Institute of Technology. Director, New
England Electric System, State Farm Indemnity Company and
Whitehead Institute for Biomedical Research.
ELIZABETH T. KENNAN (60), Trustee. President Emeritus and
Professor, Mount Holyoke College. Director, Bell Atlantic (a
telecommunications company), the Kentucky Home Life Insurance
Companies, NYNEX Corporation, Northeast Utilities and Talbots.
*LAWRENCE J. LASSER (55), 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. and the United Way of Massachusetts Bay.
JOHN H. MULLIN, III (57), Trustee. Chairman and CEO of Ridgeway
Farm, Director of ACX Technologies, Inc. (a company engaged in
the manufacture of industrial ceramics and packaging products),
Alex. Brown Realty, Inc. and The Liberty Corporation (a company
engaged in the life insurance and broadcasting industries).
+ROBERT E. PATTERSON (53), Trustee. President and Trustee of
Cabot Industrial Trust (a publicly traded real estate investment
trust). Director of Brandywine Trust Company. Trustee of SEA
Education Association.
*DONALD S. PERKINS (71), Trustee. Director of various
corporations, including AON Corp. (an insurance company), Cummins
Engine Company, Inc. (an engine and power generator manufacturer
and assembler), Current Assets L.L.C. (a corporation providing
financial staffing services), LaSalle Street Fund, Inc. and
LaSalle U.S. Realty Income and Growth Fund, Inc. (real estate
investment trusts), Lucent Technologies Inc., Nanophase
Technologies Inc. (a producer of nano crystalline materials),
Ryerson Tull, Inc. (America's largest steel service corporation)
and Springs Industries, Inc. (a textile manufacturer.)
*GEORGE PUTNAM III (47), Trustee. President, New Generation
Research, Inc. (a publisher of financial advisory and other
research services relating to bankrupt and distressed companies)
and New Generation Advisers, Inc. (a registered investment
adviser). Director, Massachusetts Audubon Society and The Boston
Family Office, L.L.C. (a registered investment advisor).
*A.J.C. SMITH (64), Trustee. Chairman and Chief Executive
Officer, Marsh & McLennan Companies, Inc. Director, Trident
Corp.
W. THOMAS STEPHENS (56), Trustee. President and Chief Executive
Officer of MacMillan Bloedel Ltd. Director, Qwest Communications
(a fiber optics manufacturer) and New Century Energies (a public
utility company).
W. NICHOLAS THORNDIKE (65), 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 (60), Executive Vice President. Managing
Director of Putnam Investments, Inc. and Putnam Management.
PATRICIA C. FLAHERTY (51), Vice President. Senior Vice President
of Putnam Investments, Inc. and Putnam Management.
WILLIAM N. SHIEBLER (56), Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. President and
Director of Putnam Mutual Funds.
GORDON H. SILVER (51), Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. and Putnam
Management.
IAN C. FERGUSON (41), Vice President. Senior Managing Director
of Putnam Management.
JOHN R. VERANI (59), Vice President. Senior Vice President of
Putnam Investments, Inc. and Putnam Management.
JOHN D. HUGHES (63), Senior Vice President and Treasurer.
BEVERLY MARCUS (54), 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.
Messrs. Putnam, Lasser and Smith are deemed "interested persons"
by virtue of their positions as officers or shareholders of the
fund, or directors of Putnam Management, Putnam Mutual Funds, or
Marsh & McLennan Companies, Inc., the parent company of Putnam
Management and Putnam Mutual Funds.
Mr. George Putnam, III, Mr. Putnam's son, is also an "interested
person" of the fund, Putnam Management, and Putnam Mutual Funds.
Mr. Perkins may be deemed to be an "interested person" of the
fund because of his service as a director of a certain publicly
held company that includes registered broker-dealer firms among
its subsidiaries. Neither the fund nor any of the other Putnam
funds currently engages in any transactions with such firms
except that certain of such firms act as dealers in the retail
sale of shares of certain Putnam funds in the ordinary course of
their business. Mr. Joskow is not currently an "interested
person" of the fund but could be deemed by the Securities and
Exchange Commission to be an "interested person" on account of
his prior consulting relationship with National Economic Research
Associates, Inc., a wholly-owned subsidiary of Marsh & McLennan
Companies, Inc., which was terminated as of August 31, 1998. The
remaining Trustees are not "interested persons."
+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.
-----------------
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 July, 1998, Mr. Joskow
was Chairman of the Department of Economics, Massachusetts
Institute of Technology, and prior to September, 1998, he was a
consultant to National Economic Research Associates, Inc. Prior
to June, 1995, Ms. Kennan was President of Mount Holyoke College.
Prior to 1996, Mr. Stephens was Chairman of the Board of
Directors, President and Chief Executive Officer of Johns
Manville Corporation. Prior to April, 1996, Mr. Ferguson was CEO
at Hong Kong Shanghai Banking Corporation. Prior to February,
1998, Mr. Patterson was Executive Vice President and Director of
Acquisitions of Cabot Partners Limited Partnership.
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 nearly $182 billion in
assets in over 9 million shareholder accounts at December 31,
1997. An affiliate, The Putnam Advisory Company, Inc., manages
domestic and foreign institutional accounts and mutual funds,
including the accounts of many Fortune 500 companies. Another
affiliate, Putnam Fiduciary Trust Company, provides investment
advice to institutional clients under its banking and fiduciary
powers. At December 31, 1997, Putnam Management and its
affiliates managed over $235 billion in assets, including over
$19 billion in tax-exempt securities and over $57 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.
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
THE PROSPECTUS AND/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 Conduct Rules 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 won the DALBAR Quality Tested Service Seal in
1990, 1991, 1992, 1993, 1994, 1995 and 1997. 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,
Rev. Dr. Martin Luther King, Jr. 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. In addition, securities held by some of the funds
may be traded in foreign markets that are open for business on
days that a fund is not, and the trading of such securities on
those days may have an impact on the value of a shareholder's
investment at a time when the shareholder cannot buy and sell
shares of the fund.
Money market funds generally value their portfolio securities at
amortized cost according to Rule 2a-7 under the Investment
Company Act of 1940.
HOW TO BUY SHARES
GENERAL
The prospectus contains a general description of how investors
may buy shares of the fund and states whether the fund offers
more than one class of shares. This 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-
sponsored retirement 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.
A shareholder may choose any day of the month and, if a given
month (for example, February) does not contain that particular
date, or if the date falls on a weekend or holiday, the draft
will be processed on the next business day. 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 last day of the period for which distributions are paid using
the net asset value determined on that date, and are credited to
a shareholder's account on the payment date.
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. 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) employer-sponsored retirement 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 employer-
sponsored retirement 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
intermediaries who have entered into agreements with
Putnam Mutual Funds with respect to such accounts, which
in all cases shall be subject to a wrap fee economically
comparable to a sales charge. Fund shares offered
pursuant to this waiver may not be advertised as "no
load", or otherwise offered for sales at NAV without a
wrap fee.
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
post-purchase disability or 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 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. Class A
shares are available without an initial sales charge to eligible
employer-sponsored retirement plans, as described 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.
QUALIFIED BENEFIT PLANS; INDIVIDUAL ACCOUNT PLANS. The terms
"class A qualified benefit plan" and "class M qualified benefit
plan" mean any employer-sponsored plan or arrangement, whether or
not tax-qualified, for which Putnam Fiduciary Trust Company or
its affiliates provide recordkeeping or other services in
connection with the purchase of class A shares or class M shares,
respectively. 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
employer-sponsored retirement plans that are not class A
qualified 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 employer-sponsored
retirement plans that initially invest at least $1 million in the
fund or that have at least 200 eligible employees. In addition,
the fund may sell class M shares at net asset value to class M
qualified benefit plans.
An employer-sponsored 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 qualified benefit plans and
individual account plans is available from investment dealers or
from Putnam Mutual Funds.
CONTINGENT DEFERRED SALES CHARGES; COMMISSIONS
CLASS A SHARES. Except as described below, a CDSC of 0.75%
(1.00% in the case of plans for which Putnam Mutual Funds and its
affiliates do not act as trustee or record-keeper) of the total
amount redeemed is imposed on redemptions of shares purchased by
class A qualified benefit plans if, within two years of a plan's
initial purchase of class A shares, it redeems 90% or more of its
cumulative purchases. Thereafter, such plan is no longer liable
for any CDSC. The two-year CDSC applicable to class A qualified
benefit plans for which Putnam Mutual Funds or its affiliates
serve as trustee or recordkeeper ("full service plans") is 0.50%
of the total amount redeemed, for full service plans that
initially invest at least $5 million but less than $10 million in
Putnam funds and other investments managed by Putnam Management
or its affiliates ("Putnam Assets"), and is 0.25% of the total
amount redeemed for full service plans that initially invest at
least $10 million but less than $20 million in Putnam Assets.
Class A qualified benefit plans that initially invest at least
$20 million in Putnam Assets, or whose dealer of record has, with
Putnam Mutual Funds' approval, waived its commission or agreed to
refund its commission to Putnam Mutual Funds in the event a CDSC
would otherwise be applicable, are not subject to any CDSC.
Similarly, class A shares purchased at net asset value by any
investor other than a class A qualified benefit plan, 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, unless the dealer of record waived
its commission with Putnam Mutual Funds' approval. The class A
CDSC is imposed on the lower of the cost and the current net
asset value of the shares redeemed.
Except as described below for sales to class A qualified benefit
plans, Putnam Mutual Funds pays investment dealers of record
commissions on sales of class A shares of $1 million or more and
sales to employer-sponsored benefit plans that have at least 200
eligible employees and that are not class A qualified benefit
plans based on 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. Each subsequent one-year measuring period for these
purposes will begin with the first net asset value purchase
following the end of the prior period. Such commissions are paid
at the rate of 1.00% of the amount under $3 million, 0.50% of the
next $47 million and 0.25% thereafter.
On sales at net asset value to a class A qualified benefit plan,
Putnam Mutual Funds pays commissions to the dealer of record at
the time of the sale on net monthly purchases at the following
rates: 1.00% of the first $1 million, 0.75% of the next $1
million, 0.50% of the next $3 million, 0.20% of the next $5
million, 0.15% of the next $10 million, 0.10% of the next $10
million and 0.05% thereafter, except that commissions on sales to
class A qualified benefit plans initially investing less than $20
million in Putnam funds and other investments managed by Putnam
Management or its affiliates pursuant to a proposal made by
Putnam Mutual Funds on or before April 15, 1997 are based on
cumulative purchases over a one-year measuring period at the rate
of 1.00% of the first $2 million, 0.80% of the next $1 million,
and 0.50% thereafter. On sales at net asset value to all other
class A qualified benefit plans receiving proposals from Putnam
Mutual Funds on or before April 15, 1997, 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 qualified benefit 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
prior to December 1, 1995.
ALL SHARES. Investors who set up an Automatic Cash Withdrawal
Plan ("ACWP") for a 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.
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.
Putnam Mutual Funds pays service fees to qualifying dealers at
the rates set forth in the Prospectus, except with respect to
shares held by class A qualified benefit plans. Putnam Mutual
Funds pays service fees to the dealer of record for plans for
which Putnam Fiduciary Trust or its affiliates serve as trustee
and recordkeeper at the following annual rates (expressed as a
percentage of the average net asset value (as defined below) of
the plan's class A shares): 0.25% of the first $5 million, 0.20%
of the next $5 million, 0.15% of the next $10 million, 0.10% of
the next $30 million, and 0.05% thereafter. For class A
qualified benefit plans for which Putnam Fiduciary Trust Company
or its affiliates provide some services but do not act as trustee
and recordkeeper, Putnam Mutual Funds will pay service fees to
the dealer of record of up to 0.25% of average net assets,
depending on the level of service provided by Putnam Fiduciary
Trust Company or its affiliates, by the dealer of record, and by
third parties. Service fees are paid quarterly to the dealer of
record for that 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.
Except as otherwise agreed between Putnam Mutual Funds and a
dealer, for purposes of determining the amounts payable to
dealers for shareholder accounts for which such dealers are
designated as the dealer of record, "average net asset value"
means the product of (i) the average daily share balance in such
account(s) and (ii) the average daily net asset value of the
relevant class of shares over the 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.
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.
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 set forth in the footnotes to 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 for periods
including 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 1-year, 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 1-year, 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 EMERGING MARKETS
INDEX is an index of approximately 1,011 securities
representing 26 emerging markets, with all values
expressed in U.S. dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS
FREE INDEX is an index of approximately 1,003 securities
available to non-domestic investors representing 26
emerging markets, 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 1000 INDEX is composed of the 1,000 largest
companies in the Russell 3000 Index, representing
approximately 89% of the Russell 3000 total market
capitalization. The Russell 3000 Index is composed of the
3,000 largest U.S. companies ranked by total market
capitalization, representing approximately 98% of the U.S.
investable equity market.
THE RUSSELL 2000 INDEX is composed of the 2,000 smallest
companies in the Russell 3000 Index, representing
approximately 11% of the Russell 3000 total market
capitalization.
THE RUSSELL 2000 GROWTH INDEX is composed of securities
with greater-than-average growth orientation within the
Russell 2000 Index. Each security's growth orientation is
determined by a composite score of the security's price-to-
book ratio and forecasted growth rate. Growth stocks tend
to have higher price-to-book ratios and forecasted growth
rates than value stocks. This index is composed of
approximately 1,310 companies from the Russell 2000 Index,
representing approximately 50% of the total market
capitalization of the Russell 2000 Index.
THE RUSSELL MIDCAP INDEX is composed of the 800 smallest
companies in the Russell 1000 Index, representing
approximately 35% of the Russell 1000 total market
capitalization.
THE RUSSELL MIDCAP GROWTH INDEX is composed of securities
with greater-than-average growth orientation within the
Russell Midcap Index. Each security's growth orientation
is determined by a composite score of the security's price-
to-book ratio and forecasted growth rate. Growth stocks
tend to have higher price-to-book ratios and forecasted
growth rates than value stocks. This index is composed of
approximately 450 companies from the Russell 1000 Growth
Index, representing 20% of the total market capitalization
of the Russell 1000 Growth Index
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.
C-6
PUTNAM TAX-FREE INCOME TRUST
FORM N-1A
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Index to Financial Statements and
Supporting Schedules:
(1) Financial Statements:
Statements of assets and
liabilities -July 31,
1998(a) .
Statements of operations year
ended July 31, 1998(a) .
Statements of changes in net
assets -years ended July 31,
1998 and
1997(a) .
Financial highlights(a)(b).
Notes to financial
statements(a).
(2) Supporting Schedules:
Schedule I -- Portfolios of
investments owned -- July 31,
1998(a) . Schedules II
through IX omitted because the
required matter is not
present.
(a) Incorporated by reference
into Parts A and B.
(b) Included in Part A.
- -------------------------
(b) Exhibits:
1. Agreement and Declaration
of Trust, as
amended and restated July 21,
1993 Incorporated by reference
to Post-
Effective Amendment No. 10
to the Registrant's
Registration Statement.
2. Bylaws, as amended
February 1, 1994 --
Incorporated by reference
to PostEffective Amendment
No. 11 to the Registrant's
Registration Statement.
3. Not applicable.
4a. Portions of Agreement and
Declaration of Trust
Relating to Shareholder's
Rights Incorporated by
reference to PostEffective
Amendment No. 10 to the
Registrant's Registration
Statement.
4b. Portions of Bylaws Relating
to Shareholder's Rights
Incorporated by reference to
PostEffective Amendment No.
10 to the Registrant's
Registration Statement.
5. Management Contract for
Putnam
Tax-Free
Income Trust dated November
20,
1996 -Incorporated
by reference to PostEffective
Amendment No. 14 to
the Registrant's
Registration
Statement.
6a. Distributors'
Contract for Putnam Tax-Free
Insured Fund dated May 6, 1994
Incorporated by reference to Post
Effective Amendment No. 11 to the
Registrant's Registration
Statement.
6b. Distributors' Contract for Putnam
Tax-Free High Yield Fund
Incorporated by reference to Post
Effective Amendment No. 11 to the
Registrant's Registration
Statement.
6c. Form of Specimen Dealer Sales
Contract Incorporated by
reference to Post-Effective
Amendment No. 8 to the Registrant's
Registration Statement.
6d. Form of Specimen Financial
Institution Sales Contract
Incorporated by reference to Post
Effective Amendment No. 8 to the
Registrant's Registration Statement.
7. Trustee Retirement plan dated
October 4, 1996
-- Incorporated by reference to Post
Effective Amendment No. 14 to the
Registrant's Registration
Statement.
8. Custodian Agreement dated May 3,
1991 with
Putnam Fiduciary Trust Company
Incorporated by reference to Post
Effective Amendment No. 8 to the
Registrant's Registration
Statement.
9. Investor Servicing Agency Agreement
dated
June 3, 1991 with Putnam Fiduciary
Trust Company -- Incorporated by
reference to PostEffective Amendment
No. 8 to the Registrant's
Registration Statement.
10. Opinion of Ropes & Gray, including
consent for Putnam Tax-Free Income
Trust -Incorporated by reference to
Post-Effective Amendment No.
14 to the Registrant's
Registration Statement.
11. Not applicable.
12. Not applicable.
13. Investment Letter from Putnam
Investment Management, Inc. to the
Registrant Incorporated by
reference to Post-Effective
Amendment No. 12 to the
Registrant's
Registration Statement.
14. Not applicable.
15a. Class A Distribution Plan and
Agreement for Putnam Tax-Free
Insured Fund dated September 19,
1993 -- Incorporated by reference
to Post Effective Amendment No. 10 to
the
Registrant's Registration
Statement.
15b. Class B Distribution Plan and
Agreement for Putnam Tax-Free
Insured Fund, as revised August 23,
1993 -- Incorporated by reference
to Post-Effective Amendment No. 10
to the Registrant's Registration
Statement.
15c. Class A Distribution Plan and
Agreement for Putnam Tax-Free High
Yield Fund dated September 19, 1993
-- Incorporated by reference to
Post-Effective Amendment No. 10 to
the Registrant's Registration
Statement.
15d. Class B Distribution Plan and
Agreement for Putnam Tax-Free High
Yield Fund, as revised August 23,
1993 -- Incorporated by reference
to Post-Effective Amendment No. 10
to the Registrant's Registration
Statement.
15e. Class M Distribution Plan and Agreement for
Putnam Tax-Free High Yield Fund -Incorporated by
reference to Post-Effective
Amendment No. 11 to the
Registrant's Registration
Statement.
15f. Class M Distribution Plan and
Agreement for Putnam Tax-Free
Insured Fund -- Incorporated
by
reference to Post-Effective
Amendment No. 12 to
the Registrant's Registration
Statement.
15g. Form of Specimen Dealer Service
Agreement Incorporated by
reference to Post-Effective
Amendment No. 8 to the
Registrant's
Registration
Statement.
15h. Form of Specimen Financial
Institution Service Agreement
Incorporated by reference to Post
Effective Amendment No. 8 to the
Registrant's Registration
Statement.
16a. Not applicable.
16b. Not applicable.
17a. Financial Data Schedule for
Putnam Tax-Free Insured Fund Class
A shares -- Exhibit 1 .
17b. Financial Data Schedule for
Putnam Tax-Free Insured Fund Class
B shares -- Exhibit 2 .
17c. Financial Data Schedule for
Putnam Tax-Free Insured Fund Class
M shares -- Exhibit 3 .
17d. Financial Data Schedule for
Putnam Tax-Free High
Yield Fund - Class A shares Exhibit
4 .
17e. Financial Data Schedule for
Putnam Tax-Free High
Yield Fund - Class B shares Exhibit
5 .
17f. Financial Data Schedule for
Putnam Tax-Free High
Yield Fund - Class M shares Exhibit
6 .
18. Rule 18f-3(d) Plan --
Incorporated by reference
to Post-Effective Amendment No. 12
to the Registrant's Registration
Statement.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of October 31, 1998 the number of
each fund's record holders of each class of securities
of the Registrant was as
follows:
NUMBER OF RECORD
HOLDERS ----
---------------------
-CLASS A CLASS B
CLASS M ------
- --
----- -----Putnam
Tax-Free High Yield Fund 27,334 26,223 445
Putnam Tax-Free Insured Fund 6,224
8,069 69 ITEM 27. INDEMNIFICATION
The information required by this item is
incorporated herein by reference from the Registrant's
Initial Registration Statement on Form N-1A under the
Investment Company Act of 1940 (File No. 811-4345). ITEM
30. LOCATION OF ACCOUNTS AND RECORDS
Persons maintaining physical possession of accounts,
books and other
documents required to be maintained by Section 31(a) of
the
Investment Company Act of 1940 and the Rules promulgated
thereunder
are Registrant's Clerk, Beverly Marcus; Registrant's
investment
adviser, Putnam Investment Management, Inc.;
Registrant's principal
underwriter, Putnam Mutual Funds Corp.; Registrant's
custodian,
Putnam Fiduciary Trust Company ("PFTC"); and
Registrant's transfer
and dividend disbursing agent, Putnam Investor Services,
a division
of PFTC. The address of the Clerk, investment
adviser, principal
underwriter, custodian and transfer and dividend
disbursing agent is
One Post Office Square, Boston, Massachusetts 02109.
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32. UNDERTAKINGS
The Registrant undertakes to furnish to
each person to whom a prospectus of the Registrant is
delivered a copy of the Registrant's latest annual
report to shareholders, upon request
and
without charge.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by
reference in the Prospectuses and Statement of
Additional Information constituting parts of
Post-Effective Amendment No. 16
to the Registration Statement of Putnam Tax-Free
Insured Fund and
Putnam Tax-Free High Yield Fund on Form N-1A (File
No. 298790)
of our reports dated September 11, 1998 and
September 15,
1998, respectively, on our audits, of the financial
statements and financial highlights of the Funds,
which report is included in the Annual Reports
for Putnam Tax-Free Insured Fund and Putnam Tax
Free High Yield Fund for the year ended July 31, 1998,
which is incorporated by reference in the
Registration Statement.
We also consent to the references to our
firm under
the caption "Independent Accountants and
Financial Statements" in the Statement of
Additional Information and under the heading
"financial highlights" in such Prospectuses.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 18, 1998
NOTICE
A copy of the Agreement and Declaration of Trust of
Putnam TaxFree Income Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts
and notice is hereby given that this instrument is
executed on behalf of the Registrant by an officer of
the Registrant as an officer and not individually and
the obligations of or arising out of this instrument are
not binding upon any of the Trustees, officers or
shareholders individually but
are binding only upon the assets and property of the
relevant series
of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933
and
the Investment Company Act of 1940, the Registrant
certifies
that it meets all of the requirements for effectiveness
of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to
be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boston, and The
Commonwealth of Massachusetts, on the 23th day of
November, 1998 .
PUTNAM TAX-FREE INCOME
TRUST
By: Gordon H. Silver,
Vice President
Pursuant to the requirements of the Securities Act of
1933,
this Amendment to the Registration Statement of Putnam
TaxFree Income Trust has been signed below by the
following persons in the capacities and on the dates
indicated:
SIGNATURE TITLE
George Putnam President and Chairman of
the Board;
Principal Executive
Officer; Trustee
John D. Hughes Senior Vice President;
Treasurer and
Principal Financial Officer
Paul G. Bucuvalas Assistant Treasurer and
Principal
Accounting Officer Jameson
A. Baxter Trustee
Hans H. Estin Trustee
John A. Hill Trustee
Ronald J. Jackson Trustee
Paul L. Joskow Trustee
Elizabeth T. Kennan Trustee
Lawrence J. Lasser Trustee
John H. Mullin, III Trustee
Robert E. Patterson Trustee
Donald S. Perkins Trustee
William F. Pounds Trustee
George Putnam, III Trustee
A.J.C. Smith Trustee
W. Thomas Stephens Trustee
W. Nicholas Thorndike Trustee
By: Gordon H. Silver, as
AttorneyinFact
November 23,
1998
<PAGE>
09/18/98 C-6
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ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT
ADVISE R
Except as set forth below, the directors and officers of the
REGISTRANT'S investment adviser have been engaged during
the past two fiscal years in no business, vocation or employment
of a substantial nature other than as directors or officers of
the investment adviser or certain of its corporate affiliates.
Certain officers of the investment adviser serve as officers of
some or all of the Putnam funds. The address of the investment
adviser, its corporate affiliates and the Putnam Funds is
ONE Post Office Square, Boston, Massachusetts 02109.
NAME NON-PUTNAM BUSINESS AND OTHER
CONNECTIONS
Michael J. Abata Prior to May, 1997, Assistant
ASSISTANT VICE PRESIDENT Vice President, Alliance Capital
Management Corp., 1345
Avenue of the Americas, New York,
NY 10020
BLAKE ANDERSON TRUSTEE, SALEM FEMALE CHARITABLE
MANAGING DIRECTOR SOCIETY, SALEM MA 01970
Barry R. Allen Prior to December, 1997,
VICE PRESENT Analyst/Director of Research,
Harbor Capital
Management, 125 High St., Boston,
MA 02110
Jennifer Antill Prior to November, 1996,
MANAGING DIRECTOR Director, IAI International/Hill
Samuel Investment
Advisors, 10 Fleet Place, London,
England
Nikesh Arora Prior to April, 1997, Chief
VICE PRESIDENT Financial Officer,
Fidelity Investments, 82
Devonshire St., Boston, MA 02110
Michael Arends Prior to MAY,
Senior Vice President 1997, MANAGING Director,
EQUITIES, PHOENIX DUFF & PHELPS,
56 PROSPECT ST., HARTFORD, CT
06101 ; Board Member,
DONALD L. ARENDS, INC.,
100 JORIE BLVD., OAKBROOK, ILL
60523
STEVEN E. ASHER TREASURER, THE HARVARD
Senior Vice President INDEPENDENT, INC. 501(C) (3)
CHARITABLE ORGANIZATION, CANADY
HALL, HARVARD YARD, CAMBRIDGE, MA
02138
MICHAEL J. ATKIN PRIOR TO JULY, 1997, DIRECTOR OF
SENIOR VICE PRESIDENT LATIN AMERICA INSTITUTE OF
INTERNATIONAL FINANCE, 2000
PENNSYLVANIA AVENUE, WASHINGTON,
D.C. 20006
JEFFREY B. AUGUSTINE PRIOR TO JANUARY, 1998, VICE
SENIOR VICE PRESIDENT PRESIDENT, INVESTMENT CONSULTING,
INVESTOR TOOLS, INC., 100 BRIDGE
ST. PLAZA, YORKVILLE, IL 60560
ROWLAND T. BANKES PRIOR TO JULY, 1997, SENIOR FIXED-
VICE PRESIDENT INCOME TRADER, JENNISON, JENNISON
ASSOCIATES CAPITAL CORP., ONE
FINANCIAL CENTER, BOSTON, MA
02110
ROBERT R. BECK DIRECTOR, CHARLES BRIDGE
SENIOR VICE PRESIDENT PUBLISHING, 85 MAIN ST.,
WATERTOWN, MA 02172; BOARD OF
OVERSEERS, BETH ISRAEL DEACONESS
MEDICAL CENTER, 330 BROOKLINE
AVE., BOSTON, MA 02215
CARL D. BELL PRIOR TO JANUARY, 1998,
VICE PRESIDENT PRINCIPAL, SMITH BREEDON
ASSOCIATION, 100 EUROPA DRIVE,
SUITE 200, CHAPEL HILL, NC 27514
GEOFFREY C. BLAISDELL PRIOR TO OCTOBER, 1997, VICE
SENIOR VICE PRESIDENT PRESIDENT, BLACKROCK FINANCIAL,
345 PARK AVENUE, NEW YORK, NY
10010
JEFFREY M. BRAY PRIOR TO OCTOBER, 1997, ANALYST,
VICE PRESIDENT LEHMAN BROTHERS, 3 WORLD
FINANCIAL CENTER, NEW YORK, NY
10285
DAVID J. BUCKLE PRIOR TO MARCH, 1998, VICE
VICE PRESIDENT PRESIDENT, J.P. MORGAN INVESTMENT
MANAGEMENT, 28 KING ST., LONDON,
ENGLAND SWI YXA
RONALD J. BUKOVAC PRIOR TO OCTOBER, 1997, SENIOR
VICE PRESIDENT MANAGER, VALUATION, PRICE
WATERHOUSE, 200 E. RANDOLPH
DRIVE, CHICAGO, IL 60601
ROBERT W. BURKE MEMBER-EXECUTIVE COMMITTEE, THE
SENIOR MANAGING DIRECTOR RIDGE CLUB, COUNTRY CLUB ROAD,
SANDWICH, MA 02563; MEMBER-
ADVISORY BOARD, CATHEDRAL HIGH
SCHOOL, 74 UNION PARK ST., SO.
BOSTON, MA 02118
JACK P. CHANG PRIOR TO JULY, 1997, VICE
VICE PRESIDENT PRESIDENT, COLUMBIA MANAGEMENT
COMPANY, 1300 S.W. 6TH AVE.,
PORTLAND, OR 97207
MARY CLAIRE CHASE PRIOR TO JANUARY, 1997, DIRECTOR
VICE PRESIDENT OF STAFF DEVELOPMENT, ARTHUR D.
LITTLE CO., 25 ACORN PARK,
CAMBRIDGE, MA 02140
C. BETH COTNER DIRECTOR, THE LYRIC STAGE
SENIOR VICE PRESIDENT THEATER, 140 CLARENDON ST.,
BOSTON, MA 02116
KEVIN M. CRONIN PRIOR TO FEBRUARY, 1997, VICE
MANAGING DIRECTOR PRESIDENT AND PORTFOLIO MANAGER,
MFS INVESTMENT MANAGEMENT, 500
BOYLSTON ST., BOSTON, MA 02117
JOHN R.S. CUTLER MEMBER, BURST MEDIA, L.L.C., 10
ASSISTANT VICE PRESIDENT NEW ENGLAND EXECUTIVE PARK,
BURLINGTON, MA 01803
KENNETH DALY PRESIDENT, ANDOVER RIVER RD. TMA,
MANAGING DIRECTOR RIVER ROAD TRANSPORTATION
MANAGEMENT ASSOCIATION, 7
SHATTUCK RD., ANDOVER, MA 01810
MICHAEL W. DAVIS PRIOR TO AUGUST, 1997,
VICE PRESIDENT TECHNICAL FINANCE CONSULTANT,
BANK OF AMERICA MORTGAGE, 50
CALIFORNIA ST., SAN FRANCISCO, CA
94111
JOHN C. DELANO PRIOR TO JULY, 1998, SENIOR
ASSISTANT VICE PRESIDENT FOREIGN EXCHANGE TRADER,
NATIONSBANK, 233 SO. WACKER
DRIVE, CHICAGO, IL 60606
EDWIN M. DENSON PRIOR TO NOVEMBER, 1997, VICE
VICE PRESIDENT PRESIDENT AND SENIOR ECONOMIST
PRIMARK DECISION ECONOMICS, 260
FRANKLIN ST., BOSTON, MA 02110
RALPH C. DERBYSHIRE PRIOR TO NOVEMBER, 1997, PARTNER,
SENIOR VICE PRESIDENT PALMER & DODGE, ONE BEACON
STREET, BOSTON, MA 02108; BOARD
MEMBER, MSPCC, 399 BOYLSTON ST.,
BOSTON, MA; BOARD MEMBER,
WINCHESTER AFTER SCHOOL PROGRAM,
SKILLINGS RD., WINCHESTER, MA
MICHAEL G. DOLAN CHAIRMAN-FINANCE COUNCIL, ST.
ASSISTANT VICE PRESIDENT MARY'S PARISH, 44 MYRTLE ST.,
MELROSE, MA 02176; MEMBER,
SCHOOL ADVISORY BOARD, ST. MARY'S
SCHOOL, 44 MYRTLE ST., MELROSE,
MA 02176
MARK E. DOW PRIOR TO NOVEMBER, 1997,
VICE PRESIDENT ECONOMIST, INTERNATIONAL MONETARY
FUND, WASHINGTON, DC
EMILY DURBIN BOARD OF DIRECTORS, FAMILY
VICE PRESIDENT SERVICE, INC., LAWRENCE, MA 01840
KARNIG H. DURGARIAN BOARD MEMBER, EBRI, SUITE 600,
MANAGING DIRECTOR 2121 K ST., N.W., WASHINGTON, DC
20037-1896. TRUSTEE, AMERICAN
ASSEMBLY, 122 C. ST., N.W., SUITE
350, WASHINGTON, DC 20001
NATHAN EIGERMAN TRUSTEE, FLOWER HILL TRUST, 298
VICE PRESIDENT MARLBOROUGH ST., #4, BOSTON, MA
02116
IRENE M. ESTEVES PRIOR TO JANUARY, 1997, VICE
MANAGING DIRECTOR PRESIDENT, MILLER BREWING CO.,
3939 WEST HIGHLAND BLVD.,
MILWAUKEE, WI 53210. BOARD OF
DIRECTOR MEMBER, AMERICAN
MANAGEMENT ASSOCIATION FINANCE
COUNCIL, 1601 BROADWAY, NEW YORK,
NY; BOARD OF DIRECTOR MEMBER,
FIRST NIGHT BOSTON, 20 PARK
PLAZA, SUITE 927, BOSTON, MA;
BOARD OF DIRECTOR MEMBER, SC
JOHNSON COMMERCIALMARKETS, 8310
16TH ST., STUTEVANT, WI 53177;
BOARD OF DIRECTOR MEMBER,
MASSACHUSETTS TAXPAYERS
FOUNDATION, 24 PROVINCE ST.,
BOSTON, MA; BOARD OF DIRECTOR
MEMBER, MRS. BAIRDS BAKERIES, 515
JONES ST., SUITE 200, FORT WORTH,
TEXAS 76102
IAN FERGUSON TRUSTEE, PARK SCHOOL, 171 GODDARD
SENIOR MANAGING DIRECTOR AVENUE, BROOKLINE, MA 02146
EDWARD R. FINCH PRIOR TO DECEMBER, 1997, MANAGING
VICE PRESIDENT DIRECTOR, M.A. WEATHERBIE & CO.,
265 FRANKLIN ST., BOSTON, MA
02110
KATE FLEISHER PRIOR TO JANUARY, 1998, DIRECTOR
VICE PRESIDENT OF HUMAN RESOURCES, LAURA ASHLEY,
6 ST., JAMES AVE. SUITE 410,
BOSTON, MA 02116
J. PETER GRANT TRUSTEE, THE DOVER CHURCH, DOVER,
SENIOR VICE PRESIDENT MA 02030
PATRICE GRAVIERE PRIOR TO MARCH, 1998, REGIONAL
SENIOR VICE PRESIDENT DIRECTOR FOR LATIN AMERICA, MFS
INTERNATIONAL, LTD, BUENOS AIRES,
BRAZIL
PAUL E. HAAGENSEN DIRECTOR, HAAGENSEN RESEARCH
SENIOR VICE PRESIDENT FOUNDATION, 630 WEST 168TH ST.,
NEW YORK, NY 10032
JAMES B. HAINES PRIOR TO FEBRUARY, 1997,
ASSISTANT VICE PRESIDENT ASSOCIATE, BENEFIT DEPARTMENT,
ROPES & GRAY, ONE INTERNATIONAL
PLACE, BOSTON, MA 02110
MARY S. HAPIJ PRIOR TO MARCH, 1997, RESEARCH
VICE PRESIDENT LIBERTY MANAGER, PIONEERING
MANAGEMENT CORP., 60 STATE
STREET, BOSTON, MA 02109
NIGEL P. HART PRIOR TO OCTOBER, 1997, SENIOR
VICE PRESIDENT VICE PRESIDENT AND PORTFOLIO
MANAGER, INVESTMENT ADVISERS,
3700 FIRST BANK PLACE,
MINNEAPOLIS, MN 55402
DEBORAH R. HEALEY CORPORATOR, NEW ENGLAND BAPTIST
SENIOR VICE PRESIDENT HOSPITAL, 125 PARKER HILL AVE.,
BOSTON, MA 02120; DIRECTOR, NEB
ENTERPRISES, 125 PARKET HILL
AVE., BOSTON, MA 02120
MARIANNE P. ISGUR PRIOR TO MARCH, 1998, EXECUTIVE
ASSISTANT VICE PRESIDENT RECRUITER, PROFESSIONS, 2 VILLA
RD., SO. HAMILTON, MA 01982;
PRESIDENT, EQUINE VENTURES, LTD.,
25 FELLOWS RD., IPSWICH, MA 01932
JEFFREY KAUFMAN PRIOR TO JULY, 1998, VICE
SENIOR VICE PRESIDENT PRESIDENT AND PORTFOLIO MANAGER,
MFS INVESTMNT MANAGEMENT, 500
BOYLSTON ST., BOSTON, MA 02116
IRA C. KALUS-BYSTRICKY PRIOR TO MARCH, 1998, CONSULTANT,
VICE PRESIDENT ARTHUR D. LITTLE, 25 ACORN PARK,
CAMBRIDGE, MA 02114
MARY E. KEARNEY TRUSTEE, MASSACHUSETTS EYE AND
MANAGING DIRECTOR EAR INFIRMARY, 243 CHARLES ST.,
BOSTON, MA 02114
KEVIN J. KELEHER PRIOR TO AUGUST, 1998, SUPPORT
ASSISTANT VICE PRESIDENT MANAGER, DIGITAL EQUIPMENT CO.,
111 POWDER MILL RD., MAYNARD, MA
01754
CATHERINE KENNEDY PRIOR TO SEPTEMBER, 1997,
VICE PRESIDENT PRINCIPAL, MORGAN STANLEY, 1585
BROADWAY, NEW YORK, NY 10036
JEFFREY K. KERRIGAN PRIOR TO JUNE, 1997, VICE
ASSISTANT VICE PRESIDENT PRESIDENT, FLEET INVESTMENTS, 75
STATE St., Boston, MA 02109
DAVID R. KING Prior to JUNE, 1997, Vice
VICE PRESIDENT President, FLEET INVESTMENTS, 75
STATE ST., BOSTON, MA 02109
WILLIAM P. KING PRIOR TO NOVEMBER, 1997,
VICE PRESIDENT PORTFOLIO MANAGER, TSA GLOBAL
ASSET MANAGEMENT, 700 SOUTH
FLOWER ST., LOS ANGELES, CA
90017
DEBORAH F. KUENSTNER PRIOR TO MARCH, 1997, SENIOR
MANAGING DIRECTOR PORTFOLIO MANAGER, DUPONT PENSION
FUND INVESTMENT, 1 RIGHT PARKWAY,
WILMINGTON, DE 19850; DIRECTOR,
BOARD OF PENSIONS, PRESBYTERIAN
CHURCH, 1001 MARKET ST.,
PHILADELPHIA, PA
THOMAS J. KUREY PRIOR TO AUGUST, 1997, VICE
VICE PRESIDENT PRESIDENT, EVERGREEN SECURITIES,
77 W. WACKER, Chicago, IL
60601
LINDA LANE MEMBER, AMERICAN SOCIETY FOR
ASSISTANT VICE PRESIDENT TRAINING & DEVELOPMENT, 27 GLEN
STREET, SUITE 4, STOUGHTON, MA
02072
KENNETH W. LANG Prior to April, 1997, VICE
VICE PRESIDENT PRESIDENT, MONTGOMERY SECURITIES,
600 MONTGOMERY ST., SAN
FRANCISCO, CA 94111
COLEMAN N. LANNUM, III PRIOR TO JUNE, 1997, DIRECTOR-
SENIOR VICE PRESIDENT INVESTOR RELATIONS, MALLINCKRODT,
INC., 7733 FORSYTH BLVD., ST.
LOUIS, MO 63105
LEONARD LAPORTA, JR. PRIOR TO MARCH, 1998, ASSISTANT
VICE PRESIDENT VICE PRESIDENT, STATE STREET
GLOBAL ADVISORS, TWO
INTERNATIONAL PLACE, BOSTON, MA
02110; BOARD OF OVERSEERS', USS
CONSTITUTION MUSEUM, CHARLESTON,
MA
LAWRENCE J. LASSER DIRECTOR, MARSH & MCLENNAN
PRESIDENT, DIRECTOR AND CHIEF COMPANIES, INC., 1221 AVENUE OF
EXECUTIVE THE AMERICAS, NEW YORK, NY
10020; BOARD OF GOVERNORS AND
EXECUTIVE COMMITTEE, INVESTMENT
COMPANY INSTITUTE, 1401 H. ST.,
N.W. SUITE 1200, WASHINGTON, DC
20005; BOARD OF OVERSEERS, MUSEUM
OF FINE ARTS, 465 HUNTINGTON,
AVE., BOSTON, MA 02115; TRUSTEE,
BETH ISRAEL DEACONESS MEDICAL
CENTER, 330 BROOKLINE AVE.,
BOSTON, MA; MEMBER OF THE COUNCIL
ON FOREIGN RELATIONS, 58 EAST
68TH ST., NEW YORK, NY 10021;
MEMBER OF THE BOARD OF DIRECTORS
OF THE UNITED WAY OF
MASSACHUSETTS BAY, 245 SUMMER
ST., SUITE 1401, BOSTON, MA
02110; TRUSTEE OF THE VINEYARD
OPEN LAND FOUNDATION, RFD BOX
319X, VINEYARD HAVEN, MA 02568.
JOAN M. LEARY PRIOR TO JANUARY, 1997, SENIOR
VICE PRESIDENT TAX MANAGER, KMPG, 99 HIGH
STREET, BOSTON, MA 02110
CRAIG S. LEWIS PRIOR TO JANUARY, 1998, ANALYST,
VICE PRESIDENT KEYSTONE INVESTMENTS, 200
BERKELEY STREET, BOSTON, MA
02101
GEIRULV LODE PRIOR TO JULY, 1997, VICE
VICE PRESIDENT PRESIDENT, CHANCELLOR LGT, ASSET
MANAGEMENT, 1166 AVENUE OF THE
AMERICAS, NEW YORK, NY 10036
ELIZABETH M. MACELWEE PRIOR TO JANUARY, 1998,
SENIOR VICE PRESIDENT PRINCIPAL, MORGAN STANLEY, 1155
BROADWAY, NEW YORK, NY 10036
DIANA R. MADONNA PRIOR TO JANUARY, 1997,
ASSISTANT VICE PRESIDENT LIBRARIAN, LIPPER ANALYTICAL
SERVICES, INC., 1380 LAWRENCE
ST., DENVER, CO 80204
SARA MALAK PRIOR TO OCTOBER, 1997,
VICE PRESIDENT CONSULTANT, THE BOSTON
CONSULTANT, EXCHANGE PLACE,
BOSTON, MA 02109
BRUCE D. MARTIN PRIOR TO APRIL, 1997, VICE
VICE PRESIDENT PRESIDENT, EATON VANCE, 29
BOSTON, MA 02110
KEVIN MALONEY INSTITUTIONAL DIRECTOR, FINANCIAL
MANAGING DIRECTOR MANAGEMENT ASSOCIATION,
UNIVERSITY OF SOUTH FLORIDA,
COLLEGE OF BUSINESS
ADMINISTRATION, SUITE 3331,
TAMPA, FL 33620
SCOTT M. MAXWELL PRIOR TO MARCH, 1997, CHIEF
MANAGING DIRECTOR FINANCIAL OFFICER-EQUITY
DIVISION, LEHMAN BROTHERS, 3
WORLD FINANCIAL CENTER, NEW YORK,
NY 10285
BRIDGET MCCAVOY PRIOR TO OCTOBER, 1997, SENIOR
ASSISTANT VICE PRESIDENT RECRUITER, BANKBOSTON, 100
FEDERAL ST., BOSTON, MA 02110;
PRIOR TO OCTOBER, 1996. EXECUTIVE
RECRUITER, HI HUNT & CO., 99
SUMMER ST., BOSTON, MA 02110
WILLIAM MCGUE BOARD MEMBER, SACRED HEART
MANAGING DIRECTOR ELEMENTARY SCHOOL, 75 COMMERCIAL
ST.,WEYMOUTH, MA 02188; BOARD OF
DIRECTORS MEMBER AND TREASURER,
WHITTEMORE SHORES CONDOMINIUM
ASSOCIATION, BRIDGEWATER, NH
03222
PAUL K. MICHAUD PRIOR TO DECEMBER, 1997,
VICE PRESIDENT ASSISTANT VICE PRESIDENT, UNION
BANK OF SWITZERLAND,
BAHNHOFSTRASSE 45, 8021 ZURICH,
SWITZERLAND
CAROL H. MILLER BOARD MEMBER, THE ROBBINS-DE
ASSISTANT VICE PRESIDENT BEAUMONT FOUNDATION, C/O SULLIVAN
& WORCESTER, ONE POST OFFICE
SQUARE, BOSTON, MA 02109; BOARD
MEMBER, BURKE MTN. ACADEMY, EAST
BURKE, VT; BOARD MEMBER, THE
LYRIC STAGE THEATER, 140
CLARENDON ST., BOSTON, MA 02116;
BOARD MEMBER, THE BOSTON MODERN
ORCHESTRA PROJECT, P.O. BOX
39134, CAMBRIDGE, MA 02139
CHRISTOPHER G. MILLER PRIOR TO JANUARY, 1998, Portfolio
VICE PRESIDENT Manager, ANALYTIC TSA
GLOBAL ASSET MANAGEMENT, 700 SO.
FLOWER ST., LOS ANGELES, CA 90017
WILLIAM H. MILLER PRIOR TO OCTOBER, 1997, VICE
SENIOR VICE PRESIDENT PRESIDENT AND ASSET PORTFOLIO
MANAGER, DELAWARE MANAGEMENT, ONE
COMMERCE SQUARE, PHILADELPHIA, PA
JEANNE L. MOCKARD TRUSTEE, THE BRYN MAWR SCHOOL,
SENIOR VICE PRESIDENT 109, W. MELROSE AVENUE,
BALTIMORE, MA 21210
GERARD I. MOORE PRIOR TO AUGUST, 1997, VICE
VICE PRESIDENT PRESIDENT/EQUITY RESEARCH, BOSTON
COMPANY ASSET MANAGEMENT, ONE
BOSTON PLACE, BOSTON, MA 02109
KELLY A. MORGAN PRIOR TO SEPTEMBER, 1996, SENIOR
SENIOR VICE PRESIDENT VICE PRESIDENT AND INTERNATIONAL
PORTFOLIO MANAGER, ALLIANCE
CAPITAL MANAGEMENT, 1345 AVENUE
OF THE AMERICAS, NEW YORK, NY
10020
DONALD E. MULLIN CORPORATE REPRESENTATIVE AND
SENIOR VICE PRESIDENT BOARD MEMBER, DELTA DENTAL PLAN
OF MASSACHUSETTS, 10 PRESIDENTS
LANDING, P.O. BOX 94104, MEDFORD,
MA 02155
GAYLE M. O'CONNELL PRIOR TO MARCH, 1997, ASSISTANT
ASSISTANT VICE PRESIDENT DIRECTOR OF HUMAN RESOURCES, ITT
SHERATON CORPORATION, 60 STATE
ST., BOSTON, MA 02109
STEPHEN S. OLER PRIOR TO JUNE, 1997, VICE
SENIOR VICE PRESIDENT PRESIDENT, TEMPLETON INVESTMENT
COUNSEL, 500 E. BROWARD BLVD.,
FT. LAUDERDALE, FL 33394
KERRY M. OWENS PRIOR TO JULY, 1998, MARKETING
ASSISTANT VICE PRESIDENT MANAGER, ABN AMRO, 199
BISHOPSGATE, LONDON, ENGLAND,
EC2M 3TY; PRIOR TO APRIL, 1997,
ASSISTANT MANAGER, CITIBANK, 336
STRAND, LONDON, ENGLAND, WC2
KIMBERLY A.M. PAGE PRIOR TO FEBRUARY, 1998, SENIOR
ASSISTANT VICE PRESIDENT CONSULTANT, ANDERSEN CONSULTING,
100 WILLIAMS ST., WELLESLEY, MA
02181
MARGERY C. PARKER PRIOR TO DECEMBER, 1997, VICE
SENIOR VICE PRESIDENT PRESIDENT AND PORTFOLIO MANAGER,
KEYSTONE INVESTMENTS 200 BERKELEY
STREET, BOSTON, MA 02101
CARMEL PETERS PRIOR TO APRIL, 1997, MANAGING
SENIOR VICE PRESIDENT DIRECTOR/CHIEF INVESTMENT ASIA
PACIFIC, WHELLOCK NATWEST
INVESTMENT MANAGEMENT, LTD,
NATWEST TOWER, TIMES SQUARE,
CAUSEWAY BAY, HONG KONG, CHINA
WILLIAM PERRY PRIOR TO SEPTEMBER, 1997, SENIOR
VICE PRESIDENT TRADER, FIDELITY MANAGEMENT &
RESEARCH, 82 DEVONSHIRE ST.,
BOSTON, MA 02110
KEITH PLAPINGER CHAIRMAN AND TRUSTEE, ADVENT
VICE PRESIDENT SCHOOL, 17 BRIMMER ST., BOSTON,
MA 02108
CHARLES E. PORTER TRUSTEE, ANATOLIA COLLEGE, 130
EXECUTIVE VICE PRESIDENT BOWDOIN ST., SUITE 1201, BOSTON,
MA 02108; GOVERNOR, HANDEL &
HAYDEN SOCIETY, HORTICULTURE
HALL, 300 MASSACHUSETTS AVE.,
BOSTON, MA 0215
GEORGE PUTNAM CHAIRMAN AND DIRECTOR, PUTNAM
CHAIRMAN AND DIRECTOR MUTUAL FUNDS CORP.; DIRECTOR, THE
BOSTON COMPANY, INC., ONE BOSTON
PLACE, BOSTON, MA 02108;
DIRECTOR, BOSTON SAFE DEPOSIT AND
TRUST COMPANY, ONE BOSTON PLACE,
BOSTON, MA 02108; DIRECTOR,
FREEPORT-MCMORAN, INC., 200 PARK
AVENUE, NEW YORK, NY 10166;
DIRECTOR, GENERAL MILLS, INC.,
9200 WAYZATA BOULEVARD,
MINNEAPOLIS, MN 55440; DIRECTOR,
HOUGHTON MIFFLIN COMPANY, ONE
BEACON STREET, BOSTON, MA 02108;
DIRECTOR, MARSH & MCLENNAN
COMPANIES, INC., 1221 AVENUE OF
THE AMERICAS, NEW YORK, NY
10020; DIRECTOR, ROCKEFELLER
GROUP, INC., 1230 AVENUE OF THE
AMERICAS, NEW YORK, NY 10020;
TRUSTEE, MASSACHUSETTS GENERAL
HOSPITAL, FRUIT STREET, BOSTON,
MA 02114; MCLEAN HOSPITAL 115
MILL ST., BELMONT,MA 02178; THE
COLONIAL WILLIAMSBURG FOUNDATION,
POST OFFICE BOX 1776,
WILLIAMSBURG, VA 23187; THE
MUSEUM OF FINE ARTS, 465
HUNTINGTON AVENUE, BOSTON, MA
02115; WGBH FOUNDATION, 125
WESTERN AVENUE,BOSTON, MA 02134;
THE NATURE CONSERVANCY, POST
OFFICE SQUARE BUILDING, 79 MILK
ST., SUITE 300, BOSTON, MA 02109;
TRUSTEE, THE JACKSON LABORATORY,
600 MAIN ST., BAR HARBOR, ME 04
ROBERT A. PIEPENBURG PRIOR TO DECEMBER, 1997,
VICE PRESIDENT ASSISTANT VICE PRESIDENT,
BANKBOSTON CORP./BOSTON SECURITY,
100 FEDERAL ST., BOSTON, MA
02106
ELIZABETH PRICE PRIOR TO JANUARY, 1998,
ASSISTANT VICE PRESIDENT INVESTMENT ANALYST, SCHRODER
INVESTMENT MANAGEMENT LIMITED, 33
GUTTER LANE, LONDON, EC2V 8AS,
ENGLAND
EDWARD QIAN PRIOR TO FEBRUARY, 1998, BACK BAY
VICE PRESIDENT ADVISORS, 399 BOYLSTON ST.,
BOSTON, MA 02116; PROR TO
SEPTEMBER, 1996, POST-DOCTORATE
RESEARCH, MASSACHUSETTS INSTITUTE
OF TECHNOLOGY, 77 MASSACHUSETTS
AVENUE, CAMBRIDGE, MA 02109
KEITH QUINTON DIRECTOR, ELEAZAR, INC., WEST
SENIOR VICE PRESIDENT WHEELOCK ST., HANOVER, NH 03755
THOMAS V. REILLY TRUSTEE, KNOX COLLEGE, 2 EAST
MANAGING DIRECTOR SOUTH ST., GALESBURG, IL 61401
MARC J. RITENHOUSE PRIOR TO JANUARY, 1998, DIRECTOR
VICE PRESIDENT OF FINANCE, FIDELITY INVESTMENTS,
INC., 82 DEVONSHIRE ST., BOSTON,
MA 02109
OLIVER RUDIGOZ PRIOR TO APRIL, 1998, PORTFOLIO
VICE PRESIDENT MANAGER, PARIBAS ASSET
Management, #3 Rue D'Antin,
Paris, France, 75002
Michael V. Salm Prior to November, 1997, Mortgage
VICE PRESIDENT Analyst, Blackrock Financial
345 Park Ave., New York,
NY 10010
Robert J. Schoen Prior to June, 1997, Sole
ASSISTANT VICE PRESIDENT Proprietor, Schoen Timing
Strategies, 315 E. 21st
, New York, NY 10010
Justin M. Scott Director, DSI PROPRIETIES
MANAGING DIRECTOR (Neja) Ltd., Epping Rd., Reydon,
Essex CM19 5RD
Max S. Senter General Partner, M.S. Senter &
SENIOR VICE PRESIDENT Sons Partnership, 4900
Fayetteville Rd., Raleigh,
NC 27611
Edward Shadek, Jr. Prior to March, 1997, Portfolio
VICE PRESIDENT Manager, Newhold Asset
Management, 950 Haverford Rd.,
Bryn Mawr, PA 19010
Raj Ken Sharma Prior to January, 1998, Vice
VICE PRESIDENT President and Portfolio Manager,
Fleet Financial, 75 State
Street, Boston, MA 02106
GORDON H. SILVER Trustee, Wang Center for
MANAGING DIRECTOR the Performing Arts, 270 Tremont
St., BOSTON, MA 02116
DAVID M. SILK MEMBER OF BOARD OF DIRECTORS,
SENIOR VICE PRESIDENT JOBS FOR BAY STATE GRADUATES, 451
ANDOVER ST., SUITE 305, NORTH
ANDOVER, MA 01845
Steven Spiegel Director, Ultra DIAMOND
SENIOR MANAGING DIRECTOR AND GOLD OUTLET., 29 East Madison
St., SUITE 1800, Chicago, IL
60602; DIRECTOR, FACES NEW YORK
UNIVERSITY MEDICAL CENTER, 550
FIRST AVENUE, NEW YORK, NY
10016; Trustee, Babson
College, One College Drive,
Wellesley, MA 02157;
Christopher A. Spurlock Prior to May, 1997, Sales Trader,
VICE PRESIDENT J.P. Morgan, 60 Wall St.,
New York, NY
Michael P. Stack Prior to November, 1997, Senior
SENIOR VICE PRESIDENT Vice President and Portfolio
Manager, Independence
Investment Associates, 53 State
St., Boston, MA 02109
Casey STRUMPFT Prior to January, 1997, Director,
SENIOR VICE PRESIDENT Blue Cross and Blue SHIRELD,
100 Summer St., Boston,
MA 02110
Prior to February, 1998, Vice
President, Corporate Research
Robert E. Sweeney Smith Barney, One New
VICE PRESIDENT York Plaza, New York, NY 10004
Judith H. Swirbalus Prior to January, 1998, Alex,
VICE PRESIDENT Brown & Sons, One South St.,
Baltimore, MD 21202
JOHN C. TALANIAN MEMBER OF BOARD OF DIRECTORS, THE
MANAGING DIRECTOR JAPAN SOCIETY OF BOSTON, ONE MILK
STREET, BOSSTON, MA 02109
Robert J. Toner Prior to September, 1998,
ASSISTANT VICE PRESIDENT Associate, Goodwin Procter &
Hoar, LLP, Exchange
Place, Boston, MA 02109
John R. Tonkin Prior to January, 1998, Analyst,
ASSISTANT VICE PRESIDENT Credit Suisse First Boston
Celtic Towers, The
Terrace Wellington, New
Zealand
Prior to September, 1997,
Staffing Lead, Cisco Systems, 250
Scott G. Vierra APOLIO Drive, Chelmsford,
VICE PRESIDENT MA 01824
David L. Waldman Prior to June, 1997, Senior
MANAGING DIRECTOR Portfolio Manager, Lazard Feres
Asset Management, 30
Rockefeller Center, New York, NY
10112
Paul C. Warren Prior to May, 1997, Director, IDS
SENIOR VICE PRESIDENT Fund Management, LT, One
Pacific Place, SQUENSWAY,
Hong Kong, China
DIERDRE WEST-SMITH TRUSTEE, ST. JAMES CONDO
ASSISTANT VICE PRESIDENT ASSOCIATION, 66 ST. JAMES ST.,
ROXBURY, MA 02119
Eric Wetlaufer PRESIDENT AND MEMBER OF
Managing Director BOARD OF DIRECTORS, THE BOSTON
SECURITY ANALYSTS SOCIETY, INC.,
100 BOYLSTON ST., SUITE 1050,
Boston, MA 02110
EDWARD F. WHALEN MEMBER OF THE BOARD OF DIRECTORS,
SENIOR VICE PRESIDENT HOCKOMOCK AREA YMCA, 300 ELMWOOD
ST., NORTH ATTLEBORO, MA 02760
Burton Wilson Prior to March, 1997, Associate
VICE PRESIDENT Investments Banking,
Robertson Stephens & Co.,
555 California St., Suite 2600,
San Francisco, CA 94104
RICHARD P. WYKE DIRECTOR, SALEM YMCA, ONE
Senior Vice President SEWALL ST., SALEM, MA 01970
Scott D. Zaleski Prior to May, 1997, Investment
ASSISTANT VICE PRESIDENT Officer, State Street Bank &
Trust, 1776 Heritage Dr.,
Quincy, MA 02171; Prior to
September, 1996, Investment
Associate Fidelity Investments,
82 Devonshire St., Boston, MA
02109
Michael P. Zeller Prior to July, 1997, Sales
VICE PRESIDENT MANGER, NYNEX Information
Resources, 35 Village
R., Middleton, MA 01949
ITEM 29. PRINCIPAL UNDERWRITER
(a) Putnam Mutual Funds Corp. is the principal underwriter for
each of the following investment companies, including the
Registrant:
Putnam American Government Income Fund, Putnam Arizona Tax Exempt
Income Fund, Putnam Asia Pacific Growth Fund, Putnam Asset
Allocation Funds, Putnam Balanced Retirement Fund, Putnam
California Tax Exempt Income Fund, Putnam California Tax Exempt
Money Market Fund, Putnam Capital OPPORTUNITITES Fund,
Putnam Convertible Income-Growth Trust, Putnam Diversified Equity
Trust, Putnam Diversified Income Trust, Putnam Equity
Income Fund, Putnam Europe Growth Fund, Putnam Florida
Tax Exempt Income Fund, Putnam Funds Trust, The George Putnam
Fund of Boston, Putnam Global Governmental Income Trust, Putnam
Global Growth Fund, Putnam Global Natural Resources Fund, The
Putnam Fund for Growth and Income, Putnam Growth and Income Fund
II, Putnam Health Sciences Trust, Putnam High Yield Trust, Putnam
High Yield Advantage Fund, Putnam High QUALITY BOND FUND,
Putnam Income Fund, Putnam Intermediate U.S. Government Income
Fund, PUTNAM INTERNATIONAL GROWTH FUND, Putnam Investment Funds,
Putnam Investors Fund, Putnam Massachusetts Tax Exempt Income
Fund, Putnam Michigan Tax Exempt Income Fund, Putnam Minnesota
Tax Exempt Income Fund, Putnam Money Market Fund, Putnam
Municipal Income Fund, Putnam New Jersey Tax Exempt Income Fund,
Putnam New Opportunities Fund, Putnam New York Tax Exempt Income
Fund, Putnam New York Tax Exempt Money Market Fund, Putnam New
York Tax Exempt Opportunities Fund, Putnam Ohio Tax Exempt Income
Fund, Putnam OTC & Emerging Growth Fund, Putnam Pennsylvania Tax
Exempt Income Fund, Putnam Preferred Income Fund, PUTNAM
STRATEGIC INCOME FUND, Putnam Tax Exempt Income Fund, Putnam Tax
Exempt Money Market Fund, Putnam Tax-Free Income Trust, Putnam
U.S. Government Income Trust, Putnam Utilities Growth and Income
Fund, Putnam Variable Trust, Putnam Vista Fund, Putnam Voyager
Fund, Putnam Voyager Fund II.
(b) The directors and officers of the Registrant's principal
underwriter are listed below. The principal business address of
each person is One Post Office Square, Boston, MA 02109:
Name Positions and Positions and
Offices Offices
with Underwriter with Registrant
Aaron,Jeff F. Asst. Vice None
President
Adduci,John V. Vice President None
Albanese,Frank Vice President None
Alberts,Richard W. Asst. Vice None
President
Alden,Donald F. Vice President None
Alders,Christopher A. Senior Vice None
President
Alpaugh,Christopher S. Vice President None
Amisano,Paulette C. Vice President None
Andrews,Margaret Vice None
President
Arends,Michael K. Senior Vice None
President
Asher,Steven E. Senior Vice None
President
Avery,Scott A. Senior Vice None
President
Aymond,Christian E. Senior Vice None
President
Aymond,Colin C. Vice President None
Battit,Suzanne J Vice President None
Beatty,Steven M. Senior Vice None
President
Bent,John J. Vice President None
Beringer,Thomas VICE President None
C.
Berka,Sharon A. Senior Vice None
President
Boneparth,John F. Managing Director None
Bonfilio Jr.,Peter J. Asst. Vice None
President
Bouchard,Keith R. Senior Vice None
President
Bradford Jr.,Linwood Senior Vice None
E. President
Brennan,Mary Ann Asst. Vice None
President
Bresnahan,Leslee R. Senior Vice None
President
Brockelman,James D. Senior Vice None
President
Brookman,Joel S. Vice President None
Brown,Timothy K. Senior Vice None
President
Buckner,Gail D. Senior Vice None
President
Burke,Robert W. Sr Managing None
Director
Cabana,Susan D. Vice President None
Callahan,Thomas C. Asst. Vice None
President
Capone,Robert G. Senior Vice None
President
Cartwright,Patricia A. Asst. Vice None
President
Casey,David M. Vice President None
Castle Jr.,James R. Vice PRESIDENT NONE
CHAPMAN,THOMAS E. VICE President None
Chase,Mary Claire Vice President None
Chrostowski,Louis F. Senior Vice None
President
Church,Daniel J. Vice President None
Clark,Richard B. Senior Vice None
President
Clermont,Mary Asst. Vice None
President
Clinton,John C. Asst. Vice None
President
Collman,Kathleen M. Sr Managing None
Director
Commane,Karen L. Asst. Vice None
President
Coneeny,Mark L. Senior Vice None
President
Connelly, Senior Vice None
Donald A. President
Connolly,Karen E. Asst. Vice None
President
Conyers,Barry M. Vice President None
Corbett,Dennis Vice President None
Corvinus,F. Nicholas Senior Vice None
President
Cosmer,Thomas A. Senior Vice NONE
PRESIDENT
COTTO,STEPHEN P ASST. VICE None
President
Cristo,Chad H. Vice President None
Cropper,Joy Bacher Asst. Vice None
President
Crowley,Colleen J. Asst. Vice None
President
Curran,Peter J. Senior Vice None
President
Dahill,Jessica E. Vice President None
Daly,Kenneth L. Managing Director None
Dane,Edward H. Senior Vice None
President
Daylor,Donna M. Vice President None
Days,Nancy M. Asst. Vice None
President
De Oliveira- Asst. Vice None
Smith,Pamela President
Deluse,Laura R. Asst. Vice None
President
DeMont,Lisa M. Vice President None
Dennehy,Teresa F. Vice PRESIDENT NONE
DERBYSHIRE,RALPH C SENIOR VICE NONE
PRESIDENT
DEVIN,RENATE S. SENIOR VICE None
President
DiRe,Lisa M. Asst. Vice None
President
DiStasio,Karen E. Vice President None
Dolan,Michael G. Vice President None
Donaldson,Scott M. Vice President None
Duffy,Deirdre E. Senior Vice None
President
Durbin,Emily J. Vice PRESIDENT NONE
DURKEE,CHRISTINE ASST. VICE None
President
Edlin,David B. Managing Director None
Eisenkraft,Gail A. Managing Director None
English,James M. Senior Vice None
President
Esposito,Vincent Managing NONE
DIRECTOR
FARRELL,DEBORAH S. SENIOR VICE None
President
Feldman,Susan H. Senior Vice None
President
Fisher,C. Nancy Managing Director None
Fishman,Mitchell B. Senior Vice None
President
Fiumara,Joseph C. Vice President None
Flaherty,Patricia C. Senior Vice None
President
Fleisher,Kate Vice NONE
PRESIDENT
FOLEY,TIMOTHY P. VICE PRESIDENT NONE
FROST,KAREN T. SENIOR Vice None
President
Fullerton,Brian J. Senior Vice None
President
Gates,Judy S. Senior Vice None
President
Gennaco,Joseph P. Senior Vice NONE
PRESIDENT
GIBBS,STEPHEN C. VICE President None
Gindel,Caroline E. Asst. Vice None
President
Goodfellow,Mark D. Vice President None
Goodman,Robert Managing Director None
Gould,Carol J. Asst. Vice NONE
PRESIDENT
]GRACE,Anthony J. Asst. Vice None
President
Grace,Linda K. Vice PRESIDENT NONE
GREENWOOD,DANIEL W. VICE President None
Grossberg,Jill Asst. Vice None
President
Grove,Denise Vice President None
Guay,Timothy R. Asst. Vice None
President
Gubala,Jeffrey P. Vice President None
Guerin,Donnalee Asst. Vice None
President
Guerra,Salvatore F. Vice PRESIDENT NONE
HAINES,JAMES B. ASST. VICE None
President
Hall,Debra L. Vice President None
Halloran,James E. Vice President None
Halloran,Thomas W. Senior Vice None
President
Harbeck,John D. Vice President None
Harrington,Bruce D. Vice President None
Hartigan,Craig W. Vice President None
Hartley,Deborah M. Asst. Vice None
President
Hawkins III,Howard W. Vice President None
Hayes-Castro,Deanna R. Vice None
President
Hedstrom,Gayle A. Asst. Vice None
President
Heffernan,Paul P. Senior Vice None
President
Heimanson,Susan M. Senior Vice None
President
Holly Sr.,Jeremiah K. Vice President None
Holmes,Maureen A. Asst. Vice None
President
Hooley,Daniel F Jr. Asst. Vice None
President
Hoyt,Paula J. Asst. Vice None
President
Hurley,William J. Managing Director NONE
& CFO
HUTCHINS,ROBERT B. VICE PRESIDENT NONE
ISGUR,Marianne P. Asst. Vice None
President
Jacobsen,Dwight D. Managing NONE
DIRECTOR
JORDAN,Stephen R. Asst. Vice None
President
Kapinos,Peter J. Vice President None
Kay,Karen R. Senior Vice NONE
PRESIDENT
KELEHER,KEVIN J. ASST. VICE None
President
Kelley,Brian J. Vice President None
Kelly,A.Siobhan Asst. Vice None
President
Kennedy,Alicia C. Asst. Vice None
President
King,David L. MANAGING DIRECTOR NONE
KING,DAVID R. VICE PRESIDENT NONE
KINOSHITA,TAKASHI VICE President None
Kinsman,Anne Senior Vice None
President
Kirk,Deborah H. Senior Vice None
President
Koontz,Jill A. Senior Vice None
President
Kreutzberg,Howard H. Senior Vice None
President
Krieger,Marjorie B. Vice President None
Lacascia, VICE PRESIDENT NONE
CHARLES M.
LANDERS,BRUCE M. VICE President None
Lane,Linda Asst. Vice None
President
LaPierre,Christopher W Asst. Vice None
President
Lathrop,James D. Senior Vice None
President
Lawlor,Stephanie T. Asst. Vice None
President
Leary,Joan M. Vice President None
Ledbetter,Charles C. Vice President None
Leipsitz,Margaret Asst. Vice None
President
Lemire,Kevin Vice President None
Leonardo,Christine A. Vice President None
Levy,Eric S. Senior Vice NONE
PRESIDENT
LEVY,NORMAN S. VICE President None
Lewandowski Jr.,Edward Vice President None
V.
Lewandowski,Edward V. Senior Vice None
President
Li,Mei Asst. Vice None
President
Lieberman,Samuel L. Vice President None
Lifsitz,David M. Vice President None
Lilien,David R. Vice President None
Linehan,Ann-Marie Asst. Vice None
President
Litant,Lisa M. Asst. Vice None
President
Lockwood,Maura A. Senior Vice None
President
Lomba,Rufino R. Senior Vice None
President
Long,Gregory T. Vice President None
Lucey,Kevin J Vice President None
Lucey,Robert DIRECTOR NONE
F.
LUCEY, THOMAS PRESIDENT AND NONE
DIRECTOR
LYONS,Robert F. Asst. Vice None
President
Malatos,Ann Vice President None
Mallin,Bonnie J. Senior VICE NONE
PRESIDENT
MALOOF,RENEE L. ASST. Vice None
President
Mancini,Dana Asst. Vice NONE
PRESIDENT
MANNING,GEORGE J. VICE President None
Manthorne,Heather M. Asst. Vice None
President
Maravel,Alexi A. Asst. Vice None
President
Marius,Frederick S. Vice President None
McAvoy,Bridget Asst. Vice None
President
McCafferty,Karen A. Vice President None
McCarthy,Anne B. Asst. Vice None
President
McConville,Paul D. Senior Vice None
President
McCracken,Brian Asst. Vice None
President
McCutcheon,Bruce A Senior Vice None
President
McDermott,Daniel E. Asst. Vice None
President
McKenna,Mark J. Senior Vice None
President
McNamara,Laura Vice President None
McNamee,Mary G. Asst. VICE NONE
PRESIDENT
MEAGHER,DOROTHY B. ASST. Vice None
President
Metelmann,Claye A. Vice President None
Milgroom,Eric D. Asst. Vice None
President
Miller,Bart D. Senior Vice None
President
Miller, Managing Director None
Jeffrey M.
Mills,Ronald K. Vice President None
Minsk,Judith Asst. Vice None
President
Mintzer,Matthew P. Senior Vice None
President
Monahan,Kimberly A. Vice President None
Moody,Paul R. Vice PRESIDENT NONE
MOONIN,SARA R. ASST. VICE None
President
Moret,Mitchell L. Senior Vice None
President
Mosher,Barry L. Asst. Vice None
President
Mullen,Donald E. Senior Vice None
President
Murphy JR.,KENNETH W. ASST. VICE NONE
PRESIDENT
MURPHY,Paul G. Vice President None
Murray,Brendan R. Vice President None
Nadherny,Robert Senior Vice None
President
Natale,Ellen E. Asst. VICE NONE
PRESIDENT
NAUEN,KIMBERLY PAGE ASST. Vice None
President
Neary,Ellen R. Vice President None
Nelson,Alexander L. Managing Director None
Newell,Amy Jane Vice President None
Nickodemus,John P. Senior Vice None
President
Nickse,Gail A. Asst. Vice None
President
O'Brien,Lois C. Vice President None
O'Brien,Nancy E. Vice President None
O'Connell,Gayle M. Asst. Vice None
President
Onofrio,Ellen Asst. Vice NONE
PRESIDENT
OWENS,KERRY M. ASST. Vice None
President
Palmer,Patrick J. Vice President None
Palombo,Joseph R. Managing NONE
DIRECTOR
PANESSA,BRIAN VICE PRESIDENT NONE
PAPES,Scott A. Vice President None
Parr,Cynthia O. Vice President None
Pelletier,Dale M. Vice President None
Peterson,Jennifer H. Asst. Vice None
President
Peterson, VICE PRESIDENT NONE
KATHRYN L.
PETRALIA,RANDOLPH S. SENIOR VICE None
President
Phoenix,John G. Senior Vice None
President
Phoenix,Joseph Senior Vice None
President
Plapinger,Keith Senior Vice NONE
PRESIDENT
POWERS,BRIAN S. ASST. Vice None
President
Present,Howard B. Senior Vice None
President
Pulkrabek,Scott M. Vice President None
Putnam,George Director Chairman and
PRESIDENT
REZABEK,Joseph L. Asst. Vice None
President
Riley,Megan G. Asst. Vice None
President
Ritenhouse,Marc J. Vice President None
Rodammer,Kris Vice President None
Rogers,Deborah A. Vice President None
Rothman,Debra V. Vice President None
Rowe,Robert B. Vice None
President
Ruys de Perez,Charles Senior Vice None
A. President
Ryan,Carolyn M. Asst. Vice None
President
Ryan,Deborah A. Vice None
President
Saunders,Catherine A. Senior Vice None
President
Saunders,Robbin L. Vice President None
Saur,Karl W. Vice President None
Scanlon,Michael M. Vice President None
Schaefer,Jennifer L. Asst. Vice None
President
Schofield,Shannon D. Vice President None
Schroeder,Paul R. Asst. Vice None
President
Schultz,Mitchell D. Managing Director None
Scordato,Christine A. Senior Vice None
President
Scott,Joseph W. Asst. Vice None
President
Segers,Elizabeth R. Senior Vice None
President
Shamburg,John B. Vice President None
Sharpless,Kathy G. Managing NONE
DIRECTOR
SHIEBLER,WILLIAM N. DIRECTOR VICE PRESIDENT
SHORT,JONATHAN D. SENIOR VICE NONE
PRESIDENT
SILVER,GORDON H. SENIOR Managing Vice President
Director
Skistimas Jr,John J. Vice President None
Smith,Stuart C. Asst. Vice None
President
Southard,Peter J. Vice President None
Spiegel,Steven Sr Managing None
Director
Stack,Michael P. Senior Vice None
President
Stanojev,Nicholas T. Senior Vice NONE
PRESIDENT
STARR,LOREN M. MANAGING DIRECTOR NONE
STEINBERG,Lauren B. Asst. Vice None
President
Stern,Derek A. Asst. Vice None
President
Stickney,Paul R. Senior Vice None
President
Strumpf,Casey Senior Vice None
President
Sullivan,Brian L. Senior Vice None
President
Sullivan,Donna G Vice President None
Sullivan,Elaine M. Senior Vice None
President
Sullivan,Guy Managing Director None
Sullivan,Kevin J. Senior Vice None
President
Sullivan,Maryann Asst. Vice None
President
Sutherland,George C. Vice NONE
PRESIDENT
SWEENEY,JANET C. SENIOR VICE NONE
PRESIDENT
TALANIAN,JOHN C. MANAGING DIRECTOR NONE
TANNER,B Iris Vice President None
Tavares,April M. Asst. Vice None
President
Taylor,David S. Vice President None
Telling,John R. Senior Vice None
President
Tercha,Cynthia Vice President None
Thomas,Tracy ASST. Vice None
E. President
Tibbetts,Richard B. Managing Director None
Tirado,Patrice M. Vice PRESIDENT NONE
TONER,ROBERT J. ASST. VICE None
President
Tosi,Janet E. Vice President None
Troped,Bonnie L. Senior Vice None
President
Trowbridge,Wendy S. Asst. Vice None
President
Twigg,Christine M. Asst. Vice None
President
Vander Linde,Douglas Senior Vice None
J. President
Verani,John R. Senior Vice Vice President
President
Vierra,Scott G. Vice None
President
Waters,Mitchell J. Vice None
President
West-Smith,Deirdre Asst. Vice NONE
PRESIDENT
WHALEN,Brian Vice President None
Whalen,Edward F. Senior Vice None
President
Whitaker,J. Greg Vice President None
White,J. Bennett Vice None
President
Wolfson,Jane Senior Vice None
President
Woloshin,Benjamin I. Senior Vice None
President
Woolverton,William H. Managing Director None
Zeller,Michael P. Vice President None
Zografos,Laura J. Vice President None
Zukowski,Virginia A. Senior Vice None
President
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Tax-Free Insured Fund
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> OTHER <FISCAL-YEAR-END>
JUL-31-1998
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 524,627,516
<INVESTMENTS-AT-VALUE> 566,979,331
<RECEIVABLES> 7,886,885
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 574,866,216
<PAYABLE-FOR-SECURITIES> 2,714,713
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,747,585
<TOTAL-LIABILITIES> 6,462,298
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 528,478,916
<SHARES-COMMON-STOCK> 14,951,431
<SHARES-COMMON-PRIOR> 14,146,281
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (316,312)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,674,558)
<ACCUM-APPREC-OR-DEPREC> 41,915,872
<NET-ASSETS> 568,403,918
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 32,017,313
<OTHER-INCOME> 0
<EXPENSES-NET> 4,451,843
<NET-INVESTMENT-INCOME> 27,565,470
<REALIZED-GAINS-CURRENT> 1,833,865
<APPREC-INCREASE-CURRENT> (3,409,371)
<NET-CHANGE-FROM-OPS> 25,989,964
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME>
(10,576,810) <DISTRIBUTIONS-OF-GAINS> (969,004)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,565,662
<NUMBER-OF-SHARES-REDEEMED> (3,182,810)
<SHARES-REINVESTED> 422,298
<NET-CHANGE-IN-ASSETS> 8,893,167
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (534,000)
<OVERDIST-NET-GAINS-PRIOR> (1,029,651)
<GROSS-ADVISORY-FEES> 3,301,507
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,604,003
<AVERAGE-NET-ASSETS> 222,973,216
<PER-SHARE-NAV-BEGIN> 15.50
<PER-SHARE-NII> .74
<PER-SHARE-GAIN-APPREC> (.04)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.80)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.40
<EXPENSE-RATIO> .94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Tax-Free Insured Fund
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> CLASS B
<S> <C>
<PERIOD-TYPE> OTHER <FISCAL-YEAR-END>
JUL-31-1998
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 524,627,516
<INVESTMENTS-AT-VALUE> 566,979,331
<RECEIVABLES> 7,886,885
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 574,866,216
<PAYABLE-FOR-SECURITIES> 2,714,713
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,747,585
<TOTAL-LIABILITIES> 6,462,298
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 528,478,916
<SHARES-COMMON-STOCK> 21,806,018
<SHARES-COMMON-PRIOR> 21,866,631
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (316,312)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,674,558)
<ACCUM-APPREC-OR-DEPREC> 41,915,872
<NET-ASSETS> 568,403,918
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 32,017,313
<OTHER-INCOME> 0
<EXPENSES-NET> 4,451,843
<NET-INVESTMENT-INCOME> 27,565,470
<REALIZED-GAINS-CURRENT> 1,833,865
<APPREC-INCREASE-CURRENT> (3,409,371)
<NET-CHANGE-FROM-OPS> 25,989,964
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME>
(16,563,021) <DISTRIBUTIONS-OF-GAINS> (1,476,320)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,236,109
<NUMBER-OF-SHARES-REDEEMED> (5,006,852)
<SHARES-REINVESTED> 710,130
<NET-CHANGE-IN-ASSETS> 8,893,167
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (534,000)
<OVERDIST-NET-GAINS-PRIOR> (1,029,651)
<GROSS-ADVISORY-FEES> 3,301,507
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,604,003
<AVERAGE-NET-ASSETS> 335,500,401
<PER-SHARE-NAV-BEGIN> 15.52
<PER-SHARE-NII> .77
<PER-SHARE-GAIN-APPREC> (.04)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.83)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.42
<EXPENSE-RATIO> .74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Tax-Free Insured Fund
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> CLASS M
<S> <C>
<PERIOD-TYPE> OTHER <FISCAL-YEAR-END>
JUL-31-1998
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 524,627,516
<INVESTMENTS-AT-VALUE> 566,979,331
<RECEIVABLES> 7,886,885
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 574,866,216
<PAYABLE-FOR-SECURITIES> 2,714,713
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,747,585
<TOTAL-LIABILITIES> 6,462,298
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 528,478,916
<SHARES-COMMON-STOCK> 119,178
<SHARES-COMMON-PRIOR> 57,574
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (316,312)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,674,558)
<ACCUM-APPREC-OR-DEPREC> 41,915,872
<NET-ASSETS> 568,403,918
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 32,017,313
<OTHER-INCOME> 0
<EXPENSES-NET> 4,451,843
<NET-INVESTMENT-INCOME> 27,565,470
<REALIZED-GAINS-CURRENT> 1,833,865
<APPREC-INCREASE-CURRENT> (3,409,371)
<NET-CHANGE-FROM-OPS> 25,989,964
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (69,217)
<DISTRIBUTIONS-OF-GAINS> (6,563)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 102,035
<NUMBER-OF-SHARES-REDEEMED> (44,505)
<SHARES-REINVESTED> 4,074
<NET-CHANGE-IN-ASSETS> 8,893,167
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (534,000)
<OVERDIST-NET-GAINS-PRIOR> (1,029,651)
<GROSS-ADVISORY-FEES> 3,301,507
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,604,003
<AVERAGE-NET-ASSETS> 1,567,730
<PER-SHARE-NAV-BEGIN> 15.50
<PER-SHARE-NII> .69
<PER-SHARE-GAIN-APPREC> (.04)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.76)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.39
<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PUTNAM TAX-FREE HIGH YIELD FUND
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST>
$1,834,605,994 <INVESTMENTS-AT-VALUE>
1,977,678,033 <RECEIVABLES> 31,399,588
<ASSETS-OTHER> 12,411,514
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS>
2,021,489,135 <PAYABLE-FOR-SECURITIES> 6,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,832,686
<TOTAL-LIABILITIES> 15,832,686
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON>
1,961,340,601 <SHARES-COMMON-STOCK> 63,986,537
<SHARES-COMMON-PRIOR> 42,978,869
<ACCUMULATED-NII-CURRENT> 451,768
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS>
(98,502,842) <ACCUM-APPREC-OR-DEPREC> 142,366,922
<NET-ASSETS>
2,005,656,449 <DIVIDEND-INCOME> 0
<INTEREST-INCOME> 131,188,653
<OTHER-INCOME> 0
<EXPENSES-NET> 26,380,589
<NET-INVESTMENT-INCOME> 104,808,064
<REALIZED-GAINS-CURRENT>
(49,096,836) <APPREC-INCREASE-CURRENT> 56,405,435
<NET-CHANGE-FROM-OPS> 112,116,663
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME>
(36,129,110) <DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 28,069,998
<NUMBER-OF-SHARES-REDEEMED>
(8,309,305) <SHARES-REINVESTED> 1,246,975
<NET-CHANGE-IN-ASSETS>
(63,502,742) <ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (195,279)
<OVERDIST-NET-GAINS-PRIOR>
(48,894,170) <GROSS-ADVISORY-FEES> 10,911,248
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 26,716,405
<AVERAGE-NET-ASSETS>
645,400,906 <PER-SHARE-NAV-BEGIN> $14.56
<PER-SHARE-NII> .80
<PER-SHARE-GAIN-APPREC> .06
<PER-SHARE-DIVIDEND> (.81)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> $14.61
<EXPENSE-RATIO> .88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PUTNAM TAX-FREE HIGH YIELD FUND
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END>
JUL-31-1998 <PERIOD-END>
JUL-31-1998 <INVESTMENTS-AT-COST>
$1,834,605,994 <INVESTMENTS-AT-VALUE>
1,977,678,033 <RECEIVABLES> 31,399,588
<ASSETS-OTHER> 12,411,514
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS>
2,021,489,135 <PAYABLE-FOR-SECURITIES> 6,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,832,686
<TOTAL-LIABILITIES> 15,832,686
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON>
1,961,340,601 <SHARES-COMMON-STOCK> 72,008,837
<SHARES-COMMON-PRIOR> 98,020,334
<ACCUMULATED-NII-CURRENT> 451,768
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS>
(98,502,842) <ACCUM-APPREC-OR-DEPREC>
142,366,922 <NET-ASSETS>
2,005,656,449 <DIVIDEND-INCOME> 0
<INTEREST-INCOME>
131,188,653
<OTHER-INCOME> 0
<EXPENSES-NET> 26,380,589
<NET-INVESTMENT-INCOME>
104,808,064 <REALIZED-GAINS-CURRENT>
(49,096,836) <APPREC-INCREASE-CURRENT> 56,405,435
<NET-CHANGE-FROM-OPS>
112,116,663 <EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME>
(67,180,332) <DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,108,105
<NUMBER-OF-SHARES-REDEEMED>
(38,248,975) <SHARES-REINVESTED> 2,129,873
<NET-CHANGE-IN-ASSETS>
(63,502,742) <ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (195,279)
<OVERDIST-NET-GAINS-PRIOR>
(48,894,170) <GROSS-ADVISORY-FEES> 10,911,248
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 26,716,405
<AVERAGE-NET-ASSETS>
1,367,367,815 <PER-SHARE-NAV-BEGIN> $14.56
<PER-SHARE-NII> .73
<PER-SHARE-GAIN-APPREC> .05
<PER-SHARE-DIVIDEND> (.72)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> $14.62
<EXPENSE-RATIO> 1.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PUTNAM TAX-FREE HIGH YIELD FUND
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> CLASS M
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END>
JUL-31-1998 <PERIOD-END>
JUL-31-1998 <INVESTMENTS-AT-COST>
$1,834,605,994 <INVESTMENTS-AT-VALUE>
1,977,678,033 <RECEIVABLES> 31,399,588
<ASSETS-OTHER> 12,411,514
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS>
2,021,489,135 <PAYABLE-FOR-SECURITIES> 6,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,832,686
<TOTAL-LIABILITIES> 15,832,686
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON>
1,961,340,601 <SHARES-COMMON-STOCK> 1,237,641
<SHARES-COMMON-PRIOR> 1,112,943
<ACCUMULATED-NII-CURRENT> 451,768
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS>
(98,502,842)
<ACCUM-APPREC-OR-DEPREC>
142,366,922
<NET-ASSETS>
2,005,656,449
<DIVIDEND-INCOME> 0
<INTEREST-INCOME>
131,188,653
<OTHER-INCOME> 0
<EXPENSES-NET>
26,380,589
<NET-INVESTMENT-INCOME>
104,808,064
<REALIZED-GAINS-CURRENT>
(49,096,836)
<APPREC-INCREASE-CURRENT>
56,405,435
<NET-CHANGE-FROM-OPS>
112,116,663
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME>
(949,710)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD>
414,110
<NUMBER-OF-SHARES-REDEEMED>
(331,509)
<SHARES-REINVESTED>
42,097
<NET-CHANGE-IN-ASSETS>
(63,502,742)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR>
(195,279)
<OVERDIST-NET-GAINS-PRIOR>
(48,894,170)
<GROSS-ADVISORY-FEES>
10,911,248
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE>
26,716,405
<AVERAGE-NET-ASSETS>
18,094,043
<PER-SHARE-NAV-BEGIN>
$14.55
<PER-SHARE-NII>
.78
<PER-SHARE-GAIN-APPREC>
.05
<PER-SHARE-DIVIDEND>
(.77)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END>
$14.61
<EXPENSE-RATIO>
1.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
