[Translation]
SECURITIES REGISTRATION STATEMENT
(including an amendment filed on October 2 , 1996)
PUTNAM HIGH YIELD ADVANTAGE FUND
<PAGE>
SECURITIES REGISTRATION STATEMENT
To: Minister of Finance
Filing Date of SRS: November 15 , 1996
Filing Date of an amendment to SRS: November 22 , 1996
Name of the Registrant Trust:PUTNAM HIGH YIELD ADVANTAGE FUND
Name and Official Title of Trustees:George Putnam
William F. Pounds
Jameson A. Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
Address of Principal Office:One Post Office Square
Boston, Massachusetts 02109
U. S. A.
Name and Title of Registration Agent:Harume Nakano
Attorney-at-Law
Signature [Harume Nakano]_
(Seal)
Ken Miura
Attorney-at-Law
Signature [Ken Miura]_____
(Seal)
Address or Place of BusinessSankyu Building
6-l4, Kasumigaseki 3-chome
Chiyoda-ku, Tokyo
Name of Liaison Contact:Harume Nakano
Ken Miura
Attorneys-at-Law
Place of Liaison Contact:Hamada & Matsumoto
Sankyu Bldg.
6-l4, Kasumigaseki 3-chome
Chiyoda-ku, Tokyo
Phone Number:03-3580-3377
<PAGE>
- - ii -
Public Offering or Sale for Registration
Name of the Fund Making Public PUTNAM HIGH YIELD
Offering or Sale of Foreign ADVANTAGE FUND
Investment Fund Securities:
Type and Aggregate Amount of Up to 250 million Class M
Shares
Foreign Investment Fund Securities Up to the total amount
aggregating the
to be Publicly Offered or Sold:amounts calculated by
multiplying the respective net asset value per Class M Share by
the respective number of Class M Shares in respect of 250
million Class M Shares (The Maximum amount expected to be
sold is 2.385 billion U.S. dollars (Yen 271.8
billion).
Note 1:U.S.$ amount is translated into Japanese Yen at the
rate of U.S.$l.00=Yen107.95 the mean of the exchange rate
quotations by The Bank of Tokyo-Mitsubishi, Ltd. for buying and
selling spot dollars by telegraphic transfer against yen on 31st
October , 1996.
Note 2:The maximum amount expected to be sold is an amount
calculated by multiplying the net asset value per Class M Share
as of 31st October, 1996 (U.S.$9.54) by 250
million Class M Shares for convenience.
Places where a copy of this Securities Registration
Statement is available for Public Inspection
Not applicable.
(Total number of pages of this Securities Registration Statement
in Japanese is
107 including front and back pages.)
<PAGE>
C O N T E N T S
Japanese This
Original English
Translation
PART I.INFORMATION CONCERNING SECURITIES 1 1
PART II.INFORMATION CONCERNING ISSUER 3 4
I.DESCRIPTION OF THE FUND 3 4
l.GENERAL INFORMATION 3 4
2.INVESTMENT POLICY 8 7
3.MANAGEMENT STRUCTURE 15 14
4.INFORMATION CONCERNING THE EXERCISE
OF RIGHTS BY SHAREHOLDERS, ETC. 22 21
5.STATUS OF INVESTMENT FUND 24 33
II.OUTLINE OF THE TRUST 26 35
III.OUTLINE OF THE OTHER RELATED COMPANIES 56 65
IV.FINANCIAL CONDITION OF THE FUND 58 67
V.SUMMARY OF INFORMATION CONCERNING
FOREIGN INVESTMENT FUND SECURITIES 181 67
VI.MISCELLANEOUS 184 62
PART III.SPECIAL INFORMATION 184 62
I.OUTLINE OF THE SYSTEM OF INVESTMENT
TRUSTS IN MASSACHUSETTS 184 62
II.FINANCIAL CONDITIONS OF THE INVESTMENT
ADVISER AND MANAGEMENT COMPANY 190 87
III.FORM OF FOREIGN INVESTMENT
FUND SECURITIES 213 87
<PAGE>
PART I.INFORMATION CONCERNING SECURITIES
1.NAME OF FUND:PUTNAM HIGH YIELD ADVANTAGE FUND
(hereinafter referred to as the "Fund")
2.NATURE OF FOREIGNThree classes of shares (Class
INVESTMENT FUND SECU-A shares, Class B shares and Class M
RITIES CERTIFICATES:Shares)
Registered share certificate without par value
In Japan, Class M Shares (hereinafter referred to as the
"Shares") are for public offering. No rating has been acquired.
3.NUMBER OF SHARES TOUp to 250 million Shares
BE OFFERED FOR SALE
(IN JAPAN)
4.TOTAL AMOUNT OFUp to the total amount aggregating
OFFERING PRICE:the amounts calculated by multiplying the
respective net asset value per Share by the respective number of
Shares in respect of 250 million Shares
(The maximum amount expected to be sold is 2.385 billion
U.S. dollars (Yen271.8 billion).
Note 1:The maximum amount expected to be sold is the amount
calculated, for convenience, by multiplying the net asset value
per Share as of 31st October, 1996 ($9.54) by the
number of Shares to be offered (250 million).
Note 2:Dollar amount is translated for convenience at the
rate of $1.00= Yen113.95 (the mean of the exchange rate
quotations by The Bank of Tokyo-Mitsubishi, Ltd. for buying and
selling spot dollars by telegraphic transfer against yen on 31st
October , 1996). The same applies hereinafter.
Note 3:In this document, money amounts and percentages have
been rounded. Therefore, there are cases in which the amount of
the "total column" is not equal to the aggregate amount. Also,
translation into yen is made simply by multiplying the
corresponding amount by the conversion rate specified and rounded
up when necessary. As a result, in this document, there are
cases in which Japanese yen figures for the same information
differ from each other.
5.ISSUE PRICE:The Net Asset Value per Share next calculated
on a Fund Business Day after the application for purchase is
received by the Fund.
Note:The "Business Day" means a day on which the New York
Stock Exchange is open for business.
6.SALES CHARGE:Sales charge (in Japan) is 3.25% of the
Subscription Amount
Note:3% consumption tax on the Sales charge will be added.
7.MINIMUM AMOUNT ORThe minimum amount for purchase of
NUMBER OF SHARESShares is 100 shares and in integral
FOR SUBSCRIPTION:multiples of 10 shares.
8.PERIOD OF SUBSCRIPTION:From: December 2, 1996 (Monday)
To May 30 , 1997 (Friday)
Provided that the subscription is handled only on a Fund
Business Day and a business day when securities companies are
open for business in Japan.
9.DEPOSIT FOR SUBSCRIPTION:None.
10.PLACE OF SUBSCRIPTION:KOKUSAI Securities Co., Ltd.
(hereinafter referred to as "KOKUSAI")
Tokyo-Sumitomo Twin Bldg. East, 27-1, Shinkawa 2-chome, Chuo-ku,
Tokyo
Note:The subscription is handled at the head office and the
branch offices in Japan of the above-mentioned securities
company.
11.DATE AND PLACEInvestors shall pay the Issue Price and
OF PAYMENT:Sales Charge to KOKUSAI within 4 business days in
Japan from the day when KOKUSAI confirms the execution of the
order (the "Trade Day") (see page 18).
The total issue price for each Application Day will be
12.OUTLINE OF UNDERWRITING, ETC.:
(A)KOKUSAI has entered into an agreement dated 6th
September, 1996 with Putnam Mutual Funds Corp. (hereinafter
referred to as the "Fund") in connection with the sale and
repurchase of the Shares in Japan, and has undertaken to
make a public offering of Shares.
(B)During the offering period, KOKUSAI will execute
or forward the purchase orders and repurchase requests of the
Shares received directly or indirectly through other Handling
Securities Companies to the Fund.
(C)The Fund has appointed KOKUSAI as the Agent Securities
Company in Japan.
Note:"The Agent Securities Company" shall mean a securities
company which, under a contract made with a foreign issuer of
investment securities, makes public the net asset value per Share
and submits or forwards the financial reports or other documents
to the Japan Securities Dealers Association ("JSDA") and other
handling securities companies (the "Handling Securities
Companies") rendering such other services.
13.MISCELLANEOUS:
(A)Method of Subscription:
Investors who subscribe to Shares shall submit to a Handling
Securities Company an Agreement Concerning the Opening of a
Foreign Securities Transactions Account ("Account Agreement") or,
in case of investors who shall not entrust the custody of Shares
with a Handling Securities Company shall submit to it an
Agreement Concerning Foreign Securities Transactions
("Transactions Agreement"). The subscription amount shall be
paid in yen in principle and the yen exchange rate shall be the
forward cable exchange rate in Tokyo on the Trade Day fixed on
each Payment Date.
The subscription amount shall be paid in dollars to the
account of the Fund with Putnam Fiduciary Trust Company as
transfer agent for the Fund by Kokusai on the Payment Date.
(B)Offerings other than in Japan:
Shares are simultaneously offered in the United States of
America.<PAGE>
PART II.INFORMATION CONCERNING ISSUER
I.DESCRIPTION OF THE FUND
1.GENERAL INFORMATION
(A)Outline of Laws Regulating the Fund in the Jurisdiction Where
Established:
(1)Name of the Fund:Putnam High Yield Advantage Fund (the "Fund")
(2)Form of the Fund
Putnam High Yield Advantage Fund is a Massachusetts business
trust organized on January 13, 1986. A copy of the Agreement and
Declaration of Trust, which is governed by Massachusetts law, is
on file with the Secretary of State of The Commonwealth of
Massachusetts. Prior to April 1, 1992 the Fund was known as
Putnam High Yield Trust II.
The Fund is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the Fund may be divided without
shareholder approval into two or more series of shares
representing separate investment portfolios.
Any such series of shares may be divided without shareholder
approval into two or more classes of shares having such
preferences and special or relative rights and privileges as the
Trustees determine. The Fund's shares are not currently divided
into any series, but are divided into three classes. Only the
Fund's class A, B and M shares are currently offered. 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.
Each share has one vote, with fractional shares voting
proportionally. Shares of each class will vote together as a
single class except when otherwise required by law or as
determined by the Trustees. Shares are freely transferable, are
entitled to dividends as declared by the Trustees, and, if the
Fund were liquidated, would receive the net assets of the Fund.
The Fund may suspend the sale of shares at any time and may
refuse any order to purchase shares. Although the Fund is not
required to hold annual meetings of its shareholders,
shareholders holding at least 10% of the outstanding shares
entitled to vote have the right to call a meeting to elect or
remove Trustees, or to take other actions as provided in the
Agreement and Declaration of Trust.
If shareholders own fewer shares than a minimum amount set
by the Trustees (presently 20 shares), the Fund may choose to
redeem shareholders shares. Shareholders will receive at least
30 days' written notice before the Fund redeems shareholders
shares, and shareholders may purchase additional shares at any
time to avoid a redemption. The Fund may also redeem shares if
shareholders own shares above a maximum amount set by the
Trustees. There is presently no maximum, but the Trustees may
establish one at any time, which could apply to both present and
future shareholders.
(3)Governing Laws
The Fund was created under, and is subject to, the laws of
the Commonwealth of Massachusetts. The sale of the Fund s
shares is subject to, among other things, the Securities Act
of 1933, as amended, and certain state securities laws. The Fund
also attempts to qualify each year and elect to be taxed as a
regulated investment company under the United States Internal
Revenue Code of 1986, as amended.
The following is a broad outline of certain of the principal
statutes regulating the operations of the Fund in the U.S.:
a.Massachusetts General Laws, Chapter 182 - Voluntary
Associations and Certain Trusts
Chapter 182 provides in part as follows:
A copy of the declaration of trust must be filed with the
Secretary of State of the Commonwealth of Massachusetts and with
the Clerk of the City of Boston. Any amendment of the
declaration of trust must be filed with the Secretary and the
Clerk within thirty days after the adoption of such amendment.
A trust must annually file with the Secretary of State on or
before June 1 a report providing the name of the trust, its
address, number of shares outstanding and the names and addresses
of its trustees.
Penalties may be assessed against the trust for failure to
comply with certain of the provisions of Chapter 182.
b.Investment Company Act of 1940
The Investment Company Act of 1940, as amended (the 1940
Act ), in general, requires investment companies to register as
such with the U.S. Securities and Exchange Commission (the
SEC ), and to comply with a number of substantive regulations of
their operations. The 1940 Act requires an investment company,
among other things, to provide periodic reports to its
shareholders.
c.Securities Act of 1933
The Securities Act of 1933, as amended (the 1933 Act ),
regulates many sales of securities. The Act, among other things,
imposes various registration requirements upon sellers of
securities and provides for various liabilities for failures to
comply with its provisions or in respect of other specified
matters.
d.Securities Exchange Act of 1934
The Securities Exchange Act of 1934, as amended (the 1934
Act ), regulates a variety of matters involving, among other
things, the secondary trading of securities, periodic reporting
by the issuers of securities, and certain of the activities of
transfer agents and brokers and dealers.
e.The Internal Revenue Code
The Fund intends to qualify as a regulated investment
company for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of federal
taxes on income and gains it distributes to shareholders.
f.Other laws
The Fund is subject to the provisions of other laws, rules,
and regulations applicable to the Fund or its operations, such
as, for example, various state laws regarding the sale of the
Fund s shares.
(B)Outline of the Supervisory Authorities
Among the regulatory authorities having jurisdiction
over the Fund or certain of its operations are the SEC
and state regulatory agencies or authorities.
a.The SEC has broad authority to oversee the application and
enforcement of the federal securities laws, including the 1940
Act, the 1933 Act, and the 1934 Act, among others, to the Fund.
The 1940 Act provides the SEC broad authority to inspect the
records of investment companies, to exempt investment companies
or certain practices from the provisions of the Act, and
otherwise to enforce the provisions of the Act.
b.State authorities typically have broad authority to
regulate the offering and sale of securities to their residents
or within their jurisdictions and the activities of brokers,
dealers, or other persons directly or indirectly engaged in
related activities.
(C)Objects and Basic Nature of the Fund:
The Fund seeks high current income. Capital growth is
a secondary objective when consistent with the objective
of high current income. The Fund is not intended to be a
complete investment program, and there is no assurance it will
achieve its objectives.
(D)History of the Fund:
January 13, 1986:Organization of the Fund as a
Massachusetts business trust. Adoption of the Agreement and
Declaration of Trust.
April, 1, 1992:Change of the Fund's name.
May 5, 1994:Adoption of the Amended and Restated
Agreement and Declaration of Trust.
(E)Affiliated Companies of the Fund:
Names and related business of the affiliated companies
of the Fund are as follows:
(1)Putnam Investment Management, Inc. ("Investment Management
Company") renders investment management services to the Fund.
(2)Putnam Fiduciary Trust Company (the "Custodian" and Investor
Servicing Agent ) acts as Custodian and Investor Servicing Agent.
(3)Putnam Mutual Funds Corp. ("Distributor") engages in providing
marketing services to the Fund.
(4)KOKUSAI Securities Co., Ltd. ("Distributor in Japan" and
"Agent Securities Company") engages in forwarding the purchase or
repurchase orders for the Shares in Japan and also acts as the
agent securities company.<PAGE>
2. INVESTMENT POLICY
(A) Basic Policy for Investment and Objects of
Investment:
The Fund seeks high current income. Capital growth is
a secondary objective when consistent with the objective of high
current income. The Fund is not intended to be a complete
investment program, and there is no assurance it will achieve its
objectives.
Basic investment strategy
The Fund seeks high current income by investing
primarily in high-yielding, lower - rated fixed -
income securities, constituting a diversified portfolio which
Putnam Investment Management, Inc., the Fund's investment
management company (the Investment Management Company ),
believes does not involve undue risk to income or principal.
Normally, at least 80% of the Fund's assets will be invested in
debt securities, convertible securities or preferred stocks that
are consistent with its primary investment objective of high
current income. The Fund's remaining assets may be held in cash
or money market instruments, or invested in common stocks and
other equity securities when these types of investments are
consistent with the objective of high current income.
The Fund seeks its secondary objective of capital
growth, when consistent with its primary objective of high
current income, by investing in securities which may be expected
to appreciate in value as a result of declines in long -
term interest rates or favorable developments affecting the
business or prospects of the issuer which may improve the
issuer's financial condition and credit rating. Investment
Management Company believes that such opportunities for capital
appreciation often exist in the securities of smaller
capitalization companies. Although these smaller companies may
present greater opportunities for capital appreciation, they may
also include greater risks than larger, more established issuers.
Differing yields on fixed - income securities of
the same maturity are a function of several factors, including
the relative financial strength of the issuers of such
securities. Higher yields are generally available from
securities in the lower rating categories of recognized rating
agencies: Baa or lower by Moody's Investors Service, Inc.
("Moody's") or BBB or lower by Standard & Poor's ("S&P").
Securities rated below Baa or BBB are considered to be of poor
standing and predominantly speculative. The Fund may invest up
to 15% of its assets in securities rated below Caa by Moody's or
CCC by S&P, including securities in the lowest rating category of
each rating agency, or in unrated securities that Investment
Management Company 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.
Securities ratings are based largely on the issuer's
historical financial condition and the rating agencies'
investment 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. Although
Investment Management Company considers securities ratings when
making investment decisions, it performs its own investment
analysis and does not rely principally on the ratings assigned by
the rating services. Investment Management Company's analysis
may include consideration of the issuer's experience and
managerial strength, changing financial condition, borrowing
requirements or debt maturity schedules, and its responsiveness
to changes in business conditions and interest rates. It also
considers relative values based on anticipated cash flow,
interest or dividend coverage, asset coverage and earnings
prospects. Because of the greater number of investment
considerations involved in investing in lower - rated
securities, the achievement of the Fund's objectives depends more
on Investment Management Company's analytical abilities than
would be the case if the Fund were investing primarily in
securities in the higher rating categories.
The Fund may invest in participations and assignments
of fixed and floating rate loans made by financial institutions
to governmental or corporate borrowers. In addition to other
risks associated with investments in debt securities,
participations and assignments involve the additional risk that
the institution's insolvency could delay or prevent the flow of
payments on the underlying loan to the Fund. The Fund may have
limited rights to enforce the terms of the underlying loan, and
the liquidity of loan participations and assignments may be
limited.
At times Investment Management Company may judge that
conditions in the securities markets make pursuing the Fund's
basic investment strategy inconsistent with the best interests of
its shareholders. At such times Investment Management Company
may temporarily use alternative strategies primarily designed to
reduce fluctuations in the value of the Fund's assets.
In implementing these defensive strategies, the Fund
may increase the portion of its assets invested in money market
instruments and may invest in higher-rated fixed - income
securities, or other securities Investment Management Company
considers consistent with such defensive strategies. The yield
on these securities would generally be lower than the yield on
lower - rated fixed income securities. It is impossible to
predict when, or for how long, the Fund will use these
alternative strategies.
Non-U.S. Investments
The Fund may invest up to 20% of its assets in
securities principally traded in non-U.S. markets. The Fund may
also purchase Eurodollar certificates of deposit without regard
to the 20% limit. Since non-U.S. securities are normally
denominated and traded in non-U.S. currencies, the values of the
Fund assets may be affected favorably or unfavorably by currency
exchange rates and exchange control regulations. There may be
less information publicly available about a non-U.S. company than
about a U.S. company, and non-U.S. companies are not generally
subject to accounting, auditing, and financial reporting
standards and practices comparable with those in the United
States.
The securities of some non-U.S. companies are less
liquid and at times more volatile than securities of comparable
U.S. companies. Non-U.S. brokerage commissions and other fees are
also generally higher than those in the United States. Non-U.S.
settlement procedures and trade regulations may involve certain
risks (such as delay in payment or delivery of securities or in
the recovery of fund assets held abroad) and expenses not present
in the settlement of U.S. investments.
In addition, there may be a possibility of
nationalization or expropriation of assets, imposition of
currency exchange controls, confiscatory taxation, political or
financial instability and diplomatic developments that could
affect the value of investments in certain non-U.S. countries.
Legal remedies available to investors in certain non-
U.S. countries may be more limited than those available with
respect to investments in the United States or in other non-U.S.
countries. The laws of some non-U.S. countries may limit
investments in securities of certain issuers located in those
non-U.S. countries. Special tax considerations apply to non-U.S.
securities.
The risks described above are typically increased for
investments in securities principally traded in, or issued by
issuers located in, underdeveloped and developing nations, which
are sometimes referred to as "emerging markets."
The Fund may buy or sell non-U.S. currencies, non-U.S.
currency forward contracts, non-U.S. currency futures contracts
and call options on non-U.S. currencies for hedging purposes in
connection with its non-U.S. investments.
Investments in premium securities
At times, the Fund may invest in securities bearing
coupon rates higher than prevailing market rates. Such "premium"
securities are typically purchased at prices greater then the
principal amounts payable on maturity.
The Fund does not amortize the premium paid for these
securities in calculating its net investment income. As a
result, the purchase of premium securities provides the Fund a
higher level of investment income distributable to shareholders
on a current basis than if the Fund purchased securities bearing
current market rates of interest. Because the value of premium
securities tends to approach the principal amount as they
approach maturity (or call price in the case of securities
approaching their first call date), the purchase of such
securities may increase the Fund's risk of capital loss if such
securities are held to maturity (or first call date).
During a period of declining interest rates, many of
the Fund's portfolio investments will likely bear coupon rates
that are higher than the current market rates, regardless of
whether the securities were originally purchased at a premium.
These securities would generally carry premium market values that
would be reflected in the net asset value of the Fund's shares.
As a result, an investor who purchases shares of the Fund during
such periods would initially receive higher taxable monthly
distributions (derived from the higher coupon rates payable on
the Fund's investments) than might be available from alternative
investments bearing current market interest rates, but the
investor may face an increased risk of capital loss as these
higher coupon securities approach maturity (or first call date).
In evaluating the potential performance of an investment in the
Fund, investors may find it useful to compare the Fund's current
dividend rate with the Fund's "yield," which is computed on a
yield - to - maturity basis in accordance with SEC
regulations and which reflects amortization of market premiums.
Illiquid securities
The Fund may invest up to 10% of its assets in illiquid
securities. Investment Management Company believes that
opportunities to earn high yields may exist from time to time in
securities which are illiquid and which may be considered
speculative. The sale of these securities is usually restricted
under federal securities laws. As a result of illliquidity, the
Fund may not be able to sell these securities when Investment
Management Company considers it desirable to do so or may have to
sell them at less than fair market value.
Options and futures portfolio strategies
The Fund may engage in a variety of transactions
involving the use of options and futures contracts. The Fund may
purchase and sell futures contracts in order to hedge against
changes in the values of securities the Fund owns or expects to
purchase or to hedge against interest rate changes. For example,
if Investment Management Company expected interest rates to
increase, the Fund might sell futures contracts on U.S.
Government Securities. If rates were to increase, the value of
U.S. Government Securities held by the Fund would decline, but
this decline would be offset in whole or in part by an increase
in the value of the Fund's positions in its futures contracts.
The Fund may also purchase and sell call and put options on
futures contracts or on securities the Fund owns or expects to
purchase in addition to or as an alternative to purchasing and
selling futures contracts. To the extent permitted by applicable
law, the Fund may engage in futures and options transactions for
purposes other than hedging, such as to earn additional income.
The Fund may also buy and sell combinations of put and call
options on the same underlying security to earn additional
income. The Fund will not purchase put and call options with
respect to such securities if as a result more than 5% of its
assets would at the time be invested in such options.
Options and futures transactions involve costs and may
result in losses. The effective use of options and futures
strategies depends on the Fund's ability to terminate options and
futures positions at times when Investment Management Company
deems it desirable to do so. Although the Fund will enter into
an option or futures contract position only if Investment
Management Company believes that a liquid secondary market exists
for such option or futures contract, there is no assurance that
the Fund will be able to effect closing transactions at any
particular time or at an acceptable price. Options on certain
securities are traded in significant volume on securities
exchanges. However, other options which the Fund may purchase or
sell are traded in the "over - the - counter" market
rather than on an exchange. This means that the Fund will enter
into such option contracts with particular securities dealers who
make markets in these options. The Fund's ability to terminate
options positions 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 might fail to meet their obligations to the Fund.
The use of options and futures strategies also involves
the risk of imperfect correlation among movements in the values
of the securities underlying the futures and options purchased
and sold by the Fund, of the option and futures contract itself,
and of the securities which are the subject of a hedge. The
successful use of these strategies further depends on the ability
of Investment Management Company to forecast interest rates and
market movements correctly. The use of futures and options
transactions for purposes other than hedging entails greater
risks.
The Fund's ability to engage in options and futures
transactions and to sell related securities may be limited by tax
considerations and by certain regulatory requirements.
Other investment practices.
The Fund may also engage to a limited extent in the
following investment practices, each of which involves certain
special risks.
Securities loans, repurchase agreements and forward
commitments.
The Fund may lend portfolio securities amounting to not
more than 25% of its assets to broker - dealers and may
enter into repurchase agreements on up to 25% of its assets.
These transactions must be fully collateralized at all times.
The Fund may also purchase securities for future delivery, which
may increase its overall investment exposure and involves a risk
of loss if the value of the securities declines prior to the
settlement date. These transactions involve some risk to the
Fund if the other party should default on its obligation and the
Fund is delayed or prevented from recovering the collateral or
completing the transaction.
Derivatives
Certain of the instruments in which the Fund will
invest, such as options, futures contracts and forward contracts
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 foreign
currency.
Portfolio turnover
The length of time the Fund has held a particular
security is not generally a consideration in investment
decisions. A change in the securities held by the Fund is known
as "portfolio turnover." As a result of the Fund's investment
policies, under certain market conditions the Fund's portfolio
turnover rate may be higher than that of other mutual funds.
Portfolio turnover generally involves some expense to
the Fund, including brokerage commissions or dealer mark -
ups and other transaction costs on the sale of securities and
reinvestment in other securities. Such transactions may result
in realization of taxable capital gains.
(B) Restrictions of Investment:
As fundamental investment restrictions, which may not
be changed without a vote of a majority of the outstanding voting
securities, the Fund may not and will not:
(1) Borrow money in excess of 10% of the value
(taken at the lower of cost or current value) of its total assets
(not including the amount borrowed) at the time the borrowing is
made, and then only from banks as a temporary measure to
facilitate the meeting of redemption requests (not for leverage)
which might otherwise require the untimely disposition of
portfolio investments or for extraordinary or emergency purposes.
Such borrowings will be repaid before any additional investments
are purchased.
(2) 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 laws.
(3) Purchase or sell real estate, although it may
purchase securities of issuers which deal in real estate,
securities which are secured by interests in real estate ,
and securities 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 obligations secured by real estate or
interests therein.
(4) Purchase or sell commodities or commodity
contracts, except that the fund may purchase and sell
financial futures contracts and ptions and may enter into
foreign exchange contracts and other financial transactions not
involving physical commodities.
(5) Make loans, except by purchase of debt
obligations in which the fund may invest consistent with
its investment policies, by entering into repurchase agreements
, or by lending its portfolio securities .
(6) With respect to 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 or
principal by the U.S. government or its agencies or
instrumentalities.
(7) With respect to 75% of its total assets,
acquire more than 10% of the outstanding voting
securities of any issuer.
(8) Purchase securities (other than securities of
the U.S. government, its agencies or instrumentalities)
if, as a result of such purchase, more than 25% of
the fund s total assets would be invested in any one
industry.
(9) Issue any class of securities which is senior to
the fund s shares of beneficial interest , except for
permitted borrowings .
It is contrary to the Fund's present policy, which may
be changed without shareholder approval, to:
(1) Invest in (a) securities which at the time of
such investment are not readily marketable, (b) securities
restricted as to resale (excluding securities determined by the
Trustees of the Fund (or the person designated by the Trustees of
the Fund to make such determinations) to be readily marketable),
and (c) repurchase agreements maturing in more than seven days,
if, as a result, more 15% of the Fund's net assets (taken at
current value) would then be invested in securities described in
(a), (b) and (c) above.
(2) Invest in warrants (other than warrants
acquired by the Fund as part of a unit or attached to securities
at the time of purchase).
(3) Invest in securities of an issuer which,
together with any predecessors, controlling persons, general
partners and guarantors, have a record of less than three years'
continuous business operation or relevant business experience,
if, as a result, the aggregate of such investments would exceed
5% of the value of the Fund's net assets; provided, however, that
this restriction shall not apply to any obligation of the U.S.
government or its instrumentalities or agencies.
(4) Invest in the securities of other registered
open-end investment companies, except as they may be acquired as
part of a merger, consolidation or acquisition of assets.
(5) Pledge, hypothecate, mortgage or otherwise
encumber its assets in excess of 33 1/3% of its total assets
(taken at cost) in connection with permitted borrowings.
(6) Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of purchases and
sales of securities, and except that it may make margin payments
in connection with financial futures contracts or options.
(7) Make short sales of securities or maintain a short
position for the account of the fund unless at all times when a
short position is open it owns an equal amount of such securities
or owns securities which, without payment of any further
consideration, are convertible into or exchangeable for
securities of the same issue as, and in equal amount to, the
securities sold short.
(8) Invest in securities of any issuer, if, to the
knowledge of the fund, officers and Trustees of the fund and
officers and directors of Putnam Management who beneficially own
more than 0.5% of the securities of that issuer together own more
than 5% of such securities.
(9) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts, although it may purchase securities which
represent interests in, are secured by interests in, or which are
issued by issuers which deal in, such leases, rights or
contracts, and it may acquire and dispose of such leases, rights
or contracts acquired through the exercise of its rights as a
holder of debt obligations secured thereby.
The Fund will, so long as shares of the Fund are being
offered for sale by the Fund in Japan, comply with the
following :
1. The Fund may not invest in the securities of
other registered open-end investment funds or companies, except
as they may be acquired as part of a merger, consolidation or
acquisition of assets .
2. The Fund may not invest more than 10% of the
net assets of the Fund in securities which are not traded on an
official stock exchange or other regulated market, operating
regularly and being recognized and open to the public (which
shall include, without limitation, the National Association of
Securities Dealers Quotation System). This restriction shall not
be applicable to bonds determined by Putnam Investment
Management, Inc. to be liquid and for which a market price
(including a dealer quotation) is generally obtainable or
determinable .
3. The Fund may not invest in securities of any
issuer if, immediately after such investment, more than 5% of the
total assets of the Fund (taken at current value) would be
invested in the securities of such issuer, provided that this
limitation does not apply to obligations issued or guaranteed as
to interest and principal by the U.S. government or its agencies
or instrumentalities.
4. The Fund may not acquire more than 10% of the voting
securities of any issuer and may not acquire more than 15% of the
voting securities of any issuer together with other registered
investment companies managed by Putnam Investment Management,
Inc.
If any violation of the foregoing four standards
occurs, the Fund will, promptly after discovery of the violation,
take such action as may be necessary to cause the violation to
cease, which shall be the only obligation of the Fund and the
only remedy in respect of the violation.
Although certain of the Fund's fundamental investment
restrictions permit the Fund to borrow money to a limited extent,
the fund does not currently intend to do so and did not do so
last year.
The Fund may invest without limitation in "premium
securities" as referred to in 2.(A) above.
All percentage limitations on investments will apply at
the time of the making of an investment and shall not be
considered violated unless an excess or deficiency occurs or
exists immediately after and as a result of such investment.
The Investment Company Act of 1940 provides that a
"vote of a majority of the outstanding voting securities" of the
Fund means the affirmative vote of the lesser of (1) more than
50% of the outstanding shares of the Fund, or (2) 67% or more of
the shares present at a meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by
proxy.
(C) Risk Factors
The values of fixed-income 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 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 recognized rating services in their ratings
of a fixed-income security and changes in the ability of an
issuer to make payments of interest and principal may also affect
the value of these investments. Changes in the value of
portfolio securities generally will not affect income derived
from these securities, but will affect the Fund's net asset
value.
Investors should carefully consider their ability to
assume the risks of owning shares of a mutual fund that invests
primarily in lower-rated securities before making an investment
in the Fund.
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 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 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.
The rating assigned to a security by Moody's or S&P
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 the Fund
assets invested during fiscal 1995 in securities assigned to the
various rating categories by S&P, or, if unrated by S&P, assigned
to comparable rating categories by Moody's, and in unrated
securities determined by Investment Management Company to be of
comparable quality:
_________________________________________________________________
Rated securities, Unrated securities of
as percentage of comparable quality, as
Rating net assets percentage of net assets
"AAA" 1.29 % 0 %
"AA" 1.28 % 0 %
"A" 2.57 % 0 %
"BBB" 0.34 % 4.43 %
"BB" 16.53 % 3.25 %
"B" 51.45 % 1.40 %
"CCC" 6. 10 % 0 %
_________________________________________________________________
Total 79.56 % 9.08 %
The Fund will not necessarily dispose of a security
when its rating is reduced below its rating at the time of
purchase. However, Investment Management Company will monitor
the investment to determine whether continued investment in the
security will assist in meeting the Fund's investment objectives.
Certain of the lower-rated securities in which the Fund
invests are issued to raise funds in connection with the
acquisition of a company in so-called "leveraged buy-out"
transactions. The highly leveraged capital structure of such
issuers may make them especially vulnerable to adverse changes in
economic conditions.
At times, a substantial portion of Fund assets may be
invested in securities as to which the Fund, by itself or
together with other funds and accounts managed by Investment
Management Company and its affiliates, holds all or a major
portion. Under adverse market or economic conditions or in the
event of adverse changes in the financial condition of the
issuer, the Fund could find it more difficult to sell these
securities when Investment Management Company 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 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 the Fund's operating expenses
and adversely affect the Fund's net asset value.
Certain securities held by the Fund may permit the
issuer at its option to "call," or redeem, its securities. If an
issuer were to redeem securities held by the Fund during a time
of declining interest rates, the Fund may not be able to reinvest
the proceeds in securities providing the same investment return
as the securities redeemed.
The Fund at times may invest in so-called "zero-coupon"
bonds and "payment-in-kind" bonds. Zero-coupon bonds are issued
at a significant discount from their principal amount and pay
interest only at maturity rather than at intervals during the
life of the security. 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. The values of zero-coupon bonds
and payment-in-kind bonds are subject to greater fluctuation in
response to changes in market interest rates than bonds that pay
interest in cash currently. Both zero-coupon bonds and payment-
in-kind bonds allow an issuer to avoid the need to generate cash
to meet current interest payments. Accordingly, such bonds may
involve greater credit risks than bonds paying interest
currently.
Even though such bonds do not pay current interest in
cash, the Fund nonetheless is required to accrue interest income
on these investments and to distribute the interest income at
least annually to shareholders. Thus, the Fund could be required
at times to liquidate other investments in order to satisfy its
distribution requirements.
Certain investment grade securities in which the Fund
may invest share some of the risk factors discussed above with
respect to lower-rated securities.
(D) Distribution Policy:
The Fund distributes any net investment income at least
monthly and any net realized capital gains at least annually.
Distributions from capital gains are made after applying any
available capital loss carryovers. A capital loss carryover is
currently available. The Fund normally pays a distribution to
Japanese investors who hold shares as at 15th day of each month
at the end of each month, provided, however, the distribution may
be paid at the beginning of next month.
3. MANAGEMENT STRUCTURE
(A) Outline of Management of Assets, etc.:
A. Valuation of assets:
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 U.S. holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of
July, Labor Day, Thanksgiving and Christmas. The Fund determines
net asset value as of the close of regular trading on the
Exchange, currently 4:00 p.m. However, equity options held by
the Fund are priced as of the close of trading at 4:10 p.m., and
futures contracts on U.S. government and other fixed-income
securities and index options held by the Fund are priced as of
their close of trading at 4:15 p.m.
Securities for which market quotations are readily
available are valued at prices which, in the opinion of
Investment Management Company, 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 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, Investment Management Company determines their fair value
pursuant to 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.
B. Management Fee, etc.:
(1) Management Fee:
(a) Management and Agent Securities Company Fees
Under a Management Contract dated May 6, 1994, the Fund
pays a quarterly fee to Investment Management Company based on
the average net assets of the Fund, as determined at the close of
each business day during the quarter at an annual rate of 0.70%
of the first $500 million of average net assets, 0.60% of the
next $500 million, 0.55% of the next $500 million and 0.50% of
any amount over $1.5 billion.
For the fiscal year ending on November 30, 1995, the
Fund paid $6,014,802 as a management fee.
(b) Custodian Fee
The Custodian shall be entitled to receive, out of the
assets of the Fund reasonable compensation for its services and
expenses as Custodian, as agreed from time to time between the
Fund and the Custodian .
(c) Charges of the Investor Servicing Agent
The Fund will pay to the Investor Servicing Agent such
fee, out of the assets of the Fund, as mutually agreed upon in
writing from time to time, in the amount, the time and manner of
payment.
For the fiscal year ending on November 30, 1995, the
Fund paid $1,405,209 as a custodian fee and investor servicing
agent fee.
(d) Fee on Class M Distribution Plan
The Class M distribution plan provides for payments by
the Fund to Putnam Mutual Funds at the annual rate of up to 1.00%
of average net assets attributable to Class M shares. The
Trustees currently limit payments under the Class M plan to the
annual rate of 0.50% of such assets.
Payments under the plan are intended to
compensate Putnam Mutual Funds Corp. for services provided and
expenses incurred by it as principal underwriter of Fund shares,
including the payments to dealers mentioned above.
To compensate Kokusai and other dealers further for
services provided in connection with the sale of Class M shares
and the mainteneance of shareholder accounts, Putnam Mutual Funds
Corp. makes quarterly payments to Kokusai and such other
dealers.
The payments are based on the average net asset value
of Class M shares attributable to shareholders for whom Kokusai
and other dealers are designated as the dealer of record. Putnam
Mutual Funds Corp. makes the payments at an annual rate of 0.25%
of such average net asset value of Class M shares.
Putnam Mutual Funds Corp. also pays to Kokusai and
other dealers, as additional compensation with respect to the
sale of Class M shares, 0.15% of such average net asset value of
Class M shares. For Class M shares, the total annual payment to
Kokusai and other dealers equals 0.40% of such average net asset
value. Putnam Mutual Funds Corp. makes quarterly payments to
qualifying dealers.
For the fiscal year ending on November 30, 1995, the
Fund paid the fees on the distribution plan of $1,918,495,
$1,413,289 and $48,204 for the Class A Shares, Class B Shares and
Class M shares, respectively.
(e) Other Expenses:
The Fund pays all of its expenses not assumed by Putnam
Investment Management, Inc. with respect to its management
services. In addition to the investment management and
distribution plan fees discussed herein, the principal expenses
that the Fund is expected to pay include, but are not limited to,
fees and expenses of certain of its Trustees; shareholder
servicing agent expenses; custodian expenses; fees of its
independent auditors and legal counsel; fees payable to
government agencies, including registration and qualification
fees attributable to the Fund and its shares under federal and
state securities laws; and certain extraordinary expenses. In
addition, each class will pay all of the expenses attributable to
it. The Fund also pays its brokerage commissions, interest
charges and taxes.
C. Sales , Repurchases and Custody:
(1) Sales of Shares:
a. Sales in the United States
Investors residing outside Japan can open a fund
account with as little as $500 and make additional investments at
any time with as little as $50. They can buy fund shares three
ways - through most investment dealers, through Putnam Mutual
Funds Corp. or through a systematic investment plan.
Buying shares through Putnam Mutual Funds Corp.
Complete an order form and write a check for the amount
shareholders wish to invest, payable to the Fund. Return the
completed form and check to Putnam Mutual Funds Corp., which will
act as investor's agent in purchasing shares through investor's
designated investment dealer.
Buying shares through systematic investing. Investors
can make regular investments of $25 or more per month through
automatic deductions from investor's bank checking or savings
account. Application forms are available from investor's
investment dealer or through Investor Servicing Agent.
Shares are sold at the public offering price based on
the net asset value next determined after Investor Servicing
Agent receives shareholders order. In most cases, in order to
receive that day's public offering price, Investor Servicing
Agent must receive shareholders order before the close of
regular trading on the New York Stock Exchange. If shareholders
buy shares through shareholders investment dealer, the dealer
must receive shareholders order before the close of regular
trading on the New York Stock Exchange to receive that day's
public offering price.
Class M Shares
The public offering price of class M shares is the net
asset value plus a sales charge that varies depending on the size
of investor's purchase. The Fund receives the net asset value.
The sales charge is allocated between investor's investment
dealer and Putnam Mutual Funds Corp. as shown in the following
table, except when Putnam Mutual Funds Corp., and its discretion,
allocates the entire amount to investor's investment dealer.
Sales charge as
Amount of sales
a percentage of: charge
reallowed
Net to dealers
as a
Amount of transaction amount Offering percentage
of
at offering price ($) 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
An investor may be eligible to buy class A shares and
class M shares at reduced sales charges.
Sales charges will not apply to class M shares
purchased with redemption proceeds received within the prior 90
days from non - Putnam mutual funds on which the investor
paid a front - end or a contingent deferred sales charge or
to class M shares purchased by participant - directed
qualified retirement plans with at least 50 eligible employees.
The Fund may also sell class M shares at net asset value to
members of qualified groups.
b. Sales in Japan
In Japan, Shares of the Fund are offered on any
Valuation Date during the Subscription Period mentioned in "8.
Period of Subscription, Part I Information concerning Securities"
of a securities registration statement pursuant to the terms set
forth in Part I. Information concerning Securities of the
relevant securities registration statement. Investors shall
submit an Account Agreement or Transaction Agreement (together
with the Account Agreement referred to herein as the
"Agreements") to the Handling Securities Companies. The purchase
shall be made in the minimum investment amount of 100 shares and
in integral multiples of 10 shares.
The issue price for Shares during the Subscription
period shall be, in principle, the Net Asset Value per Share next
calculated on the day on which the Fund has received such
application. The Trade Day in Japan is the day when the Handling
Securities Company confirms the execution of the order
(ordinarily the business day in Japan next following the
placement of orders), and the payment and delivery shall be made
on the fourth Business Day after and including the Trade Day.
Sales charge shall be 3.25% of the amount of subscription all of
which may be retained by the selling dealer. 3% consumption tax
on the Sales charge will be added.
The investors having submitted the Account Agreement
will receive from the Handling Securities Company a certificate
of safekeeping in exchange for the purchase price. In such case
payment shall be made in yen in principle and the exchange into
dollars shall be made at the forward cable exchange rate for the
payment day in Tokyo as of the Trade Day. The payment may be
made in dollars to the extent that the Handling Securities
Companies can agree.
In addition, Handling Securities Companies in Japan who
are members of the Japan Securities Dealers' Association cannot
continue sales of the Shares in Japan when the net assets of the
Fund are less than yen 500,000,000 or the Shares otherwise
cease to comply with the "Standards of Selection of Foreign
Investment Fund Securities" established by the Association.
(2) Repurchase of Shares:
a. Repurchase in overseas markets
A shareholders can sell his shares to the Fund any day
the New York Stock Exchange is open, either directly to the Fund
or through his investment dealer. The Fund will only redeem
shares for which it has received payment.
Selling shares directly to the Fund. A shareholder
must send a signed letter of instruction or stock power form to
Investor Servicing Agent, along with any certificates that
represent shares a shareholder wants to sell. The price a
shareholder will receive is the next net asset value calculated
after the Fund receives a shareholder's request in proper form.
In order to receive that day's net asset value, Investor
Servicing Agent must receive a shareholder's request before the
close of regular trading on the New York Stock Exchange.
If a shareholder sells 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.
If a shareholder wants his redemption proceeds sent to
an address other than his address as it appears on records of the
Investor Servicing Agent, a signature guarantee is required.
Investor Servicing Agent usually requires additional
documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or a surviving joint owner.
The Fund generally sends shareholders payment for
shareholders shares the business day after shareholders request
is received. Under unusual circumstances, the Fund may suspend
repurchase, or postpone payment for more than seven days, as
permitted by federal securities law.
A shareholder may use Investor Servicing Agent s
Telephone Redemption Privilege to redeem shares valued up to
$100,000 from his account unless he has notified Investor
Servicing Agent of an address change within the preceding 15
days. Unless an investor indicates otherwise on the account
application, Investor Servicing Agent will be authorized to act
upon redemption and transfer instructions received by telephone
from a shareholder, or any person claiming to act as his
representative, who can provide Investor Servicing Agent with his
account registration and address as it appears on Investor
Servicing Agent s records.
Investor Servicing Agent will employ these and other
reasonable procedures to confirm that instructions communicated
by telephone are genuine; if it fails to employ reasonable
procedures, Investor Servicing Agent may be liable for any losses
due to unauthorized or fraudulent instructions.
During periods of unusual market changes and
shareholder activity, a shareholder may experience delays in
contacting Investor Servicing Agent by telephone. In this event,
the shareholder may wish to submit a written redemption request,
as described above, or contact shareholders investment dealer,
as described below. The Telephone Redemption Privilege is not
available if the shareholder was issued certificates for shares
that remain outstanding. The Telephone Redemption Privilege may
be modified or terminated without notice.
Selling shares through investment dealers. A
shareholder's dealer must receive shareholders request before
the close of regular trading on the New York Stock Exchange to
receive that day's net asset value. A shareholder's dealer will
be responsible for furnishing all necessary documentation to
Investor Servicing Agent, and may charge a shareholder for its
services.
b. Repurchase in Japan
Shareholders in Japan may at any time request
repurchase of their Shares. Repurchase requests in Japan may be
made to Investor Servicing Agent through the Handling Securities
Company on a Fund Business Day and the business day of securities
companies in Japan without a contingent deferred sales charge.
The price a shareholder in Japan will receive is the
next net asset value calculated after the Fund receives the
repurchase request from Kokusai, provided the request is received
before the close of regular trading on the Exchange. The payment
of the price shall be made in yen through the Handling Securities
Companies pursuant to the Agreements or, in case the Handling
Securities Companies agree, in dollars.
(3) Suspension of Repurchase:
The Fund may suspend shareholders' right of redemption,
or postpone payment for more than seven days, if 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.
(4) Custody of Shares:
In overseas markets where the Shares are offered, the
Share certificates shall be held by the Shareholders at their own
risk.
The custody of the Share certificates (if issued) sold
to Japanese Shareholders shall be held, in the name of the
custodian, by the custodian of KOKUSAI. Certificates of custody
for the Shares shall be delivered by the Handling Securities
Companies to the Japanese Shareholders.
The foregoing does not apply to the cases in which
Japanese Shareholders keep the Shares in custody at their own
risk.
D. Miscellaneous:
(1) Duration and Liquidation:
Unless terminated, the Fund shall continue without
limitation of time. The Fund may be terminated at any time by
vote of Shareholders holding at least 66 2/3% of the Shares
entitled to vote or by the Trustees of the Fund by written notice
to the Shareholders.
(2) Accounting Year:
The accounts of the Fund will be closed each year on
30th November.
(3) Authorized Shares:
There is no prescribed authorized number of Shares, and
Shares may be issued from time to time.
(4) Agreement and Declaration of Trust:
Originals or copies of the Agreement and Declaration of
Trust, as amended, are on file with the Secretary of State of the
Commonwealth of Massachusetts and with the Clerk of the City of
Boston.
The Agreement and Declaration of Trust may be amended
at any time by an instrument in writing signed by a majority of
the then Trustees when authorized to do so by vote of
Shareholders holding a majority of the Shares entitled to vote,
except that an amendment which shall affect the holders of one or
more series or classes of Shares but not the holders of all
outstanding series and classes shall be authorized by vote of the
Shareholders holding a majority of the Shares entitled to vote of
each series and class affected and no vote of Shareholders of a
series or class not affected shall be required. Amendments
having the purpose of changing the name of the Trust or of
supplying any omission, curing any ambiguity or curing,
correcting or supplementing any defective or inconsistent
provision contained herein shall not require authorization by
Shareholder vote.
In Japan, material changes in the Agreement and
Declaration of Trust shall be published or the notice thereof
shall be sent to the Japanese Shareholders.
(5) Issue of Warrants, Subscription Rights, etc.:
The Fund may not grant privileges to purchase shares of
the Fund to shareholders or investors by issuing warrants,
subscription rights or options, etc.
(B) Outline of Disclosure System:
(1) Disclosure in U.S.A.:
(i) Disclosure to shareholders
In accordance with the Investment Company Act of 1940,
the Fund is required to send to its shareholders annual and semi-
annual reports containing financial information.
(ii) Disclosure to the SEC
The Fund has filed a registration statement with the
SEC on Form N-1A; the Fund updates that registration statement
periodically in accordance with applicable law.
(2) Disclosure in Japan:
a. Disclosure to the Supervisory Authority:
When the Fund intends to offer Shares
amounting to more than 500 million yen in Japan, it shall submit
to the Minister of Finance of Japan securities registration
statements together with the copies of the Agreement and
Declaration of Trust and the agreements with major related
companies as attachments thereto. The said documents are made
available for public inspection for the investors and any other
persons who desire at the Ministry of Finance.
The Handling Securities Companies of the Shares shall
deliver to the investors prospectuses or explanatory brochures
the contents of which are substantially identical with Part I and
Part II of the securities registration statements. For the
purpose of disclosure of the financial conditions, etc., the Fund
shall submit to the Minister of Finance of Japan securities
reports within 6 months of the end of each fiscal year, semi-
annual reports within 3 months of the end of each semi-annual
year and extraordinary reports from time to time when changes
occur as to material subjects of the Fund. These documents are
available for public inspection for the investors and any other
persons who desire at the Ministry of Finance.
b. Disclosure to Japanese Shareholders:
The Japanese Shareholders will be notified of the
material facts which would change their position, including
material amendments to the Agreement and Declaration of Trust of
the Fund, and of notices from the Trustees, through the Handling
Securities Companies.
The financial statements shall be sent to the Japanese
Shareholders through the Handling Securities Companies or the
summary thereof shall be carried in daily newspapers.
(C) Restrictions on Transactions with Interested
Parties:
Portfolio securities of the Fund may not be purchased
from or sold or loaned to any Trustee of the Fund, Putnam
Investment Management, Inc., acting as investment adviser of the
Fund, or any affiliate thereof or any of their directors,
officers, or employees unless the transaction is made within the
investment restrictions set forth in the Fund's prospectus and
statement of additional information and either (i) at a price
determined by current publicly available quotations (including a
dealer quotation) or (ii) at competitive prices or interest rates
prevailing from time to time on internationally recognized
securities markets or internationally recognized money markets
(including a dealer quotation).
4. INFORMATION CONCERNING THE EXERCISE OF RIGHTS BY
SHAREHOLDERS, ETC.
(A) Rights of Shareholders and Procedures for Their
Exercise:
The Shareholders shall be registered in order to
exercise directly the rights of their Shares. Therefore, the
Shareholders in Japan who entrust the custody of their Shares to
the Handling Securities Company cannot exercise directly their
rights, because they are not registered. Shareholders in Japan
may have the Handling Securities Companies exercise their rights
on their behalf in accordance with the Account Agreement with the
Handling Securities Companies.
The Shareholders in Japan who do not entrust the
custody of their Shares to the Handling Securities Companies may
exercise their rights in accordance with their own arrangement
under their own responsibility.
The major rights enjoyed by the investors are as
follows:
(i) Voting rights
Each share has one vote, with fractional shares voting
proportionally. Shares of each class will vote together as a
single class except when otherwise required by law or as
determined by the Trustees. Although the Fund is not required to
hold annual meetings of its shareholders, shareholders holding at
least 10% of the outstanding shares entitled to vote have the
right to call a meeting to elect or remove Trustees, or to take
other actions as provided in the Agreement and Declaration of
Trust.
(ii) Repurchase rights
Shareholders are entitled to request repurchase of
Shares at their Net Asset Value at any time.
(iii) Rights to receive dividends
Distributions from net investment income are
currently declared and paid monthly and any net realized
capital gains at least annually. Distributions from capital
gains are made after applying any available capital loss
carryovers.
Shareholders may choose three distribution options,
though investors in Japan may only choose the last alternative.
- 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.
(iv) Right to receive distributions upon
dissolution
Shareholders of a fund are entitled to receive
distributions upon dissolution in proportion to the number of
shares then held by them, except as otherwise required.
(v) Right to inspect accounting books and the
like
Shareholders may inspect the Agreement and
Declaration of Trust as on file at the offices of the
Secretary of State of the Commonwealth of Massachusetts.
(vi) Right to transfer shares
Shares are transferable without restriction except as
limited by applicable law.
(vii) Rights with respect to the U.S. registration
statement
The 1933 Act provides for the liability of the
Fund and certain other persons, subject to various limitations
and exceptions, in respect of materially misleading disclosures
made in the Fund s U.S. registration statement.
(B) Tax Treatment of Shareholders in Japan:
The tax treatment of Shareholders in Japan shall be as
follows:
(1) The distributions to be made by the Fund will
be treated as distributions made by a domestic investment trust.
a. The distributions to be made by the Fund to
Japanese individual shareholders will be subject to separate
taxation from other income (i.e. withholding of income tax at the
rate of 15% and withholding of local taxes at the rate of 5% in
Japan). In this case, no report concerning distributions will be
filed with the Japanese tax authorities.
b. The distributions to be made by the Fund to
Japanese corporate shareholders will be subject to withholding of
income tax at the rate of 15% and to withholding of local taxes
at the rate of 5% in Japan. In certain cases, the Handling
Securities Companies will prepare a report concerning
distributions and file such report with the Japanese tax
authorities.
c. Net investment returns such as dividends, etc.
and distributions of short-term net realized capital gain, among
distributions on Shares of the Fund, will be, in principle,
subject to withholding of U. S. federal income tax at the rate of
15% and the amount obtained after such deduction will be paid in
Japan.
Distributions of long-term net realized capital gain
will not be subject to withholding of U. S. federal income tax
and the full amount thereof will be paid in Japan. The amount
subject to withholding of U. S. federal income tax may be
deducted from the tax levied on a foreign entity in Japan.
d. The Japanese withholding tax imposed on
distributions as referred to in a. and b. above will be collected
by way of so-called "difference collecting method". In this
method only the difference between the amount equivalent to 20%
of the distributions before U.S. withholding tax and the amount
of U.S. withholding tax withheld in the U.S. will be collected in
Japan.
(2) The provisions of Japanese tax laws giving
the privilege of a certain deduction from taxable income to
corporations, which may apply to dividends paid by a domestic
corporation, shall not apply.
(3) Capital gains and losses arising from
purchase and repurchase of the Shares shall be treated in the
same way as those arising from purchase and sale of a domestic
investment trust. The distribution of the net liquidation assets
shall be also treated in the same way as those arising from
liquidation of a domestic investment trust.
(4) The Japanese securities transaction tax will
not be imposed so far as the transactions concerned are conducted
outside Japan. Such tax, however, is applicable to dealers'
transactions for their own account and to privately negotiated
transactions conducted in Japan.
(C) Foreign Exchange Control in U.S.A.:
In U.S.A., there are no foreign exchange control
restrictions on remittance of dividends, repurchase money, etc.
of the Shares to Japanese Shareholders.
(D) Agent in Japan:
Hamada & Matsumoto
Sankyu Building
6-14, Kasumigaseki 3-chome
Chiyoda-ku, Tokyo
The foregoing law firm is the true and lawful agent of
the Fund to represent and act for the Fund in Japan for the
purpose of;
(1) the receipt of any and all communications,
claims, actions, proceedings and processes as to matters
involving problems under the laws and the rules and regulations
of the JSDA and
(2) representation in and out of court in
connection with any and all disputes, controversies or
differences regarding the transactions relating to the public
offering, sale and repurchase in Japan of the Shares of the Fund.
The agent for the registration with the Japanese
Minister of Finance of the public offering concerned as
well as for the continuous disclosure is each of the following
persons:
Harume Nakano
Ken Miura
Attorneys-at-law
Hamada & Matsumoto
Sankyu Building
6-l4, Kasumigaseki, 3-chome
Chiyoda-ku, Tokyo
(E) Jurisdiction:
Limited only to litigation brought by Japanese
investors regarding transactions relating to (D)(2) above, the
Fund has agreed that the following court has jurisdiction over
such litigation :
Tokyo District Court
1-4, Kasumigaseki 1-chome
Chiyoda-ku, Tokyo
5. STATUS OF INVESTMENT FUND
(1) Diversification of Investment Fund:
Note: Investment ratio is calculated by dividing each asset
at its market value by the total Net Asset Value of the Fund.
The same applies hereinafter.
(B) Results of Past Operations
(1) Record of Changes in Net Assets (Class M Shares)
Record of changes in net assets at the end of the first
fiscal year and at the end of each month within one year prior to
the end of October, 1996 is as follows:
( e. Net Asset Value)Class A. 9.55)2 yen 1,088( per Share
(c/d)+ Class B. 9.51)2 yen 1,084(Class M.
9.54)2 yen 1,087______yen 0_
Note:Investment ratio is calculated by dividing each asset at its
market value by the total Net Asset Value of the Fund. The same
applies hereinafter.
(B)Results of Past Operations
(1)Record of Changes in Net Assets (Class M Shares)
Record of changes in net assets at the end of the first
fiscal year and at the end of each month within one year prior to
the end of October , 1996 is as follows:
(Note)Operations of Class M Shares were commenced on
December 1, 1994.
(2)Record of Distributions Paid
PeriodAmount of Dividend paid per Share
1st Fiscal Year (12/1/94 - 11/30/95)$0.98 )
(Note) Record of distribution paid from December 1995 to
October 1996 are as follows:
Dividend
Month/Year Dollar Yen
1995 End of December 0.077 8.77
1996 End of January 0.078 8.89
February 0.077 8.77
March 0.077 8.77
April 0.075 8.55
May 0.073 8.32
June 0.071 8.09
July 0.070 7.98
August 0.070 7.98
September 0.070 7.98
October 0.071 8.09
(C)Record of Sales and Repurchases
Record of sales and repurchases during the first fiscal year and
number of outstanding Shares of the Fund as of the end of such
Fiscal Year are as follows:
Note:The number of Shares sold, repurchased and outstanding in
the parentheses represents those sold, repurchased and
outstanding in Japan.
<PAGE>
II. OUTLINE OF THE TRUST
1.Trust
(A)Law of Place of Incorporation
The Trusty is a Massachusetts business trust organized in
Massachusetts, U.S.A. on January 13, 1996.
Chapter 182 of the Massachusetts General Laws prescribes the
fundamental matters in regard to the operations of certain
business trusts constituting voluntary associations under
that chapter.
The Trust is an open- end , deversified management
company under the Investment Company Act of 1940.
(B)Outline of the Supervisory Authority
Refer to I - l (B) Outline of the Supervisory Authority.
(C)Purpose of the Trust
The purpose of the Trust is to provide investors a managed
investment primarily in securities, debt instruments and other
instruments and rights of a financial character.
(D)History of the Trust
January 13, 1986:Date of initial Agreement and Declaration
of Trust
April 1, 1992:Change of the Trust's name
May 5, 1994:Date of Amended and Restated Agreement and
Declaration of Trust
(E)Amount of Capital Stock
Not applicable.
(F)Structure of the management of the Trust
The Trustees are responsible for generally overseeing the
conduct of the Fund s business. The Agreement and Declaration of
Trust provides that they shall have all powers necessary or
convenient to carry out that responsibility. The number of
Trustees is fixed by the Trustees and may not be less than three.
A Trustee may be elected either by the Trustees or by the
shareholders. At any meeting called for the purpose, a Trustee
may be removed by vote of two-thirds of the outstanding shares of
the Trust. Each Trustee elected by the Trustees or the
shareholders shall serve until he or she retires, resigns, is
removed, or dies or until the next meeting of shareholders called
for the purpose of electing Trustees and until the election and
qualification of his or her successor.
The Trustee of the Trust are authorized by the Agreement and
Declaration of Trust to issue shares of the Trust in one or more
series, each series being preferred over all other series in
respect of the assets allocated to that series. The Trustees
may, without shareholder approval, divide the shares of any
series into two or more classes, with such preferences and
special or relative rights and privileges as the Trustees may
determine.
Under the Agreement and Declaration of Trust the
shareholders shall have power, as and to the extent provided
therein, to vote only (i) for the election of Trustees, to the
extent provided therein (ii) for the removal of Trustees, to the
extent provided therein (iii) with respect to any investment
adviser, to the extent provided therein (iv) with respect to any
termination of the Trust, to the extent provided therein (v) with
respect to certain amendments of the Agreement and Declaration of
Trust, (vi) to the same extent as the stockholders of a
Massachusetts business corporation as to whether or not a court
action, proceeding, or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the
Trust or the shareholders, and (vii) with respect to such
additional matters relating to the Trust as may be required by
the Agreement and Declaration of Trust, the Bylaws of the Trust,
or any registration of the Trust with the Securities and Exchange
Commission (or any successor agency) or any state, or as the
Trustees may consider necessary or desirable. Certain of the
foregoing actions may, in addition, be taken by the Trustees
without vote of the shareholders of the Trust.
On any matter submitted to a vote of shareholders, all
shares of the Trust then entitled to vote are voted in the
aggregate as a single class without regard to series or classes
of shares, except (1) when required by the Investment Company Act
of 1940, as amended, or when the Trustees hall have determined
that the matter affects one or more series or classes of shares
materially differently, share are voted by individual series or
class; and (2) when the Trustees have determined that the matter
affects on the interests of one or more series or classes, then
only shareholders of such series or classes are entitled to vote
thereon. There is no cumulative voting.
Meetings of shareholders may be called by the Clerk whenever
ordered by the Trustees, the Chairman of the Trustees, or
requested in writing by the holder or holders of at least one-
tenth of the outstanding shares entitled to vote at the meeting.
Written notice of any meeting of shareholders must be given by
mailing the notice at least seven days before the meeting.
Thirty percent of shares entitled to veto on a particular matter
is a quorum for the transaction of business on that matter at a
shareholders' meeting, except that, where any provision of law or
of the Agreement and Declaration of Trust permits or requires
that holders of any series or class vote as an individual series
or class, then thirty percent of the aggregate number of shares
of that series or class entitled to vote are necessary to
constitute a quorum for the transaction of business by that
series or class. For the purpose of determining the shareholders
of any class or series of shares who are entitled to vote or act
at any meeting, or who are entitled to receive payment of any
dividend or other distribution, the Trustees are authorized to
fix record dates, which may not be more then 90 days before the
date of any meeting of shareholders or more than 60 days before
the date of payment of any dividend or other distribution.
The Trustees are authorized by the Agreement and Declaration
of Trust to adopt Bylaws not inconsistent with the Agreement and
Declaration of Trust providing for the conduct of the business of
the Trust. The Bylaws contemplate that the Trustees shall elect
a Chairman of the Trustees, the President, the Treasurer, and the
Clerk of the Trust, and that other officers, if any, may be
elected or appointed by the Trustees at any time. The Bylaws may
be amended or repealed, in whole or in part, by a majority of the
Trustees then in office at any meeting of the Trustees, or by one
or more writings signed by such a majority.
Regular meetings of the Trustees may be held without
call or notice at such places and at such times as the Trustees
may from time to time determine. It shall be sufficient notice
to a Trustee of a special meeting to send notice by mail at least
forty-eight hours or by telegram at least twenty-four hours
before the meeting or to give notice to him or her in person or
by telephone at least twenty-four hours before the meeting.
At any meeting of Trustees, a majority of the Trustees
then in office shall constitute a quorum. Except as otherwise
provided in the Agreement and Declaration of Trust or Bylaws, any
action to be taken by the Trustees may be taken by a majority of
the Trustees present at a meeting (a quorum being present), or by
written consents of a majority of the Trustees then in office.
Subject to a favorable majority shareholder vote (as
defined in the Agreement and Declaration of Trust) , the
Trustees may contract for exclusive or nonexclusive advisory
and/or management services with any corporation, trust,
association, or other organization.
The Agreement and Declaration of Trust contains provisions
for the indemnification of Trustees, officers, and shareholders
of the Trust under the circumstances and on the terms specified
therein.
The Trust may be terminated at any time by vote of
shareholders holding at least two-thirds of the shares entitled
to vote or by the trustees by written notice to the shareholders.
Any series of shares may be terminated at any time by vote of
shareholders holding at least two-thirds of the shares of such
series entitled to vote or by the Trustees by written notice to
the shareholders of such series.
The foregoing is a general summary of certain provisions of
the Agreement and Declaration of Trust and Bylaws of the Trust,
and is qualified in its entirety by reference to each of those
documents.
(G)Information Concerning Major Shareholders
Not applicable.
(H) Information Concerning Directors, Officers and Employees
(1) Directors and Officers of the Trust
(2) Employees of the Trust
The Trust does not have any employees.
(I)Description of Business and Outline of Operation
The Trust may carry out any administrative and managerial
act, including the purchase, sale, subscription and exchange of
any securities, and the exercise of all rights directly or
indirectly pertaining to the Fund's assets. The Trust has
entrusted Putnam Investment Management, Inc., the investment
adviser, to render investment advisory services, Putnam Fiduciary
Trust Company, to keep the assets of the Fund in custody and
Investor Servicing Agent.
(J)Miscellaneous
(1)Changes of Trustees and Officers
Trustees may be removed or replaced by, among other things,
a resolution adopted by a vote of two-thirds of the outstanding
shares at a meeting called for the purpose. In the event of
vacancy, the remaining Trustees may fill such vacancy by
appointing for the remaining term of the predecessor Trustee such
other person as they in their discretion shall see fit. The
Trustees may add to their number as they consider appropriate.
The Trustees may elect and remove officers as they consider
appropriate.
(2)Amendment to the Agreement and Declaration of Trust
Generally, approval of shareholders is required to amend the
Agreement and Declaration of Trust, except for certain matters
such as change of name, curing any ambiguity or curing any
defective or inconsistent provision.
(3)Litigation and Other Significant Events
Nothing which has or which would have a material adverse
effect on the Trust has occurred which has not been disclosed.
The fiscal year end of the Trust is November 30. The Trust is
established for an indefinite period and may be dissolved at any
time by vote of the shareholders holding at least two-thirds of
the shares entitled to vote or by the Trustees by written notice
to shareholders.
2.Putnam Investment Management, Inc. (Investment Management
Company)
(A)Law of Place of Incorporation
Putnam is incorporated under the General Corporation Law of
The Commonwealth of Massachusetts, U.S.A. Its investment
advisory business is regulated under the Investment Advisers Act
of 1940.
Under the Investment Advisers Act of 1940, an investment
adviser means, with certain exceptions, any person who, for
compensation, engages in the business of advising others, either
directly or through publications or writings, as to the value of
securities or as to the advisability of investing in, purchasing
or selling securities, or who, for compensation and as part of a
regular business, issues analyses or reports concerning
securities. Investment advisers under the Act may not conduct
their business unless they are registered with the SEC.
(B) Outline of the Supervisory Authority
Investment Management Company is registered as an investment
adviser under the Investment Advisers Act of 1940. Putnam is
regulated under the Investment Advisers Act.
(C)Purpose of the Company
Investment Management Company s sole business is investment
management, which includes the buying, selling, exchanging and
trading of securities of all descriptions on behalf of mutual
funds in any part of the world.
(D)History of the Company
Investment Management Company is one of America's oldest and
largest money management firms. Investment Management Company 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 Investment Management Company has
been managing mutual funds since 1937. Today, the firm serves as
the Investment Management Company for the funds in the Putnam
Family, with over $93 billion in assets in nearly 5 million
shareholder accounts at December 31, 1995. 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 as
well as shareholder and custody services to the Putnam Funds.
Putnam Investment Management Inc., 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
management company and management consultants.
(E)Amount of Capital Stock
(as of August 1, 1996)
1.Amount of Capital (issued capital stock at par value):
Common Stock 1,000 shares at $1 par value
2.Number of authorized shares of capital stock:
Common Stock 1,000 shares
3.Number of outstanding shares of capital stock:
Common Stock 1,000 shares
4. Amount of capital (for the purposes of this Item, "Amount of
Capital" means total stockholders' equity for the past five
years:
Amount of Capital
Year (Total Stockholders' Equity in Thousands)
End of 1991$46,068,726
End of 1992$42,618,341
End of 1993$49,847,760
End of 1994$48,149,491
End of 1995$45,521,351
(F)Structure of the Management of the Company
Investment Management Company is ultimately managed by its
Board of Directors, which is elected by its shareholders.
Each Fund of Investment Management Company managed by one or
more portfolio managers. These managers, in coordination with
analysts who research specific securities and other members of
the relevant investment group (in the case of the Fund,
Investment Management Company's High Yield Securities Group),
provide a continuous investment program for the Fund and place
all orders for the purchase and sale of portfolio securities.
The investment performance and portfolio of each Fund is
overseen by its Board of Trustees, a majority of whom are not
affiliated with Investment Management Company. The Trustees meet
11 times a year and review the performance of each fund with its
manager at least quarterly.
In selecting portfolio securities for the Fund, Investment
Management Company looks for high yield bonds that represent
attractive values based on careful issue-by-issue credit analysis
and hundreds of onsite visits and other contacts with issuers
every year. Investment Management Company is one of the largest
managers of high yield debt securities in the United States. The
High Yield Bond Group comprises 17 investment professionals.
(G)Information Concerning Major Stockholders
As of August 1, 1996, all the outstanding shares of capital
stock of Investment Management Company were owned by Putnam
Investments, Inc. See subsection D above.
(H)Information Concerning Officers and Employees
The following table lists the names of various officers and
directors of Investment Management Company and their respective
positions with Investment Management Company. For each named
individual, the table lists: (i) any other organizations
(excluding other Investment Management Company s funds) with
which the officer and/or director has recently had or has
substantial involvement; and (ii) positions held with such
organization:
List of Officers and Directors of Putnam Investment Management,
Inc. (September 30 , 1996)
(I)Summary of Business Lines and Business Operation
Investment Management Company is engaged in the business of
providing investment management and investment advisory services
to mutual funds. As of September 30, 1996, Investment
Management Company managed, advised, and/or administered the
following [ 99 ] funds and fund portfolios (having an
aggregate net asset value of approximately [100] billion):
(J)Miscellaneous
1.Election and Removal of Directors
Directors of Investment Management Company are elected to office
or removed from office by vote of either stockholders or
directors, in accordance with Articles of Organization and By-
Laws of Investment Management Company.
2.Results of operations
Officers are elected by the Board of Directors. The Board of
Directors may remove any officer without cause.
3.Supervision by SEC of Changes in Directors and Certain Officers
Putnam files certain reports with the SEC in accordance with
Sections 203 and 204 of the Investment Advisers Act of 1940,
which reports list and provide certain information relating to
directors and officers of Investment Management Company.
4.Amendment to the Articles of Organization, Transfer of Business
and Other Important Matters.
a.Articles of Organization of Investment Management Company may
be amended, under the General Corporation Law of The Commonwealth
of Massachusetts, by appropriate shareholders' vote.
b.Under the General Corporation Law of The Commonwealth of
Massachusetts, transfer of business requires a vote of 2/3 of the
stockholders entitled to vote thereon.
c.Investment Management Company has no direct subsidiaries.
5.Litigation, etc.
There are no known facts, such as legal proceedings, which are
expected to materially affect the Fund and/or Investment
Management Company within the past six-month period preceding the
filing of this Registration Statement.
III. OUTLINE OF THE OTHER RELATED COMPANIES
(A)Putnam Fiduciary Trust Company (the Transfer Agent,
Shareholder Service Agent and Custodian)
(1) Amount of Capital
U.S.$32,524,549 as of December 31, 1995
(2)Description of Business
Putnam Fiduciary Trust Company is a Massachusetts trust company
and is a wholly-owned subsidiary of Putnam Investments, Inc.,
parent of Putnam. Putnam Fiduciary Trust Company has been
providing paying agent and shareholder service agent services to
mutual funds, including the Fund, since its inception and custody
services since 1990.
(3)Outline of Business Relationship with the Fund
Putnam Fiduciary Trust Company provides transfer agent services,
shareholder services and custody services to the Fund.
(B)Kokusai Securities Co., Ltd. (Distributor in Japan and Agent
Securities Company)
(1)Amount of Capital
Yen55.5 billion as of the end of July, 1996
(2)Description of Business
KOKUSAI Securities Co., Ltd. is a diversified securities company
in Japan. Also, it engages in handling the sales and repurchase
of the Fund Units as the Designated Securities Company for the
investment trust funds of Kokusai Investment Trust Management
Co., Ltd., and as the Underwriting Company and the Agent
Securities Company for International Bond Index Fund, Fidelity
Special Growth Fund, Alliance International Healthcare Fund,
European and Asian Fund, Alliance Global Leisure Fund, High Life
Fund, Alliance American Fund, Keystone Small Company Growth Fund
(S-4) and Asia Network Growth Fund, Korea Sunrise Fund, Keystone
Fund of the Americas, Keystone Asia Small Cap Fund, Keystone Bond
Fund '95, Keystone Bond Fund II '95, Keystone Bond Fund III '95,
and Keystone Global Trust - Keystone Bond Fund IV '95 and as the
Underwriting Company for AGF Growth Equity Fund Limited, G.T.
Investment Fund, Sci/Tech and Fidelity World Fund.
(3)The Company acts as a Distributor in Japan and Agent
Securities Company for the Fund in connection with the offering
of shares in Japan.
(C)Capital Relationships
100% of the shares of Putnam Investment Management, Inc. are held
by Putnam Investments. Inc.
(D)Interlocking Directors and Auditors
Names and functions of officers of the Fund who also are officers
of the related companies are as follows:
<PAGE>
IV.FINANCIAL CONDITIONS OF THE FUND
1.FINANCIAL STATEMENTS
[Omitted, in Japanese version, financial statements of the Fund
and Japanese translations thereof are incorporated here]
2.CONDITION OF THE FUND
(a)Statement of Net Assets
<PAGE>
V.SUMMARY OF INFORMATION CONCERNING FOREIGN INVESTMENT TRUST
SECURITIES
1.Transfer of the Shares
The transfer agent for the registered share certificates is
Putnam Fiduciary Trust Company, P.O.Box 41203, Providence, RI
02940-1203, U. S. A.
The Japanese investors who entrust the custody of their shares to
a Handling Securities Company shall have their shares transferred
under the responsibility of such company, and the other investors
shall make their own arrangements.
No fee is chargeable for the transfer of shares.
2.The Closing Period of the Shareholders' Book
No provision is made.
3.There is no annual shareholders' meetings. Special
shareholders' meeting shall be held from time to time as required
by the Agreement and Declaration of Trust and the Investment
Company Act of 1940.
4.No special privilege is granted to Shareholders.
The acquisition of Shares by any person may be restricted.
VI.MISCELLANEOUS
(1) The ornamental design is used in cover page of the Japanese
Prospectus.
(2) The following must be set forth in the Prospectus.
Outline of the Prospectus will be included at the beginning of
the Prospectus, summarising the content of Part I., Information
on the securities, "I. Descriptions of the Fund" and "III.
Outline of Other Related Companies" in Part II, Information on
the Issuer, of the SRS and Agreement Concerning the Opening of a
Foreign Securities Transaction Account, and the internal rules of
a distributor in respect of the subscription and payment.
(3)Summarized Preliminary Prospectus will be used.
Attached document (Summarized Preliminary Prospectus) will be
used pursuant to the below, as the document (Summarized
Preliminary Prospectus) as set forth at Item 1.(1)(b), of Article
12 of the Ordinance Concerning the Disclosure of the Content,
etc. of the Specified Securities.
For information of the achievement, the average of the annual
yield calculated in respect of immediately preceding seven days
and/or any one month may be added in percentage up to one decimal
places (rounding down to second decimal places).
<PAGE>
PART III.SPECIAL INFORMATION
Below is an outline of certain general information about open-end
U.S. investment companies. This outline is not intended to
provide comprehensive information about such investment companies
or the various laws, rules or regulations applicable to them, but
provides only a brief summary of certain information which may be
of interest to investors. The discussion below is qualified in
its entirely by the complete registration statement of the fund
and the full text of any referenced statutes and regulations.
I.Massachusetts Business Trusts
A.General Information
Many investment companies are organized as Massachusetts business
trusts. A Massachusetts business trust is organized pursuant to
a declaration of trust, setting out the general rights and
obligations of the shareholders, trustees, and other related
parties. Generally, the trustees of the trust oversee its
business, and its officers and agents manage its day-to-day
affairs.
Chapter 182 of the Massachusetts General Laws applies to certain
"voluntary associations", including many Massachusetts business
trusts. Chapter 182 provides for, among other things, the filing
of the declaration of trust with the Secretary of State of the
Commonwealth of Massachusetts and the filing by the trust of an
annual statement regarding, among other things, the number of its
shares outstanding and the names and addresses of its trustees.
B.Shareholder Liability
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of a
trust. Typically, a declaration of trust disclaims shareholder
liability for acts or obligations of the trust and provides for
indemnification out of trust property for all loss and expense of
any shareholder held personally liable for the obligations of a
trust. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances
in which a particular trust would be unable to meet its
obligations.
II.United States Investment Company Laws and Enforcement
A.General
In the United States, pooled investment management arrangements
which offer shares to the public are governed by a variety of
federal statutes ant regulations. Most mutual funds are subject
to these laws. Among the more significant of these statutes are:
1.Investment Company Act of 1940
The Investment Company Act of 1940, as amended (the "1940 Act"),
in general, requires investment companies to register as such
with the U.S. Securities and Exchange Commission (the "SEC"), and
to comply with a number of substantive regulations of their
operations. The 1940 Act requires an investment company, among
other things, to provide periodic reports to its shareholders.
2.Securities Act of 1933
The Securities Act of 1933, as amended (the "1933 Act"),
regulates many sales of securities. The Act, among other things,
imposes various registration requirements upon sellers of
securities and provides for various liabilities for failures to
comply with its provisions or in respect of other specified
matters.
3.Securities Exchange Act of 1934
The Securities Exchange Act of 1934, as amended (the "1934 Act"),
regulates a variety of matters involving, among other things, the
secondary trading of securities, periodic reporting by the
issuers of securities, and certain of the activities of transfer
agents and brokers and dealers.
4.The Internal Revenue Code
An investment company is an entity subject to federal income
taxation under the Internal Revenue Code. However, under the
Code, an investment company may be relieved of federal taxes on
income and gains it distributes to shareholders if it qualifies
as a "regulated investment company" under the Code for federal
income tax purposes and meets all other necessary requirements.
5.Other laws
The Fund is subject to the provisions of other laws, rules, and
regulations applicable to the Fund or its operations, such as,
for example, various state laws regarding the sale of the Fund's
shares.
B.Outline of the Supervisory Authorities
Among the regulatory authorities having jurisdiction over the
Fund or certain of its operations are the SEC and state
regulatory agencies or authorities.
1.The SEC has broad authority to oversee the application and
enforcement of the federal securities laws, including the 1940
Act, the 1933 Act, and the 1934 Act, among others, to the Fund.
The 1940 Act provides the SEC broad authority to inspect the
records of investment companies, to exempt investment companies
or certain practices from the provisions of the Act, and
otherwise to enforce the provisions of the Act.
2.State authorities typically have broad authority to regulate
the offering and sale of securities to their residents or within
their jurisdictions and the activities of brokers, dealers, or
other persons directly or indirectly engaged in related
activities.
B.Offering Shares to the Public
An investment company ("investment company" or fund) offering its
shares to the public must meet a number of requirements,
including, among other things, registration as an investment
company under the 194o Act; registration of the sale of its
shares under the 1933 Act; registration of the fund, the sale of
its shares, or both, with state securities regulators; delivery
of a current prospectus to current or prospective investors; and
so forth. Many of these requirements must be met not only at the
time of the original offering of the fund's shares, but
compliance must be maintained or updated from time to time
throughout the life of the fund.
C.Ongoing Requirements
Under U.S. law, a fund is subject to numerous ongoing
requirements, including, but not limited to;
1.Updating its registration statement if it becomes materially
inaccurate or misleading;
2.Annual update of its registration statement;
3.Filing semi-annual and annual financial reports with the SEC
and distributing them to shareholders;
4.Annual trustee approval of investment advisory arrangements,
distribution plans, underwriting arrangements, errors and
omissions/director and officer liability insurance, foreign
custody arrangements, and auditors;
5.Maintenance of a code of ethics; and
6.Periodic board review of certain fund transactions, dividend
payments, and payments under a fund's distribution plan.
III.Management of a Fund
The board of directors or trustees of a fund are responsible for
generally overseeing the conduct of a fund's business. The
officers and agents of a fund are generally responsible for the
day-to-day operations of a fund. The trustees and officers of a
fund may or may not receive a fee for their services.
The investment adviser to a fund is typically responsible for
implementing the fund's investment program. The adviser
typically receives a fee for its services based on a percentage
of the net assets of a fund. Certain rules govern the activities
of investment advisers and the fees they may charge. In the
United States, investment advisers to investment companies must
be registered under the Investment Advisers Act of 1940, as
amended.
IV.Share Information
A.Valuation
Shares of a fund are generally sold at the net asset value next
determined after an order is received by a fund, plus any
applicable sales charges. A fund normally calculates its net
asset value per share by dividing the total value of its assets,
less liabilities, by the number of its shares outstanding.
Shares are typically valued as of the close of regular trading on
the New York Stock Exchange (4:00) each day the Exchange is open.
B.Redemption
Shareholders may generally sell shares of a fund to that fund any
day the fund is open for business at the net asset value next
computed after receipt of the shareholders' order. Under unusual
circumstances, a fund may suspend redemptions, or postpone
payment for more than seven says, if permitted by U.S. securities
laws. A fund may charge redemption fees as described in its
prospectus.
C.Transfer agency
The transfer agent for a fund typically processes the transfer of
shares, redemption of shares, and payment and/or reinvestment of
distributions.
V.Shareholder Information, Rights and Procedures for the Exercise
of Such Rights
A.Voting Rights
Voting rights vary from fund to fund. In the case of many funds
organized as Massachusetts business trusts, shareholders are
entitled to vote on the election of trustees, approval of
investment advisory agreements, underwriting agreements, and
distribution plans (or amendments thereto), certain mergers or
other business combinations, and certain amendments to the
declaration of trust. Shareholder approval is also required to
modify or eliminate a fundamental investment policy.
B.Dividends
Shareholders are typically entitled to receive dividends when and
if declared by a fund's trustees. In declaring dividends, the
trustees will normally set a record date, and all shareholders of
record on that date will be entitled to receive the dividend
paid.
C.Dissolution
Shareholders would normally be entitled to receive the net assets
of a fund which were liquidated in accordance with the proportion
of the fund's outstanding shares he owns.
D.Transferability
Shares of a fund are typically transferable without restriction.
E.Right to Inspection
Shareholders of a Massachusetts business trust have the right to
inspect the records of the trust as provided in the declaration
of trust or as otherwise provided by applicable law.
VI.U.S. Tax Matters
Typically, a fund may attempt to qualify each year and elect to
be taxed as a regulated investment company under Subchapter M of
the United States Internal Revenue Code of 1986, as amended (the
"Code").
As a regulated investment company qualifying to have its tax
liability determined under Subchapter M, a fund will not be
subject to U.S. federal income tax on any of its net investment
income or net realized capital gains that are distributed to its
shareholders. In addition, as a Massachusetts business trust, a
fund under present Massachusetts law is not subject to any excise
or income taxes in Massachusetts.
Other than dividends from a fund that are excludable from income,
distributions from a fund will be taxable to a shareholder
whether received in cash or additional shares. Such
distributions that are designated as capital gains distributions
will be taxable as such, regardless of how long fund shares are
held, while other taxable distributions will be taxed as ordinary
income. Loss on the sale of fund shares held for less than six
months will be treated as a long term capital loss to the extent
of any capital gain distribution received with respect to such
shares (and will be disallowed to the extent of exempt-interest
dividends received with respect to such shares). Also interest
on indebtedness incurred to purchase shares of a fund may be
nondeductible.
In order to qualify as a "regulated investment company", a fund
must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to
securities loans, gains from the sale or other dispositions of
stock, securities, or foreign currencies, and other income
(including gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock,
securities, or currencies; (b) derive less than 30% of its gross
income from the sale or other disposition of certain assets
(including stock and securities) held less than three months; (c)
diversify its holdings so that, at the close of each quarter of
its taxable year, (i) at least 50% of the value of its total
assets consists of cash, cash items, U.S. Government Securities,
and other securities limited generally with respect to any one
issuer to not more than 5% of the total assets of a fund and 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 of any issuer (other than U.S.
Government Securities). In order to receive the favorable tax
treatment accorded regulated investment companies ant their
shareholders, moreover, a fund must in general distribute at
least 90% of its interest, dividends, net short-term capital
gain, and certain other income each year. To satisfy these
requirements, a fund may engage in investment techniques that
affect the amount, timing and character of its income anal
distributions.
An excise tax at the rate of 4% will be imposed on the excess, if
any, of a fund's "required distribution" over its actual
distributions in any calendar year. Generally, the "required
distribution" is 98% of a fund's ordinary income for the calendar
year plus 98% of its capital gain net income recognized during
the one-year period ending on October 31 (or December 31, if the
Fund so elects) plus undistributed amounts from prior years. A
fund intends to make distributions sufficient to avoid imposition
of the excise tax. Distributions declared by a fund during
October, November or December to shareholders of record on a date
in any such month and paid by a fund during the following January
will be treated for federal tax purposes as paid by a fund and
received by shareholders on December 31 of the year in which
declared.
A fund is required to withhold 31% of all income dividends and
capital gain distributions, and 31% of the gross proceeds of all
redemptions of fund shares, in the case of any shareholder who
does not provide a correct taxpayer identification number, about
whom a fund is notified that the shareholder has underreported
income in the past, or who fails to
certify to a fund that the shareholder is not subject to such
withholding. Tax-exempt shareholders are not subject to these
back-up withholding rules so long as they furnish the fund with a
proper certification.
Securities issued or purchased at a discount. A fund's
investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a
discount may) require a fund to accrue and distribute income not
yet received. In order to generate sufficient cash to make the
requisite distributions, a fund may be required to sell
securities in its portfolio that it otherwise would have
continued to hold.
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code and related regulations
currently in effect. For the complete provisions, reference
should be made to the pertinent Code sections and regulations.
The Code and regulations are subject to change by legislative or
administrative actions. Dividends and distributions also may be
subject to state taxes. Shareholders are urged to consult their
tax advisers regarding specific questions as to U.S. federal,
state or local taxes. The foregoing discussion relates solely to
U.S. federal income tax law. Non-U.S. investors should consult
their tax advisers concerning the tax consequences of ownership
of shares of the fund, including the possibility that
distributions may be subject to a 30% United States withholding
tax (or a reduced rate of withholding provided by treaty).
VII.Important Participants in Offering of Mutual Fund Shares
A.Investment Company
Certain pooled investment vehicles qualify as investment
companies under the 1940 Act. There are open-end investment
companies (those which offer redeemable securities) and closed-
end investment companies (any others).
B.Investment Adviser/Administrator
The investment adviser is typically responsible for the
implementation of an investment company's investment program.
It, or another affiliated or unaffiliated entity, may also
perform certain record keeping and administrative functions.
C.Underwriter
An investment company may appoint one or more principal
underwriters for its shares. The activities of such a
principally underwriter are generally governed by a number of
legal regimes, including, for example, the 1940 Act, the 1933
Act, the 1934 Act, and state laws.
D.Transfer Agent
A transfer agent performs certain bookkeeping, data processing,
and administrative services pertaining to the maintenance of
shareholder accounts. A transfer agent may also handle the
payment of any dividends declared by the trustees of a fund.
E.Custodian
A custodian's responsibilities may include, among other things,
safeguarding and controlling a fund's cash and securities,
handling the receipt and delivery of securities, and collecting
interest and dividends on a fund's investments.
II.FINANCIAL CONDITIONS OF THE INVESTMENT MANAGEMENT COMPANY
[Omitted, in Japanese version, financial statements of the
Investment Management Company and Japanese translations thereof
are incorporated here.]
III.FORM OF FOREIGN INVESTMENT FUND SECURITIES
Main items to be set forth on the share certificate of the Fund
(if issued) are as follows:-
(1)Front
a.Name of the Fund
b.Number of shares represented
c.Signatures of the Chairman and Transfer Agent
d.Description stating that the Declaration of Trust applies to
shareholders and assignees therefrom
(2)Back
a.Space for endorsement
b.Description concerning delegation of transfer agency
